Senior Citizens Coalition of Northeastern Minnesota v. Minnesota Public Utilities Com'n, s. C9-83-982

• Decision Date: 07 September 1984
• Docket Number: Nos. C9-83-982,C9-83-1047,s. C9-83-982
• Citation: 355 N.W.2d 295
• Parties: SENIOR CITIZENS COALITION OF NORTHEASTERN MINNESOTA, Appellant, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Respondent. MINNESOTA POWER & LIGHT COMPANY, Appellant, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Respondent, and Attorney General Hubert H. Humphrey III, Respondent.
• Court: Minnesota Supreme Court

Page 295

355 N.W.2d 295

SENIOR CITIZENS COALITION OF NORTHEASTERN MINNESOTA, Appellant, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Respondent.

MINNESOTA POWER & LIGHT COMPANY, Appellant, v. MINNESOTA PUBLIC UTILITIES COMMISSION, Respondent, and Attorney General Hubert H. Humphrey III, Respondent.

Nos. C9-83-982, C9-83-1047.

Supreme Court of Minnesota.

Sept. 7, 1984.

Syllabus by the Court

1. The Public Utilities Commission erroneously excluded from Minnesota Power & Light Company's rate base the utility's investment in recreational facilities which are being constructed at certain hydroelectric projects pursuant to licensing requirements of the Federal Energy Regulation Commission, because such facilities are "used and useful in rendering service to the public" within the meaning of Minn.Stat. § 216B.16, subd. 6 (1982).

2. The Public Utilities Commission lacked authority to award attorney fees and costs to intervenors under state law because, even assuming it had been implicitly delegated legislative authority to promulgate intervenor funding rules, it failed to properly do so.

3. The Public Utility Regulatory Policies Act of 1978, 16 U.S.C. § 2601 et seq. (1983), does not authorize the Public Utilities Commission to award attorney fees and costs to intervenors independent of any state authority to do so.

4. The Public Utilities Commission cannot be estopped from refusing to consider the intervenor's request for attorney fees and costs in the circumstances presented.

James R. Habicht, Duluth, Samuel L. Hanson, R. Scott Davies, Terry L. Slye, Minneapolis, Dale W. Lucas, Duluth, for Senior Citizens Coalition.

Karl W. Sonneman and Allen E. Giles, St. Paul, for Mn. Pub. Utilities Comm.

Michael J. Bradley, St. Paul, for Hubert H. Humphrey III.

Considered and decided by the court en banc without oral argument.

SCOTT, Justice.

Two cases have been consolidated for disposition on this appeal. Both cases arose out of Minnesota Power & Light Company's (MPL) 1981 application for a rate increase. Each case involves an appeal from a judgment entered in Ramsey County District Court, affirming a decision of the Minnesota Public Utilities Commission (PUC).

In C9-83-1047, MPL appeals from that part of the PUC's decision which excluded from the rate base MPL's investment in recreational facilities which are being constructed at certain hydroelectric projects pursuant to licensing requirements of the Federal Energy Regulatory Commission (FERC). ¹ In C9-83-982, the Senior Citizens Coalition of Northeastern Minnesota appeals from that part of the PUC's decision denying its request for intervenor compensation. We affirm in C9-83-982, but reverse in C9-83-1047. Because each case raises distinct issues, they will be discussed separately below.

I. C9-83-1047.

MPL operates hydroelectric facilities located on navigable waters in Blanchard, Winton, and Island Lake, Minnesota. To construct and operate those facilities, MPL had to obtain a license from the FERC, which has exclusive jurisdiction under the Federal Power Act to license hydroelectric facilities on navigable waters and to set standards for the licensing process. See 16 U.S.C. § 803 (1983); Town of Springfield v. McCarren, 549 F.Supp. 1134, 1156-57 (D.Vt.1982), aff'd by order, 722 F.2d 728 (2d Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 360, 78 L.Ed.2d 322 (1983); see generally 2 A. Priest, Principles of Public Utility Regulation 613-39 (1969). In applying for such a license, MPL was required to file a suitable plan for project recreational facilities. That plan was identified as "Exhibit R" of the application. ² Forrest L. Ludsen, a company witness, testified that the recreational "facilities become project facilities by incorporation" of that exhibit into the license ³ and that "[t]he license requires that the project area and work must be in substantial conformity with the approved exhibit."

Federal regulations, as well as decisions by the FERC, establish a licensee's duty to develop the planned recreational facilities. According to federal regulations, the FERC expects the licensee to assume responsibility for developing "suitable public recreational facilities upon project lands and waters." 18 C.F.R. § 2.7(b) (1983). ⁴ Meanwhile the FERC has held that a licensee has ultimate responsibility for recreational development and that it retained sole authority to determine, upon a licensee's petition, "whether a particular level of [recreational] demand attained is or is not adequate to justify proceeding with the planned development." Public Utility District No. 1 of Chelan County, Washington, 56 Fed.Power Comm. 787, 789 (1976).

