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In the utilities industry, the Used and Useful Principle is a concept that requires energy assets to be physically used and useful to current ratepayers before those ratepayers can be asked to pay the costs associated with them. This is a fundamental principle of utility regulation.

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  • Used and Useful Principle (en)
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  • In the utilities industry, the Used and Useful Principle is a concept that requires energy assets to be physically used and useful to current ratepayers before those ratepayers can be asked to pay the costs associated with them. This is a fundamental principle of utility regulation. (en)
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  • In the utilities industry, the Used and Useful Principle is a concept that requires energy assets to be physically used and useful to current ratepayers before those ratepayers can be asked to pay the costs associated with them. This is a fundamental principle of utility regulation. The used and useful principle precedes the prudent investment rule and is established in law. In Smyth v. Ames, 169 U.S. 466 (1898), a test was formulated by the United States Supreme Court to measure the extent to which regulated companies were protected from legislative expropriation on behalf of the public. In reviewing the interests of the customers versus the interests of the company, the United States Supreme Court connected the concept of whether or not something is used or useful to the public service provided to determine rates. This case provided the legal foundation for the idea that only property serving the public is eligible to earn a rate of return. The principle of used and useful also provides a way to place definite limitations on costs charged to utility customers. Not only must it be proven that utility investments and expenditures are used and useful to the ratepayers, the company must show that investments that are out of date technologically or economically are excluded from the rate base. The test keeps utility companies from investing in assets that do not provide a useful service and also to prevent any deliberate over-investing in an asset to purposefully inflate the rate base. This protects the ratepayer but, unlike the review for prudency, the used and useful test does not take the loss of the shareholder or investor into consideration. (en)
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