Henry v. Corporation Commission

1990 OK 104, 825 P.2d 1262, 61 O.B.A.J. 2546, 1990 Okla. LEXIS 111, 1990 WL 142044

• Court: Supreme Court of Oklahoma
• Decided: October 2, 1990
• Docket: 68776, 68793 and 68795
• Status: Published

Opinions

LAVENDER, Justice.

The issues presented on appeal are 1) did AOG’s customers have sufficient notice of the Commission’s intent to increase AOG’s base cost of gas and line loss and 2) is the Commission’s order increasing the amount of refund owed AOG’s customers a valid order. We hold that the Commission’s notice was insufficient to adequately inform AOG’s customers that an increase in line loss or base cost of gas was to be considered. We further find that the Commission’s order increasing the amount of refund owed AOG’s customers is valid in that AOG waived its right to challenge the order on appeal having failed to contest the staff’s motion during the Commission’s proceedings.

I. Facts

On December 26, 1985, Arkansas Oklahoma Gas Corporation (AOG), a gas utility serving certain communities and rural areas in Sequoyah, LeFlore and Haskell counties in Oklahoma, filed an application with the Oklahoma Corporation Commission seeking a general rate increase. The Corporation Commission designated this application as Public Utility Docket Cause No. 79. On April 24, 1986, the Eastern Oklahoma Legislative Delegation (EOLD), as representatives of the customers of AOG, filed a protest to the application for an increase in utility rates. In May of the same year the Attorney General of Oklahoma also filed an intervention as to the application for rate increase as representative of the public.

On April 24, 1986, the same date that EOLD entered its appearance in the general rate increase proceeding initiated by AOG, the Commission staff filed an application which was designated as Public Utility Docket Cause No. 158. In the application in Cause No. 158, the Commission staff alleged that in the course of monitoring AOG’s compliance with Commission Rules and Regulations governing fuel adjustment clauses¹ it had discovered that AOG was recovering line loss² through the purchased gas adjustment clause.³ The application alleged that this recovery was not permissible through this mechanism.⁴ Because AOG had a seven and one-half percent line loss factored into its base rates under the previous Commission order establishing general rates, the recovery of actual line loss through the purchased gas adjustment clause had resulted in an ov-errecovery of fuel costs. The application sought an order from the Commission directing a refund to AOG’s customers. Additionally, the application requested that AOG’s gas costs be rebased. No mention was made that an increase in line loss was to be considered or that other appropriate relief would be considered.⁵

A hearing was set on the staff application in Cause No. 158 and notice was mailed to counsel for AOG and to the Attorney General. No other notice was given as to the hearing in this matter. The hearing was held on May 6,1986. The Commission entered Order No. 297572 which directed AOG to refund to its customers an amount in excess of $400,000, the exact amount to be determined at a later time, plus interest at the rate of six percent during the course of billing over the next twelve months. The order also allowed AOG to rebase its gas costs from $1.41 per MCF to $2.05 per MCF and to increase the line loss factor in its rate base from seven and one-half percent to eleven percent effective in its May 1986 billings.

‘Fuel adjustment clause’ means any mechanism which allows a public utility or electric generating cooperative to automatically adjust its charges above or below the base amount included in its rates, based upon changes in costs of fuel for generation of electricity, purchased power or purchased gas....

On January 21, 1987, the Commission staff filed an application to increase the amount of refund determined in Cause No. 158. This application, however, was filed under Cause No. 79. A copy of this motion was therefore delivered to all parties having entered appearances in the general rate proceeding. As a result EOLD was given actual notice of this application and of the subsequent order setting a hearing date for the motion.

However, on January 15,1987 EOLD had already filed a motion in Cause No. 79 challenging the proceedings as to the May 6, 1986 hearing on the grounds of lack of notice to the public. EOLD amended this motion on February 19, 1987 to more particularly challenge the lack of notice, and requested a cancelation of that part of Order No. 297572 which allowed AOG to increase its rates. The Attorney General filed a motion in support of the position of EOLD on February 23, 1987. The Attorney General challenged the order on the basis of lack of notice of the intent to consider increasing AOG’s line loss factor, as well as raising questions of evidentiary support and Commission authority to take the action of increasing AOG’s rates to its consumers under this procedure.

In Order No. 310988 the Corporation Commission granted the staff application to increase the refund, ordering AOG to refund an additional $126,615 plus interest to AOG’s customers. The Commission denied EOLD's and the Attorney General’s requests to delete the rate increase provisions of Order No. 297572.

The Attorney General, EOLD and AOG have each filed separate appeals from Commission Order No. 310988. The Attorney General challenges the adequacy of the notice received as to Cause No. 158. EOLD challenges the validity of Order 297572 because of the failure to give notice to the public which EOLD represents. AOG challenges the increase in the refund it must make to its customers. All three appeals have been consolidated for disposition. We address first the challenge brought by EOLD as to the validity of Order No. 297572 and ultimately, the correctness of Order No. 310988.

II.

