Opinion ID: 877487
Heading Depth: 1
Heading Rank: 2

Heading: judicial review of psc order.

Text: The City argues that the District Court erred in its determination of the extent of the PSC's jurisdiction over the matters arising in this litigation. The District Court affirmed the order of the PSC in which the PSC made the following conclusions with respect to its jurisdiction: 1) That its approval in 1972 of service area boundaries for the City, which included the District, was an act in excess of its jurisdiction; 2) that it had full regulatory power over the City; 3) that its power over the District was limited to its authority to intervene in any contract made by a public utility; 4) that it has power to modify a contract only if the contract poses an immediate threat to the City's ability to serve its customers or if it adversely affects the rate structure; 5) that the City's water service area does not include the District; 6) that the PSC has no authority to fix the boundaries of the District; and 7) that it had no authority to interpret the 1963 contract between the City and the District. The City argues that the Municipal Revenue Bond Act of 1939, sections 7-7-4401 et seq., MCA, precludes jurisdiction of the PSC over the City. The Act provides that the City shall have power to prescribe fees for the services, facilities and commodities furnished by an undertaking financed pursuant to the Act. Sections 7-7-4404 and 7-7-4424(1), MCA. The Act does not mention the authority of the PSC, and thus the City argues that the PSC has no jurisdiction over a municipality operating a utility under the provisions of the Act. We disagree with the City's interpretation of the statute. For reasons which we will explain in our opinion in City of Billings v. Public Service Commission (No. 81-24), we conclude that the City does have the power to set rates, subject to modification by the PSC if such rates are unjust or unreasonable, section 69-3-330, MCA, and that the jurisdiction of the PSC is not limited by the Municipal Revenue Bond Act. The City next contends that the statutes on annexation, section 7-13-4314, MCA; subdivisions, sections 76-3-101 et seq., MCA; and zoning, section 76-1-101 et seq., MCA, have a bearing on the jurisdiction of the PSC in this case. We have examined these statutes and find they are not relevant to the resolution of the issues presently before us. Three further questions regarding the extent of PSC jurisdiction over the matters arising in this litigation are raised by the City as follows: 1) Does the PSC have authority to determine water service area boundaries of the City? 2) Does the PSC have any jurisdiction over the District with respect to its water service area boundaries? 3) What jurisdiction does the PSC have with respect to the 1963 contract between the City and the District? With regard to the first jurisdictional issue, the City argues that the PSC has authority to determine the boundaries of the City's water service area, which the City contends includes the District. The City in 1972 submitted a recommended service area map to the PSC along with a letter stating that the area included the water districts served by the City and requesting approval of the water service area boundaries. The map included the Billings Heights District. The PSC approved the map and subsequently approved changes, including some changes within the District boundaries. The PSC in its order No. 4366 concluded that its approval of the City's water service area including the District was in excess of its jurisdiction. The PSC determined that the District was not within the City's water service area, noting that: When a public utility makes a sale for resale, its service area stops at the point at which the product is transferred to the distributing utility. The service obligation also stops at that point. A customer of the District who was receiving poor service would look to the District to rectify the situation. He would have no remedy against the City, because he has no relationship with the City. We agree that the District is a separate utility with its own water service area. The City is obligated by contract to sell water to the District and has no standing to object to the water service area of that utility. The PSC has no jurisdiction over the expansion of the District boundaries. According to section 7-13-2341, MCA, control over the size of the District is expressly vested in the board of directors and the electors. The statute makes no mention of a requirement of PSC approval before land may be added to a county water district. The PSC was not given jurisdiction to fix the boundaries of a county water district and as an administrative agency the PSC may not assume jurisdiction without express delegation by the legislature. City of Polson v. Public Service Commission (1970), 155 Mont. 464, 473 P.2d 508. The PSC has no control over the water service area of a utility except to the extent of determining on a case-by-case basis whether adequate service is provided at reasonable rates to customers who are within the service area. City of Polson, supra; section 69-3-201, MCA. Finally, what jurisdiction does the PSC have with respect to the contract between the City and the District? The PSC determined that it had no jurisdiction to interpret the contract and that it had power to interfere with a contract only if the contract presents an immediate threat to the utility's ability to serve or if the contract adversely affects the rate structure. The District Court correctly affirmed these conclusions. Section 69-3-103(1), MCA, states that the PSC does not have judicial