Case Examines What to Include in Rate Base

Abstract

In May 1995, while construction was under way to increase the Florida Cities Water Co.'s treatment capacity to conform with a consent order entered by the Florida Department of Environmental Regulation, Florida Cities filed an application for a rate increase with the Public Service Commission (PSC). Florida Cities asked the PSC to include the costs of ongoing plant expansion and certain plant improvements in the rate base, raising the total rate base to $8.4 million, an increase of about $1.76 million. Of this amount, $1.6 million was identified as the cost of expanding and upgrading to meet environmental regulatory requirements. In its final order, the PSC reduced the rate base by almost $800,000. The PSC recalculated the “used and useful” portion of the plant at only 65.9 percent. Florida Cities appealed. The appellate court concluded that the PSC must treat capital improvements required by governmental regulations “in the public interest,” but that the PSC must add these expenditures to the rate base only to the extent the improvements they affect or the facilities to which they relate are “used and useful in the public service.” To do otherwise, the court said, would transfer rate‐making authority from the PSC to the governmental agency requiring the expenditures. The case was returned for further consideration.