A new rate case proposal from Missouri American Water Company could drastically change the way rate cases are handled in the state if the Missouri Public Service Commission signs off.
In rate cases, test-year sales and operating costs are adjusted to reflect “normal” weather based on either a model of future years or past years. Test years based on future projections are known as future test years, while test years based on past data are referred as historical test years. The resulting prices are what customers pay until rates are reset with the next rate case.
For decades, Missouri has used historical test years, relying on past records to determine future rates. That process involves taking actual numbers from a certain period of time and using that to build the rates.
But Missouri is one of only a handful of states still using modified historical test years, with many now looking to future test years instead.
Missouri American Water contends its rate base and expense are increasing while revenues decline as it moves forward, saying the relationship between revenue, expenses, and the rate base may exist in a historical test year but not in the first year the rates will be in effect. The company argues a fully forecasted test year would produce rates that more accurately reflect the revenues, expenses, and investments during the period in which the rates are to be effective.
Read more: Missouri Times