Wash. Metro. Area Transit v. Pub. Serv. Com'n

• Decision Date: 28 December 1984
• Docket Number: No. 83-447.,No. 83-449.,83-447.,83-449.
• Citation: 486 A.2d 682
• Parties: WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, Petitioner, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent, Potomac Electric Power Company, Apartment and Office Building Association of Metropolitan Washington, Inc., and People's Counsel of the District of Columbia, Intervenors. PEOPLE'S COUNSEL OF the DISTRICT OF COLUMBIA, Petitioner, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent, Washington Metropolitan Area Transit Authority and Potomac Electric Power Company, Intervenors.
• Court: D.C. Court of Appeals

Page 682

486 A.2d 682

WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, Petitioner, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent, Potomac Electric Power Company, Apartment and Office Building Association of Metropolitan Washington, Inc., and People's Counsel of the District of Columbia, Intervenors.

PEOPLE'S COUNSEL OF the DISTRICT OF COLUMBIA, Petitioner, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent, Washington Metropolitan Area Transit Authority and Potomac Electric Power Company, Intervenors.

No. 83-447.

No. 83-449.

District of Columbia Court of Appeals.

Argued November 22, 1983.

Decided December 28, 1984.

Onkar N. Sharma, Washington, D.C., for Washington Metropolitan Area Transit Authority, petitioner in No. 83-447 and intervenor in No. 83-449.

Brian Lederer, Washington, D.C., with whom John T. Schell, Jay D. Pedelty, and Elizabeth A. Noel, Washington, D.C., were on the brief, for People's Counsel of the District of Columbia, petitioner in No. 83-449 and intervenor in No. 83-447.

Lloyd N. Moore, Jr., Washington, D.C., with whom Roberta Willis Sims, Washington, D.C., was on the brief, for respondent.

William Dana Shapiro, Washington, D.C., with whom Edward A. Caine and Mary Donn Jordan, Washington, D.C., were on the brief, for intervenor Potomac Electric Power Company. Altomease R. Kennedy and Sylvia L. Bateman, Washington, D.C., also entered appearances for intervenor Potomac Electric Power Co.

Frann G. Francis, Washington, D.C., entered an appearance for intervenor Apartment and Office Building Ass'n of Metropolitan Washington, Inc.

Before PRYOR, Chief Judge, and MACK and TERRY, Associate Judges.

TERRY, Associate Judge:

The Washington Metropolitan Area Transit Authority (WMATA) and the Office of People's Counsel (OPC) both appeal from an order by the Public Service Commission granting Potomac Electric Power Company (PEPCO) a rate increase in Formal Case No. 785. We reject all of petitioners' arguments and affirm the Commission's order.

I. BACKGROUND

In March 1982 PEPCO filed an application with the Public Service Commission for a general rate increase of $81,080,000, later amended to $88,475,000. It also requested an additional increase of $9,290,000 to reflect a proposed change in the gross receipts tax in a bill then pending before the District of Columbia Council. After the designation of issues and the submission of exhibits and testimony, the Commission held hearings in September 1982.

On December 21, 1982, the Commission announced its decision to grant PEPCO a base rate increase sufficient to generate an additional $34,003,000 in annual revenues. Eight days later, on December 29, the Commission issued Order No. 7716 setting forth the reasons for its decision. WMATA, PEPCO, and OPC filed applications with the Commission seeking reconsideration, all of which were denied on February 28, 1983, in Order No. 7751. WMATA and OPC bring these appeals challenging several aspects of the Commission's decision.

OPC argues that Chalk Point Unit 4 (CP-4), a power generating plant, was not "used and useful" and that PEPCO's decision to complete its construction was imprudent. As a result, OPC maintains, the Commission's decision permitting PEPCO to include an allowance for additional construction work in progress (CWIP) in its rate base was arbitrary and unreasonable. In addition, OPC contends that the Commission's decision allowing PEPCO to amortize over a ten-year period its loss resulting from the abandonment of Dickerson Unit 4 (DU-4), another generating plant, was arbitrary because, as in the case of CP-4, PEP-CO did not demonstrate that the planning and cancellation decisions involving DU-4 were prudent.

WMATA argues that the Commission should have adjusted PEPCO's test-year revenues upwards by an additional $627,035, attributable to WMATA's projected increase in electricity consumption due to the extension of subway service on its Red Line. The Commission's failure to make this adjustment, WMATA contends, rendered its decision arbitrary and unreasonable. Furthermore, WMATA argues that it received a disproportionate and discriminatory rate increase, that PEPCO's use of the average and excess demand/non-coincident peak methodology (AED/NCP) for allocating demand costs discriminated against it, and that it was unlawful to require WMATA to pay a rate which factored in PEPCO's payment of a gross receipts tax imposed by D.C.Code § 47-2501 (1981).

