Court Opinion

ID: 4711454
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:36:55.71471+00
Date Added: 2024-06-11T08:07:08.795217
License: Public Domain

Alexander, J.
(concurring in part, dissenting in part) — I agree with the majority opinion in all respects save one. In my view, the majority incorrectly concludes that the Washington Utilities and Transportation Commission (Commission) had authority to reduce US West’s return on equity by approximately 0.5 percent as a reaction to what it concluded was US West’s poor level of past service and as an incentive for US West to improve its service. I am satisfied that the reduction was a penalty which the Commission is without authority to impose under the guise of rate making. I, therefore, dissent in part to the majority opinion.
*128The majority indicates that “[i]t is the law in Washington, and in other jurisdictions, that a regulatory commission may take the quality of service into account in fixing the appropriate rate of return for a utility.” Majority op. at 116. Even assuming that is a correct statement, it is not justification for the imposition of penalties in rate making. Indeed, any assertion that it is is belied by a plain reading of the statute upon which the majority relies, that statute indicating only that rates for a telecommunication company must be “fair, just, reasonable and sufficient.” RCW 80.36.080. Although the statute provides, additionally, that the service rendered by such companies is to be performed in a “prompt, expeditious and efficient manner” and that service is to be “modern, adequate, sufficient and efficient,” it does not logically follow that the process for setting future utility rates may be transformed into a proceeding to exact penalties from a regulated utility for deficiencies in its past service.
It is apparent from the record that if the Commission had not concluded that US West’s past service was insufficient it would have established its return on equity at 11.8 percent. By reducing US West’s future return on equity by 0.5 percent to 11.3 percent the Commission was, in essence, penalizing US West for what it perceived was its poor past service. Significantly, in its order the Commission did not attempt to conceal its intention to do just that, stating: “[W]e are ordering the Company to provide customer service guarantee programs and reducing the Company’s return on equity by 0.5 percent to the low end of the reasonable range, to reflect the level of service it is providing and provide incentive for improvement.” Administrative Record at 1789.
The majority suggests that the Commission’s decision to reduce US West’s return on equity was reasonable because the reduced overall rate of return was within what the Commission found was the range of reasonableness of 9.367 to 9.887 percent. This makes little sense and does not obscure the fact that the Commission reduced US West’s *129return on equity below the level it would have otherwise been fixed, simply because of what it perceived was US West’s poor service in the past and as an incentive to improve its service. Clearly that decision had no relationship to the financial factors that should bear on the reasonableness of a future rate. While I do not quarrel with the majority’s assertion, based on our decision in People’s Org. for Wash. Energy Resources v. Utilities & Transp. Comm’n, 104 Wn.2d 798, 711 P.2d 319 (1985), that a rate decision will be affirmed if it is within the “zone of reasonableness,” that does not, in my view, warrant the Commission’s reduction of the return to a level lower than that which it determined was fair and reasonable simply to penalize the utility.
In reaching this conclusion, I find myself in agreement with the view taken by the Supreme Court of New Mexico in In re General Tel. Co., 98 N.M. 749, 652 P.2d 1200 (1982). Although I recognize that it is not always helpful to rely on cases from another jurisdiction where the pertinent statutes may differ from those confronting this court, the facts of that case are strikingly similar to those of the instant case and the logic of the New Mexico decision is unassailable. In General Telephone, the New Mexico Corporation Commission determined in a rate-setting case that General Telephone had not been providing satisfactory service and, consequently, it granted an 11.5 percent rate of return rather than a return of 11.91 percent, the rate it would have granted General Telephone in the absence of its finding of service inadequacies. In striking the Commission’s action down, the New Mexico Court said:
We agree with the rationale stated in the foregoing cases, that a regulatory commission has no authority to deny an increase in rates in an amount which it has first found to be just, fair and reasonable, by means of imposing a subsequent penalty for poor or inadequate service. However, this does not preclude the SCC from properly considering in a rate proceeding, quality or inadequacy of service in determining, under the facts and circumstances in each particular case, what is a fair, just and reasonable rate of return to the utility. We conclude in this case that once the SCC had arrived at a fair and reason*130able rate of return, it had no authority to penalize a utility for reasons relating to the quality of service in a ratemaking proceeding.
General Tel., 652 P.2d at 1209 (emphasis added). Although the majority would undoubtedly stress the portion of the above quote that indicates a regulatory commission may consider quality or inadequacy of service in setting utility rates, when it is read in context it does not justify the imposition of a penalty for poor service.
My conclusion is buttressed by the knowledge that courts in other jurisdictions have reached a conclusion similar to that of the New Mexico court. See Askew v. Bevis, 283 So. 2d 337, 2 Pub. Util. Rep. 4th 404 (Fla. 1973); Florida Tel. Corp. v. Carter, 70 So. 2d 508, 3 Pub. Util. Rep. 3d 145 (Fla. 1954); South Cent. Bell Tel. Co. v. Utility Regulatory Comm’n, 637 S.W.2d 649 (Ky. 1982); Southern Bell Tel. & Tel. Co. v. Louisiana Pub. Serv. Comm’n, 28 Pub. Util. Rep. 3d 303 (19th Jud. Dist. 1959); General Tel. Co. v. Michigan Pub. Serv. Comm’n, 341 Mich. 620, 67 N.W.2d 882 (1954); Southern Tel. Co. v. United Tel. Co., 5 Pub. Util. Rep. 3d 75 (Pa. P.U.C. 1954).
Although I disapprove of the Commission’s action here, I note that Washington’s Commission is not powerless to deal with what it finds is inadequate service on the part of telecommunications companies. The Legislature has provided specific statutory authority to the Commission to assess penalties against public utilities for violations of chapter 80 RCW and for a utility’s failure to comply with a rule, direction, demand, order or requirement of the Commission. RCW 80.04.380. Although the Commission had not previously entered an order fixing the quality of service it expected of US West, it had the authority to do that pursuant to RCW 80.36.140. If it had, it could have imposed penalties upon US West, after notice and hearing, for US West’s failure, if any, to comply with its prior orders.
Finally, it is apparent to me that from a purely pragmatic standpoint it is far more sensible to deal with allegations of *131poor service in a statutorily authorized penalty proceeding that is devoted strictly to that issue than in a rate-setting hearing. A rate-setting hearing should be devoted to the rate-setting function. To allow it to be transformed into a penalty proceeding at which the principals present anecdotal evidence relating to service quality can only create confusion and detract from the rate setting function. At best the setting of future rates for telecommunications companies is complicated. To allow the Commission to impose penalties for what it perceives are past failures of the Utility under the guise of setting future rates is distracting and it subverts the rate-setting process by allowing it to be affected by subjective considerations that do not directly bear directly on the cost of providing future service.
In sum, I am satisfied that the Commission erred in imposing a penalty on US West under the guise of rate-making and to the extent the majority’s decision reflects that error, I would reverse.
Sanders, J., concurs with Alexander, J.