Legislative Utility Consumers' Council v. Public Service Co.

• Decision Date: 17 May 1979
• Docket Number: Nos. 78-020,78-173,s. 78-020
• Citation: 402 A.2d 626,119 N.H. 332
• Parties: , 31 P.U.R.4th 333 LEGISLATIVE UTILITY CONSUMERS' COUNCIL v. PUBLIC SERVICE COMPANY of New Hampshire et al.
• Court: New Hampshire Supreme Court

Page 626

402 A.2d 626

119 N.H. 332, 31 P.U.R.4th 333

LEGISLATIVE UTILITY CONSUMERS' COUNCIL v. PUBLIC SERVICE COMPANY of New Hampshire et al.

Nos. 78-020, 78-173.

Supreme Court of New Hampshire.

May 17, 1979.

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

Cleveland, Waters & Bass and D'Ambruoso & Carroll, Concord (Robert T. Clark, Concord, orally), for Public Utilities Commission.

Sulloway, Hollis, Godfrey & Soden, Concord (Martin L. Gross, Concord, orally), for Public Service Co. of New Hampshire.

BOIS, Justice.

This is an appeal brought pursuant to RSA 541:6 from order No. 13,162 entered on May 25, 1978, by the Public Utilities Commission (Commission) following its investigation under RSA 378:5 of a proposed tariff charge filed by Public Service Company of New Hampshire (Company) on April 27, 1977. The Legislative Utility Consumers' Council (LUCC), as authorized by RSA 363-C:8 III (Supp.1977), appeared as an intervenor during the proceedings before the Commission. Following the Commission's order granting an annual revenue increase to the Company of $30,134,232, calculated upon a rate base of $478,833,421 that included Construction Work In Progress (CWIP) of $111,258,428, the LUCC brought this appeal.

The LUCC raises several substantive and procedural issues for our review. The main focus of the LUCC's appeal challenges the legality of the Commission's inclusion in the Company's rate base of its CWIP, which arises primarily as the result of the construction of a nuclear powered generating plant at Seabrook. A utility company involved in such a construction program must raise capital to finance it. The utility company accomplishes its task by issuing debt obligations, borrowing money and selling equity securities such as common and preferred stock. Raising capital costs money because interest must be paid on debt and dividends must be paid to stockholders. The dollars expended by the company for these purposes represent the "cost of money." It is this "cost of money" that is CWIP. Mattutat, A Pragmatic Approach to Construction Work In Progress, 99 Pub.Util. Fortnightly 31 (March 3, 1977).

CWIP traditionally has been capitalized in an Allowance For Funds Used During Construction (AFUDC) account and added to the utility's rate base after the plant under construction begins actual service. Under the AFUDC approach, the utility spreads the recovery of its CWIP over the useful life of the completed facility and is not allowed to recover it as it is incurred. In the present case, the Commission rejected the AFUDC approach which defers recovery of CWIP, and included CWIP in the current rate base. The Company receives a present rate of return on its CWIP, thereby recovering it as it is incurred without having to wait until the plant under construction comes on line.

The LUCC argues that the Commission's inclusion of CWIP in the Company's rate base violates the "used and useful in the public service" principle of public utility regulation, RSA 378:27, :28, and also the "just and reasonable" requirement of RSA 378:7 and :28. The LUCC challenges not only the ultimate legality of the inclusion of CWIP in the rate base, but also the methodology and procedures employed by the Commission in reaching its decision. In this comprehensive appeal, the LUCC also asks us to rule that the Commission exceeded its statutory authority or misapplied the law in three other areas. The LUCC argues that the Commission erred in adopting certain test year methodologies, in authorizing an annual revenue increase in excess of that requested by the Company in its filed tariff, and finally by including materials and supplies associated only with nonutility operations in the rate base.

The Company, engaged in both the retail and wholesale sale of electricity in New Hampshire, requested a $27,017,520 annual revenue increase from the Commission in its April 27, 1977 tariff proposal to become effective on June 1, 1977. By order No. 12,732, the Commission suspended the implementation of the proposed revenue increase, RSA 378:6, pending investigation and public hearings, RSA 378:5, on this matter of vital public concern.

On May 2, 1977, the Commission issued an order of notice announcing that a hearing would be scheduled for June 1, 1977 for the purpose of determining the procedures to be followed during the Commission's hearing on the merits of the Company's proposal. The LUCC and other intervenors appeared at this hearing and participated in the discussion. The Commission issued its procedural order No. 12,803 on June 17, 1977.

