This bill has two distinct and unrelated sections.
Section 1 relates to what is commonly referred to as "cost recovery" or "cost recovery riders." There are utility costs for some purposes that are so variable and significant that they are not accommodated well by the traditional utility rate structure, which relies on estimates of future costs to determine rates. An example of these cost recovery riders would be the fuel cost adjustment allowed for gas utilities whose cost of gas can be very unpredictable. This cost recovery mechanism allows for recovery of costs or return of savings without the need of a formal rate case to address those costs. Section 1 adds the costs of sorbents, reagents, or chemicals used for emission control purposes as costs that can be recovered in a cost recovery rider.
Section 2 authorizes the Public Utilities Commission to approve a multiyear rate plan for a gas or electric utility. There is no requirement in current law that rates for utilities are only valid for one year. Current law does provide that the costs used to determine a rate come from a one-year "test year." What this means is that if costs are escalating, which they will do in periods of capital investment, a utility must come in for frequent rate increases. The multiyear rate plan is a tool to avoid the expense and uncertainty associated with using only a one-year test year. The multiyear plan allows costs to be estimated for more than one year using information for those years. The multiyear rates can be used until a subsequent rate plan filing. The difficulty is in developing reliable cost data for periods farther into the future. The Commission need not approve a multiyear plan filing. The Commission is given broad authority to develop the terms of the plan. In other respects, a multiyear rate plan is subject to the same criteria as a traditional rate plan.