When regulators grant changes to utility rates of return, they estimate growth on the basis of gross domestic product (GDP). But do utilities have any chance of growing at the same pace as GDP?...
Letters to the Editor
Street Gold Mine” views a public utility’s regulatory liability for non-legal future removal costs as cash that is readily available for financing required environmental and smart grid infrastructure projects. Accumulated depreciation and regulatory liabilities are different animals—the former represents capital recovery collected from ratepayers and the latter represents a collection from ratepayers for an un-incurred future cost.
This is an accounting distinction that most accountants probably understand. Instead of using the cash for its intended purpose, Mr. Ferguson proposes to transfer the unspent cash into the utilities’ equity accounts and then increase customer rates to fund these future infrastructure expenditures. “Main Street Gold Mine” proposes to use the unspent cash to fund the future infrastructure expenditures, thus reducing the need for customer rate increases for that purpose.
Consider the facts to which Mr. Ferguson concedes:
• Utilities collected the cash;
• Utilities do not have a legal obligation to incur such future costs;
• Utilities have not spent the cash on its intended purpose;
• GAAP does not allow the excess money to be included in accumulated depreciation; and
• GAAP requires the utilities to report the excess collections as regulatory liabilities (amounts owed to customers).
Mr. Ferguson alleges on behalf of the utilities that they have already spent the money and, therefore, should take it into their equity accounts as income. On behalf of Main Street, I do not concede that utilities spent the money, because they collected it for a cost they have not incurred, and nobody told them they could spend for any other purpose. That is why GAAP requires the utilities to report the excess cash as a regulatory liability. The article proposes that the utilities use the excess money they collected from Main Street so that Main Street not be charged more than necessary for the future infrastructure expenditures required in today’s environment.
Perhaps all of the utilities could transfer the excesses they have collected into a national fund for infrastructure renewal and improvement, similar to the Universal Service Fund used in the telecommunications industry.
–Michael Majoros Snavely King Majoros & O’Connor, Inc. Washington, D.C.
Corrections: In the November 2010 article, “ Legal Battleground ,” we misspelled the name of law firm Brydon, Swearengen & England. In the October 2010 “ People” department, we misspelled the names of Southern Company CFO Art P. Beattie and Georgia Power CFO W. Paul Bowers. Fortnightly sincerely regrets these errors and has corrected them in the online versions of the respective articles.