upr000278 91

Mr. Jjv E. Bennett -4 involved in the L.A.fcS.L.E.R. Company. This latter matter arises, in part, on Construetion Advanees on the L.V.L.&W. Company. For presentation before a regulatory Commission, in substantiation of costs involved in delivery of water, it appears to me to be most inadvis­able to use a method that is in direct conflict with universal practice and a long line of court decisions. If the Management desires to use some different method Ibr internal billing, as a matter of Company practice and policy, that is presumably its business. However, in these days when booh practice is looked upon as very important, even such Is questionable, in my opinion. Item - page 36: (Mr. Hulslzer*s letter) .... fhe hflndH ng and/or treatment of customer advanees in aid of construction in the report is far from a completely satisfactory solution. It Was a means of approach, however, to attempt to salvage something, for It is my firm conviction that a full deduction is not warranted. Here, again, one must orient his thinking to present-day Commissi©3 Court treatments of these matters. We meet squarely the different rate making philosophies, as embodied in the "coat concept" as opposed to the "value concept". Presently, we are in the "eost concept" phase of rate making — i.e., what is the cost burden imposed upon the owners of the Utility in furnishing the service — and not on the value of the facilities presently employed is that service. Getting back to advances made by customers or real estate subdiyid* ers for main extensions, the eost theory merely says - those dollars of in­vestment that have been advanced without cost or interest payment to the Utility, must be deducted from the capital or rate base - otherwise, the customer and/or the subdivider is made to pay a return on capital advanced. Such capital costs the Utility no amount and becomes a part of the rate base as the Utility makes refunds, as provided in the extension rule. The fact that the advance, in most instances, was made by the real estate subdivider, rather than the ultimate purchaser of the home and thus the actual water customer, would have no bearing on the treatment, I am reasonably certain. Further check cm the matter of the 10* overhead shows that Mr. Hulslzer is correct, in that several of the large extensions were put in by the subdividers themselves and the Water Company did not assess th© over*- ^ head charge. Mr. Johnson is of the opinion that, of the un-re funded advance, o J u S T i o c S i possibly $» ratberthau 10* «o«ld be a mor, accurate flgur, to use. However, most normal extensions carry the 10* charge. The method used and the reason supporting it is this: