Title: Mountain Fuel Supply Co. v. Public Service Com'n of Wyoming

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Mountain Fuel Supply Co. v. Public Service Com'n of Wyoming1983 WY 39662 P.2d 878Case Number: 5723Case Number: 5723Decided: 04/18/1983Supreme Court of Wyoming
MOUNTAIN FUEL SUPPLY COMPANY, APPELLANT (PETITIONER),

v.

PUBLIC SERVICE COMMISSION OFWYOMING, APPELLEE (RESPONDENT). No. 
5723

Appeal from the District 
Court, SweetwaterCounty, Kenneth G. Hamm, 
J.

John A. Sundahl 
of Godfrey & Sundahl, Cheyenne, and Gary L. Sackett, Associate Gen. Counsel, 
Salt Lake City, Utah, for 
appellant.

Steven F. 
Freudenthal, Atty. Gen., Steven R. Shanahan and Walter Perry III, Senior Asst. 
Attys. Gen., Cheyenne, for appellee.

Before ROONEY, C.J.,* and RAPER, THOMAS, ROSE** and BROWN, 
JJ.

* Became Chief Justice on 
January 1, 1983.

** Chief Justice 
at time of oral argument.

THOMAS, 
Justice.

[¶1.]     This appeal is taken 
from a rate-increase order entered by the Public Service Commission of Wyoming 
(PSC) which was affirmed by the district court. Mountain Fuel Supply Company 
(Mountain Fuel) complains that the PSC should not have included revenue from an 
off-system sale of gas in determining revenue for the selected test year; that 
the PSC should not have adopted an adjusted historic year as a test year, but 
instead should have adopted a hypothetical projected year as a test year; and 
that the PSC unlawfully delegated to its staff the determination of a just and 
reasonable rate. We conclude that there is no error with respect to the 
inclusion of the off-system sale and the selection of the test year, and we 
shall affirm the PSC as to those contentions. We cannot discern from the 
findings of fact by the PSC the rationale for its finding as to a just and 
reasonable rate. The expert who testified on behalf of the PSC stated in his 
testimony the rates which are included in the finding by the PSC, but we must 
reverse and remand that aspect of the case to the PSC for an articulation of its 
reason for adopting the finding that it entered of a just and reasonable rate. 
That explanation is essential to any meaningful review of the lawfulness of the 
rate determination by the PSC.

[¶2.]     This case was 
instituted on April 22, 1981, by the filing by Mountain Fuel of simultaneous 
applications with the PSC seeking permanent relief in the form of a general 
increase in its rates in the amount of $2,633,000 (Docket No. 9192 Sub 68) and 
interim rate relief in the amount of $2,278,000 (Docket No. 9192 Sub 69) pending 
PSC action with respect to the application for a permanent rate increase. On May 
7, 1981, the PSC summarily denied the request for interim rate relief. On May 
22, 1981, the PSC, in accordance with § 37-3-106(c), W.S. 1977, suspended the 
proposed permanent rates for six months pending its investigation and hearing on 
the lawfulness of the application by Mountain Fuel. Mountain Fuel then requested 
a rehearing or reconsideration of the order denying interim relief, and in 
response the PSC scheduled simultaneous hearings on both applications beginning 
July 8, 1981.

[¶3.]     Additional parties were 
added by motions to intervene and participate in hearings. These included the 
Staff of the PSC, Stauffer Chemical Company of Wyoming, FMC Corporation and the 
Western Wyoming Utility Consumer Action Group. The Staff of the PSC appeared and 
participated as an independent party separate and apart from the PSC. A 
stipulation was entered into by the parties and approved by the PSC pursuant to 
which the requests of Mountain Fuel were adjusted downward to $2,201,000 in 
permanent rate relief and $1,891,000 in interim rate 
relief.

[¶4.]     At the conclusion of 
the hearings a schedule for the submission of briefs and proposed findings of 
fact and conclusions of law was established. The PSC then entered its final 
order on October 28, 1981, granting permanent rate-increase relief in the amount 
of $893,000 to Mountain Fuel and denying Mountain Fuel's request for interim 
relief. The permanent rate increase authorized by the PSC went into effect on 
January 1, 1982.

