Lumberport-Shinnston Gas Co. v. Public Service Commission

• Decision Date: 28 October 1980
• Docket Number: 14874,LUMBERPORT-SHINNSTON,Nos. 14873,s. 14873
• Citation: 271 S.E.2d 438,165 W.Va. 762
• Parties: GAS CO. v. PUBLIC SERVICE COMMISSION of W. Va. HOPE NATURAL GAS CO. v. PUBLIC SERVICE COMMISSION of W. Va.
• Court: West Virginia Supreme Court

Page 438

271 S.E.2d 438

165 W.Va. 762

LUMBERPORT-SHINNSTON GAS CO. v. PUBLIC SERVICE COMMISSION of W. Va.

HOPE NATURAL GAS CO. v. PUBLIC SERVICE COMMISSION of W. Va.

Nos. 14873, 14874.

Supreme Court of Appeals of West Virginia.

Oct. 28, 1980.

Syllabus by the Court

1. The duty of a utility to render adequate service to the public extends to the utility that supplies the gas as well as to the distributing company.

2. The Public Service Commission is empowered to require reasonable practices or services from a company that has been found to have unjust or unreasonable practices under W.Va. Code, 24-2-7 (1979).

Solomon & Solomon and David L. Solomon, Morgantown, for petitioner Lumberport-Shinnston Gas Co.

Willis O. Shay, and Ralph J. Bean, Jr., Clarksburg, for petitioner Hope Natural Gas Co.

J. Gordon Pennington, Legal Division, Public Service Commission of W. Va., Charleston, for respondent.

NEELY, Chief Justice:

These two consolidated cases present two issues of law: first, whether the Public Service Commission (PSC) is empowered to prohibit Hope Natural Gas Company (Hope) from terminating natural gas sales to Lumberport-Shinnston Gas Company (Lumberport); and, second, whether the PSC is empowered to limit the bonuses and salaries of Lumberport until the debt owed to Hope Gas has been paid. We hold that the PSC may prohibit Hope from terminating gas supplies to Lumberport and that the PSC may institute certain rules to insure the repayment of the debt to Hope. In that regard we remand Hope Natural Gas Company v. Public Service Commission to allow a method to be established that insures that Hope's debt will be repaid.

On 18 September 1979 Hope advised Lumberport by letter that since Lumberport had not made any payments since July on its past due account for gas service which totaled.$431,056.62 service would be terminated 2 October 1979. In response Lumberport filed a petition with the PSC seeking to prohibit Hope from terminating its gas service, and the PSC prohibited the termination pending a final hearing. Two hearings were held during which Lumberport's financial condition and management were examined through testimony and exhibits. Lumberport has been in business since 1924 and serves approximately 3000 residential customers in the area.

While Lumberport has operated at a loss for several years, new management recently assumed control. Mrs. Lorna Hill purchased sufficient stock to become majority stockholder, made herself chief executive officer, and under her management reduced losses of approximately $250,000 in 1976-77 to $44,621 in 1978. It appears that the company may break even in 1979. Until 1979, Lumberport stayed current on its account with Hope by remitting to Hope the equivalent of the money it had been paid by its customers for the gas purchased from Hope. Shortly after new management took over at Lumberport the payments to Hope ceased, although Lumberport continued to collect from their customers for the gas purchased from Hope. At the same time, administrative and general salaries increased from $41,136 in 1977 and $66,151 in 1978 to a current rate of $124,252 per year. A study of other gas companies in the state reveals the cost of administrative and general salaries to be within a range of about $.05 to $.10 per Mcf while Lumberport's current administrative and general salaries are about $.21 per Mcf.

The PSC entered a final order on 23 January 1980 which ordered Hope not to terminate service to Lumberport until further order of the Commission. Also, Lumberport was ordered to reduce its operating expenses by approximately $60,000, to pay no dividends, to pay no bonuses to employees in excess of $100 per year, and to pay its chief executive officer and controlling stockholder, Mrs. Lorna Hill, no more than $20,000 per year. All of these measures are to remain in effect until Lumberport has reduced its delinquent account to zero.

In a related rate making case for Lumberport, the PSC entered an order on 4 August 1980, affirming the hearing examiner's recommended decision of 11 March 1980 that required a capital contribution from customers in the amount of $.12 per Mcf to help retire the debt to Hope. According to the PSC that additional surcharge, along with refunds due Lumberport from Hope, should be sufficient to discharge the debt in less than seven years. Under that order the PSC required quarterly statements from Lumberport reporting the amount owed to Hope as well as other financial data regarding the financial status of Lumberport. In addition, the PSC's order required that at the time of original entry on Lumberport's books, all customer capital contributions were to be recorded separately from other revenues in an account entitled "Customer Contributed Capital." No orders were made to insure that the capital in that account be paid to Hope.

I

In reviewing orders of the PSC our Court is guided by three central principles first, that the primary purpose of the PSC is to "serve the interests of the public," Boggs v. Public Service Commission, 154 W.Va. 146, 154, 174 S.E.2d 331, 336 (1970); second, "(t)hat an order of the Public Service Commission based upon its finding of facts will not be disturbed unless such finding is contrary to the evidence, or is without evidence to support it, or is arbitrary, or results from a misapplication of legal principles," United Fuel Gas Company v. Public Service Commission, 143 W.Va. 33, 38, 99 S.E.2d 1, 8 (1957); and, third, that the Legislature has empowered the PSC to regulate and control the public utilities in this State in a manner that is just and reasonable and not contrary to the law, Delardas v. Morgantown Water Company, 148 W.Va. 776, 137 S.E.2d 426 (1964).

In prohibiting Hope from terminating deliveries to Lumberport for failure to pay its delinquent accounts, the PSC acted in the overall public interest of the approximately 3000 residential customers who depend upon Lumberport for their gas supply, and who depend indirectly upon Hope, the supplier of over 50% of Lumberport's gas supplies. In support of its action in this case, the Commission relied upon The Chesapeake Telephone Co. v. City of Morgantown, 144 W.Va. 149, 107 S.E.2d 489 (1959) in which the PSC refused to allow the City of Morgantown to compel the removal of C & P's telephone facilities until the city had received approval from the PSC. ¹ Hope argues that they have a common law right to terminate service upon proper notice, Memphis Light, Gas & Water Division v. Craft, 436 U.S. 1, 98 S.Ct. 1554, 56 L.Ed.2d 30 (1978); however, the United States Supreme Court was considering the termination of facilities to individual customers in that case and not termination of service to another regulated utility. The duty of the utility to render adequate service to the public must extend to the company that supplies the gas to the distributing company, since "(t)he jurisdiction of the commission shall extend to all public utilities in this State, and shall include any utility engaged in any of the following public services ... whether directly or through a distributing utility; ..." W.Va. Code, 24-2-1 (1979). ²

The Commission has not, however, developed a reasonable procedure for insuring that Lumberport will repay its debt to Hope within its anticipated seven year time period. While the Commission approved a $.12 per Mcf customer contribution surcharge to be used to retire the outstanding debt to Hope, there was no provision made to insure that the additional funds collected would actually be paid to Hope. Therefore, we direct that a special escrow fund, which will contain such surcharge funds, be established to insure the payment to Hope.

II

In considering the action taken by the PSC we must consider the extent of the powers that were conferred upon the PSC by the Legislature only one year ago in W.Va. Code, 24-2-7(b) (1979). ³ That statute authorizes the PSC to...