What are the “terms” used in dockets?

  • Appearance:  Any act during the course of a contested case by which a person, either in person or by counsel, recognizes and submits to the jurisdiction of the Commission for all purposes except where it is expressly stated to be limited to a particular purpose, such as challenging the jurisdiction of the Commission.
  • Abandonment:  Retirement of a utility plant, on the books, without its physical removal from its installed location.
  • Above-the-line expenses:  Components of a utility’s Statement of Income that appear above the Operating Income line.  They include expenses that are attributable to the furnishing of utility service and are therefore taken into account in determining rates.  Although the Cost of Capital (interest on debt and income for shareholders) is included in rates, it is done for investor-owned utilities indirectly via the rate base.   
  • Accelerated method (of depreciation): Larger depreciation expense in earlier years and smaller depreciation expense in later years.
  • Accounting period:  The time period for which financial statements that measure flows, such as the income statement and the statement of cash flows, are prepared.  Could be a month, a quarter of the year or a year.
  • Accrual accounting:  The method of recognizing revenues and expenses.  As goods are sold (or delivered) and as services are rendered, independent of the time when cash is received.  Expenses are recognized in the period when the related revenue is recognized, independent of the time when ash is paid out.  Contrast with the cash basis of accounting.
  • Acquired customers:  All customers of all classes served by the selling utility who will be served by the acquiring utility in the event the Commission approves the application for acquisition.
  • Acquired rate base:  The amount of the selling utility’s assets and acquisition adjustment, if any, the Commission determines should be incorporated into the acquiring utility’s rate base for ratemaking purposes pursuant to Rule 1220-04-14-.03 and Rule 1220-04-14-.04.
  • Acquiring utility:  A public utility subject to the jurisdiction of the Commission that provides electric, natural gas, water or wastewater public utilities services that is purchasing or acquiring a selling utility or a selling utility’s assets as a result of a voluntary arms-length transaction.
  • Acquisition adjustment:    When one rate-regulated utility buys plant from another utility.  This is the difference between the cost of acquiring an operating unit or system and the depreciated original cost of the acquired property. In Tennessee, the amount, whether positive or negative, the Commission determines should be incorporated into the acquired rate base under Rule 1220-04-14-.04.
  • AFUDC (Allowance For Funds Used During Construction).  A noncash item representing the estimated composite interest costs of debt and the required return on preferred and equity funds used to finance construction.  The allowance is included in the CWIP accounts and income.  This portion of the carrying value of property (along with the rest) is included in a utility company’s rate base and is recovered through depreciation in rates.
  • Allowed rate of return or allowed return:  The rate of return, (to be applied to rate base), which the regulatory commission sets in determining rates.
  • Amortization:  The general process of allocating acquisition cost of assets to either the periods of benefit as expenses or to inventory accounts as product costs.  Called depreciation for plant assets, depletion for wasting assets (natural resources), and amortization for intangibles.  The term is also used for the reduction of some liabilities i.e., amortization of a loan.
  • Authorized return on equity:  Commissions authorize a utility to set rates that allow the utility an opportunity to earn a reasonable return on its shareholders’ equity investment (ROE).  The standard is that the overall rates of a utility must provide the company with a reasonable opportunity to attract capital and earn a fair return on its investments.
  • Average embedded cost:  An acquiring utility’s plant in service, less associated accumulated reserve as recorded in the Uniform System of Accounts for the type of utility plant being acquired from the selling utility, divided by the acquiring utility’s existing customers.
  • Balance sheet:  Statement of financial position that shows total assets = total liabilities + owners’ equity.
  • Base rates:  Portion of the utility rates covering the costs of providing service (including profit) that result from a rate case and may be changed by adjustment clauses.
  • Below-the-line:  All income statement items of revenue and expense not included in determining operating income.  If the item falls below the net operating income line of the income statement, it is labeled a below-the-line item.  Operating income is the “line” referred to.  These items are usually not included directly in the ratepayers’ rates (although some are included indirectly; for example, interest expense is included in rates through the return on rate base).
  • Book value:  The amount shown in the books (or in the accounts) for an asset, liability, or owners’ equity item.  Generally used to refer to the net amount of an asset or group of assets shown in the account, which record the asset and reductions, such as for depreciation or amortization, in its cost.  For a company as a whole, the common stockholder’s equity usually expressed on a per share basis.
  • Capital budget:  Plan of proposed acquisitions and replacements of long-term assets and their financing.
  • Capitalization ratio:  Percentage of Long-Term Debt, Preferred Stock, Preference Stock, and Common Stock Equity (or their components) to Total Capitalization.
  • Cash flow:  The cash flow on the financial statements is the Cash from Operating Activities.
  • Cash flow analysis:  Usually refers to a present value of future cash flows analysis.
