Northwestern Bell Telephone Co. v. Iowa State Commerce Com'n, 83-1503

• Decision Date: 19 December 1984
• Docket Number: No. 83-1503,83-1503
• Citation: 359 N.W.2d 491
• Parties: NORTHWESTERN BELL TELEPHONE COMPANY, Appellee, v. IOWA STATE COMMERCE COMMISSION, Appellant, Meredith Corporation, United States Department of Defense, and Answer Iowa, Inc., Intervenors.
• Court: Iowa Supreme Court

Page 491

359 N.W.2d 491

NORTHWESTERN BELL TELEPHONE COMPANY, Appellee, v. IOWA STATE COMMERCE COMMISSION, Appellant, Meredith Corporation, United States Department of Defense, and Answer Iowa, Inc., Intervenors.

No. 83-1503.

Supreme Court of Iowa.

Dec. 19, 1984.

Philip E. Stoffregen, Gen. Counsel, Patrick J. Nugent, Deputy Counsel, and William A. Haas, Asst. Gen. Counsel, Des Moines, for appellant.

Donald H. Sitz and David A. Dettmann of Lane & Waterman, Davenport, and W.K. Schaphorst and Robert H. Jackson, Des Moines, for appellee.

Considered en banc.

UHLENHOPP, Justice.

This appeal involves issues which arose in a proceeding to set intrastate rates of Northwestern Bell Telephone Company (Bell) for a period prior to divestiture of Bell by American Telephone and Telegraph Company (AT & T). During that period Bell was a subsidiary corporation of AT & T. We first briefly describe the statutory regulatory scheme. The applicable statutes are those in the Iowa Code of 1983; our citations are to that Code unless otherwise stated.

A public utility, including a corporation furnishing communications services to the public for compensation, § 476.1(2), is required to file tariffs with the Iowa State Commerce Commission showing rates and charges. § 476.4. A utility can change its rates only by filing new rates with the commission at least thirty days prior to their effective date, § 476.6(1), together with factual evidence, written argument, and affidavits containing testimonial evidence. § 476.6(7). The commission may initiate formal proceedings regarding the new rates, and this automatically suspends them. § 476.6(8).

Formerly the statute provided that when the new rates had been suspended for ninety days the utility could place them in effect under bond pending the commission's final decision on the rates. Iowa Code § 476.6 (1979). The result was what the commission calls "pancaking," whereby new rate changes were filed on top of each other resulting in continued collection of rates unapproved by the commission.

The General Assembly dealt with the problem of temporary rates by changing section 476.6(13) to read as follows in the 1983 Code, effective July 1, 1981:

Upon the request of a public utility, the commission shall, when required by this paragraph, grant the public utility temporary authority to place in effect any or all of the suspended rates, charges, schedules or regulations by filing with the commission a bond or other undertaking approved by the commission conditioned upon the refund in a manner to be prescribed by the commission of any amounts collected in excess of the amounts which would have been collected under rates, charges, schedules or regulations finally approved by the commission. In determining that portion of the new or changed rates, charges, schedules or regulations to be placed in effect prior to a final decision, the commission shall apply previously established regulatory principles and shall, at a minimum, permit rates and charges which will allow the utility the opportunity to earn a return on common stock equity equal to that which the commission held reasonable and just in the most recent rate case involving the same utility or the same type of utility service provided that if the most recent final decision of the commission in an applicable rate case was rendered more than twelve months prior to the date of filing of the request for temporary rates, the commission shall in addition consider financial market data that is filed or that is otherwise available to the commission and shall adjust the rate of return on common stock equity that was approved in that decision upward or downward as necessary to reflect current conditions. The commission shall render a decision on a request for temporary authority within ninety days after the date of filing of the request. The decision shall be effective immediately. If the commission has not rendered a final decision with respect to suspended rates, charges, schedules or regulations upon the expiration of ten months after the filing date, plus the length of any delay that necessarily results either from the failure of the public utility to exercise due diligence in connection with the proceedings or from intervening judicial proceedings, plus the length of any extension permitted by section 476.33, subsection 3 [additional time for good cause shown], then those portions that were approved by the commission on a temporary basis shall be deemed finally approved by the commission and the utility may place them into effect on a permanent basis, and the utility also may place into effect subject to refund and until the final decision of the commission any portion of the suspended rates, charges, schedules or regulations not previously approved on a temporary basis by filing with the commission a bond or other undertaking approved by the commission.... The commission shall establish a rate of interest to be paid by a public utility to persons receiving refunds. The rate of interest shall be a reasonable rate as determined by the commission, but not less than five percent per annum, and the interest shall be compounded annually. The public utility shall not place into effect any portion of any suspended rates, charges, schedules or regulations of any subsequent rate filing relating to services with respect to which a rate filing is pending within twelve months following the date a prior application was filed or until after the date the commission has issued a final order in any previously filed rate proceedings, whichever date is earlier, unless the public utility applies to the commission for authority and receives authority to place a portion of the subsequent rate filing into effect on an interim basis.

