*1 indicates that we A review of our cases offers of remittitur in accepted similar RAILROAD COMMISSION OF TEXAS past. al., Appellants, et portion “It the law that where the v. misconduct, jury’s tainted with verdict INC., ENTEX, Appellee. at, capable of improperly arrived ascertainment, and accurate
definite No. B-8584. jury prejudice where the acted free from Supreme Texas. Court of passion, portion a remittitur of the so improperly tainted or arrived at will cure 2, April 1980. error, part and the of the verdict free 21, Rehearing May Denied 1980. proper- from the taint of misconduct
ly permitted arrived at will be to stand.” v. Employer’s
Texas Insurance Association 304, 309,
Lightfoot, 139 Tex. S.W.2d (1942). Ogle Craig, also See (Tex.1971).
S.W.2d case, jury’s
In the instant award to other elements of her
Ms. Grantham for the addressed, tainted, nor
injuries were neither testimony. Dr. Hansen’s inadmissible offer to remit
Accordingly, Ms. Grantham’s subject part of the award that was testimony Dr. Hansen’s inadmissible respects, Ms.
accepted. In all other Grant- rehearing is overruled.
ham’s motion rendered
Accordingly, judgment is now
as follows:
(a) rendered judgment heretofore is set aside.
this Court civil
(b) judgment of the court of
appeals is reversed.
(c) judgment the trial court is Nancy as to award Grantham
modified so for actual
recovery against William Moore $16,976.44, with
damages in the amount percent rate of nine
interest thereon at the 28,1977, and as
per annum from November modified, judgment of the trial court
so affirmed. to be
(d)The apportioned are one-half costs Moore, and one-
paid by petitioner, William Nancy Grant- paid by respondent, to be
half
ham. *2 Wilson, Gen., White, Atty.
Mark J. Scott Butler, Gen., Austin, Atty. R. Asst. Don Austin, appellants. for Giller, Jaworski, Fulbright Jefferson D. & Zimmerman, Houston, appellee. Louis for S. DENTON, Justice. appeal by
This the Railroad direct judgment from a district court Commission invalidating order entered Entex, gas utility. We Commission for Commission’s order hold that the Railroad legal sup- and was requirements met all in the rec- ported by substantial evidence judgment is re- court ord. district of the Railroad Com- versed and the order mission is reinstated. applied Entex March Beaumont, City from the Texas
increase City). City (hereinafter referred as act, appealed to the and Entex failed a rate increase Railroad Commission for on the rate base. equal to an 8% return hearing before an ex- evidentiary After an aminer, entered the Railroad Commission 12, 1977, which September an order on of return on its granted a 4% rate Entex capital rate base adjusted value of invested $14,005,509. filed a motion for Entex 24, 1977, the Rail- rehearing. On October an order which entered road Commission Propos- Report and adopted the Examiner’s objec- and denied Entex’s al Decision to the appealed the order. Entex tions to County de- of Travis District Court setting a 4% rate of return clared the order its en- invalid, permanently enjoined forcement, order to the remanded the (hereinafter referred Railroad Commission Commission). that En- Commission finding $11,944,535 is operating expenses of tex had followed unchallenged. The Commission Regula- Utilities the Public Section Act, tory Issue, Neglected Baylor art. 1446c L.Rev. 937 Tex.Rev.Civ.Stat.Ann. (hereinafter PURA) (1976); referred to as and de- Public Symposium, Student Texas, Mary’s termined Entex’s rate base from the Regulation 7 St. L.J. 515 (1975). useful” property “used providing service. The jurisdiction. is a A fair Texas fair value value of the was determined to be value rate base was first determined as *3 14,005,509 weighting original by cost replacement original ratio between and depreciation less and 40% as current cost case, the Alvin later this con- costs in but present adjustment age less an for and con- cept in the 41 was utilized PURA. Section controversy dition. The is whether the requires of the PURA that the rate base be proper Commission made a determination original determined as a balance between of the rate of return under Sections 39 and reproduction cost and current PURA, 40 of the and whether a 4% rate of adjustment age an cost less for and condi- adjusted value of invested 41, “adjusted tion. Under section