Utah Office of Consumer Servs. v. Pub. Serv. Comm'n of Utah , 445 P.3d 464 ( 2019 )

This opinion is subject to revision before final
publication in the Pacific Reporter
2019 UT 26
IN THE
SUPREME COURT OF THE STATE OF UTAH
UTAH OFFICE OF CONSUMER SERVICES and UTAH ASSOCIATION OF
ENERGY USERS,
Petitioners,
v.
PUBLIC SERVICE COMMISSION OF UTAH, UTAH DIVISION OF PUBLIC
UTILITIES, and PACIFICORP D/B/A ROCKY MOUNTAIN POWER,
Respondents.
No. 20170364
Filed June 27, 2019
On Petition for Review of Agency Decisions
Attorneys:
Robert J. Moore, Asst. Att’y Gen., Steven W. Snarr, Special Asst.
Att’y Gen., Salt Lake City, for petitioner Utah Office of Consumer
Services
Gary A. Dodge, Phillip J. Russell, Salt Lake City, for petitioner Utah
Association of Energy Users
Melanie A. Reif, Salt Lake City, for respondent Public Service
Commission of Utah
Sean D. Reyes, Att’y Gen., Brent A. Burnett, Asst. Solic. Gen., Patricia
E. Schmid, Asst. Att’y Gen., Justin C. Jetter, Asst. Att’y Gen., Salt
Lake City for respondent Utah Division of Public Utilities
R. Jeff Richards, Yvonne R. Hogle, D. Matthew Moscon, Bret W.
Reich, Salt Lake City, for respondent PacifiCorp d/b/a Rocky
Mountain Power
Jenniffer Nelson Clark, Cameron L. Sabin, Salt Lake City, for amicus
curiae Questar Gas Company d/b/a Dominion Energy Utah
ASSOCIATE CHIEF JUSTICE LEE authored the opinion of the Court, in
which CHIEF JUSTICE DURRANT, JUSTICE HIMONAS, JUSTICE PEARCE,
and JUSTICE PETERSEN joined.
UTAH OFFICE OF CONSUMER SERVICES v. PUBLIC SERVICE COMMISSION
OF UTAH
Opinion of the Court
ASSOCIATE CHIEF JUSTICE LEE, opinion of the Court:
¶1 The Utah Office of Consumer Services and the Utah
Association of Energy Users (“Consumer Groups”) challenge orders
from the Public Service Commission in two related cases. We
consolidated these cases because they raise the same threshold legal
question—whether the Commission has the authority to impose
“interim” rates as an element of the energy balancing account
procedures described in Utah Code section 54-7-13.5. We hold that
the Commission lacks this authority.
¶2 The interim rates at issue were imposed without a
requirement that the public utility prove by “substantial evidence”
that the costs incorporated in the rates were “prudently incurred” or
“just and reasonable.” We hold that this runs afoul of the controlling
standard set forth in Utah Code section 54-7-13.5(2)(e)(ii). And we set
aside the Commission’s orders on this basis.
I
¶3 The Public Service Commission is authorized by statute to
“supervise and regulate every public utility in this state.” UTAH
CODE § 54-4-1. One of the utilities regulated by the Commission is
PacifiCorp, d/b/a Rocky Mountain Power, an electric power
provider. PacifiCorp’s rates are set by the Commission under terms
and conditions set forth in the Utah code. A threshold step in the rate
setting process is a “general rate” case.
¶4 In a general rate case the Commission estimates what it will
cost PacifiCorp to provide electricity to customers. That estimate
becomes the utility’s “base rate.” See id. § 54-7-12(1)(a)(i). Included in
the base rate is a projected estimate of PacifiCorp’s net power costs.
In any given year, however, actual net power costs will vary from
the costs predicted in a general rate case. With that in mind, the
legislature created a mechanism to account for these differences—the
“energy balancing account,” or EBA. See id. § 54-7-13.5.
¶5 An EBA is an account used to track PacifiCorp’s incurred net
power costs. The account must be authorized by the Commission. It
“become[s] effective” upon a finding that it is “(i) in the public
interest; (ii) for prudently-incurred costs; and (iii) implemented at
the conclusion of a general rate case.” Id. § 54-7-13.5(2)(b). Once an
EBA is approved, PacifiCorp is authorized to track the costs
identified in that account. Such EBA costs include fuel, purchased
power, and wheeling expenses—“less wholesale revenues.” Id.
