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11 N.J.A.R. 303

Elizabethtown Water Company, In the Matter of the Petition for an Increase in Rates
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Citation: 11 N.J.A.R. 303
Decision Date: 1984
Synopsis: Petitioner requested a 17.6 percent increase in rates for water ser- vice. The matter was transmitted to the Office of Administrative Law for a hearing. In determining rate base, the administrative law judge assigned to the case concluded that he should consider expenses that would be incurred after the conclusion of the test year, provided petitioner could demonstrate substantial likelihood that the items allowed would be in service during the rate period in question. Accordingly the judge took into account costs of some construction projects that would be completed in the near future. Regarding appropriate rate of return, the administrative law judge calculated that it should be 14.6 percent on common equity and l l.07 percent overall. Despite petitioner's excellent service record, the judge declined to raise the rate of return as a 'premium' for good management. No allowance above a reason- able and fair rate of return should be allowed. Another issue was petitioner's unusually high earnings in recent years, caused in part by weather conditions. The judge determined that the appropriate method for calculating potential growth rate should take into account historical data over a reasonable period of time. In this case, a five-year average reflected reasonable investor expectations while also accounting for recent high earnings, which were unlikely to be repeated, although earnings were projected to remain higher than they had been in the past. The allowed rate of return would be fair and take into account the interests of both investors and consumers.  Upon review, the Board of Public Utilities affirmed this initial decision with some modifications. First, regarding appropriate test year, the Board disagreed with the use of a 'substantial likelihood' test in the initial decision. The Board's policy has been and remains that the ,test year should be as current as possible and reflect actual test year data. That data can Petition of Elizabethtown Water Co. be adjusted for 'known and measurable' changes outside the test year. The Board also modified the rate of return set in the initial decision, based on its review of the evidence. The Board noted its obligation to establish rates sufficient to encourage good management and enable a utility to maintain its credit, while also providing a return to the equity holder that is commensurate with investments having cor- responding risks. The Board set the return on equity at 14.1 percent and the Overall return at 10.9 percent. Finally, the Board considered petitioner's high earnings in recent years and concluded that the prohibition against retroactive ratemak- ing did not preclude the Board from reviewing whether a utility has achieved an unreasonable rate of return on equity. Furthermore, the Board may fashion a remedy. Since petitioner had achieved rates of return significantly higher than had been set, the Board concluded that ratepayers should receive recognition for over-earnings. To achieve this, the Board ordered the new rates set in this case to be held in abeyance until the difference in revenues between those that would be earned under the new rates, as against those received under the current rates, equaled the amount of the over-earnings. The Board would monitor petitioner's earnings to determine when new rates 'could go into effect. The Appellate Division, 205 N.J. Super. 528, reversed and re- manded. The Supreme Court affirmed,as modified. William R. Hoizapfel, Esq., (Holzapfel, Perkins & Kelly, attorneys) Walter M. Brasweli, Esq., for petitioner Helene S. Wa!ienstein and Mumtaz Bari-Brown, Assistant Deputy Public Advocates, for Public Advocate, Division of Rate Counsel (Joseph H. Rodriguez, Public Advocate of New Jersey, attorney) Edward D. Besiow, Esq., Regulatory Officer, Jerry Westreich, Accoun- tant II, Dr. Joseph Bowring, Research Economist I, and Thomas Serzan, Rate Analyst Ill, for Staff, Board of Public Utilities
Rule(s) Cited: 14:1-6.16(a)5(i) 
Statute(s) Cited: 58:11-59 et seq. 
Citation Tracker modified-Bd. of Public Utilities; reversed & remanded-205 N.J. Super. 258 (App. Div. 1985); modified-107 N.J. 440 (1987) [Updated through 1991]