Opinion ID: 1907714
Heading Depth: 3
Heading Rank: 1

Heading: Average or end-of-the-period rate base

Text: In considering the company's application for a rate increase, the commission has continued to adhere to its recent practice of establishing the rate base by the averaging system rather than measuring value as of the end of the test period. The company finds no fault with the averaging approach so long as the utility has experienced a period of growth. It points out that during a growth economy, a utility is constantly expanding its capital assets in order to serve new customers. Accordingly, its rate base is greater at the end of the test period than at the beginning, and the utility's revenue-producing capacity is not fully reflected during the test period because the additional plant was not in use throughout the period. Consequently, the company concedes that the averaging techniques must be used if one is to obtain a meaningful match between the test period revenues and the capital assets that will produce that revenue. Having acknowledged that the averaging approach has a place in the ratemaking process, the company now asserts that it should not be employed in this particular proceeding because the company is not experiencing anything close to a growth spurt. According to the company, it cannot expand because its gas supplies have been curtailed, and any additions to plant have been made solely for the purpose of replacing wornout equipment so that the status quo can be maintained so far as its present services and revenues are concerned. After painting such a dismal picture, the company concludes that its stagnant status bars the use of averaging because any increase in the value of its capital assets in no way reflects any increase in its income producing capacity. In such circumstances, it contends, the rationale for using an average test period rate base simply vanishes into thin air. The commission, on the other hand, takes the position that the use of the averaging technique is necessary to avoid overstating the amount of plant actually used and useful during the test period. The commission also observed that the use of the end-of-the-period technique would force the ratepayer to contribute what amounts to a full test period of support for a plant that was actually in service for only part of that period. In its simplest form, the company's argument boils down to one of attrition. [3] The problem is not a novel one before this court. New England Tel. & Tel. Co. v. Public Util. Comm'n, 116 R.I. 356, 358 A.2d 1 (1976); Rhode Island Consumers' Council v. Smith, 111 R.I. 271, 302 A.2d 757 (1973). Nor is our answer. The commission is not bound to utilize one formula over another in determining the proper rate base for the company. The attrition factor would be remedied by various adjustments the commission could make to the rate base, the rate of return, or both. Id. at 279-80, 302 A.2d at 763-64. Here the only concern of this court is whether the measurement approach employed by the commission is just and reasonable. If so, our inquiry is at an end. We cannot fault the commission for its use of the averaging rather than the end-of-the-period technique in determining the company's rate base. Having made this observation, we would add but one comment. The company has argued that some $160,000 representing construction work in progress (CWIP) at the end of the test year should have been included within the rate base. The commission properly excluded this amount, as it did not represent used and useful property that was presently being devoted to providing the regulated service. New England Tel. & Tel. Co. v. Public Util. Comm'n, supra, 116 R.I. at 387, 358 A.2d at 19.