§ 54-7-13.5(1)(b).
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¶6 PacifiCorp must annually file “a reconciliation of the energy
balancing account with the [C]ommission” seeking either a recovery
from or a refund to customers—based on the difference between the
estimated net power costs reflected in the base rate and PacifiCorp’s
actual net power costs incurred that year. Id. § 54-7-13.5(2)(c).
PacifiCorp bears the burden of proving that its costs are “prudently
incurred.” Id. § 54-7-13.5(2)(d). This annual filing is subject to review
by the Division of Public Utilities. The Division conducts an audit
and submits a report to the Commission. And the report is used by
the Commission to determine whether a refund or recovery is
appropriate. This process is repeated annually until a new base rate
is set in a new general rate case.
¶7 PacifiCorp’s rates have been established in accordance with
the above procedures. In 2009, PacifiCorp filed an application for
approval of a proposed EBA in accordance with the newly-passed
EBA statute—Utah Code section 54-7-13.5. The Commission opened
a docket to review the filing. Two years later, the Commission
approved the EBA and ordered the implementation of a four-year
EBA pilot program. The Commission asked the Division to file
periodic reports evaluating the program. The Commission also
sanctioned the use of an “interim rate” procedure as part of the EBA
process. Under that process, PacifiCorp would file its annual EBA
report comparing estimated power costs with its actual power costs.
PacifiCorp would propose an interim rate based on the difference
between estimated and actual costs. The Division would then review
PacifiCorp’s report and determine whether it departed from prior
years’ filings. If not, the Division would recommend that the
Commission approve PacifiCorp’s proposed interim rate. The
Commission would review the Division’s recommendation and hold
a hearing. If an interim rate was approved by the Commission, the
interim rate would go into effect while the Division completed its
full audit of PacifiCorp’s EBA report to determine if PacifiCorp’s
claimed costs were prudently incurred.
¶8 On August 30, 2012, the Commission issued an order
eliminating the EBA interim rate process. The Commission indicated
that it had failed to consider what costs associated with PacifiCorp’s
financial swap transactions1 qualified for recovery under the EBA
_____________________________________________________________
1 Swap transactions are “financial transaction[s] between two
parties . . . in which payments or rates are exchanged over a specified
(continued . . .)
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Opinion of the Court
when it initially approved the interim rate process. In the
Commission’s view, a determination of what costs could be
recovered for these swap transactions would require a significant
amount of time and likely would result in highly contentious
litigation in both the interim and final EBA hearings. So the
Commission decided that an interim rate process was no longer
appropriate for the EBA mechanism.
¶9 The Division filed its first report evaluating the EBA
program in May 2014. The Division noted that it had been required
to devote significant time to review PacifiCorp’s filings due to the
complexity of the EBA process. And it recommended some
structural changes. The Commission, however, determined that it
was too early to make any changes to the EBA program.
¶10 The Division filed its final report two years later. It
recommended that “[t]he time period for [its] audits . . . be extended
to one year and interim rates . . . be established until the Division can
complete its audit.” On February 16, 2017, the Commission issued an
order adopting the Division’s recommendation that interim rates be
reinstated in the EBA mechanism. In so concluding, the Commission
reasoned that circumstances had changed since its August 30, 2012
order rejecting interim rates. Specifically, the Commission asserted
that the contentious issues and litigation surrounding PacifiCorp’s
swap transactions had been resolved. And for that reason the
Commission concluded that an interim rate process was now
appropriate.
¶11 The Commission asserted that the interim rate subsection of
the general rate case statute, id. § 54-7-12(4)(a), authorized it to
establish interim rates in an EBA proceeding. And it incorporated
the procedural and timing requirements outlined in that subsection.
First, the Commission defined PacifiCorp’s burden of proof to be
commensurate with the burden of proof standard established in
subsection 54-7-12(4)(a)(iii). See id. § 54-7-12(4)(a)(iii) (stating that a
utility “shall establish an adequate prima facie showing that the
period and according to specified conditions.” Swap, BLACK’S LAW
DICTIONARY (11th ed. 2019). PacifiCorp uses swap transactions to
hedge market-price risk, particularly for the market price of natural
gas. A natural gas swap is a contract that gives PacifiCorp the right
to buy or sell a specified amount of natural gas at a specific price
within a specific timeframe in exchange for an upfront premium.
