Court Opinion

ID: 4925302
Source: CourtListenerOpinion
Date Created: 2021-09-23 21:45:42.474967+00
Date Added: 2024-06-11T08:14:18.290341
License: Public Domain

The majority holds that the Washington Utilities and Transportation Commission (WUTC) has the authority to allow Puget Sound Power and Light Company to include in rates, as an operating expense, costs prudently incurred for planning and designing of a subsequently canceled electrical generating project that is abandoned and will never be used or useful for service. In so holding, the majority abdicates our proper role in reviewing the ratemaking process by the WUTC, distorts the meaning of "operating expenses", and ignores the mandate of the Washington statutory scheme. I dissent.
First, as to our role in review of the WUTC's determination, I recognize that the judiciary is not empowered to set utility rates. However, we are not only empowered but under a duty to review a decision of the ratemaking agency, the WUTC, under the administrative procedure act, specifically RCW 34.04.130. While we are not at liberty to substitute our judgment for that of the WUTC, Jewell v. State Utils. Transp. Comm'n, 90 Wn.2d 775,776, 585 P.2d 1167 (1978), we must determine whether the WUTC has acted in violation of constitutional provisions, RCW 34.04.130(6)(a); *Page 827 
in excess of its statutory authority, RCW 34.04.130(6)(b); in error of law, RCW 34.04.130(6)(d); or in an arbitrary or capricious manner, RCW 34.04.130(6)(f). In other words, we give deference to an agency's decision and judgment as long as the agency acts within the constitutional and statutory limits placed upon it. Jewell v. State Utils. Transp. Comm'n, supra.
We are not, as the majority implies, limited in our review to a determination of whether the WUTC's rate decision falls within the "zone of reasonableness". Majority, at 811. The cases relied on by the majority for this lenient test are federal cases decided under the standard of review provided by federal statute.See 16 U.S.C. § 825l(b) (1983). The federal courts have traditionally determined whether the WUTC has properly balanced competing interests and affirmed the finding of the WUTC if supported by "substantial evidence". NEPCO Mun. Rate Comm. v.Federal Energy Regulatory Comm'n, 668 F.2d 1327, 1340 (D.C. Cir. 1981); Union Elec. Co. v. Federal Energy Regulatory Comm'n,668 F.2d 389 (8th Cir. 1981); Permian Basin Area Rate Cases,390 U.S. 747, 20 L.Ed.2d 312, 88 S.Ct. 1344 (1968). The federal courts do not consider the methodology used to compute the rates so long as the resulting rate is "reasonable".
Reliance on the Massachusetts case is similarly misplaced. The Massachusetts courts also function under the "substantial evidence" test and do not inquire into the specific methodology employed by the administrative agency. Attorney Gen. v.Department of Pub. Utils., 390 Mass. 208, 455 N.E.2d 414 (1983). This standard of review is a product of the absence of any type of guidance in ratemaking; beyond that, the determination must be as the "public interest" requires. See Mass. Gen. Laws Ann. ch. 164, § 94 (West 1976).
In contrast, our statutory scheme, discussed below, sets forth restrictions on how rates may be computed; we must exercise our constitutional authority to insure that the proper methodology was utilized in fixing rates. People's *Page 828 Org. for Wash. Energy Resources v. Utilities Transp. Comm'n,101 Wn.2d 425, 679 P.2d 922 (1984). While the statutory direction to the WUTC in rate setting is broadly stated and while rate cases are complicated, under the guidance of RCW 34.04.130 we must review the WUTC's methods. If the utilities and the Legislature would like it otherwise, the statute should be changed.
The Legislature conferred upon the WUTC the power to regulate public utilities in order to ensure both that the public is given adequate service at just and reasonable rates in a monopoly situation and that the utility is allowed to charge rates which are just, reasonable and sufficient to allow it to render such service. RCW 80.28.020. The Legislature has provided specific statutory limits which must be considered under any formula used by the WUTC in the ratemaking process.
The formula generally used in the setting of utility rates requires four basic determinations: (1) What are the gross utility revenues under the rate structure examined? (2) What are the operating expenses incurred? (3) What is the rate base (utility property on which a return should be earned)? and (4) What percentage figure (rate of return) should be applied to the rate base in order to establish the return to which investors are reasonably entitled? 1 A. Priest, Public Utility Regulation 45 (1969).
