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

> Indiana Supreme Court · November 19, 1985 · 485 N.E.2d 610

URL: https://www.frixlaw.com/law-library/cases/9859957

## Case

- **Full name:** CITIZENS ACTION COALITION OF INDIANA, INC.; City of Gary, Indiana; Bailly Alliance, Appellants, v. NORTHERN INDIANA PUBLIC SERVICE COMPANY; United States Steel Corporation; Bethlehem Steel Corporation; Inland Steel Company; National Steel Corporation, Midwest Steel Division; Union Carbide Incorporated, Jones & Laughlin Steel Incorporated, Jones & Laughlin Steel Corporation Division, Office of Utility Consumer Counsel, Appellees
- **Court:** Indiana Supreme Court
- **Decided:** November 19, 1985
- **Citations:** 485 N.E.2d 610; 1985 Ind. LEXIS 1037; 1985 WL 1083657
- **Precedential status:** Published
- **Opinion:** Dissent by Prentice
- **Judges:** DeBRULER, Givan, Piv, Prentice, Shepard
- **Cited by:** 69 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9859957

## How later opinions describe it (automated extraction)

- holding that costs incurred in connection with a cancelled nuclear power plant could not be recovered because the facility was never “used and useful”

## Opinion text

PRENTICE, Justice,
dissenting.
I dissent. That hard cases make for bad law has, to me, never been better demonstrated than by the majority decision.
I am unable to distinguish this case from others where utility companies have been permitted to recover their cost of fulfilling their statutory obligations, except upon the basis of the magnitude of the cost in this particular case and the resultant outery of an uninformed and misinformed, but unfortunately large and vociferous, segment of consumers.
The issue is one of first instance in this State, ie., who shall bear the cost of a gargantuan misadventure of a utility company occasioned by a good faith and prudent but, nevertheless aborted, endeavor to comply with its statutory mandate to provide "reasonably adequate service and facilities." The majority has chosen to rationalize that, as a matter of law, inasmuch as the expenditures of the company did not produce a physical facility that was productive of electricity (used and useful), they may not be recovered from the rate payers. I see no such constriction in the law.
I do agree with the majority that the Public Service Commission derives its power and authority solely from the statute; but I do not agree, as its opinion seems to imply, that such grant need be so detailed as to leave nothing to the judgment and discretion of the commission. In fact, the generality of the grant of rate making authority is, in and of itself, a grant of broad discretion, without which the commission could not carry out its mission. It is not a mere ministerial or fact finding body.
I see five sections of the statute bearing upon the authority of the commission in fixing electric rates. Ind.Code 8-1-2-4 is the broad general mandate that the rates be "reasonable and just." Ind.Code 8-1-2-6, Ind.Code 8-1-2-19, Ind.Code 8-1-2-28 and Ind.Code 8-1-2-24 are very specific with regard to certain considerations that are either required or precluded from inclusion in rate determinations, without regard to the reasonableness or equity of the matter.
Although administrative boards do not have inherent powers in the sense that courts do, it is implied in all statutes that that which is incidentally necessary to a full exposition of the legislative intent should be upheld as being germane to the law. Coplay Cement Mfg. Co. v. Public Service Commission (1921), 271 Pa. 58 , 114 A. 649 , 16 A.L.R. 1214 . In the construction of a grant of powers, it is a general principle of law that where the end is required, the appropriate means are given, and that every grant of power carries with it the use of necessary and lawful means for its effective execution. The broad general grant is that the Public Service Commission shall have the power to fix electric rates that are "reasonable and just," and the necessary and inescapable conclusion is that, except as otherwise expressly provided, the commission is vested with the discretion to determine the reasonableness of such rates. True, there is no express grant of authority to permit an electric company to recover the cost of the misadventure, but neither is there an explicit grant of authority to allow such companies to recover their eosts of operation such as labor costs, fuel costs, taxes, losses on uncollectable accounts, management salaries and professional fees. Yet we know that such costs are allowed, because to allow them is reasonable and just, and to disallow them *622 would be confiscatory and not in furtherance of the public policy authorizing regulated monopolistic public utilities.
Administrative agencies have and should ' be accorded every power which is indispensable to the powers expressly granted, that is those powers which are necessarily or fairly and reasonably implied as an incident to the powers expressly granted. 1 Am.Jur.2d Administrative Low, § 44. Typical is the holding in Pan American World Airways, Inc. v. United States (1963), 371 U.S. 296 , 83 S.Ct. 476 , 9 L.Ed.2d 325 , to the effect that the absence of an explicitly included grant in the statutorily authorized power of the administrative agency was no bar to its order of divestiture.
I am also of the opinion that the doctrine of legislative acquiescence is clearly applicable from the allowance by the commission for a period of seventy (7O) years, without generating legislative change, of the recovery of costs of the nature allowed in this case.
