Potential Challenges with the Use of Future or Hybrid Test Periods
The following is an excerpt from Ice Miller's Pathways to Success for Utilities Guide which provides insights on a variety of topics potentially impacting utility service providers.
Some utilities that choose to use fully- or partially-forecasted test periods may find it difficult to comply with the Indiana Utility Regulatory Commission's (IURC) Minimum Standard Filing Rule, which was designed for historic test periods. If a utility intends to file a rate case using a future or hybrid test period, it will be important to methodically assess how each of the minimum standard filing requirements can best be addressed for the selected test period.
In addition, certain minimum standard filing requirements do not apply to municipally-owned utilities, because they were designed for investor-owned utilities.
The IURC’s best practices outlined in the GAO may present other challenges. For example, providing supporting documentation for any changes between the historic “base” period and the test period chosen (if a future or hybrid test period is used), and reflecting each change as an individual adjustment in the revenue requirements schedules and testimony, will require extensive preparation. In addition, any anomalous changes between the base period and test period will need to be explained and justified.
If a fully- or partially-forecasted test period is used, the utility’s budgeting process must not only be “transparent,” it must be robust and sufficiently detailed to convince the IURC that it is reliable and can reasonably form the basis for setting rates.
Additionally, thought must be given to reconciling a future test period with Indiana’s legal requirement that plant additions be “used and useful” before being eligible to be included in rates. Plant additions that are projected, but not yet in service, at the time of the rate order will require special procedures; for example, certification once an addition is placed in service, and phased in rates to reflect such certifications. A certification procedure was adopted in Indiana-American Water Company’s recent rate case (IURC Cause No. 44450; Jan. 2015).
To learn more, download the Pathways to Success for Utilities Guide or contact any member of Ice Miller's Energy and Utilities Law practice group.