Utah Office of Consumer Servs. v. Pub. Serv. Comm'n of Utah

• Decision Date: 27 June 2019
• Docket Number: No. 20170364,20170364
• Citation: 445 P.3d 464
• Parties: UTAH OFFICE OF CONSUMER SERVICES and Utah Association of Energy Users, Petitioners, v. PUBLIC SERVICE COMMISSION OF UTAH, Utah Division of Public Utilities, and PacifiCorp d/b/a Rocky Mountain Power, Respondents.
• Court: Utah Supreme Court

445 P.3d 464

UTAH OFFICE OF CONSUMER SERVICES and Utah Association of Energy Users, Petitioners,

v.PUBLIC SERVICE COMMISSION OF UTAH, Utah Division of Public Utilities, and PacifiCorp d/b/a Rocky Mountain Power, Respondents.

No. 20170364

Supreme Court of Utah.

Filed June 27, 2019

Robert J. Moore, Asst. Att’y Gen., Steven W. Snarr, Special Asst. Att’y Gen., Salt Lake City, for petitioner Utah Office of Consumer Services

Gary A. Dodge, Phillip J. Russell, Salt Lake City, for petitioner Utah Association of Energy Users

Melanie A. Reif, Salt Lake City, for respondent Public Service Commission of Utah

Sean D. Reyes, Att’y Gen., Brent A. Burnett, Asst. Solic. Gen., Patricia E. Schmid, Asst. Att’y Gen., Justin C. Jetter, Asst. Att’y Gen., Salt Lake City for respondent Utah Division of Public Utilities

R. Jeff Richards, Yvonne R. Hogle, D. Matthew Moscon, Bret W. Reich, Salt Lake City, for respondent PacifiCorp d/b/a Rocky Mountain Power

Jenniffer Nelson Clark, Cameron L. Sabin, Salt Lake City, for amicus curiae Questar Gas Company d/b/a Dominion Energy Utah

Associate Chief Justice Lee authored the opinion of the Court, in which Chief Justice Durrant, Justice Himonas, Justice Pearce, and Justice Petersen joined.

Associate Chief Justice Lee, opinion of the Court:

¶1 The Utah Office of Consumer Services and the Utah Association of Energy Users ("Consumer Groups") challenge orders from the Public Service Commission in two related cases. We consolidated these cases because they raise the same threshold legal question—whether the Commission has the authority to impose "interim" rates as an element of the energy balancing account procedures described in UTAH CODE section 54-7-13.5. We hold that the Commission lacks this authority.

¶2 The interim rates at issue were imposed without a requirement that the public utility prove by "substantial evidence" that the costs incorporated in the rates were "prudently incurred" or "just and reasonable." We hold that this runs afoul of the controlling standard set forth in UTAH CODE section 54-7-13.5(2)(e)(ii). And we set aside the Commission’s orders on this basis.

I

¶3 The Public Service Commission is authorized by statute to "supervise and regulate every public utility in this state." UTAH CODE § 54-4-1. One of the utilities regulated by the Commission is PacifiCorp, d/b/a Rocky Mountain Power, an electric power provider. PacifiCorp’s rates are set by the Commission under terms and conditions set forth in the Utah Code. A threshold step in the rate setting process is a "general rate" case.

¶4 In a general rate case the Commission estimates what it will cost PacifiCorp to provide electricity to customers. That estimate becomes the utility’s "base rate." See id. § 54-7-12(1)(a)(i). Included in the base rate is a projected estimate of PacifiCorp’s net power costs. In any given year, however, actual net power costs will vary from the costs predicted in a general rate case. With that in mind, the legislature created a mechanism to account for these differences—the "energy balancing account," or EBA. See id. § 54-7-13.5.

¶5 An EBA is an account used to track PacifiCorp’s incurred net power costs. The account must be authorized by the Commission. It "become[s] effective" upon a finding that it is "(i) in the public interest; (ii) for prudently-incurred costs; and (iii) implemented at the conclusion of a general rate case." Id. § 54-7-13.5(2)(b). Once an EBA is approved, PacifiCorp is authorized to track the costs identified in that account. Such EBA costs include fuel, purchased power, and wheeling expenses—"less wholesale revenues." Id. § 54-7-13.5(1)(b).

¶6 PacifiCorp must annually file "a reconciliation of the energy balancing account with the [C]ommission" seeking either a recovery from or a refund to customers—based on the difference between the estimated net power costs reflected in the base rate and PacifiCorp’s actual net power costs incurred that year. Id. § 54-7-13.5(2)(c). PacifiCorp bears the burden of proving that its costs are "prudently incurred." Id. § 54-7-13.5(2)(d). This annual filing is subject to review by the Division of Public Utilities. The Division conducts an audit and submits a report to the Commission. And the report is used by the Commission to determine whether a refund or recovery is appropriate. This process is repeated annually until a new base rate is set in a new general rate case.

