{
  "id": 8552924,
  "name": "STATE OF NORTH CAROLINA, ex rel. UTILITIES COMMISSION, MEDFIELD-KINGSBROOK HOMEOWNERS' ASSOCIATION, HIDDEN VALLEY CIVIC ACTION GROUP WATER COMMITTEE, DEVELOPMENT ASSOCIATES, INC., and JOHN E. ALDRIDGE, JR. v. HEATER UTILITIES, INC., Applicant",
  "name_abbreviation": "State ex rel. Utilities Commission v. Heater Utilities, Inc.",
  "decision_date": "1975-07-02",
  "docket_number": "No. 7510UC283",
  "first_page": "404",
  "last_page": "409",
  "citations": [
    {
      "type": "official",
      "cite": "26 N.C. App. 404"
    }
  ],
  "court": {
    "name_abbreviation": "N.C. Ct. App.",
    "id": 14983,
    "name": "North Carolina Court of Appeals"
  },
  "jurisdiction": {
    "id": 5,
    "name_long": "North Carolina",
    "name": "N.C."
  },
  "cites_to": [
    {
      "cite": "80 S.E. 2d 133",
      "category": "reporters:state_regional",
      "reporter": "S.E.2d",
      "weight": 2,
      "year": 1954,
      "pin_cites": [
        {
          "page": "142"
        }
      ],
      "opinion_index": 0
    },
    {
      "cite": "239 N.C. 333",
      "category": "reporters:state",
      "reporter": "N.C.",
      "case_ids": [
        8626911
      ],
      "year": 1954,
      "opinion_index": 0,
      "case_paths": [
        "/nc/239/0333-01"
      ]
    },
    {
      "cite": "177 S.E. 2d 405",
      "category": "reporters:state_regional",
      "reporter": "S.E.2d",
      "year": 1970,
      "opinion_index": 0
    },
    {
      "cite": "277 N.C. 255",
      "category": "reporters:state",
      "reporter": "N.C.",
      "case_ids": [
        8564654
      ],
      "year": 1970,
      "opinion_index": 0,
      "case_paths": [
        "/nc/277/0255-01"
      ]
    },
    {
      "cite": "206 S.E. 2d 283",
      "category": "reporters:state_regional",
      "reporter": "S.E.2d",
      "year": 1974,
      "opinion_index": 0
    },
    {
      "cite": "285 N.C. 398",
      "category": "reporters:state",
      "reporter": "N.C.",
      "case_ids": [
        8564982
      ],
      "year": 1974,
      "opinion_index": 0,
      "case_paths": [
        "/nc/285/0398-01"
      ]
    },
    {
      "cite": "313 S.W. 2d 391",
      "category": "reporters:state_regional",
      "reporter": "S.W.2d",
      "case_ids": [
        10168316
      ],
      "year": 1958,
      "opinion_index": 0,
      "case_paths": [
        "/sw2d/313/0391-01"
      ]
    },
    {
      "cite": "179 S.E. 2d 714",
      "category": "reporters:state_regional",
      "reporter": "S.E.2d",
      "year": 1971,
      "opinion_index": 0
    },
    {
      "cite": "211 Va. 620",
      "category": "reporters:state",
      "reporter": "Va.",
      "case_ids": [
        2114056
      ],
      "year": 1971,
      "opinion_index": 0,
      "case_paths": [
        "/va/211/0620-01"
      ]
    },
    {
      "cite": "195 So. 2d 71",
      "category": "reporters:state_regional",
      "reporter": "So. 2d",
      "case_ids": [
        9773448
      ],
      "year": 1967,
      "opinion_index": 0,
      "case_paths": [
        "/so2d/195/0071-01"
      ]
    },
    {
      "cite": "404 U.S. 832",
      "category": "reporters:federal",
      "reporter": "U.S.",
      "case_ids": [
        6220960,
        6220681,
        6218729,
        6219788,
        6219214,
        6220336,
        6221274,
        6218972,
        6219485,
        6220063
      ],
      "year": 1971,
      "opinion_index": 0,
      "case_paths": [
        "/us/404/0832-09",
        "/us/404/0832-08",
        "/us/404/0832-01",
        "/us/404/0832-05",
        "/us/404/0832-03",
        "/us/404/0832-07",
        "/us/404/0832-10",
