Opinion ID: 2585635
Heading Depth: 3
Heading Rank: 3

Heading: Modification of THREA's Certificate

Text: Alaska Statute 42.05.271 [17] broadly authorizes the commission to amend, modify, suspend, or revoke a utility's certificate when it finds good cause to do so in light of the requirements of public convenience and necessity. In deciding to delete Klawock from THREA's service area, the commission relied on this provision, finding that the requirements of public convenience and necessity justified the modification. THREA complains, however, that the commission failed to give adequate notice of its intent to modify THREA's certificate and that it improperly forced THREA to bear the burden of proving the absence of good cause for the modification. THREA bases these arguments on the specific manner in which this case arose before the commission. THREA opened the commission proceedings with its petition to modify Alaska Power's certificate by removing Klawock from Alaska Power's service area. [18] In evaluating THREA's request, the commission eventually began to consider whether a better course might be to modify THREA's certificate instead by ousting THREA from Klawock. It ultimately chose that option. THREA argues that, upon converting the proceeding from one in which Alaska Power's certificate was at issue to one that considered modifying THREA's certificate, the commission should have notified THREA of the change and should have formally shifted to THREA's adversaries the burden of establishing good cause for the modification. THREA reasons that, because the commission failed to do so, its order modifying THREA's certificate violates due process and is invalid. The commission has never published rules explaining what burden of proof applies in proceedings before it, but a case decided by this court and a recent commission decision suggest that when a proceeding places a utility's certificate at risk of being unfavorably modified, the usual practice is to assign the burden of proof to the commission or to a complaining party. [19] Here, Alaska Power did not formally move to modify THREA's certificate, and the commission gave THREA no formal notice that the proceedings had been expanded to encompass such a modification. Yet the expanded scope of the proceedings was made unmistakably clear to all parties at an early stage of the proceedings. At the August 3, 1994, consumer hearing, commission staff explained that the commission had four options before it: 1) to maintain the status quo with regard to the service area; 2) to award the entire service area to [THREA]; 3) to award the entire service area to [Alaska Power]; or 4) to divide the service area into two exclusive service areas. Although the commission reiterated its intent to consider these options during later evidentiary hearings, THREA never objected that the option of modifying THREA's petition was not properly before the commission, never complained that it lacked prior notice of this option, and never suggested the need for a formal complaint alleging good cause for modification of its certificate. Instead, THREA simply acquiesced to the commission's characterization of its available options and continued to litigate the case on its merits. In deciding to modify THREA's certificate, the commission explicitly determined that all parties were afforded sufficient notice and opportunity to be heard. On appeal, THREA offers no indication of how it might have proceeded differently had it received more formal notice that its own certificate was at issue or how such notice might have changed the ultimate outcome of the proceedings. Given that AS 42.05.271 broadly authorizes the commission to modify any certificate for good cause [u]pon complaint or upon its own motion, given THREA's actual knowledge, early on, that the commission would consider the option of modifying either or both certificates, and given THREA's failure to voice an objection after it acquired this knowledge, we conclude that the commission's failure to give THREA more formal notice that its certificate might be modified amounted, at most, to harmless error. We reach the same conclusion on THREA's claim that the commission erred in failing to formally shift the burden of proving good cause for modification. Although the commission's decision makes passing reference to THREA's failure to meet its burden, the decision also makes it abundantly clear that the commission did not find this to be a close case that might turn on the allocation of burdens rather than on positive proof of good cause for modification. The commission made strong and specific findings concerning the undesirability of THREA's continuing to provide service to Klawock; these findings are supported by substantial, affirmative record evidence. And THREA makes no realistic effort to demonstrate how a formal change in the allocation of burdens could conceivably have changed this decision. [20] Instead, THREA advances two evidentiary points arising from the superior court's original order on remand. First, THREA claims that the commission ignored the superior court's order