<<Prev Rule

Texas Administrative Code

Next Rule>>
RULE §25.231Cost of Service

  (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 electric utility plant used by and useful to the electric 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 electric 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 or by such other method approved under subsection (b)(1)(B) of this section over the expected useful life of the item or facility.

      (iii) Payments to affiliated interests shall not be allowed as a capital cost except as provided in the Public Utility Regulatory Act §36.058.

    (B) Working capital allowance to be composed of, but not limited to the following:

      (i) Reasonable inventories of materials, supplies, and fuel held specifically for purposes of permitting efficient operation of the electric utility in providing normal electric utility service. This amount excludes appliance inventories and 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 the Public Utility Regulatory §36.058.

      (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 electric utilities shall in no event be greater than one-eighth of total annual operations and maintenance expense, excluding amounts charged to operations and maintenance expense for materials, supplies, fuel, and prepayments.

        (II) For electric cooperatives, river authorities, and investor-owned electric utilities that purchase 100% of their power requirements, one-eighth of operations and maintenance expense excluding amounts charged to operations and maintenance expense for materials, supplies, fuel, 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), and (V) of this clause.

        (IV) For all investor-owned electric utilities 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 electric utility.

          (-d-) All funds received by the electric 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 electric 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 electric 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 electric 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 electric utility does not file a lead lag study or the electric 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-eighth of operations and maintenance expense including fuel and purchased power will be presumed to be the reasonable level of cash working capital.

    (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 (CWIP). 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:

      (i) the electric utility has proven that:

        (I) the inclusion is necessary to the financial integrity of the electric 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 electric utility has failed to prove was efficiently and prudently planned and managed; or

      (ii) for a project ordered by the commission under §25.199 of this title (relating to Transmission Planning, Licensing and Cost-recovery for Utilities within the Electric Reliability Council of Texas), if the commission determines that conditions warrant the inclusion of CWIP in rate base, the project is being efficiently and prudently planned and managed, and there will be a significant delay between initial investment and the initial cost recovery for a transmission project.

    (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 electric 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 investor-owned electric utilities in FERC account 101 or 102;

          (-b-) for electric cooperatives, the equivalent of FERC accounts 101 or 102.

        (II) Where each addition comprises at least 10% of the electric utility's requested rate base, exclusive of post test year adjustments and 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 electric utility; or,

        (II) the reasonable price, if the addition represents a purchase, subject to original cost requirements, as specified in Public Utility Regulatory Act §36.053.

      (iii) Post test year adjustments for known and measurable rate base decreases to historical test year data will be allowed only when clause (i)(IV) of this subparagraph and the criteria described in subclauses (I) and (II) of this clause are satisfied.

        (I) The decrease represents:

          (-a-) plant which was appropriately recorded in the accounts set forth in clause (i)(I) of this subparagraph;

          (-b-) plant held for future use;

          (-c-) CWIP (mirror CWIP is not considered CWIP); or

          (-d-) an attendant impact of another post test year adjustment.

        (II) Plant that has been removed from service, mothballed, sold, or removed from the electric utility's books prior to the rate year.

Source Note: The provisions of this §25.231 adopted to be effective March 1, 1999, 24 TexReg 1377; amended to be effective April 13, 2005, 30 TexReg 2055

Previous Page

Link to Texas Secretary of State Home Page | link to Texas Register home page | link to Texas Administrative Code home page | link to Open Meetings home page