# FILED
March 5, 1997 Cecil W. Crowson Ap pellate Cou rt Clerk TENNESSEE CONSUMER ADVOCATE, ) ) Plaintiff/Appellant, ) TN Regulatory Authority ) Trial No. 95-01134 ) VS. ) ) TENNESSEE REGULATORY AUTHORITY) Appeal No. AND UNITED CITIES GAS COMPANY, ) 01A01-9606-BC-00286 ) Defendant/Appellee. )

IN THE COURT OF AP PEALS OF

TENNESSEE MIDDLE SECT ION AT NASHV ILLE
APPEA L FROM TH

E DAVIDSON

COUNTY TENNESSEE PUBLIC SERVICE COMMISSION, AT NASHVILL E, TENNESSEE

Charles W. Burson Attorney Gene

ral & Reporter L. Vin cent Willia

ms Consumer Advocate Division 404 James Robertson Parkway Nashville, TN 37243-0500 ATTORNEY FOR PLAI

NTIFF/APPEL

LANT
H. E dwa rd P hi ll ip s, III Tenness ee Regulatory

Authority 460 James Robertson Parkway Nashville, TN 37243 ATTORNEY FOR DEFENDANT/APPEL LEE 

### REVERSED AN

D REMANDED

HENRY F. TODD PRESIDING

JUDGE, MIDDL

E SECTION
CONCUR: BEN H. CANTRELL , JUDGE, WILL IAM C. KOCH, JR., JUDGE-2-

TENNESSEE CONSUMER ADVOCATE, ) ) Plaintiff/Appellant, ) TN Regulatory Authority ) Trial No. 95-01134 ) VS. ) ) TENNESSEE REGULATORY AUTHORITY) Appeal No. AND UNITED CITIES GAS COMPANY, ) 01A01-9606-BC-00286 ) Defendant/Appellee. )



### O P I N I O N
The petitioner, Tennessee Consumer Advocate, has pe titioned this Court for review of administr ative de cisions of

the Tennessee Pub lic Servic es Commissio n pursuan t to T.R.A.P
. Rule 12. By orde

r entered by

this Court on October 3, 1996, the review is limited to an order entered by

the Commission on May 3, 1996. However, the c ircumstances stated hereafter require reference to an order pr

eviously entere d by the Tennessee Public Service Commission on May 12, 1995.

The Par ties. Prior to June

30, 1996, t

he Public Se

rvice Com

mission con

trolled th e charg es of publ

ic utilities in Tennessee. On June 30, 1996, the Public Service Commission was discontinued by enactment of the Leg

islature which created the Tennessee Regulatory

Commission which has been sub stituted f

or the Publ

ic Servic e Commission

in proce edings b efore t

his Court.
By T.C.A. § 65-4- 118, the Consumer Advocate Division of the Office of Attorney General and Reporter may with the approval of the Attorney General and Reporter appear before any administr

ative bod y in the inter ests of Te nnessee consumer s of public

utility service s.
United Cities Gas Company is a public utility which purchases and distributes natural gas-3-

through its pipelines to patrons in parts of Tennessee.

The Admin

istrative Proc

eedings. On January 20, 1995, United filed with the Public Utilities Commission (hereafter P.S.C.), an application for approval of a scheme of varia ble rates based upon the wholesale price of gas p urchased from sup

pliers.
P.S.C. granted leave to the Consumer Advocate to intervene.
On May 12, 1995, the P.S.C. entered a n order approving the proposed scheme on condition that an independent consultant be engag ed to review the “mechanism” and repor t to the
co mm is si on an nu al ly.
On October 31, 1995, United Gas submitted to the Commission for approval, a contract with Consulting & Systems I ntegration, providing that the work was to be pe rformed by a

Mr. Frank Creamer. Subsequently , United Gas requested that Anderson Consulting be substituted for Consulting