powers. Interpretation and enforcement of contracts are judicial functions. As stated by the North Dakota Supreme Court: The Public Service Commission has no power to construe, enforce or adjudicate the validity or effect of the contract between the parties in question except as to its effect upon matters within its jurisdiction. That jurisdiction is dependent upon the statutes. Williams Elec. Cooperative v. Montana-Dakota Utilities Co. (N.D. 1956), 79 N.W.2d 508. The jurisdiction of the PSC is limited to the regulation of rates and service as provided by the Montana statutes. Section 69-3-101 et seq., MCA. All contracts entered into by a public utility are subject to the paramount authority of the state to exercise its regulatory powers. State v. Billings Gas Co. (1918), 55 Mont. 102, 173 P. 799. In order to exercise its regulatory power the PSC must have and does have the power to supersede or modify provisions of contracts made by utilities to the extent that rates and services are affected. State v. Billings Gas Co., supra; City of Billings v. Public Service Commission (1923), 67 Mont. 29, 214 P. 608. See also Preston County Light and Power Co. v. Renick (1960), 145 W. Va. 115, 113 S.E.2d 378. After determining that its jurisdiction over the contract was limited, the PSC concluded that the City had failed to prove the existence of an immediate threat to its ability to serve or the existence of rate structure inequities. Therefore the PSC declined to interfere with the contract. The District Court affirmed the PSC order, finding it supported by substantial credible evidence. The City argued that its ability to serve its customers was threatened because the District did not have an explicit limit on expansion of its boundaries when the City was facing severe water shortages. Testimony at the hearing showed that the City had indeed experienced water shortages. However, the hearing also showed that the City was engaged in an extensive program to improve its water service capabilities. Upon completion of the program, which was expected by 1977, the City would have a rated capacity of 70,000,000 gallons per day, an amount double the capacity of the City water system prior to the improvements. On the basis of this evidence, the PSC order No. 4366, dated July 20, 1977, concluded that the issue of a threat posed to the City's ability to serve was moot in view of the water plant expansions which eliminated the water shortages. There is substantial evidence to support this finding. The City also argued that the mains and volumes clauses of the 1963 contract posed a threat to its ability to serve. The contract provided for the City to construct a 16-inch main to connect with a 16-inch main built by the District from its reservoir to the City's main. The contract provided: All of the aforesaid water mains are to be operated, repaired, maintained and, when necessary, replaced or enlarged by the City at its expense. With respect to volume, the contract stated: The parties understand and anticipate that population and the use of water within the District will increase in the years to come and that there will be increasing demands upon the mains described in section (1) above and the pumping facilities initially installed as described in this section. In this regard the City agrees that it will at all times furnish, operate and maintain at its own expense, water transmission mains and pumping facilities capable of providing water at a pressure and quantity sufficient to meet the demands of the District, subject only to the following limitations: (a) The City shall not be required to provide to the District, during any 24-hour day, any more than twice the average daily amount of water used during June, July and August of the summer immediately preceding. (b) The City reserves the right to restrict the use of water by the District in the event a shortage of water makes it necessary to impose restrictions in use on all other users of City water. However, restrictions in use, if any, imposed upon the District, shall be no different than the use restrictions imposed within the City of Billings. (Emphasis added.) The PSC found that the City had failed to prove any immediate threat to its ability to serve. Mr. Wright, a civil engineer for the City, testified that it was expected that a larger main would be required by the District in 1985. Mr. Wright also testified that the volume clause provided for a doubling of District usage every year. However, no figures of actual increase in District usage were provided. The testimony was speculative and showed no immediate threat to the City's ability to serve. Finally, with regard to the City's attempt to prove rate inequities, the PSC found that rate issues were not raised in the complaint and were not properly a part of the proceeding. The PSC determined that it had the authority to modify the contract with respect to rates, but that it would review the matter in another proceeding. See City of Billings v. PSC (No. 81-24). The PSC properly excluded the rate evidence in this proceeding. In summary, we hold that the PSC has no jurisdiction to determine the boundaries of a county water district and that the PSC has authority to modify or supersede a contract between a public utility and its customer if the contract poses an immediate threat to the utility's ability to serve or if the contract adversely affects the utility's rate structure. We further hold that the PSC's conclusion that the City of Billings failed to prove an immediate threat to its service ability is supported by substantial credible evidence and was properly affirmed by the District Court.