State Ex Rel. Utilities Commission v. Carolina Power & Light Co.

109 S.E.2d 253 (1959) 250 N.C. 421

STATE of North Carolina ex rel. UTILITIES COMMISSION
v.
CAROLINA POWER AND LIGHT COMPANY.
STATE of North Carolina ex rel. UTILITIES COMMISSION
v.
CAROLINAS COMMITTEE FOR INDUSTRIAL POWER RATES AND AREA DEVELOPMENT, INC., et al.

No. 460.

Supreme Court of North Carolina.

June 12, 1959.

Malcolm B. Seawell, Atty. Gen., and F. Kent Burns, Asst. Atty. Gen., for the North Carolina Utilities Commission.

Broughton & Broughton and Fletcher & Lake, Raleigh, for complainants, appellants.

Joyner & Howison, W. H. Weatherspoon, Charles F. Rouse and Shearon Harris, Raleigh, for Carolina Power & Light Co., appellee.

MOORE, Justice.

In the exercise of the police powers of the State the General Assembly has conferred upon the Utilities Commission the duty and authority to fix rates for public-service companies that are reasonable and just. Corporation Commission v. Cannon Manufacturing Co., 185 N.C. 17, 23, 116 S.E. 178. The powers of the Commission are supervisory and regulatory, and it possesses quasi-judicial functions. The Commission has general supervision over rates charged and service rendered by electric light and power companies. G.S. § 62-30. And it is under duty to inquire into service rendered and rates charged by them and to fix and determine the reasonableness thereof. G.S. § 62-31. It must establish reasonable and just rates and charges of and for "persons, companies and corporations, other than municipal corporations, engaged in furnishing electricity, electric lights, current, (and) power * * *." G.S. § 62-122. (Parentheses ours.)

In fixing any maximum rate or charge, or tariff of rates or charges, the Commission shall take into consideration the value of the power company's property used in public service, the reasonable cost of construction thereof, the amount expended in permanent improvements thereon, and the present compared with the original cost. The Commission shall also consider the probable earning capacity of such property under the particular rates proposed and the sum required to meet the operating expenses of the power company, and all other facts that will enable it to determine what are reasonable and just rates and charges. G.S. § 62-124.

In State ex rel. Utilities Commission v. State and State ex rel. Utilities Commission v. Southern Bell Tel. & Tel. Co., 239 N.C. 333, 344, 80 S.E.2d 133, 140, Barnhill, J. (later C. J.), speaking for the Court explained the application of G.S. § 62-124 as follows:

"Necessarily, what is a ``just and reasonable' rate which will produce a fair return on the investment depends on (1) the value of the investment—usually referred to in rate-making cases as the Rate Base—which earns the return; (2) the gross income received by the applicant from its authorized operations; (3) the amount to be deducted for operating expenses, which must include the amount of capital investment currently consumed in rendering the service; and (4) what rate constitutes a just and reasonable rate of return on the predetermined Rate Base. When these essential ultimate facts are established by findings of the Commission, the amount of additional gross revenue required to produce the desired net return becomes a mere matter of calculation. Due to changing economic conditions and other factors, the rate of return so fixed is not exact. Necessarily it is nothing more than an estimate. In finding these essential, ultimate facts, the Commission must consider all the factors particularized in the statute and ``all other facts that will enable it to determine what are reasonable and just rates, charges and tariffs.' G.S. § 62-124. It must then arrive at its own independent conclusion, without reference to any specific formula, as to (1) what constitutes a fair value, for rate-making purposes, of applicant's investment used in rendering intrastate service— the Rate Base, and (2) what rate of return on the predetermined Rate Base will constitute a rate that is just and reasonable both to the applicant and to the public."

A power company is a monopoly and the State exercises its police powers through the Commission to protect the public in reasonable service at just and reasonable rates. At the same time it requires the Commission to fix rates that are just and reasonable to the power company and which will provide for it sufficient earnings to enable the power company to give reasonable service, to expand and improve its facilities to meet the needs of users in its territory, to meet its obligations, to pay its stockholders a reasonable return, and to compete in the market for capital funds.

