Court Opinion

ID: 876079
Source: CourtListenerOpinion
Date Created: 2013-06-04 20:24:47.635918+00
Date Added: 2024-06-11T15:27:33.967910
License: Public Domain

No. 12944

          I N THE SUPREME COURT O THE STATE OF M N A A
                                 F              OTN

                                       1975

M N A A C N U E COUNSEL,
 OTN     O S MR
GEOFFREY L. BRAZIER,

                              P l a i n t i f f and Respondent,

PUBLIC SERVICE COMMISSION O MONTANA
                           F
e t al.,

                             Defendants and Respondents,

          and

THE MONTANA P W R COMPANY, A C o r p o r a t i o n ,
             O E

                             I n t e r v e n o r Defendant and A p p e l l a n t .

Appeal from:        D i s t r i c t Court of t h e F i r s t J u d i c i a l D i s t r i c t ,
                    Honorable P e t e r G. Meloy, ~ u d g ep r e s i d i n g .

Counsel of Record:

      For Appellant :

               Robert D. C o r e t t e a r g u e d , B u t t e , Montana
               Kendrick Smith a r g u e d , B u t t e , Montana
               J. J. Burke appeared and Mark A. C l a r k a p p e a r e d ,
                B u t t e , Montana

      For Respontfents :

               William E. 0 ' ~ e a r ya r g u e d , Helena, Montana
               R u s s e l l L. Doty, Helena, Montana
               Geoffrey L. B r a z i e r a p p e a r e d , Helena, Montana
               C h a r l e s H. Dickman a p p e a r e d , Helena, Montana

