Enacts the "fair authorized investment returns act"; sets a default authorized return on equity equal to the ten year US Treasury rate plus two hundred basis points; provides such default authorized return shall reset annually; establishes a competitive equity auction through which the cost of equity for a covered utility may be determined on a market basis, whether initiated by the utility or ordered by the commission.
S10424 would amend the Public Service Law to create the “Fair Authorized Investment Returns Act,” a new framework for setting the authorized return on equity for investor-owned electric, gas, and water utilities regulated by the New York Public Service Commission. The bill establishes a default return equal to the 10-year U.S. Treasury yield plus 200 basis points, reset annually, and allows a covered utility to petition for a competitive equity auction if it believes its cost of equity is higher than the default. The commission could also initiate an auction on its own motion or at the request of the Attorney General if it finds the default materially exceeds the utility’s cost of equity.
The bill also requires the commission to treat prudently invested capital as part of rate base, including construction work in progress, rather than excluding assets until they are placed in service. It creates detailed rules for auction equity interests, including bidding procedures, disclosure requirements, redemption terms, and allocation of gains or shortfalls between the utility’s common equity and auction investors. The measure further authorizes utilities to form separate regulated service corporations and regulated service LLCs, requires new long-term debt to include transfer covenants, and allows the commission to require restructuring of utility capital structures to support the new ratemaking model.
In practical terms, the bill would significantly change how state-regulated utility rates are set by reducing regulatory discretion over return-on-equity determinations and replacing much of the current expert-testimony process with a formula and market-based auction mechanism. It would also expand the rate base used for ratemaking by including all prudently invested capital, which could affect the amount of revenue utilities are allowed to collect from customers. The bill applies only to state-jurisdictional assets and does not alter federally regulated returns or facilities under federal authority.
The overall sentiment reflected in the bill text is strongly pro-ratepayer and skeptical of current utility ratemaking practices, with the legislature finding that existing authorized returns are excessive, that rate-setting is vulnerable to regulatory capture, and that customers bear unnecessary costs. The bill frames the new formula and auction process as a way to lower rates, improve transparency, and better align utility incentives with the public interest. No committee transcript or vote record was provided, so there is no additional external evidence of support or opposition beyond the bill’s own findings.
The main points of contention embedded in the bill are likely to be the lower default return, the use of auctions to determine utility equity costs, and the requirement that rate base include construction work in progress. The bill anticipates objections from utilities and investors by providing true-up payments, recovery of auction-related costs, and mechanisms to preserve financial soundness and credit access. It also addresses potential legal concerns by authorizing restructuring over legacy debt, limiting the application to state-regulated assets, and including severability language.
This bill would add a new Article 1-A to the Public Service Law and materially alter New York’s ratemaking rules for investor-owned electric, gas, and water utilities under PSC jurisdiction. It would establish a statutory default return on equity, create a market-based auction process to set a higher or lower return in specific cases, require annual resets tied to Treasury rates, and mandate that prudently invested capital—including construction work in progress—be included in rate base. It would also impose new reporting, transparency, capital-structure, and debt-covenant requirements on covered utilities and their regulated-service subsidiaries, while leaving federally regulated assets and returns unchanged.
The bill’s tone and findings are strongly critical of existing utility ratemaking and clearly favor lower customer rates, greater transparency, and reduced regulatory discretion. It presents the current system as overly generous to utilities and burdensome to ratepayers, and it argues that market-based pricing can better reveal the true cost of equity. Because no committee discussion or vote history was provided, there is no recorded legislative debate to indicate broader support or opposition beyond the bill’s text.
Likely points of contention include whether the default return of Treasury plus 200 basis points is sufficient to attract capital, whether competitive equity auctions are workable in practice, and whether including construction work in progress in rate base unfairly shifts costs to customers before assets are in service. Utilities and investors may also object to the restructuring provisions, the mandatory debt-transfer covenants, and the possibility of commission-initiated auctions that could reduce returns. Supporters would likely emphasize ratepayer savings, transparency, and reduced litigation costs, while critics would focus on financing risk, credit impacts, and the novelty of using auctions to set equity returns.