Court Opinion

ID: 6756545
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:27:35.202836+00
Date Added: 2024-06-11T16:01:58.721613
License: Public Domain

Paul W. Brown, J.
Pursuant to B. C. 49Q3.13, the Supreme Court is required to reverse, vacate or modify final orders of the Public Utilities Commission: only .where, upon a consideration of the record, the order is unreasonable o,r unlawful. In ascertaining the reasonableness and lawfulness of commission orders, this court’s ■'scope of review has traditionally turned on whether an issue appea7 ed from presents a question of law or one of fact.
As to questions of fact, this court has .repeatedly enunciated the rule that orders of the commission, wall not. be reversed unless they are manifestly aga-inst the weight of the evidence or are so clearly unsupported by the record as to show misapprehension, mistake or willful disregard of duty. Duff v. Pub. Util. Comm. (1978), 56 Ohio St. 2d 367, 370; Cleveland Elec. Illuminating Co. v. Pub. Util. Comm. (1975), 42 Ohio St. 2d 403, paragraph, eight of the syllabus; Cleveland v. Pub. Util. Comm. (1965), 3 Ohio St. 2d 82, 84; East Ohio Gas Co. v. Pub. Util. Comm. (1940), 137 Ohio St. 225.
As to questions of law, however, this court has complete, independent power of review. Legal issues are accordingly subject to more intensive examination than are factual questions. But, this does not prevent the court from acknowledging and, in certain instances,, utilizing the specialized expertise of an agency in interpreting the law. These situations arise where there exists disparate competence’ between the respective tribunals in .dealing with highly specialized issues and where agency expertise would, therefore, .be of assistance in discerning the presumed intent of our General Assembly. It is in this ¡sense -that vre perceive, and carry out, our function of determining the lawfulness-and reasonableness of commission orders. With, these rules- of review in mind, we now address the issues raised' by appellant.
The majority of the issues in this cause concern the allowance by the commission for construction work in progress (CWTP) in the company’s rate base* pursuant to B. C. 4909.15(A)(1). This section provides-,. in pertinent part, as follows:
*111“* * * The commission may, in its discretion, 'permit a' reasonable allowance for construction work in progress! but, in no • event, may any allowance for construction-work in progress he made by the commission until it ham determined, after a physical inspection, that the particular construction project is at least seventy-five percent complete.” (Emphasis added.)
R. C. 4909:15(E) limits the amount of CWIP which can be included in the rate base, as follows:
“In no event shall an allowance for construction work in progress under division (Alii) of this section exceed twenty per cent-' of the total valuation as stated in'- such division, not including such allowance.”
Appellant argues that the commission' abused, its. discretion under R. C. 490.9.15(A) (1) in authorizing, by order, the inclusion of $100,531,000 for CWIP in the company’s» rate base. The -maximum allowable CWIP under the statutory provisions- would have been $150,865,000. Appellant urged the commission to include only $4,064,000.
R. C. 4909.15(A)(1) confers upon, the commission-discretion to permit a reasonable allowance for CWIP. In exercising this discretion, the commission determined, that those projects which were completed by the end of the test-year or which would be operational by the time the rates in dispute took effect, qualified as a reasonable ■ CWIP - allowance. The commission reasoned that the company or. its investors should not “be required to wait until the next, rate case to realize a return on property that will :-be'providing service .throughout the period during which the' rates established in this case will be in effect.” The. commission also recognized that the purpose for supporting these statutes i-s “to provide the commission with a.mechanism”-by .which authorized revenues could take into, account expenses of . plant construction “necessary to -.assure continuity of utility service.” - .
The method adopted by the commission to implemen-: this purpose does not appear unreasonable to'this .court. The commission acknowledged that the standard applied in this cause does not establish rigid criteria for the fu-*112tare. In resolving this cause, the commission applied the method it believed could achieve a result approximating the.intended purpose of the statute. This standard, based as it was on the particular set of facts before the commission, bore a reasonable relationship to the purpose of the legislation. Accordingly, this court finds that it was not an abuse of discretion for the commission to authorize the inclusion of $100,531,000 for CWIP in the company’s rate base pursuant to K. C. 1909.15(A)(1).
Appellant argues next that to the extent any CWIP allowance is approved by the commission, there must be an offsetting credit to operating income for funds used during construction (AFUDC).
Without detailing the accounting principles involved herein, it becomes apparent that were such an entry re-ijtiired by the commission, the net effect would be to neutralize the CWIP inclusion, a result which would render B. C. 4909.15(A)(1) meaningless. Appellant’s contention is, therefore, not. well taken.
Appellant also attacks the commission’s failure to specifically direct the company to cease capitalizing AFUDC on those construction projects authorized by the commission for inclusion in the company’s rate base.
The record indicates, however, that company witnesses agreed to cease capitalizing construction projects included in the rate base. This complies with generally accepted accounting principles and Federal Energy Begula-tory Commission accounting rules, 18 C. F. B., Part 101. This-court can find no prejudice, and thus no reversible error, in the commission’s failure to order the company to make an "entry which the company intended to make anyway, by agreement and pursuant to standard accounting principles. See Worthington Hills Civic Assn. v. Pub. Util. Comm. (1976), 45 Ohio St. 2d 11.
Appellant’s final challenge to the commission’s inclusion of CWIP in the company’s rate base attacks B. C. 4909.15 on the ground that the discretion granted to the commission under this statute is in effect so broad and im*113precise as to constitute an unlawful delegation of legislative 'authority. Also, the appellant seemingly charges that the commission’s exercise of this discretion was so arbitrary as to deny ratepayers due process of law.
In Mats v. J. L. Courtis Cartage Co. (1937), 132 Ohio St. 271, this court held in paragraph seven of the syllabus:
