3. AFFILIATED COMPANIES-Continued.
Rents and other expenses of branch offices maintained by affiliated con-
tractor for contact with existing and prospective clients and development
of new business do not represent overhead costs on this project, since the
contractor, because of affiliation, was assured of licensee's business. In the
Matter of the Determination of Actual Legitimate Original Cost of Rock
Island Project No. 943, Washington, Puget Sound Power and Light Com-
pany, Lincensee.....
Executive salaries of affiliated contractors representing new business ex-
pense, advertising, and publicity similarly disallowed, id--
See COST, 10. Evidence, 11. Exchange of Assets for Securities.
4. BONUS.
Contingent salaries (bonuses) of a selected few officers and employees
of the affiliated contractor, "measured by a percentage of the net earnings
of the corporation," disallowed as representing a distribution of profits. In
the Matter of the Determination of Actual Legitimate Original Cost of
Rock Island Project No. 943, Washington, Puget Sound Power and Light
Company, Licensee__.
5. CONSTRUCTION COSTS.
(a) Cessation Salaries.
Cessation salaries paid by affiliated contractor to its field construction em-
ployees in the intervals between jobs allowed as a necessary construction
cost. In the Matter of the Determination of Actual Legitimate Original
Cost of Rock Island Project No. 943, Washington, Puget Sound Power
and Light Company, Licensee___
(b) Investigations and Studies.
Cost of investigating various streams other than the river involved dis-
allowed, since the sites investigated are still available for development.
Such cost should be carried in a suspense account until the sites investi-
gated are developed or abandoned. In the Matter of the Determination of
Actual Legitimate Original Cost of Rock Island Project No. 943, Washing-
ton, Puget Sound Power and Light Company, Licensee_.
Cost of making a study, during period 1926-29, of the power requirements
of licensee's system for the next ten years, disallowed, id__-
Claim based upon a study of reproduction cost less accrued depreciation
as the rate base rejected, id_
Losses resulting from the operation of orchards on project lands pending
their disposition are a proper project charge, provided licensee debits or
credits project cost with the net result of its orchard operations in subse-
quent years. In the Matter of the Determination of Actual Legitimate
Original Cost of Rock Island Project No. 943, Washington Puget Sound
Power and Light Company, Licensee_-
Net loss suffered by licensee as the result of bank failure allowed, pro-
vided additional liquidating dividends are credited to project cost as they
are received, id___.
(d) Maintenance, Repairs and Improvements.
The cost of work undertaken to provide a deeper channel to intake of
hydraulic canal, supply additional water required to hydraulic station under
construction, and improve ice conditions during winter months, but stopped
before completion because of change in plans, should be transferred to a
suspense account pending completion or definite abandonment. In the
Matter of the Determination of Actual Legitimate Original Cost of Project
No. 16. New York, The Niagara Falls Power Company, Licensee.
Cost of removing refuse, properly an operating expense but erroneously
charged to fixed capital by licensee's predecessor disallowed, id--------
COST-Continued.
5. CONSTRUCTION COSTS-Continued.
(e) Material Omitted from Project Through Error.
The difference between the purchase price and salvage value of material
purchased for installation in the project flow line but omitted through a
gross engineering error, not allowed. In the Matter of the Determination
of Actual Legitimate Original Cost of Wallenpaupack Project No. 487,
Pennsylvania, Pennsylvania Power & Light Company, Licensee---
Rental charges for use of transmission line in furnishing construction
power to project prior to date of the line's inclusion under the license by
amendment, disallowed. Interest during construction allowed on trans-
mission-line expenditures to the same extent as if the line had been
initially licensed. In the Matter of the Determination of Actual Legitimate
Original Cost of Rock Island Project No. 943, Washington, Puget Sound
Power and Light Company, Licensee--
Storage charges on turbines disallowed on the ground that such charges
were attributed solely to a deliberate delay in construction. In the Matter
of the Determination of Actual Legitimate Original Cost of Rock Island
Project No. 943, Washington, Puget Sound Power and Light Company,
Licensee___
See Cost 3. Affiliated Companies, (a) Construction Costs, 7. Credits, 15.
