Southern Union Gas Co. v. Railroad Com'n of TexasSouthern Union Gas Co. v. Railroad Com'n of Texas
Lead Opinion
The Texas Railroad Commission ordered a reduction in the rate charged by appellant, Southern Union Gas Company, for natural gas service in the cities of El Paso and Clint. The effect of this final order of the Commission was to decrease Southern Union’s revenues by $456,351. The trial court affirmed the Commission’s order. We affirm the judgment of the trial court.
By five points of error, the gas company argues that the trial court erred in affirming the Commission’s order because; (1) the working capital allowance set by the Commission is not supported by any evidence or substantial evidence; (2) the Commission’s disallowance of expenses for rate purposes was an abuse of discretion; (3) the Commission’s treatment of investment tax credit viоlates the statutory provisions and intent of the tax credit and was an abuse of discretion; (4) the Commission’s allowance for “vacant jobs” violates the statute and is arbitrary, capricious and contrary to the substantial evidence; and (5) thе effect of the Commission’s action fails to permit recovery of the company’s expenses together with a reasonable return on invested capital.
In 1981, the gas company employed an expert to perform a lеad/lag study to determine the amount of working capital it needed. This study measured the time periods involved in the utility’s cash/expenditures and cash receipts. This study performed for Southern Union determined its working capital need to be $28,855.
In 1983, when the utility filеd a statement of intent with the Commission to increase its rates in the El Paso area, certain attached schedules were incorporated and made a part of its statement. This included the working capital need of $28,855 as described by the lead/lag study. Subsequently, the utility presented evidence at a consolidated hearing, abandoned its lead/lag study, and switched to a formula commonly referred to as the “45 day rule” or the “Vs rule.” By changing its formula, Southern Union increased its revenue deficiency and increased its claim for working capital to $1,248,347. This was over a 4000 percent increase in working capital.
The burden of proof is upon the utility to prove why its working capital needs had increased from $28,855 to $1,248,347. Tex. Rеv.Civ.Stat.Ann. art. 1446e § 5.04(b) (Supp.1985) (hereinafter, GURA); Suburban Utility Corporation v. Public Utility Commission,
Appellant relies on the three Lone Star cases written by this Court: Railroad Commission of Texas v. Lone Star Gas Co.,
Appellant’s argument stated another way is that the lead/lag study made by it for its rate increase application, filed before the local regulatory authority, was not introduced into evidence before the Commission. However, examination of the record indicates clearly that the study which appellant had presented to the City at the municipal rate proceeding in November 1983, which showed a working capital need of оnly $28,855, was offered by the City and admitted into evidence before the Commission as Exhibit No. 6. We overrule appellant’s first point of error.
Appellant’s second point complains that the Commission and the trial court erred when it recognized thаt certain expenses, although improper for ratemaking purposes, served as income tax deductions when it determined the amount needed for Southern Union’s income tax allowance. The utility concedes that the expеnses are improper for ratemaking purposes. The utility argues, however, that such should also be excluded for tax purposes, thus, increasing the utility’s “theoretical” tax liability. Appellant says this was “double dipping” in favor of the ratepayers at the expense of the shareholders of the company. The appellant, however, cites us no authority for its argument; we therefore reject it.
In Suburban Utility, supra, the Texas Supreme Court stated that expenses comprising a utility’s cost оf service “are limited to amounts actually realized or which can be anticipated with reasonable certainty.” (emphasis added). Id. at 362. The Court, which relied on Federal Power Commission v. United States Pipe Line Co.,
Utility rates should reflect actual, incurred costs and the manipulation of the income tax allowances should not be used as a method of artificially increasing the utility’s revenue requirement. Therefore, we hold that the trial court did not err in holding that the Commission did not abuse its discretion in disallowing “theoretical” income tax liability for ratemaking purposes.
Appellant’s third point argues that the Commission’s treatment of investment tax credits violates the statutory provisions and intent of the tax credit, was retroactive ratemaking, and an abuse of discretion. The Commission requested that the utility prepare and file an exhibit showing all its investment tax credits received by the company since 1971. By spreading the amount of credit over the life of the property, the Commission thus computed a ratable por
Southern Union calls this a “phantom” credit, and argues that it does not exist. Appellant’s theory is that since thе tax credit was received in 1971, that money saved was spent either in “dividends to shareholders, other investment, or other expenses ...” Further, the utility contends that it is “retroactive ratemaking in the purest sense.” We disagree.