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Opinion of the Court
interim rate increase or decrease is justified”). The Commission
asked the Division to review PacifiCorp’s EBA filing and determine
whether the filing “appears to not depart from prior years’ filings.”
PacifiCorp would eventually have to prove by substantial evidence
that its claimed costs were prudently incurred. But a lower standard
was appropriate in the interim in the Commission’s view. Second,
the Commission determined that it would act upon a request for
interim rates within 45 days of PacifiCorp’s EBA filing. See id.
§ 54-7-12(4)(a)(ii).
¶12 The Commission found further justification for these
decisions in our case law. It noted that in Questar Gas Co. v. Utah
Public Service Commission, 2001 UT 93, 34 P.3d 218, we recognized the
Commission’s “authority to authorize interim rates in the Questar
Gas 191 balancing account mechanism.” And it reasoned that
“PacifiCorp’s EBA is in some ways similar to Account 191.” Drawing
on these similarities, the Commission determined that Questar Gas
supported its decision to allow interim rates and adopt the
procedures described in subsection 54-7-12(4)(a).
¶13 The Consumer Groups filed a petition for reconsideration
and rehearing challenging the legality of the decision to incorporate
an interim rate process in the EBA mechanism. The Consumer
Groups asserted that subsection 54-7-12(4)(a)(ii) could not be applied
outside of a general rate case, and insisted that the interim rate
procedures described in subsection (4)(a) run afoul of section
54-7-13.5 by altering the standard for cost recovery and PacifiCorp’s
burden of proof. See UTAH CODE § 54-7-13.5(2)(e) (“An energy
balancing account may not alter: (i) the standard for cost recovery; or
(ii) the electrical corporation’s burden of proof.”). The Commission
rejected the Consumer Groups’ petition. And the petition to this
court in Case No. 20170364 followed.
¶14 About a year later, PacifiCorp submitted its 2018 EBA filing.
That filing differed in one significant way from PacifiCorp’s 2017
filing: It proposed to recover EBA costs in the amount of
approximately $2.8 million on an interim basis. The Division
reviewed PacifiCorp’s filing and determined that it appeared not to
depart from the prior years’ filings. And on that basis the Division
recommended that PacifiCorp be allowed to recover its claimed EBA
costs. The Commission agreed. It issued an order on April 27, 2018
imposing interim rates. The Consumer Groups filed a petition for
reconsideration. They raised the same arguments that they made
when challenging the Commission’s February 16, 2017 order
approving an interim rate procedure. The Commission rejected the
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Opinion of the Court
Consumer Groups’ petition. And the petition in Case No. 20180536
followed. Since the Commission’s April 27, 2018 order, customers
have been paying PacifiCorp the disputed rates.
II
¶15 The Consumer Groups challenge the Commission’s interim
rate orders on two grounds. They first contend that the Commission
lacks the authority to interject interim rates in the EBA mechanism.
Second, they assert that the Commission’s orders mark a departure
from prior practice in violation of the Utah Administrative
Procedures Act (“UAPA”). We agree with the Consumer Groups’
first argument. Specifically, we conclude that the Commission
violated the statutory mandate that an EBA “may not alter . . . the
electrical corporation’s burden of proof.” UTAH CODE
§ 54-7-13.5(2)(e). And we set aside the Commission’s orders on that
basis (without reaching the question whether the Commission acted
inconsistently with prior practice in violation of UAPA).
¶16 Before expounding on the basis for our decision we first
address statutory standing questions raised by the Division and the
Commission. Those questions arise under a statutory requirement
that parties challenging an order of the Commission demonstrate
that they have been “substantially prejudiced” by the Commission’s
orders. Id. § 63G-4-403(4). The Division and the Commission assert
that the Consumer Groups fail to carry this burden. We disagree for
reasons set forth below.
