Charles W. Cole & Son, Inc. v. Indiana & Michigan Elec. Co.

• Citation: 426 N.E.2d 1349
• Decision Date: 27 October 1981
• Docket Number: No. 2-281A53,2-281A53
• Parties: CHARLES W. COLE & SON, INC., and David P. Schenkel, Appellants-Intervenors, v. INDIANA & MICHIGAN ELECTRIC COMPANY, Appellee-Petitioner.
• Court: Court of Appeals of Indiana

Page 1349

426 N.E.2d 1349

CHARLES W. COLE & SON, INC., and David P. Schenkel, Appellants-Intervenors, v. INDIANA & MICHIGAN ELECTRIC COMPANY, Appellee-Petitioner.

No. 2-281A53.

Court of Appeals of Indiana, First District.

Oct. 27, 1981.

Robert L. Thompson, Robert L. Thompson, P. C., Fort Wayne, for appellants-intervenors.

Thomas W. Yoder, Livingston, Dildine, Haynie & Yoder, Fort Wayne, for appellee-petitioner Indiana & Michigan Electric Co.

David S. Richey, Parr, Richey, Obremskey & Morton, Lebanon, for appellee-petitioner City of Fort Wayne, Indiana.

RATLIFF, Judge.

STATEMENT OF THE CASE

Intervenors-appellants Charles W. Cole & Son, Inc., and David P. Schenkel seek judicial review of an order of the Public Service Commission of Indiana establishing the amount of a refund to be paid by petitioner-appellee Indiana & Michigan Electric Company to its retail ratepayers. We reverse.

FACTS

This action for judicial review has its origin in a petition for a rate increase filed by Indiana & Michigan Electric Company ("I&M") with the Public Service Commission of Indiana ("PSC"). The PSC granted I&M the authority to increase its rates, and that order was brought to this court for review. In Citizens Energy Coalition, Inc. v. Indiana & Michigan Electric Company, (1979) Ind.App., 396 N.E.2d 441, trans. denied, the court reversed the granting of the rate increase and remanded the case to the On remand, the PSC considered the matters of I&M's effective income tax rate during the test year and the amount of any refund which I&M should pay to its retail ratepayers for the period during which the new rates were in effect. After holding a hearing and admitting additional evidence, the PSC issued its order on January 21, 1981. Included in the order were the PSC's findings, which state, in pertinent part, as follows:

PSC for a reasonable and just determination of the tax savings which accrue to I&M as a result of its participation with other subsidiaries of American Electric Power Co., Inc., ("AEP") in the filing of a consolidated federal income tax return. The decision in that review was based upon the uncontroverted evidence that for a number of years, including the test year, ¹ 1976, neither I&M nor AEP had incurred any federal income taxes and would not incur any in the foreseeable future. The PSC, on the other hand, had allowed I&M a rate increase of $21,435,229 per year in addition to an increase for net operating income to allow for federal income tax expense calculated at the 48% statutory maximum corporate income tax rate in effect at the time.

"The Commission, having duly considered and examined all the evidence in this cause and having duly considered the opinion of the Court of Appeals of Indiana rendered in connection with its decision of November 13, 1979, now finds:

"...

"3. Amount of the Refund. The amount of any such refund is, however, a matter within the discretion of the Commission; but must be based upon substantial evidence. City of Richmond v. Public Service Commission, supra. The only substantial evidence presented by any party and admitted in this proceeding, as to the amount of any refund due I&M's customers in this cause, is found in the testimony of the City's Witness, Bernard T. Perry, who testified that in his opinion an appropriate refund of $8.1 million to I&M's retail electric customers which this Commission interprets to mean the amount of refund due such customers as a result of the excessive rates paid by them during the period that the rates authorized under this Commission's previous Order were in effect, due to the fact that I&M's Federal Income Tax expense was calculated under such rates on a single-company rather than a consolidated basis would be fair and in compliance with the mandate of the Court of Appeals issued in its November 13, 1979(,) opinion; and the Commission now so finds. The Commission further finds that a refund in such amount is fair and reasonable under the evidence presented in this cause.

"...

"5. Effective Tax Rate. Based upon the testimony of witnesses Perry and D'Onofrio at the remand hearing, together with a perusal of the exhibits admitted into evidence at the initial hearing and the Commission's Order therein, it is possible to compute an effective tax rate for Petitioner's test year. Taking into consideration the level of net utility operating income allowed by our order (p. 18, para. 4) adjusted for the allowed deficiency in operating income of $20,336,342 (p. 25, para. 3), and the jurisdictional tax expense shown in exhibits F-5-B and H-7, the Petitioner's adjusted effective tax rate is 45.9%. Adjusting that level of utility operating income for the heretofore determined refund of $8.1 million associated with the twenty (20) month period during which the rates in question were effective, Petitioner's effective tax rate is determined to be 45.6%.

