*1 POTOMAC ELECTRIC POWER
COMPANY, Petitioner,
The PUBLIC SERVICE COMMISSION Columbia, Respondent,
the District of Counsel,
People’s Intervenor.
No. 10490. Appeals.
District of Columbia Court
Argued May En Banc May 1,
Decided *2 Hobelman, City, York New
Carl D. York, vice, hac pro of New bar of State court, whom Alan with special leave of Gollomp, A. Wash- and Lawrence Kirk II G. C., peti- answer to were on the ington, D. alternative, or, rehearing in the tions for banc, petitioner. rehearing en for Counsel, Jr., Risher, Corp. Wash- R. John the case was C., time ington D. Barton, W. Richard argued, with whom Counsel, and James T. Corporation Deputy Counsel, Washington, McManus, Corp. Asst. rehearing or C., petition for D. were on the banc, respondent. rehearing en C., Lederer, Washington, D. with Brian C., Noel, Washington, D. whom Elizabeth or, rehearing petition was on the banc, for inter- alternative, rehearing en venor. NEWMAN, Judge, Chief
Before GALLAGHER, KERN, KELLY, NEBEK- YEAGLEY, HARRIS, ER, MACK FERREN, Judges. Associate YEAGLEY, Judge: Associate (here Power Electric Potomac Company), petitioned Pepeo or inafter court, to D.C.Code pursuant this respon 43-705, two orders to review § of the Dis dent Public Service (hereinafter PSC or trict of Columbia first, No. 5739 Commission); Order 1975,* Pepeo an in granted November $27,657,000 based rates of crease retail amended, Company, request of D.C.1975). (PSC reported * TheCommission’s order is in 11 P.U.R.4th application filed with $50,832,000; in revenues of for an increase second, January No. 5750 of seeking Order an in- based 1974 test on a petition for reconsider- Pepco’s denied of electrical crease in rates for the sale On a division of ation. November oper- produce as to an increase in energy so court, dissenting, judge held $48,000,- ating approximately revenues the increase in revenues authorized *3 figures 1974 000. Later as more recent deficient as to be confisca- the PSC was so available, request its to increased became unreasonable, arbitrary tory and therefore post- $50,832,000. Following series of meaning of capricious and within the D.C. Commission is- ponements delays,2 and the 1973, 43-706. The orders of the Code § 20, 1975, May on sued Order No. 5718 and case remanded were vacated the par- to 13 granting inter alia intervention to the Commission with instructions whom, Counsel, ties, is an People’s one of for Company the new on data a test rates hearings appeal here.3 The 30, 1975, on ending rather than intervenor June on year suggested year originally by 24, test through July 1974 4 were held from June proper by found to Pepeo and was the 18, re- Pepeo filed with its July 1975. On upward Commission, and to revise the rates reflecting its testimony data buttal new also the accordingly,1 It instructed Com- 30, through June operations January the im- mission “calculate revenue losses comparatively brief cross-ex- 1975. After by Pepeo during the properly experienced surrebuttal, data, no amination on that period that No. 5739 was in effect.” Order by oral was the Commis- argument heard accept By the Commission to the ordering on application and sion the merits of the on rates 1975 data and to base the new there- 1975, 12, its find- it issued order November on, deprived the court the Commission of its reasona- ing a would be 9.1% rate return right to the new data at a examine test authorizing increase in the Com- ble and public hearing and left the Commission lit- in the District of pany’s operating revenues in tle room which to exercise its discretion $27,657,000,so as year the Columbia for any, if justification, to consider the de- in net income of provide an increase termining Pepeo revenues should be $50,832,000 in- by approximately $12,302,000. dissenting opinion by increased Com- A $27,657,000 previously stead of the substantially for a missioner Stratton called deprived The court order also authorized. 12, 1975, December higher rate base. On opportunity the PSC of reasonable the new schedule approved the Commission consumer. Af- balance the interests with by Pepeo in accordance filed rates hold, banc, reargument we now ter en effective order which became foregoing dissenting, that majority the former following day. A motion for reconsid- error the orders of the was no reversible in 12,1976, January eration was denied on PSC, of the and affirm the two orders Pepeo appealed. Commission. No. in Order The Commission’s action HISTORY PROCEDURAL on years fourth decision six was its Pepeo. by applications for rate increases history long case procedural of this filing this re- 20,1974, Pepeo Apparently reason December and involved. On However, they modify necessari- tion to them. Power Public Service 1. Potomac Electric Co. v. history ly (1977). Commission, of the Com- D.C.App., constitute a of the 380 A.2d pany’s appeal relief. application, During pendency of basic 2. People’s estab- by was Pepeo sought of the Counsel 3.The office twice interim rate increases 2, January 3, by Congress See 12, 1975, July 1975. applications lished March dated Supp., by 43-205. Part application § D.C.Code 1975. Each dismissed was by 5707, delay Commission, occasioned initial in this case was dated the first No. Order Commission, quite properly, April desire of in Order No. and the second Counsel, People’s al- appeal July the views obtain 1975. Since no dated establishing lag orders, they though there was time are not taken from these and as here, jurisdic- directly challenged no office. originally proposed cal- after the occurred so a 1973 increase was quest soon after Elec- period. endar 1974 test Pepeo’s financial condition steady [Potomac decline in v. Public Service Commis- tric Power Co. in the last half of The Commission sion, A.2d 132-33 D.C.App., 380 principal causes of saw two factors as (1977).] (1) energy this decline: conservation urged upon them
