Attorney General of State of N.M. v. New Mexico Public Service Com'n

• Decision Date: 21 March 1991
• Docket Number: No. 19046,19046
• Citation: 1991 NMSC 28,808 P.2d 606,111 N.M. 636
• Parties: , Util. L. Rep. P 26,100 In the Matter of the Prudence of Costs Incurred by Public Service Company of New Mexico in Construction of Palo Verde Nuclear Generating Station. ATTORNEY GENERAL OF the STATE OF NEW MEXICO, Appellant, v. NEW MEXICO PUBLIC SERVICE COMMISSION and Public Service Company of New Mexico, Appellees.
• Court: New Mexico Supreme Court

Page 606

808 P.2d 606

111 N.M. 636, Util. L. Rep. P 26,100

In the Matter of the Prudence of Costs Incurred by Public Service Company of New Mexico in Construction of Palo Verde Nuclear Generating Station ATTORNEY GENERAL OF the STATE OF NEW MEXICO, Appellant, v. NEW MEXICO PUBLIC SERVICE COMMISSION and Public Service Company of New Mexico, Appellees.

No. 19046.

Supreme Court of New Mexico.

March 21, 1991.

Rehearing Denied April 11, 1991.

[111 N.M. 637] Tom Udall, Atty. Gen., Randall Childress, Deputy Atty. Gen. and Nann Houliston, Asst. Atty. Gen., Santa Fe, for appellant.

Lee W. Huffman and James C. Martin, Com'n Counsel, Santa Fe, for appellee New Mexico Public Service Com'n.

Keleher & McLeod, Richard B. Cole, Robert H. Clark, Albuquerque, O'Melveny & Myers, Carl R. Schenker, Jr., Phillip R. Kaplan, Robert M. Schwartz, Brian C. Anderson, and Kathleen D. Strong, Washington, D.C., for appellee Public Service Co. of New Mexico.

OPINION

SOSA, Chief Justice.

In this "prudence case" we consider the second phase of a unified three-part process by which the New Mexico Public Service Commission (PSC or the Commission) considered the rate treatment of Public Service Company of New Mexico's (PNM's) 10.2% ownership interest in the Palo Verde Nuclear Generating Station (Palo Verde).

In the preceding excess capacity case,¹ we held that:

(1) PSC had jurisdiction to issue its final order both with respect to determination of alternatives to the inventory ratemaking methodology and to problems relating to phasing in of PNM's excess generating capacity;

(2) PSC's regulatory decision-making process was not pre-empted by federal law (3) PSC's exclusion of the M-S-R contract did not violate the Commerce Clause;

(4) PSC's consideration of the effects of various fuel mixes was not error;

(5) Various PSC findings on the merits affecting ultimate rates were not ripe for review;

(6) PSC acted reasonably in breaking the case into three parts and delaying any decisions on prudence until a decision on excess capacity was rendered;

(7) PSC's decision allowing inclusion of Palo Verde Units 1 and 2 but excluding Unit 3 and some 235 megawatts of coal-fired generating capacity from rate base (thereby excluding some $384 million of capital costs from PNM's rate base) was affirmed.

Having thus decided phase one of this tripartite case, we now consider phase two, the prudence case. The Attorney General (AG) appeals PSC's prudence order, 110 P.U.R. 4th 69 (NMPSC 1990), arguing that PSC wrongly terminated a hearing on the merits of the prudence case by considering and then approving a stipulation entered into between PSC staff (Staff) and PNM. This procedural argument is bolstered by the AG's contention that the prudence order is not based on substantial evidence. On appeal, we affirm PSC's prudence order in its entirety.

We consider first the AG's procedural objections to the order. Contrary to the AG's contentions, our reading of the record convinces us that when settlement negotiations began, and while they continued, the AG was given ample opportunity to participate but declined to do so. Even had he been excluded from settlement negotiations, however, the AG nonetheless was given opportunity to participate and did fully participate in the five weeks of hearings which PSC held on the issue of the stipulation's fairness to ratepayers and investors. See generally Re Nine Mile Point 2 Nuclear Generating Facility, 78 P.U.R. 4th 23, 46 (NYPSC 1986) (exclusion from "confidential" settlement negotiations does not invalidate final order where the hearing process on the contested settlement afforded all parties due process).

The AG was afforded reasonable notice, an opportunity to be heard and to present his claims or defenses. More was not required. See Jones v. New Mexico State Racing Commission, 100 N.M. 434, 671 P.2d 1145 (1983). Here the AG had some four months to prepare for the hearing and filed numerous interrogatories along with testimony and exhibits of four witnesses. Cf. New Mexico Industrial Energy Commission v. New Mexico Public Service Commission, 104 N.M. 565, 568, 725 P.2d 244, 247 (1986) (no due process violation where NMIEC had less than one month to prepare for hearing on contested stipulation).

