Frаnk GEARHART; Patricia Morgan; Kafoury Brothers, Inc., Petitioners on Review, and UTILITY REFORM PROJECT, Petitioner, v. PUBLIC UTILITY COMMISSION OF OREGON and Portland General Electric Company, Respondents on Review. (PUC 08487, 09093; CA A140317; SC S061517 (Control)) Frank GEARHART; Patricia Morgan; Kafoury Brothers, Inc., Petitioners, and UTILITY REFORM PROJECT, Petitioner on Review, v. PUBLIC UTILITY COMMISSION OF OREGON and Portland General Electric Company, Respondents on Review.
Nos. S061517 (Control), S061518
In the Supreme Court of the State of Oregon
October 2, 2014
356 Or 216
On review from the Court of Appeals.*
Argued and submitted March 4, 2014.
Linda K. Williams, Portland, argued the cause and filed the briefs for petitioners on review Gearhart, Morgan, and Kafoury Brothers, Inc.
Michael A. Casper, Deputy Solicitor General, Salem, argued the cause and filed the brief for respondent on review Public Utility Commission of Oregon. With him on the brief were Ellen F. Rosenblum, Attorney General, and Anna M. Joyce, Solicitor General.
James N. Westwood, Stoel Rives LLP, Portland, argued the cause and filed the brief for respondent on review Portland General Electric Company. With him on the brief was Rachel C. Lee.
Scott G. Seidman, Portland, filed a brief for amicus curiae Edison Electric Institute.
Katherine McDowell, McDowell Rackner & Gibson PC, Portland, filed a brief for amici curiae Avista Corporation, Idaho Power Company, Northwest Natural Gas Company, and PacifiCorp. With her on the brief was Lisa Rackner.
G. Catriona McCracken, Portland, filed a brief for amicus curiae Citizens’ Utility Board of Oregon. With her on the brief were Sommer Templet and Ray Myers.
BALMER, C. J.
The decision of the Court of Appeals and the order of the Public Utility Commission are affirmed.
On remand from the Court of Appeals of earlier rate orders, the Public Utilities Commission (PUC) issued Order No. 08-487, now before the court on judicial review in this case. In the order, the PUC had reexamined the rates it would have set for 1995-2000 if it had not made a legal error, concluded that the post-2000 rates would have been lower without the legal errоr, and ordered Portland General Electric (PGE) to order a refund to the post-2000 ratepayers. The Court of Appeals upheld the PUC order. Held: (1) The PUC had authority to take the actions in the order, including reexamining the rates, ordering the refund, and allowing PGE to recover interest on its investment to account for the time value of money; and (2) the PUC order was supported by substantial evidence in the record.
The decision of the Court of Appeals and the order of the Public Utility Commission are affirmed.
At issue in this case is an order of the Public Utility Commission (PUC) that addressed Portland General Electric‘s (PGE) recovery of its capital investment in the Trojan nuclear generating facility after that facility was retired from service. In that order, the PUC made three key decisions that are now before this court. First, to determine whether a legal error that the PUC had made in an earlier rate case had affected rates that the PUC had authorized PGE to charge, the PUC reexamined those earlier rates. Second, in undertaking that reexamination, the PUC determined that PGE had been required to recover its capital investment over time, and that the rates therefore should have included interest to account for the time value of money. Third, the PUC determined that, despite the legal error, the rates that it had authorized for the 1995 to 2000 time period were just and reasonable, but that to make the post-2000 rates just and reasonable, it was required to order a refund to the post-2000 ratepayers. In affirming the PUC order, the Court of Appeals concluded that the PUC had not erred in making those three determinations. We affirm the decision of the Court of Appeals and the order of the PUC.
This case dates back to 1976, when PGE began commercial operation of the Trojan nuclear generating facility. Initially, PGE was allowed to recover its investment in that facility through rates charged over a 35-year period. Problems with the facility and other considerations led PGE to retire Trojan in 1993, before the end of that 35-year period. Since that time, PGE, the Utility Reform Project (URP), and plaintiffs (the Class Action Plaintiffs, or CAPs) in two class action cases against PGE have argued before the PUC, the Court of Appeals, and this court about PGE‘s recovery of the remaining balance of its capital investment in Trojan and about whether and to what extent ratepayers can recover their payments of certain amounts associated with the retired Trojan facility.1
I. PUBLIC UTILITY RATEMAKING
We begin with a brief overview of public utility ratemaking. Public utilities exhibit characteristics of natural monopolies. For that reason, public utilities often are granted exclusive territories within which to operate, and many aspects of public utility operation are closely regulated by public utility commissions. See Charles F. Phillips, Jr., The Regulation of Public Utilities 4 (2d ed 1988) (explaining that public utilities are unique because they operate more efficiently as monopolies, they must be regulated to ensure they contribute to the general welfare, there is a high degree of public interest in the services rendered, and administrative commissions have jurisdiction over rates and services). In Oregon, the PUC‘s responsibilities include “establishing fair and reasonable rates” for services provided by public utilities.
