DA 20 - 0570



### IN THE SUPREME COURT OF THE STATE OF MONTANA 20 2 1 MT 186N JAMES T. GRUBA , E LIZABETH A . GRUBA, LEO G. B ARSANTI and JEANNE R. BARSANTI,

Petitioners and Appellants, v. MONTANA PUBLIC SERVICE COMMISSI ON , and NORTHWE STERN CORPORATION d/b/a NORTHWESTERN ENERGY ,

Respondents and Appellees. APP EAL FROM: Di strict Court of the Fi rst Judicial District , In and For the County

of Lewis and Clark , Cause No. DDV - 2019 - 391 Honorable James P. Rey

no ld s , Presiding Judge COUNSEL OF RECORD :

For Appellant s : Russell L. Doty, Attorney at Law, Greeley, Colorado For Appellee s : Zachary Taylor Rogala, Luke Casey, Montana Public Service Commi ssion , Helena, Montana Sarah Norcott, No rthWestern Energ y, Helena, Montana Submitted on Briefs: June 30, 2021

Decided: July 27, 2021 Filed:

_________ _________________________________

Clerk 

# sr---6ma•—•f 07/27/2021

Case Number: DA 20-05702

Justice Laurie McKinnon delivered the Opinion of the Court. ¶1 Purs uant to Section I, Paragraph 3(c ), Montana S upreme Court Internal Ope rating Rules, this case is d ecided by me morandum opinion and shall not be cited and does not serve as precedent . Its case title, cause number, and disposition shall b e inc luded in this Court’s quarterly list of noncitable case s published in the Pacific Reporter and Montana Reports. ¶2 James and Elizab eth Grub a and Leo and Jeanne Barsanti (Gruba and Barsanti) appeal an order from the First Judicial District Court, Lewis and C l ark County , holding the Public Service Commission ’ s ( Commiss ion) findings and conclusions in final order 7084 aa w ere supported by substantial evidence ; that NorthW est ern Energy (NorthW estern) did not recover revenue s in excess of its investment ; that Admin . R. M. 38.5.106 (1977) does not apply to Gruba and Bar s anti ’ s matter ; and the Commission ’ s use of an internal staff memorand um and d ecision to limit the scope of the complaint did not violate Gruba and Barsanti ’ s due process rights. We affirm. ¶3 This matter began in 20 10 when Paul Williamson, Vern Klingman, Patri cia Klingman , and Russel l Doty (collectively “ original parties ” ) fi led a c o mplaint with the Commission regarding the Commission ’ s approval of NorthW estern ’ s stree t lighting rates in Billings, Montana. The Commission dismissed the case for lack of standing . The original parties filed for judicial review in the Thirt e enth Judic ial District Court , Y ellowstone County , which affirmed the C ommission ’ s dismissal. The original parties then appealed to this Court , which concluded the original parties should be al lo wed to fil e an amended petition to addres s lack of standing ; howe ver, they were not3

enti tled to costs or a rate reduction because they had not exhaust ed their administrative remedies. Williamson v. Mont. Pub. Serv. Comm ’n , 2012 MT 32, 364 Mont. 128, 2 72 P.3d 7 1 ( W

i lliamson I

) (affirming the district court ’ s decisio n an d remanding the matter to the Commissio n to consider an amended complaint) ; Williamso n v. Mo nt. Pub. Serv. Comm ’n , 2012 MT 299 , 367 Mont. 379 , 291 P.3d 1116 ( Williamson II ) (affirming the district court ’ s denial of both attorney fee s and initiating an imme diate rate reduction) . ¶4 In 2014, Gruba and Barsanti, and others , f iled an amended complaint before the Commission in which they argue d numerous issues , including “ global warming, energy in dependence, LED lighting technology, the ownership charge in th e NW E street lighting tariff, roadway safety, and the continued bleaching of the Great Barrier Reef in Australia. ” In 2015, the Commission narrowed the scope of the amended com plaint to addres s solely the ownership charge for street li ghting and denied Gr uba and Bar santi ’ s class certification . F ollowing the d enial of class certification , Gruba and Barsanti sought judicial review with the First Judicial Distric t Court . Th e Commission filed a motion to dis miss , whi ch wa s granted b y the district c ourt. Gruba and B arsanti appealed to this C o urt , which affirmed the district court ’ s decision in a no ncit able me moran dum opinion. Gruba v. Mont. Pub. Serv. Com m ’n , DA 15 - 0736, 2016 MT 131N, 2016 Mont . LEXIS 462 (a ffirming the district court ’ s d ecision to dismiss Gruba and Bar santi ’ s petition before the Co mmission and d eny ing their interlocutory review of the Commission ’ s actions unde r § 2 - 4 - 701, MC A) . ¶5 Gruba and Barsanti filed additional motions alleging they were o verpaying for street lightin g f

