City of Montrose v. Public Utilities Com'n of State of Colo., 84SA532

• Citation: 732 P.2d 1181
• Decision Date: 23 February 1987
• Docket Number: No. 84SA532,84SA532
• Parties: The CITY OF MONTROSE, Colorado, Petitioner-Appellant, v. PUBLIC UTILITIES COMMISSION OF the STATE OF COLORADO, and Daniel E. Muse, L. Duane Woodard, Edythe S. Miller, individually and as commissioners thereof, and Rocky Mountain Natural Gas Co., Inc., Respondents-Appellees.
• Court: Supreme Court of Colorado

Page 1181

732 P.2d 1181

The CITY OF MONTROSE, Colorado, Petitioner-Appellant, v. PUBLIC UTILITIES COMMISSION OF the STATE OF COLORADO, and Daniel E. Muse, L. Duane Woodard, Edythe S. Miller,

individually and as commissioners thereof, and Rocky

Mountain Natural Gas Co., Inc., Respondents-Appellees.

No. 84SA532.

Supreme Court of Colorado,

En Banc.

Feb. 23, 1987.

John R. Kappa, City Atty., Montrose, for petitioner-appellant.

Duane Woodard, Atty. Gen., Charles B. Howe, Chief Deputy Atty. Gen., Richard H. Forman, Sol. Gen., Eugene C. Cavaliere, Deputy Atty. Gen., Denver, for respondents-appellees.

LOHR, Justice.

This is an appeal by the City of Montrose from a judgment of the District Court for Montrose County upholding a decision of the Public Utilities Commission on certiorari review under section 40-6-115, 17 C.R.S. (1984). The Public Utilities Commission (Commission) entered the decision following a hearing concerning revised tariffs filed by Rocky Mountain Natural Gas Company, Inc. (Rocky Mountain) for the purpose of increasing rates and charges for natural gas in its western slope service area. Pursuant to section 40-3-106(4), 17 C.R.S. (1984), enacted in 1981, the Commission had previously directed Rocky Mountain to file revised tariffs containing the provision that any franchise fees paid by Rocky Mountain to a municipality be surcharged only to customers within that municipality rather than being divided among all customers in Rocky Mountain's rate area. The City of Montrose did not challenge Rocky Mountain's rates and charges but objected to this method of surcharging franchise fees and contended in the rate proceeding that the statute on which the surcharge order was based violates several provisions of the Colorado and United States constitutions. On appeal from the Commission's decision, the district court rejected these arguments and sustained the order of the Commission. We agree that the constitutional challenges are not meritorious, and we therefore affirm the judgment of the district court.

I.

"Municipal franchise charges are sums paid to a municipality by utilities such as Rocky Mountain by agreement for the privilege of providing utility service within that municipality and of constructing and maintaining utility lines in streets, alleys and other municipal property." City of Montrose v. Public Utilities Commission, 629 P.2d 619, 621 (Colo.1981). Rocky Mountain has a franchise agreement with each municipality that it serves, including the City of Montrose (City). These franchise agreements all extend for terms of twenty to twenty-five years. In each case, the franchise charge to be paid by Rocky Mountain is either two percent or three percent of the gross receipts from sales within the municipality.

This is not the first time that these parties have been before us regarding the way that Rocky Mountain surcharges the franchise fees back to its customers. Prior to December 1975, Rocky Mountain treated the franchise fees as general operating expenses and included them within the formula used to determine its rates. Therefore, as operating expenses, all customers shared the cost of those charges. Then, in December of 1975, the Commission ordered Rocky Mountain to surcharge the franchise fees solely to customers living within the municipalities imposing the fees. Based on this order, Rocky Mountain surcharged only its customers within the City for the franchise fee negotiated with the City. The City challenged the order of the Commission and the case ultimately came before this court. On February 5, 1979, we announced our opinion in City of Montrose v. Public Utilities Commission, 197 Colo. 119, 590 P.2d 502 (1979) (Montrose I ). In Montrose I, we held that the Commission's surcharge order was unjust and discriminatory, and that it was arbitrary and capricious because it was not supported by any evidence in the record. Therefore, pursuant to the standards for judicial review set forth in section 40-6-115(3), 17 C.R.S. (1973), ¹ we directed that the surcharge order be set aside.

In April of 1979, the Commission ordered Rocky Mountain to file new tariffs, and directed that those tariffs should provide that municipal franchise fees would be surcharged to all customers and that the surcharges would be set forth on each customer's bill as a separate item. The City objected to this order, contending that the franchise fees should have been charged as operating costs and included in the formula for computing reasonable rates rather than surcharged independently. The City also objected to that part of the Commission's order requiring the surcharge to be set forth as a separate item on each customer's bill. We ultimately affirmed the decision of the district court rejecting the City's contentions. City of Montrose v. Public Utilities Commission, 629 P.2d 619 (Colo.1981) (Montrose II ).