Taken together, those components are represented in the following formula: R = E + (V-d)r, where “R” represents the revenue requirement, “E” represents allowable operating expenses, “V” represents rate base, “d” represents accumulated depreciation, and “r” represents the rate of return. In calculating those components, and in calculating “adequate revenue,” there is no single correct sum, but rather a range of reasonable rates. See Phillips, The Regulation of
When the PUC makes those calculations and sets rates, it is performing a quasi-legislative function. Dreyer v. PGE, 341 Or 262, 282, 142 P3d 1010 (2006). Rate orders are prospective, Valley & Siletz R. R. Co. v. Flagg, 195 Or 683, 715, 247 P2d 639 (1952), but, “[i]n determining the amount of each of the terms in the ratemaking formula and in making its estimate of revenues under the proposed rates, the [PUC] looks at data for a given ‘test year’ either in the past, present, or future.” Stefan Krieger, The Ghost of Regulation Past: Current Applications of the Rule Against Retroactive Ratemaking in Public Utility Proceedings, 1991 U Ill L Rev 983, 995 (1991); see PUC Order No. 08-487 at 12 (listing test year estimates of power costs for 1995 and 1996 as one factor affecting estimated revenue requirement). The use of a test year results in rates that inherently are based on estimates that may overcompensate or undercompensate utilities. See Krieger, 1991 U Ill L Rev at 995, 995 n 52; see also Phillips, The Regulation of Public Utilities at 188 (“[T]he actual rate of return earned by a utility may be quite different from the rate allowed by the commission.“); PUC Order No. 08-487 at 7 (“The utility absorbs the expenses if they are higher than expected and benefits if the expenses are lower, which gives the utility the incentive to manage its operations efficiently ***.“). In sum, ratemaking is a unique enterprise that is governed by statute but largely left to the PUC‘s discretion. See Springfield Education Assn. v. School Dist., 290 Or 217, 230, 621 P2d 547 (1980) (explaining that the PUC is empowered to “make delegated policy choices of a legislative nature within the broadly stated legislative policy“).
II. FACTUAL BACKGROUND AND PROCEEDINGS BELOW
There are three separate, but related, proceedings that are relevant on review. We describe those three proceedings in detail to provide the background necessary for
A. Rate Case After Trojan‘s Closure: PUC Order No. 95-322 in UE 88 and Trojan I
PGE began commercial operation of the Trojan nuclear facility in 1976. At that time, the PUC allowed PGE to recover its investment in Trojan by including that amount in rates over a 35-year period. PGE also had the opportunity to earn a return on its investment in Trojan because PGE‘s investment in the facility was included in rate base.
PGE retired the facility in 1993, before the end of the 35-year period for recovering its investment, because, as the PUC explained in PUC Order No. 08-487, “PGE concluded that closing the plant was thе least-cost option for its customers, meaning that closing Trojan and replacing its output with purchased power was expected to be less expensive than continuing to operate the plant.”
After retiring the Trojan facility, PGE sought a declaratory ruling on whether PGE could recover in rates the remaining balance of its capital investment in the Trojan facility. In PUC Order No. 93-1117, the PUC declared that “if PGE met certain conditions and could show certain ‘assumed facts’ to be true in a rate case or similar forum, then PGE could set rates to obtain both a ‘return of’ and a ‘return on’ its Trojan investment.” Dreyer, 341 Or at 267 (emphasis in original; footnote omitted) (summarizing PUC Order No. 93-1117). URP and the Citizens’ Utility Board (CUB) challenged that order in circuit court, and the court summarily affirmed. Id. URP and CUB appealed.
Meanwhile, the PUC conducted a rate case consistent with PUC Order No. 93-1117, which resulted in PUC Order No. 95-322. PUC Order No. 95-322 set PGE‘s rates to include both a return of and a return on PGE‘s investment in the Trojan facility.3 See Utility Reform Project v. PUC, 215 Or App 360, 365, 170 P3d 1074 (2007) (Trojan II) (so noting). URP and CUB had intervened in the rate case, and they challenged the order in circuit court.
