Opinion ID: 1737477
Heading Depth: 1
Heading Rank: 5

Heading: Rate RSE

Text: Rate RSE is a mathematical formula designed by the PSC, its staff and the Company. It contemplates numerous expense items taken from the Company's uniform system of accounts in determining the kilowatt-hour charge to be applied to the customer's usage. While it is complex in application, the theory behind the rate is not difficult to understand. RSE is an acronym for Rate Stabilization and Equalization. It represents a ratemaking formula designed to provide periodic revenue adjustments (increases or decreases) calculated to allow the Company to earn 15% return on its common equity capital. In this connection, rate RSE is responsive to this court's order in Alabama Power Co. v. Alabama Public Service Commission, 422 So.2d 767 (Ala.1982), which ordered the PSC to establish rates which were not confiscatory. In that case, this court stated a 15% return on equity to be the minimum which would not result in confiscation of the Company's property. 422 So.2d at 773. We also emphasized any rate of return formula established by the PSC should be prospective, rather than retrospective, in nature. 422 So.2d at 770. Under Rate RSE, Company revenues are adjusted in the following manner: At predetermined dates in 1983 (February 1 and October 1) and 1984 (quarterly), the Company's actual rate of return on year-end common equity is measured by the formula contained in Rate RSE using figures from the Company's records. The Company's records must be maintained in accordance with the uniform system of accounts prescribed by the PSC. If the Company's retail return on common equity is within the equity return range, no adjustment of charges is made under Rate RSE. If the return is either above or below the range, an adjustment limited to a specific percent of total revenue is made in order to move the return toward 14%, the adjusting point specified in Rate RSE. There are several limiting factors incorporated in Rate RSE. First, if the Company's retail return on equity exceeds 15%, Rate RSE requires a downward revenue adjustment. Second, no matter how much upward revenue adjustment is needed to reach an appropriate level of return, on equity, each adjustment is limited to a specified percentage of total revenues. This limiting factor was designed to lessen the harsh effect of utility rate increases on the consumer and encourage the Company to operate efficiently. Third, any growth in the Company's common equity ratio in excess of 2½% per year cannot be considered in the adjustment. This provision ensures the Company will not inject common equity into the enterprise capital in an effort to generate revenue increases. Fourth, a number of expenses are excluded from the operation of Rate RSE. Advertising expenses, lobbying expenses, and charitable donations cannot be considered; neither can club dues, nor a portion of the salaries of the Company's executive officers. Thus, Rate RSE excludes from its operation, expenses of the Company which have been customarily excluded in rate proceedings, plus certain expenses which were considered in rate adjustments prior to Rate RSE. The special rules governing Rate RSE require increased PSC monitoring of Company operations over past current levels of reporting, auditing, and inspection. These rules require the Company to provide certain reports and documents to the PSC, its staff, and the Attorney General in advance of any adjustments under Rate RSE. The rules further provide that the PSC can initiate complaint proceedings for the purposes of inquiring into the amount, accuracy or compliance with uniform system of accounts of any expenditures or entry utilized in the Rate RSE formula calculation.