No. 85-488
IN THE SUPREME COURT OF THE STATE OF MONTANA
1986
MONTANA-DAKOTA UTILITIES CO.,
a Delaware corporation,
Plaintiff and Appellant,
MONTANA DEPARTMENT OF PUBLIC SERVICE
REGULATION, MONTANA PUBLIC SERVICE
COMMISSION, MONTANA CONSUMER COUNSEL,
Defendants and Respondents.
APPEAL FROK: District Court of the First Judicial District,
In and for the County of Lewis & Clark,
The Honorable Gordon Bennett, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Hughes, Kellner, Sullivan & Alke; John Alke argued,
Helena, Montana
For Respondent:
James C. Paine argued, Montana Consumer Counsel,
Helena, Montana
Robert A. Nelson argued, Public Service Cornmission,
Helena, Montana
Submitted: July 22, 1 9 8 6
Decided: September 11, 1986
Filed: SEP I i. 1986
6k.L *,u
Clerk
0
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
I.
On August 24, 1983, Montana-Dakota Utilities Co. (MDU)
filed an application with the Montana Department of Public
Service Regulation and Montana Public Service Commission
(PSC) for rate increases in its revenue for gas service in
the State of Montana of $7,917,936. The Montana Consumer
Counsel (Counsel) intervened as a party and has participated
at all times since in the case.
After extensive hearings and submission of briefs, PSC
issued on May 28, 2984, order no. 5020b approving increased
rates for MDU. These increased rates were expected to
produce additional revenues of $5,701,374.
On June 8, 1984, MDU filed a motion before PSC for
reconsideration of PSC findings relating to the treatment of
gain on reacquired debt and cost of equity capital as well as
its findings on other issues. On June 26, 1984, PSC issued
its order no. 5020c, which granted reconsideration of an
unrelated issue, but denied reconsideration of the treatment
of the gain on reacquired debt, or cost of equity capital.
MDU subsequently filed its petition for judicial review
in the District Court, First Judicial District, Lewis and
Clark County. For the purposes of the District Court, the
parties stipulated to an abbreviated administrative record.
That record, together with the District Court's opinion and
order, constitute the record before this Court in this
appeal.
The judicial review in the District Court culminated in
that court's final opinion and order of June 24, 1985. Two
principal issues in that opinion and order give rise to the
appeals now before us. The District Court held that PSC
erred in requiring that the unamortized gain realized from
reacquisition of a long term debt be deducted from the MDU
rate base. The District Court also determined that PSC acted
correctly in authorizing MDU a return on equity capital of
13.35%.
PSC and Counsel appealed to this Court the decision of
the District Court that it is improper to require MDU to
deduct the unamortized gain on reacquired debt from its rate
base. On this point of appeal, we reverse the District
Court.
MDU appeals from the determination by the District Court
that PSC properly assigned a percentage rate of 13.35% as
return on equity capital for MDU. On this point of appeal we
affirm the District Court.
11.
We first discuss the standard and scope of judicial
review both in this Court and in the District Court of an
order promulgated by PSC, and the issue of cost of equity
capital.
MDU contends that the District Court did not properly
review PSCts decision on rate of return for equity capital in
that (a) the District Court refused to review whether PSC's
actions were arbitrary and capricious; (b) the District
Court improperly assumed the role of PSC and made findings
and conclusions where PSC failed to make necessary findings
and conclusions; and (c) the District Court misapplied the
clearly erroneous standard in its review of PSCts decision on
rate of return.
MDU points to the decision of PSC, nearly
contemporaneously, in the Montana Power Company rate increase
case, where PSC granted Montana Power Company a rate of
return on equity capital of 14.25%. MDU contends that PSC
granted the disparate rates without explanation. In the
Montana Power Company case, PSC considered updated evidence
on such cost of capital from capital markets through the
first quarter of 1984. However, PSC refused to consider, on
MDU's request for reconsideration, evidence of the cost of
such capital after December 31, 1983. MDU claims that PSC
has played favorites thereby, and that the error is more
egregious because in each case PSC relied on the same witness
to approve the different percentages of return.
