U.S. v. Public Utilities Commission

• Decision Date: 01 November 1978
• Docket Number: No. 76-249-M,76-249-M
• Citation: 393 A.2d 1092,120 R.I. 959
• Parties: UNITED STATES of America v. PUBLIC UTILITIES COMMISSION. P.
• Court: Rhode Island Supreme Court

Page 1092

393 A.2d 1092

120 R.I. 959

UNITED STATES of America v. PUBLIC UTILITIES COMMISSION.

No. 76-249-M.P.

Supreme Court of Rhode Island.

Nov. 1, 1978.

[120 R.I. 969] Everett C. Sammartino, Asst. U. S. Atty., Barbara Allen Babcock, Asst. Atty. Gen., Stanley D. Rose, Daniella Sapriel, Gerald D. Freed, Justice Dept., Washington, D. C., for petitioner.

Julius C. Michaelson, Atty. Gen., R. Daniel Prentiss, Sp. Asst. Atty. Gen., Sheffield & Harvey, Richard B. Sheffield, Brian G. Bardorf, Newport, for Newport Electric Corp.

OPINION

JOSLIN, Justice.

In this case the Secretary of Defense, on behalf of the Department of Defense and all other executive agencies of the United States (the Secretary), is seeking review of a June 18, 1976 order of the Public Utilities Commission (the commission) approving a rate increase for the Newport Electric Corporation (Newport) and a revised rate structure for its customers.

The record discloses that on March 29, 1974, Newport, faced with a loss of revenue precipitated in large part by a withdrawal by the United States Navy (the Navy) of its fleet operations from the Newport area, filed with the commission a schedule of new and revised rates to become effective on May 1, 1974. Those rates were designed to increase Newport's annual gross revenue by approximately $11/2 million. To achieve that overall additional revenue, Newport proposed increases in the tariffs for its several classes of customers ranging from a low of 11 percent for commercial services to a high of 20 percent for street lighting with an average proposed increase of 15.86 percent. The increase requested for the Navy at its installations serviced by Newport was 17.98 percent.

After a preliminary analysis of the filing, the commission granted Newport an interim increase of approximately $1 million to take effect August 1, 1974 and to remain operative until final disposition of the filing by the commission.

At the hearings thereafter held, the Secretary did not nor does he now challenge Newport's entitlement to additional revenue. Instead, his position was then as it is now that the rates proposed to be charged the Navy were excessive and that the total overall increase was not fairly and justly apportioned among Newport's various customer classes.

Because Newport had not included in its filing any data which would permit a full response to that contention, the commission requested it to prepare a study that would show the cost of providing service to the Navy. That limited study was undertaken by Newport's consultants and, when completed, disclosed that the return on Newport" investment in service to the Navy was 63.5 percent higher than the return on the cost of providing service to all other customers, excluding the Navy, and 54.7 percent higher than the return on all others, including the Navy.

The Secretary then contended that the 63.5 percent differential supported his position that the rates proposed for the Navy were both unreasonable and unjustly discriminatory. Notwithstanding, he was not permitted to question the consultants regarding the cost of serving customers other than the Navy. The commission's ground for foreclosing that line of inquiry was that the information sought to be elicited was not within the scope of the limited cost-of-service study undertaken by the consultants and could only be generated by a cost-of-service study that fully allocated the total costs of providing services among all Newport's customer classes. The commission refused to order that kind of study because, in its judgment, the $30,000 to $40,000 expense involved in its preparation would ultimately be borne by Newport's customers, and the commission felt that such a large expense was unjustified for a utility of Newport's limited size. The Secretary did not fill the gap by presenting such a study as part of his own case.

The commission's final order of June 1976 granted permanent rate relief by approving the rates previously authorized on an interim basis, thus increasing Newport's revenues by approximately $1 million. In addition, the commission in approving the rate design filed by Newport, rejected the Secretary's request for a reduction of the rates charged the Navy on two grounds. The first was that "(t)he Navy has not shown that it is discriminated against as compared to other customers of the Newport Electric Corporation of comparable size with respect to the overall sales of the Company"; the second, that even assuming such discrimination, the evidence of the Navy's recent partial withdrawal from the Newport area and the absence of any guarantee that it would not further abandon its Newport facilities or curtail planned construction consigned the Navy's continued presence in the area to the "realm of the speculative" and furnished reasonable grounds for characterizing Newport's planned investment with respect to the Navy as an "investment of relatively high risk," which in turn provided "a factual and evidentiary basis for some such discrimination." On review, the Secretary challenges the validity of both footings upon which the commission's order rests.

