Monongahela Power Co. v. Public Service Commission of West Virginia

• Citation: 166 W.Va. 423,276 S.E.2d 179
• Decision Date: 10 February 1981
• Docket Number: No. 14852,14852
• Parties: MONONGAHELA POWER CO. v. The PUBLIC SERVICE COMM. OF W. VA.
• Court: Supreme Court of West Virginia

Page 179

276 S.E.2d 179

166 W.Va. 423

MONONGAHELA POWER CO. v. The PUBLIC SERVICE COMM. OF W. VA.

No. 14852.

Supreme Court of Appeals of West Virginia.

Feb. 10, 1981.

Syllabus by the Court

1. "In administrative appeals where there is a record involving complex economic or scientific data which a court cannot evaluate properly without expert knowledge in areas beyond the peculiar competence of courts, neither this Court nor the trial courts will attempt to determine whether the agency decision was contrary to the law and the evidence until such time as the agency presents a proper order making appropriate findings of fact and conclusions of law." Syllabus Point 3, Citizens Bank v. West Virginia Board of Banking and Financial Institutions, W.Va., 233 S.E.2d 719 (1977).

2. In reviewing a Public Service Commission order, we will first determine whether the Commission's order, viewed in light of the relevant facts and of the Commission's broad regulatory duties, abused or exceeded its authority. We will examine the manner in which the Commission has employed the methods of regulation which it has itself selected, and must decide whether each of the order's essential elements is supported by substantial evidence. Finally, we will determine whether the order may reasonably be expected to maintain financial integrity, attract necessary capital, and fairly compensate investors for the risks they have assumed, and yet provide appropriate protection to the relevant public interests, both existing and foreseeable. The court's responsibility is not to supplant the Commission's balance of these interests with one more nearly to its liking, but instead to assure itself that the Commission has given reasoned consideration to each of the pertinent factors.

Richard S. Weygandt and Thomas C. Sheppard, Jr., Fairmont, Squire, Sanders & Dempsey, Alan P. Buchmann and Arthur E. Korkosz, Cleveland, Ohio, for petitioner.

Angela D. Williams, Public Service Commission, Charleston, for respondent.

MILLER, Justice:

Monongahela Power Company (Company) appeals from a final order allowing the Company an approximate $5 million rate increase entered on December 21, 1979, by the Public Service Commission of West Virginia (Commission). The Company asserts that this rate increase is too low, particularly when viewed in light of past rate allowances, and therefore it amounts to a confiscation of the property of its investors. They also claim that this new rate makes it impossible for the Company to secure needed investment capital, which will jeopardize its ability to supply electric service to its customers in this State.

The Company is a wholly-owned subsidiary of the Allegheny Power System, Inc., a regulated public utility holding company. ¹ The primary service area of the company is thirty-two counties in northern West Virginia. ² On December 18, 1978, the Company filed revised tariffs before the Commission requesting an approximate $18 million rate increase for furnishing electric service to its various customers in West Virginia.

By an order dated January 31, 1979, the Commission set five interim issues for hearing on April 10, 1979. The five interim issues were: (1) rate of return on invested capital; (2) consolidated tax savings; (3) construction work in progress; (4) normalization of federal income tax; and (5) rate designs for interim rates, including fuel allowance.

The interim hearing was subsequently advanced to April 5, 1979, and concluded on April 10, 1979. Briefs were submitted by the parties on May 4, 1979, and on May 31, 1979, the Commission entered its interim order granting what it concluded to be an increase in annual rates or revenues of $12.6 million which included a 9.6% rate of return on invested capital.

Final hearings were conducted by the Commission on September 5, 6 and 7, 1979. Briefs were received from the various parties up until November 14, 1979. ³ On December 21, 1979, the Commission issued its final order, which in effect reduced the rates established in the interim order by $7.6 million and granted a $5 million increase in the Company's rates and required it to refund the excess amount collected under the interim order with interest payable on the refund of 11 3/4%.

I. STANDARD OF REVIEW

We have in the past held that an order of the Commission based upon findings of facts will not be disturbed unless such findings are: (1) contrary to the evidence; or (2) without evidence to support them; or (3) arbitrary and capricious; or (4) a result of a misapplication of legal principles. E.g., Virginia Electric & Power Co. v. Public Service Commission, W.Va., 242 S.E.2d 698 (1978); Boggs v. Public Service Commission, 154 W.Va. 146, 174 S.E.2d 331 (1970); United Fuel Gas Co. v. Public Service Commission, 73 W.Va. 571, 80 S.E. 931 (1914).

