Pacific Northwest Bell Telephone Co. v. Katz, C-12081

• Decision Date: 12 November 1992
• Docket Number: C-12081
• Citation: 116 Or.App. 302,841 P.2d 652
• Parties: PACIFIC NORTHWEST BELL TELEPHONE COMPANY, dba U.S. West Communications, Respondent, v. Myron B. KATZ, Ron Eachus, Nancy Ryles and Oregon Public Utility Commission, Appellants, and Citizen's Utility Board, Intervenor-Appellant. 89; CA A66307. . *
• Court: Oregon Court of Appeals

Page 652

841 P.2d 652

116 Or.App. 302

PACIFIC NORTHWEST BELL TELEPHONE COMPANY, dba U.S. West Communications, Respondent, v. Myron B. KATZ, Ron Eachus, Nancy Ryles and Oregon Public Utility Commission, Appellants and Citizen's Utility Board, Intervenor-Appellant.

89C-12081; CA A66307.

Court of Appeals of Oregon In Banc. ^*

Argued and Submitted Jan. 3, 1992.

Resubmitted in Banc Oct. 14, 1992.

Decided Nov. 12, 1992.

Keith L. Kutler, Asst. Atty. Gen., Salem, argued the cause for appellants. On the briefs were Dave Frohnmayer, Atty. Gen., Virginia L. Linder, Sol. Gen., and Robert M. Atkinson, Asst. Atty. Gen., Salem.

J. Rion Bourgeois, Portland, argued the cause and filed the briefs for intervenor-appellant.

John R. Faust, Jr., Portland, argued the cause for respondent. With him on the brief were Schwabe, Williamson & Wyatt and Charles L. Best, Portland.

RIGGS, Judge.

The Public Utilities Commission (PUC) ¹ appeals from a judgment of the circuit court reversing its Order 89-1355, which ordered Pacific Northwest Bell Telephone Company (PNB) to refund $10,056,772 to its customers. The circuit court found that the revenues to be refunded were generated from permanent, lawful rates and concluded, therefore, that the refund order constituted unlawful retroactive ratemaking. Citizens' Utility Board (CUB) appears as an intervenor. We reverse.

Although the appeal is from a judgment of the circuit court, we review PUC's order. ORS 756.598. We may not substitute our judgment for that of PUC on any finding of fact supported by substantial evidence. ORS 756.598. Whether or not we agree with PUC's inferences or reasoning, we will uphold PUC's order if it discloses a rational relationship between the facts and the legal conclusion reached. The order, however, must contain sufficient findings and conclusions to enable us to determine that the reasoning is rational and that PUC acted within its grant of power. American Can v. Lobdell, 55 Or.App. 451, 638 P.2d 1152, rev. den. 293 Or. 190, 648 P.2d 851 (1982); Publisher's Paper Co. v. Davis, 28 Or.App. 189, 559 P.2d 891 (1977); Pacific N.W. Bell v. Sabin, 21 Or.App. 200, 214, 534 P.2d 984, rev den (1975).

In December, 1985, PNB filed a revised rate schedule that increased its total revenue requirement and redistributed the recovery of the total revenue among various services. The rates of some individual services were increased, some were decreased and some were not changed. In response, PUC issued Order 85-1211, granting an interim increase in PNB's total revenue, subject to refund if PUC later determined that the increase was inappropriate. The interim rate schedule took effect on January 1, 1986.

After investigation, PUC determined that, instead of a total revenue increase, a revenue decrease should have been ordered. On March 31, 1987, PUC issued Order 87-406, ordering PNB to refund excess revenues collected under the interim rate schedule ² and requiring it to reduce its total revenues by $45 million, to an amount below the 1985 authorized revenue level. PUC proposed an interim rate spread to achieve the reduction. The interim rate spread included a proposal to make Extended Area Service (EAS) optional. Optional EAS was intended to reduce revenues by $5.04 million.

During May and June, 1987, in accordance with PUC's proposed rate spread, PNB filed compliance tariffs, including optional EAS. Although PUC accepted most of the proposed tariffs, it rejected the optional EAS proposal, because it had decided to make a more thorough study of EAS services in connection with another case on its docket, UT-53. The final decision on EAS services would be made in that case. In the meantime, because it expected to reach a final decision within a relatively short period of time, PUC allowed PNB to continue providing mandatory EAS and to operate temporarily under an interim rate schedule that was $5.04 million per year higher than the authorized revenue level.

In May, 1988, CUB petitioned PUC to take action to stop overcollections and to refund amounts already overcollected. PUC issued Order 88-1523, in which PNB was ordered to reduce basic local service rates by $5 million per year. However, PUC denied a refund, because it concluded that ORS 759.185(4) ³ allows a refund only when an interim increase is involved and this situation did not involve an interim increase.