consumers as though the test held that even The division private organiza- government, interested appli- Company which based its year on the nation- tions and itself because of arbi- it was cation calendar energy experience crisis al error, capricious, and therefore trary and in the substantial decrease resulted not to have used as for the Commission hours sold at retail number kilowatt revised as Pepeo; (2) a substantial decrease The division also June year-end “energy capacity” by Pepeo sold deny the rates set would concluded *4 (PJM) Jersey, Pennsylvania, Maryland New fair rate earn a Company opportunity an Pool, Interchange of which is a mem- Pepeo return. of these found that had ber. Commission REVIEW SCOPE OF occurred, changes not “the two dramatic application by for a PEP- need rate increase petitioner’s basic ob approaching may very CO well have been eliminated.” scope our re we note that of jections Nevertheless, fore- the Commission did not final order is the Commission’s view of “past normalcy” see a return to of 1973, pro limited. D.C.Code 43—706 quite § necessary pre-1974 years and thus found vides that: process adjusting pursue lengthy of appeal In the determination of those two electrical rates to accommodate of an decision the Commis- from order or changed affect- factors other conditions by the court shall sion review ing operations. Company law, including con- questions limited to of findings questions; and the of stitutional 5739, which new Order No. authorized by the shall be conclu- 1975, fact Commission 13, expired rates effective December find- appear that such 16, sive unless it shall 1976, a new on December when unreasonable, ings of the (No. Commission 5849) order an additional authorized arbitrary, capricious. on another million in revenues based $29.4 Pepeo application filed December Congress vested sole rate- provision By Company new Those rates under which the are not making authority in the PSC. We operates pursuant another now were set for that of judgment to substitute our ratemaking close proceeding which followed though might arrive Even Commission. on the heels instant of the case. did decision than at a somewhat different PSC, evidence to if is substantial OF ERROR
ASSERTIONS con findings and support the Commission’s v. clusions, Williams we must affirm. See re- by advanced errors Transit Washington Metropolitan Area sum- garding appealed order from were Commission, F.2d U.S.App.D.C. 415 134 marized division as follows: Improvement Asso (1968); Watergate 922 opin- of the elements Examination Commission, D.C. ciates v. Public Service and conclu- findings ion reveals several (1974). 326 A.2d 783-84 App., (expressed opin- sions clearly rates style) power to make overlapping, ion in narrative Commission, unreasonable, by Congress or ca- arbitrary, delegated which are review of a this court. Our pricious. These include the Commission’s not to judicial is the narrowest refusal recent commission order to utilize most law. record, of administrative period in its to account review field failure Davis, Law the Seven- attrition, continuing its refusal K. Administrative 1976); Coo- 29.00, (June 2 F. recognize changes known ties at 647 § certain 18 sup- responsibility “The court’s not to
per, Administrative Law 756-72 State (1965). plant [balancing] the Commission’s nearly with one more [factors involved] our scope We have held that “the liking, but to assure instead itself that review of is ‘limit- the Commission’s actions given has reasoned consid- the Commission questions law . and the ed . . pertinent to each factors.” eration findings shall be fact Cases, Rate Basin Area 390 it shall that such Permian U.S. appear conclusive unless 1344, 1373, findings 747, 792, the Commission are unreason- L.Ed.2d 312 S.Ct. ” able, capricious.’ Watergate arbitrary, or (1968). Improvement v. Associates Public Service long
Commission, As as there substantial evi supra quoting D.C.Code appeal support In an interve- reasoned conclusion of 43-706. dence to § increase, Judge nor of an earlier we must affirm. Water Harris, court, speaking for this said: Improvement Associates Public Ser gate action, however,
Arbitrary not Commission, supra is action also vice 783-84. See or reason. . . The based facts . Park, to Preserve Overton Inc. v. Citizens is- upon petitioner merely burden Volpe, 401 U.S. S.Ct. put acceptable but forth an alternative (1971). proceed We review the L.Ed.2d con clearly rather to demonstrate order ings and vincingly flaw in taken. a fatal the action guidelines those in mind. Petitioner has not met *5 simply burden. He asserts a difference YEAR THE TEST opinion with the Commission. [Good Commission, man v. Public D.C. Service is, Ratemaking utility in particular for a 97, (1973) (citations App., 309 101 A.2d essence, of its making a forecast omitted).] upon future financial the basis condition years ago Four when some intervenors during span of performance a its known $12,000,000 grant- a rate contested increase viz., past, a “test time in immediate resolving the ed the this court in company, Telephone v. period.” Users Association guiding dispute quoted approval with 297; Commission, supra at Public Service agency appellate rule for review of Line Feder- Michigan Pipe Wisconsin Co. v. Wash- orders as set forth in Williams v. Commission, F.2d 555-56 263 al Power ington Metropolitan Area Transit Commis- 1959). argues appeal (6th Pepeo on Cir. sion, supra U.S.App.D.C. 415 134 did not use an amended that since PSC F.2d 942: period ending June in year test reviewing role is not Our as a court rates, determining its will be new as independent make determination realizing equitable prevented from whether fares fixed the Commission on its of return investment. reasonable, just are rather but regard have admonished In that Commission, exercising insure in that the in Users Association Telephone Commission rate-making power, its rational has acted Commission, supra, where- Public Service normal ly and is lawfully. Our function into con- to take Commission failed in the ly when we have determined exhausted data submitted sideration the most recent proce respected that the has Commission availa- utility, most recent by the that the findings dural has made requirements, material must be considered ble evidence, and has based on substantial reaching in de- by the weighed applied legal the correct standards ratemaking. This consistent cisions on [Telephone substantive deliberations. policy. If recent ratemaking with effective Com Users Association v. Public Service ignored, figures completely are mission, 293, 296 D.C.App., 304 A.2d based on old and be (1973), denied, the new will 415 94 S.Ct. cert. U.S. longer valid data. perhaps no (1974).] 492 L.Ed.2d 18,1975, tion, Friday, July Company, problem becomes more acute testimony lag, in of its Sr. long regulatory proposed when is a filed rebuttal Vice-Pres.