Case Title: PACIFICORP v. PUBLIC SERVICE COMMISSION OF WYOMING

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 2003-12-13T00:00:00Z

Document:
PACIFICORP v. PUBLIC SERVICE COMMISSION OF WYOMING2004 WY 164103 P.3d 862Case Number: 03-211Decided: 12/13/2003Notice:  This opinion is subject to formal revision before publication in Pacific Reporter Third.  Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheynne, Wyoming 82002, of any typographical or other formal errors so that correction may be made before final publication in the permanent volume.
 
 
OCTOBER 
TERM, A.D. 2004

 
 
                                                                                                            

 
 
PACIFICORP,

 
 
Appellant

(Petitioner),

 
 
v.

 
 
THE 
PUBLIC SERVICE COMMISSION OF

WYOMING, STEVE 
ELLENBECKER,

STEVE 
FURTNEY and KRISTIN H. LEE,

IN THEIR 
OFFICIAL CAPACITIES  
AS

COMMISSIONERS 
OF THE PUBLIC SERVICE

COMMISSION,

 
 
Appellees

(Respondents),

 
 
and

 
 

WYOMING RETAIL 
MERCHANTS

ASSOCIATION; 
WYOMING 
LODGING AND

RESTAURANT 
ASSOCIATION; WYOMING

HOSPITAL 
ASSOCIATION; WYOMING

AUTOMOBILE 
DEALERS ASSOCIATION, INC.;

AARP; 
THE WYOMING 
INDUSTRIAL ENERGY

CONSUMERS; 
KINDER MORGAN INTERSTATE

GAS 
TRANSMISSION, LLC; CANYON CREEK

COMPRESSION 
COMPANY; and THE OFFICE

OF 
CONSUMER ADVOCATE,

 
 
Appellees

(Intervenors).

 
 
 
 
W.R.A.P 
12.09(b) Certification from the DistrictCourtofLaramieCounty

 
 

Representing 
Appellant PacifiCorp:

Paul J. 
Hickey and Roger C. Fransen of Hickey & Mackey, Cheyenne, Wyoming; James M. 
Van Nostrand and Sean E. O'Day, Portland, Oregon.  Argument by Mr. 
Hickey.

 
 

Representing 
Appellee (Respondent) Public Service Commission of Wyoming:

Patrick 
J. Crank, Wyoming Attorney General; Michael L. Hubbard, Deputy Attorney General; 
Harry D. Ivey, Assistant Attorney General; Douglas J. Moench, Senior Assistant 
Attorney General, Cheyenne, Wyoming.  
Argument by Mr. Moench.

 
 
Representing 
Appellee (Intervenor) Wyoming Industrial Energy 
Consumers:

Robert 
M. Pomeroy, Jr., and Thorvald A. Nelson of Holland & Hart, LLP, Greenwood 
Village, Colorado; Marcy G. Glenn of Holland & Hart, LLP, Denver, Colorado; 
Walter F. Eggers III of Holland & Hart, LLP, Cheyenne, Wyoming.  Argument by Mr. 
Pomeroy.

 
 
Representing 
Appellee (Intervenor) AARP:

Dale W. 
Cottam of Hirst & Applegate, P.C., Cheyenne, Wyoming

 
 
Representing 
Appellees (Intervenors) Wyoming Retail 
Merchants Association, Wyoming Lodging and 
Restaurant Association, 
Wyoming Hospital Association, and 
Wyoming Automobile Dealers Association, Inc.:

Steven 
F. Freudenthal of Freudenthal, Salzburg & Bonds, PC, Cheyenne, Wyoming

 
 
Representing 
Appellee (Intervenor) The Office of Consumer 
Advocate:

Alexander 
K. Davison and Wendy Curtis Palen of Patton & Davison, Cheyenne, Wyoming.  
Argument by Mr. Davison.

 
 
Before 
HILL, C.J., and GOLDEN, LEHMAN, KITE, and VOIGT, JJ.

 
 
 
 

GOLDEN, 
Justice.

[¶1]          
PacifiCorp 
appeals the denial by the Public Service Commission of Wyoming (the Commission) 
of its request for the recovery from Wyoming ratepayers of certain extraordinary 
and unanticipated net excess power costs incurred by PacifiCorp during what has 
become commonly referred to as the Western power crisis of 2000-01.  We affirm.

 
 
 
 
ISSUES

 
 

[¶2]          
PacifiCorp 
presents the following issues:

 
 
1.  Did the Public Service Commission err 
when it relied upon a "financial harm" standard, which was not limited to 
PacifiCorp's Wyoming costs and revenues, to deny 
PacifiCorp's entire request to recover $91 million of wholesale power 
costs?

 
 
2.  Did the Public Service Commission err 
when it based its decision on a "regulatory compact" theory that is inconsistent 
with both its cost pass-through rules and its statutory duty to determine just 
and reasonable rates?

 
 
3.  Did the Public Service Commission err 
when it declared that granting PacifiCorp's request to include certain 
extraordinary wholesale power costs in rates would constitute retroactive 
ratemaking?

 
 
4.  Did the Public Service Commission err 
when it based its decision on the application of appellate "end results" and 
"substantial evidence" standards?

 
 
5.  Did the Public Service Commission err 
when it failed to make adequate findings of fact and conclusions of law and 
failed to explain its departure from agency precedent in making its 
decision?

 
 

[¶3]          
The 
appellees submitted three separate briefs.  
Each brief focuses on the issues raised by PacifiCorp in slightly 
different terms.  The Public Service 
Commission simplifies the issue to: whether the Public Service Commission 
decision increasing PacifiCorp's rates was in accordance with the law and facts 
when the approved rate base did not include past losses PacifiCorp incurred 
purchasing power on the wholesale market?

