Legal Requirements: These concepts are generally imposed by legislation on utilities and must be taken into account by regulatory bodies in setting rates.
Enabling legislation: All regulatory agencies are created by the legislature and delegated legislative authority. Regulators play the role of implementing the policies and procedures assigned to it by the legislature.
Public intervention: The administrative process is a public process that must follow reasonable rules of due process. Any party having a legitimate interest in the outcome of the process may intervene and rebut evidence provided by the utility or present its own evidence to supports its own proposals.
Obligation to serve: This is the requirement that the company plan to serve its customers‘ demands for services by providing safe, reliable, and adequate supplies under normal business conditions (Rossi [62]; Payton [54]).
Application of Legal Requirements: These are principles or concepts that have, generally, been read into the laws by courts reviewing administrative decisions.
Prohibition on single-issue ratemaking: Regulation is designed to focus on the total net cost of service to avoid piecemeal or single-issue ratemaking. That is, regulators are generally required to review all costs included in the TRR to assure that the net result includes all cost increases and decreases as well as productivity changes (Citizens Utility Board [89]; Business and Professional People [83]; Utility Consumers Council of Missouri [115]; Pennsylvania Indus. Energy Coalition [110]).
Prohibition on retroactive ratemaking: The revenue requirement and, in turn, rates are set prospectively in order to attempt to match the costs that are embedded in the rates with the time period in which the rates are in effect. There is no attempt to rectify past outcomes by making up for lost or excess profits. Conceptually, prices are intended to reflect the costs of the utility at the time service is provided (Kreieger [36]).
Prudent investment standard: Prudence is generally defined in terms of the ―reasonable manager‖ standard. The standard does not allow the regulator to substitute its judgment for management judgment; rather the regulator determines that, given the information known or that should have been known at the time a decision is made, the decision could have been made by a reasonable management team (i.e., prudence is not a 20/20 hindsight review). Costs that are not the result of prudent management are excluded from the TRR (Allison [1]).
Used and useful standard: Utility assets must be sized such that at any given time they are, or can be, used to provide service to customers (Union Stock Yard [116]; Jersey Central Power [99]; Duquesne Light Co. [92]; Lesser [