In simplest terms, revenue is allowed to equal the total of approved operating expenses plus a reasonable return on the value of certain property. The return is calculated by applying a rate of return to the cost less depreciation of the company's property that is used and useful in the public service. The "used and useful" property is commonly spoken of as the rate base and includes the depreciated cost of plant in service and working capital. Operating expenses generally include those normal recurring costs incurred in the course of rendering service. Thus, the WUTC controls three variables in regulating rates to provide revenue to the company: operating expenses, rate base, and rate or percentage of return allowed on the rate base. This formula is *Page 829 
set forth in its basic form, Revenue = Operating Expenses + (Base Rate x Rate of Return), in the majority, at 808-09.
For Puget Power to recover its investment in Pebble Springs,it must be entitled to generate revenue determined by thesevariables. The WUTC's control of these variables is limited bystatute. This is the essence of my dissent.
The statutory provisions governing rates and ratemaking provide as follows:
 All charges made, demanded or received by any . .. electrical company . . . for . . . electricity . .. or for any service rendered or to be rendered in connection therewith, shall be just, fair, reasonable and sufficient.
(Italics mine.) RCW 80.28.010.
 Whenever the commission shall find . . . that the rates or charges demanded, exacted, charged or collected by any . . . electrical company . . . for .. . electricity . . . or in connection therewith . .. are unjust, unreasonable, unjustly discriminatory or unduly preferential, or in any wise in violation of the provisions of the law, or that such rates or charges are insufficient to yield a reasonable compensation for the service rendered, the commission shall determine the just, reasonable, or sufficient rates, charges, regulations, practices or contracts to be thereafter observed and in force, and shall fix the same by order.
(Italics mine.) RCW 80.28.020.
 The commission shall have power . . . to ascertain and determine the fair value for rate making purposes of the property of any public service company used and useful for service in this state and shall exercise such power whenever it shall deem such valuation or determination necessary or proper under any of the provisions of this title.
(Italics mine.) RCW 80.04.250.
The resolution of the basic issue of this action requires a determination of whether, in view of statutory limitations, the costs of the abandoned nuclear project are properly permitted to be included in rates as an operating expense item. This determination is not an exercise of forcing the construction costs into a formula which evolved well before *Page 830 
the concept of abandoned facility costs was imagined. Rather, the determination requires an analysis of the statute to determine if such construction costs figure into the ratesetting process at all.
This court recently addressed the issue of whether construction work in progress can be included in rate base for valuation purposes under RCW 80.04.250. People's Org. for Wash. EnergyResources v. Utilities Transp. Comm'n, 101 Wn.2d 425,679 P.2d 922 (1984) (Power). Consistent with the language of RCW80.04.250 and purpose of rate base valuation, this court stated:
 Reviewing RCW 80.04.250 once again, we seek in vain for any indication that the Commission possesses untrammeled discretion with respect to which property may be included in rate base for ratemaking purposes. If property is not "used and useful" for service — and we have determined that CWIP [construction work in progress] is not — it may not be included in rate base. Nor do we find any indication in the statute that the financial condition of the utility is relevant in determining whether property may be included in rate base.
Power, at 434.
Thus, RCW 80.04.250 permits the WUTC to determine, for ratemaking purposes, the fair value of property which is employed for service and capable of being put to use for service. An uncompleted or abandoned utility plant is neither employed for service nor capable of being put to use for service, and is, therefore, not used and useful for service as required by RCW80.04.250. See Power, at 430. RCW 80.04.250 prohibits the WUTC from including Puget Power's investment in Pebble Springs in the rate base.
Apparently cognizant of the used and useful requirements for rate base treatment, the WUTC rejected Puget Power's request for such treatment. The WUTC, nonetheless, included the investment costs in rates by permitting Puget Power to expense the loss over a period of 10 years without inclusion of the unamortized balances in the rate base. In essence, the WUTC allowed Puget Power to recover these investment costs by including its rates for the *Page 831 
next 10 years as an operating expense item.