 
 

[¶4]          
The 
Office of Consumer Advocate responds to PacifiCorp's issues with the 
following:

 
 
A. The 
Commission correctly applied the standards found in Wyoming statutes when 
determining PacifiCorp's application for Hunter outage costs and excess power 
costs.

 
 
B.  There is substantial evidence to support 
the Commission's determination of just and reasonable rates which are in the 
public interest.

 
 
C.  If the Commission applied a lower burden 
of proof upon the applicant, it is harmless error.

 
 
D.  The Commission's order meets the 
requirements of Wyo. Stat. § 16-3-110.

 
 

[¶5]          
The 
Wyoming Industrial Energy Consumers along with the various other associations 
involved in this case, in a joint brief, phrase the issues 
as:

 
 
A.  Was the Commission's decision to 
exercise its discretion to follow traditional regulatory practices rather than 
grant PacifiCorp's extraordinary requests for cost recovery supported by 
substantial evidence?

 
 
B.  Was the Commission correct in concluding 
that raising rates due to the Hunter Outage would constitute impermissible 
retroactive ratemaking?

            

C.  Was the Commission correct in concluding 
that recovering the deferred costs in rates would not be just and 
reasonable?

            

D. Did 
the Commission properly consider whether its decision would unduly harm 
PacifiCorp financially?

            

E.  Did the Commission apply the appropriate 
legal standards to reach its decisions?

 
 
 
 
FACTS

 
 

[¶6]          
The 
background facts are not contested.  
PacifiCorp is a public utility operating in Wyoming.  PacifiCorp supplies power to its retail 
customers through means of its own power generation facilities as well as 
purchasing power on the wholesale market.  
During the timeframe in issue, PacifiCorp also engaged in wholesale power 
market trading activities.  During 
2000-2001, PacifiCorp's generation capacity diminished, in part for reasons 
determined to be beyond its control.  
Most significantly for this appeal, one of PacifiCorp's electric 
generation plants, known as the Hunter No. 1 (hereinafter referred to simply as 
"Hunter"), suffered a catastrophic failure.  The Hunter plant was offline for repairs 
between November 2000 and May 2001.  
In addition, because of an ongoing drought, power generated from 
PacifiCorp's hydroelectric plants also was below normal.  

 
 

[¶7]          
During 
the same timeframe, between the spring of 2000 and the spring of 2001, wholesale 
prices in the western power markets increased dramatically.1  In order to meet its supply commitments, 
PacifiCorp was forced to purchase increased amounts of power from the volatile 
wholesale power market at unforeseeably high prices.  The wholesale price PacifiCorp paid for 
power far exceeded the costs PacifiCorp would have incurred producing the same 
power from its Hunter plant.  The 
wholesale price also far exceeded Wyoming retail rates.  PacifiCorp covered these excess 
purchased power costs from May 2000 until the end of October 
2000.

 
 

[¶8]          
On November 1, 2000, PacifiCorp filed an application, which 
the Commission granted, to begin a "deferred account."  The deferred account 
allowed PacifiCorp to track costs that PacifiCorp wanted to preserve for later 
recovery.  The 
costs PacifiCorp listed in the deferred account were the general net excess 
wholesale power costs PacifiCorp alleged it incurred in supplying Wyoming ratepayers.  In granting 
PacifiCorp's application, the Commission expressly noted that the costs 
PacifiCorp would be allowed to list in the deferred account were for accounting 
purposes only.  
The determination of whether those costs would be recoverable would be 
determined at a later proceeding.  

 
 

[¶9]          
On October 3, 2001, the Commission denied an application 
filed by PacifiCorp seeking permission to immediately begin to pass the deferred 
increased power costs on to its Wyoming retail ratepayers.  PacifiCorp also 
attempted to include in the deferred account net excess power costs it alleged 
it incurred in purchasing power on the wholesale market to replace the power 
lost when the Hunter plant failed.  The Commission determined that PacifiCorp had 
not given sufficient notice of its intent to include costs incurred as a result 
of the Hunter failure and denied PacifiCorp's attempt to include the Hunter 
costs in the deferred account.  The Commission also determined that there was 
no present need justifying an immediate pass-on of the excess power costs in the 
deferred account to PacifiCorp Wyoming's retail customers.  The Commission 
ordered a full hearing regarding PacifiCorp's requested rate increase to cover 
its excess power costs.  Because the Commission did not allow the 
inclusion of the Hunter costs, PacifiCorp, wanting all issues to be brought 
before the Commission together, dismissed its then pending application.

 
 

[¶10]      On May 7, 2002, PacifiCorp filed the application for a rate 
increase that gives rise to the instant appeal.  PacifiCorp sought a rate increase totaling 
approximately $122 million.  PacifiCorp broke the application down into 
three interrelated parts: 1) an increase of $30.7 million in base rates; 2) an 
energy surcharge to recover $60.3 million in net power costs that were listed in 
the deferred account (excess power costs); and 3) an energy surcharge to recover 
$30.705 million in net power costs triggered by the outage of the Hunter 
generation plant ("Hunter costs").  PacifiCorp structured its application as an 
application for a general rate increase and two distinct riders, one for the 
general excess power costs and one for the Hunter costs.  Ultimately, after a 
full hearing on all issues, the Commission granted PacifiCorp a general rate 
increase of approximately $8.8 million.  The Commission did not allow any surcharge for 
the recovery of past extraordinary costs.

 
 

[¶11]      PacifiCorp appealed to the district court.  The district court 
certified this appeal to this Court pursuant to W.R.A.P. 12.09(b).  PacifiCorp 
specifically is not appealing the amount of the general rate increase approved 
by the Commission.  
PacifiCorp is only appealing the Commission's decision to deny relief on 
the requested surcharges.