[¶5.]     In accordance with § 
37-2-219, W.S. 1977,1 Mountain Fuel appealed the order of 
the PSC to the district court by filing a petition for review on November 25, 
1981.2 No appeal was taken by Mountain 
Fuel from the denial by the PSC of interim relief. On April 28, 1982, the 
district court issued an opinion letter affirming the order of the PSC. The 
court's final order affirming the PSC then was entered on May 26, 1982. This 
appeal is taken from that final order. Additional pertinent facts will be 
adduced whenever appropriate in the discussion leading to our 
holdings.

[¶6.]     In its brief Mountain 
Fuel states the issues for review as follows:

"1. Is the Commission's 
order arbitrary and capricious and violative of Appellant's due process rights 
because it is not supported by adequate findings of fact? In particular, are 
there adequate findings to support the Commission's determination that 14.1% 
represents a lawful return on shareholders' equity 
investment?

"2. Does the Commission's 
order comport with the `just and reasonable' standard for setting utility rates 
as required by Wyoming Statutes § 37-3-101?

"3. Does the Commission's 
order violate the proscription of confiscation of property set forth in the 
Wyoming and 
United States Constitutions?

"4. Has the Commission 
abused its discretion and unlawfully delegated certain of its ratemaking 
responsibilities by summarily adopting its staff's recommendations concerning an 
appropriate rate of return on shareholders' equity capital without the support 
of substantial evidence?

"5. Has the Commission 
unlawfully based its determination of utility rates on assumptions and 
circumstances that do not adequately reflect the conditions under which the 
utility will be operating during the period when rates are to be 
effective?

"6. Has the Commission 
engaged in unlawful `retroactive ratemaking' by considering early-1980 revenues 
from the sale to El Paso Natural Gas Company in determining just and reasonable 
rates for a period following October 28, 1981?"

The PSC made its 
own statement of the issues in the following language:

"I. ARE THE COMMISSION'S 
FINDINGS CONCERNING THE USE OF AN HISTORICAL TEST YEAR, RATE OF RETURN, AND 
OFF-SYSTEM GAS SALES REVENUES SUPPORTED BY SUBSTANTIAL EVIDENCE IN THE 
RECORD?

"II. DID THE COMMISSION 
MAKE FINDINGS CONCERNING THE USE OF AN HISTORICAL TEST YEAR AND RATE OF RETURN 
WHICH INDICATE WHAT UNDERLYING EVIDENTIARY FACTS THE COMMISSION RELIED UPON FOR 
A FINDING OR CONCLUSION OF ULTIMATE FACTS?

"III. SHOULD THE COURT 
REQUIRE THE COMMISSION TO USE A PROJECTED OR FUTURE TEST YEAR IN ESTABLISHING 
RATES?

"IV. SHOULD THE COURT 
REQUIRE THE COMMISSION TO ALWAYS ESTABLISH THE RATE OF RETURNON EQUITY ABOVE THE UTILITY COMPANY'S CURRENT 
LONG-TERM DEBT COST?"

[¶7.]     While Mountain Fuel and 
the PSC have articulated the issues in several different contexts, we conclude 
that the major points which are in contention in this case revolve around three 
focal points:

[¶8.]     (1) The failure of the 
PSC to exclude from its test-year revenues certain revenues derived from an 
off-system sale of gas to the El Paso Natural Gas Company.

[¶9.]     (2) The refusal of the 
PSC to adopt a projected future test year for rate-making purposes, and its 
adherence to an adjusted historical year.

[¶10.]  (3) The finding by the PSC that a 14.1 
percent rate of return on the common stock equity was fair and 
reasonable.

[¶11.]  The first four issues as stated by 
Mountain Fuel and the fourth issue stated by the PSC relate to the third point 
described. The fifth issue stated by Mountain Fuel and in part the first two 
issues and the third issue stated by the PSC relate to the second point. The 
sixth issue as stated by Mountain Fuel and in part the first and second issues 
stated by the PSC relate to the third area. We shall proceed to dispose of the 
contentions of the parties in accordance with the order of the areas of dispute 
which we have identified. It is perhaps helpful to reiterate an overview of our 
appellate rules dealing with appeals from administrative 
action.

