Opinion ID: 1443207
Heading Depth: 1
Heading Rank: 5

Heading: Historical Cost Rate Base:

Text: The Utility contends that the respondent found a rate base on net original cost only plus working capital. The respondent argues that although disapproving the Utility's present value rate base as submitted, it recognized current value in reaching its finding as to rate base for fully one-half of Appellant's gross investment in plant and facilities was made since World War II and such investment reflects the price levels prevailing in the postwar period. As has been demonstrated previously, the rate base determined by the respondent was based in part upon evidence introduced by the Utility for use in the computation of both a present value rate base and an historical cost rate base. A considerable portion, in excess of one-third of the plant in service proved by that evidence, was installed in the postwar years 1947, 1948 and 1949, and the Utility's own proofs were that cost new of the property at present day price levels had fairly stabilized by mid-1948 and evidence of projected construction was considered by the respondent in connection with the base it ultimately found. The working capital component of the base so found is not attacked by the Utility since its own claims in that regard were found proved and included. The Utility's first objection is that all evidence of present value was rejected by the respondent. This argument has no merit in view of the foregoing. As has been demonstrated in that connection, the Utility's argument that the criticism of the current value evidence is arbitrary and unsupported by the record is likewise without merit. Next the company contends that the respondent erred in disallowing the amount it sought to have included (in both of the rate bases upon which it introduced evidence) for certain projected plant additions. The Utility argues in this connection that any intelligent forecast of the future for the purpose of establishing reasonable rate levels required the consideration of such items in the rate base. The respondent contends that the reasons stated in its decision for exclusion of this element from the rate base are fully justified by the record. The Utility also contends that the respondent erred in excluding from the rate base found the amounts claimed by the Utility for acquisition costs and for certain charges incurred for engineering and other overhead costs. The respondent found that the acquisition cost items had been written off by the company in 1944, and that even if a portion of such costs might be included in the rate base there was no proof adduced to show what proportion thereof related to the plant in service at the time of these proceedings. This is but another example of the Utility's failure to carry the burden of proof. The respondent found that the claim for engineering and overhead charges should be excluded from the rate base for the reason that it had been previously charged off or was otherwise contained in the value placed on the Utility's property. The evidence supports the respondent's conclusions on this item. Another Utility claim disallowed was $31,200 for interest during construction. This was excluded for the reason that such interest had not been actually charged. The Utility does not specifically assert error in this connection. On the foregoing matters the respondent's determinations are supported by legal principles. A rate based upon property not used or useful in the rendition of the service for which the rates are imposed would lay upon the customers a burden greater than the reasonable worth of the accommodation supplied. Atlantic City Sewerage Co. v. Board of Public Utility Commissioners, supra (128 N.J.L. at p. 366). The fair value to be determined is that of the property at the time of its employment for the convenience of the public and the honest and intelligent forecast of probable future values expressed in the decisions of our courts relates to the value of that property in use, and not to contemplated additions to the property. See Public Service Coordinated Transport v. State, supra (at 5 N.J. p. 217); Atlantic City Sewerage Co. v. Board of Public Utility Commissioners, supra (128 N.J.L., at p. 366). The respondent recognized the company's claim of estimated costs of additions for 1950 but found from the evidence that the actual additions to plant in service during 1950 were more than $1,000,000 short of the company's forecast. It also found that there was no proof that the projected additions for 1951 and subsequent years would be constructed, and that the testimony of company witnesses proved that the additions contemplated were designed for future service expansion. The record supports these conclusions and we are unable to declare that the respondent's action was arbitrary in this respect. If experience in 1951 and subsequent years should demonstrate that plant additions are constructed or will be put in service, then the Utility has the right to file new schedules to reflect the changed conditions. As was said by Mr. Justice Heher in the Atlantic City Sewerage Co. case, supra (128 N.J.L., at p. 367), There is in the continuing supervisory power of the administrative agency a wholly adequate remedy for the correction of inequities and a means of adjustment to shifting circumstances. The Utility contends that the respondent's determination is based solely on original cost. If this were true, and to a considerable extent it is not under the circumstances of this case, as above shown, the fault lies solely in the failure of the Utility to carry the burden of proof imposed upon it by law. Without proceeding to a detailed analysis of the evidence, the record discloses that the original cost exhibits were determined from an original cost study completed by the Utility in February, 1944, following a costing (unification of annual costs actual or estimated for each year from 1915 through 1937, in which all available records were searched and analyzed) of a detailed physical inventory of its plant and properties as of December 31, 1938, and annual compilations of subsequent additions, retirements and transfers. These original cost reports of February, 1944, had been checked and verified by staff members of the respondent by examination of the books of account of the company and other basic data. From 1944 through 1949, during which time the Rate Adjustment Plan hereinbefore adverted to was in operation, the inventory and cost values so adopted in 1944 were annually kept up to date, checked in the field from time to time as to correctness of inventory, and all data was annually checked and reviewed by respondent's staff members. The Utility does not contend that the historical cost values are improperly derived, but on the contrary grounds both its own submitted rate bases thereon, and the evidence supports the respondent's determination on the results. Thus on its own arguments the Utility's gross historical cost rate base and the rate base determined by the respondent are substantially at variance only in those respects where the Utility failed to prove its claimed allowances, discussed ante. The record in this case contains sufficient or substantial competent and relevant evidence in this respect, and the principal issue is the question whether the respondent properly excluded from the rate base the evidence of current value of older property. This has been discussed above, and we must reiterate our conclusion that, based on the evidence adduced, the proofs do not support a rate base greater in amount than that determined by the respondent, namely $33,500,000.