 
 
 
 
STANDARD OF REVIEW

 
 

[¶12]      This Court reviews cases certified to it pursuant to 
W.R.A.P. 12.09(b) under the same appellate standards applicable to the reviewing 
court of the first instance.  Thus, pursuant to W.R.A.P. 12.09(a), our 
review is limited to those matters specified in Wyo. Stat. Ann. § 16-3-114(c) 
(LexisNexis 2003):

 
 
(c) To the extent necessary to make a decision and when 
presented, the reviewing court shall decide all relevant questions of law, 
interpret constitutional and statutory provisions, and determine the meaning or 
applicability of the terms of an agency action.  In making the following determinations, the 
court shall review the whole record or those parts of it cited by a party and 
due account shall be taken of the rule of prejudicial error.  The reviewing court 
shall:

(i) Compel agency action unlawfully withheld or unreasonably 
delayed; and

(ii) Hold unlawful and set aside agency action, findings and 
conclusions found to be:

(A) Arbitrary, capricious, an abuse of discretion or 
otherwise not in accordance with law;

 
 
(B) Contrary to constitutional right, power, privilege or 
immunity;

(C) In excess of statutory jurisdiction, authority or 
limitations or lacking statutory right;

(D) Without observance of procedure required by law; or

(E) Unsupported by substantial evidence in a case reviewed 
on the record of an agency hearing provided by statute.

 
 
This Court defers to the administrative agency on questions 
of fact but reviews questions of law de novo.  See generally RT 
Communications, Inc. v. Public Service Comm'n for State of Wyoming, 2003 WY 145, ¶9, 79 P.3d 36, ¶9 (Wyo. 
2003).

 
 

[¶13]      For purposes of this appeal, the most important aspect of 
the standard of review guiding this Court when reviewing decisions by the 
Commission is as follows:

 
 
Speaking specifically of PSC, we have said that PSC is 
required to give paramount consideration to the public interest in exercising 
its statutory powers to regulate and supervise public utilities.  The desires of the 
utility are secondary.  
Tri County Telephone Ass'n, Inc. v. Public Serv. 
Comm'n, 11 P.3d 938, 941 (Wyo. 
2000) (citing Mountain Fuel Supply Co. v. Public Serv. 
Comm'n, 662 P.2d 878, 883 
(Wyo. 1983)).  Additionally, in recognition of the limited 
nature of our review, we have explained that the judicial function is exhausted 
when we can find from the evidence a rational view for the conclusions of the 
PSC.  Tri County Telephone Ass'n, at 941 (citing Telstar Communications, Inc. v. Rule Radiophone Serv., Inc., 
621 P.2d 241, 246 
(Wyo. 1980)).

 
 

Sinclair Oil Corp. v. Wyoming Public Service 
Comm'n, 2003 WY 22, ¶9, 63 P.3d 887, ¶9 (Wyo. 
2003).  

 
 

[¶14]      The United States Supreme Court stated the general function 
of judicial review of a commission decision succinctly in Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S. Ct. 281, 287-88, 88 L. Ed. 333 (1944) (citations omitted):

 
 
Under the statutory standard of "just and reasonable" it is 
the result reached not the method employed which is controlling.  It is not theory but 
the impact of the rate order which counts.  If the total effect of the rate order cannot 
be said to be unjust and unreasonable, judicial inquiry under the Act is at an 
end.  The fact 
that the method employed to reach that result may contain infirmities is not 
then important.  
Moreover, the Commission's order does not become suspect by reason of the 
fact that it is challenged.  It is the product of expert judgment which 
carries a presumption of validity.  And he who would upset the rate order under 
the Act carries the heavy burden of making a convincing showing that it is 
invalid because it is unjust and unreasonable in its consequences. 

 
 
This Court has adopted Hope by 
reference in several opinions.  See, e.g., Mountain 
States Tel. and Tel. Co. v. Public Service Comm'n of Wyoming, 698 P.2d 627 (Wyo. 1985); 
Application of Northern 
Utilities Co., 70 Wyo. 225, 255-57, 247 P.2d 767, 783-84 (Wyo. 1952).

 
 
 
 
DISCUSSION

 
 
I.  
JURISDICTION

 
 

[¶15]      As an initial matter, the Office of Consumer Advocate (OCA) 
has challenged the subject matter jurisdiction of this Court to determine this 
appeal.  The 
specific question is whether the issues brought by PacifiCorp in this appeal are 
sufficient to vest this Court with jurisdiction to review the Commission order 
at issue.  Under 
our standard of review as stated above, we are charged with reviewing the total 
effect of the rate order.  We do not necessarily review the methodology 
used by the Commission but rather our review focuses on whether the end result 
is just and reasonable.   

 
 

[¶16]      The potential jurisdictional problem in this appeal stems 
from the fact that PacifiCorp has not appealed the order of the Commission in 
its entirety.  
PacifiCorp specifically states in its brief that it is not appealing the 
general rate increase.  
It is only appealing the Commission's rejection of its requested 
surcharges.  The 
OCA argues that this Court is only authorized under our standard of review to 
determine if the final outcome of the rate case is just and reasonable.  OCA argues that 
since PacifiCorp has provided no argument on the effect of the denial of the 
surcharges within the context of the grant of a general rate increase, this 
Court cannot determine whether the ultimate impact of the Order is just and 
reasonable.    

 
 

[¶17]      In the instant rate case proceeding, PacifiCorp requested a 
general rate increase of approximately $122 million.  The $122 million was 
broken down into three components: the net excess power costs surcharge, the 
Hunter costs surcharge, and a general rate increase.  The two surcharges 
were presented as riders to the general rate increase application because 
PacifiCorp acknowledges that the net excess power costs cannot fairly be treated 
as recurring costs that would otherwise be reflected in rates on a continual 
ongoing basis.  
Conceptually, the determination of whether to allow the two surcharges 
involves factors generally distinct from those involved in the general rate 
case.  Further, 
PacifiCorp is not appealing the amounts involved but rather is challenging the 
legal principles the Commission relied upon to reject the surcharges.  The remedy to be 
granted by this Court should PacifiCorp prevail on any of its arguments is 
simply a limited remand to the Commission with directions to reconsider its 
decision denying the surcharges.  Under these particular circumstances, we 
believe that the issues are sufficiently distinct that this Court is justified 
in accepting jurisdiction of this appeal pursuant to W.R.A.P. 9.02.2  We will, however, carefully limit our analysis 
to the specific legal challenges brought by PacifiCorp.

