Toward Utility Rate Normalization v. Public Utilities Commission

This proceeding raises a narrow but important issue concerning the rates the Public Utilities Commission (commission) may allow an electric utility company to charge its customers between the time the utility commences operation of a major new power plant and the commission’s final determination of what part of the utility’s investment in the plant should be recognized as reasonable and prudent for ratemaking purposes. The commission’s recent practice has been to authorize a major-additions adjustment clause (MAAC) account in which investment-related costs, e.g., depreciation and the allowed return to investors, based on the utility’s entire recorded investment in the new plant, are entered as debits. The utility also may be allowed an interim rate increase, the proceeds of which are entered in the MAAC account as credits. After the commission finally determines what part of the investment should be recognized as reasonable and prudent, the debit entries are adjusted so as to reflect only the portion of the recorded investment that has been upheld. The MAAC account is then balanced: any excess of accrued revenue from the interim rates over the allowed investment-related…

I dissent from the conclusion of the majority that the interim rate increase is just and reasonable.

First, I disagree with the majority’s reliance on decisions of the Public Utilities Commission as justification for the increase. The majority recognize that until recently the commission itself has acknowledged interim rate increases are justified to compensate for a utility’s investment-related costs only if there is a financial emergency or for costs that are undisputably reasonable. As the opinion holds, these are exceptions to the general principle that rate increases may not be granted until a final determination of costs, and the exceptions are valid because they comply with the statutory requirement of reasonableness. The majority then rely on two recent instances in which the commission allowed interim increases despite the absence of these factors, and which established an additional exception based on other matters as justifying such an increase. The opinion concludes that these factors are present in the instant case. (Ante, pp. 875-876.) But the commission’s judgment as to the requirements that must be met in order to comply with the statutory standards is not…