Narragansett Elec. Co. v. Kennelly

• Citation: 143 A.2d 709,88 R.I. 56
• Decision Date: 07 July 1958
• Docket Number: No. 1225,1225
• Parties: , 25 P.U.R.3d 54 The NARRAGANSETT ELECTRIC COMPANY v. Thomas A. KENNELLY, Public Utility Adm'r. M. P.
• Court: United States State Supreme Court of Rhode Island

Page 709

143 A.2d 709

88 R.I. 56, 25 P.U.R.3d 54

The NARRAGANSETT ELECTRIC COMPANY v. Thomas A. KENNELLY, Public Utility Adm'r.

M. P. No. 1225.

Supreme Court of Rhode Island.

July 7, 1958.

T. Dexter Clarke, Edwards & Angell, Gerald W. Harrington, Ronald R. Lagueux, Providence, for petitioner.

J. Joseph Nugent, Atty. Gen., Archie Smith, Asst. Atty. Gen., Julius C. Michaelson, Special Counsel, Anthony A. Giannini, Providence, for respondent.

Joseph Mainelli, Providence, for United States.

William E. McCabe, City Sol., Providence, Ralph T. Lewis, City Sol., Warwick, Michael DeCiantis, Town Sol., West Warwick, James O. Watts, Town Sol., Wakefield, James H. Donnelly, Town Sol., N. Kingstown, William H. Leslie, Jr., Town Sol., South Kingstown, Abraham Belilove, Providence, for James Hanley Company, Amici Curiae.

John Quattrocchi, Jr., Providence, for 35 Qualified Electors.

Aram K. Berberian, Providence, for United Commercial Travelers and pro se ipso.

CONDON, Chief Justice.

This is an appeal by The Narragansett Electric Company from certain orders of the public utility administrator with reference to the company's tariffs of revised rates and charges for electric and gas service which it filed on November 23, 1956. In accordance with General Laws 1956, § 39-3-11, the administrator suspended the taking effect of such tariffs and ordered a public hearing to investigate and determine their propriety.

At such hearing the company relied upon the testimony of several of its officers and certain independent experts in support of its need for increased rates. It attributed such need principally to inflation. To compensate therefor it suggested that the administrator in determining the reasonableness of the proposed rates should first determine the fair value of its property by using a so-called trended original cost formula based on the Handy-Whitman Index. Its experts testified along that line generally and explained how the application of such formula would produce a reasonably accurate approximation of the value of the company's property as a rate base.

The people officially represented by public counsel, the United States, the state of Rhode Island, the city of Providence, certain other municipalities in the company's service area, and a group of thirty-five electors appeared in opposition to the company's revised tariffs. In substance they claimed that the company's existing rates were lawful and reasonable and therefore the company was not entitled to any increase thereof. And they further contended that by adopting the formula of original cost less depreciation in determining the company's rate base the administrator would find that those rates were presently yielding such a return on the company's property used and useful in the public service.

The hearing began on February 18, 1957 and was finally concluded on September 20, 1957. During that period there were intervals when no sessions were held. This apparently afforded the administrator an opportunity while the hearing was still in progress to weigh and consider the testimony of the experts, and also to study the numerous exhibits which were introduced to illustrate such testimony. Consequently on September 30, 1957, he filed his decision and orders consisting of sixty-eight typewritten pages wherein he reviewed the evidence and gave his reasons for relying upon the opinions of certain expert witnesses and rejecting the opinions of other experts. The orders read as follows:

'(7165) Ordered: That the proposed new electric tariffs filed by The Narragansett Electric Company with the office of the Public Utility Administrator on November 23, 1956 be and the same are hereby denied and dismissed; and it is further '(7166) Ordered: That the four gas tariffs filed by The Narragansett Electric Company with the Administrator's office on November 23, 1956 and designated as R.I.P.U.A. No. 318, R.I.P.U.A. No. 319, R.I.P.U.A. No. 320, and R.I.P.U.A. No. 321 be and the same are hereby allowed to become effective forthwith; provided, however, that the Purchased Gas Price Adjustment Clause contained therein and the provision for Bi-Monthly billing contained therein be deleted and excluded from the aforementioned four gas tariffs; and it is further