 
 
 
 
II.  MERITS

 
 
A. General Legal Background

 
 

[¶18]      Having determined that this appeal is properly before this 
Court, we turn to the merits of the appeal.  The rate case before the Commission was 
relatively straightforward.  The surcharges PacifiCorp was seeking before 
the Commission represent costs accrued by the company during 2000 and 2001.  It is money that has 
already been spent on the purchase of wholesale power.  In general, as 
PacifiCorp itself has admitted in its approach to the calculation for the base 
rate, these extraordinary costs are not recoverable in general rates.  Thus, PacifiCorp 
could only collect the proposed surcharges if it could present them in terms of 
a non-traditional rate mechanism that is just, reasonable and consistent with 
the public interest:

 
 
§ 37-2-121. When rate to be changed by commission; 
nontraditional rate making.

 
 
If upon hearing and investigation, any rate shall be found 
by the commission to be inadequate or unremunerative, or to be unjust, or 
unreasonable, or unjustly discriminatory, or unduly preferential or otherwise in 
any respect in violation of any provision of this act, the commission may fix 
and order substituted therefor such rate as it shall determine to be just and 
reasonable and in compliance with the provisions of this act.  Such rate so 
ascertained, determined and fixed by the commission shall be charged, enforced, 
collected and observed by the public utility for the period of time fixed by the 
commission.  The 
rates may contain provisions for incentives for improvement of the public 
utility's performance or efficiency, lowering of operating costs, control of 
expenses or improvement and upgrading or modernization of its services or 
facilities.  Any 
public utility may apply to the commission for its consent to use innovative, 
incentive or nontraditional rate making methods.  In conducting any investigation and holding 
any hearing in response thereto, the commission may consider and approve 
proposals which include any rate, service regulation, rate setting concept, 
economic development rate, service concept, nondiscriminatory revenue sharing or 
profit-sharing form of regulation and policy, including policies for the 
encouragement of the development of public utility infrastructure, services, 
facilities or plant within the state, which can be shown by substantial evidence 
to support and be consistent with the public interest.

 
 
 Wyo. 
Stat. Ann. § 37-2-121 (LexisNexis 2003).

 
 

[¶19]      Some confusion seems to exist on the part of PacifiCorp as 
to who bears the burden of proof and what level of proof is required.  Section 37-3-106 
places the burden of proof squarely on the public utility seeking a rate 
increase.3 Section 37-2-121 requires PacifiCorp to prove by 
"substantial evidence" that its proposed surcharge is just, reasonable and in 
the public interest.  

 
 

[¶20]      The legislature has granted the Commission a great deal of 
discretion in the matters it may take into consideration when determining 
whether a rate is just, reasonable and in the public interest.  The Commission is 
authorized to investigate almost every matter it may deem applicable: 

 
 
In conducting any investigation pursuant to the provisions 
of this act the commission may investigate, consider and determine such matters 
as the cost or value, or both, of the property and business of any public 
utility, used and useful for the convenience of the public, and all matters 
affecting or influencing such cost or value, the operating statistics for any 
public utility both as to revenues and expenses and as to the physical features 
of operation in such detail as the commission may deem advisable; the earnings, 
investment and expenditures of any such corporation as a whole within this 
state, and as to rates in plants of any water, electrical or gas corporations, 
the geographical location thereof shall be considered as well as the population 
of the municipality in which such plant is located.

 

Wyo. Stat. Ann. § 37-2-119 (LexisNexis 2003).  Other matters also 
are open to consideration: "In determining what are just and reasonable rates 
the commission may take into consideration availability or reliability of 
service, depreciation of plant, technological obsolescence of equipment, expense 
of operation, physical and other values of the plant, system, business and 
properties of the public utility whose rates are under consideration."  Wyo. Stat. Ann. § 37-2-122(a) (LexisNexis 
2003).  

 
 

[¶21]      The statutory language is extremely broad.  The legislature 
essentially is relying upon the expertise of the Commissioners to determine what 
factors are important under the facts of each specific rate case.  Most importantly, 
neither the legislature nor this Court has ever adopted a specific methodology 
the Commission must follow in determining fair and just rates.  See, e.g., Mountain States Tel. 
and Tel. Co. v. Public Service Comm'n of Wyoming, 698 P.2d 627 (Wyo. 1985); Application of Northern Utilities Co., 70 Wyo. 225, 247 P.2d 767 (Wyo. 1952).  The ultimate goal is for the Commission to 
determine an ultimate rate that is just and reasonable.  See Wyo. Stat. Ann. § 37-3-101 (LexisNexis 2003) ("All 
rates shall be just and reasonable, and all unjust and unreasonable rates are 
prohibited.").

 
 

[¶22]      The problem with the appeal as presented by PacifiCorp is 
that PacifiCorp approaches the issues it raises backwards.  PacifiCorp presents 
the issues as if it was legally entitled to recovery and the Commission had the 
burden of presenting and supporting reasons why PacifiCorp should not 
recover.  
Indeed, at oral argument counsel for PacifiCorp stressed that he believed 
that the Commission Order was outcome driven in that the Commission 
predetermined that it was not going to allow PacifiCorp to recover.4  

 
 

[¶23]      What really happened is that the Commission started from the 
correct premise (accepted by PacifiCorp) that the costs PacifiCorp was seeking 
to recover through means of the surcharges were unrecoverable costs for purposes 
of general ratemaking.  
The burden has always been on PacifiCorp to present an adequate reason 
why it should recover its extraordinary purchased power costs through the means 
of surcharges.  
As previously stated, the Commission very clearly determined that 
PacifiCorp did not carry its burden of proving by substantial evidence that 
there was any justifiable reason in the public interest for PacifiCorp to 
collect its requested surcharges.  

