Opinion ID: 2109887
Heading Depth: 3
Heading Rank: 3

Heading: Montana Exceptions

Text: We next consider whether the Tribe's authority derives from either of the two exceptions to the general principle mentioned in Montana and again in Justice White's opinion in Brendale.
The first Montana exception is that [a] tribe may regulate, through taxation, licensing, or other means, the activities of nonmembers who enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements. Montana, supra, 450 U.S. at 565, 101 S.Ct. at 1257. Otter Tail asserted that the Tribe derived authority under this exception because the tribe is regulating the terms of non-member Otter Tail's commercial dealings with a tribal corporation, or `member.' Viewing the relationship between a supplier and consumer of electricity as merely a consensual relationship undifferentiated from other types of commercial transactions ignores the nature of the electric utility business. The regulation of utilities is one of the most important of the functions traditionally associated with the police power of the States. Arkansas Elec. Co-op. v. Arkansas Pub. Serv. Comm'n, 461 U.S. 375, 377, 103 S.Ct. 1905, 1908, 76 L.Ed.2d 1 (1983); see also Montana-Dakota Utilities Co. v. Johanneson, 153 N.W.2d 414, 420 (N.D.1967). In the exercise of its police power, the Legislature has given the PSC broad authority to regulate [e]lectric utilities engaged in the generation and distribution of light, heat, or power. NDCC 49-02-01(4). The authority of the PSC over electric utilities is extensive. The regulatory powers of the PSC include the authority to supervise the rates of all public utilities [NDCC 49-02-03], except those owned or operated by the state or its political subdivisions, or any public utility not operated for profit. NDCC 49-02-01.1. The PSC may take action against an electric utility for unreasonable or discriminatory rates, rules, or practices [NDCC 49-02-17 and 49-02-18], and for unsafe or inadequate services. NDCC 49-02-04. The PSC may also regulate the raising and lowering of electric supply ... lines.... NDCC 49-02-21. The PSC may regulate issuance of certain stocks, bonds, notes, and other evidences of indebtedness by an electric public utility. NDCC 49-04-04. The PSC is also given authority to regulate the construction, operation and maintenance of electric supply lines and of conversion and transmission facilities in the state. NDCC 49-20-02 and 49-22-07. Prominent among the powers granted to the PSC is its authority to control an electric public utility's construction and extension of its plant or system pursuant to NDCC Chapter 49-03, and more specifically, NDCC 49-03-01.1, 49-03-01.3, 49-03-01.4 and 49-03-01.5, known as the Territorial Integrity Act, through issuance of certificates of public convenience and necessity. The primary purpose of the Territorial Integrity Act was to keep to a minimum wasteful duplication of capital-intensive utility services and conflicts between suppliers of electricity. Cass County Elec. Co-op. v. N.S.P., 419 N.W.2d 181, 185 (N.D. 1988). Although customer preference is a factor to be considered in deciding whether public convenience and necessity requires the extension of a utility system in a rural area, it is a minor consideration which cannot prevail where economic factors, such as relative costs and wasteful duplication, provide other criteria for choice. Tri-County Electric Cooperative, Inc. v. Elkin, 224 N.W.2d 785, 792 (N.D.1974). Construction of a supply line affects the entire system of an electric utility. Two additional observations can be made. First, an electric supply system, over which the PSC has regulatory control, is generally not confined to particular parcels of property, but spans across reservation boundaries as well as state borders. Otter Tail does not argue that none of its electric distribution system existing outside reservation boundaries is used to implement the service within the reservation. Second, the Territorial Integrity Act implicitly gives preference to the interests of the public in general over the preference of a particular electric customer to have a certain supplier furnish it with electricity. Because `[a]n individual has no organic, economic or political right to service by a particular utility merely because he deems it advantageous to himself,' [ Matter of Certain Territorial Elec. Boundaries, Etc., 281 N.W.2d 65, 72 (S.D.1979), quoting Storey v. Mayo, 217 So.2d 304, 307-308 (Fla.1968) ], it is inaccurate to view a request for service by a potential electric customer from an electric supplier as forming a consensual relationship