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Today in Energy

July 19, 2019

The number of electric utility rate cases increased in 2018

U.S. electricity rate cases filed with utility regulators
Source: U.S. Energy Information Administration, based on data from S&P Global Rate Case Database and the University of Texas, Austin Energy Institute

In 2018, 89 utilities—or nearly half of all major U.S. electric utilities—tried to change electricity rates by filing rate cases with state regulatory commissions; this number was the largest number since 1983. U.S. public electric utility companies must obtain permission from their regulators before changing the rates they charge customers. Of the 89 utilities filing rate cases in 2018, 10 proposed to decrease rates, 1 negotiated a rate freeze until 2020, and the other 78 utilities proposed rate increases.

Regulated electric utilities can request rate changes to help recover expenses for building, operating, and maintaining their electric generators, transmission and distribution equipment, and other buildings and equipment. In addition, utilities have the right to earn a return on their investments.

The number of electric utility rate cases typically reflects changes in the costs of generating and delivering electricity. In 2018, increases in spending for electricity transmission and delivery, rather than for electric generation, drove most of the approved rate increases.

Delivery expenses included investments to modernize and strengthen the electric power grid, connect to wind and solar installations, restore storm damage, manage vegetation, and install new customer information and billing systems.

Increases in electric generation costs also led to rate increases in some areas. Reasons for higher spending on utility generation fleets included new or increasing environmental compliance costs, rising costs for operating and maintaining nuclear plants, and extra wind generation expenditures as production tax credits phase out.

Electric utility rate case filings have not been this active since the early 1980s. At that time, several events had led to rapid increases in electricity rates:

  • The oil crises in the 1970s increased the cost of oil-fired generation, leading to investments in coal and nuclear plants
  • The Public Utility Regulatory Policies Act of 1978 (PURPA) encouraged utilities to buy generation from small renewable facilities
  • The accident at Three Mile Island in 1979 increased safety-related costs at nuclear plants

Together, these events contributed to electricity rates increasing at an average annual rate of 12% in the decade following the 1973 oil embargo.

To lower electricity rates, federal and state governments enacted legislation and policies intended to increase competition and transparent pricing in the natural gas and electric industries. Federal Energy Regulatory Commission (FERC) Orders 436 and 636 opened the natural gas industry to competition and led to lower natural gas prices. New natural gas plants were relatively cheap and quicker to build than other types of generators, leading advocates to push for customers to have the ability to choose suppliers that owned less expensive plants.

In the 1990s, FERC Orders 888/889 and 2000 were passed to create competitive, transparent wholesale electricity markets, and some states established competitive access to retail electricity markets for non-utility suppliers. Many utilities were required to sell off their generation assets to increase market access for competitors. While the electric industry was restructuring, electric utilities invested very little in infrastructure, leading to very few rate cases.

More recently, the Northeast blackout in 2003 encouraged federal legislation, including the Energy Policy Act of 2005 and the American Recovery and Investment Act of 2009, to focus on improving the grid. Further damage to the electric grid from natural disasters, such as Hurricane Sandy in 2012, has influenced state regulators to encourage and approve new utility investment in the grid. The Tax Cuts and Jobs Act of 2017 lowered tax expenses for electric utilities in 2018 and offset some of the spending growth, which curbed rate increases and led to some rate decreases and a rate freeze.

total value of U.S. electricity rate increases requested by year
Source: U.S. Energy Information Administration, based on S&P Global Rate Case Database

Regulators have traditionally approved lower rate increases than what the utilities have requested. In 2018, the aggregated value of utility-rate increase requests was $6.8 billion, and regulators approved a total increase of $2.8 billion.

Principal contributor: Lori Aniti