Opinion ID: 1264723
Heading Depth: 2
Heading Rank: 3

Heading: Comparable Net Operating Income

Text: The first witness for the Company offered exhibits showing expense deductions for wage increases and environmental protection expenditures to be incurred after the test year, but the Commission rejected them, ruling that it would not consider expenses beyond the test year. Later, during the cross-examination of a Company witness, the Commission modified its ruling by announcing that evidence of an established fact and not a surmise or guess, relating to subsequent years would be admitted for the Commission's consideration. During the presentation of the staff's evidence and after the Company had objected to certain out-of-test-year evidence proffered by the staff, the Commission changed its ruling: This being a purely legislative proceeding, we will permit the record to contain all material offered.    The bailiff will cross out the notation `Refused' that he has written on some of the exhibits. In computing the Company's comparable net operating income, the majority opinion excluded any deduction for the federal surtax, which was effective during the test year but eliminated in the next year. The opinion also allowed deductions for wage increases and environmental protection expenditures to be incurred after the test year, but committed for during the test year. Appellants contend that the Commission erred in allowing the wage increase and environmental protection expenses. We reject that contention. Although the use of a test year is proper, the Commission, in exercising its legislative function of fixing utility rates for the future, should not be blind to the future. It may adjust the results of the test year by allowing for known changes to make the test year representative of the future. The Commission has followed this practice in the past. City of Lynchburg v. Chesapeake and Potomac Tel. Co., 200 Va. 706, 708, 107 S.E.2d 462, 464 (1959). The staff proposed elimination of expenses incurred during the test year for promotional allowances and trade ally advertising, on the ground that by order entered in April 1970 the Commission had disapproved further use of such allowances and advertising in the form engaged in by the Company. The Commission refused to eliminate those expenses, finding it reasonable to assume that the Company would substitute some other form of sales promotion activity at an equal or greater cost. We see no reason to disturb that finding and reject appellants' complaint in that regard. On appeal, the appellants complain for the first time that after admitting evidence of future wage increases, the Commission should have admitted and considered projections of increased Company revenues under existing rates. To answer that contention, we need only point out that no such evidence was proffered to the Commission.