Utah Dept. of Administrative Services v. Public Service Com'n, s. 18304

• Court: Supreme Court of Utah
• Citation: 658 P.2d 601
• Docket Number: 18286 and 18303,Nos. 18304,s. 18304
• Parties: UTAH DEPARTMENT OF ADMINISTRATIVE SERVICES, Plaintiff, v. PUBLIC SERVICE COMMISSION; Milly O. Bernard, Chairman, David R. Irvine, Commissioner, and Brent H. Cameron, Commissioner, Defendants. UTILITY SHAREHOLDERS ASSOCIATION OF UTAH, Alex Oblad and Harold Burton, Plaintiffs, v. PUBLIC SERVICE COMMISSION; Milly O. Bernard, Chairman; David R. Irvine, Commissioner; and Brent H. Cameron, Commissioner, Defendants. UTAH STATE COALITION OF SENIOR CITIZENS, Plaintiff, v. PUBLIC SERVICE COMMISSION; Milly O. Bernard, Chairman; David Irvine, Commissioner; and Brent H. Cameron, Commissioner, Defendants.
• Decision Date: 06 January 1983

Page 601

658 P.2d 601 UTAH DEPARTMENT OF ADMINISTRATIVE SERVICES, Plaintiff,
v.
PUBLIC SERVICE COMMISSION; Milly O. Bernard, Chairman,
David R. Irvine, Commissioner, and Brent H.
Cameron, Commissioner, Defendants.
UTILITY SHAREHOLDERS ASSOCIATION OF UTAH, Alex Oblad and
Harold Burton, Plaintiffs,
v.
PUBLIC SERVICE COMMISSION; Milly O. Bernard, Chairman;
David R. Irvine, Commissioner; and Brent H.
Cameron, Commissioner, Defendants.
UTAH STATE COALITION OF SENIOR CITIZENS, Plaintiff,
v.
PUBLIC SERVICE COMMISSION; Milly O. Bernard, Chairman;
David Irvine, Commissioner; and Brent H. Cameron,
Commissioner, Defendants. Nos. 18304, 18286 and 18303. Supreme Court of Utah. Jan. 6, 1983.

Page 603

Jay D. Gurmankin and Stephen H. Blum of Giauque & Williams, Salt Lake City, for Administrative Services.

Donald B. Holbrook, Robert S. McConnell and Elizabeth M. Haslam of Jones, Waldo, Holbrook & McDonough, Salt Lake City, for Utility Shareholders Assn.

Bruce Plenk and Ronald E. Nehring of Utah Legal Services, Salt Lake City, for Coalition of Senior Citizens.

Craig Rich, Asst. Atty. Gen., Salt Lake City, for Public Service Com'n.

Edward W. Clyde of Clyde, Pratt, Gibbs and Cahoon, Robert S. Campbell and Gregory B. Monson of Watkiss & Campbell, and Ray G. Groussman, Salt Lake City, for Mountain Fuel Supply Company, real party in interest.

Calvin L. Rampton of Jones, Waldo, Holbrook & McDonough, Salt Lake City, for Wexpro, real party in interest.

Stephen H. Anderson, Merlin O. Baker and A. Robert Thorup of Ray, Quinney & Nebeker, Salt Lake City, for State Division of Public Utilities.

Thomas A. Quinn of Ray, Quinney & Nebeker, Salt Lake City, for Committee of Consumer Services.

OAKS, Justice:

For over forty years, Mountain Fuel Supply Co. (MFS) has conducted oil and gas exploration activities to assure continuing supplies of natural gas for its customers. As a result, current gas production from MFS wells accounts for over thirty percent of its total requirements. Consumers (ratepayers) pay cost-of-service prices for this gas, a fraction of the federally regulated market price (about one-third in 1977). Since 1947, all or part of the expenses of such exploration and development have been treated as normal utility operating expenses and, with regulatory approval, have been paid by MFS ratepayers in the same manner as expenses for the cost and distribution of gas. ¹ But, as the comparative scale of such expenditures grew, it became apparent that this manner of funding was fundamentally inconsistent with an

Page 604

unregulated oil and gas exploration program. Consequently, the practice was increasingly controversial with customers, stockholders, and the Public Service Commission. Beginning in 1972, the Commission required an increasing proportion of the exploration and development expenses to be paid from company resources rather than ratepayer accounts. In the period from 1972 through 1976, MFS provided about $8 million of these expenses and the ratepayers, $17 million. Effective in 1976, exploration and development expenses were divided equally.

