Opinion ID: 2207303
Heading Depth: 1
Heading Rank: 1

Heading: The Canceled Plant Projects.

Text: Interstate invested substantial amounts of money in two proposed generating plants which were ultimately canceled. The board permitted Interstate to recover its investment through rates charged its customers on the ground that the initial investments, as well as the ultimate decisions to cancel them, were prudent when made. A. The substantial evidence issue. OCA argues that the board's findings as to the canceled plant projects were not supported by substantial evidence, and, OCA contends, the board (1) acted in violation of its own accounting rules, and (2) violated the used and useful principle. B. The accounting rules issue. OCA argues that the board violated its own accounting rule, 199 Iowa Admin.Code 16.-2(9), by allowing the costs of the canceled plant to be charged to ratepayers. That rule provides: Accounts 421.1 or 421.2 as they are defined and exist in the uniform system of accounts, shall be used to account for the gain or loss on the sale, conveyance, exchange, or transfer of utility or other property, including land and land rights, unless otherwise authorized or required by the board for good cause shown. If this rule were applied here, OCA argues, the canceled plant costs would not be passed on to ratepayers. As the board points out, however, accounting rules are not binding in rate-fixing cases. This is specifically provided by 199 Iowa Administrative Code 16.1(2), which provides, in relevant part: Effect of rules. In prescribing uniform systems of accounts for public utilities, the board does not commit itself to the approval or acceptance of any item set out in any account for the purpose of fixing rates or in determining other matters before the board. Moreover, as we noted in Office of Consumer Advocate v. Iowa State Commerce Commission, 395 N.W.2d 1, 5 (Iowa 1986), a rule such as accounting rule 16.2(9), if applied in future rate cases, would be in the nature of an advisory opinion and would not be binding on the board in a future rate case. Also, the board is free to change its rules and procedures. Id. We find no error in the board's refusal to apply the accounting rule here. C. The used and useful issue. In the recent case of Office of Consumer Advocate v. Iowa Utilities Board, 449 N.W.2d 383 (Iowa 1989), we stated that [t]he used and useful standard is derived from United States Supreme Court holdings that a utility is entitled to a reasonable return on the value of property used to render services, but it is not entitled to have included any property not used or useful for that purpose. Id. at 386 (quoting Iowa-Illinois Gas & Electric v. Iowa State Commerce Comm'n, 347 N.W.2d 423, 428 (Iowa 1984)). In Office of Consumer Advocate, we held that the used and useful rule does not restrain the board in allowing recovery of canceled plant projects through amortization and that this rule cannot be applied outside rate base questions without doing violence to the whole scheme of public utility law. Office of Consumer Advocate, 449 N.W.2d at 387. In this case, the board allowed a recovery of the investment, but denied recovery on the investment (by refusing to include the unamortized balance in Interstate's rate base). Thus, the board took the middle ground on this controversy. Because the board refused to allow inclusion of the canceled plant projects in the company's rate base, the used and useful rule is inapplicable. Id. We conclude that the board acted within its authority on this issue and should be affirmed. Allowance by a utility of the prudent investment in canceling generating projects has been the majority rule. As the Washington Supreme Court has noted, [a]pproximately 100 state regulatory agencies in some 33 jurisdictions have faced the question of how to allocate the burden of costs associated with abandonment of power plant projects. As the Supreme Judicial Court of Massachusetts summarized in Attorney Gen. v. Department of Pub. Utils., 390 Mass. 208, 455 N.E.2d 414, 422 (1983): A substantial majority of the public regulatory agencies that have considered the question have permitted a utility to recover all or some portion of the prudently incurred costs of a nuclear power plant reasonably abandoned before completion. (Footnote omitted. Italics ours.)