Utah Power & Light Co. v. Idaho Public Utilities Commission

• Citation: 102 Idaho 282,629 P.2d 678
• Decision Date: 05 May 1981
• Docket Number: 12922 and 12956,Nos. 12838,s. 12838
• Court: United States State Supreme Court of Idaho
• Parties: , 43 P.U.R.4th 299 UTAH POWER & LIGHT COMPANY, Appellant, v. IDAHO PUBLIC UTILITIES COMMISSION, Respondent. In the Matter of the Application of UTAH POWER & LIGHT COMPANY for Approval of its Proposed Electric Rate Schedules and Electric Service Regulations.

Page 678

629 P.2d 678

102 Idaho 282, 43 P.U.R.4th 299

UTAH POWER & LIGHT COMPANY, Appellant, v. IDAHO PUBLIC UTILITIES COMMISSION, Respondent.

In the Matter of the Application of UTAH POWER & LIGHT COMPANY for Approval of its Proposed Electric Rate Schedules and Electric Service Regulations.

Nos. 12838, 12922 and 12956.

Supreme Court of Idaho.

May 5, 1981.

Rehearing Denied June 23, 1981.

Wesley F. Merrill of Merrill & Merrill, Pocatello, for appellant.

David H. Leroy, Atty. Gen., Michael S. Gilmore, Deputy Atty. Gen., Larry D. Ripley, Robert J. Ennis, Boise, Louis F. Racine, Jr., Robert Huntley, Jr., Pocatello, W. Joe Anderson, Idaho Falls, for respondent.

SHEPARD, Justice.

This is an appeal by Utah Power & Light Company from an order of the Public Utilities Commission setting rates to be charged Idaho customers for electric power delivered by Utah Power. We set aside the order of the Commission.

Utah Power is a public utility providing electrical energy to consumers in Utah, Idaho and Wyoming. Idaho consumers account for approximately 19% of Utah Power's total sales. The Idaho Commission had granted Utah Power a rate increase of 32% in 1975 and an increase of 29.5% in 1976. In December, 1976, Utah Power applied for an additional 26.58% increase in Idaho on the basis that it was necessary to meet inflationary pressures and to finance a 1.6 billion dollar program for the construction of additional facilities. In 1976, Utah Power's earnings per share and dividends rose to record high levels and their bond rating improved from "A" to "AA".

At that time the Teton Dam flood, low farm prices, and a drought had made Utah Power's southeastern Idaho service area economically depressed and at hearings held on Utah Power's application, the public response was decidedly adverse. Following those hearings and other submitted evidence, the Commission issued an electric rate schedule which had been formulated using a 1976 test year, allegedly adjusted for known and measurable changes. The Commission determined the rate base to be $129,023,655, upon which Utah Power was allocated a rate of return of 9.67%. Utah Power challenges numerous methods used by the Commission to reach that result.

The Public Utilities Commission is statutorily vested with jurisdiction to regulate rates charged by public utilities furnishing services, products or commodities in the State of Idaho. I.C. § 61-501. When the Commission finds that the rates proposed by a public utility for such services are unjust, the Commission must establish just, reasonable or sufficient rates. I.C. § 61-502. This Court's scope of review on appeal in cases of this type is to determine only if the Commission regularly pursued its authority and whether the constitutional rights of the utility were violated by the fixing of rates which were unjust, unreasonable and thus confiscatory. I.C. § 61-629; Utah-Idaho Sugar v. Intermountain Gas Co., 100 Idaho 368, 597 P.2d 1058 (1979); Intermountain Gas Co. v. Idaho Public Utilities Comm'n, 97 Idaho 113, 540 P.2d 775 (1975); Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944).

Utah Power first contends that the Commission erred by failing to make certain adjustments to the 1976 test year data for "known and measurable changes" and that such data resulted in the determination of an artificially low rate base. We agree. Test year data should be adjusted for known and measurable changes where the changes are shown to be reliable and certain. E. g., Citizens Utility Co. v. Idaho Public Utilities Comm'n, 99 Idaho 164, 579 P.2d 110 (1978); Agricultural Products v. Utah Power & Light Co., 98 Idaho 23, 557 P.2d 617 (1976). The Commission should include in the rate base all items which are proven with reasonable certainty to be justifiably used by the utility in providing services to its customers. Citizens Utility Co. v. Idaho Public Utilities Comm'n, supra.

