St. Paul Area Chamber of Commerce v. Minnesota Public Service Commission, s. 47031

CourtSupreme Court of Minnesota (US)
Citation312 Minn. 250,251 N.W.2d 350
Docket NumberNos. 47031,47061 and 47126,47046,s. 47031
PartiesST. PAUL AREA CHAMBER OF COMMERCE, petitioner, Respondent, v. MINNESOTA PUBLIC SERVICE COMMISSION, Appellant, Minnesota Public Interest Research Group, intervenor, Appellant, City of St. Paul, Appellant.
Decision Date25 February 1977

Syllabus by the Court

1. The Minnesota Public Service Commission within the bounds of reasonableness may base its decisions in the ratemaking area on facts within its expertise and facts of common knowledge as well as on the evidence presented to it.

2. (a) When the Public Service Commission acts in a judicial capacity as a factfinder, receives evidence in order to make factual conclusions, and weighs that evidence as would a judge in a court trial, it will be held on review to the substantial-evidence standard.

(b) When the Public Service Commission acts in a legislative capacity as in rate increase allocations, balancing both cost and noncost factors and making choices among public policy alternatives, its decisions will be upheld unless shown to be in excess of statutory authority or resulting in unjust, unreasonable, or discriminatory rates by clear and convincing evidence.

Warren Spannaus, Atty. Gen., Jerome L. Getz, Asst. Atty. Gen., St. Paul, for Minn. Public Service Com'n.

Elliot Rothenberg, Minneapolis, for MPIRG.

Harriet Lansing, City Atty., St. Paul, Thomas J. Stearns, St. Paul, for City of St. Paul.

O'Connor & Hannan, John J. Sommerville and Nancy F. Fowler, Minneapolis, Richard G. Morgan, Washington, D. C., for respondent.

Briggs & Morgan and Leonard J. Keyes, St. Paul, A. R. Renquist, D. A. Lawrence, Minneapolis, and Samuel L. Hanson, St. Paul, for Northern States Power, seeking affirmance.

Warren Spannaus, Atty. Gen., Richard B. Allyn, Sol. Gen., Stephen Shakman, Sp. Asst. Atty. Gen., St. Paul, seeking reversal.

Jerome Jallo, Asst. City Atty., Minneapolis, for City of Minneapolis, amicus curiae.

Stuart W. Rider, Jr., and Roger R. Roe, Jr., Minneapolis, for St. Regis Paper Co., amicus curiae.

Dwight Wagenius, Sp. Asst. Atty. Gen., St. Paul, for Minn. Energy Agency, amicus curiae.

Harold J. Soderberg and Barbara L. Sims, Minneapolis, for Minneapolis Ass'n of Bldg. Owners & Managers, amicus curiae.

Kenneth P. Griswold, St. Paul, for Liberty Plaza Inc., amicus curiae.

Considered and decided by the court en banc.

SCOTT, Justice.

These are appeals from a judgment of the Ramsey County District Court wherein it modified the allocation of revenue responsibility rates among customer classes as ordered by the Minnesota Public Service Commission under the Public Utilities Act, Minn. St. c. 216B, and imposed a new rate allocation. We reverse.

On January 2, 1975, Northern States Power Company (NSP) filed with the Public Service Commission (commission) an application for a change in rates, together with supporting schedules and written testimony. Hearings on the application were conducted in two phases, the first primarily concerned with revenue and the second with rate structure. Four hearings were held at which members of the public could testify; in all there were 26 days of hearings from June 3 to September 11, 1975.

The commission issued its findings of fact, conclusions of law, and order on October 31, 1975. The decision consists of two parts, only the latter of which is at issue on appeal: (1) the NSP-requested revenue increase of $60,000,000 was reduced to $38,640,000, for an average rate increase of 10.4 percent, (2) the NSP-proposed rate structure was modified, thereby reallocating the burden among the various consumer classes. The chart below, prepared by the commission, shows how the rate structure was altered:

                 NSP              Commission
                                         Proposed          Determination
                                       $         %         $         %
                      Class         Millions  Increase  Millions  Increase
                Residential           23.0      15.8      11.5       7.9
                Small C & I           10.3      13.8       3.9       5.3
                Large C & I           24.9      17.8      21.4      15.3
                Public Lighting        1.0      16.0       1.0      16.0
                Other Public Sales      .8      15.9        .8      15.9
                                    --------  --------  --------  --------
                    TOTAL             60.0      16.1      38.6      10.4
                

The basis for the NSP structure was essentially cost of service, that is, the rate charged to a given class was set proportional to the cost of delivering electricity to that class. The commission, while acknowledging the importance of cost of service as a criterion, indicated that it would also consider four additional factors in establishing the rate structure: (1) the ability to pay the increases, (2) the ability to "pass on" the increases, (3) the ability to "write off" electric costs on taxes, (4) the value of service to the customer. These factors, the commission felt, justified it in placing a greater share of the burden of the increase on large commercial and industrial users, while correspondingly lessening the burden of the increase on residential users.