to disregard any consumer testimony presented during the first round of hearings unless THREA was afforded the opportunity for cross-examination on remand. But the commission expressly determined on remand that it would not consider any pre-remand testimony unless the parties specifically designated the testimony and provided an opportunity for cross-examination. THREA infers that the commission must have disregarded this determination because it ultimately found that the public interest requires that the consumers in Klawock receive electrical service from an entity that can provide safe, reliable service at a reasonable rate. According to THREA, this finding necessarily depends on pre-remand consumer testimony. But other evidence strongly supports a finding that THREA was failing to meet those criteria. For example, the record shows that Alaska Power charged significantly lower rates in locations similar to Klawock, yet Alaska Power performed THREA's maintenance and repair work in Klawock on a contract basis, and THREA did little more than broker Alaska Power's electricity. These facts alone support a finding that Alaska Power is better suited to provide Klawock with safe, reliable service at a reasonable rate. Second, THREA claims that the commission violated the superior court's order barring it from considering THREA's postage stamp rate structure [21] on remand. But THREA's argument misconstrues the court's order, which merely directed that, if other utilities used similar rate structures, THREA's use of a postage stamp rate would not itself amount to good cause for modifying THREA's certificate. On remand, the commission examined THREA's postage stamp rate structure and found that it unfairly burdened Klawock residents. But the commission did not rely exclusively on this factor in finding good cause for modification; instead, it considered a host of other factors. Moreover, the commission did not find that other utilities used similar rate structures. While it heard evidence that Alaska Power, too, used postage stamp rates, this evidence indicated that Alaska Power confined this rate structure to contiguous and geographically similar service areas. Because Klawock was isolated and geographically differed from other communities served by THREA, the evidence concerning Alaska Power effectively distinguished its use of postage stamp rates from THREA's, demonstrating that THREA's rates were not in the public interest because they applied indiscriminately to widely disparate communities. Since neither of these evidentiary points has merit, THREA has failed to establish that the commission's allocation of the burden of proof amounted to reversible error. Accordingly, we uphold the commission's finding of good cause under AS 42.05.271. [22]
The superior court's original remand order required the commission to determine how the loss of Klawock would affect THREA. The parties called various experts on this question. The commission relied on one of Klawock's experts in particular, Loren Uhlenkott, to support its conclusion that the federal purpose of the Rural Electrification Act would not be frustrated if THREA lost the Klawock service area and to support its original conclusion that the public interest would not be served by allowing THREA to continue providing electrical service in Klawock. The superior court upheld the commission's reliance on Uhlenkott. THREA contests this ruling on appeal. THREA claims that in predicting that THREA would be able to survive financially without Klawock in its service area, Uhlenkott relied on an analytical model that was so flawed as to render his expert opinions fundamentally unreliable. Uhlenkott compared THREA's actual situation, with Klawock included in its service area, to a hypothetical situation adjusted to project THREA's operations without Klawock. In building this analytical model, Uhlenkott adjusted many variables relating to THREA's rate base, most importantly the desired rate of return. THREA attacks this approach because it changed several variables at once. But according to Uhlenkott, he designed his hypothetical model to account for real world adjustments THREA would be capable of making to cope with the loss of its profitable Klawock service area. In contrast, THREA's expert, Eicher, assumed that if THREA lost Klawock, it would make no changes to adapt to offset the loss or ameliorate its financial situation  that it would simply continue to operate just as it had with Klawock. THREA's challenge to the reliability of Uhlenkott's model posits the validity of Eicher's approach. But it could just as easily be argued that the flawed approach is Eicher's. In reality, though, neither approach seems so inherently flawed as to be fundamentally unreliable. Both experts presented substantial, albeit opposing, evidence concerning THREA's financial ability to weather the loss of Klawock. The commission had the task of determining the strengths of their competing views and assessing their relative credibility. The commission's ultimate decision to favor Uhlenkott's testimony over Eicher's was not clearly erroneous.