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Determining Utility Rates PDF Print

Printed in the "Business Monday" newspaper on June 1, 2009

The Fair Trading Commission (Commission), under its governing legislation, has been charged with utility regulation functions which include establishing principles for arriving at rates to be charged, monitoring the rates charged to ensure compliance, and setting the maximum rates for regulated utility services.

In regulation, there are two types of methodologies for setting rates - cost of service which includes rate of return, and incentive regulation, which includes price cap. Under the price cap system, which is used in respect of telecommunications services, the Commission holds public consultations in order to give the public the opportunity to comment on issues such as the price cap formula, service baskets and the duration of the price cap plan, when the price cap is being reviewed. With regard to electricity, the rates are currently determined under the rate of return. This requires a public hearing process in which the Commission sits as an adjudicative body to hear the applicant and interested parties before making a determination as to the maximum rates the company can charge.

The rate application hearings are governed by a process that is set out in the Utilities Regulation (Procedural) Rules 2003 (Rules). Some provisions of the Rules relate to the manner in which hearings are to be conducted, guidelines for the persons who are interested in participating as well as the procedures to be carried out by the parties to a hearing. The public nature of rate review hearings allows stakeholders - consumer interest groups, members of the general public, consumers of regulated utility services, business entities as well as the regulated utility companies themselves - to be involved in the hearing. According to the Rules, the Commission, the regulated utility company or a consumer of the regulated service may initiate a rate review. Traditionally, however, rate application hearings have been initiated by the regulated company. 

The content of the Rate Application as submitted by the regulated company is subject to the Rules. It must contain a clear and concise statement of the facts, the grounds on which the Application is made as well as the nature of the order or decision that is applied for. Consequently, the regulated company's role is to outline its needs and demonstrate that the Application is warranted.

Once an application is received by the Commission a Public Notice is placed in the local newspapers that summarises the application and tells the public where the application documents may be examined and/or collected. The Public Notice will also indicate that members of the public who are desirous of becoming a party to the proceedings can do so by applying to the Commission to be an intervenor in the matter.

An intervenor may be an individual, an organisation or business, a charity, or a group of persons who wish to become involved or participate in the rate review process. Intervenors may appear in person, be represented by an attorney-at-law or they may be represented by Public Counsel who is required under the Utilities Regulation Act, Cap 282 to assist consumers in preparing for the hearing and presenting arguments before the Commission. To ensure public participation, the Commission may use various media periodically to remind persons wishing to become intervenors of the deadline for submitting their application with all the necessary documentation.

During the utility rate hearing, the panel of five Commissioners sits to hear the witnesses and to examine the evidence presented. Both the utility company as well as the intervenors may fully participate in the hearing by leading evidence, cross-examining witnesses and presenting oral submissions before the Commission. 

Ultimately, it is the Commission which has to determine whether or not an application for an increase in rates, which is normally the basis for the application, is warranted. In carrying out this function, the Commission's role is to balance the interests of the various stakeholders which means ensuring that the interests of consumers are protected, and that reasonable rates which reflect the promotion of efficiency are being applied for. The Commission must also ensure that the company will be able to adequately finance its operations.

Upon the submission of all of the evidence, the proceedings will be adjourned while the Commissioners deliberate to make a decision based on the totality of the evidence before the Commission. The decision and accompanying Order are then disseminated to the parties to the hearing and to the public detailing whether there will be an increase in the rates or whether the existing rates will be maintained. If a party to the proceedings is not satisfied with the Commission's decision, they are entitled to request a review by the Commission. Depending on the outcome of this matter, a party can seek a further review from the High Court, but only on a question of law.

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