The St. Paul Area Chamber of Commerce (St. Paul Chamber) and the Minneapolis Association of Building Owners and Managers filed petitions for rehearing which challenged the commission's rate schedule. On December 10, 1975, the commission issued supplemental findings and denied the petitions for rehearing. The St. Paul Chamber then brought an appeal to the district court.

The district court of Ramsey County issued its opinion and order on June 21, 1976. Its decision has three essential parts: (1) the scope of review for commission decisions is governed by the Administrative Procedure Act, Minn. St. 15.0425, making the "substantial-evidence" test appropriate, (2) the commission's rate structure was not supported by substantial evidence in the record, (3) the commission's structure was to be modified to conform to the evidence. The district court accepted the commission's revenue determination at $38.64 million, but rejected its use of noncost factors to place a greater share of the increase on the large commercial and industrial users. The court constructed its own allocation of the increase, incorporating parts of both the NSP proposal and the commission's structure. The chart below, prepared by the district court, demonstrates these changes:

                 NSP             Commission       Court Extension
                                         Proposed         Determination     of NSP Proposal
                                       $         %         $         %        $         %
                      Class         Millions  Increase  Millions  Inrease  Millions  Increase
                Residential           23.0      15.8      11.5      7.9     14.81      10.2
                Small C & I           10.3      13.8       3.9      5.3      6.63       8.9
                Large C & I           24.9      17.8      21.4     15.3     16.04      11.5
                Public Lighting        1.0      16.0       1.0     16.0       .64      10.2
                Other Public Sales      .8      15.9        .8     15.9       .52      10.1
                                    --------  --------  --------  -------  --------  --------
                      TOTAL           60.0      16.1      38.6     10.4     38.64      10.4
                

The overall effect was to restore the relative increases for residential and large commercial and industrial users originally proposed by NSP based solely upon the cost-of-service criterion. The district court held that the commission allocation was unreasonably preferential and discriminatory in that it relied upon "social judgments" not supported by record evidence and therefore exceeded the legislative powers of the commission.

The issues considered on these appeals are:

(1) What factors may be considered by the Public Service Commission in the allocation of rate increases among consumer classes?

(2) What standard of review is to be applied by the district court when the Public Service Commission is challenged on its rate determination?

1. As we have said in previous cases of this kind, ratemaking is an inherently legislative function not to be exercised by the courts. State v. Tri-State T. &amp T. Co., 204 Minn. 516, 284 N.W. 294 (1939); State and Port Authority of St. Paul v. N. P. Ry. Co., 229 Minn. 312, 39 N.W.2d 752 (1949); Minneapolis St. Ry. Co. v. City of Minneapolis, 251 Minn. 43, 86 N.W.2d 657 (1957). We recently reaffirmed this principle in Northwestern Bell Telephone Co. v. State, 299 Minn. 1, 28, 216 N.W.2d 841, 857 (1974):

" * * * Ratemaking is a legislative and not a judicial function. In complex cases such as this, the court should, and does, accord the commission great deference in reviewing its decision. The rates fixed by the commission are presumed to be reasonable and just until the contrary is shown by clear and convincing evidence. In this area, the court's only function is to protect constitutional rights and not to substitute its own judgment for that of the commission. State v. Tri-State T. & T. Co., 204 Minn. 516, 284 N.W. 294 (1939); Minneapolis St. Ry. Co. v. City of Minneapolis, 251 Minn. 43, 72, 86 N.W.2d 657, 676 (1957). We do not find a rate of return of 7.5 percent of trended value to be unjust, unreasonable, or discriminatory, and therefore affirm."

The process of establishing rate allocations among diverse consumer classes is one requiring both technical expertise on the one hand and a careful balancing of many complementary and competing interests on the other. In recent years such paramount factors as the prevention of environmental pollution and the conservation of our energy resources have been added to the equation whenever decisions regarding electricity must be made. We therefore cannot agree with the position taken by the district court and by the St. Paul Chamber that the commission is limited to considering only factors on which substantial evidence has been presented. This may well be the case with the cost-of-service criterion, which has historically been the basis for electric rate structures in...

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