Opinion ID: 2355085
Heading Depth: 3
Heading Rank: 1

Heading: Management and Supervision

Text: The Town of Wiscasset cross-appeals from the Commission's treatment of the management and supervision expenses incurred by the Company, including those charged it by its parent, Consumers Water Company. Maine Water presented evidence of the management and supervision expenses for each of its five divisions, ranging from $43.38 per customer in Wiscasset to $17.03 per customer in Oakland, for an average of $25.76 per customer Company-wide. The Company had the burden to prove the reasonableness of its expenses, see 35 M.R.S.A. § 64 (Supp.1983-1984), and the Commission found that the Company had failed to satisfy that burden. The Company has not appealed that finding. In place of the Company's requested per customer expense allowance of an average of $25.76, the Commission determined a per customer management and supervision expense by examining the expenses of 43 other water utilities having between 300 and 800 customers, the range in size of the five divisions of Maine Water Company. [7] The Commission had developed this method in Re Mechanic Falls Water Co., 13 P.U. R.4th 347 (Me.Pub.Util.Comm'n 1976), and on appeal this court had approved the method as a permissible one. See Mechanic Falls Water Co. v. Public Utilities Commission, 381 A.2d 1080, 1099 (Me. 1977). Since the Mechanic Falls method here yielded an average management and supervision expense of $19.80 per customer in those 43 water utility comparable, the Commission allowed Maine Water 76.9% of each division's expense, representing the ratio of $19.80/$25.76. As a consequence, the Commission allowed a reduced management and supervision expense for each division, ranging from $33.34 per customer in Wiscasset to $13.09 per customer in Oakland, for an average of $19.80 per customer Company-wide. On our review of this expense allowance, as on the other expense and rate base issues raised on the cross-appeals, the Commission's decision is entitled to considerable deference. Absent a demonstrable error of statutory or constitutional law, we will review the Commission's orders only for an abuse of discretion. See New England Telephone & Telegraph Co. v. Public Utilities Commission, 448 A.2d 272, 278-79 (Me.1982). In that review, as we have recently explained, [t]he Commission has broad discretion in selecting among various rate-making methodologies, provided that they are reasonably accurate. [Citation omitted] The Commission is not required to manipulate its methodologies to eliminate every shred of suggested inaccuracy. New England Telephone & Telegraph Co. v. Public Utilities Commission, 470 A.2d 772, 776 (Me.1984). We will uphold the action of the Commission so long as it is reasonable and supported by substantial evidence. See Mars Hill & Blaine Water Co. v. Public Utilities Commission, 397 A.2d 570, 575-76 (Me.1979). Wiscasset first argues that since the burden of proof rests on the Company, the Commission cannot go outside the Company's proof and select data from other utilities to substitute for deficiencies in the Company's evidence. It is true that when a utility files a request for a rate change, the burden of proof to show that such change is reasonable shall be upon the public utility. 35 M.R.S.A. § 69 (Pamph. 1983-1984). The statute places on the utility the burden of original production, as well as of ultimate persuasion. Where, however, the Commission finds the Company's proof of the reasonableness of a particular expense inadequate, the Commission is not required to treat the matter as if the Company had no such expense at all. Much of the Commission's expertise would be wasted if it were not allowed to use information available to it, regardless of the source of that information. Utility commissions may make reasonable assumptions or use relevant outside data to fill in the holes in either party's proof in a rate proceeding. See, e.g., Boise Water, 99 Idaho at 160, 578 P.2d at 1091 (use of consumer price index to measure change in affiliate costs where more reliable data is lacking). In pursuit of its ultimate goal of setting just and reasonable rates, the Commission may set intracorporate expenses by reference to facts other than those brought forth by the public utility. See Washington Water Power Co. v. Public Utilities Commission, 105 Idaho 276, 281, 668 P.2d 1007, 1012 (1983) (court looks to facts shown in commission order, not facts proven by utility, in upholding order substituting parent's rate of return for subsidiary's reasonable expenses); Montana-Dakota Utilities Co. v. Bollinger, 632 P.2d 1086 (Mont.1981) (where commission invalidates parent-subsidiary expenses, commission must make its own factual findings). As with the initial proof burden on the public utility, the substitute facts used by the Commission must have a rational connection to the element of expense at issue. See Boise Water, 99 Idaho at 160, 578 P.2d at 1091. Wiscasset's second argument on the management and supervision expense issue is that the data from the other utilities chosen for comparison are not rationally connected to Maine Water's expenses. Wiscasset argues that the choice of utilities having 300 to 800 customers is improper because the five divisions of Maine Water in the aggregate serve upwards of 3,000 customers. We cannot agree. The Commission made that comparison in light of the 300 to 800 customer size of Maine Water's divisions. A comparison of Maine Water to other single-system utilities with 3,000 customers would ignore the distinctive separation of Maine Water into geographically isolated divisions. The Commission could reasonably believe that the five divisions, as separate water systems in various parts of the state substantially removed from one another, create managerial and supervisory problems not likely to be encountered by a unitary water system serving customers in a single compact area. As a third point Wiscasset argues that the Commission erred in not allocating certain Company-level management and supervision expenses on a per-customer basis. The Commission found the per-division allocation system used by the Company reasonable in light of the unique problems associated with the management and supervision of a multi-divison operation. As the Commission found, Many functions must be performed no matter how many customers a company has and are therefore dependent on the very fact that there is a company or division rather than upon the number of customers. We find no error in the Commission's reduced allowance of management and supervision expenses in each of the Company's divisions.