BEFORE THE PUBLIC SERVICE COMMISSION OF WYOMING

 

IN THE MATTER OF THE INVESTIGATION, BY THE COMMISSION, AND ORDER TO SHOW CAUSE, OF MONTANA-DAKOTA UTILITIES CO., TO DETERMINE WHETHER THE COMPANY IS EXCEEDING ITS AUTHORIZED RATE OF RETURN AND WHETHER THE COMPANY’S RETAIL RATES SHOULD BE REDUCED

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Docket No. 30013-GI-03-141

(Record No. 8440)

 

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IN THE MATTER OF THE APPLICATION OF MONTANA-DAKOTA UTILITIES CO., FOR AUTHORITY TO PASS ON A GAS COST INCREASE OF $1.495 PER DEKATHERM

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Docket No. 30013-GP-03-139

(Record No. 8338)

 

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IN THE MATTER OF THE APPLICATION OF MONTANA-DAKOTA UTILITIES CO., FOR AUTHORITY TO PASS ON A GAS INCREASE OF $0.448 PER DK

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Docket No. 30013-GP-03-138

(Record No. 8275)

 

appearances

 

For Montana-Dakota Utilities Company (MDU):

BRUCE S. ASAY of Associated Legal Group LLC, Cheyenne, Wyoming.

 

For the Intervenor, the Office of Consumer Advocate:

            ANTHONY M. REYES, Cheyenne, Wyoming.

 

HEARD BEFORE

 

Chairman Steve Ellenbecker

Deputy Chair Kristin H. Lee

Commissioner Steve Furtney

 

Deputy Chair Lee presiding

 

ORDER APPROVING STIPULATION

(Issued November 3, 2003)

 

            1.         The above captioned cases are now before the Wyoming Public Service Commission (Commission) upon the Commission’s direction to MDU that it show cause why the current non-commodity or commodity components of its retail gas rates should not be reduced if MDU is earning in excess of its authorized overall rate of return, and upon the testimony of MDU and the Office of Consumer Advocate presented in public hearing and upon an October 27, 2003, stipulation in these cases between the Office of Consumer Advocate and MDU (Joint OCA/MDU Exhibit 1, herein the Stipulation).

 

            2.         The Commission denied MDU’s applications to pass on increases in wholesale commodity costs through its purchased gas cost adjustment mechanism (the PGA) in Docket Nos. 30013-GP-03-138 (Sub 138) and 30013-GP-03-139 (Sub 139), by Notices and Orders issued on June 27, 2003, and July 22, 2003, respectively.   The Commission denied these two monthly PGA filings based on showings by its staff and the Office of Consumer Advocate that MDU’s pro forma earnings, as calculated on the basis of certain updated financial information which MDU was directed to and did provide as part of its June 2003 PGA filing, were in excess of its authorized rate of return.  The basis for the Commission’s denial of these two PGA increases included Section 249(b) of the Commission’s Rules which states, in part:

 

“The pass on will not increase the utility’s rate of return, and its rate of return is at or below that last authorized by the Commission (if the rate of return is in excess of that authorized the pass on amount will be reduced accordingly); . . . .”

 

            3.         On August 11, 2003, the Commission issued its Notice and Order Initiating Investigation and Show Cause Proceeding, Consolidating Dockets, and Setting Consolidated Matters for Public Hearing.  This order initiated an investigation into the situation on the Commission’s own motion under W.S. § 37-2-117, consolidated the above-captioned matters for public hearing and set the hearing for September 3, 2003.  It required MDU to address a number of specific topics related to the over earnings situation and what, if any, remedy should be applied by the Commission.  It also established a prehearing schedule.

 

            4.         On August 13, 2003, the Commission issued its Order Revising Procedural Schedule, giving MDU, at its request, additional time to prepare and file its prefiled testimony and exhibits.  On August 15, 2003, MDU filed a Motion for Continuance, seeking additional time to prepare testimony and asking that the hearing be moved to a later date.

