Case Title: CITY OF HELENA v MONT DEPT OF PS

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1981-09-21T00:00:00Z

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No. 79-54 IN THE SUPREME COURT OF THE STATE OF MONTANA 1981 THE CITY OF HELENA, MONTANA, Petitioner and Appellant, VS . MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION et al., Respondents. .................................................... No. 81-24 CITY OF BILLINGS, a municipal corporation, Petitioner and Appellant, VS . MONTANA DEPARTMENT OF PUBLIC SERVICE et al., Respondents, and MONTANA PUBLIC CONSUMER COUNSEL, Intervenors. Appeal from: District Court of the First and Thirteenth Judicial District In and for the Counties of Lewis and Clark and Yellowstone. Honorable Nat Allen, Judge presiding. Counsel of Record: For Appellants: Calton Law Firm, Billings, Montana Calvin Calton argued, Billings, Montana Rod Hamman argued, Billings, Montana Hull and Sherlock, Helena, Montana For Respondents: Crowley Law Firm, Billings, Montana Thomas M. Kelley argued, Billings, Montana Robert F. W. Smith argued, P.S.C., Helena, Montana For Intervenors: James Paine argued, Consumer Counsel, Helena, Montana For Amicus Curiae: David V. Gliko, City Attorney, Great Falls, Montana Submitted: July 6, 1981 Decided : SEP 2 1 1981 Filed: 8EP 2 1 198f J u s t i c e Frank B. Morrison, Jr., d e l i v e r e d t h e Opinion of t h e Court . O n March 31, 1977, t h e City of Helena f i l e d an a p p l i c a t i o n f o r a r a t e i n c r e a s e f o r t h e water u t i l i t y s e r v i c e owned by t h e City. P a r t of t h e requested r a t e i n c r e a s e was f o r amortization of an e x i s t i n g operating d e f i c i t i n t h e water s e r v i c e s fund. The amount of the d e f i c i t was $311,360.51. A hearing on t h i s a p p l i c a t i o n was held before t h e Public Service Commission (PSC) June 21, 1977. O n April 3, 1978, t h e PSC issued order no. 4335(a), which denied the C i t y ' s r e q u e s t f o r amortization of t h e p a s t operating l o s s . The C i t y of Helena f i l e d a p e t i t i o n f o r j u d i c i a l review with t h e Lewis and Clark County D i s t r i c t Court on May 2 4 , 1978. O n J u l y 11, 1979, t h e D i s t r i c t Court upheld t h e d e c i s i o n of the PSC denying amor ti zation. I n 1977, t h e C i t y of B i l l i n g s authorized t h e engineering firm of Black and Veatch t o conduct a r a t e study regarding t h e municipally-owned water u t i l i t y . Black and Veatch determined t h a t i f t h e C i t y of B i l l i n g s continued t o operate under t h e c u r r e n t r a t e s , it would have a monthly d e f i c i t of $84,000. The engineering firm c a l c u l a t e d t h a t a 65 percent i n c r e a s e i n t h e water r a t e s , amounting t o an annual i n c r e a s e i n revenues of $1,636,000, was necessary t o maintain t h e water u t i l i t y on a sound f i n a n c i a l b a s i s . O n September 1 2 , 1977, the recommended i n c r e a s e was adopted by a unanimous vote of t h e B i l l i n g s City Counsel. On October 17, 1977, t h e C i t y of B i l l i n g s f i l e d a p e t i t i o n with t h e Montana PSC seeking approval of t h e new rates f o r t h e period January 1978 through June 1980. The C i t y of B i l l i n g s a l s o p e t i t i o n e d f o r a temporary r a t e increase, t o be e f f e c t i v e during t h e pendency of t h e r a t e proceedings. The B i l l i n g s Heights water d i s t r i c t and t h e Montana Consumer Counsel intervened i n t h e proceedings. O n March 6 , 1978, t h e PSC granted t h e C i t y of B i l l i n g s a temporary r a t e increase. O n March 2 1 , 1978, a hearing on t h e proposed permanent r a t e i n c r e a s e was held before t h e PSC. O n J u l y 1 7 , 1978, t h e PSC issued i t s f i n d i n g s of f a c t , conclusions of law and order. The PSC granted t h e C i t y of B i l l i n g s a 42 percent i n c r e a s e i n i t s water r a t e s amounting t o an annual revenue of $1,069,728. The PSC determined t h a t p a s t l o s s e s suffered by t h e water u t i l i t y could n o t be considered i n s e t t i n g t h e new r a t e increase. The PSC a l s o s e t f o r t h c o s t of s e r v i c e a l l o c a t i o n s f o r t h e City of B i l l i n g s t o abide by. The Montana Consumer Counsel p e t i t i o n e d t h e D i s t r i c t Court of t h e F i r s t J u d i c i a l D i s t r i c t , Lewis and Clark County, f o r j u d i c i a l review of t h e PSC1s order. The C i t y of B i l l i n g s sought j u d i c i a l review of t h e same PSC order before t h e D i s t r i c t Court of t h e Thirteenth J u d i c i a l D i s t r i c t , Yellowstone County. The venue c o n f l i c t was resolved by a Supreme Court order on A p r i l 6, 1979, finding t h e Yellowstone County D i s t r i c t Court t h e proper venue f o r processing the p e t i t i o n s . Both appeals were consolidated f o r hearing