Court Opinion

ID: 9884390
Source: CourtListenerOpinion
Date Created: 2023-10-06 02:54:46.210915+00
Date Added: 2024-06-11T07:48:38.045449
License: Public Domain

GARDEBRING, Justice
(concurring in part, dissenting in part).
This case is, of course, part of a larger utility ratemaking process. That such cases have become highly technical and voluminous in record is axiomatic to those who practice in this field. This ease is no exception: the administrative record in this ease spans over 1000 pages of transcript and includes boxes of supporting documents. It is replete with detailed analyses by accountants and economists, with cost allocation methods and with discussions of “flotation cost adjustment.” In the midst of this technical evidence and the complex legal doctrines that govern decisions in utility ratemaking, it is easy to lose sight of first principles. Here the issue is one of fairness.
The obligation of the Minnesota Public Utilities Commission (MPUC) is to set “just and reasonable rates.” Minn.Stat. § 216B.03 (1994). Is it just and reasonable for the private owners of a nonregulated business to benefit from the goodwill generated by the activities of a monopoly, without compensating the monopoly for that benefit? Put more simply, is it just and reasonable for the utility to give away a valuable asset? I think not and so I respectfully dissent from the portion of the majority opinion holding that the MPUC is without authority to impute revenues from that nonregulated business to Minnegaseo.
Goodwill is “[t]he capacity to earn profits in excess of a normal rate of return due to establishment of favorable community reputation and consumer identification of the business name.” Black’s Law Dictionary (6th ed. 1990) at 695. Minnegaseo has not denied that the goodwill associated with the company name and reputation has value in an unregulated environment. Indeed it would be hard pressed to do so in light of its own market study which demonstrated that appliance services advertised under the Min-negasco name were three times as appealing to consumers as identical services offered under the name “True Blue.”
Further, Minnegaseo even concedes that the MPUC has authority to impute revenue from the nonregulated business to Minnegas-co if a subsidy flows from the utility to a nonregulated business. However, it goes on to argue that the Federal Communications Commission (FCC) cost allocation system, required by the MPUC in this proceeding, is so pervasive in its methodology that there can be no such subsidization not already captured. But, as the state notes, the flaw in this argument is to assume that the only type of subsidy that can exist is an improper allocation of costs, where certain individuals and activities serve both the utility and the nonregulated business. This definition misses the mark where the subsidy is something more direct: the transfer of a valuable, intangible asset of the utility to the nonregulat-ed business without charge. Furthermore, the FCC itself, in its description of the methodology adopted by the MPUC, notes that the approach does not extend to cover “the allocation of intangible benefits * * * which may occur due to [utility] diversification.” Federal Communications Comm’n, In the Matter of Separation of Costs of Regulated Telephone Service from, Costs of Nonregulat-ed Activities, Report and Order No. 86-564 in Docket No. 86-111 (Released Feb. 6, 1987). As noted by the MPUC, Minnegaseo is foregoing a revenue opportunity by allowing the use of the utility’s name, image and reputation without charge. That can only be considered a subsidy.
The majority adopts a curious perspective on the question of how this valuable asset was created when it concludes that “the costs associated with creating good will have not been borne by the ratepayers.” If not the ratepayers, who? The things that contribute to good will — particularly efficiency and safety of service — are certainly the product of items specifically included in the rate base and thus paid for by consumers.
By this argument, the majority seems to adopt the position of Minnegaseo that through the imputation of income from the nonregulated industry to the utility, the MPUC is attempting to create an equitable *912interest for the ratepayers in the utility’s assets. This, asserts the utility, is contrary to the strictures of the Supreme Court in Board of Public Utility Commissioners v. New York Telephone Company, 271 U.S. 23, 46 S.Ct. 363, 70 L.Ed. 808 (1926), which held that ratepayers acquire no such legal or equitable interest by paying bills for utility service. The majority would apparently agree with the utility that by reducing the rates through imputation of revenue, the MPUC is giving an interest in the utility that belongs to the shareholders. It cites Justice Marshall’s analogy in Pacific Gas & Electric Co. v. Pub. Utils. Comm’n of California, 475 U.S. 1, 22 n. 1, 106 S.Ct. 903, 915 n. 1, 89 L.Ed.2d 1 (1986) (Marshall, J., concurring), that a grocery shopper indirectly pays for the cost of running the store, but does not gain a property interest in it simply by shopping there.
This argument, however, begs the question. The grocery shopper is not a captive ratepayer and the supermarket is not a monopoly, regulated by a government entity which has the responsibility of assuring that ratepayers pay only for the cost of service (plus a reasonable rate of return on the shareholders’s investment, of course). See Northern States Power Co. v. Minnesota Public Utilities Commission, 344 N.W.2d 374 (Minn.), cert. denied, 467 U.S. 1256, 104 S.Ct. 3546, 82 L.Ed.2d 850 (1984).
Furthermore, even without judicial action to create an equitable interest for ratepayers in the assets of the utility, it is still clear that:
Because ratepayers have funded the salaries, training, * * * and other activities that generate good will, they are entitled to rate recognition of revenues received by the utility in exchange for the use of that ■ asset by an affiliate * * *.
In the Matter of Rochester Telephone Corp. v. Pub. Serv. Comm’n State of New York, 87 N.Y.2d 17, 31, 637 N.Y.S.2d 333, 339, 660 N.E.2d 1112, 1118 (1995) (quoting the New York Public Service Commission, op. no. 93-II (July 1993)).