PSC and Counsel respond to MDU's contention as
follows: The record in MDU's case was closed at the end of
the hearings in January, 1984; the Montana Power Company
record was not closed when Dr. Smith testified in May, 1984;
MDU made no effort to enlarge the record either under 5
38.2.4805 ARM, before PSC, or S 69-3-404, MCA, before the
District Court, and it is improper to base a claim of
arbitrariness and caprice on matters outside the record of
the instant case. The PSC and Counsel further argue that in
any event, the new information which MDU supplied as a part
of its motion for consideration consisted of a bond report
from a single brokerage house which showed that for the
twelve months ending June, 1984, for A-rated utilities, the
high yield for long term bonds was 15.13% and the low yield
was 11.50%. Such a range, PSC concluded, showed the
volatility of the market at the time. Moreover, PSC points
out that 5 69-3-302, MCA, requires that a final decision on
rate cases be made by PSC within 9 months of the date of
application which in the MDU docket meant a deadline of May
24, 1984. In the Montana Power Company case, the parties had
waived the deadline because of the more complicated record
and the number of intervenors in that case.
We determine that PSC did not act arbitrarily or
capriciously on the basis that it found a certain percentage
figure for return on cost of equity in the Montana Power
Company case and a lesser percentage figure for return on
cost of equity in the MDU case. The District Court did not
discuss this argument of MDU in its findings and conclusions,
but then the District Court was required by law to confine
its review to the record. Section 2-4-704; 5 69-3-404, MCA.
MDU had the right, which it did not use, to open the record
at the District Court level for additional material evidence
if good reasons existed for failure to present the evidence
in the proceeding before the agency. Section 69-3-404 (3),
MCA. Of course, the record before the District Court and
before us, includes the motion for reconsideration made by
MDU after the final order of May 18, 1984. With the motion
for reconsideration MDU had presented to PSC a bond chart
from a brokerage company. As PSC found, the bond chart was
insufficient to require an increase in the percentage of the
cost of equity because it mostly showed the volatility of
such percentage rates at the time. Moreover, as the Court
said in Washington Gas Light Company v. Public Service
Commission of the District of Columbia (D.C. App. 1982), 450
A.2d 1187, while it may be an abuse of discretion for an
agency to ignore the most recent data in the record of a
proceeding, the same cannot be said as easily for evidence
submitted after the record has been closed and a final
opinion issued.
The platitude that one cannot compare apples to oranges
is worn thin, but it applies here. The two different
percentage figures do not spring from the same record; they
are not comparable. As MDU contends, the District Court
acted properly in not considering whether the PSC decision
was arbitrary and capricious because it approved two
different percentage figures for return on cost of equity.
In the second phase of this issue, MDU contends that the
District Court improperly assumed the role of PSC and made
findings and conclusions in areas where the PSC itself failed
to make necessary findings and conclusions.
The source of MDU's contention is that the District
Court discussed two economic theories of Dr. Smith in her
assessment of a proper rate of return on equity capital,
whereas PSC in its final order did not discuss those
theories. Thus, MDU contends, the District Court made
findings and conclusions outside the record not made by the
PSC and so acted out of the scope of its power of judicial
review.
It is, of course, the duty of PSC to make explicit
findings on material issues raised in the administrative
proceedings. Northern Plains Resource Council v. Board of
Natural Resources (1979), 181 Mont. 500, 522-23, 594 P.2d
297, 310. The findings must be sufficient to permit thorough
judicial review, State ex rel. Olsen v. Public Service
Commission (1957), 131 Mont. 104, 113, 308 P.2d 633, 638, and
the findings on material issues should be sufficient to
permit a reviewing court to follow the reasoning process of
the agency and determine whether that process conforms to
law. Northern Plains Resource Council, supra; Public Service
Commission of Montana v. District Court (1973), 162 Mont.
225, 511 P.2d 334. Upon judicial review, the validity of the
decision must be judged on the grounds and reasons set forth
in the order, and no other grounds should be considered.
Burlington Truck Lines, Inc. v. U.S. (1962), 371 U.S. 156,
169, 83 S.Ct. 239, 246, 9 L.Ed.2d 207, 216.
MDU contends that the District Court assumed the role of
PSC and analyzed Dr. Smith's theories that "investors
discount outliers" and her theory of a "negative risk
premium. " The District Court, argues MDU, approved the
acceptance of these theories by PSC, but PSC did not accept
them nor acknowledge their existence in its final order.
In determining the rate of return of 13.35% for equity
capital, PSC relied on a combination of factors. It
determined the current dividend yield for MDU at 9.2%. On
that determination there appears to be no issue between the
parties. It is the expected growth of that yield as
perceived by prospective investors that is controversial.
MDU had a compound growth rate of 12% in its dividends for
the past 5 years. Dr. Smith, in her analysis, calculated
expected growth according to three formulae: Single best
growth rate, most important growth rates (growth in book
value and growth in earnings); and all growth rates. For
these she calculated 2.27%, 2.92% and 5.39% respectively.
PSC rejected the "single best growth rate," as an extreme low
based on a single growth factor, and adopted the other two
growth rates because of "the strong statistical correlation
of the two growth rates to dividend yields." The said growth
rates averaged 4.15, which added to the established dividend
rate of 9.2, gave PSC a proper cost of common equity at
13.35%.
In explaining why investors in MDU equity did not
include in their expectations a continued growth in dividends
of 12%, Dr. Smith stated, "investors discount outliers." An
"outlier," it might be explained, in the case of MDU, is a
company that is outstripping other companies in the gas
utility business in the annual growth of its dividends. Dr.
Smith's testimony also included this statement:
That investors do not rely upon historical dividend
growth as an important proxy for future dividend
growth is reasonable on their part, as dividend
growth has been greater than both earnings or book
value growth over much of the past decade. If
dividend growth were to remain in excess of
earnings growth, payout ratios would reach and
remain greater than unity and utilities would
eventually pay out all previously-retained earnings
as dividends. As previously-retained earnings are
paid out, book value growth will turn negative and
the earnings base for future dividend payments will
be diminished further. In fact, the observed
decline in utility book value growth is
attributable, in part, to higher payout ratios.
The District Court concluded that the "outlier" theory
and the "negative risk premium" theory were not clearly
wrong, and PSC was free to embrace them.
In the hearing before PSC, MDU brought Ian B. Davidson,
chairman of a brokerage house in Great Falls, to refute Dr.
Smith's comment about outliers. He testified that her
opinion about expected growth of dividends for MDU had little
relation to what investors were in fact expecting. He
contended that investors would in fact look at the growth of
dividends experienced by MDU and that they would expect MDU
to gross significantly above the industry average of 5% to 6%
and probably in the range of 8% to 10% growth.
In its findings, PSC agreed with Dr. Smith's analysis of
MDU versus industry risk, and further stated that it agreed
with Dr. Smith's risk analysis as an accurate representation
of MDU's risk in relation to that of the utility industry as
a whole. With respect to the expected future dividend growth
rate, PSC concluded that "maintaining such a level in the
long run seems unrealistic, especially considering
[counsel's] cross examination of Mr. Da.vidson concerning
earned return five years in the future while experiencing
high levels of compound growth."
While PSC did not expressly refer in its final order of
May 18, 1984 to "outliers" or to "negative risk premium" it
is patent from its findings and conclusions that it had in
mind the whole of Dr. Smith's testimony in adopting her
evaluation of a perception of investor's risk for MDU in the
future. We find no substance therefore in MDU's contention
that the District Court usurped the role of PSC in commenting
upon the explanations utilized by Dr. Smith in determining
the expected dividend growth of MDU equity capital.
