City of El Dorado v. Arkansas Public Service Commission

• Decision Date: 03 December 1962
• Docket Number: No. 5-2707,5-2707
• Parties: , 47 P.U.R.3d 354 CITY OF EL DORADO et al., Appellants, v. ARKANSAS PUBLIC SERVICE COMMISSION et al., Appellees.
• Court: Arkansas Supreme Court

Page 680

362 S.W.2d 680

235 Ark. 812, 47 P.U.R.3d 354

CITY OF EL DORADO et al., Appellants, v. ARKANSAS PUBLIC SERVICE COMMISSION et al., Appellees.

No. 5-2707.

Supreme Court of Arkansas.

Dec. 3, 1962.

Rehearing Denied Jan. 7, 1963.

J. V. Spencer, Jr., El Dorado, for appellants.

Mehaffy, Smith & Williams, by Pat Mehaffy and Herschel H. Friday, Jr., R. H. Thornton, Jr., Little Rock, Mark E. Woolsey, Ozark, for appellees.

WARD, Justice.

This appeal comes from a judgment of the Pulaski County Circuit Court which affirmed an order of the Arkansas Public Service Commission. Said order related to a controversy between the Arkansas Louisiana Gas Company and the cities of El Dorado and Pine Bluff. One reason for the cities involvement was that the Arkansas Louisiana Gas Company was attempting to raise the minimum monthly service charges on certain domestic customers' meters from $1.17 to $1.87. Hereafter we may refer to the Arkansas Public Service Commission as 'Commission', to the Arkansas Louisiana Gas Company as the 'Company', and to the cities as appellants.

How the litigation arose. In 1957 the Commission asked the Company to present certain facts with respect to the various municipal taxes paid by the Company to municipalities throughout the state. No further steps appear to have been taken until early 1961 when the Company filed a petition with the Commission stating it was prepared to present the requested information, and also asking the Commission to examine and adjust the minimum service charges on certain customers' meters. In the hearings that followed it was developed (generally speaking) that some cities were taxing the Company meters nothing, others a small amount, and others a much larger amount. It was also developed that the Company had fixed a monthly minimum charge of $1.17 on each meter in certain cities (Group A), a greater charge on cities in another group and no charge in still another group. The Company asked to raise the charge in Group A to $1.87 and to lower the higher charges to $1.87. This adjustment, approved by the Commission, resulted in an increase of revenues for the Company. Appellants took the position that the Company could not justify raising the minimum service charge without showing it would not result in earnings of more than 6.34% on its over-all operations. This percentage of return was appatently agreed to by the parties, and it was found to be fair in Acme Brick Company v. Arkansas Public Service Commission, 227 Ark. 436, 299 S.W.2d 208. To meet this burden the Company showed that because of a labor wage scale increase (over which it had no control) its operating expenses had increased by $200,000 annually. Also the Company, in order to meet the burden, asked the Commission to make certain adjustments necessitated by the unusually severe weather experienced in 1960. Other adjustments were also asked to be made in order to determine whether the Company was making more than 6.34% on its investment. It should be noted at this time that the purpose of these extensive proceedings, shown in a record of seven volumes, was not primarily to reduce or increase gas rates generally. The extensive hearing became necessary, however, because appellants insisted (and the Commission agreed) that the Company would not be entitled to any additional revenues without first disclosing its over-all revenues and expenses pertaining to its operation in Arkansas, as applied to the Company's services to distribution customers as distinguished from industrial customers. This procedure was approved in the Acme Brick Company case, supra, where we said: '* * * it is necessary for the Commission to allocate or apportion the joint costs of transmitting gas from the well to customers according to each class of customer's responsibility therefor.'

It is the Company's contention, after making a full disclosure of its pertinent operational revenues and expenses, that its net income does not exceed the 6.34% return.

Appellants challenge serveral items of expense and income claimed by the Company and allowed by the Commission, which items we will later examine.

Fundamental Rules. Before proceeding to discuss the merits of the aforementioned items it is deemed appropriate to restate briefly some of the well established fundamental rules, as we conceive them to be, by which we must be guided.

(a) It is the duty of the Company to operate in such manner as to give to the consumers the most favorable rate reasonably possible. This stems from the fact that the State has given the Company the exclusive right to sell and distribute gas to its customers. Consequently the Company bears a trust relationship to its customers and must conduct its operations on that basis and not as if it were engaged in a private business with no restrictions as to the income it could earn.