Property Used and Useful.
The construction period during which interest, taxes, and related items
may be allowed as part of the actual legitimate original cost of the project
held not to be extended by deliberate delay of licensee in construction fol-
lowing the sharp falling off of demand after the business recession of
1929-30, resulting in increased project cost. The construction period does
not extend beyond the date when the licensee, by due diligence and pru-
dence, could have completed the project. The license prescribed the maxi-
mum, not the minimum, period for completion of project construction.
In the Matter of the Determination of Actual Legitimate Original Cost
of Rock Island Project No. 943, Washington, Puget Sound Power and Light
Company, Licensee_-_-
A reasonable allowance is to be made for interest during construction.
The construction period embraces not only the period of actual physical con-
struction of the project, but also that devoted to preliminary investigations,
designs, etc. Three years prior to the date on which actual physical
construction began (the maximum period for preliminary permits), allowed
as the preliminary period. In the Matter of the Determination of Actual
Legitimate Original Cost of Ariel Project No. 935, Washington, Inland
Power & Light Company, Licensee_-
(a) Financing, Premiums Applicable to.
Net premiums applicable to financing constituent company's subsidiary
are not a proper credit to fixed capital accounts of constituent company. In
the Matter of the Determination of the Actual Legitimate Original Cost of
Project No. 16, New York, The Niagara Falls Power Company, Licensee__
(b) Interest on Bank Balances.
Credits for interest earned on unexpended funds in bank disallowed
since the allowance of interest was computed on monthly expenditures
rather than advances to the contractor. In the Matter of the Determina-
tion of Actual Legitimate Original Cost of Rock Island Project No. 943,
Washington, Puget Sound Power and Light Company, Licensee--.
COST-Continued.
7. CREDITS-Continued.
Amounts collected during construction as rent on nonproject acreage
should be treated as a credit applicable to project cost. In the Matter of
the Determination of Actual Legitimate Original Cost of Wallenpaupack
Project No. 487, Pennsylvania, Pennsylvania Power & Light Company,
Licensee---.
See also COST, 5. Construction Costs, (c) Losses.
8. CLAIMS AGAINST PROJECT.
Amount paid to extinguish a claimed perpetual right to electric energy
for manufacturing purposes allowed. In the Matter of the Determination
of Actual Legitimate Original Cost of Wallenpaupack Project No. 487,
Pennsylvania, Pennsylvania Power & Light Company, Licensee---
9. ELECTRIC ENERGY FURNISHED IN CONSTRUCTION OF PROJECT.
The amount to be allowed for power furnished by licensee to affiliated
construction company for construction purposes, purchased by licensee from
affiliated companies, is the amount paid therefor, including an allowance
for power purchased by licensee but not furnished construction company
because of line losses. In the Matter of the Determination of Actual
Legitimate Original Cost of Wallenpaupack Project No. 487, Pennsylvania,
Pennsylvania Power & Light Company, Licensee....
The cost of power, including line losses, furnished by licensee from its
own system to affiliated construction company for use in construction is to
be allowed as part of project cost, id___
Cost of power furnished to the project during construction, from licensee's
own system, allowed. In the Matter of the Determination of Actual Legiti-
mate Original Cost of Rock Island Project No. 943, Washington, Puget
Sound Power and Light Company, Licensee_-_-
A claimed cost may be so in excess of the cost of comparable construction
or purchase as to require disallowance of the claimed amount in excess of
what is reasonable, where licensee fails to meet the burden of justifying
such claimed cost. In the Matter of the Determination of Actual Legiti-
mate Original Cost of Wallenpaupack Project No. 487, Pennsylvania, Penn-
sylvania Power & Light Company, Licensee_
Opinion evidence of licensee's expert that the fair market value of secu-
rities issued in the consolidation was at least equal to their par value and
valuation of licensee's lands and water rights, rejected as having no pro-
bative value. In the Matter of the Determination of Actual Legitimate
Original Cost of Project No. 16, New York, The Niagara Falls Power Com-
pany, Licensee.......