The Court of Appeals consolidated the two appeals and analyzed the two statutes at issue—
B. Rates Implementing Settlement: PUC Order No. 00-601 in UM 989, PUC Order No. 02-227, and Trojan II
Following the Court of Appeals’ decision in Trojan I, CUB and PGE agreed to a settlement that removed the
URP, however, was not a party to the settlement, and it filed a complaint with the PUC challenging the rates that the PUC imposed to implement the settlement. Trojan II, 215 Or App at 366. Among other things, URP argued that the rates did not provide a mechanism for recovery of amounts collected under the 1995 to 2000 rates that were attributable to a return on PGE‘s investment in Trojan. The PUC rejected all of URP‘s arguments in PUC Order No. 02-227, reasoning, in part, that it had no authority to order refunds. Id. at 367. URP sought review of PUC Order No. 02-227 in circuit court, and the court determined that PGE should have been required to issue refunds for the “‘unlawfully collected rates as a matter of law.‘” Id. at 368 (quoting circuit court). The court reversed and remanded, directing the PUC “‘to immediately revise and reduce the existing rate structure‘” or “‘to order PGE to immediately issue refunds‘” to allow ratepayers to recover any amounts attributable to a return on PGE‘s investment in Trojan. Id. at 368 (quoting circuit court). The PUC and PGE appealed.
The Court of Appeals vacated and remanded. Id. at 376. The Court of Appeals reasoned that the PUC had relied on an incorrect interpretation of
C. The CAPs’ Claims Against PGE: Mandamus Proceeding in Dreyer
After Trojan I, the CAPs filed an action against PGE in circuit court alleging, among other things, that PGE was liable for damages under
After the circuit court denied PGE‘s motion to dismiss, PGE sought a writ of mandamus from this court directing the circuit court to dismiss the case. Dreyer, 341 Or at 275-76. In Dreyer, we held that we could not issue a peremptory writ ordering the circuit court to dismiss the cаse because we concluded that the CAPs’ claim under
Nonetheless, we concluded that the circuit court had “a legal duty to abate the proceedings” because the PUC remand proceedings for PUC Order No. 95-322 involved “(essentially) the same controversy.” Id. at 283. We reasoned that the PUC had primary jurisdiction “to determine what, if any, remedy it [could] offer to PGE ratepayers.” Id. at 286. We went on to explain that, if the PUC could provide a remedy, the CAPs’ claims might become moot. Id. We issued a peremptory writ ordering the circuit court to abate the CAPs’ case.
D. Order at Issue on Review: PUC Order No. 08-487
Following the three appellate cases discussed above, the PUC conducted further proceedings and issued a 106-page order addressing the Trojan I and Trojan II remands. That order bеgan by resolving three threshold issues. First, the PUC explained that Trojan I had not declared the 1995 to 2000 rates unlawful, but rather had held that the rate order was based on an error of law. The PUC concluded that even if the rate order was erroneous, the overall rates themselves could be lawful.
Second, the PUC determined that it had authority to order a utility to issue refunds in limited circumstances, including when necessary to “remedy an error identified by
Third, the PUC clarified its understanding of this court‘s decision in Dreyer, particularly noting that this court had not determined the scope of the filed rate doctrine or its impact on the PUC‘s remedial authority. On the contrary, noted the PUC, this court had left it to the PUC to determine in the first instance whether and to what extent the PUC had remedial authority.
In applying those legal principles, the PUC concluded that its task was to determine whether the 1995 to 2000 rates and the post-2000 settlement rates were just and reasonable. The PUC began by examining what rates it would have approved for the period from 1995 to 2000 if it had known that it could not authorize PGE to recover a return on its investment in Trojan. The PUC concluded that it had to “undertake a comprehensive review of the ratemaking decisions” at issue in Trojan I as a “natural consequence of [the PUC‘s] statutory and constitutional mandates.” Although the PUC acknowledged that in doing so it would not be setting rates, it concluded that ratemaking principles should guide its analysis. In adopting that framework, the PUC rejected URP‘s argument that the PUC could simply remove the return on investment in Trojan from rates “while holding all other rate determinations constant.”9 Instead, the PUC‘s review involved reexamining elements of the revenue requirement that were affected by the decision in Trojan I, and then comparing the new revenue requirement with that approved in 1995. In undertaking that review, the PUC reopened the record to allow the PUC to consider new evidence in light of Trojan I.
