61 N.J. 141 | N.J. | 1972
The Princeton Water Company was granted a rate increase by the Board of Public Utility Commissioners but appealed to the Appellate Division, contending that the 7.39% overall rate of return which the. Board had allowed was inadequate. The Appellate Division sustained the Board’s action and since we agree essentially with the findings of the Board and the Division and with the principles expressed by them, we affirm.
The Princeton Water Company is a subsidiary of the Elizabethtown Water Company which as of December 31, 1969 owned 99.74% of Princeton’s stock. Princeton was acquired by Elizabethtown in 1963 and the last rate increase granted to Princeton was in 1964. At that time Princeton was allowed a rate of return of 6.1% on a rate base of $1,761,365. On its current application which was filed on February 9, 1970, its rate base was fixed at $3,646,055 and that figure was not questioned by Princeton before the Ap
The Appellate Division found that, while the Board had not set forth the calculations by which it had reached the 7.39% rate of return, the rate was “within the general area of rates of return allowed other water companies during 1970,” and it concluded that the rate had “not been shown to be inadequate, or insufficient to enable Princeton to fund its short-term bank loans.” After oral argument we remanded the matter to the Board with direction that it set forth the reasoning underlying its determination that 7.39% was a fair rate of return. The Board conducted a further hearing during which it introduced testimony by Dr. Schoenwald, an Associate Professor of Business Administration at Butgers University, in support of its action. Since he was not
The Board’s computations included a finding as to the cost of debt which was somewhat lower than that proposed by the utility but no error in this regard is pressed before us. With respect to the cost of equity the Board separated it into three categories, namely, (1) Princeton’s capital stock outstanding of $549,000; (2) its retained earnings as of December 31, 1962 of $259,429; and (3) its additional retained earnings of $319,665, for a total equity of $1,128,094. As to the first and second categories it applied the overall rate of return which was allowed to Elizabeth-town in a 1968 proceeding by Elizabethtown for a rate increase to itself; in that proceeding Elizabethtown asked for and received a 6.85% rate of return. As to the third category it applied a 9.24% rate of return; this was arrived at by taking the 9.37% return on equity which was allowed to Elizabethtown in the 1968 proceeding and applying it to the percentage of Princeton’s stock then owned by Elizabeth-town. On the basis of the foregoing the Board arrived at a weighted cost of equity, now contested by the utility which rests its attack primarly on its contention that the Board erred in imputing the parent Elizabethtown’s rate of return to its subsidiary Princeton.
Rate-making is troublesome enough without being confronted with the problems presented by separate parent and subsidiary applications for rate increases. It would seem that where the subsidiary is substantially wholly owned there should be, in the absence of a showing of unfairness, a consolidated approach and rates based on the entire scene. This would avoid any issue as to whether the funds invested by the parent in the subsidiary represented debt or equity and would obviate the suggestion that customers of the parent might somehow be prejudiced by the parent’s use -of its credit to obtain funds for its subsidiary. The subject has not been presented to us-by the parties in any considered fashion and we of course make no final determination with respect thereto. It should be explored and dealt with by
Affirmed.
For affirmance — Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Hall, Schettino and Mountain. — 7.
For reversal — Done.