Opinion ID: 1343653
Heading Depth: 1
Heading Rank: 1

Heading: Out-of-Period Adjustment

Text: The commission adopted an out-of-period adjustment reducing Colorado Ute's test year purchased wholesale power costs and transmission expenses by $238,160. It based this adjustment on a prospective settlement rate stipulated to by Colorado Ute and its supplier, the Public Service Company, and approved by the Federal Power Commission on November 8, 1976approximately six months after the conclusion of Colorado Ute's test year. Colorado Ute does not contest seriously the commission's authority to make an out-of-period adjustment reducing its test year expenses to compensate for post-test year reductions in the basic rate paid for power purchased from Public Service Company. It contends, however, that the commission abused its discretion by adjusting for an item which reduced the costs while refusing to make corresponding adjustments for items which increased costs. Colorado Ute proposed two such adjustments to the commission: one based on higher interest rates charged on post-test year borrowing, and a second to compensate for cost increases passed through to Colorado Ute under Public Service Company's FCA clause. [3] The commission justified its refusal to adjust for these increased costs on the ground that they were mere projections while the reduced basic rate which would be paid for purchased power was known and certain. Colorado Ute responded that the increased costs attributable to interest rates and FCA charges were equally known and certainat least for the six month interval between the end of the test year and the date the settlement rate was accrued. This Court has approved the use of the historic relationship between test year investments, revenues and expenses as a basis for calculating the rate increases necessary to assure utilities a reasonable rate of return on their capital investments. At the same time, mindful of the fact that rates are fixed prospectively, it is recognized that selective out-of-period adjustments to test year figures must sometimes be made to compensate for known post-test year changes which affect their historic relationship. Mountain States Telephone and Telegraph Company v. Public Utilities Commission, 182 Colo. 269, 276, 513 P.2d 721, 724 (1973). Although the commission's refusal to set actual post-test year increases in the cost of debt and purchased power off against reduced post-test year purchased power rates may at first glance appear to be arbitrary, it must be remembered that the legislature has vested the commission with considerable discretion in its choice of the means used to fix rates. As this Court has repeatedly emphasized, rate-making is not an exact science, but a legislative function involving many questions of judgment and discretion. Public Utilities Commission v. Northwest Water Corp., 168 Colo. 154, 451 P.2d 266 (1969). While [t]his judgment or discretion . . . must be based upon evidentiary facts, calculations, known factors, relationship between known factors, and adjustments which may affect the relationship between known factors, [4] we cannot say that the commission's decision to adjust for only one of several out-of-period changes was an abuse of its discretion. The adjustment reducing Colorado Ute's purchased power expenses was supported by competent evidence and will not be set aside by this Court. Sangre De Cristo Electric Association v. Public Utilities Commission, 185 Colo. 321, 524 P.2d 309 (1974). Moreover, the refusal to adopt Colorado Ute's proposed adjustments was within the commission's sound discretion. At oral argument, counsel for the commission stated that a set-off of locked in interest and power cost increases occurring during the six months following the end of the test year would substitute a one-half historical test year for the adjusted historical test year which, as a matter of commission policy, is used as the baseline for calculating rates. As the United States Supreme Court observed in Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944), it is the result reached, not the method employed, which determines whether a rate is just and reasonable. We would overstep our role and demean the commission's authority in the legislative field of rate making were we to insist that the commission revise its method of making out-of-period adjustments in the absence of persuasive evidence that the challenged method is inherently unsound. Mountain States Telephone and Telegraph Company, 182 Colo. at 275, 513 P.2d at 724. No such evidence is presently before us and we therefore decline to curtail the commission's legislative discretion to elect between different acceptable methods of computing test year expenses.