Section 291-9-005 - RATE PRINCIPLES005.01Rule Provisions: The provisions of Rule 005 apply only to general rate filings governed by § 66-1838. No provision included in Rule 005 shall be construed as prohibiting the Commission from approving a settlement agreement that the Commission finds to be just and reasonable and in the public interest.
005.02Cost of Service : Except as provided for in any section of the State Natural Gas Regulation Act or these rules dealing with fuel expenses, rates are to be based upon a utility's cost of rendering service to the public during a test year.
005.03Components of Cost of Service: The two components of cost of service are allowable expenses and return on invested capital.
005.04Allowable Expenses: Only those expenses which are prudent may be included in allowable expenses. Expenses incurred by a jurisdictional utility or a shared resources affiliate shall be presumed to be prudent, unless the contrary is shown.
005.05Return on Rate Base: The return on rate base is the rate of return multiplied by rate base.
005.05ARate of Return: The Commission must allow each utility a reasonable opportunity to earn a reasonable rate of return, which is expressed as a percentage of invested capital, and must fix the rate of return in accordance with Neb. Rev. Stat. §§ 66-1825(3) and (5) including: 005.05A1 The rate of return in one rate case shall not be precedential in future rate cases.005.05A2 In each case, the Commission must consider the utility's cost of capital, which is the weighted average of the cost of the various classes of capital used by the utility: 005.05A2(a)Debt Capital: The cost of debt capital is the actual cost of debt.005.05A2(b)Equity Capital: The cost of equity capital must be based upon a fair return on its value. For companies with ownership expressed in terms of shares of stock, equity capital commonly consists of the following classes of stock.005.05A2(b)(1)Common Stock Capital: The cost of common stock capital must be based upon a fair return on its value.005.05A2(b)(2)Preferred Stock Capital: The cost of preferred stock capital is its annual dividend requirement, if any, plus an adjustment for premiums, discounts, and cost of issuance.005.06Rate Base: The rate of return is applied to the rate base. The rate base includes as a major component the original cost of plant, property, and equipment, less accumulated depreciation, used and useful in rendering service to the public. Components to be included in determining the overall rate base are as follows:
005.06A Original cost, less accumulated depreciation, of utility plant used by and useful to the public utility in providing service except that acquisition adjustments will be examined on a case by case basis.005.06A1 Original cost must be the actual money value including any consideration paid other than money, of the property at the time it shall have been dedicated to public use, whether by the utility which is the present owner or by a predecessor.005.06A2 Accumulated depreciation is the accumulation of allocations of original cost, representing recovery of investment, over the estimated useful life of the asset. Depreciation must be computed on a straight-line basis unless the Commission orders otherwise.005.06A3 Payments to affiliated interests shall not be allowed as a capital cost except as provided in Rule 005.07.005.06A4 Acquisition adjustments are the difference between the purchase price of an acquired operating unit or system and the depreciated original cost of the acquired property.005.06B Working capital allowance to be composed of, but not limited to, the following: 005.06B1 Prudent inventories of materials and supplies, held specifically for purposes of permitting efficient operation of the utility in providing normal utility service.005.06B2 Prudent prepayments for operating expenses.005.06B3 A prudent allowance for cash working capital.005.06C Adjustments for certain items, which include, but are not limited to, the following: 005.06C1 Accumulated reserve for deferred federal income taxes;005.06C2 Unamortized investment tax credit to the extent allowed by the Internal Revenue Code;
005.06C3 Contingency and/or property insurance reserves;005.06C4 Contributions in aid of construction;005.06C5 Ratepayer deposits and other sources of cost-free capital; 005.06DCompletion and Dedication of Property: The rate base shall ordinarily consist only of those items which are used and useful in providing service to the public. This may include items completed and dedicated to commercial service for which construction will be commenced and completed within one year or less from the end of the test year. The Commission may also determine that property which has not been completed and dedicated to commercial service may be used and useful and included in the rate base. In determining whether construction work in progress should be included in the rate base, the Commission may consider whether projects under construction are prudent.005.06ESelf Insurance Reserve Accounts: Self-insurance plans may be included in the rate base at the discretion of the Commission.005.06FRequirements for Post Test Year Adjustments: Post test year adjustments are permitted for known and measurable rate base adjustments to test year where the utility accounts for any related impacts on all aspects of the jurisdictional utility's operations. Related impacts are those that reasonably follow as a consequence of the post test year adjustment being proposed, including a related impact of another post test year adjustment.005.07Payments to Affiliates: The jurisdictional utility has the burden to demonstrate that any cost paid to an affiliate for any goods or services are prudent. The jurisdictional utility has the burden to demonstrate all of the following before any amount paid to an affiliate, other than a shared resource affiliate, either, as a capital cost or an expense, is included in rates except as provided in Neb. Rev. Stat. § 66-1825(8):
005.07A Each payment is prudently incurred for each item or class of items at the time incurred.005.07B The costs charged by an affiliate reasonably approximate the market value of service to it.291 Neb. Admin. Code, ch. 9, § 005