Opinion ID: 2279962
Heading Depth: 1
Heading Rank: 10

Heading: Fuel and the Working Capital Allowance

Text: The Company requested $2,217,715 working capital for a category of expense denominated fuel for generation and another $11,663,578 working capital for a separate category called fuel inventory. On the recommendation of Staff witness Bruce Louiselle, the Commission reduced the $11,663,578 request by approximately $1,943,578. The Company contests that reduction. Working capital represents the money provided by Company investors to meet day-to-day delivery of utility service. Re Continental Telephone Company of Maine, 18 PUR 4th 636, 643 (Me.P.U.C. 1977). It is included in rate base, upon which a reasonable rate of return must be allowed, when it is clear the Company is being forced to provide cash from its own funds to meet necessary expenses. Central Maine Power Company v. Public Utilities Commission, 156 Me. 295, 335, 163 A.2d 762, 784 (1960). The issue of what working capital allowance is here appropriate for fuel arises out of the combined testimony of Staff witness Bruce Louiselle and Company witness Douglas Stevenson. Both witnesses were in agreement that between the time electricity is provided and the time it is paid for by the consumer there is a lag, on average, of 45 days, the so-called revenue lag. Mr. Stevenson found that the vendor-financing periodthat is, the period from the time fuel is delivered to the Company to the time the Company pays for the fuelis on average 17.1 days. Subtracting 17.1 from 45, Mr. Stevenson computed a net revenue lag of 27.9 days. For 27.9 days, according to Mr. Stevenson, the Company is forced to finance the fuel cost of electricity generation itself and therefore requires a working capital allowance. The Company's $2,217,715 working capital request for fuel for generation accordingly reflects this 27.9 day revenue lag. The Company's $11,663,578 working capital request for fuel inventory, on the other hand, appears from the record to be an unadjusted thirteen month test-year average of the per books monthly balance of fuel inventory. Staff witness Louiselle did not disagree that 27.9 days is a proper revenue lag figure for the fuel for generation request; he appears to have adopted it in his own lead-lag study. In addition, however, Louiselle made an adjustment to the Company's fuel inventory working capital request. He explained that: unlike other expenses, oil first goes into inventory, a balance sheet account, before it becomes an expense. Given this lag in payment, a portion of the inventory amount is continually unpaid for, i. e. financed by vendors and not investors. ... Mr. Stevenson indicates that fuel oil is paid for approximately 10 days after the documentation is received. Assuming a 60-day supply of fuel on hand in inventory [60 days being conceded by both parties], a 10-day payment lag would mean that one sixth or 16.67% of fuel oil inventory is vendor financed on a continual basis. I have reduced the per books average of fuel oil inventory by 16.67%. The Company argues on appeal that there can be only one vendor financing period; that that period is either 17.1 days or it is 10 days, but it cannot be both; and to adopt Mr. Stevenson's 27.9 day revenue lag for fuel for generation and, in addition, to reduce the per books fuel inventory by one-sixth was unjustified. The Commission observed in its decision that the Company's contentions may be correct. Nevertheless, because the Company did not in a rebuttal case introduce affirmative evidence showing how Mr. Louiselle's adjustment to fuel inventory was mistaken, the Commission rejected the Company's position on the ground it had failed to carry its burden of proof. See 35 M.R.S.A. §§ 69, 307. The record raises too many questions for us to affirm the Commission's decision. We will therefore remand for the taking of additional evidence in accordance with the following guidelines. The Company on remand should explain to the Commission why, for purposes of requesting working capital, it asked for $2,217,715 under the heading fuel for generation and another $11,663,578 under the heading fuel inventory. On the record before us the Company's basis for erecting two separate categories of fuel expense is not at all clear. If, as the Company asserts, fuel inventory requires no vendor financing adjustment so long as fuel for generation has been adjusted for vendor financing, the Company should define what is embraced by the category fuel for generation; from the nature of the utility's function, it is tempting to assume that fuel inventory is fuel for generation, and vice versa. Second, the Company should be more explicit regarding its methods of fuel accounting. We cannot tell from this record, for example, what the parties mean when they assert that fuel is expensed when burned. The 45-day revenue lag computed by Mr. Stevenson appears to run from the day a particular quantum of electricity is provided by the Company to the day the Company receives consumer payment for it. Presumably, the day a particular quantum of electricity is provided is the same day on which the Company burns the fuel that generates that electricity. Given (1) Mr. Stevenson's characterization of an expense lag as the average interval between the date that expenses were incurred [by the Company] and the date Company funds were disbursed to pay for those expenses, and (2) Mr. Stevenson's assertion that the Company's net working capital requirement equals its revenue lag less its expense lag, the Company should clarify, within the meaning of this definition, whether or not fuel expenses are incurred on the day that fuel is burned. If fuel expenses are incurred earlier e. g., on the day of fuel delivery or at the time documentation of delivery is receivedthen the Company should explain why, at least in the case of fuel, its revenue lag should not begin to run as of that earlier date. Obviously, if Mr. Stevenson's expense lag of 17.1 days were to be subtracted from a revenue lag greater than 45 days, then the Company's net working capital requirement on fuel for generation could hardly be as large as the Company presently insists. [8] Third, and finally, the record leaves us uncertain whether the Company is seeking to receive rate reimbursement of fuel costs that the legislature has separately provided for under the fuel adjustment provision, 35 M.R.S.A. § 131 (Supp.1980-81). See Central Maine Power Company v. Public Utilities Commission, Me., 414 A.2d 1217, 1226-29 (1980). On remand, this point should be clarified.