Court Opinion

ID: 9725357
Source: CourtListenerOpinion
Date Created: 2023-08-26 11:42:56.237496+00
Date Added: 2024-06-11T18:25:13.687410
License: Public Domain

*843BAKER, Judge,
dissenting.
I dissent.
In an attempt to entomb the travesty of Marble Hill, the Commission has engaged in legerdemain, which the majority today affirms.
The majority has allowed the Commission to grant PSI a risk premium based on the Commission's finding that PSI's financial difficulties amount to an emergency. Commission Order of 3/7/86 at 14. I find the majority's reasoning flawed in two respects.
L.
First, as the majority correctly notes, a utility cannot shift to its rate payers the investment burdens of an abandoned project that never became used and useful property of the utility. Citizens Action Coalition of Ind., Inc. v. Northern Ind. Pub. Serv. Co. (1985), Ind., 485 N.E.2d 610. In determining a reasonable rate of return for PSI, the Commission excluded from PSI's rate base the costs of the Marble Hill project. This did not satisfy the requirements of Citizens Action Coalition, supra, however, because PSI's financially dire straits are directly attributable to the Marble Hill fiasco. The Commission relied on evidence that PSI's writing off of Marble Hill "could bring PSI precariously close to bankruptey." - Commission Order, supra, at 18. Moreover, in his concurrence with the order, Commissioner O'Lessker noted:
We should not let ourselves be deceived by our own rhetoric about the disposition of the Marble Hill issue. The company, the consumer counselor, and the language in this order all give the impression that Marble Hill is behind us and that the rate payers will never have to bear its financial burdens. This interpretation of what we are doing here today seems to me, at best, disingenuous. The plain fact of the matter is that both the 5% emergency surcharge granted in 1984 and the 8.2% increase we are approving today are directly attributable to the financial catastrophe that Marble Hill became.
Appellant's Brief at 28-24. In essence, then, the Commission's order provides for exactly that which is prohibited; that is, the recovery of costs for property that never became used and useful, thereby violating the rule of Citizens Action Coalition, supra. See also L.S. Ayres & Co. v. Indianapolis Power & Light Co. (1976), 169 Ind.App. 652, 351 N.E.2d 814, and Public Ser. Comm. v. Indiana Bell Telephone Co. (1955), 235 Ind. 1, 130 N.E.2d 467.
The emergency for which the Commission granted relief is a crisis of confidence in the capital and credit markets. Because of the Marble Hill losses, PSI has had difficulty in accessing short and long term credit and long term capital, its investment ratings have suffered, and its earnings have declined. Commission Order of 3/7/86 at 14. By granting the risk premium, however, the Commission has improperly made PSI's consumers the insurers of PSI's investors. The Commission regulates utilities "to protect the consumers from the abuses of monopoly i.e. artificially high prices." Citizens Action Coalition, supra, 485 N.E.2d at 614. The Commission has a responsibility to approximate the conditions of a competitive market in the monopoly market of public utilities. In discharging this responsibility, the Commission of necessity, takes into account the responsibilities of utility investors and consumers. Id. at 614, 615. The responsibilities of consumers include paying a fair return on investor's capital, and paying taxes and operating costs. Citizens Energy Coalition v. Ind. & Mich. Elec. Co. (1979), Ind.App., 396 N.E.2d 441, 445, trans. denied. It is well established, however, "that the company's investors, not the consumers, must contribute the working capital." Id. (emphasis added). The Commission's order illegally places the burden of ac quiring capital squarely on the consumer and should not be allowed.
IL
Second, the majority erroneously concludes that a,. prudence inquiry was not required because "[wJhether the expenses were prudently or imprudently incurred, *844none of the costs expended by PSI for the failed Marble Hill project were chargeable to the utility's rate payers." Majority Opinion at 887. If the majority is correct that the costs of Marble Hill are not being shifted to the rate payers, then an inquiry was required to determine management's prudence not relating to Marble Hill, but rather within the context of the financial emergency alone. If an inquiry reveals no imprudence in the precipitation of the emergency, then rate relief is proper. An inquiry into management's prudence in the context of the emergency was required here for two reasons.
First, IND. CODE § 8-1-2-48 places the Commission under an affirmative duty to inquire into a utility's management practices and to exclude any item of expense which is unnecessary or excessive in setting that utility's rates. The duty imposed by IND. CODE § 8-1-2-48 is absolute and continuous: "[the commission shall inquire into the management of the business of all utilities ..." (emphasis added). This is not precatory language. "The use of the word 'shall in a statute must be construed as being used in its imperative and mandatory sense." American Vitrified Prod. Co. v. Public Serv. Comm. (1961), Ind.App., 176 N.E.2d 145, 153, 40 P.U.R.3d 164, 174 (citing State ex rel. City of Indianapolis v. Brennan, Judge (1952), 231 Ind. 492, 498, 109 N.E.2d 409, 411). Surely, in a situation in which the Commission grants a utility between $450 million and $720 million in rate increases, the requirements of IND. CODE § 8-1-2-48 apply and mandate a prudence inquiry.
The Commission was also obliged to inquire into the prudence of PSI's management because the provisions of IND. CODE § 8-1-2-113 do not allow for emergency rate relief when management imprudence causes the emergency. In State ex rel. Indianapolis Traction & Terminal Co. v. Lewis (1918), 187 Ind. 564, 120 N.E. 129, our supreme court required the Public Service Commission to take jurisdiction over a petition for emergency relief by a streetcar company whose ability to provide service and make a profit had been ravaged by the inflation caused by World War I. The court specifically disclaimed any requirement that the Commission hear an emer-geney petition based solely on threatened insolvency because such a "condition may have arisen through negligent or careless management, lack of business capacity, or otherwise, and far from being within the meaning of the word 'emergency' as used in the statute." 187 Ind. at 572, 120 N.E. at 131. We in the appellate courts are bound by this cautionary message. Under Lewis, a petitioner must allege more than mere insolvency for the Commission to take jurisdiction over a petition for emergency relief. When the Commission does take jurisdiction, therefore, it cannot grant relief on the basis of insolvency resulting from imprudence.
Here, PSI sought relief based on a financial emergency threatening insolvency. Before the Commission could grant emer-geney relief in this situation, it had to conduct a prudence inquiry to comply with IND. CODE § 8-1-2-48 and the rule of Lewis, supra.
I dissent and would reverse and remand with instructions to the Commission to permit a prudence inquiry.