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

• Decision Date: 11 December 1990
• Docket Number: 13927,Nos. 13924,s. 13924
• Citation: 216 Conn. 627,583 A.2d 906
• Court: Connecticut Supreme Court
• Parties: , 119 P.U.R.4th 250 CONNECTICUT LIGHT AND POWER COMPANY v. DEPARTMENT OF PUBLIC UTILITY CONTROL, et al. DIVISION OF CONSUMER COUNSEL v. CONNECTICUT LIGHT AND POWER COMPANY, et al.

Page 906

583 A.2d 906

216 Conn. 627, 119 P.U.R.4th 250

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

DIVISION OF CONSUMER COUNSEL v. CONNECTICUT LIGHT AND POWER COMPANY, et al.

Nos. 13924, 13927.

Supreme Court of Connecticut.

Argued Oct. 3, 1990.

Decided Dec. 11, 1990.

Walter F. Torrance, Jr., and Philip M. Small, with whom was Cynthia Brodhead, for appellant in the first appeal, appellee in the second appeal (Connecticut Light and Power Co.).

Valerie J. Bryan, for the appellant in the second appeal, appellee in the first appeal (Div. of Consumer Counsel).

Robert S. Golden and Tatiana D. Sypko, for appellee in both cases (Dept. of Public Utility Control).

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

PETERS, Chief Justice.

These consolidated appeals, arising out of the decision of an administrative regulatory agency to adjust a public utility company's rates because of a finding of imprudent sales of generating capacity, raise questions about the standard of judicial review and the substantiality of the evidence supporting the agency's action. These proceedings began in August, 1987, with a request by the plaintiff, Connecticut Light and Power Company (CL & P) ¹ for an amendment to its rate schedules. After extensive hearings, the defendant department of public utility control (DPUC) issued its decision to exclude $17,542,000 from CL & P's rates. Administrative appeals to the trial court were taken both by CL & P, claiming that the exclusion was improper, and by the Office of Consumer Counsel (OCC), ² formerly the Division of Consumer Counsel, claiming that the exclusion should have been higher. ³ The trial court consolidated and then dismissed both appeals, thereby sustaining the DPUC's decision. CL & P and the OCC each individually appealed the trial court's decision to the Appellate Court. We transferred the appeals to this court in accordance with Practice Book § 4023 and now affirm the judgment of the trial court.

I

The present proceedings have their origins in a 1985 application for approval of amended rate schedules for 1988 that CL & P filed with the DPUC pursuant to General Statutes §§ 16-19 and 16-19b. This application led to the DPUC's approval and adoption of settlement agreements (Settlement Agreements) between CL & P, the OCC, the DPUC's prosecutorial division, and the Attorney General. Part III of the Settlement Agreements enumerated conditions pertaining to the application of General Statutes § 16-19aa. ⁴ This section requires the DPUC in all rate proceedings to determine whether an electric public service company has generating capacity in excess of that which provides a net economic benefit to the company's customers. The section further directs the DPUC to exclude the costs of such "excess generating capacity" from a company's rate base.

On August 7, 1987, CL & P filed the present application for approval of amended rate schedules with the DPUC. A primary issue in the ensuing proceedings was the manner in which the large costs of the Millstone III nuclear power plant would be allocated between CL & P's stockholders and customers. In addressing this issue, the DPUC for the first time applied § 16-19aa and Part III of the Settlement Agreements. On the basis of evidentiary hearings, the DPUC found, in a decision issued on February 4, 1988, that subsequent to the enactment of § 16-19aa in 1985 and the 1986 Settlement Agreements, CL & P had greatly increased its sales of short-term generating capacity ⁵ "in an effort to shed excess capacity."

