Petition of Minnesota Power & Light Co.

Decision Date07 February 1989
Docket NumberNo. C1-88-1238,C1-88-1238
Citation435 N.W.2d 550
CourtMinnesota Court of Appeals
PartiesIn the Matter of the Petition of MINNESOTA POWER & LIGHT COMPANY, d.b.a. Minnesota Power, for Authority to Change its Schedule of Rates for Electric Utility Service Within the State of Minnesota.

Syllabus by the Court

1. The Commission has the authority to order refunds which have the effect of reducing interim rates below previously authorized rates.

2. The Commission did not err by rejecting relator's separate cost-of-service study for interim rates.

3. The record supports the Commission's determination of a proper rate of return on equity.

4. The Commission properly determined that a best efforts clause in relator's contracts with large power customers was never intended to apply to on-system customers.

Samuel L. Hanson, R. Scott Davies, Briggs and Morgan, Minneapolis, Thomas A. Micheletti, Douglas W. Peterson, Minnesota Power, Duluth, for relator Minnesota Power & Light Co.

Hubert H. Humphrey, III, Atty. Gen., John Erik Kingstad, Sp. Asst. Atty. Gen., St. Paul, for respondent Minnesota Public Utilities Com'n.

Hubert H. Humphrey, III, Atty. Gen., Michael J. Bradley, Sp. Asst. Atty. Gen., St. Paul, for respondent-intervenor State.

Joan C. Peterson, Sp. Asst. Atty. Gen., St. Paul, for Minnesota Dept. of Public Service.

Robert S. Lee, Sheila Ann Engelmeier, Mackall, Crounse & Moore, Minneapolis, for intervenors-respondents Hibbing Taconite Joint Venture, Inland Steel Min. Co. Nat. Steel Pellet Co., and USX Corp.

James J. Ryan, Steer, Strauss, White & Tobias, Cincinnati, Ohio, Thomas R. Thibodeau, Sally L. Sjogren, Johnson, Killen, Thibodeau & Seiler, Duluth (David A. Kuhn, James W. Sanders, Cleveland, Ohio, of counsel), for intervenor-respondent Eveleth Mines.

Heard, considered, and decided by WOZNIAK, C.J., and PARKER and STONE *, JJ.


WOZNIAK, Chief Judge.

Relator Minnesota Power and Light Company, d.b.a Minnesota Power, seeks review of a Public Utilities Commission order which established final prospective rates and ordered a refund of rates collected during the interim period. We affirm.


On May 1, 1987, Minnesota Power filed a Notice of Change in Rates with the Minnesota Public Utilities Commission ("Commission"), proposing a rate increase of $4.4 million, to become effective on July 1, 1987. Minnesota Power also filed a Notice of Petition for Interim Rates in the event the Commission decided to suspend the proposed rates and conduct an investigation 1. Minnesota Power requested approximately $9.6 million in interim rates.

With its Notice of Change in Rates and its Petition for Interim Rates, Minnesota Power filed two separate cost-of-service studies. Both were based on the same test year: July 1, 1987 through June 30, 1988. One study was submitted in support of interim rates and the other was submitted in support of Minnesota Power's request for prospective rates. The two studies were intended to justify the disparities in Minnesota Power's interim and prospective rate requests, and were based on certain predicted cost declines near the end of the test year.

Minnesota Power requested that any refund of interim rates be calculated by reference to the separate interim cost-of-service study, and not the cost of service study for prospective general rates. In other words, Minnesota Power was requesting that the Commission make two final determinations based upon two separate cost studies: one final determination for interim rates and another final determination for prospective rates. This request was unprecedented; in the past, interim rate refunds have been determined by the difference between the interim rates allowed and final prospective rates.

The Commission accepted Minnesota Power's filing, suspended the proposed final rates, and ordered a contested case hearing. The Commission authorized Minnesota Power to collect up to $4.8 million in interim rates, subject to refund.

Following a contested case hearing, an Administrative Law Judge (ALJ) issued his recommendations, determining that Minnesota Power would experience a test year revenue surplus. The ALJ did not address Minnesota Power's request that its separate interim rate cost study be used for refund purposes.

On March 1, 1988, the Commission ordered a final rate decrease of $8.5 million. On May 16, 1988, in an Order After Reconsideration and Rehearing, the Commission revised its final prospective rate decrease to $8.3 million. The Commission ordered that refunds be issued to ratepayers for the difference between the $4.8 million interim increase in rates and the $8.3 million decrease in final prospective rates. This order resulted in lower rates for the interim period than had been authorized in Minnesota Power's prior 1981 rate proceeding.

