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Bill No.: Summary Actions Committee&nbspVotes Floor&nbspVotes Memo Text LFIN Chamber&nbspVideo/Transcript S10424 Summary: BILL NO S10424 &nbsp SAME AS SAME AS A11197

&nbsp SPONSOR MAYER &nbsp COSPNSR &nbsp MLTSPNSR &nbsp Add Art 1-A §§28-a - 29-d, Pub Serv L &nbsp 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.

Go to top S10424 Text:

STATE OF NEW YORK ________________________________________________________________________

10424

IN SENATE

May 15, 2026 ___________

Introduced by Sen. MAYER -- read twice and ordered printed, and when printed to be committed to the Committee on Energy and Telecommuni- cations

AN ACT to amend the public service law, in relation to enacting the "fair authorized investment returns act"

The People of the State of New York, represented in Senate and Assem- bly, do enact as follows:

1 Section 1. Short title. This act shall be known and may be cited as 2 the "fair authorized investment returns act". 3 § 2. Legislative findings. The legislature finds and declares all of 4 the following: 5 1. Investor-owned electric, gas, and water utilities are entitled to a 6 reasonable opportunity to earn a fair return on their invested capital, 7 but ratepayers should not bear costs that exceed the level necessary to 8 attract capital under prevailing market conditions. A return on equity 9 authorized above the minimum rate of return necessary to attract capital 10 investment results in charges to ratepayers that are unjust and unrea- 11 sonable. 12 2. Authorized returns on equity over and above the minimum rate of 13 return necessary to attract capital investment -- the cost of capital -- 14 harm ratepayers in multiple ways, including the direct cost of excess 15 returns passed on to ratepayers, the incremental corporate income taxes 16 owed on those excess returns, and the further costs that flow from the 17 well-documented Averch-Johnson effect, by which too-high rates of return 18 on equity create incentives for utilities to over invest in capital 19 assets. 20 3. The Capital Asset Pricing Model, applied to the low market beta of 21 regulated utility equities relative to broad market indices, suggests 22 that a premium to the 10-Year Treasury risk-free rate of less than two 23 percent is warranted. Discounted cash flow analysis leads to a similar 24 conclusion. 25 4. The significant premium to book value at which the holding compa- 26 nies of most utilities trade provides further evidence that authorized 27 returns on equity are above utilities' cost of equity. As a matter of

EXPLANATION--Matter in italics (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD15643-02-6

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1 financial principle, a utility earning a return on equity equal to its 2 cost of equity should trade at approximately book value. 3 5. That the return on equity awarded to regulated utilities in this 4 state is broadly consistent with those awarded in other jurisdictions 5 does not dispel these concerns. Rather, these consistently excessive 6 returns reflect a rate-setting process in which regulators in each 7 jurisdiction reference what other jurisdictions have awarded. 8 6. More broadly, these excessive returns and premium valuations are a 9 predictable consequence of the well-documented phenomenon of regulatory 10 capture and capital bias, as explored in the foundational work of George 11 Stigler (Nobel Prize, 1982) and Jean Tirole (Nobel Prize, 2014). The 12 regulated entities subject to commission oversight can devote substan- 13 tial resources to influencing regulatory outcomes that determine their 14 profitability -- including the hiring of experts to advance favorable 15 interpretations of otherwise straightforward financial models, the main- 16 tenance of revolving-door employment relationships with former regula- 17 tors, and extensive "educational" engagement with regulatory staff -- 18 while ratepayer interests are represented by comparatively limited 19 resources. Process enhancements such as mandating more sophisticated 20 analytical models will not resolve this imbalance, because the problem 21 is not which analytical tools are used but how their inputs are chosen. 22 7. These excessive returns translate to a substantial burden upon 23 ratepayers. Across the country, utilities earn excess profits that go 24 beyond their entitled reasonable returns, amounting to approximately 25 five hundred dollars extra per household annually. Soaring rates place a 26 growing share of households at risk of service disconnection. Businesses 27 are also impacted, as high rates disadvantage them relative to compet- 28 itors based elsewhere. 29 8. The current process by which the public service commission and 30 regulated utilities set rates has historically been inaccessible and 31 indecipherable to the public and often runs contrary to the stated goals 32 of ensuring affordable, safe, secure, and reliable utility service for 33 residential and business consumers. 34 9. The default authorized return established by this act -- equal to 35 the 10-Year Treasury plus 200 basis points -- is set at a level the 36 legislature finds to be at or above the cost of equity for most covered 37 utilities under prevailing market conditions, based on the financial 38 evidence described in subdivisions three and four of this section. At 39 current treasury rates, this formula produces an authorized return above 40 what financial models indicate is required to attract capital for regu- 41 lated utility equity having the risk profile of a typical covered utili- 42 ty. The 200 basis point premium is designed to ensure that, for the 43 large majority of covered utilities in ordinary circumstances, the 44 default authorized return is not confiscatory, while still representing 45 a significant reduction from the historically excessive returns that the 46 current regulatory process has produced. The legislature recognizes that 47 market conditions may change over time and that what constitutes an 48 adequate return will vary accordingly; this act's annual reset mechanism 49 ensures that the treasury component of the default authorized return 50 tracks prevailing market conditions. 51 10. A competitive equity auction conducted pursuant to section twen- 52 ty-eight-c of the public service law that produces an authorized return 53 on equity above the default authorized return does not by itself estab- 54 lish that the default authorized return is confiscatory or below the 55 constitutional minimum. In the early period following enactment, 56 auction-clearing returns may exceed the default authorized return in