In May of 1981, MPL petitioned for a rate increase. It sought to include in the rate base, as part of its investment in the three hydroelectric plants, the cost of constructing the public recreational facilities described in the license application for each plant. The Office of Consumer Services objected to including that investment in MPL's rate base on the ground that such facilities were not "used and useful in rendering service" within the meaning of Minn.Stat. § 216B.16, subd. 6 (1982). ⁵ MPL countered that its investment in the recreational facilities was properly includable in the rate base because such facilities are a condition of the license under which it operates the hydroelectric plants and, therefore, they are necessarily "used and useful."

The hearing examiner agreed with MPL and recommended that MPL be allowed to include that investment in its rate base. The PUC reversed the hearing examiner, ruling that federal law did not compel inclusion of that investment in the rate base and that the recreational facilities were not "used and useful." On appeal, the Ramsey County District Court affirmed the PUC's decision, ruling that substantial evidence supported its conclusion. MPL appeals to this court, challenging the PUC's failure to include the costs of constructing the recreational facilities in its rate base. We reverse.

Since MPL is attempting to have its retail ratepayers pay for the costs of constructing recreational facilities which are required as a condition of the hydroelectric license granted by the FERC, this case involves the interaction of the federal and state spheres in utility regulation. It is well established that the FERC has plenary jurisdiction over regulating wholesale interstate transactions, while state utilities commissions retain authority to regulate intrastate retail rates. See Federal Power Commission v. Southern California Edison Co., 376 U.S. 205, 214-15, 84 S.Ct. 644, 650-51, 11 L.Ed.2d 638 (1964); Public Utilities Commission of Rhode Island v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 54 (1927). This court recently applied those principles in Northern States Power Co. v. Minnesota Public Utilities Commission, 344 N.W.2d 374 (Minn.), cert. denied, --- U.S. ----, 104 S.Ct. 3546, 82 L.Ed.2d 850 (1984). There, we held that a FERC decision established a wholesale interstate rate and, therefore, the PUC had no power to reexamine the reasonableness of that FERC-approved rate. Id. at 377, 382. As a result, even though the FERC-approved rate did "not directly establish the return for retail rates," the PUC was required to accept the FERC-approved rate as establishing expenses for purchased power in determining intrastate retail rates. Id. at 382.

The instant case, however, does not involve an interstate wholesale rate established by the FERC. Rather, the question presented here is whether the PUC must include in the intrastate rate base costs incurred as a condition of the hydroelectric license granted by the FERC. As MPL concedes, the PUC correctly ruled that this question must be resolved under state law standards.

Under section 216B.16, subd. 6, a utility is entitled to a reasonable return on its investment in "property used and useful in rendering service to the public." The PUC excluded MPL's investment in the recreational facilities from the rate base, ruling that those facilities were not "used and useful" because:

MPL made no showing that the facilities were actually used in the generation of electricity. They are not part of MP & L's generation, transmission, or distribution facilities. If the recreational facilities were to vanish, there would be no effect on the output of MP & L's hydroelectric facilities. * * * It may well be that the recreational facilities are useful in rendering electric service, if they are seen as a part of the overall hydroelectric facility. However, M.S. § 216B.16, subd. 6, requires the investment to be both used and useful, and the recreational facilities clearly are not both.

In sum, while seemingly recognizing that such facilities could "well be" considered "useful" due to their mandatory nature, the PUC excluded MPL's investment in the recreational facilities from the rate base on the ground that such facilities were not "used * * * in rendering service to the public."

We think that the PUC erroneously applied the "used and useful" standard. The problem with the PUC's reasoning is that it defined "used * * * in rendering service" to require that an item must actually generate, transmit or distribute electricity, or aid in doing so. We reject that definition as being overly technical and inflexible. As MPL points out, mandated pollution control facilities, which serve to preserve and protect the environment, are routinely considered "used and useful," and thus included in a utility's rate base, even though such devices do not produce or distribute electricity, or aid in doing so. See Green v. Pennsylvania Public Utility Commission, 473 A.2d 209, 214 (Pa.Commw.1984); Pennsylvania Public Utility Commission v. Pennsylvania Power and Light Co., 55 P.U.R.4th 185, 193-94 (1983); In re Indiana & Michigan Electric Co., Case No. U-6148 [1979-81] Util.L.Rep.-State (CCH) p 23,377.06 (1981); see also Commonwealth Edison Co. v....