(i) Debt capital. The cost of debt capital is the actual cost
of debt at the time of issuance, plus adjustments for premiums, discounts,
and refunding and issuance costs.
(ii) Equity capital. For companies with ownership expressed
in terms of shares of stock, equity capital commonly consists of the following
classes of stock.
(I) Common stock capital. The cost of common stock capital
shall be based upon a fair return on its market value.
(II) Preferred stock capital. The cost of preferred stock capital
is the actual cost of preferred stock at the time of issuance, plus an adjustment
for premiums, discounts, and refunding and issuance costs.
(2) Invested capital; rate base. The rate
of return is applied to the rate base. The rate base, sometimes referred to
as invested capital, includes as a major component the original cost of plant,
property, and equipment, less accumulated depreciation, used and useful in
rendering service to the public. Components to be included in determining
the overall rate base are as set out in subparagraphs (A)-(F) of this paragraph.
(A) Original cost, less accumulated depreciation, of utility
plant used by and useful to the utility in providing service.
(i) Original cost shall be the actual money cost, or the actual
money value of any consideration paid other than money, of the property at
the time it shall have been dedicated to public use, whether by the utility
which is the present owner or by a predecessor.
(ii) Reserve for depreciation is the accumulation of recognized
allocations of original cost, representing recovery of initial investment,
over the estimated useful life of the asset. Depreciation shall be computed
on a straight line basis.
(iii) Payments to affiliated interests shall not be allowed
as a capital cost except as provided in PURA §53.058.
(B) Working capital allowance to be composed of, but not limited
to the following:
(i) Reasonable inventories of materials and supplies held specifically
for purposes of permitting efficient operation of the utility in providing
normal utility service. This amount excludes inventories found by the commission
to be unreasonable, excessive, or not in the public interest.
(ii) Reasonable prepayments for operating expenses. Prepayments
to affiliated interests shall be subject to the standards set forth in PURA
§53.058.
(iii) A reasonable allowance for cash working capital. The
following shall apply in determining the amount to be included in invested
capital for cash working capital:
(I) Cash working capital for all DCTUs shall in no event be
greater than one-twelfth of total annual operations and maintenance expense,
excluding amounts charged to operations and maintenance expense for materials,
supplies, and prepayments.
(II) For telephone cooperatives, one-twelfth of operations
and maintenance expense excluding amounts charged to operations and maintenance
expense for materials, supplies, and prepayments will be considered a reasonable
allowance for cash working capital.
(III) Operations and maintenance expense does not include depreciation,
other taxes, or federal income taxes, for purposes of subclauses (I), (II),
(V), and (VI) of this clause.
(IV) For all telephone DCTUs with 31,000 or more access lines,
a reasonable allowance for cash working capital, including a request of zero,
will be determined by the use of a lead-lag study. A lead- lag study will
be performed in accordance with the following criteria:
(-a-) The lead-lag study will use the cash method; all non-cash
items, including but not limited to depreciation, amortization, deferred taxes,
prepaid items, and return (including interest on long-term debt and dividends
on preferred stock), will not be considered.
(-b-) Any reasonable sampling method that is shown to
be unbiased may be used in performing the lead-lag study.
(-c-) The check clear date, or the invoice due date, whichever
is later, will be used in calculating the lead-lag days used in the study.
In those cases where multiple due dates and payment terms are offered by vendors,
the invoice due date is the date corresponding to the terms accepted by the
utility.
(-d-) All funds received by the utility except electronic
transfers shall be considered available for use no later than the business
day following the receipt of the funds in any repository of the utility (e.g.
lockbox, post office box, branch office). All funds received by electronic
transfer will be considered available the day of receipt.
(-e-) For utilities the balance of cash and working funds
included in the working cash allowance calculation shall consist of the average
daily bank balance of all non- interest bearing demand deposits and working
cash funds.
(-f-) The lead on federal income tax expense shall be
calculated by measurement of the interval between the mid-point of the annual
service period and the actual payment date of the utility.
(-g-) If the cash working capital calculation results
in a negative amount, the negative amount shall be included in rate base.
(V) If cash working capital is required to be determined by
the use of a lead-lag study under the previous subclause and either the utility
does not file a lead lag study or the utility's lead-lag study is determined
to be so flawed as to be unreliable, in the absence of persuasive evidence
that suggests a different amount of cash working capital, an amount of cash
working capital equal to negative one-twelfth of operations and maintenance
expense will be presumed to be the reasonable level of cash working capital.
(VI) For all investor-owned telephone DCTUs with fewer than
31,000 access lines, cash working capital shall be calculated by any method
that the commission determines to be reasonable, subject to subclause (III)
of this clause.
(C) Deduction of certain items which include, but are not limited
to, the following:
(i) accumulated reserve for deferred federal income taxes;
(ii) unamortized investment tax credit to the extent allowed
by the Internal Revenue Code;
(iii) contingency and/or property insurance reserves;
(iv) contributions in aid of construction;
(v) customer deposits and other sources of cost-free capital;
(D) Construction work in progress. The inclusion of construction
work in progress is an exceptional form of rate relief. Under ordinary circumstances
the rate base shall consist only of those items which are used and useful
in providing service to the public. Under exceptional circumstances, the commission
will include construction work in progress in rate base to the extent that
the utility has proven that:
(i) the inclusion is necessary to the financial integrity of
the utility; and
(ii) major projects under construction have been efficiently
and prudently planned and managed. However, construction work in progress
shall not be allowed for any portion of a major project which the utility
has failed to prove was efficiently and prudently planned and managed.
(E) Self insurance reserve accounts. If a self insurance plan
is approved by the commission, any shortages to the reserve account will be
an increase to the rate base and any surpluses will be a decrease to the rate
base. The utility shall maintain appropriate books and records to permit the
commission to properly review all charges to the reserve account and determine
whether the charges being booked to the reserve account are reasonable and
correct.
(F) Requirements for post test year adjustments.
(i) Post test year adjustments for known and measurable rate
base additions (increases) to historical test year data will be considered
only as set out in subclauses (I)-(IV) of this clause.
(I) Where the addition represents plant which would appropriately
be recorded:
(-a-) for telecommunications utilities in USOA account 2001;
or
(-b-) for telecommunications cooperatives, the equivalent
of USOA account 2001.
(II) Where each addition comprises at least 10% of the utility's
requested rate base, exclusive of post test year adjustments and construction
work in progress (CWIP).
(III) Where the plant addition is deemed by this commission
to be in-service before the rate year begins.
(IV) Where the attendant impacts on all aspects of a utility's
operations (including, but not limited to, revenue, expenses and invested
capital) can with reasonable certainty be identified, quantified and matched.
Attendant impacts are those that reasonably follow as a consequence of the
post test year adjustment being proposed.
(ii) Each post test year plant adjustment will be included
in rate base at:
(I) the reasonable test year-end CWIP balance, if the addition
is constructed by the utility; or,
Cont'd... |