Court Opinion

ID: 9565546
Source: CourtListenerOpinion
Date Created: 2023-08-21 19:23:26.817381+00
Date Added: 2024-06-11T09:19:44.278777
License: Public Domain

SHEPARD, Justice,
dissenting.
I cannot join in that portion of Section III of the majority’s opinion which affirms the commission’s utilization of the “California” approach. I believe the commission erred in not utilizing the traditional approach to an affiliate transaction. In the instant case we must determine whether once a utility has failed to carry its burden of proof of the reasonableness of charges paid to an affiliate, the commission may refuse to make further inquiry as to comparable pricing between independent parties and revert to the California approach, allowing only such charge to the affiliate as would generate the same rate of return as that allowed to the utility company itself.
I do not endorse the California approach. As enunciated in the special concurring opinion of Bakes, J. in Washington Water Power v. Idaho Public Util., 105 Idaho 276, 668 P.2d 1007 (1983) (WWP II), “the commission cannot arbitrarily assign a rate of return to the subsidiary that has previously been determined as reasonable only for the parent utility which has entirely different costs and risks.” 105 Idaho at 285, 668 P.2d 1007. The California approach blatantly ignores the difference in risks between public utilities which are guaranteed a profit, and private businesses which are not guaranteed anything. Even assuming that cost may be ignored and that the commission is entitled to look at the rate of return, as the Louisiana court stated, “... the fair rate of return of the subsidiary and not that of the parent should be the touchstone for determining if the subsidiary’s profits are unreasonable and for making any indicated adjustments.” Central Louisiana Electric Co. v. Louisiana Public Service, 373 So.2d 123 (La.1979). The California approach ignores whether the costs charged under the contract are fair as compared to what similarly situated businesses charge for the same service.
The commission may be free to refuse to accept the actual charge paid the affiliate for inclusion in the rate base. However, the commission must articulate a reasoned approach in arriving at an allowable cost to be included in the rate base. These costs must be founded upon either evidence of the costs of such services in the competitive market between non-affiliated companies, or, in the alternative, evidence of reasonable rates of return earned by non-affiliate companies providing like services as supplied by GTE Directories Company.
The California approach has not been utilized except by a very few cases which involve the Bell Telephone System and its manufacturing subsidiaries. Moreover, these cases were all decided prior to the breakup of the Bell System. See Montana-Dakota Utilities Co. v. Bollinger, 632 P.2d 1086 (Mont.1981); Application of Montana-Dakota Utilities, 278 N.W.2d 189 (S.D.1979); Central Louisiana Electric Co. v. Louisiana Public Service Comm’n., 373 So.2d 123 (La.1979).
As Bakes, J. pointed out in WWP II:
“Any approach that allows the commission to reject summarily evidence presented on the reasonableness of a price paid for a commodity and allows the commission to arbitrarily set a rate of return without inquiry into the reasonableness of that rate of return for the particular company under consideration, is arbitrary and unreasonable and by our opinion today has been rejected.” (Citations omitted.) 105 Idaho 298, 668 P.2d 1007.
The commission’s action in the instant case is illustrative of the arbitrariness of the *952California approach which, under the guise of regulating public utilities, succeeds in regulating private businesses which are not subject to the jurisdiction of the commission. I therefore dissent from the majority’s endorsement of the California approach to an affiliate transaction.
BAKES, J., concurs.