The PUC analyzed aspects of its ratemaking decision in PUC Order No. 95-322 that it believed would have been affected by Trojan I. Before this court, URP and the
In undertaking its reexamination, the PUC shortened the amortization period from 17 years to 10 years because, without the opportunity to earn a return on its investment in Trojan, recovery of PGE‘s investment over 17 years “would likely increase PGE‘s risk profile.”10 Because of that “opportunity cost,” the PUC concluded that, had it not provided for a return on PGE‘s investment, it would have used the shorter period of 10 years to “equitably allocate the benefits and burdens while allowing quicker recovery to offset any increase in PGE‘s risk profile.”
Moreover, the PUC concluded, if it had not allowed PGE to earn a return on its investment, it would have allowed it to recover “some form of interest—not profit—to compensate the utility for the delayed recovery of the investment.” Although the PUC noted that it often uses a utility‘s authorized rate of return as the applicable interest rate, it concluded in its reexamination that it would have used a different interest rate because of Trojan I. The PUC used the 1994 United States Treasury 10-year bond rate, which was 7.09 percent, reasoning that that rate would reflect only the time value of money, and not any risk premiums, profit, or other return on investment.11
Based on the shorter amortization period, the inclusion of interest, and other adjustments that the PUC made in
The PUC went on to explain that its recalculation of the 1995 to 2000 rates also would have affected the rates it would have set following the 2000 settlement. Specifically, the PUC concluded that, had it used the shorter amortization period, the result would have been a remaining Trojan balance at the time of settlement that was $15.4 million less than the balance that it hаd actually used to calculate the settlement. Thus, fewer offsetting ratepayer credits would have been needed to remove the remaining Trojan balance from PGE‘s books. That, in turn, would have left more credits on PGE‘s books to benefit ratepayers following the 2000 settlement. Because the PUC concluded that it had remedial authority, the PUC determined that it could compensate the post-2000 ratepayers for the difference between the rates approved following settlement and the rates that would have been approved if the remaining balance had been $15.4 million lower. The PUC ordered PGE to issue a refund to the post-2000 ratepayers to compensate for the amount of that difference plus interest at PGE‘s authorized rate of return from 2000—9.6 percent—for a total refund amount of $33.1 million. With the $33.1 million refund as an adjustment to the settlement that had originally produced the post-2000 rates, the PUC concluded that “the settlement was reasonable and appropriate, and that the resulting rates were just and reasonable.” The PUC rejected URP‘s remaining challenges to the settlement rates.
E. The Court of Appeals Decision
The Court of Appeals affirmed. Gearhart, 255 Or App at 105. The court began by addressing the PUC‘s authority
The court went on to conclude that “[t]he PUC did not err in allowing PGE interest,” because it was within the PUC‘s discretion to reach that issue and to allow rates to account for the time value of money. Id. at 95. Moreover, the court stated, the PUC‘s decision to allow interest was not equivalent to allowing PGE to recover a prohibited return on its investment, but rather was part of allowing PGE to recover a return of its investment. Id. at 95-96.
The court next concluded that the PUC had the authority to order PGE to issue refunds, and the court again noted the breadth of the PUC‘s statutory authority. Id. at 98, 103. The court also noted that the PUC had not engaged in retroactive ratemaking when it ordered those refunds.12 Id. at 100. The court detailed prior Oregon cases that had addressed the rule against retroactive ratemaking and reasoned that it “is or should be *** narrow” in Oregon, prohibiting the PUC from incorporating past profits or losses in future rates but allowing certain other retroactive adjustments. Id. at 100. Along those lines, the court held that the rule “does not prohibit the PUC from determining that a refund is appropriate when there is a determination on
Judge Schuman dissented. Although he agreed with most of the majority‘s discussion, he argued that prior appellate decisions limited the PUC‘s authority on remand so that the PUC had to “simply determin[e] the effect on the previously approved rates of including Trojan in the rate base.” Id. at 105, 107 (Schuman, J., dissenting). Moreover, Judge Schuman reasoned that the PUC had violated the law by including Trojan in the rate base. As a result, the rates were “unlawful no matter how fair and reasonable they may be, and the PUC‘s role on remand [was] to determine a remedy for that unlawfulness.” Id. at 108, 112-13. The dissent would have “reverse[d] [the PUC‘s] order on the pre-October 2000 rates and remand[ed] the case for further proceedings.” Id. at 113.
