Peoples Natural Gas Co., a Div. of Inter-North, Inc. v. Minnesota Public Utilities Com'n

• Decision Date: 21 June 1985
• Docket Number: INC,INTER-NORT,No. C6-83-1684,C6-83-1684
• Citation: 369 N.W.2d 530
• Parties: PEOPLES NATURAL GAS COMPANY, A DIVISION OF, petitioner, Relator, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Respondent, Erie Mining Company, Hibbing Taconite Joint Venture, and The Hanna Mining Company, Intervenors, Respondents.
• Court: Minnesota Supreme Court

Page 530

369 N.W.2d 530

PEOPLES NATURAL GAS COMPANY, A DIVISION OF INTER-NORTH, INC., petitioner, Relator, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Respondent,

Erie Mining Company, Hibbing Taconite Joint Venture, and The

Hanna Mining Company, Intervenors, Respondents.

No. C6-83-1684.

Supreme Court of Minnesota.

June 21, 1985.

Rehearing Denied Aug. 13, 1985.

Syllabus by the Court

1. The Minnesota Public Utilities Commission's determination that the relator public utility violated its order by not putting new uniform rates into effect for its taconite customers for the interim period is affirmed.

2. The Commission lacks statutory authority, either express or implied, to require a public utility to refund revenues collected from its customers in violation of a commission order.

Elmer B. Trousdale, St. Paul, Phillip Crowley, Peoples Natural Gas Co., Law Dept., Council Bluffs, Iowa, for Peoples Nat. Gas Co.

Karl Sonneman, Allen E. Giles, Asst. Atty. Gen., St. Paul, for Minnesota Public Utilities Com'n.

Robert S. Lee, Minneapolis, for Erie and Hibbing Min. Co.

Lawrence G. Acker, Washington, D.C., for Hanna Min. Co.

Heard, considered, and decided by the court en banc.

SIMONETT, Justice.

Does the Public Utilities Commission have implied authority to order a public utility to refund charges collected under rates that the Commission had previously declared discriminatory? We hold it does not and reverse the contrary ruling of the Court of Appeals.

Appellant Peoples Natural Gas Company (hereinafter either Peoples or the utility) sells natural gas to customers in the southeastern, east central, and northwestern parts of this state, including five large taconite producers on the Iron Range. In 1976, respondent Erie Mining Company, one of the taconite producers, complained that it was being charged a discriminatory rate under its "negotiated contract" with the utility. ¹ The Commission on its own motion initiated an investigation and ordered a hearing pursuant to Minn.Stat. Sec. 216B.21 (1984). Respondents Erie Mining Company and Hanna Mining Company, as well as three other taconite producers, intervened. This proceeding, informally called the Erie Complaint Case, culminated in a Commission order dated August 17, 1978, declaring that the rates charged the taconite customers were "discriminatory within and between customer classes," and further stating, "Peoples is hereby ordered to submit a rate schedule to be considered when Peoples petitions the Commission for a general rate increase which will eliminate the inequities, including all demand charges during periods of curtailment."

This order, however, was not implemented, because Peoples mounted a challenge in the courts to the Commission's jurisdiction to regulate the utility's direct sales to its large volume customers. The Commission, consequently, postponed new rates for the taconite producers and ordered that "Peoples' existing contractual rates for such service shall remain in effect until such time as the Supreme Court has concluded the Commission has jurisdiction over such sales and the Commission orders new rates into effect." In May 1980, this court held that the Commission did have jurisdiction under the Public Utilities Act to regulate Peoples' direct sales to the taconite producers. Northern Natural Gas Co. v. Minnesota Public Service Comm'n, 292 N.W.2d 759 (1980). Following this court decision, the Commission issued its order of July 10, 1980, in the Erie Complaint Case, the interpretation and effect of which lies at the heart of this appeal.

The Commission's decision of July 10, 1980, recites that no general rate case had yet been filed by the company and that "the concerns felt nearly two years ago continue to press the Commission." The Commission noted that it had already, in August 1978, found the Company's taconite rates discriminatory. The Commission then ordered a general rate case proceeding, stating that a full rate case protects the utility and also "affords the Commission, the public, and other interested parties the best opportunity to examine and evaluate the structure, management, and condition of the utility in an open forum." The docket in the Erie Complaint Case was closed, and Peoples was ordered to file a general rate case on or before August 21, 1980. (Subsequently, this deadline was extended to "November 31, 1980.") ² In the same order, the Commission concluded:

As part of that filing [for a general rate case], Peoples shall propose a rate for its large volume direct-sale customers * * *.

