Hawaii Elec. Light Co., Inc., Application of, 6111

• Decision Date: 24 April 1979
• Docket Number: No. 6111,6111
• Citation: 594 P.2d 612,60 Haw. 625
• Parties: In the Matter of the Application of HAWAII ELECTRIC LIGHT CO., INC., for Approval of Rate Increases and Revised Rate Schedules.
• Court: Hawaii Supreme Court

Page 612

594 P.2d 612

60 Haw. 625

In the Matter of the Application of HAWAII ELECTRIC LIGHT

CO., INC., for Approval of Rate Increases and

Revised Rate Schedules.

No. 6111.

Supreme Court of Hawai'i.

April 24, 1979.

Syllabus by the Court

1. Under the clearly erroneous standard, the court will reverse an agency's findings if the court is left with a firm and definite conviction that a mistake has been made.

2. In order to preserve the function of administrative agencies in discharging their delegated duties and the function of an appellate court in reviewing agency determinations, an agency's findings, if supported by reliable, probative and substantial evidence, will be upheld.

3. A presumption of validity is accorded to the Commission's decisions so long as it has acted within its scope of expertise.

4. A rate of return is the percentage rate of earnings on the rate base allowed a utility after making provision for operating expenses, depreciation, taxes and other direct operating costs.

5. In setting a fair rate of return, the commission must protect the interests of the utility's investors and the interests of the utility's customers.

6. Where the utility company is a wholly-owned subsidiary, the subsidiary's cost of equity may be determined on the basis of the cost of equity capital to the parent.

7. The comparable earnings studies present useful information in assisting the commission to arrive at an equity return cost. A comparison of companies within a relatively wide range of risk with appropriate 8. It is often recognized that the rate-making function involves the making of pragmatic adjustments and that there is no single correct rate of return but a "zone of reasonableness" within which the rate may be set.

adjustments is proper and such comparison between utilities provide an important method to arrive at a fair return on common equity.

9. In reviewing the Commission's order setting a rate of return, it is the result reached and not the method employed which is controlling and if the "total effect" cannot be said to be unjust or unreasonable, judicial inquiry is at an end.

10. In requesting a rate increase, the burden of proof is on the utility company to go forward with the evidence and justify its requested increase before the commission.

11. A utility company requesting rate increases to enable it to earn a rate of return previously authorized by the Commission, must show that it is still entitled to the same rate of return, as a rate of return which is fair at one time may become unfair at a later time.

12. The statutory requirement that an administrative agency set forth separately its findings of fact and conclusions of law is to assure reasoned decision-making by the agency and to enable judicial review of agency decisions.

13. An administrative agency's findings of ultimate facts must be supported by findings of basic facts which in turn must be supported by the evidence in the record.

14. The presumption of validity accorded to a Commission's order can be overcome by a showing that no evidence was presented to sustain the order.

15. It is not any discrimination that is forbidden by the law, but only those which are unreasonable.

16. The use of the declining block structure by other utilities, the qualifications of the utility's expert witness and the cost of service study used in this case do not provide a rational basis for the discrimination in the last three blocks of the utility's residential rate schedule.

17. If differences in load factor is given as the justification for different rates within the residential rate schedule, then the load factor for each block would have to be quantified.

18. In the absence of any justification for the discrimination within the residential rate structure, the utility's declining block structure which promotes the use of electricity is contrary to state and national public policy.

19. A public utility's rate structure should encourage the conservation of energy, optimization of the efficient use of facilities and resources, and equitable rates to its customers.

Barry M. Utsumi, Deputy Atty. Gen., Honolulu, for appellant Public Utilities Division, Dept. of Regulatory Agencies, State of Hawaii.

Dennis Niles, Hilo (Legal Aid Society of Hawaii, Hilo, of counsel) for Lima Kokua, appellant-intervenor.

David L. Fairbanks, Honolulu (Goodsill, Anderson & Quinn, Honolulu, of counsel) for appellee.

Before RICHARDSON, C. J., OGATA and MENOR, JJ., KOBAYASHI, Retired Justice, and KATO, Circuit Court Judge, assigned by reason of vacancies.

OGATA, Justice.

