Title: Tri-County Electric Cooperative, Inc. v. Elkin
Citation: 224 N.W.2d 785
Docket Number: 9025
State: north-dakota
Issuer: north-dakota Supreme Court
Date: December 4, 1974

224 N.W.2d 785 (1974) TRI-COUNTY ELECTRIC COOPERATIVE, INC., Protestant and Appellee, v. Richard ELKIN et al., Respondents, and Otter Tail Power Company, Respondent and Appellant. Civ. No. 9025. Supreme Court of North Dakota. December 4, 1974. Rehearings Denied December 20, 1974. *787 Fabian E. Noack, Carrington, for protestant and appellee. Ray H. Walton, Sp. Asst. Atty. Gen., Public Service Commission, Bismarck, for respondents. Hjellum, Weiss, Nerison, Jukkala &amp; Vinje, Jamestown, and Field, Arvesen, Donoho, Lundeen &amp; Hoff, Fergus Falls, Minn., for respondent and appellant. VOGEL, Judge. This appeal is one of a continuing series involving disputes between rural electric co-operatives, which are organized primarily to provide electricity to residents of rural areas, and stockholder-owned utilities, which provide electricity primarily to municipalities which have granted them franchises. Typically, the suits arise from disputes as to which supplier of electricity is entitled to serve a customer in a rural area near a municipality where the investor-owned utility holds a franchise. This is such a case. The customer in question, LeRoy L. Kendall, owned property about one-third mile *788 south of the city limits of Jamestown. The area between his property and the city limits was owned by others and was undeveloped. Kendall applied to Otter Tail Power Company, which holds the only franchise to supply electricity within the city limits of Jamestown, for electric service, and Otter Tail made application to the Public Service Commission for a certificate of public convenience and necessity allowing it to serve the customer. When notice of the application was given to Tri-County Electric Cooperative, Inc., the rural electric cooperative serving the area surrounding Jamestown, it promptly filed objections with the Public Service Commission, which held a hearing upon the opposing contentions of the parties and subsequently issued a two-to-one decision (one commissioner dissenting) in favor of Otter Tail Power Company, authorizing it to serve Kendall. The cooperative appealed to the district court of Stutsman County, and the decision was reviewed by the trial judge under the Administrative Agencies Practice Act, Chapter 28-32, North Dakota Century Code. The trial judge reversed the holding of the Public Service Commission, holding that its decision was "arbitrary, capricious, and unreasonable." Otter Tail Power Company thereupon appealed to this court from the judgment of the district court. There is little dispute as to the facts. In addition to those stated above, it is pertinent to note the present electric distribution systems in the area in question and their ownership. Pertinent findings of fact by the Public Service Commission, upon which there is little or no disagreement, follow: Other findings of fact by the Public Service Commission, upon which there is dispute, follow: The cooperative, disputing finding No. IX, points to its evidence that its proposed extension is much shorter than the average length of line per customer on its system, that it has lost a few customers, and that its economic viability depends upon retention of a sufficient number of customers. The cooperative and the utility agree that both obtain the bulk of their electricity for the area in question from a substation owned by the Bureau of Reclamation located a short distance from the tract in dispute. The cooperative also points out that its line in the immediate area is "sectionalized," which, it asserts, promotes reliability. The cooperative further objects to the statement of the Public Service Commission that "customer preference must be given greater weight than where the location of the respective lines is at a greater distance from one another," pointing out that there is no statutory or decisional or other authority for such statement. The cooperative further objects to the conclusions contained in so-called "findings of fact" Nos. XIII and XIV, asserting that there are no facts to support those statements. It should be noted that North Dakota law, for reasons set forth by the late Chief Justice Strutz in Montana-Dakota Utilities Co. v. Johanneson, 153 N.W.2d 414, 422 (N.D.1967), requires that public utilities obtain certificates of public convenience and necessity to extend their electric distribution lines beyond the corporate limits of a municipality, but such certificates are not required for extensions by rural electric cooperatives, which are operated without profit, are controlled by their members, and are required to return to their members any excess of receipts over expenses and reserves. The statute regulating the relationships between public utilities and rural electric cooperatives in North Dakota is generally referred to as the "Territorial Integrity Law," originally enacted as Chapter 319, Session Laws 1965. That statute was construed in Montana-Dakota Utilities Co. v. Johanneson, supra, and Section 3 of Chapter 319 was declared unconstitutional. The balance of Chapter 319 now is codified as Sections 49-03-01, 49-03-01.1, 49-03-01.3, 49-03-01.4, and 49-03-01.5, N.D.C.C. Section 3 of Chapter 319, which, as we have said, was declared unconstitutional, provided that the Public Service Commission should not This section was held unconstitutional "as an unlawful delegation of legislative authority" to the cooperatives; that is, it was held that the cooperatives were given the unregulated discretion to decide whether the certificate should be granted by the Public Service Commission. *791 When Section 3 was declared unconstitutional, the legislative directions to the Public Service Commission were eliminated from the body of the Act, leaving no criteria upon which the Public Service Commission could make its decisions. The deficiency was supplied by this court in Application of Otter Tail Power Co., 169 N.W.2d 415 (N.D.1969), where it was stated that "customer