The Commission issued a further order of notice on September 16, 1977. The order scheduled hearings on the merits to commence on October 11, 1977. Twenty-two days of hearings were conducted and eight public informational meetings were held in major New Hampshire cities. Because of the complexity of the issues involved, the volume of data presented, and the extensiveness of the hearings, the Commission did not reach a decision within the statutory six-month period and the Company placed its proposed rates into effect under bond on December 3, 1977. RSA 378:6. See Nelson v. Pub. Serv. Co., 119 N.H. ---, 402 A.2d 623 (1979).

The Company, the Commission, and the intervenors all presented expert witnesses at the hearings. The LUCC and the Company filed briefs with the Commission. Attorneys for the LUCC and the Company, as well as the Commission's counsel, engaged in extensive cross-examination of the expert witnesses. Contested issues ranged across the entire spectrum of public utilities regulations, including the questions of allowable operating costs, content of the rate base, fair rate of return, amount of annual revenue increase required, and the proper allocation of revenue increase among the State's retail consumers of electricity. The Company asked the Commission to approve an annual revenue increase of $31,977,602 even though it never formally amended its filed tariff which had requested nearly five million dollars less. The Company argued for the inclusion of $111,258,428 of CWIP in its rate base and the cessation of the AFUDC treatment of CWIP. The Company supported inclusion of CWIP in the rate base by asserting that completion of the construction of the Seabrook nuclear power generating plant, of which the Company was then fifty percent stockholder, would be seriously jeopardized unless it was provided with current revenue to satisfy investors and creditors instead of being allowed to accumulate a large AFUDC account to be included in the rate base only after the Seabrook plant goes on line. The LUCC countered the Company's presentation by arguing that including CWIP in the current rate base is illegal under existing statutory law and further arguing that the facts did not warrant the Company's assertion that its Seabrook construction program would be threatened without the inclusion of CWIP in the rate base.

In its decision and final report, the Commission made findings on questions of fact properly before it, all of which we must regard as "prima facie lawful and reasonable." RSA 541:13. The LUCC's appeal challenges the legality of the order and the validity of many of the Commission findings, and asks that we conclude that "a clear preponderance of the evidence" before us demonstrates that the Commission's rulings and order were "unjust or unreasonable." RSA 541:13.

Subsequent to oral argument, we ordered the parties to submit supplemental briefs addressed to whether the Commission's order to include CWIP in rate base involved rulemaking or only its adjudicative function. We find that no Commission rule has ever existed controlling this issue and we undertake our review as we would in any traditional appeal from an adjudicative order of an administrative agency. See 2 F. Cooper, State Administrative Law 663 Et seq.

I The Role of the Commission

During the past several years, the issues involved in the ratemaking process of energy producing public utility companies have assumed unprecedented significance and visibility. See Amyot, Electric and Gas Rates The Current Consumer Battleground, 17 N.H.B.J. 247 (1976) (hereinafter cited as Amyot). The Legislature's creation of the LUCC indicates the public's heightened awareness of the importance of utility ratemaking. See RSA ch. 363-C (Supp.1977).

The statutory authority to set public utility rates in this State has long existed exclusively in the public utilities commission. RSA ch. 378. "The commission has broad discretion to act in the public interest." Browning-Ferris Industries, Inc. v. State, 115 N.H. 190, 191, 339 A.2d 1, 3 (1975). Ratemaking is "a complex, esoteric area" and "the Commission has been entrusted with the difficult task of deciding among many competing arguments and policies" in reaching decisions that serve the public interest. Goodman v. Pub. Serv. Comm'n, 162 U.S.App.D.C. 74, 78-79, 497 F.2d 661, 665-66 (1974); Accord, Legislative Util. Consumers' Council v. Pub. Util. Comm'n, 117 N.H. 972, 974, 380 A.2d 1083, 1084 (1977); New England Tel. & Tel. Co. v. State, 113 N.H. 92, 95, 302 A.2d 814, 817 (1973); United Tel. Co. v. State Commerce Comm'n, 257 N.W.2d 466, 481 (Iowa 1977); The Commission has been assigned a difficult chore; it is responsible for evaluating and reconciling conflicting and complicated evidence and testimony. Amyot, Supra at 258.

Because ratemaking "involves a highly technical and complicated process calling for an expertise which frequently taxes the experience and knowledge of the members of the (Commission)," Spintman v. Chesapeake & Potomac Tel. Co., 254 Md. 423, 429, 255 A.2d 304, 307 (1969), we have held that whether the Commission bases its decision on the testimony of one expert instead of another, or on its own staff testimony, "is a matter for its judgment based upon the evidence presented." New England Tel. & Tel. Co. v. State, 113 N.H. 92, 102, ...