The majority opinion summarily dismisses the contention that amortization of the loss is allowable under that doctrine by responding that the circumstances presented by the Bailly N-1 cancellation are "unique." - There is nothing whatever unique about the Bailly N-1 cireumstances that bears upon the issue. Of course the details vary, but the substance is the same. Except in a consideration of what is includable in the rate base, no distinction can be made between costs occasioned by the abandonment of completed facilities that have become valueless because of changed circumstances and the abandonment of partially completed or merely planned facilities that have become valueless because of changed cireumstances. In either event, a loss is sustained as a result of a prudent attempt to serve the best interests of the rate payer.
Under the viewpoint of the majority, a utility that had prudently spent ten-x dollars towards bringing a new facility onto line could complete it and put it into service for one day, notwithstanding that changed cireumstances rendered doing so a useless and wasteful act; and, although it could not recover its costs expended subsequent to the time completion became imprudent, it could recover its cost expended to that point. Thus, if the halfway point has been passed, a facility should be completed, regardless of its folly.
The majority has written "Allowance 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." The logic of this analysis escapes me. Regardless of when a project is written off as unproductive, the best the company can hope for is to recover the unamortized cost; and this, in many respects, hinges upon the judgment of the commission. It can never make a profit from abandonment; and if the abandonment occurs prior to the time the project costs are placed in the ratebase, as representative of used and useful assets, the extent of the recovery of the loss depends upon the discretion of the commission in determining whether or not the venture was prudently entered upon, prudently continued to the point of cancellation and prudently cancelled.
To allow expenses and extraordinary losses of the nature of those under consideration to be placed in the ratebase would place a premium upon waste and imprudence, because a profit would be thereby realized upon the funds wasted or lost in the mismanagement. There can be no such inducement, however, in permitting a utility to pass along the base costs incurred in a prudent attempt to improve or preserve the service that the law requires it to render.
The majority holds that operating expenses, to be recoverable through retail rates, must have been incurred through the employment of existing used and useful property. I cannot find this in the statute, but it is of no moment in my analysis. Some confusion has, perhaps, been added by NIPSCO's references to the losses in *623 issue as "expenses." This characterization is, no doubt, logical inasmuch as it seeks to obtain, for the loss, the same treatment accorded to expenses, thus it does fit the die that has been developed by commission usage and custom. I prefer the characterization of the commission: "extraordinary cost."
At this juncture, it need be noted that invested capital and expenses of operating are treated differently in the ratemaking process. It occurs to me that extraordinary losses should be treated as expenses are treated rather than in the manner that capital is treated; and this accords with the position of both NIPSCO and the commission.
Returning to the essence of the statutes and elementary precepts of utility law, we know that the public policy to be served is to permit monopolistic ownership and operation of public utilities because, if properly regulated and supervised, the public will be served better than it would be by our generally preferred free enterprise system. The extent, quality and cost of the service to be rendered depends upon a balancing of investor interests and consumer interests. The balancing is affected by the State, through its statute requiring the company to furnish "reasonably adequate service and facilities" and its rates to be "reasonable and just" and establishing the commission to regulate and supervise the system. The objective of the system is to obtain, for the public good, the maximum service at the lowest cost.
A substantial factor in any business enterprise is the risk involved. Electric utilities are capital intensive ventures, that is to say that extraordinarily large sums of money are required to be invested for long periods of time, hence the cost of that capital is a far greater factor in the cost of production than in other industries. The cost of capital, whether debt or equity, varies in direct proportion to the risk perceived by the investors. Traditionally, capital in the free market is available to electric utility companies at costs far less than such cost to any other industry, simply because the risk encountered is less. The market for the product is assured, and competition has been eliminated, hence the risks are only those attendant to production efficiency and the determination of what is reasonable and just in the fixing of rates. So long as investor confidence in the integrity of the system is high, capital will be available at the lowest rates possible. If that confidence is diminished, however, utilities will become high risk, rather than low risk, investments, and the return required to induce investment will rise; and if that confidence is lost, such capital will simply not be available.