"6. Total Payable Refund. Based upon our review of the entire record herein, and the evidence and testimony at the remand hearing and the judicial mandate in Citizens Energy Coalition v. Indiana The PSC proceeded to order I&M to refund to its retail electric ratepayers $8,100,000 in excessive charges plus $1,215,000 in interest. Charles W. Cole & Son, Inc., and David P. Schenkel ("intervenors") now seek judicial review of the PSC's order.

& Michigan Electric Company, supra, we find that the total amount to be refunded to I&M's retail electric ratepayers, during the period from January 30, 1977, to September 30, 1978, is $9,315,000 which amount is composed of $8,100,000 refund and $1,215,000, which latter amount represents the interest on said money during the period set forth above as found in the evidence of record herein."

ISSUE

Although the intervenors present three issues for our review, we deem the first of those issues to be dispositive of this case, i.e., whether the PSC's order is contrary to law because the PSC failed to enter findings setting forth I&M's federal income tax expense and the factors, procedures, and policies which were considered and adopted in determining such expense, I& M's effective federal income tax rate, and the amount of the refund.

DISCUSSION AND DECISION

The sufficiency of the PSC's findings of fact is a matter appropriate for review by this court. Ind.Code 8-1-3-1. Our review of the PSC's factual determinations is governed by a two-tiered standard. At the first level, we examine the PSC's decision in order to ascertain whether it contains specific findings of basic facts on all factual determinations material to the PSC's ultimate conclusions. At the second level, we determine whether, in light of the whole record, there is substantial evidence to support the PSC's findings of basic facts. L.S. Ayres & Co. v. Indianapolis Power & Light Co., (1976) 169 Ind.App. 652, 351 N.E.2d 814, trans. denied (1977); Citizens Energy Coalition v. Indiana & Michigan Electric, supra.

Our review in this case involves the first level. The purposes behind the requirement of specific findings of basic facts were aptly stated in L.S. Ayres & Co. v. Indianapolis Power & Light Co., supra :

"The policies underlying the 'basic findings' requirement apply with special force to Commission rate orders. The legislative scheme which delegates to the Commission its rate-making authority merely requires that the rates and charges established be 'reasonable and just.' IC 1971, 8-1-2-4 (Burns Code Ed.). Since the Commission operates without the benefit of legislative guidance, it must attempt to formulate general standards of rate-making policy on an ad hoc case-by-case basis. Moreover, the rate-making function involves innumerable technical determinations which are peculiarly within the Commission's competence and expertise. When the Commission provides the reviewing court with basic findings of fact on all issues material to its decision, its expert reasoning process and subtle policy judgments provide an intelligible framework for the judicial non-expert. Since 'basic findings' afford a rational and informed basis for review, the danger of judicial substitution of judgment on complex evidentiary issues and policy determinations is substantially reduced. See Hancock Rural Tel. Corp. v. Public Serv. Comm'n (1964), 137 Ind.App. 14, 201 N.E.2d 573. The process of formulating basic findings on all material issues can also serve to aid the Commission in avoiding arbitrary or ill-considered action. 'Often a strong impression that, on the basis of the evidence, the facts are thus-and-so gives way when it comes to expressing that impression on paper.' 2 K. Davis, Administrative Law Treatise § 16.05, at 477 (1958), quoting Judge Frank in United States v. Forness (2d Cir. 1942), 125 F.2d 928, 942. There is little assurance that an administrative agency has made a reasoned analysis if it need state only ultimate findings or conclusions."

169 Ind.App. at 662, 351 N.E.2d 814.

A distinction needs to be drawn between basic findings (or specific findings of basic facts) and ultimate findings (or ultimate conclusions), both of which are essential to judicial review of PSC orders. Basic findings are less detailed than a summary of the evidence, and they are not merely a recitation of testimony given or other evidence introduced. Basic findings are statements of those facts which the PSC determines, after considering the evidence introduced, to be true and relevant to factual determinations which must be made in order to properly decide the case. Ultimate findings are determinations or conclusions which flow rationally from the basic findings and are usually expressed in the language of a statutory standard. Ultimate findings are less detailed than basic findings. Moreover, unlike basic findings, ultimate findings are conclusions of law or mixed conclusions of law or policy and fact. Perez v. United States Steel Corp., (Ind.) 426 N.E.2d 29 (1981)...