The Court of Appeals denied a request for reconsideration, and URP and the CAPs petitioned for review. On review, the parties ask this court to address five issues: (1) whether the PUC exceeded its authority on remand with respect to the April 1995 to September 2000 rates and with respect to the rates implemented in October 2000 after the settlement; (2) whether the PUC had authority to order PGE to issue refunds to its customers; (3) whether the PUC erred in allowing PGE to recover interest; (4) whether the PUC order was supported by substantial evidence; and (5) whether the CAPs can proceed with their action against PGE in circuit court.13
III. THE PUC‘S AUTHORITY ON REMAND
The powers and duties of the PUC, like those of other executive agencies, are limited to those expressly
In this case, the PUC exercised its ratemaking authority when it originally issued PUC Order No. 95-322, allowing PGE to recover both a return of and a return on its investment in Trojan, and again when it issued the order implementing the rates agreed to in the settlement between PGE and CUB. We examine the PUC‘s actions on remand in light of its ratemaking authority and the authority arising from the binding remand order from the Court of Appeals.14
In particular, we examine the PUC‘s actions of reexamining the rates that it previously had authorized; ordering PGE to refund a portion of rates that had been collected as a result of the PUC‘s legal error of allowing PGE to recover a return on its investment in Trojan; and concluding that it would have allowed PGE to recover interest on the undepreciated balance of its investment in Trojan to account for the time value of money. We begin by examining the scope of the remand, and then turn to the statutory scheme to determine whether the PUC had authority to take those actions.
PUC rate orders are subject to judicial review. See
Unlike the APA, the PUC judicial review statutes did not direct the court to take any particular action when concluding that the PUC had erred. Compare Mitchell Bros. Trk. Lines v. Hill, 227 Or 474, 480, 363 P2d 49 (1961) (concluding that the purpose of the PUC judicial review statute was “to grant to the courts a full scope of review to administer the relief appropriate to the cause“), with Megdal v. Board of Dental Examiners, 288 Or 293, 319-20, 605 P2d 273 (1980) (explaining that, under the APA, “[i]f error is found, the statute provides for rеversal, modification, or remand as appropriate to the character of the error and the agency‘s further role in the matter“). Under general principles of
Even when an agency has interpreted a statute incorrectly—that is, when the agency has made a legal error—courts ordinarily remand for the agency to apply the law as interpreted by the court. See, e.g., Jefferson County School Dist. No. 509-J v. FDAB, 311 Or 389, 395-96, 399, 812 P2d 1384 (1991) (concluding that agency erroneously interpreted the term “duty” and affirming Court of Appeals decision to remand to agency under the APA “to apply the proper interpretation of ‘duty‘“); but see Dearborn v. Real Estate Agency, 334 Or 493, 504-06, 53 P3d 436 (2002) (reversing, without remanding, agency order revoking real estate license where order acknowledged that there was no evidence to support the ruling undеr the interpretation of the law adopted by the court). It is particularly appropriate for a court to remand when application of the correct interpretation of law requires a discretionary decision that has been delegated to the agency. See Dickinson v. Davis, 277 Or 665, 675-76, 561 P2d 1019 (1977) (explaining that, under PUC judicial review statutes, modification of an agency order on review “is proper only when the court can find that the law mandates one single correct result,” and remanding case back to trial court that improperly had substituted its judgment on discretionary issue decided by agency); Springfield Education Assn., 290 Or at 240 (modifying agency order where it could “simply be corrected by
As noted, ratemaking involves discretionary decisions that the legislature largely has entrusted to the PUC. See
In accordance with those limitations, in both Trojan I and Trojan II, the Court of Appeals directed that the orders be remanded to the PUC, and the court did not direct the PUC to take any particular action on remand. In Trojan I, after the court concluded that the PUC had erred by interpreting the statutes to allow PGE the opportunity to recover a return on its investment in Trojan, the court “reversed and remanded with instructions to [the circuit court to] remand orders to PUC for reconsideration.” 154 Or App at 717. In Trojan II, the court “remanded to circuit court with instructions to remand Order No. 02-227 to PUC for reconsideration of issues raised on appeal and cross-appeal.” 215 Or App at 376. The court did not, for example, remand with instructions for the PUC to calculate the amount of rates attributable to a return on investment in Trojan or with instructions to refund that amount. Nor did the court modify the PUC‘s order to remove that amount from rates.
