Office of Consumers' Counsel v. Public Utilities Commission

• Decision Date: 09 May 1979
• Docket Number: No. 78-941,78-941
• Citation: 12 O.O.3d 115,58 Ohio St.2d 108,388 N.E.2d 1370
• Parties: , 12 O.O.3d 115 OFFICE OF CONSUMERS' COUNSEL, Appellant, v. PUBLIC UTILITIES COMMISSION of Ohio et al., Appellees.
• Court: Ohio Supreme Court

Page 108

58 Ohio St.2d 108

388 N.E.2d 1370, 12 O.O.3d 115

OFFICE OF CONSUMERS' COUNSEL, Appellant, v. PUBLIC UTILITIES COMMISSION of Ohio et al., Appellees.

No. 78-941.

Supreme Court of Ohio.

May 9, 1979.

Syllabus by the Court

The discretion granted the Public Utilities Commission under R.C. 4909.15 to authorize a reasonable allowance for construction work in progress in a utility's rate base constitutes a lawful delegation of the state's police power by the General Assembly.

This appeal by the Office of Consumers' Counsel arises from a March 31, 1978, opinion and order of the Public Utilities Commission of Ohio (commission) granting approximately $28.7 million in rate relief to the Columbus & Southern Ohio Electric Company (company). Both the company and the city of Columbus have also appealed from that order. C&SOE v. Pub. Util. Comm. (1979), 58 Ohio St.2d 120, 388 N.E.2d 1378; Columbus v. Pub. Util. Comm. (1979), 58 Ohio St.2d 103, 388 N.E.2d 1237.

Columbus & Southern Ohio Electric Company provides electric service to some 431,000 residential, commercial and industrial customers in all or parts of 25 central and southern Ohio counties.

On March 30, 1977, the company filed with the commission a notice of its intent to submit an application for permanent rate increases, pursuant to R.C. 4909.18.

On May 23, 1977, the Council of the city of Columbus enacted Ordinance No. 881-77, which would have extended the rates then being charged by the company for an additional two-year period. On June 23, 1977, the company rejected those rates established under Ordinance No. 881-77.

The company, on June 30, 1977, filed, pursuant to R.C. 4909.34, a complaint and appeal from Ordinance No. 881-77, and submitted, concurrently, an application for an increase of $45,491,000 in rates for its jurisdictional customers outside Columbus.

Having previously set the test year as the 1977 calendar year, the commission, on August 24, 1977, found the application and complaint to be in conformance with its Standard Filing Requirements, set the date certain as June 30, 1977, and accepted the application for filing as of that date.

On November 30, 1977, a written report on the results of the commission's staff investigation of the matters set forth in the company's application and complaint was filed with the commission. Objections were timely filed to the staff report, including those of appellant, office of Consumers' Counsel.

A public hearing was commenced on January 19, 1978, encompassing 24 hearing days and the testimony of over 30 expert witnesses.

The commission issued its opinion and order on March 31, 1978, granting $28,628,000 in rate increases to the company and substituting a new tariff schedule for Ordinance No. 881-77.

Office of Consumers' Council filed an application for rehearing on May 1, 1978, which was denied by the commission on May 30.

This cause is now before this court upon appeal as a matter of right.

William A. Spratley, Consumers' Counsel, Orla E. Collier and Stephen P. Allison, Columbus, for appellant.

William J. Brown, Atty. Gen., Marvin I. Resnik and Judith B. Sanders, Columbus, for appellee.

Porter, Wright, Morris & Arthur, Samuel H. Porter, Curtis Loveland and William J. Kelly, Jr., Columbus, for intervening appellee Columbus & Southern Ohio Electric Co. PAUL W. BROWN, Justice.

Pursuant to R.C. 4903.13, the Supreme Court is required to reverse, vacate or modify final orders of the Public Utilities Commission only where, upon a consideration of the record, the order is unreasonable or unlawful. In ascertaining the reasonableness and lawfulness of commission orders, this court's scope of review has traditionally turned on whether an issue appealed from presents a question of law or one of fact.

As to questions of fact, this court has repeatedly enunciated the rule that orders of the commission will not be reversed unless they are manifestly against the weight of the evidence or are so clearly unsupported by the record as to show misapprehension, mistake or willful disregard of duty, Duff v. Pub. Util. Comm. (1978), 56 Ohio St.2d 367, 370, 384 N.E.2d 264; Cleveland Elec. Illuminating Co. v. Pub. Util. Comm. (1975), 42 Ohio St.2d 403, 330 N.E.2d 1, paragraph eight of the syllabus; Cleveland v. Pub. Util. Comm. (1965), 3 Ohio St.2d 82, 84, 209 N.E.2d 424; East Ohio Gas Co. v. Pub. Util. Comm. (1940), 137 Ohio St. 225, 28 N.E.2d 599.