                                             -

                                                    Submitted:         June 1 7 , 1975

          'i
Filed :
PER CURIAM:
           On August 30, 1974, the Montana Public Service Commission
by Rate Order #4147 authorized the Montana Power Company to
increase its charges for natural gas services to all classes of
customers in an amount equal to its increased costs of purchased
gas and increased royalties paid to gas producers.    Montana Con-
sumer Counsel appealed this order to the district court, Lewis
and Clark County, under the provisions of the Montana Adminis-
trative Procedure Act.    The district court reversed, holding the
rate order invalid.    The Montana Power Company now appeals from
the judgment of the district court.
        A brief background will illuminate the issues on appeal
and place this controversy in perspective.
           In 1972 the Montana Power Company, a public utility, ap-
plied to the Public Service Commission, the state regulatory
agency, for an increase in rates charged for gas and electric
service.    A full scale hearing was held before the Commission in
which the entire rate structure of the Company was examined.    On
September 5, 1972, the Commission entered Rate Order #4068 which,
insofar as natural gas rates are concerned, provided:
           (1) Approval of a 6.6% rate of return, (2) approval of a
$2,246,064 increase in net annual earnings, (3) approval of a
tax adjustment clause, (4) approval of a "Cost of Purchased Gas
Adjustment Clause" authorizing the Company to increase or decrease
its charges for natural gas service in an amount equal to any
increase or decrease in the cost of purchased gas, subject to re-
view by the Public Service Commission.    A system of periodic re-
view and revision of the charges in the approved schedule was
provided.
        In 1973 the Company filed with the Commission an appli-
cation for implementation of the "Cost of Purchased Gas Adjustment
Clause" in the 1972 Kate order to compensate for increased
costs of purchased Canadian gas.   A hearing was held before the
Commission limited to increases in the cost of purchased Canadian
gas since the 1972 rate order pursuant,to the "Cost of Purchased
Gas Adjustment Clause".   The hearing did not include an overall
examination of the rate structure of the Company's natural gas
operations, nor did it include consideration of gas reserves own-
ed by the Company or cost of service studies of Montana Power
Company natural gas operations.
        On July 18, 1973 the Commission entered Rate Order #4114
authorizing an increase in charges for natural gas service to
industrial contract customers, general service customers, and
other contract customers of Montana Power Company and to contract
customers and nonresidential customers of the Great Falls Gas
Company, all according to a formula based on monthly statements
of the Company and quarterly and annual adjustment of various
factors in the formula.   No increase was authorized in charges to
residential customers as it was determined that the need for
Canadian gas purchases was created by nonresidential customers
who should bear the increased costs.
        In 1974 the Company filed an application with the Commis-
sion for authority to increase its rates for natural gas service
to all classes of its customers on an equal MFC (1000 cubic foot)
basis by the amount of increased expense incurred by the Company
in the cost of purchased Canadian and Montana natural gas and by
the amount of increased royalty expense paid to Canadian and
Montana gas producers.
        Montana Consumer Counsel filed an appearance and opposed
the Company's application throughout.   Other appearances were made
by the Anaconda Company, Ideal Basic Industries, Inc., Stauffer
Chemical Company, the Great Falls Gas Company, Jimmy Shea, and
Walter J. Reisig.   A so-called "mini hearing" was held before
the Commission limited to increases in the cost of natural gas
purchased from Canadian and Montana sources by the Company and
increases in royalty payments paid by the Company to Canadian
and Montana gas producers.   No examination was permitted into
the rate structure of the Company's natural gas operations or
the rate of return to which the Company was entitled.
        On August 30, 1974 the Commission issued Rate Order
#4147 providing in material part as follows:
        (1) That the Company was not applying for an increase
under the "Cost of Purchased Gas Adjustment Clause" in the 1972
rate order, but was applying for an increase in the same amount
as the increase in specific expense items, viz. cost of purchased
gas and royalty payments.
        (2) That for the year commencing July 1, 1974 the project-
ed increases in costs are:   (a) Canadian natural gas - at least
$8,760,611, (b) Montana natural gas   -   at least $1,214,547, (c)
royalty payments to Canadian producers        -   at least $1,676,340, (d)
royalty payments to Montana producers     -   at least $336,046 (the
total is rounded off to at least $11,988,000 hereafter).
        (3) The increased costs are to be borne by all classes
of customers on an equal MCF basis,
        (4) The actual costs and volumes of gas purchased and
royalties paid are to be reported monthly by the Company and
billings adjusted accordingly.
        (5) That any resulting increase in revenue to the Company
will not result in an increase in Company earnings.
        (6) That the application for increase by the Company was
granted accordingly.
        Montana Consumer Counsel appealed rate Order #4147 to the
district court, Lewis and Clark County.           Judicial review was
sought under the provisions of the Montana Administrative Pro-
cedure Act.    Section 82-4201 et seq., R.C.M.   1947.   The Public
Service Commission and its members were named as defendants.
The Company.was permitted to intervene on the side of defend-
ants.   Additional testimony and exhibits were received at the
district court hearing.
         It is important to note that the district court did not
rule on the merits of the increased charges to the Company's
customers.    The district court simply held the rate order invalid
because it contained an "automatic adjustment clause" and pro-
cedure; a full scale hearing was not held; and "due process" was
denied because of constitutional, statutory, and rule violations
by the Public Service Commission in proceedings leading to the
