Mountain Fuel Supply Co. v. Public Service Com'n of Utah

• Decision Date: 28 September 1993
• Docket Number: No. 910051,910051
• Parties: Util. L. Rep. P 26,346 MOUNTAIN FUEL SUPPLY COMPANY, Petitioner, v. PUBLIC SERVICE COMMISSION OF UTAH, Respondent.
• Court: Utah Supreme Court

Page 414

861 P.2d 414

Util. L. Rep. P 26,346

MOUNTAIN FUEL SUPPLY COMPANY, Petitioner, v. PUBLIC SERVICE COMMISSION OF UTAH, Respondent.

No. 910051.

Supreme Court of Utah.

Sept. 28, 1993.

Gary G. Sackett and Charles E. Greenhawt, Salt Lake City, for Mountain Fuel Supply.

R. Paul Van Dam, Atty. Gen., David S. Christensen, David L. Stott, Kent Walgren, and Laurie L. Noda, Asst. Attys. Gen., Salt Lake City, for Public Service Com'n and intervenors Div. of Public Utilities, Committee of Consumer Services, Utah Energy Office.

ZIMMERMAN, Justice:

Mountain Fuel Supply Company ("Mt. Fuel") petitions for review of a Public Service Commission ("Commission") order dated November 21, 1990, establishing new rates and charges for natural gas delivery in Utah. Mt. Fuel challenges (i) the Commission's decision to use "an historical test year" to determine the utility's new rates; (ii) its refusal to admit evidence of "a future test year"; (iii) its refusal to make adjustments based on information obtained after the historical test year; (iv) its use of an average rate base rather than a year-end rate base; and (v) its decision to reduce Mt. Fuel's authorized rate of return on the shareholders' equity. Under the relevant standards of review for agency decisions, we hold that the Commission has not committed reversible error in making any of these determinations. However, because we cannot discern the basis for the Commission's decision to reduce the rate of return by the quantity it did, we remand so that the Commission may explain its reasoning and make any necessary findings of fact.

The Commission is charged with setting the rates for Mt. Fuel, a natural gas public utility. The Commission must establish rates that are "just and reasonable" through formal adjudication. Utah Code Ann. § 54-7-12(2)(b); see id. § 54-3-1. On October 31, 1989, the Commission notified Mt. Fuel that it was commencing an investigation into the utility's rates and ordered it to attend a prehearing conference.

The prehearing conference was held on November 7, 1989. Before allowing any discussion, the Commission declared its intent to use an historical test year, specifically, the 1989 test year, to establish new rates for the utility. ¹ While recognizing that the use of an historical test year was "a significant issue," the Commission reasoned that its decision was supported by "precedent" because it had used or was using an historical test year in two other rate-making cases. The Commission also noted that although it had used a future test year in past rate-making proceedings involving Mt. Fuel, an historical test year was justified because there was "less[ ] inflation" and "less pressure on rates" than in the past. Finally, the Commission noted that the choice of a test year was a policy decision committed to its discretion by Code section 54-4-4(3). Nonetheless, the Commission ordered a hearing to allow Mt. Fuel to argue for the use of a future test year.

On November 21, 1989, the test-year issue came before the Commission. Mt. Fuel argued that the Commission should use a future test year because it would better approximate the rate-effective period ² than an historical test year. Mt. Fuel offered to submit evidence of both test years, stating that the evidence would show that a future test year "makes more sense" given "a full presentation and ... analysis." However, Mt. Fuel admitted that it did not know "which of the two would give higher or lower answers." Although both the Utah Division of Public Utilities ("Division") and the Committee of Consumer Services ("Committee") ³ agreed that some evidence should be taken on the test-year issue, the Commission ruled that it would not take any evidence on the matter and would use the 1989 historical test year. The Commission did not provide any rationale other than suggesting that "dueling models" would consume too much "regulatory time." Before the hearing closed, the Commission said that it was taking official notice of the previous five years' budget filings made by Mt. Fuel and the Division and of the rate of inflation for the last five years.

On March 31, 1990, Mt. Fuel petitioned the Commission for rate relief, arguing that the Commission at least should use a 1989 year-end rate base ⁴ and should make a number of adjustments to the test year to account for various changes in the company's operations since 1989. Following a number of evidentiary hearings, the Commission issued an order on November 21, 1990, setting Mt. Fuel's rates for the period beginning December 1, 1990. In setting the rates, the Commission relied on the 1989 historical test year, did not make any of the proposed post-1989 adjustments, and used an average rate base rather than the year-end rate base. The Commission also reduced Mt. Fuel's authorized rate of return on equity from 12.2% to 12.1%. Mt. Fuel petitioned for a rehearing, which the Commission denied. Mt. Fuel now seeks review of the Commission's order.

