CALIFORNIA MANUFACTURERS ASSOCIATION et al., Petitioners, v. PUBLIC UTILITIES COMMISSION et al., Respondents; SOUTHERN CALIFORNIA GAS COMPANY, Real Party in Interest. [and] CALIFORNIA MANUFACTURERS ASSOCIATION, Petitioner, v. PUBLIC UTILITIES COMMISSION et al., Respondents; SAN DIEGO GAS AND ELECTRIC COMPANY, Real Party in Interest.
S.F. No. 23720 [and] S.F. No. 23721
Supreme Court of California
May 16, 1979
24 Cal. 3d 251
Gordon E. Davis, William H. Booth, Brobeck, Phleger & Harrison, Philip A. Stohr, Richard R. Gray and Downey, Brand, Seymour & Rohwer for Petitioners.
Whelan & Markman and Martin E. Whelan, Jr., as Amici Curiae on behalf of Petitioners.
Janice E. Kerr, Hector Anninos and Walter H. Kessenick, Jr., for Respondents.
Thomas D. Clarke, E. R. Island and John H. Craig III for Real Party in Interest in No. 23720.
Gordon Pearce, Guenter S. Cohn, C. Edward Gibson, Jeffrey Lee Guttero and Stephen A. Edwards for Real Party in Interest in No. 23721.
OPINION
CLARK, J.—In these two proceedings, we review Public Utilities Commission Decision Nos. 87586 and 87587, as modified on petition for rehearing by Decision Nos. 87937 and 87998. The decisions granted Southern California Gas Company and San Diego Gas and Electric
Southern California Gas Company and San Diego Gas and Electric Company sought authorization to increase rates to offset their higher gas costs. In its application Southern California Gas Company requested that the revenue increases be spread to classes of service by “the system average increase per therm or equivalent” method. Their proposed rates reflected varying charges based on the amount consumed. San Diego Gas and Electric Company proposed spreading the increased revenue requirement on a uniform cents-per-therm basis to all nonlifeline sales. The latter utility also stated it would not oppose any reasonable rate design recommended by the commission staff.
The commission staff proposed six different methods of spreading the increasе in the revenue requirement among the users, including the methods proposed by the utilities. The staff‘s proposals were mailed to interested parties a few days before the scheduled hearings. None of the parties asked for a continuance to present evidence on rate spread.
The commission found that the need for a conservation oriented rate design is critical and the public interest compels restructuring rates. Pointing out that in another case the commission was considering when lifeline rates would be increased, the commission determined not to increase lifeline rates.2 The commission established a five-tier inverted rate design for residential service for the summer,3 providing that high priority nonresidential usage would be charged at the highest residential tier and that low priority or interruptible users would be charged one cent
Denying petitions for rehearing, the commission modified its decisions. The commission stated other cases had shown the declining availability of natural gas. The commission determined that not raising lifeline rates would tend to encourage conservation by residential customers in the blocks above the lifeline block and that if lifeline rates were raised, it would require setting lower rates for nonresidential users thereby impairing conservation goals.5
OFFSET PROCEEDING
Pointing out that change in the method for spreading increased costs involvеs substantial policy decisions, petitioners urge that the change was not proper in an offset proceeding but may be accomplished only in a general rate proceeding.
In a general rate setting proceeding, the commission determines for a test period the utility expense, the utility rate base, and the rate of
The rates are fixed in the general proceedings on the basis of historical data. Adjustments may be made in that proceeding for anticipated future extraordinary changes. (Id., at pp. 345-348.) It is obvious revenue, expense, and rate base arrived at on historical data will not remain constant in future years when the rates take effect. Thе assumption underlying fixing of future rates on historical data is that for future years changes in the revenue, expense, and rate base will vary proportionately so that the utility will receive a fair rate of return.
When an item of either expense or revenue tends to vary abnormally in comparison to the utility‘s other financial criteria, adjustments of rates charged have been permitted in abbreviated proceedings. (City of Los Angeles v. Public Utilities Com. (1975) 15 Cal.3d 680, 692 [125 Cal.Rptr. 779, 542 P.2d 1371].) Such proceedings—termed offset proceedings by the parties—have been used in the past to make rate adjustments necessitated by increases in fuel costs disproportionate to the variation in other costs. (Id., at p. 695.)
Although language exists in Southern Cal. Edison Co. v. Public Utilities Com. (1978) 20 Cal.3d 813, 828 [144 Cal.Rptr. 905, 576 P.2d 945], stating “true” ratemaking procedures involve many variables and broad policy determinations, whereas fuel cost adjustment proceedings are “narrowly restricted” and “semi-automatic,” such language should not limit the commission to exercising its discretion and to determining policy only in general proceedings.
The proceedings in that case reflect that major policy decisions may be made in abbreviated proceedings. There, the commission had fixed the rates for the utility in 1971 in a general rate proceeding. Because of large increases in the price of fuel, the commission in 1972 established a fuel cost adjustment clause providing for periodic changes in the rates and granted an immediate increase. Several years later, in the decision reviewed, the commission as a result of an investigation concluded that the traditional basis for calculating fuel requirements (average weather
By affirming the commission‘s order changing the method for calculating the fuel cost adjustment and directing credits in Southern Cal. Edison Co. v. Public Utilities Com., supra, 20 Cal.3d 813, 831, this court‘s decision reflects that the commission may makе policy decisions in offset proceedings and that it need not wait for general rate increase proceedings.
