Opinion ID: 1106788
Heading Depth: 1
Heading Rank: 1

Heading: Telephone Plant Under Construction.

Text: In disallowing this item the Commission held: In the instant proceeding, we believe that the inclusion of Telephone Plant under Construction, in the amount of $4,783,150, in the determination of a property rate base would be contrary to sound rate-making principles. The Uniform System for Accounts for Class A and Class B telephone companies, as prescribed by the Federal Communications Commission in § 31.100:2 provides: `This account shall include the original cost of construction of telephone plant, other than station apparatus, that is not completed ready for service. It shall include interest during construction, taxes during construction, and all other elements of cost of such construction work.' This means that, when the construction work is completed and the new plant goes into service, its total cost, including interest (at 5 per cent for Southern Bell), taxes, and other overheads, is capitalized. It is manifest that the Company can suffer no injustice by the exclusion of such construction from the rate base. Moreover, a substantial portion of the plant under construction is designed for new customers and for the upgrading of present telephone subscribers. If, therefore, plant under construction were to be included in the rate base upon which a fair return is computed, equity would require the inclusion also of the estimated additional revenue produced by such construction. Otherwise, the existing telephone users would be forced to pay a return on property constructed for future subscribers, with the result that when these future customers begin to receive service the company would derive a double return on the cost of such construction. Southern Bell has offered no evidence of its anticipated revenue from this construction. In Arkansas Power & Light Co. v. Arkansas Pub. Service Commission, 1956, 226 Ark. 225, 289 S.W.2d 668, 14 P.U.R.3d 38, the Arkansas Supreme Court said: `In a well considered and reasoned casefrom which we shall quote somewhat at lengthwhere the situation was similar, in effect, to that on which our commission acted here, the supreme court of Vermont in Re Central Vermont Pub. Service Corp., 1950, 116 Vt. 206, 71 A.2d 576, 581, 83 P.U.R., N.S., 47, 52, with reference to the duty and powers of a public service commission of that state to follow any certain formula in fixing rates, announced certain rules and principles of law applicable here. It was there said: In the employment of its test-year basis, the commission made no adjustment for the revenues which would be produced from the plant under construction when completed. Once it had been decided to eliminate plant under construction from the rate base (as here) the exclusion of revenues to be received therefrom automatically followed. Only so could it be determined whether the petitioner's earnings were adequate to provide a fair return on the property producing those earnings. Both property under construction and the estimated revenues therefrom must be included in the rate base, or neither. Here the commission included neither, which was proper.' [5] We agree with the Commission's ruling that the item of telephone plant under construction should be excluded from the net investment. [6]