the val- capital is reasonable. by ue” “used and useful per- 60 75 public utility” is based proper A rate determination re original depreciation cent of the cost less quires important a consideration of three percent reproduction and 25 to 40 current (1) utility’s operat factors: the reasonable adjustment age cost less an and condi- base; ing expenses; (2) (3) the rate and tion. The exact balance is within the dis- reasonable rate return. Railroad type cretion of the This Commission. Co., Comm’n Houston Natural Gas advantage stabilizing utility ratio has the 559, (1956) (herein Tex. 289 S.W.2d periods rates in of inflation or recession. case). First, after referred to as the Alvin regu there must be a determination guidelines Within latory authority utility’s of the reasonable Commission has the discretion to determine operating expenses. deciding After what applied to the rate rate of to be utility in property will be included provides base. of the PURA Section 39 base, step the next is the rate base calcula from that the overall revenues result major approaches currently tion. The two application of the rate of return to the “original are used rate base calculations adjusted sufficient value rate base must be value,” depreciated” cost and “fair operating for the recover its ex represents reproducing the utili pense plus cost return on its in a “reasonable ty’s is deter capital.” facilities. After the rate base vested In Bell Tel. mined, Comm’n, regulatory authority determines v. Public 571 S.W.2d return, percent (Tex.1978) capi the rate of or the we held that “invested origi base which will be recoverable in reve tal” in section 39 of the PURA meant rate depreciation. nal cost less utility. nues addition, PURA, 40(a) of return are In rate and rate Section setting interdependent, by manipulation prohibited of ei- the Commission is from ther, may correct rate would result in “more than a fair regulatory authority in- adjusted in- value of the inequitable an rate which results from rendering inflationary pe- In vested used and useful flation or recession. an Therefore, riod, section approach public.” use a service to the a fair value would rate of re- provides the in- the “floor” on the lower rate of return to counteract turn, revenues to depreci- requiring i. e. minimum An cost flated base. hand, operating expenses plus use a reasonable approach, equal on the other ated depreciation. less higher to insure a reasona- return on 40(a) “ceiling” in that these is the recovery utility. ble All of Section greater yield revenues consideration for rate of return cannot factors must be taken into value. The See, than a fair return be determined. a reasonable rate to may of return be set Commis- Butler, in Texas —The The Rate of Return tex, the ef- Commission also considered extremes. any level within those two sion at the return fect of that rate on pointed the “floor” should be out that equity.1 “ceiling” analogy appropriate an recession, inflationary period, but that in a considering the return importance of might “ceiling” be the and sec- section juris- in a fair value to book common 40(a) the “floor.” tion Debt easily can be demonstrated. diction affected preferred costs are not stock in set- may There other considerations obligation utility’s because the inflation ting rate of of short- return. times same. Even remains the to the investor age, may consider the need with increase in the provide exploration or an incentive for stock preferred holder of debt increased reserves. The reasonable greater return on will not realize a the consumer’s desire for low must balance the cost of this initial investment. Because improve against utility’s rates need to *4 fixed, additional type capital of remains expand. and utility return to the due to a determining Another reasona- factor go equity holder will value rate base utility’s ble rate of return is the financial An common stock investor. exorbitant or cap- financing Debt or borrowed structure. equity be return to the common stock could cheaper equity is than financ- generally ital by in determin- considered ing capital from the sale of or obtained return, however, ing a rate of reasonable stock, commonly and utilities use both of for a rate legal requirements the basic capital. of The cost of debt and sources be return must