Committee of Consumer Services v. Public Service Commission

Decision Date10 May 1979
Docket NumberNo. 15835,15835
Citation595 P.2d 871
PartiesCOMMITTEE OF CONSUMER SERVICES, Utah Department of Business Regulation, Division of Public Utilities, and Salt Lake County, Petitioners, v. PUBLIC SERVICE COMMISSION of Utah, Milly O. Bernard, Chairman, Olof E. Zundel, Commissioner, and Kenneth Rigtrup, Commissioner, Respondents, Mountain Fuel Supply Company, a Utah Corporation, Wexpro Company, a Utah Corporation, and Alex Oblad, Harold Burton and Carlyle Harmon, Mountain Fuel Shareholders, Intervenors-Respondents.
CourtUtah Supreme Court

Daniel L. Berman, Sp. Asst. Atty. Gen., James L. Barker, Stephen Randle, Asst. Attys. Gen., Marcus A. Theodore, Deputy Salt Lake County Atty., Salt Lake City, for petitioners.

G. Blaine Davis, Asst. Atty. Gen., Salt Lake City, for Public Service Comm.

R. G. Groussman, Robert S. Campbell, Calvin L. Rampton, Edward W. Clyde, Salt Lake City, for intervenors.

MAUGHAN, Justice:

Petitioners seek review of an order of the Public Service Commission approving an amended purchase and sale agreement, and an amended joint exploration agreement. Both of these were modified by the Commission. They related to Mountain Fuel Supply and its wholly owned subsidiary, Wexpro. The order is reversed and the matter is remanded for a hearing in accordance with the principles set forth in this opinion. All statutory references are to U.C.A.1953.

The order was predicated on the validity of the classification by Mountain Fuel of its utility and non-utility assets, and the conclusion the Commission had no jurisdiction over the non-utility assets and the transfer of those assets to a non-utility corporate entity. These conclusions were premised on the erroneous assumption there was no correlation or connection between the contributions by the ratepayers, through an annual exploration and development expense included in the rate base, and the ensuing benefits from this program.

The key to the nature of misunderstanding of the majority of the Commission is well expressed in the dissent of Commissioner Rigtrup, who stated:

The Commission's Report and Order represents a fundamental abdication by the Commission of its statutory responsibility to protect the public interest. The result of this abdication, which allows the transfer to an unregulated company of well over $150 million worth of assets discovered and developed with funds provided by the ratepayers of this state, under prior order of this Commission, can only be characterized a regulatory outrage.

In the conclusion to his dissent, Commissioner Rigtrup stated:

. . . I would conclude that the exploration acreage held by Mountain Fuel over the years was used or useful in its natural gas utility business, and should have always been classified as utility assets. The fact that revenues from 'oil' or other liquid hydrocarbons have become very significant during the last few years does not change the basic character of those assets. However, it appears that the shareholders of Mountain Fuel have come to expect an unregulated return from oil properties, for which the risk capital was largely derived in rates charged its customers as ordered by the Commission. . . .

In evaluating the order of the Commission, it is important to review the two avowed purposes of Mountain Fuel in creating Wexpro: first, to provide and maintain a vigorous exploration program in order that Mountain Fuel might secure natural gas reserves for the future; second, "to remove regulatory uncertainty from the non-utility properties of the company which has hung like Damocles (sic) sword over the properties and assets of Mountain Fuel since 1972."

The latter purpose was the consequence of a finding by the Commission, in a report and order of January 14, 1974, that the oil operations were so incidental to and inseparable from the production and sale of natural gas as to be part of Mountain Fuel's utility operations; and any other treatment would be purely arbitrary, conjectural, and speculative. The Commission had ordered the investments, revenues, and expenses of the oil operations be included in the appropriate utility accounts, for rate-making purposes. Subsequently, the Commission had rescinded the order for the "roll in" of the oil properties, but the findings were not rejected. These findings, in regard to the inseparable nature of the oil and gas operations, were the sword of Damocles Mountain Fuel sought to have beaten into a non-regulated oil derrick.

In the current order, in finding No. 42, the majority of the Commission concluded that the language of the January 14, 1974, Report and Order "with respect to the ratepayer risk, ratepayer rip-off and exploitation of Mountain Fuel customers is erroneous and should not stand as fact or law." The dissent responded it was unnecessary for the majority to overrule the prior order. The dissent stated:

. . . The attempt of Mountain Fuel to obtain a ruling in this case which it could not get in Case No. 6668 is not only an affront to the members of the former Commission, but should offend reasonable sensitivities of this Commission.

There are certain basic principles which should be reviewed prior to the evaluation of the positions of the contesting parties.

