observing that case law on the overall rate of return applies to the rate of return on common equity and that rates must be “as low as may be reasonably consistent with” due process (cleaned up)
How later courts described this case
- observing that case law on the overall rate of return applies to the rate of return on common equity and that rates must be “as low as may be reasonably consistent with” due process (cleaned up)
- “Given th[e] subjectivity ordinarily inherent in the determination of a proper rate of return on common equity, there are inevitably pertinent factors which are properly taken into account but which cannot be quantified with the kind of specificity here demanded by [the appellant].”
- testimony of two witnesses, despite conflicting testimony of other witnesses, constitutes substantial evidence in support of the findings of fact
Written by the judges who cited it.
The opinion
Justice MARTIN
dissenting.
I respectfully dissent from the holding of the majority approving the 14.0 percent rate of return on common equity set by the Commission.
The majority seeks to dismiss the Commission’s reliance upon the factor “NCNG’s efficiency and good management.” This Court has no way of knowing the relative weight or consideration that the Commission gave to the various factors upon which it based its conclusion; it may very well have given most reliance to the efficiency factor. In other areas of the law where the fact finder relies upon an improper factor, a new hearing is ordered. Cf. State v. Zuniga, 320 N.C. 233 , 357 S.E. 2d 898 (1987); State v. Cameron, 314 N.C. 516 , 335 S.E. 2d 9 (1985); N.C.G.S. § 150B-51(b) (1987). Here the Court is applying the whole record test, not the any competent evidence test. N.C.G.S. § 62-94(b)(5) (1982). The question is whether the net effect of all the record evidence provides substantial support for the findings and decision.
That NCNG is “efficient and well-managed” is certainly commendable, and many other utilities could profit by its example; however, this fact should not be considered by the Commission in *507 determining a proper rate of return. NCNG has a statutory duty to operate in an efficient and well-managed manner. N.C.G.S. § 62-131(b) (1982). Inadequate service because of inefficient management is a proper consideration for a lower rate of return. Utilities Comm. v. Telephone Co., 285 N.C. 671 , 208 S.E. 2d 681 (1974). This is appropriate because the utility has failed to fulfill its statutory duty. Further, this finding is inconsistent with the duty of the Commission to set rates as low as constitutionally possible. Utilities Comm. v. Power Co., 285 N.C. 377 , 206 S.E. 2d 269 (1974). Any savings due to efficient management should be passed on to ratepayers, not shareholders. The rate of return is tied to the duty of the utility to operate in an efficient fashion. N.C.G.S. § 62-133(b)(4) (Cum. Supp. 1988).
Further, the majority contends that the Commission “gave little, if any, weight either to the fact that NCNG was small or that it was well managed and efficient.” As already stated, this Court has no way of knowing what weight the Commission gave to the various factors that it relied upon, except as set out by the Commission itself. Here the Commission wrote with respect to this factor: “The Commission recognizes that N.C.N.G. is a small but efficient and well-managed natural gas utility and, in recognition thereof, has authorized an appropriate rate of return in this proceeding which is consistent with such fact . . . .” (Emphasis added.) Thus it is clear from the Commission’s own words that it authorized the rate of return based upon the “small and efficient” factor.
The majority relies upon Utilities Comm. v. Telephone Co., 298 N.C. 162 , 257 S.E. 2d 623 , where this Court stated that a “small utility like Mebane” posed greater risks for the investor. Telephone Co. is not applicable where the utility is small but also well managed and efficient, because there is no increased risk to the shareholders.
Inexplicably, the majority then holds that the Commission only considered the efficiency factor for the purpose of supporting a lower rate, thereby destroying the credibility of its reliance upon Telephone Co.
Finally, the majority concedes that the setting of a common equity rate of return is “highly subjective and judgmental.” This is, indeed, the best argument to prohibit the Commission from *508 relying upon inappropriate factors in this process. Such prohibition will reduce the subjectivity of the Commission’s task.
I vote to remand this case to the Commission for a new determination of the equity rate of return without regard to the size of NCNG or the fact that it is efficient and well managed.
Justice Meyer joins in this dissenting opinion.