Court Opinion

ID: 9652367
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:22:52.722277+00
Date Added: 2024-06-11T18:12:50.709011
License: Public Domain

NEBEKER, Associate Judge,
concurring:
In view of both the content and tone of my Brother’s dissent, I feel constrained to elaborate upon my joining in the majority opinion. I am convinced that the majority opinion is wholly legally valid and manifests a realistic (and dispassionate) assessment of the issues in this case. Moreover, its conclusions are mandated by precedent as well as by common sense.
Both the majority and dissenting opinions recognize certain of the basic principles related to the scope of our review over the Commission’s decisions; a few of the many decisions relied upon by the majority also are cited in the dissent. Where our dissenter goes astray, in my view, is in his apparent belief that if agency action is “considered,” it is immunized against a finding of arbitrariness or capriciousness. The dissent would simply accept at face value the Commission’s broad conclusions as individually reached, and would avoid further inquiry into the correctness of the supporting evidence, as well as into the conflicts, the omissions, and the practical effect of the opinion as a whole. The majority opinion, however, goes the inescapably necessary step beyond the dissent in making those inquiries.
I. ASSERTIONS OF ERROR
In disputing the majority’s determination that the Commission’s opinion was arbitrary and capricious, the dissent begins by characterizing the majority opinion as being wholly “unsupported and unjustified.” Yet the *165majority opinion is replete with supporting evidence, and its analysis of the law as applied to the facts is in accordance with controlling precedent.
The dissent declares:
An examination of each of the Commission’s findings and conclusions reveals that none was arrived at arbitrarily, but rather only after thoughtful consideration of the evidence and of the arguments on each side.
Thoughtful consideration, however, does not preclude the ensuing results from being arrived at arbitrarily. The Commission undoubtedly did give thoughtful consideration to the issues raised, but still it reached a legally invalid conclusion. That it did by ignoring significant data submitted through June of 1975.
The dissent also attacks as “pure speculation” the majority’s conclusion that the relatively small increase in revenues granted by the Commission would not allow the company an opportunity to earn a fair rate of return, to maintain its financial integrity, and to attract capital, as required by Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 605, 64 S.Ct. 281, 88 L.Ed. 333 (1944). Yet the record contains abundant, clear, and uneontroverted evidence (1) of Pepco’s rapidly declining financial position,1 (2) that the practical effect of this position was to preclude the company from attracting capital and maintaining investor confidence,2 (3) that the data submitted for the first half of 1975 showed convincingly that the steep decline in rate of return on equity had rendered useless the corresponding 1974 test year figures used by the Commission,3 and (4) that the measures previously adopted by the Commission to combat the attrition in Pepco’s earnings had proved inadequate in times of lesser inflation.4 A conclusion by a reviewing court which is based on such extensive record evidence cannot be purely speculative, and an agency order which effectively ignores or improperly rationalizes away such concrete and convincing evidence cannot be allowed to stand. Pepeo thus met its “heavy burden” of showing severe and unconstitutional prejudice resulting from the Commission’s orders.
II. THE STANDARD OF REVIEW
Contrary to the dissent’s assertion, the majority opinion carefully adheres to the standards set by Congress, as well as by the Supreme Court and our own precedents. The majority first considered the overall effect of the Commission’s opinion, as it was bound to do under Federal Power Commission v. Hope Natural Gas Co., supra, 320 U.S. at 602, 64 S.Ct. 281, The Permian Basin Area Rate Cases, 390 U.S. 747, 791, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968), and our own Telephone Users Association v. Public Service Commission, D.C.App., 304 A.2d 293, 297 (1973). Having concluded that the effect of the Commission’s action was unjust and unreasonable, in that it would not allow Pepeo a reasonable opportunity to earn its authorized rate of return and maintain its financial integrity, the majority proceeded to give reasoned consideration to the contested elements of the opinion, a practice established by the Supreme Court and followed by this court in the Telephone Users case, supra, 304 A.2d at 298. Finding then that several of the Commission’s conclusions were arbitrary because they in effect ignored volumes of the most recent uncontested data of record, we vacate and remand the decision with instructions, as authorized by D.C.Code 1973, § 43-705. Legal errors and omissions such as these cannot be shielded from even the narrowest appellate review merely because the Commission made several conclusory statements supported by insufficient, contradictory, misleading or erroneous evidence, regarding its full consideration of the issues. Such transgressions are in direct contraction to controlling precedent and logic.
*166To bolster its argument, the dissent posits that “the Commission did not pick its conclusions out of thin air.” Surely, however, the bounds of judicial review are not set by this novel “thin-air” standard. As noted, the Commission may reach its conclusions in a manner which is thoughtful but nevertheless arbitrary. To hold otherwise would be to render any appellate review a meaningless formality.