acilities , that the Comm ission allowed NorthW estern to collect more than4

the original costs of its investments , and that the ownership charge was unreasonab le and unjustly disc riminatory . In February 2019, the Co mmission , in final orde r 7084aa, conclud ed that NorthWestern ’ s s ervice classifications regarding a street lighting tariff, Electric Lighting D elivery Service ( ELDS - 1 ) , were not unjustly discri minatory or pre ferential in vio lation of § § 69 - 3 - 306(1 ), - 321( 1) , and - 330(1 ), MCA. The Commission dete rmined the rate design em pl oyed by NorthWe stern had been utili zed for decades by regulators across the country and it would be administratively b urdensome and costly to set rates by individual district . The C o mmis si on also conc luded that as of 2017 , NorthWes t ern ’ s account had $ 29,5 95,351.77 in original street lighting infrastructure costs , while the accumulated depreciation for stre et lighting equ aled $ 16, 861,718.33; the net original infrastru cture costs ( $29,595,3 51 .77 ) l ess th e depreciation ( $16,861,718.33 ) equaled the amount rema ining to be collected through rates paid by customers , which totaled $ 12,733,634. ¶6 Following the dismissal of the ir petition by the C o mmission , Gruba and Bar santi sought judicial review , o nce a gain , w ith the First Judicial District Co urt . The District Co urt affirme d final order 7 0 84aa. Grub a and Barsanti appeal to this Court asserting numerous issues , including: (1) whether the District Court erred in failing to enforce § § 69 - 3 - 109 and - 3 21, M CA , whe n it affirmed final order 7 084a a ; (2) wheth er the District Court ’ s decision to affirm final order 7084aa was clearly erron eous when the Commission concluded that Admin. R. M. 38.5.106 (1977) w as not relevant ; (3) whether th e District Court erre d whe n it he ld customers were not entitled to refunds and N orthWest ern did not recover more than the o riginal costs of stree tlights ; an d (4) whether5

Gruba and Barsanti ’ s procedural due process rights were violated when the Commission co nsidered an intern al staf f me morand

um and when it narro wed the iss ue in the amended com p laint. ¶7 Thi s Court reviews ag en cy contested c ase deci sions to determine whe ther its factual findin gs are clearly erroneous and whether it s legal conclus ions are correct. Vote Solar v. Mo nt. Dep ’ t of Pu b. Serv. Regulation , 2020 MT 2 13A, ¶ 35, 4 01 M o nt. 85, 473 P. 3d 9 6 3. F indings of fact are clearly erroneous i f “not supported by subst antial evidence in the record , if the fac t - finder misapp rehended the effect o f the eviden ce, or if a re vie w of th e rec ord leaves the court with a defin ite and firm conviction that a mist ake has been made. ” North W estern Corp. v. Mont. Dep ’ t Pu b. Serv. Regulation , 2016 MT 239, ¶ 26, 385 Mont. 33, 380 P.3d 787. This Court reviews agency interpretations of statute s for correc tness . M ont. Envtl. Info. Ctr. v. Mont. D e p ’ t of Envtl. Quality , 2019 MT 213, ¶ 24, 3 97 Mont. 161, 451 P.3 d 493 ( MEI C) . This C o urt also affords “ great weight” to the C o mmission ’ s inter pretations of its own regulations, unle ss the interpretati on “ i s plain ly inconsistent with the spirit of the rule , considerin g a range o f reaso nableness permitted by the regu lation ’ s w ording. ” Vote Solar , ¶ 37 (citing MEIC, ¶ 23). While an agency poss esse s “ spec ific , te chnical, and scientific knowledge, ” the ag ency must “ articulate a satisfactory explan ati on for its action s an d provide a ratio nal connection between the facts found and the c hoice made. ” Vote Solar , ¶ 36.