-Finance, two detailed ex- time the instant case where considerable financial data reflect- original request and hibits which included elapsed between the operating results from ing time Although decision. this is an inev for the first final (Compa- through June regulatory process January itable where 14.) ap- The witness company ny to rate relief Exhibits G and rights peared orally on those against must the interests of and testified be balanced July hearing involving Wednesday, myri in a “in rebuttal” on consumer parties, important, ad of is nonetheless During that witness cross-examination all, op fairness to that the latest available Commission, the follow- for the counsel However, not erating ignored. data be ing developed: request to use recent submitted more data Q. Davis, you proposing Mr. a new filing present in a minute does not last use year for the test necessarily same situation and is not a fair in this case? or It to be request. reasonable resolved testimony I have indicated in the A. exercise of the Commis reasonable place important that we think it is sion’s will discretion.4 We not reverse and test reve- this information on a remand the decision here for further hear before the requirement nue basis ings and consideration of the more recent Now we are not —not Commission. data filed under these circumstances. First of the June suggesting a substitution all, as will demonstrated the rec year, December ord, Pepeo did make rea clear ask, my suggest I but do do person sonable to understand at time it ask, I would testimony, rebuttal filed new taking data that it was take note position adopt must revised apply this information year. Secondly, Commission in us case reaching the conclusions ing give weight a 1974 test did supplied.] [Emphasis .. by Pep- consideration to the 1975 data filed *6 Company principally relies on the filing the eo. We would observe that latest President, Reid testimony Pepco’s J. available data does not necessari testifying in rebuttal Thompson, who in ly change year by mandate a in the test the the urge said: “I would day that same Commission. Rather it should select a test on its results the June Commission to base year appears likely representa to that figures.” 30 generally, tive of the Inter future. See However, City Thompson state of Jer Mr. was cross- Commerce Commission v. when Counsel, he an sey by People’s made City, 322 U.S. 64 88 examined S.Ct. position in (1944). L.Ed. 1420 modification to that important following exchange: the application In the for a increase filed a Q. suggesting You are not . Company, the it asked that it be based want period, you? new are You still supplied it on a 1974 test calendar con- end of rate base your figures eight for the 1974 first months of December, 1974. sidered in this case augmented with the detailed estimates for amend- requesting You are not an remaining four for the months. As ment that at this time? operations four Company’s actual for those in bogged down get I don’t want to A. sup- were they months became available play game. semantics or a plied cross-exami- Company. After Well, bogged down. Q. get not Company complet- nation of witnesses was let’s under- lawyer. You a Let’s respondent ed and as the and intervenors testimony were in stand— completing opposi- their Corp. 460 55 L.Ed.2d See Vermont Yankee Power n. Nuclear 98 S.Ct. Council, Inc., (1978). Natural Resources 435 U.S. hearing was I to When terminated saying A. What am this Commission is here trying to arrive the truth 1974was question no on the record that was as to what is a fair and reasonable Although Company year. test still the suggesting rate of I am to return. give thor- believed the should this Commission that if it can be updated figures, ough consideration light done their under- explore any delay further the new data standing their responsibility Accordingly, respon- acceptable. was not ease, delaying without without intervenors, time having dent and not had record, opening further that familiarity depth with the new to obtain they adopt a 30 test should June data, did not Mr. Davis cross-examine that, I year. suggesting precisely am they information nor did detail on the new however, that, if suggesting but J am regarding testify recall their witnesses requires reopening it a of the record updated figures as analysis their case, they don’t do lay in a that right would have been their had Com- Rather, grant that. additional at- adopting it a that was trition to take into account mission announced allowance sup- figures. [Emphasis June 30 wit- year. testimony new test of all plied.] all witness- respondent nesses of the only with es for the intervenors dealt position final then be clear His seems to data. is what 1974 calendar That insisting was on 2,900 2,600 out of total of pages the first change urging but year, test using testimony Commission in were all When pages of about. light the more consider data the end of wholly new data are furnished at figures. June 30 case was recent Since the case, procedural process due as well parties filed and tried all a 1974test on require of fairness basic considerations year, apparent foregoing it is from the parties to examine the opportunity for all leav- Thompson necessarily President data, utility’s wit- new cross-examine ing to the discretion of the and to offer such evi- regarding nesses weight give as to decision how much necessary. in surrebuttal as dence new his tes- Thompson data. Mr. concluded testimony Compa- In view the timony by saying: officers, surprising it would ny’s own urge I would this Commission upon petition subsequently claim on Com- urgent prompt action on the necessity for appeal mission reconsideration completed, after it the same case 30, 1975 as a test here that the use of June alacrity you conducted with which hearings, year was an in the case. Chairperson. Madam issue *7 Interchange sales, colleagues dissenting for PJM the Commis- aside the data 5. Our brush "end-of-period” foregoing testimony Company’s Vice sion for the most used sug- (see by for and its President gesting Finance President rate base for subheading to account for attrition 1974 principal ways infra). ma- that the the The record one of “Attrition” “by determinations, jority justifies disposition making of case is the its the that these shows utilizing phrases figures ignore out few of context a selected the not available Commission did during hearing by represent- Pepeo uttered the is of There for the first six months supporting the test should have atives—as whether the record evidence of substantial 31, 1974, position or June ended on December these rate on each of and, components together, the 1975.” taken Com- rationally findings order. lead its dissent, mission’s accompánying the In the footnote case, therefore, Washington here, is unlike Pub- This minority which was authored the PSC, D.C.App., Organization 393 states, Interest v. picture lic A.2d complete “To the of what (1978), had test I, 71 in which the Pepco subject, A.2d at said on the see 380 yet note, not satisfied the substantial evidence We 141 .. . and 167.” satisfactorily explained the however, it had not picture portrayed because that omit the Sys- testimony between the Uniform foregoing rational connection President ted the of cap- (specifically, of Thompson. tem Accounts allocation shareholders) gains the average 1974 ital on land to the While the Commission did use M&S, making figures for as 1974 rate CWIP and as well result.
