Citizens Action Coalition of Indiana, Inc. v. Northern Indiana Public Service Co.

485 N.E.2d 610, 1985 Ind. LEXIS 1037, 1985 WL 1083657

• Court: Indiana Supreme Court
• Decided: November 19, 1985
• Docket: 1185S470
• Status: Published

Opinions

DeBRULER, Justice.

This case comes to this Court on petition to transfer from the Second District of the Court of Appeals. Citizens Action Coalition of Indiana Inc., et al. v. Northern Indiana Public Service Company Inc., et al. (1984), Ind.App., 472 N.E.2d 938. The Court of Appeals considered the issue of whether or not the Public Service Commission of Indiana (PSCI) acted contrary to law in permitting the Northern Indiana Public Service Company (NIPSCO) to amortize the sunk costs of the cancelled Bailly N-1 project through retail rates. The Court of Appeals reversed the cause and ordered the PSCI to vacate any rate increase occasioned by Bailly N-1. We grant transfer in order to resolve the question presented and other issues raised.

These are the facts pertinent to the issue. In 1970, NIPSCO embarked upon a project to construct a nuclear generating plant designated as Bailly N-1. Because of delays due to litigation, to opposition to licensing provisions involving safety, and to escalating costs, NIPSCO cancelled the project on August 21, 1981, after expending $205, 724, 170. NIPSCO never completed the Bailly N-1 project, nor did NIP-SCO place it into service. The PSCI permitted NIPSCO to amortize $190, 746, 580.-00 through retail rates over a fifteen year period. The pertinent part of the PSCI's order is set forth here:

We resolve the issue as to whether amortization will be allowed affirmatively. Indiana utilities are under statutory mandate to serve; "every public utility is required to provide reasonable, adequate service and facilities" (ILC. 8-1-2-4 and 8-1-2-69). The record in this cause established that in order for a utility to meet its mandate to serve, it must begin construction of coal-fired generating facilities 8 to 10 years in advance of the need therefor with longer periods for nuclear powered facilities. If, in order to comply with the law, a utility must begin construction of generating projects many years in advance of the need for the power, it is the Commission's responsibility to assure that the risk in doing so is not so great as to discourage the endeavor. In 1971 when Petitioner began its effort to construct Bailly, N-1, nuclear power held great promise for efficient and economic power supply. Over the course of the years, the economic advantages of nuclear generation over other forms of generation began to deteriorate and ultimately the delays resulting from regulatory indecision on the federal level and the changing economics forced the cancellation of Bailly, N-1 in August of 1981. This Commission - has previously - allowed amortization of costs incurred in abandoned and cancelled projects (Cause No. 32079 Dec. 12, 1979) Cause No. 86818 June 10, 1981). The amount of the amortization in prior proceedings was not as great as here, but the principle is the same. We find that the Petitioner prudently began construction of Bailly, N-1 and that upon its cancellation, it became an extraordinary cost of service loss incurred in an effort to provide energy for the consumers of Petitioner's system. The loss occurred with the cancellation. The Bailly, N-1 project was a reasonable undertaking by Petitioner to meet its duty to serve. The fact that the project was opposed by some for safety and environmental reasons cannot be given weight in this decision. The site locations, safety, environmental and many other issues were litigated in the Construction Permit proceedings, decided in Petitioner's favor by the agency with the jurisdiction to do so, the Nuclear Regulatory Commission (NRC), and reviewed and ultimately approved by the United States Court of Appeals for the Seventh Circuit and the United States Supreme Court. The allowance of amortization of the Bailly, N-1 costs should not be confused with an allowance of a return on the value of a utility plant which is not used and useful in the utility's service. The Petitioner did not seek to earn a return on its investment in Bailly, N-1 during the period of amortization and no return on the investment will be provided in this order. The authorized amortization is to permit the Petitioner to recover the sunk costs put forth in a reasonable effort to meet the mandate to serve, which unfortunately failed.

STANDARD OF REVIEW

The resolution of the issues in this case depends upon the definition of service in I.C. § 8-1-2-1 and the construction of the other statutes in Title 8 which confer upon the PSCI its rate making authority and power. The construction of Indiana law is particularly the province of this Court.

The Public Service commission derives its power and authority solely from the statute, and unless a grant of power and authority can be found in the. statute it must be concluded that there is none. Chicago & E.I.R. Co. v. Public Service Commission et al. (1943), 221 Ind. 592, 49 N.E.2d. 341. An order is presumed valid unless the contrary is clearly apparent. Such presumption vanishes if the Commission fails to conform "to all relevant statutes, standards, and legal principles." Illinois-Indiana Cable T.V. Inc. v. Public Service Commission (1981), Ind.App., 427 N.E.2d 1100, 1105. The standard of review is governed by statute. IC. § 8-1-3-1 states in pertinent portion.

