Opinion ID: 1938909
Heading Depth: 2
Heading Rank: 1

Heading: The Holding in WGL I

Text: In WGL I, supra, we held that the Commission had no authority to disallow as a reasonable operating expense the wholesale purchase cost of natural gas approved by FERC, including that portion of wholesale costs attributable to GRI surcharges.... 452 A.2d at 386. Therefore, because the Commission had no jurisdiction to determine whether the GRI surcharges were reasonable operating expenses, it was unnecessary for us to reach,  and the Commission was unauthorized to consider, the issue whether the GRI charges benefit the District of Columbia ratepayers. Id. (emphasis added). [6] Since the Natural Gas Act provides for exclusive federal regulation of interstate sales of wholesale natural gas, [s]tate and local commissions have no authority ... to inquire into the reasonableness of wholesale rates, but must allow them as reasonable operating expenses. Id. at 385-386 (citations omitted). The holding in WGL I, therefore, is simple and straightforward: the Commission has no authority to rule on the reasonableness of GRI surcharges, and likewise has no authority to consider whether, for purposes of rate treatment, GRI surcharges benefit District of Columbia ratepayers. As WGL notes in its brief, our decision in WGL I is supported by a long, unbroken line of state cases involving state regulatory authority over local gas and electric rates. See, e.g., Public Service Co. v. Public Utilities Commission, 644 P.2d 933 (Colo.1982) (en banc); City of Chicago v. Illinois Commerce Commission, 13 Ill.2d 607, 150 N.E.2d 776 (1958); Eastern Edison Co. v. Department of Public Utilities, 388 Mass. 292, 446 N.E.2d 684 (1983); Northern States Power Co. v. Minnesota Public Utilities Commission, 344 N.W.2d 374 (Minn.), cert. denied, 467 U.S. 1256, 104 S.Ct. 3546, 82 L.Ed.2d 850 (1984); Northern States Power Co. v. Hagen, 314 N.W.2d 32 (N.D.1981); Narragansett Electric Co. v. Burke, 119 R.I. 559, 381 A.2d 1358 (1977), cert. denied, 435 U.S. 972 (1978); Spence v. Smyth, 686 P.2d 597 (Wyo.1984). This clear and unequivocal holding is accompanied by a footnote that appears after a citation to Public Utilities Commission v. FERC, 213 U.S.App.D.C. 1, 5, 660 F.2d 821, 825 (1981), cert. denied, 456 U.S. 944, 102 S.Ct. 2009, 72 L.Ed.2d 466 (1982). In citing that case, we noted that in it the court ruled that FERC has jurisdiction to approve GRI's program and budget and to rule on applications for rate increases submitted by GRI on behalf of the jurisdictional members. WGL I, supra, 452 A.2d at 385. Footnote 15, however, went on to say: [N]othing in the holding of the case can be read as extending FERC's jurisdiction to the issue of whether increased wholesale costs shall be passed through to retail customers by the local utility. The determination of the extent to which wholesale costs should be reflected in local utility rates lies exclusively with local utility commissions. See Narragansett Electric Co. v. Burke, [supra ]. The Commission's refusal to allow increased GRI charges to be reflected in retail rates in the instant case, however, was based upon the Commission's erroneous conclusion that the increase in wholesale costs was not a just and reasonable operating expense, rather than upon a determination that the expense should not be passed through to retail customers. Id. at 385 n. 15. The Commission now cites footnote 15 for the proposition that, although it may not rule that the FERC-approved surcharges are unreasonable operating expenses, it may nevertheless refuse to allow WGL to pass those surcharges on to its retail customers. Thus, the Commission argues, when this Court said that the Commission must `allow' wholesale rates as a reasonable operating expense ... this Court merely meant that the Commission could not represent the expenses as unreasonable expenses. And because [t]he only object foreclosed to the Commission is investigation for the purpose of ascertaining the reasonableness of GRI expenses ... the Commission had authority to establish a methodology which may lead it to disallow, in future rate cases, some or all of WGL's GRI expense. We cannot accept the Commission's interpretation of WGL I. Under the present law, natural gas owners are entitled to recover from their customers all legitimate costs associated with the production, processing, and transportation of natural gas. Maryland v. Louisiana, 451 U.S. 725, 748, 101 S.Ct. 2114, 2130, 68 L.Ed.2d 576 (1981) (citation omitted). If the Commission is without authority to represent the GRI surcharges as unreasonable expenses, then it is also without authority to prohibit WGL from passing those expenses through to the ratepayers. Not only is this result consistent with common sense, but it is constitutionally mandated, because under the due process clause of the Constitution no public utility [can] be compelled to absorb its own costs and not pass them on to the consumer. Public Service Commission v. FPC, 151 U.S.App.D.C. 307, 316, 467 F.2d 361, 370 (1972). Moreover, public utilities are required in the District of Columbia to charge rates that are reasonable, just, and nondiscriminatory. D.C.Code § 43-501 (1981). This statutory authority is deliberately broad and gives the Commission authority to formulate its own standards and to exercise its ratemaking function free from judicial interference, provided the rates fall within a zone of reasonableness.... Metropolitan Washington Board of Trade, supra, 432 A.2d at 350. Nevertheless: Implicit in rates which are just and reasonable is the right of the utility and its investors to a reasonable return as well as the consumers right to pay a rate which reflects the cost of service rendered plus a reasonable profit.... These considerations require a determination of the operating expenses of the utility and, in order for an allowance for a return on the investments, the retail rate must be over and above the expenses. Northern States Power Co. v. Hagen, supra, 314 N.W.2d at 37 (emphasis added). It necessarily follows, therefore, that if the Commission is required by WGL I (as it is) to consider the FERC-approved GRI surcharges as reasonable operating expenses, then it must permit those expenses, in their entirety, to be passed through to the ratepayers in a ratemaking proceeding. As another court stated almost forty years ago: Expenses (using that term in its broad sense to include not only operating expenses but depreciation and taxes) are facts. They are to be ascertained, not created, by the regulatory authorities. If properly incurred, they must be allowed as part of the composition of the rates. Otherwise, the so-called allowance of a return upon the investment, being an amount over and above expenses, would be a farce. Mississippi River Fuel Corp. v. FPC, 82 U.S.App.D.C. 208, 212, 163 F.2d 433, 437 (1947) (emphasis added). This court has likewise held that operating expenses [which] pertain solely to the supplying of a utility's service ... are chargeable to the ratepayers and directly affect prices paid by the consumer. People's Counsel v. Public Service Commission, 399 A.2d 43, 48 (D.C.1979) (citations omitted). We therefore conclude that the Commission's interpretation of our decision in WGL I is contrary to established law. Because FERC-approved GRI surcharges must be considered as reasonable operating expenses, as we made clear in WGL I, they are properly incurred and must be allowed as part of the composition of the rates. Mississippi River Fuel Corp. v. FPC, supra, 82 U.S.App.D.C. at 212, 163 F.2d at 437. The Commission has no power to rule otherwise.