Montana-Dakota Utilities, Co. v. Wyo. Pub. Serv. Comm'n

332 P.3d 1160

MONTANA–DAKOTA UTILITIES, CO., Appellant (Petitioner),

v.WYOMING PUBLIC SERVICE COMMISSION, Appellee (Respondent).

No. S–13–0218.

Supreme Court of Wyoming.

Aug. 19, 2014.

Representing Appellant: Bruce Asay, Associated Legal Group, LLC, Cheyenne, Wyoming.

Representing Appellee: Peter K. Michael, Attorney General; Martin L. Hardsocg, Deputy Attorney General; Michael M. Robinson, Senior Assistant Attorney General; Ryan T. Schelhaas, Senior Assistant Attorney General. Argument by Mr. Robinson.

Before BURKE, C.J., and HILL, KITE ^*, DAVIS, and FOX, JJ.

BURKE, Chief Justice.

[¶ 1] Montana–Dakota Utilities Company appeals the district court's affirmation of a decision of the Wyoming Public Service Commission. MDU contends that the Commission lacked authority to order MDU to make refunds to its customers. We will affirm the district court's decision.

ISSUES

[¶ 2] MDU presents a list of issues:

1. Does the Commission's order constitute retroactive ratemaking, which is contrary to the law?

2. Does the Commission's refund order requiring retroactive rates violate the filed rate doctrine?

3. If the refund is allowed, does the statute of limitations for contracts limit the refund period?

4. As the Commission approved the rates over time, is it equitably estopped from ordering a refund?

5. Is the action of the agency arbitrary, capricious and an abuse of discretion and should it be held unlawful and set aside?

The Commission articulates the issue this way:

Did the Commission correctly conclude that MDU is required to refund all overcharges arising out of the improper calculations and adjustments to its commodity balancing account?

FACTS

[¶ 3] MDU provides natural gas to customers in Wyoming. As a regulated public utility, it must obtain the Commission's approval of the rates it charges customers. In June of 2009, MDU filed an application to adjust the rates it was charging its customers in order to reflect the higher costs MDU was paying for gas.

[¶ 4] The Commission staff, after reviewing MDU's application, reported to the Commission that it had questions about certain calculations MDU used to support its application. The Commission approved MDU's June, 2009, application, but on an interim basis only, subject to further consideration of the questions raised by the staff. The Commission directed MDU “to work with Staff” to help resolve these questions.

[¶ 5] MDU continued its usual practice of filing monthly applications to adjust its rates in response to fluctuating gas prices. In the course of reviewing these applications, the staff identified additional questions relating to MDU's calculations. The Commission continued approving the applications, but each time, subject to further review and consideration of the staff's accumulating questions.

[¶ 6] All of the staff's questions were brought before the Commission, pursuant to notice, at a regularly scheduled meeting held on January 13, 2011. The Commission's order following this meeting indicates that many of the staff's questions had already been “addressed or resolved.” The two issues remaining for consideration concerned the “interest calculation on over-collected commodity balancing account (CBA) balances,” and “the Company's practice of grossing up the return on cycle storage, prepaid demand and prepaid commodity balances for federal income taxes and the Uniform Utility Assessment.” MDU acknowledged that some of the questioned calculations were incorrect, but maintained that others were appropriate and consistent with the way such calculations had been performed for many years. While MDU did not agree with all of the changes recommended by the Commission staff, it did not object to making the recommended changes on a prospective basis.

[¶ 7] MDU did object, however, to the Commission ordering it to make refunds of the amounts it had overcharged its customers in the past because of the calculation errors. Specifically, it argued that the rule against retroactive ratemaking precluded the Commission from ordering MDU to make these refunds. In its written order, the Commission rejected MDU's legal arguments and ordered MDU to remedy past errors in the calculations of certain adjustments by the refunding of monies improperly collected. The written order detailed the various calculation errors, found the time periods during which each erroneous calculation had been used by MDU, and quantified the amount by which MDU had overcharged its customers due to each error. Some of the errors dated back to 1993. The Commission ordered MDU to make refunds to its customers covering the entire time the various calculation errors had occurred. In all, MDU was ordered to refund $346,664 to its customers.

[¶ 8] MDU filed a petition for review in the district court. It did not challenge the Commission's decision that the calculations should be corrected. It did not dispute the amounts of the refunds ordered. It challenged only the legal authority of the Commission to order refunds. After briefing and oral argument, the district court issued an order affirming the Commission's decision. MDU filed this timely appeal.

