In Matter of Comm'n Investigation v. State Corp. Comm'n

• Decision Date: 11 March 1999
• Docket Number: 25-378
• Citation: 980 P.2d 37
• Parties: IN THE MATTER OF A COMMISSION INVESTIGATION INTO THE 1997 EARNINGS OF U S WEST COMMUNICATIONS, INC. IN NEW MEXICO U S WEST COMMUNICATIONS, INC., Petitioner, v. NEW MEXICO STATE CORPORATION COMMISSION, Respondent, and PATRICIA A. MADRID, NEW MEXICO ATTORNEY GENERAL Intervenor-Respondent.Opinion Number: 1999-IN THE SUPREME COURT OF THE STATE OF NEW MEXICO Filing Date:
• Court: New Mexico Supreme Court

IN THE MATTER OF A COMMISSION INVESTIGATION INTO THE 1997 EARNINGS OF U S WEST COMMUNICATIONS, INC. IN NEW MEXICO U S WEST COMMUNICATIONS, INC., Petitioner v NEW MEXICO STATE CORPORATION COMMISSION, Respondent, and PATRICIA A. MADRID, NEW MEXICO ATTORNEY GENERAL Intervenor-Respondent

Docket No. 25,378

Opinion Number: 1999-NMSC-016

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Filing Date: March 11, 1999

REMOVAL FROM THE NEW MEXICO STATE CORPORATION COMMISSION

Montgomery & Andrews, P.A.

Thomas W. Olson, Sarah M. Singleton, Andrew S. Montgomery, Santa Fe, NM, U S West Communications, Inc., Lynn Anton Stang, Denver, CO for Petitioner

Hon. Patricia A. Madrid, Attorney General, Richard Weiner, Assistant Attorney General, Karen L. Fisher, Assistant Attorney General, Charles F. Noble, Assistant Attorney General, Santa Fe, NM for Respondent

Hon. Patricia Madrid, Attorney General, Stuart M. Bluestone, Assistant Attorney General, Dana David, Assistant Attorney General, Santa Fe, NM for Intervenor-Respondent

OPINION

MINZNER, Chief Justice.

{1} U S West Communications, Inc. challenges the May 29, 1998, order of the New Mexico State Corporation Commission that requires an interim rate reduction in the amount of $22,350,000 annually to be spread equally across the dial tone rate for U S West's residential and business customers. U S West asserts that the Commission's order must be annulled and vacated because it resulted from proceedings that violate U S West's constitutional right to due process. In particular, U S West contends that the Commission did not give U S West adequate notice and opportunity to be heard before imposing a rate reduction, as evidenced by (1) the absence of any reference to a rate reduction in the Commission's notice of hearing, (2) the failure of the Commission's staff to identify its witness prior to the hearing, and (3) the lack of any precedent for imposing a rate reduction without all the trappings of a general rate case. U S West also contends that the Commission's order was tainted by bias and prejudgment, as evidenced by (1) the comments attributed to a commissioner in a newspaper article, and (2) the decision of the Commission's counsel to accept an offer of employment with one of U S West's competitors while the rate investigation was pending.

{2} The Commission's May 29 order was removed to this Court for review pursuant to Article XI, Section 7 of the New Mexico Constitution (as amended 1982). Noting our jurisdiction under Article XI, Section 7, see Attorney Gen. v. New Mexico State Corp. Comm'n (In re Rates and Charges of U S West Communications, Inc.), 121 N.M. 156, 160, 909 P.2d 716, 720 (1995) [hereinafter U S West 1995], we determine that the Commission had the authority to order an interim rate reduction without first bringing a general rate case to completion. While such authority to grant interim rate relief cannot be lawfully exercised without the procedural safeguards required by the Due Process Clause, U.S. Const. amend. XIV, § 1, in this case we determine that U S West was given the process that it is due. Therefore, we affirm the Commission's order granting interim rate relief.

I. BACKGROUND

{3} On April 1, 1998, U S West filed its New Mexico Annual Report for the year ending December 31, 1997. On the same date that the annual report was filed, the Commission issued a notice of hearing and order stating its intent to "conduct an investigation to determine whether [U S West] is earning a return in excess of the authorized return on rate base of 10.85% and the authorized return on equity of 12.4% set by the Commission in Docket No. 92-227-TC." The notice of hearing and order stated that "[a] hearing will be held on April 16, 1998 . . . [to] hear [U S West's] case in support of the propriety of its earnings for the year ending December 31, 1997, and for such other evidence and testimony that would give the Commission information to assist it in determining what further action would be appropriate and in the public interest." The notice of hearing and order instructed U S West to file copies of "the sworn testimony and underlying data and information (including work papers)" that it intended to present at the hearing by April 8, 1998. The Commission also entered an order protecting confidential information submitted by U S West from disclosure to the public.

