Ord 1978-053 - Laserfiche WebLink

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3 selected. The test period concept is an attempt to develop data which will reflect conditions that will exist when the new rate~ are to be put into effect. As stated by the Federal Power Commis- sion in its famous "Seaboard" decision in 1952," we look to the past only for a forecast of the future". I The calendar year 1977 was used as the test period by the Company. The actual 1977 revenues, expenses, depreciation, and taxes were taken from the Company records and adjusted to recognize various changes occurring during or subsequent to the test year. I Entex has based its revenue requirements on the past Texas Railroad Commission policy of allowing an 8% rate of return on fair value rate base. This produces a revenue deficiency of $134,600. The Company is requesting only $122,080 (which reflects a 7.5% of return) in order to encourage immediate relief and the acceptance of the Cost of Service Adjustment Clause. Although a return allow- ance at the. 8% level was used by the Railroad Commission in past years, its current approach is to evaluate the reasonableness of the fair value rate of return by testing its impact on the return to book common equity. In Docket No. 710, which involved the Beaumont distribution system of Entex, the Railroad Commission stated that the return on invested capital (original cost) must be considered as a check on the return to the fair value rate base. In that particular case they allowed a 17.6% return on book common equity. For purposes of this report, we have followed the Commission's present policy, although we do not necessarily endorse the validity or wisdom of the Commission's policy in so applying the fair value standards. Rate Base The Company has developed a "fair value" rate base of $1,335,270 at December 31, 1977 for the San Marcos distribution system. The .