A
¶17 The UAPA governs claims asserted against an agency. UTAH
CODE § 63G-4-105(1) (“The procedures for agency action, agency
review, and judicial review contained in this chapter are applicable
to all agency adjudicative proceedings commenced by or before an
agency on or after January 1, 1988.”). Before a court may grant relief
under the UAPA, it must determine that the “person seeking judicial
review has been substantially prejudiced.” Id. § 63G-4-403(4). “A
party has been substantially prejudiced if ‘the alleged error was not
harmless.’” Utah Chapter of the Sierra Club v. Utah Air Quality Bd.,
2006 UT 74, ¶ 15, 148 P.3d 960 (quoting WWC Holding Co. v. Pub.
Serv. Comm’n of Utah, 2002 UT 23, ¶ 7, 44 P.3d 714).
¶18 The Division challenges the Consumer Groups’ statutory
standing to advance the claims set forth in the first petition. The
Consumer Groups’ primary claim of prejudice is related to the
imposition of interim rates. But those rates did not go into effect
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until after the Consumer Groups filed their first petition. So the
Division asserts that the Consumer Groups’ first petition should be
dismissed for failure to demonstrate substantial prejudice.
¶19 We disagree. A party may suffer substantial prejudice even
though the claimed injury is one not yet realized. This principle was
key to our decision in Utah Chapter of the Sierra Club, 2006 UT 74.
There we determined that petitioners had standing to pursue their
claims even though their alleged injury had not yet been suffered.
The Utah Division of Air Quality had granted a permit to the Sevier
Power Company authorizing the construction of a coal-fired power
plant. Id. ¶ 1. Although the power plant had not yet been built, we
noted that the plant presented a serious danger of future pollution.
Id. ¶ 22. And we explained that that pollution would jeopardize the
petitioners’ health, the value of their land, and their enjoyment of the
surrounding ecosystem. Id. We accordingly concluded that
petitioners had standing to challenge the Utah Air Quality Board’s
decision.
¶20 We reach a similar conclusion here. We hold that the
Consumer Groups’ first petition clears the threshold hurdle of
demonstrating substantial prejudice. The Consumer Groups’ alleged
prejudice was sufficiently imminent when the Commission decided
to reinstate interim rates. The Commission would not have
reinstated interim rates if PacifiCorp had no intention of recovering
costs on an interim basis. PacifiCorp and the Division recommended
that the Commission adopt an interim rate procedure so PacifiCorp
could recover its EBA costs while the Division finished its audit. The
prospect that the Consumer Groups would end up paying an interim
rate surcharge was more than hypothetical. The facts of these
consolidated cases demonstrate as much. We thus conclude that we
can consider the merits of the Consumer Groups’ first petition.
¶21 The Commission also challenges the Consumer Groups’
statutory standing to advance the claims set forth in the second
petition. In the Commission’s view, the Consumer Groups are
estopped from asserting that they have suffered substantial
prejudice from the Commission’s order requiring customers to pay
$2.8 million on an interim basis. And because the Consumer Groups
are foreclosed from claiming that they have been substantially
prejudiced, the Commission asks us to dismiss the Consumer
Groups’ second petition on statutory standing grounds. We disagree
with the premise of this argument. We do not think that the
Consumer Groups are estopped from arguing substantial prejudice.
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Opinion of the Court
And we believe that they have satisfied their burden of
demonstrating such prejudice.
¶22 The alleged error here is that the Commission erroneously
interjected an interim rate procedure into the EBA mechanism. And
the claimed prejudice stemming from this error is that customers are
being forced to pay $2.8 million in increased rates prematurely. The
alleged error has thus harmed customers.
¶23 The Commission asks us to recognize that the Consumer
Groups brought this harm upon themselves. It concedes that
customers are currently paying a surcharge to cover $2.8 million of
PacifiCorp’s claimed net power costs. But it argues that the
Consumer Groups stipulated to these costs. And in the
Commission’s view that stipulation bars the Consumer Groups from
claiming prejudice.
¶24 In 2015, the Consumer Groups reached a settlement
agreement with PacifiCorp over costs related to the closure of the
Deer Creek Mine. As part of that settlement, the Consumer Groups
agreed that the Commission “should enter an order authorizing”
PacifiCorp to recover certain costs associated with its “unrecovered
investment in the Deer Creek Mine.” Had the Consumer Groups not
stipulated to these costs, customers would have received a surcredit
under PacifiCorp’s 2018 EBA filing. So, the Commission contends,
the Consumer Groups cannot claim substantial prejudice when,
setting aside costs to which they agreed, the interim EBA recovery
would have benefited customers.
