Hobbs Gas Co. v. New Mexico Public Service Commission
| Citation | 1980 NMSC 5,616 P.2d 1116,94 N.M. 731 |
| Decision Date | 17 January 1980 |
| Docket Number | No. 12147,12147 |
| Parties | HOBBS GAS COMPANY, Plaintiff-Appellee and Cross-Appellant, v. NEW MEXICO PUBLIC SERVICE COMMISSION, Defendant-Appellant and Cross-Appellee, Rev. F. W. Wells and Jeff Bingaman, Attorney General, Intervenors-Appellants and Cross-Appellees. |
| Court | Supreme Court of New Mexico |
Hobbs Gas Company (Hobbs) filed with the New Mexico Public Service Commission (Commission) Advice Notice Nos. 18 and 19 and Tariff Sheets by which it requested the Commission to approve a rate increase. After hearings, the Commission issued its final order denying any rate increase. Hobbs appealed to the district court which held that the Commission's order was arbitrary, capricious, unreasonable, unlawful and not supported by substantial evidence. The district court declared the order invalid and remanded the cause. The Commission now appeals from this order.
The district court made the following findings of fact upon which it based its decision:
6. The finding in Finding of Fact No. 13 of the Commission's Order that the common equity portion of Petitioner's capital structure as of December 31, 1976 was $896,479 is arbitrary, capricious, unreasonable, unlawful and is not supported by substantial evidence in the record in that Respondent acted unreasonably in deducting the company's acquisition adjustment ($505,583) from the Company's equity capital at the end of the test year ($1,402,062).
7. The finding in Finding of Fact No. 13 of the Commission's Order that "previous Commissions have not addressed themselves squarely to the contested issue of whether the acquisition and adjustment should be included within the equity portion of the Company's capital structure" is not supported by the record of Case No. 1359 where it is shown that in Case No. 1046 Respondent specifically rejected this concept; such prior action by Respondent invoking the principles of res judicata and equitable estoppel as to this issue.
8. The finding in Finding of Fact No. 13 of the Commission's Order that "sound regulatory principle requires that it (acquisition adjustment) be deducted from both rate base and the Company's equity capital" is arbitrary, capricious, unreasonable, unlawful; is not supported by substantial evidence in the record and is in direct conflict with Respondent's previous decisions.
9. The deduction of acquisition adjustment from the common equity of Petitioner is arbitrary, capricious, unreasonable, unlawful and is not supported by substantial evidence in the record.
10. Respondent arbitrarily, capriciously and unreasonably prevented Petitioner's expert witness from testifying as a rebuttal witness at the hearing held January 3, 1978, thereby depriving Petitioner of its right to present all relevant and material evidence to Respondent on the issues in the case and such refusal was therefore unlawful and the tendered testimony of such witness should be considered a proper part of the case record.
11. The Commission should acknowledge the full amount of the Company's book equity capital and allow a just and reasonable return thereon.
12. The Order of the Respondent dated February 27, 1978 should be annulled and vacated and this case should be remanded to the Respondent for the sole purpose of determining the revenues sufficient to achieve the purposes set forth in the New Mexico Public Utility Act (§ 62-3-1B NMSA) acknowledging the full amount of the Company's book equity capital and allowing a just and reasonable return thereon.
Three issues are raised on appeal: (1) did the trial court err in vacating and annulling the order of the Commission, which directed that Hobbs' acquisition adjustment should not be included within its capital structure for the purpose of rate base and revenue requirements, (2) did the trial court err in applying the doctrines of res judicata and equitable estoppel to the proceedings and (3) did the trial court err in not allowing Hobbs the right to present a rebuttal witness on the issue of acquisition adjustment. We agree with the district court and affirm.
A general preliminary statement of legislative policy and public utility regulatory principles may be helpful in understanding the issues presented in this case. The Legislature delegated to the Public Service Commission the power and authority to regulate utilities. § 62-6-4, N.M.S.A.1978. The Public Utility Act, which establishes both the Commission and all the apparatus for regulating utilities, provides in Section 62-3-1, N.M.S.A.1978:
B. It is the declared policy of the state that the public interest, the interest of consumers and interest of investors require the regulation and supervision of such public utilities to the end that reasonable and proper services shall be available at fair, just and reasonable rates, and to the end that capital and investment may be encouraged and attracted so as to provide for the construction . . . of proper plants and facilities for the rendition of service to the general public and to industry.
The law also charges the Commission with the responsibility of insuring that every rate made or received by a public utility shall be just and reasonable. § 62-8-1, N.M.S.A.1978. Whether or not a rate is just and reasonable is to be determined from the facts in each case based upon statutory guidelines. § 62-8-1; § 62-8-7, N.M.S.A.1978. The Commission is vested with considerable discretion in determining whether a rate to be received and charged is just and reasonable. State v. Mountain States Tel. & Tel. Co., 54 N.M. 315, 224 P.2d 155 (1950); Cities Service Gas Co. v. Federal Power Com'n, 155 F.2d 694 (10th Cir. 1946), cert. denied, 329 U.S. 773, 67 S.Ct. 191, 91 L.Ed. 664 (1946).
The traditional elements of the rate-making process and the establishment of the total revenue requirement are (1) determination of the costs of the operation, (2) determination of the rate base which is the value of the property minus accrued depreciation, and (3) determination of the rate of return. C. Phillips, The Economics of Regulation 178 (1972). This rate-making process involves decisions as to whether certain utility investments or expenditures should be included or excluded under the above elements.
The rate base of a utility is the measure of the current value of property or investments owned by the utility in rendering service to the public. Several factors are considered in determining whether a particular piece of property should or should not be included in the rate base. Once a determination is made to include the utility plant in the rate base, then the value of the plant must be ascertained in order to compute the revenue requirements. In New Mexico, the Legislature provided the manner and elements of value under Section 62-6-14, N.M.S.A.1978, which reads in pertinent part:
When in the exercise of its powers and jurisdiction, it shall be necessary for the commission to consider or ascertain the valuation of the properties or business of a public utility, it shall, in arriving at such valuation, give due consideration to the history and development of the property and business of the particular public utility, to the original cost thereof and to the cost of reproduction as a going concern and to other elements of value recognized by the laws of the land for ratemaking purposes. (Emphasis added.)
Reconstruction cost, replacement cost, original cost, capital cost, fair value and prudent investment have been and are factors utilized by regulatory commissions and courts in determining plant valuation. State Corporation Com'n v. Mountain States Tel. & Tel. Co., 58 N.M. 260, 270 P.2d 685 (1954). Neither New Mexico case law nor the Public Utility Act imposes any one particular method of valuation upon the Commission in ascertaining the rate base of a utility. Mountain States Tel. v. New Mexico State Corp., 90 N.M. 325, 563 P.2d 588 (1977). Nor does the spirit of the statute...
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