First, it is the duty of a public utility corporation to operate in such a manner as to give to the consumers the most favorable rate reasonably possible. This duty stems from the fact the State has conferred on the utility of the exclusive right to sell and distribute gas. As a consequence, the utility bears a trust relationship to its customers and must conduct its operations on that basis and not as though it were engaged in a private enterprise with no restrictions as to its income. 1

Second, under the general concepts of public utility law, risk capital is provided by the investor; it is this group which bears the risk of loss as developer of a public utility. It is only to the extent the facilities developed are used and useful to the consumer that they are included in the rate base. 2

Third, under the "no-profits-to-affiliates" rule, any amount paid as a profit by a company to any other with which it is directly or indirectly in a control relationship cannot properly be included in the rate base. The basis of the rule is that a profit made by an enterprise dealing with itself does not represent a cost. The rationale underlying this concept proceeds from a simple premise:

If the relationship between two contracting parties is so close that they lose their individual identity and are, in fact, One, there can be no 'actual legitimate cost' involved in the payment of profits, since it would be tantamount to a company's paying Itself a profit for interdepartmental services. (Citations) 3

. . . Intracompany transactions cannot be used to create an artificial or inflated price to be charged consumers. . . . 4

This Court would be remiss in its duty if it did not cite the findings of the Commission, wherein it is said Mountain Fuel has been permitted to pay itself a profit for interdepartmental services. Heretofore, under Mountain Fuel's classification system, when an oil well has been developed and has been placed in the non-utility account, the non-utility account has been credited with the field price of the associated gas rather than the cost of service price. Under the amended purchase and sale agreement, there is a provision for Mountain Fuel to purchase, at market price rather than cost of service, the gas discovered on properties acquired by Wexpro, other than transferred acreage and that which comes to it under the joint exploration agreement. This provision violates the "no-profits-to-affiliates" rule.

There are certain factual aspects which must be reviewed in order to understand previous rulings of the Commission and the patent inconsistencies in the current order. We now address them.

Mountain Fuel has maintained a utility account # 105 in which has been held the unexplored or wildcat acreage. These assets have been deemed used and useful in the utility business by the Commission and have been included as capital assets in the rate base. As previously noted a utility is usually precluded from including in the rate base any capital asset, until it is developed, and then only to the extent the asset is used and useful in rendering the consumer service.

The determination of the Commission that this undeveloped acreage was used and useful in the utility business was consistent with statutory provisions. Under 54-2-1(30), the definition of a public utility includes a gas corporation, where the gas is sold or furnished to any consumer within this state for domestic, industrial or commercial use. Under 54-2-1(18), the definition of a gas corporation includes every corporation and person owning, controlling, operating or managing any gas plant for public service, within this state, or for the selling or furnishing of natural gas to any consumer or consumers within this state for domestic, commercial or industrial use. The key definition is the statutory one of gas plant.

54-2-1(17) provides:

The term 'gas plant' includes all real estate and fixtures and personal property owned, controlled, operated or managed in connection with or to facilitate the production, generation, transmission, delivery or furnishing of gas (natural or manufactured) for light, heat, or power.

Under this broad definition, the undeveloped acreage may properly be deemed an asset of the gas plant, because it is owned to facilitate the production of gas.

As early as 1957, the Commission found funds for exploration and development were a just and reasonable expense as part of the utility function of Mountain Fuel. As a result the company maintained accounts # 795, # 796, # 797, # 798 as utility expense accounts. Covered under these direct exploration expenses were costs for lease maintenance (delayed rentals), non-productive well drilling (dry hole exploration), abandoned leases, and...

To continue reading

Request your trial
6 cases
  • Utah Dept. of Administrative Services v. Public Service Com'n
    • United States
    • Utah Supreme Court
    • January 6, 1983
    ...This Court disagreed, reversing the Commission and remanding the case for further proceedings. Committee of Consumer Services v. Public Service Commission, Utah, 595 P.2d 871 (1979), cert. denied, 444 U.S. 1014, 100 S.Ct. 664, 62 L.Ed.2d 644 (1980) (hereinafter Wexpro I After the remand, MF......
  • National Ass'n of Regulatory Utility Com'rs v. F.E.R.C.
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • July 10, 1987
    ...of this dispute and the resulting litigation in the Utah state court is set out in detail in Committee of Consumer Services v. Public Service Commission of Utah, 595 P.2d 871, 878 (Utah 1979), cert. denied sub nom. Mountain Fuel Supply Co. v. Committee of Consumer Services, 444 U.S. 1014, 1......
  • Bowie v. Louisiana Public Service Com'n
    • United States
    • Louisiana Supreme Court
    • November 29, 1993
    ...providing adequate service and that the transfer is consistent with the public's interest. Committee of Consumer Services v. Public Service Commission of Utah, 595 P.2d 871 (Utah, 1979), cert. denied 444 U.S. 1014, 100 S.Ct. 664, 62 L.Ed.2d 644 (1980); City of Catlettsburg v. Public Service......
  • Hi-Country Estates Homeowners Ass'n v. Bagley & Co.
    • United States
    • Utah Court of Appeals
    • September 22, 1993
    ...fair market value so an appropriate benefit therefrom will redound to the credit of the ratepayers." Committee of Consumer Servs. v. Public Serv. Comm'n, 595 P.2d 871, 878 (Utah 1979), cert. denied, sub nom. Mountain Fuel Supply Co. v. Committee of Consumer Servs., 444 U.S. 1014, 100 S.Ct. ......
  • Request a trial to view additional results
1 books & journal articles
  • Used and Useful Principle: Still Relevant in Utah
    • United States
    • Utah State Bar Utah Bar Journal No. 25-1, February 2012
    • Invalid date
    ...developed are used and useful to the consumer that they are included in the rate base. Comm. of Consumer Servs. v. Pub. Serv. Comm'n, 595 P.2d 871, 874 (Utah 1979) Case) (emphasis added). In the Wexpro Case, the Utah Supreme Court noted that the commission had modified the traditional princ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT