Title: STATE EX REL MONTANA POWER v DEPT
Citation: N/A
Docket Number: 13207
State: Montana
Issuer: Montana Supreme Court
Date: December 30, 1975

I N THE SUPREME ,2OUKT OF THE STATE OF M O N T A N A 1975 STATb ex rei. THE :JION'I'AI\IA i30lJER COMPANY, P e t i t i o n e r , DEPAKTMENT OF PUBLI-C SERVICE REGUTATION, PUBLIC SERVICE COMMISSION, and M O N T A N A C O N S U M E R COUNSEL, GEOFFREY 1 2 . BRAZIER, Respondents. Counsel of Record: For P e t i t i o n e r Kendrick Smith argued, Butte, Montana Robert D. Corette, John J. Burke and Mark ' 4 . Clark appeared, Butte, Montana Geoffrey I,. Brazier argued, Helena, Montana Villiam E. 0 ' ~ e a r y argued, Helena, Montana uss sell L . Doty Jr. argued, Helena, Montana !'atrick G i l f e a t h e r appeared, Helena, Montana Submitted : November 14, 1975 Decided : qF5 3 i) 7974 M r . J u s t i c e John Conway Harrison delivered the Opinion of t h e Court. This i s a p e t i t i o n f o r a w r i t of review o r other appro- p r i a t e w r i t t o require the Montana Public Service Commission t o grant p e t i t i o n e r ' s motion f o r a temporary approval of a n a t u r a l gas increase. O n March 12, 1975, Montana Power Company, hereinafter called p e t i t i o n e r , f i l e d with the Montana Public Service Commission, hereinafter referred t o a s the Commission, a p e t i t i o n t o increase r a t e s and charges f o r e l e c t r i c and n a t u r a l gas services and t o change c e r t a i n regulations concerning them. Those matters became Docket No. 6348 of the Commission. The Commission s e t hearing on Docket No. 6348 f o r September 8, 1975, but t h i s was cancelled and did not commence u n t i l October 20,1975. A second phase of the hearings was s e t f o r January 12, 1976. In the meantime, the Commission scheduled " s a t e l l i t e hearings'' nine c i t i e s i n t h e s t a t e . To not be r e p e t i t i o u s and t o f u l l y understand the f a c t u a l issues involved here reference i s made t o t h i s Court's opinion dated October 17, 1975, e n t i t l e d Montana Consumer Counsel, Geoffrey L. Brazier v. Public Service Commission of Montana e t a l . and The Montana Power Co., M o n t . , 541 P.2d 769, 32 St.Rep. 1026. In t h a t case t h i s Court approved t h e use by the Public Service Commission of the so-called "automatic adjustment clause" a s applied t o the rapidly r i s i n g costs of imported Canadian gas. Pending a decision of the Commission Docket 6348, p e t i t i o n e r on September 23, 1975, f i l e d a motion f o r temporary approval of gas r a t e increases subject t o rebate. This motion i n t e r a l i a gave these reasons f o r t h e request: 11 1. The temporary r a t e increase requested herein i s required t o , but w i l l not completely, o f f s e t the increased cost t o the Anplicant of obtaining a n a t u r a l gas supply t o serve i t s consumers, which c o s t has increased d r a s t i c a l l y due t o actions by the National Government of Canada. "2. The cause f o r these higher gas c o s t s i s shown i n Appendix ' C ' , attached hereto and incorporated herein, which contains the Orders of the Canadian Government increasing the border price. (These Orders a r e a l s o contained i n A l i c a n t ' s Exhibits Nos. 3, 4, 5 and 6, 'Export LicensesYPwhich were f i l e d with the Commission i n t h i s Docket on June 12, 1975). These documents show t h a t the National Government of Canada has ordered t h a t the border price f o r gas exported from Canada s h a l l be increased from $1.00 t o $1.40 per million BTU e f f e c t i v e August 1, 1975, and t o $1.60 per million BTU e f f e c t i v e November 1, 1975. "3, Commencing on August 1, 1975, due t o these Orders of the Canadian Government, the Applicant's average monthly c o s t of purchased gas and royalty in- creased approximately one million two hundred thousand , d o l l a r s ($1,200,000). Commencing on December 1, 1975, there w i l l be a further monthly increase of approximately s i x hundred thousand dollars ($600,000), f o r a t o t a l increase of approximately one million eight hundred thous- and d o l l a r s ($1,800,000) per month. Applicant must i m - mediately be allowed t o pass through these higher costs f o r t h i s gas acquired f o r and supplied t o Montana gas consumers o r it w i l l be unable t o continue making these necessary expenditures. "4. O n July 24, 1975, t h e Federal Power Commission issued an Order i n i t s Docket No. CP74-187, a copy of I which is attached a s Appendix D ' and incorporated herein. The Federal Power Commission i n t h a t Order authorized the Applicant t o import natural gas from Canada a t the in- creased border prices of $1.40 per million BTU, e f f e c t i v e August 1, 1975, and $1.60 per million BTU, e f f e c t i v e November 1, 1975. "5. Applicant's Exhibit No. 15, Revised 7/18/75 as U t i l i t y ~ e t u r n ' ) , a copy of which i s attached hereto 1 a s Appendix E ' and incorporated herein, shows t h a t under present r a t e s the Applicant would sustain a l o s s during the t e s t year 1975 of $13,031,968 due t o t h e maximum impact of increased purchased gas cost and royalty ex- penses. I1 This motion of September 23 was n o t i c d f o r hearing October 2, 1975 and was argued on t h a t date. The Commission on October 20 postponed a decision u n t i l October 30. O n October 31, 1975, t h e Commission issued i t s order granting only a portion, 6 / l l t h s , of the amount requested. The order granted petitioner $6,510,791 as a temporary increase and denied the remainder, which i n e f f e c t p e t i t i o n e r alleges precludes it from recovering over 5 million d o l l a r s of increased c o s t s annually, Petitioner alleges the denial of i t s request by the Commission i s : I I a. Contrary t o law i n t h a t it grants a flow- through (on a temporary approval basis) of only a p a r t of the increased costs of purchased gas and royalty expenses a s s e t f o r t h i n t h e Motion of September 23, 1975, Exhibit ' A ' ; "b. Contrary t o law i n t h a t it precludes recovery by a flow-through, and on a temporary approval basis, of a l l of the increased cost of purchased gas and royalty expenses a s s e t f o r t h i n the said Motion of September 23, 1975, Exhibit ' A ' ; 1 1 c. Contrary t o law i n t h a t it defies the l e t t e r and the s p i r i t of t h e 1974 Rate Order (Order #4147, dated August 30, 1974) and t h e decision of t h i s Court dated October 17, 1975, i n Case No. 12944, e n t i t l e d Brazier v. PSC and Montana Power, a s Intervenor; "d. Contrary t o law i n t h a t i f the PSC has any discretion i n the matter, then the dis- cretion of the PSC has been abused by not granting the f u l l temporary increase; "e. Contrary t o law i n t h a t t h i s Order, regardless of other consequences, would be an i l l e g a l and advance reduction of allowable expenses i n the main r a t e case; "f. Contrary t o law i n t h a t t h i s Order would deprive Petitioner of i t s property without due process of law. I t Petitioner f u r t h e r alleges t h a t unless the motion i s granted i n i t s e n t i r e t y i t s financial condition w i l l be seriously jeopardized and i t s a b i l i t y t o secure Canadian gas w i l l be en- dangered. In asking f o r extraordinary r e l i e f from t h i s Court, p e t i t i o n e r notes t h a t a review of the Commission's decision on the merits of Docket 6348 w i l l take u n t i l t h e spring of 1976 o r l a t e r i f appeals a r e involved, and t h i s i s too l a t e t o provide t h e immediate and necessary r e l i e f asked for. Further, t h a t i n f a i l i n g t o grant the p e t i t i o n e r ' s motion the omm mission's order i s pure confiscation, f o r once petitioner i s not allowed to c o l l e c t during t h e intervening period, it can never c o l l e c t f o r t h a t period and it would s u f f e r a disastrous revenue impairment and l o s s of financial