Opinion ID: 2279962
Heading Depth: 1
Heading Rank: 13

Heading: Exclusion from Rate Base of All Property Held for Future Use

Text: The Company attacked the definite plan standard for inclusion in rate base of land held for future use by asserting that, so long as such property was purchased prudently and in good faith, all of it should be included in rate base. The Rate Reform Committee takes exactly the opposite position, contending that until property is used and useful in providing electricity, shareholders alone should bear the burden of its acquisition. The Committee's concern centers primarily upon the purchase of land on Sears Island for use in constructing a coal-fired plant. Because the Company has a petition to construct that plant presently pending before the PUC, it cannot be said with certainty that the facility will ever be built. Until the hearings in the instant proceeding, the Company held an option on the Sears Island land. During the hearings it exercised that option and immediately proposed to include in rate base that portion of the total purchase price that represents the Company's anticipated ownership in the completed plant. The PUC allowed this inclusion, basing its decision on the existence of a definite plan. It explained in part: The Staff does not object to the inclusion of the lease payment but contends that there is no definite plan to justify inclusion of the cost of the purchased land. The definiteness of the Company's plan to use the land at Sears Island does not vary, however, depending on whether the Company owns the land outright or makes payments under an option. The Company has sought reconsideration of this Commission's original rejection of the proposal to build Sears Island and hearings are now underway. Regardless of the outcome of that proceeding, it is clear at this point that a definite plan exists.  (emphasis added). The Rate Reform Committee claims that when the legislature mandated inclusion in rate base of property that is used or required to be used in ... service to the public, the legislature meant to include only property that is used and useful in such service. We agree with the PUC that, if this had been the legislature's intent, there would have been no need for use of the disjunctive or in the phrase used or required to be used. See 35 M.R.S.A. § 52. The Committee also cites a number of jurisdictions that have excluded from rate base all property held for future use. E. g., Re Utah Power and Light Co., 29 PUR 4th 399, 403 (Idaho P.U.C.1979); Re Southwestern Bell Telephone Co., 28 PUR 4th 519, 528 (Kan.S.C.C.1979). The PUC notes that, other jurisdictions, claimed by it to be the majority, approve and employ a definite plan standard. See, e. g., Re Southwestern Public Service Co., 27 PUR 4th 302, 305-07 (N.M.P.S.C.1978); Pennsylvania Public Utilities Commission v. West Pennsylvania Power Co., supra; Re Central Vermont Public Service Corp., supra. The Committee's last contention is that inclusion in rate base of some properties held for future use is impermissibly inconsistent with the PUC's treatment of AFUDC/CWIP. Whereas the Commission insists on capitalizing AFUDC at the gross rate in order to assure that a return on plants under construction will be provided only by the ratepayers benefitting from those plants, the Commission is content, the Committee argues, to let current ratepayers pay for land that may never redound to their benefit. As we have frequently observed, the legislature has vested the PUC with the authority and obligation to exercise its expertise and skill in the setting of just and reasonable rates. See, e. g., New England Telephone & Telegraph Company v. P. U. C., supra, 390 A.2d at 48. In undertaking to fulfill that obligation, the Commission need not have a consistent theoretical rationale in its disposition of various problems arising in different contexts. As a matter of practical regulation, the Commission's disposition in one context may be reasonable and acceptable even though the theory underlying it may not be consistent with what has been done, and reasonably so, in another context. Here, the very presence of the Company's and the Committee's conflicting positions over the issue of treatment of land held for future use tends to show the reasonableness of the definite plan standard. The PUC has argued that the standard recognizes both the need of utilities to acquire property in advance of its in-service date and the need of ratepayers to pay a return only on that property from which they have a reasonable guarantee of receiving service. We agree. The standard lies well within the PUC's discretion. The entry shall be: (1) The Section 303 appeal and cross-appeal of the intervenor are denied. (2) The Section 303 appeal and the Section 305 complaint of the Company are sustained in that part raising the issues whether (a) the PUC's ordering a phasing out of the employee discount violates the federal Constitution, (b) the PUC's removing from rate base a defective muffler at replacement cost instead of at original cost less depreciation is supportable, and (c) the PUC's manner of reducing the Company's working capital requirement by fuel inventory is supportable. As to said issues, the case is remanded to the Commission for further proceedings in accordance with the opinion herein. (3) The Section 303 appeal and the Section 305 complaint of the Company are denied in that part raising issues other than those referred to in item (2) of this order of entry. All concurring.