Court Opinion

ID: 9766559
Source: CourtListenerOpinion
Date Created: 2023-08-29 04:53:18.626675+00
Date Added: 2024-06-11T07:30:23.583556
License: Public Domain

Ed. F. McFaddin, Associate Justice (dissenting in part). There is only one point on which I dissent, but I consider that point to be of sufficient importance to require that the entire case be returned to the Public Service Commission to give further consideration to the matter of a rate increase in the light of this one point. It is this: in deciding that Arkansas Power & Light Company was not entitled to any rate increase, the Commission deliberately refused to consider an item of approximately Twenty Million Dollars which passed from “Construction Work in Progress” (Account No. 100.3) to “Plant Account” (Account No. 100) during the course of the hearings. I think the Commission should have considered this item in deciding a fair rate for the foreseeable future; it was duly called to the attention of the Commission and yet consideration was refused; and the result was to fix a rate of return ignoring this item of approximately Twenty Million Dollars that was used and useful in the public service at the very time that the Commission made its order of November 22, 1954 in this case. So much for summary: now for the details. In 1944 the then Department of Public Utilities — now the Public Service Commission1 — had an extensive investigation into the affairs of the Arkansas Power & Light Company (hereinafter called “Power Company”). That hearing resulted in the order of 1944 adopting the “prm dent investment rate base,” and allowing the Power Company to earn 6% on the said rate base. The 1944 order also provided, inter alia, that the Power Company should file regular returns on prescribed forms and that if the net return of the Power Company at any time exceeded 6% on the said rate base, then said excess should be put into a special account to be held for disposition by the Commission. In the 1944 order, a rate base formula was adopted which allowed the Power Company to consider as used and useful in the public service all amounts shown in the “Construction Work in Progress Account,” which was and is carried on the books of the Power Company as Account No. 100.3: that is, during the time any plant was in the course of construction, the Power Company was allowed to consider that account as a part of its prudent investment, even though it might be some time until the particular plant under construction actually went into use as serving the public. This Account No. 100.3, called “Construction Work in Progress Account,” is one of the main issues in the present case, and must be constantly remembered. ' . The 1944 order- — setting up the aforesaid formula — ■ continued as satisfactory both to the Power Company and the Commission until May 27, 1954, when the Power Company filed the presént application for rate increase, claiming that it was not earning 6% on its rate base as calculated under the 1944 order. To establish that it was not earning the 6°/o return, the Power Company selected the test year beginning April 1, 1953 and ending March 31,1954. Since the application for rate increase was filed May 27,1954, the year ending March 31,1954 was as near to the filing date as bookkeeping methods permitted. This test year was selected by the Power Company, so March 31, 1954 was the “saw-off” date at the time the petition was filed.2 After various interventions, pre-trial conferences, etc., the hearing finally got under way, and the Power Company established that on April 1, 1953, the beginning of the test year, it had in the Account No. 100.3 (Construction Work in Progress) the sum of $22,096,-692.00; and on March 31, 1954, the close of the test year, the Power Company had in the said Account $29,269,-798.00. The average of the opening and closing amount was $25,683,245.00, which, in round figures, I list at Twenty-five Million Dollars as the average of the 1‘ Construction Work in Progress Account” during the test year. When the Commission found this amount in the Account No. 100.3 (Construction Work in Progress), the Commission decided that the Twenty-five Million Dollars represented an amount that was not then — on March 31, 1954 — actually “used and useful in the public interest”: rather, it was an amount of money then tied up in construction but not actually used by the Power Company in serving the public. The Commission, by its order of November 22, 1954 (here appealed from), held that the amount shown in Account No. 100.3 should not be considered in deciding a rate increase. In other words, the Commission changed the “prudent investment formula” prescribed in the 1944 order so as to eliminate from the rate base the amount in Account No. 100.3 on March 31, 1954. With such amount of Twenty-five Million Dollars eliminated, the Commission found that the Power Company was making approximately 6% on its rate base and, therefore, denied any increase. As aforesaid, this Account No. 100.3 (Construction Work in Progress) is the big issue in this case. There are many other issues,3 but I direct my attention solely to this one issue because I consider it to be of sufficient magnitude to justify a reconsideration by the Commission. The Power Company claims that the Commission had no right to change the ‘ ‘ prudent investment formula ’ ’ set up in the 1944 order, and that