preference should be considered" and These criteria are discussed further in Application of Montana-Dakota Utilities Co., 219 N.W.2d 174 (N.D.1974). The scope of review of the district court is set forth in Section 28-32-19, N.D. C.C., which specifies that the court We have held that the same rules apply to our review of the action of the district court. O'Brien v. North Dakota Workmen's Compensation Bureau, 222 N.W.2d 379 (N.D.1974); Application of Northern States Power Co., 171 N.W.2d 751 (N.D.1969). In ruling upon whether the findings of fact made by the agency are "supported by the evidence," we have held several times that the substantial-evidence rule is the rule we will follow. O'Brien v. North Dakota Workmen's Compensation Bureau, 222 N.W.2d 379 (N.D.1974); Suedel v. North Dakota Workmen's Compensation Bureau, 218 N.W.2d 164 (N.D.1974); Ambroson v. North Dakota Workmen's Compensation Bureau, 210 N.W.2d 85 (N.D. 1973); George E. Haggart, Inc. v. North Dakota Workmen's Compensation Bureau, 171 N.W.2d 104 (N.D.1969); Williams Electric Cooperative, Inc. v. Montana-Dakota Utilities Co., 79 N.W.2d 508 (N.D.1956). The public utility has the burden of proving that public convenience and necessity requires or will require the extension of its lines, as prayed for in its application. We held in Application of Otter Tail Power Co., 169 N.W.2d 415, 418 (N.D.1969): We come now to a capitulation of the evidence upon which the Commission made the determination which the district court held was arbitrary and capricious. We will divide the discussion (as the Commission, the trial court, and the parties have done) into the factors for consideration specified in Application of Otter Tail Power Co., supra. The Commission found that the customer had a preference for one supplier, *792 but no objection to the other. While we have previously said that customer preference should be considered, we never have held that it is controlling. Application of Otter Tail Power Co., supra; Application of Northern States Power Co., 171 N.W.2d 751 (N.D.1969). Certainly, customer preference has nothing to do with selection of a supplier of electricity inside a municipality such as Jamestown, where only one supplier is franchised. In such places the customer must accept service from the franchised supplier unless he chooses to generate his own electricity or go without. In rural areas, our decisions indicate, customer preference is a minor consideration. It cannot prevail where economic factors, such as relative costs and wasteful duplication, provide other criteria for choice. As we said in Application of Montana-Dakota Utilities Co., 219 N.W.2d 174, 181 (N.D.1974): Customer preference, therefore, invokes consideration by the Public Service Commission, but it is not to be a controlling factor. In holding that customer preference was to be given weight in its determination (even more weight than in other cases because of the relatively short lines involved), the Commission erred; but understandably so, since its decision antedated our decision in Application of Montana-Dakota Utilities Co., supra. It is the public convenience and necessity, after all, with which the Commission is concerned, not private preference. See Tri-City Motor Transportation Co. v. Great Northern Ry. Co., 67 N.D. 119, 270 N.W. 100 (1936), quoting 42 C.J. Motor Vehicles, Section 121, page 687, as follows: Otter Tail's nearest distribution line is approximately 1,200 feet away at its nearest point. It has a transmission line about 240 feet away, and presently is supplying temporary service from the transmission line by use of a surplus or obsolescent transformer, at a cost of approximately $400, which cost contains no allowance for the value of the transformer. The cooperative has a distribution line 73 feet from the nearest point of the Kendall property, and it could supply service from that line at a cost of $250, which would include the cost of a transformer and the cost of the service drop. It seems obvious from this that the cost considerations are in favor of the cooperative, and Otter Tail's attempted justification is based upon the highly unusual and temporary expedient of using a transmission line for distribution purposes. Even then, the cooperative's distribution line is closer and the cost of electric service provided by the cooperative would be less. The Commission found, and the evidence supports the finding, that the two suppliers are equally reliable. The evidence does not support the statement of the Commission that "there is no substantial evidence whether the Kendall load would be an economical addition to either the system of Otter Tail Power Company or to that of Tri-County Electric Cooperative, Inc." On the contrary, the cooperative introduced evidence showing that the *793 density of its system is 1.25 patrons per mile, while only 73 feet of line would be constructed to serve the customer in the present case. It also showed that it had suffered a slight decline in number of consumers the previous year, and that the number of its customers has a bearing on the financial stability of its system. From these facts it seems obvious that the addition of the customer to its system would improve the economic feasibility of the system, particularly since the customer intended to establish a home and a business, and perhaps a motel, on the premises, thereby adding a substantial and presumably profitable load to the system. As stated above, the evidence shows that both suppliers obtain their power from the same nearby source, and there is no justification to choose one over the other in this respect. As the findings of fact show, the area in question has been served by the cooperative in the past. The cooperative has other customers in the area who are nearer and more numerous than customers of Otter Tail. Its distribution lines are nearer and are permanent, whereas Otter Tail proposes to serve this customer by a temporary connection to a transmission line. Otter Tail's argument that it should be favored because it will provide for a more orderly development of electric service