The DPUC conducted two alternate forms of analysis with respect to CL & P's excess capacity sales. In one analysis, conducted pursuant to § 16-19aa and Part III of the Settlement Agreements (the excess capacity analysis), the DPUC determined that CL & P had "excess capacity" of 254 megawatts on its system. The DPUC concluded that if it were to adjust CL & P's rates accordingly, it would have excluded $12,741,220 in costs associated with the 254 megawatts of "excess capacity." In its alternative analysis (the capacity sales analysis), ⁶ the DPUC concluded that CL & P's increased sales of short-term capacity were made "with the obvious intent of avoiding excess capacity adjustments to this rate application," that CL & P had sold the capacity in question at prices that were "much less than was possible," and that "choosing to sell only the cheapest units for short periods was not a reasonable and prudent decision." Choosing the capacity sales analysis as the more appropriate alternative in the circumstances of these proceedings, the DPUC excluded $17,542,000 from CL & P's rates. ⁷

CL & P's appeal to the trial court challenged both the excess capacity and capacity sales analyses. Following the DPUC's denial of its petition for reconsideration of the excess capacity analysis, the OCC also appealed to the Superior Court, challenging only the excess capacity analysis. The trial court consolidated the appeals, and dismissed them both on the ground that the DPUC rate order was neither unjust nor unreasonable.

In its appeal to this court, CL & P contends that the trial court invoked too restrictive a standard of review, and that, on proper examination, the DPUC rate order cannot be sustained on either the excess capacity analysis or the capacity sales analysis. The OCC's appeal challenges the former analysis only. We conclude that the judgment of the trial court must be sustained because the DPUC's decision to exclude $17,542,000 from CL & P's rates in accordance with its capacity sales analysis was supported by substantial evidence. ⁸

II

The first issue raised by CL & P appeal is whether the trial court applied the correct standard of review in rejecting its challenge to the substantive merits of the decision of the DPUC. Pursuant to General Statutes § 16-35, the provisions of General Statutes § 4-183 of the Uniform Administrative Procedure Act determine the scope of judicial review for administrative appeals from decisions of the DPUC. Connecticut Natural Gas Corporation v. Public Utilities Control Authority, 183 Conn. 128, 133-34, 439 A.2d 282 (1981). In its memorandum of decision, the trial court correctly referred to § 4-183 as governing the appeal before it, but did not expressly pursue any of the specific standard of review provisions of § 4-183(g). ⁹ Instead, relying on our decision in Woodbury Water Co. v. Public Utilities Commission, 174 Conn. 258, 263, 386 A.2d 232 (1978), and our application therein of the test that the United States Supreme Court enunciated 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), the trial court dismissed the appeals on the ground that the DPUC's rate order was neither unjust nor unreasonable and that judicial inquiry was therefore at an end. ¹⁰ CL & P argues that the trial court should not have applied the Hope test, while the DPUC and the OCC contend that judicial review of the rate order under the Hope test was correct. We agree with CL & P.

The issue before the Supreme Court of the United States in Hope was the interpretation of § 4(a) of the federal Natural Gas Act of 1938, 52 Stat. 821, 15 U.S.C. § 717 et seq., which provides that gas rates "shall be just and reasonable." Noting that Congress had provided no formula by which such rates were to be determined, the court stated that the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks, and should also 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. The court ultimately concluded that "[u]nder the statutory standard of 'just and reasonable' it is the result reached 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 287-88. The court also noted that the statutory standard met federal constitutional requirements for a nonconfiscatory rate order. Id., at 607, 64 S.Ct. at 290.

CL & P argues that because it has not raised a constitutional confiscation claim in this case, the trial court erred in applying the Hope test. ¹¹ CL & P correctly notes that, in Woodbury, this court applied the Hope test solely to a party's claim that the rates in question were confiscatory. In response, the DPUC and the OCC maintain that General Statutes § 16-19e(a)(4) ¹² embodies the Hope test as a matter of statutory regulation and that the trial court's application of that test was therefore correct. Specifically, the DPUC contends that as long as the rate order meets the "just and reasonable" requirement allegedly embodied in § 16-19e(a)(4), and the order is supported by record evidence, it must be sustained. In a slightly different vein, the OCC contends that in order to satisfy the § 4-183(g) prerequisite that an appellant must make a showing of prejudice to its "substantial rights" before a court can modify or reverse an agency decision, CL & P must prove that the rate order violates § 16-19e(a)(4) because it is "unjust and unreasonable." Despite these differences in emphasis, the arguments of both the DPUC and the OCC lead to the same result, a replacement of the broader judicial review standard contained in § 4-183(g) with the narrow review standard allegedly contained in § 16-19e(a)(4). We are unpersuaded that the legislature intended to afford utility companies so little opportunity to challenge adverse rate regulation.

It is true that § 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 when it interpreted the "just and reasonable"...