Opinion ID: 2268472
Heading Depth: 2
Heading Rank: 2

Heading: Cash Working CapitalPurchased Power Expense

Text: Cash working capital is the amount of cash required by the company to continue operations during the interim between the rendition of services to its retail customers and receipt of payment therefor. New England Tel. & Tel. Co. v. Public Util. Comm'n, R.I., 358 A.2d 1, 18 (1976). In the instant case, the company requested that its rate base include a working capital allowance of $7.8 million, of which $7.011 million was attributed to purchased power expense. The company produced evidence to the effect that under a 1967 contract it purchased virtually all of its primary electricity for resale from NEPCO, was billed for that power 12 days after each service month, and, despite the fact that no interest penalty accrued until 30 days after receipt of the bill, paid such bill within 2 days of its delivery. The company also produced a lag study which demonstrated that the company was not reimbursed for these cash outlays by its retail customers for 28.22 days. In order to compensate for the depletion in its cash reserves that this lag causes, the company claims a need for a cash working capital allowance in excess of $7 million. At the hearing before the commission, this item of cash working capital was attacked on the ground that paying purchased power bills when rendered constituted an unnecessary prepayment which worked to the detriment of the company's customers. Even though such bills may be technically due when rendered, it was argued that the company is, in effect, given 30 days in which to pay such bills because no interest accrues until 30 days has passed after the rendering. The commission adopted this reasoning and rejected the company's contention that it had an affirmative contractual duty to pay the NEPCO bill when it was rendered. The entire request for cash working capital to cover purchased power expense was, therefore, rejected. In reaching its ultimate conclusion on this issue, the commission found as a fact that the company and NEPCO are parts of one integrated system and that inquiry into the propriety of this single item of rate base cannot be artificially limited to any single entity within the system. The commission found further that, as a result of this interrelationship, the company's intrastate customers support, in their rates, the 45-day working capital allowance given to NEPCO by the FPC. That is, because the entire power system receives payment from the ultimate consumer within 42.2 days after the service month in which NEPCO delivers primary electricity to the company, NEPCO's 45-day lag has been accounted for. The commission also grounded its denial of this item of cash working capital in its reading of the terms of the 1967 contract between the company and NEPCO. It was reasoned that because the company is effectively granted 42 days after the service month in which to pay its bill to NEPCO (12 days from the end of the service month to delivery of the bill plus 30 days' grace before interest is charged), it has demonstrated no need for cash working capital for purchased power expense to cover a lag of 28.22 days. This is not the first time this court has been asked to review exclusion of this item from this company's rate base. In Rhode Island Consumers' Council v. Smith, 113 R.I. 384, 399-402, 322 A.2d 17, 25-26 (1974), this company sought a cash working capital allowance sufficient to cover the same 28.2-day lag. In that case we held that a utility cannot claim an allowance for cash working capital as a matter of right but that such an allowance is addressed to the sound discretion of the commission. The determination of the size of such an allowance, when awarded, is a question of fact, which may vary from case to case. Id. at 401, 322 A.2d at 26. In applying these principles to a set of circumstances virtually identical to those presented in the case at bar, [9] this court concluded that the factual issue had merely been resolved by the commission against the company ; that, because the company was given a grace period in which to pay purchased power bills before interest would be charged, the suggested addition to the rate base was not required to enable the company to meet its current obligations. Id. at 401, 322 A.2d at 26, quoting Alabama-Tennessee Nat. Gas Co. v. FPC, 203 F.2d 494 (3d Cir. 1953). We concluded that it did not seem fair to burden the ultimate power consumer with the higher rates that would result from the company's choice to pay power bills before they start to incur interest. Rhode Island Consumers' Council v. Smith, 113 R.I. 384, 401, 322 A.2d 17, 26 (1974). Nothing has been presented by the company in the instant case to demonstrate that the nature of its affiliation with NEES and NEPCO has changed since 1974 when the earlier case was decided. We believe, therefore, that our earlier decision controls in this instance despite the company's attempt to distinguish that case from this one. Even assuming, as the company alleges, that this court erred in that case by stating that other affiliates of NEPCO do not pay their bills when due, this narrow finding of fact was not the sole basis for our affirmance of the commission's decision. The thrust of that decision remains that the commission found as a fact that the existence of a grace period, of which the company chose not to take advantage, rendered the requested sum unnecessary to meet current obligations. Similarly, in the instant case, the commission has found as a fact that the integrated area-wide electric system is fairly and adequately compensated by the working capital allowance awarded to NEPCO based on the 45-day lag between delivery of power to the company and payment for that power by the retail customer. The commission found additionally as a fact that, on the basis of its reading of the payment provisions of the 1967 contract between NEPCO and the company, there is no working capital requirement for purchased power. The facts, as found by the commission, preponderate against granting the requested allowance. We have stated that these matters are addressed to the commission's sound discretion. In the absence of an abuse of that discretion, a disallowance of a particular sum as cash working capital will not be set aside. Rhode Island Consumers' Council v. Smith, 113 A.2d 384, 395, 322 A.2d 17, 23 (1974). The company's arguments on this appeal have failed to convince us that the commission's findings constitute an abuse of discretion. Specifically, we find the company's attempt to characterize their choice of a bill-paying policy as a business management judgment (and thus presumably to benefit by the broad deference given to such judgment) singularly unconvincing. As we stated on an earlier occasion: [t]he Commission is merely requiring the utility to exercise the kind of prudent money management the ratepayer has a right to expect from a regulated monopoly. Id. at 402, 322 A.2d at 26.