[¶12.]  Specifically applicable to the PSC, § 
37-2-130, W.S. 1977 (Cum.Supp. 1982), explicitly provides that the Wyoming Administrative 
Procedure Act, §§ 9-4-101 to 9-4-115, W.S. 1977 (now found at §§ 16-3-101 to 
16-3-115, W.S. 1977, Oct. 1982 Rev.), governs appeals from the Public Service 
Commission. The scope of our review of an order of an administrative agency is 
stated in § 9-4-114(c), W.S. 1977 (Cum.Supp. 1982) (now found at § 16-3-114(c), 
W.S. 1977, Oct. 1982 Rev.), which provides:

"(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."

[¶13.]  In conducting our review of 
administrative action, we are not bound to accept any of the conclusions reached 
in the district court, but we are obligated to review the appeal as if it came 
directly to this court from the agency. Wyoming State Department of Education v. 
Barber, Wyo., 649 P.2d 681 (1982); Spivey v. Lucky Mc Uranium Corporation, 
Wyo., 636 P.2d 518 (1981); and Board of 
Trustees of School District No. 4, Big Horn County v. Colwell, Wyo., 611 P.2d 427 (1980). We are charged by statute with an examination of the whole 
record to determine if there is substantial evidence to support the findings of 
the agency. Section 9-4-114(c), W.S. 1977 (Cum.Supp. 1982) (now found at § 
16-3-114(c), W.S. 1977, Oct. 1982 Rev.). If the agency's decision is found to be 
supported by substantial evidence, we cannot substitute our judgment for that of 
the agency, but are required to uphold its findings upon appeal. McCulloch Gas Transmission Company v. Public 
Service Commission of Wyoming, Wyo., 627 P.2d 173 (1981); Williams v. Public Service Commission of 
Wyoming, Wyo., 626 P.2d 564 (1981), cert. denied 454 U.S. 896, 102 S. Ct. 394, 70 L. Ed. 2d 211 (1981); Great Western 
Sugar Company v. Johnson, Wyo., 624 P.2d 1184 (1981); and Telstar Communications, Inc. v. Rule 
Radiophone Service, Inc., Wyo., 621 P.2d 241 (1980).

[¶14.]  Although we are not required to accept 
the conclusions of the district court in connection with reviews of actions of 
administrative agencies, we have said that we find the articulation of the views 
of the district court to be helpful to us in conducting our review. Wyoming Public Service Commission v. Hopkins, Wyo., 602 P.2d 374 (1979); Board of Trustees, Laramie County 
School District No. 1 v. Spiegel, Wyo., 549 P.2d 1161 (1976). We must temper the 
application of that principle somewhat in this case because it appears from the 
letter opinion entered by the district court that it had in mind an erroneous 
standard for evaluating the evidence. The district court, after reciting proper 
statements of the law in this area, said:

"6. The appellant [sic] 
court must assume the evidence in form [sic] of the successful party as true, 
leave out of consideration entirely evidence of the unsuccessful party that 
conflicts with it and give to the evidence of the successful party every 
inference which may [sic] reasonably and fairly drawn from it. * * 
*"

Again the 
district court said:

"* * * This Court must, 
assume the evidence in favor of the PSC is true, leave out of consideration the 
evidence of Mountain Fuel that conflicts with it and give to the evidence of PSC 
every inference which may necessarily be drawn from it. * * 
*"

The test that we 
have espoused is not compatible with a rejection of the evidence of the 
unsuccessful party, which test was relied upon in part by the district 
court.

