City of Akron v. Public Utilities Commission

• Decision Date: 19 July 1978
• Docket Number: No. 77-613,77-613
• Citation: 55 Ohio St.2d 155,378 N.E.2d 480
• Parties: , 9 O.O.3d 122 CITY OF AKRON et al., Appellants, v. PUBLIC UTILITIES COMMISSION of Ohio et al., Appellees.
• Court: Ohio Supreme Court

Page 155

55 Ohio St.2d 155

378 N.E.2d 480, 9 O.O.3d 122

CITY OF AKRON et al., Appellants, v. PUBLIC UTILITIES COMMISSION of Ohio et al., Appellees.

No. 77-613.

Supreme Court of Ohio.

July 19, 1978.

On December 30, 1975, Ohio Edison Company (Ohio Edison), intervening appellee herein, filed an application with the Public Utilities Commission (commission), appellee, seeking authority to increase rates for residential and other electric service in 22 cities. ¹ Electric rates within the cities previously had been fixed by rate-ordinance contracts, all of which were terminated in accordance with their terms, on or before May 3, 1976.

On February 4, 1977, the commission issued its opinion and order which authorized Ohio Edison to increase its rates and charges for retail electric rates in the cities so as to allow gross annual revenue of $160,756,000. This figure represented an annual revenue increase of $33,485,728. This increase, in dollars, was about 67 percent of that originally requested in the application.

In reaching its decision, the commission reviewed the terms of a stipulation between Ohio Edison and the commission staff (staff), which stated that Ohio Edison's then-effective rates were insufficient to provide reasonable compensation for services in the application area. In part, the stipulation recommended the rate base, test year expense finding, and rate of return, as determined by the staff. Objecting to this proposed test year expense finding and the rate of return, the cities (appellants) did not join in the stipulation, but they did stipulate to the staff-determined rate base. The record reveals that appellants were granted full opportunity to be heard as to all contested issues.

In its February 4, 1977, opinion and order, the commission found that the recommendations in the stipulation between Ohio Edison and the staff were reasonable. The commission authorized Ohio Edison to submit tariffs for approval which would enable it to recover its test year expenses (as determined by the staff) and to earn a rate of return of 9.07 percent. In so ruling, the commission rejected the proposed range of rates of return of 6.82 to 8.50 percent which had been submitted by appellants, and rejected further appellants' contention that Ohio Edison's test year revenues should be adjusted to account for the lag between the time Ohio Edison incurred its fuel costs and the time it recovered the related revenues under the fuel cost adjustment provisions of its tariffs.

Appellants timely filed an application for rehearing on March 4, 1977, which was denied on March 30, 1977.

This cause is now before this court upon appeal as a matter of right.

Steer, Strauss, White & Tobias, F. Bruce Abel, Cincinnati, and Richard M. Fanelly, Akron, for appellants.

William J. Brown, Atty. Gen., Marvin I. Resnik and Mark C. Sholander, Columbus, for appellee.

Russell J. Spetrino and Anthony J. Alexander, Akron, for intervening appellee.

PER CURIAM.

A commission finding will not be disturbed unless manifestly against the weight of the evidence and so clearly unsupported by the record as to show misapprehension, mistake, or willful disregard of duty. Ford Motor Co. v. Pub. Util. Comm. (1977), 52 Ohio St.2d 142, 152, 370 N.E.2d 468.

Appellants assert in their first proposition of law that the commission erred in setting a rate of return of 9.07 percent based solely upon a stipulation between Ohio Edison and the commission staff. Appellants assert further that the only witness at the hearing mentioning this 9.07 percent rate of return specifically refused to recommend it when questioned on direct examination. Appellants allege that the maximum rate Ohio Edison sought in its application was 8.50 percent, a figure that the utility thought was fully compensable.

This proposition has three parts: (1) the weight accorded the stipulation; (2) the refusal of the staff's witness to recommend the 9.07 rate of return; and (3) the contention that the authorized rate of return was higher than the maximum sought by the utility.

In alleging that the commission gave undue weight to the stipulation, appellants assert that Ohio Edison did not meet its burden of proving its existing rates were unjust and unreasonable. There is no doubt that this burden is on the applicant utility. See Mt. Vernon Telephone Corp. v. Pub. Util. Comm. (1955), 163 Ohio St. 381, 127 N.E.2d 14. Further, it is true that Ohio Edison chose not to present any rate-of-return witnesses to prove its existing rates inadequate, but rather to stipulate to the cost of capital and the rate of return determined by the commission staff. Appellants urge that because Ohio Edison presented no such witnesses, its burden could not have been met as a matter of law.

