Relating to the consideration of the proportion of long-term debt and equity capitalization in establishing the rates of certain electric utilities.
Should this bill be enacted, it would specifically affect how rates for electric utilities are calculated, potentially leading to more consistent outcomes across the state. Currently, under the existing regulations, there are variances in how utilities might set their rates, which can lead to disparities and disputes. By establishing a presumptive reasonable return based on actual capitalization ratios, HB2868 aims to minimize these inconsistencies, delivering both predictability for utilities and clarity for consumers regarding the basis upon which rates are formulated.
House Bill 2868 seeks to amend the Utilities Code by introducing a new section regarding the consideration of long-term debt and equity capitalization when establishing rates for certain electric utilities operating solely within the Electric Reliability Council of Texas (ERCOT). It stipulates that the regulatory authority will presume the return on a utility's invested capital is reasonable when computed based on the utility's actual proportion of long-term debt and equity as reported in their most recent quarterly financial statements. This should simplify the regulatory process while providing a more stable framework for rate setting.
One area of contention that may arise from HB2868 pertains to the regulatory authority's power in determining what constitutes a reasonable return. While supporters of the bill argue it promotes fairness and efficiency, some stakeholders may voice concerns that the emphasis on actual capitalization ratios could inadvertently reward poorly managed utilities if their financial structures do not reflect optimal operational practices. Moreover, the provision for the regulatory authority to revert to national averages in cases where local ratios appear unreasonable adds complexity that may lead to further debate among regulatory bodies, utilities, and consumer advocacy groups.