 
 
 
 
B.  
Issue 1  Financial Harm

 
 

[¶24]      The determination by the Commission that PacifiCorp failed 
to carry its burden of proof justifying non-traditional rate making could have 
ended the discussion.  
Instead, the Commission continued its analysis to determine if there were 
any other reasons why it should grant the requested surcharges.  It is in this 
context that the Commission discussed the matter of financial harm to the 
company.  
Specifically, the Commission was complying with § 37-2-121 to ensure the 
ultimate rate decision would not be confiscatory or unremunerative.  

 
 

[¶25]      PacifiCorp's argument is that the Commission used a 
financial harm standard as a standard that must be met in order to qualify for 
the surcharges.  
The Commission, however, did not establish a financial harm standard as a 
bar to recovery of otherwise recoverable costs.  In fact, the Commission specifically stated in 
its Order at ¶127 that it "will not establish a bright line financial harm' 
regulatory test."   The Commission only analyzed the 
financial harm aspect to determine if the financial condition of the company 
might require the Commission to grant some sort of rate relief that was not 
otherwise allowable.  

 
 

[¶26]      The above quoted statutes clearly are broad enough to grant 
the Commission power to review the financial status of PacifiCorp both as a 
whole and with regards to its Wyoming operations.  In fact, such review 
is virtually required in a rate case.  The Commission should put its rate analysis in 
context by examining every aspect of the utility's operations and the economic 
environment in which the utility functions.  Montana Dakota 
Utilities Co. v. Public Service Comm'n of Wyoming, 847 P.2d 978, 988 
(Wyo. 1993) ("The general rate increase 
application traditionally covers all facets of a utility's operations, finances, 
rate design, and rate of return.")  PacifiCorp at least implicitly accepted this 
when it presented evidence regarding the financial status of the company as a 
whole.  Evidence 
was also presented relating solely to the Wyoming-specific operations of 
PacifiCorp.  The 
Commission, in ¶134 of its Order, listed both the company-wide operating revenue 
and the Wyoming operating 
revenue and determined that PacifiCorp "showed that it achieved positive, albeit 
small, earned returns on equity in Wyoming even when the power crisis' was at 
its height." 

 
 

[¶27]      The Order reflects that the Commission considered both the 
company-wide and the Wyoming-specific operating revenue of PacifiCorp in 
determining just and reasonable rates.  The Commission was well within its statutory 
authority in reviewing the overall business values of PacifiCorp.  § 37-2-119.  The Commission 
certainly did not establish a financial harm standard as a requisite to recovery 
of extraordinary and unforeseen costs.  Under theses circumstances, this Court finds 
no error in the Commission's analysis of PacifiCorp's financial position, both 
company-wide and on a Wyoming basis, in the 
context of determining the justness and reasonableness of a rate increase.

 
 
 
 
C.  
Regulatory Compact

 
 

[¶28]      PacifiCorp argues that the Commission misinterpreted the 
concept of the "regulatory compact."  The "regulatory compact" provides the 
fundamental basis for utility regulation.  In general, the compact is a theoretical 
agreement between the utilities and the state in which, as a quid pro quo for 
being granted a monopoly in a geographical area for the provision of a 
particular good or service, the utility is subject to regulation by the state to 
ensure that it is prudently investing its revenues in order to provide the best 
and most efficient service possible to the consumer.  In exchange, the 
utility is allowed to earn a fair rate of return on its rate base.  See generally United States 
Gypsum, Inc. v. Indiana Gas Co., 735 N.E.2d 790, 797 (Ind. 2000).

 
 

[¶29]      PacifiCorp argues that the Commission used the theory of the 
regulatory compact as a justification for holding that PacifiCorp's failure to 
implement the Commission's pass-on mechanism precluded PacifiCorp from 
recovering its extraordinary and unforeseen excess purchased power costs.  In other words, 
PacifiCorp argues that the Commission has interpreted the theoretical regulatory 
compact as requiring PacifiCorp shareholders to bear the risk (and benefits) of 
any rate movement between rate cases absent the acceptance by PacifiCorp of the 
Commission's pass-on mechanism.  PacifiCorp continues that never before has the 
Commission required, nor do general utility regulation principles require, the 
Commission's pass-on mechanism be in place before extraordinary and unforeseen 
costs can be recovered by a utility.  PacifiCorp concludes by arguing that the 
Commission, by adopting its pass-on mechanism as the exclusive and mandatory 
method for recovering past costs, has abdicated its responsibility to determine 
the justness and reasonableness of requested rate increases.  

 
 

[¶30]      By way of background, a pass-on mechanism allows a utility 
to obtain an adjustment of its rates to reflect fluctuations in purchased power 
costs without undergoing a formal rate proceeding.  It permits a utility 
to pass along to its customers on a dollar-for-dollar basis any fluctuations in 
the purchased power costs experienced by the utility.  The mechanism allows 
for rate changes when there is either an overrecovery or an underrecovery, thus 
ensuring utilities can recover net excess power costs and also ensuring that 
ratepayers are not overcharged.  See generally Montana Dakota Utilities Co., 847 P.2d  at 989.  The Commission's 
pass-on mechanism is reflected in Commission rules and regulations in Sections 
249 and 250:

 
 
Section 249. Electric, Gas and WaterWholesaleUtilityCommodityPurchasePass on Procedure. Pursuant to W.S. 
37-3-106 (1977) as may be amended and the rate filing requirements of this 
Chapter, a utility may file an application to pass on to its utility customers 
in their rates, known or prospective cost increases or decreases in the 
utility's wholesale utility commodity; and the same may be authorized, subject 
to public notice, opportunity for hearing, and refund, if the evidence of record 
shows that:

