Opinion ID: 1907714
Heading Depth: 3
Heading Rank: 3

Heading: Newport acquisition

Text: In December of 1974, the company purchased the net assets of the Newport Gas Light Company (Newport). It paid $1.2 million less than the present book value of the company at the time of acquisition. [10] The company sought to include the property in its rate base at book value rather than the purchase price. The council, on the other hand, insists that the Newport acquisition should not be included in the rate base at more than the purchase pricethe original cost to the company. The council recommends that the purchase price be included within the rate base computation but that the annual depreciation charge relating to this property be based upon its book value. The commission, on its part, adopted a middle ground. It allowed the book value of Newport to be included within the rate base, but acknowledged its duty to the consumer by amortizing the difference between book value and purchase price ($1.2 million) over a 24-year period. The amortization would be an additional revenue to the company resulting in an annual cost of service adjustment of $50,000 in favor of the consumer. The council cites numerous cases to us which hold that when acquisition cost is less than the book value of the acquired utility, the only properly includable figure for rate base is the purchase price. This rule, however, follows from those jurisdictions which adhere strictly to original cost valuation of assets. See e. g., Re Vermont Gas Systems, Inc., 100 P.U.R.3d 202 (Vt.P.S.Bd. 1973). In Rhode Island the commission is bound by no hard and fast rule to determine the fair value of the property devoted to rendering the regulated service. That is a holding that the fair value of the property is the rate base but it is not a rule prescribing how such value shall be determined. Narragansett Elec. Co. v. Kennelly, 88 R.I. 56, 69, 143 A.2d 709, 717 (1958). Particularly reflective of this approach, and analogous to the case before us, is Town of Jamestown v. Kennelly, 81 R.I. 177, 100 A.2d 649 (1953). In that case the administrator refused to include the purchase price of a utility as its fair value for the rate base, opting for the higher price. The court, in upholding this determination, noted: The actual price paid may or may not have represented the fair value of the property. It is a relevant fact but not an exclusive or final test of such value.    The administrator was not bound to adopt such adjustments (purchase price) if there was evidence which justified findings to the contrary. Id. at 181, 100 A.2d at 651. Such is the case before us. On a review of the record the commission was justified in finding the purchase price not to be reflective of the fair value of the assets. We find both the valuation of the asset and the amortization of the acquisition adjustment to be reasonable and, accordingly, we will not interfere with the commission's treatment of this issue.