Mountain States Legal Foundation v. Utah Public Service Commission

• Decision Date: 04 September 1981
• Docket Number: No. 16162,16162
• Citation: 636 P.2d 1047
• Parties: MOUNTAIN STATES LEGAL FOUNDATION, Plaintiff, v. UTAH PUBLIC SERVICE COMMISSION; Milly Bernard, Olof Zundel, and Kenneth Rigtrup, as Commissioners thereof, Defendants.
• Court: Utah Supreme Court

Page 1047

636 P.2d 1047

MOUNTAIN STATES LEGAL FOUNDATION, Plaintiff, v. UTAH PUBLIC SERVICE COMMISSION; Milly Bernard, Olof Zundel and Kenneth Rigtrup, as Commissioners thereof, Defendants.

No. 16162.

Supreme Court of Utah.

Sept. 4, 1981.

Maxwell A. Miller, James G. Watt, Kea Bardeen, Denver, Colo., for plaintiff.

David L. Wilkinson, Frank V. Nelson, F. Robert Reeder, James M. Elegante, Sidney G. Baucom, Salt Lake City, for defendants.

STEWART, Justice:

The Utah Public Service Commission ("PSC," or "Commission") granted a general rate increase to Utah Power & Light Co. ("UP&L"). The increase was spread over all customers except heads of households over 65 years of age. They were exempted from the increase as to the first block of 400 kwh per month, except for that part of the increase attributable to a fuel increase pass-through. The reduced revenues resulting from the "senior citizen rate" are made up by other residential customers, and not all remaining customers. Mountain States Legal Foundation ("MSLF") challenges the "senior citizen" rate on the ground that it is an unlawful preference under § 54-3-8 Utah Code Ann. (1953), as amended; not supported by adequate findings; and a denial of equal protection of the laws.

On March 30, 1978, UP&L filed an application to increase its rates and charges to consumers in Utah. The application sought authority to increase its rates by $64,778,000 annually. UP&L also sought, through a separate application, an additional rate increase of $9,207,000. These two applications were consolidated and heard together. As part of the $64,778,000, UP&L requested (1) $8,750,000 to implement prior Commission orders placing the cost of construction work in progress in the rate base, and (2) $8,359,000 to implement prior Commission orders allowing UP&L to account for tax timing differences resulting from the use of accelerated depreciation methods by adopting "normalized accounting" in place of "flow-through accounting." UP&L represented that the increase in revenues would allow a reasonable return on equity which UP&L had theretofore been unable to earn and that authorization of the increased revenue requested was necessary for UP&L to maintain a financially stable condition and to continue to render reliable service to its customers.

The Commission subsequently entered an order granting, on an interim basis, the request for a fuel pass-through increase and authorizing UP&L to increase its rates to recover additional revenue in the amount of $9,207,000. That amount was to be collected proportionately from all customers.

After a hearing on a stipulated revenue increase which had been proposed by UP&L and the Division of Public Utilities, the Commission ruled that a revenue increase of $33,785,000 was justified. In a two-to-one decision, the Commission ruled that the increase in rates should be spread uniformly among all rate classes, except for the "senior citizen rate" which was to go into effect on an interim basis. The Commission ordered that the revenue deficiency created by that rate be spread only among the remaining residential customers and not among all customers.

Thereafter, MSLF was permitted to intervene in UP&L's general rate case on behalf of those of its members who were nonelderly residential customers of UP& L. MSLF petitioned for a rehearing of the Commission's order establishing the senior citizen rate, and the petition was granted. After a further hearing, the Commission, on a two-to-one vote, issued its final "Report and Order" which made permanent the "senior citizen head of household" rate category.

The Commission found that senior citizens were "deserving of separate class status" because, as a group, they "have annual incomes considerably less than that for other family group customer categories headed by younger persons" and that, as a group, they "consume less energy per household than residential units as a whole." The Commission held that these facts-"when considered in connection with Utah Code Ann., § 54-3-1 and particularly that portion of the section added in 1977 providing ... '(that) just and reasonable may include, but shall not be limited to, the cost of providing service to each category of customer, economic impact of charges on each category of customer, and on the well-being of the State of Utah; methods of reducing wide periodic variations in demand of such products, commodities or services, and means of encouraging conservation of resources and energy' "-justified a separate senior citizen subclass of the residential class. The Commission also ruled that the differential between the rates charged the senior citizen class and the rest of the residential class were not "so disparate as to be preferential or discriminatory." In support of this conclusion, the Commission found that the difference in the rate of return earned by the senior citizen class and the other residential customers was approximately 2% and that that difference was reasonable in light of differences that exist between other categories of customers. That finding is also attacked on this appeal.