In 1976, MFS transferred its so-called "oil properties" (according to company definition) to Wexpro Company, a wholly owned subsidiary, and MFS and Wexpro entered into a joint exploration agreement to govern Wexpro's exploration activities. Others saw this action as a transfer of valuable utility properties financed by ratepayers to an unregulated company which would be free to use them exclusively for the benefit of MFS shareholders. The transfer to Wexpro was vigorously challenged by the Division of Public Utilities of the Utah Department of Business Regulation and by its Committee of Consumer Services (hereinafter the Division of Public Utilities or the Division), who were authorized to represent the public interest before the Commission. ²

The Public Service Commission approved MFS's transfer of the oil properties and its joint exploration agreement with Wexpro, concluding that this placed the properties beyond its jurisdiction. This Court disagreed, reversing the Commission and remanding the case for further proceedings. Committee of Consumer Services v. Public Service Commission, Utah, 595 P.2d 871 (1979), cert. denied, 444 U.S. 1014, 100 S.Ct. 664, 62 L.Ed.2d 644 (1980) (hereinafter Wexpro I ).

After the remand, MFS, Wexpro, and the Division of Public Utilities negotiated a settlement agreement and applied to the Commission for its approval. After extensive public hearings, the Commission approved the agreement as being in the public interest. Several parties have now come to this Court for petitions for review to upset the Commission's order. In No. 18286, the Utility Shareholders Association of Utah (hereinafter Shareholders Association) contends that the order is unfair to MFS's shareholders. In No. 18303, the Utah State Coalition of Senior Citizens (hereinafter Coalition) contends that the order is unfair to consumers. Both of these plaintiffs participated in the Commission's hearings. In contrast, the plaintiff in No. 18304, the Utah Department of Administrative Services (hereinafter Department), which mounts the most comprehensive attack on the unfairness of the Commission's order to consumers, did not appear before the Commission until after the Commission's order was issued. The Department then petitioned for intervention and rehearing, but the Commission denied these petitions as untimely and serving no useful purpose. The other parties have not challenged the Department's standing to pursue its petition for review in this Court. ³

In Wexpro I, this Court held that "[a]ny transfer of a utility asset should be for fair market value so an appropriate benefit therefrom will redound to the credit of the ratepayers." Consequently, we directed,

Page 605

"there must be an evidentiary hearing" in which the Commission "must reassess the transfer and determine whether the properties were utility assets" and whether the transfer "is in the public interest." 595 P.2d at 878. Our review of the events and proceedings which followed that mandate begins with a summary of the terms of the settlement (Part I), and a discussion of our scope of review of Commission findings and conclusions (Part II). The substantive issues for our decision in this proceeding fall into three categories, treated in Parts III, IV, and V, as follows:

Part III. Were the Commission's proceedings consistent with the mandate of this Court?

Part IV. Was the Commission correct in concluding that the settlement was in the public interest?

Part V. Did the Commission's order specify an appropriate degree of finality for its decision?

I. FACTS AND SETTLEMENT ON REMAND

The facts and problems that faced the parties and the Commission after remand were not the same as those that had been before this Court. The ground was shifting beneath their feet, partly because of the parties' own actions, but more importantly because of legal and economic realities over which neither had complete control. Wexpro exercised its equitable right (recognized in Wexpro I, 595 P.2d at 879) to terminate the joint exploration agreement. Thereafter, the parties sought new approaches to the development and exploration of the contested properties that would be feasible and legal.

Without notice to the Commission, MFS and Wexpro filed applications with the Federal Energy Regulatory Commission (FERC) to approve transfer of all of its unexplored properties to Celsius Energy Co. (hereinafter Celsius), a newly organized subsidiary of MFS. If such jurisdiction were exercised by FERC, this could free the contested properties for exploration and development, but it could also result in the requirement that any resulting gas production be supplied to MFS's ratepayers at the much higher federally regulated market prices rather than at the current cost-of-service prices. ⁴ When MFS later attempted to transfer properties to Celsius without Commission or FERC approval, the Division of Public Utilities blocked the attempt by a proceeding in the Commission. MFS, Wexpro, and the Shareholders Association sued the Commission in the United States District Court for the District of Utah, seeking a declaration that Commission regulation of certain MFS properties violated the United States Constitution. ⁵

In the meantime, exploration and development activities on all of MFS's unexplored (wildcat) acreage, including some acreage on which MFS ratepayers had a proprietary interest under Wexpro I, remained at a standstill. MFS maintained that it was practically impossible to conduct a petroleum exploration and development program that was subject to limited rates of return and other regulation by the Commission. MFS shareholders would not approve corporate investments on that basis, outside venture capital was not available for that purpose, and neither co-venturers nor the skilled company employees necessary to conduct such operations would be available under those circumstances. MFS leases on some wildcat acreage were expiring and the time for commencing drilling on other leases (to avoid forfeiture) was growing shorter with each passing month. ⁶

Page 606

In summary, following remand from this Court the controversy between MFS and the Division of Public Utilities continued in the Commission, in the FERC, and in the United States District Court. Uncertainties about the outcome made it difficult or impossible for MFS to explore and develop its wildcat acreage, which was being lost as leases expired with the passage of time. Litigation expenses, already totalling more than $4 million (including over $775,000 for the state of Utah), could cost additional millions if these multifaceted controversies continued. In these circumstances, which posed serious threats to customers and shareholders as well as to the immediate parties, a negotiated settlement could resolve not only the immediate questions involved in the remand from this Court but...