Potomac Electric Power Company v. Public Service Commission

• Decision Date: 01 May 1979
• Docket Number: No. 10490.,10490.
• Citation: 402 A.2d 14
• Parties: POTOMAC ELECTRIC POWER COMPANY, Petitioner, v. The PUBLIC SERVICE COMMISSION of the District of Columbia, Respondent, People's Counsel, Intervenor.
• Court: D.C. Court of Appeals

Page 14

402 A.2d 14

POTOMAC ELECTRIC POWER COMPANY, Petitioner, v. The PUBLIC SERVICE COMMISSION of the District of Columbia, Respondent People's Counsel, Intervenor.

No. 10490.

District of Columbia Court of Appeals.

Argued En Banc May 5, 1978.

Decided May 1, 1979.

Carl D. Hobelman, New York City, of the bar of the State of New York, pro hac vice, by special leave of court, with whom Alan G. Kirk II and Lawrence A. Gollomp, Washington, D. C., were on the answer to petitions for rehearing or, in the alternative, rehearing en banc, for petitioner.

John R. Risher, Jr., Corp. Counsel, Washington D. C., at the time the case was argued, with whom Richard W. Barton, Deputy Corporation Counsel, and James T. McManus, Asst. Corp. Counsel, Washington, D. C., were on the petition for rehearing or rehearing en banc, for respondent.

Brian Lederer, Washington, D. C., with whom Elizabeth Noel, Washington, D. C., was on the petition for rehearing or, in the alternative, for rehearing en banc, for intervenor.

Before NEWMAN, Chief Judge, and KELLY, KERN, GALLAGHER, NEBEKER, YEAGLEY, HARRIS, MACK and FERREN, Associate Judges.

YEAGLEY, Associate Judge:

Potomac Electric Power Company (hereinafter Pepco or the Company), petitioned this court, pursuant to D.C.Code 1973, § 43-705, to review two orders of respondent Public Service Commission of the District of Columbia (hereinafter PSC or the Commission); the first, Order No. 5739 of November 19, 1975,^* granted Pepco an increase in retail rates of $27,657,000 based on the request of the Company, as amended for an increase in revenues of $50,832,000; the second, Order No. 5750 of January 12, 1976, denied Pepco's petition for reconsideration. On November 9, 1977, a division of the court, with this judge dissenting, held that the increase in revenues authorized by the PSC was so deficient as to be confiscatory and therefore unreasonable, arbitrary and capricious within the meaning of D.C. Code 1973, § 43-706. The orders of the PSC were vacated and the case remanded with instructions to the Commission to base the new rates on Company data for a test year ending June 30, 1975, rather than on a 1974 test year as originally suggested by Pepco and was found to be proper by the Commission, and to revise the rates upward accordingly.¹ It also instructed the Commission to "calculate the revenue losses improperly experienced by Pepco during the period that Order No. 5739 was in effect." By ordering the Commission to accept the 1975 data and to base the new rates thereon, the court deprived the Commission of its right to examine and test the new data at a public hearing and left the Commission little room in which to exercise its discretion to consider the justification, if any, for determining that Pepco revenues should be increased by approximately $50,832,000 instead of the $27,657,000 it had previously authorized. The court order also deprived the PSC of any reasonable opportunity to balance the interests of the consumer. After reargument en banc, we now hold, with the former majority dissenting, that there was no reversible error in the orders of the PSC, and affirm the two orders of the Commission.

PROCEDURAL HISTORY

The procedural history of this case is long and involved. On December 20, 1974, Pepco filed an application with the Commission based on a 1974 test year seeking an increase in rates for the sale of electrical energy so as to produce an increase in operating revenues of approximately $48,000,000. Later as more recent 1974 figures became available, it increased its request to $50,832,000. Following a series of postponements and delays,² the Commission issued Order No. 5718 on May 20, 1975, granting inter alia intervention to 13 parties, one of whom, People's Counsel, is an intervenor on appeal here.³ The hearings were held from June 4 through July 24, 1975. On July 18, Pepco filed with its rebuttal testimony new data reflecting its operations from January 1 through June 30, 1975. After comparatively brief cross-examination on that data, and no surrebuttal, oral argument was heard by the Commission on the merits of the application and on November 12, 1975, it issued its order finding a 9.1% rate of return would be reasonable and authorizing an increase in the Company's operating revenues in the District of Columbia for the year of $27,657,000, so as to provide an increase in net income of $12,302,000. A dissenting opinion by Commissioner Stratton called for a substantially higher rate base. On December 12, 1975, the Commission approved the new schedule of rates filed by Pepco in accordance with the foregoing order which became effective the following day. A motion for reconsideration was denied on January 12, 1976, and Pepco appealed.