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1 part because investors are unfamiliar with these instruments and require 2 a premium return to compensate for that unfamiliarity -- a premium that 3 the legislature expects to decline as these instruments become estab- 4 lished in the capital markets. Even in this transitional period, the 5 availability of the auction mechanism ensures that no covered utility is 6 required to operate under a return below what willing investors, in a 7 competitive process, have determined to be adequate compensation for the 8 associated risk. This act's true-up provisions further ensure that any 9 covered utility that conducts an auction is made whole for the period 10 during which the default authorized return was in effect, so that no 11 covered utility suffers a permanent confiscatory outcome. 12 11. The default authorized return and the competitive equity auction 13 mechanism, taken together, satisfy the constitutional standard artic- 14 ulated in Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 15 591 (1944), and Bluefield Waterworks & Improvement Co. v. Public Service 16 Commission of West Virginia, 262 U.S. 679 (1923), by ensuring that every 17 covered utility has both a presumptively adequate default return and an 18 opportunity to demonstrate, through competitive market evidence, that a 19 higher return is required. Sealed-bid uniform-price auctions are widely 20 used in capital markets, including for the issuance of U.S. Treasury 21 securities, and the competitive pricing mechanism established by this 22 act is functionally equivalent to processes that operate successfully in 23 debt and equity markets worldwide. Sealed-bid uniform-price auctions are 24 also the mechanism by which the Federal Communications Commission allo- 25 cates electromagnetic spectrum and by which regional transmission organ- 26 izations such as PJM Interconnection and ISO New England procure elec- 27 tric generation capacity. The application of this well-established 28 mechanism to the determination of utility equity costs is novel, but the 29 mechanism itself is proven across multiple regulated markets. 30 12. When competitive markets exist and function effectively, market 31 prices can provide the information required to protect consumers from 32 price gouging. Regulatory discretion is warranted when markets fail to 33 function effectively. In the case of utility debt, commissions do not 34 convene adjudicatory proceedings to determine a "reasonable" bond yield; 35 they incorporate the market-determined coupon rate because a competitive 36 debt market provides reliable evidence of the cost of debt. This act 37 applies the same principle to equity: where a competitive auction can 38 provide direct, transaction-level evidence of the return investors 39 require to supply equity capital to a regulated utility, that evidence 40 is superior to any estimate produced by expert testimony applying 41 contested financial models. A covered utility is no more entitled to 42 demand a judicially supervised determination of its equity cost than it 43 is to demand such a determination of its debt cost. State legislatures 44 routinely establish formulaic rate structures by statute, including 45 avoided-cost requirements under the Public Utility Regulatory Policies 46 Act of 1978, net metering compensation rates, and feed-in tariff sched- 47 ules. This act follows established precedent in codifying a formulaic 48 approach that reduces regulatory discretion while preserving the public 49 service commission's authority over implementation, auction adminis- 50 tration, and ratemaking mechanics. 51 13. Covered utilities, as recipients of state-granted monopoly fran- 52 chises serving the public, have accepted obligations of transparency and 53 public accountability that are not imposed on ordinary private enter- 54 prises. The disclosure requirements that attend a securities offering 55 conducted pursuant to this act serve the public interest by making the 56 financial condition, operations, and risks of covered utilities more

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1 transparent to regulators, ratepayers, and the public at large. Such 2 transparency is itself consistent with, and supportive of, effective 3 cost-of-service regulation, and the legislature finds that the public 4 benefit of enhanced utility disclosure is substantial. It is the intent 5 of this act that all reasonable costs incurred by a covered utility in 6 connection with a competitive equity auction, including any registration 7 and offering costs, management time reasonably allocable to the auction 8 process, and professional fees, be recoverable in rates as set forth in 9 section twenty-eight-c of the public service law. The legislature 10 further finds that such costs are expected to be substantially less than 11 the expert testimony, legal, and other costs currently incurred by 12 covered utilities and ratepayers in litigating return-on-equity determi- 13 nations in administrative rate proceedings. 14 14. This act does not require covered utilities to issue equity. The 15 competitive equity auction mechanism is initiated at the option of the 16 covered utility, as a means of demonstrating that its cost of equity 17 exceeds the default authorized return. Unless the covered utility elects 18 otherwise, auction equity interests issued pursuant to this act do not 19 carry voting rights with respect to the affairs of the covered utility 20 or any regulated service corporation or regulated service LLC, and do 21 not otherwise entitle holders to participate in the governance of the 22 covered utility. Covered utilities are already routinely required to 23 issue debt instruments on market-determined terms, the cost of which is 24 incorporated into rates without a separate adjudicatory determination of 25 "reasonable" debt cost. The competitive equity auction is the equitable 26 equivalent for equity: it allows the market to determine the minimum 27 return required by investors under competitive conditions, in precisely 28 the same manner that bond markets determine the minimum return required 29 by lenders. A covered utility that chooses not to petition for an 30 auction retains the default authorized return, which the legislature has 31 determined to be adequate for most covered utilities under prevailing 32 conditions. The legislature further finds that the auction equity inter- 33 est is economically similar to tracking stock -- an instrument familiar 34 to institutional investors -- and that the predictability of regulated 35 utility revenue streams makes this instrument well suited to certain 36 investors, including pension funds and insurance companies. 37 15. Any impact of a lower authorized return on equity on credit 38 ratings can, if necessary, be offset by adjusting the authorized debt- 39 to-equity ratio applicable to each regulated service. Under this act, 40 the authorized capital structure is determined at the level of each 41 regulated service rather than at the level of the covered utility as a 42 whole, and it is the intent of this act that the public service commis- 43 sion set and adjust such capital structure as may be necessary to main- 44 tain financial soundness and continued access to capital markets. The 45 legislature further finds that credit rating agencies evaluate regulated 46 utilities on a multi-factor basis in which the authorized return on 47 equity is one input among many, and that the entity structure estab- 48 lished by this act -- including bankruptcy remoteness, ring-fencing, and 49 dedicated revenue streams -- is designed to strengthen the credit 50 profile of the regulated service relative to the covered utility's 51 unsegregated balance sheet. 52 16. The competitive equity auction mechanism established by this act 53 is designed to discover the return investors require on each regulated 54 service's capital. For that price signal to be accurate, the rate base 55 to which the authorized return on equity is applied must correspond to 56 the capital that investors have supplied. Under current regulatory prac-