Moreover, although the parties argue about whether Trojan I declared the rate order or the rates themselves unlawful, that distinction does not control our analysis. Rather, we focus on the effect of the holding in Trojan I. Trojan I held that the statutes “preclude[d]” the PUC “from allowing rates *** that include[d] a rate of return” on retired capital assets, as the orders at issue in that case had allowed. Trojan I, 154 Or App at 716. Stated differently, the court concluded that the PUC did not have statutory authority to include a return on PGE‘s Trojan investment in rates. The court did not address the effect of that error on PGE or its ratepayers. At no point did the court conclude that either PGE or its ratepayers had been injured by that error. Thus, contrary to URP‘s arguments, Trojan I required only that the PUC not include a return on investment in Trojan in PGE‘s rates. It had no more specific effect in limiting the PUC‘s authority on remand.15
We turn next to the statutory scheme to determine whether the PUC had authority to determine the effect of
B. Reexamination of Previously Authorized Rates to Determine Injury
Rate orders are inherently prospective, setting rates to be collected from future ratepayers. See Valley & Siletz R. R. Co., 195 Or at 715 (noting that “all rate orders are prospective in character“). Accordingly, URP and the CAPs reason, the PUC cannot reexamine past rate orders, reversed on judicial review, to determine whether the rates set were just and reasonable. Moreover, they note, courts around the country have held that state utility commissions cannot reexamine past rates on remand. URP and the CAPs urge this court to adopt a similar аpproach by adopting a rule against retroactive ratemaking.
Although the rule against retroactive ratemaking has been defined and applied in many different ways, the rule can be described generally as “prohibit[ing] a public utility commission from setting future rates to allow a utility to recoup past losses or to refund to consumers excess utility profits.” Krieger, 1991 U Ill L Rev at 984; see also Dreyer, 341 Or at 270 n 10 (explaining that, under the rule, “approved utility rates may be modified only prospectively” and “utilities cannot provide retrospective relief from such rates“). We have never expressly decided whether Oregon accepts some form of the rule against retroactive ratemaking. See id. (so noting). For purposes of this case, we need not precisely define the contours of that rule or decide whether Oregon accepts that rule in all circumstances. It is sufficient for present purposes to conclude, as we do, that the rule against retroactive ratemaking does not preclude the action that the PUC took on remand in this case. The PUC did not alter PGE‘s rates retroactively, but rather used ratemaking principles to calculate the rates that it would have authorized PGE to charge had it not included a return on the investment in Trojan.
First, nothing in Oregon‘s statutory scheme, which delegates extensive power to the PUC, limits the PUC‘s
Second, in Dreyer, this court rejected the notion that Oregon‘s statutory scheme incorporates an “extreme” version of the filed rate doctrine, which serves as another common rationale for prohibiting the retroactive examination of rates. See Dreyer, 341 Or at 278-79. As noted, the filed
“No public utility shall charge, demand, collect or receive a greater or less compensation for any service performed by it within the state, or for any service in connection therewith, than is specified in printed rate schedules as may at the time be in force, or demand, collect or receive any rate not specified in such schedule. The rates named therein are the lawful rates until they are changed as provided in
ORS 757.210 to757.220 .”
The court in Dreyer did not find that argument persuasive. Although the court stated in a footnote that it was not rejecting “the possibility that Oregon utility law incorporates some form of the doctrine,” Dreyer, 341 Or at 279 n 14, the court rejected the notion that PGE was shielded from liability because it was required by
Thus, unlike some courts, this court has not read
Finally, we consider whether the rule against retroactive ratemaking, independently of the statutory provisions discussed above, precluded the action that the PUC took on remand in this case. We conclude that it did not. The theory behind the rule is that ratemaking inherently is a prospective process. Krieger, 1991 U Ill L Rev at 998. Courts have applied the rule against retroactive ratemaking in a variety of ways, with some courts rejecting the rule entirely. See id. at 1022, 1027 (explaining that cases are “almost evеnly split” as to whether a prevailing party can obtain retroactive relief in the form of a refund or a surcharge for the period between the order and reversal and the period after reversal). Of those courts adhering to the rule, some have interpreted it as preventing a PUC from ordering any refunds or surcharges. See, e.g., In re Application of Columbus S. Power Co., 138 Ohio St 3d 448, 460-61, 8 NE 3d 863, 874-76 (2014) (explaining that excessive rates charged during the appeal of a commission order are not subject to refund and that “present rates may not make up for revenues lost due to regulatory delay“). Others have interpreted the rule as preventing a PUC from adjusting future rates based on actual expenses and revenues. See, e.g., In re Providence Water Supply Bd.‘s Application to Change Rate Schedules, 989 A2d 110, 115, 118 (RI 2010) (explaining that future rates may not be designed to recoup past losses and affirming PUC denial of request to increase rates to cover past payments for retirees’ health-care costs).
