Stay-Out Premiums, Penalties, and Multi-Year Regulatory Rate Plans

Multi-year regulatory rate plans are becoming more common. An agreement to "stay out" of the rate revision process removes an option for the utility company or regulatory commission to request a modification to tariff rates in response to changes in interest rates. This paper develops an objective approachto adjust the utility’s required costof equityto account for these lost options. The paper also shows how to account for the ability of the utility to pay a fixed monetary penalty to request a rate review prior to the end of the stay-out period.