Connecticut Natural Gas Corp. v. Public Utilities Control Authority

• Decision Date: 13 February 1981
• Citation: 439 A.2d 282,183 Conn. 128
• Parties: CONNECTICUT NATURAL GAS CORPORATION v. PUBLIC UTILITIES CONTROL AUTHORITY et al.
• Court: Connecticut Supreme Court

Page 282

439 A.2d 282

183 Conn. 128

CONNECTICUT NATURAL GAS CORPORATION v. PUBLIC UTILITIES CONTROL AUTHORITY et al.

Supreme Court of Connecticut.

Argued Nov. 12, 1980.

Decided Feb. 13, 1981.

William B. Gundling, Asst. Atty. Gen., with whom were Robert S. Golden, Jr., Asst. Atty. Gen., and, on the brief, Carl R. Ajello, Atty. Gen., for appellant (named defendant).

Barry S. Zitser, Hartford, for appellant (defendant Division of Consumer Counsel).

John C. Yavis, Jr., Hartford, with whom were Susan S. Feltus, Hartford, and, on the brief, John E. Silliman, Hartford, for appellee (plaintiff).

Before COTTER, C. J., and BOGDANSKI, PETERS, DALY and BIELUCH, JJ.

COTTER, Chief Justice.

On October 3, 1977, the plaintiff, Connecticut Natural Gas Corporation, a public service company, ¹ requested that the defendant Public Utilities Control Authority (PUCA) ² permit amendments to the plaintiff's existing rate schedule, designed to increase the plaintiff's annual revenues by $9,612,396 exclusive of deferred gas cost amortization and related taxes not germane to this appeal. Supporting exhibits and sworn written testimony accompanied the plaintiff's application. See Regs., Conn. State Agencies §§ 16-1-46, 16-1-55.

During December, 1977, and January, 1978, the PUCA held public hearings and made an investigation pursuant to General Statutes § 16-19(a). The PUCA hired James Rothschild, of the firm of J. Rothschild Associates, to participate in considering the application and to cross-examine some of the witnesses who appeared at the hearings before the PUCA. Rothschild did not testify, had no rule in enforcing the PUCA's orders, and was not associated with any party to the proceedings.

The PUCA heard the final arguments of counsel and closed the record on January 27, 1978. At the close of the hearings, PUCA employees, including Rothschild, submitted their reports to the PUCA. Rothschild's report discussed the plaintiff's cost of capital, cost of common equity, capital structure, tax credits and rate of return. The report specifically attacked the testimony of John M. Kingsland, one of the plaintiff's witnesses, and said that the corporation's requested return on equity appeared to be excessive.

At the PUCA's subsequent public deliberations the Rothschild report came to the plaintiff's attention. On February 6, 1978, the plaintiff wrote to the PUCA objecting to Rothschild's methodology for calculating a rate of return on common equity. ³ On February 22, 1978, the plaintiff moved for leave to cross-examine Rothschild. Such leave was not granted.

The PUCA authorized a $1,782,000 increase in rates on March 2, 1978. The plaintiff filed an amended schedule of rates in accordance with the authorization. On March 16, 1978, after the increase became effective, the plaintiff petitioned for judicial review of the PUCA's decision. The office of consumer counsel ⁴ was allowed to intervene as a party defendant.

On December 11, 1978, the plaintiff requested an additional rate increase. On May 21, 1979, before the Superior Court decided the appeal from the 1978 rate decision, the PUCA granted the plaintiff an additional rate increase of $3,912,388. No appeal was taken from that increase.

On July 3, 1979, the Superior Court filed its memorandum of decision in the appeal of the 1978 rate increase. The court ordered the PUCA: (1) to determine the actual "lag" time for working capital; (2) to allow the plaintiff to cross-examine Rothschild and rebut evidence in his report; (3) to consider the effect of federal taxes upon the plaintiff's increased revenue; (4) to allocate the tax savings from the plaintiff's participation in consolidated tax returns; (5) to adjust and normalize the plaintiff's extraordinary tax items; (6) to estimate the plaintiff's future federal income tax payments at an effective rate of 14.588 percent; (7) to recompute peak gas demand; (8) to add to the plaintiff's working capital the cost of some gas which the PUCA had omitted in computing the plaintiff's total purchased gas requirements; (9) to compute the impact of the elimination of the gross revenue tax from the Purchase Gas Adjustment (PGA) necessitated by a PUCA error; (10) to reduce the rate of interest which the PUCA had ordered the plaintiff to pay its customers for using money due them which had been refunded to the plaintiff by its pipeline suppliers; and (11) to calculate interest from the actual date the plaintiff had received the pipeline refunds.

