Jones v. Hawaiian Elec. Co., Inc.

• Citation: 64 Haw. 289,639 P.2d 1103
• Decision Date: 25 January 1982
• Docket Number: No. 6433,6433
• Parties: Diana J. JONES, et al., Complainants-Appellants, v. HAWAIIAN ELECTRIC COMPANY, INC., Respondent-Appellee.
• Court: Hawaii Supreme Court

Page 1103

639 P.2d 1103

64 Haw. 289

Diana J. JONES, et al., Complainants-Appellants, v. HAWAIIAN ELECTRIC COMPANY, INC., Respondent-Appellee.

No. 6433.

Supreme Court of Hawai'i.

Jan. 25, 1982.

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 definite and firm conviction that a mistake has been made.

2. Once the Commission has made an order, the order carries a presumption of validity and one seeking to upset the order carries the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences.

3. Where words of general description follow the enumeration of certain things, those words are restricted in their meaning to objects of like kind and character with those specified.

4. As used in HRS § 269-17, the general term "evidence of indebtedness" is limited to things of like character to stocks and stock certificates, bonds and notes.

5. The main object of legislation regulating the issuance of securities by public utility corporations was to establish and preserve a proper rate base for regulation of rates and service, and the immediate design thereunder was to limit not only the capital of the utility as represented by its stock but also its other obligations as far as they were designed to supplement equity capital by borrowings of a permanent character.

6. A lease is not a conditional sale unless it masks what is in reality a security transaction. The inclusion of an option to purchase does not of itself make the lease one intended for security, and an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration may make the lease one intended for security.

7. Lease agreement with proviso to purchase the property does not come within statute requiring public utility corporation to secure approval of PUC before issuing stocks and stock certificates, bonds, notes, and other evidence of indebtedness.

8. Where obligation is paid out of net revenues, no mortgage is involved, and lessor cannot look to any of lessee's plant assets for payment, lease agreement with proviso to purchase the property does not come within statute requiring public utility corporation to secure authorization from PUC before encumbering certain property.

9. The purpose of HRS § 269-19 is to safeguard the public interest.

10. A public utility is not prohibited from engaging in activities other than those authorized by its franchise.

11. If no substantial and material factual issue exists, the PUC may dismiss a complaint without holding an evidentiary hearing.

Kathleen A. Dashiell, Legal Aid Society of Hawaii, Honolulu, for complainants-appellants.

Marshall M. Goodsill, Honolulu (David L. Fairbanks, Honolulu, with him on the brief; Goodsill Anderson & Quinn, Honolulu, of counsel), for respondent-appellee.

Before RICHARDSON, C. J., LUM and NAKAMURA, JJ., and OGATA and MENOR, Retired Justices, assigned by reason of vacancies.

LUM, Justice.

This is an appeal brought by complainants, a group of electricity subscribers of appellee Hawaiian Electric Company (HECO), from an order of the Public Utilities Commission (PUC) dismissing a complaint filed by complainants which requested the PUC to disallow a lease agreement between HECO and the Trustees of Bernice Pauahi Bishop Estate (Bishop) covering property in Heeia Kea Valley, Kaneohe, Oahu. We have carefully examined the pertinent issues, and we conclude that the PUC was correct in dismissing the complaint.

I.

On March 29, 1965, HECO entered into a lease agreement with Bishop for 219.057 acres of land for 30 years beginning October 1, 1964. The agreement also provided that HECO buy the property on September 30, 1994, or at an earlier date, by giving 10 days prior written notice to Bishop, at a cash price to be determined by multiplying the sum of $2,150,000 by an inflationary factor, but in any event, no less than $2,150,000. At the time HECO entered into the lease agreement, HECO did not secure the prior approval of the PUC.

The complaint was filed on August 1, 1975, alleging, inter alia, that HECO's acquisition and holding of the property, either by lease or purchase, was a violation of its franchise to do business as a public utility, and that HECO's acquisition and holding of the property under a lease-purchase agreement required approval of the PUC. HECO filed an answer and motion to dismiss the complaint on August 25, 1975. At the PUC's request, the Public Utilities Division filed a memorandum on June 22, 1976, opposing HECO's motion to dismiss and concluding that the PUC should order an evidentiary hearing. The matter was argued before the PUC, and the PUC's decision and order which granted HECO's motion to dismiss the complaint was filed on October 27, 1976. Complainants then filed their notice of appeal to this court.

