Opinion ID: 2329366
Heading Depth: 1
Heading Rank: 2

Heading: the csi expenses

Text: C & P contends that the Commission acted arbitrarily when it disallowed recovery from the ratepayers of the expenses C & P had incurred for services performed by Bell Atlantic Corporate Services, Inc. (CSI). We reverse this part of the Commission's order and remand for further proceedings. CSI, a subsidiary of Bell Atlantic, provides centralized corporate services such as treasury operations, investor relations, financial and tax planning, corporate communications, legal advice, and administration of employee benefits to both the regulated and unregulated subsidiaries of Bell Atlantic, including C & P. CSI bills the costs associated with the regulated subsidiaries to Bell Atlantic Management Services, Inc. (MSI), which then bills C & P and the other regulated companies according to established cost allocation factors. Work performed by CSI for unregulated entities is billed directly to them. Order No. 8300 at 109. Traditionally, the Commission has taken the position that C & P has a special burden to justify the reasonableness of expenses incurred by one of its affiliates. Chesapeake & Potomac Telephone Co., 43 Pub.Util.Rep. 4th 169, 207 (D.C.PSC 1981). Recently the Commission expressed its concern over the growth in centralized service expenses and the lack of control by C & P over those expenses charged to ratepayers. See Chesapeake & Potomac Telephone Co., 56 Pub.Util.Rep. 4th 53, 87 (D.C.PSC 1983). The Commission announced that in the future none of the centralized service expenses could be charged to the ratepayers unless they were properly identified, justified, and supported in the record, on an activity-by-activity basis. Id. at 89. In addition, the Commission required C & P to prove that the expenses were reasonable and that they benefited the ratepayers of the District of Columbia. See Order No. 8300 at 114 n. 54. In the present case, the Commission found that although C & P had basically provided the necessary information regarding the activity-by-activity costs and the methods of allocation of CSI's services and expenses, it ha[d] not fully met its burden of proof as to a justification for all of those costs. Order No. 8300 at 114. [2] The Commission concluded that sufficient justification for all of the CSI expenses simply does not exist, mainly because the allocation method employed is based upon a measure of capital and because this may well work to the detriment of capital-intensive companies. Id. In the Commission's view, no attempt had been made to segregate costs according to the actual extent of usage of CSI services by the various [operating companies], and the C & P witnesses had failed to provide sufficient assurance that ... C & P has not been allocated the expenses of services used by other entities. Id. The Commission therefore disallowed all CSI expenses. C & P challenged this decision in a motion for reconsideration, principally asserting that the Commission was mistaken in its belief that CSI expenses were allocated on the basis of the operating companies' capital. The Commission, however, reaffirmed its earlier decision on the ground that C & P in its testimony simply did not provide `sufficient assurance that the costs are fairly allocated', i.e., that C & P had not met its burden of proof sufficiently. Order No. 8329 at 3, quoting from Order No. 8300 at 114. The Commission expressly stated that it recognized that the CSI expenses are not allocated solely on the basis of capital. Order No. 8329 at 3. The Commission has only partially met its obligation to explain its actions fully and clearly. Washington Public Interest Organization, supra, 393 A.2d at 75. It did announce the criteria by which it would decide whether CSI expenses might be allowed: [3] the expenses had to be identified, justified, and supported in the record, on an activity-by-activity basis. Chesapeake & Potomac Telephone Co., supra, 56 Pub. Util.Rep. 4th at 89. The Commission failed, however, to explain how the particular rate order reflect[ed] application of these criteria to the facts of the case. Washington Public Interest Organization, supra, 393 A.2d at 75. The Commission never adequately explained why, if C & P basically provided the necessary information regarding the activity-by-activity costs and the methods of allocation, Order No. 8300 at 114, as it had been instructed to do, it nonetheless failed to meet its burden of proof. [4] The Commission stated as reasons for its action that there was no attempt to segregate costs according to the actual extent of usage of CSI services by the various operating companies and that the problem relate[d] principally to the fact that the allocation method employed is basically based upon a measure of capital. Order No. 8300 at 114; see also Order No. 8329 at 3. For three reasons, this meager explanation does not support the Commission's decision. First, the Commission recognized that capital was only one of several bases for allocation of expenses, yet it also found that the allocation method employed [was] basically based upon a measure of capital. Order No. 8300 at 114. The Commission cannot have it both ways: it cannot recognize that capital is one of several factors in the allocation method while concluding that C & P failed to meet its burden because the allocation method is basically based upon a measure of capital. These two propositions are inherently inconsistent. Second, in its motion for reconsideration C & P asserted that 44 percent of the CSI expenses were allocated on non-capital bases. The Commission never explained why, as to these expenses, the allocation methods used may have caused C & P to pay more than its fair share of the CSI expenses. What may have been true for the 56 percent of expenses that were capital-based was not necessarily true for the 44 percent that were not capital-based. The Commission failed to recognize this distinction or to take it into account in its ruling. [5] Most importantly, the Commission failed to make a finding as to whether C & P actually was allocated expenses for services provided to other companies. A fundamental principle of utility regulatory law is that properly incurred expenses must be allowed as part of the composition of the rates. Mississippi River Fuel Corp. v. FPC, 82 U.S.App.D.C. 208, 212, 163 F.2d 433, 437 (1947). Without a finding on the issue of whether the expenses C & P claimed were or were not properly allocated to C & P, we cannot determine whether C & P will be allowed to recover its properly incurred expenses or whether the Commission's order disallowing the CSI expenses is supported by substantial evidence, as we are required to do. In sum, we hold that the Commission inadequately explained its decision and thus failed to carry its burden. See Washington Public Interest Organization, supra, 393 A.2d at 75-77. The Commission's failure may be attributable to the utility companies' own failure, as proponents of the order, to supply a sufficient quality of evidence in support; or the Commission's failure may be due solely to its insufficient explanation of the reasonableness of the order. In either event, a remand [is] necessary. Id. at 76-77. [6]