Finally, the dissent suggests that the Commission’s inclusion of some updated figures in its “reckoning” removes its opinion from the zone of arbitrariness defined in West Ohio Gas Co. v. Public Utilities Commission, 294 U.S. 79, 55 S.Ct. 324, 79 L.Ed. 773 (1935). However, the Commission’s exclusion of the most crucial parts of the updated data, as discussed by the majority, was as arbitrary as the action condemned in West Ohio Gas. The Commission's selective use of certain updated figures, therefore, does not insulate its action from our review.
The flaws in the Commission’s opinion and orders, accordingly, may not be shelved as being reflective of “a difference in judgment,” as the dissent would have us do. We may not hold that the Commission’s conclusory statements regarding its consideration of the issues, statements which did not take into account crucial and substantial data of record, preclude our finding arbitrary and capricious action in this case. I now address in turn the specific assertions of error contested by the dissent.
III. THE TEST YEAR
As regards the proper test year, once again the dissent is unwilling to analyze the evidence beyond its superficial presentation by the Commission’s majority opinion. In defense of the Commission’s use of calendar 1974 as the test year, the dissent argues primarily that Pepeo did not exhibit an unequivocal intent to have the new data, which were presented in a format identical to that of the calendar 1974 data, and duly received into evidence, substituted for it. As this subject is thoroughly discussed in the majority opinion,5 here I shall mention only the fact that the dissent relies upon the expressed condition accompanying Pep-co’s request to substitute updated data to eradicate the existence of the request. The majority’s more thorough examination of the issue reveals that the condition — i. e., Pepco’s insistence that it could not afford a reopening of the hearings — was added out of an abundance of caution on Pepco’s part, and was not legally a prerequisite to the Commission’s ultimate determination of the issue.6 Public hearings are held primarily to assist the Commission’s determination of the proper relationships among components of new rates; the actual figures for those components must only be verified by simple audit to meet the requirements of due process and fairness. The dissent cites no authority to the contrary. The Commission did not have to reopen the hearings, and in fact it did not. Hence the significance of Pepco’s caveat evaporated.
Moreover, I note that the Commission— like the Federal Power Commission and state public service commissions — routinely accepts and incorporates into its opinions new data submitted late in rate proceedings for the purpose of updating the old data, allowing only a short time for an audit of the new figures. See, e. g., City of New York v. New York Public Service Commission, 42 A.D.2d 259, 346 N.Y.S.2d 6 (1973). As there is no cognizable reason for its refusal to do so in this case, I can only conclude that the Commission erred.7
*167The dissent also is in error when it states: “In oral argument to the Commission Pepeo did not raise any question about a June 30, 1975, test year.” To support this statement, the dissent quotes as follows from the argument of Pepco’s counsel:
• Now what solutions to the attrition problem exist?
The one that’s traditionally been used by this Commission and most others is year-end rate base, and we think that if the Commission is going to stick with the 1974 test period that that’s a minimum. . . . [Tr. 2821-22]
While I believe that counsel’s use of “if” cuts against the dissent’s contention (particularly when it is recognized that the Commission ultimately used average, rather than year-end figures for Construction Work in Progress and Materials and Supplies), the part of counsel’s argument which immediately followed is dispositive of that contention:
. . and that minimum ... is not enough. .
Now, there are other things you could do.
One of them is to recognize the need for updating [the] test period.
The result reached in the majority opinion on the question of updating the test period is valid and conforms to the long line of Supreme Court cases and our own precedent which require that a rate maker consider, and make appropriate adjustments for, the most recent data of record.8 Therefore, as Pepco’s operating results and financial condition underwent drastic changes after the end of the originally-submitted test year, and as the delay occasioned by the administrative process was quite long, the only appropriate consideration of the data for the first half of 1975 must involve their use in a test period.
IV. ATTRITION AND USE OF 1975 DATA
In contesting the majority’s treatment of attrition, the dissent once again mistakes the Commission’s simple acknowledgment that “attrition ... is still with us” for a legally valid effort to solve the problem. As support for its statement, the Commission added:
[W]e will therefore now, as we have in the past use an end of period rate base, with appropriate adjustments, in order to compensate for the presence of attrition.
The inevitable effect, however, of the “adjustments” made (i. e., the use of weighted average, rather than year-end figures for two of the three major rate base components) was the creation of a revenue deficiency which more than offset the small attrition allowance resulting from the use of a period-end figure for the third component. (This fact is not mentioned in the dissent.) Moreover, the predictive value of setting rate figures which may have been reasonable during the test year, without considering more recent data which differ *168significantly from those presented for the test year, is negligible. It was for this reason that the Supreme Court so clearly proscribed the use of out-dated data in West Ohio Gas Co. v. Public Utilities Commission, supra 294 U.S. at 82, 55 S.Ct. 324, and its holding controls the resolution of the test year issue in the instant case.
In the Commission’s ruling on Pepco’s petition for reconsideration, it again paid lip service to the existence of Pepco’s continuing financial decline, and added:
This fact was fully considered by the Commission in arriving at its decision in this case, even though the decision was indeed based on a 1974 calendar year test period.
Yet the Commission proceeded to offer two weak and unsupported reasons for its failure to grant the relief requested. As regards the first reason, there was no basis in the record or in logic for the Commission to assume that Pepeo did not request that operating data for the year ended June 30, 1975, be used. Secondly, while asserting that it was not persuaded that Pepco’s financial decline in 1975 could be attributed to “attrition”, the Commission gave no reason for reaching this conclusion, and did not state why such a decline should not be adjusted for in some way even if it were not related to attrition. Such a conclusion could not be labeled anything other than arbitrary and capricious. It is difficult to fathom how our dissenting Brother apparently can believe that the Commission’s reasoning carries “considerable logic,” thereby defeating “any contention that the decision as to CWIP was arbitrary.”
Concerning the Commission’s misuse (by substantial nonuse) of the most recent available data, I would only refer the reader to the majority’s discussion of the June 30, 1975, data, attrition, and the rate base components, and repeat that superficial assertions concerning the Commission’s “thoughtful consideration” of the 1975 data, when not followed by remedial action, may not successfully disguise what otherwise are readily recognizable as unreasonable, arbitrary, or capricious rulings. This is particularly true when the subject of attrition is discussed, as, regardless of how the Commission rationalized away its existence, any knowledgeable person could perceive that there remained on the record uncontradict-ed evidence of continuing and exacerbated attrition through the first half of 1975.
Y. 1976 OPERATING RESULTS
Perhaps the most alarming aspect of the dissent, however, is its unfettered use of extra-record material as supposedly providing major support for its position. It refers to stock prices and to a Securities and Exchange Commission filing by Pepeo as evidence that, with the contested rates in effect, Pepeo was able to make financial progress. This use of such extra-record material is not only proscribed by controlling case law and by the relevant statute, but also is dangerously incomplete in its analysis and suggests erroneously that this court’s decisional judgments routinely are affected by extra-record “facts.”
As long ago as 1813, the Supreme Court held that facts which do not appear in the record cannot be noticed by a reviewing court, even if those facts would be sufficient to change the outcome of the case. Thornton v. Carson, 11 U.S. (7 Cranch) 596, 601, 3 L.Ed. 451 (1813). The dissent’s gambol beyond the confines of the record also is prohibited by statute. D.C.Code 1973, § 43-705 provides in part that: “Any such appeal shall be heard upon the record before the Commission [on appeal], and no new or additional evidence shall be received by [this] court.” As appeal can be taken only from the order as issued by the Commission, we may not consider evidence which was not available to the Commission at the time of issuance. Moreover, the extra-record materials do not contain facts of common knowledge, nor are they capable of such certain verification that they may be judicially noticed. Massachusetts v. Westcott, 431 U.S. 323, 97 S.Ct. 1755, 52 L.Ed.2d 349 (1977).
The dissent’s selective use of material unavailable to Pepeo during the proceeding (since it did not exist), or to the Commission *169in formulating its opinion, also makes no practical sense. The materials cited in no way constitute a meaningful treatment of the subject, they are not inherently reliable, and their contents may have no meaningful relationship to the rates contemporaneously in effect.9 The dissent’s reliance upon extra-record material is as erroneous as it is curious when one considers the dissent’s position on the test year issue: our Brother sanctions the Commission’s effective disregard of the most current and compelling evidence of record, but relies heavily himself on “information” which did not even exist until some two years after the record which we review was closed.
VI. REMEDY
Finally, the dissent’s discussion of the remedy prescribed rests upon two misconceptions. The first is that the majority directed specific dollar results in its remand order. In fact, the majority mandated the Commission only to recalculate the rate base and revenue requirements using the actual and audited data of record for the test year ended June 30, 1975. This certainly was not done, as the dissent accuses, “to avoid a hearing by the Commission on remand,” but necessarily to conform to legal standards.
Secondly, the dissent contests our authority to outline the remedies on remand.10 Yet the majority opinion conforms to the procedures mandated by D.C.Code 1973, § 43-705.11 It has accompanied its vacating of the Commission’s order with detailed reasons for its action, and has related “the particulars in and the extent to which such order or decision was defective.” It has not assumed the administrative function of setting rates, and, after correcting the Commission’s legal errors, has left the actual establishment of just rates to the Commission. Moreover, it has tempered its decision with equitable considerations to assure fair treatment to the consumer, as well as the investor. The dissent does not address this aspect of our decision. One must remember that the true interests of the consumers do not rest solely on artificially low utility rates. In the ultimate analysis, the consumer cannot and will not afford the inadequate utility services which inevitably would follow as a consequence of short-term, confiscatory rates. I remain convinced that the reasoning of the majority opinion is not only wholly sound but also is in the best interests of the public.12