Syst ems beca use Mr. Cr

eamer h ad sever

ed his con

nection with Consulting Sy stems and affiliated with Anderson.
The May 3, 1996, orde

r of the Commission, which is the subject of this appeal, approved the contract with Anderson Consulting and thereby satisfied all of the conditions for activation of the rate plan conditionally a pproved in the May 12, 1995 or der.
On appeal, the Consumer Advocate presents ten issues for r eview. Only those whic

h relate to the May

3, 1996, order will be considered.
The appellant’s fourth, fifth, sixth and seventh issues are:-4- IV. The commission’s action violated statutory provisions, was asked upon unlawful procedure, was a rbitrary a nd capricious, or was clear error when it took judicial notice of a report prepared by

a consultant of UCG. V. The Consum

er Advoc ate was d

enied an opportuni

ty to be heard as to the propriety of taking judicial notice of the report. VI. The Consumer Advocate division was not notified of the material noticed and afforded an opportunity to contest and rebut the facts or material so noticed. VII. A decision of the Tennessee Public Service Commission is void or voidable when agency members receive aid from staff assistant s, and such personsreceiv ed ex part e communi cations of a t ype th at th e a dm in is tr at iv e j ud ge he ar in g o ff ic er or ag en cy members would be prohibited from receiving, and w hich furnish, augment, diminish or modify the e vidence in the record in violation of Tenn. Code Ann. § 4-5-304(b). At a hearing before the Commission on Februa ry 3, 1996, the following

occurred: Mr. Irion: We have the independe nt consultant here. Does the Commission o n wish to he ar from h im? Chairman : I think what we have ag reed to i s just summa

rize his te st im on y. Mr. Williams: He has not made any testimony , and -- Mr . Ir io n: He ha s o nl y fi le d a re po rt , a nd he is no t t ec hn ic al ly our witness or -- Mr. Williams: I think he is their witness. They chose him and paid for him. We did not have any c hoice. The Consumer Advocat e was not

given a ny c hoice in t

he matter who was going to be the witness. Chairman : The Commis sion can t ake judic ial notice

of that, th at record. That’s our record. Com. Hewle

tt: This is ou

r consult ant. Mr. Hal N ovak: Tha

t’s corr ect, sir. The Commiss ion staff chose this consultant. Chairman: We can take judicial notice of that and it can refe rred to in your arg

ument here. Mr. Williams: I would say that the Commission staff approved the consu ltant aft er the c ompany

selecte d the cons ultant.-5- Mr. Novak: That’s not true, sir. Chairman: Well, now wait a minute now, fellows. We can take judicial notice, and will take judicial notice of all our records and reports like that to the Commission and you can r efer to that in your arg

ument. Mr. Williams: What I would also like to do, Commissioner, maybe we

need to have a longer period of time. I would like to know what the staff’s position -- it was indicated that the staff had a position that the rule operated effectively, that the Co mm is si one rs h ad o bvi ous ly he ard and wer e co nsi der in g. I would like disclosure under the statute of the staff’s position on wh y th ey t hi nk th at it op er at es co rr ec tl y. Com. Hewlett: Well, that would be in my way of thinking not impossible

to get in

to the re cord, bu

t very difficul t it is most appropriate, as I unde

rstand the law, for us to discuss with our technical staff. That’s the reason that the Consumer Advocate Division was created because of the ex parte concerns of when our staff wer e parties to the case and when they are not. Our staff, as I understand it, it not a party to this case, and they

are a resource for us for

analyzing a

nything th at i s be for e th is Co mm is si on. In th is cas e th is si tu ati on. So , I think you are tr

yin g to make

a party to the ca se somebo dy t

hat is not. Mr. Williams: No, sir, what we are trying to do is get all the salient information on the record. The statute explicitly , the UAPA explicitly requires that the Commission disclose wh en it ha s a ny o f t he po si ti on pa pe rs th at ar e p re se nt ed by the staff, and the Public Records Act does not prevent the disclosure of those items either. Chair man: W e will rule o n that at the beginn ing of t he meet ing at 1:30. Mr . W il li am s: Ok ay. Chairman: Well, we will evaluate that with our legal counsel, and rule on it befo

re issuing

an order

or in the o

rder in th is manner.
The record of proceeding s clearly indica tes that the Commission considered a report of an expert despite the objections of the Consumer Advocate and his efforts to impeach the report by cross-examination of the expert. T.C.A. § 65-2-109(1) and (2), authorize the considera tion of a broad spectrum of e

vidence . Howeve

r, no authority

is cited to

empower the Commissi on to deny a protes ting par

ty a ccess to all evide nce con sidered

by t he Commissio n and oppo rtunity to-6-

impeach it by cross- examination of the origin of such evidence.