by agreement of t h e p a r t i e s . The matters w e r e heard before t h e Thirteenth J u d i c i a l D i s t r i c t Court on May 8, 1980. O n September 19, 1980, t h e D i s t r i c t Court issued an opinion and o r d e r , affirming t h e PSC1s d e c i s i o n except i n one respect. The D i s t r i c t Court found t h a t t h e PSC e r r e d i n holding t h a t p a s t l o s s e s of t h e u t i l i t y could n o t be taken i n t o consideration i n determining a r a t e increase. The ~ i s t r i c t C o u r t ' s order was c e r t i f i e d a s f i n a l and s u b j e c t t o appeal by an order dated October 1 4 , 1980. The following i s s u e s a r e r a i s e d on appeal: 1. Whether t h e PSC has j u r i s d i c t i o n over the C i t y of B i l l i n g s water u t i l i t y s e r v i c e ? 2. Whether t h e PSC has j u r i s d i c t i o n over t h e B i l l i n g s Heights water d i s t r i c t water u t i l i t y s e r v i c e ? 3 . Whether t h e PSC f a i l e d t o g r a n t t h e C i t y of B i l l i n g s and t h e C i t y of Helena a s u f f i c i e n t r a t e i n c r e a s e t o m e e t t h e revenue needs of t h e r e s p e c t i v e water u t i l i t i e s because t h e PSC refused t o consider p a s t l o s s e s suffered by t h e municipal w a t e r u t i l i t i e s ? 4 . Whether t h e PSC f a i l e d t o g r a n t t h e City of B i l l i n g s a s u f f i c i e n t r a t e i n c r e a s e by refusing t o accept t h e C i t y ' s projected operation and maintenance c o s t s ? 5. Whether t h e PSC was required t o comply with a l l c i t y bond ordinance requirements when e s t a b l i s h i n g a s u f f i c i e n t r a t e increase? 6. Whether t h e PSC determined s u f f i c i e n c y of t h e r a t e i n c r e a s e without normalizing test-year d a t a t o r e f l e c t weather conditions? 7. Whether t h e PSC e r r e d i n a l l o c a t i n g t h e c o s t of s e r v i c e s among C i t y of B i l l i n g s customers by refusing t o a c c e p t the C i t y ' s e x t r a capacity f a c t o r assigned t h e ~ i l l i n g s Heights water d i s t r i c t pursuant t o a c o n t r a c t provision contained i n the C i t y - D i s t r i c t water supply c o n t r a c t ? 8. Whether t h e PSC e r r e d i n a l l o c a t i n g t h e c o s t of s e r v i c e s among c i t y customers by granting a r a t e of r e t u r n c r e d i t of 27.5 percent t o B i l l i n g s Height water d i s t r i c t customers who l i v e within c i t y l i m i t s ? 9. Whether t h e PSC order r e q u i r i n g t h e City of ~ i l l i n g s t o e s t a b l i s h a r e c u r r i n g annual c a p i t a l improvements account and r e p o r t a c t i v i t y i n such account i n t e r f e r e s with t h e C i t y ' s management a u t h o r i t y ? 10. Whether the PSC overstated t h e C i t y of B i l l i n g s ' revenue needs by n o t considering t h e excess "coverage f a c t o r " monies t o be a n o f f s e t t o t h e C i t y ' s required expenditure needs. 11. Whether t h e D i s t r i c t Court e r r e d by allowing a d d i t i o n a l evidence subsequent t o t h e agency hearing. The C i t y of B i l l i n g s contends t h a t provisions contained i n t h e Municipal Revenue Bonds Act of 1939, s e c t i o n s 7-7- 4 4 0 1 , e t s e q . , MCA, which confer r a t e s e t t i n g a u t h o r i t y upon m u n i c i p a l i t i e s , exempts muncipally-owned water u t i l i t i e s from t h e j u r i s d i c t i o n of t h e PSC. The s p e c i f i c provisions read as follows: " I n a d d i t i o n t o t h e powers which it may now have, any municipality s h a l l have the power under t h i s p a r t to: " ( 3 ) p r e s c r i b e and c o l l e c t r a t e s , f e e s , and charges f o r t h e s e r v i c e s , f a c i l i t i e s , and commodities fur- nished by such undertaking." (Section 7-7-4404, MCA.) "The governing body of a municipality i s s u i n g bonds pursuant t o t h i s p a r t s h a l l p r e s c r i b e and c o l l e c t reasonable r a t e s , f e e s , o r charges f o r t h e s e r v i c e s , f a c i l i t i e s , and commodities of such undertaking and s h a l l r e v i s e such r a t e s , f e e s o r charges from t i m e t o time whenever necessary so t h a t such undertaking s h a l l be and always remain self-supporting." (Section 7-7-4424 (1) , MCA. ) The Public U t i l i t i e s and C a r r i e r s Act, s e c t i o n s 69-1- 1 0 1 , e t seq., MCA, enacted i n 1913, g r a n t s t h e PSC ". . . f u l l power of supervision, regulation, and c o n t r o l of . . . p u b l i c u t i l i t i e s . . . t o t h e exclusion of t h e j u r i s d i c t i o n , r e g u l a t i o n , and c o n t r o l of such u t i l i t i e s by any municipality, town o r v i l l a g e . " Section 69-3-102, MCA. I t i s c l e a r t h a t a municipally-owned w a t e r u t i l i t y f i t s within the d e f i n i t i o n of a "public u t i l i t y " , s e t f o r t h i n s e c t i o n 69-3-101, MCA: ". . . every corporation, both public and p r i v a t e , company, i n d i v i d u a l , a s s o c i a t i o n of i n d i v i d u a l s , t h e i r l e s s e e s , t r u s t e e s , o r r e c e i v e r s appointed by any c o u r t whatsoever, t h a t now o r h e r e a f t e r may own, operate, o r c o n t r o l any p l a n t o r equipment, any p a r t of a p l a n t o r equipment, o r any water r i g h t within t h e s t a t e f o r t h e production, d e l i v e r y o r furnishing f o r o r t o o t h e r persons, firms, a s s o c i a t i o n s , o r corporations, p r i v a t e o r municipal: ". . . (5) water f o r business, manufacturing, household use, o r sewerage s e r v i c e , whether within t h e l i m i t s of m u n i c i p a l i t i e s , towns, o r v i l l a g e s o r elsewhere . . ." A s p e c i f i c function of t h e PSC i s t h e supervision and r e g u l a t i o n of r a t e s charged by public u t i l i t i e s . Sections 69-3-301 and 69-3-302, MCA. Under t h e s e provisions a p u b l i c u t i l i t y must f i l e schedules of i t s rates, t o l l s , o r charges with t h e PSC. Any changes i n these schedules must be approved by t h e PSC. The PSC, pursuant t o s e c t i o n 69-3-303, MCA, must n o t i f y t h e p u b l i c of such proposed changes and schedule a hearing on t h e matter. Following a hearing, i f t h e proposed r a t e schedules a r e found t o be ". . . u n j u s t , unreasonable o r u n j u s t l y discrimina- t o r y o r t o be p r e f e r e n t i a l o r otherwise i n v i o l a t i o n of t h e provisions of t h i s chapter," then " t h e commission s h a l l have t h e power t o f i x and order s u b s t i t u t e d t h e r e f o r such r a t e s , t o l l s , charges, o r schedules a s s h a l l be j u s t and reasonable . . ." Section 69-3-330, MCA. The C i t y of B i l l i n g s contends t h a t t h i s power of t h e PSC i s i r r e c o n c i l a b l e with t h e municipal powers set f o r t h i n t h e Municipal Revenue Bonds Act of 1939. The Bonds Act s p e c i f i c a l l y provides t h a t Z " ( 3 ) Insofar a s t h e provisions of t h i s p a r t a r e i n c o n s i s t e n t with t h e provisions of any o t h e r general, s p e c i a l , o r l o c a l law, t h e provisions of t h i s p a r t s h a l l be c o n t r o l l i n g . " Section 7-7-4403(3), MCA. C i t y of B i l l i n g s argues t h a t t h e r a t e s e t t i n g a u t h o r i t y of a municipality under t h i s Bonds Act n e c e s s a r i l y precludes PSC j u r i s d i c t i o n . I t must be noted a t t h e o u t s e t t h a t t h e Municipal Revenue Bonds Act of 1939 does n o t expressly r e p e a l t h e Public U t i l i t i e s and C a r r i e r s Act, T i t l e 69. To give credence t o t h e contentions of the C i t y of B i l l i n g s would n e c e s s i t a t e a finding of r e p e a l by implication. Such r e p e a l by implication i s n o t favored i n Montana. London Guaranty & Accident Co. v. I n d u s t r i a l Acc. Board (1928), 82 Mont. 304, 266 P. 1103. This Court has s t a t e d t h a t ". . . an implied r e p e a l r e s u l t s only from an enactment, t h e terms and necessary operation of which cannot be harmonized with t h e terms and necessary e f f e c t of an earlier Act. " ( C i t a t i o n s omitted.1) London Guaranty & Accident Co., supra, 266 P. a t 1105. I n determining whether t h e Municipal Revenue Bonds Act of 1939 and t h e Public U t i l i t i e s and C a r r i e r s A c t can be harmonized t h e i n t e n t i o n of t h e l e g i s l a t u r e i s c o n t r o l l i n g . Section 1-2- 102, MCA. After a c a r e f u l review of t h e Municipal Revenue Bonds Act of 1939 and t h e Public U t i l i t i e s and C a r r i e r s Act, w e f i n d t h a t t h e provisions of the two a c t s can be harmonized. The l e g i s l a t u r e recognized t h a t m u n i c i p a l i t i e s had t h e b e s t resources a v a i l a b l e t o a r r i v e a t an i n i t i a l determination of what the r a t e o r t o l l should be f o r t h e u t i l i t y s e r v i c e provided. The l e g i s l a t u r e f u r t h e r recognized the m u n i c i p a l i t i e s ' i n h e r e n t i n t e r e s t i n c o l l e c t i n g t h e r a t e s o r t o l l s charged. Thus t h e l e g i s l a t u r e granted m u n i c i p a l i t i e s these powers under t h e Municipal Revenue Bonds Act a s well a s o t h e r a c t s . However, nothing i n t h e Municipal Revenue Bonds Act precludes a review of such r a t e determinations. This i s p r e c i s e l y t h e function of t h e PSC. The l e g i s l a t u r e intended such a review process by t h e very c r e a t i o n of such a regulatory and supervisory body. W e hold t h a t m u n i c i p a l i t i e s - do e s t a b l i s h r a t e s f o r t h e i r s e r v i c e s a s required by s e c t i o n s 7-7-4404 and 7-7- 4 4 2 4 , MCA, when m u n i c i p a l i t i e s comply with t h e PSC r e p o r t i n g requirements s e t f