The Commission's action in Order No. 5739 was its fourth decision in six years on applications for rate increases by Pepco. Apparently the reason for filing this request so soon after a 1973 increase was the steady decline in Pepco's financial condition in the last half of 1974. The Commission saw two factors as the principal causes of this decline: (1) energy conservation by consumers as urged upon them by the government, interested private organizations and Pepco itself because of the national energy crisis experience that year which resulted in a substantial decrease in the number of kilowatt hours sold at retail by Pepco; and (2) a substantial decrease in the "energy and capacity" sold by Pepco to the Pennsylvania, New Jersey, Maryland (PJM) Interchange Pool, of which Pepco is a member. The Commission found that had these two dramatic changes not occurred, "the need for a rate increase application by PEP-CO may very well have been eliminated." Nevertheless, the Commission did not foresee a return to "past normalcy" of the pre-1974 years and thus found it necessary to pursue the lengthy process of adjusting electrical rates to accommodate those two factors and other changed conditions affecting Company operations.

Order No. 5739, which authorized new rates effective December 13, 1975, expired on December 16, 1976, when a new PSC order (No. 5849) authorized an additional $29.4 million in revenues based on another Pepco application filed in December 1975. Those new rates under which the Company now operates were set pursuant to another ratemaking proceeding which followed close on the heels of the instant case.

ASSERTIONS OF ERROR

The errors advanced by the Company regarding the order appealed from were summarized by the division as follows:

Examination of the elements of the opinion reveals several findings and conclusions (expressed in the Commission's opinion in an overlapping, narrative style) which are unreasonable, arbitrary, or capricious. These include the Commission's refusal to utilize the most recent test period in the record, its failure to account for continuing attrition, and its refusal to recognize certain known changes which occurred after the originally proposed calendar 1974 test period. [Potomac Electric Power Co. v. Public Service Commission, D.C.App., 380 A.2d 126, 132-33 (1977).]

The division held that even though the test year on which the Company based its application was calendar year 1974, it was arbitrary and capricious, and therefore error, for the Commission not to have used as the test year the Company figures revised as of year-end June 30, 1975. The division also concluded that the rates set would deny the Company an opportunity to earn a fair rate of return.

SCOPE OF REVIEW

In approaching petitioner's basic objections we note that the scope of our review of the Commission's final rate order is quite limited. D.C.Code 1973, § 43-706 provides that:

In the determination of any appeal from an order or decision of the Commission the review by the court shall be limited to questions of law, including constitutional questions; and the findings of fact by the Commission shall be conclusive unless it shall appear that such findings of the Commission are unreasonable, arbitrary, or capricious.

By this provision Congress vested sole ratemaking authority in the PSC. We are not to substitute our judgment for that of the Commission. Even though we might arrive at a somewhat different decision than did the PSC, if there is substantial evidence to support the Commission's findings and conclusions, we must affirm. See Williams v. Washington Metropolitan Area Transit Commission, 134 U.S.App.D.C. 342, 415 F.2d 922 (1968); Watergate Improvement Associates v. Public Service Commission, D.C. App., 326 A.2d 778, 783-84 (1974).

The power to make rates was clearly delegated by Congress to the Commission, not to this court. Our review of a utility commission order is the narrowest judicial review in the field of administrative law. K. Davis, Administrative Law of the Seventies § 29.00, at 647 (June 1976); 2 F. Cooper State Administrative Law 756-72 (1965).

We have held that "the scope of our review of the Commission's actions is `limited to questions of law . . . and the findings of fact by the Commission shall be conclusive unless it shall appear that such findings of the Commission are unreasonable, arbitrary, or capricious.'" Watergate Improvement Associates v. Public Service Commission, supra at 783, quoting D.C.Code 1973, § 43-706. In an appeal by an intervenor of an earlier Pepco rate increase, Judge Harris, speaking for this court, said:

Arbitrary action, however, is action not based on facts or reason. . . . The burden upon petitioner is not merely to put forth an acceptable alternative but rather to demonstrate clearly and convincingly a fatal flaw in the action taken. . . . Petitioner has not met that burden. He simply asserts a difference of opinion with the Commission. [Goodman v. Public Service Commission, D.C. App., 309 A.2d 97, 101 (1973) (citations omitted).]

Four years ago when some intervenors contested a $12,000,000 rate increase granted the company, this court in resolving the dispute quoted...