In fixing the rate schedules and rate classifications, or in revising said rates and classifications, or a substantial part thereof, the procedure indicated by G.S. § 62-124 must be observed. Where the whole or a substantial portion of the rate structure of a public utility is being initially established or is under review, and where the required procedure under G.S. § 62-124 is being carried out, the hearing before the Commission to establish or revise the rates is referred to as a "general rate case." Obviously such hearing is expensive and time-consuming for all concerned. Besides, the final order of the Commission therein is not within the doctrine of stare decisis. 73 C.J.S. Public Utilities § 57c, p. 1134. Circumstances change and emergencies arise. Petitions for amendment, modification or revocation of rate orders may be filed at any time.

Where a public utility has many rate schedules applying to many different classes of service customers and only one rate or a few rates are involved in a petition for amendment, modification or rescission, ordinarily it is not required that the utility's property be valued and that the provisions of G.S. § 62-124 be observed in such case. "A valuation of the property of the utility is not necessary in every proceeding before the commission to fix rates or determine their reasonableness; so a specific rate may, in a proper case, be fixed without such valuation." 73 C.J.S. Public Utilities § 41 bb, p. 1094; Toledo Edison Co. v. Public Utilities Commission, 1954, 161 Ohio St. 221, 118 N.E.2d 531; Town of Granada v. City of Lamar, 5 PUR (N.S.) 519, 525 (1935).

G.S. § 62-72 provides as follows: "Whenever the Commission, after a hearing had after reasonable notice upon its own motion or upon complaint, finds that the existing rates in effect and collected by any public utility for any service, product, or commodity, are unjust, unreasonable, insufficient or discriminatory, or in anywise in violation of any provision of law, the Commission shall determine the just, reasonable and sufficient rates to be thereafter observed and in force, and shall fix the same by order as hereinafter provided." And it is further provided in G.S. § 62-26.5 that, "The Commission may at any time upon notice to the public utility affected, and after opportunity to be heard as provided in the case of complaints, rescind, alter or amend any order or decision made by it."

A hearing pursuant to the foregoing provisions of G.S. § 62-72 and G.S. § 62-26.5 which involves a single rate or a small part of the rate structure of a public utility is called a "complaint proceeding." It differs from a general rate case in that it deals with an emergency or change of circumstances which does not affect the entire rate structure of the utility and may be resolved without involving the procedure outlined in G.S. § 62-124, and does not justify the expense and loss of time involved in such procedure. In many instances the complainants are unable to bear such expense, in others the Utility might suffer irreparable loss by the delay involved.

The instant case is a complaint proceeding. It involves only "Coal Adjustment Rider No. 4," applies to one class of electric power users, and affects only a few of the Power Company's rate schedules. The Commission in its order says: "We have not considered this case as a general rate case. We do not attempt to determine the fair value of the Company's investment."

It is within the province of the Commission to determine whether a hearing is a general rate case or a complaint proceeding. Indeed it is necessary as a matter of procedure that such determination be made in every hearing involving the establishment, modification or revocation of rates. The findings of the Commission on this point will not be disturbed in any case in the absence of a clear showing that the rights of the parties have been prejudiced. In the case at bar we hold that the Commission was correct in declaring this a complaint proceeding.

The complainants alleged in express terms that the fuel clause was discriminatory, unjust and unreasonable. The burden was upon the complainants to establish the truth of these allegations. The prior establishment of the fuel clause as a part of the rate schedules applicable to complainants constituted prima facie evidence of its validity and that it was just and reasonable. State ex rel. North Carolina Utilities Commission v. Municipal Corporations of Scotland Neck, 243 N.C. 193, 208, 90 S.E.2d 519. The Commission found that complainants had not shown that the fuel clause and the rates resulting from the application thereof were discriminatory, unjust or unreasonable. This finding was supported by competent, material and substantial evidence. However, the Commission changed the base price of coal from $6 to $7, which had the effect of reducing the applicable rates. This modification was based on findings that will be discussed below.

The Power Company appealed from the order of the Commission changing the base price of coal and complainants appealed from the order on the ground that it did not rescind the fuel clause in its entirety. The Superior Court reversed the Commission and in effect adjudged that the fuel clause shall remain unchanged with the base price of coal at $6. The judgment of the Superior Court declared in effect that the finding by the Commission that the fuel clause was not discriminatory, unjust or unreasonable made any modification thereof erroneous as a matter of law, and "consideration by the Commission of the defendant's financial condition became unnecessary and any findings by the Commission with respect thereto were without legal consequence."

