Montana Consumer Counsel v. Public Service Commission
| Decision Date | 17 October 1975 |
| Docket Number | No. 12944,12944 |
| Citation | 168 Mont. 180,32 St.Rep. 1026,541 P.2d 770 |
| Parties | , 11 P.U.R.4th 476 MONTANA CONSUMER COUNSEL, Geoffrey L. Brazier, Plaintiff and Respondent, v. PUBLIC SERVICE COMMISSION of Montana et al., Defendants and Respondents, and The Montana Power Company, a corporation, Intervenor Defendant and Appellant. |
| Court | Montana Supreme Court |
Robert D. Corette, argued, and Kendrick Smith, argued, Butte, J. J. Burke, appeared, and Mark A. Clark, appeared, Butte, for appellant.
William E. O'Leary, argued, Helena, Russell L. Doty, Jr., Helena, Geoffrey L. Brazier, appeared, Helena, Charles H. Dickman, appeared, Helena, for respondents.
On August 30, 1974, the Montana Public Service Commission by Rate Order #4147 authorized the Montana Power Company to increase its charges for natural gas services to all classes of customers in an amount equal to its increased costs of purchased gas and increased royalties paid to gas producers. Montana Consumer Counsel appealed this order to the district court Lewis and Clark County, under the provisions of the Montana Administrative Procedure Act. The district court reversed, holding the rate order invalid. The Montana Power Company now appeals from the judgment of the district court.
A brief background will illuminate the issues on appeal and place this controversy in perspective.
In 1972 the Montana Power Company, a public utility, applied to the Public Service Commission, the state regulatory agency, for an increase in rates charged for gas and electric service. A full scale hearing was held before the Commission in which the entire rate structure of the Company was examined. On September 5, 1972, the Commission entered Rate Order #4068 which, insofar as natural gas rates are concerned, provided:
(1) Approval of a 6.6% rate of return, (2) approval of a $2,246,064 increase in net annual earnings, (3) approval of a tax adjustment clause, (4) approval of a 'Cost of Purchased Gas Adjustment Clause' authorizing the Company to increase or decrease its charges for natural gas service in an amount equal to any increase or decrease in the cost of purchased gas, subject to review by the Public Service Commission. A system of periodic review and revision of the charges in the approved schedule was provided.
In 1973 the Company filed with the Commission an application for implementation of the 'Cost of Purchased Gas Adjustment Clause' in the 1972 rate order to compensate for increased costs of purchased Canadian gas. A hearing was held before the Commission limited to increases in the cost of purchased Canadian gas since the 1972 rate order pursuant, to the 'Cost of Purchased Gas Adjustment Clause'. The hearing did not include an overall examination of the rate structure of the Company's natural gas operations, nor did it include consideration of gas reserves owned by the Company or cost of service studies of Montana Power Company natural gas operations.
On July 18, 1973 the Commission entered Rate Order #4114 authorizing an increase in charges for natural gas service to industrial contract customers, general service customers, and other contract customers of Montana Power Company and to contract customers and nonresidential customers of the Great Falls Gas Company, all according to a formula based on monthly statements of the Company and quarterly and annual adjustment of various factors in the formula. No increase was authorized in charges to residential customers as it was determined that the need for Canadian gas purchases was created by nonresidential customers who should bear the increased costs.
In 1974 the Company filed an application with the Commission for authority to increase its rates for natural gas service to all classes of its customers on an equal MCF (1000 cubic foot) basis by the amount of increased expense incurred by the Company in the cost of purchased Canadian and Montana natural gas and by the amount of increased royalty expense paid to Canadian and Montana gas producers.
Montana Consumer Counsel filed an appearance and opposed the Company's application throughout. Other appearances were made by the Anaconda Company, Ideal Basic Industries, Inc., Stauffer Chemical Company, the Great Falls Gas Company, Jimmy Shea, and Walter J. Reisig. A so-called 'mini hearing' was held before the Commission limited to increases in the cost of natural gas purchased from Canadian and Montana sources by the Company and increases in royalty payments paid by the Company to Canadian and Montana gas producers. No examination was permitted into the rate structure of the Company's natural gas operations or the rate of return to which the Company was entitled.
