Great Western Sugar Co. v. Johnson, 5350

• Decision Date: 10 February 1981
• Docket Number: No. 5350,5350
• Citation: 624 P.2d 1184
• Parties: The GREAT WESTERN SUGAR COMPANY, a corporation, Appellant (Petitioner), v. C. E. JOHNSON, John R. Smyth, and G. Keith Osborn, constituting the Public Service Commission of Wyoming; and Montana-Dakota Utilities Co., Appellees(Respondents).
• Court: Wyoming Supreme Court

Page 1184

624 P.2d 1184

The GREAT WESTERN SUGAR COMPANY, a corporation, Appellant (Petitioner), v. C. E. JOHNSON, John R. Smyth, and G. Keith Osborn, constituting the Public Service Commission of Wyoming; and Montana-Dakota Utilities Co., Appellees(Respondents).

No. 5350.

Supreme Court of Wyoming.

Feb. 10, 1981.

John A. Sundahl of Godfrey & Sundahl, Cheyenne, for appellant.

John D. Troughton, Atty. Gen., Thomas J. Carroll, III, Sr. Asst. Atty. Gen., and Steven R. Shanahan, Asst. Atty. Gen., Cheyenne, for appellee Public Service Commission.

Edwin H. Whitehead of Urbigkit & Whitehead, P. C., Cheyenne, for appellee Montana-Dakota Utilities Co.

Before ROSE, C. J., and McCLINTOCK, RAPER, THOMAS and ROONEY, JJ.

ROONEY, Justice.

Appellant, an industrial user of gas supplied by Montana-Dakota Utilities Company (hereinafter referred to as MDU) filed a petition for review in the district court challenging an order of appellee Public Service Commission (hereinafter referred to as PSC) which granted to MDU a general rate increase ¹ and two pass-on rate adjustments. ² The district court affirmed the decision of the PSC and denied the petition for review. This appeal is from the action of the district court.

We affirm.

Appellant words the issues here presented as follows:

"1. Was the rating structure which placed a large amount of the increase in the cost of natural gas upon industrial customers unfairly discriminatory, an undue or unreasonable preference or advantage, and unjust in violation of W.S. 37-2-121, W.S. 37-3-101, and W.S. 37-3-104?

"2. Are the natural gas rates as approved by the Public Service Commission (PSC) confiscatory and a violation of due process and equal protection under Article I, Section 2, Article I, Section 6, Article I, Section 34 of the Wyoming Constitution, and the due process and equal protection clauses of the Fourteenth Amendment to the United States Constitution?

"3. Is there substantial evidence to support the finding by the Public Service Commission that the rate structure proposed by Montana-Dakota Utilities Company (MDU) was appropriate.

"4. Was there substantial evidence to support the amount of the rate increase awarded to Montana-Dakota Utilities Company?

"5. Was the finding that an increase over the amount testified by the Montana-Dakota Utility Company witness justified because the Commission used a different approach to pricing gas an adequate finding of fact and, if it was, was such a finding supporting (sic) by substantial evidence?" (Bracketed material supplied.)

These issues are predicated upon the broader position taken by appellant to the effect that the PSC acted in a discriminatory manner in not fashioning the rate structure only on a cost of service factor, the contention being that there was a lack of evidence to support the fashioning of the rate schedule on other factors such as:

" * * * value of service, availability and location of utility commodity supplies, magnitude of class use and cost of supply replacement, desired method of utility commodity use, alternate fuel capacity, ability to pay and the current gas supply situation * * * to eliminate all rates that promote large use, to minimize rate steps, and to move toward flat rates. * * * " PSC's Finding of Fact No. 25.

Stated another way, appellant contends that the PSC erred in approving a rate structure which requires industrial users of natural gas to pay for the gas on the basis of replacement costs of gas instead of on the basis of the system-wide cost of gas as do residential and small commercial users (hereinafter referred to as residential users). Appellant presents the issues as to whether or not this discrimination or distinction is unjust or unreasonable and as to whether or not the evidence supports the reasonableness of such discrimination or distinction.

DISCRIMINATION AGAINST INDUSTRIAL USERS

There is no question but that the prevention of discrimination is one of the functions of the PSC. The statutes cited by appellant so provide. However, the discrimination which is forbidden therein is characterized as that which is "unjust," "undue" or "unreasonable."

