Court Opinion

ID: 9656988
Source: CourtListenerOpinion
Date Created: 2023-08-23 20:10:00.069337+00
Date Added: 2024-06-11T13:15:09.410076
License: Public Domain

DAVIES, Judge
(dissenting).
I respectfully dissent.
This case presents a problem of statutory interpretation. At issue is the meaning of Minn.Stat. § 216B.44 (1986) which concerns the right of municipal electric utilities to extend service to areas annexed to the city. That section found its way into Minnesota statutes in 1974 as part of a bill for utility regulation put together by the invester-owned utilities, the Rural Electric Associations (REAs), and the League of *531Minnesota Municipalities.1 Each interest endorsed the bill’s adoption by the legislature.2 The League of Minnesota Municipalities dominated the shaping of the bill and its presentation to the legislature.3
Section 216B.44 is the municipal utilities portion of that monumental bargain.4 What the majority does today is take away from the municipal utilities that which was fairly won in inter-utility negotiation and in the legislative arena.

Standard of Review

In this case we review a decision by the Minnesota Public Utilities Commission (MPUC). Minn.Stat. § 14.69 (1988) provides for such review. It reads:
In a judicial review under sections 14.-63 to 14.68, the court may affirm the decision of the agency or remand the case for further proceedings; or it may reverse or modify the decision if the substantial rights of the petitioners may have been prejudiced because the administrative finding, inferences, conclusion, or decisions are:
* * * * * *
(d) Affected by other error of law; or
* * ⅜ * # *
(f) Arbitrary or capricious.
The MPUC’s decision here is inconsistent with section 216B.44 and is thus “affected by other error of law.” We are free under section 14.69 to reverse or modify the erroneous agency decision. There is no need for deference to the agency when the issue is one of statutory interpretation. Arvig Tel. Co. v. Northwestern Bell Tel. Co., 270 N.W.2d 111, 114 (Minn.1978).
I.
One objective of the Public Utilities Act of 1974, the purpose relevant here, was to *532stop buccaneering competition for retail customers among invester-owned utilities, REAs, and municipal utilities. The act carries a purpose clause which is easily understood:
It is hereby declared to be in the public interest that, in order to encourage the development of coordinated statewide electric service at retail, to eliminate or avoid unnecessary duplication of electric utility facilities, and to promote economical, efficient, and adequate electric service to the public, the state of Minnesota shall be divided into geographic service areas within which a specified electric utility shall provide electric service to customers on an exclusive basis.
Minn.Stat. § 216B.37 (1986).
The general scheme of the act was to divide the state into “geographic service areas” and to give each utility the right to provide electric service to customers in its service area “on an exclusive basis”; this would prevent criss-crossed distribution lines and other wasteful duplication of facilities. The scheme in essence was a grandfathering arrangement. Each utility was given the right to serve those areas it already served and, in the case of REAs and invester-owned utilities, an exclusive right to serve all territories extending from its existing territory halfway to its nearest nonmunicipal competitor. Minn.Stat. § 216B.39, subd. 3 (1974). The nonmunici-pal competitor, in turn, was given an exclusive right to come halfway toward thé first utility. The MPUC was given the right to make adjustments between and among these areas in the cases of rivers, high hills, and other natural obstacles. Minn. Stat. § 216B.39, subd. 3 (1974).
Over this basic division of the state into exclusive REA and invester-owned utility areas was placed section 216B.44, a municipal utility legislative victory of some significance — at least until today.
Section 216B.44 commences:
[Wjhenever a municipality which owns and operates an electric utility * * * extends its corporate boundaries through annexation * * * the municipality shall thereafter furnish electric service to those areas * * *.
If, in the process of extending service, the municipality runs into another utility, however, its right and obligation to provide service is qualified under this section as follows:
[If] the [annexed] area is already receiving electric service5 from an electric utility, * * * the municipality may purchase the facilities of the electric utility serving the area.
(Emphasis added.) The section continues, providing that, if the utility chooses to purchase facilities, it must pay for them:
The municipality acquiring the facilities shall pay to the electric utility formerly serving the area the appropriate value of its properties within the area.
(Emphasis added.)
The section then provides for the MPUC to set the price for the acquired facilities, if there is no agreement:
In the event the municipality and the electric utility involved are unable to agree as to the terms of the payment or exchange, the municipality or the electric utility may file an application with the commission requesting that the commission determine the appropriate terms for the exchange or sale.
Section 216B.44 continues, in two sentences providing the rules for valuation when the MPUC sets a price for the facilities “within the annexed area,” as it has done in this case:
*533After notice and hearing, * * * the commission shall fix and determine the appropriate value of the property within the annexed area, and the transfer shall be made as directed by the commission. In making that determination the commission shall consider the original cost of the property, less depreciation, loss of revenue to the utility formerly serving the area, expenses resulting from integration of facilities, and other appropriate factors.
(Emphasis added.)
In this case the MPUC and the majority distort section 216B.44 by twice ignoring the phrase “property[ies] within the annexed area.” 6 The MPUC also twice ignores the phrase "serving the area.”