        "/us/404/0832-02",
        "/us/404/0832-04",
        "/us/404/0832-06"
      ]
    },
    {
      "cite": "267 N.E. 2d 662",
      "category": "reporters:state_regional",
      "reporter": "N.E.2d",
      "year": 1971,
      "opinion_index": 0
    },
    {
      "cite": "47 Ill. 2d 550",
      "category": "reporters:state",
      "reporter": "Ill. 2d",
      "case_ids": [
        2903488
      ],
      "year": 1971,
      "opinion_index": 0,
      "case_paths": [
        "/ill-2d/47/0550-01"
      ]
    }
  ],
  "analysis": {
    "cardinality": 517,
    "char_count": 9979,
    "ocr_confidence": 0.592,
    "pagerank": {
      "raw": 7.682524327565526e-08,
      "percentile": 0.45288837302869783
    },
    "sha256": "31f4cac5293ba55a693f683f60a6c4a98a14ab44b2c7ead367fe4f43b9432da9",
    "simhash": "1:1bb16629ec635f54",
    "word_count": 1555
  },
  "last_updated": "2023-07-14T16:59:13.418266+00:00",
  "provenance": {
    "date_added": "2019-08-29",
    "source": "Harvard",
    "batch": "2018"
  },
  "casebody": {
    "judges": [
      "Chief Judge Brock and Judge Parker concur."
    ],
    "parties": [
      "STATE OF NORTH CAROLINA, ex rel. UTILITIES COMMISSION, MEDFIELD-KINGSBROOK HOMEOWNERS\u2019 ASSOCIATION, HIDDEN VALLEY CIVIC ACTION GROUP WATER COMMITTEE, DEVELOPMENT ASSOCIATES, INC., and JOHN E. ALDRIDGE, JR. v. HEATER UTILITIES, INC., Applicant"
    ],
    "opinions": [
      {
        "text": "ARNOLD, Judge.\nBy this appeal, applicant Heater Utilities, Inc., presents two related questions for review:\n(1) Whether the Utilities Commission is required, under G.S. 62-133 (b) (1) and the state and federal constitutions, to include contributed plant in applicant\u2019s fair value rate base; and\n(2) Whether the applicant is entitled, under G.S. 62-133 (b) (3) to have depreciation expense on contributed plant treated as an operating expense for ratemaking purposes.\nG.S. 62-133 (b) (1) provides that in fixing rates the Commission sh\u00e1ll:\n\u201cAscertain the fair value of the public utility\u2019s property used and useful in providing the service rendered to the public within this State, considering the reasonable original cost of the property less that portion of the cost which has been consumed by previous use recovered by depreciation .expense, the replacement cost of the property, and any other factors relevant to the present fair value of the property. Replacement cost may be determined by trending such reasonable depreciated cost to current cost levels, or by any other reasonable method.\u201d\nHeater contends that all of its \u201cproperty used and useful\u201d should be included in the rate base regardless of whether it was paid for by the utility or acquired by donation. We note that Heater does not object to the Commission\u2019s conclusion that $175,591 recorded as \u201ccontributions in aid of construction\u201d (amounts paid directly by the customers to the utility) should be deducted in determining the fair value rate base. Heater objects only to the deduction of $242,164 recorded as \u201cacquisition adjustment\u201d representing the difference between depreciated original cost and purchase price of certain property. The Commission concluded that amounts recorded in the \u201cacquisition adjustment\u201d account should be treated as \u201ccontributions in aid of construction,\u201d since they also represented property provided by the customers, although indirectly, and did not represent actual investment by the utility or actual cost to it.