a b i l i t y . O n November 7, 1975, t h i s Court issued an a l t e r n a t i v e w r i t t o show cause and s e t the hearing f o r November 14, 1975. Motions t o quash and dismiss, answers and memorandums of authority were f i l e d by a l l counsel and t h e matter was argued November 14, 1975. Follow- ing argument t h i s Court ordered t h e Commission t o f i l e with t h e Court a copy of i t s mathematical computations of amounts approved and disapproved f o r i t s order of October 31, 1975. The i s s u e i s whether t h e Commission order f i l e d October 31, 1975, is contrary t o t h e s t a t u t o r y l a w and i t s i n t e r p r e t a - t i o n by t h i s Court, and t o t a l l y disregards e x i s t i n g c o n t r a c t u a l commitments of p e t i t i o n e r , and i s t h e r e f o r e a r b i t r a r y , unreasonable and a d e n i a l of p e t i t i o n e r ' s r i g h t of due process. Respondent Montana Consumer Counsel appeared i n opposition t o both p e t i t i o n e r and t h e Commission, arguing t h a t s e c t i o n 70-113, R.C.M. 1947, a s amended by Chapter 115 of the Laws of 1975, i s unconstitutional i n t h a t it authorizes a temporary increase pending a nearing; t h a t t h e supporting data of p e t i t i o n e r and subsequent court order i s misleading, not founded on f a c t and provides an incomplete p i c t u r e of p e t i t i o n e r ' s s t a t i s t i c s ; and f u r t h e r whether the f a i l u r e t o grant a l l of the temporary request i s contrary t o iaw o r c o n s t i t u t e s an abuse of d i s c r e t i o n . W e find no m e r i t t o respondent Montana Consumer Counsel's contentions. W e n o t e t h a t these arguments i n substance were made t o t h i s Court i n t h e case of Nontana Consumew Counsel v. Public Service Commission and The Montana Power Company, supra, and decided contrary t o respondent's position. See: P r i v a t e Tele-Commun., Inc. v. I l l i n o i s B e l l Tel. Co., ( I l l . 1975), 335 N.E.2d 110. W e f u r t h e r note t h a t i n a l l "pass through increasesf' t h i s Court has been c a r e f u l t o p r o t e c t t h e i n t e r e s t s of the consumers by allowing each increase subject t o rebate i f it can be shown t h a t p e t i t i o n e r i s obtaining more than it is authorized. W e now look t o t h e Commission's findings of f a c t , conclusion oE law and order t o determine whether they disregard contractual obligations of p e t i t i o n e r and a r e t h e r e f o r e arbi-trary, unreasonable and deny p e t i t i o n e r ' s r i g h t s . "FINDINGS O F F A C T "3. The Applicant i s a n a t u r a l gas public u t i l i t y serving customers within the S t a t e of Montana. Applicant's r a t e s f o r natural gas service a r e subject t o the jurisdiction of t h i s Commission. "4. Commencing on August 1, 1975, by orders of the Canadian Government, the border p r i c e f o r gas exported from Canada was increased from $1.00 t o $1.40 per million BTU' s. "5. Commencing on November 1, 1975, by orders of the Canadian Government, the border p r i c e f o r gas exported from Canada s h a l l be increased from $1.40 t o $1.60 per million BTIJ' s . "6. Applicant contends t h a t t h e t h e present r a t e s Applicant's property would be subject t o confiscation without due process of law. "7. Applicant's Appendix E t o the motion shows t h a t under the present r a t e s , Applicant would sustain a l o s s during the t e s t year 1975 of $13,031,968 due t o the maximum impact of increased purchased gas cost and royalty expense. "8. Applicant's Appendix B t o the motion shows t h e u n i t price of Canadian purchased gas a t $1.4241 per M C F and the u n i t price of Canadian royalty gas a t $.5553 per M C F f o r the month of August, 1975. "9. The temporary r a t e r e l i e f increase requested by Applicant f o r i t s r e s i d e n t i a l , non-residential and other u t i l i t y customers was $11,646,283. "CONCLUSION O F LAW "1. The