358 N.W.2d 639 (Minn. 1984), CX-83-1591, Frost-Benco Elec. Ass'n v. Minnesota Public Utilities Com'n

Docket Nº:CX-83-1591.
Citation:358 N.W.2d 639
Opinion Judge:The opinion of the court was delivered by: Kelley
Party Name:FROST-BENCO ELECTRIC ASSOCIATION, Respondent, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Petitioner, Minnesota Department of Public Service, intervenor, Petitioner.
Attorney:Hubert H. Humphrey III Attorney General Craig R. Anderson, Asst. 1100 Bremer Tower, 7th place at Minnesota St. St. Paul Minnesota 55101 (For Dept. of Public Service), Karl W. Sonneman, Asst. Attorney General 780 American Center Bldg. 160 E. Kellogg Blvd. St Paul Minnesota 55101 (For Minnesota Pub...
Case Date:November 30, 1984
Court:Supreme Court of Minnesota
 
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Page 639

358 N.W.2d 639 (Minn. 1984)

FROST-BENCO ELECTRIC ASSOCIATION, Respondent,

v.

MINNESOTA PUBLIC UTILITIES COMMISSION, Petitioner,

Minnesota Department of Public Service, intervenor,

Petitioner.

No. CX-83-1591.

Supreme Court of Minnesota.

November 30, 1984

Page 640

Syllabus by the Court

The Minnesota Public Utilities Commission lacks jurisdiction and authority to retrospectively regulate rates an unregulated cooperative electric utility charged its customers during a period it was not subject to Minnesota Public Utilities Commission regulations under Minn.Stat. 216B, et seq.

Hubert H. Humphrey, III, Atty. Gen., Craig R. Anderson, Asst. Atty. Gen., St. Paul, for Dept. of Public Service.

Karl W. Sonneman, Asst. Atty. Gen., St. Paul, for Minn. Public Utilities Com'n.

John C. Hottinger, M. John Gustavson, Mankato, for Frost-Benco Elec. Ass'n.

Harold LeVander, Jr., So. St. Paul, for amicus curiae Rural Elec. Ass'n.

Clayton L. LeFevere, Minneapolis, for amicus curiae Co-op. Power Ass'n.

Heard, considered and decided by the court en banc.

KELLEY, Justice.

Appellant Frost-Benco Electric Association (Frost-Benco), an electric cooperative, made application to the Minnesota Public Utilities Commission (MPUC) for approval of increased electrical rates. Following evidentiary hearings a hearing examiner issued his report. 1 The MPUC subsequently issued its order which required, inter alia, that Frost-Benco refund to its membership the difference between purchased power revenues collected by Frost-Benco during the test year (July 1, 1980 through June 30, 1981), at which time Frost-Benco was not subject to MPUC regulation, and the actual purchased power expenses paid by Frost-Benco to its power suppliers during the same period. On appeal to the Blue Earth County District Court, the MPUC's order was affirmed. The basic issue on this appeal is whether the MPUC has jurisdiction to regulate a utility by ordering refunds of amounts collected by a utility during the period of non-regulation. We hold that it does not and reverse.

Frost-Benco is a cooperative electric association organized under the provisions of Minn.Stat. ch. 308 (1982). The cooperative provides retail electrical service to approximately 8,000 customers in south-central Minnesota. The company was formed on January 1, 1980 through a consolidation of the Blue Earth-Nicollet Cooperative Electric Association and the Faribault County Electric Association.

Frost-Benco generates no electricity of its own. Instead, it purchases all of its energy requirements at wholesale from Cooperative Power Association, a generation and transmission cooperative owned collectively by 18 cooperative associations including Frost-Benco. Thus, Frost-Benco operates solely to distribute electricity.

Page 641

As a cooperative, Frost-Benco does not engage in the traditional method of raising capital through public offerings of common stock. Rather, Frost-Benco raises a small portion of its equity capital through a nominal, one-time membership charge to each member-ratepayer. The majority of Frost-Benco's equity capital is raised through the retention of monies paid for electricity by members in excess of the cost of providing such electricity. These excess "margins" are rotated, or returned to the members in a fixed cycle of 15 years.

Like most retail cooperatives, Frost-Benco accounts separately for the cost of energy it must purchase. These wholesale power costs are further broken down into a base component and a fluctuating adjustment known as a power cost adjustment (PCA). The latter adjustment, which is directly involved in this case, represents the degree to which energy costs have changed since the base component was originally set. During the evidentiary hearing in this case a witness described the purpose of the PCA as follows:

[T]he function of the PCA is to match the cost of purchased power with the revenue from consumers so the changes in the cost of purchased power are adequately and promptly reflected in the rates. The function of the PCA is not to adjust margin based on previous losses or even target margins.

The original intention for use of a PCA was to allow utilities to pass on to consumers additional power costs without having to file a general rate case.

When Frost-Benco was...

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