While utility commissioners continue to debate the merits of open wholesale markets vs. regulated models for ensuring a reliable supply of energy, they agree that the nation’s electricity delivery network needs attention. Indeed, only one-third of regulators participating in the survey consider their states’ transmission systems adequate to the task of reliable electricity delivery.
In the wake of today’s rapidly rising energy costs, two-thirds of the regulators now see a need for new ratemaking methodologies, according to the survey. Respondents express a willingness to consider a variety of new models, from performance-based incentives to pre-approvals of capital expenditures and construction projects.
At the same time, the survey findings portend trouble ahead for upcoming utility rate cases. One quarter of the commissioners interviewed say ratepayers in their jurisdictions have been harmed by failed utility holding company investments in non-regulated ventures. One-third of these regulators report that their concerns will carry over to future rate cases in their territories.
This marks for the fourth time in the past decade that RKS has completed a nationwide survey of commissioners and staff members for Standard & Poor’s. The initial study was launched in 1995, and updates followed in 2001 and 2003. This latest edition includes completed interviews with sitting commissioners and staff in 49 separate jurisdictions and, for the first time, addresses additional questions on natural gas issues.
“The results of this latest survey confirm that state commissioners have long memories when it comes to failed investments in unregulated businesses,” said David J. Reichman, RKS chairman and chief executive officer. “It is likely some utilities will face difficult questions and imposed conditions when they submit new rate cases.”
At the same time, Reichman sees encouraging signs of cooperation in some jurisdictions. “Regulators in this latest survey seem to recognize that business conditions have changed, and that new rate-making methodologies need to be considered. This finding suggests that utilities will be encouraged to offer new and innovative rate designs and test pilot programs in many service territories.”
In a major shift of opinion since the 2003 results, the latest Standard & Poor’s survey finds state regulators expecting increased merger and acquisition activity over the next five years. Three-quarters of commissioners—in choice as well as non-choice states—foresee an increase in mergers. Consistent agreement on major criteria—efficiency, customer cost savings, and utility financial strength—indicates these commissioners are already anticipating possible consolidations among utilities in their territories.
The 2005 Standard & Poor’s Survey of State Regulators includes separate chapters on utility financial profiles, rankings of issues important to regulators, transmission, reliability, and restructuring, and increased attention to issues of governance following the enactment of Sarbanes-Oxley regulations. Regulators also address the resources they need to carry out their responsibilities, and respond to questions about natural gas price and supply issues.