While our decision in Montrose II was pending, the General Assembly enacted Senate Bill 139, which is codified in relevant part at section 40-3-106(4), 17 C.R.S. (1984). Section 40-3-106(4) provides:

The commission shall order a fixed public utility, except a municipally owned utility, to increase its rates only to its customers in a municipality by adding a surcharge to recover the amount such fixed public utility pays to that municipality as a cost of doing business within that municipality under a franchise or pursuant to a license or occupation tax levied by the municipality, so long as the increase in rates by such fixed public utility is pursuant to a method of surcharge approved by the commission. Occupation tax as used in this subsection (4) does not include the employer and employee tax imposed by a municipality for the privilege of employment within that municipality. ²

On July 14, 1981, the Commission issued Decision No. C81-1220 directing Rocky Mountain to file amended tariffs providing for surcharge of municipal franchise fees in the manner required by section 40-3-106(4). Three days later, on July 17, 1981, Rocky Mountain filed for a rate increase with the Commission. The City intervened in the proceedings before the Commission, known as Investigation and Suspension Docket No. 1523 (I & S 1523), concerning this requested rate increase.

On September 28, 1981, the hearing examiner entered his Recommended Decision (Decision No. R81-1623) establishing new rates and charges for Rocky Mountain. Decision No. R81-1623, however, omitted any reference as to how municipal franchise fees were to be treated. The City filed exceptions to the hearing officer's recommended decision, asserting that the hearing officer had erred in failing to enter an order concerning the treatment of municipal franchise fees, in failing to order Rocky Mountain to perform a cost of service study on a municipal/nonmunicipal basis and file new tariffs based thereon (see Montrose I, 197 Colo. at 123-24, 590 P.2d at 506), in failing to require separate municipal/nonmunicipal rates for each customer class, and in failing to order that municipal franchise fees be surcharged system-wide. The Commission, by Decision No. C81-1840, adopted the findings, conclusions and recommended order of the hearing examiner and denied the exceptions that the City had filed to the hearing examiner's recommended decision. The City filed an Application for Rehearing with the Commission, and the Commission rejected the application on November 24, 1981, in Decision No. C81-1954.

The City sought certiorari review of both Decision No. C81-1840 and Decision No. C81-1954 in the Montrose County District Court pursuant to section 40-6-115(1), 17 C.R.S. (1984). The district court rejected the numerous challenges to the constitutionality of section 40-3-106(4) advanced by the City and affirmed the decisions of the Commission. Thereafter, the City appealed to this court pursuant to section 40-6-115(5), 17 C.R.S. (1984), raising the same arguments that it presented to the district court. We now turn to the City's arguments. ³

II.

A.

The City argues that section 40-3-106(4) violates Article XXV of the Colorado Constitution because that statute is an attempt to regulate utility rates, a function delegated to the Commission by Article XXV. We disagree.

Article XXV provides:

In addition to the powers now vested in the General Assembly of the State of Colorado, all power to regulate the facilities, service and rates and charges therefor, including facilities and service and rates and charges therefor within home rule cities and home rule towns, of every corporation, individual, or association of individuals, wheresoever situate or operating within the State of Colorado, whether within or without a home rule city or home rule town, as a public utility, as presently or as may hereafter be defined as a public utility by the laws of the State of Colorado, is hereby vested in such agency of the State of Colorado as the General Assembly shall by law designate.

Until such time as the General Assembly may otherwise designate, said authority shall be vested in the Public Utilities Commission of the State of Colorado; provided however, nothing herein shall affect the power of municipalities to exercise reasonable police and licensing powers, nor their power to grant franchises; and provided, further, that nothing herein shall be construed to apply to municipally owned utilities.

Although Article XXV grants the Commission broad authority to regulate public utilities in this state, that authority is subject to restrictions that may be imposed by the legislature. Montrose II, 629 P.2d at 622; Peoples Natural Gas v. Public Utilities Commission, 626 P.2d 159, 161-62 (Colo.1981); Mountain States Legal Foundation v. Public Utilities Commission, 197 Colo. 56, 59, 590 P.2d 495, 497 (1979). In Peoples Natural Gas, we said, "Under [Article XXV], the authority of the Public Utilities Commission has been made subject to restrictions which may be imposed by the General Assembly.... Once the...