Thirdly under this heading, MDU contends that the
District Court misapplied the clearly erroneous standard in
its review of PSC's decision on rate of return.
MDU1s argument here essentially is that proper judicial
review requires a review of the whole record, not only the
evidence purporting to support the PSC decision, but also
that which would tend to detract from it, and although the
Court must not reweigh the evidence, the District Court
cannot ignore the effect of clearly contrary evidence. So,
P4DU points again to Dr. Smith's testimony, and contends that
her theory that "investors discount outliers" was not
substantiated in discovery before the hearing nor at the
hearing, and as unsubstantiated, is entitled to little
evidentiary weight. Montana Citizens Freight Rate
Association v. Board of Railroad Commissioners (1954), 128
Mont. 127, 134, 271 P.2d 1024, 1027.
Section 69-3-402, MCA, provides that a party in interest
dissatisfied with an order of PSC may proceed in District
Court to vacate such order on the grounds that the order is
unlawful and unreasonable. The burden of proof is upon the
party attacking or resisting the order of PSC to show that
the order is unlawful or unreasonabl-e, as the case may be.
Section 69-3-402 (4), MCA.
Under the Montana Administrative Procedure Act (MAPA), a
person who has exhausted all administrative remedies
available within the agency and is aggrieved by a final
decision in a contested case is entitled to judicial review
under § 2-4-702, MCA, et seq. Section 2-4-702 is careful to
state that it does not limit utilization or judicial review
available under other statutes. In setting the standards of
review, § 2-4-704, MCA, provides that the District Court may
reverse or modify the decision if substantial rights of the
appellant have been prejudiced because the decision, among
other reasons, is "clearly erroneous in view of the reliable,
probative, and substantial evidence on the whole record."
If a party contends that the order of PSC is
unreasonable, it is creating a fact issue, and under §
69-3-402(4), MCA, that party has the burden of proof before
the reviewing court on the issue. If it is contending that
the order or decision of PSC is unlawful, the appealing party
has the burden to show PSC abused its discretion. Thus we
stated in City of Billings v. Billings Firefighters Local No.
521 (Mont. 1982), 651 P.2d 627, 632, 39 St.Rep. 1844, 1849:
Pur.suant to that statute, [ S 2-4-704, MCA] findings
of fact by an agency have been subject to a
"c1.early erroneous" standard of review by the
courts. Wheatland County v. Bleeker (1978), 175
Mont. 478, 575 P.2d 48. Conclusions of law are
subject to "an abuse of discretion review." These
standards differ due to the agency's expertise
regarding the facts involved, and the court's
expertise in interpreting and applying the law
...
MDU argues that an agency decision is not sustainable
just because there is some evidence in the record to support
it. It contends that "the scintilla of evidence" standard
has been rejected as an abdication of the court's
responsibility to insure due process of law, citing Billings
Utility Company v. Public Service Commission (1921), 62 Mont.
21, 35, 203 P. 366, 368. Nevertheless, with PSC, as with
other agencies, what we said in City - Billings, supra, at
of
632, still pertains:
.. . the factual findings of the BPA [Board of
Personnel Appeals] will be upheld if supported by
substantial evidence. Section 39-31-409 (4), MCA.
MAPA allows factual findings to be overturned when
they are "clearly erroneous in view of the
reliable, probative and substantial evidence on the
whole record. " Section 2-4-704 (2)(e), MCA. We
find these tests to be harmonized. If there is
substantial credible evidence in the record, the
findings are not "clearly erroneous." Under either
statute the scope of judicial review is the same.
If the record contains support for the factual
determinations made by the agency, the courts may
not weigh the evidence. They are bound by the
findings of the agency.
On this point, MDU contends that since Dr. Smith's
opinions are unsubstantiated, and since their witness, Mr.