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1 tice, certain prudent investments -- most notably construction work in 2 progress -- are routinely excluded from a utility's rate base until the 3 associated assets are placed in service, even though investors have 4 already committed capital to finance those projects. This exclusion 5 creates a divergence between rate base and actual invested capital that 6 distorts the auction signal: investors who cannot predict the magnitude 7 of the exclusion at the time they bid cannot accurately price the effec- 8 tive return on their capital, introducing noise and uncertainty that 9 increases the cost of equity for ratepayers. The exclusion of 10 construction work in progress from rate base also creates a systematic 11 bias in utility capital allocation. Because utilities earn no cash 12 return on capital invested in projects that have not yet been placed in 13 service, they face a financial incentive to favor projects that can be 14 completed quickly over projects that may deliver greater long-term value 15 to the public but require longer construction periods. Large-scale tran- 16 smission infrastructure, grid modernization programs, and generation 17 projects essential to the energy transition are disproportionately 18 disadvantaged by this incentive structure. Including construction work 19 in progress in rate base eliminates this bias and ensures that capital 20 allocation decisions are driven by the long-term public interest rather 21 than by the timing of regulatory cost recovery. This act accordingly 22 requires that rate base reflect the full value of prudently invested 23 capital, with the sole exclusions being for capital that is not supplied 24 by investors -- namely, accumulated deferred income taxes, customer 25 deposits, and customer advances for construction. 26 17. The legislature finds that ratepayers will benefit from this act 27 beginning immediately upon enactment. The formation of regulated service 28 corporations and regulated service LLCs will require a transitional 29 period during which a covered utility's existing capital structure is 30 restructured. During this transitional period, certain costs -- includ- 31 ing any guaranty fee payable to the covered utility in connection with 32 debt assumed by a regulated service LLC -- will modestly reduce the 33 savings that ratepayers would otherwise realize. These transitional 34 costs are expected to be small relative to the savings from lower 35 authorized returns on equity and to diminish over time as assumed 36 indebtedness matures and is refinanced at the regulated service LLC 37 level without a covered utility guaranty. Similarly, the expansion of 38 rate base required by subdivision twenty-eight-b of the public service 39 law to reflect all prudently invested capital, including construction 40 work in progress, viewed in isolation, increases the dollar amount to 41 which the authorized return is applied; but the authorized return itself 42 is reduced by a substantially greater magnitude, such that the product 43 of the two -- which determines the total return component of rates -- is 44 lower under this act than under current practice. The legislature recog- 45 nizes that the day-one net savings may be smaller for covered utilities 46 with unusually large construction work in progress balances than for 47 those without, and that the magnitude of net savings will vary over time 48 with the pace of utility capital investment; in no case, however, will 49 the combined effect increase the total return component of rates above 50 what current practice would produce for the same utility. The long-run 51 benefits of aligned capital allocation incentives, as described in 52 subdivision sixteen of this section, supplement these immediate rate 53 savings. So too do the progressively lower auction-clearing returns the 54 legislature anticipates as investors become more familiar with the 55 instruments auctioned.

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1 18. The restructuring authority established by this act, including the 2 authority to require assumption of allocated indebtedness by a regulated 3 service LLC notwithstanding contrary provisions of existing debt instru- 4 ments, is a legitimate exercise of the state's police power in further- 5 ance of the public interest in affordable and reliable utility service. 6 The contractual impairment, if any, is reasonable and narrowly tailored: 7 requiring individual bondholder consent for a credit-neutral restructur- 8 ing would create a holdup problem enabling bondholders to extract rents 9 from ratepayers without bearing additional risk. Moreover, this act 10 prospectively requires all new long-term indebtedness to include trans- 11 fer covenants, so that the override applies only to legacy obligations 12 -- a diminishing pool that will be eliminated through ordinary refinanc- 13 ing cycles. 14 § 3. The public service law is amended by adding a new article 1-A to 15 read as follows: 16 ARTICLE 1-A 17 FAIR AUTHORIZED INVESTMENT RETURNS ACT 18 Section 28-a. Definitions. 19 28-b. Default authorized return on equity. 20 28-c. Competitive equity auctions. 21 29-d. Reporting and transparency. 22 § 28-a. Definitions. For the purposes of this article, the following 23 terms shall have the following meanings: 24 1. "Authorized return on equity" means the rate of return on common 25 equity authorized for ratemaking purposes. 26 2. "Competitive equity auction" means a process overseen by the 27 commission in accordance with this article that provides a market-based 28 determination of the cost of equity for a covered utility. 29 3. "Covered utility" means any investor-owned electric, gas, or water 30 corporation regulated by the commission. 31 4. "Regulated service" means a distinct category of utility service, 32 including, but not limited to, electric distribution, gas distribution, 33 or water service; provided by a covered utility and for which the 34 commission determines an authorized return on equity. Where a covered 35 utility provides more than one category of service subject to the juris- 36 diction of the commission, each such category shall be treated as a 37 separate regulated service for purposes of this article unless the 38 commission determines that consolidated treatment is appropriate. 39 5. "Cost of equity" means the minimum rate of return necessary to 40 attract equity capital to invest in a specific regulated service. 41 6. "Default authorized return" means the authorized return on equity 42 determined pursuant to section twenty-eight-b of this article. 43 7. "Ten-year treasury" means the market yield on U.S. treasury securi- 44 ties at ten-year constant maturity, quoted on an investment basis, as 45 reported by the Federal Reserve System. 46 8. "Rate period" means the time period in which a covered utility 47 collects rates that are authorized and approved by the commission. 48 9. "Auction-clearing return" means the uniform rate of return estab- 49 lished as the clearing price in a competitive equity auction conducted 50 pursuant to subdivision five of section twenty-eight-c of this article. 51 10. "Auction equity interest" means an economic interest issued pursu- 52 ant to a competitive equity auction under section twenty-eight-c of this 53 article. An auction equity interest represents a participation in the 54 financial performance of a specific regulated service, carries the 55 auction-clearing return as adjusted pursuant to subdivision three of 56 section twenty-eight-c of this article, and is distinct from the covered

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1 utility's base common stock. The authorized return and financial 2 performance of any auction equity interest shall be determined solely by 3 reference to the regulated service to which it relates, and shall not be 4 affected by the financial performance of, or returns applicable to, any 5 other regulated service or any activity of the covered utility not 6 subject to the jurisdiction of the commission. Except where auction 7 equity interests are issued by a regulated service corporation estab- 8 lished pursuant to subdivision eleven of section twenty-eight-c of this 9 article, the risk profile of auction equity interests is not so limited: 10 auction equity interests issued directly by the covered utility are 11 obligations of the covered utility and are therefore subject to all 12 risks applicable to the covered utility generally, including the risk of 13 insolvency or bankruptcy of the covered utility. Where a covered utility 14 has established a regulated service corporation and regulated service 15 LLC pursuant to subdivision eleven of section twenty-eight-c of this 16 article auction equity interests shall be issued by such regulated 17 service corporation rather than by the covered utility itself, and 18 references in this definition to the "covered utility's base common 19 stock" shall be construed to mean the stock of such regulated service 20 corporation retained by the covered utility. 21 11. "Regulated service corporation" means a corporation organized 22 under the laws of any state, formed or designated by a covered utility 23 pursuant to subdivision eleven of section twenty-eight-c of this 24 section, that: (a) is treated as a corporation for federal income tax 25 purposes; and (b) conducts no activities other than holding a membership 26 interest in a regulated service LLC and serving as the issuer of auction 27 equity interests for the regulated service associated with that regu- 28 lated service LLC. 29 12. "Regulated service LLC" means a wholly-owned limited liability 30 company subsidiary of a regulated service corporation, formed or desig- 31 nated pursuant to subdivision eleven of section twenty-eight-c of this 32 article, to hold assets, rights, franchises, and obligations associated 33 with a regulated service. A regulated service LLC shall be treated as a 34 disregarded entity for federal income tax purposes. 35 § 28-b. Default authorized return on equity. 1. Unless an authorized 36 return on equity is established pursuant to section twenty-eight-c of 37 this article, the commission shall set the authorized return on a 38 covered utility's common equity equal to the sum of: (a) the ten-year 39 treasury; and (b) two percent. 40 2. The default authorized return shall be reset annually as of January 41 first of each year to reflect the average of the ten-year treasury rate 42 on the sixty business days immediately prior to January first of that 43 year. 44 3. Should publication of the ten-year treasury cease or be inter- 45 rupted, the commission shall identify and use for this calculation the 46 alternative benchmark it determines to be the best substitute. 47 4. The burden of demonstrating that the default authorized return on 48 equity is insufficient to attract capital shall rest exclusively with 49 the covered utility. The default authorized return shall be presumed 50 just and reasonable unless rebutted through the competitive equity 51 auction process set forth in section twenty-eight-c of this article. 52 5. For any rate period commencing between the effective date of this 53 section and the first reset date under subdivision two of this section, 54 the ten-year treasury component shall be determined using the averaging 55 methodology prescribed in subdivision two of this section, applied to