On August 30, 1974 the Commission issued Rate Order #4147 providing in material part as follows:
(1) That the Company was not applying for an increase under the 'Cost of Purchased Gas Adjustment Clause' in the 1972 rate order, but was applying for an increase in the same amount as the increase in specific expense items, viz. cost of purchased gas and royalty payments.
(2) That for the year commencing July 1, 1974 the projected increases in costs are: (a) Canadian natural gas-at least $8,760,611, (b) Montana natural gas-at least $1,214,547, (c) royalty payments to Canadian producers-at least $1,676,340, (d) royalty payments to Montana producers-at least $336,046 (the total is rounded off to at least $11,988,000 hereafter).
(3) The increased costs are to be borne by all classes of customers on an equal MCF basis.
(4) The actual costs and volumes of gas purchased and royalties paid are to be reported monthly by the Company and billings adjusted accordingly.
(5) That any resulting increase in revenue to the Company will not result in an increase in Company earnings.
(6) That the application for increase by the Company was granted accordingly.
Montana Consumer Counsel appealed rate order #4147 to the district court, Lewis and Clark County. Judicial review was sought under the provisions of the Montana Administrative Procedure Act. Section 82-4201 et seq., R.C.M.1947. The Public Service Commission and its members were named as defendants. The Company was permitted to intervene on the side of defendants. Additional testimony and exhibits were received at the district court hearing.
It is important to note that the district court did not rule on the merits of the increased charges to the Company's customers. The district court simply held the rate order invalid because it contained an 'automatic adjustment clause' and procedure; a full scale hearing was not held; and 'due process' was denied because of constitutional, statutory, and rule violations by the Public Service Commission in proceedings leading to the rate order.
Consumer Counsel contends that the Commission is without power and jurisdiction to issue the 1974 rate order on the basis of a so-called 'mini hearing' limited to consideration of four expense items only, namely costs of purchased Canadian gas, costs of purchased Montana gas, Canadian royalty costs, and Montana royalty costs. He maintains that Montana statutes establishing the Commission and providing its powers and duties require a full scale hearing and examination of all revenue and expense accounts of the Company to determine whether the proposed rates and charges are just and reasonable. The substance of his argument, as we understand it, is that the Commission is without power to approve a utility rate increase without conducting a full scale hearing and examination of all factors that affect a fair rate of return for the Company.
The district court's reasoning appears to be similar. Its decision points out that the Commission rate order was not made after examination of all factors which could affect the fair rate of return to the Company as required by Montana statutes and court decisions; that the 1974 rate order presupposes there has been no change since 1972 in other factors affecting a fair rate of return; and that a rate change can be effective only after a full rate hearing which Consumer Counsel requested but was denied.
In the instant case it is important to note that the Company is not seeking an increased rate of return or increased net annual earnings. The 1972 rate order established 6.6% as a fair and reasonable rate of return and net annual earnings of $7,662,600 to achieve this rate of return. The 1972 rate order was made after a full scale hearing into the general rate structure of the Company and consideration of all factors affecting the Company's rate of return.
In the instant application the Company seeks to 'pass through' to its customers the substantial increases it has experienced in specific expense items, namely, the costs of purchased gas and royalties paid to gas producers, commencing July 1, 1974. According to the Company's application, these increased costs are due primarily to the action of the Canadian government in raising prices for gas exported from Canada, which in turn is reflected in corresponding increases in prices the Company must pay for Montana gas, and royalties it must pay to Canadian and Montana producers to insure an adequate supply of gas for its Montana customers. The Company's application indicates an estimated annual increase in these expense items commencing July 1, 1974, of at least $11,988,000.
The regulation and supervision of public utilities and the rates they charge their customers are legislative functions conferred upon the Montana Public Service Commission by section 70-101 et seq., R.C.M.1947. The Commission is left to determine the method and means of exercising these functions within the scope of this delegation of power; the Commission has been granted broad power 'to do all things necessary and convenient in the exercise of the powers by this act conferred upon the commission * * *.' Section 70-104, R.C.M.1947.
A procedure is established for filing '(rate) schedules which...
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