\nAlthough case law in other jurisdictions offers some support for the proposition that the source of a utility\u2019s property is not determinative of fair value, when that source is the very customers who will pay the rates based thereon, courts have deemed it inequitable to include such property in the rate base. See DuPage Utility Co. v. Commerce Com., 47 Ill. 2d 550, 267 N.E. 2d 662, cert. denied 404 U.S. 832 (1971) ; Mississippi Public Serv. Com\u2019n v. Hinds County W. Co., 195 So. 2d 71 (Miss. 1967); Utilities Corp. v. Commonwealth, 211 Va. 620, 179 S.E. 2d 714 (1971) ; cf. City of Covington v. Public Service Com., 313 S.W. 2d 391 (Ky. App. 1958).\nIn a recent North Carolina case, our state Supreme Court affirmed the Utilities Commission\u2019s deduction of customer-supplied monies from the allowance for working capital, a component of the fair value rate base. Utilities Comm. v. Power Co., 285 N.C. 398, 206 S.E. 2d 283 (1974). See also Utilities Comm. v. Morgan, Attorney General, 277 N.C. 255, 177 S.E. 2d 405 (1970). The rationale behind these and the above cited cases we believe is apposite to the case at bar.\nThe fact that Heater\u2019s \u201cacquisition adjustment\u201d account represented a cost of plant borne by customers at time of' construction and never by investors is one of the \u201cother factors -relevant to the present fair value of the property\u201d under G.S. 62-133 (b) (1). We hold that the Commission is not required by statute to include contributed plant in. applicant\u2019s fair value rate base.\nNor is the inclusion constitutionally required. As a public utility, Heater has submitted to the regulatory authority of 'th'e State in return for State sanction of its monopoly position. Heater\u2019s stockholders are entitled to no more than a reasonable return on their investment. See generally Utilities Com. v. State and Utilities Com. v. Telegraph Co., 239 N.C. 333, 80 S.E. 2d 133 (1954). The Commission\u2019s refusal to allow them a return on property in which they have not invested, and to force the c\u00fcs-tomers who are the real investors to pay twice, does not constitute a taking without just compensation.\nG.S. 62-133(b) (3) provides that the Commission shall:\n\u201cAscertain such public utility\u2019s reasonable operating expenses, including actual investment currently consuined through reasonable actual depreciation.\u201d\nHeater contends that the Commission should include depreciation on contributed plant as part of operating expenses. The Commission concluded that the applicant is not entitled to depreciation on property in which it has no investment. There is case law supporting Heater\u2019s contention. See, e.g., DuPage Utility Co. v. Commerce Com., supra; cf. Utilities Corp. v. Commonwealth, supra. But see Utilities Com. v. State and Utilities Com. v. Telegraph Co., supra, at 346, 80 S.E. 2d at 142, in which our Supreme Court discusses depreciation deductions. The Commission\u2019s conclusion, however, seems to be compelled by the language of the statute, which limits depreciation to \u201cactual investment\u201d and which we are powerless to amend.\nFor the reasons stated, the order appealed from is\nAffirmed.\nChief Judge Brock and Judge Parker concur.",
        "type": "majority",
        "author": "ARNOLD, Judge."
      }
    ],
    "attorneys": [
      "North Carolina Utilities Commission, by Commission Attorney Edward B. Hipp, Assistant Commission Attorney Robert F. Page, and Associate Commission Attorney Lee West Movius.",
      "Weaver, Noland & Anderson, by William Anderson, for intervenor appellees Medfield-Kingsbrook Homeowners\u2019 Association and Hidden Valley Civic Action Group Water Committee.",
      "Parker, Sink & Powers, by Henry H. Sink, for applicant appellant."