rate order.
        Consumer Counsel contends that the Commission is without
power and jurisdiction to issue the 1974 rate order on the basis
of a so-called "mini hearing1' limited to consideration of four
expense items only, namely costs of purchased Canadian gas, costs
of purchased Montana gas, Canadian royalty costs, and Montana
royalty costs.     He maintains that Montana statutes establishing
the Commission and providing its powers and duties require a full
scale hearing and examination of all revenue and expense accounts
of the Company to determine whether the proposed rates and charges
are just and reasonable.    The substance of his argument, as we
understand it, is that the Commission is without power to approve
a utility rate increase without conducting a full scale hearing
and examination of all factors that affect a fair rate of return
for the Company.
        The district court's reasoning appears to be similar.         Its
decision points out that the Commission rate order was not made
after examination of all factors which could affect the fair rate
of return to the Company as required by Montana statutes and
court decisions; that the 1974 rate order presupposes there has
been no change since 1972 in other factors affecting a fair
rate of return; and that a rate change can be effective only
after a full rate hearing which Consumer Counsel requested but
was denied.
        In the instant case it is important to note that the
Company is not seeking an increased rate of return or increased
net annual earnings.    The 1972 rate order established 6.6% as a
fair and reasonable rate of return and net annual earnings of
$7,662,600 to achieve this rate of return.    The 1972 rate order
was made after a full scale hearing into the general rate struc-
ture of the Company and consideration of all factors affecting
the Company's rate of return.
        In the instant application the Company seeks to "pass
through" to its customers the substantial increases it has exper-
ienced in specific expense items, namely, the costs of purchased
gas and royalties paid to gas producers, commencing July 1, 1974.
According to the Company's application, these increased costs
are due primarily to the action of the Canadian government in
raising prices for gas exported from Canada, which in turn is re-
flected in corresponding increases in prices the Company must pay
for Montana gas, and royalties it must pay to Canadian and Montana
producers to insure an adequate supply of gas for its Montana
customers.    The Company's application indicates an estimated
annual increase in these expense items commencing July 1, 1974,
of at least $11,988,000 in these items.
        The regulation and supervision of public utilities and
the rates they charge their customers are legislative functions
conferred upon the Montana Public Service Commission by section
70-101 et seq., R.C.M. 1947.    The Commission is left to determine
the method and means of exercising these functions within the
scope of this delegation of power; the Commission has been
granted broad power "to do all things necessary and convenient
in the exercise of the powers by this act conferred upon the
Commission    * * *."     Section 70-104, R.C.M. 1947.
        A procedure is established for filing "[rate] schedules
which shall be open to public inspection."        Section 70-113,
R.C.M. 1947.     Changes in rate schedules are subject to concurrence
by the Commission.        Great Northern Utilities Co. v. Public Ser-
vice Commission, 88 Mont. 180, 293 P. 294.       When a complaint is
filed against utility rates, the Commission is only required "to
make such investigation as it may deem necessary."        Section 70-
119, R.C.M.   1947.      Nowhere in the law is the Commission required
to exercise more of its powers than it determines appropriate.
        In the past the Commission has conducted utility rate ad-
justment proceedings not involving a hearing and examination en-
compassing all factors affecting the general rate structure of
the utility, for example, the 1973 rate proceedings of the Com-
pany, and the 1964 proceedings resulting in a reduction of the
Company's rates.        Where the agency charged with administration
of the law has interpreted Montana law as not requiring it to
conduct a full scale investigation and inquiry in every instance,
such determination is entitled to great consideration.       Bartels
v. Miles City, 145 Mont. 116, 399 P.2d 768.
        Here the Company did not apply for an increased rate of
return or annual net earnings.       The Company accepted the 6.6%
rate of return and the $7,662,600 annual earnings established by
the Commission in its 1972 order.        Instead, the Company's applica-
tion simply sought to maintain this rate of return and annual
net earnings by "passing through" to its customers the tremendous
increases in the costs of purchased gas and royalty expense.         Under
such circumstances, the rate of return and annual net earnings
were not germane to the Company's application, and a full scale
hearing into factors affecting the rate of return and general
rate structure of the Company was beyond the scope of the inquiry
before the Commission.   The Commission was correct in refusing
to expand the hearing into a full scale examination of factors
affecting the general rate structure of the Company and the rate
of return under the circumstances of the instant case.
        We now direct our attention to whether the so-called
"automatic adjustment clause"   and procedure in the 1974 rate
order is illegal.
        The 1974 rate order encompasses both present and prospec-
tive rate changes.    It approves a present increase in utility
rates in an amount equal to increased costs of purchased gas and
royalties.   It also establishes a monthly reporting procedure of
actual costs and expenses by the Company and a quarterly report-
ing of actual volumes or quantities of gas purchased; billings to
customers of the Company are then adjusted upward or downward,
subject to review by the Commission, in an amount equal to actual
increases or decreases in the costs of purchased gas and royalties.
These reporting procedures and the resulting adjustment in rates
charged to the Company's customers constitute the so-called "auto-
matic adjustment clause" and procedure which Consumer Counsel
attacks as illegal.
       A majority of states in which the question has been pre-
