Title: PETITION OF MONTANA POWER COMPANY

State: montana

Issuer: Montana Supreme Court

Document:

No. 14310 IN THE SUPREME COURT OF THE STATE OF MONTANA 1978 IN THE MATTER OF THE PETITION OF THE MONTANA POWER COMPANY FOR INCREASED RATES AND CHARGES IN GAS AND ELECTRIC SERVICES; IN DOCKET 6348, ORDER No. 4220C, DEPARTMENT OF PUBLIC SERVICE REGULATION, MONTANA PUBLIC SERVICE COMMISSION. Appeal from: District Court of the Second Judicial District, Honorable Jack L. Green, Judge presiding. Counsel of Record: For Appellant: Geoffrey Brazier argued, Helena, Montana James Paine argued, Helena, Montana For Respondent: Corette, Smith, Dean & Pohlman, Butte, Montana Kendrick Smith argued, Butte, Montana Church, Harris, Johnson and Williams, Great Falls, Montana Submitted: December 20, 1978 Decided : FE 2 : M r . ~ u s t i c e Gene B. Daly delivered the Opinion of t h e Court. he Montana Power Company (Montana Power o r MPC) f i l e d several p e t i t i o n s f o r r a t e adjustments before the Public Service Commission (Commission o r PSC) designated a s Docket Nos. 6279 and 6327. By f i n a l amended p e t i t i o n Montana Power requested Commission approval of r a t e s f o r e l e c t r i c u t i l i t y service designed t o produce an increase i n annual operating revenues of $15,650,601 and approval of r a t e s f o r natural gas service designed t o produce an increase i n annual gross operating revenues of approximately $28,800,000. A t approxi- mately the same time the Montana Consumer Counsel (Consumer Counsel) f i l e d a p e t i t i o n f o r an e l e c t r i c r a t e decrease, Docket No. 6336. These matters were consolidated f o r hearing purposes i n t o Docket No. 6348. The Commission conducted public hearings i n Helena i n t h i s docket from October 20 t o November 6, 1975; from January 1 2 t o January 23, 1976; and from February 2 t o February 13, 1976. Individual commissioners a l s o conducted public hearings i n various c i t i e s throughout the s t a t e during November and December, 1975. A t the hearings conducted i n Helena, the Commission heard t h e testimony of 54 witnesses and accepted 93 exhibits during the course of d i r e c t and cross-examination by the Commission, the Commission s t a f f , Montana Power, t h e Con- sumer Counsel and intervenors Anaconda Company, Great ~ a l l s Gas Company, Hoerner Waldorf, Ideal Cement Company and the executive agencies of the United S t a t e s government. O n July 26, 1976, Montana Power f i l e d a p e t i t i o n t o present additional testimony. This p e t i t i o n was subse- quently denied on t h e ground t h a t t h e testimony t o be pre- sented would have been i r r e l e v a n t and prejudicial a s it would have d e a l t with post-test year data. Montana Power a l s o f i l e d a motion on July 2 6 , 1976, f o r immediate temporary r a t e increases f o r its gas and e l e c t r i c services. This motion was argued before the Commission on August 1 2 , 1976. O n January 6 , 1977, the Commission issued Order No. 4220B i n which it granted MPC a temporary increase i n i t s natural gas r a t e , refused t o grant a temporary r a t e increase f o r e l e c t r i c service and denied the Consumer Coun- s e l ' s p e t i t i o n f o r an e l e c t r i c r a t e decrease. The case was submitted f o r decision t o t h e Commission on December 13, 1976. B y Order No. 4220C, dated February 23, 1977, the PSC granted Montana Power an e l e c t r i c r a t e increase of $2,069,000, much l e s s than t h e $15,650,601 sought by MPC, and a gas r a t e increase of $26,862,000. N o party has appealed any portion of the Commission's gas r a t e decision. Montana Power appealed t o t h e D i s t r i c t Court two Com- mission " r a t e base" ( t h e investment on which returns a r e allowed) determinations: t h e PSC's exclusion of $5.7 m i l - l i o n from r a t e base a s exceeding t h e o r i g i n a l c o s t of the property t o Montana Power, and the PCS's use of an average- year r a t e base, computed by dividing by two the sum of MPC's t o t a l p l a n t investment a t t h e beginning of the year and t o t a l p l a n t investment a t the end of t h e year. Montana Power a l s o appealed from a portion of the Commission order i n which t h e PSC s t a t e d t h a t it now found "questionable" an additional $15.7 million i n r a t e base which, i n 1944, the Commission had characterized a s "origi- n a l cost." Although the PSC did not exclude the question- a b l e amount from r a t e base, it did order MPC t o r e t a i n an independent accounting firm acceptable t o the commission t o undertake a determination of the o r i g i n a l c o s t of t h e prop- e r t i e s i n question. Montana Power a l s o appealed from t h e order d i r e c t i n g it t o r e t a i n t h i s accounting firm. The D i s t r i c t Court of the Second J u d i c i a l D i s t r i c t , the Honorable Jack L. Green presiding, issued findings and conclusions on February 6, 1978, and judgment on February 22, 1978. The D i s t r i c t Court affirmed the Commission a s t o its r a t e base determinations eliminating t h e $5.7 million and using an average-year r a t e base. From t h i s portion of the D i s t r i c t Court's judgment, Montana Power appeals further. A s t o t h e portion of t h e Commission's order finding $15.7 million of Montana Power's r a t e base questionable, the D i s t r i c t Court reversed the PSC on t h e ground t h a t the Commission's 1944 finding t