  • CIAC (Contributions in aid of construction):  Nonrefundable donation or contributions in cash or properties from individuals, governmental agencies or others for construction or property-addition purposes, usually the associated plant does not become part of the rate base on which the utility may earn an approved return.
  • Commission:  When used to refer to an agency of the State of Tennessee, means the Tennessee Public Utility Commission or TPUC.  The Tennessee Regulatory Authority, or TRA, is the predecessor agency to the TPUC, just as the Tennessee Public Service Commission predated the TRA.  While the nomenclature has changed, the scope and function of these entities has remained essentially the same.
  • Commission Conference:  a “meeting” as that term is defined in Tenn. Code Ann. § 8-44-102(b)(2).
  • Cost:  The sacrifice, measured by the price paid or required to be paid, to acquire goods or services.  The term “cost” is often used when referring to the valuation of a good or service acquired.  When “cost” is used in this sense, a cost is an asset.  When the benefits of the acquisition (the goods or services acquired) expire, the cost becomes an expense or loss.
  • Cost of capital:  The composite rate of cost for debt interest, preferred stock dividends and common stockholder return requirements. It is the composite of the cost of the various capital sources used to finance the assets utilized in supplying utility service.
  • Cost of equity:  The required rate of return for the equity holder, appropriate for the risk of this investment.
  • Cost of service (often referred to as “revenue requirement”):  Operation and maintenance expenses, depreciation and amortization expenses, and income and other taxes found “just and reasonable” by the regulatory agency for rate-making purposes, plus an allowed return (usually computed by the applying a rate of return to the rate base).
  • Cost of service study:  An analysis used as the basis for designing rate schedules.  This concept attempts to corelate utility costs and revenues with the service provided to each of the various customer classes in the rate design or rate structure phase of a rate case.
  • Customer advances for construction (CAC):  A liability representing cash advances paid to the utility by customers, requiring the construction of facilities in their behalf.  These advances are refundable.  The time or extent of refund is dependent on the contract provisions of the advance (usually dependent on whether or not, during a specified period, the revenue from the installation warrants the refund).
  • CWIP (Construction work in progress):  Plant under construction at a regulated utility.  Also refers to a method of ratemaking where the CWIP is rate base.
  • Decouple (decoupling):  A ratemaking technique that separates the amount of a commodity sold from the total revenues (or profits) expected from those sales.  This technique is often recommended for use in the energy industry by conservationists since it provides a means of removing the incentive that utilities have to sell more energy to increase earnings.
  • Deferred cost:  Expenditure not recognized as an expense of the period when the made but carried forward as an asset to written off in future periods, such as for advance rent payments or insurance premiums.
  • Deferred tax liability (deferred income tax liability) (deferred taxes):  A liability on the balance sheet representing the additional income taxes that would have been due if a utility had not been allowed to compute tax expenses differently for income tax reporting purposes than for financial statement purposes.  Results from temporary tax book differences.
  • Depreciation:  Fixed assets, plant assets, plant, equipment, etc. are assets that will not last indefinitely.  During each accounting period (year, quarter, month, etc.) a portion of the cost of these assets is being “used up.”  The portion being used up is reported as depreciation.  In effect, depreciation is the transfer of a portion of the asset’s cost form the balance sheet to the income statement during each year of the asset’s life.
  • Depreciation life:  Life estimate used to determine depreciation expense.
  • Disallowance of costs:  When incurred costs are not considered necessary to providing utility service or are not prudently incurred or are not any benefit to the ratepayers and are therefore not recoverable in rates.
  • Discount rate:  Interest rate used to convert future cash flows to present values.
  • Dividend:  A distribution of earnings to owners of a corporation; it is usually paid in cash.
  • Earnings:  Income, or profit.  Also called Net Income, Net Earnings or Net Profit.
  • Existing customers:  All customers of all classes serviced by the acquiring utility immediately prior to the Commission’s hearing and consideration of the application for acquisition.
  • Fair value:  Market value.
  • FERC (Federal Energy Regulatory Commission):  Independent agency within the Department of Energy.  FERC is vested with broad regulatory authority.  Virtually every facet of electric and natural gas production, transmission, and sales conducted by private investor-owned utilities, corporations or public marketing agencies is placed under the commission’s purview through either direct or indirect jurisdiction, if any aspect of their operations are conducted in interstate commerce.
  • FERC USOA (Federal Energy Regulatory Commission’s Uniform System of Accounts):  FERC list of accounts for the purpose of classifying accounting information associated with a utility’s operations.  The USOA specifies a number for each account, together with a title and description of content, and prescribes the rules and regulations governing the use of such accounts.
  • FIFO (First-in, First-out):  an inventory flow assumption by which ending inventory cost is determined from most recent purchases, and cost of goods sold is determined from oldest purchases including beginning inventory.