sented has   upheld the validity of similar provisions in utility
rate orders variously designated as "automatic adjustment clauses",
"escalator clauses", "purchased gas adjustment clauses", and
"pass through" procedures.   These decisions have been made under
a wide variety of state utility laws, divers kinds of clauses
and procedures, and particular circumstances.   Examples of decisions
upholding their validity:    City of Norfolk v. Virginia Electric
and Power Company (1955),197 Va. 505, 90 S.E.2d 140; City of
Chicago v. Illinois Commerce Commission (1958), 13 I11.2d 607,
150 N.E.2d 776; United Gas Corp. v. Mississippi Public Service
Commission, (1961), 240 Miss. 405, 127 So.2d 404; City of El
Dorado v. Arkansas Public Service Commission (1962), 235 Ark. 812,
362 S.W.2d 680; Maestas v. New Mexico Public Service Commission
(1973)) 85 N.M. 571, 514 P.2d 847, which includes a compilation
of decisions approving the use of such clauses.
          In our view the underlying justification for the use of
"automatic adjustment clauses" and procedures lies in the realities
of the market place.   As the cost of purchased gas and royalty
expense of the utility rise or fall, a corresponding increase or
decrease in the prices charged its customers must occur.   Other-
wise the utility will either be driven out of business or it will
reap windfall profits.   Today, in a period of rapid increases in
costs of these items to the utility, the former consideration is
paramount; at another time, the situation may be reversed and the
latter may be the principal concern.   Automatic adjustment clauses
and procedures are simply a means whereby rapid fluctuations in
these costs to the utility can be reflected in equally rapid and
corresponding changes in prices charged the utility's customers.
          The "automatic adjustment clause" and procedure in the
1974 rate order provides a continuous reporting procedure of the
Company's actual costs and expenses of purchased gas and royalties
and the volumes of gas involved; constant surveillance of these
items by the Commission; and requires Commission review of any
corresponding adjustment of prices charged the Company's cus-
tomers.   As such, it is a fair and equitable exercise of the super-
visory and regulatory powers of the Commission.   We find nothing
in this Court's decision in Great Northern Utilities Co. v. Public
Service Commission (1930), 88 Mont. 180, 293 P. 294, or any
previous decision of this Court to the contrary.   In fact,
Great Northern Utilities Co. is consistent with our decision here.
        The final issue in this appeal is whether Consumer Coun-
sel was denied "due process" in proceedings leading to the 1974
rate order.    This issue is somewhat intertwined with the first
two issues involved in this appeal and the various contentions
of Consumer Counsel in this respect will be discussed here.
        The first contention of Consumer Counsel is that he was
denied "due process" under federal and state constitutional re-
quirements because the commission violated certain provisions of
the 1972 Montana Constitution, specifically Article 11, Sections
8, 9 and 17.   He contends that he and the consumers he represents
were denied the guarantees contained therein in proceedings before
the Commission leading to the 1974 rate order.
       Article 11, Section 8, 1972 Montana Constitution provides:
        "The public has the right to expect governmental
        agencies to afford such reasonable opportunity
        for citizen participation in the operation of the
        agencies prior to the final decision as may be
        provided by law."
       Article 11, Section 9, 1372 Montana Constitution provides:
       "No person shall,be deprived of the right to ex-
       amine documents or to observe the deliberations
       of all public bodies or agencies of state govern-
       ment and its subdivisions, except in cases in which
       the demand of individual privacy clearly exceeds
       the merits of public disclosure."
       Article 11, Section 17, 1972 Montana Constitution provides:
       "No person shall be deprived of life, liberty, or
       property without due process of law."
       The gist of Consumer Counsel's argument is that the
Commission violated these constitutional requirements when it
limited the scope of its hearing to cost of purchased gas and
royalty expense adjustments and approved the resulting rate
schedule as just and reasonable.
        We do not construe these constitutional provisions as
prohibiting what was done here.   The Company's application for
increased prices to offset increases in its cost of purchased
gas and royalties, together with its proposed new schedule of
prices to all classes of its customers, was filed with the
Commission and open for public inspection.   The Commission gave
notice of hearing on this application by mailing copies of the
formal notice to governing officials of all towns served by the
Company; by serving notice on all industrial contract customers
of the Company; by mailing copies of the notice to the offices
of county commissioners of all counties in the state; by publi-
cation of the notice in the legal advertising section of all five
daily newspapers of general circulation in the state; by dissemi-
nating news releases to every radio and television station in the
state; and by sending a copy of general news releases to daily
and weekly newspapers published in the state.
        Consumer Counsel participated in all proceedings through-
out and raised no issue of defective notice to the proceedings.
In addition to Consumer Counsel, petitions to intervene by the
Anaconda Company, Ideal Basic Industries, Inc., and the Stauffer
Chemical Company were granted by the Commission.   The Commission
held a prehearing conference with all parties represented at which
time the Company served copies of its exhibits and supporting
direct testimony upon all parties in advance of hearing.
        In addition to the foregoing, appearances were made at
the hearing by Earle E. Garrison on behalf of the Great Falls Gas
Company, and by Jimmy Shea of Walkerville and Walter J. Reisig of
Billings.
       The public hearing was held; thereafter the Commission
gave all parties additional time to submit proposed findings of
fact, conclusions of law, and briefs; the matter was taken under
advisement by the Commission; and subsequently the rate order
was issued on August 30, 1974.