 

            5.         On August 19, 2003, the Commission, in response to MDU’s Motion, reset the public hearing for October 27, 2003, and revised the prefiled testimony and exhibit filing deadlines for the parties, all in its Notice and Order Establishing Revised Procedural Schedule and Resetting Consolidated Matters for Public Hearing.  Public notice of the public hearing was published in the Lovell Chronicle, the Powell Tribune, the Sheridan Press, and the Buffalo Bulletin.  Notice was given by radio on KPOW-AM in Powell, KROE-AM in Sheridan, and KBBS-AM in Buffalo.

 

            6.         On September 29, 2003, MDU filed the prepared testimony and exhibits of Donald R. Ball, MDU’s Assistant Vice President - Regulatory Affairs, and Rita A. Mulkern, MDU’s Regulatory Analysis Manager.  MDU then also filed a pre-hearing legal memorandum.  On October 13, 2003, the Office of Consumer Advocate filed the prepared direct testimony and exhibits of Marci L. Norby, Senior Rate Analyst.

 

            7.         On October 27, 2003, the consolidated cases came on regularly for hearing at the Commission’s hearing room in Cheyenne, Wyoming, with MDU and the Office of Consumer Advocate appearing through counsel and presenting witnesses.  At the outset of the hearing, the parties presented the Stipulation to the Commission.  Although the Office of Consumer Advocate introduced its prefiled direct case through Norby and MDU introduced its prefiled direct case through Ball, including the testimony of Mulkern, the presentations of both parties centered on the Stipulation.  Both parties urged the Commission to adopt and approve the Stipulation in its entirety as being in the public interest and providing a proper resolution to the consolidated cases.

 

            8.         At the end of the public hearing, the Commission closed the record, deliberated, decided to accept the Stipulation and directed that an order consistent with its bench decision be prepared.

 

The Stipulation

 

            9.         The most important provisions of the Stipulation are found at paragraphs 21 through 24 thereof.  They state:

 

      “21.      The Parties, including Montana-Dakota, agree that the Commission’s disallowance of the June and July pass-on requests shall remain in effect.  This results in an annual reduction of revenues of $132,170.00 which will decrease the Company’s 2003 annual revenues. The parties further agree that Montana-Dakota’s non-gas rates should not be reduced on a prospective basis as illustrated in Stipulation Exhibits 1 and 2.  Montana-Dakota agrees that costs disallowed in the June/July PGA filings shall not be made-up in other PGA filings.  Montana-Dakota shall provide documentation in its next annual PGA filing that these costs are excluded from its deferred balances and shall not be included in the calculation of the surcharge adjustment.

 

      “22.      The Parties agree that as the applicant has agreed to forego receipt of the June and July revenue amounts, the Commission should act immediately to address the outstanding PGA applications such that the Commission will act on Montana-Dakota’s November PGA (“145") by November 1, 2003.  At that time the Commission is requested to also approve the August through October applications to allow recovery for those periods in the deferred gas cost account.

 

      “23.      Montana-Dakota further agrees that as it files its annual true-up for purchased gas adjustments, it will also provide a narrative explaining the financial data which it provides.

 

      “24.      The Parties agree that the reduction in revenues of the Company shall be on a one-time basis and shall not reduce revenues for the upcoming year.  The Parties agree that such a result is appropriate given increased costs which will be incurred by the Company in 2004.  See Stipulation Exhibits 1 and 2.”

 

            10.       These four paragraphs of the Stipulation, taken together with the evidence before the Commission in the record of this proceeding, provide for the resolution of the problem on which we sought additional information in this consolidated proceeding.  Under the Stipulation, the dollar value of the Sub 138 and Sub 139 PGA filings, totaling $132,170, will be applied to reduce MDU’s annual revenues and will not be allowed to be collected from ratepayers in the future through MDU’s PGA or otherwise.  The Commission’s denials of these two PGA adjustments will remain in place permanently.  At the hearing, it was clarified that paragraph 21 of the Stipulation, in calling for an “annual reduction of revenues of $132,170.00” and the provision of Stipulation paragraph 24 that “the reduction in revenues of the Company shall be on a one-time basis and shall not reduce revenues for the upcoming year” mean that the $132,170 will constitute a single reduction in revenues of this amount and that it should not be given an ongoing effect similar to that which would occur if MDU’s base rates were to be reduced by this amount.  MDU acknowledged that approval of the Stipulation would not constitute a change to MDU’s non-gas costs.