h a t t h i s amount was o r i g i n a l c o s t could not now be questioned. The D i s t r i c t Court f u r t h e r concluded t h a t t h e order requiring Montana Power t o r e t a i n an independent accounting firm was beyond the authority of t h e Commission and constituted a confiscation of Montana Power's property. The Commission and the Consumer Counsel have appealed from these portions of the D i s t r i c t Court's j udgment . Additional f a c t s a r e presented a s they become relevant t o t h e discussion of each issue. This appeal presents f o r review the following issues: 1. Whether t h e D i s t r i c t Court correctly affirmed the Commission's elimination of $5.7 million from Montana Power's e l e c t r i c r a t e base a s being i n excess of o r i g i n a l cost. 2. Whether the D i s t r i c t Court correctly held t h a t the Commission had no authority t o consider further an item of $15.7 million i n r a t e base which had been defined a s an o r i g i n a l c o s t by the PSC i n a 1 9 4 4 decision and therefore c o r r e c t l y held t h a t t h e PSC had erroneously ordered a con- f i s c a t o r y accounting t o determine o r i g i n a l c o s t of t h i s property. 3. Whether t h e D i s t r i c t Court c o r r e c t l y affirmed t h e Commission's use of an average-year rate base and r e l a t e d property taxes, adjusted t o include a major new f a c i l i t y ( C o l s t r i p Unit I ) , r a t h e r than a year-end rate base. Before proceeding t o a discussion of t h e s p e c i f i c i s s u e s r a i s e d by t h i s appeal, w e f i n d it h e l p f u l t o make some p r e f a t o r y remarks regarding t h e r e l a t i v e r o l e s and functions of t h e Montana Public Service Commission, t h e D i s t r i c t Court and t h i s Court i n u t i l i t y r a t e cases. I n Chapter 1, T i t l e 70, Revised Codes of Montana 1947, now Chapters 1-3, T i t l e 69 MCA, t h e l e g i s l a t u r e c r e a t e d t h e Public Service Commission of Montana and delegated t o it t h e "duty . . . t o supervise and r e g u l a t e t h e operations of t h e p u b l i c u t i l i t i e s . " Section 70-101, R.C.M. 1947, now s e c t i o n 69-1-102 MCA. A s p a r t of t h e s e d u t i e s , t h e Commission i s given t h e power t o " i n v e s t i g a t e and a s c e r t a i n t h e value of t h e property of every p u b l i c u t i l i t y a c t u a l l y used and u s e f u l f o r t h e convenience of t h e public." Section 70-106, R.C.M. 1947, now s e c t i o n 69-3-109 MCA. I t is t h e proper e x e r c i s e of t h i s power t h a t forms t h e b a s i s of each of t h e i s s u e s i n t h i s appeal. A u t i l i t y d i s s a t i s f i e d with an order of t h e Commission has two s t a t u t o r y r o u t e s of appeal f o r j u d i c i a l review: Section 70-128, R.C.M. 1947, now s e c t i o n 69-3-402 MCA, and s e c t i o n 82-4216, R.C.M. 1947, now s e c t i o n s 2-4-701 through -704 MCA, of t h e Montana Administrative Procedures Act. Montana Power has chosen t h e l a t t e r of t h e s e r o u t e s . This s t a t u t e s t r i c t l y l i m i t s t h e scope of judicial review of an administrative agency decision. Under section 82-4216(1) ( a ) , now sections 2-4-701, -702 MCA, only f i n a l agency decisions i n a contested case may generally be re- viewed. Only i f review of the f i n a l decision would not provide an adequate remedy is a preliminary o r intermediate agency action o r ruling immediately reviewable. Subsection ( 7 ) , now section 2-4-704 MCA, of the same s t a t u t e further l i m i t s t h e scope of review. Under t h a t subsection a D i s t r i c t Court is not allowed t o s u b s t i t u t e its judgment f o r t h a t of the agency a s t o the weight of evidence on questions of f a c t . The court may reverse o r modify the administrative decision only i f s u b s t a n t i a l r i g h t s of the aggrieved party have been prejudiced by v i r t u e of enumerated agency violations o r e r r o r s . I n Vita-Rich Dairy, Inc. v. Department of Business Regulation (1976), 170 Mont. 341, 553 P.2d 980, we examined t h e underlying r a t i o n a l e of t h i s limited review s t a t u t e and s t a t e d three basic principles i n determining what the scope of review should be: " F i r s t . The Court recognizes t h a t limited judi- c i a l review strengthens the administrative pro- cess. Limited review encourages the f u l l and complete presentation of evidence t o the agency by t h e participants i n the administrative pro- cess by penalizing those who attempt t o add new evidence o r new l i n e s of argument a t t h e judi- c i a l review level. A de novo review encourages t h e participants t o save t h e i r evidence u n t i l it r e a l l y counts and present it f i r s t t o the reviewing court r a t h e r than t o t h e agency which has t h e knowledge and experience i n the f i e l d it regulates. The r e s u l t i s t h a t t h e agency which has t h e knowledge and experience i n i t s substantive f i e l d does not hear a l l the evidence, making it d i f f i c u l t t o make a proper decision. I t a l s o r e s u l t s i n t h e decision being made by a reviewing court which does not have t h e spe- c i a l i z e d knowledge o r experience i n t h e area. "Second. J u d i c i a l economy requires t h a t the various functions involved i n the administrative process must be divided on the basis of compara- t i v e a b i l i t i e s and qualifications of each body. Courts a r e s p e c i a l i s t s i n constitutional issues, statutory interpretation, the requirements of a f a i r hearing, and the determination t h a t a find- ing i s supported by substantial evidence. The agency i s a s p e c i a l i s t i n the substantive matter t h a t t h e l e g i s l a t u r e delegated t o it t o regulate. "Third. The agency's actions need a balancing check. In the absence of a body within the agency which i s separated from the a c t u a l decision and i n which a l l p a r t i e s have confidence, a limited j u d i c i a l inquiry t o see (a) t h a t a f a i r procedure was used, (b) t h a t questions of law were properly decided and, (c) t h a t the decision is supported by substantial evidence, is necessary." 