PUC Launches Review of Utility Ratemaking Process

HARRISBURG — The Pennsylvania Public Utility Commission has launched a broad review of the state’s utility ratemaking process amid rising utility costs, affordability concerns and changes affecting the state’s utility industry.

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The PUC voted unanimously Wednesday to establish a Ratemaking Working Group. The group will examine potential improvements to the way utility rates are established, with an initial focus on return on equity, transparency in rate case settlements and the methodology used to establish returns associated with Distribution System Improvement Charges.

PUC Chairman Steve DeFrank said the state’s utility system is changing and regulatory processes need to keep pace.

The review comes as utilities and customers face inflation, increasing customer arrearages, supply chain constraints, infrastructure needs, data center development and concerns about electric reliability. The PUC said those factors have increased pressure on utility costs and contributed to a significant number of proposed rate increases.

The working group will examine whether return on equity issues could be addressed through periodic, sector-specific cost-of-capital proceedings rather than being litigated separately in individual rate cases. It will also consider utility performance measures such as reliability, safety and water quality.

Another area of review will be transparency in rate case settlements. The PUC wants to examine ways to provide the public with greater clarity about financial measures, including return on equity and equity capitalization, when cases are resolved through settlements.

The group will also examine the methodology used to establish the return on equity for Distribution System Improvement Charges, including whether a more formula-based approach using objective economic measures could provide greater transparency and predictability.

The PUC says the review is not intended to overturn longstanding ratemaking principles or eliminate established financial tools. Instead, the goal is to determine whether regulatory processes can be modernized to better reflect current economic and utility-sector conditions while balancing customer affordability with the need for continued investment in safe and reliable infrastructure.

The working group will include representatives from consumer and small business advocates, utilities, state government and the General Assembly, industrial energy consumers, low-income advocates and other stakeholders. A Finance Subcommittee will also include perspectives from credit ratings, investment banking and equity analyst communities.

Following publication of the order establishing the working group in the Pennsylvania Bulletin, stakeholder groups will have 30 days to submit nominations. The PUC plans to announce the full membership within 15 days after the nomination deadline.

The working group will then develop an initial report and recommendations for consideration by the commission.