Public Service Co. of Oklahoma v. State ex rel. Corp. Com'n ex rel. Loving

• Decision Date: 19 March 1996
• Docket Number: No. 81518,81518
• Citation: 918 P.2d 733,1996 OK 43
• Parties: Util. L. Rep. P 26,515, 1996 OK 43 PUBLIC SERVICE COMPANY OF OKLAHOMA, Appellant, v. STATE of Oklahoma, ex rel., CORPORATION COMMISSION, ex rel., Susan LOVING, Attorney General of the State of Oklahoma, Appellees.
• Court: Oklahoma Supreme Court

Page 733

918 P.2d 733

Util. L. Rep. P 26,515, 1996 OK 43

PUBLIC SERVICE COMPANY OF OKLAHOMA, Appellant, v. STATE of Oklahoma, ex rel., CORPORATION COMMISSION, ex rel., Susan LOVING, Attorney General of the State of

Oklahoma, Appellees.

No. 81518.

Supreme Court of Oklahoma.

March 19, 1996.

Rehearing Denied July 3, 1996.

Jay M. Galt, Robert V. Varnum, and Marjorie McCullough, White, Coffey, Galt & Fite, Oklahoma City, for Public Service Company of Oklahoma.

Michael J. Hunter, Leslie Wilson Pepper, Maribeth D. Snapp, Michelle O'Neill Craig, and Kent Douglas Talbot, Oklahoma City, for Oklahoma Corporation Commission.

Larry Derryberry and Patrick D. Shore, Derryberry, Quigley, Parrish, Solomon and Blankenship, Oklahoma City, for Oklahoma Association of Electric Cooperative.

Susan Loving, Drew Edmondson, Oklahoma Attorney General's Office, Oklahoma City, Oklahoma.

Jeff F. Raley and Anita K. Anthony, Norman, for amici curiae City of Norman, Oklahoma, a Municipal Corporation.

David H. Sanders, Tulsa, for amici curiae Lakeside State Bank of Oologah and Jack Griffith Petroleum Products, Inc.

SUMMERS, Justice.

This is an appeal by Public Service Company of Oklahoma from a rule change by the Corporation Commission. PSO filed a motion to stay the effect of the amended rule pending appeal and a motion to retain. Both were granted by this Court. A motion to strike PSO's brief was filed. We denied the motion to strike, but directed PSO to file an amended brief in compliance with Supreme Court Rules. The amended brief was filed on September 29, 1995.

On January 27, 1993, the Corporation Commission filed a Notice of Proposed Rulemaking. The notice involved Corporation Commission Rule 60. See OCC 165:35-1-2 and 165:35-11-3. ¹ Rule 60 provides the procedure which must be utilized by a consumer, having available two or more electric suppliers, to switch from one supplier to another. In the event of such a switch by the consumer, the rule requires that the costs be paid to the replaced supplier by the acquiring supplier. The acquiring supplier is then forced, by Rule 60, to pass on the costs of the switch to the consumer.

In relevant part, Rule 60(b) currently reads:

In the event a consumer located in an area where two or more retail electric suppliers are entitled to serve elects to change the supplier providing retail service to him/her, the acquiring supplier must offer to purchase from the replaced supplier those facilities of the replaced supplier which are in place to provide service to such consumer. The acquiring supplier must also offer to pay the replaced supplier in an amount sufficient to offset the costs which the replaced supplier will incur as a result of the consumer's change of suppliers....

[T]he acquiring supplier shall require the consumer requesting a change of suppliers pursuant to this Section to reimburse the acquiring supplier for the amount which it pays to the replaced supplier....

See 165:35-11-3. ² The Rule goes on to explain what costs are recoverable and how The proposed amendments to Rule 60 changed language to close a perceived loophole in the Rule. Prior to the proposed amendment some users of electricity could switch suppliers without paying the associated costs. For example, a renter in an apartment complex, or the purchaser of a home, could choose a supplier different than the one used by the previous renter or owner without being subject to the costs. The amendment attempted to close this loophole by changing the word "consumer" to "electric consuming facility," thus subjecting any "electric consuming facility" to the payment of changeover costs. The result is that the renter or new owner is not given the option of choosing a supplier different from that used by the previous occupant without being subject to the associated costs imposed by Rule 60.

they are to be calculated. In Rule 165:35-1-2, the definition section, a definition for electric consuming facility was added, which stated that this term included "anything that utilizes electric energy from a central station source."