similar to that which occurs in other commercial contexts. In Williams v. Lee 358 U.S. 217, 79 S.Ct. 269, 3 L.Ed.2d 251 (1959), one of the cases relied upon in Montana for the consensual relationship exception, the Court held that an on-reservation non-Indian merchant must sue in tribal court to recover payment for goods sold on credit to a reservation Indian. As one court has opined: There is a basis for treating the merchant [in Williams v. Lee ] as having implicitly consented to be a plaintiff in tribal court: he knew he was dealing with an Indian, and he could limit his credit sales and thus control the size of the claim he would have to take to the tribe for resolution. UNC Resources, Inc. v. Benally, 514 F.Supp. 358, 363 (D.N.M.1981). Implicit consent does not exist in this case. Otter Tail purchased part of its reservation electric distribution system in 1968 from the Fort Totten Agency. The Bureau of Indian Affairs-Otter Tail purchase contract, which was ratified by the Committee on Interior and Insular Affairs of the Senate and House of Representatives, provided in part that: Otter Tail will provide electric service to customers requesting same subsequent to the effective date of this contract in accordance with Otter Tail's rules and regulations and in conformance with the rules and regulations of the Public Service Commission of the State of North Dakota. [Emphasis added.] The contract further provided that: The rates charged by Otter Tail to agencies of the United States and to others will be those rates currently in effect as approved by the Public Service Commission, including applicable rules and regulations as approved by the Public Service Commission, and subject to the applicable rules and regulations established by the Public Service Commission. [Emphasis added.] Otter Tail's electric system is not confined to the reservation. Rather, the electricity is generated outside of reservation boundaries and is delivered to points on the reservation through a system largely outside the reservation. We view the present case as the Tribe reaching outside the reservation to regulate a public utility, rather than as a reaching in by a non-Indian business entity. Cf. Smith Plumbing Co. v. Aetna Casualty & Surety, 149 Ariz. 524, 720 P.2d 499, 506 (1986). We conclude that the Montana consensual relationship exception is not applicable under the circumstances of this case.
The second Montana exception is that [a] tribe may also retain inherent power to exercise civil authority over the conduct of non-Indians on fee lands within its reservation when that conduct threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe. Montana, supra, 450 U.S. at 566, 101 S.Ct. at 1258. The Tribe has the burden of proof on this issue. See Brendale, supra, 109 S.Ct. at 3008; Montana, supra . As we have already noted, the Tribe made no appearance in these proceedings to explain how its political integrity, economic security, or health and welfare would be threatened by the PSC's exercise of jurisdiction. The PSC found that the Tribe has never attempted any type of electric utility regulation in the past. The PSC has traditionally exercised jurisdiction over electric suppliers on the reservation. These circumstances negate the claim that the Tribe's resolution directing that Otter Tail serve DTI was necessary to tribal self-government. See Montana, supra, 450 U.S. at 564 n. 13, 101 S.Ct. at 1258 n. 13. We reject Otter Tail's argument that regulation of an electric service is a quintessential act of the Tribe's right of self-government. Otter Tail also asserted that the Tribe's economic security is jeopardized because DTI's competitive position in the marketplace will be undercut by being forced to pay Baker's higher electric rates. However, the difference in electric costs to DTI was not fully developed in this record because the rate structure for permanent electric service to DTI had not yet been established by Baker. As Justice White pointed out for the plurality in Brendale, the Tribe's interest under federal law, defined in terms of the impact of the challenged regulations on the political integrity, economic security, or the health or welfare of the tribe, does not entitle the Tribe to preclude everything that has an adverse effect on the Tribe. Rather, the impact must be demonstrably serious. Brendale, supra, 109 S.Ct. at 3008. Otter Tail's theoretical arguments fall short of demonstrating any serious effect on the Tribe's economic security. We conclude that the Tribe does not derive the power to regulate an electric service on the reservation under either of the Montana exceptions.