o r t h i n s e c t i o n s 69-3-301 and 69-3-302, MCA. The regulatory a u t h o r i t y of t h e PSC does n o t diminish a m u n i c i p a l i t y ' s a b i l i t y t o e s t a b l i s h an i n i t i a l r a t e schedule. The two a c t s a r e n o t i r r e c o n c i l a b l e , and t h e PSC has j u r i s d i c - t i o n over municipally-owned u t i l i t i e s . The second j u r i s d i c t i o n a l i s s u e a r i s e s as a r e s u l t of t h e PSC order r e q u i r i n g t h e City of B i l l i n g s and t h e B i l l i n g s Heights water d i s t r i c t t o e n t e r i n t o a s t i p u l a t i o n through which a c o s t of s e r v i c e c r e d i t f o r d i s t r i c t customers l i v i n g within B i l l i n g s c i t y l i m i t s could be implemented. I n a p r i o r o r d e r , no. 4366, rendered J u l y 20, 1977, of which t h i s Court takes j u d i c i a l n o t i c e pursuant t o Rule 202 (b) ( 4 ) , Mont. R. Evid. , t h e PSC determined t h a t " [ r ] a t h e r than being s u b j e c t t o Commission c o n t r o l , these [County Water D i s t r i c t s ] a r e s u b j e c t t o t h e c o n t r o l and ratemaking power of t h e i r own board of d i r e c t o r s . . ." If t h i s determination holds t r u e , t h e PSC had no a u t h o r i t y t o order t h e B i l l i n g s Heights water d i s t r i c t t o e n t e r i n t o t h e s t i p u l a t i o n with t h e C i t y of B i l l i n g s . Thus, t h i s Court must review t h e j u r i s d i c t i o n a l parameters of the PSC over county water d i s t r i c t s c r e a t e d under s e c t i o n s 7-13-2201 through 7-13-2348, MCA. Although t h e PSC acknowledged i n order no. 4366 t h a t county w a t e r d i s t r i c t s c l e a r l y f i t t h e d e f i n i t i o n of a "public u t i l i t y " a s s e t f o r t h i n s e c t i o n 69-3-101(5), MCA, it declined j u r i s d i c t i o n over county water d i s t r i c t s based primarily on s e c t i o n 7-13-2301 ( I ) , MCA. This s t a t u t e provides t h a t : "The board of d i r e c t o r s s h a l l f i x a l l water and sewer r a t e s and s h a l l , through t h e general manager, c o l l e c t t h e sewer charges and t h e charges f o r t h e s a l e and d i s t r i b u t i o n of water t o a l l users." The board of d i r e c t o r s i s a s p e c i a l l y e l e c t e d body whose s o l e function i s t o govern t h e water d i s t r i c t . Section 7-13-2231 ( 2 ) , MCA. I t i s t h e p o s i t i o n of t h e PSC t h a t t h i s s t a t u t o r i l y - c r e a t e d governing body d i s p l a c e s the r e g u l a t o r y function of the PSC. After review of s e c t i o n s 7-13-2201 through 7-13-2348, MCA, w e cannot agree with t h i s p o s i t i o n . Nothing within t h e s e s t a t u t e s expressly precludes t h e review and regulatory process of t h e PSC pursuant t o T i t l e 69, MCA. This board of d i r e c t o r s was only intended t o d i s p l a c e t h e county com- missioners' a u t h o r i t y with regard t o water and sewer functions. Section 7-13-2231(2), MCA. Thus, t h e function of county water d i s t r i c t commissioners resembles t h e function of m u n i c i p a l i t i e s i n t h e ratemaking process. The board of d i r e c t o r s i s empowered t o e s t a b l i s h r a t e s ; however, such r a t e s a r e s u b j e c t t o review and a l t e r a t i o n by the PSC i f u n j u s t , unreasonable o r discriminatory. Section 69-3-330, MCA. This i n t e r p r e t a t i o n i s b u t t r e s s e d by s e c t i o n 7-13- 2202, MCA: "Nothing i n t h i s p a r t and p a r t 23 s h a l l be so con- s t r u e d a s repealing o r i n any wise modifying t h e provisions of any o t h e r a c t r e l a t i n g t o water o r sewers . . . I 1 Surely, the l e g i s l a t u r e had i n mind t h e provisions of T i t l e 69, MCA, regarding t h e r e g u l a t i o n , supervision, and c o n t r o l of public u t i l i t i e s when it enacted l e g i s l a t i o n giving rise t o county water d i s t r i c t s . Therefore, w e hold t h a t t h e PSC i s invested with j u r i s d i c t i o n over county water d i s t r i c t s r e l a t i n g t o the r a t e s e t t i n g process. The PSC had t h e a u t h o r i t y t o order t h e City of B i l l i n g s and t h e B i l l i n g s Heights water d i s t r i c t t o e n t e r i n t o necessary s t i p u l a t i o n s . I n disposing of i s s u e s no. 3 through 8, t h i s Court i s guided by t h e standard of review s e t f o r t h i n Cascade County Consumers Ass'n. v. Public Serv. Comfn. (1964), 1 4 4 Mont. 169, 192-193, 394 P.2d 856, 868, cert.den., 380 U.S. " W e have repeatedly held t h a t t h e r e w i l l be no i n t e r f e r e n c e with t h e orders of t h e Commission unless: " (1) they go beyond t h e power c o n s t i t u t i o n a l l y given; o r , " ( 2 ) beyond t h e i r s t a t u t o r y power ; o r " ( 3 ) they a r e based upon a mistake of l a w . "However, questions of f