Latourneau v. Citizens Utilities Co.

• Decision Date: 06 April 1965
• Docket Number: No. 1979,1979
• Citation: 125 Vt. 38,209 A.2d 307
• Parties: , 59 P.U.R.3d 1 Petition of Paul LATOURNEAU et al. v. CITIZENS UTILITIES COMPANY.
• Court: Vermont Supreme Court

Page 307

209 A.2d 307

125 Vt. 38, 59 P.U.R.3d 1

Petition of Paul LATOURNEAU et al. v. CITIZENS UTILITIES COMPANY.

No. 1979.

Supreme Court of Vermont.

April 6, 1965.

Clifton G. Parker, Morrisville, and Shea, Gallop, Climenko & Gould, New York City, for petitioner.

Robert W. Larrow, Burlington, Special Counsel, for the Public.

Before HOLDEN, C. J., and SHANGRAW, BARNEY, SMITH and KEYSER, JJ.

SMITH, Justice.

The subject of this appeal is the petition of the Citizens Utilities Company for requested increases in its rates by a petition filed with the Public Service Commission on March 8, 1963. Upon petition from more than five persons adversely affected by the proposed rate charges and praying that the Commission investigate the matter, the Commission set the matter for hearing, and suspended the proposed schedule of rates and charges until final determination of the proceedings before the Commission.

Special Counsel for the Public entered a motion to dismiss the petition. At a hearing on such motion, the motion to dismiss was withdrawn, and by stipulation, Citizens agreed that it would not put its proposed rates into effect under bond prior to Feb. 8, 1964.

Hearings on Citizens' petition were held in Newport on Oct. 3, Nov. 5, 6 and December 11, 12 and 13th, at which hearings all interested parties were heard. Findings of Fact and Order were filed by the Commission on Feb. 7, 1964 and an Amended Order was filed by the Commission on March 4, 1964. While the petition filed by Citizens requested proposed rates averaging out to a 16% increase on all rates then in effect, the Order of the Commission only allowed Citizens to amend its rate schedules as of February 8, 1964 in order to realize additional revenues of 3%.

Citizens has taken its appeal here under the provisions of 12 V.S.A. §§ 2381-2385 from certain Findings of Fact as well as the Order and the Amended Order to this Court. The appeal is directed to the exclusion by the Commission of certain items submitted by Citizens as parts of the rate base upon which Citizens requested a rate of return of between 6.8 and 7.6 per cent, as well as to the finding by the Commission that a rate of return of 6.11 per cent was fair and reasonable.

Exclusion from Rate Base of $452,500 costs capitalized for Prouty Rights and annual Amortization charges associated therewith.

Prouty Rights, so-called, are lands and penstocks located on the Clyde River. They were originally leased for 25 years in 1930 from one Abbie D. Prouty. The lease provided Citizens with an option to purchase such rights before October, 1935, for the sum of $150,000. In the event that the option was not exercised (as it was not) the lease then provided that within six months after its expiration, Citizens must purchase the rights either at a mutally agreed price, or bring condemnation proceedings 'before the tribunal then having jurisdiction' within six months from the expiration date. If the lessee failed to bring such proceedings, then it was to pay to the lessor $300,000 for the land described in the lease. See Citizens Utilities Co. v. Prouty, 122 Vt. 443, 176 A.2d 751.

The course of the proceedings to acquire such rights by Citizens is set forth in Finding No. 30 made by the Commission:

'Citizens instituted condemnation before the Vermont Public Service Commission on March 27, 1956, three days prior to the expiration of the six months period. No agreement ever was reached between the parties as to price, and this was the only proceeding instituted by Citizens. The owners of the property brought suit in Federal Court for the $300,000, claiming that the Public Service Commission had no jurisdiction because Citizens had not obtained the necessary license from the Federal Power Commission. The Ederal Power Commission itself investigated, and after making a determination that the Clyde River was navigable, on Feb. 16, 1959, it ordered Citizens to apply for a license for its future operations. Subsequently, on November 10, 1960, the Public Service Commission issued an order awarding compensation in the sum of $95,000 for the property.

'The Vermont Supreme Court, however, ruled that the Public Service Commission had no jurisdiction because Citizens had no license from the Federal Power Commission or any Certificate of Public Good from the Public Service Commission. The Federal Courts have finally determined that Citizens must pay the $300,000 stated in the lease, plus interest and expenses totalling an additional $250,000.'