EOLD argues that the provisions of Order No. 297572 allowing a rate increase, i.e. the allowance of increased line loss factor and base gas costs, are invalid because the Commission failed to give notice to the consumers affected by the increase. This Court has held that “rate making” being a legislative power ... “judicial due process notice and hearing ... unless specifically required by statute ...”⁶ are not required. While EOLD does not cite a statutory basis for its contention, it does claim that notice was required under the Oklahoma Constitution Art. IX § 18. However, these constitutional provisions provide for publication notice only in a situation where the Commission is engaged in general actions not directed at any named utility. Here the action involved a named utility and therefore that portion of Art. IX § 18 relied on by EOLD has no application.⁷

EOLD also argues that the Corporation Commission Rule of Practice 8-27(b) requires that notice of the application in Cause No. 158 be given to the consuming public. Rule 8-27(b) provides:

Notice of hearing of an application for approval of any schedule, rate, charge, classification, rule or regulation which will directly or indirectly alter charges made for services performed, shall be published once each week for two (2) consecutive weeks at least fifteen (15) days prior to a hearing in a newspaper of general circulation published in each county in which are located utility customers affected thereby, unless the Commission directs otherwise.

AOG and the Commission argue that Rule 8-27(b) does not apply in this situation because Order No. 297572 resulted in a decrease in revenue to AOG. We find no merit in this argument since the rule applies to cases where there is any alteration made in the charges. Here the order clearly resulted in an alteration in charges made to the consumers of AOG’s services. Moreover, the testimony of the Commission's witness at the February 24, 1987 hearing was to the effect that the increase in line loss factor and the increase in cost of gas to be recovered resulted in a rate increase to AOG.⁸

Alternatively, AOG and the Commission contend that Rule 8-27(b) has been satisfied because, by failing to explicitly order that publication of notice be given, this had the effect of directing that publication need not be given. We disagree. The Commission’s failure to act is no substitution for an express mandate to perform a particular duty.

In considering this challenge on appeal as to the adequacy of notice, our standard of review is determined by Art. IX § 20 Constitution of Oklahoma which states that:

“The Supreme Court’s review of appeal-able orders of the Corporation Commission shall be judicial only, and in all appeals involving an asserted violation of any right of the parties under the Constitution of the United States or the Constitution of the State of Oklahoma, the Court shall exercise its own independent judgment as to both the law and the facts. In all other appeals from orders of the Corporation Commission the review by the Supreme Court shall not extend further than to determine whether the Commission has regularly pursued its authority, and whether the findings and conclusions of the Commission are sustained by the law and substantial evidence. Upon review, the Supreme Court shall enter judgment, either affirming or reversing the order of the Commission appealed from....”

(emphasis added).

Under the facts of the present case, it is clear that the Commission has not “regularly pursued its authority” or that “the findings and conclusions of the Commission are sustained by the law and substantial evidence.”⁹ The failure to notify the con-sumering public as to the Commission’s intent to increase AOG’s line loss and base gas costs does not substantially comply with the Commission’s own rule.

The Oklahoma Corporation Commission is constitutionally empowered with the authority to make rules governing procedure and practice before the Commission.¹⁰ These rules, regulations, and standards adopted by the Commission have the force and effect of law.¹¹ When an administrative agency such as the Commission promulgates rules to govern its proceeding these rules must be scrupulously observed. Once the agency creates procedural rules it denies itself the right to violate these rules, and an action taken in violation of these procedural rules will be stricken down by the courts.¹² This doctrine was announced in the case of United States ex rel. Accardi v. Shaughnessy.¹³

It is of no significance that the procedural rule here established by the Commission is more generous than that required by constitution or by statute.¹⁴ The Commission’s failure to follow its own procedural rule vitiate such actions where prejudice results.¹⁵

The Commission’s position that its silence as to the requirement that notice be published in this case constitutes a proper exercise of the Commission’s discretion retained under rule 8-27(b) is simply untenable. The Commission’s position seems to be that notice under 8-27(b) is a matter of administrative grace rather than a right established by a rule having the force and effect of law. This position cannot be reconciled with the fundamental principle that “ours is a government of laws and not of men.” ¹⁶

If the Commission wishes to make an exception to the application of a rule which speaks in mandatory and unambiguous language it must reasonably explain the reasons for making the exception.¹⁷ The purpose of the Accardi doctrine is “to prevent the arbitrariness which is inherently characteristic of an agency’s violation of its own procedures.”¹⁸ Any deviation from a procedural rule must be explained on the record to insure that the deviation is not made arbitrarily and capriciously.

Here the Commission’s failure to give publication notice to AOG’s customers of its intent to increase AOG’s line loss and base gas costs in cause no. 158 clearly violated OCCRP 8-27(b). As a result of this violation, the customers were denied the opportunity to present arguments relevant to these changes which would affect the charges made by AOG for the services provided. This prejudiced the interests of these customers. The Commission presented no creditable explanation as to its failure to comply with its own procedural requirement. Accordingly we find the Commission erred in refusing to grant EOLD its requested relief in Order No. 310988 and therefore Order No. 297572 is struck down insofar as it granted any increase to AOG’s base gas costs or line loss factor. Our decision on this point effectively moots the issue raised in the appeal by the Attorney General.¹⁹

III.

