Garkane Power Ass'n v. Public Service Com'n of Utah

• Decision Date: 11 April 1984
• Docket Number: No. 17461,17461
• Citation: 681 P.2d 1196
• Parties: GARKANE POWER ASSOCIATION, a Rural Electric Cooperative, Plaintiff, v. PUBLIC SERVICE COMMISSION OF UTAH, Milly O. Bernard, David R. Irvine and Brent H. Cameron, Commissioners of the Public Service Commission of Utah, Division of Public Utilities and CP National, Defendants.
• Court: Utah Supreme Court

Page 1196

681 P.2d 1196

GARKANE POWER ASSOCIATION, a Rural Electric Cooperative, Plaintiff, v. PUBLIC SERVICE COMMISSION OF UTAH, Milly O. Bernard, David

R. Irvine and Brent H. Cameron, Commissioners of the Public

Service Commission of Utah, Division of Public Utilities and

CP National, Defendants.

No. 17461.

Supreme Court of Utah.

April 11, 1984.

George K. Fadel, Bountiful, for plaintiff.

David L. Wilkinson, Atty. Gen., Craig R. Rich, Salt Lake City, for Div. of Public Services.

James L. Barker, Jr., Salt Lake City, for Comm. of Consumer Service.

David J. Jordan and Grant Macfarlane, Jr., Salt Lake City, for CPN.

PER CURIAM:

This case is a Writ of Review of a Report and Order of the Public Service Commission of Utah pursuant to U.C.A., 1953, § 54-7-16. The plaintiff, Garkane Power Association (Garkane), seeks reversal of the order by the defendant, the Public Service Commission (PSC), requiring that Garkane refund money received from wholesale sales of electric power to the defendant, CP National Corporation (CPN), under a contract between Garkane and CPN. We affirm.

Garkane is a cooperative association that owns and operates facilities for both generation and transmission of electric power in south-central Utah, primarily Wayne, Garfield, Paiute and Kane Counties. As an electrical cooperative, Garkane receives financing from the Rural Electrification Administration (REA). CPN is a public utility distributing power at retail to Utah consumers in Washington, Iron and Kane Counties, and to Arizona consumers in the town of Fredonia. Fredonia, Arizona, is four miles south of the Kane County, Utah-Arizona border and just seven miles south of CPN's only Kane County consumers in the town of Kanab, Utah. CPN does not have transmission facilities to serve its consumers in Kanab and Fredonia. Garkane does have transmission facilities in that geographical area. Therefore, since 1966, CPN has contracted with Garkane to supply and transmit power at wholesale to Kanab and Fredonia for CPN. CPN is not a member of the Garkane cooperative association and is Garkane's only wholesale customer.

Garkane sold power to CPN at a firm rate for ten years. When that contract expired in 1976, the parties entered an interim agreement during negotiations for a new contract. The interim arrangement specified that Garkane was to provide power to CPN with charges to "parallel the charges and provisions of Utah Power & Light Company's Resale Service Schedule RS-1" until "we can execute the new agreement." ¹ On August 10, 1977, Garkane sent a "letter of agreement" to CPN, which CPN signed and subsequently filed with the PSC. This letter, the only documentation of the parties' new contract and the basis of the present controversy, provided (1) for both parties to undertake improvements in their facilities, (2) for a power exchange whereby CPN would supply Garkane's consumers in Colorado City, Arizona (two miles south of the Washington County, Utah-Arizona border), in exchange for a portion of the power supplied by Garkane to CPN's Kanab-Fredonia consumers, and (3) for the rates at which Garkane would supply power at wholesale to CPN:

Garkane will sell power and energy hereunder at the monthly demand and energy rate set forth in the attached UP & L Rate Schedule RS-2, or any approved revision thereof, plus the appropriate fuel adjustment charge each month ....

Attached to the letter was a schedule entitled "Schedule RS-2 Resale Service-High Voltage" issued by Utah Power & Light Company (UP & L). CPN sent a copy of this letter of agreement to the PSC on October 31, 1977. The PSC took no action.

From August 1976 to August 1977, CPN paid the interim RS-1 rate. From September 1977 to November 1977, CPN paid the RS-2 rate. In November 1977, UP & L raised its RS-2 rate. Garkane's billing to CPN reflected the corresponding increase, which CPN paid apparently without protest from December 1977 through October 1978. In July 1978, the Federal Energy Regulatory Commission (FERC) issued an order which reduced UP & L's wholesale rates (both RS-1 and RS-2), specified new rates with a lower rate of return, and ordered a refund for the period from August 1, 1976, to October 25, 1978. Pursuant to the FERC order, Garkane received a refund of approximately $28,000 from UP & L for the power it had purchased for resale to CPN during the period of the higher, disallowed rates.

