2024-11-25 1250 Oceanside LLC Response to PD

Home

Application of Hawaii Elec. Light Co., Inc.,60 Haw.625 (1979) 594 P.2d 612 In short,HELCO relied on the language of the United States Supreme Court in MBluefield Water Works&Improvement Co. v. Public Service Commission,262 U.S. 679, 692,1°143 S.Ct. 675,679,67 L.Ed. 1176(1923),indicating that utilities should be permitted to earn rates *635 equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings which are attended by corresponding risks and uncertainties.2 **620 The Division argues that the exhibits, which represent HELCO's comparable earnings test, do not reflect reliable, probative and substantial evidence of HELCO's return on common equity because the companies are not comparable in risk and uncertainty with HELCO, but with HECO. However, as we have already decided that use of HECO's cost of common equity was not improper, we find no merit in the Division's contention. The Division further argues that, even assuming that use of HECO comparables is proper,the companies included in the four exhibits were not shown to have risks comparable to HECO. Despite the limitations of the comparable earnings test, these comparable earnings studies present useful information in assisting the Commission to arrive at an equity return cost. "(A)comparison of companies within a relatively wide range of risk with appropriate adjustments is proper. . . ." Leventhal, Vitality of the Comparable Earnings Standard for Regulation of Utilities in a Growth Economy,74 Yale L.J. 989,999(1965).In some manner,every utility is unique and individual.No utility has a risk corresponding exactly to that of another.But comparisons between utilities provide an important method to arrive at a fair return on common equity. Therefore,imperfect but reasonable comparisons are permissible. See Mechanic Falls Water Co.v.Public Utilities Commission, supra,381 A.2d at 1098. The Division has failed to demonstrate that the Commission's authorization of an 8.95%Rate of return was clearly erroneous. Basically,it overlooks the discretion conferred *636 upon the Commission in determining a reasonable rate of return and the limited nature of our judicial review. The standard for determining a fair rate of return appears to be deceptively simple and has been articulated by this court in Honolulu Gas Co.v.Public Utilities Commission, supra,33 Haw.at 518-519,quoted in IglIn re Application of Kauai Electric Division, supra,60 Haw. at--, 590 P.2d at 540. There we said that: There is no particular rate of compensation which must in all cases be regarded as fair earnings for capital invested in business enterprises.Locality,risks incurred and prevailing local rates on similar investments are all factors to be considered.Fair return is the percentage rate of earnings on the rate base allowed the utility after making provision for operating expenses,depreciation,taxes and other direct operating costs. . . .Fair return is something over and above the usual interest rate on well-secured loans to compensate for the risks and hazards of business and for the profits of management. Questions concerning a fair rate of return are particularly vexing as the reasonableness of rates is not determined by a fixed formula but is a fact question requiring the exercise of sound discretion by the Commission. FilFederal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944);FilMountain States Telephone and Telegraph Co. v. New Mexico State Corporation Commission, 90 N.M. 325, 563 P.2d 588 (1977); PIMechanic Falls Water Co. v. Public Utilities Commission, supra, 381 A.2d at 1098; Mississippi Public Service Commission v. Mississippi Power Co., 337 So.2d WESTLAW ©2024 Thomson Reuters. No claim to original U.S. Government Works. 7