“As a general rule a law which confers discretion on an executive officer or board without establishing any standards for guidance is a delegation of legislative power and unconstitutional; but when the discretion to be exercised relates to a police regulation for the protection of the public morals, health, safety or general welfare, and it is impossible or impracticable to provide such standards, and to do so would defeat the legislative object sought to be accomplished, legislation conferring such discretion may be valid and constitutional without such restrictions and limitations.”
K. C. 4909.15 involves the regulation of public utility rates and is, therefore, an exercise of the police power within the criteria established by Mats. Akron v. Pub. Util. Comm. (1948), 149 Ohio St. 347. The statute also contains legislative guidance, which Mats excuses for practical considerations, by placing specific limitations upon the discretion exercisable by the commission respecting CWIP allowances as follows: the commission must determine by inspection that CWIP is at least 75 percent complete before an allowance can be considered; and the amount of CWIP includable in the rate base cannot exceed 20 per cent of the total valuation of the rate base. CWIP allowances must also be reasonable. We believe these limitations adequately confine commission discretion. Further restriction would conceivably hinder the flexibility necessary to enable the commission to carry out legislative will. For these reasons, this court holds that the discretion granted the commission under R. C. 4909.15 to authorize a reasonable allowance for construction work in progress in a utility’s rate base constitutes a lawful delegation of the state’s police power by the General Assembly.
*114Appellant’s contention that R. C. 4909.15 was unconstitutionally applied by the commission is answered by this court’s holding that the commission acted reasonably in ascertaining a CWIP allowance for the company. Appellant’s constitutional challenge is accordingly without merit.
Appellant argues next that the commission erred in-failing to deduct customer deposits from the rate base pursuant to R. C. 4909.05(T) and (J),1 or, alternatively, by failing to offset working capital with customer deposits, pursuant to paragraph live of the syllabus in Cincinnati v. Pub. Util. Comm. (1954), 161 Ohio St. 395, which provides, in. part:
* * customers’ contributions in the form of * * * deposits to secure the payment of customers’ bills for service * * * which will be constant with reasonable certainty-in the foreseeable future and which are available for investments in materials and supplies, or for use as working capital, should be used as an offset on the allowance for working capital * *
Offsetting working capital with customer deposits would have the same ultimate effect as deducting the deposits from the rate base.
The commission did not believe that customer deposits fit within the language of 4909.05(1) so as to justify a deduction under subsection (J). YTe neither accept nor reject this conclusion. The commission did not specifically address the problem of whether customer deposits should be offset against working capital, but the commission staff did propose two methods to determine rate base: the balance sheet method and the formula approach. The balance sheet method deducted customer deposits from working *115capital;'the formula approach, which.was adopted by the commission, did not. • .
This court is of the considered opinion that Cincinnati v. Pub. Util. Comm., supra, governs the issue before us. The rationale for an offset, as expressed in that decision, and as recognized by the commission in the context of B. C. 4909.05 (I) deductions, is to permit investors to earn a return only on that property for which they have supplied funds, not on funds contributed by customers. The record indicates that customer deposits are relatively constant2 and available for investment or use as working capital.3 Accordingly, we find that the commission acted improperly in failing to offset working capital, by customer deposits.
We are not suggesting by this finding, however, that the formula approach to. rate base calculations as used by the commission in this cause need be rejected. We only require that due account-be taken of customer deposits. If the formula is not designed to accommodate an offset to working capital, and we were not informed by the parties on this matter, then it may be necessary to deduct custom' er deposits directly from the rate base. The result would be the same. In Cleveland Elec. Illuminating Co. v. Pub. Util. Comm., supra (42 Ohio St. 2d 403), this court reversed the commission’s order for failure tq deduct customer contributions in the form of tax accruals from working capital, based on the authority of Cincinnati v. Pub. Util. Comm., supra. In that ease too, the commission employed a formula approach to determine the rate base. The use of a formula was not found by this court to be incompatible with requiring an offset to working capital, as we so hold here. Accordingly, the commission’s order in' this respect, being unreasonable and unlawful, must be reversed in part and *116remanded to the commission for any proceedings that may be necessary to determine the amount of customer deposits-to offset against working capital and a proper method by which to make such an adjustment.4
Appellant urges next that the commission erred by permitting the amortization of deferred scrubber costs as test year expenses under R. 0. 4909.15(A)(4) and (C).
The record indicates that this is a proper accounting procedure. Although these costs were paid prior to the test year, under principles of accrual accounting, they were deferred until the scrubber actually went into operation. The yearly amortized portion of these expenses was reflected on the company’s books in the test year, and thus constituted a test year expense within the meaning of R. C. 4909.15(A)(4) and (C). Appellant’s contention is rejected.
Appellant contends finally that the commission violated R. C. 4903.09 by not specifically setting forth in its opinion and order the portion of operation and maintenance expenses attributable to test year direct labor costs. R. C. 4903.09 provides, in part, as follows:
£<=* * # commission shall file * * * findings of fact and written opinions setting forth the reasons prompting the decisions arrived at, based upon said findings of fact.”
Although the commission admits that it did not specifically address the labor cost expense issue in its opinion and order, it did discuss the staff’s recommendations in this area, which were adopted in modified form. As such, the commission substantially complied, pursuant to R. C. 4905.09, with the requirements of R. C. 4903.09.5
*117For the foregoing reasons, the order of the commission is affirmed in part, and reversed and remanded in part for proceedings consistent with this opinion.

