Agricultural Products Corp. v. Utah Power & Light Co.

• Decision Date: 02 December 1976
• Docket Number: No. 11927,11927
• Citation: 557 P.2d 617,98 Idaho 23
• Parties: AGRICULTURAL PRODUCTS CORPORATION (now Beker Industries), Appellant, v. UTAH POWER & LIGHT COMPANY, and Idaho Public Utilities Commission, Respondents. Application of UTAH POWER & LIGHT COMPANY for Approval of its Proposed Electric Service Regulations and Special Contract Electric Service Rates.
• Court: Idaho Supreme Court

Page 617

557 P.2d 617

98 Idaho 23

AGRICULTURAL PRODUCTS CORPORATION (now Beker Industries), Appellant, v. UTAH POWER & LIGHT COMPANY, and Idaho Public Utilities Commission, Respondents Application of UTAH POWER & LIGHT COMPANY for Approval of its Proposed Electric Service Regulations and Special Contract Electric Service Rates.

No. 11927.

Supreme Court of Idaho.

Dec. 2, 1976.

Larry D. Ripley of Elam, Burke, Jeppesen, Evans & Boyd, Boise, for appellant.

Wesley F. Merrill of Merrill & Merrill, Pocatello, sidney G. Baucom, Salt Lake City, Utah, Dan L. Poole, Asst. Atty. Gen., Wayne L. Kidwell, Atty. Gen., Boise, for respondents.

McFADDEN, Chief Justice.

Utah Power and Light Company is a public utility serving customers in Utah, Wyoming and Idaho. Agricultural Products Corporation, now Beker Industries, operates the phosphate reduction fertilizer facility at Conda, Idaho. On December 28, 1973, Utah Power filed an application for approval of proposed electric service rates with the Idaho Public Utilities Commission, IPUC File No. U-100962. Permission was granted for Agricultural Products to intervene on March 5, 1974. On January 13, 1975, the IPUC issued Order No. 11736 granting rate charge increase relief to Utah Power for all customers. On January 16, 1975, Order No. 11746 was issued amending Order No. 11736 as it dealt with the amount of the rate contract increase approved for Agricultural Products. Agricultural Products and other intervenors filed motions for rehearing, which were denied. Only Agricultural Products has appealed. We set aside the order of the Idaho Public Utilities Commission insofar as it is applicable to appellant.

Two issues are raised on appeal: (1) whether the figures submitted by Utah Power to substantiate the claimed revenue deficiency upon which the rate increases were premised were 'budget' figures and were adequate to support the increase granted by the Commission, and (2) whether there is competent evidence to support findings by the Commission of need for a different and higher contract rate charge increase for Agricultural Products. The facts and arguments relevant to each of the two issues are discussed separately below.

I USE OF BUDGET FIGURES TO ESTABLISH REVENUE DEFICIENCY

In attempting to document projected revenue deficiencies and establish the need for a rate increase, Utah Power offered financial exhibits termed 'actual operating expenses for 1973, adjusted for 1974 operations in anticipated revenues and for actual and contracted or scheduled increases in expenses.' Those figures were used to establish a test year and project revenue deficiencies. Based on that test year, and a determination that a rate of return of 8.4% was reasonable, the Commission concluded that Utah Power would experience a $4,879,888.00 revenue deficiency. Rate charge increases were then granted sufficient to produce the revenues needed. ¹ All conclusions of the Commission were based on the use of the adjusted 1974 test year figures.

Appellant contends that those figures were really 'budget' figures and were inadequate to establish a need for a rate charge increade. Use of bodget figures has been discouraged because budgets are designed for and used for administrative purposes and do not illustrate need for rate relief, especially when actual results are available. Re Idaho Telephone Co., 76 P.U.R.3d 520 (1968). Utah Power executive Stott testified that the figures presented were in effect the company's budget for the year 1974. Stott admitted that the purpose of preparing budget was to control expenditures and that the company had control over many of the expenses listed. Another economic expert, Mr. Marshall, testified that there was a difference of approximately four million dollars in net operating revenue between the respondent's projected 1974 figures and actual operating results for the portion of 1974 which had elapsed at the time of the testimony. Appellant maintains that there is a lack of competent evidence to support a conclusion that the 1974 budget figures reflect a real revenue deficiency.

We disagree. The Public Utility Commission must find that rate charge increases are necessary before a rate increase is granted. I.C. § 61-622. When the Commission finds that rates charged are unjust, unreasonable, discriminatory or preferential, or are insufficient, it must set those rates at a just and reasonable level. I.C. § 61-502. Idaho Public Utilities Commission findings are conclusive on appeal if the overall effect of the rate charge fixed is reasonable and just. Intermountain Gas Co. v. IPUC, 97 Idaho 113, 540 P.2d 775 (1975). The question presented is whether the adjusted 1974 test year resulted in a reasonable and just finding that a rate charge increase was necessary.

