Northern States Power Co. v. Hagen, 10061

• Decision Date: 11 January 1982
• Docket Number: No. 10061,10061
• Citation: 314 N.W.2d 278
• Parties: NORTHERN STATES POWER COMPANY, Appellant, v. Bruce HAGEN, Leo Reinbold, and Richard Elkin, as members of the North DakotaPublic Service Commission, The City of Fargo, The Fargo Park District, The Cityof Grand Forks, and North Dakota Community Action Association, Respondents. In the Matter of the Complaint of The CITY OF FARGO Regarding Natural Gas RatesCharged by Northern States Power Company in State of North Dakota. Civ.
• Court: North Dakota Supreme Court

Page 278

314 N.W.2d 278

45 P.U.R.4th 630

NORTHERN STATES POWER COMPANY, Appellant, v. Bruce HAGEN, Leo Reinbold, and Richard Elkin, as members of the North DakotaPublic Service Commission, The City of Fargo, The Fargo Park District, The Cityof Grand Forks, and North Dakota Community Action Association, Respondents In the Matter of the Complaint of The CITY OF FARGO Regarding Natural Gas RatesCharged by Northern States Power Company in State of North Dakota.

Civ. No. 10061.

Supreme Court of North Dakota.

Jan. 11, 1982.

Wheeler, Wolf, Peterson, Schmitz, McDonald & Johnson, Bismarck, and Gene R. Sommers, Minneapolis, Minn., for appellant; argued by R. W. Wheeler, Bismarck.

Daniel S. Kuntz, Asst. Commerce Counsel, Public Service Commission, argued, Bismarck, for respondent, Public Service Commission.

Myer Shark, argued, Fargo, for respondent, The City of Fargo and The Fargo Park District.

Jay Fiedler, City Atty., argued, Grand Forks, for respondent, City of Grand Forks.

Susan W. Rester, National Consumer Law Center, Boston, Mass., for respondent, North Dakota Community Action Ass'n.

PAULSON, Justice.

Northern States Power Company (NSP) appeals from the judgment entered on July 16, 1981, in the District Court of Burleigh County, which affirmed the March 2, 1981, decision and order of the North Dakota Public Service Commission. We reverse and remand.

Northern States Power Company is an investor-owned utility company incorporated in Minnesota. NSP and its wholly-owned subsidiary, Northern States Power Company-Wisconsin (NSP-Wis), operate natural gas distribution systems in North Dakota, Minnesota, and Wisconsin. NSP does not produce natural gas, but rather purchases gas from wholesale pipeline suppliers and resells that gas to its retail customers.

The natural gas used to supply NSP's distribution systems is purchased from two pipeline companies, Northern Natural Gas Company (Northern Natural) and Midwestern Gas Transmission Company (Midwestern). The gas supplied by Northern Natural is distributed to several cities in central Minnesota, including St. Paul, and to LaCrosse and Hudson, Wisconsin. The gas supplied by Midwestern is distributed primarily to Fargo and Grand Forks in North Dakota, to Moorhead and East Grand Forks in Minnesota, and to Eau Claire, Wisconsin. Approximately 213,000 of NSP's natural gas customers receive gas supplied by Northern Natural, and approximately 26,000 NSP customers receive Midwestern gas. Northern Natural and Midwestern each have long-term contracts to supply specified daily volumes of gas to NSP. ¹

Northern Natural secures its gas from domestic supplies, whereas Midwestern relies exclusively on gas imported from Canada as its supply source. Due to policies of the Canadian government, the price of imported Canadian natural gas has risen dramatically in the past several years in comparison with domestic natural gas prices. As a result, there has been an increasing disparity in the price which NSP pays to Northern Natural and Midwestern for natural gas. During the first eleven months of 1980, NSP paid an average of $2.09 per Mcf for domestic gas supplied by Northern Natural, whereas it paid an average of $4.48 per Mcf for the imported Canadian gas supplied by Midwestern. Because NSP's existing retail natural gas rates are based upon a direct assignment of the wholesale purchase price of gas to the distribution areas served by that gas, a similar price disparity exists in the retail gas rates charged by NSP to its customers supplied by Northern Natural and Midwestern, respectively. The record indicates that, at the time of the hearing before the Public Service Commission in this case in early 1981, the average NSP residential gas customer in Fargo or Grand Forks was paying $5.92 per Mcf for gas, whereas the average residential customer on NSP's Northern Natural distribution system in Minnesota was paying only $3.89 per Mcf.

In December of 1980, the City of Fargo filed a complaint with the North Dakota Public Service Commission (PSC), alleging that the direct assignment of the cost of high-priced imported gas to customers on NSP's Midwestern distribution system was unreasonable and discriminatory. The City of Fargo requested that the PSC require NSP to average, or "roll-in," its purchase cost for all gas supplies in setting rates, and thereby minimize the disparity between rates charged on its two distribution systems.

