Northern States Power Co. v. Minnesota Public Utilities Com'n

Decision Date27 January 1984
Docket NumberNos. CX-82-1130,CX-82-1354,C1-82-1131 and CX-82-1354,CX-82-1130,s. CX-82-1130
Citation344 N.W.2d 374
PartiesNORTHERN STATES POWER COMPANY, petitioner, Respondent, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Appellant (C1-82-1131), and Minnesota Department of Public Service, intervenor, Appellant (C1-82-1131), Minnesota Office of Consumer Services, intervenor, Appellant (), City of Saint Paul, et al., Intervenors-Respondents Below, Minnesota Public Interest Research Group, intervenor, Appellant (). Nos. , C1-82-1131 and .
CourtMinnesota Supreme Court

Syllabus by the Court

The acceptance by the Federal Energy Regulatory Commission of a filed amended coordinating agreement between Minnesota and Wisconsin electrical power utilities established a wholesale rate which must be considered by the Minnesota Public Utilities Commission as an expense of power purchased in setting rates for Minnesota retail electric power purchases.

Leonard J. Keyes, St. Paul, Samuel L. Hanson, Briggs & Morgan, Gene R. Sommers, David A. Lawrence, Minneapolis, for respondent Northern States Power Company.

Hubert H. Humphrey, III, Atty. Gen., Karl W. Sonneman, Sp. Asst. Atty. Gen., St. Paul, for appellant Minnesota Public Utilities Com'n.

Rodney A. Wilson, Sp. Asst. Atty. Gen., St. Paul, for appellant Minnesota Dept. of Public Service.

Richard G. Evans, Regina M. Chu, Sp. Asst. Atty. Gen., St. Paul, for appellant Minnesota Office of Consumer Services.

Daniel W. Lass, E. Gail Suchman, Minneapolis, for appellant Minnesota Public Interest Research Group.

Hubert H. Humphrey, III, Atty. Gen., Ellen C. Dubuque, Sp. Asst. Atty. Gen., St. Paul, for amicus curiae State of Minn.

ORDER

This court having heard and considered en banc the petition for rehearing in the above-entitled matter,

IT IS ORDERED that:

1. The opinion filed herein on December 9, 1983, is hereby withdrawn and the attached opinion is substituted;

2. Except as above indicated, the petition for rehearing is denied;

3. Respondent is not allowed attorney fees on this petition pursuant to Rule 140, Rules of Civil Appellate Procedure.

Heard, considered and decided by the court en banc.

KELLEY, Justice.

As the result of the abandonment of plans to construct the Tyrone nuclear power plant near Durand, Wisconsin, Northern States Power Company (NSP) 1 sustained substantial cancellation losses. In 1970, NSP and NSP-W filed with the Federal Power Commission (now known as the Federal Energy Regulatory Commission or FERC) a "Coordinating Agreement" (CA). Following incurrence of the abandonment losses at the Tyrone plant, NSP and NSP-W filed with FERC an amendment to the CA. The amendment sought to allocate the Tyrone abandonment losses between the two companies. In substance, FERC approved the amendment. Thereafter, NSP instituted this proceeding before the Minnesota Public Utilities Commission (MPUC) to obtain approval of proposed increase in retail rates in Minnesota to recoup the portion of the cancellation losses attributable to its Minnesota customers. The Minnesota hearing examiner, finding that the CA and its amendment established a wholesale rate schedule within the exclusive jurisdiction of FERC and that the parties could not attack the reasonableness of those rates prescribed by FERC, recommended that NSP be allowed to include Tyrone losses as expenses for power purchased. The MPUC reversed the hearing examiner. On appeal to the Ramsey County District Court, the court reversed the MPUC. Various interested parties appeal to this court. 2 Because we conclude that the amendment to the CA filed with and approved by FERC established a wholesale rate within the exclusive jurisdiction of FERC, we affirm. The MPUC is required to treat the abandonment losses allocated under the amendment as expenses for power purchased in determining retail rates to be charged Minnesota ratepayers.

During the late 1960's, in response to electric power demand projections, NSP and NSP-W instituted plans for construction of two nuclear power plants in Wisconsin. Because of substantial changes in the electric power demand outlook subsequent to initial projections, the final Tyrone project was to be a single nuclear power plant. Each utility originally had roughly indivisible equal ownership in the project together with other utilities. 3 Since Wisconsin prohibited utility ownership by foreign corporations, NSP-W "bought out" NSP's interest in the project.

