Northern States Power Co. v. Hagen

• Decision Date: 22 December 1981
• Docket Number: No. 10017,10017
• Parties: In the Matter of the Application of Northern States Power Company for an Increase in Rates for Electric Service. NORTHERN STATES POWER COMPANY, Appellant, v. Bruce HAGEN, Leo Reinbold, and Richard Elkin, as members of the North DakotaPublic Service Commission, Shark Bros., Inc., and North Dakota Community ActionAssociation, Appellees. Civ.
• Court: North Dakota Supreme Court

Page 32

314 N.W.2d 32

45 P.U.R.4th 141

In the Matter of the Application of Northern States Power Company for an Increase in Rates for Electric Service NORTHERN STATES POWER COMPANY, Appellant, v. Bruce HAGEN, Leo Reinbold, and Richard Elkin, as members of the North DakotaPublic Service Commission, Shark Bros., Inc., and North Dakota Community ActionAssociation, Appellees.

Civ. No. 10017.

Supreme Court of North Dakota.

Dec. 22, 1981.

R. W. Wheeler of Wheeler, Wolf, Peterson, Schmitz, McDonald & Johnson, Bismarck, Gene R. Sommers, Minneapolis, Minn., and Briggs & Morgan, Minneapolis, Minn., for appellant; argued by Samuel L. Hanson, Minneapolis, Minn.

Ray H. Walton and Lynn L. Schloesser, Asst. Attys. Gen., Bismarck, for appellee North Dakota Public Service Commission, Bismarck.

Susan W. Rester, Bismarck, for appellee North Dakota Community Action Association.

Myer Shark, Fargo, for appellee Shark Bros., Inc.

SAND, Justice.

This is an appeal by Northern States Power Company (NSP) from a district court judgment affirming an order of the North Dakota Public Service Commission (PSC) which specifically eliminated from NSP's cost of service in North Dakota the sum of.$802,275.00 representing a one-year amortization of losses incurred by NSP Wisconsin upon the abandonment of a planned generating unit called the Tyrone Energy Project. ¹

NSP is a Minnesota corporation and NSP Wisconsin is its wholly owned subsidiary. The two corporations coordinate as a single power system, the development and operation of generation and EHV transmission facilities, with NSP serving Minnesota, North Dakota, and South Dakota, and NSP Wisconsin serving Wisconsin. ² Within their single power supply system the two companies interchange electric energy at wholesale in interstate commerce. Because NSP and NSP Wisconsin are separate corporations exchanging power at wholesale in interstate commerce their intercompany wholesale exchanges of power fall within the jurisdiction of the Federal Energy Regulatory Commission (FERC).

The prescribed procedure for NSP and NSP Wisconsin to operate their integrated system of supplying electrical energy requires submitting their arrangement and the resulting charges between the companies to FERC for its regulation and approval. This procedure uses a formula rate contract known as a coordinating agreement which sets forth how the exchanges of energy between the companies will be accomplished. ³

In the late 1960's the Tyrone energy project was planned to be built in Dunn County, Wisconsin. Originally, both NSP and NSP Wisconsin had an ownership interest in the Tyrone project; however, the Wisconsin Public Service Commission ruled that NSP could not own an interest in the project because it was not a domestic corporation. See fn. 2. Thereafter, NSP transferred its share in the project to NSP Wisconsin. This transfer was to comply with Wisconsin law and did not reflect any change in the planned use of the project to serve the single system of electrical supply. In 1979 the Tyrone project was abandoned for a combination of reasons. At the time of the abandonment an estimated 75 million dollars in expenses had been incurred. ⁴

On 24 August 1979 NSP and NSP Wisconsin filed an amendment to their coordinating agreement with FERC to allocate the sharing of the Tyrone abandonment loss between the two companies. ⁵ On 22 Oct. 1979 FERC accepted for filing the proposed amendment to the interstate wholesale rate to take effect retroactively to 7 March 1979. FERC also ordered a public hearing concerning the "justness and reasonableness" of the amendment. The order also contains the following:

"Our review of the submittal indicates that the proposed amendment has not been shown to be just and reasonable and may be unjust, unreasonable, unduly discriminatory or otherwise unlawful. Therefore, we shall accept the Amendment for filing, grant the Northern States Power Companies' request for waiver, and suspend the Amendment for one day to become effective as of March 7, 1979, subject to refund at the conclusion of this proceeding."