New York is not the only state that has recognized the fundamental fairness of the imputation of income to reflect the transfer of a valuable asset from the utility to the unregulated industry. In Oklahoma, the Public Utility Commission imputed a 5% royalty fee on intangible assets, such as goodwill of the utility, used by its nonregulated affiliates to generate revenue without compensating the regulated utility. The Commission identified what it considered to be “valuable intangible assets” as, among other things, “use of [the utility] trademarks and logos; use of [the utility] name, reputation and public image.” Re Southwestern Bell Telephone Co., 137 Pub.Util.Rep. 4th (PUR) 63, 150 (Okla.Corp.Comm’n 1992). It further determined “[the public utility]’s status as the longstanding franchised provider of monopoly * * * service has created nearly universal market awareness and penetration of the [public utility] name, official marks and business reputation * * * maintained at ratepayer costs.” Id. Both the Commission and the ALJ determined that the benefits reaped by the affiliates from the intangible assets of the regulated utility should be shared with the ratepayers who paid for the expense of generating that public goodwill. Id. at 150, 152. This case is much like the one we address here today. Minnegasco’s name, reputation and public image have helped to deliver tangible economic revenue to its affiliate through the use of those intangible assets and ratepayers should be compensated for that transfer by a reduction in rates.
Similarly, the Florida Supreme Court found that the Public Service Commission’s decision to compensate public utility ratepayers for the transfer of intangible benefits was within the Commission’s statutory authority and in the public interest. United Telephone Long Distance v. Nichols, 546 So.2d 717, 720 (Fla.1989). Under Fla.Stat. § 366.04, the Florida public service commission has broad powers to “regulate and supervise each public utility.” In Nichols the public service commission imputed a 2.8% compensation fee to the affiliates of the telephone company. 546 So.2d at 719. The court found that the affiliates’ use of the name, logo and reputation of the regulated telephone company required compensation to the ratepayers, and the commission’s imputation of such compen*913sation was well within its broad jurisdiction and powers. Id. at 719-20.
The majority makes much of its statutory argument, that there is no “express statutory authority to impute revenue to a gas utility for the value of good will passed, without compensation, from a utility to an affiliated business.” Indeed! Utility law practitioners would be surprised to find such an intricate and detailed grant of authority in the midst of a statute which grants to the MPUC broad and general powers for ratemaking and gives the benefit of the doubt to the ratepayer. Minn.Stat. §§ 216B.08,216B.03.
I begin with Minn.Stat. § 216B.08 which grants the MPUC “the powers, rights functions, and jurisdiction to regulate * * * every public utility as defined herein.” Further the statute provides that, “The exercise of such powers, rights, functions, and jurisdiction is prescribed as a duty of the commission.” This statute mirrors that found in Florida where the state court determined that such a statute clearly granted the commission powers to impute compensation to ratepayers when necessary.
I also note Minn.Stat. § 216B.03 granting to the MPUC the power to set just and reasonable rates and stating specifically “[a]ny doubt as to reasonableness should be resolved in favor of the consumer.” This statutory obligation requires the MPUC to compensate the ratepayer where reasonableness is at issue.
Finally, I note Minn.Stat. § 216B.48, subd. 6, which grants the MPUC powers to supervise the contractual terms and conditions between the regulated business and its affiliates “so far as necessary to protect and promote the public interest.” This statutory obligation of the commission requires it to be vigilant in assessing the impact of the utility — affiliate relationship on the costs borne by utility ratepayers.
Taken together, these statutory obligations give the MPUC a grant of broad authority. Particularly noting the legislative preference for the ratepayers’ interests expressed in Minn.Stat. § 216B.03, I conclude that the implied authority to impute revenue for the transfer of goodwill to a nonregulated affiliate can be “fairly drawn” and is “fairly evident” from the “objective and powers expressly given by the legislature.” Peoples Natural Gas Company v. Minn. Pub. Util. Comm’n, 369 N.W.2d 530, 534 (Minn.1985).
Furthermore, it is a fundamental principle of utility law that “if the public interest outweighs the inconvenience and expense to the corporation, the order will generally be upheld.” Otter Tail Power Co. v. Federal Power Commission, 429 F.2d 232, 236 (8th Cir.1970), cert. denied, 401 U.S. 947, 91 S.Ct. 923, 28 L.Ed.2d 230 (1971). Here there is a powerful public interest in just and reasonable rates that accurately reflect the relationship between the utility and its nonregulated affiliate and that interest is vindicated by the approach of the MPUC on this issue.
Utility ratemaking is a complex business, given the need to meet competing public policy objectives. It involves:
[a] balancing of the investor and the consumer interests * * *. The investor’s interest lies in the integrity of his investment and a fair opportunity for a reasonable return thereon. The consumer’s interest lies in governmental protection against unreasonable charges for the monopolistic services to which he subscribes.
Democratic Cent. Comm. v. Washington Metro. Area Transit Comm’n, 485 F.2d 786, 807 (D.C.Cir.1973), (footnotes and citations omitted), cert. denied 415 U.S. 935, 94 S.Ct. 1451, 39 L.Ed.2d 493 (1974). In its decision to impute to the utility revenue associated with the transfer of a valuable asset, the MPUC created such a balance. While utility shareholders are legally entitled to a fair return on their investment, simple diversification by the utility should not allow the affiliate to use, without compensation, the “sound-bite” name recognition created by years of establishing community reputation. The MPUC has not given the ratepayers a property interest in the utility assets, it has only done the job it was assigned by the Legislature — to protect the ratepayer.
For the reasons stated above, I therefore dissent.