Traditionally, public utility commissions have relied upon historical data to determine the need for rate increase. Although this procedure necessarily entails the use of antedated information, the method has been generally accepted as fair and accurate during non-inflationary times. In an inflationary and volatile economy, however, revenue and expense levels experienced in a prior year may be badly outdated 12 months later, and may fail to reflect real needs. The result may be that a utility is granted a lower rate charge increase which does not support current needs. Gibbons, 'Some Legal Aspects of the Future Test Period in Utility Rate Regulations,' 16 Ariz.L.Rev. 947, 948 (1974). Consequently, numerous utilities commissions have come to accept the future test year as a necessary and valid method for determining just and reasonable rates. See, e. g., Re Florida Power and Light Co., 98 P.U.R.3d 441, 443 (Fla.Pub.Serv.Comm'n 1973); Re Hawaiian Elec. Co., 96 P.U.R.3d 82 (Ha.Pub.Util.Comm'n 1972); City of New York v. New York Pub.Serv.Comm'n, 42 A.D.2d 259, 346 N.Y.S.2d 6 (1974); Re Mountain States Tel. and Tel. Co., 73 P.U.R.3d 30 (Mont.Pub.Serv.Comm'n 1958); Gibbons, supra.

We hold that the use of an historical test-year, adjusted prospectively for anticipated changes, is a proper method to establish need for a rate change increase, where it is shown that the use of historical data will inadequately demonstrate real revenue needs, and where the future-year projections are shown by the applicant utility to be reasonably reliable and certain. ² The court approves the procedure set forth by the Commission in In Re Idaho Tel. Co., 76 P.U.R.3d 520, 525 (1969): ³

'The Company, in preparation of its case, should have taken the test year actual, which could have been the latest twelve-months available at the time the case was prepared, and then adjusted these actual figures for all known changes that could affect the results of the test year. The Commission could then have examined the test year and the adjusted test year and determined whether or not it agreed with the adjustments and make any alterations that it deemed proper under the circumstances.'

In the instant case, the Commission found that use of an historical test-year would not adequately reflect the revenue needs of Utah Power:

'(T)he test year to be used in this proceeding to test the reasonableness of the proposed increased rates and charges should be the year ended December 31, 1973, adjusted for 1974 operations.'

Finding No. IV.

In its order, the Commission noted that this finding was made 'because prices were increasing so rapidly, and with large additions of new plant facilities placed in service to meet the economic growth of the company's service area, a historical test year without adjustments for known and reasonable variations in revenues and expenses would be completely inadequate for a determination of the need for rate relief. * * * This proceeding has consumed most of the year 1974 and to use 1973 as a test year would not be representative of conditions that now exist.' Order No. 11736, pp. 24, 25. Evidence supporting this conclusion is found in the prepared testimony of Mr. Stott, a Utah Power Vice-President, and does not appear to be controverted in the record. ⁴ We conclude that the Commission properly found that purely historical data would not adequately reflect real revenue needs.

The reliability of the 1974 adjustments was also established. The Commission notes that 'Applicant's witness stated that the 1974 figures shown in the exhibits were more than near estimates of budgeted figures; the exhibit shows that the changes for 1973 to 1974 are based almost entirely upon actually known and measurable items, and cannot be considered as only budgeted estimates.' It is true that Mr. Stott testified that the source of that 1974 adjustments was a 'budget.' However, the applicable test is not the name of the paper document from which the figures were retrieved. The test, notwithstanding any use of the term 'budget,' is whether the figures are reasonably certain and reliable adjustments of known historical figures.

Extensive testimony from witness Stott shows that the 1974 adjustments were carefully prepared and to a large degree reflect actual contracted or expended commitments. Exhibits 13A, 14A, 16A and 20 detail the percent of the 1974 adjustment amounts already spent or contracted. ⁵ The methodology employed in collecting the figures and estimating the adjustments is explained by Mr. Stott. ⁶ In sum, there is adequate evidence in the record to support a conclusion that the 1974 adjustments are reasonably certain and reliable.

The standard to be applied in appellate review of utility cases was articulated in Intermountain Gas Co. v. Idaho Public Utilities Comm'n, 97 Idaho 113, 540 P.2d 775 (1975):

'Our purpose is not to analyze each step of the rate-setting process to determine whether the regulatory agency was correct in its decision, but to look at the overall effect of the rate fixed to determine whether the return to the utility is reasonable and just. As the Supreme Court of the United States stated in Federal Power...