“ Th is Court w ill not defer to an agency ’ s incorrect or unlawful decisions b ut will only d ef er to an age ncy action within permissible s tat utory bounds. ” Vo te So lar , ¶ 37. This Court may not substitute its judgment for that of the agency as t o the weight of the6

evidence on questions of fact, however, th e C ourt may reverse or modify ag ency deci si ons for abus e of discretion . Sec tion 2 - 4 - 7 04(2)(a)(vi), MCA. A bus es of discretion occur when a trial court acts “ arbitrarily without employment of cons cientious judgment or excee ded the bounds of reason resulting in substantial injusti ce. ” Ja rve npaa v . G lacier Elec . Coop. , 1998 MT 306, ¶ 1 3, 292 Mont. 118, 970 P.2d 84. ¶8 Ti tle 7, Chapter 12, Part 43 contains th e statutory autho ri ties pertaining t o special improvement l ighting districts. A town council or city c ouncil is authoriz ed to create a special li ghting distric t on any street or streets or p ublic highway for the purpose of li ghting them and assess the costs for installation and maintenance to property abutting thereto and col lect the costs by special asse ssment ag ainst the property. Section 7 - 12 - 4 30 1 , MCA. The costs of installing, maintaining , and supplying electrical current for the street lighting syste m are to be borne, in whole or in part, by the own ers of property within the lighting district. S ections 7 - 12 - 4301(1)(b) , and - 4321, MCA. The c ity or town co uncil is authorized to assess and c ollect thes e costs by sp ecial assessment against said property. S ection 7 - 12 - 4301(1)(c) , MCA. ¶9 If a public utility , as defined in § 69 - 3 - 101, MCA, pr ovides fo r the installation, maintenance, or operation of the lightin g system, the installation, mainten ance, o r op eration must be performed in accordance with the public utility’s applicable tariff sche dule. Section 7 - 12 - 4308 (3), MCA. P ursu ant t o § 69 - 3 - 306(1), MCA, the Commission has authority to presc ribe “ classi ficati ons of th e service of all public util ities. ” Cl ass if

ications may account for the quantity used , the ti me when used, and any other reasonable considerati on; and each public uti lity is required to conform its schedule7

of rates, tolls, and char ges to s uch cl assifications . S ection 69 - 3 - 306(1), MCA. The C ommission has approved numerous customer classes for N o rth Western , including residential ( Tariff Schedule REDS - 1), small commerc ial (Tariff Schedule GS EDS - 1), large co mmercial (Tariff Schedule G SE DS - 2), irrig ation (T ariff Sche dule ISE DS - 1), and street and area lighting (Tariff Sche dule ELDS - 1). Williamson I , ¶ 4. “ NorthWestern directly bills the me mbers of the street and area lighting class for the provision of street lighting service. ” Wi llia mson I , ¶ 5. Included within the ELDS - 1 class are municipalities , such as the City of Bi llings , which pay the street l ighting service.

“Property owner s in the street li ghting districts do not pay NorthWestern direc tly for the provision of stree t lighting service . ” Wi lliamson I , ¶ 5. ¶10 ELDS - 1 customers c an include mun icipal itie s which administer various stree t lighting di stricts , which may include numerous N o rthWestern owned stree t lights. C u st omers are not required to obtain stree t lighting service throu gh NorthWestern - owned streetlights and can , inst ead , acquire their own stre etlights and connect them to NorthWestern ’ s elec tricity delivery s ystem . ELDS - 1 street lighting in frastructure includes, but i s not limited to, pole bases, poles, mast arms, luminaires, an d wiring from the distribution system to th e luminaires. NorthWest e rn includes stree t lightin g infrastructure costs in calculating rate base , which is a component of its cos t of service us ed to establish rates. Admin. R. M . 38 .5.123 (19 77) and 38 .5.146 ( 1977) . ¶11 Gruba and Barsanti first assert the District Co urt erred in failing to en force §§ 69 - 3 - 10 9 and - 3 21, MCA, whe n it affirmed the Commis sion ’ s decision to dismiss the complaint , thus al lowing NorthWestern to recover more than the original costs .8

