Opinion ID: 1435591
Heading Depth: 2
Heading Rank: 2

Heading: residential rate structure[6]

Text: In the proceeding below, the Commission found that HELCO's declining block residential rate structure was just and reasonable and authorized the rate schedule set out below: Charge Cost per month Customer Charge (regardless of the kwh of electricity used) $3.50 Energy Charge (to be added to the Customer Charge) first 100 kwh 9.1¢ per kwh next 200 kwh 6.3¢ per kwh next 300 kwh 4.5¢ per kwh all over 600 kwh 5.0¢ per kwh On appeal, LK argues A) that Decision and Order No. 4123 and Order No. 4205 do not provide a sufficient statement of supporting facts and B) that there was no probative, reliable, substantial evidence on the record to support the discrimination in the residential rates approved by the Commission. We agree.
In Decision and Order No. 4123 the Commission states that [t]he new rate schedules ... are just and reasonable and supports its finding by nothing more than the recitation of certain general principles of rate design without facts to corroborate this finding or references to the record where such facts may be found. [7] The Decision and Order does, however, set out facts supporting the Commission's decision not to adopt LK's proposal presented by Dr. Frederick Wells. [8] In Order No. 4205 denying LK's petition for reconsideration, the Commission again provides a detailed statement to support its denial of LK's proposed rate structure. [9] To support its decision to adopt, virtually unchanged, HELCO's proposed residential rate structure, the Commission sets forth the qualifications of the HELCO expert witness, suggests that the use of the declining block structure by other Hawaii utilities justifies its continued use, and states that the cost of service study was the basis for determining the residential as well as other customer schedules. The qualifications of the expert witness and the use of the declining block structure by other local utilities are not facts which support its conclusion that the rate structure was not unreasonably discriminatory. The cost of service study illustrates the relationship between the several customer classifications by comparing their respective rates of return. The study, while it aided in the determination whether there was undue discrimination between classifications, cannot determine whether there is undue discrimination within a customer category. While we have said that the courts have great respect for the findings made by specialized agencies, those findings are subject to judicial review. In order to facilitate that review, HRS § 91-12 (1976) provides that: Every decision and order adverse to a party to the proceeding, rendered by an agency in a contested case, shall be in writing or stated in the record and shall be accompanied by separate findings of fact and conclusions of law. If any party to the proceeding has filed proposed findings of fact, the agency shall incorporate in its decision a ruling upon each proposed finding so presented. The requirement that the Commission set out findings of fact and conclusions of law is no mere technical or perfunctory matter. In re Application of Kauai Electric Division, supra, 60 Haw. at ___, 590 P.2d at 537. The purpose of the statutory requirement that the agency set forth separately its findings of fact and conclusions of law is to assure reasoned decision making by the agency and enable judicial review of agency decisions. See In Re Application of Terminal Transportation, Inc., 54 Haw. 134, 504 P.2d 1214 (1972); Cooper, supra, at 465-468; Davis, supra, at § 16.03. In order that we might be informed of the factual basis upon which the Commission relies, the Commission's findings of ultimate facts [10] must be supported by findings of basic facts which in turn are required to be supported by the evidence in the record. In re Application of Kauai Electric Division, supra, 60 Haw. at ___, 590 P.2d at 537; Boise Water Corp. v. Idaho Public Utilities Commission, supra, 97 Idaho at 840, 555 P.2d at 171; Cooper, supra, at 466; Davis, supra, at § 16.04. See Mitchell v. BWK Joint Venture, 57 Haw. 535, 560 P.2d 1292 (1977); International Minerals and Chemical Corp. v. Mayo, 336 So.2d 548 (Fla. 1976). In the instant case, the Commission has failed to support its ultimate finding that the residential rate structure is just and reasonable with sufficiently specific findings of fact to enable this court to intelligently review its decision. As the court