Utah Power asserts that the addition to the Huntington Plant and the acquisition of the Deer Creek Coal Mining properties were known and measurable changes to the 1976 test year data, should have been included in Utah Power's rate base, and were erroneously excluded. We agree. Although Utah Power's new unit at Huntington, described as "Huntington 1977," was not in use in 1976, it was scheduled to and did go on line in June of 1977. As to the Coal Mining properties, Utah Power contracted for the purchase of those properties in 1976, but possession was not actually obtained until early 1977 due to the necessity of securing approval of the purchase from the Federal Trade Commission. Utah Power & Light presented evidence of the revenues, if any, and expenses connected with those properties. The proceedings continued into August of 1977 and the order of the Commission was not entered until September 29, 1977. It could not be said that the adjustments were "future" or unknown. The Commission's holding that the inclusion of the Huntington unit in the rate base would be solely conjectural is not supported by the evidence and is set aside. The holding of the Commission that the Deer Creek Coal Mine should not be included in the rate base is likewise unsupported by the evidence, erroneous and is set aside.

Utah Power next asserts that the Commission erred in computing the 9.67% overall rate of return based in part on an alleged inadequate 13.5% return to common equity. Although other aspects of the Commission's determination of the overall rate of return are asserted as error, we consider only the contention by Utah Power relating to the return on common equity and within that category, an adjustment for "regulatory lag." Regulatory lag or attrition has been defined as a "decline in the rate of return earned * * * (occurring) when the rate base expands faster than the revenue and is caused both by inflation and by expansionistic construction programs which do not generate additional comparable revenue." Providence Gas Co. v. Burman, 376 A.2d 687 (R.I.1977) (quoting from Public Service Comm'n v. Baltimore Gas & Electric Co., 273 Md. 357, 329 A.2d 691 (1974).

Utah Power argues that the Commission had in the previous year awarded a 14.5% rate of return, allowing Utah Power the opportunity to earn 13.5% on common equity "with the extra 1% being in essence, an adjustment for regulatory lag." In the instant case, however, the Commission ordered the elimination of the 1% adjustment for regulatory lag. We find no evidence to support that ruling of the Commission other than the bare assertion that Utah Power had improved its financial posture in 1976 in that its earnings and dividends rose and their bond rating also improved. On the other hand, Utah Power argues that their past actual rates of return on common equity have never risen to the level of the rates permitted by the Commission. A rate of return authorized by a Commission is not a guarantee of any level of revenues. 1 A. Priest, Principles of Public Utility Regulation 203-06 (1969). Conflicting views exist as to whether a utility's failure to earn an authorized rate is, in and of itself, the final test of attrition. See, e. g., Public Service Commission of Maryland v. Baltimore Gas & Electric Co., supra; Re The Narragansett Electric Co., 23 P.U.R. 4th 516 (R.I., P.U.C. 1978); Re Chesapeake & Potomac Telephone Co. of West Virginia, 18 P.U.R. 4th 236 (W.Va., P.S.C.1976). Nevertheless, it is clear that continuing high rates of inflation are especially damaging to electric power utilities. The impact of inflation is great on all public utilities because their endeavors are normally capital intensive and involve assets with relatively long useful lives. See Adams, Public Utility Regulation: A Public Demand, 28 Baylor L.Rev. 773 (1976). Inflation is particularly painful to electric-power utilities since they are the most capital-intensive industry in the United States. See Note, Efficiency and Competition in the Electric-Power Industry, 88 Yale L.J. 1511 (1979).

This Court has stated that the "questions of 'cost of equity' and 'rate of return' are matters which raise extremely complicated issues. Deciding these questions is a function of the Idaho Public Utilities Commission and these questions are within the Commission's area of expertise." Citizens Utility Co. v. Idaho Public Utilities Comm'n, 579 P.2d at 119 (1978). The Commission has the power and the duty to set rates of return within a "broad zone of reasonableness." Intermountain Gas Co. v. Idaho Public Utilities Comm'n, supra. Here, however, the Commission eliminated from Utah Power's allowable return on equity a 1% attrition allowance. It is undisputed that a rate of return incorporating such attrition or regulatory lag was within the zone of "reasonableness" in the prior year and was so ordered by the Commission. It also appears undisputed that the factors of inflation and an expansionistic construction program continue to exist and apparently were not considered by the Commission. Hence, that portion of the Commission's ruling eliminating the 1% previously allowed regulatory lag or attrition is without foundation in the evidence and is set aside.

We have examined Utah Power's other assertions of error and find them to be without merit. The order of the Commission is set aside. Costs to appellant.

BAKES, C. J., and McFADDEN, J., concur.

DONALDSON, Justice, specially concurring.

I concur with the majority opinion insofar as its holding concerning the test year. I believe that the Huntington Plant and the Deer Creek Coal Mining properties should have been included in the rate base since they were known and measurable changes for the test year with reasonable certainty. If they had been included in the rate base the rate base would have adequately demonstrated real revenue needs and thus would most likely obviate the need for any adjustment for "regulatory lag." However, the Commission also denied the request for an extra 1%...