No. 34158 (5-year Review): Rule R746-407. Annualization of Test-Year Data

DAR File No.: 34158
Filed: 10/18/2010 05:35:27 PM

NOTICE OF REVIEW AND STATEMENT OF CONTINUATION

Concise explanation of the particular statutory provisions under which the rule is enacted and how these provisions authorize or require the rule:

This rule pertains to Subsection 54-4-4(3) which describes the Public Service Commission's use of test year data to set just and reasonable utility rates. The rule provides direction on how test year data may be adjusted to reflect partial-period effects of test year events.

Summary of written comments received during and since the last five-year review of the rule from interested persons supporting or opposing the rule:

The Commission has received no written comments since the last five-year review in 2005.

Reasoned justification for continuation of the rule, including reasons why the agency disagrees with comments in opposition to the rule, if any:

In the traditional cost of service approach to ratemaking, it is generally assumed that utilities have a right to charge rates that will provide a reasonable opportunity to recover costs prudently incurred in the process of providing utility services. There is little challenge to the position that recovery of these costs is justified, and that the objective of the ratemaking process is to produce rates that will do so. The primary difficulty in meeting this objective is in determining the levels of costs to be incurred and the rate levels required to maintain cost recovery. The approach used by the regulators (the Commission) is to measure the total costs incurred in conducting operations over a 12-month period (i.e., the test period cost of service) and to fix rates that will produce revenues to match costs of that period. Since the test period is the basis for setting rates, the development of adequate test period data is obviously crucial to the outcome of the regulatory process. If the data do not accurately express operating conditions for the period in which rates are applied to recover costs, the rates will not function as intended. As stated in Subsection R746-407-1(A), "This rule will enable the Commission to more accurately coordinate a utility's rates with the utility's anticipated revenues and costs by recognizing that some of the conditions which arise during a test period are ongoing and must be spread over the entire period." Because of the use of test period operations as a measure of future operations to establish future rates, the need to focus on the quality of the test period data continues to be necessary, and therefore, this rule should be continued.

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Public Service Commission
Administration
160 E 300 S
SALT LAKE CITY, UT 84111-2316

Direct questions regarding this rule to:

• Sheri Bintz at the above address, by phone at 801-530-6714, by FAX at 801-530-6796, or by Internet E-mail at [e-mail]

Authorized by:

David Clark, Legal Counsel

Effective:

10/18/2010

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