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What Is a Rate Case? Unlike most private companies, the prices that investor-owned electric utilities charge for their product is set by a state public utility commission through a formal evidentiary hearing process. In Arizona, the public utility commission is called the Arizona Corporation Commission ("ACC"). A utility that wants to increase its prices, also called "rates," files an application with the ACC requesting an increase. In a nutshell, this application sets forth the "reasonable and prudent" costs for the utility to provide service in order to establish the amount of money the utility needs to collect from customers through its rates. In addition to costs like labor, materials, taxes and fuel, the costs considered include depreciation on plant used to produce and deliver electricity as well as interest costs for debt issued by the utility to finance construction of that plant. Electric rates must also allow a reasonable profit on the equity invested by the shareholders of a company. When added together, all of these costs produce the "revenue requirement" that needs to be collected from customers. In the next phase of a rate case, rates must be designed to allow the utility recover the revenue requirement from customers. This involves dividing up the overall "revenue requirement" among residential, commercial and industrial classes of customers and among various different rates in each of these classes. Rates are often designed to encourage conservation or to ensure that prices reflect specific costs of providing a certain kind of service. Parties to a rate case typically include the Staff of the ACC; the Residential Utility Consumers Office (RUCO), which was established by the state to protect the interests of residential consumers; commercial or industrial customers or associations; and public interest advocates. Rate cases take many months from the time a utility makes its initial filing, and ultimately concludes with an open meeting at which the Commissioners deliberate and vote on the matter. You can obtain more information on this process and the Arizona Corporation Commission by visiting the ACC's Web site at www.cc.state.az.us.
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