'Ordered: That within sixty (60) days from the date of this order The Narragansett Electric Company shall file a revised uniform fuel adjustment clause for the Administrator's consideration, said fuel clause to be applied only to those rates upon which there is presently an existing fuel clause; and said fuel clause shall contain a base cost of fuel which reflects the average fuel costs incurred during the year 1956 and an efficiency factor which will reflect the economies of generation experienced during the last calendar year, and permission is hereby granted to The Narragansett Electric Company to revise the block rates in those tariffs containing a fuel clause in a manner that will not increase the Company's level of revenue based on the test year of 1956; and it is further

'Ordered: That The Narragansett Electric Company shall submit detailed calculations to demonstrate that the revised block rates, together with the proposed unified fuel clause, will not increase the level of revenue actually obtained from these tariffs during the year 1956.'

The company's reasons of appeal from those orders are 121 in number, but in briefing its appeal for hearing in this court it has compressed them into two basic issues under which it has argued thirteen subsidiary questions. Such basic issues are as follows: '1. Do the Decision and Orders of the Administrator of September 30, 1957, fix rates which are unlawful or unreasonable within the meaning of the provisions of General Laws of 1938, Chapter 122, as amended by Public Laws of 1949, Chapter 2174? 2. Do the Decision and Orders of the Administrator of September 30, 1957, violate rights of your Petitioner arising under the Constitution of the State of Rhode Island and by the Constitution of the United States?'

By way of answering the subsidiary questions the company makes the following contentions. In determining the rate base the administrator erred (1) in adopting a book cost rate and ignoring uncontradicted evidence of fair value; (2) in determining such base by averaging the amount at the beginning and the amount at the end of the company's test year 1956; (3) in excluding therefrom the electric plant acquisition adjustment account (Account 100.5); (4) in failing to include a sufficient sum for cash working capital; (5) in excluding unfinished construction; and (6) in deducting from book cost an estimated depreciation reserve requirement rather than the company's book depreciation reserve.

He also committed reversible error, the company contends, (7) in rejecting its method for separating its intrastate and interstate operations; (8) in the method he adopted for determining a fair rate of return; (9) in denying and dismissing the company's plan for simplifying its rate structure; (10) in his conclusions with reference to the fuel adjustment clause in the electric rates; (11) in failing either to approve or disapprove the gas price adjustment clause; (12) in disapproving bimonthly billing in the proposed electric and gas rate schedules; and (13) in certain rulings admitting or excluding evidence which rulings prejudiced the company by depriving it of certain constitutional rights.

It appears from the evidence that the company was incorporated by a special legislative act on April 8, 1926, as the United Electric Power Company. On April 14, 1927, its name was changed by another act to The Narragansett Electric Company. Under those acts it was authorized to acquire all of the assets of The Narragansett Electric Lighting Company. On June 13, 1927, it filed a petition with the public utilities commission, the predecessor of the public utility administrator, for approval of an issue of bonds and stocks for the purpose of acquiring such assets. After a hearing the commission granted the petition on the understanding that the capitalization of the company would not exceed expenditures prudently made for the acquisition of the old Narragansett Electric Lighting Company. For that purpose the commission considered cost of reproduction new less depreciation of such company's property and adopted a valuation which was in effect a compromise of the amount represented by the company's appraisal and the amount of the state's appraisal.

It appears that a sum approximately $20,000,000 in excess of the original cost of the old lighting company's assets was paid for the acquisition. This excess was entered in an acquisition account in the new company's books. Later the balance of this account was segregated in Account 100.5 by order of the Federal Power Commission and is referred to herein as the Electric Plant Acquisition Adjustment Account. The balance of this account on the company's books for the test year 1956 was approximately $1,700,000. The company contended that such balance was properly includable in the rate base, but the administrator expressly rejected that contention.

Since the company acquired the old lighting company in 1927 its business has grown considerably. In 1956 it served 196,000 electric customers and 6,700 gas customers. In 1926 the old company had only 102,000 customers. The service area now comprises all of the city of Providence and the major portion of the state outside that city. As a result of improvements in the art and increased efficiency in the conduct of its business the company since 1930 has made reductions in rates in the aggregate annually of $2,660,000.

For example, it was testified by the company's vice president and general manager Ralph E. Nock that it is obtaining twice as many kilowatts from a pound of coal as it obtained thirty years ago, that there were also substantial savings made because of heavier kilowatt loads, and that there...