When was the last time you saw a book or even an article on the subject of a public utility’s rate case strategy? Not much popular interest in the subject? Yet, it is important. For a regulated public utility the rate case is the single most important event in its corporate life. A successful rate case conclusion is an order which will provide the basis for ensuring adequate and reliable service and attracting adequate capital in the future. An unsuccessful rate case has the opposite effect.
One book which belongs on your shelf, if rate cases are in your professional bailiwick, is Preparing for The Utility Rate Case by Frances X. Welch (Public Utilities Reports Inc. Washington, DC 1954). Welch, an attorney, was a member the District of Columbia Bar and at the time of publication of the book was the editor of Public Utilities Fortnightly magazine. Used copies are available on the internet.
Welch wrote the book because a “…high degree of specialization required by the commissions and supported by the courts has placed a premium on preparation. There is even a saying among experienced practitioners that rate cases are won or lost ‘in the office’ – meaning the preparation phase before the pleadings are even filed to begin a rate case.”
The long period between the end of World War II and up though the 1970’s was one of almost continuing efficiency improvements in central power electric generation with declining costs of electricity production. Thus most electric rate cases were non-controversial proceedings leading to lower rates. Welch, a seasoned public utility analyst, saw inflation looming ahead with its effects on utility costs. In anticipation of a need for rate cases Welch points out that he wrote the book based on his observation that “…a majority of utility management people in the United States still had never directly participated in a rate case, as of the date of this writing.”
This was the case a decade ago and may be the case again today.
Managements have in many cases exhausted the use of their readily available tools to control costs or compensate for declining sales volumes and now turn to the necessity of filing a rate case as part of their fiduciary duty. In my other articles I have written that the ability to manage successfully under regulation is a core competency of a public utility executive. This includes developing, in Welch’s words, “The Grand Strategy of the Rate Case”, which is also the title of chapter VII.
Here “strategy” is defined “…from the standpoint of military operations…as planning, execution, and control of operations at a distance from the scene of the engagement’. In this regard Welch lists the critical decisions to be made by executives and observes that making these decisions is a “…responsibility which cannot be fully delegated to trial counsel or others.”
In my experience as a CEO and Commissioner, this seems to me to be exactly the role of management. The role of the rate case manager then would be ‘tactical” to include the “control and direction of such operations on the scene of engagement.” More on that role later.
So, taking Welch’s advice, no rate case should be initiated without management establishing its Grand Strategy of the Rate Case. I agree.
As to Welch’s notion of rate cases being “won or lost” I would rather consider that the objective is not to “win or lose” but rather to result in a final order which provides new rates sufficient to recover a reasonable a revenue requirement for services rendered. Or as we say in regulatory parlance “just and reasonable rates”.