"An assignment of errors that the decision, ruling or order of the commission is contrary to law shall be sufficient to present both the sufficiency of the facts found to sustain the decision, ruling or order, and the sufficiency of the evidence to sustain the finding of facts upon which it was rendered."

This statute provides a multiple-tier standard of review. At the first level, the statutory standard requires that the Commission's decision contain specific findings on all the factual determinations material to its ultimate conclusions. L.S. Ayres & Co. v. Indianapolis Power & Light Co. (1976), 169 Ind.App. 652, 351 N.E.2d 814, 822. At the second level, the statutory standard requires a reviewing court to inquire whether there is substantial evidence in light of the whole record to support the Commission's findings of basic fact. L.S. Ayres & Co. supra, 351 N.E.2d at 822. In addition to determining whether or not the decision, ruling or order of the Commission is supported by specific findings of fact and by sufficient evidence, there is another matter in which this Court may always properly inquire, and that is the question of whether or not the decision, ruling or order is contrary to law. See Public Service Commission v. City of Indianapolis (1956), 235 Ind. 70, 131 N.E.2d 308, 312. In other words, did the Commission stay within its jurisdiction and conform to the statutory standards and legal principles involved in producing its decision, ruling or order. See Public Service Commission v. City of Indianapolis, supra, 131 N.E.2d at 313.

I

NIPSCO contends that the amortization of sunk costs of the cancelled Bailly N-1 project is an allowable operating expense. NIPSCO relies on City of Evansville v. Southern Indiana Gas and Electric Company (1975), 167 Ind.App. 472, 339 N.E.2d 562 to support this proposition.

The Commission's primary objective in every rate proceedings is to establish a level of rates and charges sufficient to permit the utility to meet its operating expenses plus a return on investment which will compensate its investors.... IC. 1971, 8-1-2-4 (Burns Code Ed.): Federal Power Comm'n v. Hope Natural Gas Co. (1944), 320 U.S. 591, 605, 64 S.Ct. 281 [289], 88 L.Ed. 333. The utility's revenues minus its expenses, exclusive of interest, constitute the earnings or the "return'" that is available to be distributed to the utility's investors. Al lowable operating costs include all types of operating expenses (e.g. wages, salaries, fuel, maintenance) plus annual charges for depreciation and operating taxes. While the utility may incur any amount of operating expenses it chooses, the Commission is invested with broad discretion to disallow for rate making purposes any excessive or imprudent expenditures. I.C. 1971, 8-1-2-48 (Burns Code Ed.)

City of Evansville supra, 339 N.E.2d at 568, 569. Consequently, NIPSCO argues that there is not any type or category that is disallowable per se, unless prohibited by 1.0. § 8-1-2-6(c) which states:

In determining the amount of allowable operating expenses of a utility, the commission may not take into consideration or approve any expense for institutional or image building advertising, charitable contributions, or political contributions. [Acts 1918, ch. 76, § 9, p. 167; 1988, ch. 190, § 4, p. 928; 1947, ch. 807, § 1; 1979, P.L. 85, § 1.]

NIPSCO asserts that the determination of whether operating expenses are allowable or not is within the sound discretion of the PSCI and that the PSCI's determination cannot be overturned on appeal unless there is an abuse of that discretion. NIP-SCO concludes that, since the PSCI's determination was supported by substantial evidence, the PSCI did not abuse its discretion, and thus, the PSCI must be affirmed on appeal.

This argument contains a fundamental flaw. To begin with, utility charges are based upon service. I.C. § 8-1-2-4 states that "The charge made by any public utility for any service rendered or to be rendered either directly or in connection therewith shall be reasonable and just." Service is defined in 1.0. § 8-1-2-1:

8-1-2-1[54-105]. - Definition-Short Title.

The term "service" is used in this act in its broadest and most inclusive sense and includes not only the use or accommodation afforded consumers or patrons but also any product or commodity furnished by any public or other utility and the plant, equipment, apparatus, appliances, property and facility employed by any public or other utility in performing any service or in furnishing any product or commodity and devoted to the purposes in which such public or other utility is engaged and to the use and accommodation of the public.