The majority agrees with the WUTC and holds that capital invested in a nuclear power plant that will never be completed is an "operating expense". How can that be? One is given the distinct impression that this conclusion is reached more on the basis of a process of elimination than after a thorough examination of the statutory scheme. Rate base is no longer an available avenue after Power. So the majority focuses on the operating expense aspect of the formula based on two arguments. First, the WUTC said it was an operating expense and the WUTC's decision should be given deference. Second, it would be unfair for the investors to lose the capital they had invested in Pebble Springs since the purpose of the investment was to provide ratepayers with electric service. I have previously addressed the first argument and found that deference is due the agency's decision only after a determination that the agency's decision was within its statutory authority. I, therefore, turn to an analysis of the statutory authority and then turn to an analysis of the policy considerations addressed by the majority.
Washington is not one of the states to have delegated authority to regulating agencies with no more instruction than to determine what is just and reasonable. Majority, at 808. The student note cited by the majority for this proposition lists numerous state statutory schemes which do not set out guidelines for the determination of gross revenues, base rate, rate of return and operating expenses. See Note, Consumers' Counsel v.Public Utilities Commission: Who Shall Bear the Cost ofAbandonment, 11 Cap. U.L. Rev. 91, 96 n. 28 (1981). Washington's statutes, set out above, require not only that the WUTC is to set just, fair, reasonable and sufficient rates, RCW 80.28.010-.020, but, also, that the rates must be for service rendered or to be rendered in connection therewith, RCW 80.28.010, and that for ratemaking purposes only property used and useful for service shall be considered, RCW 80.04.250. The WUTC's powers are
limited under Washington's scheme. *Page 832 
The majority asserts that RCW 80.04.250, which allows the WUTC to value only property "used and useful" for public service for ratemaking purposes, applies only to the computation of the rate base. The majority asserts that RCW 80.04.250 is a rate base statute because valuation involves rate bases and expenses are "determined" rather than valued. This is contrary to the clear language of the statute. The statute refers to "rate making", not to computation of the rate base. RCW 80.04.250 specifically states that it applies "whenever [the WUTC] shall deem such valuation or determination [of fair value for ratemaking purposes] necessary or proper under any . . . provisions of this title." (Italics mine.) While most cases applying this statute have been cases in which the rate base has been computed, none of these cases have excluded use for purposes of operating expense determination, but only reviewed the Commission's particular valuation for rate base. See, e.g., State ex rel.Pac. Power Light Co. v. Department of Pub. Works, 143 Wn. 67,254 P. 839 (1927); State ex rel. Spokane v. Kuykendall,119 Wn. 107, 205 P. 3 (1922); State ex rel. Pac. Tel. Tel. Co.v. Department of Pub. Serv., 19 Wn.2d 200, 142 P.2d 498 (1943). Here, where the WUTC is attempting to include a capital investment in operating expenses, it must first value such investment. Therefore, for "ratemaking" purposes, for "valuation or determination" of the investment, RCW 80.04.250 applies. Under the "used and useful" restriction of this statute, the WUTC is barred from including the cost of an abandoned project in the ratemaking formula as an operating expense.
In contrast to the majority, I find that two cases from other jurisdictions are on point in this regard. I find persuasive the reasoning of the opinions of two courts of highest jurisdiction which have addressed the precise issue before this court. BothPacific Power Light Co. v. Public Serv. Comm'n, 677 P.2d 799
(Wyo. 1984) and Office of Consumers' Counsel v. Public Utils.Comm'n, 67 Ohio St.2d 153, 423 N.E.2d 820 (1981), appealdismissed sub nom. *Page 833 Cleveland Elec. Illuminating Co. v. Office of Consumers'Counsel, 455 U.S. 914 (1982) hold that an investment incurred in construction or intended construction of nuclear power plants cannot be classified as an operating expense where, but for abandonment, such investment would have qualified as "used and useful" for inclusion in the rate base.
In Consumers' Counsel, the utility commission contended that a prudent expenditure by a utility could be considered a cost of rendering service if it failed in fact to achieve its purpose so long as the expense was reasonably calculated to provide future utility service at a reasonable cost. The underpinnings of the commission's argument were found in the Ohio statutory provisions that require utilities to provide for future service. Consumers'Counsel, at 163. The Supreme Court of Ohio specifically rejected this argument.
