Opinion ID: 1902608
Heading Depth: 1
Heading Rank: 6

Heading: the wage-price guidelines

Text: We have determined above that the rate deficiency for Alabama Power Company based upon the test year is $208,347,398. In granting the relief which is so clearly called for by such a revenue deficiency, we are aware, as indicated in our emergency order of March 6, 1979, of the guidelines promulgated by the President's Council on Wage and Price Stability and of the voluntary limitations sought for virtually all pricing in the nation. It is our intention to conform to the essential objectives of that program. We must, however, note that the Council has established exceptions to the application of these guidelines which are clearly appropriate in the case before us. The guidelines provide for exceptions in situations where their application would cause undue hardship or gross inequity (Guidelines, Section 705A-6(b)). Undue hardship is defined as a situation that seriously threatens the financial viability of a company (Guidelines, Section 706.33). An additional standard issued by the Council on March 19, 1979, provides in its Section 705C-8(d) as follows: ... Commissions [state regulatory commissions] may find it necessary to grant exceptions in order to enable utilities to raise capital in order to finance construction that is needed to serve customers or to meet Federal policies that seek to reduce dependence on oil. Circumstances under which the standard could impose a hardship for those utilities committed to such investments include: (i) pro-forma interest coverage ratios are inadequate to assure the legal minimum of bond indenture. (ii) the Market to Book ratio of outstanding common stock is below minimum levels judged by the Commission to be acceptable, a level which in our judgment would not exceed 0.9 under present circumstances for purposes of granting a hardship exemption but not for other purposes. (iii) cash flows are judged by the Commission to be inadequate. Unchallenged proof in this record shows Alabama Power Company to be in the category for which these exemptions to the guidelines are intended. It has been demonstrated that the tests of financial viability, interest coverage ratios, market-to-book ratio of common stock and adequate cash flows will not be met under the emergency rate order and that the construction of facilities which could substantially reduce dependence on oil will remain stalled until the Company's financial distress can be relieved. We hold that the Company is excepted from the guidelines upon the considerations noted. Nevertheless, it is our intention to comply with the spirit of the guidelines and with the Council's specific suggestion that commissions granting increases: adopt phasing schedules that limit the initial rate increases, exclusive of increases due to higher fuel costs to the greatest extent feasible, when such action is permitted by law, is in the long-run interest of consumers, and would be reasonable. We are phasing the increase in rates for Alabama Power Company under the order here entered. The emergency increase allowed under our order of March 6, 1979, will be made permanent and the Company will be ordered to file revised schedules to accomplish the phasing of the increases necessary to relieve the revenue deficiency which we have determined. Those phasing schedules will provide for an additional 5% increase on July 19, 1979 and another increase of 8% for the balance of the deficiency, to be made effective for service rendered on and after January 1, 1980. On the one hand, these phasing schedules will soften the impact of the rate increase upon the consumer and postpone a substantial portion of the increase until after the summer high use period. On the other hand, our approval of all steps of the schedules will give assurance of the further increases in revenue so that the Company may utilize that assurance to regain a measure of financial integrity and reopen the credit lines which have been closed to it. We shall thus expect it promptly to revive the construction program, to respond to delayed service applications, to promptly restore disconnected service, and to restore other essential operations which have been curtailed during the progress of these proceedings.