The core of the AG's due process attack is that Staff and PNM on their own improperly negotiated the settlement, thereby excluding the AG as a representative of residential ratepayers and depriving the AG and the ratepayers of due process. We disagree with the AG's argument that Staff may not enter into settlement negotiations with one or more utilities. The AG challenges Staff's capacity to negotiate as a "party." Yet, there is no dispute that Staff is not a party. The real question is whether Staff, under relevant statutes and PSC rules, has the capacity, however Staff is designated, to conduct settlement negotiations. We find that Staff does possess this capacity. This has been conceded even by one of the AG's own witnesses, who testified, "Staff obviously had the capacity in this case to enter into agreement with [PNM] * * * * "

NMSA 1978, Section 62-6-4(A) (Repl.Pamp.1984) gives PSC power "to do all things necessary and convenient in the exercise of its power and jurisdiction ... to regulate or supervise the rates or service of any utility * * * * " This broad authority includes the power to publish rules, NMSA 1978, Sec. 62-6-1, and to employ staff. Sec. 62-5-8. Under its rules, PSC has established that "parties to a proceeding and Staff may reach compromises and settle some or all issues." NMPSC Rule 110.83(a). Further, stipulated settlements may be formulated for the Commission's approval in which Staff plays an active role. NMPSC Rule 110.85(a).

PSC's rules and policies in this regard do not differ from the standard practice throughout the nation. See e.g., City of Akron v. Public Utilities Commission, 55 Ohio St.2d 155, 157-58, 378 N.E.2d 480, 483 (1978) (approving stipulation executed by Staff and one utility); Re Nine Mile Point 2 Nuclear Generating Facility, 78 P.U.R.4th at 25 (prudence review resolved by stipulation between utility owners and Staff); National Fuel Gas Supply Corp. v. F.E.R.C., 811 F.2d 1563, 1571-72 n. 5 (D.C.Cir.1987), cert. denied, 484 U.S. 869, 108 S.Ct. 200, 98 L.Ed.2d 151 (1987) (even if Staff is considered a "party" to settlement negotiations, the Commission itself does not thereby become improperly involved in negotiations). See also Southern Union Gas Company v. New Mexico Public Service Commission, 84 N.M. 330, 331, 503 P.2d 310, 311 (1972) (PSC given great flexibility by legislature to achieve its goals); cf. Mountain States Telephone & Telegraph Company v. New Mexico State Corporation Commission, 90 N.M. 325, 331, 563 P.2d 588, 594 (1977) (corporation commission "a prime mover" to see that public interest protected); Halsted v. Dials, 391 S.E.2d 385 (W.Va.1990) (if agency determines agreement is just and reasonable it may confirm the settlement without authorization of dissenting party).

The AG strenuously argues that this case is controlled by the holding in Business and Professional People for the Public Interest (BPI) et al. v. The Illinois Commerce Commission et al., 136 Ill.2d 192, 144 Ill.Dec. 334, 555 N.E.2d 693 (1989). We disagree. The distinguishing feature of that case is that the Illinois Supreme Court found the Illinois Commerce Commission did not have statutory authority to enter two of the provisions of its Sixth Order. The court opined:

Absent statutory law to the contrary, we have no quarrel with the Commission's ability to consider a settlement proposal not agreed to by all of the parties and the intervenors as a decision on the merits, as long as the provisions of such a proposal are within the commission's power to impose, the provisions do not violate the [Illinois Public Utilities Act] and the provisions are independently supported by substantial evidence in the whole record. Such was not the situation in the case at bar.

Id. 144 Ill.Dec. at 345, 555 N.E.2d at 704.

One of the glaring errors in the Illinois Commission's order was its fixing of a five-year rate. The court held, "[W]e need not decide here whether or under what circumstances the Commission could set long-term rates because circumstances justifying the establishment of rates over a five-year period clearly do not exist in the case at bar." Id. 144 Ill.Dec. at 349, 555 N.E.2d at 708. In the present case, there is no contention raised that PSC lacked statutory authority to resolve the issues before it; the only issue asserted in this aspect of the appeal is the capacity of Staff to enter into settlement negotiations. Hence, the Illinois case is not supportive of the AG's argument. Further, as we will discuss below, in the case before us, we find that there is substantial evidence in the whole record to support PSC's prudence order.

Although Staff is technically not a party to settlement negotiations, we would completely blind ourselves to reality if we did not recognize that Staff functions in very much the same way as a bona fide party in almost all respects. This includes the hiring of witnesses and presentation of evidence, cross-examining witnesses for other parties, making arguments on both the law and the facts, and otherwise behaving in the same way that a party does. Yet, in none of its activities is Staff subject to direction by the commission; Staff is instead an autonomous participant making presentations to the Commission and eliciting rulings from it. We see no reason to treat a stipulation between Staff and PNM (or any other party) on the outcome of the case any differently than a stipulation as to any other matter in the course of the proceedings, or any differently than a stipulation between two ordinary parties.

In many cases, the only party before the Commission is the applicant, or, if the Commission has initiated the proceeding, the respondent. To say that...