Initially, the Secretary contends that the commission erred in finding that he failed to make "a sufficient showing of discrimination against the Navy as a single customer to justify any extraordinary relief for that customer through a rate adjustment." Central to that contention is G.L.1956 (1977 Reenactment) § 39-3-12 which provides in pertinent part that:

"At any such hearing involving any proposed increase in any rate, toll or charge, the burden of proof to show that such increase is necessary in order to obtain a reasonable compensation for the service rendered shall be upon the public utility * * *."

This section, the Secretary argues, places on Newport, not on him, the burden of establishing that the proposed rate design does not unfairly discriminate among its customer classes. Read literally the statute might impose on a utility only the burden of proving that a general overall increase in its return is necessary. In our judgment, however, so literal a reading is unduly restrictive. The language used by the Legislature, if not explicitly, at least by clear implication manifests its intention that a utility seeking an increase in rates establish not only that it requires an overall increase, but that its proposed schedule of rates is nondiscriminatory. See Metropolitan District Commission v. Department of Public Utilities, 352 Mass. 18, 24-25, 224 N.E.2d 502, 507 (1967); Re New England Telephone & Telegraph Co., 71 P.U.R. (n. s.) 243, 266 (N.H.P.S.C.1947); Re Capital Mobile Radio Service, Inc., 80 P.U.R.3d 445, 453 (N.Y.P.S.C.1969); United Fuel Gas Co. v. Public Service Commission, 154 W.Va. 221, 232-33, 174 S.E.2d 304, 311 (1970); Re Black Hills Power & Light Co., 68 P.U.R.3d 82, 91-92 (Wyo.P.S.C.1967). Indeed, to construe the statute as being broad rather than narrow in scope constitutes no more than a recognition that in its enactment the Legislature was mindful of the general principle that a moving party must prove its case.

Because the commission made no attempt either in its report and order or in its brief to justify imposing upon the Secretary the burden of establishing the impropriety of the rate design, we can only speculate on the basis for its action. One reason may have been that it read § 39-3-12 more literally than we have. Another may have been that it construed the Secretary's challenge as an attempt to obtain a reduction or other adjustment in an existing and previously approved rate design. In that event the burden of justifying a change in the existing rate would have been on the party seeking that change in this case the Secretary rather than on the utility. Swift & Co. v. United States, 343 U.S. 373, 382-83 72 S.Ct. 716, 721, 96 L.Ed. 1008, 1018-19 (1952); Metropolitan District Commission v. Department of Public Utilities, 352 Mass. at 24-25, 224 N.E.2d at 507; United Fuel Gas Co. v. Public Service Commission, 154 W.Va. at 232-33, 174 S.E.2d at 311.

A third possible explanation is that the commission did not distinguish between the rule to be applied where the increase in rates for the several customer classes is at varying percentages and the rule that obtains where the increase is spread proportionately across-the-board among those classes. In the latter circumstance, the fact that the regulatory body had previously approved the general rates upon which identical percentage increases are superimposed and that those rates had continued in effect without challenge, creates a presumption that the new rates are reasonable and nondiscriminatory. City of Terre Haute v. Terre Haute Water Works Corp., 133 Ind.App. 232, 246, 180 N.E.2d 110, 117 (1962); City of West Allis v. Public Service Commission, 42 Wis.2d 569, 579, 167 N.W.2d 401, 406 (1969). The rate design filed by Newport in this case, not having been proportionately distributed, is not protected by that mantle of presumed nondiscrimination.

In sum, then, no acceptable reason has been advanced by the commission, nor can we conjure any, for requiring the Secretary to prove that the proposed rate design is unjustly discriminatory. Consequently, had the commission bottomed its approval of the rate structure solely upon the Secretary's failure to establish undue discrimination, that approval could not stand. The commission, however, relied alternatively upon the rationale that Newport's investment in providing services to the Navy is...