| (vi) When an electric utility terminates an OPEB trust
fund established pursuant to clause (v) of this subparagraph, it must
notify the commission in writing. If excess assets remain after the
OPEB trust fund is terminated and all trust related liabilities are
satisfied, the electric utility must file, for commission approval,
a proposed plan for the distribution of the excess assets. The electric
utility must not distribute any excess assets until the commission
approves the disbursement plan.
(2) Expenses not allowed. The following expenses must
never be allowed as a component of cost of service:
(A) legislative advocacy expenses, whether made directly
or indirectly, including, but not limited to, legislative advocacy
expenses included in professional or trade association dues;
(B) funds expended in support of political candidates;
(C) funds expended in support of any political movement;
(D) funds expended promoting political or religious
causes;
(E) funds expended in support of or membership in social,
recreational, fraternal, or religious clubs or organizations;
(F) funds promoting increased consumption of electricity;
(G) additional funds expended to mail any parcel or
letter containing any of the items mentioned in subparagraphs (A)-(F)
of this paragraph;
(H) payments, except those made under an insurance
or risk-sharing arrangement executed before the date of the loss,
made to cover costs of an accident, equipment failure, or negligence
at an electric utility facility owned by a person or governmental
body not selling power within the State of Texas;
(I) costs, including, but not limited to, interest
expense, of processing a refund or credit of sums collected in excess
of the rate finally ordered by the commission in a case where the
electric utility has put bonded rates into effect, or when the electric
utility has otherwise been ordered to make refunds;
(J) any expenditure found by the commission to be unreasonable,
unnecessary, or not in the public interest, including but not limited
to executive salaries, advertising expenses, legal expenses, penalties
and interest on overdue taxes, criminal penalties or fines, and civil
penalties or fines.
(c) Return on invested capital. The return on invested
capital is the rate of return times invested capital.
(1) Rate of return. The commission will allow each
electric utility a reasonable opportunity to earn a reasonable rate
of return, which is expressed as a percentage of invested capital,
and will fix the rate of return in accordance with the following principles.
(A) The return should be reasonably sufficient to assure
confidence in the financial soundness of the electric utility and
should be adequate, under efficient and economical management, to
maintain and support its credit and enable it to raise the money necessary
for the proper discharge of its public duties. A rate of return may
be reasonable at one time and become too high or too low because of
changes affecting opportunities for investment, the money market,
and business conditions generally.
(B) The commission will consider efforts by the electric
utility to comply with the statewide integrated resource plan, the
efforts and achievements of the electric utility in the conservation
of resources, the quality of the electric utility's services, the
efficiency of the electric utility's operations, and the quality of
the electric utility's management, along with other applicable conditions
and practices.
(C) The commission may, in addition, consider inflation,
deflation, the growth rate of the service area, and the need for the
electric utility to attract new capital. The rate of return must be
high enough to attract necessary capital but need not go beyond that.
In each case, the commission will consider the electric utility's
cost of capital, which is the weighted average of the costs of the
various classes of capital used by the electric utility.
(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 must 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
electric utility plant used by and useful to the electric utility
in providing service.
(i) Original cost must be the actual money cost, or
the actual money value of any consideration paid other than money,
of the property at the time it would 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
must 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 must 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 will be subject to the standards
set forth in the Public Utility Regulatory §36.058.
(iii) A reasonable allowance for cash working capital.
The following applies in determining the amount to be included in
invested capital for cash working capital:
(I) Cash working capital for electric utilities must
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 must 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.
Cont'd... |