 Notwithstanding the provisions that impose a duty on utility companies to plan for the future, the question under R.C. 4909.15(A)(4) remains whether the cancelled plant expenditures represent "[t]he cost to the utility of rendering the public utility service for the test period." Test period considerations aside, what the company sought and what the commission granted was the amortization as service-related costs of an investment that never provided any service whatsoever to the utility's customers.
 We seriously question whether the General Assembly contemplated that the commission would treat the type of expenditures controverted herein as costs under R.C. 4909.15(A)(4). The now terminated nuclear plants represented a major capital investment that ultimately would have been included in the rate base under R.C. 4909.15(A)(1), had the projects not been cancelled. It is our opinion that R.C. 4909.15(A)(4) is designed to take into account the normal, recurring expenses incurred by utilities in the course of rendering service to the public for the test period. A non-exhaustive list of such expenses would include reasonable expenditures for repairs, maintenance, personnel-related costs, administrative expenses, and taxes.
 The extraordinary loss sustained by CEI in connection with the terminated nuclear plants cannot be transformed *Page 834 
into an ordinary operating expense pursuant to R.C. 4909.15(A)(4) by commission fiat. The commission's statement that "[c]ancellation does not create a past loss, but gives rise to a current cost" is unpersuasive. Under this rationale we question whether there could ever be a "past loss" the return of which would not be recoverable in future ratemaking proceedings notwithstanding the commission's assertion to the contrary. The commission's characterization of the investment in the four terminated plants as "cost" under R.C. 4909.15(A)(4) in light of what we perceive to be the legislative intention underlying that section is unreasonable. Therefore, to the extent that the commission's order in regard to the cancelled plants is predicated on R.C. 4909.15(A)(4), the order cannot stand.
(Footnote omitted.) Consumers' Counsel, at 163-64. Accord, Note, Consumers' Counsel v. Public Utilities Commission: WhoShall Bear the Cost of Abandonment, 11 Cap. U.L. Rev. 91, 96 n. 28 (1981).
The Supreme Court of Wyoming, employing similar reasoning, rejected the contention that abandoned plant costs were operating expenses:
 We cannot accept the investment, expenses, and obligations incurred in construction, or intended construction of property which would normally qualify as "used and useful" for inclusion in a rate base as an operating expense. An operating expense includes:
 "In general, various particular expenses of a public utility are properly chargeable to expense of operation, including any legitimate expense contributing to the better management or greater efficiency of the utility, a reduction of its investment, or an increase in its operating return. * * *" 73B C.J.S. Public Utilities, § 36, p. 234.
 Unified systems of accounts prescribed by most regulatory agencies usually specify that considered as operating expenses, i.e. taxes, advertising, salaries, commodity purchases and similar items. . ..
 In contending that the charges were "operating expenses," PP L [Pacific Power and Light Company] argues that a reasonable and prudent test should be allowed. We need not consider this test insofar as it applies to "operating expenses" since these charges were *Page 835 
not "operating expenses" as that term is generally considered.
 It is probable that PP L would not contend these expenses to be "operating" ones if the projects were completed. PP L would then own a percentage of property; and it would expect to have the costs of the project included in the amount attributed to its "used and useful" property in establishing a rate base.
Pacific Power, 677 P.2d at 805-06.
As did the Wyoming court, we seek a definition of "operating expenses". The WUTC is not given unbridled discretion, but must work under delegated statutory authority. It is our function to interpret the statute under which the agency makes factual findings and sets policy. Where no statutory definition is available we generally turn to common usage. As did the Wyoming court, we would find that according to the common usage as set forth in Corpus Juris Secundum (73B C.J.S. Public Utilities § 36, at 234), these costs are not "operating expenses".