The majority has displayed an alarming lack of comprehension in its comparison of the losses occasioned by an automobile manufacturer attempting to bring a new product to market and those sustained by NIPSCO in endeavoring to develop a nuclear powered generating plant. Two very pertinent differences relevant to the reasonable relegation of the losses will be given.
(1) The manufacturer was under no command to furnish a new product, or anything else, for that matter. NIPSCO was.
(2) If successful, the manufacturer would be at liberty to charge the consumer whatever the market would bear, even if profits so excessive as to be obscene could be thereby derived. NIPSCO, if successful would, nevertheless, be constrained to "reasonable and just charges," as determined by the commission.
So the primary beneficiary of a successful venture by the manufacturer is the investor. Whereas, the primary benefi-clary of a successful venture by the regulated utility company is the consumer. The utility investor continues to receive what he did before: a reasonable and just return-presumably the same rate of return on invested capital that he was receiving before, with only the amount of the investment being altered. The utility consumer, on the other hand, would receive the benefits of improved service, cheaper service, or both. To expect the investor, with nothing or little to gain, to assume all of the risk *624 and the consumer, with much to gain, to assume none is neither reasonable nor just and is inherently unrealistic.
Under the majority opinion, all risk of new construction falls upon the investor, and it has but little to gain, yet it is literally impossible for an electric company to fulfill its obligations without expending vast sums for plans and construction necessary for the rendition of services in the future.
The majority opinion barely mentions the statutory duty of utility companies to provide "reasonably adequate services and facilities" and cavalierly proceeds with the observation that utilities are monopolies and subject to regulation. It does not recognize that the duty to serve goes hand in hand with the limitations upon and entitlement to rates that are reasonable and just. Rates that do not permit a profit may, nevertheless, be reasonable under the circumstances. However, rates that do not permit the recovery of costs for service and facilities that are mandated are confiscatory and unlawful.
If electric companies do not plan and build in advance of demand, it is inescapable that eventually the production facilities once "used and useful" will become "used and useless," and service will be inadequate or non-existent. A company that does not plan and build ahead against such eventuality may not be said to be providing service and facilities that are "reasonably adequate."
On writing this dissent, I assume that every dime spent by NIPSCO was spent in a prudent endeavor to comply with the requirement of the law to provide electrical energy that would be required in the foreseeable future to serve its franchised area. I realize that this may not be entirely correct. There may have been some avoidable waste. There may have been some degree of imprudence at some junctures. The commission, however, has found to the contrary, and we are bound by its findings, if they are supported by the evidence heard by the commission. The majority has said that it does not matter whether the venture was or was not necessary, that it does not matter if the facilities were probably inadequate to fulfill future demands, that it does not matter that NIPSCO was required by law to enter upon and pursue the venture, that it does not matter that everything it did was correct and prudent, and that it does not matter that the rates to be received in the future will not be reasonable and just. All that matters is that the statute contains no explicit provision authorizing the commission to allow recovery of such loss.
Had the commission determined that all or any portion of the loss was the result of imprudence or speculation to capitalize from a potential wholesale market and had disallowed amortization of some portion, or all of the loss, I would vote to affirm its decision, unless it were shown that such determination was not sustained by the facts. That is the law, and in my judgment, under the facts of this case we are limited to a review of the facts to determine if the commission's determination is thereby sustained.
Prudent management is the responsibility of the investor. Infallible management and the production of utopian services at rates that will please the consumers are not.
Not only do I regard the decision of the majority to be in gross error, as a matter of law, I believe the result to be a societal disaster. Capital for utility companies subject to the law of this case will, in my judgment, be available only at extremely high rates-if at all, What have historically been regarded as conservative, low risk securities will become highly speculative. Capital that is already committed will of course remain invested, because it cannot escape, thus the consumers in the NIPSCO franchise area may, for the present, be benefitted. Nevertheless utility companies cannot continue to provide "reasonably adequate" services without constant infusions of newly committed capital. At risk is the survival of investor-owned public utilities. In my judgment, the prospects for socialization of the industry are good; but the *625 prospects for adequate services at reasonable rates under that system are dim.
I would affirm the Public Service Commission's decision.
GIVAN, C.J., concurs.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9859957. Public record. Not legal advice.