Opinion ID: 2348955
Heading Depth: 1
Heading Rank: 4

Heading: test period

Text: In any public utility rate case a first step is the selection of an appropriate test period, that is a span of time (usually twelve months) over which the utility's revenues, expenses, rate base and rate of return may be measured. Inasmuch as performance may, and usually will, vary from year-to-year and indeed from month-to-month, the selection of the test period may well have a substantial effect on the return eventually authorized. In this case the company, recognizing that rate-making calls for the establishment of tomorrow's rates based upon today's facts, attempted to furnish data relating to its most recent financial experiences in the expectation, or at least the hope, that their use might better protect its interests against the impact of an inflationary economy. To that end it proposed to make the calendar year 1971 the test period. Although it did not then have available actual figures for the full twelve months of that year, it annualized those it had for the eight months ending August 31, 1971 by multiplying them by 1.5. Alternatively, it suggested that the test period include only its actual figures for the eight months ending August 31, 1971. The commission found both of the company's proposals unacceptable: the annualized period because it used figures which, even if substantially correct, were nonetheless hypothetical and projections of actuals; and the eight-month period because it failed to provide figures for a time interval    sufficiently long to overcome cyclical effects and permit reasonable assurance of reliability for rate-making purposes. In their stead it chose figures for the twelve-month period ending August 31, 1971. Initially requested by the council, they were produced in response to a commission directive and were then selected by the latter    as the most appropriate period for which factual data is available   . Basically the company's quarrel with this test period is that the figures are stale, and that it is not as keyed as are its own proposals to an inflationary economy which permitted its rate of return to decrease from the 5.73 per cent earned during the eight-month period ending August 31, 1971 to 5.45 per cent on December 31, 1971. For the commission to disregard those circumstances in the selection of a test period, the company argues, was to pave the way to the establishment of a confiscatory rate structure. The company's position would require more extensive consideration at this point if the selection of a test period were the only way the commission could have compensated for the erosive effects which the company maintains inflation will exert upon its ability to earn the allowed return. But that is not the case. Other means were available to the commission, and an adjustment to the rate base, the rate of return, or to both would have served the same purpose. State v. New Jersey Bell Tel. Co., 30 N.J. 16, 35-36, 152 A.2d 35, 46 (1959). In the circumstances we see no reason why the commission should have been compelled to forego its function of picking and choosing between the several available test periods. Perhaps it would have been better advised had it yielded to the company's urgings and selected the proposed annualized test period. Certainly it would have yielded a more current reading. That it might have been preferable does not mean that it was error not to choose it, for what is important, and indeed decisive, in a rate case, is not the methods or formulae utilized in the rate-making process, but whether the end result, irrespective of the formula used, is just and reasonable. If it is, and if it is grounded upon substantial legal evidence, then it is not within the judicial province to interfere. Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 602-03, 64 S.Ct. 281, 287-88, 88 L.Ed. 333, 344-45 (1944); Narragansett Electric Co. v. Kennelly, 88 R.I. 56, 71-72, 143 A.2d 709, 718-19 (1958). The council agrees that the commission properly refused to accept either of the test periods advocated by the company. It does not stop there. Instead, it goes further and argues that use of the figures for the test period selected by the commission is also prohibited inasmuch as they are found only in a company exhibit which was improperly admitted into evidence because not listed with the commission prior to the hearing as required by § 39-1-12, as amended. [2] Continuing, the council argues that the record thus deprived of that exhibit was devoid of any legal evidence which would support a test period acceptable to the commission, and therefore demands the rejection of the company's filing in toto. The flaw in the council's argument is that it ignores that portion of § 39-1-12, as amended, which allows even those exhibits which have not been filed with the commission prior to the hearing to be introduced into evidence in the discretion of the commission. Here the commission exercised that discretion and admitted the company's exhibit at the hearing. The council's contention that the selected test period lacked a legally sufficient evidentiary foundation must therefore be rejected, and consequently so must its further contention that the company's filing be rejected in toto.