170 Mont. a t 343-45, 553 P. 2d a t 982-83. Returning t o our discussion of the r o l e s of each p a r t i - cipating governmental e n t i t y , we note t h a t further review of an agency decision and D i s t r i c t Court f i n a l judgment may be had on appeal t o t h i s Court. Section 82-4217, R.C.M. 1947, now section 2-4-711 MCA. While t h a t section does not s p e l l o u t our scope of review of an administrative agency action, t h a t matter i s f u l l y s e t t l e d by our cases: "This court has recognized t h a t the regulatory commissions of t h i s s t a t e a r e invested with broad powers within t h e i r sphere of adminis- t r a t i o n authorized by the l e g i s l a t u r e . Tobacco River Power Co. v. Pub. Service Comm'n, 109 Mont. 521, 98 P.2d 886. Even i n quasi-judicial proceedings t h e i r informed and expert judgment receives proper consideration by the courts of t h i s s t a t e when such judgment has been reached with due consideration of c o n s t i t u t i o n a l re- s t r a i n t s . Baker Sales Barn, Inc. v. Montana Livestock Comm'n, 1 4 0 Mont. 1, 367 P.2d 775. Much t h a t i s done by these administrative agencies of t h e s t a t e , within the realm of administrative discretion, i s exempt by the l e g i s l a t u r e from supervision by t h e courts i f those r e s t r a i n t s a r e obeyed. ". . . t h i s court i s always confronted i n rate- making cases with t h e question of how f a r t h e court can go i n i n t e r f e r i n g with, o r directing t h e exercise of power, by an equal department of t h e government. W e have repeatedly held t h a t there w i l l be no interference with the orders of t h e Commission unless: " (1) they go beyond the power constitutionally given; ur, " ( 2 ) beyond t h e i r statutory power; o r " (3) they a r e based upon a mistake of law." Cascade County Consumers Ass'n v. Public Service Comm'n ( 1 9 6 4 ) , 1 4 4 Mont. 169, 185-86, 192, 394 P.2d 856, 865, 868. and "Even i f we were so disposed by our personal views, we cannot s u b s t i t u t e our d i s c r e t i o n f o r t h a t of the board unless we can say c l e a r l y t h a t t h e order i s unreasonable." Chicago, M., S t . P. & P. R. Co. v. Board of Railroad Commissioners (1953), 126 Mont. 568, 575, 255 P.2d 346, 351. W e too a r e constrained i n our review of agency actions by t h e principles enunciated i n Vita-Rich Dairy, Inc. I n addition, the findings of a D i s t r i c t Court come t o us with a presumption of correctness: II 1 . . . W e have consistently held under such circumstances t h a t t h i s Court cannot s u b s t i t u t e i t s weighing of the evidence f o r t h a t of the t r i a l court. When there is a c o n f l i c t i n the evidence, t h e findings of t h e t r i a l court a r e presumed t o be correct i f supported by substan- t i a l evidence.' Sedlacek v. Ahrens (1974), 165 Mont. 479, 485, 530 P.2d 424. "We have a l s o held t h a t the findings of the t r i a l court, i n a nonjury t r i a l , w i l l not be reversed on appeal, unless there i s a c l e a r pre- ponderance of evidence against the findings." Montana Farm Service Co. v. Marquart (1978), Mont. , 578 P.2d 315, 316, 35 St.Rep. - 631, 633. With these principles i n mind, we now proceed t o an analysis of each s p e c i f i c issue. The elimination of -- $5.7 million --- from r a t e base. The Commission eliminated from Montana Power's r a t e base $5.939 million on t h e ground t h a t the amount, by d e f i n i t i o n of t h e accounts, represented an investment i n excess of o r i g i n a l cost. The Commission did allow Montana Power t o recover t h i s amount i t s e l f , without any return, through amortization over a twenty-year period. The excluded $5.939 m i l l i o n includes $5.787 m i l l i o n f o r p l a n t a c q u i s i t i o n adjustments t h a t exceed t h e o r i g i n a l c o s t of t h e properties. The $5.787 m i l l i o n was t h e remainder i n an account i n e l e c t r i c rate base approved by t h e Commission i n 1944 with t h e s p e c i f i c r u l i n g t h a t t h i s amount should remain i n t h e account " f o r as long as t h e land r i g h t s in- volved a r e used by t h e company and continue t o have value." R e The Montana Power Company (1944), 56 P.U.R. (N.S.) 193, 228-29. This r u l i n g w a s expressly approved by t h e Commis- s i o n i n 1958 a s c o n s t i t u t i n g a p a r t of t h e r a t e base f o r t h e purpose of determining rates, I n re The Montana Power Com- pany (1958), 24 P.U.R.3d 321, and w a s n o t questioned u n t i l t h e Commission and t h e Consumer Counsel responded t o t h e p e t i t i o n of t h e Montana Power Company i n 1975. The balance of t h e $5.939 m i l l i o