Court Opinion

ID: 9539157
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:47:35.410666+00
Date Added: 2024-06-11T14:58:28.589965
License: Public Domain

RANSOM, Chief Justice (dissenting). I respectfully dissent. The Commission has designed the adjustment clause under New Mexico Public Service Commission Rule 640 to allow a natural gas utility to adjust its pricing in response to fluctuations in natural gas prices without going through the expense and delay of a rate case. Under Rule 640.14, when ordered at the discretion of the Commission, the utility must make refunds of charges collected contrary to Rule 640 (or if the collection is otherwise unjust and unreasonable). We should review the Commission’s exercise of discretion to determine whether it acted arbitrarily without support of substantial evidence. I do not agree with the way the majority opinion applies this appropriate standard of review to the facts of this case. At all times relevant to this case, the Commission’s announced purpose for Rule 640 has been to assure that only a utility’s actual legitimate gas purchase costs are recovered through the adjustment clause. Re Standard Purchased Gas Adjustment, 40 PUR4th 619, 629 (NMPSC 1980). It is undisputed that Hobbs Gas never affirmatively disclosed to the Commission that it was receiving delivery of substantial amounts of free gas which it was selling to its ratepayers. The evidence adduced before the Commission was that the Commission’s staff was unaware of the purchase costs of the gas sold. Nevertheless, my colleagues on this Court believe that the inclusion of negative purchase/sales ratios in reports to the Commission imputes to the Commission as a matter of law knowledge that Hobbs Gas was receiving substantial amounts of free gas, and that the free gas had been sold to its customers for the same price as gas for which it had paid. From the imputation of knowledge of free gas, the majority opinion attributes to the Commission an “established practice” of calculating purchase/sales ratios without adjusting for free gas. From this premise, the majority then charges the Commission with “changing this interpretation so as to base the purchase/sale ratio on gas delivered.” (Emphasis added.) This, in turn, gives rise to application of the balancing test suggested in Chenery to ascertain whether adjudicatory rule making should be applied retroactively. I endorse the use of a “retroactive rule making” analysis in favor of an equitable estoppel analysis. I question only the premise for its application and the discussion of detrimental reliance and imposition of burden under the third and fourth prongs of the balancing test as elucidated in Retail, Wholesale & Department Store Union v. NLRB, 466 F.2d at 390. I am impressed with the fact that, because it never adjusted its charges to account for the acquisition of the free gas,1 the calculations made by Hobbs Gas, resulting in the anomalous ratios, were incorrect and contrary to the adjustment clause rule. As I read the rule, the Commission is correct in its assertion that the “purchase” side of the purchase/sales ratio always was supposed to include all gas delivered to the utility. The purchase/sales ratio is defined in Rule 640.21(e) under the heading of “Methodology.” The number to be used for the “purchase” side of the ratio is the same number that is used as the divisor in the calculation of the average cost of gas. The divisor in the' calculation of the average cost of gas is “the number of units used for computing the cost of gas.” Rule 640.21(b). The “cost of gas” factor is to be determined, in part, by applying the appropriate rates and charges to the “quantities of gas delivered by each major supplier.” Rule 640.21(d) (emphasis added). “Appropriate rates” means the price paid for a particular unit of gas that was delivered— presumably the contract price on the date of delivery. The number of delivered units is then used as the divisor in the average cost of gas calculation and in the purchase/sales ratio. Had the unmetered gas been included as delivered gas in the “cost of gas” calculation, the units of free gas would have resulted in a lower “average cost of gas” and would have been carried through to the purchase/sales ratio, giving a ratio of more than one. Because Hobbs Gas calculated its purchase/sales ratio based on an error in its cost of gas, it had an obligation under Rule 640.14 to make refunds. This error was not caught by the Commission until the third review of the adjustment clause practices of Hobbs Gas. The hearing officer found that since it was not apparent on its face, the Commission' was justified in failing to notice the effect of a purchase/sales ratio of less than one in its previous reviews. This finding was, in part, based on the fact that Hobbs Gas was the only utility that used this particular formula in reporting to the Commission. Evidence supports the finding that the Commission actually was not aware of the effect of the negative ratio, even though the ratio tacitly indicated premises from which the Commission staff could have deduced that Hobbs Gas was getting some gas for free. The fact that the anomalous purchase/sales ratio was not caught the first two times it was reported did not establish a “practice” by the Commission. Rather, the Commission simply committed administrative oversight. Catching the error in the third review was not a change of the rule or of the Commission’s position. Because there was no change, the majority’s retroactive-rule-making analysis is unnecessary. Even if the analysis should be done, I would not agree that Hobbs Gas has shown that it detrimentally relied on the “former rule,” or that the question of the degree of the burden in making the refund is a proper question for this Court. I am inclined to agree with the Commission that, “Quite simply, Hobbs knew that it was charging for free gas and the Commission did not.”2  Finally, I fail to see how overcharging its customers could be construed as an action detrimental to Hobbs Gas other than the fact that when it was found out, Hobbs Gas had to refund money. There was no change by Hobbs Gas in reliance on the Commission’s previous failures to recognize the effect of the purchase/sales ratio used; there was merely a continuation of the same behavior. Regardless of whether Hobbs Gas was “profiteering” from its use of the adjustment clause, I can see no detrimental reliance that would prevent the order of a refund of charges collected contrary to Rule 640. I find it purely speculative that, as argued in the majority opinion, “Had the Commission given notice to Hobbs that the proper method of calculating the purchase/sale ratio was to use gas delivered in the numerator of the ratio, instead of the amount purchased, Hobbs could have filed a rate case to adjust its projected income accordingly.” While Hobbs Gas may “maintain” that the refund would require it “to seek the protection of bankruptcy laws, and would further render it unable to meet its debts ... or attract financing,” I find in the record no irrefuted evidence establishing the truth of those dire predictions. I would leave it to the Commission to decide the degree of the burden which a retroactive order imposes on Hobbs Gas. In essence, Hobbs Gas has admitted it could pay the refund over a six-year period; and the Commission believes the utility can borrow the necessary funds now and pay the loan back over a six-year period or longer. The question for the Court should be whether this was a factual question supported below by substantial evidence. Although I agree with the recitation of the law in the majority opinion, I would dissent from the application of that law to the facts of this case and defer to the decision of the Commission, which I find to be supported by substantial evidence.  . There was evidence that in 1981 Hobbs Gas had line losses of 4.2% of its gas, and that it used that figure in subsequent year calculations. There was no evidence that this figure was no longer accurate for line losses. The hearing examiner properly justified its use because there was no better figure available. Hobbs Gas reasonably could have been charged with knowledge of the amount of total (metered and unmetered) deliveries through use of the established line loss figure of 4.2%, i.e., sales X 1.042.   . As the majority opinion acknowledges, one purpose of the adjustment clause is for ratepayers automatically to receive the benefit of reductions in fuel costs. Regardless of the failure of Hobbs Gas to use the proper formula for calculating the purchase/sales ratio, it violated Rule 640 by not giving its ratepayers an adjustment for the free gas.