21 testing period, clearly ap- As to the expected is Although Company the test specified on a that the application pears base its us the record itself, later as did year, dispute application when a arises rate appellant, its here, up it is to the Commission the Commis- testing period, and the chose de reasonable exercise of its discretion to Appel- choice. accepted appellant’s sion can new data termine to what extent the throughout on application tried lant's case the and should be used. In this Com should be theory period the the test good reason mission and intervenors 31,1954. In ending March the 12 months Compa express words of conclude from words, was to be the March 31 other apparent acquiescence ny witnesses and the year. pattern this period cut-off they Company position counsel in the reasoning persuasive to be We find this articulated, Company was not in Commis- no error and hold there was sisting that a new test be established. minute a last sion’s decision not make position new made Counsel asserted no year. also New change in test See adoption of a test no motions for the new Com- England v. Federal Power Power Co. year. argument to the Com Later oral Cir., (1st mission, (unpublished) No. 75-1379 Pepeo question mission did raise 13, 1975). Nov. 30,1975 its year. about a June test Instead however, test lawyers appeared observe, to assume that 1974 We would also counsel, Company towas be used. that we reverse the Company’s request Hobelman, said, example: D. Carl and re- on this issue Commission’s decision upward Now what solutions to attrition mand a revision of rates based problem exist? complicated somewhat on data is released that after the Commission traditionally used fact one that’s been case, Pepeo promptly is most others its order in instant this Commission and PSC on base, if with the year-end application and we think that filed newa 29, 1975, seeking a going to stick with the further December period year. 1974 test that’s a minimum. a 1975 test That increase based on No. 5849 of application resulted in Order Caine, Edward A. other granting Pepeo in- December stated, argued, flatly who while dis counsel on million based $29.4 crease in revenues cussing possible Company effect of land superseded order has the 1975 data. That transactions, test in this case “[t]he (Order review here No. the order under having is 1974.” The case been filed and operat- 5739) presently and the year up on to almost the tried ing 1976 order.6 under the December day, ample last the Commission had basis use support the exercise of discretion to award- provided therein was increase utilizing year, updated a 1974 test Company’s operating ed on basis of the appropriate. as it deemed year 1975 and experience for calendar by its as reflected its financial condition has had Supreme Court Arkansas 31, 1975. A remand books as December situ- strikingly occasion to similar address a in- granting now substantial Light ation. Arkansas Power & Co. earnings based Commission, Company’s net crease to Public Arkansas Service first six months of as ordered 225, 233-234, Ark. 289 S.W.2d *8 division,7 would cause a material by (1956), where the refused sheet as change balance post- Company’s as consider information submitted say data, 31, 1975. That that test the court held: December appli- Potomac Elec. Power Co. v. Public Serv. 7. See 6. We note that while December 1975 Comm'n, supra, increase pending, 147. The denied interim A.2d at cation was the PSC an present by surcharge Compa- Company on would be realized rate increase to the and the (appeal ny’s petition 148. customers. Id. at court for review this 10909) by this on No. was dismissed court 10, March 1979. increase, for another the circuit has longer the financial data would no be valid 1976 rate support that were used to said: earnings net figure increase. The for 1975 disposed byof having These been matters might have been much as million less as $20 possible it is now opinion this insofar as figure. than the corrected Should such so, be left which very to do little will go windfall to the shareholders or be rebat Commission, be remanded to the could paid who an in ratepayers ed the 1976 remaining any possible is- especially provide the creased rate that turned out to applica- a new sues are also restricted greater than were Company with revenues tion of the to the Surely intended the 1976 order? increase, argument filed since for a rate granted would not have full $29 PSC which we take appeals, of these and of in December 1976 had it
million increase to the judicial notice. Remand Commis- to award the known this court was later case, sion, of this in the circumstances substantial increase in 1975 Company a a rate order to could not be to enable up to million. earnings possibly $20 upon application, the old superimposed A reversal and remand of the December 14, [Washington Gas July filed juncture 1975 order to the PSC Baker, U.S.App.D.C. Light Co. v. would confront the Commission and (1951) (emphasis add- F.2d parties problem with the of how to increase ed).] half light rate in of data for the first overlap- company had filed In Baker the already has of 1975 when the Commission has here the PSC ping application whereas put into effect a new rate based on subsequent on a already issued an order year. for the full 1975 test Such reconsid- application. period eration on remand of a revised test 1976 rate saying are not We order can- overlaps subsequent test based on a calendar-1975 order using compared not be to the Commission equitable relief with necessarily precludes period in previous the last test previous rate order based respect to the making operate pro- a new rate that will earlier, though overlapping, might a somewhat spectively. example, For PSC e., extending several only (i. one want to consider a rate increase after rather, 1975). saying, passed six months had since the last order We are months into updat- inevitably but desire to base its determination on second rate order corrected, In that case the previous year. ed, full PSC thus to some extent into structure, course would take consideration thereby reducing Company’s rate overlapping peri- previous treatment of the Compa- equitable relief. any claim to change od and no have occurred would appeal does not take ny’s position on have the full figures. those would however, adjustment; account of this 1976 proceed- picture subsequent it in the before affirming the disposition our in view of Here, however, the latter order which ing. order, we not further need finalized already set rates in 1976 has been might the second rate order consider how to take into opportunity and there is no on the one at issue. bear the revised financial data consideration pro- Using overlapping periods for however, of mootness question, ratemaking problem. no But spective poses opportunity is not so clear. seeks case the division would have the PSC in this it claims revenues to be made whole for the thereby changing enlarge period an old test this order was during lost Company af- picture financial for the effective, December an inter- fecting period upon a test of December of the order effective date vening long has since been rate increase arbitrary the asserted by reason of finalized. Pepeo, as well decision of Commission. division, sug majority opinion as the respect to the effect on a remand *9 accomplished, if application gested that this could intervening filing of a new
