Opinion ID: 1933514
Heading Depth: 1
Heading Rank: 1

Heading: public utilities commission oversight

Text: The Supreme Court has a limited power of review in regulatory proceedings. Our authority is restricted to a review [of] decisions and orders of the commission in order to assess their legality and reasonableness. Providence Gas Co. v. Malachowski, 600 A.2d 711, 714 (R.I. 1991); see § 39-5-1. Even though we may reverse, affirm, or remand orders of the commission, we afford great deference to decisions of the Public Utilities Commission in its rate-making regulatory capacity. 600 A.2d at 714; § 39-5-4. We do so because the Legislature has mandated that we cannot reverse an order of the commission unless it exceeded its authority or acted illegally, arbitrarily, or unreasonably. Section 39-5-3. In our review, a party challenging a rate that the commission approves must overcome the presumption that the commission's conclusions are reasonable unless shown otherwise by clear and convincing evidence. In re Woonsocket Water Department, 538 A.2d 1011, 1014 (R.I. 1988); see Providence Gas Co., 600 A.2d at 714. Our review of factual conclusions is also limited. We must presume that the factual findings of the commission are prima facie evidence of truth over which we cannot exercise our independent judgment or weigh conflicting evidence. Section 39-5-3. See Providence Gas Co., 600 A.2d at 714; South County Gas Co. v. Burke, 551 A.2d 22, 24 (R.I. 1988); Woonsocket Water Department, 538 A.2d at 1014. The role of factfinder is expressly reserved for the commission, and this court may not substitute its judgment for the commission's. Providence Gas Co., 600 A.2d at 714. The theory underlying the PWSB's petition for certiorari is that § 39-3-11.1 circumscribes the commission's oversight of the PWSB's retroactive rate filing. Our analysis therefore explores the breadth of the commission's authority and the limitations placed upon it by the retroactive rate-making enactment. Both statutory and case law afford the commission broad power to oversee the regulatory rate-making process. Our Legislature was the first in the nation to vest its utility-oversight responsibilities in an administrative agency. C. Phillips, The Regulation of Public Utilities 122 (1988). In title 39 of the General Laws the Legislature has set forth the extent of the commission's jurisdiction and authority. We have interpreted the provisions in § 39-1-1 to allow the commission to address the myriad of complex problems associated with regulatory proceedings. South County Gas Co., 551 A.2d at 25. In order to promote its policies, the Legislature has empowered the commission with a complete administrative system to gather and evaluate technical evidence. Woonsocket Water Department, 538 A.2d at 1014. Moreover, the Legislature has specifically made the PWSB subject to the commission's review. Roberts v. Providence Water Supply Board, 455 A.2d 316, 317 n. 2 (R.I. 1983). That review exceeds mere regulation. Section 39-1-1 vests the commission with the power to regulate and to supervise the conduct of the PWSB for the purpose of controlling its efficiency and protecting the public against improper and unreasonable rates. Section 39-1-1(c). The PWSB argues that § 39-3-11.1 restricts the otherwise broad oversight powers of the commission. The statute provides in part: Changes in rates of publicly owned water authorities.  (a) Notwithstanding any other provisions of this chapter, the commission shall not have the power to suspend the taking effect of any change or changes in the rates    [of] any public waterworks or water service owned or furnished by a city, town, or any other municipal corporation    when the change or changes are proposed to be made solely for the purpose of making payments or compensation to any city or town for reimbursement of any loans or advances of money previously issued to any public waterworks or water service by any city or town under existing contracts or arrangements; provided, however, that the change or changes shall take effect subject to refund or credit pending further investigation, hearing, and order by the commission within eight (8) months after the effective date. The public waterworks or water service shall file with the commission the new rate schedule along with the documentary evidence of the indebtedness supporting the same. (Emphasis added.) The PWSB insists that this statute deprives the commission of its authority to investigate the propriety of the surcharge. In support of its interpretation the PWSB contends that our holding in Woonsocket Water Department limited the scope of a retroactive rate filing under § 39-3-11.1. In Woonsocket Water Department we stated that [r]egardless of the water department's reason for allowing the debt to accumulate for four years without taking curative steps, this provision permits the water department to institute a retroactive rate to repay its loan from the city. 538 A.2d at 1015. Woonsocket Water Department concerned a surcharge approved by the commission to finance long-term capital improvements. The Woonsocket water department sought relief from its debt burden and complied with the oversight of the commission. Apparently the PWSB fails to see the irony in this precedent. In stark contrast to the Woonsocket water department's long-range provisions, the PWSB requested a surcharge in order to fund current operations at the expense of capital improvements and in violation of a prior commission decision. Section 39-3-11.1(a) consists of two parallel provisions. In Woonsocket Water Department we interpreted the first part of the rate-making statute. We addressed the ability of a municipal water utility to institute a retroactive rate. We held that the water utility was permitted to impose a retroactive rate to repay its loan from the city under the statute, thus creating an exception to the rule against retroactive rate making. 