¶25 We disagree with the notion that the Consumer Groups’
stipulation negates their claim of substantial prejudice. While the
Consumer Groups stipulated to PacifiCorp recovering certain costs,
they did not stipulate to recovery through interim rates.2 And the
Commission’s approval of interim rates serves as the basis for the
Consumer Groups’ claim of prejudice. Because customers are being
forced to pay interim rates, the Consumer Groups assert that
_____________________________________________________________
2 See Prinsburg State Bank v. Abundo, 2012 UT 94, ¶ 13, 296 P.3d
709 (“[A] stipulation entered into by the parties and accepted by the
court ‘acts as an estoppel upon the parties thereto and is conclusive
of all matters necessarily included in the stipulation.’” (emphasis added)
(quoting Yeargin, Inc. v. Auditing Div. of Utah State Tax Comm’n, 2001
UT 11, ¶ 20, 20 P.3d 287)).
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Opinion of the Court
customers are losing out on potential interest they could otherwise
earn in the time between paying the interim rates and the true up at
the conclusion of the EBA process. This injury is alone sufficient to
satisfy the Consumer Groups’ burden of demonstrating substantial
prejudice.
¶26 The fact that the Consumer Groups represent customers
whose individual injuries are relatively small does not undermine
this conclusion. The Utah Office of Consumer Services (“UOCS”) is a
government agency specifically tasked with “assess[ing] the impact
of utility rate changes . . . on: (i) residential consumers; and (ii) small
commercial consumers.” UTAH CODE § 54-10a-301(1)(a). It is
authorized to “commence an original proceeding, file a complaint,
appear as a party, appeal, or otherwise represent residential
consumers or small commercial consumers in a matter or a
proceeding involving regulation of an applicable public utility.” Id.
§ 54-10a-301(2)(b)(i). The Utah Association of Energy Users (“UAE”)
is a non-profit organization that similarly represents the interests of
customers before the Commission. UTAH ASS’N OF ENERGY USERS,
About, https://www.utahenergyusers.org/about-1 (last visited June
11, 2019). Its members include large industrial and commercial
companies. The harm suffered by the individual customers
represented by UOCS and UAE is relatively small considering that
the $2.8 million in interim rates is spread out across PacifiCorp’s
nearly one million Utah customers. ROCKY MOUNTAIN POWER, Quick
Facts, https://www.rockymountainpower.net/about/cf/qf.html
(last visited June 11, 2019). But UOCS is statutorily authorized to
represent all residential or small commercial consumers before the
Commission. UTAH CODE § 54-10a-301(1)(a), (2)(a)–(b). And the
customers composing UAE are large corporations, each of which
could satisfy the burden of demonstrating substantial prejudice. See
Utah Chapter of the Sierra Club, 2006 UT 74, ¶ 21 (“An association
. . . has standing if its individual members have standing and the
participation of the individual members is not necessary to the
resolution of the case.”). All of this is to say that the Consumer
Groups have suffered substantial prejudice from the Commission’s
orders interjecting interim rates into the EBA mechanism. We
therefore conclude that the Consumer Groups have standing. And
we accordingly proceed to the merits of their petitions.
B
¶27 The Consumer Groups contend that the Commission
“erroneously interpreted or applied” Utah law when it interjected an
interim rate process into the EBA mechanism. See UTAH CODE §
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63G-4-403(4)(d). We agree and thus set aside the Commission’s
orders. We expound on this holding below. First we review and
reject the Commission’s proffered justifications for its orders. Then
we explain how the Commission’s orders altered PacifiCorp’s
burden of proof in violation of Utah Code section 54-7-13.5(2)(e)(ii).
1
¶28 When reviewing an agency action, “the appropriate
standard of review . . . depend[s] on the type of action in question . . .
and whether it can be characterized as a question of law, a question
of fact, or a mixed question of law and fact.” Murray v. Utah Labor
Comm’n, 2013 UT 38, ¶ 22, 308 P.3d 461. Here we are faced with a
question of law—whether the Commission has the authority to
impose interim rates as part of the EBA process. And we review such
questions for correctness, according no deference to the agency’s
determination. Hughes Gen. Contractors, Inc. v. Utah Labor Comm’n,
2014 UT 3, ¶ 6, 322 P.3d 712.
¶29 The Commission cited Utah Code section 54-7-12(4)(a)(ii) as
the basis for its authority to impose interim rates through the EBA
mechanism. That subsection states as follows:
The commission, on its own initiative or in response to
an application by a public utility or other party, may,
after a hearing, allow any rate increase or decrease
proposed by a public utility, or a reasonable part of the
rate increase or decrease, to take effect on an interim
basis within 45 days after the day on which the request
is filed, subject to the commission’s right to order a
refund or surcharge.