satisfied. equity, types and the the two of ratio of of a rate of legal requirements The basic financing yields capital. of This States by return were set out United capital cost of and the ratio of debt and Supreme Works & Court in Bluefield Water expert equity must be established testi- Improvement v. Public Serv. Comm’n Co. mony. 679, 43 675, 67 Virginia, West S.Ct. U.S. adopt- The Public Commissionhas (1923): L.Ed. 1176 weight type ed substantive rules which public utility A such rates as is entitled to utility’s capital a of debt based on actual permit will it to earn a return percentage structure. Each debt then employs of the which it multiplied times the debt cost in terms of equal to public for the convenience of percent required on the debt. Add- at the same generally being made yield together compos- ed these elements general part time and in the same multiplied ite rate of return which then country in other business on investments equal times the value rate base to undertakings are attended cor- example: For the amount of return. uncertainties; but responding risks and Weighted of Cost Percent profits such right no to has constitutional Total Rate Cost Capital Type Capital highly anticipated as are realized or X 6% 4% Debt 66% ven- profitable enterprises speculative or 34% X12% 4% Common stock equity reasonably tures. The return should be 8% Composite in the fi- sufficient to assure confidence utility, and Although adopt- nancial soundness of the the Commission has not efficient and rule, adequate, should be under substantive based on the ed similar management, maintain findings, ap- economical to preliminary their Commission’s it to raise support its credit and enable setting appears to proach proper dis- However, necessary for the considering money after same. A rate of charge public of its duties. composite requested En- rate of equity common It is a measure of the return to the common form 1. The return investment, analysis is often on their is one of the shareholders cost risk historical by regulatory evaluating proposed authorities. evaluated rates. methods of may time, be reasonable at major holding one of the Alvin case was and become high too Texas law too low mandated value rate rather changes than an cost rate base. affecting opportunities for in- The rate of return issue was vestment, also con- money market, and busi- sidered, and it held was ness generally. conditions return must be to avoid sufficient confisca- 692-93, Id. at at 679. S.Ct. “high tion and enough must be to attract Hope Co, FPC v. Natural Gas 320 U.S. ample capital go beyond not but need that. (1944), S.Ct. L.Ed. Indeed, .” Id. at 572. United Supreme States Court further elab- return issue was framed as “what is the orated requirements for a rate of re- composite lowest percentage rate of return By turn. Hope opinion time it which will induce investment of ade- was recognized utility companies quate capital?” at- Id. at 575. tract capital on a national market and Therefore, general Alvin would allow a
greater emphasis placed was on the utility’s consideration of return necessary earnings comparison to similarly situated equity, stock order to insure utility companies. The Hope court stated: that the utility’s rate return would be capital. sufficient to attract PURA important there be enough
[I]t
subsequent
enacted
the Alvin case.
revenue
only
operating
expenses
Still,
PURA,
under the
a consideration of
but
also for the
costs of the busi-
the return
to common stock
ness. These include service on the debt
*5
also
keeping
requirement
be in
with the
By
dividends on the stock.
...
section 39 that a reasonable return to in-
that
standard the return to the
capital
vested
be recovered.
owner should
commensurate
be
with re-
In
Bell
Southwestern
Tel. v. Public
turns on
in other
Utili-
enterprises
investments
Comm’n,
ty
(Tex.1978)
Using
pragmatic
this
should
prior
cases. It
41(a) was used in
Commission follows section
when the
involved
cases
none of these
base,
noted that
determining
statutory
such as Section
scheme
range prescribed
is within the
of return
consideration
required PURA which
40(a),
39 and
then
sections
capital.
to invested
sat
fair return
legal requirements have been
and basic
we must consider how
isfied. Next
v. Duke Power
Comm’n
In State Utilities
results in this case.