Contention that determination of actual legitimate original cost of a
licensed project "is no more than preservation of evidence useful only when
the license has expired" has been consistently rejected by the Courts. The
Niagara Falls Power Company, Licensee. Order to Show Cause Why
Accounting Instructions in Previous Order Determining Actual Legitimate
Original Cost Should Not Be Made Effective_-_-
Cost determination is material in connection with Section 16 of the Act
under which the United States may take immediate possession of the proj-
ect when "the safety of the U. S. demands it", id__.
On rehearing, evidence received established a charge for engineering
services, previously disallowed because of lack of evidence of relationship
to the project, to be a proper project charge. In the Matter of Pennsyl-
vania Power & Light Company, Rehearing as to Certain Items of Actual
Legitimate Original Cost of Wallenpaupack Project No. 487, Pennsylvania_
11. EXCHANGE OF ASSETS FOR SECURITIES.
Transactions whereby distribution facilities, franchises and power con-
tracts were transferred on January 1, 1910 to a predecessor company by its
affiliate (acquired by licensee through a consolidation in 1918) resulting
in a charge to the predecessor company in excess of the book cost of the
11. EXCHANGE OF ASSETS FOR SECURITIES-Continued.
properties to the original affiliated owner was disallowed as inflation not
representing any investment, for there was no semblance of arm's length
bargaining in the transaction. In the Matter of the Determination of
Actual Legitimate Original Cost of Project No. 16, New York, The Niagara
Falls Power Company, Licensee__.
In 1910 merger of predecessor companies in which there was no pretense
of arm's-length bargaining, the book cost of properties acquired was in-
creased without a dollar of investment and without any change in stock-
holders. Resulting write-up disallowed as inflation, id_.
Intercompany profits paid to parent construction company by wholly
owned constituent company arising from land transactions, plant and trans-
mission line construction, and interest on intercompany profits, and appear-
ing on licensee's books as a result of 1918 consolidation, disallowed, id----
Consolidation of 1918 found to be not an arm's-length transaction as
neither group participating had any occasion or incentive to scrutinize the
other's property accounts. The cost provisions of the Federal Power Act
"must be taken to forbid inflation of cost by any device,” id_-----
See also ACCOUNTS AND ACCOUNTING, 3. Cost, (a) Acquisition of Property;
COST, 3. Affiliated Companies.
12. GROUP INSURANCE.
See COST 3.
Affiliated Companies, (b) Entertainment, Traveling and
Miscellaneous Expenses.
13. INTEREST DURING CONSTRUCTION.
Funds used in construction of project are to be treated as licensee's own
funds and a reasonable rate of interest allowed thereon where, because of
the intermingling of funds from all sources, it is impossible to segregate
and identify the exact source of project construction funds. In the Matter
of the Determination of Actual Legitimate Original Cost of Wallenpaupack
Project No. 487, Pennsylvania, Pennsylvania Power & Light Company,
Licensee
Interest at the rate of 6 percent on construction expenditures allowed
as reasonable, id _.
Discount on bonds issued to pay interest on bonds previously issued by
predecessor company cannot be allowed as interest during construction.
In the Matter of the Determination of Actual Legitimate Original Cost of
Project No. 16, New York, The Niagara Falls Power Company, Licensee‒‒‒
Since none of licensee's permanent financing could be specifically "ear-
marked" as applicable to this project only, 6 percent determined to be a
reasonable rate for use of licensee's own funds during construction. In the
Matter of the Determination of Actual Legitimate Original Cost of Rock
Island Project No. 943, Washington, Puget Sound Power and Light Com-
pany, Licensee
An additional amount for interest during construction allowed on engi-
neering expenses previously disallowed but approved on rehearing. In the
Matter of Pennsylvania Power & Light Company, Rehearing as to Certain
Items of Actual Legitimate Original Cost of Wallenpaupack Project No.
487, Pennsylvania
See also COST, 6. Construction Period.
