Opinion ID: 2391146
Heading Depth: 1
Heading Rank: 9

Heading: License Contract.

Text: The Company contends that the Board erred in failing to allow the whole of its payments to its parent corporation, American Telegraph & Telephone Company, under a license contract made between the Company and American in 1930. The general principle applicable to this phase of the case is that the regulatory body may disallow such part or parts of the payments made by the regulated company to a parent or affiliated corporation as may exceed costs reasonably incurred by the parent or affiliate in rendering services to the state regulated company. See the Public Service Coordinated Transport case, supra (5 N.J., at p. 222); Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 151-157, 75 L.Ed. 255, 264-268 (1930). The validity of the contract as between the affiliated corporations is not in question, nor is the obligation thereof impaired by the disallowance. The determination of the Board merely relates to the portion of the expenses to be borne by the New Jersey consuming public. Cf. Columbus Gas & Fuel Co. v. Public Util. Com., 292 U.S. 398, 414, 54 S.Ct. 763, 78 L.Ed. 1327, 1336-1337 (1934). Cf. Lindheimer v. Illinois Bell Teleph. Co., 292 U.S. 151, 157-165, 54 S.Ct. 658, 78 L.Ed. 1182, 1188-1192 (1934). The Company claimed an allowance of $1,212,700 to cover payments to American under its license contract (which calls for payment to American of 1% of the Company's gross annual revenues). The Board reduced the amount of this item by $387,000, after making specific findings as to the failure of proof of reasonableness of the allocation of certain costs of American to the Company. The Board contends on this appeal that no allowance under the license contract is warranted until the Company has obtained the Board's approval thereof under R.S. 48:3-7.1. The Company contends that the statutory provision has no application, although amendments of the contract have been made by American since the enactment of the statute in 1930. We find no necessity to resolve the opposing contentions concerning the applicability of this statute and the apparent failure of the Company to act thereunder subsequent to the Board's decisions in the 1947 and 1949 rate cases in which its treatment of this particular parallelled the treatment accorded it in the decision in the present case. The reason for this is that in any event the determination for rate purposes requires proof of reasonableness of the payments made by the Company to American for services rendered to the Company. See the Smith and Lindheimer cases, supra. Compare Michigan Bell Tel. Co. v. Michigan Public Service Commission, 332 Mich. 7, 50 N.W. 2 d 826, 833-835 ( Sup. Ct. 1952). Proof of this nature was introduced by the Company and was considered by the Board in reaching its determination in the present matter.