I take exception to the majority's citation to cases which it claims have "allowed utilities to recover abandoned plant costs, prudently incurred, as operating expenses or as expenses which could otherwise be amortized." Majority, at 820 n. 51. In six of the cases, the inclusion of costs as operating expenses or as an amortized item was not directly considered and it is not apparent whether such inclusion was challenged. See WashingtonMetro Area Transit Auth. v. Public Serv. Comm'n, 486 A.2d 682
(D.C. 1984); Consumer Protec. Bd. v. Public Serv. Comm'n,97 A.D.2d 320, 471 N.Y.S.2d 332 (1983); South Dakota Pub. Utils.Comm'n v. Federal Energy Regulatory Comm'n, 690 F.2d 674 (8th Cir. 1982); Wisconsin Pub. Serv. Corp. v. Public Serv. Comm'n,109 Wis.2d 256, 325 N.W.2d 867 (1982); NEPCO Mun. Rate Comm. v.Federal Energy Regulatory Comm'n, 668 F.2d 1327 (D.C. Cir. 1981); Central Me. Power Co. v. Public Utils. Comm'n,433 A.2d 331 (Me. 1981). Three of the cases are based on statutes with no guidance on ratemaking except "just and reasonable" or as "public interest so requires". South Dakota Pub. Utils. Comm'n v. *Page 836 Federal Energy Regulatory Comm'n, supra; NEPCO Mun. Rate Comm.v. Federal Energy Regulatory Comm'n, supra
(16 U.S.C. § 825l(b) (1983)); Attorney Gen. v. Department of Pub. Utils.,390 Mass. 208, 455 N.E.2d 414 (1983) (Mass. Gen. Laws Ann. ch. 164, § 94 (West 1976)). Finally, one case does not allow inclusion of the costs as either operating expenses or as an amortized item, but allows the costs to be considered in the rate base. Gulf Power Co. v. Cresse, 410 So.2d 492 (Fla. 1982).
In addition, I take exception to the majority's discussion of various states' statutes. Majority, at 821. The Wyoming and Indiana statutes are very similar to Washington's statutory scheme and those states' denial of recovery of the costs of abandoned facilities is very relevant. See Pacific Power Light Co. v. Public Serv. Comm'n, supra (Wyo. Stat. §§37-2-119, 37-2-122(a) (1977)); Citizens Action Coalition ofInd., Inc. v. Northern Ind. Pub. Serv. Co., 472 N.E.2d 938
(Ind.Ct.App. 1984) (Ind. Code Ann. § 8-1-2-4 [54-201] (Burns Supp. 1985); Ind. Code Ann. § 8-1-2-6 [54-203] (Burns 1982)). It should also be noted that "`the overwhelming weight of authority from other jurisdictions . . .'" referred to on page 821 of the majority, consists of regulatory commission rulings and not court rulings. Consumers' Counsel, 67 Ohio St.2d at 162.
The folly of forcing the costs of an abandoned project into a prenuclear-age formula is apparent in the somewhat strained analysis of the formula. First, even if the costs were an expense it was an expense incurred over a period of 6 years, 1976 through 1982. The formula for required revenue is based on a "test year" or "test period" and is used as the basis for a historical study, relevant only to determine the adequacy for operating costs in future years. Citizens Action Coalition of Ind., Inc. v.Northern Ind. Pub. Serv. Co., supra. The period involved here is clearly not what is intended to be a test period and insertion of these costs into this part of the formula does not serve as a guide to future expenses. It serves only to indicate how much must be charged to pay back the investors. Costs of an abandoned *Page 837 
plant, invested over a 6-year period simply do not serve the function of operating expenses incurred during a "test year". These costs have no function in predicting future expenses.