a c t may be involved i n determination of questions of law, so t h a t an o r d e r , r e g u l a r on i t s face, may be set a s i d e i f it appears: " (1) t h a t t h e r a t e i s s o low a s t o be confiscatory and i n v i o l a t i o n of t h e c o n s t i t u t i o n a l p r o h i b i t i o n a g a i n s t taking property without due process of law; o r " ( 2 ) t h a t t h e Commission acted so a r b i t r a r i l y and u n j u s t l y a s t o f i x r a t e s contrary t o evidence, o r without evidence t o support it, o r " (3) t h a t t h e a u t h o r i t y t h e r e i n involved has been exercised i n such an unreasonable manner a s t o cause it t o be within t h e elementary r u l e t h a t substance, and n o t shadow, determine t h e v a l i d i t y of the ex- e r c i s e of t h e power. " ( C i t a t i o n s omitted. ) The C i t y of B i l l i n g s f i r s t contends t h a t t h e PSC e r r e d by r e f u s i n g t o accept p r o j e c t i o n s of f u t u r e operating and maintenance expenses. The City a s s e r t s t h a t t h i s r e f u s a l amounts t o a mistake of l a w because t h e r e f u s a l was made i n ". . . accordance with numerous p a s t cases . . ." N o s t a t u t e e x i s t s denominating t h e method o r methods t h e PSC must use i n reviewing and determining r a t e s . I n t h e case a t bar the PSC used known f i n a n c i a l d a t a supplied by t h e C i t y of B i l l i n g s and then e i t h e r added o r subtracted known normalized changes and adjustments i n a r r i v i n g a t a test-year c a l c u l a t i o n . This Court has a l r e a d y determined t h a t use of test-year c a l c u l a t i o n and average-year r a t e base i s a c o r r e c t and proper method of valuation. P e t i t i o n of Montana Power Co. E t c . (1979), - Mont. , 590 P.2d 1 1 4 0 , - 36 St.Rep. 312. Therefore, we a f f i r m t h e PSC's use of t h i s p a r t i c u l a r method of valuation i n t h e case before us. Secondly, the C i t y of B i l l i n g s and t h e C i t y of Helena contend t h a t the PSC e r r e d by refusing t o consider p a s t l o s s e s suffered by t h e municipally-owned water u t i l i t i e s , when determining t h e new rates. I t i s c l e a r l y t h e law t h a t u t i l i t i e s may n o t s e t t h e i r r a t e s s o a s t o amortize p a s t d e f i c i t s . The foundation case f o r t h i s r u l e i s Galveston Elec. Co. v. Galveston (1922), 258 U.S. 388, 395, 4 2 S.Ct. 351, 354, 66 L.Ed. 678, 683, where t h e United S t a t e s Supreme Court s t a t e d : "A company which has f a i l e d t o secure from year t o year s u f f i c i e n t earnings t o keep t h e investment un- impaired and t o pay a f a i r r e t u r n , whether i t s f a i l - u r e was the r e s u l t of imprudence i n engaging i n t h e e n t e r p r i s e , o r of e r r o r s i n management, o r of omission t o e x a c t proper p r i c e s f o r i t s output, cannot e r e c t o u t of p a s t d e f i c i t s a l e g a l b a s i s f o r holding con- f i s c a t o r y f o r t h e f u t u r e , r a t e s which would, on t h e b a s i s of p r e s e n t reproduction value, otherwise be compensatory. " Based on t h i s , f e d e r a l c o u r t s have c o n s i s t e n t l y adhered t o t h e "no l o s s e s rule.'! This r u l e was r e c e n t l y espoused i n (D.C. C i r . Nader v. F.C.C. /1975), 520 F.2d 182, 202, where t h e c o u r t s t a t e d : " I t is, of course, a c a r d i n a l p r i n c i p l e of r a t e - making t h a t a u t i l i t y may n o t s e t r a t e s t o recoup p a s t l o s s e s , nor may t h e Commission p r e s c r i b e r a t e s on t h a t p r i n c i p l e . " However, a s t h e City c o r r e c t l y p o i n t s o u t , t h i s l i n e of cases involves only p r i v a t e investment u t i l i t i e s . The City would have t h i s Court d i s t i n g u i s h between municipal u t i l i t i e s , where no p r o f i t o r r a t e of r e t u r n i s allowed and p r i v a t e in- vestment u t i l i t i e s , where a p r o f i t margin i s all-owed i n t h e rate. The City claims t h a t s i n c e municipal u t i l i t i e s have no p r o f i t margin t o f a l l back on, t h e i r l o s s e s should be amortized by f u t u r e r a t e increase. Admittedly, m u n i c i p a l i t i e s a r e caught i n an i n f l a t i o n a r y squeeze. However, t h e case l a w regarding t h e "no l o s s r u l e " does n o t r e s t r i c t t h a t r u l e t o p r i v a t e investment u t i l i t i e s . The PSC has not been unmindful of t h e problems faced by t h e City. The PSC has i n t h e p a s t , and i n t h i s case, given m u n i c i p a l i t i e s s p e c i a l treatment, by allowing m u n i c i p a l i t i e s s u f f i c i e n t money t o complete a l l improvement p r o j e c t s which have been deferred. Deferral of improvements i s one means a c i t y has t o provide money f o r other expenditures. When t h e PSC g r a n t s