said in American Can Co. v. Davis, 28 Or. App. 207, 216, 559 P.2d 898, 905 (1977); [T]he findings ought to set forth sufficient facts so that the reviewing court can prudently discharge its duty and not experience a sense of frustration through inability to get at the facts. The circumstance that the evidence is in the transcript and that the court, by weighing it, can determine for itself `the facts' does not suffice. The agency is the fact finder, and the undigested transcript is not a substitute for a set of findings of fact... . Nor should a court be put in a position wherein it is forced to ferret out the facts or seek them through engaging in mathematical calculations of a kind for which special training is required. We cannot fill the voids in the Commission's orders for we are not the fact finding body. See Camelot Utilities, Inc. v. Illinois Commerce Commission, 51 Ill. App.3d 5, 8 Ill.Dec. 74, 365 N.E.2d 312 (1977); New England Telephone and Telegraph Co. v. Public Utilities Commission, R.I., 376 A.2d 1041 (1977); City of Milford v. Illinois Commerce Commission, supra, 45 Ill. App.3d at 737, 4 Ill.Dec. at 194, 359 N.E.2d at 1146; American Can Co. v. Davis, supra, 28 Or. App. at 216, 559 P.2d at 905; Bristol County Water Co. v. Public Utilities Commission, 117 R.I. 89, 363 A.2d 444 (1976). To hold otherwise would be inconsistent with the presumed validity of the Commission's orders.
Once a utility's revenue requirement has been determined, the final question is the rate structure or the set of rates that will produce the additional revenues that are needed to earn the permitted rate of return. St. Paul Area Chamber of Commerce v. Minnesota Public Service Commission, 312 Minn. ___, 251 N.W.2d 350 (1977); Cascade Natural Gas Corp. v. Davis, 28 Or. App. 621, 560 P.2d 301 (1977). Traditionally, electric utilities have used the declining block structure in which each classification of customers is divided into blocks of consumption so that as more units of electricity are consumed, the cost per unit decreases. HELCO's residential rate structure is not a true declining block structure as there is a slight rise in the tail block. However, the effect of HELCO's rate structure is the same in that the average cost per kilowatt hour declines as more kilowatt hours of electricity are consumed. [11] Historically, the prominent subjects in rate proceedings have concerned the revenue requirement  such as allowable expenses, rate base and rate of return. The question of rate design was largely left to the discretion of utility managements as it was felt that a utility would have no purpose in unfairly allocating among its various customers. See, Cudahy and Malko, Electric Peak-Load Pricing: Madison Gas and Beyond, 1976 Wis.L.Rev. 47; Kadane, The Legality of Marginal Cost Pricing for Utility Services, 5 Hofstra L.Rev. 755 (1977); Note, Reform of Electricity Pricing in the United States, 25 Buffalo L.Rev. 183 (1975). The dramatic increase in rate design issues was the sudden turnaround in the early part of this decade of utility price increases rather than the historical experience of declining or stable utility prices. Real prices of coal, oil and natural gas have increased; the costs of constructing generating capacity has risen sharply; and legislation and regulation to mitigate the environmental impact of large power plants have added new costs that must be met. Federal Energy Administration, Electric Utility Rate Design Proposals: Interim Report (1977). On appeal, LK alleges that the last three blocks of the declining block residential structure is unreasonably discriminatory because the price per kilowatt hour of electricity depends entirely on the level of use; that if that level is low, the customer is charged more per kilowatt hour than moderate and high volume users; and that the price discrimination works the greatest hardship on the poor. It concedes the presence in the record of substantial evidence to support the customer charge and the rate for the 0-100 kilowatt hour block. It contends that the last three blocks violate the law in that a rate schedule must be just and reasonable, and prohibit ... unreasonable discrimination between . . consumers. HRS § 269-16(b) (1975 Supp.). As we have stated earlier in this opinion, our function is not to substitute our judgment for that of the commissioners who are experts in the field of rate making, but rather to determine whether the record exhibits substantial factual differences to justify