The issues raised on appeal are as follows: (1) Was the lease agreement an evidence of indebtedness under HRS § 269-17, which requires the approval of the PUC? (2) Was the lease agreement an encumbrance under HRS § 269-19, which requires the approval of the PUC? (3) Did HECO exceed the powers of its franchise by acquiring and holding the property at Heeia Kea? (4) Did the lease agreement affect HECO's rates? (5) Did the PUC fail to comply with HRS § 91-12 and PUC Rule 17.01, which require the PUC to make its findings reasonably clear? (6) Did the PUC violate its duty under HRS chapter 269 to protect the public interest? (7) Did the PUC err in dismissing the complaint without holding an evidentiary hearing?

II.

At the outset we note that our review of this case is limited by the Hawaii Administrative Procedure Act. HRS § 91-14(g)(5) (1976 & Supp.1980) states:

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:

....

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

Under the clearly erroneous standard, the court will reverse an agency's findings if the court is left with a "definite and firm conviction that a mistake has been made." Application of Kauai Electric Division of Citizens Utilities Company, 60 Haw. 166, 186, 590 P.2d 524, 538 (1978); DeFries v. Association of Owners, 999 Wilder, 57 Haw. 296, 362, 555 P.2d 855, 859 (1976).

Once the PUC has made an order, the order carries a presumption of validity and one seeking to upset the order carries "the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences." Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S.Ct. 281, 288, 88 L.Ed. 333 (1944); Application of Kauai Electric Division of Citizens Utilities Company, supra, 60 Haw. at 187, 590 P.2d at 538.

Complainants contend that the lease agreement with the proviso to purchase the property is an "evidence of indebtedness" under HRS § 269-17 (1976), which provides in pertinent part that "(a) public utility corporation may, on securing the prior approval of the public utilities commission, and not otherwise, issue stocks and stock certificates, bonds, notes, and other evidence of indebtedness, payable at periods of more than twelve months after the date thereof ...." Hence, complainants urge that if the lease agreement is an "evidence of indebtedness," it is void because the PUC's prior approval was not obtained.

HRS chapter 269, which regulates the PUC, does not define the words in question; neither is there any Hawaii authority on this issue. We therefore consider other authorities on this issue.

In Queen Management Corp. v. Wilder Transportation, 40 Misc.2d 604, 243 N.Y.S.2d 261 (1963), the court held that a two-year lease of automobiles did not come within section 62 of the Public Service Law prohibiting omnibus corporations from issuing stocks, bonds, notes or other evidences of indebtedness payable for a period of more than twelve months without the consent of the Public Service Commission. Similarly, Red Star Transp. Co. v. Silverman, 44 Ohio App. 533, 186 N.E. 460 (1933), holds that a three-year lease of real estate is not an evidence of indebtedness under a statute similar to HRS § 269-17. ¹

In re Independent Truckers, Inc., 212 F.Supp. 402 (D.Neb.1963), involved the construction of a Nebraska statute similar to HRS § 269-17. ² A common carrier purchased trucks and trailers and in connection therewith executed chattel mortgages and conditional sales contracts with maturities in excess of 12 months. No approval was obtained from the Nebraska State Railway Commission. The court held that the transactions were bona fide sales of equipment and were not in any sense loans or methods of generating capital and that consequently, the contracts and mortgages were not evidences of indebtedness.

In Wisconsin Southern Gas Co. v. Public Service Commission, 57 Wis.2d 643, 205 N.W.2d 403 (1973), the issue was whether a contract by a gas utility to purchase stock in installments over a period of years was a "security," which required as a condition precedent to issuance, a certificate of authority from the Public Service Commission. Wis.Stat.Ann. § 184.01(3) provided that: " '(s)ecurities' means capital stock and evidences of indebtedness of a public service corporation ...." The Wisconsin Supreme Court first noted that statutes of this nature should receive a reasonable interpretation in light of the purposes sought to be accomplished by them, and that no application thereof not plainly warranted by the language used should be made. Id. at...