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1 the sixty business days immediately preceding the effective date of this 2 section. 3 6. Whenever the authorized return on equity for a regulated service 4 changes pursuant to this section or section twenty-eight-c of this arti- 5 cle, the commission shall adjust the rates applicable to such regulated 6 service to reflect the new authorized return on equity. Such adjustment 7 shall be implemented through the mechanism the commission determines to 8 be most expedient, which may include but need not be limited to a 9 surcharge or credit applied to existing tariffs, an automatic rate 10 adjustment mechanism, or incorporation into the covered utility's next 11 general rate proceeding. The commission shall implement any such adjust- 12 ment no later than ninety days after the change in authorized return on 13 equity takes effect. 14 7. Nothing in this section shall preclude a covered utility from 15 procuring third-party insurance to hedge material idiosyncratic risks, 16 with the cost thereof recoverable in rates as an operating expense 17 subject to the commission's determination of prudence. 18 8. For purposes of this subdivision, a "performance-based ratemaking 19 plan" means a plan, mechanism, or order that adjusts the authorized 20 return on equity of a covered utility based on measured utility perform- 21 ance against specified benchmarks; it does not include revenue decoupl- 22 ing mechanisms, formula rate plans, or other mechanisms that operate on 23 revenue, cost recovery, or rate design without adjusting the authorized 24 return on equity. Nothing in this section shall preclude the commission 25 from establishing or maintaining a performance-based ratemaking plan for 26 a covered utility, provided that: (a) any such plan is designed so that 27 the expected value of performance-based adjustments to the authorized 28 return on equity is neutral; and (b) no such plan shall permit the 29 aggregate effect of performance-based adjustments to increase the 30 covered utility's realized return on equity for any regulated service by 31 more than two percentage points above the authorized return on equity 32 for that regulated service as determined under this section. 33 9. For purposes of determining the authorized return on equity for any 34 regulated service of any covered utility under this section, whether 35 such return is determined under this section or pursuant to a compet- 36 itive equity auction under section twenty-eight-c of this article, the 37 commission shall determine rate base so as to reflect the full value of 38 all assets prudently invested by or on behalf of the covered utility for 39 the benefit of the regulated service, including construction work in 40 progress, net of accumulated depreciation. The only reductions to rate 41 base shall be for capital that is not supplied by investors, which shall 42 be limited to: (a) accumulated deferred income taxes, to the extent that 43 deferred tax liabilities exceed deferred tax assets; (b) customer depos- 44 its; and (c) customer advances for construction. The commission shall 45 not exclude from the rate base of any regulated service any asset on the 46 basis that it has not yet been placed in service, provided that the 47 investment has been determined to be prudent and is being undertaken for 48 the benefit of the regulated service. This subdivision shall apply to 49 every covered utility upon the effective date of this section, without 50 regard to whether a regulated service corporation or regulated service 51 LLC has been formed pursuant to subdivision eleven of section twenty- 52 eight-c of this article, and shall govern any determination of the 53 authorized return on equity made under this section thereafter. 54 § 28-c. Competitive equity auctions. 1. Should a covered utility 55 believe that its cost of equity exceeds the default authorized return, 56 it may petition the commission to oversee a competitive equity auction.

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1 This petition shall be deemed withdrawn, and the covered utility deemed 2 to have accepted the default authorized return, if the covered utility 3 fails to take all steps required to facilitate such auction, as set 4 forth by the commission, on the timeline prescribed for each such step. 5 A petition under this subsection must be filed no later than thirty days 6 after the later of: (a) the effective date of this section; or (b) the 7 most recent reset of the default authorized return under subdivision two 8 of section twenty-eight-b of this article. Upon certification of the 9 auction results by the commission, the auction-clearing return shall 10 become the authorized return on equity for the regulated service, and 11 the commission shall adjust customer rates in accordance with subdivi- 12 sion six of section twenty-eight-b of this article no later than ninety 13 days after such certification. The commission shall also implement a 14 true-up adjustment, calculated as the difference between: the revenue 15 actually collected by the covered utility during the period from the 16 filing of the petition through the date on which adjusted rates take 17 effect; and the revenue that would have been collected during that peri- 18 od had the auction-clearing return been reflected in rates throughout. 19 Interest on any such difference shall accrue at the auction-clearing 20 return, calculated from the midpoint of such period. For the avoidance 21 of doubt, any adjustment to customer rates required by the reset of the 22 default authorized return under subdivision two of section 23 twenty-eight-b of this article shall be implemented in accordance with 24 subdivision six of such section independently of any auction petition, 25 and the true-up under this subdivision shall apply only to the period 26 commencing on the date of the petition. 27 2. The commission may, on its own motion or upon petition by the 28 attorney general, order that a competitive equity auction be conducted 29 for a covered utility if the commission finds reasonable cause to 30 believe that the default authorized return materially exceeds the 31 covered utility's cost of equity for a regulated service. A commission- 32 initiated auction under this subdivision may be ordered no earlier than 33 thirty days after the later of: (a) the effective date of this section; 34 or (b) the most recent reset of the default authorized return under 35 subdivision two of section twenty-eight-b of this article, and no later 36 than sixty days after such reset. Upon certification of the auction 37 results, the auction-clearing return shall become the authorized return 38 on equity for the regulated service, and the commission shall adjust 39 customer rates in accordance with subdivision two of section twenty- 40 eight-b of this article no later than ninety days after such certif- 41 ication. The commission shall also implement a true-up adjustment, 42 calculated as the difference between: the revenue actually collected by 43 the covered utility during the period from January first of the year in 44 which the auction is conducted through the date on which adjusted rates 45 take effect; and the revenue that would have been collected during that 46 period had the auction-clearing return been reflected in rates through- 47 out. Interest on any such difference shall accrue at the auction-clear- 48 ing return, calculated from the midpoint of such period. Should the 49 covered utility fail to take all steps required to facilitate an auction 50 ordered pursuant to this subdivision on the timeline prescribed by the 51 commission, the default authorized return for that regulated service 52 shall be reduced by a tenth of one percent percentage points, effective 53 as of the date of such failure and continuing until the covered utility 54 has complied. If the covered utility fails to facilitate a subsequent 55 commission-initiated auction for the same regulated service, such 56 reduction shall be cumulative. Upon compliance, any reduction under this