reached the
Examiner
(1974) the
377,
Co.,
violate the that the be based on the fair value of significant It is to note that the Ex utility property providing used in report adopted by aminer’s service. states that the rate of return must be based rate base rather than the *7 argues also that the district Entex However, return equity. to book common court holding was correct in its that a 4% noting requirement the of section 39 of the rate of return was unreasonable. Texas PURA, that there be a reasonable return to longer law provides no for a trial de novo capital, invested the Commission considered review of rate cases an “end-result” the equity return to book common that passage test as the Alvin case. After the requested would be realized the rate of Act, of the Texas Administrative Procedure 8%. It was noted that in a fair value (here art. 6252-13a Tex.Rev.Civ.Stat.Ann. jurisdiction multiplied by of the rate return APA), inafter referred as the the stan to higher the in a usually resulted judicial dard for review of the Commission’s equity than in return to the book common is rule. The orders the substantial evidence jurisdiction because of the an may court reverse or remand the Commis reproduction inclusion of the cost new fac reasonably sup sion’s decision if it is not tor. ported by agen substantial evidence on the record, page report, the At 14 of the cy apparent or if it is agency arbitrary action was or an abuse of concluded: testimony in the certainly no There certainly true that book common It high return to support to such record deceptive figures equity are somewhat prime is a equity. This common book be but the fact cannot and unreliable the re- where example of the situation to common denied that the return book must be con- capital turn on invested indicator equity performance as a used return to the check on the sidered as a ignored by the investor and cannot be of return The rate fair value rate base. the return to blindly applying a rate of certainly primary to base is noting value rate base without utility’s income to determine inquiry on rate of return consequences of such vein, fair- In the same requirements. structure. capital the elements of the return base or the ness of the rate a fair equity even in The return to book require- cash by the can be measured grossly be jurisdiction should not interdepen- utility. All are ments in an with such a return out of line need be reconciled. ultimately dent and to jurisdiction. original cost equity . return to book common added). (Emphasis as is true with proportion, which is out of expert witness for Entex testified it is here, ignored since Entex cannot be to (1) a 16% return that: needed capital, necessary to attract than more portion structure equity therefore, ratepayer. unfair on a to the market value based added). (Emphasis stock, rather than a consideration effect then studied the The Commission (2) compa- equity; to common book return to book of a rate of return 4% companies gas rable received distribution the return equity, and found that common equity; book common 16% return on nothing be 17.6%. There would (3) had considered section 39 or the he not report to indicate that 4% equity to book common effect on “backing type in” was the of a result conclusion; reaching (4) opinion in his his depre- original cost calculation based on an capital ex- company’s overall cost of com- book ciated rate base. This 12%; (5) Entex had asked ceeded range higher than the equity mon 12% in order 8% rate of return rather than City’s expert by the had been recommended past practice. to follow the Commission’s witness, Commis- but it was allowed City’s experts return to testified for various compensate sion in order book of 13.5% to 14.5% accounting factors. capital, ample would allow Entex to attract there appear it would On the record but recommended that a return 17.5% the set- justify was substantial evidence unreliability allowed because return, conversely ting rate of of a 4% City’s expert also figures. The testified evidence to not that there was substantial aver- previously earned an that Entex had requested by Entex. justify the equi- age on book common return of 21.31% 4% rate of re- appear also gas utilities in the ty compared to other an abuse of arbitrary turn was and not a return to period same which had earned discretion under the Commission’s only equity of 12.81%. book common Therefore, statutory re- PURA. since the requirements the effect of legal Commission considered quirements and basic *8 adjusted satisfied, value was and substan- 8% have been there $14,004,187. support the income When in the record to tial evidence $243,258 order, from the we hold that a 4% expense was deducted Commission’s income, base is operating adjusted value rate required on the amount unreasonable, $877,077 and we order to be $1,120,335, unjust not there remained court be district equity, judgment for a return applied to reversed, or- Commission’s page and the Railroad At equity. to book common of 48.17% der be reinstated. concluded: adopted report 15 of the POPE, J., dissenting in which GREEN- Current Cost $30,135,506 McGEE, J., HILL, J., Adjustment join. Age (3,267,309) C.
