November 13, 2024

Karsten Neumeister

What is a Rate Case — and Why Should You Care?

Accelerating renewable energy, advancing grid equity, and ensuring affordable, reliable power for generations to come.

In some areas of the Midwest, parts of our energy infrastructure are now pushing 100 years old. Decades of wear, compounded by more extreme weather, have left it overdue for an upgrade that can support the needs of a modern, clean energy-powered economy. In other areas, recent investments have opened the door to advanced technologies capable of transforming the grid as we know it.

These challenges and opportunities provide us with a unique chance to invest today in a system designed with clean energy in mind — accelerating renewable energy, advancing grid equity, and ensuring affordable, reliable power for generations to come.

As usual though, the devil is in the details. Who decides how we invest in our energy systems? Who approves the plans? And who foots the bill?

You may have heard the term ‘rate case,’ but most don’t know what it means or why it matters. Yet regulatory planning processes like rate cases shape the future of our energy system — determining how we choose to generate, distribute, and consume energy, and how utility customers will be affected by those decisions.

What is a State Utility Commission?

A state utility Commission is the decision-maker responsible for regulating and overseeing the state’s “public utilities” such as electric utilities, water utilities, and telecom utilities. These regulatory bodies can go by different names such as a Public Utility Commission (PUC) or a Public Service Commission (PSC). The most well-known Commission is at the federal level – the Federal Energy Regulatory Commission (FERC), which oversees energy regulation nationwide. But each state has its own unique Commission, such as the Illinois Commerce Commission (ICC), Michigan Public Service Commission (MPSC), and Public Utilities Commission of Ohio (PUCO).

These Commissions play a critical role in the clean energy transition, acting as the regulatory authority that implements state energy policy and either approves or rejects a utility’s proposals. This includes analyzing costs related to infrastructure improvements, operational expenses, and critically, approving (or not approving) utility profits to ensure they are just and reasonable.

By doing so, Commissions help ensure that the clean energy transition is carried out in a way that is equitable and cost-effective, without placing undue burden on any set of consumers. Commissions also act as the mediators of a complicated legal process, ensuring the wide variety of stakeholder opinions are heard and duly considered.

In essence, Commissions act as the gatekeepers of utility decision-making, ensuring that utility companies have the funding to carry out their duties, but are also held accountable to both the law and the public.

What is a Rate Case?

A rate case is a formal process where a utility company seeks approval from a regulatory body to adjust its rates. Part of this process entails a review of utilities’ investments and expenses. It’s also where utilities get approval for how those rates are structured, such as through fixed charges or time-of-use (TOU) rates.

In addition to proposing new electricity and gas rates to cover operational costs and a reasonable return on equity (ROE), utilities must also get approval for their long-term investment plans. This includes how much they plan to spend on essential infrastructure like poles, wires, pipelines, and transformers.

Essentially, rate cases cover everything related to how utilities plan to spend and earn money. All states require rate cases for gas and electric utilities.

Here’s why these cases matter for the climate: Through rate cases, utilities obtain funding for the essential investments needed to clean up our energy sector, such as moving away from fossil fuels, enabling the integration of more distributed energy resources like solar panels, supporting electrified homes and businesses, and more.

This transition is important, but the law requires it to be done cost-effectively without overburdening consumers. In short, rate cases offer the venue in which Commissions decide which investments are prudent and how much money utilities can charge the public to carry those out – decisions that directly impact the lives of millions across the Midwest.

Why Intervene in Rate Cases?

Organizations can participate in rate cases by “intervening” in the case, offering testimony, questioning witnesses, and submitting legal documents in order to affect the outcome of the case. ELPC, for example, intervenes to help ensure that utility planning is cost-effective and environmentally responsible.

Rate cases provide a unique opportunity for ELPC to collaborate directly with state public utility commissions, allowing us to address specific challenges within each state while developing scalable solutions that can be replicated across the region.

In short, rate cases are a critical battleground for advancing a decarbonized, equitable, and affordable energy future. These proceedings determine how much utilities can charge customers and how they allocate those funds — decisions that directly influence your utility bill and the pace at which the clean energy transition unfolds.

By understanding and leveraging these processes, ELPC works to ensure that our energy future benefits all communities, helping to build a sustainable energy system for generations to come.

To learn more about ELPC’s impact in rate cases, read about our recent activity in Illinois: Peoples Gas Rate Case Decision Pivotal for Customers and Clean Energy Transition