Towne Hill Water Co., Inc., In re

• Decision Date: 16 September 1980
• Docket Number: No. 193-79,193-79
• Citation: 422 A.2d 927,139 Vt. 72
• Court: Vermont Supreme Court
• Parties: In re TOWNE HILL WATER CO., INC.

Page 927

422 A.2d 927

139 Vt. 72

In re TOWNE HILL WATER CO., INC.

No. 193-79.

Supreme Court of Vermont.

Sept. 16, 1980.

Motion for Reargument Denied Oct. 23, 1980.

Rice & Knosher, Montpelier, for petitioner.

Gerald R. Tarrant, Montpelier, for Public Service Bd.

Before BARNEY, C. J., DALEY, BILLINGS and HILL, JJ., and UNDERWOOD, Superior Judge, Specially Assigned.

HILL, Justice.

Towne Hill Water Company appeals from an order of the Public Service Board which granted the Company only a portion of a requested rate increase. The Board has certified the following questions:

1. Did the Board err, on the record or on the law, in allowing petitioner $9,730 in annual revenues?

2. Did the Board err in its valuation of rate base?

The Company contends only that the Board erred in determining its rate base. It has therefore waived review of the order independent of its challenge to the calculation of rate base. In re Burlington Electric Light Department, 135 Vt. 114, 115, 373 A.2d 514, 516 (1977).

At a hearing before a Board examiner, the Company introduced evidence of the original cost of its plant and equipment with adjustments for depreciation and for contributions to plant additions. The rate base as calculated by the Company on this basis totaled $41,194. The appointed attorney for the public introduced evidence of the cost of the 1973 acquisition of the entire stock of the Company by a single shareholder. The rate base as so calculated totaled $27,025.

The Board found a rate base of $26,945. In substance it adopted the method of rate base valuation advanced by the public. It indicated that, in its view, the Company's calculation of rate base would permit rates that would give the Company a windfall at consumer expense. The Company argues that in so doing the Board acted arbitrarily, ignored the distinction between a sale of assets and a sale of stock, and in effect and without statutory authority "pierced the corporate veil." Notwithstanding the conclusory nature of these contentions, this Court has endeavored to examine the legal validity of the Board's rate base determination. We conclude that it acted in excess of its authority in reaching that determination, and reverse its order.

There is a strong presumption in favor of the validity of a Public Service Board order. Wendland v. Green Mountain Power Corp., 132 Vt. 320, 322, 318 A.2d 668, 670 (1974). Since rate base determination is a matter within the Board's expertise, its determination is entitled to a great weight and its findings must be accepted by this Court unless they are clearly erroneous. In re Green Mountain Power Corp., 138 Vt. 213, 215, 414 A.2d 1159, 1160-61 (1980).

In this jurisdiction, however, it is well established that the target of a rate base determination is the net value of the property upon which a return should be earned. Arlington Selectmen v. Arlington Water Co., 136 Vt. 495, 498, 394 A.2d 1130, 1132 (1978) (citing Petition of Green Mountain Power Corp., 131 Vt. 284, 294, 305 A.2d 571, 577 (1973); Latourneau v. Citizens Utilities Co., 125 Vt. 38, 48, 209 A.2d 307, 315 (1965); Petition of New England Telephone & Telegraph Co., 120 Vt. 181, 190-91, 136 A.2d 357, 364 (1957)). The net value in issue is not fair market value, but net investment. Assuming use for utility purposes, appropriate costs of acquisition, not shown to be excessive, unwarranted or incurred in bad faith, are to be included in rate base after depreciation. Latourneau, supra, 125 Vt. at 41-43, 209 A.2d at 311-12. In this case we must advance this principle one step further and inquire-cost to whom? The corporation or the stockholder? If we determine that it is the cost to the stockholder rather than to the corporation, then the second question certified must be answered in the affirmative. If it is the cost to the corporation, then the rate base was incorrectly determined.

The reason for determining rate base supplies the answer. The rate base is one of four underlying factors in determining whether or not a utility rate is just and reasonable. Arlington Selectmen v. Arlington Water Co., supra. The Board found that the purpose of computing a utility's rate base was to "determine the net value of the property upon which a return should be earned in order to compensate investors for the risks assumed." The Board further found that the amount of the stockholder's investment in the company was substantially less than the actual historical cost of the facilities purchased. It further concluded that whether the facilities were acquired through a stock acquisition or a purchase of assets was irrelevant in determining in this case the net value of the property on which a return should be earned.

Latourneau, supra, recognized that generally rate base is determined by the formula that so-called...