the differences among the rates per kilowatt hour charged the low, moderate and high volume electricity users. It must be kept in mind that the presumption accorded a commission's order arises only upon compliance with the law and is not unassailable. See Southwestern Bell Telephone Co. v. State, 575 P.2d 624 (Okl. 1978); Central Kansas Power Co. v. State Corporation Commission, 221 Kan. 505, 561 P.2d 779 (1977); Burlington Out Now v. Burlington Northern, Inc., 96 Idaho 594, 532 P.2d 936 (1975). Further, while it is true that the burden of showing the impropriety of rates established by a regulatory agency lies with the party challenging the rates, Southwestern Bell Telephone Co. v. State, supra, 575 P.2d at 628; State ex rel. Utilities Commission v. Edmisten, 291 N.C. 424, 230 S.E.2d 647 (1976); Louisiana Power & Light Co. v. Louisiana Public Service Commission, supra, La., 343 So.2d at 1044; Alabama Gas Corp. v. Wallace, 293 Ala. 594, 308 So.2d 674 (1975), in this case, LK, that burden does not require of impecunious associations or private citizens a quantum of evidence beyond their financial means to marshall. American Public Power Association v. Federal Power Commission, 173 U.S.App.D.C. 36, 41, 522 F.2d 142, 147 (1975) (concurring opinion of Judge Bazelon). The presumption of lawfulness and reasonableness of findings can be overcome by a showing that no evidence was presented to sustain the order. Legislative Utility Consumers' Council v. Public Utilities Commission, N.H., 383 A.2d 89 (1978); Kanawha Valley Transportation Co. v. Public Service Commission, W. Va., 219 S.E.2d 332 (1975); State ex rel. Utilities Commission v. Edmisten, supra, 291 N.C. at 428, 230 S.E.2d at 650; Norfolk and Western Ry. Co. v. Commonwealth, 215 Va. 214, 207 S.E.2d 883 (1974). It is not any discrimination that is forbidden by the law but only those which are unreasonable. If it were otherwise, there would be only one rate for all customers, for every classification is in effect a discrimination. Given this record, we cannot say that the declining block residential rate structure is unreasonable as a matter of law. We have determined, however, that there is no factual basis in the record for the present discrimination in the last three blocks of the residential rate structure. HELCO's witness, Kenneth Stretch, testified that the decline in the 300-600 kilowatt hour block was justified by a higher load factor [12] of customers consuming electricity in this block. He testified before the Commission that: The lower use customers have low load factors and the higher use customers have higher load factors. For this reason in a block rate which is charged per kilowatt hour, a higher load factor would have a lower price and the lower load factor would have a higher price. However, Mr. Stretch's testimony was not based on any evidence in the record and there is no evidence which would justify such a conclusion. The Commission states in Order No. 4205 at p. 6 that: Whether the load factor for each residential block was or can be quantified with a great degree of specificity is not relevant or material to the question of adoption of HELCO's rate structure. No utility in the United States that we know of has been able to specifically quantify the load factor for each residential block. The Commission's ruling reflects this reality and that quantification of load factor for each block is not material to the adoption of the rate structure in this case. If the load factor is given as the justification for different rates within the residential rate schedule, then the load factor for each block would have to be quantified. See Re Madison Gas and Electric Co., 5 P.U.R.4th 28 (1974). Mr. Stretch emphasized that the load factor for HELCO as a whole improved from 56.6% in 1970, to 60.5% in 1973 and to 61.5% in 1974. This fact, however, sheds no light on the reasonableness of the three kilowatt hour blocks at issue. In the absence of any justification for the last three kilowatt hour blocks, HELCO's residential rate structure will stand as a declining block structure which only promotes the use of electricity. [13] Unquestionably, a rate schedule that serves only to promote greater consumption of electricity would be contrary to our state and national public policy. See In re Application of Hawaiian Electric Co., 56 Haw. 260, 535 P.2d 1102 (1975); Energy Conservation and Production Act, Pub.L. 94-385 (1976). In the past, promoting the consumption of electricity by encouraging the sale of water heaters and basing rates on a sliding scale was systematically upheld against charges of undue or unreasonable discrimination. See Rossi v. Garton, 88 N.J. Super. 