In considering whether the rule against retroactive ratemaking prohibits the PUC‘s reexamination of previously set rates in this case, it is important to recognize the context: the issue was not back before the PUC because projected circumstances on which rates were based (such as expected
Given the posture of the remand orders, the PUC could rely on the ratemaking authority that it had exercised in the original proceedings under
In addition, the rationale behind the rule against retroactive ratemaking does not support its application to this circumstance. The rule against retroactive ratemaking serves the important function of providing stability in the regulatory process—parties can reasonably rely on the fact that rates will not be changed after they have been set and paid. Krieger, 1991 U Ill L Rev at 1044. Moreover, the rule plays a critical role in providing an incentive for efficient oрerations because utilities know that they can keep profits
In sum, when a PUC order issued in the exercise of its ratemaking authority has been reversed and remanded after a reviewing court determines that there was a legal error, the PUC can again use ratemaking principles on remand to determine the effect of its error on the outcome of the proceeding. Although the rule against retroactive ratemaking may prevent certain actions on remand, it does not prevent the PUC from reexamining prior rates to determine what rates it would have set in the absence of its legal error. Because the PUC in this case reexamined past rates following judicial review and reversal of prior rate orders, we conclude that that reexamination was permissible and did not violate the rule against retroactive ratemaking.
C. PUC Authority to Order Refunds
Independent of their challenge to PUC‘s methodology for determining the effect of its legal error, the CAPs challenge the PUC‘s authority to remedy that error by ordering refunds to the post-2000 ratepayers who were injured by that error.17 More fundamentally, however, the
We begin by considering whether the PUC had authority to provide a remedy to the post-2000 ratepayers by ordering PGE to issue refunds. As noted, the PUC‘s statutory authority is phrased in sweeping terms. See
We recognize, as the CAPs note, that certain statutory provisions authorize the PUC to order refunds in
We conclude that the PUC had authority to order PGE to issue refunds to the post-2000 ratepayers in this case. To the extent that the CAPs argue that the PUC declined to award them a remedy by ordering a refund only for the post-2000 ratepayers, we note that the PUC did not order a refund to the CAPs who claimed to be injured by the 1995-2000 rates because it determined that the CAPs were not injured by those rates. As we discuss below, whether the CAPs can nonetheless proceed in circuit court is an issue that they must address before that court.
IV. INTEREST
As noted, when the PUC reexamined the 1995 to 2000 rates, it observed that the previously approved 17-year
The PUC also concluded that it would have been reasonable to include interest on the investment “to compensate for the time value of money” because PGE would be recovering its investment over a 10-year period. Id. at 71. As the PUC explained, “[t]o allow PGE the ability to fully recover that amount [of its investment] over time, we need to include some form of interest—not profit—to compensate the utility for the delayed recovery of the investment.” Id. Although the PUC often uses a utility‘s authorized rate of return as the applicable interest rate when an amount is amortized over time, because of Trojan I the PUC reasoned that it could not use that rate in this case. Id. at 72. Therefore, instead of using (1) PGE‘s pre-tax rate of return for 1995 (13.22 percent) or for 1996 forward (13.34 percent); or (2) PGE‘s authorized rate of return for 1995 (9.51 percent) or for 1996 forward (9.6 percent), the PUC chose to use in its calculation an interest rate that was “unrelated to utilities” to “ensure the rate reflect[ed] solely the time value of money.” Id. at 62 n 227, 73. The PUC calculated the rates it would have set had it allowed PGE to recover 7.09 percent interest, based on the Treasury rate for 10-year bonds in
The holding in Trojan I prohibiting PGE from recovering a return on its investment in Trojan did not prohibit PGE from recovering interest because, in the public utility context, the rate of return—the return on investment—is distinguishable from interest: “Return is the term used in public utility regulation to describe the compensation which the owners receive over and above allowable deductions from gross revenues. It is a word having a connotation different from such words as earnings, net income, interest, and dividends.” Ellsworth Nichols, Ruling Principles of Utility Regulation: Rate of Return 1 (1955). Although interest rates may be taken into account, a rate of return typically “pays something over and above the usual interest rate on well-secured loans, to compensate for the hazards of the business and for the profits of management.” Id. at 210; see also Richard A. Posner, Economic Analysis of Law 142 (9th ed 2014) (explaining that a reasonable rate of return is “a weighted average of the long-term interest rate plus the rate of return to the equity shareholders that the agency considers appropriate in light of the risk of the investment and the rate of return enjoyed by shareholders in comparable firms” (emphasis added));
