Opinion ID: 2217179
Heading Depth: 1
Heading Rank: 2

Heading: deduction of negative working capital

Text: The next issue that goes to the rate base is the action of the PUC in adopting cities' working capital allowance, actually a negative allowance, thereby diminishing the rate base by $1,292,435. This relates to the accruals on company's books of account for taxes payable and tax collections payable but not due, which actually are the equivalent of funds contributed by ratepayers on which company is not entitled to earn a rate of return by inclusion in the base as working capital. While it would seem to be a fairly routine adjustment, we instead find three divergent views, with company and cities at opposite extremes and the PUC staff in between. In the first instance company did not claim any working capital allowance in its rate base, asserting that such a small allowance was needed that it did not justify the expense of an analysis to support the claim. Cities, however, recommended an allowance for working capital, but then claimed that because certain accruals in company's books for tax liabilities were ratepayer-contributed funds, and because the average of such accruals for the test year exceeded their proposed allowance, company's rate base should be reduced by such excess. In arriving at the figure proposed by cities, they used a standard formula hereinafter referred to as the FPC Formula, as used before the Federal Power Commission, which was applied to company's operation and maintenance expenses for the test year to arrive at a working-capital allowance from which figure were deducted what cities claimed were the accruals for tax liabilities, which amounted to ratepayer-contributed funds. While company acknowledges this court's holding in N. W. Pub. Serv. v. Cities of Chamberlain, Etc., 265 N.W.2d 867 (S.D.1978), which approved treating accrual taxes as rate base deductions, company contested cities' computation on two principal bases: (1) That the accruals on the books represent bookkeeping accruals and were not the equivalent of funds provided by ratepayers available to company for use as working capital; and (2) that the FPC Formula already takes into account the various accruals so the deduction amounted to an improper double-counting deduction. A review of the record discloses that this item was a battle of the experts with testimony supporting all views, and in that respect this court, claiming no expertise in rate making, normally gives credence to the PUC decision. Here we are faced with the PUC's total disregard of the computations of its own staff which fall midway between company's and cities'. Staff urged that the cities' computation was in error because the calculations failed to properly impact the plant's effect on working-capital requirements. It is undisputed that the effect of sales of surplus capacity from the plant very dramatically increased operation and maintenance expenses which resulted in an increase of working-capital requirement after application of the FPC Formula. Neither of the PUC decisions indicates that there is any error in the staff computation. As to company's principal argument that the book accruals do not represent actual cash available for company's use as capital, company has failed to present any evidence to prove such discrepancy. Company has the burden of justifying their rate base. Company started out ignoring working-capital allowance as too insignificant to warrant the cost of analysis. Company was certainly aware of the negative impact of the accruals from its previous experience and should have been prepared to meet the issue with actual figures. Cities and the PUC used the figures available from company's books and we are not inclined to say they had to go further. The PUC had the evidence before it and made their decision. It is not for this court to weigh the evidence. There appears to be substantial evidence on the whole record to support the PUC's decision.