 

            11.       Under the Stipulation, MDU will document in its next annual (not monthly) PGA filing that the $132,170 is “. . . excluded from its deferred balances and shall not be included in the calculation of the surcharge adjustment.”  The costs, rightfully excluded here will not later be reintroduced for collection from ratepayers.  As an important hedge against the possibility that a similar situation might occur in the future, MDU agreed, at paragraph 23 of the Stipulation, that it would include in its annual true-up for purchase gas adjustments “a narrative explaining the financial data which it provides.”  This will assist the Commission and the Office of Consumer Advocate in making more accurate analyses of the financial position of MDU and will assist in the efficient application of Section 249 of the Commission’s Rules.

 

            12.       The parties showed the Commission that MDU can reasonably expect increases in expenses in the future, as shown in Stipulation Exhibit 1, consisting of increases in labor, insurance and benefits expenses.  Stipulation Exhibit 2 takes these expenses into account and factors in the permanent denial of recovery of the $132,170 from the Sub 138 and Sub 139 PGA cases.  The result of these adjustments is that, on a pro forma basis for the twelve months ending June 30, 2003, MDU’s calculated return on rate base is 5.94%, below its Commission-authorized return level of 8.94%.  These exhibits do not constitute a complete examination of the base rates of MDU in the detail that would be found in a general rate case, but they do show that the outcome urged on the Commission here will not result in the confiscation of any of money or property of MDU.  The outcome will also, on a pro forma basis, result in MDU not earning at a rate in excess of its currently authorized rate of return.

 

            13.       Both parties urged adoption of the Stipulation in the public interest, and both parties confirmed that approval of the Stipulation would not interfere with the ability of MDU to pay its wholesale natural gas commodity bills.

 

            14.       Based on the evidence now available to them, MDU and the Office of Consumer Advocate urged the Commission to approve MDU’s November 2003 PGA application (Docket No. 300013-GP-03-145).  MDU’s PGA applications for August (Docket No. 300013-GP-03-140), September (Docket No. 300013-GP-03-142), and October (Docket No. 300013-GP-03-144) 2003, were suspended by the Commission pending resolution of the above-captioned matters.  Both parties asked the Commission to act favorably on these three suspended cases to allow MDU to reflect the gas costs in these cases in the next annual true-up for purchase gas adjustments to be filed by MDU so that costs for these months could be recovered as elements of MDU’s deferred gas costs.  These filings were not noticed as part of this case and the effect of inclusion of the gas costs associated with these three cases will not be determined here.  (We note that the requested approvals were given at the Commission’s regular open meeting of October 30, 2003.)

 

Applicable Law

 

            15.       W.S. § 37-2-117 gives the Commission broad powers of investigation, stating:

 

“Whenever the commission shall believe that an investigation of any act or omission to act, accomplished or proposed, or an investigation of any rate, service, facility or service regulation of any public utility should be made in order to secure compliance with the provisions of this act and orders of the commission, it may of its own motion summarily investigate the same.”

 

            16.       W.S. § 37-2-121, prohibits rates that are “. . . unjust, or unreasonable, or unjustly discriminatory . . .” and allows the Commission, after hearing and investigation, to order the substitution of “ . . . such rate as it shall determine to be just and reasonable and in compliance with the provisions of this act.”  W.S. § 37-2-119 gives the Commission wide latitude in making inquiries in the investigation of the rates of a regulated utility and the factors influencing those rates..