(a) The pass on is for wholesale utility commodity cost 
increases and decreases not under this Commission's jurisdiction;

(b) The pass on will not increase the utility's rate of 
return, and its rate of return is at or below that last authorized by the 
Commission (if the rate of return is in excess of that authorized the pass on 
amount will be reduced accordingly);

(c) The pass on is applied on an equal or proportionate 
basis to all class rates and the rate therein (excluding minimum charges);

(d) All pass on charges are filed as a separate cumulative 
rate rider or surcharge which will be blended into base rates at appropriate 
intervals in general rate case proceedings or as otherwise ordered by the 
Commission;

(e) There is provision for interest on over-collections to 
be made part of the refund. Interest will include any interest received by the 
utility as ordered by the Federal Energy Regulatory Commission and, otherwise or 
in addition thereto, interest as determined by the Commission; and

(f) As a part of all pass on filings under this rule and 
balancing account filings under Section 250, the applicant utility must provide 
documentation that the gas, electric or water commodity costs supporting the 
proposed rate change are the most economical option reasonably available to the 
utility and its rate payers. The documentation should demonstrate all efforts 
and options available to the utility to serve its customers at the lowest 
possible cost consistent with safe and reliable service.

 
 
Section 250. Electric, Gas and Water Wholesale Utility 
Commodity Balancing Account as the Basis for Periodic Pass on Filings.

 
 
(a) This regulation shall apply only to electric, gas or 
water wholesale utility commodity purchases not under this Commission's 
jurisdiction which are proposed to be passed on by a utility to its customers on 
a periodic basis. Any electric, gas or water utility may file an application for 
a proposed tariff pursuant to this Commodity Balancing Account regulation and 
the tariff filing provisions of this Section.  This Commodity Balancing Account regulation 
does not preclude the Commission from duly issuing orders governing special 
problems involving the recovery of future gas, power, fuel or water costs.

(b) The proposed Commodity Balancing Account tariff applied 
for by a utility shall include a description of the planned method of 
calculating the cost increases or decreases of wholesale commodity purchases 
utilizing an energy unit measurement (Btu, etc.) uniform with its authorized 
rates, and setting forth as is appropriate general provisions for determinations 
of volumes, purchase sources including storage, and taxes. At the time of the 
initial filing by a utility of its proposed Commodity Balancing Account tariff, 
the utility will refile its rate sheets with all separately stated surcharges or 
riders being combined and blended into its base rates. The Commission authorized 
Commodity Balancing Account tariff effective date shall be the commencement and 
anniversary date of the periodic Commodity Balancing Account.

(c) Upon authorization of its tariff, the utility shall 
establish its Commodity Balancing Account and shall monthly calculate the actual 
wholesale commodity purchases and adjust the Commodity Balancing Account for 
over and under recoveries. The Commodity Balancing Account shall on a current 
basis reflect all monthly credits and debits and be available for audit by the 
Commission at any time.

(d) For each period as set forth in the utility's Commodity 
Balancing Account tariff, the utility shall file an application conforming with 
Commission Regulation 249 for a pass on rate increase or decrease for the 
ensuing period calculated pursuant to its filed Commodity Balancing Account 
tariff and including interest as required by 249(e).

 
 

Wyoming Public Service Commission Rules and Regulations, Chapter 2, 
General Regulations, §§ 249, 250 (July 31, 1992).

 
 

[¶31]      PacifiCorp, in arguing that the Commission has made its 
pass-on mechanism the exclusive means by which extraordinary and unanticipated 
costs can be recovered, misunderstands the Order.  The Commission did not hold that its pass-on 
mechanism was the exclusive means by which PacifiCorp could have recovered its 
excess net power costs.  Rather, the Commission only discussed 
PacifiCorp's election to forego the protections provided by the pass-on 
mechanism in its analysis of whether the proposed surcharges were just and 
reasonable.  

 
 

[¶32]      The Commission, as authorized by statute, analyzed 
PacifiCorp's business practices, especially in the area of wholesale power 
trading.  There 
is no doubt that PacifiCorp's business strategies as applied to wholesale power 
trading activities directly impacted the decision of the Commission on whether 
to grant PacifiCorp's requested surcharges.  With regards to the Hunter costs, in ¶126 of 
its Order, the Commission found:

 
 
PacifiCorp seeks here to include Hunter No. 1 costs in rates 
through a three year surcharge  an amortization mechanism to collect excess 
power costs beyond the level of those already allowed for in PacifiCorp's 
rates.  By our 
Rules 249 and 250, we have long ago established procedures: [i] for passing on 
to customers changes in wholesale commodity costs which are outside of the 
Commission's jurisdiction (such as the prices paid in the wholesale power market 
which is under the exclusive jurisdiction of the federal government); and [ii] 
accounting for and, over time, collecting those wholesale commodity costs 
accurately on a dollar-for-dollar basis.  PacifiCorp has never elected to establish such 
a mechanism to provide for the identification and collection of power costs, 
preferring instead to be content with recovering the level of purchased power 
costs allowed in the rates established in its general rate cases.  In doing so, 
PacifiCorp has taken on itself the risk that higher power costs between rate 
cases would not be collected in rates, but also accepted the benefit of the 
dollars that would accrue to it and its shareholders if wholesale power costs 
decreased between rate cases.  The evidence in this case shows that 
PacifiCorp has thereby experienced both benefits and detriments over the last 
decade from its decision.  It was only when wholesale power costs 
increased quickly to very high levels during the 2000-2001 "power crisis" that 
PacifiCorp considered seeking reimbursement for the additional power costs it 
was incurring, including those attributable to the Hunter No. 1 generating unit 
outage.  
PacifiCorp's application for a surcharge amounts to no more than a 
request that ratepayers reimburse it for a previous loss.  PacifiCorp argues 
that this is a matter of "fairness;" but such fairness is impermissibly 
one-sided and not in the public interest.  Even though there has long been a mechanism 
available to it in Wyoming to address and 
accurately collect wholesale purchased electricity costs, PacifiCorp knowingly 
accepted for itself the risks inherent in not having such a mechanism in 
place.

