Opinion ID: 1907714
Heading Depth: 3
Heading Rank: 1

Heading: Did the commission properly disallow lobbying fees and charitable contributions incurred by the company?

Text: The company contends that the commission erred in refusing to allow some $26,000 worth of charitable contributions and $11,000 of lobbying expenses to be included as an above-the-line operating expense of the company (cost of service). [14] The issue has led to disparate results in different jurisdictions, although many still allow the inclusion of such items subject to reasonable restraints. See, Annot., 59 A.L.R.3d 941 (1974); 1 Priest, supra at 83-87. However, in United Transit Co. v. Nunes, 99 R.I. 501, 209 A.2d 215 (1965), this court held that a gift by a public utility to a charitable organization in modest amount may be charged as an operating expense provided it is first established that it is productive of good community relations which will benefit the utility or its patrons. Id. at 513-14, 209 A.2d at 222. On its part, the commission states that such expenses must be treated below-the-line and consequently excluded as a cost of service. The commission based its ruling upon certain statements found in a publication called the Uniform System of Accounts where it deals with lobbying and charitable expenses in an account of Miscellaneous Income Deductions. [15] We do not agree with this position. The New York Public Service Commission has discussed the impact of the Uniform System of Accounts upon the ratemaking treatment of particular items within the Miscellaneous Income Deductions account. Re Accounting Treatment for Donations, Dues, and Lobbying Expenditures, 71 P.U.R.3d 440 (N.Y.P.S.C. 1968). The New York commission emphasized that while the publication was concerned with harmonizing accounting and ratemaking techniques, no accounting procedure, in and of itself, could bind the commission in fixing rates. As pointed out previously, if for any reason a company feels that such an expenditure should be allowed in considering rates, it should sustain the burden of proving the reasonableness of that claim in the context of the commission's ratemaking procedures. Re Accounting Treatment for Donations, Dues, and Lobbying Expenditures, supra at 445. Obviously, then, the existence of any particular accounting system does not automatically dictate the treatment of expense items for ratemaking purposes. Although for accounting purposes the commission can require such items to be put in the income deduction account, at the rate hearing the company should be given an opportunity to show such items benefit the ratepayer and, accordingly, should be treated as an operating expense. This position is clearly applicable to charitable contributions in our jurisdiction. United Transit Co. v. Nunes, supra . Furthermore, we see no reason to treat lobbying expenses differently if the company can show the expense is reasonable and the purpose directly beneficial to the ratepayer. We, therefore, remand this issue to the commission in order to allow the company an opportunity to make a showing that these various expenses should be included in cost of service.