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1 paragraph shall cease to apply prospectively; no retroactive adjustment 2 shall be made for any period during which the reduction was in effect. 3 3. Holders of auction equity interests issued pursuant to an auction 4 shall receive the auction-clearing return, as adjusted for differences 5 between realized and anticipated profits in a manner to be specified by 6 the commission in its order governing the auction, for the full duration 7 of such interests. This rate of return, whether higher or lower than the 8 default authorized return, shall determine the authorized return on 9 equity for the regulated service, in accordance with subdivision four of 10 this section, until the following January first, at which time the 11 covered utility may elect that the default authorized return shall apply 12 to the covered utility's common equity in the regulated service. Any 13 such election shall not affect the return applicable to outstanding 14 auction equity interests, which shall continue to receive the auction- 15 clearing return for the full duration of such interests. Following such 16 an election, the authorized return on equity for the regulated service 17 shall be determined in accordance with subdivision four of this section. 18 4. Where different equity interests in a regulated service bear 19 different authorized rates of return -- whether because multiple 20 auctions have been conducted at different times or because the covered 21 utility has elected pursuant to subdivision three of this section that 22 the default authorized return shall apply to its common equity; the 23 authorized return on equity for the regulated service shall be the 24 weighted average of the return applicable to each equity interest, 25 weighted by its outstanding equity amount. For this purpose, the covered 26 utility's common equity shall bear the auction-clearing return estab- 27 lished in the most recent auction, or, following an election under 28 subdivision three of this section, the default authorized return. Where 29 no auction equity interests remain outstanding, the default authorized 30 return shall apply to the full equity component of the regulated 31 service. 32 5. (a) The commission shall oversee a sealed-bid competitive auction, 33 to be administered independent of the covered utility. The commission 34 shall determine for each auction whether bids are to be expressed as an 35 absolute number or as a premium to the ten-year treasury or another such 36 index, with the applicable interest rate to be reset periodically. 37 Qualified bidders shall bid the minimum target return on equity they 38 require. Bids shall be ranked in ascending order and the commission 39 shall accept bids in that order until the total amount of equity offered 40 in the auction has been fully allocated. All successful bidders shall 41 receive the same rate of return, equal to the highest accepted bid. If 42 the aggregate amount bid at the clearing rate exceeds the remaining 43 amount of equity to be allocated, such bids shall be accepted on a pro 44 rata basis. For the avoidance of doubt, all bids submitted at returns 45 below the clearing rate shall be accepted in full; the pro-rata 46 reduction applies only to bids submitted at the clearing rate itself. 47 (b) The amount of equity to be offered in each auction shall be the 48 greater of: (i) two and one-half percent of the equity component of the 49 regulated service rate base; and (ii) the lesser of fifty million 50 dollars and five percent of the equity component of the regulated 51 service rate base. 52 (c) The commission shall certify the results of an auction if: at 53 least five qualified bidders submitted bids; and the aggregate equity 54 amount bid by all qualified bidders was at least one and one-half times 55 the total equity amount offered in the auction. If either threshold is 56 not met in a utility-initiated auction under subdivision one of this

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1 section, the auction result shall nonetheless be certified if the 2 auction-clearing return does not exceed the default authorized return by 3 more than two percentage points; otherwise, the auction result shall be 4 void and the default authorized return shall apply. If either threshold 5 is not met in a commission-initiated auction under subdivision two of 6 this section, the auction result shall be void and the default author- 7 ized return shall continue to apply. In any commission-initiated auction 8 under subdivision two of this section, regardless of whether the partic- 9 ipation thresholds are met, the auction result shall be binding only if 10 the auction-clearing return is less than the default authorized return; 11 if the auction-clearing return equals or exceeds the default authorized 12 return, the default authorized return shall continue to apply. If the 13 aggregate equity amount bid in an auction is less than the total equity 14 amount offered, the auction-clearing return shall apply to the equity 15 amount actually subscribed and the default authorized return shall apply 16 to the remainder, with the authorized return on equity for the regulated 17 service determined in accordance with subdivision four of this section. 18 (d) All reasonable costs incurred by a covered utility in connection 19 with a competitive equity auction under this section, whether initiated 20 by the covered utility under subdivision one of this section or ordered 21 by the commission under subdivision two of this section, including costs 22 of any required securities registration or offering preparation, reason- 23 able management time allocable to the auction, and professional fees, 24 shall be treated as prudently incurred costs for ratemaking purposes and 25 shall be recoverable in rates. 26 6. Any auction shall be conducted by an independent auction adminis- 27 trator pursuant to guidelines promulgated by the commission. The commis- 28 sion may adopt regulations as necessary to implement the competitive 29 equity auction process, including rules governing what constitutes a 30 complete application, the form and timing of the bidder qualification 31 process, and consumer protection provisions. Such regulations shall 32 require the independent auction administrator to disclose to all quali- 33 fied bidders, in advance of each auction, the conditions under which the 34 auction result will be binding, including whether the auction is utili- 35 ty-initiated or commission-initiated and the consequences thereof for 36 bid acceptance. 37 7. The economic interests offered pursuant to this section may consti- 38 tute securities within the meaning of the Securities Act of 1933, as 39 amended, and the Securities Exchange Act of 1934, as amended. Each 40 auction shall be structured so as to qualify for an available exemption 41 from registration under federal securities law. Permissible exemptions 42 include limiting the offering to accredited investors pursuant to Rule 43 506 of Regulation D under the Securities Act of 1933, or conducting an 44 intrastate offering exempt under Section 3(a)(11) of that Act and appli- 45 cable rules thereunder. This default minimizes compliance costs for the 46 covered utility and avoids delays attributable to SEC registration 47 review. The commission may, in its discretion, direct that a specific 48 auction be conducted on a registered basis if the commission determines, 49 based on the expected size of the offering and an analysis of antic- 50 ipated investor demand, that: the expected reduction in the auction- 51 clearing return attributable to broader investor participation enabled 52 by registration is reasonably expected to outweigh the costs and delays 53 of the registration process; and the auction will not be delayed by more 54 than thirty days beyond the timeline that would apply to an exempt 55 offering. Because registration in practice requires substantial lead 56 time, any such direction shall be issued by the commission sufficiently

