Rate case

A rate case is the formal process which industries that have the legal designation of public utility are mandated to go through in order to set the rate at which they are allowed to charge consumers for their service. Rate cases serve as one of the primary instruments of government regulation of such industries.

Overview

In the United States, where many industries classified as public utilities are either private businesses or publicly traded corporations, a rate case is typically carried out through the authority of a state or federal regulatory body whose regulator jurisdiction includes the territory that the industry in question services.

History

Historically, many different classes of business, ranging from harbor services, the railroad industry to the delivery of milk have been classified as public utilities and thus have been legally mandated to go through the process of a rate case in order to determine the allowable service charges for their industry. Although the classification of businesses as public utilities has seen different criteria for inclusion over the the history of such legal designation, typically such businesses must constitute a "de facto" monopoly for the services they provide within the jurisdiction in question. In the past such businesses have included railroads (before the advent of interstate highways), natural gas production (wellhead pricing) of natural gas and the telecommunications industry (substantially the historical monopoly of AT&T on POTS landline services). Technological innovation and economic changes have often left industries that were at one time characterised by monopoly character open to more competitive market environments. Since the advent of technological innovations in the telecommunications industry and the competition of interstate highways for railroad business typically the only industries subjected to the rate case process are the electric power industry, the natural gas industry and the water industry, although aspects of the natural gas industry have since the mid 1980s seen phased deregulation and attempts have been made to deregulate the generation aspects of electric utility service.

Rate Cases in Specific Industries

Electric Power Industry

In the electrical utility industries, rate cases are typically held between the regulated utility and a state public utilities commission. In addition, any interested parties may intervene in electric utility rate cases. Typically those intervenors will be industry consortiums representing industrial users or other large scale consumers of electricity, or other dedicated advocacy groups. Rate cases proceed via an administrative law format.

In the United States the regulation of rates typically occurs at the state level under the jurisdiction of a state public utilities commission although the Federal Energy Regulatory Commission (formerly the Federal Power Commission) also exercises authority over questions of intrastate wholesale sales of electric power.