[¶15.]  The statements of the district court 
concerning the view to be taken of the evidence do not pertain in administrative 
appeals. For these cases we have adopted a definition of substantial evidence 
"as such relevant evidence as a reasonable mind might accept as adequate to 
support a conclusion." Board of Trustees, 
Laramie County School District No. 1 v. Spiegel, supra, 549 P.2d  at 1178, 
quoting Consolo v. Federal Maritime 
Commission, 383 U.S. 607, 86 S. Ct. 1018, 16 L. Ed. 2d 131 (1966). Such 
evidence may be less than the weight of the evidence, but cannot be clearly 
contrary to the overwhelming weight of the evidence. It is more than a mere 
scintilla of evidence or suspicion of a fact to be established. However, when 
our review of the whole record as required by § 9-4-114(c), W.S. 1977 (Cum.Supp. 
1982) (now found at § 16-3-114(c), W.S. 1977, Oct. 1982 Rev.), leads the court 
to conclude that sufficient relevant evidence is present which a reasonable mind 
might accept as adequate to support the agency, then our examination is 
completed. Laramie River Conservation 
Council v. Industrial Siting Council, Wyo., 
588 P.2d 1241 (1978); Rayburne v. 
Queen, 78 Wyo. 359, 326 P.2d 1108 (1958); 
and Howard v. Lindmier, 67 Wyo. 78, 214 P.2d 737 
(1950). The burden of proving a lack of substantial evidence is upon the party 
appealing the agency's determination. Laramie River Conservation Council v. 
Industrial Siting Council, supra, 588 P.2d  at 1253; Chicago & North Western Railway Company 
v. Public Service Commission of Wyoming, 79 Wyo. 343, 334 P.2d 519 (1959). 
If there is present substantial evidence to support a finding of the agency, the 
ultimate weight to be given that evidence before the PSC, as the trier of fact, 
is to be determined by the PSC in light of its expertise and the experience of 
its members in such matters. Williams v. 
Public Service Commission of Wyoming, supra, 626 P.2d  at 573; Telstar Communications, Inc. v. Rule 
Radiophone Service, Inc., supra, 621 P.2d  at 245; Big Horn Rural Electric Company v. 
Pacific Power and Light Company, 
Wyo., 397 P.2d 455 (1964).

[¶16.]  The PSC, in exercising its statutory 
powers to regulate and supervise public utilities in the State of Wyoming, as 
provided in § 37-2-112, W.S. 1977, is required to give paramount consideration 
to the public interest, the desires of the utility being secondary. Telstar Communications, Inc. v. Rule 
Radiophone Service, Inc., supra, 621 P.2d  at 246; Big Horn Rural Electric Company v. Pacific 
Power and Light Company, supra, 397 P.2d  at 457. This court cannot usurp the 
legislative function delegated to the PSC in setting appropriate rates, but will 
defer to the agency discretion so long as the results are fair, reasonable, 
uniform and not unduly discriminatory. McCulloch Gas Transmission Company v. Public Service 
Commission of Wyoming, supra, 627 P.2d at 179-180; Great Western Sugar Company v. Johnson, 
supra, 624 P.2d  at 1187-1188.

[¶17.]  In this appeal Mountain Fuel does not 
argue that the procedures followed by the PSC were deficient or that the PSC 
acted in excess of its authority. Instead the arguments presented by Mountain 
Fuel focus upon the presence of substantial evidence in the record to support 
certain critical findings and conclusions of the PSC; whether the PSC was 
arbitrary and capricious in failing to make adequate findings of fact; whether 
the order of the PSC comported with the "just and reasonable" standard for 
setting utility rates contained in § 37-3-101, W.S. 1977 (Cum.Supp. 1982)3, or amounted to an unconstitutional 
confiscation of private property; whether the PSC acted unlawfully by delegating 
its ratemaking responsibility, the argument being that the PSC summarily adopted 
the rate of return recommendations made by its staff; and whether the PSC 
engaged in impermissible retroactive rate making.

[¶18.]  The focus of this last contention is the 
inclusion of revenues derived from an off-system sale of gas in establishing the 
appropriate test-year revenues for purposes of rate making.4 Mountain Fuel's case position is 
that the inclusion of these revenues was, in effect, impermissible retroactive 
rate making, and such action is per se unreasonable as amounting to an unlawful 
confiscation of private property. It contends that the sale of natural gas to El 
Paso Natural Gas Company, the off-system sale of gas relied upon, beginning in 
late 1979 and continuing into April 1980 was a "one-time" emergency sale, and 
that there was no substantial evidence that such sales would occur during the 
period for which it sought to have increased rates set. Mountain Fuel points to 
the exclusion of similar revenues in a previous general rate case which it 
initiated as demonstrating that in this case there occurred an inconsistent and 
arbitrary application of the PSC's own rule for adjusting test-year data only to 
encompass known and measurable changes likely to continue in the future. 
Mountain Fuel further argues that there is no substantial evidence in the record 
to support the inclusion of such revenues, and that the conclusion of the PSC to 
the contrary is based purely upon conjecture and 
speculation.

