SB 59

Abstract

Public utilities are regulated monopolies. Practically speaking, a public utility has no competition in its service territory and, therefore, does not face the economic risks that a for-profit, non-utility company must face. By law, a public utility is authorized the opportunity to earn a reasonable rate of return on the costs it incurs in operating its business. Under the current Public Utilities Code, in determining the rates that public utilities may charge customers, the Delaware Public Service Commission must apply the “business judgment rule” standard in deciding which costs may be included in a utility’s rate base. Forty-eight (48) states in the United States apply the “prudence” standard when setting utility rates, not the "business judgement rule" standard that is applied in Delaware. The more costs that are included in rate base, the higher the rates that are charged to utility customers. Under the “business judgment rule” standard, the Public Service Commission may not disallow the inclusion of a cost in rate base, even though the cost was incurred imprudently. For example, a utility may decide to expand the size of its facilities, but overbuilds those facilities at a cost of $3 million, even though a smaller $1 million expansion would be adequate to serve its customers and anticipated future growth. Under the business judgment rule, the Public Service Commission is not able to deny recovery of any part of the cost of the expanded facility and it will be included in rate base. Consequently, customer utility bills have been increasing and could continue to increase significantly. Amending the Public Utility Code so that the “prudence” standard applies, would give the Public Service Commission the ability to deny, in whole or in part, certain expenses and costs, which can lead to less frequent and less impactful rate increases.