such change — the elimination of Account No. 100.3 — is confiscatory, retroactive, void, etc. I see no merit in this argument of the Power Company. Any regulatory tribunal, like the Public Service Commission, can change the formula for determining the rate base at any time, so long at the formula adopted and put into existence prescribes a fair rate of return for the foreseeable future. In the case of City of Ft. Smith v. Southwestern Bell Tele. Co., 220 Ark. 70, 247 S. W. 2d 474, there were mentioned several different methods for determining a rate base. The telephone rate was based on ‘ ‘ net cost less depreciation. ’ ’ Other formulas or methods to determine the rate base were mentioned as “original cost” and “reproduction value”; and, here, the Power Company’s rate base is on “prudent investment.” In the case of City of Ft. Smith v. Southwestern Bell Tele. Co., supra, we said: “Prom all of the cases and authorities which we have studied, we reach the conclusion that no public utility has a vested right to any particular method of valuation. The aim of a regulatory body is to determine a fair valuation; and the method of calculation may vary as between the type of the utility involved and the economic conditions existing. ’ ’ No utility acquires a contractual right to any particular method of determining its rate base. The question is always: “What is a fair method to determine the rate base ? ” In its application of May 27,1954, the Power Company said it was entitled to a rate increase and thereby asked the Commission to investigate the affairs of the Power Company. The power to investigate carries with it the power to change the previous method of determining the rate base. The only restrictions on the Commission in event of such change are (a) that the rate base selected be fair and reasonable in the light of business conditions; and (b) that it will yield a fair and reasonable return in the foreseeable future. So I see no merit in the Power Company’s claim that the Commission had no power to change the rate base formula prescribed in the 1944 order. ' ■ But, when I consider what the Commission did in its order of November 22, 1954 about the Account No. 100.3 (Construction Work in Progress), I find myself in dissent from the majority opinion in the case at bar: the Commission refused to consider the fact that, within two months from March 31, 1954, approximately Twenty ^Million Dollars of the Twenty-five Million Dollars in Account No. 100.3 had passed from Construction Work in Progress into the Plant Account of the Power Company. In other words, during the course of the hearing before the Commission, it was definitely shown that approximately Twenty Million Dollars had passed to the stage of “used and useful in the public service”; yet the Commission refused to consider that matter of Twenty Million Dollars in deciding a rate base for the foreseeable future. I think the Commission acted arbitrarily in refusing to consider such fact before it when it made its order of November 22, 1954. It must be borne in mind that months were spent by the Commission in examining and cross-examining the witnesses put on by the Power Company. Then, when the Power Company rested, the staff of the Public Service Commission moved that the petition for rate increase be dismissed because the staff of the Public Service Commission claimed that the Power Company had not shown itself entitled to any increase. Hearings were held all through August, 1954 and over into November, 1954; and in these hearings it was shown by the Power Company that, as of August 31, 1954, the balance in the Account No. 100.3 (Construction Work in Progress) was only $4,856,306.00. Thus, from the average of $25,683,245.00 shown in the Account No. 100.3 for the test year, the sum of $20,826,939.00 had passed from the ‘ ‘ Construction Work in Progress Account” to the “Plant Account” actually used and useful in the public service.'4 Thus, when the Commission made its order on November 22, 1954 (entirely eliminating the Account No. 100.3 — Construction Work in Progress), the Commission had uncontra-dicted evidence before it which showed that more than Twenty Million Dollars — entirely excluded because it was “Construction Work in Progress” on March 31, 1954— had, by August 31, 1954, become “Plant Account,” used and useful in the public service. Yet the Commission entirely refused, in its order of November 22, 1954, to allow the Company any return on the said Twenty Million Dollars that had become used and useful in the public service in the course of the hearing. The Commission was not set up to determine whether a rate base was fair in the' past, but to determine a rate base that would be fair in the foreseeable future; and when this Twenty Million Dollar item was not taken into consideration, I think the result reached by the Commission was arbitrary and approaches the borderline of confiscation. In City of Ft. Smith v. Southwestern Bell Tele. Co., 220 Ark. 70, 247 S. W. 2d 474, in speaking on this point, we quoted from McCardle v. Indianapolis Water Co., 272 U. S. 400, 71 L. Ed. 316, 47 S. Ct. 144, as follows : “ ‘In every confiscation case, the future as well as the present must be regarded. It must be determined whether the rates complained of are yielding and will yield, over and above the amounts required to pay taxes and proper operating charges, a sum