Tlingit-Haida Regional Elec. Auth. v. State

• Decision Date: 12 January 2001
• Docket Number: No. S-8843., No. S-8834, No. S-8833
• Citation: 15 P.3d 754
• Parties: TLINGIT-HAIDA REGIONAL ELECTRICAL AUTHORITY, Appellant and Cross-Appellee, v. STATE of Alaska, Alaska Public Utilities Commission, the City of Klawock, and Alaska Power Company, Appellees and Cross-Appellants.
• Court: Alaska Supreme Court

15 P.3d 754

TLINGIT-HAIDA REGIONAL ELECTRICAL AUTHORITY, Appellant and Cross-Appellee, v. STATE of Alaska, Alaska Public Utilities Commission, the City of Klawock, and Alaska Power Company, Appellees and Cross-Appellants.

Nos. S-8833, S-8834, S-8843.

Supreme Court of Alaska.

January 12, 2001.

Roger R. Kemppel, Kemppel, Huffman & Ellis, P.C., Anchorage, and William G. Ruddy, Ruddy, Bradley & Kolkhorst, Juneau, for Appellant/Cross-Appellee.

Martin M. Weinstein, Assistant Attorney General, Anchorage, and Bruce M. Botelho, Attorney General, Juneau, for Appellee/Cross-Appellant State of Alaska, Alaska Public Utilities Commission.

Clyde E. Sniffen, Jr., Delaney, Wiles, Hayes, Gerety, Ellis & Young, Inc., Anchorage, for Appellee/Cross-Appellant City of Klawock.

Robert E. Stoller, Anchorage, for Appellee/Cross-Appellant Alaska Power Company.

Paul L. Dillon, Dillon & Findley, P.C., Juneau, and John J. Leary, Jr., Smith & Leary, Seattle, WA, for Amicus Curiae Klawock Heenya Corporation.

Before MATTHEWS, Chief Justice, FABE, BRYNER, and CARPENETI, Justices.

OPINION

BRYNER, Justice.

I. INTRODUCTION

Twenty-five years after it created overlapping service territory between two utilities that later became the Tlingit-Haida Regional Electrical Authority (THREA) and the Alaska Power Company, the Alaska Public Utility Commission (commission) eliminated the overlap in favor of Alaska Power. THREA appeals, alleging that the commission's decision is procedurally flawed, is substantively wrong, is preempted by federal law, and results in a taking of THREA's property without just compensation. Alaska Power, the commission, and Klawock cross-appeal on the takings issue. We affirm the commission's decision.

II. FACTS AND PROCEEDINGS

This case arises out of Alaska's system of delivering electricity to its rural areas. From 1977 until 1997, THREA operated the electric plant and distribution system in Klawock. Initially Klawock and nearby Craig were geographically and electrically isolated, but in 1989 Alaska Power improved the road between the two towns and completed a connecting power line. As electricity and commerce began to flow along these paths, THREA's and Alaska Power's overlapping service territories came into conflict.

Under AS 42.05.221(a), any electric utility — private or municipal — must secure a certificate of public convenience and necessity, which defines the utility's service territory. The original version of the certification statute — former AS 42.05.194 — applied only to privately held utilities; it contained a grandfather clause that entitled utilities to receive certificates of public convenience and necessity for areas that they were already serving when the statute was passed.¹ Alaska Power² had been providing electricity to Craig; hence, in applying for its certificate under former AS 42.05.194, Alaska Power requested that its service area include territory surrounding that town, which it described by certain latitude and longitude measurements. In issuing the requested certificate, the commission³ used the surveyor's system of townships and ranges to describe Alaska Power's service area,⁴ explaining that it did so because accurate "protractions" were not available for the territory around Craig.⁵ As described in the newly issued certificate, Alaska Power's service area extended beyond the area it had requested, encompassing the town of Klawock, which Alaska Power did not serve.

This situation eventually led to conflicting certificates. In 1970, enactment of AS 42.05.221 extended the original certification requirement to municipal utilities.⁶ In 1972 the town of Klawock, which then operated its own electric utility, complied with this new statute by applying for a certificate. In granting Klawock's application, the commission noted the overlap with Alaska Power's certificate:

The Commission recognizes that the issuance of a certificate to the City of Klawock to serve the area requested in its application would constitute an overlap of operating authority unless additional action is taken. Accordingly, the Commission will examine, in the near future, the issue of revoking the operating authority of [Alaska Power] to furnish electric utility service in the area to be certificated to the City of Klawock by this order.