On July 5, 1979, the Division of Consumer Counsel (DCC) ⁵ requested the Superior Court to reconsider and revise its order, claiming, inter alia, that the 1979 rate decision of the Division of Public Utility Control ⁶ which granted the plaintiff an additional $3,912,388 increase in annual revenues superseded the 1978 rate decision and thereby mooted the appeal. The PUCA joined in that request. The court, on October 12, 1979, denied the motion. On November 13, 1979, we granted the PUCA's and the DCC's petitions for certification to review the court's orders of July 3, 1979, and October 12, 1979.

I

The power to fix or regulate public utility rates derives from the police power of the state. The legislature determines the methods by which and the extent to which the state will exercise that power, New Haven v. New Haven Water Co., 132 Conn. 496, 511, 45 A.2d 831 (1946). The principle "that the level and structure of rates be sufficient, but no more than sufficient, to allow public service companies to cover their operating and capital costs, to attract needed capital and to maintain their financial integrity, and yet provide appropriate protection to the relevant public interests, both existing and foreseeable," limits the PUCA's ratemaking power. General Statutes § 16-19e(a)(4). The public service company, however, has "the burden of proving that ... (the) rate under consideration is just and reasonable." General Statutes § 16-22.

The PUCA's rate-making must follow the requirements of the Uniform Administrative Procedure Act (UAPA); General Statutes §§ 4-166 through 4-189; for "contested cases." General Statutes § 4-166(2). Under those requirements the PUCA shall afford all parties an opportunity "to respond and present evidence and argument on all issues involved"; General Statutes § 4-177(c); and to "conduct cross-examinations required for a full and true disclosure of the facts." General Statutes § 4-178(3).

Section 4-183 of the UAPA governs appeals to the Superior Court from decisions of the PUCA. General Statutes § 16-35. Judicial review of PUCA decisions may not extend beyond the administrative record. General Statutes § 4-183(f). A reviewing court shall not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. General Statutes § 4-183(g); Hospital of St. Raphael v. Commission on Hospitals & Health Care, --- Conn. ---, ---, 438 A.2d 103 (1980); Hansen v. Norton, 172 Conn. 292, 294, 374 A.2d 230 (1977). Despite infirmities in the PUCA's methods, a court must approve its rate order, if the total effect of the order is just and reasonable. Woodbury Water Co. v. Public Utilities Commission, 174 Conn. 258, 264, 386 A.2d 232 (1978); see Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S.Ct. 281, 287, 88 L.Ed. 333 (1944); Intermountain Gas Co. v. Idaho Public Utilities Commission, 97 Idaho 113, 120, 540 P.2d 775 (1975); Rhode Island Consumers' Council v. Smith, 111 R.I. 271, 302 A.2d 757 (1973). A regulatory agency does not moot an appeal from a rate order by issuing a more recent order. Potomac Electric Power Co. v. Public Service Commission, 402 A.2d 14, 22-23 (D.C.App.1979).

II

We begin our review of the court's July 3 order by considering one of its two parts which relate to the Rothschild report. The Rothschild report estimated that the plaintiff's receipt of payments from its customers for gas lagged ten days behind the plaintiff's payments to its gas suppliers. The PUCA also estimated this lag to be ten days. This was the only PUCA ruling which the court attributed to the Rothschild report. The court concluded that the PUCA's use of this estimate required a remand. We disagree.

The PUCA included working capital in the plaintiff's rate base. Simply stated, working capital is the assets which the plaintiff needs to pay its operating expenses while awaiting the receipt of revenue from its customers. The more time between the plaintiff's payment of its bills and its receipt of cash from its customers, the more working capital it requires. Guida v. Public Utilities Commission, 166 Conn. 328, 335, 348 A.2d 613 (1974). In previous cases, the PUCA assumed this lag was forty-five days for all the plaintiff's operating and maintenance expenses, including the cost of purchased gas. The trial court decided that until the PUCA gave the plaintiff notice of a proposed change and an opportunity to prove that the actual time lag exceeded the new estimate the PUCA must continue to assume a forty-five day lag instead of using an estimate less favorable to the plaintiff.

The length of the lag period is a question of fact. Therefore, neither the plaintiff nor the PUCA could safely rely on a previous approximation as if it were a legal precedent. New England Telephone & Telegraph Co. v. Public Utilities Commission, 116 R.I. 356, 385, 358 A.2d 1 (1976). Consequently, the PUCA did not have to notify the plaintiff that it might employ a new estimate. Although the hearing provided the plaintiff with an adequate opportunity to prove its actual lag, the plaintiff and the PUCA agree that the record does not establish any lag period. Therefore the plaintiff suffered no legal injury when the PUCA estimated the fuel expense lag as ten days, and no prejudice may be attributed to the Rothschild report on that basis.

III

A

The court exceeded its authority by ordering a specific remedy, cross-examination and rebuttal, to correct errors it...