Goodman v. Public Service Com'n of District of Columbia

• Decision Date: 25 March 1974
• Docket Number: No. 73-1345.,73-1345.
• Citation: 497 F.2d 661,162 US App. DC 74
• Parties: Leonard S. GOODMAN, Appellant, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

162 US App. DC 74, 497 F.2d 661 (1974)

Leonard S. GOODMAN, Appellant, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA et al., Appellees.

No. 73-1345.

United States Court of Appeals, District of Columbia Circuit.

Argued January 15, 1974.

Decided March 25, 1974.

COPYRIGHT MATERIAL OMITTED

Leonard S. Goodman, pro se.

Carl D. Hobelman, New York City, of the bar of the Court of Appeals of New York, pro hac vice by special leave of Court for appellee, Potomac Electric Power Co. Cameron F. MacRae, New York City, Stephen A. Trimble and George W. Warlick, Washington, D. C., were on the brief for appellee, PEPCO. Edward A. Caine, Washington, D. C., also entered an appearance for appellee, PEPCO.

C. Belden White, II, Asst. Corp. Counsel, Washington, D. C., for the District of Columbia, with whom C. Francis Murphy, Corp. Counsel, Washington, D. C., was on the brief, for Public Service Commission of the District of Columbia.

Before BAZELON, Chief Judge, TAMM, Circuit Judge, and WYZANSKI,^* United States Senior District Judge for the District of Massachusetts.

TAMM, Circuit Judge:

This is an action under §§ 43-704 to 43-710 of the District of Columbia Code challenging an order of the Public Service Commission of the District of Columbia (hereafter "Commission") granting the Potomac Electric Power Company (hereafter "Pepco") an increase in rates. The matter first came before the District Court in October, 1970, and was dismissed on procedural grounds without prejudice. This court subsequently reversed and remanded for consideration on the merits.¹ The District Court again affirmed the Commission and dismissed the complaint.² Appellant Goodman brings this appeal, and, for the reasons stated below, we affirm.

I. BACKGROUND

On February 27, 1969, Pepco filed an application with the Commission for permission to increase its rates for electric service in the District of Columbia. Prior to hearings on the requested rate increase, Pepco filed an emergency application for an interim rate increase. The emergency application was deferred by the Commission³ and the two applications were consolidated for hearings.

The Commission then held extensive hearings on Pepco's applications and numerous intervenors⁴ gave the Commission the benefit of their views. Appellant Goodman chose not to intervene nor otherwise participate in hearings before the Commission.⁵ The Commission ordered an interim rate increase,⁶ without comment on the issues here under review. This order is not challenged by appellant.

On April 15, 1970, the Commission issued Order No. 5429⁷ directing Pepco to file proposed rate schedules which would increase its annual gross operating revenues within the District of Columbia by $10,220,788.⁸ Such an increase in revenues was based on 1) a determination that $854.3 million was the proper rate base on which Pepco should be allowed a fair rate of return; and 2) that Pepco should earn 7.1% on this rate base.

On May 14, 1970, appellant filed a Petition for Reconsideration⁹ of Order No. 5429 which was denied by the Commission in its Order No. 5434.¹⁰ Appellant then filed his complaint and petition of appeal in the District Court. After certain procedural difficulties were overcome,¹¹ the District Court affirmed the Commission in all respects and appellant brought the case before us.

II. SCOPE OF REVIEW

Appellant seeks review of Order No. 5434 pursuant to 43 D.C.Code § 706 (1973) which provides:

§ 43-706. Appeal limited to questions of law.

In the determination of any appeal from an order or decision of the Commission the review by the court shall be limited to questions of law, including constitutional questions; and the findings of fact by the Commission shall be conclusive unless it shall appear that such findings of the Commission are unreasonable, arbitrary, or capricious.

Clearly, review under § 43-706 is limited to questions of law, with the Commission\'s findings of fact deemed conclusive unless found to be "unreasonable, arbitrary, or capricious." D.C. Transit System, Inc. v. Public Utilities Comm\'n, 110 U.S.App.D.C. 241, 292 F.2d 734, 735 (1961). In Washington Gas Light Co. v. Baker, 88 U.S.App.D.C. 115, 188 F.2d 11 (1950), cert. denied, 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 (1951), this court, per Bazelon J., held that the Commission\'s authority to regulate rates is identical to the authority of the Federal Power Commission to set rates under the Natural Gas Act. It was there stated:

Section 43-301 of the District of Columbia Code provides that ". . . The charge made by any . . . public utility for any facility or services furnished, or rendered, or to be furnished or rendered, shall be reasonable, just and nondiscriminatory."

