The following is an except from Ice Miller's Pathways to Success for Utilities Guide which provides insights on a variety of topics potentially impacting utility service providers.
The first part of Senate Enrolled Act 560 adds a new section to the Indiana Public Service Commission Act (Ind. Code § 8-1-2-42.7(d)), addressing the “test periods” that the Indiana Utility Regulatory Commission “shall” approve when used by utilities in general base-rate cases. The statute specifies three such test periods:
- A historical test period (12 months of past cost and revenue data ending no more than 270 days before the utility files its petition).
- A future test period (12 months of forecasted cost and revenue data beginning no later than 24 months after the petition is filed). In the case of a future test period, the utility cannot implement a rate increase before the date the projected data period begins.
- A hybrid test period (at least 12 consecutive months of a combination of historical and forecasted data).
Utility Test Periods by State
Because of the structural regulatory lag created by the use of historical test periods, approximately 25 other states and the federal government permit utilities to use fully-forecasted or partially-forecasted test periods. With the enactment of Ind. Code § 8-1-2-42.7, Indiana joins this group.
By allowing utilities to use future or hybrid test periods in rate cases, Ind. Code § 8-1-2-42.7 aligns Indiana with 25 states. Indiana utilities will now have a better opportunity to recover in rates their actual current costs of providing utility service. As a result, Indiana utilities should incur lower financing costs than they otherwise would, which ultimately will benefit Indiana customers.
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