Used and Useful: Autopsy of a Ratemaking Policy
![handle is hein.journals/energy8 and id is 315 raw text is: USED AND USEFUL: AUTOPSY OF A
RATEMAKING POLICY
James J. Hoecker*
The used and useful principle emerged from the primordial ooze of the
public regulation of private enterprise and, in the epoch of fair value
ratemaking, entered common regulatory parlance. It has become a bedrock
principle of utility regulation.' Compared to the particularities of modem
ratemaking, such as marginal cost pricing, discounted cash flow analyses, cost
classification and allocation techniques, and econometric modeling, it has a
certain immutable friendliness and clarity. It seems beyond cavil that [t]he
rate base on which a return may be earned is the amount of property used and
useful, at the time of the rate inquiry, in rendering a designated utility service.
If the original cost or prudent investment concept is applied, this figure nor-
mally may be taken from the utility's books.'
Why then should anyone intimate, as does this article, that used and
useful is moribund? Or, for that matter, that it even requires scholarly expo-
sition? The recent wrangling within the U.S. Court of Appeals for the D.C.
Circuit over application of used and useful to a cancelled nuclear plant sug-
gests that the concept is alive, if not well. That court struggled mightily with
the principle in three successive Jersey Central Power & Light Co. v. FERC
decisions3 which highlight how troublesome its various meanings and applica-
tions have become during the era of end result ratemaking. In the process, the
court examined used and useful for one of the few times in the ninety-year
history of the concept.
This article examines the evolution of the used and useful concept, the
confusion it has engendered, and its current applications and misapplications,
focusing on the ratemaking practices of the Federal Power Commission (FPC)
* B.A. Northland College, M.A., Ph.D. University of Kentucky, J.D. University of Wisconsin;
Assistant General Counsel for Gas and Oil Litigation, Federal Energy Regulatory Commission. The views
and analyses in this article do not reflect, and should not be construed to suggest, either the opinions of the
Federal Energy Regulatory Commission or the positions of its trial staff.
1. Kentucky Utils. Co. v. FERC, 760 F.2d 1321, 1324 n.4 (D.C. Cir. 1985).
2. 1 PRIEST, PRINCIPLES OF PUBLIC UTILITY REGULATION 139-40 (1969).
3. Jersey Central Power & Light Co. v. FERC, 730 F.2d 816 (D.C. Cir. 1984) [hereinafter Jersey
Central I] (unanimously affirming the Commission's summary denial of Jersey Central Power & Light's
(JCP&L) application to recover $397 million prudently invested in a later-abandoned nuclear plant); Jersey
Central Power & Light Co. v. FERC, 768 F.2d 1500 (D.C. Cir. 1985) [hereinafter Jersey Central 11]
(remanding the case because of the Commission's failure to explain how its summary application of its used
and useful rule affected the overall end result of the rate; later vacated in favor of en banc review in Jersey
Central Power & Light v. FERC, 776 F.2d 364 (1985)); Jersey Central Power & Light v. FERC, 810 F.2d
1168 (D.C. Cir. 1987) [hereinafter Jersey CentrallI ] (vacating and remanding the Commission's order for
failure to inquire under FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944) (Hope or Hope Natural Gas),
whether a rate that excludes recovery of the investment in the abandoned plant is just and reasonable in
light of its effect on the investors in the financially-distressed utility). All majority opinions are by Judge
Bork.](ViewImageLocal?handle=hein.journals/energy8&div=26&collection=&method=preview&ext=.png&size=3)
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Used and Useful: Autopsy of a Ratemaking Policy
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