GARWOOD,J., sitting. not $26,868,197 Ratio Sec. 41 per X POPE, Justice, dissenting. The 40% Element 10,747,279 I dissent. majori and the Railroad Commission Progress Construction in 12,284 ty rule have reverted to the discredited Working + 91,366 Capital applies the rate of return to the 103,650 original depreciated. cost That rate base is IN IN- ADJUSTED VALUE contrary to the fair value method that was CAPITAL VESTED $14,004,182 approved in v. Railroad Commission Hous Corp., ton Natural 155 Tex. Gas adjusted capital, value of invested (1956), prior adoption to the S.W.2d $14,004,182, which in this case is is of con- Act, Regulatory the Public and it Utilities trolling statutory significance but the Com- statutory violates the scheme for a fair disregarded mission it. article Section 39, 40, spelled return that is out sections 1446c, states that “Utilities rates shall be This court has and 41 of article 1446c. upon adjusted based value of previously approved legislature and the has public utility used and useful to the required method which a return is providing applying service . . . .” In upon original both cost allowed a ratio of upon legislative a rate we cost which are included in the and current previously legisla- held that there is a Bell Tel. v. Public rate base. Southwestern legislative ceiling tive floor and a Commission, Utility (Tex. 571 S.W.2d rate base which must be honored. Section 1978); v. Houston Railroad Commission 1446c, permits 39 of article Corp., supra; Tex.Rev.Civ. Natural Gas operating expenses together to recover its 39, 40, (1979) art. 1446c Stat.Ann. §§ with return on its invested a reasonable [hereafter “PURA”]. capital, has now been settled and declared hearing examiner in this case made a explained As to be the minimum base. of the rate of return determination Telephone Company Southwestern Bell original depreciated which it considered cost Texas, supra, Public Commission of then to attract used sufficient minimum rate section 39 which sets the figure controlling consideration. as the base is determined a consideration per- return into a He then translated that original cost less reasonable return on the statutory adjusted centage figure depreciation. We ruled further South- exactly Bell, 40(a) so that the return would supra, value of article western 1446c, prescribes ceiling cost for the rate base equal the dollar Bell, upon. utility, supra of a at already that was settled ceiling permits 514. That a return that will depre- It is that return on the not be more than a fair return on only ba- ciated which was the basis—the adjusted point value. A that the Commis- ruling, as we sis—for Commission’s recognize does not is that section 41 sion shall see. requires adjusted a rate based on these determina- The Commission made under section which is a fair return but its ratio to arrive at applying tions in 60/40 40(a), more a fair return. The fair than base. value rate computed return under the statute must Ratio on 60/40 Rate Base value, original cost not the Original Cost 9,675,761 $ depreciated. Less Accumulated (4,420,339) Depreciation construction, As a matter of Original Net Cost 5,255,422 therefore, already this court has and as X 60% Ratio Sec. per ruled, utility must the dollar return to the Element 3,153,253 The 60% $ *9 value, and adjusted return on the be a fair adjusted $14,004,- no event it be less a fair return nation the value shall than was original depreciated nor statutory on the cost more quit quest 182. He then the for a adjusted a fair on the value. than return report that value. His states that on adjusted But it shall a fair the return on original his was step next to turn the 40(a). value. PURA § report cost depreciated. The examiner’s Bell, states, we at the rate supra specific “Before In Southwestern method, a dual rate may any that Texas had it is rejected idea be calculated original depreciated and helpful process capital that of cost in the to arrive at a case, we adjusted value. In that [Emphasis that of structure for Entex.” added.] on a of return of 8.37% the approved findings made the examiner show ap-We capital. adjusted value of invested this as idea of his the Entex struc- satisfying proved that rate of return after ture: was be- the dollar return Structure