s u f f i c i e n t funds t o make up t h e s e p r o j e c t s , it i s i n e f f e c t , making up p a s t l o s s e s of t h e c i t y under a c o n t r o l l e d plan. This appears t o be a b e t t e r policy regarding l o s s e s and t o an e x t e n t avoids i n e f f i c i e n t management. Therefore, we hold t h a t t h e PSC i s n o t required t o consider t h e p a s t l o s s e s suffered by t h e municipally-owned u t i l i t y a s p a r t of t h e rate base f o r e s t a b l i s h i n g a new rate. The C i t y of B i l l i n g s next contends t h a t t h e PSC e r r e d by n o t c o r r e c t l y applying a l l of the C i t y ' s revenue bond coverage tests contained i n t h e C i t y ' s bond ordinances. The C i t y p o i n t s o u t t h a t these bond ordinances contain t h r e e s e p a r a t e coverage t e s t s ; one h i s t o r i c a l i n a p p l i c a t i o n and two prospective i n a p p l i c a t i o n . The b a s i c purpose of these coverage tests is t o provide some s e c u r i t y f o r p r e s e n t bond holders. These tests s t a t e t h a t t h e municipality may n o t incur new bond indebtedness unless n e t revenue t o be generated by t h e u t i l i t y equals an es- t a b l i s h e d amount both a t t h e t i m e of issuance a s w e l l a s f o r f i v e consecutive years following issuance. Thus, a s conceded by counsel f o r t h e C i t y a t o r a l argument, t h e s e coverage tests r e l a t e s o l e l y t o t h e C i t y ' s a b i l i t y t o i s s u e new bonds. I f these t e s t s cannot be met by t h e r a t e s allowed by t h e PSC, t h e City cannot incur new indebtedness; however, t h i s does n o t place e x i s t i n g bonds i n d e f a u l t . I n e s t a b l i s h i n g a new r a t e f o r t h e C i t y of B i l l i n g s , t h e PSC applied only t h e h i s t o r i c a l coverage test i n determining t h e C i t y ' s revenue requirements necessary t o s a t i s f y i t s bond debt s e r v i c e f o r t h e p e t i t i o n e d a p p l i c a t i o n period. The C i t y of ~ i l l i n g s had a proposed bond issuance scheduled f o r 1979 which could have been precluded f o r f a i l u r e t o m e e t t h e bond ordinance requirements. However, t h e PSC eliminated such an occurrence, a t l e a s t with regard t o r a t e s u f f i c i e n c y , by ordering t h a t t h e City ". . . upon s a l e of 1979 bond i s s u e . . . f i l e t a r i f f s r e f l e c t i n g an a c r o s s the board percentage i n c r e a s e equal t o the i n c r e a s e i n revenues necessary t o m e e t t h e expenses incurred i n t h e new bond issuance." Thus, t h e PSC, although n o t i n s t r i c t compliance with t h e C i t y ordinances, granted a s u f f i c i e n t r a t e t o meet t h e C i t y ' s required bond d e b t s e r v i c e amount. There i s no d i r e c t i v e , e i t h e r s t a t u t o r y o r j u d i c i a l , which r e q u i r e s t h e PSC t o s t r i c t l y comply with City bond ordinance mandates. Such ordinances a r e n o t binding upon t h e PSC and the PSC i n no way a c t s a s an i n s u r e r f o r municipal bond issuances. Therefore, t h e PSC properly acted within i t s realm of d i s c r e t i o n i n determining t h e C i t y ' s necessary bond d e b t s e r v i c e requirements and i n s e t t i n g r a t e s accordingly. The l a s t i s s u e r a i s e d by t h e C i t y of B i l l i n g s with regard t o i n s u f f i c i e n c y of t h e r a t e granted, concerns normaliza- t i o n of test-year d a t a t o r e f l e c t weather conditions. The C i t y a s s e r t s t h a t t h e PSC e r r e d i n n o t taking i n t o account drought conditions i n 1977, the year which t h e PSC used a s i t s t e s t year f o r c a l c u l a t i o n s . The C i t y a s s e r t s t h a t t h i s f a i l u r e on the p a r t of t h e PSC overestimates the C i t y ' s revenues and thus underestimates t h e needed r a t e increase. The PSC has no s t a t u t o r y duty t o normalize test-year d a t a . Therefore it i s within its d i s c r e t i o n t o determine when normalization i s necessary. Testimony regarding normaliza- t i o n w a s presented t o t h e PSC a t t h e hearing. The c a l c u l a t i o n s of t h e PSC based on t h e 1977 test-year d a t a do n o t r e f l e c t any adjustments with r e s p e c t t o weather conditions. Impliedly, t h e PSC deemed normalization unnecessary i n t h i s case. W e w i l l n o t s u b s t i t u t e our judgment f o r t h a t of t h e PSC on appeal. The PSC had evidence before it upon which t o reach a determination on t h i s i s s u e . The PSC d i d n o t a c t unreasonably nor d i d it e s t a b l i s h a r a t e which w a s so low a s t o be confiscatory. Cascade County Consumers Ass'n., supra. Therefore, t h e PSC's determination i s n o t c l e a r l y erroneous and must be upheld. Rule 52 ( a ) , M. R.Civ. P . The C i t y of B i l l i n g s contends t h a t t h e PSC e r r e d i