In 1977, the Federal Nuclear Regulatory Commission issued a construction permit for Tyrone. 4 NSP-W sought construction approval from the Wisconsin Public Service Commission (WPSC). In a hearing before the WPSC, that commission established three "need tests," at least one of which had to be met by the utility before the WPSC would approve the proposed Tyrone construction. Two of the tests examined the need for the project in light of Wisconsin power demands only. The third test focused on the economic and environmental impact of the project. Subsequently, in rejecting NSP-W's application for certification to build Tyrone, the WPSC found the company had "failed" all three of the "need tests." Thereafter, the Tyrone project was abandoned. Its abandonment resulted in substantial losses to NSP-W and to NSP. 5 On August 24, 1979, NSP and NSP-W filed with FERC an amendment to the CA. The amendment was designed to allocate Tyrone abandonment costs in accordance with the standard allocation formula used for other costs under the initial CA. Following a hearing at which the MPUC and the Minnesota attorney general's office intervened, the federal administrative law judge on December 4, 1980, approved the amendment to the CA. See 13 [Oct-Dec 1980 Transfer Binder] FERC (CCH) p 63,049 (1980). His decision was affirmed by FERC in December 1981. See 17 [Oct-Dec 1981 Transfer Binder] FERC (CCH) p 61,196 (1981). The MPUC and the South Dakota Public Utilities Commission appealed to the United States Eighth Circuit Court of Appeals. That court affirmed FERC's approval of the amended CA. See South Dakota Public Utilities Commission v. Federal Energy Regulatory Commission, 690 F.2d 674 (8th Cir.1982).

In this action, NSP is attempting to have its retail ratepayers in Minnesota pay for the Minnesota proportionate share of NSP's expense arising out of the Tyrone abandonment. In essence, NSP claims that FERC's approval of the amended CA resulted in the establishment of an interstate wholesale rate. Therefore, it asserts, the MPUC must allow NSP to pass the Tyrone losses through to retail ratepayers. 6 The appellants, on the other hand, contend that the Wisconsin Public Service Commission decision which led to the abandonment was a "parochial" one based on considerations of Wisconsin needs alone. More importantly, appellants assert that FERC's approval of the amended CA was merely an allocation of costs between NSP and NSP-W and that, therefore, FERC's approval did not preempt the MPUC's authority to review expenses allocated by the amended CA for the purpose of retail ratemaking.

If the amended CA constitutes a FERC-approved wholesale rate, the MPUC has no power to reexamine the reasonableness of the costs underlying the wholesale rate. 7 On the other hand, if the amended CA was merely a loss allocation between the two utilities, NSP's Tyrone loss is not necessarily a proper expense for purchased power. In such case, the MPUC has the authority to determine that either the retail ratepayers or NSP shareholders will bear the loss. See 16 U.S.C. Sec. 824(b)(1) (1982); Minn.Stat. Sec. 216B.03 (1982). Cf. Minneapolis Street Railway Co. v. City of Minneapolis, 251 Minn. 43, 86 N.W.2d 657 (1957) (street railway abandonment costs).

We commence by noting our scope and standard of review in a rate case. 8 We presume the agency's decision (here, the decision of the MPUC) is correct, but the court may reverse an agency decision if the decision was affected by an error of law. See Reserve Mining Co. v. Herbst, 256 N.W.2d 808, 824-25 (Minn.1977); Resident v. Noot, 305 N.W.2d 311, 312 (Minn.1981); State ex rel. Spurck v. Civil Service Board, 226 Minn. 240, 249, 32 N.W.2d 574, 580 (1948).

NSP and NSP-W are engaged in the transmission and sale of electricity in interstate commerce. They are, therefore, subject to regulation by both state and federal agencies. State utilities commissions may regulate only intrastate wholesale and retail rates for the sale of power to consumers but have no regulatory power over wholesale interstate transactions. Public Utilities Commission of Rhode Island v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 54 (1927). In 1935, the United States Congress enacted the Federal Power Act. 9 Section 201 of the Federal Power Act describes the federal-state spheres in utility regulation. 10 In Federal Power Commission v. Southern California Edison Co., 376 U.S. 205, 84 S.Ct. 644, 11 L.Ed.2d 638 (1964), the United States Supreme Court determined that in enacting the Federal Power Act Congress intended to vest exclusive federal authority to regulate interstate wholesale utility rates in the Federal Power Commission (predecessor to FERC). Moreover, that Court indicated Congress intended to draw a "bright line," easily ascertainable, between state and federal jurisdiction making unnecessary a case-by-case analysis. Federal Power Commission v. Southern California Edison Co., 376 U.S. at 215-16, 84 S.Ct. at 651. Thus, FERC's jurisdiction is plenary and extends to all wholesale sales in interstate commerce. 11

On the other hand, the MPUC's jurisdiction is limited to regulation of intrastate retail rates. Minn.Stat. Sec. 216B.03 (1982) provides that the MPUC shall establish "just and reasonable" retail rates. In order to establish "just and reasonable" retail rates, the MPUC must consider the right of the utility and its investors to a reasonable return, while at the same time establishing a rate for consumers which reflects the cost of service rendered plus a "reasonab...

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