ourselves that Entex Capital would be the minimum or floor that Depreciated) tween (100% Original Cost depreciated original on cost returned Required Return Cost a yet was fair return —and [sec. 39] adjusted more than a fair return —on (Notes Debt & Bonds) 6.84% . $243,258 $3,558,549 in South- 40(a)]. Our decision value [sec. (rounded) correctly western Bell decided Book Common be not more than of return should 17.6% 1,800,523 316,909 Equity (rounded) adjusted utility’s of a return on the value TOTAL CAPI- less a reasonable but not than $560,167 $5,359,072 TAL depreciated original on cost of once, item, At is apparent apply need that same property. We Capital,” figure “Total is the identical rule in this case. original depreciated previous cost The records before us that the show Com- table.1 It is that item which the applied wrong mission this case has fixed, in this case has been and not the 39, 40, rule and violated sections and 41 of $14,004,182. His statutory base which was adopted PURA. The Commission has next step was determine amount computations exact recommended figure, That equity. the book common examiner, hearing figures and those are above, appears accounting in the table grounded solely wrong rate base. figure reached subtraction They computed are as a of return on (notes, preferred debts bonds and Entex’s original depreciated cost rather than on stock) original depreciated. from the cost adjusted statutory rate base. The re- figures That what the show. examiner’s original turn on the cost He common arrived at value of book ceiling utility’s treated as re- for the equity by using turn, rather than the floor. Commis- depreciated. ignored sion value rate base The examiner’s report to the Commission grounded origi- until it made its decision stated that book percent nal cost. It then converted the $1,800,523and that percentage return on cost to the the interest on Entex’s (rounded) so debts rate of was 6.84% which called exactly required $243,258. report the two would be the same. return of We need trace the steps of the examin- showed that the examiner recommended arriving er in at his (rounded) $1,800,523 recommendation. The 17.6% examiner $316,909. made a correct produce determi- a return of Cost $5,255,422 1. Net Original Work Construction Plus: $12,284 Progress Capital 91,366 Working
103,650
TOTAL
$5,359,072
CAPITAL
*10
equi-
the
of
nation of the return to book common
required
The
return would be
total
rule,
$560,167.
ty.
not
impor-
or
The
If that be the
the statute does
figures
those two
reached,
figures
say
not
precise
equity
so. Book common
quoting
tance of
these
base;
Commission,
it
adoption
by determining
adjusted value
the
its
of the
the
determining
origi-
100% the
figures,
penny,
the
has
reached
of
examiner’s exact
to
depreciated.
nal
adopted
report
recom-
cost
the examiner’s
mendation,
non-statutory
including his
the
adopted
examiner’s
Commission
the original
method
looked alone at
concluded:
finding to the dollar and
rate
and at
of
depreciated
cost
base
to
amounting
3.
rate
A 4%
of
that base.
$560,167 on
fair value base of
the
adopted
the examiner’s
Commission
$14,004,182
a fair and reasonable
by ordering
exact
recommended return
Beau-
necessary
rate
for the Entex
of
Entex could recover a dollar
system
contrib-
mont distribution
$560,000.
It then obscured its method
of the finan-
ute to
maintenance
origi-
fixing
non-statutory
the return
Entex,
cial
of
Inc. and
integrity
Again, we
depreciated
nal cost
rate base.
capi-
new
allow for the attraction of
of the exam-
go
forthright
statement
tal.
original cost
iner
shows how the
equally wrong
have
if the
would
been
statutory
method
transmuted into
Commission had made a similar exclusive
language of
couching
facade
it in the
statutory
component
use
other
again
emphasis
upon
With
section 41.
with
the current cost
base —100% of
exclusively from the
figures
exact
deduced
adjustments
41(a)].
If
examiner
[sec.
method,
depreciated
the exam-
cost
only
component
had used
of
iner found:
formula,
equity
the common
(adjusted
base
A 4% return on the rate
above the book com-
greatly
been
enhanced
base)
required re-
produces a
value rate
$1,800,523.
figure
These are
equity
mon
of
$560,167
turn
and when
interest
of
adjust-
cost with
figures for the current
$243,258
there-
expense of
is deducted
ment.
from,
applied
left to be
the amount
Entex
Structure
Capital
(computed at 100%
book common
Adjusted)
(100% Current Cost
re-
depreciated) results in a
original cost
Bonds)
(Notes
$243,258
6.84
3,558,549
&
Debt
$
turn of 17.6%.
added.]
