Opinion ID: 1174031
Heading Depth: 1
Heading Rank: 4

Heading: settlement in public interest?

Text: After the parties submitted their stipulation and agreement of settlement, the Commission held eight days of hearings to receive testimony and public statements on whether it should be approved. The Commission heard from qualified accountants, economists, petroleum engineers, energy and utility rate consultants, petroleum geologists, security analysts, shareholders, officers of MFS and Wexpro, an Assistant Attorney General, and from public witnesses, including ratepayers. After widely publicized hearings on October 14-16 and 19-20, 1981, the Commission continued the matter to November 23-25 to allow further opportunity for the public to examine and comment on the settlement and for the Coalition to prepare any evidence it wished to offer. During the course of its hearings, the Commission heard testimony from 12 witnesses and received written submissions from 10 other persons and organizations. The parties' witnesses supported the fairness of the settlement, examining and commenting upon its various provisions in great detail and recommending that the Commission approve it as being in the public interest. Although the Coalition opposed the settlement, its single witness took no position on the merits of the settlement. The testimony of public witnesses expressed concerns about various provisions of the settlement, focusing principally on utility rates. In an order entered December 31, 1981, the Commission found that [t]he interests of MFS customers, of citizens of the State of Utah and of MFS shareholders will be served by approval of the Settlement. The Commission concluded that the transfer is for market value, that [it] is in the public interest and that appropriate benefits redound to the benefit of the customers and MFS. Our statutes direct in the clearest terms that the agency vested with power and jurisdiction ... to supervise all of the business of every such public utility in this state is the Commission, not this Court. U.C.A., 1953, § 54-4-1. The Commission is empowered to assure that utility charges and rules and regulations are just and reasonable and that service is adequate, efficient, just and reasonable. U.C.A., 1953, § 54-3-1. As noted in Part IIC of this opinion, the decisions of this Court establish that determinations of policy on subjects within the Commission's jurisdiction and expertise are primarily the responsibility of the Commission. Pursuant to the foregoing statutes and decisions, the Commission clearly has the authority to determine whether the proposed settlement is in the public interest. On a matter such as this, this Court's scope of review is limited to determining whether the Commission's conclusion falls within the limits of reasonableness when measured against the terms of the authorizing legislation, its evident purpose, and the public policy it seeks to serve. After viewing the question in that manner, we are fully satisfied that the Commission's approval of this settlement does not transgress the tolerable limits of reason. Silver Beehive Telephone Co. v. Public Service Commission, 30 Utah at 46, 512 P.2d at 1328, discussed in Part IIC herein. The settlement brings an end to a complex, divisive, and expensive public controversy. Its fairness is confirmed by the unquestioned adversary nature of the negotiations, by the skill of the parties and their counsel, and by the Commission's finding of market value, which we have already sustained. The settlement forestalls further delay in exploring the wildcat acreage, which would entail forfeitures or other losses detrimental to all parties. It permits MFS and its affiliates to proceed with the exploration and development of its mineral resources, to the advantage of all parties. It permits the corporations and public agencies to proceed with planning free from the risks and uncertainties engendered by this long-standing and far-reaching controversy. As additional advantages to the ratepayers, the settlement assures that they will continue to receive gas from the existing productive oil and gas reservoirs at cost-of-service prices (rather than the much higher market prices that could have resulted from the assertion of federal jurisdiction). [27] The settlement guarantees that gas rates will be reduced by credits for a majority of the profits from the oil properties. It also furthers ratepayer interests by obligating MFS (without any financial risk or additional investment by ratepayers) to conduct a vigorous exploration of properties in which ratepayers have a substantial royalty interest. It provides ratepayers a royalty interest in extensive after-acquired properties in which they had no investment or previous proprietary interest. The settlement also assures that the ratepayers will have first call to purchase natural gas (at market prices) from the vast wildcat acreage. Finally, it provides ratepayers an immediate rate reduction of $21 million