As to permanent rates, section 476.6(10) provides in substance that if the commission after hearing decides that the proposed rates are unlawful, the utility shall file permanent rates in accordance with the decision of the commission. If the utility then petitions for judicial review of the commission's decision on permanent rates, it may continue, during the pendency of judicial review, to collect under bond the temporary rates it has been collecting.

On September 2, 1981, Bell filed a request, with supporting material, to increase rates to produce additional annual revenue of $28.5 million. The commission ordered formal proceedings on the request, which suspended the new rates. On November 30, 1981, the commission ordered a temporary increase of $18.891 million. Bell asked for a rehearing. After oral argument, the commission denied a rehearing on January 7, 1982.

On January 27, 1982, Bell filed in district court a petition for judicial review of the temporary rates and for an order staying the commission's order and increasing the temporary rates to $25.495 million. The same day the district court, ex parte, granted the stay, placed in effect the temporary rates requested by Bell, and ordered Bell to give notice of the order to the commission's counsel within ten days. Various proceedings then occurred which are not now material.

The commission proceeded with the original request for permanent rates, set and held hearings and meetings, and by orders on June 25 and August 4, 1982, granted Bell's permanent rate increase in part and denied it in part. The commission's decision on permanent rates called for a revenue increase of $10.6 million, in contrast to the temporary rate increases in revenue of $18.891 million by the commission and $25.496 million by the district court. Bell then filed a petition for judicial review of the commission's order on permanent rates.

The district court combined the two petitions for judicial review, held a hearing, and on September 21 and October 25, 1983, rendered decisions on the two petitions, upholding the commission's temporary and permanent rate orders in part and reversing them in part and returning the proceedings to the commission.

The commission appealed to this court and Bell cross appealed. We consolidated the two proceedings. As the proceedings are under chapter 17A of the Code, "the district court, when exercising the power of judicial review conferred by section 17A.19(8), functions in an appellate capacity to correct errors of law on the part of the agency.... In our review of such action by the district court we merely apply the standards of section 17A.19(8) to the agency action to determine whether our conclusions are the same as those of the district court." Lefebure Corp. v. Iowa Department of Job Service, 341 N.W.2d 768, 770 (Iowa 1983).

I. Temporary rates--authority of district court. The first issue for consideration relates to the authority of the district court to conduct judicial review of temporary rates ordered by the commission.

The commission argues that under the statute as revised in the 1983 Code, the district court does not have jurisdiction over temporary rates. The commission's position is that the General Assembly prescribed a unified procedure in order to end pancaking and double rate proceedings, temporary and permanent. The utility must initially file its evidence and arguments, and the commission has ninety days from the filing date to rule on temporary rates and ten months from the filing date to rule on permanent rates. The commission contends that the utility may then seek judicial review of the permanent rates. Urging as a general proposition that intermediate judicial review is not permitted, the commission cites Richards v. Iowa State Commerce Comm'n, 270 N.W.2d 616 (Iowa 1978).

On the other hand, Bell argues that when the commission sets temporary rates the utility may have judicial review. Its principal factual argument is that if the commission's temporary rates are too low and the utility cannot obtain judicial relief from them, the utility will have no way of recouping its losses for the period the ratepayers pay the deficient temporary...