A comprehensive 50-state analysis reveals residential electricity rates average 15% higher in jurisdictions that use future test years compared to those employing historical test years for utility rate cases.

The research, conducted by LaReg Corp examined test year methodologies across all U.S. utility jurisdictions and compared them against EIA residential rate data. The study identified 20 jurisdictions favoring historical test years, 26 using future test years, and 5 employing hybrid approaches.

"The choice between historical and future test years comes down to an issue of trust in utility forecasts," said Christine Vaughan, author of the report. “Historical test years have issues with regulatory lag, and they do not support infrastructure modernization when used in isolation.  However, future test years based on overly optimistic utility forecasts can include a substantial cost premium.  Adjustments are needed to both approaches to be fair to all parties.”

The findings come as states examine the issue, with Missouri recently allowing forecasted rates in bill SB 4, and Pennsylvania’s Public Utility Commission recently completing regulations allowing the use of a fully projected future test year.  “Forecasts have less bias if they are based on trends or external indices”, notes Vaughan.

The complete report, including state-by-state classifications and regulatory framework analysis, is available for download at https://lareg.ai/landing-page/.