S. 10424 12

1 in advance of the covered utility's auction petition to permit timely 2 registration. In all events, the covered utility shall be entitled to 3 recover all reasonable registration costs in rates pursuant to this 4 section. The commission shall, as part of its implementing regulations, 5 address: ongoing disclosure obligations applicable to the covered utili- 6 ty and to holders of auction equity interests; and the duties and requi- 7 site expertise of the independent auction administrator required under 8 subdivision six of this section. Nothing in this subdivision shall be 9 construed to confer upon the commission any authority to regulate secu- 10 rities except as expressly provided in this article. 11 8. (a) The covered utility need not offer its common stock for sale in 12 the auction, but the auction equity interests offered shall, in the 13 judgment of the commission, provide prospective investors: 14 (i) economically equivalent position to that of the covered utility's 15 equity interest in the regulated service: being the covered utility's 16 common stock where auction equity interests are issued directly by the 17 covered utility; or the covered utility's retained stock interest in the 18 regulated service corporation where such interests are issued by a regu- 19 lated service corporation established pursuant to subdivision eleven of 20 this section; 21 (ii) adequate protections against dilution or impairment of value 22 through related-party transactions or other transfers involving the 23 corporation's parent holding company; 24 (iii) prospective periodic distributions calibrated so that, if the 25 covered utility's realized profits of the regulated service in each 26 period equal those embedded by the commission in the rates approved to 27 achieve the authorized return on equity, holders of auction equity 28 interests will realize an internal rate of return equal to the auction- 29 clearing return, taking into account all periodic distributions and any 30 return of equity capital over the life of the interests; 31 (iv) a stated initial equity amount per auction equity interest equal 32 to the purchase price paid by the winning bidder in the auction, with 33 such equity amount to be returned to holders over the life of the inter- 34 ests at a rate and on a schedule consistent with the commission's treat- 35 ment of rate base depreciation and amortization for the regulated 36 service for ratemaking purposes, such that as the equity component of 37 the regulated service rate base is reduced through depreciation and 38 amortization, a commensurate portion of the initial equity amount is 39 returned to holders; and 40 (v) a specification, to be set forth in the instrument terms and 41 confirmed in the commission's order governing the auction, of how short- 42 falls and excesses in realized profits of the regulated service relative 43 to the earnings embedded in approved rates are to be allocated as 44 between: holders of auction equity interests; and the covered utility's 45 common equity, and, in the event of multiple outstanding series of 46 auction equity interests, among such series. Such specification shall 47 provide that any shortfall or excess in realized profits of the regu- 48 lated service shall be allocated among all equity interests in the regu- 49 lated service, including the covered utility's common equity and each 50 outstanding series of auction equity interests, in proportion to the 51 earnings that each such interest would have received had realized 52 profits been exactly equal to the earnings embedded in approved rates. 53 No interest shall have priority over any other in such allocation. For 54 the avoidance of doubt: each interest participates in shortfalls as well 55 as excesses; there is no seniority or preference among auction equity 56 interests of different series or between auction equity interests and

S. 10424 13

1 the covered utility's common equity with respect to the allocation of 2 shortfalls or excesses; and by way of illustration, if a single series 3 of auction equity interests would have been credited $X, and the covered 4 utility's common equity would have been credited $Y, had earnings been 5 exactly as forecast, but realized profits are $Z, then the auction equi- 6 ty interest series shall be credited $Z x X / (X + Y) and the covered 7 utility's common equity shall be credited $Z x Y / (X + Y). Where 8 multiple series of auction equity interests are outstanding, the same 9 proportionate allocation applies among all series and common equity, 10 based on each interest's forecast-earnings share. 11 (b) The commission's order governing each auction shall specify the 12 initial equity amount per auction equity interest, the formula for 13 calculating periodic distributions by applying the auction-clearing 14 return to the outstanding equity balance for each period, and the sched- 15 ule for return of equity capital, all in a manner consistent with 16 subparagraphs (iii) and (iv) of paragraph (a) of this subdivision and 17 designed to ensure that, if the covered utility's realized profits of 18 the regulated service in each period equal those embedded in the rates 19 approved to achieve the authorized return on equity, holders of auction 20 equity interests will realize an internal rate of return equal to the 21 auction-clearing return. 22 (c) Each series of auction equity interests shall be redeemed at its 23 then-current book value at the earlier of: forty years from the date of 24 issuance; or the end of the first fiscal quarter in which the outstand- 25 ing equity amount of such series is less than five percent of the 26 initial equity amount at issuance. The covered utility or regulated 27 service corporation, as applicable, shall fund such redemption, whether 28 through retained earnings, a capital contribution from the covered util- 29 ity's parent company, or any other source of equity capital. Upon such 30 redemption, the equity represented by the redeemed series shall revert 31 to the covered utility's common equity in the regulated service. The 32 commission may defer the mandatory redemption date by up to two years 33 upon a showing by the covered utility that immediate redemption would 34 materially impair its financial condition. 35 (d) In the event of any merger, acquisition, or change of control of 36 the covered utility or, where applicable, the regulated service corpo- 37 ration, the successor entity shall assume all obligations to holders of 38 outstanding auction equity interests on terms no less favorable than 39 those in effect immediately prior to such transaction. No such trans- 40 action shall be consummated without a determination by the commission 41 that the rights of holders of auction equity interests will be adequate- 42 ly preserved. The commission may require the terms of each series of 43 auction equity interests to include a provision entitling holders to 44 redemption at then-current book value upon any change of control, at the 45 option of the holder. 46 (e) In the event of the insolvency or dissolution of a regulated 47 service corporation or regulated service LLC, or the permanent discon- 48 tinuation of the regulated service to which auction equity interests 49 relate, outstanding auction equity interests shall participate in any 50 distribution of remaining assets on a pari passu basis with the covered 51 utility's common equity in the regulated service, in proportion to their 52 respective outstanding equity amounts, in accordance with subparagraph 53 (v) of paragraph (a) of this subdivision. Nothing in this paragraph 54 shall be construed to create any priority or preference in favor of, or 55 against, holders of auction equity interests relative to the covered 56 utility's common equity.