As to questions of law, however, this court has complete, independent power of review. Legal issues are accordingly subject to more intensive examination than are factual questions. But, this does not prevent the court from acknowledging and, in certain instances, utilizing the specialized expertise of an agency in interpreting the law. These situations arise where there exists disparate competence between the respective tribunals in dealing with highly specialized issues and where agency expertise would, therefore, be of assistance in discerning the presumed intent of our General Assembly. It is in this sense that we perceive, and carry out, our function of determining the lawfulness and reasonableness of commission orders. With these rules of review in mind, we now address the issues raised by appellant.

The majority of the issues in this cause concern the allowance by the commission for construction work in progress (CWIP) in the company's rate base, pursuant to R.C. 4909.15(A)(1). This section provides, in pertinent part, as follows:

" * * * The commission may, In its discretion, permit a reasonable allowance for construction work in progress but, in no event, may any allowance for construction work in progress be made by the commission until it has determined, after a physical inspection, that the particular construction project is at least seventy-five percent complete." (Emphasis added.)

R.C. 4909.15(E) limits the amount of CWIP which can be included in the rate base, as follows:

"In no event shall an allowance for construction work in progress under division (A)(1) of this section exceed twenty per cent of the total valuation as stated in such division, not including such allowance."

Appellant argues that the commission abused its discretion under R.C. 4909.15(A)(1) in authorizing, by order, the inclusion of $100,531,000 for CWIP in the company's rate base. The maximum allowable CWIP under the statutory provisions would have been $156,865,000. Appellant urged the commission to include only $4,064,000.

R.C. 4909.15(A)(1) confers upon the commission discretion to permit a reasonable allowance for CWIP. In exercising this discretion, the commission determined that those projects which were completed by the end of the test year or which would be operational by the time the rates in dispute took effect, qualified as a reasonable CWIP allowance. The commission reasoned that the company or its investors should not "be required to wait until the next rate case to realize a return on property that will be providing service throughout the period during which the rates established in this case will be in effect." The commission also recognized that the purpose for supporting these statutes is "to provide the commission with a mechanism" by which authorized revenues could take into account expenses of plant construction "necessary to assure continuity of utility service."

The method adopted by the commission to implement this purpose does not appear unreasonable to this court. The commission acknowledged that the standard applied in this cause does not establish rigid criteria for the future. In resolving this cause, the commission applied the method it believed could achieve a result approximating the intended purpose of the statute. This standard, based as it was on the particular set of facts before the commission, bore a reasonable relationship to the purpose of the legislation. Accordingly, this court finds that it was not an abuse of discretion for the commission to authorize the inclusion of $100,531,000 for CWIP in the company's rate base pursuant to R.C. 4909.15(A)(1).

Appellant argues next that to the extent any CWIP allowance is approved by the commission, there must be an offsetting credit to operating income for funds used during construction (AFUDC).

Without detailing the accounting principles involved herein, it becomes apparent that were such an entry required by the commission, the net effect would be to neutralize the CWIP inclusion, a result which would render R.C. 4909.15(A)(1) meaningless. Appellant's contention is, therefore, not well taken.

Appellant also attacks the commission's failure to specifically direct the company to cease capitalizing AFUDC on those construction projects authorized by the commission for inclusion in the company's rate base.

The record indicates, however, that company witnesses agreed to cease capitalizing construction projects included in the rate base. This complies with generally accepted accounting principles and Federal Energy Regulatory Commission accounting rules, 18 C.F.R., Part 101. This court can find no prejudice, and thus no reversible error, in the commission's failure to order the company to make an entry which the company intended to make anyway, by agreement and pursuant to standard accounting principles. See Worthington Hills Civic Assn. v. Pub. Util. Comm. (1976), 45 Ohio St.2d 11, 340 N.E.2d 411.

Appellant's final challenge to the commission's inclusion of CWIP in the company's rate base attacks R.C. 4909.15 on the ground that the discretion granted to the commission under this statute is in effect so broad and imprecise as to constitute an unlawful delegation of legislative authority. Also, the appellant seemingly charges that the commission's exercise of this discretion was so arbitrary as to deny ratepayers due process of law.

In Matz v. J. L. Curtis Cartage Co. (1937), 132 Ohio St. 271, 7 N.E.2d 220, this court held in paragraph seven of the syllabus:

"As a general rule a law...