Opinion ID: 4912575
Heading Depth: 2
Heading Rank: 1

Heading: The used-and-useful test

Text: {¶ 17} The used-and-useful test allows a public utility to recover through rates the value of that portion of its property that is “ ‘actually used and useful for the convenience of the public.’ ” Cincinnati v. Public Util. Comm., 113 Ohio St. 6 January Term, 2021 259, 148 N.E. 817 (1925), syllabus, quoting G.C. 614-23. Whether something is used and useful must be measured “ ‘as of the date certain,’ not at some speculative unspecified point in time.” Office of Consumers’ Counsel v. Pub. Util. Comm., 67 Ohio St.2d 303, 309, 423 N.E.2d 1082 (1981), quoting R.C. 4909.15(A)(1). Thus, a public utility is not entitled to include in the rate-base valuation “property not actually used or useful in providing its public service, no matter how useful the property may have been in the past or may yet be in the future.” Office of Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 449, 453, 391 N.E.2d 311 (1979). {¶ 18} The used-and-useful test has been a feature of ratemaking in Ohio since 1911. H.B. No. 325, 102 Ohio Laws 549, 556-557 (enacting G.C. 614-23, predecessor section to R.C. 4909.15). The test has its genesis in the United States Supreme Court’s decision in Smyth v. Ames, 169 U.S. 466, 42 L.Ed. 819, 18 S.Ct. 418 (1898). In that case, the court articulated a constitutional standard for publicutility ratemaking that required that a utility receive a fair market value of the property being used “for the convenience of the public.” Id. at 546. In the court’s view, anything less would have led to an unconstitutional taking. See id. at 523; see also Jersey Cent. Power & Light Co. v. Fed. Energy Regulatory Comm., 810 F.2d 1168, 1175 (1987) (Robert Bork, J.) (discussing Smyth). {¶ 19} Smyth’s holding presented a two-way street. On one side, customers had to pay for the property they used for their benefit. See Smyth at 547. On the other, a public utility could not receive compensation for property that did not benefit its customers. See id. “Fair value” compensation was therefore due only for property used and useful for the convenience of the public. See Jersey Cent. Power at 1175. {¶ 20} The Supreme Court has long since abandoned the used-and-useful test as a constitutional mandate, requiring only the end result that ratemaking be “just and reasonable.” See Duquesne Light Co. v. Barasch, 488 U.S. 299, 310, 109 7 SUPREME COURT OF OHIO S.Ct. 609, 102 L.Ed.2d 646 (1989), citing Fed. Power Comm. v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944). Nevertheless, the test continues to be the standard that the Ohio legislature has chosen to determine whether a public utility may properly charge ratepayers for its capital investment.