Montana Power Co. v. Public Service Com'n

• Decision Date: 12 June 2001
• Docket Number: No. 00-412.,00-412.
• Citation: 2001 MT 102,305 Mont. 260,26 P.3d 91
• Parties: The MONTANA POWER COMPANY, Petitioner and Respondent, v. MONTANA PUBLIC SERVICE COMMISSION, Respondent and Appellant, Montana Consumer Counsel, Intervenor, and Large Customer Group, Intervenor and Appellant.
• Court: Montana Supreme Court

26 P.3d 91

305 Mont. 260

2001 MT 102

The MONTANA POWER COMPANY, Petitioner and Respondent, v. MONTANA PUBLIC SERVICE COMMISSION, Respondent and Appellant, Montana Consumer Counsel, Intervenor, and Large Customer Group, Intervenor and Appellant.

No. 00-412.

Supreme Court of Montana.

Argued May 3, 2001.

Submitted May 3, 2001.

Decided June 12, 2001.

Denise Peterson, Special Assistant Attorney General, Montana Public Service Commission, Helena, MT, (argued); Donald W. Quander, W. Scott Mitchell, Kyle A. Gray (argued), Holland & Hart, Billings, MT, (Large Customer Group); Robert A. Nelson (Montana Consumer Counsel), for Appellant. Patrick T. Fleming, Michael P. Manion, (argued), Montana Power Company, Butte, MT, for Respondent.

James D. Pembroke, Janice L. Lower, Duncan Weinberg Genzer & Pembroke, Washington, DC, (Central Montana Electric Power Cooperative, Inc. and Big Horn County Electric Cooperative, Inc.), for Amicus.

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 The Montana Public Service Commission (Commission) and the Large Customer Group (LCG) appeal an Order entered by the Second Judicial District Court, Silver Bow County, in favor of Respondent Montana Power Company (MPC).

¶ 2 We reverse.

¶ 3 Collectively, the issues raised by the Appellants are summarized as follows:

1. Did the District Court err in determining that the Commission's interpretation of the Electric Utility Industry Restructuring and Customer Choice Act violates MPC's constitutional right to just compensation under either the federal or the Montana Constitution takings clause?

2. Did the District Court err in concluding that the Commission incorrectly interpreted the plain language of the Electric Utility Industry Restructuring and Customer Choice Act when it denied MPC's proposed "trackers" accounting method for recovering transition costs?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 4 This case concerns the deregulation of electricity generating utilities in Montana under recent legislation.

¶ 5 Enacted in 1997, the legislation, under Title 69, Chapter 8, also known as the "Electric Utility Industry Restructuring and Customer Choice Act" (hereinafter the Act), requires utilities such as MPC to separate the generation, distribution, and transmission functions of their operations. In turn, the generation function must be deregulated, or exposed to competitive markets, whereas the functions of distribution and transmission will remain regulated by the Montana Public Service Commission.

¶ 6 The Commission, under the Act, is charged with administering this process of restructuring and deregulation. Thus, the Act requires utilities to file a deregulation "transition" plan with the Commission that comports with various deregulation requirements under the Act. In turn, the Commission must review and approve of the plan pursuant to the mandates under the Act, including issuing a final order "approving, modifying, or denying the transition plan."

¶ 7 One such requirement is that in order for a utility to recover "transition costs" it must include a proposal in its transition plan as provided under the Act. These transition costs, which may ultimately be recouped from consumers, represent "stranded" costs associated with complying with legislated deregulation that could not otherwise be recovered in the soon-to-be competitive electrical power generation market. Categories of transition costs under the Act include the "unmitigable" costs associated with qualifying facility contracts, energy supply-related regulatory assets and deferred charges that exist because of current regulatory practices, and costs related to public utility-owned generation and other power purchase contracts.

¶ 8 The Act does not guarantee utilities that all transition costs may be recovered. Rather, in order to garner approval from the Commission of these transition costs, utilities such as MPC must supply the Commission with an "affirmative showing" of these costs, and also show "reasonable mitigation." A proposal for transition cost recovery would invariably involve estimating some costs that have yet to accrue, and therefore remain uncertain.

¶ 9 In turn, in determining whether to approve, modify, or deny these proposed costs contained in a utility's transition plan, the Commission must look at whether they are "reasonably demonstrable," and must consider them as a whole on a "net basis" unless waived by the public utility, the Commission must conduct a hearing and then issue a final order, determining if and to what extent a utility's transition costs can be recovered.