Since this definition is no model of statutory draftsmanship, we find it helpful in our analysis to dissect the definition. Upon so doing, we discover three categories of "service" included therein:

(1) The use or accommodation afforded consumers or patrons;

(2) Any product or commodity furnished by the utility; or

(3) The plant, equipment, apparatus, appliances, property, and facility employed by the'utility

(a) in performing any service, or

(b) in furnishing any product or commodity and devoted

(a) to the purposes in which such utility is engaged and

(b) to the use and accommodation of the public.

Illinois-Indiana Cable T.V. v. Public Service Commission (1981), Ind.App., 427 N.E.2d 1100, 1108-1109.

The ratemaking process has by statute and long-standing practice included the valuation of that property described in category (8) above which is "used and useful" in order to establish a rate base. The rate base consists of that utility property employed in providing the public with the service for which rates are charged and constitutes the investment upon which the return is to be earned. City of Evansville supra, 339 N.E.2d at 569. Any allowable operating expense must have a connection to the service rendered before it can be recovered through retail rates. See I.C. § 8-1-2-4. This connection is established when the operating expense is incurred as a result of the process whereby existing "used and useful" property, category (8) above, is employed to produce the product or commodity, category (2) above, or accommodation, category (1) above, rate payers receive. For example, wages, salaries, fuel, maintenance plus annual charges for depreciation and operating taxes. L.S. Ayres & Co. v. Indianapolis Power & Light (1976), 169 Ind.App. 652, 351 N.E.2d 814, 819. Here the cancelled Bailly N-1 project is not an operating expense because it was not a result of this process which establishes the requisite connection to service rendered. In fact, the Bailly N-1 project could never be an operating expense. At best, it could have become "used and useful" property which then could have incurred allowable operating expenses. However, such was not the case, as the PSCI specifically found that the Bailly N-1 project was never "used and useful" property. It also must be recognized that the PSCI order did not characterize the cancelled Bailly N-1 project as an operating expense.

TI

NIPSCO argues that the PSCI's characterization of the Bailly N-1 project as an extraordinary cost of service logs is correct. The PSCI found that NIPSCO prudently began construction of Bailly, N-1 and that upon its cancellation, it became an extraordinary cost of service loss incurred in an effort to provide energy for its system. The PSCI characterized the Bailly N-1 project as a reasonable undertaking by NIPSCO to meet its duty to serve.

In essence, the PSCI order has unlawfully expanded the definition of service found in 1.0. § 8-1-2-1 as construed by Illinois-Indiana Cable T.V. v. P.S.C., supra. The PSCI order places an additional charge on consumers other than that allowed in I.C. § 8-1-2-4. The additional charge is for reasonable and prudent attempts at service that fail and that provide no benefit to ratepayers.

Service commences with and includes "used and useful" property. - Without "used and useful" property there cannot be any service. I.C. § 8-1-2-1, by defining service in such a manner as to render it dependent on "used and useful" property, is promoting a clear delineation and balance of investor and consumer responsibilities. In the competitive market, investors contribute capital which is employed to produce a product. Consumers purchase the product, and the purchase price includes a reimbursement for the capital contribution of the investors plus a profit to compensate the investors for the risk they assumed. In the market under consideration here, the utility is granted a monopoly. Utilities are regulated in order to protect the consumers from the abuses of monopoly i.e. artificially high prices. The statutes which govern the regulation of utilities and which grant the PSCI its authority and power provide a surrogate for competition. See Public Service Commission v. Indiana Bell Telephone Company (1955), 235 Ind. 1, 130 N.E.2d 467. I.C. § 8-1-2-1 and I.C. § 8-1-2-4 insure that the responsibilities of utility investors and consumers are commensurate with the responsibilities of investors and consumers in a competitive market.

For example, if an automobile company embarked on a new capital project to build a factory that would produce a new sports car and then, before it ever produced a sportscar, cancelled it, the automobile company would ordinarily be unable to recover the cost from its consumers in a competitive market. This is the case we have here. NIPSCO embarked on a capital project to build a nuclear generating plant and, before it ever produced electricity, NIPSCO cancelled it. The definition of service in 1.C. § 8-1-2-1 restricts the scope of includable property to that property which performs and furnishes, ie. producing property or "used and useful" property. See also Illinois-Indiana Cable T.V., supra at 1108-1109. Consequently, 1.C. § 8-1-2-1, in conjunction with 1.0. § 8-1-2-4, protects consumers from having to pay for service not received, something which they would not be subjected to in a competitive industry. Since Bailly N-1 never became "used and useful" property as 1.0. § 8-1-2-1 contemplates, the PSCI's characterization of the cancelled Bailly N-1 project as an extraordinary cost of service loss was incorrect and the order allowing amortization was contrary to law. In dealing with and resolving this claim, we have been unable to conceive of a situation of our own in which the consumers could be required to replenish lost capital which had never become "used and useful" property or, in other words, be required to act in aid and support of the utility as an insurer of the investor's risk, unless consumers received an interest in return which provided an opportunity to earn a return on the capital supplied.

