Legislative Utility Consumers' Council v. Granite State Elec. Co.

• Decision Date: 17 May 1979
• Docket Number: No. 78-174,78-174
• Citation: 119 N.H. 359,402 A.2d 644
• Parties: LEGISLATIVE UTILITY CONSUMERS' COUNCIL v. GRANITE STATE ELECTRIC COMPANY et al.
• Court: New Hampshire Supreme Court

Page 644

402 A.2d 644

119 N.H. 359

LEGISLATIVE UTILITY CONSUMERS' COUNCIL v. GRANITE STATE ELECTRIC COMPANY et al.

No. 78-174.

Supreme Court of New Hampshire.

May 17, 1979.

J. Michael Love, Manchester, by brief and orally, for Legislative Utility Consumers' Council.

Orr & Reno, Concord (Richard B. Couser, Concord, orally), for Granite State Elec. Co.

Thomas D. Rath, Atty. Gen. (Dom S. D'Ambruoso, Sp. Counsel, Concord, orally), for Public Utilities Commission.

BOIS, Justice.

This is an appeal brought pursuant to RSA 541:6 from order No. 13,159 entered on May 23, 1978, by the Public Utilities Commission (Commission) following its investigation under RSA 378:5 of a proposed tariff charge filed by Granite State Electric Company (Granite State) on April 22, 1977. Two parties appeared as intervenors during the proceedings, the Legislative Utility Consumers' Council (LUCC), as authorized by RSA 363-C:8 III (Supp.1977), and Lebanon In Service To Each Neighbor (LISTEN), a public interest group. Only the LUCC, however, is a party to this appeal. The LUCC brought this appeal following the Commission's granting of a $913,912 annual revenue increase to Granite State.

The LUCC asks us to review four aspects of the Commission's order. It challenges the allowance to Granite State of a .5% Attrition factor which was added to the rate of return, the allowance of increased depreciation expenses in calculating the test-year operating expenses, the allowance of a .8% Adjustment to the cost of common equity for market pressure and costs of financing, and the inclusion of customer deposits and advances in the rate base.

Granite State, engaged in the retail sale and distribution of electricity in twenty-three New Hampshire communities, requested a $1,089,000 annual revenue increase in its April 22, 1977, tariff proposal to become effective on May 23, 1977. By order No. 12,731, the Commission suspended the implementation of the proposed revenue increase, RSA 378:6, pending investigation and public hearings. RSA 378:5.

The Commission conducted its procedural hearing on May 18, 1977. Hearings on the merits began on June 14, 1977. As the hearings progressed, Granite State and the intervenors conferred privately in an attempt to settle certain issues. The parties reached no agreement, however, on the ultimate issue concerning the amount of the allowable revenue increase. By order No. 12,872, the Commission authorized Granite State to establish, under bond, temporary rates sufficient to produce an annual revenue increase of $750,000. RSA 378:27. While the temporary rates were in effect, the Commission held further hearings on the merits, at which counsel for all parties were permitted to engage in extensive cross-examination of the witnesses. The voluminous record indicates that the Commission hearings provided a detailed inquiry into the financial status of Granite State and the many issues involved in the ratemaking process.

In Legislative Util. Consumers' Council v. Pub. Serv. Co., 119 N.H. ---, 402 A.2d 626 (1979), we reviewed the Commission's order granting a revenue increase to the Public Service Company of New Hampshire. We engaged in a comprehensive discussion of the role of the Commission and the standard of review applied in appeals from its decisions. We emphasized that "this court does not sit as a trier of fact in appeals from the Commission," Id. at ---, 402 A.2d at 631, and that "we approach our review . . . fully aware that our narrow role is to determine whether the (Commission's) finding(s) (are) 'unjust or unreasonable by a clear preponderance of the evidence.' " Id. at ---, 402 A.2d at 634, Quoting Legislative Util. Consumers' Council v. Pub. Util. Comm'n, 118 N.H. 93, 99, 383 A.2d 89, 92 (1978). See RSA 541:13. Yet we will rule upon certain individual findings of the Commission that are crucial to our ultimate decision upon the fairness of the overall rate order. See, e. g., New England Tel. & Tel. Co. v. State, 95 N.H. 353, 357, 64 A.2d 9, 15 (1949).

I Attrition

The LUCC has challenged the Commission's allowance of a .5% Attrition factor as an error of law and as against the preponderance of the evidence. It argues that, as a matter of law, the essential findings have not been made to support the attrition allowance, and that the evidence presented to the Commission shows that Granite State has sound financial prospects.