UTAH CODE § 54-7-12(4)(a)(ii). The Commission acknowledged that
this provision is surrounded by subsections referring to a general
rate case and not the EBA mechanism. But it also emphasized that
subsection (4)(a)(ii) itself makes no explicit reference to a general rate
case. And on that basis it concluded that the “plain language” of
“54-7-12(4)(a)(ii) authorizes [it] to establish interim rates in an EBA
cost-recovery proceeding.”
¶30 This is an erroneous reading of the statute. When
interpreting a statute, our goal is to give effect to the words enacted
into law by the legislature. See Olsen v. Eagle Mountain City, 2011 UT
10, ¶ 9, 248 P.3d 465. We do not, however, read statutory text in
isolation. Monarrez v. Utah Dep’t of Transp., 2016 UT 10, ¶ 11, 368 P.3d
846. We must read it in context, taking into consideration
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surrounding terms and associated provisions. Olsen, 2011 UT 10,
¶ 12. And when subsection (4)(a)(ii) is read in context it becomes
obvious that it is meant to apply only to general rate cases.
¶31 The provisions surrounding subsection (4)(a)(ii) clearly
speak to the imposition of interim rates in a general rate case—or, in
other words, authorizing a new base rate on an interim basis. The
Commission concedes as much. But it fails to recognize the
significance of this concession. Once subsection (4)(a)(ii) is read in
conjunction with subsections (4)(a)(i) and (4)(a)(iii), it becomes clear
that subsection (4)(a)(ii) authorizes the imposition of interim rates
only in a general rate case and not in an EBA proceeding.
¶32 All of subsection (4)’s provisions are interrelated and speak
to imposing interim rates in a general rate case. Subsection (4)(a)(i)
states that “[a] request for interim rates shall be made within 90 days
after the day on which a public utility files a complete filing for a
general rate increase or a general rate decrease.” UTAH CODE
§ 54-7-12(4)(a)(i) (emphasis added). And subsection (4)(a)(ii), in turn,
says that the rate increase or decrease may “take effect on an interim
basis within 45 days after the day on which the request is filed.” Id.
§ 54-7-12(4)(a)(ii) (emphasis added). “The request” spoken of here
ties back to “the request” mentioned in subsection (4)(a)(i).
Subsection (4)(a)(iii) further ties together subsections (4)(a)(i) and
(4)(a)(ii). It reduces the utility’s burden of proof when an interim
request is made in a general rate case. It states that “[t]he evidence
presented in the hearing held pursuant” to the terms of subsection
(4) “need not encompass all issues that may be considered in a rate
case hearing held pursuant to [s]ubsection (2)(d)”—the hearing
required in a general rate case. Id. § 54-7-12(4)(a)(iii).
¶33 This language shows that each subpart of subsection (4) is
interconnected. Importantly, it also highlights that each subpart
deals with the imposition of interim rates in a general rate case. The
entirety of section 54-7-12 is dedicated to describing the procedures
for a general rate case. It would be odd to isolate subsection (4)(a)(ii)
from all of its surrounding provisions—and to conclude that the
absence of the words “general rate” in that subsection is an
indication that the procedures mentioned therein apply outside the
general rate process (in an EBA proceeding). This we decline to do.
¶34 The absence of an express reference to a general rate case in
subsection (4)(a)(ii) is accordingly inconsequential. Subsection (4) is
clearly speaking about imposing interim rates in a general rate case.
And for this reason this provision cannot serve as the source of the
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Commission’s authority to impose interim rates in the EBA
mechanism.
¶35 In reaching a contrary conclusion the Commission also cited
case law from this court. It noted that in Questar Gas Co. v. Utah
Public Service Commission, 2001 UT 93, 34 P.3d 218, we “recognized
the [Commission’s] authority to authorize interim rates in the
Questar Gas 191 balancing account mechanism.” And because
“PacifiCorp’s EBA is in some ways similar” to that balancing
account, the Commission concluded that the Questar Gas holding
supports its decision to impose interim rates.