14. LANDS.
Payment to appraisers of nonproject land, acquired in connection with
the project acreage allowed. In the Matter of the Determination of Actual
Legitimate Original Cost of Wallenpaupack Project No. 487, Pennsylvania,
Pennsylvania Power & Light Company, Licensee__.
15. PROPERTY USED AND USEFUL.
Amount expended to convert a construction building into a clubhouse
for project visitors and employees, not useful in the operation of the project,
held not a proper project cost. In the Matter of the Determination of
Actual Legístimate Original Cost of Wallenpaupack Project No. 487, Penn-
sylvania, Pennsylvania Power & Light Company, Licensee__
16. REGULATORY COMMISSION EXPENSE.
Regulatory expenses incurred in connection with hearings before the
Commission as to the cost of this project, constitute operating expenses
and accordingly are disallowed as capital charges. In the Matter of the
Determination of Actual Legitimate Original Cost of Wallenpaupack Proj-
ect No. 487, Pennsylvania, Pennsylvania Power & Light Company, Licensee_
CREDITS.
See COST, 7. Credits.
DEBT DISCOUNT AND EXPENSE.
See ACCOUNTS AND ACCOUNTING, 3. Cost, (b) Bond Discount and Expense,
4. Disposition of Accounting Adjustments, (a) Bond Discount and
Expense; SECURITIES, 1. Debt Discount and Expense.
DECLARATION OF INTENTION.
See NAVIGABLE WATERS, 1. Jurisdiction, 2.
bility and Interstate Commerce.
DEPRECIATION AND DEPLETION.
1. ACCOUNTING FOR.
Evidence-Effect on Naviga-
The determination of the annual allowances (annual expenses) for deple-
tion, depreciation and amortization (sometimes referred to jointly as depre-
ciation) and the accrued depreciation in the properties must be consistent.
In the Matter of Canadian River Gas Company, etc., Consolidated Proceed-
ing on Investigation into the Rates and Charges of Canadian River Gas
Company, Colorado Interstate Gas Company, and Colorado-Wyoming Gas
Company
If consistency is maintained in computing annual expense and the
accrued depreciation or depletion reserve requirements, reasonable results
may be expected, almost irrespective of the method or theory adopted, id__
Annual allowance for depletion and depreciation must be correlated with
the actual existing depletion and depreciation, in order to avoid injustice
to the natural-gas company or the rate payer. In the Matter of City of
Cleveland, Complainant v. Hope Natural Gas Company, Defendant, etc.,
Consolidated Proceedings on Complaints and Order for Investigation of
Reasonableness of Interstate Wholesale Rates_--
Where reasonable and proper depletion and accounting practices have
been followed by a natural gas company, the resulting reserve is the best
measure of the depletion and depreciation existing in the property. The
required depletion and depreciation reserve will be deducted from the actual
legitimate cost of the company's property for rate-making, id....
Where reasonable and proper depreciation accounting practices have
been observed, the resulting reserve represents the best measure of the
depreciation existing in the property and should be deducted from the
gross cost in a rate base determination. City of Detroit and County of
Wayne, Michigan v. Panhandle Eastern Pipe Line Company, et al., etc.,
Investigation on Complaint and Commission's Own Motion of Rates Charged
for Sale of Natural Gas in Interstate Commerce__.
Annual depreciation expense and accrued depreciation are two phases of
the same phenomenon and must be determined consistently or grave in-
justices will result. In the Matter of Interstate Natural Gas Company,
Inc., etc., Investigation on Complaint and Commission's Own Motion of
Rates Charged for Sale of Natural Gas in Interstate Commerce_
Accrued depreciation based upon observed percent condition of the
property is inconsistent with a determination of an annual charge to op
erating expenses for depreciation based upon the probable length of
life of the enterprise-an economic aspect, neglecting the physical aspects
of the property. In the Matter of Canadian River Gas Company, etc., Con-
solidated Proceeding on Investigation into the Rates and Charges of Ca-
nadian River Gas Company, Colorado Interstate Gas Company, and
Colorado-Wyoming Gas Company_--
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