Minnesota Public Utilities Com'n's Initiation of Summary Investigation, Matter of

• Decision Date: 29 December 1987
• Docket Number: Nos. C7-87-1296,C9-87-1297,s. C7-87-1296
• Citation: 417 N.W.2d 274
• Parties: In the Matter of the MINNESOTA PUBLIC UTILITIES COMMISSION'S INITIATION OF SUMMARY INVESTIGATION of the Nature and Extent of Contacts Between Public Utilities and Telephone Companies and Former Minnesota Public Utilities Commissioners. In the Matter of the Petition of NORTHWESTERN BELL TELEPHONE COMPANY, Minneapolis, Minnesota for Authority to Change its Schedule of Telephone Rates for Customers Within the State of Minnesota.
• Court: Minnesota Court of Appeals

Page 274

417 N.W.2d 274

92 P.U.R.4th 540

In the Matter of the MINNESOTA PUBLIC UTILITIES COMMISSION'S

INITIATION OF SUMMARY INVESTIGATION of the Nature and Extent

of Contacts Between Public Utilities and Telephone Companies

and Former Minnesota Public Utilities Commissioners.

In the Matter of the Petition of NORTHWESTERN BELL TELEPHONE

COMPANY, Minneapolis, Minnesota for Authority to

Change its Schedule of Telephone Rates

for Customers Within the State

of Minnesota.

Nos. C7-87-1296, C9-87-1297.

Court of Appeals of Minnesota.

Dec. 29, 1987.

Review Denied March 18, 1988 and April 4, 1988.

Syllabus by the Court

1. The Commission was authorized in 1987 to conduct a summary investigation of a 1984 rate order.

2. The Commission's summary investigation did not violate the 10-month rule of Minn.Stat. Sec. 237.075 (1986).

3. The Commission could properly vacate its 1984 rate order based upon a theory of "fraud on the tribunal."

4. Relator was not denied its procedural rights.

5. All issues raised by relator were properly considered.

6. The Commission properly established rates based upon 1983 test year financial data.

7. The Commission did not err by employing a hypothetical capital structure.

8. The Commission's imputation of hypothetical revenues to relator was proper.

9. The Commission erred by requiring relator to reduce prospectively its rates due to a tax surplus which had already been depleted.

10. The Commission erred by requiring relator to provide certain services to handicapped customers free of charge.

Allan L. Grauer, Richard A. Karre, Omaha, Neb., Stephen T. Refsell, Minneapolis, James A. Gallagher, Maun, Green, Hayes, Simon, Johnanneson and Brehl, St. Paul, for relator N.W. Bell Telephone.

Karl W. Sonneman, Sp. Asst. Atty. Gen., St. Paul, for respondent MPUC.

Christopher K. Sandberg, Sp. Asst. Atty. Gen., St. Paul, for Minn. Dept. of Public Services.

Gary R. Cunningham, Dennis D. Ahlers, Sp. Asst. Atty. Gen., St. Paul, for Atty. Gen.

Scott Wilensky, Minneapolis, for respondent MPIRG.

Heard, considered and decided by HUSPENI, P.J., and SEDGWICK and LOMMEN, ^* JJ.

OPINION

SEDGWICK, Judge.

In separate appeals to this court, relator Northwestern Bell has requested review of two orders by the Public Utilities Commission which vacated and modified a prior 1984 rate order. We consolidated the two appeals. We affirm in part and reverse in part.

FACTS

This case has a complex and lengthy procedural history. On September 29, 1983, Northwestern Bell filed a petition with the Minnesota Public Utilities Commission ("Commission"), seeking a $109 million annual rate increase. Between January and April 1984, hearings on the petition were conducted by an administrative law judge ("ALJ"). The proceedings concerning this petition are referred to as "Docket 600."

On May 16, 1984, intervenors Minnesota Public Interest Research Group ("MPIRG"), Evan Henry, and the Department of Public Service ("DPS") petitioned the ALJ for dismissal of Northwestern Bell's pending rate case, because Northwestern Bell had filed a restructuring plan with the Federal Communications Commission in January 1984 which was presented to the Minnesota Commission in April. The Commission ordered the DPS to investigate the financial effect of Northwestern Bell's restructuring on the pending rate action. Northwestern Bell and the DPS subsequently stipulated that the effect of the reorganization should be considered within the context of the rate proceeding, and the DPS withdrew its motion to dismiss.

Before the DPS investigation was completed, however, the ALJ recommended to the Commission that the rate petition be dismissed, because it appeared that the financial effect of Northwestern Bell's reorganization would be substantial. On June 8, 1984, the Commission voted 2 to 1 not to dismiss the rate petition, but to consider the effect of Northwestern Bell's corporate restructuring in the context of the rate proceeding. Commissioners Leo Adams and Roger Hanson voted not to dismiss. Prior to the Commission's vote, Commissioner Hanson wrote and distributed a memorandum recommending denial of the motion to dismiss.

