Utilities file rate cases for the recovery of capital spent on their rate bases. Regulatory lag for a utility (IDU) refers to the difference of time between capital spending and rate recovery.
We should note here that the average regulatory lag for utilities has remained around ten months for investor-owned utilities’ rate cases in 2016. This average is consistent with the 30-year average regulatory lag trend.
Remember, the higher the regulatory lag, the longer it takes for rate recovery. For this reason, US utilities (XLU), in order to minimize regulatory lag, employ policies such as filing multiyear rate plans, taking forward years for test periods.
You can check out Market Realist’s series Xcel Energy’s Growth May Perk up If Regulatory Lag Is Addressed for more detail.
In the next part of this series, we’ll take a closer look at utility prices in 2017.