Opinion ID: 2332011
Heading Depth: 2
Heading Rank: 5

Heading: Pension and Life Insurance Expenses

Text: The president and vice president of Casco each own 50% of the company's stock. Casco sought a $13,376.76 pension expense for its employees, including $6,750 for these two officers. The pension plan is funded entirely by Casco, which contributes a sum equal to 15% of the qualifying employee's salary. In addition, Casco sought a $1,581.11 life insurance expense, including $601.20 for the same two officers. The life insurance plan is also entirely funded by Casco, but the insured may designate the beneficiaries. Casco's two owner/officers, as directors of the Company, voted for the pension and life insurance plans which appear entirely elective for Casco. The Commission disallowed as expenses for ratemaking purposes, the pension and life insurance expense associated with Casco's president and vice president, stating: We are of the opinion that when considered with all the other benefits received by the two owner/officers, these expenses are unreasonable. Both officers receive substantial salaries and have extensive expense accounts. The company failed to sustain its burden of showing the value received by CBL for these pension and life insurance expenses. As a result, this pension expense and life insurance expense appear not to be a reasonable business expense, but a disguised dividend. Accordingly, we disallow the owner/officer pension and life insurance expense for rate-making purposes and are of the opinion that these owner/officer expenses should be borne by the stockholders. We note further that the company failed to show how these expenses were necessary to the reasonable operation of CBL's business. It is apparent that the pension and life insurance plans, as presently constituted, are designed to benefit the present owners/officers rather than to attract and maintain other new employees. Re Casco Bay Lines, supra at 176. We find no error in the Commission's treatment of this item. The Commission's decision that the expenses in question were not reasonable expenses for ratemaking purposes is based primarily upon Casco's failure to meet its burden of showing their reasonableness. A public utility bears the burden of proof before the Public Utilities Commission to establish the justness and reasonableness of its proposed rates. 35 M.R.S.A. § 307; Central Maine Power Co. v. Public Utilities Commission, 156 Me. 295, 299, 163 A.2d 762, 765 (1960); In re Central Maine Power Co. 152 Me. 32, 36, 122 A.2d 541, 543 (1956); Central Maine Power Co. v. Public Utilities Commission, 150 Me. 257, 266-67, 109 A.2d 512, 516 (1954). We emphasized the rule that the burden of proof is upon the utility in our recent decision in Maine Water Co. v. Public Utilities Commission, Me., 388 A.2d 493 (1978): The staff, of course, is not required to introduce any direct evidence in a rate case proceeding for the burden of proof is upon the utility to demonstrate that its proposed rate increase is just and reasonable. 35 M.R.S.A. § 307. If the staff chooses not to present a case-in-chief, the Commission is not bound to accept the uncontradicted testimony of the utility but is free to weigh the evidence, determine the credibility of the utility's experts, and draw its own independent conclusions. Id. at 496. During the proceedings before the Commission below, not only did the Staff choose not to present any direct evidence concerning the reasonableness of the pension and life insurance expenses, but also Casco presented no significant evidence to support these expenses. Casco's expert witness did present substantial testimony concerning the nature of the pension and life insurance plans. However, the only justification given for these expenses was that the life insurance plan provides employees with a fringe benefit  to solidify their employment.  Under the circumstances, the Commission could properly find that Casco failed to meet its burden of proving the reasonableness of these fringe benefits for its owner-officers. Our decision in this case does not constitute approval of a regulatory rule that all fringe benefits for a utility's owner-officers are per se unreasonable. Such expenses should only be disallowed upon a finding by the Commission, supported by the record, that the utility has failed to meet the burden of proving the reasonableness of such expenses. This burden of proof is understandably greater when the fringe benefits apply to the owner/officers of a small public utility such as Casco than when they apply to non-owner/officer employees, because of the substantial potential for abuse. We reaffirm our general approval of the allowance of pension costs as an operating expense found in Central Maine Power Co. v. Public Utilities Commission, supra, 150 Me. at 273-75, 109 A.2d at 519-20. We find no error in the Commission's finding that Casco failed to meet its burden of proof with respect to such fringe benefits in this case.