This statutory standard, taken together with the limitation of our review to "questions of law" and to findings of fact only if they are "unreasonable, arbitrary, or capricious", invests the District of Columbia Public Utilities Commission with the same broad authority as is possessed by the Federal Power Commission under the Natural Gas Act. The Supreme Court has said that that Commission is "not bound to the use of any single formula or combination of formulae in determining rates", so long as the "total effect," "impact" or "end result" of the rate order "cannot be said to be unjust or unreasonable." The limits set by the Court are deliberately broad, resulting both from notions of special competence and the conception of rate-making as a primarily legislative process. So long as the public interest — i. e., that of investors and consumers — is safeguarded, it seems that the Commission may formulate its own standards.

188 F.2d at 14-15. (Emphasis in original; footnotes omitted.)

The Supreme Court has clearly held that great deference shall be given to Power Commission expertise under Section 19(b) of the Natural Gas Act which has, we reiterate, been held by this court, in Washington Gas Light, supra, to be analogous to 43 D.C.Code § 706.

. . . It must be said at the outset . . . the reviewing Court\'s authority is essentially narrow and circumscribed.

Section 19(b) of the Natural Gas Act provides without qualification that the "finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive." More important, we have heretofore emphasized that Congress has entrusted the regulation of the natural gas industry to the informed judgment of the Commission and not to the preferences of reviewing courts. A presumption of validity therefore attaches to each exercise of the Commission\'s expertise, and those who would overturn the Commission\'s judgment undertake "the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences."

Permian Basin Area Rate Cases, 390 U. S. 747, 766-767, 88 S.Ct. 1344, 1359, 20 L.Ed.2d 312 (1968).

We approach appellant's arguments with these guidelines firmly in mind. It is our duty to examine the Commission's Order to see if it is supported by substantial evidence in the record. This court is not to substitute its view for that of the Commission, even if the Commission chooses between one of two or more permissible but conflicting alternatives. Washington, Marlboro & A. M. Lines v. Public Utilities Comm'n, 114 F.Supp. 328, 333 (D.D.C. 1952), aff'd, 93 U.S.App.D.C. 63, 206 F. 2d 490 (1953). It is especially important to accord great respect to the Commission in a complex, esoteric area such as rate making in which the Commission has been entrusted with the difficult task of deciding among many competing arguments and policies.¹² Our determination must focus on whether the result reached is arbitrary and appellant bears the burden of clearly demonstrating arbitrary action. He cannot meet this burden by advancing alternative techniques from which the Commission could have chosen. FPC v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S.Ct. 281, 88 L.Ed. 333 (1944); Potomac Electric Power Co. v. Public Utilities Comm'n, 81 U.S.App.D.C. 225, 158 F.2d 521, 524 (1946), cert. denied, 331 U.S. 816, 67 S. Ct. 1303, 91 L.Ed. 1834 (1947). United States v. Public Utilities Comm'n, 81 U. S.App.D.C. 237, 158 F.2d 533, 536 (1946), cert. denied, 331 U.S. 816, 67 S. Ct. 1305, 91 L.Ed. 1835 (1947). In any analysis of whether an end result (i. e. the new rate) is not arbitrary, we are aware that since the result is but the "sum of a number of components," each component must be analyzed. Mississippi River Fuel Corp. v. FPC, 82 U.S. App.D.C. 208, 163 F.2d 433, 451 (1947). As is pointed out in the Mississippi River case, a component analysis was in fact used by Mr. Justice Douglas in the case of FPC v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944) from which the "end result" language is often drawn. Id. at 603, 64 S. Ct. 281. We must ascertain, as appellee Pepco agrees, "whether each of the Commission's Order's essential elements is supported by substantial evidence in the record."¹³ If each component or element is not arbitrary or capricious, the end result will be a sound one.

III.

Appellant's assertion that the Commission's Order was arbitrary and unlawful is predicated upon four separate alleged errors:

1) The Commission erred in including $118,000,000 of construction work in progress in the rate base.

2) The Commission erred in establishing rates based upon an end-of-period rate base, rather than an average figure rate base.

3) The Commission erred in approving an excessive allowance for Federal income taxes as part of the rate base.

4) The Commission erred by allocating an excessive percentage of the system increase to the District of Columbia.

A. Construction Work in Progress

The Commission, in arriving at a systemwide rate base of $854.3 million, included $118 million of "construction work in progress."¹⁴ This represents generating capability under construction which is not yet complete. Importantly, Pepco does not capitalize interest...