Order affirmed in part and reversed in part.

Celebrezze, C. J., Hebbert, W. Browrt, SweeNey and Holmes, JJ., concur.

 R. C. 4909.05(J) provides, in relevant part:
• “The valuation of the property of the company shall be the sum of the amounts contained in the report pursuant to divisions (C), (D), (E), (F), and (G) of this section, less the sum of the amounts contained in the report pursuant to divisions (H) and (I) of this section.”
R. C. 4909.05(1) provides:
“Any sums of money or property that the company may have received as total or partial defrayal of the cost of its property.”

 The fact that customer deposits are retained on a short term basis does not significantly affect the long run level of 'deposits, which remains relatively constant.

 The ultimate use of customer deposits is not traceable, according to the parties. To require appellant to trace' these funds would be an unreasonable burden. The test of Cincinnati v. Pub. Util. Comm. (1954), 161 Ohio St. 395, requires only that these funds be available for the specified uses, as they were here.

 We note that the staff recommended that $973,000 in customer deposits be offset against working capital under the balance sheet approach to rate base calculations. This figure does not appear unreasonable.

 R. C. 4906.09 provides, in part:
“A substantial compliance by the Public Utilities Commission with ■the requirements of chapters * * * 4903 * * * of the Revised Code is sufficient to give effect to all its * * * orders * * *. Such * * * orders * * * shall not be declared inoperative, illegal or void for an omission of a technical nature in respect to such requirements * *