23 ap- then would be and rate of return fair surcharge on be, a by imposing need a so-called rate to already plies percentage as Fortunately, present customers. of average Ordinarily the complicat- base. indicated, need not reach we is used. Tele- period light in of for the relief equitable of problem ed event, Public v. Service any In Association disposition phone of the case. Users our However, or- in Commission, seek relief at 298. remedy supra sole Company’s attrition, order, we effects of appealing questioned der to combat general us. to the exception we now have before Since recognized which issue being ease as a to exist is found we view that when attrition rule so issue, deny company’s year- the motion may contested use the commission moot. proceeding average as rate base. to dismiss year’s rather than end Chesapeake & Id.; Lynchburg City
ATTRITION Co., 200 Va. Telephone Potomac This is what (Va.1959). tendency of the S.E.2d “Attrition ‘describe[s] certain case with in the instant occurred return diminish in rate of found that The PSC exceptions. limited costs . comparatively high construction accordingly chose to service, it and comes into existed high plant As cost attrition Tele- suggestion in the applicable rate base this court’s to increase the follow tends and, by large, used rapid pace than the case phone at a more Users [investment] revenues], operating rate base. earnings end-of-year resultant [net according- decreases of return and the rate ” Public Association v. ly.’ Telephone Users RATE BASE Commission, supra quoting Service Company’s The value attributed Telegraph Co. v. England Telephone & New largest com- constitutes plant in service Utilities, 331 Mass. of Public Department The next utility’s rate base. of a ponent (1954).8 121 N.E.2d work is the construction largest component Company contends that Commis- the cost (CWIP) includes progress in adjust the test sion’s failure comple- their prior to expansion projects arbitrary, ca- continuing attrition is transferred time their value tion at which as a matter and unreasonable pricious Also account. in service plant to the conten- Contrary Company’s law. in investment Company’s is the importance tion, clear that the Commis- patently it is (M&S). supplies materials for attrition. not fail to account sion did replete order of the Commission The final alleges Specifically, con- comments that demonstrate with (1) including erred the Commission problem and the consideration cern for the average investment only Pepco’s We of attrition. gave to the evidence the rate progress in work in construction order found in its note that the Commission 1974 aver base; only Pepco’s (2) including 25: pages supplies; in materials investrrffent age short, that attri- persuaded we are In large an amount (3) including too us, with that is still phenomenon tion is a Mary Jersey New Pennsylvania, net now, as we have will therefore and we infra) (see sales Interchange (PJM) land base, period rate past, use an end of However, income. an element of in order to adjustments, appropriate ratemaking responsibility, exercising its attrition. compensate presence to use is not bound is it bound methodology, nor particular determining a fair return proposed. annum, alternative any particular adopt per dollars Company in terms of Commission, 162 v. Public Service what Goodman determines regulatory commission Comm’n, Telephone Users Ass’n v. Public Service see 8. For additional definitions of attrition supra at 298 n. *10 82, U.S.App.D.C. 74, 661, by many bodies, 497 F.2d 669 still followed regulatory (1974). excluding altogether CWIP from the rate (brief 6). at
In Goodman the circuit held that:
In its ultimate determination of future
In view of
unusually high year-end
requirements,
revenue
the Commission
figures,
the General Services Administra-
figures: 1)
choice of two
the aver-
urged
tion
weight-
the Commission to use a
age
applying
values
throughout
the test-
CWIP,
average figure
ed
as did the
year (“weighted”
base);
2)
or
argued
high
It
staff.
values
day
test-year
on the last
adjusted
year-end figure should be
to nor-
(“end-of-period”
base).
at
[Id.
may
malize it to reflect conditions that
rea-
The Commission’s staff witness testified anticipated the flow of tive of future dollars into CWIP in- conditions.” very $187,000,- creased substantially (Public Commission Order No. 5739 Service January $359,000,000 000 on at 26.)11 Projections at of future CWIP for year’s end.10 through 1977 indicated year-end averages years only for those People’s Counsel, citing examples where $288,000,000, quite which is close to the only juris- 60% CWIP was used in some $284,000,000 average figure recom dictions, recommended that the Commission mended staff. Conse adopt the rule followed in others that allow quently, year-end figure if a were CWIP only up CWIP plant 10% of the useful (which representa used C, likely was not to be (People’s 38.) value. Counsel Exhibit levels) The League of Voters tive of future CWIP a skewed rate Women asked the policy, Commission to return to its former base would result.12 The Commission found May although percentage figure 9. As did Chalk Point III in The staff used the same figures plant were only not available as to its revenue in service but allocated 36.69% productivity. total CWIP the District of Columbia. See SM-2, p.l. Staff Exhibit 4 Sch. A On the other Pepeo operates Maryland 10. Since and Vir- hand, the staff allocated to the District 53.64% Columbia, ginia only as well as the District of operation plant of Columbia held for future percentages Company figures properly those figure may use. Id. The lower for CWIP result operation allocated to the District of Columbia III, from the fact that Chalk Point construction, then under computing are used in the rate base for the Maryland. Aquasco, is located in example, figure District. For for District of Pepeo Exhibit 2-3. plant computed by Columbia ing tak- service plant of the total in service. Con- 44.82% binding 11. The for a test sequently, Company originally arrived at a except it con- extent figure $657,634,000 of the total 44.82% they may representative cludes be considered $1,467,207,000. plant of of the future. Likewise, computing only CWIP figure of the total attributable to the District of return, 12. a certain rate of Given desired operation Columbia $377,508,000 is used. Of the total of larger greater the rate base of the originally by Compa- claimed requirement. Telephone will be its revenue ny, $155,863,000 only computa- it allotted in its Comm’n, supra at Users Ass’n v. Public Service tion of the District of Columbia rate base or Pepeo Exhibits W 29 Wand 41.29%. *11 that Pepco’s final claim of error is justified and thus that this could not be average rather adjust it would use an decided that failure its 1974 the Commission’s find this year-end figure. We than CWIP change in the Com test to reflect a supported substantial by conclusion Interchange receipts sales to pany’s judg- accordingly the PSC’s evidence and arbitrary, capricious and other utilities disturbed. ment on the matter will not be of It as a matter law. accord unreasonable Telephone Users Association v. Public Ser- re ingly urges that the PSC's decision be Commission, supra. vice for further action. versed and remanded vein, challenges In a Pepeo similar (Pennsylva- PJM This issue involves the an average of rather than only inclusion nia, Interchange, an Jersey, Maryland) New of in the year figure end the 1974 power energy twelve pool approximately of supplies. for investment materials and to enhance overall companies established average to use an The decided economy gener- of reliability of service and figure ($66,296,000) than the for rather Interchange area. Mem- ation within the larger ($88,073,000). We year-end amount pool this make sales companies ber produced conclude that the evidence before currently energy other from availa- to each supported result. The of such capacity. price ble excess testimony The that the Commission heard midway between the incre- transactions