{4} At U S West's request, the Commission granted an extension of time that allowed U S West to prefile its testimony on April 10, 1998, and moved the hearing date back to April 21, 1998. On April 9, 1998, the Commission's staff filed its first interrogatories and requests for production of documents to U S West. The next day, U S West prefiled the direct testimony of its two witnesses, George Redding and Mary Owen. U S West filed a corrected copy of Mr. Redding's and Ms. Owen's testimony on April 13, and the filing of U S West's response to the Commission staff's first set of data requests and requests for production of documents followed the next day. On April 15, 1998, the Attorney General moved to intervene in the proceeding. The Attorney General's motion was granted the next day. On April 20, 1998, one day prior to the hearing, the Commission's staff prefiled its exhibits.

{5} At the April 21 hearing, U S West made an opening statement and presented its two witnesses, Ms. Owen and Mr. Redding, who summarized their prefiled testimony. The gist of this testimony was that U S West's overearnings in 1997 were likely to be offset by the company's anticipated losses or revenue reductions in future years. After summarizing their prefiled testimony, Ms. Owen and Mr. Redding were examined by the Commission and cross-examined by the Commission's staff and the representative from the Attorney General's office.

{6} Thereafter, the Commission's staff announced its intent to call Gary Roybal as a witness. U S West objected to Mr. Roybal's testimony on the grounds that "[w]e were not ever informed that Staff would be proposing a witness. We have not been provided any testimony. . . . [W]e were not advised that they would be tendering a witness in this matter. And that greatly prejudices our ability to cross-examine this witness." After a brief colloquy, the Commission ruled that "[w]e're going to have Mr. Roybal testify as a witness for [the] Staff. [The Staff] can have direct examination and the other parties will have cross-examination."

{7} On direct examination, Mr. Roybal testified regarding Staff Exhibits 1 through 4, which consisted of tables summarizing information from U S West's annual reports. Based on the information in these exhibits and the testimony presented by U S West's witnesses, Mr. Roybal concluded that "the existing rates that were approved in [Docket No.] 92-227 are no longer just and reasonable, that they are resulting in . . . a rate of return that is above [the rate] authorized in that proceeding." In his testimony, Mr. Roybal also noted that U S West's earnings "going from 1995 on forward" indicated a trend toward earning more than the authorized rate of return. For this reason, Mr. Roybal recommended that the Commission adjust the rates "to a level that would result in a . . . return on equity to 12.4 percent that was authorized in the last rate case." Cross-examination then ensued concerning whether the data on which Mr. Roybal's conclusions were based adequately supported his recommendation that rates be reduced, and whether the Commission had the authority to order a reduction in rates before completing all phases of a general rate case.

{8} At the conclusion of the April 21 hearing, the Commission instructed the parties to submit proposed findings of fact and conclusions of law that addressed, among other things, the issue of whether the Commission could order an immediate, interim rate reduction. The parties responded with their briefs and proposals on May 21, 1998.

{9} The day before its proposed findings and conclusions were submitted, U S West moved to disqualify Commissioner Bill Pope from hearing and deciding the matter. U S West's motion alleged that Commissioner Pope had prejudged the matter as evidenced by comments attributed to him that were published in the May 11, 1998, issue of the Albuquerque Journal. The Commission denied U S West's motion to disqualify Commissioner Pope.

{10} The Commission issued its Findings of Fact, Conclusions of Law, and Order on May 29, 1998. The Commission found that, based upon the testimony of U S West's witness, Mr. Redding, at the April 21 hearing, U S West's "net revenue for 1997 exceeded [the utility's] authorized net revenue by $13.10 million," which "translates into $22,350,000 of gross revenue." The Commission also noted that, according to annual reports from prior years, U S West earned $2,821,000 in excess of its authorized earnings in 1995, and $4,267,000 in excess of its authorized earnings in 1996. According to the Commission's findings, the authorized return to total common equity for U S West in the 1992 rate case is 12.4%. In contrast, the 1997 annual report appeared to show a return to total common equity of 14.08%, and Mr. Redding testified at the April 21 hearing that U S West's return to total common equity for 1997 was actually 19.43%. Further, the Commission found that U S West's claims of anticipated losses or revenue reductions in future years was not credible because U S West had not provided sufficient data to support them and had failed to account for other significant events that could have a positive impact on the company's future earnings. The Commission found that U S West did "not have a 1998 business plan for New Mexico that supports the utility's claims that its revenue will decrease in 1998."

{11} Based on these findings, the Commission concluded that "[a] reduction in [U S West's] rates is necessary at this time so that the rates of the utility are just and reasonable," and that U S West's ...