Utah Office of Consumer Services and Utah Association of Energy Users, Petitioners,
Public Service Commission of Utah, Utah Division of Public Utilities, and PacifiCorp d/b/a Rocky Mountain Power, Respondents.
Petition for Review of Agency Decisions
J. Moore, Asst. Att'y Gen., Steven W. Snarr, Special
Asst. Att'y Gen., Salt Lake City, for petitioner Utah
Office of Consumer Services
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
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
Jeff Richards, Yvonne R. Hogle, D. Matthew Moscon, Bret W.
Reich, Salt Lake City, for respondent PacifiCorp d/b/a Rocky
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.
ASSOCIATE CHIEF JUSTICE
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
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.
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.
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.
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.
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.
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
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
transactions qualified for recovery under the EBA 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.
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.
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.
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 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 ...