        We hold that under these circumstances the public was
afforded a reasonable opportunity for citizen participation prior
to final decision of the Commission within the meaning of Article
11, Section 8, 1972 Montana Constitution; that no person was de-
prived of the right to examine documents or to observe the deliber-
ations of the Commission within the meaning of Article 11, Section
9,1972 Constitution; and that no person was deprived of his prop-
erty without due process of law within the meaning of Article 11,
Section 17, 1972 Montana Constitution.
        We do not construe these constitutional provisions as
prohibiting the Commission from confining the hearing to issues
before it.   Here the application sought authority to "pass through"
increased gas purchase and royalty costs to the consumer in order
to maintain the existing rate of return and annual net earnings
previously approved by the Commission after a full scale hearing.
As the rate of return and annual net earnings of the Company were
not sought to be increased, factors affecting these considerations
were not germane.   The Commission did not violate constitutional
requirements in denying the motion of Consumer Counsel to expand
the hearing to encompass these factors under the circumstances of
this case.
        The second argument of Consumer Counsel is that he was
denied "due process" by Commission violation of the Montana Admin-
istrative Procedure Act.   Section 82-4201 et seq., R.C.M.   1947.
The substance of his argument is that the Commission violated the
Montana Administrative Procedure Act in failing to rule on Con-
sumer Counsel's proposed findings that the Company did not exer-
cise prudent management in voluntarily renegotiating gas purchase
contracts at increased prices.    Section 82-4213(1), of the Act
provides :
                             -   12   -
         "If, in accordance with agency rules, a party
         submitted proposed findings of fact, the decision
         shall include a ruling upon each proposed finding."
         A similar provision is found in the Federal Administra-
tive Procedure Act.   That provision has been construed as not
requiring a separate, express ruling on each proposed finding
of a party, as long as the agency's decision and order on such
party's proposed findingsareclear.      National Labor Rel. Bd. v.
State Center Warehouse   &   C. S. Co., 193 F.2d 156; American Pres-
ident Lines, Ltd. v. N.L.R.B.,     340 F.2d 490.   Here the Commission's
ruling on Consumer Counsel's proposed findings on prudent manage-
ment is abundantly clear from its order--they were rejected.      This
is all that is required under the circumstances here.
         The third argument of Consumer Counsel concerns violation
of the Commission's own rules of procedure dealing with notice
and hearing.   The thrust of his argument is insufficiency of the
notice of hearing and refusal of the Commission to afford him an
opportunity to be heard on all issues involved in violation of
Commission Rules 14 and 21.
         Consumer Counsel contends, as we understand it, that the
notice of hearing is defective in failing to contain "a short and
plain statement of the matters asserted" or "a statement of the
issues involved". Commission Rule 14, adopting the notice require-
ments of section 82-4209 (2)   .
         Specifically Consumer Counsel contends the notice of
hearing confined itself to a proposed increase of $11,988,000
only.   This is not a bona fide issue on appeal.     Consumer Counsel
appeared as a representative of the consuming public, participated
in all proceedings before the Commission, raised no issue on the
sufficiency of the notice, and cannot now raise this contention
as an issue on appeal.   The record indicates that Consumer Counsel
fully understood   the extent of the Company's application for
i n c r e a s e s beyond $11,988,000 t o o f f s e t i n c r e a s e d c o s t s , c o n t e s t e d
s u c h i n c r e a s e s a t t h e h e a r i n g , and a c c o r d i n g l y c a n n o t now con-

