Opinion ID: 2347721
Heading Depth: 1
Heading Rank: 12

Heading: Depreciation on Contributed Property

Text: The Companies took varying amounts of depreciation on certain items of contributed property. [43] The Commission disallowed the depreciation, and we find no error in its action. In excluding depreciation on contributed property for rate-making purposes, the Commission said: We see no reason to change the Commission policy of eliminating depreciation on contributed property. Central Maine Power Company, 8 PUR 4th 277, 291 (Me. PUC. 1975). The purpose of depreciation is to recover the original investment in property over the life of the property. The purpose of depreciation is not to replace property. Since the Company has invested no funds in contributed property, it is not entitled to recover the original investment through depreciation. Princess Anne Utilities Corp. v. Virginia et al. State Corp. Comm., 211 Va. 620, 179 S.E.2d 714, 88 PUR 3d 519 (1971). There is no conflict with our generally accepted accounting principles or our uniform system of accounts, for those systems have never been controlling for rate-making purposes. (emphasis in original). At one time, the Commission policy was to add contributed property to the utility's operating account and then permit depreciation on that account. See Re Harrison Water Co., 87 P.U.R.3d 351 (Me.Pub. Utils.Comm'n 1970). However, in 1975 the Commission reversed its policy and accepted the principles set forth in the Virginia case of Princess Anne Utilities Corp. v. Commonwealth ex rel. State Corp. Commission, supra. Re Central Maine Power Co., supra. In so doing, it was adopting the view that the purpose of depreciation was recompensation to the utility for its original investment, a view which is logical in states like Virginia and Maine which follow the original cost rule in determining rate base. We believe it inequitable to allow a company to recover depreciation accruals on plants in which it has made no investment. Accord, Southwestern Bell Telephone Co. v. State Corp. Commission, 192 Kan. 39, 386 P.2d 515 (1963); State ex rel. Martigney Creek Sewer Co. v. Public Service Commission, Mo., 537 S.W.2d 388 (1976); State ex rel. Utilities Commission v. Heater Utilities, Inc., 288 N.C. 457, 219 S.E.2d 56 (1975). The Commission did not abuse its discretion when, in the 1975 Central Maine Power case, supra, it chose to adopt the Princess Anne principles; and it certainly has committed no error here when it merely proceeded to follow its already-established policy.