Moreover, to hold that the commission‘s power in abbreviated or offset proceedings is limited to mechanical or semi-automatic adjustments would unduly hamper the commission‘s work. The commission would then be required to hоld general proceedings when deciding to question any segment of the prior general proceeding. Indeed, as illustrated by the applications in this case, even the power to grant fuel cost adjustment would become largely illusory. It was apparent that in order to grant the utilities fuel cost adjustments, the commission had to decide whether to continue to exempt from rate increases the lifeline volume when the exemption was no longer required by statute. (See ante, fn. 2.) Little purpose is served by requiring the commission to hold a general rate proceeding, recalculating all expenses, revenues, rate base, and rate of return, when the only substantial issues are extraordinary changes in fuel costs and method of apportionment of the increase in the revenue requirement to customers.
FINDINGS AND EVIDENCE
Findings are essential to “afford a rational basis for judicial review and assist the reviewing court to ascertain the principles relied upon by the commission and to determine whether it acted arbitrarily, as well as assist parties to know why the case was lost and to prepare for
The findings on the material issues are insufficient to justify the rate spread adopted. While the commission‘s asserted justification for changing its method of spreading rate increase is conservation of natural gas resources, neither finding nor evidence exists showing the method adopted will result in conserving more natural gas than would other proposed methods.
For all that appears in the record before us, the pro rata approaches suggested by the utilities or one of the plans urged by the staff might accomplish less gas usage than results from the rates adopted by the commission. As we have seen, a utility‘s revenue requirement is determined by its costs, rate base, and rate of return. In allocating the revenue requirement among several groups of gas users, it is obvious that if an increase is made in the revenue requirement from one, a decrease necessarily follows in the revenue requirement allocable tо others.
The fixed marketplace tells us that the higher the price, the higher the incentive to reduce consumption and therefore to conserve; conversely, that relatively lower prices generally provide a lower incentive to conserve. When alternative plans for spreading rates are compared to determine their conservation effects, it is apparent that any plan creating higher charges for one group must also allow lower charges for some other group, and thus each plan will provide greater incentive to conserve for some users but lesser incentive for others. Without some expert testimony or empirical data reflecting elasticity of need and demand for the various groups, it cannot be determined which plan will result in least usage.
For example, the rate spread adopted by the commission when compared to the pro rata approaches suggested by the utilities results in
The findings and evidence as to conservation are not sufficient to justify the commission‘s rate spread order because nothing exists to show that its plan is more likely to result in conservation than another plan. While the commissiоn made findings relating to the benefits of lifeline usage and conversion to alternate fuels, the rate spread order cannot be justified by those matters alone.6
The decisions must be annulled for lack of sufficient findings.
DISCRIMINATION
Petitioners recognize the commission‘s power to make economic classifications, characterizing it as “a discretionary exercise of its quasi-legislative function.” This court stated in Wood v. Public Utilities Commission (1971) 4 Cal.3d 288, 294-295 [93 Cal.Rptr. 455, 481 P.2d 823]: “The commission must fix rates that will provide a reasonable return on the utility‘s investment, and in doing so it has wide discretion to make rate classifications that reflect a broad and varied range of economic considerations. [Citations.]” Within its “wide discretion,” it follows that the commission may properly consider prospective shortages of natural gas and the need to conserve that commodity.
Petitioners do not deny the need to conserve energy may be considered by the commission in establishing rate spread. Rather petitioners urge
RETROACTIVITY
The utilities urge that because all agree that the utilities were entitled to rate increases, any relief granted in the cases should be prospective only. The utilities have been collecting the charges authorized. Apparently the utilities fear that, should the commission‘s order be annulled, the utilities will be required to refund the rate increases and be denied increased revenues to which they were undisputedly entitled.
The utilities’ briefs were filed prior to the recent decision in Southern Cal. Edison Co. v. Public Utilities Com., supra, 20 Cal.3d 813. In that case the court held that rate changes based on increased fuel costs do not involve ratemaking and that therefore the rule against retroactive ratemaking was not applicable to refunds ordered on the basis of recalculation of utility fuel costs. The same rule applies to surcharges based on recalculations of costs and their allocation. Accordingly, the commission is directed to hold further hearings on the appropriate method to sprеad the utilities’ rate increase and depending on its determinations, the commission shall order refunds and surcharges for the period involved.
The decisions are annulled for lack of sufficient findings and evidence. On remand, the commission shall determine an appropriate method to spread the rate increase to which the utilities are entitlеd. Having ascertained an appropriate rate spread, the commission shall order
Richardson, J., Manuel, J., and Caldecott, J.,* concurred.
MOSK, J.—I concur.
I agree that the findings are inadequate under
Perhaps some ironic comfort can be found in the fact that the commission has been equally consistent in making inadequate findings for small consumers in the TURN case and for large cоnsumers in the instant case. I am unable to obtain such comfort, however, from majority decisions of this court which are oblivious to the commission‘s violation of law when small consumers are involved but perceive the problem clearly when large consumers are affected.
Since I believe in protection of the statutory rights of all rateрayers, large and small, I join in the majority opinion.
Bird, C. J., and Newman, J., concurred.
*Assigned by the Chairperson of the Judicial Council.
Notes
| Monthly Customer Charge | G Res. $3.10 |
| Commodity Charge—Residential: | |
| First 26 therms, per therm | 12.83¢ |
| Next 54 therms, per therm | 14.00 |
| Next 50 therms, per therm | 15.50 |
| Next 170 therms, per therm | 17.00 |
| Over 300 therms, per therm | 17.95 |
| Commodity Charge—Non-Residential (Priority 1 and 2 customers): | 17.95¢ |
| Gas Engine and Regular Interruptible (Priority 3, 4, and 5 customers) All usage, per therm | 18.95 |