ROE authorizations in Q1'17 slightly above those in FY'16

RRA rate case data indicates that ROE authorizations for the first quarter of 2017 are slightly above those for full year 2016.

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The average ROE authorized electric utilities was 9.89% in rate cases decided in the first quarter of 2017, compared to 9.77% in full year 2016. There were 14 electric ROE determinations in the first three months of 2017, versus 42 in 2016. This data includes several limited-issue rider cases; excluding these cases from the data, the average authorized ROE was 9.61% in rate cases decided in the first quarter of 2017, virtually identical to the 9.6% in full year 2016. RRA notes that this differential in electric authorized ROEs is largely driven by Virginia statutes that authorize the State Corporation Commission to approve ROE premiums of up to 200 basis points for certain generation projects (see the Virginia Commission Profile). The average ROE authorized gas utilities was 9.6% in the first three months of 2017 versus 9.5% in 2016. There were only three gas cases that included an ROE determination in the first quarter of 2017, versus 24 in full year 2016.

This data is included in the study "Major Rate Case Decisions — January-March 2017" issued April 20 by Regulatory Research Associates, an offering of S&P Global Market Intelligence.

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In the report, RRA notes that since 2010, the number of rate cases has moderated somewhat but has been 90 or more in the last five calendar years. There were 112 electric and gas rate cases resolved in 2016, 92 in 2015, 99 in both 2014 and 2013, and 110 in 2012, and this level of rate case activity remains robust compared to the late 1990s/early 2000s. Increased costs associated with environmental compliance, generation and delivery infrastructure upgrades and expansion, renewable generation mandates and employee benefits argue for the continuation of an active rate case agenda over the next few years.

RRA notes that from 2008 through 2015, interest rates declined significantly, and average authorized ROEs have declined modestly. Also, limited-issue rider proceedings that allow utilities to recover certain costs outside of a general rate case and typically incorporate previously determined return parameters have been increasingly utilized.

In addition, if the Federal Reserve continues its policy initiated in December 2015 to gradually raise the federal funds rate, utilities eventually would face higher capital costs and would need to initiate rate cases to reflect the higher capital costs in rates. While the Fed has indicated its intention to continue to raise the federal funds rate during 2017, the magnitude and pace of any additional Fed action after this year is especially uncertain. An increase in the rate of price inflation would point to additional Fed tightening, but a significant weakening in the economy would likely cause the Fed to reconsider further interest rate hikes.

A chronological listing of the major rate case decisions during the first quarter of 2017 is provided in the report, as well as historical summary of data going back to 1990.

For a full listing of past and pending rate cases, rate case statistics and upcoming events, visit the S&P Global Market Intelligence Energy Research Home Page.

For a complete, searchable listing of RRA's in-depth research and analysis, please go to the S&P Global Market Intelligence Energy Research Library.