Interstate Nav. Co. v. Burke, 82-258-M

• Decision Date: 30 August 1983
• Docket Number: No. 82-258-M,82-258-M
• Citation: 465 A.2d 750
• Parties: INTERSTATE NAVIGATION CO. v. Edward F. BURKE et al. P.
• Court: Rhode Island Supreme Court

Page 750

465 A.2d 750

INTERSTATE NAVIGATION CO. v. Edward F. BURKE et al.

No. 82-258-M.P.

Supreme Court of Rhode Island.

Aug. 30, 1983.

W. Slater Allen, Jr., Booth & Brodsky, Providence, for petitioner.

Richard E. Crowell, Jr., Public Utilities Commission, Cranston, for respondents.

OPINION

WEISBERGER, Justice.

This is a statutory petition for certiorari filed by the Interstate Navigation Company (the company or Interstate) pursuant to G.L.1956 (1977 Reenactment) § 39-5-1. The company challenges the May 14, 1981 decision and interim order of the Public Utilities Commission (the commission) and the final report and order that the commission rendered on May 28, 1982. Both of these orders addressed the proposed tariff that the company filed with the commission on February 24, 1981, in docket No. 1572. In its petition the company contends that the commission erred in several respects when it twice denied the company's request for rate relief. The pertinent facts are as follows.

Interstate runs a ferry service between points on the mainland and Block Island. Prior to filing the proposed tariff, the company contracted for the construction of a new ship, the Nelseco II (the Nelseco ), which would be added to a fleet comprised of the Quonset, the Manisee, the Manitou and the Yankee. The company intended to route all of these vessels, except for the Yankee, between Point Judith and Block Island during the summer of 1981.

The company's proposed tariff reflected a rate increase in the amount of $179,078. The company estimated that its expenses for fuel and wages would increase significantly in 1981. In addition, the company sought rate relief for interest and depreciation expenses that the company would incur during 1981 because of the addition of the Nelseco to the company's fleet.

Public hearings were held on April 6, 1981, at the offices of the commission and on May 11, 1981, at the New Shoreham Town Hall. At these hearings, the Division of Public Utilities and Carriers (the division) opposed the company's proposed rate increase and offered evidence to rebut the company's projected increases for 1981 in fuel, payroll, interest, and depreciation expenses. The division suggested that the company was entitled to a rate increase of $76,538.

The commission rendered its decision and interim order in docket No. 1572 on May 14, 1981. The commission allowed Interstate increases in fuel and payroll expenses in amounts lower than those that the company had requested but higher than those that the division had proposed. The May 14 decision fully resolved these issues. The company's request for rate relief in respect to the expenses attributable to the Nelseco, however, posed questions that were not fully adjudicated.

Noting that the Nelseco was not in service during the test year (1980), the commission determined that it could include the ship's depreciation and interest expenses in the revised tariff only if "the charges are known and measurable for the twelve months ended [sic] December 31, 1981." After reviewing the company's justification for including these expenses in the proposed tariff, the commission disallowed them because they were not known and measurable on May 14, 1981. More specifically, the commission held that

"the costs of completing and outfitting the Nelseco II are too speculative at this time but should be reviewed in the near future. * * * We do believe, however, that it will be in the public interest to place the Nelseco II in service and to afford it proper rate treatment as soon as possible.

"Most importantly * * * the Commission feels that it cannot approve some changes without considering all possible revenue increases and expense savings. Therefore, the Commission agrees with the Division and will disallow these expenses until a later time when they are known and measurable."

The commission therefore issued only an interim order regarding rate relief for the depreciation and interest expenses of the Nelseco.

This order instructed the company to file, no later than September 30, 1981, a complete report of expenses and revenue for the period from January 1, 1981, to September 7, 1981. The commission specified that this report should itemize all expenses for constructing and outfitting the Nelseco and should analyze the most efficient use of the company's vessels for service to Block Island.

