Opinion ID: 1493809
Heading Depth: 1
Heading Rank: 3

Heading: Measurable Harm Standard

Text: The Commission applied the following standard in determining whether to grant WTU's request for deferred accounting treatment: 1. Whether the company's current financial integrity is so fragile that it would not have access to the capital markets on reasonable terms unless it is allowed to continue to accrue AFUDC and defer the expenses associated with a new plant during the period of operation before rates are in effect that reflect the cost of the plant. 2. Whether the company's financial condition will be measurably harmed during the deferral period if it is not allowed to continue to accrue AFUDC and defer and capitalize the expenses related to the plant. 3. Whether the accounting treatment proposed by the company accords with GAAP. Docket 7289, supra note 1, at 347 (Conclusion of Law 8). In applying this standard, the Commission considered first whether the financial integrity of the utility would be at risk if deferred accounting was not allowed. If not, the Commission would still grant the request if the utility's financial condition would be measurably harmed without deferred accounting. In order to establish measurable harm, the utility must establish that a plant addition [is] so large relative to the size of the utility that it would normally require a utility to request a major rate change. Id. at 328-29, 347 (Conclusion of Law 9). The OPUC contends that the measurable harm standard is in reality a non-standard because any utility bringing a generation plant on line would be benefitted by deferred accounting treatment; thus, the impact on its financial condition would be measurable. We agree. In State of Texas v. Public Utility Commission , we held that the Commission possesses the authority under PURA to authorize deferred accounting treatment. 883 S.W.2d at 197. However, this authority is not unfettered. Because regulatory lag is ordinarily an element of risk associated with investment in a utility, Railroad Comm'n of Texas v. Lone Star Gas Co., 656 S.W.2d 421, 427 (Tex.1983), it should be alleviated only if necessary to carry out the provisions of PURA. See TEX.REV.CIV.STAT.ANN. art. 1446c, § 43; State of Texas v. Public Util. Comm'n, 883 S.W.2d at 195 (... if the effects of regulatory lag infringe on the Commission's ability to regulate in a manner necessary to carry out the provisions of PURA, then the Commission may respond within its powers, both express and implied, under PURA to alleviate the impact of regulatory lag in order to fulfill its statutorily imposed duties). In State of Texas v. Public Utility Commission , we held that the Commission did not abuse its discretion by authorizing deferred accounting treatment when the financial integrity of the utilities was at risk. Under PURA section 39, a utility must be allowed a reasonable opportunity to recover its operating expenses together with a reasonable return on its invested capital. TEX. REV.CIV.STAT.ANN. art. 1446c, § 39 (Vernon Supp.1994); Railroad Comm'n of Texas v. High Plains Natural Gas Co., 628 S.W.2d 753, 753 (Tex.1981). This requirement is met only if the return is sufficient to assure confidence in the financial integrity of the enterprise so as to maintain its credit and to attract capital. Suburban Util. Corp. v. Public Util. Comm'n, 652 S.W.2d 358, 362 (Tex. 1983); Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 603, 64 S.Ct. 281, 288, 88 L.Ed. 333 (1944); Bluefield Water Works & Improvement Co. v. Public Serv. Comm'n of the State of West Virginia, 262 U.S. 679, 692-93, 43 S.Ct. 675, 678-79, 67 L.Ed. 1176 (1923). As a result, the financial integrity standard applied by the Commission in State of Texas v. Public Utility Commission ensured that the utilities would receive an opportunity to recover the minimum rates mandated by PURA. 883 S.W.2d at 195. Unlike the financial integrity standard, however, the measurable harm standard does not address the fundamental statutory requirement that a utility must have a reasonable opportunity to recover the minimum rates required by PURA. See TEX. REV.CIV.STAT.ANN. art. 1446c, § 39 (utility must be allowed a reasonable opportunity to recover its operating expenses together with a reasonable return on its invested capital); Railroad Comm'n of Texas v. High Plains Natural Gas Co., 628 S.W.2d 753 (Tex.1981). Thus, the measurable harm standard lacks a foundation in the regulatory scheme provided by PURA. As a result, although the Commission possesses the authority to authorize deferred accounting treatment, we conclude that the application of a measurable harm standard to determine whether to allow deferred accounting is an abuse of discretion. [6] WTU argues that contrary to the OPUC's argument that measurable harm would only require proof of some harm, no matter how slight, in Docket No. 7289 the Commission applied the standard in a manner requiring proof of substantial harm. [7] We recognize that WTU's financial condition will be negatively impacted if deferred accounting is not allowed. However, the Commission did not make a formal finding as to whether WTU's financial integrity would be jeopardized without deferred accounting. As a result, we cannot conclude that the Commission held WTU to the higher financial integrity standard.