Henry v. Minnesota Public Utilities Com'n, C9-84-1950

• Decision Date: 08 August 1986
• Docket Number: No. C9-84-1950,C9-84-1950
• Parties: Evan J. HENRY, Respondent, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Petitioner-Appellant.
• Court: Minnesota Supreme Court

Page 209

392 N.W.2d 209

Evan J. HENRY, Respondent, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Petitioner-Appellant.

No. C9-84-1950.

Supreme Court of Minnesota.

Aug. 8, 1986.

Rehearing Denied Sept. 11, 1986.

Syllabus by the Court

1. The MPUC acted in this case within its statutory authority under Minn.Stat. Sec. 237.075, subd. 2 (1984) in ordering a rehearing after reaching a final determination.

2. The MPUC was not required by Minn.Stat. Sec. 237.075, subd. 2 (1984) or Minn.Rules pt. 1400.8300 (1985) to consider the issue of Northwestern Bell's corporate reorganization in a contested case proceeding. The summary procedure adopted for the rehearing in this case did not violate Henry's constitutional right to due process.

3. This court is not an appropriate forum in which to challenge the qualifications under Minn.Stat. Sec. 216A.03 (1984) of the MPUC commissioners who heard this case.

4. Northwestern Bell met its statutory burden of proof under Minn.Stat Sec. 237.075, subd. 4 (1984) as to the rate increase ordered.

Reversed in part; affirmed in part. The July 27, 1984 and the September 26, 1984 orders of the MPUC are reinstated.

Hubert H. Humphrey, III, Atty. Gen., Allen E. Giles, Karl W. Sonneman, Sp. Asst. Attys. Gen., St. Paul, Robert J. Sheran, Gary J. Haugen, Minneapolis, for Minnesota Public Utilities Com'n.

Stephen T. Refsell, Gen. Atty., Minneapolis, Joseph A. Maun, James A. Gallagher, St. Paul, for Telephone Co.

Evan J. Henry, Winona, pro se.

Richard Johnson, Michael J. Ahern, Minneapolis, amicus curiae.

Heard, considered and decided by the court en banc.

WAHL, Justice.

Northwestern Bell Telephone Company and the Minnesota Public Utilities Commission (MPUC) appeal a decision of the court of appeals reversing an order of the MPUC granting Northwestern Bell a $57 million dollar annual rate increase. The MPUC convened a rehearing and took additional evidence in a rate case brought by Northwestern Bell after the 10-month period for completion of such a case under Minn.Stat. Sec. 237.075, subd. 2 (1984) had elapsed. Evan Henry, an intervenor, appealed the MPUC's final order and adjusted final order in the case, alleging, among other claims, that these orders were based on improper procedure. The court of appeals reversed, holding the MPUC had circumvented the 10-month statutory period and that the rehearing was required to be convened as a contested case proceeding. We reverse the decision of the court of appeals on these issues and otherwise affirm. We reinstate the final order and adjusted final order of the MPUC.

The factual background of this case is complex. Northwestern Bell filed a petition with the MPUC on September 29, 1983 seeking a $109 million dollar annual rate increase and a modification of its rate structure. The MPUC suspended the proposed rate schedule and initiated a contested case proceeding. A lengthy series of hearings on the petition were held before an ALJ at locations throughout the state in January-April 1984.

While these hearings were in progress, Northwestern Bell was planning an extensive corporate reorganization. In January 1984, the company filed a corporate restructuring plan with the Federal Communications Commission. Copies of these filings were presented to the MPUC on April 26, 1984, at which time Northwestern Bell notified the commission that, as of April 30, 1984, it would incorporate a new holding company. The holding company would have as its wholly-owned subsidiary a telephone services operating company, Northwestern Bell Telephone Company, who became the petitioner in the pending rate case.

The timing of the company's notice of restructuring limited the ability of the ALJ and the MPUC to respond to the new information within the context of the pending rate case. Hearings on the petition had already been completed and the MPUC was required to issue its final determination by July 30, 1984 to meet the time limit imposed by Minn.Stat. Sec. 237.075, subd. 2 (1984). Subdivision 2 establishes a 10-month period during which a utility's proposed rates may be suspended following a petition for rate change. If the MPUC does not make a final determination concerning a schedule of rates within 10 months after the petition is filed, the rate schedule proposed by the utility is deemed approved. Id.