In April, 1989, PUC issued Order 89-461, by which it granted reconsideration of its decision in Order 88-1523 and ordered a refund of the overcollected revenues. It concluded that, although an interim increase was not involved, PNB had been unjustly enriched by the overcollections and, therefore, was not entitled to keep the excess revenues. Shortly thereafter, Order 89-461 was rescinded for procedural errors. However, PUC notified PNB that it would consider the issue on its own motion and that PNB should consider the rescinded order as a proposed order.

On October 13, 1989, PUC issued Order 89-1355, in which it ordered PNB to refund the overcollected revenues. It concluded that mandatory EAS was a partial continuation of the interim rate increase and that, therefore, the overcollected revenues were subject to refund under ORS 759.185(4). PNB brought this action to vacate the order under ORS 756.580. The circuit court reversed Order 89-1355 and vacated PUC's findings and conclusions. It made special findings that the revenues were generated from permanent rates authorized by PUC and that the EAS rates in effect were permanent rates authorized by PUC. ⁴

The first issue is whether the refund was authorized under ORS 759.185(4). PUC contends that that statute gives it specific authority to order a refund, because the interim rate increase authorized by Order 85-1211 was partially continued when PUC rejected the proposed optional EAS rate. When a utility files a rate or schedule of rates that increases an existing rate or schedule of rates, PUC may, and in some cases must, conduct a hearing to determine its propriety and reasonableness. ORS 759.180(1). If PUC allows the proposed rate or schedule of rates to become effective on an interim basis while it conducts a hearing, ORS 759.185(4) provides, in pertinent part, that "any increased revenue collected by the telecommunications utility as a result of such rate or rate schedule becoming effective shall be received subject to being refunded." (Emphasis supplied.)

PUC found:

"When the Commission rejected PNB's optional EAS tariffs it effectively revised Order 87-406 to order a partial rate reduction rather than the full rate reduction ordered by Commissioner Davis. In so doing, it effectively continued the interim rate increase authorized [in Order 85-1211]."

We cannot substitute our judgment for that of PUC on any finding supported by substantial evidence. ORS 756.598.

The evidence in the record does not support PUC's finding. Effective January 1, 1986, Order 85-1211 granted an interim rate increase from the permanent rates that were in effect through the end of 1985. Order 87-406 required PNB to reduce, rather than increase, its total revenues. The reduction took the form of a rate spread that terminated the interim increase authorized by Order 85-1211 and reduced PNB's rates below the 1985 level. The rate spread ordered in Order 87-406 showed these reductions (in millions of dollars):

                1  Rollback to 1985 rates          $19.24
                2  Business rate restructure       $ 9.61
                3  Touch"Tone rate reductions      $ 5.90
                4  Measured usage rate reductions  $ 0.40
                5  Optional EAS                    $ 5.04
                6  Service Connection Charges      $ 5.32
                                                   ------
                   Total                           $45.51
                

It is apparent from the rate spread that the rate reduction anticipated by allowing optional EAS was a reduction in addition to the deletion of the 1986 interim rate increase. There is no evidence that the interim rate increase authorized by Order 85-1211 had made any changes in EAS charges. In fact, the evidence provided by the rate spread table indicates that mandatory EAS was already included in the 1985 rate schedule and that the change to optional EAS was a change from the 1985 rate schedule. The only evidence is that the rate reduction in Order 87-406 included a rollback to 1985 rates, which resulted in rescission of the interim rate increase of Order 85-1211, as well as additional reductions from the 1985 rate. Rescission of a rate increase cannot be a continuation of it. Because ORS 759.185(4) only requires PNB to refund revenues collected under an interim rate schedule that increases rates, and the interim rate increase was rescinded by Order 87-406, the refund is not authorized by ORS 759.185(4).

However, that is not the only authority by which PUC may order a refund. ORS 756.040 states, in pertinent part:

"(1) In addition to the powers and duties now or hereafter transferred to or vested in the commission, the commission shall represent the customers of any public utility, telecommunications utility, railroad, air carrier or motor carrier and the public generally in all controversies respecting rates, valuations, service and all matters of which the commission has jurisdiction. In respect thereof the commission shall make use of the jurisdiction and powers of the office to protect such customers, and the public generally, from unjust and unreasonable exactions and practices and to obtain for them adequate service at fair and reasonable rates.

"(2) The commission is vested with power and jurisdiction to supervise and regulate every public utility, telecommunications utility, railroad, air carrier and motor carrier in this state, and to do all things necessary and convenient in the exercise of such power and jurisdiction."

Utility regulation, including ratemaking, is a legislative function, and the legislature has granted broad power to PUC to perform its delegated function. ⁵ American Can v. Lobdell, supra, 55 Or.App. 451...