We have also stated that because the Commission is experienced with the intricacies of the rate-making process we will ordinarily not substitute our judgment for that of the Commission on controverted evidence. Charleston v. Public Service Commission, 110 W.Va. 245, 159 S.E. 38 (1931). Additionally, we have recognized that the statute requires the utility to carry the "burden of proof to show that the proposed increased rate ... is just and reasonable ..." W.Va.Code, 24-2-4; Natural Gas Co. v. Public Service Commission, 95 W.Va. 557, 121 S.E. 716 (1924).

In several cases we have stressed the importance of the Commission making an adequate order or an opinion "which, upon appellate review, would make known to the Court the motivating circumstances which influenced the decision." Mountain Trucking Company v. Daniel, 156 W.Va. 855, 860, 197 S.E.2d 819, 822 (1973); see also, Mountain Trucking Company v. Public Service Commission, W.Va., 216 S.E.2d 566 (1975). In Syllabus Point 3 of Citizens Bank v. West Virginia Board of Banking and Financial Institutions, W.Va., 233 S.E.2d 719 (1977), we said with regard to complex administrative findings in general:

"In administrative appeals where there is a record involving complex economic or scientific data which a court cannot evaluate properly without expert knowledge in areas beyond the peculiar competence of courts, neither this Court nor the trial courts will attempt to determine whether the agency decision was contrary to the law and the evidence until such time as the agency presents a proper order making appropriate findings of fact and conclusions of law." ⁴

Other courts have also stressed the need for adequate findings by Public Service Commissions. Greyhound Lines, Inc. v. Maryo, 207 So.2d 1 (Fla.1968); Georgia Power Co. v. Georgia Public Service Commission, 231 Ga. 339, 201 S.E.2d 423 (1973); Cities Service Gas Co. v. State Corporation Commission, 201 Kan. 223, 440 P.2d 660 (1968); Mississippi Power Co. v. Mississippi Public Service Commission, 291 So.2d 541 (Miss.1974); Gage v. Railroad Commission, 582 S.W.2d 410 (Tex.1979).

We have not articulated any precise formula as to an ultimate test, for the reasonableness and adequacy of a given rate, probably because much depends on the peculiarities of the individual case. In Charleston v. Public Service Commission, 110 W.Va. 245, 159 S.E. 38 (1931), we said that what is a fair net return for a public utility depends upon present day conditions. In the same case we found that an adequate net return would have to provide a sufficient amount to pay reasonable dividends and pass something to the surplus account. This latter statement is also contained in Wheeling v. Natural Gas Company, 115 W.Va. 149, 175 S.E. 339 (1934). In United Fuel Gas Co. v. Public Service Commission, 143 W.Va. 33, 99 S.E.2d 1 (1957), we stated that a utility is entitled to earn a reasonable return upon the whole of its property devoted to public service in this State and to the extent that it is deprived from such a return there is a confiscation of its property.

In this regard, one of the leading cases on what is a fair overall rate of return is Bluefield Water Works & Improvement Co. v. Public Service Commission, 262 U.S. 679, 43 S.Ct. 675, 67 L.Ed. 1176 (1923), where this Court was reversed when it approved too low a rate of return. In Bluefield, the rate of return was formulated by the Supreme Court so that it would correspond to returns made by comparable businesses. Generally stated, the amount of return should be reasonably sufficient to assure confidence in the financial soundness of the utility and should be adequate, under economically efficient operation, to enable it to raise adequate funds to discharge its public duties. 262 U.S. at 693, 43 S.Ct. at 679, 67 L.Ed. at 1183.

Recently in Virginia Electric & Power Co. v. Public Service Commission, W.Va., 242 S.E.2d 698, 704 (1978), we concluded that we could "find no evidence that the utility is not making money, is not able to attract investors, or is not providing the service it should elements which, if proved, might require us to reach a different result. Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944)." Until 1968, the Hope case was preeminent in setting the federal standard for a just and reasonable rate. ⁵ It emphasized the total impact of the rate order and indicated that "(t) he fact that the method employed (by the Commission) to reach that result (just and reasonable rates) may contain infirmities is not then important." 320 U.S. at 602, 64 S.Ct. at 288, 88 L.Ed. at 345. This test has been adopted by a number of states. ⁶ In the Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968), the Supreme court adopted a more comprehensive standard of review for courts, which we believe integrates much of what has been scattered through our case law:

"First, it must determine whether the Commission's order, viewed in light of the relevant facts and of the Commission's broad regulatory duties, abused or exceeded its authority. Second, the court must examine...