We view Mt. Fuel's challenge as comprising five distinct claims, which we address in the following order: First, we consider Mt. Fuel's attack on the Commission's decision to use a 1989 historical test year. Second, we address Mt. Fuel's related contention that the Commission improperly refused the company's proffer of future-test-year data. Third, we consider whether the Commission erred in refusing to make adjustments to the historical test year based on post-1989 data. Fourth, we turn to Mt. Fuel's argument that the Commission's decision to use an average rather than a year-end rate base is not supported by the evidence. Finally, we address the company's claim that the Commission's decision to reduce the rate of return on equity is not within the Commission's statutory power and, in the alternative, is unsupported by the evidence.

We first state the standard of review. The parties agree that the Utah Administrative Procedures Act ("UAPA") governs the present case. Utah Code Ann. §§ 63-46b-1 to -22; see MCI Tele. Corp. v. Public Serv. Comm'n, 840 P.2d 765, 770 (Utah 1992). The UAPA provides in relevant part:

(4) The appellate court shall grant relief only if, on the basis of the agency's record, it determines that a person seeking judicial review has been substantially prejudiced by any of the following:

. . . . .;

(e) the agency has engaged in an unlawful procedure or decision-making process, or has failed to follow prescribed procedure;

. . . . .;

(g) the agency action is based upon a determination of fact, made or implied by the agency, that is not supported by substantial evidence when viewed in light of the whole record before the court;

(h) the agency action is:

(i) an abuse of the discretion delegated to the agency by statute;

(ii) contrary to a rule of the agency;

(iii) contrary to the agency's prior practice, unless the agency justifies the inconsistency by giving facts and reasons that demonstrate a fair and rational basis for the inconsistency; or

(iv) otherwise arbitrary or capricious.

Utah Code Ann. § 63-46b-16(4). We will apply the pertinent UAPA standard as appropriate.

Before turning to Mt. Fuel's claims, we first address the Commission's argument that the appeal in this case is moot. The Commission points out that Mt. Fuel has not requested that we remand the case to require the Commission to consider a specific future test period and that the 1991 future test year sought by Mt. Fuel in the proceedings below has now passed. Thus, the Commission contends, the dispute over the appropriate test year is moot and Mt. Fuel's appeal is simply a request for an advisory opinion, which is generally disfavored by this court. See McRae v. Jackson, 526 P.2d 1190, 1191 (Utah 1974). Therefore, the Commission concludes, we should refuse to address the issue of the appropriate test year and any related questions.

We decline the Commission's suggestion. In Wickham v. Fisher, 629 P.2d 896 (Utah 1981), this court recognized an exception to the mootness rule when the issue "is of wide concern, affects the public interest, is likely to recur in a similar manner, and, because of the brief time any one person is affected, would otherwise likely escape judicial review." Id. at 899 (citations omitted). For the reasons discussed below, the instant case meets all four criteria.

To consider whether the Wickham criteria are met here, we must first determine the nature of the Commission's decision regarding the test-year issue. The Commission's decision to use the 1989 historical test year was essentially the result of two discrete administrative actions. The first action was a policy decision to create a presumption in favor of using an historical test year in all future rate-making proceedings. The second was the application of this policy to Mt. Fuel's case.

Our characterization of the Commission's first action as the creation of a presumption favoring an historical test year is dictated by the proceedings before the Commission and the Commission's final order. At the November 7, 1989, prehearing conference, before any discussion the Commission announced that it intended to use an historical test year. It explained that its decision was based, in part, on the fact that it had used or was using an historical test year in two other rate-making cases. The Commission nonetheless invited the parties to show why another test year would be more appropriate and scheduled a hearing to air that issue. At the November 21, 1989, hearing, Mt. Fuel presented its argument detailing why the Commission should use a future test year. There is no evidence before us to suggest that the Commission would not have adopted a future test year if the company had argued successfully that the future test year would have better approximated the rate-effective period. De facto, the Commission adopted the historical test year as a rebuttable presumption.

The Commission's final order supports this view:

In future...