[¶19.]  Contrary to the argument of Mountain 
Fuel, we hold that there is substantial evidence in the record supporting the 
finding of the PSC that revenues from the off-system sale of gas appropriately 
should be included in setting future rates. There was evidence before the PSC 
which indicated that Mountain Fuel's characterization of the sale as a 
"one-time" emergency transaction was not correct. Mountain Fuel had made at 
least two other similar sales in the recent past. Furthermore, Mountain Fuel was 
engaged in modifying its transmission plant facilities beyond modifications that 
would be required to service its retail customers, and the purpose of those 
enhanced modifications was to facilitate future off-system sales and 
transmission arrangements with other companies. The evidence demonstrates that 
these increased capital expenditures were included in the rate base upon which 
Mountain Fuel would be entitled to earn future rates of 
return.

[¶20.]  Further justification for including this 
sale is found in the impact which the transaction had upon Mountain Fuel's 
retail customers. The evidence reflects that Mountain Fuel's retail customers 
will be required to pay in excess of $8,000,000 in additional gas costs in the 
future as a result of the method of cost allocation adopted by Mountain Fuel for 
the El Paso sale. Mountain Fuel was permitted to charge El Paso an average of 
$2.19 per mcf delivered as "new" gas. In allocating its cost of the gas sold in 
this transactionMountain Fuel specified, however, that certain 
low-cost gas reserves were the source of the gas sold to El Paso which resulted in an average cost of 63 cents per mcf for the 
gas sold to El 
Paso. Mountain Fuel in the future must replace these 
reserves which were shown as sold at a much higher cost for new gas supplies. 
Since Mountain Fuel's retail customers are billed on a method which encompasses 
a system-wide average cost of gas sold, the future purchases of higher-cost new 
supplies will result in higher prices to individual consumers during the period 
for which the rates were sought.

[¶21.]  The most telling evidence supporting the 
inclusion of the El 
Paso sale revenues is found in Mountain Fuel's own 
forecast of future revenues in which it indicates that it expects future 
off-system sales not only to continue, but to increase in dollar amount during 
the next year. Given this information, we cannot say that there was not 
substantial evidence in the record supporting the decision of the PSC, in the 
exercise of its expertise and in the light of the experience of its members, to 
include the revenues derived from the El 
Paso gas sale in setting the appropriate 
test-year revenues. We find no error in this regard.

[¶22.]  The arguments concerning the selection of 
an appropriate test year to be used in setting future rates are peripherally 
related to the issue of the off-system gas sale. Mountain Fuel in its arguments 
concerning the sale of the gas to El Paso Natural Gas Company noted that if a 
test year beginning in April 1980 had been selected instead of one beginning in 
January 1980, the PSC would have excluded the effects of the off-system sale 
entirely from consideration. In its presentation of its rate case, Mountain Fuel 
argued that future rates should be based upon projected future test-year figures 
instead of figures derived from an historical test year which then were adjusted 
for known and measurable changes traditionally relied upon by the PSC. The PSC 
rejected the use of a projected or future test year, recognizing that while 
contemporary rate making requires it to be cognizant of prospective conditions 
and circumstances faced by utilities seeking rate relief, still in the 
experience of the PSC it had found that appropriate adjustments for historical 
test-year data would adequately account for anticipated changes. The PSC noted 
that the use of a projected test year is fraught with uncertainty and 
speculation, and it further found that the subjectivity demonstrated in 
projected future data created a bias in favor of the utility which could result 
in an excessive return. This factor would make such projections unsuitable in 
light of the PSC's paramount consideration for the public interest in setting 
rates.