[Parenthesis
-
316,909
23,309,648
Common Equity
original cost
wrongful
This
use of the
$560,167
$26,868,197
TOTAL CAPITAL
is further evi-
compo-
had used both
re-
If the Commission
part
the examiner’s
denced
this
of
scheme,
nents under
port:
depreciation
less
and current
regarding rate
opinion
difference
used the
adjustment, and if
had
cost less
elemental and
represents
two, we would
statutory 60/40 ratio of the
parties
gap between
fundamental
equity:
value common
have had this fair
determining a
proceeding
this
—that
utility’s
Entex
Structure
Capital
re-
inquiry based on
beginning such an
Value)
Original
& Fair
(60/40
Cost
Ratio
equity.
[Emphasis
turn to book common
3,558,549
Debt
$
10,445,638
Fair
Common
Value
Equity
added.]
RATE
ADJUSTED
TOTAL CAPITAL
words,
position
took the
Entex,
in other
$14,004,187
BASE
Act
Regulatory
Public
shall
that the return
39-41 state
utility’s
Sections
called
a rate based
fair
upon the
be
more than a fair
position was sure-
base. That
The return should
equity.
value common
applicable
ly a
one since
reasonable
equi-
value common
computed
posi-
City took the
statute so states. The
infusion of 40%
ty which comes from
was a determi-
question
root
tion that
*11
true,
assuming, as is here
that
adjustments.
properties,
cost less
When
the current
proceed
and the
the
has been en-
properties
the examiner
Commission
the value of
Otherwise,
upon
hearings to fix rates
book
the ex-
by
in rate
inflation.
hanced
they render
and
equity,
common
sections 40
costly
laborious determina-
ceedingly
and
superfluous.
may
If the Commission
fix
value,”
distinguished from
of “fair
as
tion
equity
based
book common
a return
cost,
a
would be
original
depreciated,
disregards
rizes a
fixed cost of the debt
TOTAL
that need be
the maximum
value common
that
value rate base
without the enactment
method is the same as it would have been
original
clothe the order in
Rate
equity.
Rate Base
might
be a
schedule demonstrates:
$560,000,expressing
sion
amount
ed
3.03%.
17.6%
Recall that
centage
which
Once the
of Return
and if
REVENUE
the
the return on
decided
matter
is 100%of the
choose. For
legislative scheme
fair
cost
of
However, $316,909
adoption
to a
into
the lawful
determines,
return on fair value.
wrong
the
depreciated
done is to select the return on
that a fair
of
$
«14,000,000
any adjusted
percentage
($14,004,182)
560,000
equity
n
[4]
$316,909
statutory
simple
ceiling
of
a
rule
statutory language. All
example,
book
original
yield
the
that return
adjusted
*9,333,333
%
of
as it
($10,445,638)would
560,000
n
[6]
arithmetic,
rule
common
($243,258)
sections
used,
contemplated
on book common
return
on
return of
dollar
scheme.
did
value
if the Commis-
cost
then translate
return on fair
*7,000,000
$ 560,000
which
value would
it is
in this
8%
depreciat-
would be
return, it
equity
that one
adjusted
pay
easy
as this
plus
and
autho-
a
$ 560,000
*5,600,000
That
case,
only
per-
10%
to
a
41(a) and
give utility
cost
cost
termining
tion
recovered if the rate base were
recover more revenue than
then
ble
ing the
naught. The
course,
mony?
at
means
tion
Our
replacement
base?
1978), requires
The
a fair return
[Emphasis added.]
ing the
ated,
amount into a
meaningless
Commission,
the mandate
original
revenue.
legislature did not
41(a)
of
a
why determine an
of the section
something.
Why
reasoning
capital
Commission,
and
We could
base
number
save ourselves
rate base in
an
cost
cost,
not
base to include an
then
adjusted
the section
legislature
exercise.
or
established
of the statute
depreciated.
percentage
just multiply
regulator
of dollars which
for
of Duke is
simply
If a
simply forget section
571 S.W.2d
composite percentage
original
41(a)
Texas
this
arriving
value rate base.
require a determina
Bell Tel.
regulator need
adjusted value rate
meant, by
It is not
translating they
by expert
Court,
to use
of
floor
rate
utilities
trouble
Section
cost, depreci-
“fair value.”
valued 100%
the
at
would have
persuasive.
element of
determin-
revenues,
base for
permissi
would be
to
the sec
original
for the
requir
should
Public
of de
evade
testi
(Tex.