The commission awarded Interstate a rate increase of $105,637, which was well below the company's proposed tariff. The final issue that the commission addressed was the company's proposed rate design. Although the division had not disputed the company's plan, the commission ordered the company to apply the rate increase to all categories of passenger-related rates equally. Moreover, motivated by a concern that cargo rates might be unfairly subsidized by passenger-related rates, the commission instructed the company to conduct a cargo rate study, which the company was to file by September 30, 1981, with its 1981 revenue and expense report.

After a continuance, the company filed a report with the commission on October 15, 1981. This report supplied data concerning revenue and expenses for the period January 1, 1981, through September 7, 1981. A balance sheet that was dated September 7, 1981 accompanied the report. However, the company did not file the cargo rate study that the commission had requested in its interim order.

On November 4, 1981, Interstate notified the commission that the company was seeking a rate increase of $73,441 through further proceedings in docket No. 1572. Further, the company asserted that the requested cargo rate study was not feasible. Accordingly, the company requested that the remaining issues be resolved and that the study be deferred to a future docket.

The commission held the first hearing on the company's requests on March 1, 1982. This hearing dealt solely with the company's failure to conduct the cargo rate study. Citing the difficulty of conducting such a study during the off season, the company suggested that it be allowed to defer completion of the study until after the expenses for Nelseco were given appropriate rate treatment. The division, on the other hand, interpreted the May 14, 1981 interim order of the commission as requiring the cargo rate study's completion prior to further proceedings in docket No. 1572. The commission disagreed. Rather, it ordered the division to conduct an audit of Interstate to facilitate the resolution of the remaining issues in the case. The commission, however, instructed the company to complete the cargo rate study prior to any requests for rate relief in future dockets.

Further hearings were held on April 1, 1982, and on April 16, 1982. As they had done in the spring of 1981, representatives of Interstate testified at these hearings in support of the company's request for rate relief. Similarly, representatives of the division urged the commission to grant no relief to the company for the depreciation and interest expenses attributable to the Nelseco, which started service on the Block Island run on or about July 1, 1981.

The April 1982 hearings disclosed the following evidence. ¹ According to the company, the interest expense for the Nelseco in 1981 equaled $87,500, and the ship's depreciation expense for the same period was $24,500. Although the sum of these figures was $112,000, Interstate felt constrained by the previous proceedings in docket No. 1572. The company therefore requested only $73,441 in rate relief, which represented the difference between the original proposed tariff and the rate increase that the commission had awarded on May 14, 1981.

The division, on the other hand, proposed to allow the company $44,265 in interest expense and $4,500 for depreciation but would offset these costs by revenue increases of $207,619 that were attributable to the Nelseco's operation during the summer of 1981. Accordingly, the division recommended to the commission a zero increase in rates.

Raymond Linda, general manager of Interstate, admitted that the Nelseco generated extra revenue but could not specify the amount because canceled tickets for the various ships were burned after collection. John G. Kanabis, the company's certified public accountant, verified that the company did not segregate passenger revenue on a vessel-by-vessel basis. Mr. Kanabis attributed the increase in passenger revenue to the Nelseco's operation and to the increased popularity of Block Island with summer tourists.

The division presented James I. Goldman, a certified public accountant, as an expert witness. He had been retained by the division to conduct a cost-benefit analysis in regard to the company's addition of the Nelseco. Mr. Goldman ascertained the costs and expenses that the company incurred because of the new vessel and determined what benefits the company derived from the use of the ship in the areas of labor and fuel costs. In addition, Mr. Goldman allocated total passenger revenue among all of Interstate's vessels, except for the Yankee, relying on a comparison of the total passenger capacity of each vessel to the total passenger capacity of all vessels for the period the ships were in operation. This formula resulted in Mr. Goldman's concluding that passenger revenue attributable to the Nelseco during the summer of 1981 amounted to $220,599.

The commission rendered its final report and order in docket No. 1572 on May 28, 1982. First, the commission interpreted the portion of the interim order in which the commission had held that it could not approve rate relief for the charges attributable to the Nelseco without considering revenue increases and expense savings that the vessel might produce. The commission posited that by "revenue increases and expense savings" it had meant "the extra revenues generated as a result of the Nelseco II being put in service and any possible expense savings which may have evolved as a result of...