Washington Gas Light Co. v. Public Serv. Com'n

• Decision Date: 29 October 1982
• Docket Number: No. 81-232.,No. 81-229.,81-229.,81-232.
• Citation: 452 A.2d 375
• Parties: WASHINGTON GAS LIGHT COMPANY, Petitioner, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent, Office of People's Counsel of the District of Columbia, Intervenor. OFFICE OF PEOPLE'S COUNSEL OF the DISTRICT OF COLUMBIA, Petitioner, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent, Washington Gas Light Company, Intervenor.
• Court: D.C. Court of Appeals

452 A.2d 375

WASHINGTON GAS LIGHT COMPANY, Petitioner, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent, Office of People's Counsel of the District of Columbia, Intervenor.

OFFICE OF PEOPLE'S COUNSEL OF the DISTRICT OF COLUMBIA, Petitioner, v. PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Respondent, Washington Gas Light Company, Intervenor.

No. 81-229.

No. 81-232.

District of Columbia Court of Appeals.

Argued September 24, 1981.

Decided October 29, 1982.

COPYRIGHT MATERIAL OMITTED

Telemac N. Chryssikos, with whom Lewis Carroll and Monte R. Edwards, Washington, D.C., were on briefs, for petitioner in No. 81-229 and intervenor in No. 81-232.

Lloyd N. Moore, Jr., Gen. Counsel, Washington, D.C., for respondent.

Elizabeth A. Noel, Deputy People's Counsel, with whom Brian J.H. Lederer, People's Counsel, Washington, D.C., was on briefs, for intervenor in No. 81-229 and petitioner in No. 81-232.

James M. Broadstone, Christopher T. Boland, Washington, D.C., Peter C. Lesch, and Steve Stojic filed an amicus curiae brief on behalf of Gas Research Institute.

Before KELLY, HARRIS^* and BELSON, Associate Judges.

BELSON, Associate Judge:

Petitioner, Washington Gas Light Company (WGL or Company) sought a rate increase of $17.8 million. Cross petitioner, Office of People's Counsel (OPC) generally opposed it. On November 10, 1980 the Public Service Commission of the District of Columbia (PSC or Commission) awarded an increase of $11.9 million. Both WGL and OPC were dissatisfied and petitioned this court for redress. We conclude that the PSC made two erroneous rulings unfavorable to WGL, but that the errors were not consequential enough to warrant remand with instructions to grant relief. We also conclude that the Commission failed to explain its reasons for the adoption of a formula used to allocate certain expenses among the three jurisdictions served by WGL, and remand for the necessary explanation.

The ratemaking proceedings commenced on June 29, 1979, upon application by WGL for a permanent increase in its rates and charges for retail gas service within the District of Columbia. Evidentiary hearings began in January, 1980, and concluded in April, 1980. On October 3, 1980, the Commission issued a Proposed Order, which was followed by a Final Order on November 10, 1980, approving a new rate schedule effective as of that date. Applications for reconsideration filed by the parties were denied on December 24, 1980, and these petitions for review followed.

WGL appeals the Commission's disallowance of increased Gas Research Institute expenses approved by the Federal Energy Regulatory Commission (FERC) and the disallowance of market pressure and flotation cost adjustments. OPC appeals the Commission's decisions concerning WGL's cash working capital allowance and the amount of the market re-entry adjustment to WGL's revenue requirement. Both parties appeal the Commission's adoption of the modified "Massachusetts Formula" to allocate a share of administrative and general expenses to District of Columbia operations.¹

I. SCOPE OF REVIEW

The limited nature of our review of orders of the PSC is defined by D.C.Code 1981, § 43-906 which provides:

[R]eview 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.

We have discussed the scope of our review in several opinions.² There is no need to repeat here what we have said before. However, one aspect of our review function bears emphasis. In Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S.Ct. 281, 287, 88 L.Ed. 333 (1944), the United States Supreme Court stated:

It is not theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the Act is at an end. The fact that the method employed to reach that result may contain infirmities is not then important.

That language has often been quoted, and properly so, to underscore the narrow review powers of the courts in this area. Since our review power over the PSC is comparable to the authority vested in the federal courts to review Federal Energy Regulatory Commission orders, the language is applicable here. Washington Public Interest Organization v. Public Service Commission, D.C.App., 393 A.2d 71, 75 (1978), cert. denied, 444 U.S. 926, 100 S.Ct. 265, 62 L.Ed.2d 182 (1979). Yet the language is somewhat broad, especially in its emphasis on the end result. Obviously, it does not mean that the courts are not to review at all the methods by which the agency arrives at its result. The United States Supreme Court has recognized the regulatory commission's duty to indicate "fully and carefully the methods by which, and the purpose for which it has chosen to act." Permian Basin Area Rate Cases, 390 U.S. 747, 792, 88 S.Ct. 1344, 1373, 20 L.Ed.2d 312 (1968). Some elaboration is required, therefore, in order to apply the language in Hope to a case like the one before us.

That elaboration has been forthcoming in cases such as Washington Public Interest Organization, and Mississippi River Fuel Corp. v. Federal Power Commission, 82 U.S. App.D.C. 208, 163 F.2d 433 (1947). In the former, Judge Ferren wrote for this court:

While it is true that a regulatory commission cannot be faulted for its methodology if the "total effect of the rate order cannot be said to be unjust and unreasonable," Federal Power Comm'n v. Hope Natural Gas Co., supra, 320 U.S. at 602, 64 S.Ct. at 288, it is also true that the ethodology must be disclosed for the bearing it may have on that overall judgment. Absent precise explanation of methodology as applied to the facts of the case, there is no way for a court to tell whether the Commission, however expert, has been arbitrary or unreasonable. [Washington Public Interest Organization v. Public Service Commission, supra at 76-77.]

Earlier in Mississippi River Fuel Corp., supra, Judge Prettyman had written:

. . . The discretion which must be exercised is that of the Commission. Congress has confided that function to it. At the same time, Congress has forbidden arbitrary actions and has imposed upon the courts a duty of review in that respect. Arbitrary action, if it means anything, means action not based on facts or reason. The discretion and judgment confided in the Commission must be exercised upon facts and for reason. The duty to review imposed upon the courts requires that the facts be found and the reasons stated. Otherwise, the courts cannot determine whether a given action is or is not arbitrary.

The Congressional provisions extend to complicated, difficult matters as well as to simple questions. The courts cannot evade their responsibility merely because the subject matter is obscure. And neither can they be required to probe the minds of the agency for unfound facts or unexpressed reasons. The coordination of the two functions of administrative discretion and judicial review requires that the facts upon which the discretion is exercised, and the reasons, be clearly and completely stated. When the matter is complicated, the necessity is greater. [Id. at 214, 163 F.2d at 439 (footnotes omitted).]

Where the PSC has accompanied its ruling with the required full and careful explanation, that ruling is entitled to great deference. In Metropolitan Washington Board of Trade v. Public Service Commission, D.C.App., 432 A.2d 343, 352 (1981), Judge Gallagher stated for this court:

Once the Commission has satisfied this initial burden and has issued a decision, however, the burden of petitioner on appeal to demonstrate reversible error is considerable. More than a difference of opinion with the Commission must be asserted, for "[t]he court's responsibility is not to supplant the Commission's balance of [the relevant public] interests with one more nearly to its liking, but instead to assure itself that the Commission has given reasoned consideration to each of the pertinent factors." Id. Petitioner therefore must establish "clearly and convincingly a fatal flaw in the action taken. . . ." [Quoting Goodman v. Public Service Commission, D.C.App., 309 A.2d 97 at 101 (1973).]

In reviewing the actions of the PSC which are the subjects of the challenges before us, we bear in mind both the deference to be paid the agency's authority and expert judgment and our responsibility to see to it that we have before us the full and careful explanation of the basis for agency action necessary to permit us to carry out the review function demanded by statute and precedent.

We will first address contentions which relate to rate base, and then proceed to issues relating to rate of return, revenues, and expenses.

II. CASH WORKING CAPITAL ALLOWANCE

OPC asserts that the Commission erred in that the cash working capital allowance it awarded WGL was excessive. Cash working capital allowance is defined as "an amount which the company (investors) must supply from its own funds for the purpose of enabling it to meet current obligations as they arise due to the time lag between payment of expenses and collection of revenues." People's Counsel v. Public Service Commission, D.C.App., 399 A.2d 43, 46 (1979) (citation omitted) (emphasis in original). Since investors are entitled to a return on these advances, a cash working capital allowance is included in the rate base.

WGL requested a cash working capital allowance of $6,084,750. OPC recommended an allowance of negative $537,000. The Commission denied WGL's request for inclusion of compensating bank balances in the allowance, but otherwise approved WGL's request and awarded the company a cash working capital allowance of $5,453,000. Although the company requested a higher amount, it does not appeal this portion of the Commission's order. OPC...