n i s a $151,889 f e e paid t o an a f f i l i a t e which had been found u n j u s t i f i e d long ago by both t h e PSC and FPC. Montana Power appeals only t h e exclusion of t h e $5.7 million. On t h e treatment of t h i s i t e m t h e D i s t r i c t Court agreed with t h e Commission t h a t t h i s amount should be eliminated from t h e rate base. I n t h e words of t h e D i s t r i c t Court: "This amount is properly eliminated from rate base because by d e f i n i t i o n of t h e accounts [ i n which t h i s item w a s re- corded] t h i s amount represents an investment which exceeds ' o r i g i n a l cost. ' " I n i t s reply b r i e f t o t h i s Court, Montana Power con- cedes t h a t i n 1944 t h e Commission determined t h a t t h e amounts w e r e i n excess of o r i g i n a l c o s t s and does n o t now c o n t e s t t h a t determination: "While we do n o t agree with Judge Green's d e c i s i o n a s t o t h e $5.7 m i l l i o n i s s u e , t h a t was an instance where t h e determination was one of a c q u i s i t i o n adjustment, meaning an amount i n a d d i t i o n t o o r exceeding o r i g i n a l cost." Section 70-106, R.C.M. 1947, now s e c t i o n 69-3-109 MCA, empowers t h e Commission t o value t h e p r o p e r t i e s of u t i l i t i e s . This s t a t u t e was amended i n 1975 and now reads a s follows with t h e amendment emphasized: "The commission may, i n its d i s c r e t i o n , inves- t i g a t e and a s c e r t a i n t h e value of t h e property of every public u t i l i t y a c t u a l l y used and-use; f u l f o r t h e convenience of t h e public. The - commission i s n o t bound t o accept o r use any -- -- a r t i c u l a r value i n determining rates, provided !hat i f v a l u e T s used, such value m x n o t -- -- - exceed t h e o r i g i n a l c o s t of t h e property. I n --- making such i n v e s t i g a t i o n t h e commission may a v a i l i t s e l f of a l l information contained i n t h e assessment rolls of various counties, and t h e public records of t h e various branches of t h e state government, o r any o t h e r information obtainable, and t h e commission may a t any t i m e of i t s own i n i t i a t i v e make a revaluation of such property. " This s t a t u t e is d i s p o s i t i v e of t h i s i s s u e . Under it, t h e Commission is obligated t o eliminate from r a t e base a l l u t i l i t y c o s t s i n excess of o r i g i n a l c o s t . The $5.7 m i l l i o n was found long ago t o be i n excess of o r i g i n a l c o s t and i s t h e r e f o r e properly eliminated. Montana Power's arguments a g a i n s t elimination of t h i s i t e m on t h e b a s i s of res judicata and c o l l a t e r a l estoppel are inapposite where an intervening s t a t u t o r y amendment completely changes t h e b a s i s on which valuation of u t i l i t y property i s t o be made. See, e.g., S t a t e ex rel. Lockwood v. Tyler (19221, 64 Mont. 124, 142, 208 P. 1081, 1088; I n re Pomeroy (1915), 51 Mont. 119, 151 P. 333; S t a t e Farm Mutual Automobile Insurance Co. v. Duel (1945), 324 U.S. 154, 162, 65 S.Ct. 573, 577, 89 L.ed. 812, 819, c i t i n g Pomeroy and o t h e r cases f o r t h e "general r u l e t h a t r e s judicata i s no defense where between t h e t i m e of t h e f i r s t judgment and t h e second t h e r e has been an intervening decision o r a change i n t h e law c r e a t i n g an a l t e r e d s i t u a t i o n . " Further, t h e Commission has always had the power t o make a revaluation of such property. Section 70-106, R.C.M. 1947, now section 69- 3-109 MCA. The judgment of the D i s t r i c t Court on t h i s i s s u e is affirmed. The consideration of t h e guestionable $15.7 million and -- t h e order t o r e t a i n an independent accounting firm. O n - - t h i s i s s u e t h e D i s t r i c t Court and the Commission disagreed. This disagreement a s well a s a summary of the relevant f a c t s i s recorded i n Point No. 2 of the ~ i s t r i c t Court's findings of f a c t : "On t h i s Point No. 2 the Court f i n d s , con- cludes, orders and adjudges a s follows: "For convenience 'Finding of Fact 43' of Order No. 4220C i s hereby quoted i n i t s e n t i r e t y : "'43. Witness Hess urged the Commission t o eliminate an additional $15,722,000 of e l e c t r i c r a t e base ( T r . 2751-2752) . After t h e elimination of acquisition adjustments discussed i n Finding No. 42, t h i s is the amount by which Applicant's e l e c t r i c r a t e base s t i l l exceeds the o r i g i n a l c o s t deter- mination of the Federal Power Commission i n Re t h e Montana Power Co., 4 F.P.C. 213, 57 -- P.U.R. (n.s.) 143 (1945). Because of the questionable nature of the adoption by the Montana Commission i n i t s 1944 opinion of t h e concept "commercial value" ( T r . 