    ],
    "corrections": "",
    "head_matter": "STATE OF NORTH CAROLINA, ex rel. UTILITIES COMMISSION, MEDFIELD-KINGSBROOK HOMEOWNERS\u2019 ASSOCIATION, HIDDEN VALLEY CIVIC ACTION GROUP WATER COMMITTEE, DEVELOPMENT ASSOCIATES, INC., and JOHN E. ALDRIDGE, JR. v. HEATER UTILITIES, INC., Applicant\nNo. 7510UC283\n(Filed 2 July 1975)\n1. Utilities Commission \u00a7 6\u2014 water rates \u2014 rate base \u2014 exclusion of contributed plant\nThe Utilities Commission was not required by G.S. 62-133 (b) (1) to include contributed plant in a water utility\u2019s fair value rate base, and the exclusion of contributed plant did not constitute a taking of the utility\u2019s property without just compensation.\n2. Utilities Commission \u00a7 6\u2014 water rates \u2014 operating expenses \u2014 de- ,, preciation on contributed plant\n\u2022 A water utility was not entitled under G.S. 62-133 (b) (1) to have depreciation expense on contributed plant considered as an operating expense for ratemaking purposes.\nAppeal by applicant from order of North Carolina Utilities Commission entered 12 December 1974. Heard in the Court of Appeals 10 June 1975.\nHeater Utilities, Inc., instituted this proceeding on 24 October 1973 by filing an application with the North Carolina Utilities Commission for approval of revised rates for water utility service in eleven service areas. On 21 November 1978 the Commission declared the application to be a general rate case and suspended the proposed rates. On 30 November 1973 Heater filed an amendment to its application, adding nine newly-licensed service areas, and substituting new rate schedules. By order dated 10 December 1973 the Commission allowed the amendment and scheduled the application for public hearing on 12 February 1974.\nInterventions were filed by the Medfield-Kingsbrook Homeowners\u2019 Association, the Hidden Valley Civic Action Group Water Committee through Attorney William Anderson, Attorney John E. Aldridge, Jr., for himself, and Development Associates, Inc., through Attorney H. Arthur Sandman. The Commission allowed the interventions, and Attorney Anderson moved for continuance. Public hearing was rescheduled for 2 July 1974 after due notice to the public.\nWhen the matter came on for hearing, Heater elected to have the rates set pursuant to G.S. 62-133 (b) using the traditional rate base method. Evidence was presented by Heater, \u00bf customer, and the Commission. On 12 December 1974 the Commission filed its order, which included the following findings of fact:\n(1) Rates should be fixed on the basis of operating, results for the seven dominant systems which were in operation during the test year. The thirteen other systems, which were .operated at far less than capacity, should be excluded for the purpose of fixing rates in this c\u00e1se.\n(2) The reasonable original' cost of the applicant\u2019s utility plant serving the seven dominant systems is $579,045, and the depreciation reserve is $38,370, resulting in a net ^depreciated original cost of utility plant of $540,675. .\n(3) No reliable evidence exists in the record as to \u00a1reasonable replacement cost of the. utility plant serving the t.. seven. dominant systems. Therefore, the Commission must determine the fair value of the systems based upon the net depreciat\u00e9d original cost as adjusted to account for other factors set forth below.\n(4) The fair value of the seven systems is $124,472 consisting of the net depreciated original cost of the plant of $540,675 plus a reasonable allowance for working capital of $1,552 less contributions in aid of construction of $417,755 which is composed of recorded contributions of $175,591 and additional contributions of $242,164 classified by the applicant as an \u201cacquisition adjustment.\u201d\n(5) The annualized gross revenues for the test year are $63,510 under present rates and $156,942 under rates proposed by applicant.\n(6) The annualized level of operating expenses is $64,946, which includes $7,063 for actual investment currently consumed through actual depreciation.\n(7) The proper rate of return which applicant should have the opportunity to earn on the fair value of its property used and useful in rendering utility service in North Carolina is 11%.\n(8) The gross revenues required to produce the 11% rate of return are $82,732.\nIn its order the Commission approved a schedule of rates that would produce gross revenues of $82,732 and an 11% rate of return on the fair value of Heater\u2019s property. Heater Utilities, Inc., appealed to this Court.\nNorth Carolina Utilities Commission, by Commission Attorney Edward B. Hipp, Assistant Commission Attorney Robert F. Page, and Associate Commission Attorney Lee West Movius.\nWeaver, Noland & Anderson, by William Anderson, for intervenor appellees Medfield-Kingsbrook Homeowners\u2019 Association and Hidden Valley Civic Action Group Water Committee.\nParker, Sink & Powers, by Henry H. Sink, for applicant appellant."
  },
  "file_name": "0404-01",
  "first_page_order": 432,
  "last_page_order": 437
}
