Court Opinion

ID: 6757190
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:28:09.401996+00
Date Added: 2024-06-11T16:02:28.751284
License: Public Domain

Locher, J.,
dissenting. The Office of Consumers’ Counsel, appellant herein, alleges before this court that the Public Utilities Commission erred in its determination that Bruce Mansfield Unit No. 3 was more than 75 percent complete. I must agree with this contention.
The commission is granted, pursuant to R. C. 4909.15(A), the discretion to permit an allowance for construction work in progress (CWIP) in the utility company’s rate base. That section provides, in relevant part:
“***The commission may, in its discretion, permit a reasonable allowance for construction work in progress but, in *168no event, may any allowance for construction work in progress be made by the commission until it has determined, after a physical inspection, that the particular construction project is at least seventy-five per cent complete.”
The commission has recognized that the CWIP allowance, often alleged to be unconstitutional, is a specific exception to the requirement that property must be used and useful at the date certain in order to be incorporated into a utility’s rate base. Accordingly, that exception must be strictly construed. See, e.g., Columbus & Southern Ohio Electric Co. No. 77-545-EL-AIR (March 31, 1978), affirmed Consumers’ Counsel v. Pub. Util. Comm. (1979), 58 Ohio St. 2d 108; Ohio Edison Co. No. 77-1249-EL-AIR (November 17,1978); Dayton Power & Light Co. No. 78-92-EL-AIR (March 9, 1979), affirmed Dayton Power & Light Co. v. Pub. Util. Comm. (1980), 61 Ohio St. 2d 215.
Furthermore, legislative intent is clear on the face of R. C. 4909.15(A)(1). The General Assembly wished to provide utilities an opportunity to integrate into the rate base capital expenditures for construction projects whose future utilization by and benefit to consumers were imminent.
Nevertheless, in this matter, the commission has ignored its own policy and the clear legislative intent of R. C. 4909.15(A)(1). In its determination that Bruce Mansfield Unit No. 3 was more than 75 percent complete, the commission’s staff witness allocated a pro rata portion of certain facilities that Bruce Mansfield Unit No. 3 shares with Bruce Mansfield Units Nos. 1 and 2. To allow this “sharing,” the CWIP allowance was granted in direct contravention of the requirement in R. C. 4909.15(A)(1) that such allowances be determined through reference to a “particular construction project.” The particular construction project herein at issue is solely Mansfield Unit No. 3, and not Units Nos. 1 and 2.
Through its application of the shared facility concept, the commission has wrought a strained interpretation of R. C. 4909.15(A)(1). The impact of this approach becomes clear when the commission’s interpretation is applied to the facts of this case in conjunction with R. C. 4909.15(E), which limits the CWIP allowance to 20 percent of the total rate base exclusive of the CWIP allowance.
*169Consider the following undisputed facts: (1) the shared pollution control and fuel-handling facilities have been included in the rate base since 1976, approximately three years prior to the date certain in this case; (2) these shared facilities included excess capacity until the Bruce Mansfield Unit No. 3 was completed; (3) without considering the shared facilities, the project would not have been deemed to be 75 percent complete on the date certain; and (4) the cost of the shared facilities was not included in the CWIP allowance for purposes of determining any new additions to the rate base. It is important to note that the excess capacity of the shared facilities would be neither used nor useful until Bruce Mansfield Unit No. 3 was completed.6
Given these facts, the commission determined that the utility had met the minimum 75 percent completion standard even though it was necessary to include the cost of items which were already in the rate base to do so. Accordingly, the commission created a criterion for determining eligibility under R. C. 4909.15(A)(1) which does not appear on the face of the statute. That is, R. C. 4909.15(A)(1) only refers to an “allowance for construction work in progress” with the requirement “that the particular construction project***[be] at least seventy-five per cent complete.” (Emphasis added.) R. C. 4909.15(A)(1) should be read in pari materia with R. C. 4909.15(E) which likewise refers only to “an allowance for construction work in progress under division (A)(1).” (Emphasis added.)
In this case, the commission, however, has acknowledged a threshold determination regarding CWIP eligibility. Ohio Edison Co. No. 78-1567-EL-AIR (January 30, 1980), at page 15. This convoluted reasoning allowed the utility to vault over the 75 percent standard by way of the peculiar procedure of including as construction work in progress some expenditures which had already been in the rate base for several years. Although these expenditures for shared facilities were included in the rate base for purposes of the CWIP eligibility determination, these same expenditures were deliberately excluded from the CWIP allowance.
*170This convenient flip-flop from rate base to CWIP and back to rate base ignores the obvious legislative intent behind R. C. 4909.15(A)(1). The CWIP allowance is to prevent inordinate and onerous time delays between capital expenditure and return on capital. Accordingly, the commission’s position is self-defeating because it seeks to include the pro rata cost of the shared facilities solely for the purpose of establishing CWIP eligibility. If expenditures are part of the rate base and, therefore, cannot and should not be considered for the purpose of a CWIP allowance, then those same expenditures must not be considered for the purpose of determining whether the 75 percent completion standard for CWIP eligibility has been met. The reasoning behind this observation is clear in light of R. C. 4909.15(E) which limits the CWIP allowance to 20 percent of the total rate base. The example which follows demonstrates the hidden effect of the commission’s position. It is necessary to use a hypothetical example to show this effect clearly. Likewise, an example is helpful because of the quantitative determinations required under R. C. 4909.15.