TII

NIPSCO and amici curiae, the banks,¹ argue that the PSCI has allowed amortization of cancelled and abandoned plants numerous times over the past seventy-years and that the legislature has made no subsequent change in the utility statute in response. Consequently, they claim that this raises a strong presumption of legislative acquiescence and that this Court should defer to the administrative judgment of the PSCI, They further argue that it would be unfair if this Court were to disallow amortization when lenders were entitled to rely on this long standing practice of the PSCI

We have consistently recognized that a long adhered to administrative interpretation dating from the legislative enactment, with no subsequent change having been made in the statute involved, raises a presumption of legislative acquiescence which is strongly persuasive upon the courts. State Board of Tax Commissioners of S. of Ind. v. Carrier Corp., (1977), 266 Ind. 615, 365 N.E.2d 1385; Baker v. Compton (1965), 247 Ind. 39, 211 N.E.2d 162; Whirlpool Corp. v. State Board of Tax Commissioners (1975), 167 Ind.App. 216, 338 N.E.2d 501.

Indiana Department of Revenue, Indiana Gross Income Tax Division v. Glendale-Glenbrook Associates (1981), Ind., 429 N.E.2d. 217, see also Constanzo v. Tillinghast (1932), 287 U.S. 341, 345, 53 S.Ct. 152, 154, 77 L.Ed. 350, 353.

Although the interpretation placed upon the statute by an administrative agency of the State may not be binding upon this Court if the interpretation is incorrect, such interpretation as has been made and applied in a number of previous adoptions, is entitled to considerable weight, not only to insure the stability of adoption proceedings brought pursuant thereto for a number of years, but as evidence of the meaning of the statute to those charged by law and most concerned with its administration. See State v. Griffin (1948), 226 Ind. 279, 284, 79 N.E.2d. 537, 540.

Baker v. Compton (1965), 247 Ind. 39, 211 N.E.2d 162, 164.

NIPSCO and Amici cite these cases to establish that the PSCI has adhered to its interpretation of allowing amortization of cancelled and abandoned plants since the enactment of the Spencer-Shively Act in 1918. Commercial Club v. Terre Haute, I & E Traction Co., (Ind.Pub.Serv.Comm'n April 27, 1917), Cause No. 817, P.U.R. 1917 D., 748, 747-748; Owensville Light Co., {Ind.Pub.Serv.Commin, Sept. 29, 1920), Cause No. 5556; Toner v. Martinsville Gas & Elec. Co., (Ind.Pub.Serv.Comm'n, April 27, 1923), Cause No. 6959, P.U.R. 1923 E., 69, 71-78; Indianapolis Railways, Inc., Pub.Serv.Comm'n, May 7, 1958), Cause No. 23408, 882-A, 100 P.U.R. (N.S.) 207, 217; (Indiana & Michigan Elec. Co., (Ind.Pub.Serv.Comm'n _ September _ 21, 1978), Cause No. 85251.) With the exception of the last case, these cases establish a long-adhered to administrative interpretation of allowing amortization of abandoned plants. i.e. plants that were "used and useful" property and then retired from service.² This is clearly distinguishable from allowing amortization of cancelled plants that never became "used and useful". Al-lowanee of amortization of cancelled plants would encourage uneconomical or unproductive ventures; whereas, allowance for amortization of abandoned or retired plants encourages utilities to remove obsolete plants and property from the ratebase. This treatment also benefits consumers because obsolete and inefficient property is removed from the ratebase.

Nevertheless, the doctrine of legislative acquiescence is an estoppel doctrine designed to protect those who rely on a long standing - administrative - interpretation. Here, the cases appellant and amici cite do not support a principled basis for reliance in light of the unique cireumstances that the Bailly N-1 cancellation presents.

IV

We also address the issue that forms the basis of the dissent in the opinion of the Court of Appeals. Whether or not the Bailly N-1 project qualifies as an accommodation aspect of service as contemplated by 1.C. § 8-1-2-1.