 

            17.       In the Wyoming Administrative Procedure Act, W.S. § 16-3-114(c)(ii)(E) requires our decisions to be supported by substantial evidence; and W.S. § 16-3-108(a) requires that this evidence must be of “the type of evidence commonly relied upon by prudent men in the conduct of their serious affairs.”

 

Findings of Fact

 

            18.       Many of the facts found by the Commission are stated above and will not be restated here.

 

            19.       The permanent, but nevertheless one-time, denial of MDU’s recovery of the $132,170 which would otherwise have been collected in rates will result, on the facts of this case, in a more accurate collection of monies due from consumers for their retail natural gas service.  It will not contribute to MDU earning at a rate greater than its authorized rate of return.  This action does not reduce or adjust MDU’s base rates in any manner and does not interfere with MDU in the payment of its wholesale natural gas commodity bills.

 

            20.       The informational requirements of the Stipulation will provide needed additional facts upon which the Commission and the Office of Consumer Advocate may in the future base their examinations of MDU’s purchased gas cost activities to ensure compliance with Wyoming utility law and the Commission’s Rules, particularly Section 249 thereof.

 

Conclusions of Law

 

            21.       MDU is duly authorized by the Commission to provide retail natural gas and electric public utility service in Wyoming under certificates of public convenience and necessity issued and amended by the Commission.  It is both a natural gas and an electric public utility as defined in W.S. § 37-1-101(a)(vi).  Under W.S. § 37-2-112, the Commission has the general and exclusive jurisdiction to regulate MDU as a public utility in Wyoming.

 

            22.       Sufficient public notice of these proceedings was given in accordance with the Wyoming Administrative Procedure Act, W.S. § 37-2-203 and the Commission’s Rules, especially Section 106 thereof.  The public hearing was held and conducted pursuant to the provisions of W.S. §§ 16-3-107, 16-3-108, 37-2-203, and applicable sections of the Commission’s Rules.

 

            23.       The rates which will result from acceptance of the Stipulation are reasonable, just and not unduly discriminatory.  They will prevent the over collection of monies required by MDU to pay its wholesale gas commodity bills.

 

            24.       Although there was some expressed disagreement between the parties regarding the application of the Commission’s Rules, the proper effect of an authorized rate of return and certain other related issues, the parties agreed, rightly, we believe, that such questions were not properly before the Commission in these cases.  This order may thus not be considered a determination on or acceptance of any legal issues raised by MDU in this case.

 

            25.       It is in the public interest that the Commission accept the Stipulation presented to it; and the Commission’s bench decision of October 27, 2003, is fully justified on the facts and law applicable to the case.  A copy of that Stipulation is attached hereto and incorporated herein by reference.

 

            NOW, THEREFORE, IT IS HEREBY ORDERED THAT:

 

            1.         The Stipulation between MDU and the Office of Consumer Advocate, with its attachments, and as attached to this Order, is hereby approved.  The Commission’s denial of recovery by MDU in rates of any of the $132,170 in costs associated with its PGA applications in Dockets No. 30013-GP-03-138 and 30013-GP-03-139 is hereby made permanent.

 

            2.         MDU shall make all filings and showings as described in the Stipulation and as required hereby.

 

            3.         The entry of this Order by the Commission approving the Stipulation, shall not be construed as creating or otherwise establishing [i] any limitation upon the discretion of the Commission, [ii] any enforceable precedent of the Commission, or [iii] an estoppel upon any future action that the Commission may deem necessary in the public interest in this or any other case coming before it.

 

            4.         This order is effective immediately.

 

            MADE and ENTERED at Cheyenne, Wyoming, on November 3, 2003.

 

                                                            Public Service Commission of Wyoming

 

 

                                                                                                                                                           

                                                            STEVE ELLENBECKER, Chairman

 

 

                                                                                                                                                           

                                                            KRISTIN H. LEE, Deputy Chair

 

 

                                                                                                                                                           

(SEAL)                                              STEVE FURTNEY, Commissioner

Attest:

 

 

                                                                                               

STEPHEN G. OXLEY, Secretary and Chief Counsel