Opinion ID: 1929636
Heading Depth: 1
Heading Rank: 6

Heading: modified massachusetts formula

Text: WGL serves consumers in the District of Columbia, Maryland and Virginia. Both WGL and OPC assert that the Commission erred in adopting a new formula for allocating to the District of Columbia its fair share of administrative and general [A & G] expenses. In Formal Case No. 686, the Commission directed WGL to: [E]ither reflect A & G expenses allocation solely according to a modified Massachusetts Formula or if it nonetheless still advocate[d] a different approach, present a complete alternate cost of service which reflects allocation under modified Massachusetts Formula. [Commission Order No. 6051, ordering paragraph C at 76.] The Massachusetts Formula, originally used by the Massachusetts Department of Revenue to determine the amount of tax owed to Massachusetts by corporations doing some of their business in the state, allocates administrative and general expenses by employing an average of the percentage of property, wages and (twice the percentage of) sales related to the jurisdiction. Formerly, the Commission had permitted WGL to allocate administrative expenses not directly assignable to a jurisdiction on the basis of a factor, expressed in terms of labor expenses, which was a composite of a number of factors including therm sales, plant, and labor. At the rate proceeding below, WGL continued to use its existing method for allocating A & G expenses and presented a comparative statement showing the revenue requirement using the Massachusetts Formula for allocating A & G expenses. OPC advocated that all A & G expenses  both labor-related and non-labor-related  be allocated according to the modified Massachusetts Formula and that an adjustment of $1.5 million be made to the revenue requirement. In its order the Commission purported to adopt a modified Massachusetts Formula, and stated that it allocated labor-related A & G expenses in the same manner as all A & G expenses had been allocated in the past and non-labor-related expenses on the basis of a simple average of the jurisdiction's share of plant, sales and labor. [17] The Commission reduced WGL's allocation of A & G expenses to the District of Columbia by $856,000. WGL contends that the Commission's decision to adopt the modified Massachusetts Formula for allocating A & G expenses is not supported by substantial evidence, lacks the requisite findings of fact and jeopardizes the company's ability to recover its cost of service in the Washington metropolitan area. OPC supports the use of the modified Massachusetts Formula, but argues that the record does not support the amount of the adjustment made by the Commission. As we observed in the discussion above of the scope of our review, [b]efore meaningful judicial review to determine the reasonableness of a Commission decision is possible, the Commission, of course, must satisfy its own burden: to base its decision on sufficient evidence and to explain its actions `fully and carefully.' Metropolitan Washington Board of Trade v. Public Service Commission, supra at 351; See Washington Public Interest Organization v. Public Service Commission, supra at 75-78; Mississippi River Fuel Corp. v. Federal Power Commission, supra 82 U.S.App.D.C. at 224, 163 F.2d at 433. Although our review function is narrow, before we can give deference to the Commission's choice of methodology, that methodology must be fully disclosed. Washington Public Interest Organization v. Public Service Commission, supra at 76-77. In its order, the Commission failed to explain the reasons for its choice of the so-called Modified Massachusetts Formula, the method it used to employ that formula, and the calculation of the amount of the adjustment to the District's share of A & G expenses. [18] In the absence of such an explanation, it is impossible for us to determine whether the Commission's choice of the Modified Massachusetts Formula is reasonable. Therefore, we must remand the case to the Commission for an explanation of precisely what formula was used, why that formula was chosen, and how the amount of the adjustment was computed. See Washington Public Interest Organization v. Public Service Commission, supra at 78; Mississippi River Fuel Corp. v. Federal Power Commission, supra 82 U.S.App.D.C. at 227, 163 F.2d at 436.