Opinion ID: 2284798
Heading Depth: 2
Heading Rank: 1

Heading: Flaws in the Majority Opinion

Text: Although I believe that the Commission's decision with respect to rate design is seriously flawed, the majority's treatment of the issue on review is even more disturbing because of the method by which it accomplishes affirmance. The Commission's treatment of the subject is marred by the absence of either cost or non-cost related factors in the record which could justify the discriminatory rates which were prescribed. [1] Beyond that, however, the majority reaches far past the record and even beyond the Commission's orders in a strained and defective attempt to sustain that rate structure. In doing so, the majority not only has misinterpreted, but in addition apparently intentionally has circumvented, fundamental precepts both of our judicial review function and of public utility regulatory law. To those unfamiliar with the development of this case at the agency level, the majority's discussion of rate design may appear to constitute a plausible treatise on the various factors which the Commission, in appropriate circumstances and upon an adequate factual record, may take into account in structuring gas rates. The majority writes for pages on a number of cost and non-cost criteriavalue of service, energy conservation, historic rate patterns, etc.which in past proceedings have been invoked legitimately to justify rate disparities among customer classes. In doing so, however, the majority ascribes dispositive significance to several factors with respect to which the Commission made no factual findings and upon which it placed little or no reliance in structuring the rates. The majority's discussion of energy conservation and value of service is puzzling. Although the PSC mentioned that those items are among the non-cost factors which it may consider in designing rates, it did not apply those criteria to the facts of this proceeding to seek to justify the rate disparities. The Commission did invoke the concept of value of service to support the relatively high rate for interruptible customers, but the interruptible rate is not challenged by any party on review and the only finding made by the Commission which conceivably could be related to energy conservation as a basis for rate discrimination was the broad and unsubstantiated observation that [t]he basic facts have not changed from Case No. 647 [in which the inherently promotional declining block structure was eliminated] to the present. Order No. 6051, at 90. The PSC did not even purport to rely to any meaningful extent on value of service and energy conservation in setting the rates at issue. The majority's most conspicuous disgression, however, is its heavy reliance on a cost factor which (1) was not even mentioned by the PSC in Orders No. 6051 and 6060, (2) is not relied upon by the PSC or by People's Counsel in their appellate briefs, (3) is not supported by the record of these proceedings, and (4) could not, in any event, justify the rate disparities. I refer to the majority's apparent tenet that the rising cost of replacement gas is a phenomenon that may be invoked to uphold any rate structure under which a utility is projected to recover disproportionately high rates of return from large-scale users of gas. It does not matter under the majority's theory whether there is any specific evidence of such rising costs in the record, nor does it matter how great the rate disparities are between customer classes. The extent to which such a result-justifying technique could be taken is as alarming as the concept is unsophisticated. It is a basic principle of administrative law that a reviewing court may not sustain an agency ruling on grounds which were not relied upon by the agency. In SEC v. Chenery Corp., 318 U.S. 80, 63 S.Ct. 454, 87 L.Ed. 626 (1943), the Supreme Court laid down the broad propositions that the grounds upon which the administrative agency acted [must] be clearly disclosed and adequately sustained and that [t]he grounds upon which an administrative order must be judged are those upon which the record discloses that its action was based. Id., at 87, 94, 63 S.Ct. at 459, 462. See 2 K. Davis, Admin. Law Treatise § 16.12 (1958) (The first Chenery case rather clearly establishes the proposition that when an agency gives the wrong reasons for a decision of policy or law, the reviewing court will send the case back for a new determination, even though the court might have upheld the order if no reasons had been assigned.) [2] The standards for reviewing decisions of administrative agencies are, of course, more restricted than those for reviewing actions of trial courts, as a trial court's decision may be affirmed if correct in result, even though for the wrong reason. Thus, just as a reviewing court may not substitute its judgment for that of an agency in overturning the agency's decision, neither may a court salvage an otherwise unsustainable administrative ruling by supplying supporting reasons of its own choosing. That, however, is precisely what the majority has done. There is not a hint in either Order No. 6051 or Order No. 6060 that the PSC relied to any significant extent upon the rising cost of new gas in setting the customer charges. In fact, the Commission went to great lengths to explain why it was rejecting the uniform volumetric rate which had been proposed by People's Counsel. The proposed volumetric rate ostensibly was based on marginal cost pricing, a pricing scheme which would take into account the costs of incremental quantities of new gas. The Commission stated: Although exotic gas sources, such as SNG [synthetic natural gas], imported LNG [liquified natural gas], and Alaskan gas, will exceed WGL's current average costs, their impact will be relatively restricted for years. [Order No. 6051, at 88.] There also is evidence in the record that gas supplies from existing sources are expected to continue to improve in the near future. The majority nevertheless concludes that the inclusion of substantial fixed costs in the commodity charge is cost justified. The high usage customers contribute disproportionately to the exhaustion of relatively inexpensive commodity sources, and thus accelerate future increases in commodity prices for all utility customers. Ante at 1201 (footnote omitted). The majority's analysis is squarely at odds with the PSC's reasoning, which simply and obviously was as follows: We take this action essentially for equitable reasons.... At least at this time, we feel compelled to provide some degree of relief for existing customers who are in no position to respond to more cost-based rates. Equally important is the Commission's desire to lessen the extent to which the low-volume gas user pays a higher per unit price for