Webinar — Fuel Cost-Sharing and Return on Equity

As electricity bills continue to rise, state policymakers are looking for new ways to improve affordability. One policy receiving growing attention is fuel cost-sharing, which gives utilities stronger financial incentives to manage fuel costs while helping protect customers from unnecessary price volatility. 

In most states, utilities recover 100% of their fuel and purchased power costs through Fuel Adjustment Clauses (FACs). These mechanisms ensure utilities can recover fuel expenses in a timely fashion, but they also insulate utilities from the financial consequences of poor fuel cost management. Customers bear essentially all of the risk when fuel costs rise, while utilities have relatively little financial incentive to minimize fuel costs or reduce exposure to volatile fuel markets. 

Fuel cost-sharing changes those incentives. Rather than passing every dollar of fuel costs directly to customers, utilities are given a budget and share in both fuel cost savings and cost overruns. This incentivizes utilities to better manage fuel cost risks and to make prudent fuel purchasing, dispatch, and resource planning decisions.

Critics of fuel-cost sharing often contend that if utilities are required to absorb a share of fuel cost volatility, regulators should compensate them with a higher authorized Return on Equity (ROE). A new report commissioned by RMI concludes that higher ROEs are not in fact justified when fuel cost-sharing is implemented and that those arguments are not supported by financial theory, regulatory precedent, or utility practice. 

Building on Fuel Cost Sharing and Utility Returns: Why Higher Returns on Equity are Not Justified by Laura Sánchez Bolaños at Vereda Advisory, this webinar will break down the financial theories behind these arguments and explain why increases to utility ROE are not warranted when implementing fuel cost-sharing.

Whether you are a public utility commissioner, PUC staff member, consumer advocate, or other interested stakeholder, attendees will leave with a deeper understanding of the arguments that are made in support of higher ROEs, as well as the tools and financial reasoning that can be used to rebut those claims. This webinar is open to general public and will be recorded.