233, 211 A.2d 806 (1965); Bilton Machine Tool Co. v. United Illuminating Co., 110 Conn. 417, 148 A. 337 (1930). Increasingly, however, regulatory commissions have found that promotional rates should be discarded or modified when they have outlived their usefulness in view of public policy objectives in the areas of conservation of natural resources and protection of the environment. Re The Cleveland Electric Illuminating Co., 3 P.U.R.4th 259 (1973); Re Idaho Power Co., 86 P.U.R.3d 458 (1970) In addition to conservation of energy and optimization of the efficient use of facilities and resources, a public utility's rate structure should encourage equitable rates to all its consumers including the poor and the elderly. Reactions to demands that the increasing energy burden borne by the poor and the elderly be alleviated range from sympathy to scorn for social rate making. Our laws, however, recognize that the poor and the elderly are deserving of special protection. See, e.g., HRS § 346-52 (aged and needy eligible for public assistance); § 346-71 (general assistance available to needy persons); § 359-51 et seq. (housing for elderly persons); §§ 431-522 to 431-529 (extended health insurance for elderly). There has always been a great measure of public policy that enters into the designing of rates. It is incumbent upon the Commission to make public policy decisions and to change proposed rates that do not comport therewith. [14] Other Commissions have recognized the inappropriateness of the declining block structure and have begun to gradually modify rate differentials favoring large volume users although, for the most part, they have not eliminated the declining block feature in one fell swoop. See General Motors Corp. v. Public Utilities Commission, 47 Ohio St.2d 58, 351 N.E.2d 183 (1976); Cleveland Electric Illuminating Co. v. Public Utilities Commission, 42 Ohio St.2d 403, 330 N.E.2d 1 (1975) (ordered reduction in proposals for minimum bills and initial energy block); Re Arkansas Western Gas Co., 16 P.U.R.4th 103 (1976); Re Cut Bank Gas Co., 12 P.U.R.4th 106 (1975) (denied utility's proposal for declining block structure); Re Consumers Power Co., 3 P.U.R.4th 321 (1974) (flat rates); Re Public Service Co., 9 P.U.R.4th 224 (1975); Re Madison Gas and Electric Co., supra, 5 P.U.R.4th 28; Re Detroit Edison Co., 2 P.U.R.4th 188 (1973). Redesigning rates to meet the policy considerations hereinbefore stated can be accomplished by placing a heavier burden on larger users than on smaller users. Re Carolina Power and Light Co., 8 P.U.R.4th 449 (1975); Application of Arkansas Louisiana Gas Co., 558 P.2d 376 (Okl. 1976); Re Public Service Co., supra, 9 P.U.R.4th at 230. While rate fixing need not be controlled exclusively by precise cost allocation [15] it is not enough to discriminate within the residential rate schedule, as HELCO does, without a rational basis. For the foregoing reasons, we affirm as to the first issue on the reasonableness of the 8.95% rate of return on HELCO's rate base; but remand with respect to the second issue on the reasonableness of the declining block residential rate structure with directions that the Commission hold further proceedings and make the necessary findings of fact and conclusions of law in accordance with part II of this opinion. In the interim pending the outcome of the Commission's further consideration of the reasonableness of the residential rate structure, the declining block structure is to be maintained. Should the Commission be unable to determine the reasonableness of the declining block residential rate structure and find that it is unreasonably discriminatory in that one or more classes have been and continue to be unreasonably burdened and one or more classes unjustly enriched, it shall order prospectively, to the respective classes, the necessary adjustments to the rates to be billed in the future. The revenue requirement is to remain the same and is not to be affected. The amounts to be prospectively refunded or surcharged, calculated from the effective date of the rates approved in Decision and Order No. 4123, can be determined by comparing the amounts paid by the residential customer classes under the declining block rate structure with what they would have paid under the new structure developed by the Commission.