Second, excluding these costs as expenses or disallowing any actual expense does not, as the majority asserts, result in a reduction of the actual rate of return earned by the shareholders of the utility. See majority, at 811. The rate of return is determined entirely independent of the operating expenses. Otherwise there would be a decrease in shareholder recovery on investments currently devoted to the public service. Exclusion or disallowance of expenses actually results in a loss to the shareholders, offsetting their recovery as determined by multiplying the rate base and the rate of recovery factors. Classification of these costs as operating expenses does not work under the formula used to compute allowable revenue. If these plants had been completed, these expenses would have been considered investment capital and included in the rate base. Investors, therefore, would have received a return on those investments. However, because the investments were unsuccessful, the utility now wishes to classify them as "operating expenses". It is not clear to me how the failure of an investment converts it from part of the rate base to an operating expense. Such a result allows investors to benefit from their investment without risking any loss. Pacific Power Light Co. v. Public Serv.Comm'n, 677 P.2d 799, 805 (Wyo. 1984); Citizens ActionCoalition of Ind., Inc. v. Northern Ind. Pub. Serv. Co., 472 N.E.2d at 946-47; Office of Consumers' Counsel v. Public Utils.Comm'n, 67 Ohio St.2d 153, 164, 423 N.E.2d 820 (1981), appealdismissed sub nom. Cleveland Elec. Illuminating Co. v. Office ofConsumers' Counsel, 455 U.S. 914 (1982). In addition, it allows utilities to classify as current expenses investments that were made over the last 6 years, which, as previously discussed, is a result not intended under the "test year" analysis.
The weight of authority simply does not support the *Page 838 
majority's position. There is fair support for inclusion of these costs as an operating expense among utility commissions, but even this support is not unanimous. Most courts which have considered this issue directly have concluded that investments in abandoned facilities are not operating expenses and are not to be included in ratemaking. See Citizens Action Coalition ofInd., Inc. v. Northern Ind. Pub. Serv. Co., supra; Pacific Power Light Co. v. Public Serv. Comm'n, supra; In re Pub. Serv. Co.,125 N.H. 46, 480 A.2d 20 (1984); Office of Consumers' Counsel v.Public Utils. Comm'n, supra. The exceptions are the Massachusetts and the federal courts, both of which are interpreting very general statutes which do not restrict rates, as does our statutory scheme, to charges for "services rendered or to be rendered" or for "used and useful" property. See Mass. Gen. Laws Ann. ch. 164, § 94 (West 1976) and16 U.S.C. § 825l(b) (1983).
I next turn to the policy considerations which serve as the primary basis for the majority's decision. The crux of the opinions of the WUTC and the majority is that inclusion of abandonment costs in rates is an appropriate regulatory response to Puget Power's financial problems brought about by unprecedented construction programs and subsequent changes in consumer demand and attitudes. The gloomy scenario of Puget Power's financial integrity does not, however, imbue the WUTC or this court with the authority to rewrite the statutes. SeePeople's Org. for Wash. Energy Resources v. Utilities Transp.Comm'n, 101 Wn.2d 425, 679 P.2d 922 (1984).
The financial circumstances justifying the WUTC's decision to apportion the Pebble Springs loss between investors and ratepayers simply are not relevant to a determination of appropriate operating expenses. Under Washington ratemaking provisions, ratepayers are not chargeable for utility investments that are neither included in the rate base nor properly categorized as costs of providing service.
This court is fully aware that Puget Power's obligation to serve restricts its activities to a degree not experienced by *Page 839 
nonregulated entities. In return, however, investors in Puget Power experience certain advantages which makes their investment less risky than most investments in nonregulated entities. Puget Power is allowed to provide service from a monopoly position and is guaranteed reasonable compensation for the service rendered. Allowance of recovery for a failed venture would improperly expand the monopoly advantage to a point where the investment would become subject to very little or no risk. Under the position adopted by the majority, the only way the investor would fail to recover his investment is if the project both failed and was imprudent. There is nothing in the statutory provisions governing rate determinations which supports the position that the Legislature intended the utility investor's risk should be limited to this degree.
The intent for including the "used and useful" limitation in RCW 80.04.250 is to avoid requiring ratepayers to compensate utilities for investments in property which do not benefit the consumers. Operating expenses are part of the ratemaking formula and necessarily must be incident to the costs of rendering service which is used and useful. Puget Power should not be allowed to circumvent this basic intent by simply declaring that the loss will not receive rate base treatment.
It is the investors who, through shareholder elections, control management decisions. Allowing recovery of unsuccessful investments from the ratepayers encourages inefficiency. The utility cannot lose when it takes risks. While the investments must be prudent, that does not assure that the investments hold the best possibility of success. More risky investments usually hold the possibility of greater returns for the investor. Unrestrained by the possibility of investment loss, what prudent manager would choose the less profitable course of action? Those most responsible for managerial decisions must remain "touched" by those decisions.