2751) , inclusion of t h i s amount i n an o r i g i n a l c o s t depreciated r a t e base remains a matter of continuing concern. However, because t h e record i n t h i s docket is very limited on t h i s point, t h e Commission declines t o eliminate t h e difference. To deal with the problem i n f u t u r e proceedings, the Commis- sion d i r e c t s Applicant t o take the action contained i n Order paragraph 4 . ' "And Order No. 4 of the PSC i s hereby quoted i n i t s entirety: " ' 4 . Applicant is ordered t o immediately take steps t o r e t a i n an independent accounting firm acceptable t o t h i s Commission f o r t h e purpose of undertaking a determination of t h e o r i g i n a l c o s t of Applicant's hydroelec- t r i c properties when f i r s t devoted t o public use. ' "The Court f i n d s t h a t t h e r e was no b a s i s i n t h e f a c t s before t h e PSC t o j u s t i f y t h e s a i d 'Find- i n g of Fact 43' of Order No. 4220C. "The Court f i n d s t h a t t h e r e is no b a s i s i n law and t h e r e i s no b a s i s i n f a c t f o r any considera- t i o n of t h e o r i g i n a l c o s t determination of t h e FPC i n 1945. The Court f i n d s t h a t t h e term 'commercial value' was used by t h e PSC i n i t s 1944 d e c i s i o n b u t t h a t t h e PSC found t h a t t h e items, now amounting t o $15.722 m i l l i o n , w e r e a l l a p a r t of o r i g i n a l c o s t and w e r e placed i n t o p l a n t account, being Account No. 100.1, E l e c t r i c P l a n t i n Service. R e - The Montana Power Company 56 P.U.R. (n.s.) 193, 200, 202, 209-211 and 238 (Account 100.1, 320) (Mont. PSC 1944). N o one, including t h e p r e s e n t PSC, can question t h e s e clear f i n d i n g s and conclu- s i o n s by t h e PSC i n 1944. "The Court f i n d s t h a t t h e r e w a s no b a s i s i n l a w o r i n f a c t f o r t h e PSC i n s a i d 'Finding of F a c t 43' t o consider, o r f o r continuing concern about t h i s amount of money i n an o r i g i n a l c o s t de- p r e c i a t e d rate base. "The Court f i n d s t h a t t h e PSC w a s required t o and d i d d e c l i n e t o e l i m i n a t e t h i s i t e m of $15.7 m i l l i o n of e l e c t r i c rate base. "The Court f i n d s t h a t t h e r e w a s no b a s i s i n f a c t o r law which would j u s t i f y t h e PSC i n adopting s a i d Order No. 4; and t h e Court f i n d s t h a t t h i s Order No. 4 w a s c a p r i c i o u s and would impose upon Montana Power a n estimated c o s t a t a minimum of over $300r000 and any determination by an indepen- d e n t accountant would n o t be binding upon any- one. " The D i s t r i c t Court concluded: "4. The Court concludes t h a t t h e r e w e r e no f a c t s upon which t h e PSC could challenge o r con- s i d e r questionable t h i s $15.722 m i l l i o n i n elec- tric rate base. "The Court concludes t h a t t h e requirements i n Order No. 4 are beyond t h e j u r i s d i c t i o n of t h e PSC and would c o n s t i t u t e a c l e a r c o n f i s c a t i o n of $300,000 o r more of t h e property of Montana Power." A s t h e m a t t e r developed i n t h e earlier proceedings, t h i s i s s u e was found t o contain two subissues which w e r e handled s e p a r a t e l y by t h e D i s t r i c t Court: ( a ) t h e statement by t h e Commission of i t s "continuing concern" over t h i s $15.7 m i l l i o n , and (b) t h e order by t h e Commission t h a t M P C had t o r e t a i n a n independent accounting f i r m acceptable t o t h e Commission t o determine the o r i g i n a l c o s t of the prop- e r t y i n question. For convenience, we a l s o w i l l consider t h e i t e m s separately. I n i t i a l l y , Montana Power argues t h a t , by v i r t u e of a post-judgment motion by Consumer Counsel and supported by a brief by the Commission, these two agencies have conceded t h a t the Commission's statement of continuing concern and order of an independent a u d i t were improper and unlawful and therefore, no r e a l i s s u e a s t o these matters e x i s t on t h i s appeal. W e disagree. The motion by Consumer Counsel would have altered t h e D i s t r i c t Court judgment t o read (with the a l t e r a t i o n s empha- sized) : "Based upon - t h e f a c t s before -- t h e PSC, the Court finds t h a t t h e PSC was required t o and did de- c l i n e t o eliminate t h i s item of $15.7 million of e l e c t r i c r a t e base. "Based upon -- t h e foregoing, the Court f i n d s t h a t t h e r e was -- no b a s i s -- i n f a c t which would j u s t i f y t h e PSC i n adopting said Order No. 4. Thus, --- - - s a i d Order No. - - - 4 is a r b i t r a r y - and capricious. " ' 4 . ' of - Conclusions of -- Law - t o read: " ' 4 . - The Court concludes t h a t there were -- no f a c t s upon which -- t h e PSC could challenge o r con- -- s i d e r questionable t h i s $15.722 million - i n - - e l e c t r i c r a t e base. -- "'On account of ----- t h e lack of a f a c t u a l basis, - the Court concludes t h a t t h e requirements - i n Order No. 4 were unlawful.'" - - - This motion was not granted, therefore Consumer Coun- s e l ' s position was not adopted by the D i s t r i c t Court. More important t o our conclusion is t h e reason s t a t e d by Consumer Counsel f o r advancing t h i s motion: "Consumer Counsel advances t h i s Motion so t h a t the above-mentioned Findings and Conclusions w i l l not be given an interpretation which c o n f l i c t s with the c l e a r language i n the remainder of the Court's Findings, Conclusions and Judgement provisions." Thus, t h e motion w a s n o t designed s o much t o concede t h e impropriety of t h a t p a r t of t h e D i s t r i c t Court's judgment concerning t h e questionable $15.7 m i l l i o n as it w a s intended t o strengthen t h a t p a r t of t h e D i s t r i c t Court judgment r e l a t i n g t o t h e exclusion of t h e $5.7 m i l l i o n by removing any p o s s i b i l i t y of an i n c o n s i s t e n t i n t e r p r e t a t i o n of t h e judgment a s a whole. When t h e motion w a s denied, Consumer Counsel was f r e e t o attempt t h e a l t e r n a t i v e