 
 
The Commission carried the same finding over to its 
discussion of the excess purchased power costs.  In its discussion of the excess purchased 
power costs, the Commission found, at ¶196:

 
 
The deferred power cost portion of this case shares with the 
Hunter No. 1 portion the common issue of the impact of PacifiCorp's increasing 
involvement in the wholesale market without a corresponding increase in 
generation capability which resulted in a worsening balance of loads and 
resources, increasing the risk in a volatile market.  The substantial 
evidence shows that PacifiCorp's management implemented a specific strategy to 
emphasize and increase wholesale market activities for the company's own gain 
which resulted in a sharp decline in the percentage of retail sales in 
comparison to overall sales.  This strategy significantly increased the risk 
to PacifiCorp ratepayers and shareholders.  Because it was PacifiCorp's own choice to seek 
profit in the wholesale market through a strategy that exposed its rate payers 
to risk (which was exacerbated by the "power crisis" 
but not caused by it), it should not now be allowed 
to recover for the consequences of its decision.

 
 
 
 

[¶33]      In analyzing PacifiCorp's business strategy, specifically 
regarding its wholesale power trading activities, the Commission determined that 
PacifiCorp engaged in a specific managerial strategy in not implementing the 
Commission's pass-on mechanism.  The Commission noted in ¶198 that no evidence 
had been presented suggesting that PacifiCorp had implemented a pass-on 
mechanism in any of the states it serves.  By not implementing this pass-on mechanism, 
PacifiCorp's stockholders, and not Wyoming ratepayers, benefited from any profit 
PacifiCorp could make in its wholesale power market purchases.  Conversely, however, 
PacifiCorp also accepted the risk that any increase in purchased power costs 
would be born by its stockholders instead of by Wyoming ratepayers.  This arrangement 
ultimately resulted in PacifiCorp earning a net gain in Wyoming (as well as company-wide) during the 
1990s.  It was 
only after wholesale power market prices increased dramatically that PacifiCorp 
sought to require ratepayers to reimburse it for its losses.

 
 

[¶34]      The Commission found that PacifiCorp's deliberate business 
decision to increase its wholesale power market trading activities, without the 
protection of a pass-on mechanism, dictates against a finding that PacifiCorp's 
current requested surcharges are just and reasonable.  The Commission did 
not hold that PacifiCorp could only recover its excess purchased power costs 
through the timely adoption of the Commission's pass-on mechanism.  Instead, the 
Commission fulfilled its obligation to independently determine if the requested 
surcharges were just and reasonable within the context they were sought.  We find no error in 
the Commission's analysis.  Indeed, it would set a poor precedent if 
PacifiCorp were allowed to recover under these circumstances.  PacifiCorp knowingly 
placed itself in a position which, while earning a profit when things went well, 
was very risky in that PacifiCorp could incur great losses if the market 
turned.  There 
would be no risk to this decision if PacifiCorp could turn around and force 
ratepayers to reimburse it for those losses.  PacifiCorp made its bed.  It is just and 
reasonable to require PacifiCorp now to lie in that bed.

 
 
 
 
D.  
Retroactive Ratemaking

 
 

[¶35]      The Commission determined that allowing the surcharges under 
the circumstances would constitute legally prohibited retroactive 
ratemaking.  
PacifiCorp argues that several exceptions to the prohibition apply.  This Court has 
explained the prohibition against retroactive ratemaking in the following terms: 
"The rule against retroactive ratemaking is a generally accepted principle of 
public utility law which recognizes the prospective nature of utility ratemaking 
and prohibits regulatory commissions from rolling back rates which have already 
been approved and have become final."  MGTC, Inc. v. Public 
Service Comm'n of Wyoming, 735 P.2d 103, 107 (Wyo. 1987).  Put simply, the rule 
against retroactive ratemaking prohibits the Commission from setting future 
rates to allow a utility to recoup past losses or to refund to consumers excess 
utility profits.  
See generally Stefan H. Krieger, The Ghost of Regulation Past: Current Applications of the 
Rule Against Retroactive Ratemaking in Public Utility Proceedings, 1991 U. 
Ill. L. Rev. 983 (1991).  Certainly PacifiCorp's request for the 
surcharges to recover past purchased power costs falls squarely within the ambit 
of retroactive ratemaking.  

 
 

[¶36]      The rule does, of course, have its exceptions.  "As one court has 
observed, [t]he specter of retroactive ratemaking must not be viewed as a 
talismanic inhibition against the application of principles based upon equity 
and common sense.'"  
MGTC, Inc., 735 P.2d  at 107 (quoting Roberts v. Narragansett Electric Company, 470 A.2d 215, 
217 (R.I. 1984)).  
The problem with PacifiCorp's argument on this issue it that, even should 
PacifiCorp be correct in arguing that the surcharges it requested would fall 
within an exception to the rule, that still would not change the outcome of this 
appeal.  The 
requested surcharges would still be subject to a "just and reasonable" 
analysis.  As 
already explained, the Commission determined that PacifiCorp did not carry its 
burden of proving the imposition of the requested surcharges would be just and 
reasonable under the circumstances.  Since analysis by this Court on the issue of 
retroactivity will have no affect on the outcome of this appeal, this Court will 
not analyze PacifiCorp's arguments on this issue any further. 