¶7 PacifiCorp’s rates have been established in accordance with the above procedures. In 2009, PacifiCorp filed an application for approval of a proposed EBA in accordance with the newly-passed EBA statute— Utah Code section 54-7-13.5. The Commission opened a docket to review the filing. Two years later, the Commission approved the EBA and ordered the implementation of a four-year EBA pilot program. The Commission asked the Division to file periodic reports evaluating the program. The Commission also sanctioned the use of an "interim rate" procedure as part of the EBA process. Under that process, PacifiCorp would file its annual EBA report comparing estimated power costs with its actual power costs. PacifiCorp would propose an interim rate based on the difference between estimated and actual costs. The Division would then review PacifiCorp’s report and determine whether it departed from prior years’ filings. If not, the Division would recommend that the Commission approve PacifiCorp’s proposed interim rate. The Commission would review the Division’s recommendation and hold a hearing. If an interim rate was approved by the Commission, the interim rate would go into effect while the Division completed its full audit of PacifiCorp’s EBA report to determine if PacifiCorp’s claimed costs were prudently incurred.

¶8 On August 30, 2012, the Commission issued an order eliminating the EBA interim rate process. The Commission indicated that it had failed to consider what costs associated with PacifiCorp’s financial swap transactions¹ qualified for recovery under the EBA when it initially approved the interim rate process. In the Commission’s view, a determination of what costs could be recovered for these swap transactions would require a significant amount of time and likely would result in highly contentious litigation in both the interim and final EBA hearings. So the Commission decided that an interim rate process was no longer appropriate for the EBA mechanism.

¶9 The Division filed its first report evaluating the EBA program in May 2014. The Division noted that it had been required to devote significant time to review PacifiCorp’s filings due to the complexity of the EBA process. And it recommended some structural changes. The Commission, however, determined that it was too early to make any changes to the EBA program.

¶10 The Division filed its final report two years later. It recommended that "[t]he time period for [its] audits ... be extended to one year and interim rates ... be established until the Division can complete its audit." On February 16, 2017, the Commission issued an order adopting the Division’s recommendation that interim rates be reinstated in the EBA mechanism. In so concluding, the Commission reasoned that circumstances had changed since its August 30, 2012 order rejecting interim rates. Specifically, the Commission asserted that the contentious issues and litigation surrounding PacifiCorp’s swap transactions had been resolved. And for that reason the Commission concluded that an interim rate process was now appropriate.

¶11 The Commission asserted that the interim rate subsection of the general rate case statute, id. § 54-7-12(4)(a), authorized it to establish interim rates in an EBA proceeding. And it incorporated the procedural and timing requirements outlined in that subsection. First, the Commission defined PacifiCorp’s burden of proof to be commensurate with the burden of proof standard established in subsection 54-7-12(4)(a)(iii). See id. § 54-7-12(4)(a)(iii) (stating that a utility "shall establish an adequate prima facie showing that the interim rate increase or decrease is justified"). The Commission asked the Division to review PacifiCorp’s EBA filing and determine whether the filing "appears to not depart from prior years’ filings." PacifiCorp would eventually have to prove by substantial evidence that its claimed costs were prudently incurred. But a lower standard was appropriate in the interim in the Commission’s view. Second, the Commission determined that it would act upon a request for interim rates within 45 days of PacifiCorp’s EBA filing. See id. § 54-7-12(4)(a)(ii).

¶12 The Commission found further justification for these decisions in our case law. It noted that in Questar Gas Co. v. Utah Public Service Commission , 2001 UT 93, 34 P.3d 218, we recognized the Commission’s "authority to authorize interim rates in the Questar Gas 191 balancing account mechanism." And it reasoned that "PacifiCorp’s EBA is in some ways similar to Account 191." Drawing on these similarities, the Commission determined that Questar Gas supported its decision to allow interim rates and adopt the procedures described in subsection 54-7-12(4)(a).

¶13 The Consumer Groups filed a petition for reconsideration and rehearing challenging the legality of the decision to incorporate an interim rate process in the EBA mechanism. The Consumer Groups asserted that subsection 54-7-12(4)(a)(ii) could not be applied outside of a general rate case, and insisted that the interim rate procedures described in subsection (4)(a) run afoul of section 54-7-13.5 by altering the standard for cost recovery and PacifiCorp’s burden of proof. See UTAH CODE § 54-7-13.5(2)(e) ("An energy balancing account may not alter: (i) the standard for cost recovery; or (ii) the electrical corporation’s burden of proof."). The Commission rejected the Consumer Groups’ petition. And the petition to this court in Case No. 20170364 followed.

¶14 About a year later, PacifiCorp submitted its 2018 EBA filing. That filing differed in one...