The City of Grand Forks and the Fargo Park District petitioned to intervene in the proceeding, and these petitions were granted by the PSC. The PSC found that an emergency existed, warranting an accelerated hearing schedule, and a three-day hearing was held January 20-22, 1981. On March 2, 1981, the PSC issued its findings of fact, conclusions of law, and order directing NSP to file revised rate tariff schedules based on average purchased gas price. NSP appealed to the District Court of Burleigh County, and the district court entered judgment on July 16, 1981, affirming the PSC ruling. On July 17, 1981, NSP filed a notice of appeal to the supreme court.

Our scope of review in this case is limited by statute. Section 28-32-21 of the North Dakota Century Code provides:

"28-32-21. Review in supreme court. The judgment of the district court in an appeal from a decision of an administrative agency may be reviewed in the supreme court on appeal in the same manner as provided in section 28-32-19, except that the appeal to the supreme court must be taken within sixty days after the service of the notice of entry of judgment in the district court."

Section 28-32-19 of the North Dakota Century Code provides:

"28-32-19. Scope of and procedure on appeal from determination of administrative agency. The court shall try and hear an appeal from the determination of an administrative agency without a jury and the evidence considered by the court shall be confined to the record filed with the court. If additional testimony is taken by the administrative agency or if additional findings of fact, conclusions of law, or a new decision shall be filed pursuant to section 28-32-18, such evidence, findings, conclusions, and decision shall constitute a part of the record filed with the court. After such hearing, the court shall affirm the decision of the agency unless it shall find that any of the following are present:

1. The decision or determination is not in accordance with the law.

2. The decision is in violation of the constitutional rights of the appellant.

3. Provisions of this chapter have not been complied with in the proceedings before the agency.

4. The rules or procedure of the agency have not afforded the appellant a fair hearing.

5. The findings of fact made by the agency are not supported by a preponderance of the evidence.

6. The conclusions and decision of the agency are not supported by its findings of fact.

"If the decision of the agency is not affirmed by the court, it shall be modified or reversed, and the case shall be remanded to the agency for disposition in accordance with the decision of the court."

NSP contends that the conclusions and decision of the PSC in this case are not in accordance with the law and are not supported by the findings of fact. ² In reviewing NSP's contentions, we look to the record compiled before the PSC itself, rather than to the findings of the district court. North Dakota Real Estate Commission v. Allen, 271 N.W.2d 593, 595 (N.D.1978).

I.

NSP initially contends that the PSC erred as a matter of law in concluding that it could roll-in NSP's gas rates without finding that NSP operated an integrated gas distribution system. The PSC concluded that system integration was not a prerequisite to rolled-in rates, and determined that rolled-in rates were justified in this case by (1) the benefits provided by the imported Canadian gas to customers on NSP's Northern Natural distribution system, and (2) fundamental fairness. ³ In support of its conclusion, the PSC points to the decision of the United States Court of Appeals for the Eighth Circuit in Montana-Dakota Utilities Co. v. Federal Energy Regulatory Commission, 631 F.2d 557 (8th Cir. 1980) (hereinafter "MDU v. FERC "). NSP argues that MDU v. FERC does not stand for the proposition that benefit and fairness alone may be the basis for rolling in rates, inasmuch as the court went on to find that MDU's natural gas system was in fact integrated.

We conclude that MDU v. FERC supports the PSC's determination that rates may be rolled in based upon benefits and fairness, without a finding of system integration. MDU serves a number of natural gas distribution areas in Minnesota, Montana, North Dakota, South Dakota and Wyoming. All of these distribution systems are connected to MDU's interstate pipeline except for the systems in Sheridan, Wyoming, and Crookston, Minnesota. In 1975 MDU made arrangements with Northern Utilities, Inc., and its affiliate, Northern Gas Company, to supply gas to its Sheridan system through an exchange agreement. Under this agreement, MDU would sell gas from its interstate supply to Northern Gas Company and, in return, Northern Utilities supplied an equivalent amount to the Sheridan system from its intrastate supply. In 1976 MDU acquired, from the so-called "Powell II Unit," an alternative intrastate source for its Sheridan system. Through an intrastate exchange agreement with Northern Utilities, this Powell II gas was supplied to the Sheridan system. In 1977 FERC issued a permanent certificate authorizing the original 1975 interstate exchange agreement between MDU and Northern Gas Company, but exchanges were authorized only to the extent necessary to make up deficiencies in the intrastate supplies available to the Sheridan system.

Because the price of the intrastate Powell II gas increased at a greater rate than the price of MDU's interstate sources of gas, a price disparity was created. To alleviate the burden placed on its Sheridan system customers by...