Secti on 69 - 3 - 10 9, MCA, pertains to the C ommissio n ’ s authority to a scertain property values. It states: The [ C ] ommission may, in its discretion, investigate and a scertain the value of the prope rty of eac h public utility actually used an d useful f or th e conveni ence o f the public. The [ C ] ommi ssion is no t bound to accept or use any particular value in determ ining rates. H ow e ver, if any value is used, the value may not excee d the original cost of the property , except th at the [ C ] ommission may include all or some of an a cquisition a dju stment for c ertain prop erty purchased by a publ ic utility in the purchasing utility ’ s rate base if the transfer of the property to the purchasing utility is in the publi c interest . In making the investigation, the [C] ommissio n may avai l it self of all information contained in th e assessment rolls o f various counties or in the public r ecords of the vari ous branc hes of the state government or of any oth er information obtainab le, and th e [C] ommission may at any time on its own ini tiative make a re valuation of the property. (Emp hasi s added.) Section 69 - 3 - 109, MCA, prevents a utility from e arning more than what it actu ally paid f

or a given asset. In In re Mon t. Power Co. , 180 Mo nt. 385, 3 9 8 - 9 9 , 590 P.2d 11 40 (1979) , this Court hel d: Before 197 5 utility rate bases were c alculated on the basis of the reprod uction cost new or commercial value o f utility plants, o f which original cost was only o ne factor to be co nsidered . . . . From 1 975 forward, howeve r, the legislature transformed original c ost into the factor to be considered in rat e base calculated; from 1975 forward , utility plants could no t be valued in exce ss of original cost . The determination of original cost , therefore, has a new i mportance in the setting o f utility rates. (Emphasis in original .) The Commission has consiste ntly applied a system - wi de service classification approach for its s treet lighting customers. Under this service classi fication, any rat e base value use d to de termine ownership charges must include NorthWestern’s entire street lightin g infrastructure cost s , not just the costs fo r a single district . Section 69 - 3 - 3 21, MCA, applies to complaints ag ainst a public utility and the Commis sion ’ s respons ibility t o pro ce ed with an investigative hearing. The inve stigative9

hearing must pertain to com plaints that : “ ( a) any of the rates, tol ls, charges, or sche dules or any joint rate or rate s are in any way unreasonable or unjustly discriminatory . . . . ” Section 69 - 3 - 321, MCA. ¶12 The District C ourt held there was substantial evid ence to show that N o rthWestern had not received more than the c ost of its investment due to its remaining net balance of $12,733,634. It also concluded the Commission does not account for i ts cost s on a district by district basis and while Gruba and B arsanti are correct to note that th eir taxe s may be put towards o th er infrastructure in separate districts, NorthWestern di d not violate § 69 - 3 - 109, MCA, because it has no t collected more than the original costs of lighting infras tructure from it s customer s as a whole. Th is Court agrees that the C ommission has demonstrat ed a history of implementing th e total plant costs on a system- wide basis rather than through a district to district basis. Th e value in cal culating costs in such a manner does n ot exceed the scope of § 69 - 3 - 109 , MCA, as the Commis sion ’ s st atutory respo ns ibility is to not exceed the original cost of NorthWes t ern ’ s pro pe rty . As such, there is comp et ent subs tantial evidence to sup port th e findings of the District C ourt and the Commission . ¶13 Gruba and Barsanti next assert the District Court ’ s decision to af firm final order 7084a a was clearly erron eou s because it did not consider Admin. R. M . 3 8.5.106 (1977) . Admin. R. M . 38.5.106 (1 977) re quires that : Any proposed a djustments to book costs shall b e explained in writing. Such adjustments shall be shown s eparately an d shall be ful ly supported, including sch edules showing their derivation, where appro priate. H o w ever, n o adjust ments sh all be permitted unless based on changes in faciliti es,10