¶ 10 In the matter at bar, such a final order has yet to materialize due to the dispute that arose over MPC's proposed transition costs. At issue here is the method MPC proposed to the Commission for demonstrating its transition costs.

¶ 11 Foreseeing imminent uncertainty in the costs of electricity, MPC proposed that a current estimation of some, but not all, transition costs be deferred, and "tracked" — in some instances for as long as the next 25 to 30 years — so that a more accurate figure could be determined in the future. Therefore, with regard to certain assets, in particular a number of "qualifying facility contracts," MPC in essence proposed to offer no estimation of any transition costs; instead, such costs would be determined and thereby recovered at a later time, most likely on an annual basis, subsequent to the Commission issuing its "final" order as required under the Act.

¶ 12 The Montana Consumer Counsel and the Large Customer Group received permission to intervene in this matter. Both disagreed with MPC's proposed use of "trackers," claiming that the method would require as many as 30 years of cost tracking, which did not comport with the imperative of finality for fixing transition costs under the Act. At the Commission's request the parties briefed the issue, along with the Montana Department of Environmental Quality, Big Sky Power, and Montana Energy Brokers.

¶ 13 On November 24, 1999, the Commission issued an Order, which determined that MPC's proposed "tracking" or "trackers" cost accounting system, which would adjust transition costs in the future as such costs accrued, rather than reaching a current estimated fixed sum, was not consistent with the requirements of the Act. The Commission therefore concluded that under its interpretation of the Act, MPC's transition costs must be reduced to a fixed, net amount in order to gain approval. The Commission ordered MPC to amend its transition plan to specifically identify and demonstrate all transition costs it sought to recover, and not to rely on a future tracking mechanism.

¶ 14 MPC filed a motion for reconsideration, which was denied by the Commission on January 26, 2000. MPC sought judicial review by the District Court on February 17, 2000. MPC argued that the Commission improperly interpreted the Act to preclude the use of trackers in its transition cost plan. MPC further contended that use of the proposed tracking method, although not expressly provided for under the Act, was well within the discretion afforded the Commission by the Legislature. MPC requested that the District Court reverse the Commission's decision that disallowed MPC's proposed tracking method for determining transition costs and permanently enjoin the Commission from enforcing its interpretation of the Act.

¶ 15 The District Court, in its May 12, 2000 Order, concluded that MPC's "substantial rights have been prejudiced because of the Commission's interpretation of the Act to disallow trackers, in violation of constitutional and statutory provisions." The court ordered that the Commission "must allow MPC to incorporate tracking mechanisms in its transition plan proposal."

¶ 16 The court reasoned that the Commission's interpretation of the Act "has great potential for depriving MPC or Montana consumers of property, and as such, is in violation of our Constitution." The court also determined that there was "no clear provision in the Act disallowing trackers," and therefore "the use of trackers is allowed," under the Act.

¶ 17 The Commission and intervenor LCG appealed. Oral argument was heard by this Court on May 3, 2001.

STANDARD OF REVIEW

¶ 18 When reviewing an agency decision, we apply the same standard as did the district court. See Synek v. State Compensation Mut. Ins. Fund (1995), 272 Mont. 246, 250, 900 P.2d 884, 886.

¶ 19 In this case, as expressed under § 69-8-202(4), MCA, the Commission must process a request for approval of a transition plan pursuant to the contested case procedures of the Montana Administrative Procedure Act, Title 2, Chapter 4, Part 6. The District Court was then required to follow the standard of review as set forth in the Montana Administrative Procedure Act, under § 2-4-704, MCA.

¶ 20 In turn, judicial review of an agency decision under the contested case statutes permits a court to reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are "in violation of constitutional or statutory provisions." See § 2-4-704(2)(a)(i), MCA. Here, the District Court applied (a)(i), in determining that "MPC's substantial rights have been prejudiced because of the Commission's interpretation of the Act to disallow trackers, in violation of constitutional and statutory provisions."

¶ 21 Accordingly, we must review the Commission's interpretation of the Act, as well as the District Court's conclusions of law, to determine if they are correct.

DISCUSSION

¶ 22 As a preliminary matter, it is necessary to discuss certain underlying rules critical to the following analysis of the issues raised.

¶ 23 The District Court set forth a general rule, which is not disputed by the parties here, that "because of the expertise the Commission has in the area it administers, the interpretation of statutes administrated...