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Cost-Recovery for Pre-Approved Projects

Uncertainties remain, but recent cases provide guidance.

Fortnightly Magazine - June 2013

might need to demonstrate that it has enforced its legal remedies for contractor misfeasance. Commissions will be unlikely to approve full cost recovery if they believe the utility hasn’t made a reasonable attempt to recover increased costs from its contractors, even if the utility itself was prudent. Of course, contract limitations or the facts of a particular increase could preclude recovery, but a well-planned prudence strategy will already have laid the foundation for demonstrating that the contractual provisions that preclude recovery were prudent at the time the contract was signed. Again, the foundations for such a showing are best laid early in the proceedings so that regulators appreciate the risk-reward tradeoff before allegations of imprudence arise.

These lessons as well as many others emerge from understanding and appreciating the role expected of utilities for pre-approved projects. Ninety years ago, Justice Brandeis described utilities as “the substitute for the state in the performance of the public service, thus becoming a public servant.” 13 By taking that role to heart and treating mega- or giga-projects as partnerships with commissions, utilities can enhance their ability to recover all their costs.



1. See FPC v. Hope Nat. Gas. Co. , 320 U.S. 591, 603, 612 (1944). 

2. P. Galloway, K. Nielsen, and C. Whitney, “ New Day for Prudence ,” Public Utilities Fortnightly, December 2009.

3. New England Power Co. , 31 FERC ¶ 61,047, at 61,084, reh’g denied , 31 FERC ¶ 61,112 (1985), aff’d sub nom. , Violet v. FERC , 800 F.2d 280 (1st Cir. 1986).

4. Union Electric , 1985 Mo. PSC LEXIS 54, *28 (quoting Consolidated Edison Co. of New York , 45 PUR4th 331 (1982) (internal quotations omitted).

5. See also Southwestern Bell v. Public Serv. Comm’n , 262 U.S. 276, 289 (1923).

6. Mississippi Power Co. , 2012 Miss. PUC LEXIS 57, 69.

7. Kansas City Power & Light , 2011 Kan. PUC LEXIS 817, *80.

8. Duke Energy Indiana , 2012 Ind. PUC LEXIS 411, *346.

9. Mississippi Power Co. , 2012 Miss. PUC LEXIS 57, 71.

10. Entergy Louisiana , 2012 La. PUC LEXIS 129, 60.

11. Florida Power & Light , 2011 Fla. PUC LEXIS 392, *165-183.

12. Kansas City Power & Light , 2011 Kan. PUC LEXIS 817, *84.

13. Southwestern Bell , 262 U.S. at 291 (Brandeis, J., dissenting).