Opinion ID: 1929636
Heading Depth: 1
Heading Rank: 2

Heading: cash working capital allowance

Text: OPC asserts that the Commission erred in that the cash working capital allowance it awarded WGL was excessive. Cash working capital allowance is defined as an amount which the company (investors) must supply from its own funds for the purpose of enabling it to meet current obligations as they arise due to the time lag between payment of expenses and collection of revenues. People's Counsel v. Public Service Commission, D.C.App., 399 A.2d 43, 46 (1979) (citation omitted) (emphasis in original). Since investors are entitled to a return on these advances, a cash working capital allowance is included in the rate base. WGL requested a cash working capital allowance of $6,084,750. OPC recommended an allowance of negative $537,000. The Commission denied WGL's request for inclusion of compensating bank balances in the allowance, but otherwise approved WGL's request and awarded the company a cash working capital allowance of $5,453,000. Although the company requested a higher amount, it does not appeal this portion of the Commission's order. OPC appeals the amount of the cash working capital allowance on five grounds. As we noted earlier, the scope of our review is narrow. Id. at 45. Initially, the utility has the burden of proving its need for cash working capital. Id. at 47. Once the utility has borne this burden, however, and the Commission has determined the amount needed, we may not set aside the amount authorized by the Commission absent an abuse of discretion. Id. With these precepts in mind, we proceed to an analysis of the particular objections by the OPC to the amount of cash working capital allowance authorized by the Commission.
OPC contends that the cash working capital allowance should have been reduced by the amount of the incremental income taxes associated with the increased revenues from the rate increase. The Commission, however, rejected such an adjustment, noting that additional taxes would have no effect on the computed expense lag. The Company used a lead-lag study, [3] based upon test period experience data, to calculate the cash working capital allowance. In the lead-lag study relied upon by the Company, dollar day lead or lag times were assigned to income tax payments and, thus, the incremental tax payments were taken into account in the Company's calculations. In choosing to credit the Company's cash working capital allowance calculation, the Commission implicitly took into consideration the fact that actual expenses and actual revenues in the utility's actual year may vary from those in the test year used in the study; this, however, should have no effect on the calculated expense lag. We defer to the Commission's use of a lead-lag methodology in calculating cash working capital allowance and, consequently, conclude that the Commission did not err in refusing to reduce the cash working capital allowance by the amount of the incremental income taxes.
D.C.Code 1981, § 47-2501 provides that each gas company must make an affidavit on or before the 1st day of August each year as to the amount of its ... gross earnings or gross receipts, as the case may be, for the preceding year ending the 30th day of June, and each gas company... shall pay to the Collector of Taxes of the District of Columbia per annum 6 per centum on such gross receipts.... OPC asserts that the gross receipts taxes are paid after the money for these taxes is collected from the customers and, consequently, the cash working capital allowance should be reduced a corresponding amount. The Commission found no merit in this argument. It concluded that although the tax liability was calculated on the previous year's gross receipts, the taxes were actually paid in three advance installments. After examining the record, we conclude that there is sufficient evidence to support the Commission's determination that the gross receipts taxes were prepaid and, consequently, should not be deducted from the cash working capital allowance.
OPC also argues that WGL's use of a levelized billing plan reduces its need for cash working capital. The Commission, noting that WGL's estimate of the net expense lag was actually too low, found that OPC's proposed adjustment was not convincing in light of the other evidence introduced. Again, we find sufficient evidence in the record to support this conclusion.
The Commission agreed with OPC's position that the cash working capital allowance should be calculated on a jurisdictional rather than a systemwide basis. However, in order to give WGL sufficient notice of the change, the Commission deferred implementation of the change until the next rate proceeding. OPC contends that the Commission abused its discretion in postponing the implementation of the jurisdictional computation. Finding no such abuse, we defer to the Commission's determination.
Finally, OPC asserts that the cash working capital allowance should be reduced by the amount of accrued interest owed to bondholders. In People's Counsel v. Public Service Commission, supra at 49-50, we directed the Commission's attention to Re Iowa Power and Light Co., 6 P.U.R.4th 446 (1974) (deducting the amount of accrued interest on long-term debt from the cash working capital allowance), for the Commission's serious consideration in formulating the rate base in future proceedings. People's Counsel v. Public Service Commission, supra at 50. However, we declined to remand for further consideration the Public Service Commission's decision not to reduce WGL's cash working capital allowance by the amount of the accrued interest because the matter [was] of insufficient magnitude to merit the unraveling of a complex rate structure solely on this account. Id. In the proceedings being reviewed, the Commission has again declined to reduce the cash working capital allowance by the amount of the accrued interest on bonds, stating that it was no more disposed to adopt such an argument than in the past and citing only People's Counsel v. Public Service Commission, supra , and its order No. 7135 in Re Potomac Electric Power Co., 36 P.U.R.4th 139 (1980). We note that in an order not cited, Re Potomac Electric Power Co., 29 P.U.R.4th 517, 555-57 (1979), the Commission gave several reasons for its decision to include only cash operating expenses in the calculation of the cash working capital allowance. Essentially, the Commission concluded that interest expense is not an operating or above the line expense and it should not be selectively included in the cash working capital allowance, just as other below the line or noncash expenses are not so included. Since the Commission has clearly articulated a basis for its treatment of accrued interest, we refer to its ruling. In light of our analyses of the five objections OPC interposed to the Commission's determination of cash working capital allowance, we decline to overturn the Commission's ruling in that regard.