Opinion ID: 394827
Heading Depth: 1
Heading Rank: 2

Heading: short-term sales

Text: 12 Pursuant to the applicable regulations, 12 I&M submitted, with its May 1976 rate application, actual cost of service data for Period I (1975) and projected (test-year) cost of service data for Period II (1976). At issue is I& M's projected revenue from wholesale short-term sales. 13 I&M's test-year data included estimated revenue from short-term sales of approximately $44,900,000. 13 However, I&M's actual 1976 revenues from short-term sales amounted to $81,600,000. Despite this substantial disparity between projected and historical revenue figures, the administrative law judge used the former rather than the latter to calculate the amount of I&M's rate increase, since he found that the test-year figure was reasonable when made. The Commission affirmed this ruling without specific comment. Petitioners contend that the test-year figure should have been rejected as unreasonable when made. 14 In American Public Power Association v. FPC, 522 F.2d 142 (D.C.Cir.1975), this court upheld the Commission's use of test-year data in the ratemaking calculus. And to require routine revision of the estimates in light of actual developments would defeat the purpose of the test-year methodology. As the Seventh Circuit recently stated in Indiana Municipal Electric Association v. FERC, 629 F.2d 480, 483 (7th Cir. 1980): 15 To require a reworking of a utility's estimated costs in light of subsequent actual costs not only would result in interminable delays in already lengthy rate proceedings but would encourage dilatoriness in challengers in the hope that history would spoil the utility's estimated cost of service .... (I)f a utility always had to adjust its Period II projections because of actual experience ... the Commission would be forced to return to historic cost even though Congress did not so intend. 16 Thus, the Commission rightly does not require that history prove the accuracy of the utilities' estimates, but rather that the utility prove that the estimates were reasonable when made. Id.; Public Service Company of Indiana, F.P.C. Opinion No. 783-A (February 25, 1977). Once the utility has demonstrated the reasonableness of its estimates, the challenging party has the burden of showing that subsequent events indicate that to use (the estimate) as a basis for future projections would yield unreasonable results. Indiana Municipal Electric Association, supra, at 485, quoting Southern California Edison Company, FERC Opinion No. 55, at 6 (August 1, 1979). 17 Petitioners contend that the revenue estimate was unreasonable when made 14 essentially because it unrealistically projected a decrease in short-term revenues from the preceding year when in fact short-term revenues had increased an average of thirty-two percent per annum over the last five years. The administrative law judge correctly noted, however, that these increases in revenues were due in part to substantial rate increases during these years. Thus, the judge chose instead to employ the following five-year table, measuring short-term sales by volume rather than dollar amounts: 18 The judge discerned from this table a pattern of moderate annual increases in short-term sales with an anomalous decrease from 1973 to 1974 and an anomalous sharp increase from 1974 to 1975. Thus discounting the seemingly unusual 1975 figure, the judge reasoned that the company succeeded in establishing that its estimate was reasonable when made, since its projection of 2.9 million megawatt-hours for 1976 was not out of line with past experience, and since petitioners failed to show that I&M should have foreseen that the conditions underpinning the 1975 increase would persist into 1976. 15 19 Petitioners argue, however, that the actual 1976 figures themselves belie the reasonableness of the estimate. This would certainly be the case, if I&M were not able to attribute the actual sharp rise in 1976 sales to specific unforeseen causes. Since there is, however, substantial evidence in the record to indicate that the increased sales were the result of reasonably unforeseen causes, 16 we affirm the agency's use of the test-year estimate. Accordingly, the Commission's decision is 20 Affirmed in part and remanded in part.