The facts here are that People’s had no facilities whatsoever within the annexed 40 acres; and it did not serve one customer within its bounds. Therefore, under the explicit compensation formula of the statute, People’s should receive no compensation. See Minn.Stat. § 645.16 (1990) (“When the words of a law in their application to an existing situation are clear and free from all ambiguity, the letter of the law shall not be disregarded under the pretext of pursuing the spirit.”) (emphasis added).
What was taken from People’s was the prospective right to serve the 40 acres which now constitute the North Park additions in the city of Rochester. From 1974 on, however, any right People’s had to the retail electric utility business for that area was subject to the right of the municipal utility to oust People’s upon annexation. If ousted, People’s had a right to be paid for its property within the annexed area. Unless we are to view the bare ground of the North Park additions as utility property, People’s has no property there and, thus, no claim to compensation.
I suggested earlier that the 1974 act constituted an agreement within the industry. It was an agreement carefully reflected in the language enacted by the legislature. The municipal utilities did not participate equally in the allocation of rights to exclusive service territory for future development, but they insisted upon, and obtained from the legislature, the buy-out right upon annexation and, as a limitation upon the cost of doing so, the words “property within the annexed area” and “properties within the area.”
It is not within MPUC or judicial prerogatives to undo a compromise so precisely reflected in a legislative enactment. See Vadnais v. State Farm Mut. Auto. Ins. Co., 354 N.W.2d 607, 609 (Minn.App.1984) (“While the * * * argument in favor of coverage is sound and based on public policy, we are bound by the rule that courts cannot amend statutes under the guise of construction.”) (emphasis added).
The MPUC has said its objective is “to put the displaced utility in the same position it would have occupied had the acquisition not occurred.” MPUC Order Determining Compensation (July 11, 1990), p. 12. That objective is contrary to the statute if it is implemented, as it has been by the majority, by requiring the municipal utility to pay for the present value of expected future development of the annexed land. This is not an element of the carefully negotiated compromise cost formula enacted by the legislature. The MPUC decision in this case, which would require just such a payment, should be reversed as contrary to law. See Minn.Stat. § 14.69(d).
II.
It is sometimes the judicial task to correct legislative oversights. The legislature itself has asked for this help. See Minn. Stat. § 645.17 (1990). The legislature declares in that wonderful section that it “does not intend a result that is absurd, impossible of execution, or unreasonable.” See Minn.Stat. § 645.17 (1990). In circumstances where a literal reading of a statute leads to a result that was not contemplated by the legislature, it is legitimate for a court to make adjustments against the literal reading of the statute. This is not appropriate, however, when the allegedly “unreasonable” result was intended by the *534legislature. If, however, the expression of a legislatively adopted compromise overlooks some detail that reasonably should have been reflected in the words, section 645.17 makes it legitimate for the judiciary to give a helping hand.
Perhaps this helping-hand obligation under section 645.17 justifies the decision in In re Complaint by Kandiyohi Cooperative Elec. Power Ass’n, 455 N.W.2d 102 (Minn.App.1990), pervasively relied on by the majority. That case blinked at the language “property within the annexed area,” referred to in part I of this opinion, but the court there stated a respectable rationale for doing so. In Kandiyohi this court was faced with a situation where a utility had installed facilities — poles and lines, but no transformers or substations— close by a municipality, only to have their usefulness taken away by a municipal annexation of the area the facilities were intended to serve. 455 N.W.2d at 103-04. The concern was a utility investment that might be “stranded” (left without further usefulness). Id. at 105. The Kandiyohi court cited with approval the MPUC’s reasoning:
[T]he “actual customer” test proposed by the City is unreasonable. Such a test would allow a utility to make substantial investments to meet the identifiable future needs of its service area, only to have that investment stranded by a municipality’s eleventh hour decision to annex and assert its right to provide electric service to an area the utility had arranged to serve.
Id. (emphasis added). “Bordering”7 and “stranded” facilities can be treated as constructively within the annexed area. The Kandiyohi decision is thus defensible. Such an interpretation might be viewed as implementing that part of the 1974 legislative bargain that contemplated fair compensation for wasted investment. Today, however, the “stranded” facilities are a percentage of all equipment throughout the entire People’s system. That is absurd. This speculative analysis violates, rather than serves, legislative intent.
The majority relies on Kandiyohi as the foundation for its decision here. To do so, however, the majority must ignore both the critical facts and the rationale of Kandi-yohi. The facts were that compensation was paid only for bordering (not even nearby) utility property; and the rationale was to compensate for “stranded” property.
I would not be offended by a decision that identified selected substations or poles or transformers as having been “stranded”. There is in this record, however, no finding that there exists any pole, transformer, or substation for which compensation appropriately should be made because (1) it is deprived of usefulness and (2) it can be considered property constructively “within the annexed area.” Further, no specific piece of utility property provides the measure of damage, as is proposed in Kandiyohi.