A hearing on the amendment was held before an administrative law judge. The North Dakota Public Service Commission participated in that hearing and resisted including the Tyrone loss in the wholesale rate structure of exchanges between NSP and NSP Wisconsin. The administrative law judge recommended approval of the amendment to the coordinating agreement to allocate the Tyrone loss as a part of the interstate wholesale rate resulting in an adjustment of wholesale rates between NSP and NSP Wisconsin. However, at the time this appeal was taken FERC had not finally approved or disapproved the administrative law judge's recommendation. Between the oral argument in this case and the rendering of the opinion, FERC adopted the recommendation of the administrative law judge allowing the abandonment expense. Northern States Power Company (Minnesota), Northern States Power Company (Wisconsin), FERC Opinion No. 134, Docket No. ER79-616, issued December 3, 1981.

On 16 May 1980, NSP filed a notice of change in the intrastate retail rates for electrical service provided in North Dakota with the PSC. ⁶ The rate change was suspended and a hearing was held on the proposed increase. Thereafter, the PSC entered an order on 31 December 1980 allowing an increase in rates of $3,279,000 or 6.68% ⁷ beginning with meter readings on 1 February 1981. The PSC order specifically eliminated from NSP's cost of service the amortization of losses incurred by NSP Wisconsin resulting from the abandonment of the Tyrone project. In so doing, the PSC decision included the following statement:

"The Commission acknowledges that it has been an active proponent in the adversary proceedings before FERC. However, it has not formed a judgment dispositive of this issue before this hearing. We could allow the expenses to be imposed on North Dakota rate payers subject to the refund possibility of a final decision of FERC, or we could simply exclude the expense subject to the applicant's right to appeal.

"We elect to pursue the latter alternative and base the rates prescribed herein upon the exclusion of this amortization expense from the test year."

NSP appealed to the district court the part of the order eliminating the Tyrone abandonment expenses from its cost of services. NSP moved for a restraining order pendente lite to permit it to recover its Tyrone-related expenses, subject to refund from its North Dakota consumers. The district court denied the motion and thereafter affirmed the PSC order. NSP appealed to this Court.

Although NSP raises several issues for our consideration, we believe the dispositive issue of this appeal involves the doctrine of federal preemption and whether or not, in an intrastate retail rate proceeding, the North Dakota Public Service Commission has jurisdiction to examine and determine the reasonableness of all of NSP's intrastate retail expenses despite the fact that some retail expenses (i.e., NSP's amortized abandonment losses) were previously allowed as part of the interstate wholesale purchases which were calculated on the basis of interstate wholesale rates filed with FERC.

Initially we note there is no dispute as to the factual background concerning the abandonment of the Tyrone project. Neither is there any dispute as to inferences which may be drawn from the facts. As such, the issue before us becomes a matter of law which is fully reviewable by this Court.

NSP contends that it was obligated by the FERC order to take its share of the Tyrone loss through the coordinating agreement and wholesale charges between the companies, not as a direct amortization, but as an increase in the wholesale charges paid by NSP to NSP Wisconsin. NSP asserts that the impact of the Tyrone loss in North Dakota is through an operating expense called purchase power at wholesale rates, which it asserts is an ordinary operating expense and is a part of a number of purchase power expenses in the test year. NSP asserts that the North Dakota Public Service Commission may not inquire into the reasonableness of the wholesale rate (which includes the amortization for the Tyrone loss) because the Federal Power Act preempted the authority of state commissions to investigate interstate wholesale rates.

NSP relies heavily upon Narragansett Electric Co. v. Burke, 381 A.2d 1358 (R.I.1977), cert. denied 435 U.S. 972, 98 S.Ct. 1614, 56 L.Ed.2d 63 (1979), to support its position.

Narragansett Electric Company was a retail electric utility company serving customers in Rhode Island. Its retail rates were regulated by the Rhode Island Public Utilities Commission. Narragansett purchased electrical power from New England Power Company (NEPCO), a Massachusetts corporation. Narragansett and NEPCO were wholly owned subsidiaries of New England Electric System (NEES). Because NEPCO was an interstate wholesale supplier of electricity, its rates were subject to regulation by FPC (predecessor of FERC). NEPCO filed a rate increase request with FPC. Part of NEPCO's rate increase resulted from losses incurred when it abandoned construction of a generating station. Narragansett subsequently filed a request with the Rhode Island Public Utilities Commission to increase their rates, subject to a possible refund, to cover the increased cost of obtaining power which resulted from the rate increase filed by NEPCO with FPC. The Rhode Island Public Utilities Commission ruled that it could investigate the reasonableness of the costs underlying NEPCO's rate increase filed with the FPC and could prevent Narragansett from passing through to its retail customers any portion of those costs which were "strikingly" or "glaringly" unreasonable.

Narragansett appealed and contended that the Rhode Island Public Utilities Commission lacked jurisdiction to inquire into the reasonableness of NEPCO's wholesale rate to Narragansett because the Federal Power Act...