[¶23.]  The PSC is required by statute to arrive 
at rates which are "just and reasonable." Section 37-3-101, W.S. 1977 (Cum.Supp. 
1982). Mountain Fuel concedes in its reply brief that the real question 
concerning the methodology for choosing a particular test year is whether the 
rates derived from the use of the selected methodology comply with this 
standard. The burden is upon Mountain Fuel to prove that the rates arrived at 
are unjust or unreasonable. Section 37-3-106(a), W.S. 1977; Natural Gas Consumers of Rock Springs v. 
Northern Utilities Co. of Casper, 70 Wyo. 225, 247 P.2d 767 (1952). Mountain 
Fuel, while denying any such intention, is seeking a determination by this court 
that the use of a methodology based upon an historical test year instead of a 
projected future test year will result, as a matter of law, in rates which are 
unjust and unreasonable. We find no sufficient justification for adopting such a 
proposition of law.

[¶24.]  This argument was addressed by the 
Supreme Court of the United States in a case considered to be one of the 
landmark rulings in the area of rate making. In Federal Power Commission v. Hope Natural Gas 
Co., 320 U.S. 591, 602, 64 S. Ct. 281, 287-288, 88 L. Ed. 333 (1944), the 
Court held:

"* * * Under the 
statutory standard of `just and reasonable' it is the result reached not the 
method employed which is controlling. [Citations.] 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. * * *"

Our court 
recently has stated:

"* * * We will not set a 
formula to be applied by the PSC in establishing a rate structure or in setting 
rates." Great Western Sugar Company v. Johnson, supra, 624 P.2d  at 
1188.

[¶25.]  Courts of other jurisdictions which have 
dealt with the question of whether the use of a projected test year is required 
in rate setting have reached similar conclusions. Utah Power & Light Company v. Idaho 
Public Utilities Commission, 102 Idaho 282, 629 P.2d 678, 683 (1981) 
(Bistline, J., dissenting on other grounds); L.S. Ayres & Company v. Indianapolis 
Power & Light Company, 169 Ind. App. 652, 351 N.E.2d 814 (1976); New England Telephone and Telegraph Company 
v. Public Utilities Commission, Me., 390 A.2d 8, 47-50 (1978); and Ohio Utilities Company v. Public Utilities 
Commission, 58 Ohio St.2d 153, 12 Ohio Op.3d 167, 389 N.E.2d 483, 489 
(1979). We agree that if the end result reached by the PSC complies with the 
"just and reasonable" standard announced in the statute, the methodology used by 
the PSC is not a concern of this court, but is a matter encompassed within the 
prerogatives of the PSC.

[¶26.]  Furthermore, we note substantial evidence 
in the record which would justify the finding by the PSC that the use of 
projected test-year figures as derived by Mountain Fuel should be rejected as 
too subjective. Clifford Nowell, the economist testifying on behalf of the PSC 
Staff, stated those factors which from his examination indicated that the 
methods used by Mountain Fuel to project the test year were too subjective. For 
each individual account to be projected, Mountain Fuel selected one of eight 
different forecasting methodologies to derive a statistical estimate of the 
balance of the account in the future test year based upon data selected from 
various time periods chosen by Mountain Fuel.5 Mountain Fuel's Director of State 
Regulation and its expert witness for this purpose admitted the subjectivity 
inherent in any type of forecasting of this nature but he asserted that the 
overall result reached made this method appropriate. This witness further 
admitted that the forecast results could be manipulated to reflect a utility 
bias by the selection of a particular forecasting method or time period from 
which data was utilized in making the computation. Other witnesses for the PSC 
Staff criticized the use of this particular system of deriving projected future 
test-year figures because it had the effect of removing many incentives to 
contain costs and would perpetuate past inefficiencies. Since we find a rational 
basis for the rejection by the PSC of the projected test year advocated by 
Mountain Fuel in favor of the historical test year commencing January 1980, we 
will not interfere with the discretion of the PSC in selecting the particular 
test year.