¶36 We disagree. In Questar Gas we were asked to opine on the
propriety of interim rates in the specific context of the Questar Gas
191 balancing account. See id. ¶ 12. And there may be some
similarities between that account and PacifiCorp’s EBA. But the
Questar Gas decision says nothing about the statutory scheme
implicated here. Our opinion in that case does not speak to whether
section 54-7-13.5 authorizes the imposition of interim rates in an EBA
proceeding. That’s because the 191 balancing account was in no way
tied to section 54-7-13.5—that provision didn’t even exist yet. So the
191 balancing account was not implemented under section 54-7-13.5;
it was implemented under the Commission’s “ample general power
to fix rates and establish accounting procedures.” Id. (quoting Utah
Dep’t of Bus. Regulation v. Pub. Serv. Comm’n of Utah, 720 P.2d 420, 423
n.4 (Utah 1986)) (citing UTAH CODE § 54-4-1).
¶37 The Commission latches onto this language from Questar
Gas. It says that this language—in conjunction with the favorable cite
to Utah Code section 54-4-1—stands as an acknowledgment that the
Commission has authority to impose interim rates in any rate
proceeding. We disagree. The Commission certainly has broad
authority. But that authority is not so broad as to read statutory EBA
safeguards out of existence.
¶38 Section 54-4-1 confers on the Commission “power and
jurisdiction to supervise and regulate every public utility in this state
. . . and to do all things, whether herein specifically designated or in
addition thereto, which are necessary or convenient in the exercise of
such power and jurisdiction.” UTAH CODE § 54-4-1. We cited this
provision in Questar Gas as support for the proposition that the
Commission has “ample general power to fix rates and establish
accounting procedures.” Questar Gas, 2001 UT 93, ¶ 12 (quoting Utah
Dep’t of Bus. Regulation, 720 P.2d at 423 n.4). Yet that “ample power”
is not without limits. Some of those limits are prescribed in the EBA
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statute. And specific statutes (like the EBA provisions) control more
general ones (like section 54-4-1). See Lyon v. Burton, 2000 UT 19,
¶ 17, 5 P.3d 616. So if the EBA statute prohibits the Commission from
imposing interim rates in the manner by which it did—as the EBA
statute does—section 54-4-1 cannot save the Commission’s orders.
¶39 The same goes for the Commission’s reliance on section
54-4-4.1. That section states that “[t]he [C]ommission may, by rule or
order, adopt any method of rate regulation that is: (a) consistent with
this title; (b) in the public interest; and (c) just and reasonable.” UTAH
CODE § 54-4-4.1(1). This section explicitly recognizes limits on the
Commission’s authority. And one of those limits is that any method
of rate regulation the Commission adopts must be consistent with
Title 54. So if Title 54 prohibits the Commission from imposing
interim rates in the manner by which it did—as Title 54 does—then
the Commission’s reliance on section 54-4-4.1 is to no avail.
¶40 For all these reasons, we reject the Commission’s stated
justifications for interjecting interim rates into the EBA mechanism.
Having done so, we proceed to explain how the Commission’s
orders run afoul of the EBA statute and must thus be set aside.
2
¶41 The Commission is given broad authority to define the
procedures and timing by which an EBA is annually reconciled. But
that authority is not so broad as to allow the Commission to alter the
burden of proof that PacifiCorp must carry before recovering its EBA
costs. Yet that is exactly what the Commission did here. And we set
aside the Commission’s orders on this basis.
¶42 Section 54-7-13.5 merely provides the framework for
authorizing an EBA and approving a utility’s annual EBA filing.
Many of the details are left to the Commission. The statute, for
instance, does not define the timing for cost recovery. It allows
PacifiCorp to recover its actual EBA costs through a surcharge. Id. §
54-7-13.5(2)(c)(i). And it requires PacifiCorp to “file a reconciliation
of the energy balancing account with the commission at least
annually” to recover these costs. Id. § 54-7-13.5(2)(c)(ii).