Despite this statement of intent to take action "in the near future," the commission did not revisit the issue of overlapping certificates until a quarter-century later, when THREA initiated the present proceedings.

THREA entered the picture in 1975, when the Tlingit-Haida Central Council created the utility as a regional electrical authority under AS 18.57. The Tlingit-Haida Regional Electrical Authority is a nonprofit corporation and a subdivision of the state that operates small rural electric utilities in Alaska. THREA's operations are funded by loans from the Rural Electrification Administration. In 1977 THREA purchased Klawock's electric utility with funds borrowed from the Rural Electrification Administration; the commission then issued THREA a certificate to provide electric service to "Klawock and adjacent areas."⁷ The commission's order granting THREA's certificate did not mention Alaska Power's overlapping certificate, but its silence on this point is hardly surprising, since no actual conflict then existed: THREA served Klawock and Alaska Power served nearby Craig through distribution grids that were physically isolated.

That isolation ended around 1989, when the state completed a new road and electrical intertie between Klawock and Craig. Soon after, THREA stopped generating its own electricity and began buying wholesale from Alaska Power. THREA also contracted for Alaska Power to perform maintenance on THREA's distribution grid in Klawock. These arrangements left THREA in an advantageous position. With wholesale electricity and contractual maintenance work available through Alaska Power, THREA significantly reduced the cost of servicing its Klawock customers — a large part of its rate base. Yet since THREA was exempt from rate regulation,⁸ it was able to charge rates in Klawock that were unusually high in comparison to those charged to other consumers who were connected to Alaska Power's power grid. In effect, THREA was able to use its increased Klawock profits to cross-subsidize electrical service to its more rural, off-grid customers.

Around the time that the intertie went on line, Alaska Power began serving a few customers within the overlapping territory. According to THREA's former general manager, THREA did not object to Alaska Power's serving these customers. Eventually, though, as more Klawock consumers clamored for Alaska Power's services, THREA felt threatened by unwanted competition. In May 1993, THREA sent a letter asking the commission to cut Klawock out of Alaska Power's territory. The commission construed the letter to be a formal petition, and opened a docket. After receiving comments from Alaska Power, it denied THREA's petition without prejudice, finding that THREA had not proved that excluding Alaska Power from Klawock would be in the public interest.

Two months later, THREA filed a second petition, renewing its request to remove the overlap between THREA's and Alaska Power's service areas. The commission responded by opening docket U-94-2 and by formally designating Alaska Power a party to the proceeding. The town of Klawock then moved to intervene, and the commission granted its motion.

The commission conducted several hearings on THREA's petition. At a consumer hearing in Klawock, ten of THREA's Klawock customers voiced their desire to be switched from THREA's service to Alaska Power's because Alaska Power's rates for Prince of Wales Island were significantly lower than THREA's rates for Klawock. THREA did not have an opportunity to cross-examine the consumer witnesses. The commission also heard evidence concerning THREA's performance as a public utility: its management and distribution systems, rates, outages, and system of consumer representation.

After taking the matter under consideration, the commission issued its judgment in Orders Nine and Ten. Order Nine laid out the commission's factual findings. The most significant of these were: (1) the representation of THREA and Alaska Power throughout the proceedings provided sufficient due process to allow the commission to modify both certificates; (2) the Klawock consumer reaction "demonstrated a level of dissatisfaction with utility service heretofore unheard of"; (3) THREA's rates were distorted; (4) THREA's service and rates were unregulated because it is a political subdivision of the state; (5) unlike most political subdivisions, THREA was not politically responsible to all of its customers;⁹ and (6) since the intertie was built, THREA has acted largely as a broker for power generated and delivered by Alaska Power. In light of these findings, the commission determined that, under AS 42.05.221(d) and .271, competition between THREA and Alaska Power is not in the public interest, and there was good cause for awarding the Klawock territory to Alaska Power.

THREA appealed this decision to the superior court, raising three issues: (1) THREA did not receive due process, particularly the opportunity to cross-examine the consumers testifying at the Klawock consumer input hearing; (2) decertifying THREA amounted to an uncompensated taking of THREA's property; and (3) the commission's action was preempted by the federal Rural Electrification Act.

On the preemption issue, the superior court ruled that, by showing that the commission's action may have jeopardized some of THREA's Rural Utility Service loans, THREA had set forth a prima facie case of frustration of federal purpose under the federal Rural Electrification Act. Accordingly, the court remanded the case to the commission, directing it to take a "hard look" at the impact losing Klawock would have on THREA. On THREA's due process...