 
 
 
 
E. Evidentiary Standards

 
 

[¶37]      We briefly discussed the burden of proof above.  Section 37-2-121 
requires PacifiCorp prove by "substantial evidence" that its proposed surcharge 
is just, reasonable and in the public interest.  This statutory standard is not to be confused 
with the standard of review applied by this Court.  As used in the 
statute, substantial evidence is the legislative expression of the level of 
proof a utility must meet before the Commission will consider a non-traditional 
ratemaking method proposed by the utility.  

 
 

[¶38]      In the case sub judice, in ¶¶320 and 321 of its Order, the 
Commission specifically held that PacifiCorp did not meet its burden of proof 
justifying the grant of its requested surcharges.  The Commission stated: "We conclude that 
PacifiCorp, as a matter of law, has not provided substantial evidence to justify 
the granting of the requested surcharge" in reference to the net excess power 
costs (¶320) and in reference to the Hunter costs (¶321).  The Commission did 
not err by holding PacifiCorp to the "substantial evidence" standard as this 
finding by the Commission is in accord with § 37-2-121.

 
 

[¶39]      PacifiCorp seems to be challenging the Commission's 
determination on several other issues that went against PacifiCorp that its 
findings were supported by substantial evidence.  This Court need not address the propriety of 
the use by the Commission of the substantial evidence standard in those 
instances.  A 
careful review of the record reveals that the Commission's other findings, at 
best, supported alternative reasons not to grant PacifiCorp's requested 
surcharges.  The 
primary reason  PacifiCorp's failure to produce substantial evidence supporting 
the surcharges  is not influenced or altered by the other findings of the 
Commission.  
PacifiCorp's failure to meet its burden of persuasion is determinative 
and this Court need not address other findings by the PSC.

 
 
 
 
F.  
Adequacy of the Order

 
 

[¶40]      PacifiCorp argues that the Order is not supported by 
adequate findings of fact and conclusions of law.  This Court has consistently held that an 
administrative order must contain all the information necessary for this Court 
to know why the administrative body concluded as it did.  See, e.g., Himes v. Petro Engineering & Const., 2003 WY 5, ¶19, 61 P.3d 393, ¶19 (Wyo. 
2003); Mekss v. Wyoming Girls' School, State of Wyo., 
813 P.2d 185, 201-02 (Wyo. 
1991); FMC v. Lane, 773 P.2d 163, 166-67 (Wyo. 
1989).

 
 

[¶41]      PacifiCorp's specific argument on this point is that, in one 
paragraph, the Commission adopts financial adjustments proposed by certain 
appellees that brought the dollar amount of the proposed surcharge for the 
excess power costs PacifiCorp was seeking down to zero.  The Commission, 
however, specifically determined that this was an alternative finding supporting 
denial of the surcharge.  The paragraph objected to by PacifiCorp could 
therefore be eliminated in its entirety without affecting the outcome of this 
appeal.  As 
such, we have no need to discuss the issue.

 
 

[¶42]      PacifiCorp also argues that the Order generally does not 
adequately explain why its proposed surcharges were denied.  Our review of the 
Order, however, does not support PacifiCorp's general contention.  The Order is over 
103 pages long, containing over 327 paragraphs separated into sections dealing 
individually with each of the three elements of PacifiCorp's requested rate 
increase plus other considerations.  Upon reading the Order, this Court finds that 
it is fully informed of the findings of fact and the conclusions of law made by 
the Commission.  
We have had no difficulty in analyzing the Commission's decisions in the 
face of PacifiCorp's challenges.  The Order is sufficient to allow this Court to 
confidently decide that the Commission did not adopt any new practices or 
precedents as argued by PacifiCorp.  The Order adequately reveals the basic facts 
found by the Commission, and explains the statutory and traditional ratemaking 
principles the Commission applied to those basic facts in determining that the 
surcharges proposed by PacifiCorp were not just and reasonable.

 
 
 
 
CONCLUSION

 
 

[¶43]      Ultimately, the Commission denied PacifiCorp's request to 
recover its prior costs by means of a surcharge because PacifiCorp presented no 
adequate argument on why such recovery would be just and reasonable under the 
circumstances.  
The Commission has wide discretion in determining how to handle the 
recovery of costs.  
Utility companies, however, also bear a burden to ensure that, when they 
seek to recover costs, they do so in a way that is just and reasonable.  The Commission 
determined that the requested surcharge was not a just and reasonable method for 
PacifiCorp to recover past costs.  Under these particular facts and circumstances 
we do not find the decision to be arbitrary or capricious.  PacifiCorp did not 
bear its burden of proving by substantial evidence that imposing surcharges on 
current Wyoming ratepayers to recover costs incurred several years ago would be 
just and reasonable.  
Affirmed.

 
 

FOOTNOTES

1The multiple reasons for 
the price increases in the wholesale market are not pertinent to this appeal 
except to note that the Commission accepted that the price increases were not 
attributable to any action of PacifiCorp.

2W.R.A.P. 9.02 allows this 
Court to reverse an appealable order in part as long as the reversal is "for 
error relating only to an issue which is not dependent for its proper trial on 
any other issue or issues found to have been properly tried[.]"

3Wyo. Stat. Ann. § 
37-3-106(a) (LexisNexis 2003) provides: "At any hearing as provided in this act 
involving an increase in rates or charges sought by a public utility, the burden 
of proof to show that the increased rate or charge is just and reasonable shall 
be upon the utility."

4To the extent PacifiCorp 
suggested that the Commission members were less than neutral in their approach 
to this case, the suggestion is not well-taken.  "Members of administrative agencies are 
assumed to be men of conscience and intellectual discipline who are capable of 
judging the case before them fairly and on the basis of the evidence 
presented.  One 
who asserts impermissible bias has the burden to overcome the contrary 
presumption and must affirmatively establish the existence of bias."  Tri-State Generation and Transmission Ass'n, Inc. v. Wyoming 
Public Service Comm'n, 784 P.2d 627, 631 (Wyo. 1989) (citations 
omitted).