means of re- moving what it perceived t o be an apparent inconsistency i n t h i s order by obtaining a complete r e v e r s a l of t h e p a r t of t h e judgment r e l a t i n g t o consideration of t h e $15.7 million. A s t o t h e conclusion of t h e t h e D i s t r i c t Court " t h a t t h e r e were no f a c t s upon which t h e PSC could challenge o r consider questionable t h i s $15.722 m i l l i o n i n e l e c t r i c r a t e base", w e conclude t h a t t h i s was an improper, premature i n t r u s i o n by t h e D i s t r i c t Court i n t o t h e administrative process and therefore reverse. The expression by t h e Commission of i t s continuing concern over t h i s $15.7 m i l l i o n possibly i n excess of orig- i n a l c o s t is not a f i n a l decision by t h e Commission; nor does it q u a l i f y as a preliminary r u l i n g f o r which review of any f i n a l order would not be adequate. A t best t h i s has created a nonissue. I f i n t h e f u t u r e , a f t e r a proper hearing, an adverse f i n a l order be issued on t h e matter, j u d i c i a l review would be i n order. Montana Power has suffered no l o s s on t h i s matter and i n f a c t may never s u f f e r any loss. Montana Power recognized t h i s prematurity i n i t s r e p l y b r i e f t o t h e D i s t r i c t Court: "vhp nnlv relevance of a l l of t h e discussion of * **- ---- - - - - - -.-- - - ---- - t h e $15.7 m i l l i o n -- is i n connection with -- t h e r i g h t o r a u t h o r i t y of -- t h e Commission t o order ~ o n t a n a ~ o w e r t o r e t a i n an independentaccoun- t a n t . " ( ~ m ~ h a s i s i n o r i g i n a l . ) And i n its reply brief t o t h i s Court, M P C stated: "In declining t o a c t now, t h e PSC has c l e a r l y --- given an indication of what it w i l l do i n future proceedings; and t o t h a t end, the PSC has ordered MPC t o h i r e independent accountants." (Emphasis added. ) A s we have noted, the Public Service Commission is empowered t o "investigate and ascertain the value of t h e property of every public u t i l i t y . " Section 70-106, R.C.M. 1 9 4 7 , now section 69-3-109 MCA. Under the same s t a t u t e , a s it has read from the time of its f i r s t enactment i n 1913, "the commission may a t any time of i t s own i n i t i a t i v e make a revaluation of such property." I n its use of the t e r m "revaluation" t h e l e g i s l a t u r e c l e a r l y contemplated t h e p o s s i b i l i t y t h a t l a t e r Public Service Commissions, under appropriate circumstances, may modify o r a l t e r t h e property valuations made by e a r l i e r commissions. Administrative p o l i c i e s change, compelled by changing s o c i a l o r economic conditions or by changing s t a t u t o r y guidelines. In 1975, by i t s amendment t o section 70-106, now section 69-3-109 MCA, the l e g i s l a t u r e changed one of the basic principles upon which u t i l i t y r a t e bases had been calculated i n Montana. Before 1975 u t i l i t y r a t e bases were calculated on the basis of the reproduction c o s t new o r commercial value of u t i l i t y plants, of which o r i g i n a l c o s t was only one f a c t o r t o be considered. See, e.g., Re The Montana Power Company, 56 P.U.R. (N.S.) a t 200, 204; S t a t e ex r e l . Olsen v. Public Service Commission (1957), 131 Mont. 272, 276-77, 309 P.2d 1035, 1038; Tobacco River Power Co. v. Public Service Commission (1940), 109 Mont. 521, 529-30; 98 P.2d 886, 890. From 1975 forward, however, t h e legis- l a t u r e transformed o r i g i n a l c o s t i n t o the factor t o be considered i n r a t e base calculation; from 1975 forward, u t i l i t y plants could not be valued i n excess of o r i g i n a l cost. Section 70-106, R.C.M. 1947, now section 69-3-109 MCA. The determination of o r i g i n a l cost, therefore, has a new importance i n t h e s e t t i n g of u t i l i t y r a t e s . W e now proceed t o the question of the Commission's authority i n ordering Montana Power t o r e t a i n an acceptable, independent accounting firm t o investigate t h e o r i g i n a l c o s t s of the $15.7 million properties. Unlike the statement of continuing concern, t h i s i s a f i n a l order by t h e Commis- sion which does impose an obligation on Montana Power and i s therefore reviewable under section 82-4216(1)(a), now sec- t i o n 2-4-702 MCA. National Van Lines, Inc. v. United S t a t e s (7th C i r . 1964), 326 F.2d 362, 372. The D i s t r i c t Court concluded t h a t the order of the Commission t h a t Montana Power r e t a i n the accounting firm was "beyond t h e jurisdiction of the PSC and would c o n s t i t u t e a c l e a r confiscation of $300,000 o r more [as the estimated c o s t of t h e accounting] of the property of Montana Power." W e agree with the D i s t r i c t Court and hold t h a t the Commis- sion lacks t h e r e q u i s i t e s t a t u t o r y authority t o compel Montana Power t o h i r e an independent accounting firm accept- able t o t h e Commission f o r the purpose of determining the o r i g i n a l c o s t s of t h e disputed properties. City of Polson v. Public Service Comm'n (1970), 155 Mont. 464, 4 6 9 , 473 P.2d 508, 511. The power of the Commission under section 70-106, now section 69-3-109 MCA, t o "investigate and ascertain" the value of u t i l i t y property has been discussed above. he means and authority by which the Commission is t o conduct i t s i n v e s t i g a t i o n i s i n d i c a t e