Washington Water Power Co. v. Idaho Public Utilities Commission

• Citation: 617 P.2d 1242,101 Idaho 567
• Decision Date: 06 October 1980
• Docket Number: No. 13032,13032
• Parties: , 16 A.L.R.4th 435 The WASHINGTON WATER POWER COMPANY, Appellant, v. IDAHO PUBLIC UTILITIES COMMISSION, Respondent. In the Matter of the Application of the WASHINGTON WATER POWER COMPANY for an Order Approving Revised Rates and Charges for Electric Service in the State of Idaho.
• Court: United States State Supreme Court of Idaho

Page 1242

617 P.2d 1242

101 Idaho 567, 16 A.L.R.4th 435

The WASHINGTON WATER POWER COMPANY, Appellant, v. IDAHO PUBLIC UTILITIES COMMISSION, Respondent.

In the Matter of the Application of the WASHINGTON WATER POWER COMPANY for an Order Approving Revised Rates and Charges for Electric Service in the State of Idaho.

No. 13032.

Supreme Court of Idaho.

Oct. 6, 1980.

Paul D. McCabe, Coeur d'Alene, Robert L. Simpson of Paine, Lowe, Coffin, Herman & O'Kelly, Spokane, Wash., for appellant.

David H. Leroy, Atty. Gen., Mary Ann Johnson, Deputy Atty. Gen., Boise, for respondent.

BISTLINE, Justice.

Between 1957 and 1960, the Washington Irrigation and Development Company (WIDCo) (a wholly owned subsidiary of appellant Washington Water Power (WWP)) and Pacific Power & Light Co. (PP&L) jointly acquired coal reserves located in Thurston and Lewis Counties, Washington, with the intent to eventually build a coal-fired electricity-generating power plant adjacent to the coal reserves. About 1967, the parties determined that the time had arrived to build and operate the power plant (named the Centralia Plant). Six other entities in addition to WWP and PP&L chose to participate in the plan. The degrees of ownership are as follows: PP&L 47 1/2%; WWP 15%; Puget Sound Power & Light Co. 7%; Portland General Electric Co. 2 1/2%; P.U.D. No. 1 of Grays Harbor County 4%; P.U.D. No. 1 of Snohomish County 8%; Seattle 8%; and Tacoma 8%. It was also determined that PP&L would operate the generating plant while WIDCo would operate the mine.

WIDCo's mining operations were financed by the sale of additional common stock to WWP and by the issuance of first mortgage bonds to insurance companies. WWP paid for its acquisition of additional WIDCo stock through its shareholders' retained earnings, which retained earnings had accrued to WWP almost completely through the profits of its utility operation.

The Centralia plant commenced producing electric power in 1971. However, the plant did not begin full operation until September 1972. WIDCo lost money on its coal sales in 1971, 1972 and 1974; its average return on investment for the period 1972 through 1976 was only 3.07%. For 1976, WIDCo's return on its investment was 10.4%, which equates to a return on its equity of 20.4%. For the twelve month period ending June 30, 1977, this return on equity increased to 22.6%.

The price of the coal sold by WIDCo to Centralia was set in a long term contract dated October 30, 1970. Under this contract, the owners of Centralia agreed to purchase all of their coal requirements from the WIDCo operated mine until September 1, 2006. This contract not only establishes a base price, but also provides for several automatic increases in the price of coal should certain expenses increase, such as increases in labor cost, increases in taxes other than income taxes, increases in cost due to changes in regulation, or increases in cost due to any union administered welfare, pension or benefit fund. Under § 6. (f)(i) of the agreement, WIDCo could at any time give six months' written notice of an intent to increase the price for any other reason. After this notice, a majority (based on ownership percentages) of those owners of the Centralia plant not having an interest in the coal fields may either insist on arbitration or force WIDCo to sell its interest.

On July 15, 1977, WWP applied to respondent Idaho Public Utilities Commission (Commission) for approval of revised electric rates designed to produce approximately $7 million of additional electric revenue annually for Idaho operations. By order dated August 2, 1977 (No. 13292), the Commission suspended WWP's revised rates for six months. Several hearings were held, and on February 3, 1978, without benefit of notice or a separate hearing, the Commission ordered that the effective date of the revised rates be extended an extra sixty days due to the size of the requested rate increase, the complexity of the cases presented by WWP and the Commission's work load at that time (Order No. 13697). On April 14, 1978, the Commission in Order No. 13856 rejected the filed rates, authorizing WWP to file rates designed to produce an additional $3,847,000 annually. Pertinent here, the Commission held that WWP had failed to sustain its burden of proof that the price paid for WIDCo coal was just and reasonable. The Commission therefore fixed an alternative price for WIDCo coal sold to WWP to generate electricity for Idaho ratepayers, limiting it to that price which would allow a 13.25% return on subsidiary equity, the same return allowed to WWP. The Commission found that WWP's 15% ownership in the Centralia plant is supported solely by WIDCo's 50% ownership of the coal mine, and that therefore 30% of WIDCo's earnings can be traced to coal purchases by WWP. The Commission thus took 30% of WIDCo's earnings above the 13.25% return on equity figure and added that to the net operating income of WWP. In this manner the Commission limited the effective price paid by WWP for WIDCo coal based on WIDCo's earnings, without directly setting the price that WIDCo may charge for coal. WWP appeals from that order and from the order (No. 13959) denying its petition for rehearing.

