Connecticut Light and Power Co. v. Department of Public Utility Control

• Decision Date: 21 May 1991
• Docket Number: No. 14045,14045
• Citation: 591 A.2d 1231,219 Conn. 51
• Court: Connecticut Supreme Court
• Parties: CONNECTICUT LIGHT AND POWER COMPANY v. DEPARTMENT OF PUBLIC UTILITY CONTROL et al.

Page 1231

591 A.2d 1231

219 Conn. 51

CONNECTICUT LIGHT AND POWER COMPANY v. DEPARTMENT OF PUBLIC UTILITY CONTROL et al.

No. 14045.

Supreme Court of Connecticut.

Argued Jan. 16, 1991.

Decided May 21, 1991.

Walter F. Torrance, Jr., with whom were Robert P. Wax and Cynthia Brodhead, for appellant (plaintiff).

Tatiana D. Sypko, Asst. Atty. Gen., with whom was Robert S. Golden, Jr., Asst. Atty. Gen., for appellee (named defendant).

Valerie J. Bryan, for appellee (defendant office of consumer counsel).

Before PETERS, C.J., and SHEA, CALLAHAN, HULL and BORDEN, JJ.

BORDEN, Associate Justice.

In this appeal, the plaintiff Connecticut Light and Power Company (CL & P) challenges the trial court's dismissal of its appeal from the administrative rate-making decision of the defendant department of public utility control (DPUC). ¹ The issues are whether the trial court: (1) applied the proper standard of review to the decision of the DPUC; and (2) properly sustained the DPUC's decision that (a) disallowed a return to CL & P shareholders of approximately 10 percent of the revenues derived from CL & P's wholesale sales ² of Millstone III capacity, and (b) concluded that CL & P's prepayments and reserves and its gas deferred fuel balance, but not its electric deferred fuel balance, should be included in its rate base.

In July, 1988, CL & P requested an amendment to its gas and electric rate schedule. In December, 1988, after twenty-six days of hearings, the DPUC issued its decision allowing only a portion of the requested amendments. CL & P appealed, and the trial court dismissed the appeal, thereby sustaining the decision of the DPUC. CL & P appealed the decision to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 4023. We affirm the decision of the trial court.

I

CL & P first claims that the trial court, in rejecting its challenges to the merits of the DPUC's decision, applied an improper standard of review, namely, that the trial court subsumed the "substantial prejudice" test of General Statutes (Rev. to 1989) § 4-183(g) ³ into the test of General Statutes § 16-19e(a)(4), ⁴ which provides that the level of rates allowed must be sufficient to permit the public utility to recover its costs and attract investors. The DPUC contends that the trial court's standard of review must focus "on the justness and reasonableness of the rates as supported by the evidence on the whole record." The OCC contends that, in order to satisfy a showing of "substantial prejudice" pursuant to § 4-183(g) of the Uniform Administrative Procedure Act (UAPA) such that a reviewing court can reverse or modify the administrative decision, CL & P must demonstrate that the rate order is "unjust and unreasonable" pursuant to § 16-19e(a)(4). In light of our recent decision in Connecticut Light & Power Co. v. Department of Public Utility Control, 216 Conn. 627, 583 A.2d 906 (1990) (CL & P v. DPUC ), in which we addressed the same argument raised by these parties and clarified the proper standard of review, we need not elaborate on this issue.

In CL & P v. DPUC, supra, we determined that the test set forth in § 16-19e(a)(4) was embodied in § 4-183(g)(1). "Pursuant to General Statutes § 16-35, the provisions of General Statutes § 4-183 of the [UAPA] determine the scope of judicial review for administrative appeals from decisions of the DPUC." Id., at 632-33, 583 A.2d 906. Additionally, § 16-19e(a)(4) sets forth a test for establishing proper rates of public utilities. In CL & P v. DPUC, supra, we recognized the confusion that existed in construing § 4-183(g), the UAPA standard of review of administrative decisions, and § 16-19e(a)(4), the section embodying the United States Supreme Court test in Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944) (the Hope test), for review of public utility rate-making cases based on claims of unconstitutional confiscation.

In Hope, the United States Supreme Court, in interpreting § 4(a) of the federal Natural Gas Act of 1938; 52 Stat. 821; 15 U.S.C. § 717; concluded that "[u]nder the statutory standard of 'just and reasonable' it is the result reached and not the method employed which is controlling.... If the total effect of a rate order cannot be said to be unjust and unreasonable, judicial inquiry ... is at an end." Id., at 602, 64 S.Ct. at 287. The court went on to state that "the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks ... [and] should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital." Id., at 603, 64 S.Ct. at 288. Section 16-19e(a)(4), "in identifying the various factors that the DPUC must consider when it establishes rates for public service companies, uses language that tracks, almost verbatim, the language that the United States Supreme Court used in Hope...." CL & P v. DPUC, supra, 216 Conn. at 635, 583 A.2d 906.