III.

Governance in a city with a municipal utility is complicated by the relationship between local property tax income and the financial returns from and burden of its municipal power utility. One of the reasons, certainly, that the legislature permitted municipalities to extend service to annexed areas was to permit it to keep all residents on an equal basis as both taxpayers and utility customers. Were a portion of the community to be left out of the benefit — or burden — of local power rates, political problems concerning rate setting and investment decisions could result. These are problems the legislative buy-out authority was designed to avoid.
If cities are to be free to extend service to annexed areas, however, the cost of doing so must be reasonable, not punitive. Here the price of adding the North Park additions is not offset by the value of any “facilities” acquired “within the area.” The price approved by the majority is punitive. From now on cities will perceive the price of extending service to be potentially *535punitive. They, therefore, will be tempted to leave new portions of their city unserved by the municipal utility. The consequence, then, is a divided community and a potentially unhealthy political climate. We should, instead, assure that the price set for acquired facilities provides fair value, and no more. Here, Rochester is required to pay $148,037 and receives nothing in return, except a bare land addition to its service area.
IV.
The MPUC knows how to do it right. Deciding In the Matter of the Application of the City of Olivia to Extend Its Municipal Electric Service Area into an Area Served by Renville-Sibley Cooperative Power Association, Docket No. E-288, 136/SA-85-93, FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER SETTING COMPENSATION FOR SERVICE EXTENSION (June 27, 1986), pp. 4 & 14,8 the MPUC, to determine the value of acquired facilities “within the annexed area,” used the stream of revenue only from the customers the REA had been serving in the area prior to the annexation. That REA revenue stream was protected for a period of ten years. This gave the REA an appropriate return on the investment it had made in poles, transformers, and substations to serve the annexed area and which were located within it. In Olivia the MPUC denied any award for revenue from customers who came to the area after the annexation. Such customers had never been “served” by facilities acquired by the annexing city. As to this issue, the MPUC did it right in Olivia; it should not now be permitted to do it wrong.
V.
The majority suggests the MPUC did not here make an award for the value of the right to serve bare land. First, I think the commission should be taken at its word. Its order refers 30 times to “loss of revenue” and the award states, in what I take to be its operative provision:
Proper application of the compensation formula results in compensation of $136,-393 for lost revenue and compensation of $11,644 for increased wholesale power costs, for a total compensation award of $148,037.
MPUC Order Determining Compensation (July 11, 1990), p. 17 (emphasis added). The only revenue People’s had ever acquired from the North Park area was revenue in the minds’ eye of its executives as they looked at maps showing that area within its service area from 1974 on. Any award to compensate for lost revenue must have been for future revenue anticipated from that bare land; there was no other revenue to consider. Further, the award, as calculated by People’s expert and the MPUC, started with a calculation of estimated future “revenue.” Notwithstanding what the majority says, I find no revenue source upon which the commission’s award can be based other than revenue which was only dreamed of prior to annexation.
VI.
The MPUC has used a highly complex formula for calculating damages. It requires economists and mathematicians and guesses and assumptions. The legislature intended a buy-out by municipal utilities based on property value, measured by standard criteria like
original cost of the property, less depreciation, loss of revenue to the utility formerly serving the area, expenses resulting from integration of facilities, and other appropriate factors.
Minn.Stat. § 216B.44. This is a classic and reasonably simple basis for determining the value of specific pieces of property. The specific property to be valued was that “within the annexed area.” In this provision, too, the legislature made clear its intention that the price of municipal buyouts of REAs and invester-owned utilities should not include complex consideration of any revenue streams except those that cast *536light on the “appropriate value of the property within the annexed area.”
The MPUC, by its decision here, unreasonably complicates the administration of the law.
VII.
Appellants appropriately assert:
If the MPUC’s interpretation stands, the municipal preference granted by § 126B.44 is a Trojan horse and the right to expand a municipality’s service area by annexation is a financial illusion.
The legislature has unambiguously stated that a municipal utility service area may follow expanding municipal borders. The only price the city is to pay is fair value for facilities taken over from the utility displaced. Here there were none. The award should be $0. The award of the MPUC should be disallowed.
In the alternative, the matter should be remanded to determine whether, under the rationale of Kandiyohi, any specific facilities have been “stranded” by the annexation.