538 A.2d at 1015. The PWSB, however, fails to recognize that in this matter we are called upon to construe both the provision for retroactive rate making and the complementary condition that mandates further investigation by the commission. The PWSB claims that the rate-making statute limits the commission's inquiry to the existence and legitimacy of loans and advances. We disagree with this interpretation of the statute. Section 39-3-11.1 leaves the commission with substantive review of the PWSB's rate filing. It specifically provides that the exception to retroactive rate making shall take effect subject to refund or credit pending further investigation, hearing, and order by the commission. Section 39-3-11.1(a). In O'Neil v. Malachowski, 604 A.2d 1268 (R.I. 1992), we addressed the effect of the rate-making statute on the same surcharge in issue in this case. We now reiterate that § 39-3-11.1 does not abrogate the review provisions of the regulatory scheme in chapter 3 of title 39. It merely defers them. 604 A.2d at 1269. Under § 39-3-11.1 retroactivity is a tradeoff. The PWSB may retroactively remedy revenue deficiencies under the statute. Likewise, the commission is within its authority retroactively to investigate the reasonableness and justification of such deficiencies. The alternative to retroactive review would be to permit the flouting of regulatory authority demonstrated by the PWSB in this case. The PWSB contends that its surcharge filing was predicated upon an undercollection of revenue. It claims that the commission's disallowance of $3,248,551 from the city's reimbursement was erroneous and not supported by evidence in the record. In its decision and order, the commission found that in addition to a revenue shortfall, several factors caused the PWSB's financial malaise. It particularly noted that the PWSB contributed to its own predicament by failing to fund three restricted accounts and surreptitiously including a working-capital amount in its budget. Both parties acknowledge that these financial decisions were made in violation of docket No. 1900. Furthermore the commission found that the PWSB executed the $5 million promissory note without seeking division approval pursuant to § 39-3-15. Our review of the record confirms that the commission's rulings were based primarily on violations of its decision in docket No. 1900. In light of its budgetary legerdemain we find the PWSB's argument that its filing is aimed solely at remedying a revenue shortfall to be pure sophistry. In addition to its main contentions, the PWSB claims that the commission erred with respect to docket No. 2044. It asserts that the commission exceeded its authority by conducting a general inquiry into the PWSB's operational efficiency in docket No. 2044. We believe that statutory authority contradicts the PWSB's contention. Section 39-3-11.1 addresses the unique financial relationship of a municipal water utility to its municipality. Nevertheless, the Legislature has not revoked all the authority that it had previously delegated to the commission. The commission remains vested with the power to supervise and regulate the efficiency of the PWSB. See § 39-1-1(c). In addition the commission's authority extends to determining the type of information a utility must supply to set specific rates. Woonsocket Water Department, 538 A.2d at 1014. The PWSB also argues that the commission did not afford it proper notice before introducing docket No. 2044. We find that the PWSB's argument lacks merit because it neglects to cite any evidence in support of its claim. The PWSB also asserts that the commission harbored a bias against the existence of the retroactive rate-making statute that resulted in an erroneous report and order. This claim is simply a red herring. Despite the commission's stated displeasure with the provisions of § 39-3-11.1, the PWSB failed to show any prejudicial material. In fact, both Woonsocket Water Department and Audubon Society of Rhode Island v. Malachowski, 569 A.2d 1 (R.I. 1990), included retroactive surcharges approved by the commission. In docket No. 2022 the commission was upholding a simple principle of sound financial management. As the agency charged with the regulatory oversight of the PWSB, it would not permit the PWSB to seek funds from ratepayers that were lost because the PWSB had violated the commission's directives. In both Woonsocket Water Department and O'Neil v. Malachowski , we concluded that our rulings had a favorable effect upon both taxpayers and utility customers. We noted in O'Neil that the purpose underlying § 39-3-11.1 was to balance the interests of ratepayers and the reimbursement of taxpayers. 604 A.2d at 1269. The commission's decision is consistent with this policy. In this matter the commission's decision protects the interests of both taxpayers and ratepayers. Ratepayers will be protected against the PWSB's manipulation of § 39-3-11.1 to recover items expressly disallowed by the commission and to increase current expenses without having to submit to administrative review. Similarly taxpayers will benefit from the commission's exercise of fiscal prudence. Without the commission's guidance, the PWSB will have little incentive either to adopt proper fiscal management or to adhere to statutory requirements. Although the city must bear some responsibility in permitting the PWSB's debt to grow unchecked, it is not in the taxpayers' interest to permit the PWSB to use funds earmarked for long-term capital improvements to finance uncontrolled current expenses. For the reasons stated, there is a reasonable basis for the commission's decision. We are therefore compelled to affirm the commission's finding. The petition for certiorari is denied. The writ heretofore issued is quashed. The order of the Public Utilities Commission is affirmed, and the papers in the case are remanded to that commission with our decision endorsed thereon.