The commission encourages agreement on issues raised in an application. But here, there was not total agreement appellants stipulated only to the rate base, not the cost of capital or the rate of return. Thus, the agreement between Ohio Edison and the commission was not a "stipulation," as all parties had not agreed to it.

The commission, of course, is not bound to the terms of any stipulation; however, such terms are properly accorded substantial weight. Likewise, the commission is not bound by the findings of its staff. Nevertheless, those findings are the result of detailed investigations and are entitled to careful consideration.

Ohio Edison agreed to the staff's determination of rate base, rate of return and cost of capital. Thus, this accord was not a negotiated agreement, but rather an acquiescence of the staff's findings. The resulting recommendations were given substantial weight by the commission because they were the result of the staff's investigation, not because they were part of a "stipulation." The record shows that the commission afforded appellants full opportunity to present evidence with respect to all contested issues.

Ohio Edison was justified in relying on the staff report to demonstrate that its present rates were inadequate. There is an inherent risk in so doing, but the staff report, if accepted by the commission, may be sufficient evidence as a matter of law to meet the burden of showing the existing rates inadequate. This has long been the standard followed by this commission. See Re Dayton Power & Light Co. (1961), 39 PUR 3d 390, 403.

The second part of this first proposition concerns appellants' allegation that the only staff witness who mentioned 9.07 percent return specifically refused to recommend it.

In its report filed on September 20, 1976, the staff estimated the weighted cost of capital to be 7.26 percent. In reaching that figure, the cost of common equity used was adjusted downward to account for the inflationary characteristics of the then-effective statutory RCNLD rate base.

Such a downward adjustment, as the staff pointed out in its report, is not permitted under this court's decision in General Telephone Co. v. Pub. Util. Comm. (1976), 46 Ohio St.2d 281, 348 N.E.2d 339. ² Therefore, in complying with this court's interpretation of the then-existing law, the staff concluded in its report:

"By excluding the inflation adjustment previously made, the rate of return computed above would increase to 8.96%. While the staff recognizes that 8.96% may be a legally appropriate rate of return, it does not recommend this figure from an economic standpoint." (Emphasis added.)

At the hearing the staff witness updated the cost of capital calculation to include data as of September 30, 1976, resulting in a figure of 9.07 percent.

The staff witness used methods long employed by economists testifying before the commission to calculate the cost of capital of applicant utilities. The record shows that, as an economist, the staff witness would not recommend a 9.07 percent rate. In other words, that witness apparently did not agree with this court's holding in General Telephone, supra. While the witness may be "free" to disagree on an economic basis, the commission may not ignore the then-existing statute and its interpretation by this court. Appellants have not shown that this legally appropriate rate is unreasonable or unlawful.

The third portion of this proposition alleges that, in its application, the maximum rate Ohio Edison sought was 8.50 percent, which it believed to be "fully compensable."

The rate of return is the dollar return generated under the proposed rates as a certain percentage of the statutory rate base. The commission adopted a rate base which was some $91 million less than that originally proposed by Ohio Edison, about a 15 percent reduction. Thus it is inaccurate for appellants to imply, if not state, that the approved 9.07 percent rate generates more revenue than the 8.50 percent rate which the utility originally sought. The 8.50 percent figure which the utility believed to be fully compensable is not a meaningful figure because the commission used a different rate base in arriving at the final 9.07 percent rate. What remains meaningful is the dollar increase, which was about 67 percent of that requested. This increase has not been shown to be unreasonable or unlawful.

Accordingly, appellants' first proposition of law is overruled.

As their second proposition, appellants allege that when a public utility raises common, debt and preferred capital in the public markets and further consistently presents a consolidated capital structure to potential investors, the utility has the burden of proof to show why the consolidated capital structure is inappropriate for use in a rate analysis case.

Ohio Edison is the sole shareholder of a Pennsylvania utility. The commission used only the Ohio Corporate capital structure rather than the consolidated structure in calculating the weighted cost of capital. Appellants assert that since Ohio Edison paints a consolidated picture to potential investors, it should be estopped from including only the Ohio structure here.

The...