Congress enacted the investment credit to apply against federal income tax with the intent that the utility’s customers share in the benefits of those credits. Both the Senate and House reports express the clear intent of Congress that these credits be shared between the ratepayers and the investors. The Texas Legislature recognized this sharing of benefits of the investment and other tax credits when it enacted PURA and later GURA. Section 4.01(e) of GURA provides:
In determining the allocation of tax savings derived from аpplication of methods such as liberalized depreciation and amortization and the investment tax credit, the regulatory authority shall equitably balance the interest of present and future customers and shall apportion the bеnefits between consumers and the gas utilities accordingly ... (emphasis added).
The Commission’s treatment of Southern Union’s investment tax credits correctly implements this legislative mandate. By spreading benefits of the 1971 investment tax credit over the useful life of the property producing the credit, the Commission allows both present and future customers to share benefits, and allows the utility to enjoy cost free capital attributable to the unamortized portion of the credits.
It is clear that the utility included all оf the property that produced the tax credits in prior years in its rate base, and sought a return on the total cost of that property including the portion attributable to the investment tax credits paid with funds remitted by the ratepayers. Thus, we agree that the Commission’s treatment does no more than to return a portion of the customer’s funds to them. Such does not constitute retroactive ratemaking.
Appellant’s fourth point of error urges that the Commission’s allowance for “vаcant jobs” violates the statute because it is arbitrary, capricious and contrary to substantial evidence, and that the trial court erred in affirming the Commission’s order. The record indicates, without doubt, that there is substantial evidence that thе Commission allowed Southern Union’s total test year salary expense. However, the utility complains that the Commission’s action in removing the unadjusted salary of positions vacant at the end of the test year prevents it from recovering costs of filing these vacant jobs in the future. However, the record clearly demonstrates that the Commission allowed Southern Union’s test year salary expense and granted the utility partial adjustments. Appellant sought in its adjustment an additional $339,582 to аccount for purported changes in salary expense between the end of the test year and December 31, 1983. The Commission accepted $189,820 of this amount, but found that the salary expense Southern Union sought for positions unfilled as of thе above date, was too speculative to be regarded as known and measurable. Appellant failed to prove in accordance with § 5.04(b) of GURA, that its proposed adjustment in its entirety was known and measurable. Substantial evidenсe supports this decision by the Commission because reasonable minds, when considering the evidence as a whole, could have reached the same result. Railroad Commission v. Continental Bus Systems,
Finally, appellant’s fifth point of error contends that the effect of the Commission’s action fails to permit recovery of the company’s expenses together with a reasonable return on invested capital is a cumulative point. No argument was made in appellant’s brief on this point. Appellant apparently is suggesting that if none of their four points discussed above is sufficient to reverse the judgment of the trial
After this appeal was perfected by the gas company, and prior to oral argument, the Commission moved to strike the agency record and dismiss the appeal or affirm because the record was not properly before this Court. Because of our holding in Purolator Armored v. Railroad Comm’n of Texas,
The judgment of the trial court is affirmed.
Concurrence Opinion
concurring.
The Commission filed a motion with this Court pointing out that the administrative record is not properly before the Court. The Commission claimed that the judgment should be affirmed for that reason.
Texas Rev.Civ.Stat.Ann. art. 6252-13a § 19(d)(3) (Supp.1985) provides that the party seeking review of an administrative order has the duty to offer and have admitted the agency record into evidence as an exhibit. See dissenting opinion in Purolator Armored v. Railroad Comm’n of Texas,
On January 17, 1985, the gas company filed with this Court the transcript of the proceedings in the district court, but did not file a statement of facts. On March 21, 1985, some two months after the judgment was signed, the gas company filed with this Court a supplemental transcriрt containing an order of the district court directing that the administrative record in question be delivered to the Court of Appeals in its original form pursuant to Tex.R.Civ.P. 379. The administrative record was filed with this Court on the same date.
It is plain that the agenсy record is not properly before this Court because there is nothing to show that the agency record was admitted into evidence by the district court. Tex.Rev.Civ.Stat.Ann. art. 6252-13a § 19(d)(3). Accordingly, this Court may not evaluate and determine the gas company’s contentions on appeal. Because the agency record is not properly here, it is the duty of this Court to affirm the judgment of the district court.