Opinion ID: 2303572
Heading Depth: 1
Heading Rank: 7

Heading: Prepaid Insurance Premiums

Text: Narragansett challenges the Commission's decision to exclude from the rate base certain prepaid insurance premiums. The amount of these prepayments was $104,000. The policies in issue were of one to three years in duration and were paid for in full in advance rather than by installments. Narragansett presented evidence to establish that it follows the practice of prepayments on the advice of its insurance department and its brokers. Three reasons were given for such a procedure. First, prepayment results in lower premiums for policies than when installment payments are used. Second, premiums on three-year policies remain fixed and are not subject to upward revision during the policy period. Finally, Narragansett is assured of coverage for the duration of the policies. The Council contends that the utility made no showing before the Commission of the benefit of these prepayments to the ratepayer, and, therefore, that such expenses should not be included within the rate base. Also, the Commission had excluded these items from Narragansett's rate base in the previous rate proceeding. Docket No. 1076. The Commission agreed with the Council and excluded the prepayments on the ground that such expenses are incurred at the election of Narragansett and that the utility had not sustained its burden of showing that benefit is gained by the ultimate consumer. It is quite clear to this court that the practice adopted by the utility, which not only reduces the cost of insurance premiums but at the same time insures coverage over extended periods of time, benefits the ratepayer. The practice is a sound one financially. There is assured maximum protection to the utility, and, hence, indirectly to the ratepayer. It is the duty of a public utility to avail itself of such protection for the benefit of its customers, the public. The Commission acted unreasonably and arbitrarily in failing to include such prepayments in the rate base. We find that the Commission's determination is not fairly and substantially supported by legal evidence, and, therefore, it becomes necessary for the agency to allow this sum as an element of the rate base.