Preparing a Rate Case
An application for adjustments to rates charged by a public utility is commenced by application. In the application the utility's request for rate and regulation changes is briefly outlined. Along with the application the applicant files pre-filed evidence in support of the requests being placed before the Board.
Concurrent with the filing of the application, the Board's practice is to have the utility file:
- all relevant financial tables and a cost of service study;
- its proposed rates; and
- any changes in regulations with respect to the conduct of the utility and the collection of the rates.
The practice before this Board similar to the practice before similar tribunals such as the National Energy Board, is that the utility evidence and that of any expert witnesses it proposes to use, is prefiled at the time the application is filed. The evidence is either a narrative form or in the form of questions and answers. It is only with the consent of the Board that any additional direct evidence may be adduced at the hearing.
Once the case is filed, the Board, will issue an order setting the dates for the hearing, outlining significant milestones along the way, such as the date for filing of interventions, the date for filing information requests and responses. The Board will also direct the form of public notice for the hearing.
In a rate proceeding involving Nova Scotia Power, the time between the filing of the application and the start of the actual hearing is usually about three to four months. For less complicated matters the time period may be shorter, depending on the Board's schedule.
During this intervening period, the Board's staff asks written information requests of the applicant which are responded to in writing. These information requests usually deal with the issues before the Board as outlined in the application, but are certainly not limited to those matters. As well, during this period, any person who has an interest in the hearing may give notice of intention to intervene. Such intervention may be a formal intervention where the intervener files evidence and attends the hearing, is usually represented by counsel and is permitted to cross-examine; or by way of an informal intervention where, at a special time, set by the Board, the informal intervener can come to the Board and make a presentation. Formal interveners may ask information requests of the utility and the utility may ask information requests of witnesses appearing on behalf of the formal intervener.
Usually Board staff will retain expert consultants to appear and give evidence.
By the time the hearing date arrives, much of the case is already in the record, including the direct testimony of each of the parties and the Board's consultants and sometimes several hundred information requests and responses.
The principal focus of the hearing is a testing of the case presented by each of the parties through cross-examination. Witnesses, excluding experts, sometimes sit as a panel.
The Board will permit a witness to reserve an answer on complex or complicated questions and to undertake to file responses either orally or in writing after they leave the stand, subject to being recalled to be questioned on the response.
Practice in most matters is to file written briefs.
Rates, Rate Base and Rate of Return
A major focus of most hearings are rates and rate of return. The control of the overall level of rates has its foundation in s.45(1) of the Public Utilities Act, which states:
- Every public utility shall be entitled to earn annually, such return as the Board deems just and reasonable on the rate base as fixed and determined by the Board ...
Further, a public utility cannot supply electricity to its customers until it has first obtained approval of all its rates (s.64).
The rate base of a utility is established by the Board determining the value of the physical assets of the utility which are used and useful in furnishing, rendering or supplying a particular service to the public. The value is on the basis of prudent original cost or such other method as the Board may, from time to time, prescribe, deducting accrued depreciation as determined by the Board.
As noted above, the Act provides that a utility shall be entitled to earn annually such return on its rate base as the NSUARB deems "just and reasonable." ("Return" might roughly be equated to profit or net income in a nonregulated company.) This return is in addition to any expenses the NSUARB may allow as "reasonable and prudent." In determining a "just and reasonable" return, the NSUARB may consider such factors as the cost of attracting capital, encouraging efficient operation of the utility, ensuring fairness to investors and customers and providing relatively stable and predicable rates. Of these factors, the cost of attracting capital, i.e., common equity, is the basic test of a fair return. Rates must be adequate to ensure confidence in the financial soundness of a utility and to maintain and support its credit and enable the utility to raise necessary capital. Generally speaking, the UARB sets a rate of return equal to the return investors could expect to receive on an investment of comparable risk elsewhere in the economy.
The appropriateness of rates involves not only the overall level but also of various rate classes. The Board's duty is to ensure that rates as a whole are just and that rates are reasonable to all customers as between each other. The later aspect of this duty is imposed by the various provisions of the Act prohibiting unjust discrimination and requiring equal rates for service of the same description in substantially similar circumstances.
For example, in the case of Nova Scotia Power, the Board has given direction with respect to the proper rates as between customers. NSPI's rates must fall within the revenue to cost range of .95 to 1.05. The revenue to cost ratio of a class of customers is the ratio of revenue contributed by that class to the cost imposed on the system by the class. In order to achieve this revenue to cost ratio range, the rate classes whose contributions are below .95 must have a proportionately higher increase to improve the ratios and those above 1.05 must have a proportionately lower increase.