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Reducing Regulatory Burden With Materiality Thresholds for Review of Cost of Service Rate Applications, AUC Bulletin 2020-25

Link to Bulletin Summarized

Bulletin – Rates – Reducing Regulatory Burden

One of the key themes articulated in the AUC’s strategic plan for 2019-2022 was increased efficiency and reduced regulatory burden. The AUC indicated it understands the importance of cost-effective, timely, and proportionate regulation and has undertaken a new initiative to improve the efficiency of its review of cost of service rate applications. The AUC explained that materiality thresholds create a more effective and efficient regulatory process by focusing examination on material issues and by avoiding the time, effort, and resulting costs to investigate marginal cost differences.

The AUC announced that effective immediately, it is implementing materiality thresholds for testing the revenue requirement for operations and maintenance (“O&M”) costs in cost of service applications. Materiality thresholds will be used to test variances between approved, actual, and forecast O&M costs. Materiality will be applied to O&M accounts at the uniform system of account and prime account level and the threshold will vary depending on the total forecast revenue requirement of the utility as follows:


The AUC stated that variances below these thresholds would not be expected to be explained by the applicant nor questioned by the AUC or other parties. However, a review of costs or issues below the materiality threshold will be permitted if the cost item or issue is precedent-setting or invokes regulatory accounting principles, adherence to AUC rules, or previous directions. The AUC noted that any request for an exception to examine a cost below these thresholds must be supported by a compelling explanation of the rationale, precedent, or principle at stake. Absent an AUC order allowing for exceptions, information requests or other materials purporting to examine costs below these materiality thresholds would be excluded from the record of this proceeding and any related costs claimed will be disallowed.

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