is figure year-end consequence was a of an cost) (essentially fuel to the mental cost passing instability historic but in the fuel buyer, to the seller and the incremental cost Pepeo, companies, market. like had other purchased. generated electricity substantially increased its fuel inventories or no sale is always cost is lower seller’s during 1974 because of abnormal conditions profit a Thus the seller realizes made. suggesting forthcoming shortage. fuel in- between its measured the difference sup- scarcity developed caused fuel mid-point, cremental and cost and the plies stockpiled adequate to be to assure electricity price at a purchaser receives supplies during energy crisis. The staff previous review Company’s cheaper three than that at which could large years indicated month-to-month fluc- electricity at time. generated the Over inventory In tuations in balances. addition sells and year, the course of a both average testimony there was levels electricity Interchange. purchases on the representative years in those were more of However, historically it has been a net sell- weighted normal conditions. The use er, during was in fact net seller average recognized a return stabili- The in its order that there PSC observed ty Jersey in the market. the As New Su- “a in the had been substantial decrease City preme Court stated in Atlantic Sewer- by Pepeo capacity sold to” energy age Co. v. Board of Public Utilities Commis- Later in the order it found PJM Pool. sion, 71, 76 128 N.J.L. 26 A.2d leveled off to appear “sales to PJM to have aff’d, (Sup.Ct.1942), A.2d 129 N.J.L. large degree.” (N.J.Ct.Err. App.1942): & have an Pepco’s activities Interchange Abnormally high for prices impact on and customers. its investors upon attendant an unstable mar- material cases, investors bear periods between rate just ket not afford criterion of do profit loss from such trans- the risk of purposes. property value of However, ratemaking pur- actions. CWIP, that as with We find during profits realized poses, the justifying was substantial evidence against operating expenses year are set off year-end finding providing service to custom- incurred supplies amounts materials ex- locally. recorded ers Thus high were and that unusually account purposes are reduced penses ratemaking average computation would be more reflec Interchange amount of the offset Accordingly, we tive of future conditions. customers. to the benefit profits on this issue. affirm 1974; nature, (2) By Interchange their activities a substantial decrease in unpredictable. Compa- are volatile and energy capacity sold PEPCO ny admits that it has little control over the Pennsylvania, Jersey, New Mar- Interchange ultimate dollar value of the Pool, (PJM) yand PEPCO is a credits and little equally ability predict Had these two member. dramatic any degree certainty the dollar val- occurred, changes not the need for a rate ue of except very such credits over short application by may very increase PEPCO *12 periods However, appears of time. it Together, well have been eliminated. increasing record that with the consum- changes represented two an order of er awareness of conservation electrical magnitude gross decrease PEPCO’s power, declining PJM sales were and there $65,000,000. revenue of some was evidence to show will they continue to per- We of record which see no evidence decline, but at a pre- rate which cannot be suades will be a us that return to cisely determined. unpre- With this basic past near normalcy in the future either is, course, dictability, quite it difficult for Although both of these items. figure Commission to establish a data, may of which we take accurately Interchange will reflect the PJM notice, resumption official of a indicates a However, approxi- sales for the future. sales, growth trend in retail kilowatt hour sales, mate the future the Commission de- appears it that the over 60% reduction in cided to use the test data. Thus it continuing PJM sales is and thus the two calculating used the 1974 data for the net factors tend to offset each other to some sales PJM for transactions and arrived at a Thus, degree. while 1974 was indeed an $46,532,000 figure of as the amount alloca- compared unusual for when PEPCO operations ble to its in the District of Co- period, to the 1970-1973 the record indi- lumbia. conditions, cates that 1974 level rather prevailing than those are more asserts, however, that while the representative reasonably of conditions decision, considering its expected to exist in the future. amount of Interchange sales continued to $32,605,000 future, therefore, decline —to for the 12 months A look at the indicates $28,133,000 ending “normalcy” June on which 1975 and to new and different 31,1975. things ending August predictions may the 12 months our to come base, argues Company properly that the failure of the be based. With that reg- Commission to take these into believe that adherence traditional arbitrary capricious. ulatory concepts give account was will reasonable as- achieving surance of the desired end re- We cannot say Commission’s de- We shall therefore follow that sult. guided by figures cision to be for the 1974 course here . . . . at [Id. 6-7.] constitutes reversible error. This Later Commission observed: order, portion of the Commission’s like other, appears must be in context. It read however, that the persuaded, We are not point the Commission was well aware of the earnings solely to decline in has been due ignore made not did it. attrition, large part been due but has in Opinion In its Final and Order the Commis- previously. noted drop in sales sion said: appear customers Since sales to retail however, growth
The latter wit- somewhat normal have resumed a sharp steady pattern, appear nessed a decline in the sales to PJM and since Viewing large degree, PEPCO financial results. have leveled off to whole, substantially record as a two factors stand out has reduced since PEPCO perhaps principal budget, appears causes of this construction reason- its (1) in the fu- energy decline: conservation resulted able to conclude that attrition significant in a role than may play substantial decrease number of ture a less past. kilowatt hours sold at retail PEPCO in has in the at [Id. 25.] respect my colleague, are mindful nature of all due esteemed We volatile then-dissenting opinion Interchange Judge YEAGLEY’s unpredictability sales and their recognition basic not reflect a of certain the fact has al- did that ratemaking proceedings. characteristics ready given problem. consideration I, Pepco 150-62. deficiencies reasoning The. is not without See cogently dissent were Judge YEAGLEY’s gives logic being no indication of arbi- by Judge NEBEKER in his con addressed Further, trary. there is evidence in the I, opinion. Pepco 164-69. curring See support findings record and conclu- this regard. Accordingly sions in we hold me It to conceive would be difficult arbitrary, the Commission’s action agency’s action a rate case in which capricious and unreasonable as a matter of be seen be erroneous readily could more judg- and we law will not substitute our 43- D.C.Code § than this case. See ment for of the Commission. majority’s resolution 706. One result of the inescap- appeal regrettably of this seems being There no other issues raised and will able: conclude findings “the of fact *13 a which virtually any utility treatment [being] appear conclusive unless it shall is “pro-consumer” to be in nature purports findings such of the Commission are unrea- judicial escape review.1 likely perceptive to sonable, arbitrary capricious” (D.C.Code 706) finding reversible no § challenge temptation strong The is 43— law, appeal error dismissed and majori item-by-item many flaws in the decision of the not neces opinion. Such an exercise is ty however, three exist sary, since
