Legislative Utility Consumers' Council v. Public Service Co.

Supreme Court of New Hampshire
402 A.2d 626, 119 N.H. 332, 31 P.U.R.4th 333 (1979)

ELI5:

Sections

Rule of Law:

A public utility commission has the statutory authority to include Construction Work In Progress (CWIP) in a utility's rate base if the utility meets the burden of proving that such inclusion is necessary to maintain its financial integrity and ability to secure capital for reasonable construction projects.

Facts:

The Public Service Company of New Hampshire (the Company) engaged in a massive capital construction program to build a nuclear generating plant at Seabrook to meet projected future energy demands.
To finance this construction, the Company incurred significant costs known as Construction Work In Progress (CWIP), requiring it to raise capital through debt and equity.
Traditionally, the Company used an accounting method called Allowance for Funds Used During Construction (AFUDC), where construction costs were capitalized and only added to the rate base for recovery after the plant began actual operations.
The Company faced financial difficulties, including depressed earnings and reduced cash flow, which threatened its ability to secure necessary financing from investors and creditors to complete the Seabrook project.
Consequently, the Company sought to change its accounting treatment by including over $111 million of CWIP in its current rate base, effectively charging current customers a return on the plant before it produced any electricity.
The Legislative Utility Consumers’ Council (LUCC) opposed this change, arguing that it was unfair for current ratepayers to pay for a facility that was not yet providing them with any service.

Procedural Posture:

The Public Service Company of New Hampshire filed a proposed tariff with the Public Utilities Commission requesting a rate increase.
The Commission suspended the tariff and opened an investigation.
The Legislative Utility Consumers' Council intervened in the proceedings to oppose the rate increase.
The Public Utilities Commission held hearings and issued an order granting a revenue increase and allowing the inclusion of CWIP in the rate base.
The Legislative Utility Consumers' Council appealed the Commission's order to the Supreme Court of New Hampshire.

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Issue:

Does the Public Utilities Commission violate the statutory requirements that utility property be "used and useful" and rates be "just and reasonable" by permitting a utility to include construction costs for an uncompleted nuclear plant in its current rate base?

Opinions:

Majority - Bois

No, the inclusion of CWIP in the rate base does not violate the statutory standards of "used and useful" or "just and reasonable." The Court reasoned that the concept of "used and useful" is not a rigid rule requiring immediate operation, but a flexible standard that can include reasonable measures to ensure a future supply of electricity. The Commission has broad discretion to balance the interests of investors and consumers. Here, the evidence supported the finding that the Company was under severe financial stress and that excluding CWIP would jeopardize the financing of the Seabrook plant, which would ultimately harm the public interest. Furthermore, the Court rejected the argument that ratepayers were being treated as forced investors, noting that they are simply paying the cost of money for a service they (or the community) will eventually utilize, and paying now prevents a sharp spike in rates later.

Concurrence - Douglas

Yes, the Commission's order must be upheld, but solely because the standard of review requires deference to the Commission's findings. Justice Douglas wrote separately to express concern over the majority's reliance on the "end result" test from Federal Power Comm’n v. Hope Natural Gas Co. He argued that courts should not merely look at whether the final rate seems reasonable, but must also review the methodology employed by the agency to ensure it is not arbitrary. However, because the Commission did provide sufficient methodology and evidence in this specific instance, he concurred with the result.

Analysis:

This decision is significant in administrative law and public utility regulation because it establishes a precedent for the "financial necessity" exception to the traditional "used and useful" rule. It grants Public Utility Commissions wide latitude to shift the risk of construction costs from investors to consumers during the building phase of major infrastructure projects, provided the utility can demonstrate that traditional financing (AFUDC) would threaten its solvency. The ruling underscores the tension between intergenerational equity (current vs. future ratepayers) and the practical need for utilities to maintain liquidity during expensive nuclear construction projects.

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