[¶27.]  Finally we turn to the problem which 
received the major emphasis in connection with the position of the parties. That 
is the portion of the order of the PSC establishing the rate of return, and the 
question of the sufficiency of the findings of the PSC. We conclude that this 
order does not manifest adequate findings in accordance with our prior cases, 
and that for this reason only the case must be remanded to the PSC for the 
purpose of making adequate findings or further consideration if that be 
necessary. We focus upon that portion of the order in which a rate of return on 
common equity of 14.1 percent advocated by the Staff was adopted by the PSC 
instead of the figure of 16.5 percent which was testified to by the expert for 
Mountain Fuel. The pertinent findings are:

"RATE OF 
RETURN

"33. The Commission, in 
determining the rate base elements including rate of return must rely on 
factually-based evidence as far as possible under the `used and useful' and 
`known and measurable' ratemaking concepts. The Commission has accepted 
discounted cash flow, comparable earnings, and other evaluations as a basis in 
establishing a reasonable rate of return.

"34. Mountain Fuel's rate 
of return expert, Mr. Glenn, presented a return on common equity of 16.50%, 
based on a discounted cash flow analysis, comparable earnings, debt-plus-premium 
approach, capital asset pricing model, and an Earnings/Price Ratio approach. The 
Witness determined an overall rate of return on rate base of 12.44% based on a 
test year ending December 31, 1980 in its interim 
application.

"35. The Staff's witness, 
Mr. Nowell, supported a 14.10% rate of return on common equity based on a 
discounted cash flow analysis and a comparable earnings study using 26 
comparable companies. The Staff applied Mountain Fuel's test year-end 
capitalization and historical debt costs to determine an overall rate of return 
on rate base of 11.34%.

"36. The Commission finds 
that a 14.10% rate of return on common equity and a 11.34% rate of return on 
rate base is fair and reasonable and supported by the evidence. The capital 
structure of Mountain Fuel as of December 31, 1980 is as 
follows:

"CAPITAL                  
EMBEDDED COST                         
WEIGHTED RATIO               
            
AND RETURN                                   
COMPOSITE                                                 
                        
              
COST

                                                                                    

"Long-Term Debt  42.04%                           
8.65%                         
3.64% Preferred Stock    11.95%                         
10.14%                       
1.21% 

Common Equity    46.01%                           
14.10%                       
6.49%

_______                                                                   
_______   100.00%                          
                                    
11.34%"

[¶28.]  This court previously has articulated the 
requirement that administrative agencies must make sufficiently detailed 
findings to support their finding of ultimate facts or conclusions. In Geraud v. 
Schrader, Wyo., 531 P.2d 872, 879 (1975), cert. denied sub nom. Wind River 
Indian Education Association, Inc. v. Ward, 423 U.S. 904, 96 S. Ct. 205, 46 L. Ed. 2d 134 (1975), the following language is found:

"* * * It is insufficient 
for an administrative agency to state only an ultimate fact or conclusion, but 
each ultimate fact or conclusion must be thoroughly explained in order for a 
court to determine upon what basis each ultimate fact or conclusion was reached. 
The court must know why. * * *"

Rulings to the 
same effect are found in Larsen v. Oil 
and Gas Conservation Commission, Wyo., 569 P.2d 87 (1977); State Board of Equalization v. 
Kansas-Nebraska Natural Gas Company, Wyo., 457 P.2d 963 (1969); Pan American Petroleum Corporation v. 
Wyoming Oil and Gas Conservation Commission, Wyo., 446 P.2d 550 (1968); Glenn v. Board of County Commissioners, 
Sheridan County, Wyo., 440 P.2d 1 (1968); Svilar Light and Power, Inc. v. Riverton 
Valley Electric Association, Inc., Wyo., 355 P.2d 52 (1960); and Gore v. John, 61 Wyo. 246, 157 P.2d 552 
(1945).