t e n d he was p r e j u d i c e d by a l l e g e d d e f e c t s i n t h e n o t i c e o f h e a r i n g .

             Consumer Counsel f u r t h e r c l a i m s t h a t he was d e n i e d a n

o p p o r t u n i t y t o be h e a r d on a l l i s s u e s i n v i o l a t i o n o f Commission

Rule 2 1 .      S p e c i f i c a l l y he a r g u e s t h a t t h e Commission's d e n i a l of
h i s motion t o expand t h e h e a r i n g i n t o a n i n q u i r y i n t o t h e g e n e r a l

r a t e s t r u c t u r e of t h e Company and i t s r a t e o f r e t u r n p r o h i b i t e d

inquiry i n t o a l l i s s u e s involved.
             Commission Rule 21 i n m a t e r i a l p a r t p r o v i d e s :

             "The p r e s i d i n g o f f i c e r w i l l i n s u r e t h a t a l l
             p a r t i e s a r e a f f o r d e d t h e o p p o r t u n i t y t o respond
             and p r e s e n t e v i d e n c e and argument on a l l i s s u e s
             involved.          S e c t i o n 82-4209 ( 3 )  ."
             For t h e r e a s o n s h e r e t o f o r e s t a t e d , n e i t h e r t h e Company's

r a t e of r e t u r n n o r i t s n e t a n n u a l e a r n i n g s w e r e i s s u e s i n v o l v e d

i n t h e hearing.          Thus t h e Commission's d e n i a l o f Consumer C o u n s e l ' s
motion t o expand t h e h e a r i n g d i d n o t v i o l a t e Commission Rule 21.
             W e have n o t e d t h e o t h e r p e r i p h e r a l c o n t e n t i o n s r a i s e d by

Consumer Counsel, f i n d them t o be w i t h o u t m e r i t , and c o n s i d e r it

u n n e c e s s a r y t o d i s c u s s them i n d e t a i l i n t h i s o p i n i o n .      W e have

answered h i s p r i n c i p a l c o n t e n t i o n s h e r e i n w i t h t h e r e a s o n s f o r

our rulings.

             I n summary we h o l d t h a t t h e P u b l i c S e r v i c e Commission w a s
n o t . r e q u i r e d t o c o n d u c t a f u l l scale h e a r i n g i n t o t h e Company's

r a t e o f r e t u r n a s a c o n d i t i o n p r e c e d e n t t o t h e 1974 r a t e o r d e r

under t h e c i r c u m s t a n c e s o f t h i s c a s e ; t h a t t h e s o - c a l l e d    "auto-
m a t i c a d j u s t m e n t c l a u s e " and p r o c e d u r e c o n t a i n e d i n t h e 1974 r a t e
o r d e r d i d n o t v i o l a t e Montana law; and t h a t Consumer Counsel w a s
n o t d e n i e d "due p r o c e s s " i n Commission p r o c e e d i n g s r e s u l t i n g i n
t h e 1974 r a t e o r d e r .

             The 1974 r a t e o r d e r was v a l i d i n a l l r e s p e c t s , and t h e
judgment o f t h e d i s t r i c t c o u r t t o t h e c o n t r a r y i s r e v e r s e d .        The
1974 rate order of the Commission is affirmed in all respects.

                               /     C h i e f Justice

                                      Justices
                              __.I