Affirmed.13 opinions address ing well-documented which HARRIS, Judge, opin length. Associate with whom the issues at first is NEBEKER, Judge, concurs, in Associate dis- written ion of Commissioner Stratton senting: In re decision. dissent Co., 11 P.U.R.4th Potomac Electric Power major public utility This is the rate first D.C.1975). (PSC The second 237-51 (as case to be handled this court a conse third, above, majority are the as noted quence of the Reform Court and Criminal in I which concurring opinions Pepco Act see Procedure D.C.Code I majority chosen overturn. has 705). fact, writing Because of in § 43— would, however, now make a few com original majority opinion for the divi ments, refer supplemented by a number of sion, particular care was taken to describe portions Strat- ences to of Commissioner applicable legal principles spell were not referred to ton’s dissent which out in detail the errors in the Commission’s majority. opinion for the division my earlier disposition of the case. Potomac Electric PSC, overall D.C.App., upon A.2d 126 decided Power Co. v. The Commission That (hereinafter I). Pepeo. return for (1977) Pepco percent cited as With 9.1 rate of “convincing showing” required speaks made unfortunate tone dissent They dispels prevail itself and need rebuttal com- overturn rate order. cannot ment on the issues. [Id., this time. That, at 89.] course, end of have should been evil, majority’s no no evil” 1. The “hear see matter; should action the Commission’s approach wholly case is inconsistent this appeal dismissed. have been affirmed and the 2-1 with the decision of another division of However, based 43-705. § See D.C.Code Organiza- Washington Public Interest court upon with the Commission’s a dissatisfaction PSC, (1978). D.C.App., tion A.2d System of Uniform reliance on its established following majority con- There the reached the Accounts, fur- case for remanded the the court clusion: (Judge exposition by the Commission. ther presumptive validity of the Com- Given grant petitions for I voted NEBEKER and rehearing balancing judgment expert in- mission’s in that were filed en banc which interests, against vestor and taken consumer case.) incomplete analysis, petitioners’ own petitioners must conclude that in our denial failure is rooted of known prompted following state- conclusion pressures oper- upward ment Commissioner Stratton: and inexorable costs, with which reve- ating capital It cannot be demonstrated keep pace if a is to by the nues must rate of return found reasonable obligation. statutory test service P.U. commission fails the fulfill [11 [of establishing “just rates], and reasonable” R.4th at 238.] the PJM revenue of excess the Commission: holding down rates arbitrary reversible error.” tion of the rate base item of construction tion out of missibly ly inquired: “Thus did the metaphor, What the left hand but nation for such erence expediency perpetrated in the interest of case work in but what of the left hand?” revenue needs. Commissioner Stratton Commissioner Stratton this commission can so demonstrate its 251.] low and I Establishing a rate of I quote The real of what to its starting step Pepco’s range progress), support (1) expectations interchange.2 generating and Commissioner Stratton’s was take essence, tore tens of millions of dollars basically issue in grossly is, . it even action, . is that it constituted “an on that Id., base, [which] away. determining utility’s capacity by Pepeo to did, . . this at 244. was at stake before unwarranted (with particular ref- return, however, is though [11 case is whether must be seen as right basis, projected sales obvious To (2) expressed by complete P.U.R.4th Id., at 240. it is in the reduce the overstated hand probably evalua- imper- reduc- expla- give apt- proceeds, actual data but the of months year is data are past months with actual (here, such a routine substitution agree with Commissioner Stratton’s matic comments on prior estimates. This is done increase flects an rate cases test-year financial results of that flected as are used as this P.U.R.4th recent 12-month process; methodology, as it must approach [is] [O]ne are made for the future. approach The en banc court’s [******] eight case) adopted majority must application is inadequate predicted. routinely operating results (here, four to rate [and] months) pro is selected as the recognize 238.] implemented as follows: a forma seems to see known making is a are tried. When a the use of a test are substituted for the and a smaller number understanding of how Then, includes a data in the filed, typically test majority opinion re- months) adjustments to the (calendar operating results changes are re year’s operations of numbers.3 as the be, since rates . quite simply, problems in majority of *14 forecasting for which analytical . test-year test-year hearing .. year; year: axio- [11 in I but, test-year imperfect, device is of this and the understanding [T]he than probably like it is better democracy, exist as to issue a world in which it must imperfection is This utility can the alternatives. rate order which the under by ad- compensated for in some measure period of time operate reasonable for a in order that quest higher justing test-year data returning without to us in future, typically by tak- to do. mirror the rates. This have failed Our better issue, Regulated interchange utilities follow the Commission’s 3. 2. In its treatment PJM of the Accounts, System majority and Commission facts which Uniform recites some company’s personnel regularly significant Pepco’s reve- monitor reflect in decreases therefrom, Thus, Pepeo predicts simply example, ultimately retreats if nues but books. forthcoming judgment expense month into the “we will not substitute our its fuel for the Ante, dollars, easy refuge. exceptionally for that of the Commission” will be x it is of June readily recognize money 27. I that we actual- are not the amount of later to substitute judgment agency, ly spent. that of substitute our far tran- but the Commission’s actions here judgmental scend the rather broad area of mere differences. sion’s distorted treatment of the rate base changes ing into account known supplies fully test-year in data . items of both materials not reflected (CWIP), and progress in work construction [Id., at 239.] inter- relating to PJM of the revenue item must be borne in mind that the admin- It I shall change A.2d at 145-47. sales. 380 process protracted, in case istrative this here, a brief points but not restate those in occasioned delay because did description of what the Commission People’s establishment of the office of CWIP component to one respect on Pepco’s application Counsel. was filed in dissent. inclusion warrants 20, hearing began 1974. The December utility for by the expended The funds 1975; 25, July not end until June did have been included consistently CWIP time, By complete gener- all of a new During base. been figures through June had ating plant Point Unit No. 3—was July Data introduced into evidence. —Chalk question There was no under construction. August provided by were of 1975 later expended on that dollar amounts company, argument was con- oral May months before the project. on September ducted closed, placed plant the new record was cases, re- in rate a commission is Often roughly million operation, $160 and the quired to exercise its discretion determin- cost transferred from the which it were ing competing parties’ projec- which of the plant account to the company’s CWIP are more That was true tions valid. not routine These facts were service account. here; to return Commissioner Stratton’s objective unchallenged, and observ- analysis: it inconceivable for er would deemed compelled But the commission was to fail to include that $160 conjecture to select between the rate base company’s million in the overall company conjecture of the staff. (with percentage thereof appropriate accepted We have into the record month- Pepco’s District of Columbia rate going into ly operating statements and balance base). surely have been one In what must eight sheets for the first months of arbitrary history actions in the of the most and these to us as we were available however, ratemaking, of American upon thought deliberated this case. I *15 complet- to refused include the Commission purpose in accepting our current financial No. in the rate base. ed Chalk Point Unit reports to permit us to make a better Moreover, 1970 and 1973 although in the informed decision. Are we free to de- Pepeo the Com- prior in' rate cases decisions opportunity cline the to do so? I think compensate sought to properly mission [Id., not. at 241.] year-end computation by using a attrition interesting passage There is en an CWIP, the rate here it further eroded majori- majority opinion. banc court’s The by taking average fig- a 1974 CWIP ty recognizes that: ure. most recent available material must [T]he devices The effect of the several overall weighed by be considered the Com- arbitrarily unreasonably utilized thus reaching mission decisions on ratemak- com- was to reduce the by the Commission ing. is This consistent with effective to District of Columbia rate base pany’s operating ratemaking policy. If recent 228], $650,091,000 11 P.U.R.4th at [see ignored, the new completely are needs company’s to revenue understate no perhaps rate will be based on old and receipts supposedly net by exaggerating longer [Ante, valid data. at 18.] anticipated PJM In the final sales. acknowledge dissent, majority How the could Commissioner paragraph his minimum, fail to see the errors those truths still stated: “At Stratton comprehen- $693 established the Commission’s actions defies base should have been I share original opinion Id., The . at 251. sion. division million . ..” majority sets forth in detail the Commis- that conclusion. opportunity to earn an should have disposi- majority justify seeks to its return, then rate of but principal ways. percent in two overall 9.1
tion of this case per- as er- first is an artificial semantic devices discussed above—such by the exercise — a few by utilizing out of context company’s formed District roneously reducing the during hearing phrases selected uttered million, rate base some $43 of Columbia whether representatives by Pepeo figure— accept Commissioner Stratton’s —as ended December the test should have certainty such a rate of it a that made only is the or June 1975.4 Not (An not be achieved. errone- return could question illogi- of that majority’s treatment correspondingly of rate base ous diminution (there record but that cal is no doubt on this revenues, for revenues erroneously reduces understandably in this Pepeo quite— base.) linked to rate mathematically cost rampant severe inflation and fuel militating towards affirm- A third factor to use its most current increases —wanted majority opin- appears in the en banc ance data); largely it also is actual ion, of its effect is although the extent noted, I have the en banc irrelevant. As majority devotes to ascertain. difficult obligation majority recognizes expressing opinion of its pages several data; long as to use current Commission which would complications as to the concern it matters little figures are used such Ante, reverse. presented if we were to that the test should say whether we griev- approach 21-22. Such (as origi- have ended June did in this party as a ously unfair division), majority opinion for the or nal court; its case deter- is entitled to have obliged adjust Commission ap- “upon the record” on exclusively mined known later the test data to reflect 1973, 43-705), a con- peal (D.C.Code § properly, facts of record. Considered consequences of potential sideration of the simply Pepco’s record reflects related anxie- basic requisite a reversal is irrelevant delays ties avoid further and achieve the Commission’s analysis as to whether prompt rate relief. reversed —ex- decision is to be affirmed majority way in The second merits.6 clusively on its (1) making cursory supports its result case, turning to an overview appeal, Pepco’s references to contentions regula- recognized: A must be one maxim (2) stating respect to each followed unduly pro-con- which is tory commission considered contention that recognized to be inevitably must be sumer ending effectively subject, hence a util- jeopardize well. To anti-consumer as however, begs approach, matter.5 Such simultaneously stability is ity’s economic beyond question It is the issue. provide the service ability to jeopardize its doing; what it was considered vitally depend so its customers calculated, upon which accidental. rulings were well, increase its costs (as incidentally, as to Pepeo theoretically It determined *16 majority opinion prior opinion of majority his dissent to the 6.In 4. The en banc court’s —like division, unduly Judge position Judge took the earlier dissent —is YEAGLEY YEAGLEY’s demonstrably excerpting the relevant re selective in its of that his view of the case was complete pic Pepco’s price stock marks from the record. To correct since the market Pepco subject, decision. subsequent said on the see ture of what was risen I, opinion) (majority I, at 140-41 pco 380 A.2d Such at 159-60. Pe analysis 380 A.2d J., concurring). (NEBEKER, unwarranted, faulty 166-67 was both concurring by Judge in his NEBEKER noted Organiza- Washington Id., Interest opinion. 5. In the Public note with some I at 168-69. 1, supra, the prices which I cited in footnote tion case indic stock relief that the notion that recognized majority risk ruling proper of that division agency’s is ative of whether simply “non-expert” “could that a court no visible effect had at least erroneous has upon arbitrary agency accepting action fooled into disposition majority’s of the banc en confidently mesmerizing of the influence case. experts.” expressed language 393 A.2d at Regrettably, has become a 78. that concern reality in this case. long obtaining costs in the capital, LIQUOR ratepayers). be borne CO. et run must WINE & EAGLE role; al., Appellants, partisan does not have statutory and a constitutional it has both rates, obligation just and reasonable set COMPANY, ELECTRIC SILVERBERG i.e., oppor permit rates which Appellee. on its to earn a fair rate return tunity No. I, 380 A.2d PepCo supra, See investment. If the 131-32 and cases there cited. at Appeals. District Columbia Court arbitrarily to achieve refuses 14, 1978. Argued Sept. balance con requisite delicate between 2, May Decided interests, only it is not sumer and investor rights, violating utility’s constitutional harming long-range the true interests pre as well. Ibid. That
of consumers
cisely what occurred in this case. dissatisfaction
Commissioner Stratton’s disposition his of this case agency’s express such that he was moved to
following beliefs: posi- up,
To sum the commission’s order reminiscent
ts an economic environment early to ac- failing 1960’s. In
knowledge deal with fact per capital requirements risen, of sales continue to
unit
rise, faster revenues the commission than bring step only
has taken a can
regulation District of Columbia disrepute among the
into fair-minded
knowledgeable. P.U.R.4th 251.] [11 comparable my feel
I consternation
colleagues’ superficial re- approach to their my
view Commission’s actions.
view, majority’s recognize failure to analytically
realities this case is indefen- Accordingly,
sible. I dissent. respectfully