n a l l o c a t i n g c o s t of s e r v i c e s t o t h e B i l l i n g s Heights water d i s t r i c t based upon a d i f f e r e n t e x t r a c a p a c i t y f a c t o r than t h a t proposed by t h e C i t y and upon a d i f f e r e n t r a t e of r e t u r n f o r c i t y r e s i d e n t s who receive w a t e r from t h e D i s t r i c t . The PSC heard testimony from a l l p a r t i e s regarding t h e c a l c u l a t i o n of t h e e x t r a capacity f a c t o r t o be assigned t h e B i l l i n g s Heights water d i s t r i c t f o r use i n a l l o c a t i n g t h e d i s t r i c t ' s c o s t s of service. The PSC chose t o r e j e c t t h e C i t y ' s proposed e x t r a capacity f a c t o r which was based upon a c o n t r a c t provision between t h e two p a r t i e s . Instead t h e PSC chose t o a s s i g n an e x t r a capacity f a c t o r based upon a c t u a l water use a s derived from witnesses t e s t i f y i n g f o r t h e d i s t r i c t a s w e l l a s comparisons derived from l a r g e water consumers with demands s i m i l a r t o t h e B i l l i n g s Heights water d i s t r i c t . The PSC had s u b s t a n t i a l evidence before it i n determining the e x t r a capacity f a c t o r t o be assigned t o t h e d i s t r i c t . This d e c i s i o n i s n o t c l e a r l y erroneous and thus must be upheld. Rule 5 2 ( a ) , M.R.civ.P. Secondly, t h e PSC determined t h a t C i t y r e s i d e n t s who were water customers of the d i s t r i c t were e n t i t l e d t o t h e same c o s t of s e r v i c e b e n e f i t which i n s i d e City customers received. Inside C i t y customers w e r e assigned a 6.2 percent r a t e of r e t u r n whereas o u t s i d e C i t y customers were assigned a 7.5 percent rate of r e t u r n . The reason f o r t h i s d i f f e r e n t r a t e of r e t u r n was given by Robert Benson, r a t e a n a l y s t f o r t h e Black & Veatch consulting firm. H i s testimony revealed t h a t ". . . t h e r e a r e c e r t a i n a n c i l l a r y c o s t s and o b l i g a t i o n s associated with t h e Water System which t h e C i t y r e s i d e n t s alone bear i n taxes." Examples of these c o s t s and o b l i g a t i o n s a r e t V F i r e and p o l i c e p r o t e c t i o n , t h e long term provision and maintenance of streets (which may be adversely a f f e c t e d by operation of the Water System), and t h e o b l i g a t i o n of t h e C i t y t o provide t h e Water System i r r e s p e c t i v e of t h e f l e x i b i l i t y which may be exercised by o u t s i d e C i t y r e s i d e n t s t o o b t a i n an a l t e r n a t i v e water supply . . . " A s a r e s u l t of t h i s testimony, t h e PSC determined t h a t a l l C i t y r e s i d e n t s , r e g a r d l e s s of whether they were C i t y - water customers o r d i s t r i c t water customers were e n t i t l e d t o t h e c o s t of s e r v i c e b e n e f i t . Therefore, t h e PSC ordered t h a t t h e C i t y and t h e d i s t r i c t e n t e r i n t o a s t i p u l a t i o n by which t h i s b e n e f i t could be passed on t o t h e d i s t r i c t customers who resided within C i t y l i m i t s . The C i t y contends t h a t t h e determinative f a c t o r i n deciding who r e c e i v e s t h e c o s t of s e r v i c e b e n e f i t i s n o t whether t h e p a r t y i s a C i t y taxpayer, b u t i n s t e a d whether t h e p a r t y i s a C i t y water customer. W e disagree. he a n c i l l a r y c o s t s and o b l i g a t i o n s t e s t i f i e d t o by M r . Benson a r e elements which C i t y t a x d o l l a r s support. It m a t t e r s n o t t h a t t h e municipal u t i l i t y i s paid f o r completely by generated revenue and n o t through t a x d o l l a r s . here fore, a l l c i t y r e s i d e n t s who a r e taxpayers a r e e n t i t l e d t o t h e c o s t of s e r v i c e b e n e f i t . Since w e have already determined t h a t t h e PSC has j u r i s d i c t i o n over t h e B i l l i n g s Heights water d i s t r i c t , t h e order of t h e PSC r e q u i r i n g t h e City and d i s t r i c t t o e f f e c t t h e passing on of t h e c o s t of s e r v i c e b e n e f i t t o C i t y r e s i d e n t s receiving water from t h e d i s t r i c t , i s v a l i d . The C i t y next contends t h a t t h e PSC's order r e q u i r i n g t h e C i t y t o e s t a b l i s h an account t o show a c t i v i t y regarding funds granted f o r r e c u r r i n g annual c a p i t a l improvements i n t e r f e r e s with t h e C i t y ' s managerial a u t h o r i t y , thus contravening t h e requirements of t h e Municipal Revenue Bond Act of 1939 and c i t y ordinance no. 3647. W e f i n d t h i s i s s u e completely without a u t h o r i t y . The PSC determined t h a t : "An i n c r e a s e of $442,518 i n FtACI i s j u s t i f i e d and reasonable; however, t h e Commission i n e x e r c i s i n g i t s regulatory d i s c r e t i o n d i