Used and Useful

A test used by regulators to evaluate the justification for particular corporate investments, used for cost of service and price cap regulation. The test checks whether a plant or piece of equipment is actually being utilized to provide service, and that it is contributing to the provision of the service. For example, if a company has excessive numbers of distribution lines carrying electricity to a neighborhood, the regulatory authority may disallow some of the investment because even though the lines carry electricity (are “used”), they are not needed, so they are not “useful.” See Prudency.