Consumer Advocate Div. v. Tenn. Regulatory Auth. - Appeal No. 01-A-01-9708-BC-00391, 1998 Tenn. App. LEXIS 428 (Ct. App. July 1, 1998)

Rule:

There is no requirement in any rate case that the Public Service Commission (commission) receive and consider cost of service data, or what such data, if in the record, are to be accorded exclusivity. It is self-evident that cost of service is of great significance in the establishment of rates but is of lesser value in arriving at rate design. A fair rate of return to the regulated utility is one thing; the establishment of rates among various customer classes is quite another. Thus, the commission in rate making and design cases is not solely governed by the proof although, of course, there must be an adequate evidentiary predicate. The commission, however, is not hamstrung by the naked record. It may consider all relevant circumstances shown by the record, all recognized technical and scientific facts pertinent to the issue under consideration and may superimpose upon the entire transaction its own expertise, technical competence and specialized knowledge. Thus focusing upon the issues, the commission decides that which is just and reasonable. 

Facts:

On May 31, 1996 Nashville Gas Company (NGC) filed a petition before the Tennessee Public Service Commission requesting a general increase in its rates for natural gas service. The proposed rates would produce an increase of $ 9,257,633 in the company's revenue. The Consumer Advocate Division (CAD) of the State Attorney General's office filed a notice of appearance on June 6, 1996 and Associated Valley Industries (AVI), a coalition of industrial users of natural gas, entered the fray on August 20, 1996. The Public Service Commission was replaced on July 1, 1996 by the Tennessee Regulatory Authority (TRA), a new agency created by the legislature. By an administrative order, TRA laid down the procedure by which it would accept jurisdiction of matters previously filed before the Public Service Commission, and the parties successfully navigated the uncharted waters of the TRA to get the case ready for a final hearing on November 13, 1996. At a scheduled conference on December 17, 1996, the TRA orally approved a general rate increase for NGC, effective January 1, 1997, that would produce approximately $ 4,400,000 in new revenue. When a final order had not been filed by December 31, 1996, NGC began charging the rates orally approved at the conference on December 17. On February 19, 1997 TRA filed its written order adopting the oral findings of December 17, 1996. The order allowed the increased rates "for service rendered on and after January 1, 1997."  In accordance with Tenn. R. App. P. 12, the CAD sought review of the rate making order.

Issue:

Was the question of whether to spread the rate increase to all classes of users within the discretion of the TRA?

Answer:

Yes.

Conclusion:

The court affirmed and held the TRA was permitted under Tenn. Code Ann. § 65-2-111 to direct contested case proceedings to a hearing examiner. The TRA did not violate Tenn. Code Ann. § 4-5-303, because there was no evidence that the hearing examiner had served as an investigator, prosecutor, or advocate in the same proceeding. The hearing examiner was permitted to rely upon the TRA staff ex parte, and the staff was permitted to make recommendations or suggestions to the merits to the TRA, and there was no evidence of any prejudicial ex parte communications, and the rates were lawfully put in effect and were not retroactive. Tenn. Code Ann. § 65-2-109 permitted the introduction of certain hearsay evidence, the gas company was permitted to recover for advertising, and for its long-term incentive plan, and the evidence supported the TRA's findings as to the gas company's rate of return. Finally, the court held that the question of whether to spread the rate increase to all classes of users was within the discretion of the TRA. It would be a rare case where the court would interfere with a rate increase spread evenly over all classes of users. If the rate design is inequitable it was not established in this proceeding. Therefore, a request that the rate increase be applied unevenly is, in fact, a request to change the rate design -- on which the intervenor would have the burden of proof. A change would have to be shown by a greater amount of proof than appears in this record.