Complainants contend that a careful construction and analysis of the Commission's order shows that it intended to find only that the fuel clause was not discriminatory, and that there is no finding that it was not unjust or unreasonable. We concede that the order might have been more clearly drawn. It intermingles its findings with a history of the fuel clause, a review of the evidence and contentions of the parties, explanations, and conclusions of law, so that it presents some difficulties of interpretation. But taken as a whole, it is in substantial compliance with G.S. § 62-26.3. We conclude that it did find that the fuel clause was not discriminatory, unjust or unreasonable.

G.S. § 62-72 provides that where the Commission finds that a rate is "unjust, unreasonable, insufficient or discriminatory, or in anywise in violation of any provision of law, the Commission shall determine the just, reasonable and sufficient" rate (Emphasis ours.) It is our view that the decision in this case turns on the matter of the sufficiency of the rate or rates involved. It is true that under certain circumstances the words, unjust, unreasonable, insufficient, discriminatory and unlawful, may be overlapping and interdependent in their meaning. At times the existence of one may be implied from the applicability of another. But the General Assembly must have intended by the insertion of all of them that each had some distinct and proper meaning.

The adoption of the fuel clause in the orders of 8 April, 1948, and 28 February, 1950, was based on findings that (1) the Power Company needed an increase in revenue; and (2) that textile and large industrial users were getting current at noncompensatory rates. Certainly these findings dealt directly with the sufficiency or insufficiency of the pertinent rate schedules.

In the instant case the complainants alleged that the Power Company no longer needs the revenue derived from the fuel clause and would have a fair return should it be revoked. This clearly raises the question of the sufficiency of the pertinent rate schedules. Both the complainants and the Power Company offered evidence on the question thus raised. The Commission found as a fact:

"1. The operating experience and financial condition of the Company are now such as to justify a reduction in the cost of the fuel adjustment clause to the customers of the Company subject to this clause.

"2. The earnings of the Company are not sufficient to justify an elimination of the fuel clause but are sufficient to justify a change in the fuel clause by changing the base rate price of coal from $6 to $7."

These findings deal directly with the sufficiency of the applicable rates. They do not necessarily involve questions as to whether the fuel clause is discriminatory, unjust or unreasonable.

The Power Company appellee insists that a reduction of rate based on financial condition can only be made after the procedure outlined in G.S. § 62-124 has been followed, that is, in a general rate case. But the logic of such contention is not apparent. The orders of 1948 and 1950 which put the fuel clause into effect were made in complaint proceedings and not in general rate cases. If the Commission may increase certain rates without applying G.S. § 62-124, it may also reduce these same rates without reference thereto. Furthermore, if the Commission may consider the insufficiency of a rate, it must necessarily consider the sufficiency thereof. G.S. § 62-72 requires the Commission in a hearing under the provisions thereof to determine "just, reasonable and sufficient" rates.

At the hearing the Commission had before it the financial statements and balance sheets of the Power Company for the years 1948 to 1957, inclusive, the printed Annual Reports of said company for the years 1949 and 1952 to 1958, inclusive, operation analyses by a certified public accountant for the years 1948 to 1957, inclusive, a prospectus with reference to first mortgage bonds of the Power Company of 1 March, 1958, a statement to stockholders dated 1 May, 1958, the Commission's own examination of operations and rate of return for 1957, a financial study made for complainants by David A. Kosh in April, 1958, a financial study made for complainants by George E. Goldthwaite, and many other documents relating to the financial condition of the Power Company. There was ample evidence of financial condition upon which to base the findings as to the sufficiency of the particular rates.

The users of electric current generally, the Power Company or the Commission itself may institute a general rate case at any time. The case before us is not such. The Commission had before it ample evidence to support the adjustment in rate made by it.

We have already indicated that the findings of the Commission are supported by competent, material and substantial evidence. These findings dispose of complainants' assignments of error based on the proposition that the fuel clause should have been eliminated entirely. It is unnecessary to consider the assignments based on the admission of evidence, since the evidence complained of does not materially affect the findings of the Commission.

It is noted that many of the complainants in this case were protestants at the hearing in 1948 when the fuel clause was put in effect and that they did not appeal from that order.

As to the appeal of the Commission, the judgment of Judge Sharp is reversed. As to the appeal of complainants in so far as it seeks to have the cause remanded to the Commission for further findings and an order rescinding the fuel clause, the judgment below is affirmed. The Commission is directed to put into effect its order of 31 July, 1958. G.S. § 62-26.13.

On Commission's appeal—Reversed.

On Complainants' appeal—Affirmed.

DENNY, J., took no part in the consideration or decision of this case.