41(a)
only
Of
to attract am-
Again, a return sufficient
original
the fair value—not
cost.
return on
rule,
there is to
ple capital, if that is all
legislative
precise problem
adoption
This
always
percent of
may
be translated into a
a fair
value rate was discussed
State
ap-
adjusted
base.
an
Duke
value rate
Such
ex rel. Utilities Commission v.
Power
however,
269, 279
Co.,
377, 206
utility regulation,
does
(1974): proach
285 N.C.
S.E.2d
grant
utility “any return on
dif-
too,
Here,
this
the Commission and
adjusted
value
value between the
ference
provisions
bound
of G.S.
Court are
Bell,
cost.”
of invested
62-133(b).
concept therein con-
§
requiring regula-
at 514.
seems
on the fair
tained of a fair rate
value rate
adjusted
tor to determine an
rendering
properties
value of the
used
base,
utilities to
legislature
intended
contemplates the al-
clearly
the service
on this difference.
earn some return
greater
return than
lowance of a
dollar
is that
the return
rule
base were
correct
would be allowed if
value,
return on
cost,
same must be fair
depreciated,
fair
only
which is the
rate base under sections
I have recommended
ál,
Expert opinion about rate
value rate base for Entex
4% which
PURA.
39—
results
the book
of return should have been addressed
in a
origi-
This case is the
equity
rather than to the unlawful
common
17.6%.
departure
nal
or to
first
from an 8% return
time but it is
equity.
It is the
value rate
in some
my
is now
applies,
feeling
looking
at
“By
return to the
interested
that standard the
*12
when
excessive and the
equity
it is
owner should
commensurate with the
application
fair
of an 8% return
Entex’
enterprises
in
returns on investments
other
result
in a 48%
value rate base would
Pow-
having corresponding risks.” Federal
I would
equity
return to the book
Co.,
Hope
er
v.
Commission
Natural Gas
320
The 17.6% re-
consider to be excessive.
281,
591,
(1944).
U.S.
64 S.Ct.
Entex received this regulation new to State proceedings, it has As result of these presented jurisdiction, question but appears both a rate decrease juris- received appeal resolved other this has been report the letter of examiner’s prob- from the more experience. dictions with As stated by the examiner. transmittal the examiner’s lem not solved asking wrong question. examiner: Commission’s return will attract wrong want It is to ask what previously, I you As I stated original cost capital upon the rate of you make aware posed for legislature has depreciated. The but clear statu a different will
tory question: What value rate capital upon
attract cost;
base —not the book value common —not equity? ex rel. Utilities State Telephone v. General Co.
Commission
Southeast, 281 N.C. 189 S.E.2d
(1972); Ohio Edison Co. v. Utilities Public
Commission, 478, 184 N.E.2d Ohio St.
(1962). clearly
The Commission’s order was wrong upon the
grounded a return conclusively by its as was shown *13 disregard for
approval of the examiner’s fair value rate base. non- its own
The Commission substituted for the fair value standard any upon its
base. It denied Entex
fair value rate base. judgment dis-
I would affirm the
trict court. J., J.,
GREENHILL, McGEE, join C.
in this dissent.
GARWOOD, J., sitting. Dwayne parte
Ex Samuel COLEMAN.
No. 59888. Texas, Appeals
Court of Criminal 3.
Panel No.
Dec. 1978. April 1979.
Rehearing Denied Vance, Atty., Clyde F. Dist. S.
Carol O’Brien, DeWitt, Asst. Douglas III and M. Houston, Attys., State. Dist. DOUGLAS, TOM G. DAVIS Before VOLLERS, JJ.