d i n s e v e r a l s t a t u t e s . ~ . g . , s e c t i o n s 70-106, -107, -108, -117, R.C.M. 1947, now s e c t i o n s 69-3-109, 69-3-202, 69-3-203, 69-3-106 MCA. The Commission a s s e r t s t h e s e s t a t u t e s g i v e it t h e necessary a u t h o r i t y t o compel an independent a u d i t . W e do n o t read t h e a u t h o r i t y granted t h e r e i n s o broadly. I n s t e a d , it i s c l e a r from t h e s t a t u t e s t h a t t h e Commission i s em- powered only t o r e q u e s t d e s i r e d information from a u t i l i t y , n o t t o d i r e c t t h e means by which such information is t o be gathered. Under such a u t h o r i t y , t h e Commission is c l e a r l y empowered t o r e q u e s t and o b t a i n from Montana Power account- i n g information on t h e o r i g i n a l c o s t s of disputed p r o p e r t i e s , b u t it is up t o Montana Power t o decide how t o go about c o l l e c t i n g t h i s information. The Commission argues t h a t , i f Montana Power conducts t h e a u d i t i t s e l f , t h e r e s u l t s "would be t a i n t e d by suspi- c i o n s of s e l f - i n t e r e s t . " This argument could be applied t o any information supplied by any u t i l i t y t o t h e i om mission. Y e t from t h e above-noted s t a t u t e s , it is c l e a r t h a t t h e primary source of information about u t i l i t y operation is t h e u t i l i t y i t s e l f . E.g., s e c t i o n s 70-107, -108, R.C.M. 1947, now s e c t i o n s 69-3-202, -203 MCA. The Commission, of course, i s always f r e e t o weigh any such information a g a i n s t any information t o t h e c o n t r a r y presented by o t h e r agencies o r its own s t a f f . For t h e foregoing reasons, t h e judgment of t h e D i s t r i c t Court t h a t t h e Commission cannot question t h e i n c l u s i o n of t h e $15.7 m i l l i o n i n Montana Power's r a t e base is reversed. The judgment of t h e D i s t r i c t Court t h a t t h e Commission l a c k s a u t h o r i t y t o compel an independent a u d i t is affirmed. The U s e of Average-Year Rate Base. O n t h i s item, t h e --- -- D i s t r i c t Court and t h e Commission agreed. The findings of t h e D i s t r i c t Court a r e again helpful: "The Commission calculated Montana Power's revenues on t h e b a s i s of the average r a t e base f o r t h e test year and included only one-half the test year property taxes t o be consistent with average r a t e base. Findings 4 4 and 58A. The ' r a t e base' includes a u t i l i t y ' s unrecovered investment, upon which t h e u t i l i t y i s e n t i t l e d t o earn a r e t u r n from its customers. (The revenue requirement a l s o covers expenses such a s taxes, depreciation, f u e l , wages, etc. ) The value of t h e average r a t e base i s t h a t it matches the revenues and expenses occurring during t h e test year. The required matching of annual revenues and expenses with average r a t e base follows t h e same p r i n c i p l e as calculating annual i n t e r e s t charges on the aver- age amount of debt outstanding during t h e year, n o t t h e year-end l e v e l of debt. The Commission's decision i s supported by the record evidence and by authority and i s therefore affirmed. " I n the record, Consumer Counsel witness H e s s recommended t h a t Montana Power's test-year r a t e base be calculated according t o t h e average Montana Power investment i n electric service f a c i - l i t i e s and r e l a t e d f a c i l i t i e s during t h e months of 1975, adjusted t o include t h e investment [ i n ] t h e C o l s t r i p I generating u n i t from t h e beginning of the year 1975 with r e l a t e d revenue and expense adjustments. H e t e s t i f i e d t h a t t h e p r i n c i p a l reason f o r using an average r a t e base, r a t h e r than a year-end r a t e base, is t h a t an average r a t e base matches t h e revenues received and ex- penses incurred during t h e course of t h e t e s t year ( T r . 2742-4). While other s t a t e s do some- t i m e s u t i l i z e t h e year-end base, P e t i t i o n e r has f a i l e d t o e s t a b l i s h t h a t the Commission erred i n not using t h e year-end r a t e i n t h i s case. "Inevitably t h e r a t e s set by regulatory commissions may prove too low o r too high. How- ever, a commission must decide a case on the b a s i s of t h e record before it. I n t h i s case, the Com- mission acted within reason and on t h e b a s i s of t h e evidence i n deciding t h a t Montana Power had not c a r r i e d i t s burden of proof t o j u s t i f y a year- end base. " One f u r t h e r f a c t warrants mentioning. The average-year r a t e base adopted by t h e Commission and adjusted t o include C o l s t r i p I f o r t h e e n t i r e year includes nearly 90 percent of Montana Power's increased investment f o r t h e year. O f Montana Power's claimed increase i n p l a n t investment over t h e year of $92.5 million, a l l but $8.8 million was allowed i n r a t e base by the Commission. O n t h i s issue, the principles of Vita-Rich Dairy Inc. regarding agency expertise and our comments concerning the scope of review become most important. From the b r i e f s submitted and the cases c i t e d by both sides, it appears t h a t both the year-end r a t e base urged by Montana Power and the average-year r a t e base adopted by the Commission may be c o r r e c t and proper methods f o r valuing u t i l i t y property under c e r t a i n