o pe rations, or costs which are known with certainty and measurable with rea sonab l e accuracy at the time of the filing. (Emphas is added.) This Court concludes the District Court p roperly held Admin. R. M . 3 8.5.106 (19 77) does not apply to Gruba and Barsanti ’ s untimely claim because the rule applies only “ at the time of the fi l ing . ” ¶14 Gruba and Barsanti additionally a llege the District Court erred in concluding NorthWestern was no t obli gated to refund alleged stree t lighting overcharges. The District Co urt conclu ded th is issue was moot because it previous ly held there was no evi dence of overcharges from which to issue a refund. Th e District Court stated even if such an overcharge exi sted , it was not fo r the D istrict Court to de cide which type of streetl ights NorthWes tern should purchase or how any alleged overcharge should be al lo cat ed. This Court concludes the District Court did not err in determining there were no overcharg es an d a grees that the desi gnation of wh ich streetlights are used and how any o vercharges sho uld be allocated is not with in the District C o urt ’ s authority ; that responsibility lies solely within the C ommission ’ s statutory discretion . ¶15 Lastly, Gruba and Barsanti assert proc edural due process violations reg arding the C ommission ’ s utiliz ation of an internal staff me morandum without providing customers the ability to re spond . They further ar gue the Commission ’ s deci sio n to limit the complaint only to the issue of s treetlight over charges violate d their right of due process . Due process is gu arantee d by the Montana Constit ution under A

rticle II, Section 17 . Proced ural due process in an administrative agency contes ted case generally require s , at a minimum, rea sonable notice and the opportunity to be heard . S ection 2 - 4 - 601, MCA.11

The Montan a Administrati ve Procedure Act bars discussion of iss ues in contested case proceedings unless all parties were provided noti ce and afforded an opportunity to participate. Section 2 - 4 - 613 , MCA. Section 2 - 4 - 612 ( 5), MCA, provides, “ [a] party shall have the right to c ondu ct c ross - examinations required for a full and true disclosure o f fact, including the right to cro ss - examine the autho r of any document prepare d by or on beh alf of or for the use of the ag en cy and offere d in evidence. ” Gruba and Barsanti alle ge the C ommiss ion ’ s internal staff me morandum constit utes a document prepared by an agency , offered in evidence, and that they had no opportunity to contest the validity or otherwi se refute the document . The D istrict C o urt concluded the staf f me morandum w as si milar to a bench me mo s ub mitted to ju dges by a l aw clerk. Thus, the Commission ’ s deci sion to consider an internal staff memorandum did not violate due process or otherwise co nstitute an ex parte co mmunication . Gruba and Barsanti additionally assert the Commis sion ’ s decisio n to limit the scope of the c omplaint

—thus dismissing Gruba and Barsanti ’ s claim regarding a third party ’ s ability to use NorthWestern ’ s poles to ho use high er efficiency stree tlights

—was a violation of their due process rights . The District C o urt con cluded the Commission has the powe r to regulate the mode and manner of all investigations and hearings under § 69 - 3 - 103(2) (c) , MCA. Although the Commission provided Gruba and Barsanti with s ufficient time to brief the matter, the Commis sion nonethele ss deemed several issues either impr ope rly before it or insuffi ciently clear . The Commission ’ s decision to l imit the scope of the complaint to a single issue , involving li tigation that has transp ired over a decade, is well within its12

authori ty under § 69 - 3 - 103(2) (c) , MCA. The District Court did not err in conclud ing Gruba and Barsanti ’ s due process rights were not violated. ¶16 The District C o urt correctly concluded that final order 7084 aa was lawful and complied with the Montana Administrative Pro cedure Act. The Commission ’ s findings of fact were supported by substanti al evidence, it did not misapprehend the effect of the evi dence, and there is no evidence that a mistake was made. F inally, the Comm ission ’ s determination , affirmed by the D istri ct C o urt, that the ownership charge was neither unjus tly discriminatory nor p referential was not unlawful or unreasonable . ¶17 W e have determined to decide this ca se purs uant to Sectio n I , Paragraph 3(c ) of our Int ernal Ope rating Rules , which provides for me mo randum opinion s . In the opinion of the Court, the ca se p resents a question c ontrolled by se ttl ed law or by the c lear application of applicable standards of re view. ¶18 Affirmed . /S/ LAURIE McKINNON We concur: /S/ JIM RICE /S/ DIRK M. SANDEFUR / S/ JAMES JEREMIAH SHEA /S/ BETH BAKER