plus amounts attributable to the removal of unexplored properties from the rate base (which the Division of Public Utilities estimates at about $2 million annually), and lesser reductions on a regular basis in the future. Singling out various aspects of the settlement for individual examination and criticism, the Department urges their inconsistency with the interests of ratepayers and the public. For example, the Department attacks the provisions that permit Wexpro to sell some gas to MFS at market prices rather than cost-of-service prices, characterizing this feature as a half billion dollar mistake in its ultimate imposition of added costs on ratepayers. Since the Department did not appear and submit evidence for the consideration of the Commission, such factual-based argument is unpersuasive in this petition for review. A Commission finding and conclusion on the overall fairness of a negotiated settlement agreement containing many provisions should not be open to after-the-fact selective sniping at the fairness of individual provisions considered in isolation. The Department also attacks the settlement provisions (not summarized earlier) by which the parties stipulate that none of them will claim that the Properties owned by Wexpro are subject to the public utility regulation of any state, and by which they, in effect, express the hope that Wexpro should be recognized by states in which it operates as an independent company which is not subject to state public utility regulation... . The Department characterizes these provisions, and others related to them, as plainly unlawful terms that divest the Commission of its jurisdiction over the public utility properties transferred to Wexpro and Celsius, over the sale of natural gas from them to MFS, and over the activities of those affiliates in general. In the Department's view, these stipulations also divest the Commission of the power to determine the serious issue, identified in Wexpro I, of whether it is in the public interest for Mountain Fuel to divide its utility function between itself and a subsidiary. 595 P.2d at 878, n. 8. The Commission thought otherwise. On the last issue, its order states that the Commission is vitally interested in company restructuring which is in effect diversification or functional separation and asserts that it is authorized to set aside or modify the same if found to be detrimental to the utility cornerstone of MFS's business or injurious to the public interest. The Commission also concluded that [b]y adopting and approving the Stipulation [which the Commission elsewhere characterized as merely an agreement between the parties], the Commission does not relinquish or limit any jurisdiction or statutory authority it possesses. The Commission also explained that notwithstanding any language that might be construed to the contrary in any of the settlement documents, all parties have agreed on the record that acceptance of the settlement by the Commission in no way limits or affects the Commission's jurisdiction or regulatory authority and further is not to be construed as limiting the Commission in its future regulation of MFS. We find no error in the Commission's conclusions on these important jurisdictional matters (Part IIA). Like the Commission, we find no inconsistency between these conclusions and the parties' stipulation that none of them would claim that the Properties were subject to public utility regulation, since the quoted term is defined to refer solely to the properties MFS transferred to Wexpro and Celsius pursuant to the settlement. As to these Properties (and the related agreements on pricing and payments), the terms of the MFS-Wexpro (or Celsius) relationship, as approved by the Commission in the exercise of its jurisdiction, are fixed as a matter of property and contract law. The Commission's jurisdiction is otherwise unaffected by the agreement and stipulation or by the order approving it. The Department also claims that the parties' stipulation not to challenge any action taken by [MFS] or Wexpro in accordance with the terms of the Agreement other than through [the agreed] arbitration procedures, constitutes an illegal divestiture of the Division of Public Utilities' statutory powers to act as a party litigant before the Commission. Since that restriction on the powers of the Division of Public Utilities only applies to the enforcement of the agreement and to the Properties transferred under it, we think it is not illegal. The parties stipulated that the Division was to monitor the performance of [MFS] and Wexpro under the Agreement and they established means (including access to information) to facilitate that monitoring. Since the sound policy of the law looks with favor on agreements to arbitrate, Lindon City v. Engineers Construction Co., Utah, 636 P.2d 1070 (1981), we can see no reason why that favoritism should not permit the parties to agree that the Division could enforce this limited function by means of arbitration.