The reasons by virtue of which the Commission found that the maximum cost that Citizens could include in its base rate was $95,000 in its Finding of Fact No. 32, are set forth in Finding No. 31:

'The decision of the United States Court of Appeals for the Second Circuit, dated June 24, 1963, contains the following language:

"Citizens Utilities apparently thought it was worth the risk of having to pay $300,000 for the property to attempt to avoid having to secure the license required of it by federal law, with the attendant federal regulation. It is hardly reasonable to suppose that Citizens Utilities is surprised by the outcome of this litigation and that it did not realize in 1956 that it could have avoided the possibility of a sale at $300,000 at least by instituting parallel proceedings with the Federal Power Commission. The mistaken gamble is tantamount to a deliberate rejection of the condemnation alternative.'

'The action taken by Citizens in this matter clearly appears to have been an attempt to evade the requirements of filing an application with the Federal Power Commission for a license with the hope of avoiding the attendant regulation. This procedure created very substantial additional costs and interest charges which Citizens now seeks to place on the rate payers in the Vermont servide area. Citizens could easily and quite properly have protected itself by not waiting until the last minute to institute proceedings before the Public Service Commission or by filing concurrently with the Federal Power Commission. Management personnel of Citizens in Stamford, Connecticut, are highly paid, experienced and intelligent personnel. But in this instance they took a deliberate, unnecessary and callous gamble which resulted in the raising of the cost of the Prouty Water Rights from $95,000 to $530,000. We do not believe that the electric consumers of the State of Vermont should bear the burden of this managerial form of Russian Roulette. Such risks are more properly the burden of the stockholders of the company.'

It is the contention of Citizens that the Commission's conclusionary finding that 'a deliberate, unnecessary and callous game' upon the part of management of Citizens was the cause of Citizens having to pay $300,000, plus interest, legal expenses, etc., for the Prouty rights is not substantiated by the evidence presented before the Commission. On the contrary, says Citizens, the action taken by them relative to the Prouty water rights was in an effort to keep the cost of these water rights down to the equitable minimum. The contention is also made that this is an infringement upon the rights of management by the Commission in the conduct of Citizens' business.

The function of a public service commission is that of control and not of management, and regulation should not obtrude itself into the place of management. The acquisition of the water rights here involved, the price to be paid for such acquisition, and the expenses relative thereto called for the exercise of judgment on the part of management. Good faith on its part is to be presumed. Although expenses chargeable to this matter should be scrutinized with care the Commission had no authority to disallow or reduce them unless it clearly appeared that they were excessive or unwarranted or incurred in bad faith. Petition of New Eng. Tel. & Tel. Co., 116 Vt. 480, 501, 80 A.2d 671; Petition of New Eng. Tel. & Tel. Co., 115 Vt. 494, 511, 66 A.2d 135.

We think the evidence before the Commission justified its conclusion that expenditures by Citizens in acquiring the Prouty rights were unwarranted and that they could not, in toto, be used as rate base, although such conclusion may have been expressed in unnecessarily colorful terminology.

Citizens could have acquired such rights by the payment of $150,000 prior to October 1935 under the option incorporated in its agreement wth Prouty. After the time for exercising the option had expired it then had six months to agree upon a price for such rights with Prouty, or to bring a condemnation proceeding 'before the tribunal then having jurisdiction.' While it did institute such condemnation proceeding before the Public Service Commission, it did so without the Certificate of Public Good required by Vermont law to give the Public Service Commission jurisdiction of the condemnation matter. Prior to the time such proceedings were concluded before the Public Service Commission, Citizens was ordered to obtain a license from the Federal Power Commission on Feb. 16, 1959. The possession of such license would have given the Public Service Commission jurisdiction of the condemnation hearing. Citizens Utilities Co. v. Prouty, 122 Vt. 443, 452, 176 A.2d 751. Citizens, however, did not see fit to comply with the order from the Federal Power Commission to obtain such a license, although in the case of In re Bellows Falls Hydro-Electric Corp., 114 Vt. 443, 47 A.2d 409, 49 A.2d 561 (1946) this Court held that the Vermont Public Service Commission has no authority to authorize a project or facility upoin a navigable stream over which the Federal Power Commission has assumed jurisdiction to issue a Certificate of Public Good which is the grant of such authority.

The sum of $300,000, plus interest and legal expenses which Citizens eventually had to pay for its acquisition of the Prouty Rights was, as Citizens admits in its brief, a payment of 'liquidated damages', and its...