S. 10424 14

1 9. The auction shall be open, at minimum, to all accredited investors 2 as that term is defined under applicable federal securities law, or any 3 successor provision. Each qualified bidder shall, as a condition of 4 participation, certify in writing to the independent auction administra- 5 tor that: the bidder is submitting its bid based solely on its own 6 assessment of the risk-adjusted financial return of the auction equity 7 interest, and not for the purpose of, or with the effect of, artificial- 8 ly suppressing or inflating the auction-clearing return; and the bidder 9 is not acting in concert with any other bidder or with the covered util- 10 ity or any of its affiliates with respect to the formulation of its bid. 11 Any bidder that is itself an investor-owned electric, gas, or water 12 utility subject to cost-of-service regulation by any state or federal 13 regulatory authority, or a holding company that directly or indirectly 14 controls such a utility, shall be ineligible to participate as a bidder, 15 except that the covered utility, its parent company, and any affiliates 16 may participate as bidders, subject to any existing code of conduct 17 policies for affiliate transactions and any further eligibility require- 18 ments established by the commission to prohibit inappropriate preferen- 19 tial treatment in the bidding process. This exclusion shall not apply to 20 any registered investment company, investment adviser, or other institu- 21 tional investor whose ownership of any such utility is solely as a 22 passive investor in diversified portfolios. Holdings by such institu- 23 tional investors in auction equity interests issued pursuant to this 24 section shall not be counted toward any investment limitation applicable 25 to ownership of the covered utility or its common equity under applica- 26 ble state law. The commission shall promulgate rules to implement the 27 exclusion and certification requirements of this subdivision, including 28 procedures for investigation and disqualification of bidders who submit 29 false certifications or who are found to have violated the prohibition 30 on coordinated bidding. 31 10. Where the commission or a court of competent jurisdiction has made 32 a formal finding that a covered utility has engaged in unlawful or 33 imprudent conduct that has materially increased the covered utility's 34 cost of equity for a regulated service, the commission may, in its 35 discretion, exclude the portion of any increase in the authorized return 36 on equity for such regulated service that is attributable to such 37 conduct from the return applicable to the covered utility's common equi- 38 ty. No auction equity interest, whether issued before or after such 39 finding, shall be subject to this exclusion; all auction equity inter- 40 ests shall continue to bear the auction-clearing return established in 41 the auction in which they were issued without reduction on account of 42 any exclusion under this subdivision, it being the intent of this subdi- 43 vision that only the covered utility's common equity shall bear the 44 financial consequences of such exclusion. Nothing in this subdivision 45 shall limit the authority of the commission to impose penalties, disal- 46 lowances, or other remedies available under applicable law. 47 11. (a) A covered utility may, at any time before or after conducting 48 a competitive equity auction, form a regulated service corporation and a 49 regulated service LLC for a regulated service. The regulated service 50 corporation shall be a wholly-owned subsidiary of the covered utility, 51 organized as a corporation under the laws of any state, and treated as a 52 corporation for federal income tax purposes. The regulated service LLC 53 shall be a wholly-owned subsidiary of the regulated service corporation, 54 organized as a limited liability company, and treated as a disregarded 55 entity for federal income tax purposes. The regulated service LLC shall 56 hold all material assets, rights, franchises, and obligations associated

S. 10424 15

1 with the regulated service. The regulated service corporation shall 2 serve as the issuer of auction equity interests for that regulated 3 service. Formation of a regulated service corporation and regulated 4 service LLC is not a prerequisite to conducting an auction under this 5 section, and the absence of such entities shall not impair the validity 6 of auction equity interests issued by the covered utility. 7 (b) In any competitive equity auction conducted before a regulated 8 service corporation and regulated service LLC have been established, the 9 commission shall require the covered utility to disclose to all quali- 10 fied bidders that auction equity interests are being issued as direct 11 obligations of the covered utility and are subject to the risks of any 12 insolvency, bankruptcy, or restructuring proceedings affecting the 13 covered utility or its affiliates. The commission shall specify the form 14 and content of such disclosure as part of its implementing regulations 15 under subdivision six of this section. 16 (c) Each covered utility shall ensure that all long-term indebtedness 17 with a stated maturity greater than one year issued or incurred on or 18 after the effective date of this section, whether in the form of bonds, 19 notes, debentures, or otherwise, includes a covenant expressly permit- 20 ting the covered utility to transfer the assets, franchises, rights, and 21 obligations associated with each regulated service to a regulated 22 service corporation or regulated service LLC without such transfer 23 constituting a default, event of default, or breach under such indebt- 24 edness. The commission shall not approve any long-term debt financing by 25 a covered utility that does not include such a covenant. For the avoid- 26 ance of doubt, nothing in this subdivision requires a covered utility to 27 restructure, refinance, or assign any indebtedness outstanding as of the 28 effective date of this section in advance of the formation of a regu- 29 lated service LLC pursuant to this subdivision; the allocation and 30 assumption of existing indebtedness upon formation of a regulated 31 service LLC shall be governed by subparagraph (ii) of paragraph (f) of 32 this subdivision. 33 (d) Each covered utility that has not yet established a regulated 34 service corporation and regulated service LLC shall use commercially 35 reasonable efforts to do so no later than five years after the effective 36 date of this section, or five years after the date of the covered utili- 37 ty's first competitive equity auction, whichever is later. The commis- 38 sion may extend this period upon a showing by the covered utility of 39 good cause, which may include the inability to obtain required bondhold- 40 er or creditor consents despite commercially reasonable efforts. 41 (e) Where a covered utility has established a regulated service corpo- 42 ration and regulated service LLC, each such entity shall be structured 43 and operated as a bankruptcy-remote special-purpose entity, in compli- 44 ance with standards to be established by the commission by regulation, 45 which shall include at minimum: (i) maintenance of books of account, 46 bank accounts, and financial records separate from those of the covered 47 utility and any affiliate; (ii) prohibition on commingling of assets; 48 (iii) a requirement that the organizational documents of the regulated 49 service LLC include at least one independent manager whose affirmative 50 consent is required for any voluntary bankruptcy filing by the regulated 51 service LLC or the regulated service corporation; (iv) a covenant by the 52 covered utility not to cause or encourage any involuntary bankruptcy 53 filing against the regulated service corporation or the regulated 54 service LLC; and (v) restrictions on indebtedness of the regulated 55 service corporation and the regulated service LLC except as approved by 56 the commission. The regulated service corporation shall conduct no