  • Flow through costs:  Costs passed through to ratepayers through adjustment clauses.
  • Formula ratemaking:  A ratemaking methodology used by the FERC to change rates each year without a rate case.  Term is used by some states in a different sense.
  • GAAP (Generally Accepted Accounting Principles):  Principles, rules, procedures, and conventions of accounting practice, used for preparing financial statements.  Defined by a hierarchy of rule-making authorities and promulgated by various types of pronouncements.  Subject to change as economic circumstances change.
  • Goodwill:  The excess of cost of an acquired firm, over the current or fair-market value of net assets of the acquired firm.
  • Gross up:  In ratemaking, the concept that in order to get enough extra revenue to cover higher expenses these expenses must be increased by dividing these expenses by 1 minus the tax rate.
  • Hearing officer:  Includes “Hearing Examiner,” as identified in Tenn. Code Ann. § 65-2-111; “Administrative Judge,” as defined in Tenn. Code Ann. § 4-5-102(1); and “Hearing Officer,” as defined in Tenn. Code Ann. § 4-5-102(4).
  • Income statement:  The statement of revenues, expenses, gains, and losses for the period ending with the net income for the period.
  • Income taxes:  Government levy on the taxable income of an individual, corporation, or other taxable unit.
  • Incremental analysis:  More or less cash flows due to a decision.
  • Incremental cost:  Increase in cost above some previously determined base amount.
  • Initial Petition:  Any filing with the Commission by which a person seeks to initiate action the by Commission and which requires a contested case hearing however denominated, including applications and complaints.
  • IOU (Investor-owned utility):  Utility organized as a tax-paying business usually financed by the sale of securities.  Usually a corporation of partnership.
  • Investors:  Party who puts money at risk; may be an individual or an institutional investor.
  • Local government:  Any political subdivision of the State of Tennessee, including, but not limited to a county or incorporated municipality.
  • Monopoly:  Exclusive control of a commodity or service in a given market, or control that makes possible the fixing of prices and the virtual elimination of free trade.
  • Natural monopoly:  The traditional definition is any market where a single firm is able to serve the entire market at the lowest average total cost.  The modern definition of natural monopoly focuses on subadditivity of the production cost function.
  • Negotiated sales price:  The purchase price of the utility assets that the acquiring utility and the selling utility agree upon through voluntary, arms-length negotiations.
  • Net book value:  Recorded cost of an asset or group of assets minus the accumulated provision for depreciation of these assets.
  • Net income (net earnings):  The excess of all revenues and gains, for a period, over all expenses and losses of the period.
  • Net present value:  Discounted or present value of all cash inflows and outflows of a project or from an investment at a given discount rate.
  • Normalization:  Name used at regulated utility companies for the liability method of accounting for tax-book temporary difference.
  • Obligation to serve:  A public utility’s obligation to provide safe, adequate, reliable, and secure service to customers both at the present time and in the future.  In return, public utilities have the opportunity to charge “just and reasonable” tariffed rates to customers that are based on the public utility’s prudently-incurred costs of providing public utility service.
  • Operating expenses: A group of expenses applicable to utility operations composed of: Energy Costs, Operations Expense and Maintenance Expense, Depreciation and Amortization, Taxes Other Than Income Taxes and Income Taxes.  This definition differs from other industries where Income Taxes would never be called an operating expense.
  • Overearnings:  A concept at regulated utilities of earning a higher return on equity than the regulator thinks is appropriate.
  • Party:  Any person having a right, under the provisions for the laws applicable to the Commission, to appear and be heard in a contested case and includes:
    • Persons who initiate a contested case by the filing of an initial petition;
    • Persons against whom relief is sought or against whom action by the Commission is directed; and
    • Persons who are given leave by the Commission to intervene in a contested case in accordance with applicable law and these rules.
  • Pass-through costs:  *See flow through costs.
  • PBR (Performance Based Ratemaking):  Any type of ratemaking which gives the company an incentive to operate differently.
  • Petitioner:  A person filing or joining with others in filing an initial petition.
  • PPA (Purchase Power Agreement):  A contract to buy power.
  • Pre-Approval:  Approval by the Public Utility Commission prior to the company making expenditures.
  • Price cap mechanism:  An alternative form of rate regulation where rates cannot go over the price cap.
  • Profit:  Excess of revenues over expenses for a transaction; sometimes used synonymously with net income for the period.
  • Proprietary information:  Documents and information in whatever form which, pursuant to a protective order in a contested case, have been specifically designated by the producing party as proprietary information and which the producing party in good faith deems to contain or constitute trade secrets, confidential research or development or commercially sensitive information.
  • Prudence (prudency test):  This is occasionally an actual test, but it usually refers to a set of criteria used to measure a decision against specific standards.
  • Prudent investment:  Investment which was reasonable at the time the decision to make the investment was made.
  • Public advocate:  A government official who can be statutorily mandated to represent the best interests of consumers before the public utility regulatory body.
  • Rate base:  The amount of property, plant and equipment that is used and useful in providing public utilities services and upon which the acquiring utility is permitted to earn an authorized rate of return approved by the Commission.
  • Rate case:  Process in which a utility appears before its regulatory authority to determine the rates that can be charged to customers.
  • Rate freeze:  An agreement not to change rates for a number of years.
  • Rate of return:  Return earned or allowed on rate base or return earned on an investment.
  • Rate of return regulation or rate regulation:  *See cost of service regulation.
  • Ratepayer:  Name used by regulated utilities for their customers, especially in rate cases.
  • Reasonableness review (reasonableness test):  Procedure to examine the appropriateness of accounting information.  For example, expenses for a company can be compared to those of prior years of the same company or other companies, or to industry norms.
  • Receivable:  Any collectible, whether or not it is currently due.
  • Regulated utilities (regulated operations):  Utilities are distinguished as being a class of business “affected with a deep public interest” and therefore subject to regulation.  Public utilities are further distinguished in that in most jurisdictions it is considered desirable for them to operate as controlled monopolies.  As such, they are obligated to charge fair, non-discriminatory rates and to render safe, reliable service to the public on demand.  In return, they are generally free from substantial direct competition and are permitted, although not assured of, a fair return on investment.
  • Regulatory assets:  Assets recorded on a utility’s financial statements, which deviate from normal GAAP because the regulator is expected to allow the cost to be recouped through rates. These regulatory assets would have been expenses under normal GAAP.
  • Regulatory book:  The ratemaking “set of books.”
  • Regulatory Compact:  An implicit agreement between the state, the regulator, and the public utilities as to how the public utility industry is to be regulated over a long period of time.
  • Regulatory lag:  Generally, the time between the final decision in the last rate case and the decision date in the next rate case.  During this period, a public utility has incentives to control its costs.
  • Regulatory liabilities:  Liabilities recorded on a utility’s financial statements resulting from a requirement by the regulator that certain amounts are to be paid by the utility in the future. These regulatory liabilities deviate from normal GAAP.
  • Replacement cost:  An estimate of the cost to replace the existing facilities (either as currently structured or as redesigned to embrace new technology) with facilities that will perform the same functions.
  • Reproduction cost new less depreciation:  An estimate of the cost to construct, at current prices, an exact duplicate or replica of the utility assets, without regard to the original sources of funding for those assets, using the same material, constructions standards, design, layout, and quality without adjustment for deficiencies and obsolescence of those assets, less depreciation.
  • Respondent:  A person against whom relief is sought, or against whom actin by the Commission is directed.
  • Retroactive ratemaking:  Changing rates in the future because of higher or lower revenues or expenses in the past.  Generally not allowed, except for adjustment clauses.
  • ROE (Return on Equity):  Net income available to common stockholders divided by the average common equity.
  • Revenue:  The monetary measure of a service rendered. Sales of products, merchandise, and services; and earnings from interest, dividends, rents, and the like.
  • Sets of books:  A phrase used to describe different accounting methods and estimates used for different purposes at companies.
  • Show cause order:  A concept that the Public Utility Commission can start a rate case.
  • Statement of cash flows:  Statement showing from what sources cash has come into the business and on what the cash was spent.
  • Stranded cost:  Cost incurred by a utility, which may not be recoverable under competition.  Examples include plant, regulatory assets and long-term contract costs.
  • System of accounts:  Accounts in the accounting system of the organization.  Utilities follow a uniform system of accounts.
  • Tariff:  A legal document that specifies the roles, charges, terms, and conditions under which a utility provides service to its customers.
  • Test year:  The twelve-month period selected to determine the cost of service in a rate case.  Sometimes the term “test period” is used.
  • Timing difference:  A difference between taxable income and income before tax, under GAAP, that will be reversed in a subsequent period.  For example, the use of accelerated depreciation for tax and straight-line depreciation for financial reporting.  One of the major temporary differences.
  • Trued-up (true-up mechanism):  A ratemaking practice that uses adjustments to rates to ensure that customers are not over or under billed for service.
  • Uniform system of accounts:  A chart of accounts with detailed instructions prescribed by a regulatory agency.
  • Variance:  Difference between budgeted and actual costs.  The word has a completely different meaning in statistics, where it is a measurement of dispersion of a distribution.
  • Weather normalization:  An adjustment clause that changes rates to eliminate gain or loss due to the weather.
  • WACC (Weighted average cost of capital) or weighted cost of capital:  A weighted average of the component costs of debt, preferred stock, and common equity.  Also called the “composite cost of capital.”

 

Sources used for terms above   ____________________________________________