service. [ Id., at 97.] It thus is clear that the Commission was determined to lower customer charges for relatively low-volume gas users simply because of a perceived need for economic relief for those customers. There is nothing in the Commission's orders indicating that it was concerned with penalizing higher-volume consumers for any increase in replacement gas costs to which they might contribute; in fact, parts of Order No. 6051 clearly refute that theory. For instance, the Commission rejected the Company's proposal to establish a higher customer charge for high-volume residential heating customers than for lower-volume customers in the same class. Id., at 95-96. The Commission stated: WGL concedes that there is no real difference in the customer costs based on annual consumption (above or below 100 Ccf [hundred cubic feet] per year). Therefore, we see no reason to prescribe two different customer charges. [ Id., at 96.] The majority's willingness to supply its own rationale for upholding the PSC's decision perhaps might be easier to understand if the new rate design actually were going to have the effect the Commission purportedly intended i.e., rate relief for lower-income gas customers. The fact is, however, that the customer classes with the highest projected rates of return are those with probably the greatest percentage of low-income customers, namely, the commercial heating and non-heating classes, which include all group-metered apartment buildings. These classes are projected to provide WGL with returns of 15.13% and 26.11%, respectively, as compared with returns of only 4.91% and minus 8.42% for the residential heating and non-heating classes, respectively. It is ironic that the residential non-heating customers toward whom the rate relief is targeted are quite likely well-to-do customers who heat their homes with currently more costly oil or electricity. There certainly is no evidence in the record, as I discuss in detail below, that lower-income consumers tend to be concentrated in the residential non-heating class. Moreover, I think it is unfair and illogical to presumeas the majority evidently doesthat commercial customers are more guilty than residential customers, either as individuals or as a class, of increasing the price of replacement gas. It does not make sense to penalize a customer class based on its size alone. It is fair, for example, that residents of group-metered apartments (which are included in the commercial classes) should be forced to subsidize residents of individually-metered apartments (which are included in the residential categories) simply because the group-metered building is viewed as one large customer while the individually-metered building consists of many small ones? Is it reasonable to say that 50 newly-connected residential customers, each of which uses 100 Ccf of gas per year, are less responsible for rising marginal costs than is one hotel using 5,000 Ccf per year which has been a customer for many years? Unquestionably many of WGL's larger customers initially subscribed to gas service years ago when gas supplies were plentiful and a declining block rate structure was utilized; obviously it is not equitable to force those customers to shoulder the entire blame for today's higher replacement gas costs. In other words, it is necessary to look beyond a customer's mere label as a large customer to determine whether it is contributing disproportionately to rising replacement costs. The flawed nature of the majority's reasoning further is evidenced by the projected rates of return within the commercial classes, which show that WGL will earn a significantly higher return on commercial non-heating customers than on commercial heating customers. [3] Unquestionably, the larger users of gas are in the latter category; it takes considerably more gas to heat a building than to cook or provide hot water. Thus, even if the Commission had based the rate disparities on evidence of rising replacement costswhich unquestionably it did notthe resultant rates would not achieve what the majority seems to perceive as the desired goal of recovering the greatest proportion of those costs from the largest customers. Energy conservation is, to be sure, a valid ratemaking objective, as is the recovery of increasing costs of new gas supplies from those who are shown to be most responsible for their incurrence. However, there is a limit to what the PSC permissibly may do under the general rubric of energy conservation. Here the Commission did not even attempt to use that goal as a predicate for the glaring rate disparities, although it did mention conservation as one factor that may be taken into account. As to the allocation of costs of replacement gas, the Commission made absolutely no findings, so it is totally unwarranted for this court, on judicial review, to affirm the rate design on that basis. The majority's treatment of the rate design issue fails, then, in two fundamental respects, as a consequence of which the true merits of the question never are reached. First, the majority relieves the Commission of its burden of showing fully and clearly why it has taken the particular ratemaking action. Washington Public Interest Organization v. PSC, D.C.App., 393 A.2d 71, 75 (1978), cert. denied, 444 U.S. 926, 100 S.Ct. 265, 62 L.Ed.2d 182 (1979). There we also stated: There are two aspects of this elaboration required of the Commission: (1) announcement of the criteria governing the rate determination, and (2) explanation of how the particular rate order reflects application of these criteria to the facts of the case. [ Ibid. ][ [4] ] Second, no doubt recognizing that the PSC's decision on rate design could not be sustained under the meager rationale offered by the Commission, the majority nevertheless proceeds to sanction discriminatory rates on a theory that is unsupported in the record and which apparently did not even occur to the two-member Commissioner majority. In so doing, the majority of this division of the court flagrantly violates the principle of judicial review established long ago in SEC v. Chenery Corp., supra : The grounds upon which an administrative order must be judged are those upon which the record discloses that its action was based. 318 U.S. at 87, 63 S.Ct. at 459. Such a misperception of our proper function in reviewing agency action permits the majority to sidestep the central issue in the rate design dispute, which is whether the obvious class-based rate discrimination is explained adequately by the PSC and is supported sufficiently by record evidence of legitimate cost and non-cost related considerations. Having outlined my disagreement with the majority's approach to this case, I now explain what I believe to be the flaws in the Commission's treatment of the subject.