[¶29.]  One of the arguments presented by 
Mountain Fuel is that the PSC, in effect, adopted a "North Central" doctrine in 
connection with this rate setting because, so Mountain Fuel asserts, the PSC has 
in recent rate cases adopted the recommendation of the Staff as to the rate of 
return with only minor variations. The "North Central" doctrine is a methodology 
of reviewing of expert testimony on rate of return on common equity adopted by 
the Public Service Commission of Minnesota in In Petition of North Central 
Public Service Company, No. G-101/GP-77-221 (Minn. Pub.Serv.Comm. Dec. 30, 1977) 
which requires that the lowest recommendation within the range of reasonableness 
be accepted. This doctrine of the Minnesota Public Service Commission was 
repudiated in Hibbing Taconite Company v. 
Minnesota Public Service Commission, Minn., 302 N.W.2d 5 (1980), on the 
ground that it constituted an arbitrary delegation to the Staff of the 
Commission's duty to establish a just and reasonable rate. It is not shown that 
the Wyoming Public Service Commission has adopted or utilized a similar policy, 
and the Hibbing Taconite Company holding is not specifically applicable in the 
instant case. Mountain Fuel argues, however, that the effect of uniformly 
adopting the Staff's recommendation is that the same result 
occurs.

[¶30.]  Our difficulty with the present case is 
found in the fact that the findings of the Commission do not set forth its 
reasons for adopting the Staff position and rejecting the testimony of the 
Mountain Fuel expert. We can discern the result, but, without more, the finding 
of the PSC is subject to the interpretation adopted and urged by Mountain Fuel. 
More detail is required in order to permit this court to accomplish its assigned 
task of a meaningful judicial review. In order for us to be satisfied that the 
criticism of Mountain Fuel is not well taken it is necessary that the order of 
the PSC reflect the ways in which the testimony of the Mountain Fuel expert did 
not satisfy accepted criteria of the Commission, which it relies upon in 
arriving at a fair and reasonable rate, and in the same regard the basis for its 
conclusion that the testimony offered by its Staff accords with acceptable 
criteria should be stated. In other words, the order should reflect the reasons 
why one expert's view was chosen over the other expert's view. Failure to do so 
does subject the order of the PSC to attack as being arbitrary, capricious, and 
contrary to law. We hold that in order to permit this court to accomplish the 
judicial review which is required by law the case must be remanded to the PSC so 
that the requisite supplemental findings can be made.

[¶31.]  The order of the district court is 
affirmed in part and reversed in part with instructions that the case be 
remanded to the PSC for the entry of additional findings relating to a fair and 
reasonable rate of return in accordance with this opinion.

FOOTNOTES

1 Section 37-2-219, W.S. 
1977, provides:

"Any party in interest or 
any person or party authorized under section 37-17, Wyoming Statutes 1957 [§ 
37-2-118], to file an original complaint before the commission, may appeal from 
a final decision or other commission action or inaction, in the same manner, and 
to the same extent, as provided by the Wyoming Administrative Procedure Act [§§ 
9-4-101 to 9-4-115]."

2 The provisions of § 
37-2-130, W.S. 1977 (Cum.Supp. 1982), also apply to the appeal. This statute 
provides:

"A person, adversely 
affected or aggrieved by any action, findings, conclusions or decision of the 
public service commission is entitled to judicial review thereof according to 
the procedures established by the Wyoming Administrative Procedure Act [§§ 
9-4-101 through 9-4-115] and the Wyoming Rules of Appellate Procedure. The 
standards to be applied, to judicial review proceedings, including scope of 
review, shall be those standards established in the Wyoming Administrative 
Procedure Act."

3 Section 37-3-101, W.S. 
1977 (Cum.Supp. 1982), provides:

"All rates shall be just 
and reasonable, and all unjust and unreasonable rates are prohibited. Except as 
otherwise provided in W.S. 15-7-407, no public utility shall in any manner 
charge, demand, collect or receive from any person greater or less or different 
compensation for any service rendered or to be rendered by the public utility 
than is charged, demanded, collected or received by the public utility from any 
other person for a like and contemporaneous service under similar circumstances 
and conditions."

4 While this sale began in 
late 1979, only those revenues derived from deliveries made in 1980 were 
included by the PSC in determining the revenue for the test 
year.

5 The time period from 
which data was utilized to make the projection varied for each account from the 
use of figures from the 60 preceding months to any 12-month period in those 60 
which seemed most representative of the long-term trend to the individual 
forecaster.