(b) In a hearing of this nature the burden is on the Company to justify any rate increase requested from the Commission. See: City of Fort Smith v. Southwestern Bell Telephone Company, 220 Ark. 70, 247 S.W.2d 474. This in part stems from the nature of its relationship just mentioned and also from the fact that it has possession of all pertinent records. If the burden were not on the Company, aggrieved cities or persons would be greatly handicapped for lack of funds, organization, and access to material information.

(c) The Commission, with its training and personnel, performs the function of weighing and passing on the facts presented to it, and in that field its findings are like those of a jury and must be allowed to stand if based upon substantial evidence, free from fraud and not arbitrary. See: Inc. Town of Emerson v. Ark. Public Service Commission, 227 Ark. 20, 295 S.W.2d 778. As we see it, the Commission has two distinct duties: One is to the Company to see that it may charge such a rate as will give it a fair return on invested capital; The other is to see that the consumer shall not pay more than necessary to produce such fair return. It, however, the Commission misapplies any principle of law in reaching its conclusions they are subject to reexamination by this Court.

Since the records, as introduced in evidence by the Company and interpreted by the Commission, reveal no excess earnings, it is incumbent on us, as we examine the several points relied on by appellants, to seek the correct answers to two questions: One, did the Commission make any conclusion of fact which is not supported by substantial evidence; and, Two, did the Commission, in reaching any conclusion, violate any principle of law or approved procedure?

For convenience and clarity we choose to discuss the numerous objections raised by appellants under two principal classifications: One, dealing with substantial evidence; Two, dealing with law or proper procedure.

One.

In the following discussion each of appellants' points is quoted from their brief.

(a). 'The Order of the Commission is Arbitrary, Unreasonable and Without Evidentiary Support in Eliminating $2,640,000 of Actual Revenue on Account of 'Weather'.'

In line with appellants' insistence throughout the hearing that the Company had no justification for raising certain minimum fixed charges, it is contended that the Commission erred in adjusting the Company's income because of the weather conditions in 1960. The undisputed evidence shows that the Company did have a sizeable increase in revenues for that year due to the increased sale of gas. Evidence was introduced to show that this increase amounted to anywhere from $4,208,088 (as contended by the Company) to $1,667,960 (as reflected by Exhibit 4 of appellants) as compared to an average over the past 14 years. After due consideration the Commission fixed the allowable figure at $2,600.00. We cannot say that this figure fixed by the Commission is not supported by substantial evidence. In this connection it is pointed out, also, that the evidence showed that the Company, due to the same factor, had an increase in expenses in the amount of $848,978 for the year 1960 over and above the average expenses for the past 14 years. In reaching its final conclusion the Commission took into consideration both the increased revenues and the increased expenses. Due to the self-evident fact that utility rates cannot be adjusted from day to day, but are made for the foreseeable future, we think the action of the Commission in this instance was proper and fully justified under rules established not only by our own Commission but by the decisions in other states. The record discloses that on two previous occasions the Commission adjusted rates based on weather conditions.

See: Re Public Service Company of Colorado, 34 P.U.R.3d 186 (1960); Re Plateau Natural Gas Company, 36 P.U.R.3d 452 (1960); Re Diamond State Telephone Company, 28 P.U.R.3d 121 (1959); Re Gas Light Company of Columbus, 31 P.U.R.3d 350 (1959); Re Columbia Gas of Kentucky, 36 P.U.R.3d 401 (1959); and Re Central Maine Power Company, 29 P.U.R.3d 113 (1959).

(b). 'The Commission Order is Arbitrary Unreasonable and Without Evidentiary Support in Eliminating over $4,000,000 Products Extraction Income.'

The record disclosed that the Company wholly owns the Arkansas Louisiana Chemical Corporation (hereafter referred to as 'Arkansas') which engages in many activities among which is extracting and processing the liquid hydrocarbons from natural gas. It is further shown that the Company permits Arkansas to extract the liquid hydrocarbons from much of the gas which is distributed to its customers. In this process Arkansas derives considerable profits. It is the contention of appellants that these profits should be added to the Company's overall revenues. If this were done of course it would tend to reduce the customers' rate. The Commission allowed Arkansas to retain the profits. In the case of Associated Mechanical Contractors of Arkansas, etc. v. Arkansas Louisiana Gas Company, 225 Ark. 424, 283 S.W.2d...