Commission has a duty t o insure t h a t u t i l i t i e s under i t s jurisdiction provide reasonably adequate service a t j u s t and reasonable r a t e s t h a t a r e not confiscatory of the u t i l i t i e s ' property. Montana ( R C M 1947, 70-105) "2. The Commission may temporarily approve an increase pending a hearing and f i n a l decision, with the additional revenues collected subject t o rebate. ( R C M 1947, 70-113). "3. In view of the large increases i n t h e p r i c e of Canadian purchased gas and Canadian royalty gas, increased r a t e s f o r Applicant's n a t u r a l gas d i s t r i b u t i o n service a r e j u s t i f i e d . "4. The temporary increase approved herein i s a j u s t and reasonable amount t o insure continued service t o Applicant's consumers. "5. The r a t e r e l i e f requested by Applicant should be granted i n part. "1. Montana Power Company s h a l l f i l e monthly reports indicating i t s sources and volumes of purchased gas and royalty gas. "2. Applicant s h a l l be granted a temporary increase f o r the amount of $6,510,791 f o r i t s r e s i d e n t i a l , non- r e s i d e n t i a l and other u t i l i t y customers. Applicant s h a l l f i l e within ten (10) days of t h i s order, a t a r i f f r e f l e c t i n g t h i s allowance. "3. This temporary increase s h a l l be spread equally t o Applicant's r e s i d e n t i a l , non-residential and other u t i l i t y customers. Said increase s h a l l be e f f e c t i v e f o r services rendered on and a f t e r November 1, 1975. "4. This i s a temporary order. I n t h i s regard t h e Commission, a s a matter of policy, w i l l consider tem- porary requests only i n conjunction with f u l l r a t e case hearings such a s t h a t i n progress i n Docket No. 6348. It The Commission's intention i n granting c e r t a i n temporary increases herein i s primarily t o allow time f o r the thorough consideration of the e n t i r e operations of the Company without chancing jeopardizing those opera- t i o n s , due t o the Canadian gas and royalty gas increases on export gas. "5. The additional revenues r e s u l t i n g from t h i s interim order w i l l be subject t o rebate plus i n t e r e s t a t t h e r a t e of return granted the Company i n the f i n a l order, i f the Commission determines a t t h e end of the general r a t e case t h a t lower r a t e s should become effective. "6. This temporary order s h a l l be e f f e c t i v e only u n t i l the i n i t i a l f i n a l order i s made, i n Docket No. 6348A and s h a l l not be i n e f f e c t during any appeal therefrom. W e note t h a t conclusion of law No. 3 admits the large in& - creases i n Canadian purchased gas and Canadian royalty gas and such , - increased r a t e s a r e j u s t i f i e d , yet no finding o r j u s t i f i c a t i o n was made on the granting of the p a r t i a l amount. For t h i s reason t h i s Court requested and obtained the Commission's mathematical computa- tions. Accompanying these, computations was a l e t t e r t o t h e Court from t h e chairman of t h e Commission, which'stated:in pertinent part: "The response includes: a ) Simple calculations indicating how the $5,135,492 and $6,510,791 figures were derived. b) Revised Exhibit 2(from the one f i l e d with you on Friday) with a greater explanation of the sources and methodology used i n a r r i v i n g a t those figures. c ) ellow ow' worksheet indicating t h a t i f 96.8% of the gas from Aden were Royalty gas, the Montana Power Company could cut i t s Canadian gas price by $5,135,492 (or the amount of temporary increase not allowed by t h i s Commission). This 'yellow' work- sheet does not include price reductions which could accrue from e i t h e r the elimination of increased Montana purchased gas costs o r from the t a x e f f e c t , I I Using t h i s l e t t e r and taking s p e c i f i c a l l y paragraph (c) it becomes obvious the Commission made a managerial decision a s t o the "take o r payu contracts of p e t i t i o n e r f o r Canadian imported gas from the Aden f i e l d and i n so doing made an a r b i t r a r y decision beyond the scope of i t s powers. Petitioner i n its Exhibit "D" submitted t o the Commission noted: "A 'take o r pay' obligation requires payment f o r a c e r t a i n volume of gas whether or not delivery of t h a t volune i s a c t u a l l y taken. By way of explanation of I the l i s t , t h e annotation none' means t h a t the contract ' contains no take o r v provision. Five of the 28 contracts contain no ' : ; k e o r pay' provision. The 1 annotation 85%' means the contract contains a provision which established a 'take o r pay' obligation a t 85% of the l e v e l taken i n the same month i n t h e preceding year when the cutback of the Aden authorization occurred. I The annotation 100 % ' means the contract contains a 'take o r pay' obligation which was unaffected by t h e cutback a t Aden. "The summary sheet shows t h a t a t o t a l of 5,844 l I 1 M C F per year i s currently being purchased and imported a t Aden. Of t h i s amount, 825 MMCF a r e not subject t o an express, contractual take o r pay obligation. However, operating obligations preclude the shutting-in of the wells which produce gas under these f i v e contracts. I f the wells i n question were shut-in, the pools from which they were producing would be drained by production by others, in- cluding t h e ~ p p l i c a n t ' s subsidiary, Canadian Montana Gas Company. I I Accepting the information contained i n p e t i t i o n e r ' s Exhibit "D", f o r there is no evidence before us t o contradict it, and even disregarding the f i v e "no take" contracts, there i s no way the Commission could have arrived a t i t s figures except t o force the I ' p e t i t i o n e r t o break i t s Canadian take o r pay" contracts, and i f p e t i t i o n e r broke such contracts, it would be l i a b l e f o r t h e contracted gas, i t s earnings would be diminished, and i t s consumers deprived of an already diminishing gas supply. Such action i s beyond the powers of the Commission. This Court i n Cascade County Consumers Assn. v. Pub. Ser.Commtn, 144 Mont. 169, 186, 394 P.2d 856, had t h i s t o say regarding the powers of t h e regulatory agencies: h his Court has often spoken out against t h e abuse of power by s t a t e boards. In the case of S t a t e ex r e l . State Board of Equalization v. Kovich, 142 1JIont. 201, 383 P.2d 818, we recently said: 'This court has uniformly held t h a t the S t a t e ~ o a r d ' s actions, i f a r b i t r a r y , fraudulent, o r contrary t o law, a r e void and w i l l be so declared by the I I1 courts. . This Court i s not unaware of the great r e s p o n s i b i l i t i e s placed on the Public Service Commission t o regulate p e t i t i o n e r i n such a manner a s t o provide an adequate gas supply f o r p e t i t i o n e r ' s consumers a t a reasonable c o s t and a t t h e same time provide an adequate return t o p e t i t i o n e r a s provided by law. During a period of extreme i n f l a t i o n t h i s task a t times seems impossible, however, the Commission i n i t s actions cannot go beyond its statutory o r constitutional powers. W e find the Commission i n considering the f a c t s when making i t s determination and order- 1) disallowed "pass through1' costs t o the extent t h a t they may become confiscatory, i n violation of the constitutional prohibition against taking property without due process of law, and 2) t h a t t h i s constitutes a r b i t r a r y action and unjustly denies p e t i t i o n e r the "pass through" costs. Therefore, we order t h a t the Commission order of October 31, 1975, #4220, be s e t aside and t h a t p e t i t i o n e r ' s motion f o r a tem- porary approval of a gas increase t o correspond with t h e increased cost of Canadian gas and subject t o the f i n a l decision of the Commission t o rebate, be granted. W e Concur: / Justices.