Despite the fact that § 16-19e(a)(4) embodies the "just and reasonable" provision of Hope, "[n]either the language of § 16-19e(a)(4) itself, nor its legislative history ... indicates that the section was intended to establish an independent standard, apart from § 4-183(g), for judicial review of DPUC rate orders." Id. Rather, "under § 4-183(g)(1) a court must review a claim that a rate order violates § 16-19e(a)(4). Even a rate order that complies with this statutory mandate, however, and establishes a rate of return 'commensurate with returns on investments in other enterprises having corresponding risks'; Federal Power Commission v. Hope Natural Gas Co., supra, [320 U.S. at] 603 ; is not automatically entitled to judicial approval." Id., 216 Conn. at 638, 583 A.2d 906.

Indeed, the incorporation of § 16-19e(a)(4) into § 4-183(g) requires the trial court to conduct a statutorily circumscribed inquiry, based on the administrative record, into the merits of the administrative decision. Id., at 637, 583 A.2d 906. "A court may not reverse or modify an agency decision unless it determines that an appellant's 'substantial rights ... have been prejudiced because the [agency's] findings, inferences, conclusions, or decisions' contravene any one of the section's six specific provisions. General Statutes § 4-183(g)." Id. The court may not substitute its own balance of regulatory considerations for that of the agency. Id., at 638, 583 A.2d 906. Its function is "independently [to] assure itself that the DPUC has given 'reasoned consideration' to each of the guiding factors expressed in § 16-19e(a)(4). See Permian Basin Area Rate Cases, 390 U.S. 747, 792, 88 S.Ct. 1344 [1373], 20 L.Ed.2d 312 (1968)." Id.

In reviewing the administrative rate decision, the court must, therefore, "ensure that the agency's decisionmaking process was conducted pursuant to the appropriate procedures and that the outcome of the process reflects reasoned decisionmaking--a reasonable application of relevant statutory provisions and standards to the substantial evidence on the administrative record. Section 4-183(g) coupled with the presumption of validity that attends a DPUC rate order; Woodbury Water Co. v. Public Utilities Commission, [174 Conn. 258, 260, 386 A.2d 232 (1978) ]; establishes a standard for judicial review that is appropriately deferential to agency decisionmaking, yet goes beyond a mere judicial 'rubber stamping' of an agency's decisions." CL & P v. DPUC, supra, 216 Conn. at 637, 583 A.2d 906.

Within this context, judicial review of CL & P's action is governed by the UAPA; General Statutes §§ 4-166 through 4-189; and the scope of that review, the "substantial evidence" rule, is restricted. See Connecticut Building Wrecking Co., v. Carothers, 218 Conn. 580, 583, 590 A.2d 447 (1991); Caldor, Inc. v. Heslin, 215 Conn. 590, 598-600, 577 A.2d 1009 (1990), cert. denied, --- U.S. ----, 111 S.Ct. 966, 112 L.Ed.2d 1053 (1991). "Substantial evidence" exists if the administrative record demonstrates " 'a substantial basis of fact from which the fact in issue can be reasonably inferred....' " Lawrence v. Kozlowski, 171 Conn. 705, 713, 372 A.2d 110 (1976), cert. denied, 431 U.S. 969, 97 S.Ct. 2930, 53 L.Ed.2d 1066 (1977); see also CL & P v. DPUC, supra. "With regard to questions of fact, it is neither the function of the trial court nor of this court 'to retry the case or to substitute its judgment for that of the administrative agency.' ... 'Judicial review of conclusions of law reached administratively is also limited. The court's ultimate duty is only to decide whether, in light of the evidence, the [agency] has acted unreasonably, arbitrarily, illegally, or in abuse of its discretion....' " Griffin Hospital v. Commission on Hospitals & Health Care, 200 Conn. 489, 496, 512 A.2d 199, appeal dismissed, 479 U.S. 1023, 107 S.Ct. 781, 93 L.Ed.2d 819 (1986). In the specialized context of a rate case, the court may not substitute its own balance of the regulatory considerations for that of the agency, and must assure itself that the DPUC has given reasoned consideration to the factors expressed in § 16-19e(a)(4). See CL & P v. DPUC, supra, 216 Conn. at 638, 583 A.2d 906.

Having set forth the proper standard of review, we turn now to the substantive claims of CL & P.

II

CL & P claims that the DPUC's rejection of its request to exclude from its retail rate base and, thereby, to allocate to its shareholders approximately 10 percent of the revenue from Millstone III's wholesale sales violates constitutional or statutory provisions, exceeds the agency's statutory authority, is clearly erroneous in light of the reliable, probative and substantial evidence on the whole record, and is arbitrary, capricious, and characterized by abuse of discretion or clearly unwarranted exercise of discretion pursuant to § 4-183(g). ⁵ We disagree.

This issue has its factual basis...