The dissent claims that "accommodation" in 1.0. § 8-1-2-1 should be defined as it is in Webster's Third New International Dictionary 12 (1976) because the specialized legal meaning derived from commercial paper practices is inapposite to construction of the statute. The dissent asserts that the applicable definition is "something that is supplied for convenience or to satisfy a need." As a result, the dissent found that if this definition of accommodation is construed in its "broadest and most inclusive sense" (language taken from 1.0. § 8-1-2-1) most of the Bailly N-1 costs are recoverable through amortization from the consumers.

This analysis is flawed in several respects. First, it is the term "service", not the term "accommodation" which is to be interpreted in its "broadest and most inclusive sense" in LC. § 8-1-2-1. Second, the term accommodation has a specific legal meaning in the context of public utility regulation.

The Railroad Commission law, Ind. Acts 1905, Chapter 58 and Ind.Acts 1907, use the term accommodation in the following manner.

The power and authority is hereby vested in the railroad commission [public service commission] of Indiana, and, and it is hereby made its duty, as hereinafter provided, to supervise all railroad freight and passenger tariffs, and to adopt all necessary rules and regulations to govern car distribution and delivery, train service and accommodations ... [etc.]

IND.STATS.ANNO. 55-101 (Burns Ed. 1949, pages 801, 8110); Acts 1905, Chapter 58, § 3, as amended by Acts 1907, Chapter 241, § 21. Emphasis added.

55-904. Passenger violation rules. -In case any passenger on any railroad shall be injured on the platform of a car, ... in violation of the printed regulations of the company, posted up at the time ... such company shall not be liable for the injury: Provided, Said company, at the time, furnished room inside its passenger cars sufficient for the proper accommodation of its passengers.

IND.STATS.ANNO. 55-904; 1 RS. 1852, Chapter 83, § 82; emphasis added.

55-701. Duty as to running trains.-Every such corporation shall start and run its cars for the transportation of persons and property at regular times, to be fixed by public notice, and shall furnish sufficient accommodation for the transportation of all such passengers and property as shall, ..., offer or be offered for transportation at the place of starting,

IND.STATS.ANNO. 55-701 (Burns Ed. 1949, p. 919); 1 R.S. 1852, Chapter 83, § 29; emphasis added.

Statutes which relate to the same thing or general subject matter are in pori materia and should be construed together. 26 LLE. Statutes § 180; State v. Gerhardt (1896), 145 Ind. 439, 44 N.E. 469; Starr v. City of Gary (1934), 206 Ind. 196, 188 N.E. 775. The term "accommodation" in the definitional section of the Public Service Commission Act must be read in pari materia with the same term in the Railroad Commission law.

A word or phrase which appears in different parts of the statute will be given the same meaning, unless an intention to the contrary clearly appears. 26 LLE. Stat utes § 117; City of Hast Chicago v. State ex. rel. Pitzer (1949), 227 Ind. 241, 84 N.E.2d 588.

Contemporary case-law also uses the term "accommodation" in this precise sense. C.F., American Express Company v. Southern Indiana Express Co. (1906), 167 Ind. 292, 78 N.E. 1021, 1026; State v. Pittsburg, C.C. & St. L. Railway Company (1893), 135 Ind. 578, 35 N.E. 700, TOL.

This legislative history negatives the artificial construct that attempts to equate statutory "service" provided in the course of normal operations with unsuccessful efforts to provide service in the distant future.³

Accommodation, in the sense used in 1.0. § 8-1-2-1, is a benefit the consumer receives that is closely related to the product or commodity the consumer purchases. The Bailly N-1 project could not be an accommodation because it did not confer any benefit on the consumer.

It is clearly apparent upon examination of the governing statutory provisions, their purposes, and the standards and legal principles which must guide their application, that the subject order of the PSCI authorizing amortization of the sunk costs of the Bailly N-1 project has been made without statutory authorization. The Public Service Commission of Indiana is therefore ordered to vacate such order.

PIV J., concurs. SHEPARD, J., concurs in majority opinion and also files concurring opinion. GIVAN, C.J., dissents with opinion in which PRENTICE, J., concurs. PRENTICE, J., dissents, with opinion in which GIVAN, C.J., concurs.

1 . Merchants National Bank, American Fletcher National Bank, Fort Wayne National Bank, Indiana National Bank.

2 . We do not believe that the I & M case is sufficient by itself to establish a long-adhered to administrative interpretation. Also, the magnitude of the amortization in the I & M case is not comparable with the Bailly N-1.

3 . The dissent's analogy to research and development expenditures as an example of expenditures "not actively utilized in operations" is inapt. The cases he relies on involving South California Edison are based on a specific legislative authorization. - Cal.Public Utilities Code § 740.