Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 12, 1995 TAG: 9503130019
SECTION: BUSINESS PAGE: D-1 EDITION: METRO
SOURCE: GREG EDWARDS
DATELINE: LENGTH: Long
The staff says utility stockholders rather than rate payers should bear the costs of the utilities' charity. The utilities and the recipients of their charity, however, say changing the rule could have a devastating effect on local charitable organizations.
It's been a long-standing policy of the SCC to allow utilities such as Roanoke Gas and Appalachian Power Co. to add the cost of their donations to local charities to their customers' bills as long as those gifts were not excessive or improper. However, in recent rate cases, the SCC staff has recommended that utilities no longer be allowed to pass along the costs of their charity to customers.
Because utilities operate in "an increasingly changing and competitive environment," a change in attitudes toward their discretionary spending is needed, said Mark R. DeBruhl, a senior public utility accountant with the SCC. He made the comment in testimony at a Jan. 30 rate hearing for Roanoke Gas Co. The regulatory agency's staff recommended that $46,018 in charitable contributions that Roanoke Gas had asked to recover as a cost of service be disallowed.
"Charitable donations are not necessary to providing utility services nor is the quality of the utility's service affected by making charitable donations," DeBruhl told an SCC hearing officer, who is responsible for making a final recommendation to the three SCC commissioners.
Because Virginia utilities operate as monopolies, consumers have limited choice as to who will provide them service and are "indirectly forced to contribute to organizations whose mission may be found objectionable to them," DeBruhl said. "Unlike other types of goods and services, the customer cannot shop around for a new utility if he finds the donation policies objectionable," he said.
"It is extremely important for a company to be a good corporate citizen by providing reliable service at the lowest cost and by being environmentally conscious," DeBruhl said. "However, it is not appropriate for a regulated utility to take the credit for making charitable donation(s) at the customer's expense."
DeBruhl said the staff was not suggesting that utilities shouldn't contribute to charities only that the ratepayers should not have to bear the cost.
In response to the SCC staff's position, John Williamson III, Roanoke Gas' vice president for rates and finance, warned that an SCC decision to forbid the company from recovering the cost of its charity from its customers could subsequently be applied to other utilities in the Roanoke area. "The combination of the reduction of such contributions by multiple utilities could be devastating on community nonprofit and benevolent organizations," he said.
Williamson argued that if the commission wants to change its rule in regard to charitable giving, it should hold a public hearing on the issue and deal with all utilities at the same time rather than within individual rate cases.
State corporation law, Williamson said, seems to imply that utilities should be allowed to recover the costs of charity because it allows regulated utilities to make charitable contributions up to 5 percent of their net income before taxes.
Among the recipients of Roanoke Gas' charity have been the United Way of Roanoke Valley; Renew Roanoke, which is involved with the restoration of Hotel Roanoke; the Salvation Army; the Red Cross; Virginia's Explore Park; and the Arts Council of the Blue Ridge. Some of those organizations have written the commission protesting a change in the rule on charitable giving for Roanoke Gas, saying the change could set a precedent that could also affect the giving of Appalachian Power and Bell Atlantic .
Robert Kulinski, president of the United Way, which received $13,000 last year in corporate giving from Roanoke Gas, wrote he had received news of the proposed rule change with "great dismay." Kulinski said the rule change would "have a severe impact on our community, as Roanoke Gas Co. provides substantial and critical financial contributions to local philanthropy.
Appalachian Power gave $330,000 last year to educational and charitable institutions in Virginia. Appalachian has a rate case pending before the commission, but the staff has not taken a position on the power company's charitable contributions, said Dan Carson, an Apco executive.
Appalachian is concerned about what the staff might do, Carson said. If the company is not allowed to recover the costs of its charity it would add to the financial pressures it's already feeling, he said.
The commission should consider modest donations a normal cost of doing business, Carson said.
That's a position with which Roanoke Gas' Williamson agreed. "Such contributions ... have become an expected and almost obligatory function of a local public service corporation in our community," he told the hearing officer. Nonregulated businesses also recover the costs of their charity from their customers through the prices they charge, he argued.
Williamson said that Roanoke Gas' 41,283 residential customers are paying only 5 cents a month to support the company's giving program. When the actual cost of residential service is taken into account, however, it might be argued that large industrial customers, such as Roanoke Electric Steel Corp., are paying the full cost of the gas company's charity.
Forcing the company to pick up the cost of its charity would cut its profits and make its stock less attractive to investors, Williamson said. The company is using proceeds from stock sales to help pay for a replacement of its decades-old cast-iron and steel pipelines.
Williamson said he couldn't recommend to Roanoke Gas' board that they keep up their current level of giving, knowing it would hurt the company's ability to attract the money it needs to rebuild its distribution system.
As of this week, the hearing officer had yet to make his recommendation on the staff's proposal.
by CNB