Opinion ID: 2363714
Heading Depth: 3
Heading Rank: 2

Heading: Going Basis Adjustments

Text: During the course of the hearings and in his prepared testimony, Hartikka recommended that certain out-of-period accounting entries adopted by the company be excluded from computation of the company's overall expense figure. The company's adjustments were intended to reflect what it considered typical expense changes of various kinds, namely, changes in the level of unemployment taxes, social security tax accruals, and medical insurance expenses. The commission accepted Hartikka's proposal to eliminate those out-of-period entries, thereby increasing pro forma intrastate earnings for the test period by $72,000. The problem facing the commission in treating these out-of-period accounting entries is not unlike that which we have just discussed concerning directory advertising revenues. The commission must, when necessary, adjust test-year data so that it will reflect typical operating conditions and thereby hopefully prove representative of future conditions. Narragansett Electric Co. v. Harsch, 117 R.I. 395, 416-17, 368 A.2d 1194, 1206-07 (1977); Rhode Island Consumers' Council v. Smith, 113 R.I. 384, 397, 322 A.2d 17, 24 (1974). The commission had before it Hartikka's testimony that the disputed entries would have distort[ed] the company's actual test-year operating results; Hartikka had as a general matter suggested on cross-examination that, although future periods will probably require their own out-of-period adjustments, the unpredictability of the type, amount, and impact of such adjustments upon earnings makes untenable any theory that future periods will be affected in much the same way as was a given test year. Notwithstanding an apparent abundance of oral testimony before the commission both in support of and in opposition to use of the company's out-of-period entries as acceptable indicators of similar future adjustments, the commission found in its report and order that the company had waived whatever objection it might have had to Hartikka's proposal. The commission's conclusion might have resulted in part from the company's failure to brief its position with the vigor characteristic of its other efforts; indeed, the company had confined its remarks on the issue to a footnote in its brief to the commission, declaring there, in part, that [t]he position of the parties is sufficiently clear on the record   . Our review of the commission's decision to accept Hartikka's recommendation cannot, however, turn upon the question of the existence and effect of an alleged waiver, because, in our opinion, the commission itself did not so limit its determination. Rather, despite its reference to waiver, the commission found quite specifically and as a matter of fact that [t]he out-of-period accounting entries    would, if included in test period operating results, have a distorting effect. Although that finding is presented without elaboration of any kind, it nonetheless makes clear both that the commission felt that there existed sufficient evidence of the type properly relied upon in making necessary factual determinations, and that the commission in fact acted on the basis of that evidence. Having so acted, it was incumbent upon the commission to support factually and legally its decision that exclusion of the entries was necessary to avoid distortion of the company's test-year operating results. E. g., Rhode Island Consumers' Council v. Smith, 111 R.I. 271, 285-86, 302 A.2d 757, 766-67 (1973). We must mow remand this matter to the commission so that it may discharge that responsibility in a supplementary decision. [8]