The ALJ called a post-hearing conference of all parties on May 14, 1984 to determine if the present record in the case adequately reflected the financial effect of the corporate reorganization. Following the conference, motions to dismiss Northwestern Bell's petition were filed with the ALJ by several intervenor parties, including Evan Henry, the respondent before this court, and the Department of Public Service (DPS). The MPUC, for its part, responded to the notice of reorganization by ordering the DPS to investigate the financial effect of the corporate restructuring on the pending rate petition. ¹ Subsequently, Northwestern Bell entered into a stipulation with the DPS, agreeing that the effect of the reorganization should be considered in the evidentiary record of the rate proceeding and agreeing not to contest the DPS' recommendations to the MPUC as to the amount of any rate adjustment needed to account for the financial effect of the corporate reorganization. The DPS thereafter withdrew its motion to dismiss.

Before the DPS investigation was concluded and its report submitted, however, the ALJ recommended to the MPUC that the rate petition be dismissed. In the considered opinion of the ALJ, the financial effect of the corporate reorganization was likely to be substantial and had to be considered before any decision on the rate petition could be made. The ALJ stated he did not have sufficient time to hold hearings on the reorganization before the 10-month statutory period expired. He concluded that Northwestern Bell, by failing to introduce sufficient evidence into the present record on which a final determination could be reached, had not met its statutory burden of proof and he recommended the rate petition be dismissed on this ground.

The MPUC, on receiving this recommendation, informed the ALJ that it had decided to address the restructuring issue within the context of the pending proceeding. The commission stated it would render a decision on the present record within the 10-month period and then, on its own motion, reopen the proceeding for hearings on the restructuring issue. The ALJ was asked to submit recommendations on the substantive issues in the rate case, excluding consideration of the effect of the corporate restructuring. The ALJ thereafter submitted a second report, recommending that Northwestern Bell be awarded $57,511,000 in increased annual revenues and that a new rate structure be imposed. Based on these recommendations, the MPUC issued a final determination in the rate case on July 27, 1984, authorizing the recommended rate increase and adopting the recommended rate structure. The July 27, 1984 final order was issued within the required 10-month period.

The DPS submitted its report to the MPUC on the financial effect of the corporate restructuring on August 1, 1984, recommending a downward adjustment of $371,000 to the rate increase previously ordered. Shortly thereafter, this figure was revised to $363,000. The MPUC, on its own motion, ordered a rehearing and a reopening of the record for the purpose of receiving into evidence the DPS report and to determine if a further evidentiary hearing and separate contested case proceeding regarding the financial effect of the corporate restructuring were required. At the rehearing, no party objected to the amount of the DPS' proposed adjustment. Evan Henry objected to the rehearing procedure, alleging the MPUC did not have authority to reopen the proceeding after it had issued a final determination. He renewed his motion to dismiss the petition and the MPUC denied the motion. An adjusted final order incorporating the downward adjustment was issued by the MPUC on September 26, 1984, almost 12 months after the rate petition had been filed. This appeal followed and Henry prevailed before the court of appeals.

The MPUC and Northwestern Bell raise four issues before this court:

1. Did the MPUC act within its statutory authority under Minn.Stat. Sec. 237.075, subd. 2 (1984) in ordering a rehearing after reaching a final determination?

2. Was the MPUC required by either Minn.Stat. Sec. 237.075, subd. 2 (1984) or Minn.Rules pt. 1400.8300 (1985) to consider the issue of Northwestern Bell's corporate reorganization in a contested case procedure and did the summary procedure adopted for the rehearing in this case violate Henry's constitutional right to due process?

3. Did the composition of the MPUC who heard this case satisfy the requirements of Minn.Stat. Sec. 216A.03 (1984)?

4. Did Northwestern Bell meet its burden of proof under Minn.Stat. Sec. 237.075, subd. 4 (1984) as to the rate increase awarded?

I.

The MPUC and Northwestern Bell seek reinstatement of the July 27, 1984 final order and the September 26, 1984 adjusted final order of the MPUC. The court of appeals reversed the orders as based on improper procedure in that the MPUC did not have statutory authority to order a rehearing after reaching a final determination in a rate case. An agency determination based upon unlawful procedure or affected by an error of law will be overturned if the substantial rights of the person challenging that determination have been thereby prejudiced. Minn.Stat. Sec. 14.69 (1984).

Minn.Stat. Sec. 237.075, subd. 2 (1984) provides that after a petition for a rate change has been filed, the MPUC may, while considering the petition, suspend the proposed rates, but not for a longer period than 10 months. If the commission does not make a final determination concerning a schedule of rates within 10 months after the initial filing date, the utility's proposed schedule is "deemed to have been approved." Id. ...