The majority engrafts upon the statutory ratemaking scheme an exception that would allow utility companies to *Page 840 
recover their investment in unfinished projects ineligible for rate base treatment if the original decision to build the facilities and the subsequent decision to cancel the projects are prudent under the circumstances. In so doing the majority allows the WUTC to exceed its statutory mandate. I would hold that the WUTC exceeded its statutory authority when it approved amortization of Puget Power's investment in the terminated Pebble Springs power project.
It is clear that the WUTC could not simply increase the rate of return for the purpose of producing the same revenue over the same period of time that might be produced if the investment were amortized as an expense. This would merely be a recovery of investment by less direct means than expense or rate base treatment.
I cannot determine on the present record, however, the extent, if any, to which the lost investment may justify an increase in the rate of return for the purpose of attracting new capital. It is easy to argue that any increase in the rate of return will allow at least partial recovery of lost investment. But it does not follow from this alone that the statute precludes such a result if it is necessary to attract such investments as the WUTC may find to be required in the future. I would not attempt in the abstract to draw the line between an increase in rate of return that produces an indirect and impermissible recovery on the one hand, and one that is arguably necessary to attract investment essential to future operations, on the other. The difficulty of drawing this distinction is illustrated by the contrast between the majority and dissenting opinions in Consumers' Counsel v.Public Utils. Comm'n, 4 Ohio St.3d 111, 447 N.E.2d 749 (1983). Indeed, the parties have not even raised the issue whether such a distinction is permissible under our statute. I would, therefore, leave open the extent, if any, to which the rate of return may be increased to reflect the risk that the statute places on investors when a plant is abandoned.
Finally, such a result would not be confiscatory. In BluefieldWater Works Imp. Co. v. Public Serv. Comm'n, *Page 841 262 U.S. 679, 67 L.Ed. 1176, 43 S.Ct. 675 (1923), the United States Supreme Court indicated at what point utility rates would be considered unconstitutionally confiscatory:
 A public utility is entitled to such rates as will permit it to earn a return on the value of the property which it employs for the convenience of the public equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings which are attended by corresponding risks and uncertainties[.]
Bluefield, at 692. The constitution further requires that the return allowed a utility be
 reasonably sufficient to assure confidence in the financial soundness of the utility and should be adequate, under efficient and economical management, to maintain and support its credit and enable it to raise the money necessary for the proper discharge of its public duties.
Bluefield, at 693. Rates which fail to meet these standards "are unjust, unreasonable and confiscatory, and their enforcement deprives the public utility company of its property in violation of the Fourteenth Amendment." Bluefield, at 690. See also FPCv. Hope Natural Gas Co., 320 U.S. 591, 88 L.Ed. 333,64 S.Ct. 281 (1944); State ex rel. Pac. Tel. Tel. Co. v. Department ofPub. Serv., 19 Wn.2d 200, 266-67, 142 P.2d 498 (1943).
The underlying premise of the constitutional guaranty of just and reasonable fair return on investment is that the capital investment is dedicated to public use. Transcontinental Gas PipeLine Corp. v. FPC, 518 F.2d 459, 464 (D.C. Cir. 1975). See alsoPermian Basin Area Rate Cases, 390 U.S. 747, 20 L.Ed.2d 312,88 S.Ct. 1344 (1968).
In Tennessee Gas Pipeline Co. v. Federal Energy RegulatoryComm'n, 606 F.2d 1094, 1109 (D.C. Cir. 1979), cert. denied,445 U.S. 920 (1980), the court confirmed the viability of the used and useful standard in determining the reasonableness of rates:
 In Smyth v. Ames, [169 U.S. 466, 42 L.Ed. 819, 18 S.Ct. 418 (1898)] the Supreme Court articulated the guiding principle that "the basis of all calculations as to the reasonableness *Page 842 
of rates to be charged by a [public utility] must be the fair value of the property being used by it for the convenience of the public." Although methods for determining values of rate base items have evolved since Smyth v. Ames, the precept endures that an item may be included in a rate base only when it is "used and useful" in providing service. In other words, current ratepayers should bear only legitimate costs of providing service to them.
(Footnotes omitted.)
