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Application of Hawaii Elec. Light Co., Inc.,60 Haw.625 (1979)
<br /> 594 P.2d 612
<br /> I.RATE OF RETURN
<br /> The commission found a reasonable rate of return to be 8.95%. Previously,in 1974,in Docket No. 2186,Decision and Order
<br /> No. 3499, the Commission had authorized an 8.95%Rate of return on the rate base and a set of rates to produce, hopefully,
<br /> this rate of return. It turned out,however,that the actual earnings,at the new rates,produced a 6.6%Rate of return,which was
<br /> lower than the authorized fair level. This situation gave rise to HELCO's request for rate relief in the *631 form of increased
<br /> customer rates. These proposed increases were calculated to produce a return of 8.95%On its proposed rate base. Although
<br /> HELCO felt that a fair rate of return was currently higher than 8.95%,it requested that percentage figure so as to expedite the
<br /> rate proceedings before the Commission.1
<br /> On appeal,the Division maintains that the finding that 8.95%Is a fair and reasonable rate of return is clearly erroneous because
<br /> A)it is not supported by reliable,probative and substantial evidence,and B)the procedure before the Commission impermissibly
<br /> shifted the burden of proof. We disagree.
<br /> A. Whether the finding of an 8.95%Rate of return is supported by reliable,probative and substantial evidence.
<br /> In Decision and Order No. 4123 at pp. 22-23 the Commission found that:
<br /> (1)HELCO is not earning the 8.95 rate of return allowed by the Commission **618 in Decision and Order No.3499,Docket
<br /> No. 2186(1974)but rather a rate of return substantially lower than allowed in that case;
<br /> (2)HELCO's composite cost of capital has increased from 8.95%In 1973 to 9.32%At the end of the test year 1974 because of
<br /> increased embedded cost of bonds and preferred stock(utilizing the same 13%Return on common equity);
<br /> (4)due to continued inflation and increased costs of capital since Decision and Order No. 3499 in Docket 2186 (1974),there
<br /> is evidence to justify in this case a rate of return of 8.95%;and
<br /> (5) since the Company has only requested an 8.95%Rate of return and has based its rate increase request on this figure, the
<br /> Commission adopts an 8.95%Rate of return in its order.
<br /> *632 The Division argues that the record reflects no reliable, probative, substantial evidence to support the Commission's
<br /> finding that 8.95%Was a reasonable or fair rate of return. A return is deemed"fair"or"reasonable"if it produces a fair rate of
<br /> return on the rate base.FilMechanic Falls Water Co.v.Public Utilities Commission,supra,381 A.2d at 1095; Pennsylvania
<br /> Gas and Water Co.v.Commonwealth,33 Pa.Cmwlth. 143,381 A.2d 996(1977);Peoples Natural Gas Division v.Public Utilities
<br /> Commission, Colo., 567 P.2d 377(1977).
<br /> A fair return is the percentage rate of earnings on the rate base allowed a utility after making provision for operating expenses,
<br /> depreciation, taxes and other direct operating costs. Honolulu Gas Co. v. Public Utilities Commission, 33 Haw. 487 (1935);
<br /> Narragansett Electric Co.v. Harsch, 117 R.I. 395, 368 A.2d 1194 (1977);Providence Gas Co.v. Burman,R.I., 376 A.2d 687
<br /> (1977);PMechanic Falls Water Co.v.Public Utilities Commission,supra,381 A.2d at 1095.Out of such allowance the utility
<br /> must pay interest and other fixed dividends on preferred and common stock.Honolulu Gas Co.v.Public Utilities Commission,
<br /> supra, 33 Haw. at 518-519; 1 Priest, Principles of Public Utility Regulation 191 (1969). In determining a rate of return, the
<br /> Commission must protect the interest of a utility's investors so as to induce them to provide the funds needed to purchase plant
<br /> and equipment, and protect the interests of the utility's consumers so that they pay no more than is reasonable. Honolulu Gas
<br /> Co.v. Public Utilities Commission, supra, 33 Haw. at 495;Providence Gas Co.v. Burman, supra,R.I., 376 A.2d at 699-700;
<br /> III1Narragansett Electric Co. v. Burke, R.I., 381 A.2d 1358 (1977), Cert. denied, 435 U.S. 972, 98 S.Ct. 1614, 56 L.Ed.2d
<br /> 63 (1978); In re Application of Wilmington Suburban Water Corp., 367 A.2d 1338 (Super.Ct.De1.1976); Commonwealth v.
<br /> Virginia Electric and Power Co.,211 Va.758, 180 S.E.2d 675 (1971).
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