STANDARD OF REVIEW

[¶ 9] In an appeal from a district court's review of an administrative agency's decision, we “review the case as if it had come directly to us from the administrative agency.” Dutcher v. State ex rel. Wyoming Workers' Safety & Comp. Div., 2010 WY 10, ¶ 9, 223 P.3d 559, 561 (Wyo.2010). Our review is governed by Wyo. Stat. Ann. § 16–3–114(c) (LexisNexis 2013):

(c) To the extent necessary to make a decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. In making the following determinations, the court shall review the whole record or those parts of it cited by a party and due account shall be taken of the rule of prejudicial error. The reviewing court shall:

(i) Compel agency action unlawfully withheld or unreasonably delayed; and

(ii) Hold unlawful and set aside agency action, findings and conclusions found to be:

(A) Arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law;

(B) Contrary to constitutional right, power, privilege or immunity;

(C) In excess of statutory jurisdiction, authority or limitations or lacking statutory right;

(D) Without observance of procedure required by law; or

(E) Unsupported by substantial evidence in a case reviewed on the record of an agency hearing provided by statute.

Although MDU raises several issues, the basic question facing us is whether the Commission's decision is “not in accordance with law” or “[i]n excess of statutory jurisdiction, authority or limitations.” We review questions of law de novo. US West Communications v. Wyoming Public Service Comm'n, 992 P.2d 1092, 1094 (Wyo.1999). “If the agency action is in accordance with law, it is affirmed; if not, it is corrected.” Id. (citing Parker Land and Cattle Co. v. Wyoming Game and Fish Comm'n, 845 P.2d 1040, 1042 (Wyo.1993)).

DISCUSSION

[¶ 10] Applications to the Commission for rate changes are of two basic types: a general rate application and a pass-on rate application. Montana Dakota Utilities Co. v. Public Service Comm'n, 847 P.2d 978, 988 (Wyo.1993). “The general rate ... application traditionally covers all facets of a utility's operations, finances, rate design, and rate of return.” Id. “In sharp contrast, the pass-on application is narrow in nature and scope, is not as costly, and has as its chief purpose the expeditious passing through of ... wholesale gas costs.” Id. at 989. When wholesale costs increase, a utility may submit a pass-on rate application to increase its rates, and conversely, when wholesale costs decrease, a utility may submit a pass-on rate application to reduce its rates.

[¶ 11] In 1993, MDU filed a general rate application which the Commission approved. It covered all facets of MDU's operations, and its broad elements such as finances, rate design, and rate of return, have remained essentially unchanged since that time.¹ In contrast, MDU has filed pass-on rate applications on a nearly monthly basis since 1997. Upon approval by the Commission, these pass-on rate applications have allowed MDU to make rapid adjustments to the rates it charges customers, responding to the variable costs MDU pays to purchase gas.

[¶ 12] The case before us now began when the Commission staff raised questions about MDU's calculations in connection with MDU's pass-on rate application filed in June of 2009. The Commission determined that some of MDU's calculations were incorrect. It ordered MDU to change those calculations and to make refunds to its customers to reimburse them for past overcharges caused by the erroneous calculations. MDU challenges the Commission's refund order in this appeal.

[¶ 13] In its first issue, MDU claims that the Commission's refund order violates the rule against retroactive ratemaking. This rule is “a generally accepted principle of public utility law which recognizes the prospective nature of utility ratemaking and prohibits regulatory commissions from rolling back rates which have already been approved and have become final.” MGTC, Inc. v. Public Service Comm'n of Wyoming, 735 P.2d 103, 107 (Wyo.1987). “Put simply, the rule against retroactive ratemaking prohibits the Commission from setting future rates to allow a utility to recoup past losses or to refund to consumers excess utility profits.” PacifiCorp v. Public Service Comm'n, 2004 WY 164, ¶ 35, 103 P.3d 862, 874–75 (Wyo.2004). MDU argues that the Commission's order requiring it to refund overcharged amounts is, in effect, an order setting future rates so as to refund past excess payments back to its customers. This, MDU contends, is prohibited by the rule against retroactive ratemaking.

[¶ 14] The Commission contends that the rule against retroactive ratemaking...