Following the completion of the contested case proceeding, the ALJ recommended that the Commission award Northwestern Bell a $36.1 million rate increase. On July 27, 1984, the Commission granted Northwestern Bell a rate increase of $57,511,000.

In August and September 1984, the Commission heard petitions for rehearing and modification. The DPS recommended reduction of the rate increase by $363,000. The Commission, on its own motion, ordered a rehearing and reopening of the record, and on September 26, 1984, the Commission adopted the DPS recommendation, and modified the rate increase from $57,511,000 to $57,148,000.

Intervenor Henry appealed the Commission's decision, claiming that the Commission's final decision was untimely, because it was not rendered within ten months from the date of Northwestern Bell's petition for a rate increase; that the Commission should have conducted a second contested case hearing before it modified the original order; and that Northwestern Bell had not met its burden of proving the new rates were just and reasonable.

The case was appealed to the Minnesota Supreme Court, which concluded that the Commission had acted within its statutory authority in ordering a rehearing; that the Commission was not required to hold a contested case hearing before it modified its decision; that the summary procedure adopted by the Commission for rehearing did not deprive Henry of due process; and that the decision of the Commission regarding Northwestern Bell's rates was supported by the record and was not arbitrary and capricious. Henry v. Minnesota Public Utilities Commission, 392 N.W.2d 209 (Minn.1986).

On April 9, 1986, prior to the supreme court's decision in Henry, the Commission ordered an investigation of the proceedings which led to its decision in Docket 600. This investigation, referred to as Docket 177, concerned reports alleging that numerous ex parte contacts had occurred between former Commissioners Adams and Hanson, and a representative of Northwestern Bell, Roy Weir, during the pendency of Docket 600 and other cases. On July 8, 1986, the DPS issued a report which concluded, in part, that during the months Docket 600 was pending before the Commission, Weir had met on numerous occasions with Commissioners Adams and Hanson in restaurants; that Northwestern Bell had paid for those meals; that Weir and the two Commissioners all testified in depositions that those meetings had not involved discussions of Docket 600 issues; that during the time Docket 600 was pending before the Commission there was no statute or rule in Minnesota which prohibited ex parte contacts between Northwestern Bell and the Commission or which prohibited Northwestern Bell from paying for meals consumed by Commissioners; and that it was unlikely that Commissioners could be bribed with free meals. The DPS report did not recommend reopening or reconsidering Docket 600.

On July 9, the Attorney General petitioned to reopen and consider Docket 600, and on August 14, 1986, MPIRG petitioned to vacate and dismiss Docket 600, based upon the ex parte communications between Weir and the two Commissioners. Subsequently, on October 3, 1986, the Commission issued an order inviting briefs and comment from all of the parties involved. On October 22, 1986, the DPS issued a second report, recommending that the Commission redeliberate its decision in the 1984 rate order.

On November 7, 1986, the Commission began deliberating whether it should take any new action regarding the 1984 rate order. The Commission thereafter voted to approve the Attorney General's petition to reconsider the 1984 rate order.

Between February 12 and 19, 1987, the Commission reconsidered the issues involved in Docket 600, and on April 2, 1987, the Commission issued a final order vacating the 1984 rate order and reopening that order for further deliberation and issuance of a new decision and order. Two days later the Commission issued its new decision, modifying certain terms and reducing Northwestern Bell's rates from $57,148,000 to $45,603,000. This final decision was rendered without conducting a new contested case hearing.

The Commission made the following changes to the 1984 order:

(1) The Commission used a hypothetical capital structure to set Northwestern Bell's rates;

(2) The Commission imputed hypothetical directory revenues to Northwestern Bell as the result of a transfer of Northwestern Bell's directory publication to an independent company;

(3) The Commission continued the requirement that Northwestern Bell reduce its rates due to a tax surplus; and

(4) The Commission required that Northwestern Bell provide Touch-Tone and Speed Call 8 services free to eligible handicapped customers.

In two separate appeals to this court, Northwestern Bell has challenged the Commission's actions. In appeal No. C7-87-1296, Northwestern Bell challenges the Commission's determination that Weir engaged in improper contacts with Commissioners Adams and Hanson, which affected the Commission's original 1984 rate order. Northwestern Bell also claims that the Commission had no authority to reopen the 1984 order; that the supreme court decision in Henry bars this action under the doctrine of res judicata; that the Commission's order to reopen violates the 10-month rule of Minn.Stat. Sec. 237.075; and that the Commission's procedures violated Northwestern Bell's constitutional and statutory rights.

In appeal No. C9-87-1297, Northwestern Bell has challenged the changes which the Commission actually made to the 1984 rate order.

ISSUES

1. Did the Commission have the authority in 1987 to conduct an investigation of its 1984 rate order?

2. Did the Commission's actions violate the 10-month rule of Minn.Stat. Sec. 237.075 (1986)?

3. Did the Commission have the authority to vacate...