Suppose a utility has a total rate base of $150,000,000, and this utility is currently building a new plant at a cost of $30,000,000. $21,000,000 has been spent on the new plant as of the date certain. The new plant, however, can only function with the assistance of a pollution control and fuel-handling facility which is shared with two other plants. This shared facility was completed approximately three years prior to the date certain, and its cost has been improperly included in the rate base since its completion. The portion of this shared facility which is allocable to the new plant is $10,000,000.
In the case before this court, the commission has urged that one criterion for determining whether a utility has crossed the eligibility threshold is the percentage of funds expended to date on the project. See Ohio Edison Co. (1980), supra, at page 14. If one applies that standard to the example above, the expenditures made exclusively for the new plant would not qualify it for a CWIP allowance because $21,000,000 is only 70 percent of $30,000,000. Yet, if the $10,000,000 expended for the portion of the shared facility which is allocable to the new plant is included, then the funds expended to date are $31,000,000 or 77V2 percent of a total of $40,000,000.
*171In this case, the commission gave considerable attention to committed capital in its opinion and order. Ohio Edison Co., supra, at page 13. Funds expended, rate base and CWIP allowance are admittedly not the exclusive criteria for determining the eligibility for a CWIP allowance under R. C. 4909.15(A)(1). Nevertheless, these criteria are the determinative factors under R. C. 4909.15(E). In light of R. C. 4909.15(E), the example discussed above demonstrates the insidious effect of the commission’s position in this case.
R. C. 4909.15(E) provides, in pertinent part, as follows:
“In no event shall an allowance for construction work in progress under division (A)(1) of this section exceed twenty per cent of the total valuation as stated in such division, not including such allowance.”
Accordingly, the CWIP allowance under R. C. 4909.15(E) is totally separate and distinct from the rate base and no cross-pollenation exists between the two. The total rate base, net of any CWIP allowance, limits the ceiling for a permissible CWIP allowance.
Applying the commission’s analysis to the example discussed above demonstrates the untenable nature of the commission’s position. The total rate base of $150,000,000 includes the $10,000,000 portion of the cost of the shared facility which would only be used and useful when the new plant becomes operational. Having used this $10,000,000 to satisfy the CWIP threshold eligibility criterion, these funds remain in the rate base. Therefore, the CWIP allowance requested for a rate increase would be only $21,000,000 for the funds expended on the new plant. At first glance, this request appears permissible under R. C. 4909.15(E) because the $21,000,000 expenditure is less than 20 percent of $150,000,000. This result is analogous to that which the commission urges this court to affirm.
Under R. C. 4909.15, however, a different result should obtain in this example. First, the $10,000,000 investment in the shared facility which is allocable to the new plant should never have been included in the rate base because it would be neither used nor useful until the new plant was completed. Therefore, the total valuation should be decreased to $140,000,000. Second, the CWIP allowance in this example *172should be increased from $21,000,000 to $31,000,000 to include total expenditures for the new plant. Third, the maximum allowable CWIP addition to the rate base would be 20 percent of $140,000,000 or $28,000,000. This contrasts with the commission’s approach which allows an additional $3,000,000 to be included in the rate base. This application of R. C. 4909.15 would be consistent with the plain language of R. C. 4909.15 as well as remain true to the obvious legislative intent of that provision.
Rather, the commission’s approach permits the utility to benefit doubly. Initially, the utility receives a return on excess capacity. Later, the utility may metamorphose its plant in service into construction work in progress — but only for a moment, until the total exceeds the CWIP eligibility threshold. Meanwhile, the cost of this excess capacity remains in the rate base. Thereafter, this same cost is subtracted from the CWIP total for the purpose of applying the 20 percent standard under R. C. 4909.15(E) and conceivably permitting a total increase in the rate base in excess of that allowable under this provision. The commission’s approach, therefore, provides a gaping loophole through which utilities may drive up the rate base.
Accordingly, the commission’s argument says too much. One can readily argue that the commission erred in 1976 by permitting excess capacity to be included in the rate base. Now, the commission wishes this court to acquiesce in the shared facility concept.
The effect of the commission’s decision to utilize the shared facility concept results in allocating a portion of used and useful property of completed construction to CWIP in order to reach the magic 75 percent. The statute requires otherwise, as the commission and this court have attempted to uphold in the past.
Unfortunately, the commission’s position in this case would undermine the clear meaning and obvious intent of R. C. 4909.15. The commission’s ever-expanding reading of the statute opens a pandora’s box and circumvents the basic requirement that only expenditures for used and useful property may be included in a utility’s rate base. Having done so, the commission then seeks the imprimatur of this court. The *173shared facility concept now paves the way for utilities to gain an artificially inflated return. Likewise, this case demonstrates the commission’s continuing failure to “establish standards for future decision on issues of allowing CWIP in the rate base.” Consumers’ Counsel v. Pub. Util. Comm., supra (58 Ohio St. 2d 108) at page 120 (Locher, J., dissenting). This lack of standards permits utilities to lead both this court and the commission down the primrose path to higher utility rates through convenient, ex post facto rationalizations. One can only but imagine what new and tortuous roads lie ahead.
Accordingly, this case, in my judgment, should be remanded to the Public Utilities Commission for a recomputation of the rate base, pursuant to a proper application of R. C. 4909.15; and, furthermore, inquiries should be made concerning the reason for including in the rate base in prior years a significant portion (approximately $29,000,000) of the expenditures for property which was neither used nor useful.

 This observation causes one to wonder why the commission permitted the cost of the excess capacity to be included in the rate base in the first place.