Office of Consumer Advocate v. Iowa State Commerce Com'n, 89-996

• Decision Date: 23 January 1991
• Docket Number: No. 89-996,89-996
• Citation: 465 N.W.2d 280
• Parties: OFFICE OF CONSUMER ADVOCATE, Appellee, v. IOWA STATE COMMERCE COMMISSION, Respondent, United Telephone Company of Iowa, Intervenor-Appellant.
• Court: Iowa Supreme Court

Page 280

465 N.W.2d 280

OFFICE OF CONSUMER ADVOCATE, Appellee, v. IOWA STATE COMMERCE COMMISSION, Respondent United Telephone Company of Iowa, Intervenor-Appellant.

No. 89-996.

Supreme Court of Iowa.

Jan. 23, 1991.

B.C. Clayton and Jeffrey K. Rosencrants of Diehl, Clayton & Cleverly, Newton, and

Joseph P. Cowin, Overland Park, Kan., for intervenor-appellant United Telephone.

James R. Maret, Consumer Advocate, and Alexis K. Wodtke, Des Moines, for appellee Office of Consumer Advocate.

Susan Allender and Allan Kniep, Des Moines, for respondent Iowa State Commerce Comm'n, now the Iowa Utilities Bd.

Considered by McGIVERIN, C.J., and HARRIS, LAVORATO, NEUMAN, and SNELL, JJ.

NEUMAN, Justice.

This appeal examines the distinction drawn between general and non-general utility rate increases and the hearing requirements applicable to each. The controversy stems from proposed increases in charges for telephone operator service and directory assistance. Although the Utilities Board concluded without hearing that the increases were reasonable, the district court decided on judicial review that making such a factual determination on the present record without an opportunity for evidentiary hearing violated the objector's constitutional rights to due process. We agree and remand the case to the agency for further proceedings.

I. Scope of review. In proceedings like this one that are brought under the Iowa Administrative Procedure Act, the district court functions in an appellate capacity to correct legal error committed by the agency. Iowa Code § 17A.19(8) (1989). On appeal, we apply the standards of section 17A.19(8) to assess whether our conclusions coincide with those reached by the district court. Northwestern Bell Tel. Co. v. Iowa State Commerce Comm'n, 359 N.W.2d 491, 495 (Iowa 1984). Our review is ordinarily confined to determining whether the district court correctly applied the law. Iverson Constr., Inc. v. Department of Employment Servs., 449 N.W.2d 356, 358-59 (Iowa 1989). When constitutional issues are raised, however, we are obliged to make an independent evaluation of the totality of the evidence; our review becomes de novo. Iowa-Illinois Gas & Elec. Co. v. Iowa State Commerce Comm'n, 412 N.W.2d 600, 604 (Iowa 1987).

II. Background facts and proceedings. In December 1985, United Telephone Company of Iowa (United) filed with the Iowa State Commerce Commission (now known as the Iowa Utilities Board) an application to increase its directory assistance charges from 25cents to 75cents and to create new operator service charges ranging from 75cents to $2.75 effective January 5, 1986. Accompanying the application was the affidavit of a United official charged with the responsibility for rates and tariffs. His sworn testimony stated that the proposed tariffs were designed to partially offset increased expense United would incur as a result of a change in its contract with Northwestern Bell. The application also included a table of projected revenues and expenses comparing the current and revised agreement. Ratepayers were notified by letter of the proposed increase and the opportunity to file written objections with the Utilities Board.

A number of objections were received, including one filed by the Office of Consumer Advocate (OCA). OCA contended that the proposed increase was unreasonable and unjust. It asserted that United had failed to supply evidence needed to determine the reasonableness of the rate increase. It also cited factors which led it to believe that United's revenue projections were underestimated while its anticipated expenses were overstated, thereby rendering questionable the utility's claim that the change was essentially revenue neutral. OCA asked that the application be dismissed or, in the alternative, docketed for further investigation.

United disputed OCA's objection on two grounds. First, it argued that both Iowa Code section 476.6(7) and corresponding administrative regulations contemplate ratemaking without evidentiary hearing when the change involves specific services subject to cost increases rather than a general rate increase. ¹ Second, while conceding that its revenue and expense projections were based on estimates rather than empirical studies, United refuted OCA's charge of unreasonableness by alleging that United would suffer a loss even if the increased rates were approved.