Both Garkane and CPN are experienced electric utilities and were well acquainted with the practices of the FERC during the time in question. In general, the FERC requires all utilities subject to its jurisdiction to file rate changes that become effective subject to subsequent hearing and refund. If the rate is found to be excessive on the basis of evidence offered at the hearing, the FERC determines a just and reasonable rate, which is made effective retroactively to the date of the original filing. The FERC also orders the utility to pay to its customers refunds of the difference between the provisional and final rates received during the time between the original filing and the FERC order. This time is referred to as the "refund period."

After the July 1978 order from the FERC, which reduced UP & L's RS-1 and RS-2 rates and specified a period for which UP & L would owe refunds to its customers, CPN calculated the refund it considered due from Garkane by applying the RS-1 and RS-2 rate reduction to all sales of power from Garkane to CPN, plus interest, for a total refund of $161,568.90. Garkane refused to pay, asserting that, at most, the reduction applied to the portion of power sold to CPN that had been purchased from UP & L, i.e., the power worth $28,000, which amount was refunded to Garkane by UP & L. In the meantime, CPN paid for power supplied by Garkane at the new, reduced RS-2 rate.

In April 1979, while this dispute continued, CPN requested an acknowledgment or approval from the PSC of the August 1977 "letter of agreement." Receiving no response, CPN again requested PSC approval in August. The refund dispute came to the attention of the Division of Public Utilities, and on September 13, 1979, the Division filed a petition before the PSC for "an order to show cause why a refund should not be made by Garkane Power Association to CP National Corporation, and why CP National Corporation should not pass-through the refund to its customers in Kane County, Utah." On October 1, 1979, the PSC notified CPN by letter that the PSC approved the August 10, 1977 letter of agreement between Garkane and CPN and would take no formal action with regard to the matter. The Order to Show Cause was issued on November 26, 1979, and a hearing was held before the PSC on January 18, 1980. At that hearing, Garkane challenged the jurisdiction of the PSC. The parties were requested to submit briefs on that issue, and another hearing was set for March 3, 1980.

At both hearings, the PSC heard testimony regarding the parties' dealings with each other and their intentions at the time the August 1977 letter of agreement was signed. Documents were presented showing the parties' billing and payment history. Testimony was heard regarding the general nature of Garkane's business and sources of power. CPN argued that the parties intended the RS-2 rate to "track" with rate schedule revisions instigated by UP & L and that the "tracking" process included the possibility of a rate reduction and possible refunds, because both parties knew that the UP & L rates were subject to those eventualities under FERC procedures. CPN asserted that PSC jurisdiction to order a refund is based on U.C.A., 1953, § 54-7-20(1), ² which provides that the PSC may order reparations when a public utility has charged an amount in excess of the rate on file with PSC. When the FERC determined that UP & L's RS-1 and RS-2 rates were excessive, CPN argued, this meant that the RS-1 and RS-2 rates as charged by Garkane were excessive and had been from the beginning. Thus, Garkane had been charging in excess of the (revised) rate on file, and a refund was due based on the total power sold to CPN. Garkane contended that it had never charged rates in excess of the filed rate. Because the FERC's determination that UP & L's rates were excessive was based on evidence of UP & L's financial requirements, Garkane argued that the retroactive application of a lower rate and the ordering of a refund were inapplicable to Garkane's rate, i.e., the FERC order was directed to UP & L only, regardless of parallel charges being made by Garkane. Garkane further asserted that, as it had never charged in excess of the filed rate, the PSC was without jurisdiction to order a refund. In addition, Garkane argued that since the contract in question dealt with an interstate wholesale transaction, the PSC was without jurisdiction because of the FERC's exclusive jurisdiction regarding the regulation of interstate wholesale rates.

On September 23, 1980, the PSC issued its report and order. In its Findings of Fact, the PSC stated that the Garkane-CPN contract was "made in contemplation of rate adjustments by FERC and that UP & L schedules adopted by the parties were expressly subject to increases or decreases and refunds if the rates were adjusted downward," that Garkane had charged in excess of the filed contract rate, which was decreased retroactively by the FERC order, and that CPN had correctly calculated the amount of the refund as $161,568.90. In its Conclusions of Law, the PSC declared that it had jurisdiction over the parties and the subject matter, restated its interpretation of the contract, and concluded that this was an appropriate case for reparations. Garkane was ordered to pay to CPN $161,568.90 with interest at 10% per annum from the date of the order.

The scope of review by this Court with regard to an order or decision by the PSC is determined by statute and has been restated in our case law. See U.C.A., 1953, § 54-7-16; Utah Dept. of Admin....