Under traditional ratemaking principles, utilities must demonstrate that their costs are ‘prudent’ and ‘used and useful’ before their regulator will allow them to recover those costs through their rates. Imprudent expenditures are generally not recoverable at all. The prudence of an expenditure or investment is generally based on whether a reasonable person would have decided to make the same expenditure or investment when facing the same circumstances that the regulated utility was facing.

A ‘used and useful’ review examines whether an investment will be providing service, or will be capable of providing service, to the utility’s customers in the foreseeable future. Such investments can be phased into rates over time as the investment becomes needed in order to provide safe and reliable service to the utility’s customers.

Synapse staff have addressed a variety of prudence and ‘used and useful’ issues in the electricity and natural gas industries.

Examples of our electricity cases include evaluating the following:

	Decisions concerning the need for new generating facilities and whether to undertake major equipment repairs at operating power plants
	Power plant operations and outages and resultant replacement power costs
	Utility energy contracts and purchases
	Transmission system maintenance and investments
	Power plant acquisitions
	Utility decisions to not attempt to recover damages from vendors for equipment and component failures
	Whether proposed power plants or utility acquisitions would be used and useful
	Proposals to transfer power plants from unregulated to regulated affiliates

Examples of our gas cases include evaluation of the following:

	Gas supply contracts
	Decisions regarding capacity mix, including relative quantities of firm transportation service, storage, and seasonal capacity
	Proposals to transfer gas production assets from regulated to unregulated affiliates