Court Opinion

ID: 9673902
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:20:19.235643+00
Date Added: 2024-06-11T18:16:24.683955
License: Public Domain

WILHOIT, Judge,
concurring in part and dissenting in part.
With great reluctance I respectfully dissent in part from the majority opinion. This reluctance springs from an appreciation of the enormity and immediacy of the problem which this case presented to the Public Service Commission (PSC) and the impressive efforts of that body to reach an equitable solution, not to mention the thoughtful consideration given to those efforts by the Franklin Circuit Court and the majority here. I do so only because I believe the method by which the rates were reached appears to have failed to take into account important and well-established public policy and because of this failure, it is impossible for a reviewing court to ascertain whether the rates fixed are “unlawful or unreasonable.” KRS 278.410(1).
I recognize that rate theory, in determining the value of a rate base, is not as important as the results actually achieved by the rate order. See City of Lexington v. Public Service Commission, Ky., 249 S.W.2d 760 (1952), overruled on other grounds, Stephens v. Kentucky Utilities Co., Ky., 569 S.W.2d 155, 159 (1978). Still, the reasonableness of a rate of return to a utility cannot be decided in isolation from the rate base to which the return is applied, see Citizens Telephone Co. v. Public Service Commission, Ky., 247 S.W.2d 510 (1952); Commonwealth ex rel. Hancock v. South Central Bell Telephone Co., Ky., 528 S.W.2d 659 (1975), so that what investment is included in the rate base, as opposed to the formula used to evaluate the *518investments, is of critical importance to a proper determination of the reasonableness of a rate. What the PSC appears to have done in setting the rate base here is to have included in the base investment in property which under established public policy should not be included; although it might be argued that the PSC never did establish a rate base, but merely decided on what it was convinced was the most equitable way to retire the debt incurred by Big Rivers. Cf. City of Covington v. Public Service Commission, Ky., 313 S.W.2d 391 (1958). In any event, in the March 17, 1987, order it concluded, correctly I believe, that “[r]ate base and debt service coverage for a cooperative utility must be determined by applying the same standards applicable to investor-owned utilities.” In fact, it would be hard to quarrel with the PSC’s recitation in that order of what its guideposts should be in setting a new rate for Big Rivers. Yet the results it reached in Case No. 9885 strongly indicates that it lost sight of at least one such guidepost of particular importance.
It is “whistling in the dark” to suggest that the concept of “used and useful” is no longer of much moment in our public policy when it comes to setting utility rates. Our statutes and case law, some of which are cited by the majority, as well as a history of rulings by the PSC itself, are indicative of an established public policy that only those investments by a utility, which were prudently made and which are used and useful in furnishing service to the rate-paying public, are to be included in the rate base for fixing the rates to be charged by the utility. Accepting that the PSC has found in a somewhat converse fashion that Big Rivers has met its burden of showing the investment in the Wilson Generator to have been prudent, the inquiry must then focus on the “used and useful” requirement for inclusion of assets in rate base. Prom the record before us, this step in the rate-setting process appears ultimately to have been discarded by the PSC.
“[FJair, just, and reasonable rates for the services rendered,” KRS 278.030(1), by a utility are not established simply by setting a rate which bankrupts neither the utility nor its customers, the ratepayers. Just as a utility should not be denied a fair return on its investment properly included in rate base, so a customer or consumer should not be required to pay for investments made by the utility which are of no benefit to the consumer. The “used and useful” concept protects against rates based upon such “useless” investments.
“Used and useful” as it now exists in our public policy, and as it has come to be applied by our PSC and in a number of other jurisdictions, is a more flexible concept than the appellants believe. In my opinion, it would not operate to necessarily exclude from rate base any and all of the investment made in the Wilson generator. Blue Grass State Telephone Co. v. Public Service Commission, Ky., 382 S.W.2d 81 (1964), recognized that rate base should be “adjusted accordingly” as “the facilities purchased are not entirely usable,” id at 82. The clear implication from this case is that such assets are includible in rate base to the extent they are “usable” for the benefit of the ratepayers. There is no dispute that all of Big Rivers’ investments in generators, including the Wilson Generator, is being “used.” The as yet unresolved question is the extent to which those investments are “useful.” The method by which the PSC makes that determination should be left to its expertise, provided the method is fair and reasonable. See, e.g., Philadelphia Electric Co. v. Pennsylvania Public Utility Commission, 61 Pa. Commw. 325, 433 A.2d 620 (Pa.Commw.Ct.1981). It cannot simply disregard the “used and useful” standard in arriving at an end.result which it deems reasonable.
I must confess that I am puzzled by the PSC’s and the majority’s fascination with Federal Power Comm’n v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944), interpreting the “just and reasonable” standard of the federal Natural Gas Act. That case was decided almost 10 years after our statutory provision allowing “fair, just and reasonable rates” was enacted and almost 20 years before Fern Lake Co. v. Public Service Commission, Ky., 357 S.W.2d 701 (1962), citing *519with approval Public Service Commission v. Montana-Dakota Utilities Co., 100 N.W.2d 140 (N.D.1959). Simply put, the Hope decision has no bearing whatsoever on the “used and useful” concept which is a part of our public policy. The majority decision in Jersey Central Power & Light Co. v. Federal Energy Regulatory Commission, 810 F.2d 1168 (D.C.Cir.1987), not only offers no binding precedent on this question, but fails to furnish persuasive precedent as to why our policy, which forces an equal balancing of the right of the public to be served at a reasonable charge against the right of the utility to a fair return on the value of its property used in that service, should be exchanged for a policy more heavily weighted toward ensuring investors a return on their investment.
I concur with the majority that a variable rate for the appellants upon the facts presented would not be unlawful or unreasonable.
I would remand this case for a setting of rates based upon a rate base determined in accordance with the public policy of Kentucky.