This is an appeal from Decision and Order No. 4123 of the Public Utilities Commission of the State of Hawaii (Commission) and from the Commission's denials of the Petitions for Reconsideration and Successive Petition for Reconsideration. See Order No. 4205 and Order No. 4261. The parties to this appeal are the State of Hawaii Public Utilities Division (Division) and Lima Kokua (LK), as appellants, and the Hawaii Electric Light Company, Incorporated (HELCO), as appellee. HRS §§ 91-14 and 269-16(f) (1976) provide the jurisdiction for this appeal.

In the proceeding below, the Commission issued Decision and Order No. 4123 which, among other things, approved HELCO's request for (I) an 8.95% Rate of return on HELCO's rate base and (II) a revised residential rate structure. The Division and LK each challenge different aspects of the case on appeal. The Division's basic challenge is whether the 8.95% Rate of return is just and reasonable, and LK's basic challenge is whether the revised rate schedule for residential customers is unreasonably discriminatory.

We affirm the Commission's order with respect to the rate of return but remand to the Commission for further proceedings with respect to the residential rate schedule.

PRELIMINARY FACTS

On January 30, 1975, HELCO, a wholly owned subsidiary of Hawaiian Electric Company, Inc. (HECO), and a public utility engaged in the production, transmission, distribution and sale of electricity on the island of Hawaii, filed an application pursuant to HRS § 269-16 (1974 Supp.) requesting approval of proposed rate increases and revised rate schedules. HELCO requested a rate increase of $3,508,200, or a 20.3% Increase in test year annual revenues, which would amount to an 8.95% Return on its proposed rate base.

By law, the Division was a party to the rate proceeding before the Commission. LK, an organization of low income residents of the island of Hawaii, was allowed to intervene. Public and economic hearings were held by the Commission in Hilo and Kona.

On January 29, 1976, the Commission issued Decision and Order No. 4123 which approved the requested 8.95% Rate of return. The order also granted HELCO a rate increase of $3,411,400 or a 20% Increase in annual revenues and approved virtually unchanged the proposed rate schedules submitted by HELCO.

The Division and LK filed petitions for reconsideration, urging as grounds for reconsideration the same issues each now raises on appeal. On March 30, 1976, the Commission issued Order No. 4205 which denied the petitions. LK then filed a Successive Petition for Reconsideration which was denied by Commission's Order No. 4261. This appeal follows from Decision and Order No. 4123 and the subsequent denials of the petitions for reconsideration.

DISCUSSION

The issues presented to us in this appeal are (I) whether the 8.95% Rate of return is reasonable and (II) whether the residential rate structure is unreasonably discriminatory.

Before turning to the issues, we note that our standard of review of this case is limited by HRS § 91-14(g) (1976), which provides that:

(g) Upon review of the record the court may affirm the decision of the agency or remand the case with instructions for further proceedings; or it may reverse or modify the decision and order if the substantial rights of the petitioners may have been prejudiced because the administrative findings, conclusions, decisions, or orders are:

(1) In violation of constitutional or statutory provisions; or

(2) In excess of the statutory authority or jurisdiction of the agency; or

(3) Made upon unlawful procedure; or

(4) Affected by other error of law; or

(5) Clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or

(6) Arbitrary, or capricious, or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

This court has articulated various descriptions of its role in reviewing the determinations of administrative tribunals. In In re Application of Kauai Electric Division, 60 Haw. 166, 590 P.2d 524 (1978), and in De Victoria v. H & K Contractors, 56 Haw. 552, 558, 545 P.2d 692, 697 (1976), we explained that administrative decisions are measured against the clearly erroneous test viz., "whether the appellate court is left with a firm and definite conviction that a mistake has been made." In DeFries v. Association of Owners, 57 Haw. 296, 303, 555 P.2d 855, 859 (1976), we explained that this standard gives an appellate court greater leeway in exercising its functions and that although there is evidence to support an agency finding, if the court is left with a firm and definite conviction that a mistake has been made, the court will, under the clearly erroneous rule, reject the tribunal's findings. See Wright and Miller, Federal Practice and Procedure: Civil § 2585 (1971); 2 Cooper, State Administrative Law 744-746 (1965); K. Davis, Administrative Law § 29.02 (3d Ed. 1972).

It is the Commission that is authorized to fix "just and reasonable" rates to be charged by public utilities, HRS § 269-16 (1976), and a reviewing court is not empowered to examine the case De novo. See Mechanic Falls Water Co. v. Public Utilities Commission, 381 A.2d 1080 (Me.1977); Davenport Water Co. v. Iowa State Commerce Commission, Iowa, 190 N.W.2d 583 (1971). In order to preserve the function of...