At this point the proceedings took an unusual turn. A memo prepared by Utilities Board staff suggested some inaccuracy in United's figures warranting reduction in the proposed increase. It also noted United's willingness to negotiate with staff on the reduction and recommended that the tariff be refiled on that basis. Over OCA's renewed objection that it had been denied hearing on the reasonableness of either the original or amended tariff, the Utilities Board authorized the increase. Shortly thereafter, however, a proposed rate increase by United on an unrelated service prompted the Utilities Board to question whether these proposed tariffs represented undesirable "piecemeal" ratemaking or non-general ratemaking contemplated by section 476.6(6). ² It suspended United's rate increase and invited briefs from the parties solely on that legal question.

Following briefing, the Utilities Board concluded that it had authority to consider specific as well as general rate increases. The board cautioned, however, that it would exercise this authority only "rarely" in "narrow cases" where four specific conditions are met:

1. There is no change proposed in the utility's basic rates (its rates for the most common and significant services it offers).

2. The proposed increase will have a minimal or insignificant effect on the utility's rate of return.

3. The proposal is initiated by a cost increase (or other change) which is largely beyond the utility's control and which is the result of a known and indisputable fact.

4. The Commission must be able to find that the specific changes will result in rates which satisfy all statutory requirements, including Iowa Code § 476.7.

Applying these standards to the conclusions drawn from its staff's examination of United's data, the Utilities Board expressed its satisfaction that the proposed rate increase (1) affected only a specific set of rates, (2) would not significantly increase United's earnings, and (3) resulted in rates that are reasonable and just.

OCA moved for rehearing on two grounds. First, it claimed that the United filing did not meet the four-factor test established by the Utilities Board. Second, and of importance to this appeal, OCA renewed its claim that the ratepayers would be harmed by the Utilities Board's refusal to allow OCA to cross-examine United's experts and tender opposing evidence before determining whether United's proposal is just and reasonable.

The Utilities Board denied OCA's motion for rehearing, accusing the advocate of disregarding the agency's statutory authority to make such determinations without hearing. Given its staff analysis of United's projections, the agency saw no benefit to be gained by evidentiary hearing. It went on to hold that in order to generate a material issue of disputed fact, OCA must do more than merely protest the proposed increase; it must "identify what it believes to be the correct information."

OCA petitioned the district court for judicial review. The court agreed with the agency's contention that, by statute, not all ratemaking proceedings require an evidentiary hearing. It found, however, that OCA had raised material issues of disputed fact concerning the reasonableness of the revenue and expense projections upon which United based its filings. Because the agency was engaged in adjudicating the legal rights of United's customers, the court held, considerations of due process required that those customers be granted a meaningful hearing on the proposed rate change. It is from this ruling that United, as intervenor, has appealed.

III. Appellate issues. On appeal, United raises two issues. First, it asserts that the court's ruling rested on an issue of constitutional due process that was not preserved in the record before the agency. Second, it claims the court erred in ruling that OCA raised material fact issues which constitutionally necessitate an evidentiary hearing before the agency. We shall consider the arguments in turn.

A. Preservation of constitutional claim. United contends that OCA is barred from asserting a due process challenge to the Utilities Board's action because the issue was never raised before the agency. United claims, in fact, that the district court "raised this issue on its own." The record, however, does not bear out this assertion.

OCA claimed from the outset that United's customers were entitled to be heard on the proposed rate increase. The due process implications of the Utilities Board's decision to dispense with hearing were not specifically raised by OCA, however, until its application for rehearing asked that the Board's summary action be reversed. In its application, OCA asserted that the reasonableness of United's revenue and expense projections could only be determined after a hearing "in which OCA is given an opportunity to present evidence and arguments." As authority for this proposition, OCA cited section 1 of the fourteenth amendment to the United States Constitution and article I, section 9 of the Iowa Constitution as well as several statutory hearing provisions.

The district court deemed OCA's pleading sufficient to raise the constitutional claim and preserve it for judicial review and, ultimately, appeal. We agree. Generally, our review is limited to questions considered by the agency. General Tel. Co. v. Iowa State Commerce Comm'n, 275 N.W.2d 364, 367 (Iowa 1979). Even issues of constitutional magnitude may be deemed waived on appeal if not raised before the administrative tribunal. Bonds v. State, 447 N.W.2d 135, 136 (Iowa 1989). However,...