In addition, the PUC‘s statutory authority to conclude that it would have allowed PGE to recover interest on its investment in Trojan can be implied from the PUC‘s discretionary ratemaking authority. As noted, the legislature expressly delegated the authority to establish fair and reasonable rates under
V. SUBSTANTIAL EVIDENCE
URP argues that the PUC‘s order is not supported by evidence that was in the record. Under
Formulas, however, are methods of reasoning and analysis, not evidence. As long as the data used in those fоrmulas is supported in the record—and URP does not point to any indication that the data were unsupported—the method for analyzing that data need not be separately supported by evidence. In addition, in a footnote in PUC Order No. 08-487, the PUC explained how it reached the conclusion that the 1995 to 2000 rates would have been higher if Trojan had not been included in rate base. The PUC detailed each of the ways in which it modified the spreadsheet provided by PUC staff. Thus, to the extent that the PUC had to disclose or explain that analysis, the PUC did so in the order.
VI. THE ABATED CIRCUIT COURT PROCEEDINGS
In Dreyer, this court issued a peremptory writ ordering the circuit court to abate the CAPs’ claims against PGE for damages, pending the PUC‘s determination of “what, if any, remedy it [could] offer to PGE ratepayers, through rate reductions or refunds, for the amounts that PGE collected in violation of
We decline to reach that issue because it is not properly before this court in this proceeding, which arises out of the PUC‘s order following the remand proceedings stemming from Trojan I and Trojan II. Dreyer involved an entirely separate proceeding in circuit court that is not now before us. Accordingly, if the CAPs want the abatement lifted, they must address their request to the circuit court. See Dreyer, 341 Or at 286 (“Certainly, after the PUC has
VII. CONCLUSION
The PUC did not exceed either the scope of the remand or the scope of its statutory authority in PUC Order No. 08-487. Moreover, the order is supported by substantial evidence.
The decision of the Court of Appeals and the order of the Public Utility Commission are affirmed.
Notes
“In addition to the powers and duties now or hereafter transferred to or vested in the Public Utility Commission, the commission shall represent the customers of any public utility or telecommunications utility and the public generally in all controversies respecting rates, valuations, service and all matters of which the commission has jurisdiction. In respect thereof the commission shall make use of the jurisdiction and powers of the office to protect such customers, and the public generally, from unjust and unreasonable exactions and practices and to obtain for them adequate service at fair and reasonable rates. The commission shall balance the interests of the utility investor and the consumer in establishing fair and reasonable rates. Rates are fair and reasonable for the purposes of this subsection if the rates provide adequate revenue both for operating expenses of the public utility or
telecommunications utility and for сapital costs of the utility, with a return to the equity holder that is:“(a) Commensurate with the return on investments in other enterprises having corresponding risks; and
“(b) Sufficient to ensure confidence in the financial integrity of the utility, allowing the utility to maintain its credit and attract capital.”
“No public utility shall charge, demand, collect or receive a greater or less compensation for any service рerformed by it within the state, or for any service in connection therewith, than is specified in printed rate schedules as may at the time be in force, or demand, collect or receive any rate not specified in such schedule. The rates named therein are the lawful rates until they are changed as provided in
Moreover, there is nothing in the PUC judicial review statutes in place during Trojan I that suggests that the PUC could not reopen the record on remand or otherwise reconsider its analysis of facts in the existing record. Administrative records often are reopened on remand. See Pierce, 3 Administrative Law Treatise § 18.1 at 1679 (5th ed 2010) (discussing agency options on remand, including option of reopening record to receive additional evidence). Although a remand based on legal error may not typically require the taking of additional evidence, the CAPs have not identified anything in the statutes or the remand instructions in Trojan I that prevented the PUC from doing so. See id. (explaining agency options on remand, but not discussing reopening the record when remand is based on error of law); Koch, Administrative Law and Practice § 8:31 at 186, 191 (suggesting that remand for application of correct legal principle may occur on the existing record, but also noting that “the agency is somewhat free to decide how to carry out the judicial will“).