Responding to Minnesota Power's two separate cost studies, the Commission concluded that it was being asked to determine "two separate rate cases within the statutory procedure and time frame established for one rate case." The Commission therefore declined Minnesota Power's request to consider its separate cost study for determining interim rates and calculating refunds.

The Commission also adopted an 11.56 percent cost of common equity, and agreed with the ALJ that a "best efforts" clause in Minnesota Power's contracts with large power class customers applied only to off-system sales.

Minnesota Power has appealed from the Commission's order. Pursuant to a request by Minnesota Power, the Commission agreed to stay its refund order pending this appeal. Intervenor-respondent Eveleth Mines, a large power class customer, has filed a notice of review, challenging the Commission's decision regarding the "best efforts" clause in Minnesota Power's contracts with large power class customers.

Intervenors Hibbing Taconite Joint Venture, Inland Steel Mining Company, and National Steel Pellet Company and USX Corporation, four members of Minnesota Power's large power class, have jointly responded to the issues raised by Minnesota Power and the respondent Commission.


1. Did the Commission have the authority to order refunds which reduced interim rates below previously authorized rates?

2. Did the Commission err by refusing to accept a separate cost-of-service study for the interim period and by adopting Minnesota Power's cost study for prospective rates without making adjustments to that study for higher costs incurred by Minnesota Power during the interim period?

3. Did the Commission err by adopting an 11.56 percent rate of return on common equity?

4. Did the Commission erroneously interpret the "best efforts" clause in Minnesota Power's contracts with large power customers?


A utility seeking to change its rates has the burden of proving by a preponderance of the evidence that its proposed rate change is just and reasonable. Minn.Stat. Sec. 216B.16, subd. 4 (1986). "Preponderance of the evidence" is defined for ratemaking proceedings as "whether the evidence submitted, even if true, justifies the conclusion sought by the petitioning utility when considered together with the Commission's statutory responsibility to enforce the state's public policy that retail consumers of utility services shall be furnished such services at reasonable rates." Petition of Northern States Power Co., 416 N.W.2d 719, 722 (Minn.1987).

The Commission exercises quasi-judicial and partially legislative functions. Id. When determining the amount of an alleged cost, the Commission acts within its quasi-judicial capacity. Id. The Commission's decision in this capacity is reviewed under the "substantial evidence test"; i.e., "whether the agency has adequately explained how it derived its conclusion and whether that conclusion is reasonable on the basis of the record." Id. at 724 (quoting Minnesota Power & Light Co. v. Minnesota Public Utilities Commission, 342 N.W.2d 324, 330 (Minn.1983)).

Once the amount of a claimed cost is determined, the Commission must also decide whether the burden of that cost should be sustained by the utility's shareholders or by ratepayers; i.e., whether the item of cost should be included in rates. When making this determination, the Commission acts in both a quasi-judicial and a partially legislative capacity. Id. at 722.

[I]n evaluating the disputes in the typical rate case the accent is more on the inferences and conclusions to be drawn from the basic facts (i.e., amount of claimed costs) rather than on the reliability of the facts themselves. * * * [T]he [Commission] may draw its own inferences and arrive at its own conclusions from the undisputed basic facts.

Id. at 722-23.

When the Commission exercises its legislative function, we must uphold the ensuing decision if the Commission "acted within its statutory authority, and the result was not unjust, unreasonable, or discriminatory, as shown by clear and convincing evidence." Id. at 723 (citing St. Paul Area Chamber of Commerce v. Minnesota Public Service Commission, 312 Minn. 250, 262, 251 N.W.2d 350, 358 (1977)).

1. Refund Authority.

Minn.Stat. Sec. 216B.16, subd. 3 (1986) provides in part:

Notwithstanding any order of suspension of a proposed increase in rates, the commission shall order an interim rate schedule into effect not later than 60 days after the initial filing date.

* * *

If, at the time of its final determination, the commission finds that the interim rates are in excess of the rates in the final determination, the commission shall order the utility to refund the excess amount collected under the interim rate schedule * * *.

Prior to 1982, instead of authorizing separate interim rates, section 216B.16, subd. 3 allowed a public utility to put its proposed rate schedule into effect by filing with the Commission a bond conditioned upon the refund of the excess in increased rates collected "if the schedule so put into effect is finally disallowed by the commission." In 1976...

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