Opinion ID: 695143
Heading Depth: 1
Heading Rank: 2

Heading: ability to estimate costs

Text: 8 First, we take up Norwood's challenge that forecasts of future retiree medical costs are too speculative and difficult to ascertain. 9 The Commission's policy is to allow recovery of only those costs that are known and measurable. 61 F.E.R.C. p 61,331 at 62,216. In this case, the Commission concluded that the cost of post-retirement medical benefits can be calculated with sufficient accuracy to be considered known and measurable. Id. at 62,217. 10 The cost of currently accruing PBOPs depends largely on future medical costs, which admittedly must be estimated. As Norwood points out, this estimation is inherently subject to uncertainty. For instance, NEP's actuary estimated an average medical inflation rate of 12% for the years 1991-95, but in 1991 it was only 2.71%. The Commission, however, routinely faces circumstances in which ratemaking requires estimations and future cost predictions. These are matters largely of policy and expertise. In this case, the Commission neither exceeded its discretion nor deviated from past practice in concluding that the necessary estimations in this case are within the bounds of the known and measurable standard. 11 Long-range estimates are an integral feature of ratemaking and financial analysis in general, and we have regularly approved reliance on admittedly imperfect future cost estimates. In Towns of Concord, Norwood and Wellesley v. FERC, 729 F.2d 824 (D.C.Cir.1984), for instance, this court upheld the inclusion in rates of estimates of future spent nuclear fuel disposal costs against charges that the costs were too distant and uncertain. The estimations necessary for accrual accounting are not out of line with the estimations that are a standard feature of ratemaking. 12 In addition, as the Commission noted, there are sturdy protections in the facts that (1) the estimate will be revised with each new rate application, and (2) any over-collection resulting from an overestimate must be applied to reduce future rates. Thus, estimation problems, though not insubstantial, do not create a long-term danger of unfairness. Given the choice between relying on imperfect but revisable long-range estimation and failing to recognize at the present time what can properly be characterized as deferred costs of current employment, FERC was well within its discretion in authorizing rates based on the long-term estimates.