. The minutes of the meeting of the Minnesota Senate Labor and Commerce Committee, for February 21, 1974, include this notation:
Gordon Gerling — representing the United Power Association. Mr. Gerling said * * * the legislature indicated to the public utilities that they were in disagreement and should reach a substantial agreement and then present a bill to the legislature for consideration. Mr. Gerling said they [the utilities] have worked many many hours in an attempt to fulfill this request and the bill being considered by this committee is the result of their long hours of research and work. His association is in substantial, not complete, agreement with the proposed legislation and support it.

. Legislative records indicate the two main segments of the electrical power industry, the in-vester-owned utilities and the REAs, supported the bill. The minutes of the meeting of the Minnesota Senate Labor and Commerce Committee for February 21, 1974, include these notations:
Harold LeVander, Jr., Attorney for the Minnesota Association of Electric Co-ops. This association, representing 52 electric co-ops in Minnesota, is in favor of the bill in its present form. Mr. LeVander said from his association’s standpoint, the territorial assignment feature is the most important and the one about which they have strong and direct concern.
Edward Spethmann — Vice-president, Northern States Power Company. * * * The amended bill on the whole is workable, provides suitable regulations and Northern States Power Company supports it in its present form.
The minutes also show that the bill was opposed by Minnesota Power and Light Company.
Mr. Hoch spoke on two main elements of the bill to illustrate his company’s objection. First, the territorial provisions which would actually freeze the service area of every utility company, thus, eliminating future competition of the industry which could be a potential liability for some consumers * * *.

. “Dean Lund, executive secretary of the League of Minnesota Municipalities, * * * had a leading role in writing the bill and shepherding it through the Legislature * * *.’’ Mpls. Star, Feb. 25, 1974, at A7, col. 2.
The minutes of the meeting of the Minnesota Senate Labor and Commerce Committee for March 15, 1973, include the following notation:
Senator Alec Olson * * * said that his bill is the League of Minnesota Municipalities bill and that a representative from that organization would review the provisions of the bill by sections.

. The League of Minnesota Municipalities did not represent the municipal utilities directly, although it is reasonable to expect it was sensitive to the concerns of the municipal utilities. St. Clair Beeman, the lobbyist for the municipals, indicated as early as April 26, 1973, a year before passage, that they were "neutral” on the bill. At that time, it already contained the section that became section 216B.44. Minutes of the meeting of the Subcommittee on State Boards and Commissions of the Committee on Governmental Operations, Minnesota House of Representatives, April, 26, 1973.

. Minn.Stat. § 216B.38, subd. 3 (1986), defines electric services as follows:
"Electric service” means electric service furnished to a customer at retail for ultimate consumption, but does not include wholesale electric energy furnished by an electric utility to another electric utility for resale.
(Emphasis added.) By definition, under the statute, if there are no retail customers in the annexed area, it is not possible for the area to be “already receiving electric service from an electric utility,” and, if there are no customers, the buy-out obligation established by this and the next sentence of section 216B.44 do not even apply.

. And also by ignoring the section 216B.38, subd. 3 (1986), definition of "electric service.’

. The facilities involved in Kandiyohi bordered the annexation. "Kandiyohi did have electric facilities bordering the area.” Kandiyohi, 455 N.W.2d at 103.

. See also In the Matter of the Application of the City of Olivia to Extend Its Municipal Electric Service Area into an Area Served by Renville-Sibley Cooperative Power Association, Docket No. E-288, 136/SA-85-93, ORDER AFTER REHEARING (OCT. 1, 1986), p. 10.