Hearing examiner clarifies scope of rate case

Scott Hempling, the hearing examiner and lawyer overseeing the Puerto Rico Electric Power Authority’s rate case (LinkedIn)

By The Star Staff

Scott Hempling, the hearing examiner and lawyer overseeing the Puerto Rico Electric Power Authority’s rate case, on Wednesday clarified the scope of the case, emphasizing rates must be enough to help provide adequate service.

The proceeding, he said, will only set base rates and not establish fuel costs, purchased power costs, or renewable energy credits (RECs) costs, which are addressed in separate dockets.

Discussions about estimating REC costs linked to distributed generation can occur in the current proceeding, but those estimates will be reconciled later, the hearing examiner noted. Energy efficiency and demand response program costs are also outside the rate proceeding and are dealt with in separate dockets, he said.

“The extent to which those programs affect consumption and demand is relevant to the rate proceeding, of course, because the Energy Bureau must determine the billing determinants used to calculate rates,” Hempling said. “While the above-mentioned costs do not go into base rates, they do contribute to the total cost that customers bear when they consume electricity.”

In considering a proposed rate increase, he said the Puerto Rico Energy Bureau (PREB) has to consider practicability but ensure that rates help make the service an adequate one.

“In this context, practicability means this question: Will the rate increase actually produce the required revenue increase? Or instead, will customers react to the rate increase by reducing their consumption, or installing solar panels, or leaving Puerto Rico?” Hempling noted. “An important component of practicability is affordability. If some customers cannot pay their bills, the utility will not receive the funds that it needs to provide service to all. Total revenues must be sufficient to make service adequate. Rates that are below the level needed to make service adequate are not just-and-reasonable rates.”

The relationship among those four goals, just-and-reasonable rates, adequate service, affordability, and practicability, is complex and difficult, the hearing examiner said. To reach the right balance requires information on such things as elasticity of demand, ability to pay, and the effects on people and businesses of unpredictability in electrical service, among other factors, he said.

At the current provisional rate stage, the PREB does not have the necessary information to determine that balance.