Attrition, the " 'traveling companion' " of inflation, is the "wearing away of the rate of return." E. Nichols & F. Welch, Ruling Principles of Utility Regulation Rate of Return 55 (Supp.1964). An appropriate ratemaking device to offset attrition is to add a specific percentage to the rate of return over that actually calculable. Id.; accord, New England Tel. & Tel. Co. v. State, 113 N.H. 92, 97, 302 A.2d 814, 818 (1973). Attrition results when "demands for goods and services at increasing costs upset the balance between revenues, investments and expenses" so that the utility company does not actually realize the rate of return that is authorized. New England Tel. & Tel. Co. v. State, 113 N.H. 92, 96, 302 A.2d 814, 818 (1973); Accord, Goodman v. Pub. Serv. Comm'n, 162 U.S.App.D.C. 74, 84, 497 F.2d 661, 671 (1974). For example, from 1973-1977, Granite State actually earned annual rates of return of between 6.27% And 10.05%, although the Commission's rate order was designed to produce a rate of return of 11.3%.

Because "(r)ate-making cannot be reduced to an exact science by which a mathematically precise rate of return can be produced by a competently programmed computer," New England Tel. & Tel. Co. v. State, 113 N.H. at 95, 302 A.2d at 817, the Commission must be given wide latitude to exercise its judgment in determining components of the rate of return. Id. When the Commission makes adequate and essential findings of fact that are supported by record evidence, See New England Tel. & Tel. Co. v. State, 95 N.H. 353, 359, 64 A.2d 9, 15 (1949), we will not substitute our own judgment for its decision. See Legislative Util. Consumers' Council v. Pub. Serv. Co., 119 N.H. ---, ---, 402 A.2d 632 (1979).

We agree with the LUCC that the Commission's findings concerning allowance to Granite State of a .5% Attrition factor are sparse. The Commission would be wise to incorporate more elaborate findings into future rate order reports. This court long ago warned that its function of reviewing administrative orders must be facilitated by agency findings. New England Tel. & Tel. Co. v. State, 95 N.H. 353, 359, 64 A.2d 9, 15 (1949); Accord, Soc'y For The Protection of New Hampshire Forests v. Site Evaluation Comm., 115 N.H. 163, 173, 337 A.2d 778, 786 (1975). Although detailed and specific reasons for the attrition finding would have enhanced our ability to review the Commission's order, they are not mandated. Soc'y For The Protection of New Hampshire Forests v. Site Evaluation Comm., 115 N.H. at 173, 337 A.2d at 786.

Because the Commission has disclosed erosion of earnings as the basis of its attrition finding in its report, and that finding does have support in the record, we will affirm it. The testimony shows that Granite State, characteristic of all electric utility companies in the past several years, has experienced an unprecedented increase in operating expenses due to the monumental rise in the cost of energy. We have recognized increased operating expenses as a hallmark of attrition. New England Tel. & Tel. Co. v. State, 113 N.H. 92, 97, 302 A.2d 814, 818 (1973). The LUCC has not shown by a clear preponderance of the evidence that the Commission's allowance of a .5% Attrition adjustment to the rate of return was unwarranted. RSA 541:13; Legislative Util. Consumers' Council v. Pub. Serv. Co., 119 N.H. ---, ---, 402 A.2d 626, 632 (1979). See Pub. Serv. Co. v. Town of Ashland, 117 N.H. 635, 641, 377 A.2d 124, 127 (1977).

II Depreciation

The LUCC presents three arguments challenging the Commission's decision to include $620,000 of depreciation in Granite State's test-year operating expenses. The company had increased its depreciation by $30,000 in the test-year by shortening certain service lives used in calculating it. The LUCC argues that Granite State gave no notice of the change in calculating depreciation, that it failed to meet its burden of proof in establishing the level of depreciation, RSA 378:8, and finally, that allowing increased expenses while including customer deposits and customer advances in the rate base results in the company receiving a depreciation expense on customer contributed plant. We reject all three of the LUCC's propositions.

The LUCC improperly relies upon a Commission letter and attached account circular dated August 1, 1968, requiring utilities to submit their proposed depreciation rates thirty days in advance of the proposed effective date. The 1968 circular has been superseded by a subsequent Commission order adopting the Federal Power Commission Uniform Classification of Accounts For Electric Utilities, which makes no provision for advance notice of proposed depreciation rates. Order No. 9868, 55 N.H. Pub. Util. Comm'n Rep. 50 (1970).

Granite State has also met its burden of proof, RSA 378:8, in establishing $620,000 as its depreciation expense for the test-year. In performing its ratemaking function, "the commission may rely on reports and records which the utility is required to file with it." Windham Estates Ass'n v. State, 117 N.H. 419, 425, 374 A.2d 645, 649 (1977); Accord, Legislative Util. Consumers' Council v. Pub. Serv. Co., 119 N.H. ---, ---, 402 A.2d 626, 638 (1979), Citing New England Tel. & Tel. Co. v. State, 113 N.H. 92, 101-02, 302 A.2d 814, 821 (1973); Granite State Alarm, Inc. v. New England Tel. & Tel. Co., 111 N.H. 235, 238, 279 A.2d 595, 597-98 (1971). Granite State presented the commission with a report of its depreciation expense on a monthly basis during the test-year. There is a "presumption of good faith and correctness...