The Commission will not now order the rates for those large volume customers changed. * * * [T]he Commission's October 11, 1979, Order retaining Peoples' existing contractual rates will remain in effect until Peoples institutes new rates under bond pursuant to M.S. Sec. 216B.16.

Peoples chose to read this order to require it to put into effect new uniform rates for the five taconite producers at the end of the general rate case, not at the beginning. On December 1, 1980, Peoples filed its Notice of Change in Rates, announcing that 90 days later, on March 1, 1981, it would put into effect under bond, subject to refund, its new general service rates, but also stating that there were other rate design proposals--namely, for the taconite producers--that it was not implementing on an interim basis, "because they represent a significant departure from the current rates to the affected classes." Respondents Erie, Hanna, and Hibbing Taconite Joint Venture, as well as four other taconite producers, intervened in this proceeding. There was no objection by either the Commission or any of the taconite customers to leaving the old taconite rates in effect.

By February 1982, the Commission had concluded the general rate case and it then issued its order approving new rates. In this proceeding, the respondent taconite producers had petitioned for a refund of amounts overpaid by them while the general rate case was pending. The Commission first denied the refund claim but then, on reconsideration, ordered that the utility refund to Erie, Hibbing, and Hanna the difference between the original discriminatory rates and the rates approved in the general rate case for the interim period from March 1, 1981, to February 9, 1982. This refund, exclusive of interest, came to $829,917.77.

Peoples appealed the refund order dated August 23, 1983, to the Court of Appeals, arguing that the Commission lacked statutory authority to make the order. The Court of Appeals held that the Commission had implied authority to order refunds and affirmed the Commission's action. Peoples Natural Gas Co. v. Minnesota Public Utilities Comm'n, 348 N.W.2d 347 (Minn.App.1984). We granted the utility's petition for further review.

I.

A preliminary issue is whether the utility violated the Commission's order of July 10, 1980, by not putting its proposed uniform rates for taconite customers into effect for the interim period beginning March 1, 1981.

The significance of this issue is that if the new taconite rates were to have gone into effect on March 1, 1981, then the subsequent order to the utility to refund "overcharges" for the period March 1, 1981, to February 9, 1982, cannot be characterized as retroactive ratemaking, which is prohibited. Ratemaking is a quasi-legislative function, see St. Paul Chamber of Commerce v. Minnesota Public Service Comm'n, 312 Minn. 250, 262, 251 N.W.2d 350, 358 (1977), and legislation operates prospectively. Indeed, the Public Utility Act expressly prohibits retroactive ratemaking. Minn.Stat. Sec. 216B.23, subd. 1 (1984), provides: "[T]he commission shall * * * by order fix reasonable rates * * * to be imposed, observed and followed in the future." (Emphasis added.) See also Minn.Stat. Sec. 216B.16, subd. 5 (1980) ("If, after the hearing, the Commission finds the rates to be unjust or unreasonable or discriminatory, the commission shall determine the level of rates to be charged or applied by the utility * * * and the rates are thereafter to be observed * * *."), and the present version of that statute, as amended by 1982 Minn.Laws, ch. 414, Sec. 5, ("Rate design changes shall be prospective * * *.").

Respondents argue that the Commission in 1978 had found the utility's taconite rates unlawful; that the Commission's order of July 10, 1980, operated prospectively because the utility was required to implement new nondiscriminatory rates for its taconite customers only from and after March 1, 1981; and that the utility failed to comply with the Commission's order. Therefore, say respondents, the refund order is not enacting a new rate retroactively but is only requiring restitution of charges which the utility knew it should not have collected. The utility, on the other hand, argues that the July 10, 1980, order did not require new taconite rates to be put into effect for the interim period, and, therefore, to now collect these charges under the guise of a refund would be forbidden retroactive ratemaking.

The Commission's order provided that "Peoples' existing contractual rates will remain in effect until Peoples institutes new rates under bond * * *." The Commission first construed this order to mean that Peoples was free to elect whether to institute new taconite rates under bond for the interim period or to leave its old contractual rates in effect, and that for the Commission to order a refund under these circumstances would constitute retroactive ratemaking. Subsequently, the Commission reversed itself and ruled that Peoples' interpretation of the July 10 order was "disingenuous," that retroactive ratemaking was not involved, and that Peoples must refund the "overcharges of illegal, discriminatory rates."

When the July 10 order is read as a whole and in the context of the series of orders preceding it in the Erie Complaint Case, we think it clearly required the utility to put its new taconite rates into effect...