sufficient to constitute just compensation for the use of the property employed to furnish the service; that is, a reasonable rate of return on the value of the property at the time of the investigation and for a reasonable time in the immediate future. ’ ’ ’ And then we stated our own conclusions: “We recognize that a utility rate must be reasonable and just as to the present, and also for a reasonable time in the future, and that the Commission may — in order to forestall subsequent applications for rate increase — allow a reasonable figure for anticipated extensions to be made in the- future. But to anticipate reasonable future extensions is one thing, and quite another thing to select a future date after the closing of the evidence on which to base a factual finding as to value of property. We adhere to the view that in order to determine the actual plant, used and useful, on a certain date, there must be proof, as distinguished from mere promises or predictions; . . .” In the case at bar the Power Company met the test by offering actual proof, because it showed that on August 31, 1954 more than Twenty Million Dollars had been passed from ‘ ‘ Construction Work in Progress ” to “ Plant, used and useful in the public service”; and yet the Commission refused to consider any situation arising after March 31, 1954. Therein I think was the fatal error in this hearing.5  It is argued in the briefs that the Commission had the right to assume that the Twenty Million Dollars in new Plant would produce, enough additional revenue to afford a 6% net return on the Twenty Million Dollars. As far as I can find, there is no evidence from which the Commission could reach any such assumption. At all events, the Commission did not offer any such explanation in its order of November 22, 1954. In the 1944 order it was provided that the Power Company would make semi-annual returns and, if it ever earned more than 6%, such excess was to be put into a special account. With that provision facing the Commission, I can see no justification for the Commission’s refusal to consider the approximately Twenty Million Dollars that passed from Construction Work in Progress to Plant, used and useful in the public service, during the course of this hearing. I seriously believe that the Commission’s failure to consider the item justifies the Power Company’s claim of arbitrariness and confiscation, unless this Court is now willing to say — and I am not — that, even considering the item, the rate of the return to the Power Company, though less than 6%, is still an adequate return. I am not willing to go that far in this case. The majority has not shown itself willing to go that far; and, therefore, I think this case should be returned to the Commission to consider a rate increase in the light of facts that occurred during the course of its hearing. It is entirely proper to consider a test year, but what the Supreme Court of Pennsylvania said in the case of City of Pittsburgh v. Pa. Pub. Util. Com’n, 171 Pa. 187, 90 Atl. 2d 607, is apropos to the situation here: “We recognize the necessity, as a practical matter, for a cut-off date and the use of a base year in arriving at a final determination. But the Commission cannot be oblivious to recent figures in its own files supplied by the utility. . . . The Commission may not ignore recent information and evidence which substantially affect the problem before it. Allowance must, of course, be made for property additions to the rate base. . . . The Commission should also consider any further available material evidence on this question. As the Commission said in its present order: ‘ Equity requires that respondent’s rates, being made for the future, should be predicated upon the latest tax conditions known.’ ” For the reasons herein stated, I respectfully dissent.   The Department of Public Utilities was the name of the administrative tribunal in 1944 (see Act No. 324 of 1935). By Act No. 40 of 1945, and later by Act No. 155 of 1951, the name was changed to the present name, “Public Service Commission,” and the powers and duties of the old “Department of Public Utilities” were transferred to the present Public Service Commission. See § 73-101 et s'eq., Ark. Stats.    But months were spent in the course of the hearing, and the order of the Commission denying the Power Company a rate increase was dated November 22, 1954.    I am inclined to believe that the Commission was in error in refusing due consideration to an item of increased labor costs that occurred during the course of the hearing.    Part of this was Lynch Unit No. 3 which was placed in operation on June 19,1954; and Couch Unit No. 2 which was placed in operation on July 31, 1954; and part related to heavy transmission lines.    If my views — as herein expressed — had prevailed and the cause had been remanded to the Commission to consider a rate schedule to include this Twenty Million Dollar item, then I would have voted that the Commission should exclude from the Account No. 100.3 (Construction Work in Progress) any amounts that represented accrued interest as distinct from actual cash invested. To allow accrued interest would be to allow the Power Company a rate of return on “accrued items” rather than “actual investment items.” This is discussed by the Vermont Supreme Court in “Petition of Central Vermont Public Service Corp., 71-Atl. 2d 576.”