The OCC's rule impact statement, as presented in the first paragraph of the Rule, claimed that the purpose of the rule was to require consumers to pay the costs associated with changing suppliers. PSO filed comments to the proposal, urging that the requirement for a consumer to pay costs be eliminated, because these costs are, in most instances, so great that the consumer can not afford to switch suppliers. O.G. & E. urged that the rule remain unchanged. The Oklahoma Association of Electric Cooperatives supported the change.

Before the hearing PSO made a motion to the administrative law judge that witnesses be sworn and subject to cross-examination. The administrative law judge agreed to PSO's request. When brought to a vote of the Commission members, they declined to follow the ALJ's recommendation and denied the motion, but agreed that all parties interested in making a comment at the hearing would be permitted to do so on the record.

At the hearing several individuals testified that their electrical service was undependable, and that they wished to switch from The mayor of Oolagah testified that the high costs of electricity supplied through the electric cooperative was hurting the economic growth of the town, because new businesses could not afford to locate there. The electric cooperative had been made aware of the City's dilemma, but had been unresponsive to the City's requests for more competitive utility rates.

their current supplier, an electric cooperative, to PSO. They stated that they believed their service would be of higher quality, while their electric bills would be lower. But they were unable to make the switch of suppliers because of the high costs imposed on them by Rule 60. For example, one business owner testified that by switching electric suppliers, his business would save about $3,000.00 per year. However, the costs imposed by Rule 60 amounted to approximately $36,000.00, and thus his business could not financially afford to change suppliers.

The mayor of Bridgeport testified that he obtains electricity through an REC. His electrical service is unsatisfactory and is causing him financial loss, because it goes off three or four times per week. He testified that he could save $300.00 per year, but that the transfer costs would be over $1500.00.

The municipalities urged that the Rule not be amended. Because of our recent opinion in Branch Trucking v. Oklahoma Tax Commission, 801 P.2d 686 (Okla.1990), municipalities claim that they are losing tax revenue, rural electric cooperatives not being required to collect and remit sales taxes. Municipalities are in favor of any type of rule which would make it easier to change electric providers, because a different electric supplier could mean more tax revenue. These municipalities testified that without the tax revenue their police and fire departments are suffering, and they are attempting to find ways to "de-annex" parts of the municipality so as to cut costs.

Unimpressed with these comments from the public, the Corporation Commission voted to amend Rule 60. PSO appealed this ruling. On appeal, several parties representing citizens and municipalities have filed amicus briefs. ³

FAILURE TO TAKE SWORN TESTIMONY

First we need to address the procedural issue raised by PSO regarding the Commission's refusal to require sworn testimony. PSO urges that the procedural rules promulgated by the Corporation Commission require that sworn testimony be taken at all hearings. The Commission denies that its rules require sworn testimony for rulemaking proceedings.

The Corporation Commission has adopted procedural rules whose express purpose is to "govern all proceedings coming before the Corporation Commission for disposition." Rule 165:5-1-1. Once these rules are in place an agency is required to follow them. Failure to do so can result in an invalidation of the proceeding. Henry v. Corporation Commission, 825 P.2d 1262 (Okla.1992); Branch Trucking v. Oklahoma Tax Comm'n, 801 P.2d 686 (Okla.1990).

At the time of this hearing Corporation Commission Rule 165:5-1-7 stated that the Commission could "on its own motion, commence a cause to adopt, amend or modify rules of the Commission." The Rule required notice and a hearing. ⁴ Rule 165:5-13-3 governs the conduct of hearings, requiring that every witness shall be examined and cross-examined orally and under oath.

Rule 165:5-1-7 governs rulemaking at the Corporation Commission. It does not require the sworn testimony of witnesses. As evidenced by its later adoption of the Oklahoma Administrative Procedures Act, which permits public comment but does not require sworn testimony at rulemaking proceedings, the Corporation Commission did not contemplate

that its rules should be interpreted to require sworn testimony at every rulemaking proceeding. Rule 165:5-1-7 required notice and a hearing. There is no question that both were satisfied in this case. Although there were no witnesses nor sworn testimony, all present at the hearing were permitted to make their comments to the Commission, and the comments were included in the transcript. We find no error in the Commission's refusal to require sworn testimony in the rulemaking proceeding.

CONSTITUTIONAL ATTACKS

PSO next attacks the validity of Rule 60 and its amendment for several different reasons: (1) The Corporation Commission was without authority to promulgate the original rule and this amendment, because it amounts to an interference with the internal management of the utility company. (2) It violates the Oklahoma Constitution, Article 18, Sections 5 and 7. (3) It violates federal and state constitutional prohibitions against the taking of property without compensation. (4) It unlawfully delegates the Commission's authority by permitting generation and transmission costs to be determined by the wholesale supplier. Because we find the first...