Opinion ID: 1973623
Heading Depth: 1
Heading Rank: 2

Heading: Compensating Bank Balances

Text: The circuit court vacated the PUC's decision disallowing $246,427.00 in compensating bank balances sought by OTP on the grounds that OTP failed to meet the following three-part test: (1) The utility must show that the balances are contractually required; (2) that the balances represent the least costly method of obtaining lines of short-term credit; and (3) that the utility does, in fact, maintain these balances. In NPS v. Chamberlain, supra, we indicated that the amount and necessity of compensating bank balances must be supported by the testimony of company and bank officials, and we quoted from the New York Public Service Commission in Niagara-Mohawk Power Corporation, 87 PUR3d 189 (N.Y.1970): [W]e would want, for example, testimony of bank officers that such balances are required to be maintained . . Evidence also should be submitted concerning the use which is made of the funds borrowed which result in these balances. In this case, no bank officials who extended credit to OTP testified. We further indicated in NPS v. Chamberlain, however, that proof of the necessity of compensating balances need not rise to the level of being clear and convincing. OTP introduced into evidence several letters from banks, most of which indicated expressly or by implication that the line of credit extended to OTP was conditioned upon the maintenance of compensating bank balances. Also entered into evidence was a copy of the prospectus covering the sale of 250,000 shares of common stock of OTP, dated May 4, 1976. This prospectus contained financial statements of OTP for the five years ending December 31, 1975, which were audited by an independent certified public accountant whose note to these statements reads, in part: The Company maintains compensating balances at various banks in support of formal lines of credit. The balance either represents 10% of the line of credit or 10% of the line of credit plus 10% of the outstanding balance. At December 31, 1975 these lines totaled $27 million and made available to the Company bank loans for short-term financing . . . The 1975 OTP annual report contained essentially the same statement. OTP officers testified that the utility did maintain compensating bank balances and that the company could not otherwise obtain lines of credit. Mr. Hartl, an OTP officer with many years' experience in obtaining such credit, testified that he actively sought the optimum financing arrangements available, and these turned out to be compensating balance arrangements. While the bank letters were not, of course, formal contracts, the PUC test quite logically did not require production of a refined legal instrument. Obviously, the PUC, in adopting its test, was concerned only with whether there was evidence to support a finding that the compensating balances were required by the lending institutions. In NPS v. Chamberlain, we held that the company there had not met its burden of proof. The only evidence was a casual reference during rebuttal testimony to the effect that the average cash balance on deposit totaled $898,121.00, and even that was not supported by any testimony of bank or company officials. We believe the evidentiary standard employed in NPS v. Chamberlain should be applied to all aspects of the PUC test concerning compensating bank balances. With this in mind, it suffices to note that the testimony of the OTP officers, combined with the bank letters and official financial statements of the company, adequately supports the conclusion that compensating bank balances were necessary, were actually maintained, and were the least costly line of available credit. We conclude, therefore, that the circuit court was correct in finding that OTP had satisfied its burden of proof and that the action of the PUC with regard to that item of rate base was arbitrary and capricious.