Section 37-2-121, W.S.1977 provides:

"If upon hearing and investigation, any rate shall be found by the commission to be inadequate or unremunerative, or to be unjust, or unreasonable, or unjustly discriminatory, or unduly preferential or otherwise in any respect in violation of any provision of this act, the commission may fix and order substituted therefor such rate as it shall determine to be just and reasonable and in compliance with the provisions of this act. Such rate so ascertained, determined and fixed by the commission shall be charged, enforced, collected and observed by the public utility for the period of time fixed by the commission." (Emphasis supplied.)

Section 37-3-101, W.S.1977 provides:

"All rates shall be just and reasonable, and all unjust and unreasonable rates are prohibited. No public utility shall directly or indirectly by any device whatsoever, or in anywise, charge, demand, collect or receive from any person a greater or less or different compensation for any service rendered or to be rendered by such public utility than is charged, demanded, collected or received by such public utility from any other person for a like and contemporaneous service under similar circumstances and conditions." (Emphasis supplied.)

Section 37-3-104, W.S.1977 provides:

"No public utility as to rates shall make or grant any undue or unreasonable preference or advantage to any person, locality or particular description of service, or subject any person, locality, or particular description of service to any undue or unreasonable prejudice or disadvantage. This shall not, however, be construed as prohibiting a public utility from establishing a sliding scale of charges or classification of service; provided, that such classification is not discriminatory between customers in the same class of business." (Emphasis supplied.)

Whether or not a rate is "undue" or "unreasonable" or "unjust" is a question of fact to be determined by the PSC. Pennsylvania Company v. United States, 236 U.S. 351, 35 S.Ct. 370, 59 L.Ed. 616 (1915); and Interstate Commerce Commission v. Martin Brothers Box Company, 9 Cir. 1955, 219 F.2d 811, cert. denied 350 U.S. 823, 76 S.Ct. 50, 100 L.Ed. 735 (1955).

We recently noted that rates must be fair, reasonable, uniform and not unduly discriminatory; that if the rates meet these requirements, discretion in fixing the rates was properly exercised; and that classification of users for the purpose of fixing rates is permissible if reasonable and if based on such factors as quantity received, type of service, time of use, cost of service, etc. Laramie Citizens for Good Government v. City of Laramie, Wyo., 617 P.2d 474 (1980). Appellant acknowledges the propriety of classifying customer service; that the rates for all classes need not be the same; and that the mere fact that rates are different does not, of itself, reflect unfair discrimination or preferential treatment. Such is established law. See last sentence of § 37-3-104, supra; United States Steel Corporation v. Commonwealth Public Utility Commission, 37 Pa.Cmwlth. 195, 390 A.2d 849 (1978); Application of Boise Water Corporation, 82 Idaho 81, 349 P.2d 711 (1960). Classification based upon quantity of gas used does not necessarily establish unreasonable discrimination. City of Pittsburgh v. Pennsylvania Public Utility Commission, 182 Pa.Super. 376, 126 A.2d 777 (1956); Bilton Machine Tool Co. v. United Illuminating Co., 110 Conn. 417, 148 A. 337 (1930). Classification can be based upon the purpose for which the commodity is used. Midwest Association of Automatic Laundry Stores v. The Peoples Gas Light and Coke Company, 82 P.U.R.3d 246 (Ill.1970).

But appellant contends the distinction or discrimination is unreasonable when the rate of return or profitability from one classification is disproportionate to that from another classification. Certainly, this is a proper consideration in forming a rate structure. Cost of service is an important economic factor to any utility. There is generally less cost to serve an industrial user of a large volume of gas than there is to serve several customers, each using a small amount of gas. The cost of additional lines and laterals for service to the small customers, by itself, makes for increased cost without reference to the difference in costs for maintenance, accounting, etc. Although costs of service is not the only factor to be considered in fixing rates or rate structures, we note that, with respect to natural gas, it has acquired another element. When gas was in abundant supply often "flared" and treated as a by-product, the service to large industrial users at reduced prices was a desirable adjunct to the maintenance of service to residential customers. The scarcity of the present supply has not only greatly reduced this desirability and has enhanced the importance of factors other than cost of service in measuring the reasonableness and preferential nature of a rate structure, but it has also made the increased cost of needed gas a "cost of service" in itself to the class of customers necessitating the acquisition of the new expensive gas.

Gas from new sources costs more than does that from old sources. ³ The need to obtain gas from new sources is engendered by the demand of industrial users. For this reason, MDU's rate structure places the cost of acquiring the new gas, i. e., cost of service, primarily on the industrial user. ⁴ Appellant's contention that the cost of service should be the only basis for a rate structure would, thus, support the result reached by the PSC in this case.

This follows when proper recognition is given to the fact that the use of gas for heat in residences, hospitals, schools, small commercial business locations and similar places has a higher priority than use for industrial...