Opinion ID: 1526377
Heading Depth: 1
Heading Rank: 5

Heading: employee discount issue

Text: Full time and retired Central Maine Power employees receive, and have received for many years, a one-third discount on their residential electric bills, excluding fuel charges. This employee discount was held by the Commission to be  not a reasonable form of employee compensation  in these circumstances, [35] and its cost disallowed as an expense for ratemaking purposes. The disallowance increased Central Maine Power's net operating income by $121,000. The Commission's rationale was: . . . Central Maine's discount is not a reasonable form of employee compensation. The level of benefits received by any given employee depends solely upon his or her level of electricity use, not upon his or her position with the Company, similarly, salary, or any other objective standard for employee compensation. The same is true for the discount as applied to retired employees. In this era of energy shortages and rising marginal costs of producing electricity, we find it unreasonable for the Company to provide a discount in order to promote electricity use. We sustain Central Maine Power's appeal on this issue. We begin by noting that 35 M.R.S.A. § 103 provides in relevant part,  nor shall it be unlawful for any public utility to make special rates to its employees . . . The Commission, however, contends that notwithstanding the legality of such discount, its promotional effect makes it unreasonable in the present period of energy shortages and rising marginal costs of producing electricity. The Commission reasons, its mandate under 35 M.R.S.A. § 51 to insure  just and reasonable  rates justified its disallowance. In New England Tel. & Tel. Co. v. Public Utilities, 390 A.2d 8 (1978), we held that the Commission properly deducted $16,000 of charitable contributions and $1,000 in lobbying expenses from New England's operating expenses for ratemaking purposes. 390 A.2d at 55-57. We there agreed with the Commission that whether to allow such costs to be deducted as ratemaking expenses is  inherently a policy decision.  390 A.2d at 55. The Commission now urges that we declare the matter of employee discounts to likewise be a policy matter primarily entrusted to the Commission's discretion. This we decline to do. The Commission cites Re Chesapeake and Potomac Telephone Co., 16 P.U.R.4th 314, 316 (D.C.P.S.C.1976) as at least one commission which has  expressly recognized  that the regulatory treatment of discounts is a matter of policy within Commission's discretion. Although we are not wholly convinced that the citation provided necessarily stands for that proposition, [36] we do not in any event find it determinative. The Commission's first objection to the discount is that it is provided to all qualified employees without regard to position, seniority, or other differentiating factors. The Commission has routinely recognized the propriety, in past rate cases, of undifferentiated employee benefits such as insurance and hospitalization costs. We note, also, that discounts which differentiate by seniority, salary, or status have been treated critically by commissions in other jurisdictions. See, e. g., Re: Chesapeake & Potomac Telephone Co. of Maryland, 13 P.U. R.4th 293, 303 (Md.P.S.C.1976); Re: Michigan Bell Tel. Co., 15 P.U.R.4th 209, 219-20 (Mich.P.S.C.1976); Re New England Tel. & Tel. Co., 11 P.U.R.4th 297, 303 (Mass.D.P.U. 1975). Without deciding whether discounts, if offered, must be undifferentiated, or that, as the Michigan P.S.C. concluded [ n ] o rational explanation . . . justifies additional benefits to certain employees to the exclusion of others,  15 P.U.R.4th at 220, we can discern no legitimate objection to a lack of differentiation. The Commission's second ground for objection is that the discount is promotional of electrical use and thus unreasonable in an era of energy shortages. Central Maine Power argues that no evidence or argument was presented to show that employees' electrical consumption is greater than non-employees' because of the discount, and that  a finding of unreasonableness [ of the discount ] cannot be made on the basis of such a bare record as was made here.  Berry v. Maine Public Utilities Commission, Me., 394 A.2d 790, 794 n.13 (1978). The Commission, however, assembles in its brief portions of testimony which, when combined and analyzed, allegedly demonstrate such excessive consumption. [37] Both Central Maine Power and the Commission agree that the discount was originally offered for promotional purposes in earlier years of energy surpluses; both parties now agree that promotion of electrical consumption is to be avoided. Similar discount issues have arisen most frequently in instances of telephone service. The early cases approved such discounts on grounds of efficiency and promotion. These justifications, however, have recently come under increasingly frequent attack. See, e. g., Re Chesapeake & Potomac Tel. Co., 16 P.U.R.4th at 315 (D.C.P.S.C.1976); Re Michigan Bell Telephone Co., 15 P.U. R.4th 209, 220 (Mich.P.S.C.1976); Re Mountain States Tel. & Tel. Co., 95 P.U.R.3d 130, 133 (Colo.P.U.C.1972). Significantly, however, in each of these instances the commissions ultimately allowed the discounts, except to the extent that they exceeded an approved tariff or differentiated among employees ( e. g., Re Michigan Bell, supra ) or applied during system peaks ( Re Mountain States Tel. & Tel. (Colo.), supra ). The regulatory commissions approving such discounts have cited several factors which we find relevant here. First, several commissions have given weight to the reliance on past practice by recipients of the discount. Accordingly, they have either wholly upheld the practice, Re Chesapeake & Potomac Tel. Co., 16 P.U.R.4th 314, 315 (D.C.P.S.C.1976) or continued it as to retirees while gradually phasing it out as to those found ineligible, Re Chesapeake & Potomac Tel. Co. of Maryland, supra at 301-303; Re Mountain States Tel. & Tel. Co., 95 P.U.R.3d 130, 133-134 (Colo.P.U.C. 1972). However, the determinative factor in most cases has been either the practical effect of discontinuing the discount (i. e., the prospect of a demand for corresponding wage increases) or a reluctance to interfere with the understandings reached between a utility and its employees. Our decision turns on the latter factor, although we are not unmindful of the significance of others discussed in the cases. In Central Maine Power v. Public Utilities Commission, 153 Me. 228, 136 A.2d 726 (1957) we sustained Central Maine Power's appeal from a Commission ruling excluding certain promotional expenses from the revenue required. We there cited West Ohio Gas Co. v. Public Utilities Commission of Ohio, 294 U.S. 63, 72, 55 S.Ct. 316, 321, 79 L.Ed. 761 (1935): [ g ] ood faith is to be presumed on the part of the managers of a business. . . . In the absence of a showing of inefficiency or improvidence, a court will not substitute its judgment for theirs as to the measure of a prudent outlay.  Similarly, we accepted the principle, articulated by the Supreme Court of Vermont, that The function of a public service commission is that of control and not of management, and regulation should not obtrude itself into the place of management. . . . . . This rule is recognized in all of the cases. This matter of salaries and advertising expense calls for the exercise of judgment on the part of the management of the company. Good faith on its part is to be presumed. Although these expenses should be scrutinized with care by the commission they should not be disallowed or reduced unless it clearly appears that they are excessive or unwarranted or incurred in bad faith. Petition of New England Tel. & Tel. Co., 115 Vt. 494, 66 A.2d 135, 145 (1949). Employee discounts are indisputably a form of employee compensation. Whether directly incorporated within a collective bargaining agreement, or merely a standard and accepted pre-requisite of employment, such discount surely constitutes value given the employees by the Company in partial exchange for past or present services. [38] We, therefore, discern no good reason for distinguishing between management prerogatives respecting salaries recognized in our 1958 Central Maine Power decision and those applicable to the matter of employee discounts. The employee discount at issue here does not constitute  undue or unreasonable  discrimination, prohibited by 35 M.R.S.A. § 102. Ruling on a challenge to telephone service discounts provided clergy, newspapers, municipalities, and employees, the Arizona Corporation Commission invalidated those in the first three categories, but held that the employee discount is not discriminatory as it is given in partial consideration to the employee for services provided to the company and can be justified on that basis. Re The Mountain States Tel. & Tel. Co., 8 P.U.R.4th 547, 556 (Ariz.C.C.1975). Moreover, the Legislature's specific exemption of, inter alia, a utility's employees from the prohibition in § 103 of  rebate [ s ] discount [ s ] or discrimination  adequately answers challenges premised on § 102. There is some dispute whether, were a discount disallowed, a utility's expenses would ultimately be reduced. Nearly every commission upholding such discounts has concluded that denial of discounts would result in employee demands for equivalent compensation.  Equivalent  cash compensation, several commissions have observed, would in fact likely be more expensive than  free  service. [39] Whether this phenomenon would in fact occur is a  question . . . not free from doubt.  Re Chesapeake & Potomac Tel. Co., supra at 315, citing 15 P.U.R.4th 302. [40] It is a question, however, that we find unnecessary to resolve. The New York Public Service Commission, considering this issue some 25 years ago, concluded that abolition of the discount would not result in a saving to the public. They continued: That alone would be sufficient reason to refuse to prohibit the practice but this decision is not based on such narrow grounds. The Commission has repeatedly asserted its position that it will not interfere with the collective bargaining rights which have become inherently part of our American system and that any payment or benefit given labor, in the absence of proof of bad faith, is presumptively a proper expenditure for fixing rates. Any effort on our part to curtail or limit a reduced telephone rate to employees would be as improper as if we were to attempt to fix the number of paid holidays or limit any other right which has been given as a result of an understanding between employer and employee. Re New York Telephone Co., 5 P.U.R.3d 33, 58 (N.Y.P.S.C.1954). See also, Re Chesapeake & Potomac Tel. Co., 36 P.U.R.3d 417, 424 (W.Va.P.S.C.1960). A regulatory commission owes a degree of deference to the judgment of management in the establishment of employee compensation packages. Where, as here, the road chosen by management is arguably at least as economical as any alternative, and the benefit does not clearly appear to be  excessive, or unwarranted, or incurred in bad faith , management's judgment must be respected. Central Maine Power Co. v. Public Utilities Comm., 153 Me. 228, 244, 136 A.2d 726, 736 (1957). [41] See Berry v. Maine Public Util. Comm., supra at 794; Cf. Casco Bay Lines v. P.U.C., Me., 390 A.2d 483, 494 (1978) (liability insurance expense). We need not, and do not, decide that the entire spectrum of matters relating to employee compensation is beyond the reach of the Commission's regulatory powers. We have clearly held to the contrary in the past. See e. g., Casco Bay Lines v. Public Utilities Comm., supra at 492-494. We hold only that we cannot find, in this record, any substantial evidence justifying the Commission's interference with a reasonable managerial judgment.