II. STANDARD OF REVIEW

The Commission, not this court, has the responsibility for setting utility rates and establishing rate designs. D.C.Code §§ 43-501, 43-601, 43-611 (1981); People's Counsel v. Public Service Commission, 472 A.2d 860, 862 (D.C.1984); Metropolitan Washington Board of Trade v. Public Service Commission, 432 A.2d 343, 350 (D.C.1981). In doing so, however, it must "arriv[e] at a fair balance between competing consumer and investor interests." People's Counsel v. Public Service Commission, 399 A.2d 43, 45 (D.C.1979); accord, People's Counsel v. Public Service Commission, 455 A.2d 391, 393 (D.C.1982).¹

Our review of a Commission order "is the narrowest judicial review in the field of administrative law." Potomac Electric Power Co. v. Public Service Commission, 402 A.2d 14, 17 (D.C.) (en bane) (citations omitted), cert. denied, 444 U.S. 926, 100 S.Ct. 265, 62 L.Ed.2d 182 (1979). Under D.C.Code § 43-906 (1981) it is "limited to questions of law, including constitutional questions; and the findings of fact by the Commission shall be conclusive unless . . . such findings . . . are unreasonable, arbitrary or capricious." See, e.g., United States v. Public Service Commission, 465 A.2d 829, 832 (D.C.1983). In reviewing a Commission order, we must determine whether its overall effect is just and reasonable, People's Counsel v. Public Service Commission, 455 A.2d 402, 403 (D.C.1982); Washington Public Interest Organization v. Public Service Commission, 393 A.2d 71, 76 (D.C.1978), cert. denied, 444 U.S. 926, 100 S.Ct. 265, 62 L.Ed.2d 182 (1979), and whether the Commission "has respected procedural requirements, has made findings based on substantial evidence, and has applied the correct legal standards to its substantive deliberations." Williams v. Washington Metropolitan Area Transit Commission, 134 U.S.App.D.C. 342, 362, 415 F.2d 922, 942 (1968) (footnote omitted), cert. denied, 393 U.S. 1081, 89 S.Ct. 860, 21 L.Ed.2d 773 (1969), cited with approval in Telephone Users Ass'n v. Public Service Commission, 304 A.2d 293, 296 (D.C.1973), cert. denied, 415 U.S. 933, 94 S.Ct. 1448, 39 L.Ed.2d 492 (1974).²

The Commission "has the burden of showing fully and clearly why it has taken the particular ratemaking action." Washington Public Interest Organization v. Public Service Commission, supra, 393 A.2d at 75; see Washington Gas Light Co. v. Public Service Commission, 450 A.2d 1187, 1193 (D.C.1982). "However, `[w]here the [Commission] has accompanied its ruling with the required full and careful explanation, that ruling is entitled to great deference.'" People's Counsel v. Public Service Commission, supra, 472 A.2d at 863, quoting from Washington Gas Light Co. v. Public Service Commission, 452 A.2d 375, 379 (D.C.1982), cert. denied, 462 U.S. 1107, 103 S.Ct. 2454, 77 L.Ed.2d 1334 (1983); see People's Counsel v. Public Service Commission, 462 A.2d 1105, 1108-1109 (D.C.1983).

III. OPC's CONTENTIONS

A. Chalk Point Unit 4

Construction of Chalk Point Unit 4 was begun in 1972 and completed in late 1981.³ In the rate proceeding, PEPCO sought to include in the rate base the full amount of its end-of-test-period investment.⁴ A majority of the Commission decided instead to allow PEPCO to include the average amount of test-period investment in the rate base. Chairwoman Ruth Hankins-Nesbitt dissented. She maintained that because CP-4 had operated only once during the test period, it was not "used and useful," and therefore PEPCO should not be allowed to recover "the full average value of CP-4 in rate base. . . ." Order No. 7716, dissent at 4 (emphasis added).

OPC adopts the argument in the dissent that CP-4 was not "used and useful," but carries it a step further and contends that the Commission should not have allowed PEPCO to include any allowance for additional CWIP in its rate base.⁵ Specifically, OPC argues that CP-4 was not used and useful because it rendered "extremely minor service" and because it was not until July 1982 that the unit provided "some service and demonstrated that it was reasonably free from significant design or construction defects and would continue to function in the proximate future."

"[A]n item may be included in a rate base only when it is `used and useful' in providing service. In other words, current rate payers should bear only legitimate costs of providing service to them." Tennessee Gas Pipeline Co. v. Federal Energy Regulatory Commission, 196 U.S.App. D.C. 187, 202, 606 F.2d 1094, 1109 (1979), cert. denied, 445 U.S. 920, 100 S.Ct. 1284, 63 L.Ed.2d 605 (1980); accord, Washington Gas Light Co. v. Public Service Commission, supra, 450 A.2d at 1226. In determining whether an item is used and useful, i.e., whether it benefits ratepayers, the Commission must consider the most recent available material, which would normally be found in post-test-year data. Potomac Electric Power Co. v. Public Service Commission, supra, 402 A.2d at 18.

The Commission noted that CP-4 was "being operated as a peaking unit" and that it would "continue to be in operation during the period that the rates resulting from this case [would] be in effect." Order No. 7716 at 62-63. The Commission also observed that Paul Waltz, an expert on its own staff,⁶ had "inspected the unit twice and . . . [found] it to be a good fuel oil cycling unit with good flexibility of operation." Id. at 63-64. Furthermore, it considered the testimony of a PEPCO witness, Edward Mitchell, who stated "that CP-4 incorporates heat rate...