AOG in its separate appeal argues that Order No. 310988 is erroneous insofar as it increases the amount of refund it must make for prior overcharges. AOG challenges the validity of this order on several grounds. We find it unnecessary however, to respond to the various arguments presented as it is apparent from the record that AOG was given an opportunity to present its arguments as to the merits of the refund or procedural irregularities during the Commission’s proceedings held on February 24, 1987, but failed to do so.²⁰ AOG did cross examine the Commission’s witness as to what time frame the Commission was using for interest charges given it was the Commission who failed to determine in the original order the correct amount of refund owed to AOG’s customers.²¹ At no time however, did AOG challenge the legal theory which formed the basis for the original refund and additional refund, or the Commission’s authority to issue such a refund. Indeed, as to the original award, AOG waived its right to any notice, or hearing and agreed that the Commission could enter such order as it deemed appropriate based on the Commission’s staff investigation and this at a time when the final amount of refund owed was as yet undetermined.²²

We thus reverse that part of Order No. 310988 that failed to grant EOLD’s request to delete the rate increase provision of Order No. 297572. We affirm however, that portion of the Order allowing for the increase in refund owed AOG’s customers.

ORDER OF THE CORPORATION COMMISSION IS REVERSED IN PART AND AFFIRMED IN PART.

HARGRAVE, C.J., OPALA, V.C.J., and HODGES, SIMMS, DOOLIN, ALMA WILSON and SUMMERS, JJ., concur. KAUGER, J., concurs specially.

1 . See 17 O.S.1981 §§ 250-63.

2 . Line loss is gas which is lost through the gas companies lines in its transmission. This loss is passed on to the customer by determining the percentage of gas lost in transmission and allowing for that cost to be passed on to the consumer. In this case, it appears that AOG’s line loss was primarily due to leaks in AOG’s distribution system.

3 . 17 O.S.1981, § 250(5) defines fuel adjustment clause as:

4 . See 17 O.S.1981, § 251(C)(4).

5 .The Commission argues that though the application did not specifically say that re-basing of the line loss would be considered, the application did state that the Commission would consider such other relief as it deemed appropriate. However, as the attorney for the Commission pointed out, regrettably this language was left out of the notice issued by the Commission. We assume the Commission argues this point given the holding of Chickasha Cotton Oil Co. v. Corporation Comm., 562 P.2d 507 (Okla.1977), which found that the notice issued was not misleading because the “boilerplate” language mentioned above was included in the notice. However, this case offers no support for the present case wherein the Commission failed to include the language in the notice that "other relief might be considered,” and moreover, where the notice was itself defective.

6 . Chickasha Cotton Oil Co., 562 P.2d at 509 (quoting Southern Oil Corp. v. Yale Natural Gas Co., 89 Okla. 121, 214 P. 131 (1923).

7 .Id.

8 .Record at 94.

9 . Okla. Const, art. IX, § 20.

10 . Halpin v. Corporation Comm., 575 P.2d 109, 111 (Okla.1978).

11 . Barnes v. Transok Pipeline Co., 549 P.2d 819, 820 (Okla.1976).

12 . United States v. Heffner, 420 F.2d 809, 811 (4th Cir.1969); Hall v. Schweiker, 660 F.2d 116, 119 (5th Cir.1981); Atlantic Richfield Co. v. Federal Trade Comm., 398 F.Supp. 1, 12 (S.D.Tex.1975); Douglas County Welfare Administration v. Parks, 204 Neb. 570, 572, 284 N.W.2d 10, 11-12 (1979). Accord Halpin, 575 P.2d at 111.

13 . 347 U.S. 260, 265-67, 74 S.Ct. 499, 502-03, 98 L.Ed. 681 (1954).

14 . Heffner, 420 F.2d 809, 812; Hall, 660 F.2d 116, 119; Hammond v. Lenfest, 398 F.2d 705, 715 (2nd Cir.1968); United States v. Green, 344 F.Supp. 474, 479 (E.D.Pa.1972).

15 . Hall, 660 F.2d at 119; Green, 344 F.Supp. at 479.

16 . Hammond, 398 F.2d at 715.

17 . Gray Lines Tour, Co. v. Interstate Commerce Com., 824 F.2d 811, 814 (9th Cir.1987).

18 . Heffner, 420 F.2d at 812.

19 . We are not unmindful that the Attorney General had notice of the proceeding in which the refund to AOG’s customers was to be considered and that in that notice, mention was made that rebasing of AOG’s gas costs would be considered. However, because we herein hold that the notice itself was defective according to the Commission's own rules and because in any event no mention was made of the fact that AOG’s line loss factor would be increased we find that such notice as was given was insufficient to appraise even the Attorney General. Accordingly, we distinguish this holding from In re Regulation of Automatic Rate Adjustment Clauses, 608 P.2d 544 (Okla.1980) wherein the court found that notice was adequate where the “Attorney General was present at the hearing with notice, representing those persons whom he now claims had no notice.”

20 . Record at 97-100.

21 . Record at 98.

22 . Record at 216.