. See pages 134-136.

. See id at 135-136.

. See id at 137.

. See id at 139 and 145-146.

. See section IV thereof.

. The majority reasoned that as the new submission followed the same format as the original, and as the purpose of the proceedings — to determine the relationships among revenue /expense/rate base components — had already been fulfilled and could not have been advanced by new hearings, considerations of fairness and due process would not have required such a reopening of the record. The dissent’s suggestion to the contrary is unsupported and erroneous.

. The case of Arkansas Power & Light Co. v. Arkansas Pub. Serv. Comm’n, 226 Ark. 225, 289 S.W.2d 668 (1956), cited by the dissent on this subject, is factually distinguishable from the instant case. In Arkansas, the utility filed its application for new rates on May 27, 1954, and based its request on a test year ended March 31, 1954. After extensive hearings were held, the Commission issued its order on November 22 of the same year. Although the company at some point requested that the Commission consider the period from March 31 to August 31, 1954, as an additional testing period, there appeared to be no specific reason or real need for this request. Unlike in the instant case, no assertions of a significant financial change in the company’s status were made, and the length of time taken up by administrative delay was short. Moreover, the mid-1950’s did not witness the inflation and fuel cost increases to which today’s utilities are being subjected. Far more to the point, for example, is New York Telephone Co. v. Public Serv. Comm’n, 29 N.Y.2d 164, 342 N.Y.S. 53, 272 N.E.2d 554 (1971), in which the New York Court of Appeals readily reversed that state’s Commission’s refusal to give proper effect to the utility’s most recent historical operating data.

. The increase in earnings may be attributable to the unusual weather conditions discussed in the majority opinion, to a trend in stock investment patterns, to increases in rates which Pep-eo may charge its many non-District of Columbia customers (of which we have no record knowledge), or to any number of other factors. Additionally, we have no knowledge as to what has happened to Pepco’s expenses and rate base in the two years since the record before us was closed.

. The dissent also states its belief — which the majority does not share — that the validity of the rate increase granted subsequent to the one here is placed “in serious question.” Any further review of that decision would be occasioned only by action of the parties, and not of necessity.

. Contrary to the dissent’s claim, the Telephone Users case does not set the parameters of this court’s authority. The quoted language specifies only what this court did not do — it by no means indicated what we could not do in any given situation.

. Warranting quotation is the following paragraph from Commissioner Stratton’s dissenting opinion:
To sum up, the commission’s order posits an economic environment reminiscent of the early 1960’s. In failing to acknowledge and deal with the fact that operating and capital requirements per unit of sales have risen, and continue to rise, faster than revenues the commission has taken a step that can only bring regulation in the District of Columbia into disrepute among the fair-minded and knowledgeable.