Opinion ID: 1443207
Heading Depth: 1
Heading Rank: 6

Heading: income and expense

Text: It is settled in this State that it is equally as important in a proceeding of this nature to determine the reasonableness of the items of expense and income to be allowed in computing the operating and net income of the public utility as it is to determine the rate base to which this net income is applied in the computation of the rate of return. Public Service Coordinated Transport v. State, supra (5 N.J. at p. 222). The Utility contends that the respondent's adjustments of revenues and expenses in determining the Utility's operating income are illegal and not supported by the evidence. The respondent argues that the Utility failed to carry the burden of proof. That the burden of proof is upon the Utility is settled. R.S. 48:2-21 d, supra; Public Service Coordinated Transport v. State, supra (5 N.J. at p. 222). Compare Atlantic City Sewerage Co. v. Bd. of Public Utility Commissioners, supra (128 N.J.L. at pp. 370-371). The decision of the respondent makes various adjustments in expense and revenue items purporting to reflect a normal year under prevailing economic conditions. The Utility submitted forecasts of revenues and expenses in which it gave effect to certain items on a normalized basis and later introduced evidence of the actual experience for the year 1950. The purpose of normalizing adjustments is to determine a normal level of net income in order to reasonably forecast income so that rates established will be fair to both the public utility and to the public, during the period for which the rates are designed to be effective. The respondent is not under a duty to indulge in speculation as to such matters, however, for there is in its continuing supervisory power, as hereinbefore stated, a wholly adequate remedy for adjustment to shifting circumstances. Compare Atlantic City Sewerage Co. v. Board of Public Utility Commissioners, supra (128 N.J.L., at pp. 367, 369 and 370-371). Further although the respondent is not bound by technical rules of evidence (see R.S. 48:2-32) there must be sufficient or substantial competent and relevant evidence in the record to support the reasonableness of these items since a court is of necessity restricted upon a review of the rates fixed by the respondent to a consideration of the record before it, Public Service Coordinated Transport v. State, supra (5 N.J. at p. 223); Central R. Co. of N.J. v. Dept. of Public Utilities, supra (7 N.J. at p. 260). We are of course authorized, particularly where certification (as in this case) has been allowed prior to hearing of the appeal under Rule 3:81-8 in the Superior Court, Appellate Division, and we thereupon assume the duties of that court (see Central R. Co. of N.J. v. Dept. of Public Utilities, supra, 7 N.J. at pp. 258-259), on application on notice of motion supported by affidavit to grant leave to present additional evidence on the issues of the case if it appears that the additional evidence is material and that there were good reasons for failure to present it in the proceedings before the agency. Rule 3:81-9. Although this rule was not invoked in this case, it was suggested to the court by the Utility at the oral argument that 1951 actual operating results showed so great a variance with the net income forecast which entered into the respondent's determination of reasonableness of the existing rates for the service rendered by the Utility as to indicate that the forecast was arbitrarily reached and in this connection the Utility indicated its belief that the 1951 actual experience should be received in evidence by this court. Such evidence naturally was not available to the respondent but it had before it the operating results for that period in 1951 preceding its determination. There is not only no support in the evidence considered by the respondent to support the Utility's attack on the income forecast, but to the contrary the early 1951 actual experience which was considered by the respondent verifies that forecast. There being sufficient or substantial competent and relevant evidence in the record to support the respondent's determination in this respect, the validity of its decision and order must, under the foregoing authorities and Rule 3:81-9 be gauged thereby. Where by reason of circumstances beyond the control of the Utility and unforeseeable at the time of the rate order it becomes apparent that the existing rates are insufficient to provide a fair rate of return, and rates reasonable both to the public utility and the public, the remedy is not by way of invalidation of the past order on the basis of the subsequent events introduced in evidence before the appellate court, but by way of filing new schedules of rates in accordance with the statutory requirements. With these principles in mind, let us examine the case presented by the Utility on this appeal. In the first place it admits the validity of all the determinations and normalizing adjustments made by the respondent in the income and expense category except two: federal income tax allowance and normalization of interchange income (and expense). To this extent we find sufficient or substantial competent and relevant evidence in the record to support the respondent's decision and order.