On appeal, WWP lists six issues. Five of those issues, however, are simply sub-issues of the main question of whether the Commission erred in denying as an operating expense part of the sums paid by WWP to WIDCo for coal. The sixth issue, which we will deal with first, is whether the Commission has authority under I.C. § 61-622 to extend the period of suspension of WWP's revised rates for an additional sixty days without notice to WWP and without providing WWP an opportunity to be heard on the record.

I.

The Commission first argues that WWP never petitioned for a rehearing from Order No. 13697, the order suspending the effective date of the proposed tariffs for an additional sixty days, and that therefore this issue cannot be considered on appeal. See Key Transportation, Inc. v. Trans Magic Airlines Corp., 96 Idaho 110, 524 P.2d 1338 (1974); Idaho Underground Water Users Ass'n v. Idaho Power Co., 89 Idaho 147, 404 P.2d 859 (1965); I.C. § 61-626. However, WWP did raise this issue in its petition for rehearing from Order No. 13856, the substantive order denying part of the requested rate relief. Although the Commission found that it was improper for WWP to raise this issue for the first time in a petition for rehearing from Order No. 13856, nonetheless the Commission did consider the issue and reaffirm the correctness of its suspension.

The policy requiring that objections be presented to the Commission in a petition for rehearing before this Court will consider them is as follows:

"The purpose of an application for the rehearing provided by statute, and it must be presumed to have a useful purpose, is to afford an opportunity to the parties to bring to the attention of the Commission, in an orderly manner, any question theretofore determined in the matter, and thereby afford the Commission an opportunity to rectify any mistake made by it before presenting the same to the Supreme Court." Idaho Underground Water Users Ass'n v. Idaho Power Co., 89 Idaho 147, 154, 404 P.2d 859, 862 (1965) (quoting Consumers' Co. v. Public Utilities Commission, 40 Idaho 772, 775, 236 P. 732, 732-33 (1925)).

In the present case, since the Commission did have the opportunity to consider WWP's objections to the additional sixty day extension, we in turn will consider the Commission's decision on this issue.

I.C. § 61-622 provides as follows:

"No public utility shall raise any rate ... except upon a showing before the commission and a finding by the commission that such increase is justified. The commission shall have power ... to enter upon a hearing concerning the propriety of such rate ... and pending the hearing and decision thereon, such rate ... shall not go into effect; provided, that the period of suspension of such rate ... shall not extend beyond thirty (30) days when such rate ... would otherwise go into effect, pursuant to section 61-307, Idaho Code, unless the commission in its discretion extends the period of suspension for an initial period not exceeding five (5) months, nor unless the commission after a showing of good cause on the record grants an additional sixty (60) days ; provided further, that prior to the expiration of said periods of suspension the commission may, with the consent in writing signed by the party filing such schedule, permanently or further suspend the same. On such hearing, the commission shall establish the rates ... proposed, in whole or in part, or others in lieu thereof, which it shall find to be just and reasonable." (Emphasis added.)

The italicized clause providing for the additional sixty day suspension was added by the legislature in 1976 Idaho Sess. Laws ch. 263, § 1.

WWP argues that by adding this clause the legislature meant to require proper notice, an opportunity to be heard, and a showing of good cause before the additional sixty day suspension could be granted. WWP bases this argument on the fact that the initial suspension can be at the Commission's discretion, but the legislature specifically provided that the additional sixty day suspension must be for "a showing of good cause on the record."

There is another interpretation of this language, however, which we find to be more reasonable. The initial suspension has no requirement of being on the record, for there is no record at the time of deciding the initial suspension. And the words "a showing of good cause on the record" can be read to mean only that the record in the case must disclose that the additional days are necessary, as opposed to allowing the Commission to act with absolute discretion. We feel that this is the reading intended by the legislature. Absent an explicit legislative directive to that effect, we will not impose upon the Commission an additional hearing for...