The issue of consideration of documents and/or communications is not an issue of “judicial notice” or “administrative notice,” but an issue of admissibility of evidence and procedu ral fair ness in re spect to n otice of the matte r to be co nsidere d and oppo rtunityto crossexamine, or impeach the source or contradict the evidenc e to be considered.

It is e lementar y th at adminis trative a

gencie s are pe

rmitted to consider evidenc e which, in a court o f law, would be excl uded unde

r the libe ral pra ctice of administr

ative ag encies. Almost any matter r

elevant to the pending issue may be considered, provided interested parties ar e given adequate notice of the matter to be considere d and full opportunity to interrog ate, cross-examine and impeach the source of information and to contradict the information.

No error is found in the consideration of informal forms of communica tion. However, error isfound in th

e failur e to give timely notice of the communication

with oppor

tunity to question, cross-examine and impeach the source and contra dict the information.
As illustrated by the above quota tion from the record, the Commission was unfamiliar with basic rules of fairness in an administrative hearing
.

Tenn. Code Ann. § 4-5-312(b) Procedure of hear

ing . To the extent nece ssary for full disclosure of all relevant facts and issues, the administrative judge or hearing offic er shall afford to all parties the opportuni ty to respond, present

evidenc e and ar

gument, conduct cross-examination , and submit r ebuttal evidence , as restricted by a limited grant of intervention or by the pre- hearing order. (Emphasis added.) Tenn. Code Ann. § 4-5-313(6) Parties must be notified before or during the hear ing, or before the issuance of any initial or final order that is based in whole or in part on facts or material noticed, of the specific facts or material noticed and the sourc e thereof,-7- including any

staff memoranda and data, and be af forded an opportunity to contest and rebut the f acts or material so noticed. Tenn. Code Ann. § 4-5-304(a)(b) Ex parte c ommunica

tions. (a) Unless required for the disposition of ex parte matters specifically a

uthorized by statute, an administrative judg e, hearing officer or agency membe r serving in a contested ca se pr oc ee di ng ma y no t c om mu ni ca te , d ir ec tl y or in di re ct ly, regardi ng any issu e in th e proce eding, whil e the p roceed ing is pending, with any pers on without not ice and opportunit

y for all par

ties to participat

e in the communication. (b) Notwithstanding subsection (a), an administrative judge , hearing officer or agency membe r may communicate

with agency members regarding a

matter pending before the agency or may receive aid from staff assistants, members of the staff of the attorney general and reporter , or a licensed attorney, if such perso ns do not re ceive e x parte c ommunications of a type t hat th e admi nist rativ e judge , heari ng office r or ag ency

members w ould be pr ohibited f

rom receiving, and do not furnish, augment, diminish or modify the evidence in the record . (Emphasis added.)
This Court concludes that the Commission commited a violation of basic principles of fairness in failing to afford the Consumer Advoca te reasonable access to the materials to be considered and reasonable opportunity to cross-examinate or otherwise impeach the origin of such materials..
For the foregoing r

easons, the order entered by the Public Service Commission on May 3, 1996, is reversed, vacated, and the ca use is remanded to the Tennessee Regulator y Authority

for such further proceedings and a ctions as it may deem appr opriate including a reconsideration of the subject of the May

3, 1996, order of the Public Service Commission.
Should the Regulatory A

uthority reac

h a conclusion different from that expressed in the May 3, 1996, order

of the Commission, the way may be opened for a further considera tion of the subject matter of the May 26, 1995, order, in which event the authority will be free to examine the merits of the order and the proposal dealt with therein.-8- Of particular interest and concern a re the propriety

of omitting certain income from considering “fair return,” of “rewarding” utility

for keeping its expenses at the minimum, and of utilizing the services of an expert employ ed by the utility . These issues have not been discussed in this opini on beca

use of the limitation o f the sco

pe of the appeal g ranted b y th

is Court.
Costs of this appeal are assessed against the Tenne ssee Regulatory Authority.



### REVERSED AND REMANDED.

_____________________________________ HENRY F. TODD PRESIDING

JUDGE, MIDDL

E SECTION
CONCUR:

_____________________________________ BEN H. CANTRELL , JUDGE

_____________________________________ WILL IAM C. KOCH, JR., JUDGE