Contrary to other Department arguments, the Commission's order is not illegal because of inconsistency with Utah law, notably those passages in the Wexpro I opinion that speak of MFS's trust relationship with ratepayers and of the no-profits-to-affiliates rule. This Court's references to MFS's trust relationship to its customers, 595 P.2d at 874 and 876, have been productive of considerable confusion. [28] The single judicial authority cited for this reference unquestionably used those words not in the technical sense of property owned in trust for another, but in the nontechnical sense of special responsibilities owed to another. Thus, in the two sentences immediately preceding its reference to trust relationship the cited case refers to the utility's monopoly position and to its consequent duty to operate in such manner as to give to the consumers the most favorable rate reasonably possible. City of El Dorado v. Arkansas Public Service Commission, 235 Ark. 812, 816, 362 S.W.2d 680, 683-84 (1962). That statement, which was echoed in this Court's opinion in connection with each of its references to the trust relationship, is simply an expression of the utility's legal responsibility to make just and reasonable charges for its services and to assure that those services are in all respects adequate, efficient, just and reasonable. U.C.A., 1953, § 54-3-1. These and the related traditional legal duties of a utility  not a technical trust relationship  are the measure of the utility's relationship to its customers. This clarification is not intended to minimize the extent of MFS's duties to its customers. Those duties are extensive, and they are enforceable. The Commission is empowered to supervise and regulate every public utility in this state, and to supervise all of the business of every such public utility, § 54-4-1, including the fixing of rates. U.C.A., 1953, § 54-4-4. We have often said that the Commission is responsible to exercise its statutory powers over utilities to assure that the public receives the most efficient and economical service possible. Lewis v. Wycoff Co., 18 Utah 2d 255, 259, 420 P.2d 264, 266 (1966). The fixing of rates presupposes efficient and economical management. Utah Power & Light Co. v. Public Service Commission, 107 Utah 155, 212, 152 P.2d 542, 568 (1944). Although the Commission is normally forbidden from intruding into the management of a utility, we have suggested that it can do so where the policy and consequent expenditure is actuated by bad faith, or involves dishonesty, wastefulness, or gross inefficiency. Logan City v. Public Utilities Commission, 77 Utah 442, 447, 296 P. 1006, 1008 (1931). [29] These powers are surely sufficient for the Commission to ascertain and correct wasteful or grossly inefficient business practices by utilities in order to enforce what Wexpro I referred to as the duty of a public utility corporation to operate in such a manner as to give to the consumers the most favorable rate reasonably possible. 595 P.2d at 874 and 876. In addition to its general legal responsibilities as a utility, MFS assumed additional responsibilities of a fiduciary character when it obtained ratepayer financing for utility exploration and development by including such expenses in its rate base. The resulting proprietary interest of ratepayers in MFS properties so financed, recognized in Wexpro I, might be termed a trust relationship. Whatever uncertainty exists on that score is finally resolved in the current settlement, under which the ratepayers have relinquished that proprietary interest in exchange for a royalty interest in a specific and larger quantity of properties, plus other considerations.
In Wexpro I, we referred to the market-price-purchase terms of the original exploration agreement as a violation of the no-profits-to-affiliates rule. 595 P.2d at 874-75. We cited three authorities for that proposition: Utah Power & Light Co. v. Public Service Commission, 107 Utah 155, 195-96, 152 P.2d 542, 560-61 (1944); Cities Service Gas Co. v. Federal Power Commission, 424 F.2d 411 (10th Cir.1969); Florida Gas Transmission Co. v. Federal Power Commission, 362 F.2d 331 (5th Cir.1966). Those same three authorities (along with our decision in Wexpro I ) are now urged as a basis to upset the settlement provisions allowing Wexpro to charge MFS market price for gas produced on wells yet to be discovered on the exploratory properties and to retain a share of profits from the productive oil reservoirs. In Utah Power & Light Co. v. Public Service Commission, supra , this Court held that the Public Service Commission's application of a no-profits-to-affiliates rule was not arbitrary. In that case, the Commission disallowed from the utility's rate base a 3 1/4% profit fee that had been added to construction costs (including overhead) by an affiliate that the Court described as a `dummy' corporation organized without substantial assets of its own to do construction work for the parent corporation... . 107 Utah at 193, 152 P.2d at 559. MFS and the Division of Public Utilities attempt to distinguish the cited authorities from the current case, principally on the basis that Wexpro, though a wholly owned subsidiary, is not a shell corporation, but has substantial assets, personnel, and independent functions of its own, and that MFS's proposed purchases at market price are not subject to the internal abuse sought to be avoided by the no-profits-to-affiliates rule. They cite two authorities: Washington Water Power Co. v. Idaho Public Utilities Commission, 101 Idaho 567, 617 P.2d 1242 (1980); Central Telephone v. State Corporation Commission, 219 Va. 863, 252 S.E.2d 575 (1979). The application of the no-profits-to-affiliates rule to rates charged by public utilities is a complex subject on which courts and commissions have taken quite diverse positions on differing sets of facts. See generally Annot., 16 A.L.R. 4th 454 (1982). Following the precedent of the Utah Power & Light Co. case, supra, we think this subject is best treated in the first instance by the Public Service Commission, subject to our normal scope of review. In this case, the Commission has approved market-price purchases from an affiliate in the limited circumstance of gas produced on certain acreage included in the current settlement. In the context of that settlement, which resulted from adversary negotiations including the Division of Public Utilities, the terms of this purchase within the affiliate relationship have none of the sweetheart characteristics that the rule sought to counteract. We therefore have no difficulty in sustaining the Commission's approval of the market-price provisions of the settlement as within the tolerable limits of reason (Part IIC). We express no opinion on the applicability or inapplicability of the no-profits-to-affiliates rule in other circumstances.