¶43 The statute gives the Commission broad discretion to
establish a mechanism by which costs are recovered. Section
54-7-13.5 states that the method by which PacifiCorp recovers its
EBA costs shall “be incorporated into base rates in an appropriate
commission proceeding.” Id. § 54-7-13.5(2)(f)(ii) (emphasis added). The
statute never fully defines what constitutes “an appropriate
commission proceeding.” And in this sense the Commission is given
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UTAH OFFICE OF CONSUMER SERVICES v. PUBLIC SERVICE COMMISSION
OF UTAH
Opinion of the Court
broad discretion to develop the mechanism of recovery. But that
discretion is not boundless.
¶44 Limits are placed on the Commission’s authority to
authorize PacifiCorp to recover its EBA costs. The most relevant of
these limits for purposes of these consolidated cases are defined in
subsection (2)(e): “An energy balancing account may not alter: (i) the
standard for cost recovery; or (ii) the electrical corporation’s burden
of proof.” Id. § 54-7-13.5(2)(e). In other words, if a chosen EBA
mechanism alters either the standard for cost recovery or
PacifiCorp’s burden of proof, the mechanism is improper and the
Commission has exceeded its statutory authority.
¶45 The standard for cost recovery is statutorily defined.
PacifiCorp may recover its costs only to the extent they are
“prudently incurred.” Id. § 54-7-13.5(2)(d). The Commission
acknowledges this standard. And we do not believe that it has been
altered here. In its order reaffirming its decision to interject interim
rates, the Commission specifically stated that “the EBA statute only
allows for recovery of ‘[p]rudently incurred actual costs.’” So we
cannot say that it applied the wrong standard of cost recovery.
¶46 The Commission did, however, err in the burden of proof
that it applied. The statute itself does not specify an applicable
burden of proof. But we have repeatedly said that a utility has the
burden to prove that its costs are prudently incurred—or are “just
and reasonable”—by “substantial evidence.” See Comm. of Consumer
Servs. v. Pub. Serv. Comm’n of Utah, 2003 UT 29, ¶ 14, 75 P.3d 481;
Utah Dep’t of Bus. Regulation v. Pub. Serv. Comm’n, 614 P.2d 1242, 1245
(Utah 1980). And the Commission concedes that it did not require
PacifiCorp to carry a “substantial evidence” burden of proof when it
approved the request to impose interim rates.
¶47 The Commission seeks to justify its approach on the ground
that the applicable burden of proof will eventually be satisfied after a
complete audit and a final hearing. Under the EBA framework under
review, the Commission notes that PacifiCorp will eventually be
required to show by “substantial evidence” that its costs are
prudently incurred. This will happen at a “true up” after a complete
audit and public hearing—at which time customers will be allowed
to recover a surcredit if any costs incorporated in the interim rates
are shown not to be justified by substantial evidence. See UTAH CODE
§ 54-7-13.5(2)(h)–(j). Fair enough. But that doesn’t solve the problem.
By law PacifiCorp is allowed to recover its claimed costs through an
interim rate only after proving by substantial evidence that its costs
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Opinion of the Court
are prudently incurred. See id. § 54-7-13.5(2)(d), (e)(ii); Comm. of
Consumer Servs., 2003 UT 29, ¶ 14. And the interim EBA rate process
authorizes PacifiCorp to impose rates in the absence of such a
showing.
¶48 We reverse on this basis. We conclude that the
Commission’s orders unlawfully altered the burden of proof that
PacifiCorp must satisfy before recovering its claimed EBA costs. And
we accordingly set aside the Commission’s orders interjecting an
interim rate procedure into the EBA process and authorizing
PacifiCorp to recover $2.8 million on an interim basis.
III
¶49 In reversing the Public Service Commission and setting aside
its orders we take no position on a line of policy argument presented
by the Commission in its briefing. The Commission asserts that the
interposition of an interim rate procedure into the EBA process
would better protect consumers in a few ways—by ensuring that
rates are just and reasonable and decreasing the likelihood that
either a future generation of customers would be burdened with
costs incurred to serve customers in a prior year or that a future
generation of customers would benefit from rate refunds to which
prior customers were entitled. That may be. Or perhaps the
Consumer Groups have the better of the argument on these policy
issues; they, after all, advance a different view. But we leave these
questions for the legislature. We decide only that the current
statutory scheme does not condone the interim rate process as it now
stands. And we leave it to the legislature, if it so chooses, to reopen
the governing statutes to expressly authorize an interim rate
procedure as an element of the EBA process.
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