in the area depends entirely upon the assumption that the owners of the property between the Kendall property and the city of Jamestown will (1) develop their property within a reasonable time, (2) take service from Otter Tail Power Company, (3) after obtaining the approval of the Commission, and (4) do so in such a way as to allow Otter Tail to develop the area without duplication of lines of the cooperative, although the cooperative, in the absence of any certificate of convenience and necessity issued to a public utility by the Public Service Commission for the area in question, is entitled to serve the property. As the Commission properly found, there is no basis from the evidence for making any assumptions as to future development of the area or annexation thereof by the city of Jamestown. We therefore conclude that there is no evidence in the record upon which to base an ultimate decision that Otter Tail can serve the Kendall property without wasteful duplication of investment or service. Since this and all other factors favor the cooperative, or favor neither the utility nor the cooperative, there is no evidence in the record to justify the Commission's conclusion that public convenience and necessity requires the issuance of a certificate to Otter Tail. Counsel for the utility asks us to take "judicial notice" of recent developments in the area surrounding Jamestown, including the area here in dispute. We are limited, of course, to the record made before the Public Service Commission at the time of the hearing several years ago. In another Public Service Commission case, Application of Montana-Dakota Utilities Co., 111 N.W.2d 705, 712 (N.D.1961), a similar request was made: In response, we said: *794 Even if it should be true that the area in question will eventually be annexed to the city of Jamestown, that eventuality has been provided for by law insofar as the orderly continuance or transfer of electric service systems is concerned. The cooperative could continue to serve its customers until such time as its property in the annexed area is acquired by the franchised utility by negotiation or eminent domain. Montana-Dakota Utilities Co. v. Divide County School District No. 1, 193 N.W.2d 723 (N.D.1972). Or the City could give the cooperative a franchise to continue to serve the customers it is serving. We affirm the judgment of the district court holding that the determination of the Commission was arbitrary and capricious. The utility did not sustain its burden of proof by substantial evidence that the public convenience and necessity reasonably required that it be allowed to extend its lines to serve the applicant. Without going into definitions of the terms, we would note, as the trial judge did, that the words "arbitrary" and "capricious," when used in a legal sense as we have used them, are to be distinguished from the same words used in a popular sense, where they have an opprobrious connotation. We use them in the legal sense here to indicate simply that the findings of the Commission are without rational basis or that the evidence to support the findings is nonexistent or without probative value in either direction. Affirmed. ERICKSTAD, C. J., and JOHNSON, PAULSON and KNUDSON, JJ., concur. The following remarks are not part of the majority opinion of the court, but are comments of the author of the opinion. Although I believe that Montana-Dakota Utilities Co. v. Johanneson, 153 N.W.2d 414 (N.D.1967), might be decided differently today, in the light of Application of Montana-Dakota Utilities Co., 219 N.W.2d 174 (N.D. 1974), and Snyder's Drug Stores, Inc. v. North Dakota State Board of Pharmacy, 219 N.W.2d 140 (N.D.1974), I accept its holdings for the purposes of this case. Nevertheless, I believe we should re-examine the guidelines which this court created in Application of Otter Tail Power Co., 169 N.W.2d 415 (N.D.1969), to fill the gap caused by eliminating the guidelines contained in Section 3 of the Territorial Integrity Act, declared unconstitutional in Montana-Dakota Utilities Co. v. Johanneson, supra. In making such a re-examination, we have every right to examine the unconstitutional section for the purpose of determining the legislative intent.[1] I believe that Section 3, so examined for legislative intent, shows a clear legislative intent that all areas outside cities where private utilities are franchised are to be served by rural electric cooperatives. The only possible exception would involve instances where the cooperative is unable to serve. Such an interpretation would not be inconsistent with the unconstitutionality of Section 3, and it is consistent with legislative intent. I would overrule that portion of Application of Otter Tail Power Co., supra, which holds that "a fair reading" of the law does not justify the conclusion that "cooperatives now are the preferred suppliers of electrical energy in all rural areas of the State, . . ." I believe that holding ignores the clear intent of the Legislature. The present state of the law permits the utility to do as it has done in this case, where it has infiltrated cooperative territory and planted an outpost there, and then litigated the matter in the Public Service *795 Commission and the courts. Such a procedure, if the utility were successful here, as it was in the Public Service Commission, could result in a checkerboarding of the cooperative's territory, with wasteful duplication of lines and loss of economic viability of both utility and cooperative. The Territorial Integrity Act was enacted to avoid duplication, not to encourage it. I believe we should follow the clear intent of the Territorial Integrity Act and construe it to give the cooperatives the favored position intended by the Legislature, and thereby end the continuing invasions of their territory by the utilities. [1] State ex rel. Maloney v. Sierra, 82 N.Mex. 125, 477 P.2d 301 (1970); Board of Commissioners v. State ex rel. Baker, 184 Ind. 418, 111 N.E. 417 (1916); Sales v. Barber Asphalt Paving Co., 166 Mo. 671, 66 S.W. 979 (1902); Sands' Sutherland Statutory Construction, Sec. 51.04.