circumstances. The Commission i t s e l f has used both methods i n recent years. Cf. Montana-Dakota U t i l i t i e s Company (1959), 28 P.U.R.3d 355 (year-average, o r i g i n a l c o s t r a t e base) with Montana Power Co. (1962), 42 P.U.R.3d 2 4 1 (year-end f a i r value r a t e base.) I t is i n t e r e s t i n g t o note t h a t i n a very recent case involving Montana Power, the Commission adopted an average r a t e base. Commission Order No. 4350D, Docket No. 6454, Service Date 4-25-78, Applica- t i o n of Montana Power Company. Apparently, Montana Power has not contested t h e Commission's employment of average r a t e base i n t h i s more recent case. A federal administrative law judge analyzed t h e various issues i n the case of Union E l e c t r i c Co. ( 1 9 7 2 ) , 47 FPC 1 4 4 , 176, a f f ' d 47 FPC a t 151: "The t e s t year concept requires t h a t revenues, expenses and investment be synchronized--that they r e l a t e t o the same period. When revenues f o r t h e e n t i r e t e s t year a r e used, t h e corre- sponding r a t e base i s t h e average f o r t h e year. This is the usual practice. E.g., United Fuel Gas Company, 1 2 F.P.C. 251, 256 (1953). "Union wants t o use the year-end r a t e base, which i s larger than the t e s t year average be- cause of successive plant additions made over t h e year. It does not want t o include a s a cor- responding adjustment the additional revenues and expenses associated with t h e l a r g e r invest- ment. Union's proposal produces a d i s t o r t i o n i n t h e t e s t year r e s u l t s , and i s t h e r e f o r e ob- j ectionable. "Union's reason i s t h a t because of regulatory l a g during t h e period of r i s i n g c o s t s it needs e x t r a money. I f regulatory l a g reduces r e t u r n below a f a i r amount, t h i s should be d e a l t with as a s e p a r a t e problem. Moreoever, Union shows no s p e c i f i c r e l a t i o n s h i p between any inadequacy due t o regulatory l a g and t h e e x t r a amount t h a t would be derived from t h e use of a year-end r a t e base. "The Commission has on occasion used a year-end rate base where t h e p a r t i c u l a r f a c t s warranted. O t t e r T a i l Power Company, 8 F.P.C. 393, 401 (1949); United Gas Pipe Line Company, 31 F.P.C. 1180, 1194 (1964). But Union has not shown t h a t t h i s tech- nique i s necessary t o i n s u r e it a f a i r r e t u r n i n t h i s proceeding." During t h e proceedings before t h e Commission, it was brought o u t t h a t when a year-end r a t e base is adopted, proper regulatory p r i n c i p l e s requires a concomitant r e c a l - c u l a t i o n of revenues and expenses s o a s t o match income and expenses with t h e increased r a t e base. I n t h i s case, Montana Power f a i l e d , o r refused, t o o f f e r t h e necessary adjustments. Montana Power's complaints concerning i n f l a t i o n and regulatory l a g a s j u s t i f i c a t i o n f o r a year-end rate base a r e n o t convincing. A s noted by commissions i n o t h e r states: "That i n f l a t i o n , a t t r i t i o n and regulatory l a g may e x i s t does n o t mandate t h e Commission's use of a terminal [period end] r a t e base t o r e s o l v e t h e s e problems." Maryland Pub. Service Commission v. Baltimore Gas 61 E. Co., (1974), 273 Md. 357, 329 A. 2d 691, 698. "While a few commissions a r e finding it popular today t o use year-end r a t e bases and v a r i a t i o n s thereof, t h i s commission has s t e a d f a s t l y continued t o i n s i s t t h a t t h e problems of i n f l a t i o n and at- t r i t i o n , such as they a r e , are more properly t h e concern of r a t e of r e t u r n . A r t i f i c i a l and mechan- i c a l adjustments t o r a t e base usurp t h e function of r a t e of r e t u r n and can only be misleading t o a l l concerned." R e Niagara Mohawk Power Corp., (N.Y. 1960), 35 P.U.R.3d 149, 158. What the issue b o i l s down t o i s t h i s : t h e Co-ission adopted an e n t i r e l y c o r r e c t and proper method of valuation which the D i s t r i c t Court affirmed. Montana Power on appeal urges us t o adopt a d i f f e r e n t , a l b e i t c o r r e c t and proper, method of valuation but has f a i l e d t o make the normal adjustments t o revenues and expenses t o r e f l e c t t h e year-end investment. In the absence of any evidence t h a t the Commis- sion acted unlawfully or disregarded recognized regulatory procedures and practices, we a r e bound by our limited scope of review t o affirm the D i s t r i c t Court. This reasoning and conclusion applies a l s o t o the r e l a t e d treatment of Montana Power's taxes f o r 1975. In summary the judgment of the D i s t r i c t Court t h a t the Commission properly excluded $5.7 million from Montana Power's r a t e base and properly adopted an average-year r a t e base is affirmed. The judgment of the D i s t r i c t Court t h a t the Commission could not a t any time i n the f u t u r e consider o r challenge an additional $15.7 million of Montana Power's r a t e base i s reversed. The judgment of the D i s t r i c t Court t h a t the Commission lacks authority t o order Montana Power t o h i r e an acceptable, independent accounting firm t o deter- mine the o r i g i n a l c o s t of c e r t a i n Montana Power properties i s affirmed. * ' J u s t i c e W e concur: 7 4 / ' --9? Chief J u s t i c e . J u s t i c e Daniel J. Shea, deeming himself disqualified, did not s i t i n t h i s case.