Mountain States argues that the senior citizen rate constitutes a required subsidization of senior citizens by other residential customers and that it is not the function of the Public Service Commission to engage in social welfare programs. Specifically, MSLF asserts that senior citizens are not a legitimate class or subclass separate from other residential customers and that the rate extended senior citizens is illegal under § 54-3-8 which prohibits all preferential rates between persons similarly situated.

This Court's scope of review of Commission orders which are attacked for establishing unreasonable or discriminatory rates is narrow. Basic responsibility for rate making policy is vested in the Commission, not the courts. Particularly with respect to reasonableness of rates and discrimination in rate structures is judicial review limited. Section 54-7-16, U.C.A. provides in pertinent part:

The findings and conclusions of the commission on questions of fact shall be final and shall not be subject to review. Such questions of fact shall include ultimate facts and the findings and conclusions of the commission on reasonableness and discrimination.

Deference to the Commission's findings, as required by § 54-7-16, is necessary to provide the stockholders, creditors, debtors, and customers of a regulated company the benefit of the Commission's expertise in a highly complex and technical field. Nevertheless, if the Commission has not acted within the powers delegated to it by the Legislature, or there is no legal basis in fact for the findings of the Commission, or the findings do not rationally support proper legal conclusions, an order is contrary to law and must be set aside. Commission expertise alone is not an adequate basis upon which ultimate findings as to reasonableness of rates and classifications of customers may be based.

It is, therefore, the responsibility of this Court to determine whether the Commission acted outside its jurisdiction, in excess of its lawful powers, or in a manner which is arbitrary and capricious and therefore without legal justification. Lake Shore Motor Coach Lines, Inc. v. Welling, 9 Utah 2d 114, 339 P.2d 1011 (1959). See also Williams v. Public Service Commission of Utah, 29 Utah 2d 9, 504 P.2d 34 (1972). To enable this Court to determine whether an order is arbitrary and capricious, the Commission must make findings of fact which are sufficiently detailed to apprise the parties and the Court of the basis for the Commission's decision, e. g., Nader v. Nuclear Regulatory Commission, 513 F.2d 1045 (D.C.Cir.1975); Blue Cross of Kansas, Inc. v. Bell, 227 Kan. 426, 607 P.2d 498 (1980); Continental Oil Co. v. Oil Conservation Commission, 70 N.M. 310, 373 P.2d 809 (1962). "(T)he judgment or order (of the Public Service Commission) must find support in the findings ... (and) unless the findings support the judgment or order, it cannot stand." Williams v. Public Service Commission of Utah, 29 Utah 2d 9, 11, 504 P.2d 34, 36 (1972). Whether findings and conclusions are supported by substantial, competent evidence is a matter of law. Mulcahy v. Public Service Commission, 101 Utah 245, 117 P.2d 298 (1941).

For this Court to sustain an order, the findings must be sufficiently detailed to demonstrate that the Commission has properly arrived at the ultimate factual findings and has properly applied the governing rules of law to those findings. Ultimate findings as to reasonableness and discrimination must be sustained if there are adequate subordinate findings to support them, and there is substantial evidence to support the findings. Mulcahy v. Public Service Commission, supra. It is not the prerogative of this Court to search the record to determine whether findings could have been made by the Commission to support its order, for to do so would be to usurp the function with which the Commission is charged.

It is axiomatic in rate making that utilities are barred from treating persons similarly situated in a dissimilar fashion. State ex rel. Utilities Commission v. The Mead Corp., 238 N.C. 451, 78 S.E.2d 290 (1953); Postal Telegraph-Cable Co. v. Associated Press, 228 N.Y. 370, 127 N.E. 256 (1920). Reasonable classifications between consumers may be made, but there must be adequate findings of fact, supported by evidence, which demonstrate a rational basis for the classification.

Section 54-3-8, U.C.A., embodies these basic principles. It establishes two standards for evaluating the lawfulness of discriminations. That provision states:

No public utility shall, as to rates, charges, service, facilities or in any other respect, make or grant any preference or advantage to any person, or subject any person to any prejudice or disadvantage. No public utility shall establish or maintain any unreasonable difference as to rates, charges, service...