Wakefield Water Co. v. Public Utilities Commission
Docket: No. 81-370-M.P.
Court: Supreme Court of Rhode Island; March 15, 1983; Rhode Island; State Supreme Court
On October 15, 1980, Wakefield Water Company filed a request with the Rhode Island Public Utilities Commission for a 38.3% increase in annual revenues, amounting to $289,317, to take effect on November 14, 1980, based on a test period ending June 30, 1980. The company later sought an additional $23,617, raising the total requested increase to $312,934, or 41.5%. The commission suspended the proposed tariffs until July 14, 1981, and held several public hearings, including one for public input on April 7, 1981. On July 13, 1981, the commission issued a report rejecting the company's rate schedule and approved an increase of $187,458, or 65% of the requested amount.
On July 17, 1981, the company filed a petition for certiorari challenging the commission’s decision, focusing solely on whether the commission erred in its calculation of a federal income tax allowance for rate-making. The company argued that the commission improperly applied a surtax exemption, resulting in a lower income tax allowance. It claimed that as a subsidiary of General Waterworks Corporation, which files a consolidated federal income tax return, it could not realistically claim the surtax exemption as a controlled corporation. The company asserted that the Internal Revenue Code permits only one surtax exemption per group of controlled corporations and maintained that the commission’s method lacked support from expert testimony.
While the court acknowledged the company’s legal points, it emphasized that the commission has the discretion to adopt methods not recommended by experts, provided there is adequate evidentiary support for its conclusions. The court also reiterated that it cannot substitute its judgment for that of the commission.
An order from the Public Utilities Commission will not be overturned unless it is shown to be illegal, arbitrary, or unreasonable, as established by G.L.1956 (1977 Reenactment) 39-5-3 and relevant case law. The court's review is limited to evaluating the fairness and reasonableness of the outcome, rather than the methods used to achieve it. The court also refrains from acting as a policy-making body in these reviews. In this case, the commission's use of a surtax exemption for calculating federal income tax allowances was deemed fair and reasonable, and the commission allowed a revenue increase of 65 percent of what was requested by the company. Other arguments presented by the company were found to lack merit. Consequently, the court denied the company's petition for certiorari, quashed the writ, and ordered the return of the records to the commission with the court's decision noted. A company witness indicated that the surtax exemption allows the first $100,000 of corporate income to be taxed at a lower rate than income exceeding that threshold.