r e c t s t h a t t h e Applicant i s t o keep t h e Commission c u r r e n t l y informed of t h e revenues expended f o r FtACI. I n order t o a s s u r e j u s t and reasonable r a t e s and s e r v i c e t h e Commission h e r e i n r e q u i r e s t h a t t h e Applicant e s t a b l i s h and maintain an account e n t i t l e d Recurring Annual C a p i t a l Improvements. Furthermore, t h e Commission r e q u i r e s t h a t t h e Applicant provide t h e Commission with monthly r e p o r t s d e t a i l i n g a c t i v i t y i n t h i s account." This order i n no manner d i c t a t e s which p r o j e c t s may r e c e i v e C i t y C a p i t a l Improvements funds. I t a l s o does n o t r e q u i r e any s p e c i f i c t i m e t a b l e f o r such expenditures. Thus, it does n o t i n t e r f e r e with t h e C i t y ' s decision-making process w i t h regard t o t h i s fund; it merely e s t a b l i s h e s a means of a c c o u n t a b i l i t y . Pursuant t o s e c t i o n 69-3-106, MCA, t h e PSC i s granted super- v i s o r y a u t h o r i t y over municipally-owned u t i l i t i e s . This provision s t a t e s t h a t : " (1) The commission s h a l l have a u t h o r i t y t o i n q u i r e i n t o t h e management of t h e business of a l l public u t i l i t i e s , s h a l l keep i t s e l f informed a s t o t h e manner and method i n which t h e same i s conducted, and s h a l l have t h e r i g h t t o o b t a i n from any public u t i l i t y a l l necessary information t o - enable the commission t o perform i t s d u t i e s . " - (Emphasis added.) Furthermore, s e c t i o n 69-3-202, MCA, provides i n p e r t i n e n t p a r t : " (1) Every public u t i l i t y s h a l l keep and render t o t h e Commission, i n t h e manner and form pre- scribed by t h e commission, uniform accounts of a l l business transacted." Clearly, t h e l e g i s l a t u r e envisioned t h e p r e c i s e r e p o r t i n g requirement ordered by t h e PSC. The maintenance of t h e r e c u r r i n g annual c a p i t a l improvements account does n o t run c o n t r a r y t o the provisions of the C i t y ' s bond ordinance nor t h e provisions of t h e Municipal Revenue Bonds Act of 1939. The maintenance of such an account i s a l e g i t i m a t e means by which t h e PSC can s t a y a b r e a s t of a c t i v i t i e s over which it has supervisory and regulatory a u t h o r i t y . Therefore, t h i s a s p e c t of t h e PSC's decision i s affirmed. The Montana Consumer Counsel r a i s e s two i s s u e s on appeal. The Consumer Counsel f i r s t contends t h a t t h e PSC e r r e d with r e s p e c t t o t h e C i t y ' s needed bond debt s e r v i c e requirements. A s s t a t e d previously, t h e PSC determined t h e C i t y of B i l l i n g s bond d e b t s e r v i c e revenue needs v i a a t e s t - year method. The PSC then chose t o apply t h e h i s t o r i c a l coverage f a c t o r c a l c u l a t i o n contained i n bond ordinance no. 3647, i n order t o a i d t h e C i t y i n f u t u r e bond i s s u e s . This test r e q u i r e s t h a t revenue generated by t h e City must a t l e a s t be 125 percent of t h e revenue generated by t h e C i t y i n any 12 consecutive months i n the 18th month period p r i o r t o t h e a p p l i c a t i o n f o r a r a t e increase. The Consumer Counsel a s s e r t s t h a t t h i s e x t r a 25 percent coverage f a c t o r money does n o t a c t u a l l y have t o be paid, f o r bond debt s e r v i c e , b u t can be used by t h e C i t y f o r o t h e r expenditures. This i s s u e s t r i k e s a t t h e h e a r t of t h e PSC's d i s c r e t i o n i n c a l c u l a t i n g revenue requirements. The PSC determined t h e bond d e b t s e r v i c e revenue needs of t h e C i t y of B i l l i n g s and they chose t o include t h i s coverage f a c t o r money i n t h e i r c a l c u l a t i o n s . W e f i n d t h e method employed by the PSC t o be within t h e i r d i s c r e t i o n and lawful. Ratemaking choices of t h e PSC w i l l be honored by t h i s Court i f w i t h i n lawful parameters. The Montana Consumer Counsel a l s o appeals the d e c i s i o n of t h e Thirteenth J u d i c i a l D i s t r i c t Court, allowing t h e C i t y of B i l l i n g s t o introduce a d d i t i o n a l documentary e x h i b i t s f o r purposes of j u d i c i a l review. I n l i g h t of t h i s C o u r t ' s d e c i s i o n t o a f f i r m t h e order of t h e PSC i n i t s e n t i r e t y , t h i s i s s u e i s moot. I n conclusion, w e a f f i r m the d e c i s i o n of the D i s t r i c t Court of t h e Thirteenth J u d i c i a l D i s t r i c t i n a l l r e s p e c t s , except a s t o amortization of p a s t l o s s e s , which i s reversed. W e a f f i r m t h e decision rendered by t h e F i r s t J u d i c i a l D i s t r i c t Court. r W e concur: Chief J u s t i c e Justice James B. Wheelis sitting of Honorable Daniel J. Shea.