In Market St. Ry. v. Railroad Comm'n, 324 U.S. 548,89 L.Ed. 1171, 65 S.Ct. 770 (1945), the Court recognized that the company's investments were prudent, but since they no longer had value the utility had no constitutional right to an opportunity to earn a return on them:
 Without analyzing rate cases in detail, it may be safely generalized that the due process clause never has been held by this Court to require a commission to fix rates on the present reproduction value of something no one would presently want to reproduce, or on the historical valuation of a property whose history and current financial statements showed the value no longer to exist, or on an investment after it has vanished, even if once prudently made, or to maintain the credit of a concern whose securities already are impaired. The due process clause has been applied to prevent governmental destruction of existing economic values. It has not and cannot be applied to insure values or to restore values that have been lost by the operation of economic forces.
(Italics mine.) Market St. Ry., at 567.
In FPC v. Natural Gas Pipeline Co., 315 U.S. 575, 590,86 L.Ed. 1037, 62 S.Ct. 736 (1942), the Court clarified the constitutional requirement to serve the investors' interest:
 But regulation does not insure that the business shall produce net revenues, nor does the Constitution require that the losses of the business in one year shall be restored from future earnings by the device of capitalizing the losses and adding them to the rate base on which a fair return and depreciation allowance is to be earned. . . . [T]he hazard that the property will not earn a profit remains on the company in the case of a regulated, as well as an unregulated, business. *Page 843
(Citations omitted.)
In Dayton Power Light Co. v. Public Utils. Comm'n, 4 Ohio St.3d 91, 447 N.E.2d 733 (1983), the Supreme Court of Ohio was urged to overturn its decision in Office of Consumers' Counselv. Public Utils. Comm'n, 67 Ohio St.2d 153, 423 N.E.2d 820
(1981), appeal dismissed sub nom. Cleveland Elec. IlluminatingCo. v. Office of Consumers' Counsel, 455 U.S. 914 (1982) on the grounds that exclusion of the costs associated with abandoned nuclear power plants from a utility's cost of service is an unconstitutional deprivation of property. The court rejected this contention, restating its analysis in Consumers' Counsel that investors are not entitled to a return of an investment that provides no service. Summarizing, the court holds:
 [T]he General Assembly has adopted a consistent position in balancing investor and consumer interests in utility ratemaking. Pursuant to the statutory ratemaking formula investors are assured a fair and reasonable return on property that is determined to be used and useful, R.C. 4909.15(A)(2), plus the return of costs incurred in rendering the public service, R.C. 4909.15(A)(4), while consumers may not be charged "for utility investments and expenditures that are neither included in the rate base nor properly categorized as costs." We see no constitutional infirmity in the balance thus struck by the General Assembly.
(Footnote omitted.) Dayton Power, at 103. Accord, ClevelandElec. Illuminating Co. v. Public Utils. Comm'n, 4 Ohio St.3d 107, 447 N.E.2d 746, appeal dismissed for want of a substantialfederal question, 464 U.S. 802 (1983).
Applying the fundamental constitutional standard to the present case, the Pebble Springs project never has and never will be devoted to public service, employed for the public convenience or used and useful for service. Therefore, Puget Power's investment in it is not subject to constitutional protection.
I would find that the exclusion from rate determination of the investment in Pebble Springs is not an unconstitutional deprivation of property. Per se confiscation in a utility *Page 844 
rate case may exist as an abstract premise, but the constitutional cases make it clear that a successful challenge must demonstrate that that rate order, when viewed in its entirety, falls outside the "broad zone of reasonableness."Permian Basin Area Rate Cases, 390 U.S. 747, 770,20 L.Ed.2d 312, 88 S.Ct. 1344 (1968). The heavy burden of establishing unreasonableness must be borne by the challenger. FPC v. HopeNatural Gas Co., 320 U.S. 591, 602, 88 L.Ed. 333, 64 S.Ct. 281
(1944).
Respondents cannot presently contend that Puget Power is not receiving a just, reasonable and sufficient return on property that is dedicated to public use. For the reasons stated, I dissent.
DORE, PEARSON, and GOODLOE, JJ., concur with BRACHTENBACH, J.
Reconsideration denied February 24, 1986.