S. 10424 16

1 activities other than holding a membership interest in the regulated 2 service LLC and serving as the issuer of auction equity interests, and 3 shall hold no assets other than its membership interest in the regulated 4 service LLC and any cash or other assets incidental thereto. Formation 5 of both the regulated service corporation and the regulated service LLC 6 shall require such approvals as may be required under applicable law, 7 including approval of any transfer of utility assets or franchises. 8 Where assets are associated with more than one regulated service, such 9 assets may be held by the regulated service LLC as co-owner with one or 10 more other regulated service LLCs, with each LLC's interest propor- 11 tionally allocated in a manner approved by the commission for ratemaking 12 purposes. 13 (f) Capital structure and indebtedness of the regulated service LLC: 14 (i) Each regulated service LLC shall maintain a capital structure for 15 the regulated service consistent with the capital structure authorized 16 by the commission for ratemaking purposes, including both debt and equi- 17 ty components. The equity component of the regulated service to which 18 the authorized return on equity applies shall consist of the regulated 19 service corporation's equity interest in the regulated service LLC, as 20 funded by the proceeds of auction equity interests and the covered util- 21 ity's retained interest. Interest on indebtedness of the regulated 22 service LLC shall be treated as a cost of the regulated service for 23 ratemaking purposes; 24 (ii) Upon formation of a regulated service LLC, the commission shall 25 determine the portion of the covered utility's outstanding indebtedness 26 that is allocable to the regulated service, applying the methodology it 27 uses or would use to allocate the covered utility's capital structure 28 among regulated services for ratemaking purposes. The regulated service 29 LLC shall assume such allocated indebtedness as primary obligor, and the 30 covered utility shall provide an unconditional and irrevocable guaranty 31 of all assumed indebtedness for the remaining term of each such obli- 32 gation. Such assumption shall not constitute a default, acceleration 33 event, assignment, or breach under any such indebtedness, notwithstand- 34 ing any provision of the applicable instrument to the contrary; 35 (iii) Following formation, the regulated service LLC shall issue its 36 own debt to finance the debt component of its capital structure. Such 37 debt shall be secured by the regulated service assets held by the regu- 38 lated service LLC and shall not require a guaranty by the covered utili- 39 ty unless the commission determines, upon a showing by the covered util- 40 ity, that a guaranty is necessary to obtain financing on terms 41 consistent with the public interest. Any such guaranty shall be limited 42 in scope and duration to the minimum the commission determines to be 43 necessary; 44 (iv) For any period during which the covered utility guarantees 45 indebtedness of a regulated service LLC, the covered utility shall be 46 entitled to a guaranty fee, recoverable in rates as a cost of the regu- 47 lated service. The guaranty fee shall be set by reference to the cost of 48 obtaining a comparable unconditional irrevocable financial guaranty from 49 an unaffiliated financial institution, as determined by one or more bona 50 fide quotes solicited by the commission or its assign. The commission 51 shall set the guaranty fee at or below the lowest such quote. The guar- 52 anty fee shall terminate with respect to each obligation upon the earli- 53 er of: the maturity or refinancing of such obligation without a covered 54 utility guaranty; or the release of the covered utility's guaranty with 55 respect to such obligation; and

S. 10424 17

1 (v) The rate base of the regulated service LLC shall be determined in 2 accordance with subdivision nine of section twenty-eight-b of this arti- 3 cle relating to rate base. For the avoidance of doubt, the principles of 4 subdivision nine of section twenty-eight-b of this article apply equally 5 to a regulated service whose assets are held by a regulated service LLC 6 and to a regulated service whose assets are held directly by the covered 7 utility. 8 (g) Upon establishment of a regulated service corporation and regu- 9 lated service LLC, the regulated service corporation shall become the 10 issuer of all subsequent auction equity interests for the applicable 11 regulated service. The commission may, on such terms as it determines to 12 be in the public interest, authorize the covered utility to offer hold- 13 ers of outstanding auction equity interests the option to convert their 14 interests to equivalent interests issued by the regulated service corpo- 15 ration. 16 (h) Notwithstanding the foregoing provisions of this subdivision, a 17 covered utility that: provides only one regulated service subject to the 18 jurisdiction of the commission, or whose multiple categories of service 19 have been determined by the commission to warrant consolidated treatment 20 as a single regulated service pursuant to subdivision four of section 21 twenty-eight-a of this article; and does not engage in any material 22 business activity other than the provision of that regulated service 23 shall not be required to form a regulated service corporation or regu- 24 lated service LLC. Such a covered utility may issue auction equity 25 interests directly, and all references in this article to a regulated 26 service corporation or regulated service LLC shall, as applied to such a 27 covered utility, be construed as references to the covered utility 28 itself. 29 § 28-d. Reporting and transparency. 1. Not later than January 30 fifteenth of each year, the commission shall submit to the governor and 31 the legislature a report on the implementation of this article. Such 32 report shall include, but need not be limited to, the following: 33 (a) each covered utility's requested return on equity, rate of return, 34 and capitalization mix proposed as part of its most recent rate amend- 35 ment application, together with the corresponding data for the preceding 36 three rate amendment applications; 37 (b) the actual return on equity, rate of return, and capitalization 38 mix authorized by the commission for each covered utility in the most 39 recent three rate amendment proceedings; 40 (c) the results of any competitive equity auctions conducted pursuant 41 to section twenty-eight-c of this article for the previous five calendar 42 years; 43 (d) an analysis of the impact on average customer rates, broken down 44 by customer class, resulting from implementation of this article; 45 (e) a description, in clear and accessible language, of how authorized 46 returns on equity have changed, reflect new circumstances, or remained 47 the same during the previous year; 48 (f) all data used for calculations under this article that is not 49 publicly available, together with an explanation of why it was necessary 50 to use such non-public data; and 51 (g) a summary of any enforcement actions taken. 52 2. The annual report shall be published online on the commission's 53 website and made publicly available. 54 § 4. Applicability to State-Jurisdictional Rate Base. This act shall 55 apply only to the portion of a covered utility's rate base that is 56 subject to the ratemaking jurisdiction of the public service commission.

S. 10424 18

1 Nothing in this act shall be construed to apply to, modify, or otherwise 2 affect the return on equity applicable to any facilities, assets, or 3 services for which the rate of return is determined by the Federal Ener- 4 gy Regulatory Commission or any other federal regulatory authority. To 5 the extent that a covered utility's rate base includes both state-juris- 6 dictional and federally jurisdictional components, the public service 7 commission shall establish procedures to allocate the rate base between 8 those components. The authorized return on equity determined under this 9 act shall be applied solely to the state-jurisdictional component. 10 § 5. Severability. If any clause, sentence, paragraph, subdivision, 11 section or part of this act shall be adjudged by any court of competent 12 jurisdiction to be invalid, such judgment shall not affect, impair, or 13 invalidate the remainder thereof, but shall be confined in its operation 14 to the clause, sentence, paragraph, subdivision, section or part thereof 15 directly involved in the controversy in which such judgment shall have 16 been rendered. It is hereby declared to be the intent of the legislature 17 that this act would have been enacted even if such invalid provisions 18 had not been included herein. 19 § 6. This act shall take effect on the one hundred twentieth day after 20 it shall have become a law and shall apply to any rate proceeding initi- 21 ated on or after such effective date.

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