Davidson, who deals with thousands of investors every year,
testified that investors do not believe as Dr. smith
testified, the "outlier" theory should have been rejected by
the District Court and by implication should be rejected by
us. What is lost in this argument is that both Dr. Smith and
Mr. Davidson were each trying to predict the future and what
it holds for MDU. The District Court noted that the
"outlier" theory seemed to be substantiated by its
proponents' unchallenged statistics. The PSC, faced with the
task of determining the future from the evidence of opinions
before it, chose the conservative side, setting forth in its
findings its reasons for adopting the rationale it followed.
MDU, before the District Court, and before us, has the burden
to show that PSC abused its discretion in this regard so as
to have acted unlawfully or unreasonably. We find no abuse
of discretion by PSC. Substantial credible evidence supports
its findings, which are therefore not clearly erroneous.
affirm the District Court this point appeal.
MDU issues and sells to investors long-term bonds to
finance plant. Under sinking fund provisions, MDU must
reacquire and retire some of such bonds before maturity. If
the reacquisition occurs at periods of higher interest rates,
the bonds are reacquired at a discount from face value. The
discount represents a gain to the utility.
PSC ordered that the gain on reacquired debt be
amortized over the remaining life of the indebtedness, the
amortized amount to reduce interest expense to the utility.
PSC further ordered that the unamortized amount be treated as
a rate base reduction.
MDU objected to the reduction of rate base by the
unamortized gain, and the District Court agreed, holding that
such reduction has the effect of confiscation without due
process. The District Court held that the gain should be
reflected in the periodic reduction of the utilities' cost of
debt, as a "subtraction on the cost of service side of the
ledger resulting in a saving to the consumer."
All parties agree that since the debt represented by
such bonds and their interest cost during the existence of
the bonds must be paid by the rate payer, any reduction of
the bonded debt should be passed on to the rate payer, and
not to the shareholders. All parties agree that at the
least, the amortized portion of the gain over the life of the
remaining indebtedness had the bonds not been reacquired
should be used to reduce the utilities' interest costs (the
reference by the District Court to the "cost of service"
undoubtedly refers to debt service).
Of course, it would not be improper accounting to
recognize the full amount of the gain in the year of
acquisition. The parties point out that some regulatory
bodies permit that for rate purposes. However, in Re
Manufacturers Light and Heat Company (1970), 84 P.U.R.3d 511,
the Federal Power Commission (now the Federal Energy
Regulatory Commission) found that amortization of such gain
over the remaining life of the indebtedness was required to
pass the gain on to the consumers. Otherwise, recognizing
the full gain in the year of acquisition could result in not
passing the benefits to the consumers. The FERC subsequently
adopted regulations for accounting which require utilities
regulated by it to amortize such gain (or loss) equally on a
monthly basis over the remaining life of the respective
security issues reobtained. When amortization of the gain is
utilized, the amortized amount is subtracted from the test
period interest expense in determining the utility's cost of
debt. Consolidated Gas Supply Company v. FERC (4th Cir.
1981), 653 F.2d 129, 135.
In a prior rate case involving MDU, stipulated as part
of the record here, PSC accepted the testimony of Dr. Smith
on the subject which follows:
. ..
All of the reacquired bonds are sinking fund
bonds which must be retired on an annual basis over
the life of the debt, according to the sinking fund
requirements for each bond. Because of this, the
reacquisition and retirement of the debt before its
maturity debt is necessary. At the same time, the
gain should be credited to customers, just like the
interest expense on these bonds has been charged to
them while they were outstanding. MDU has not
credited the gain to customers.. .. The
unamortized gain is included on the balance sheet
as a deferred credit, just like deferred income
taxes, and can be accounted for as a zero-cost
capital structure item or as a rate base reduction.
I have included it as a zero-cost capital structure
item.
The PSC in that case noted that a rate base reduction
was the equivalent of treating the gain as a zero-cost
capital item. It stated:
26. The Commission agrees with Dr. Smith that the
unamortized gain has some similarity to deferred
taxes for rate making purposes. In previous
decisions, the Commission has treated deferred
taxes as a rate base reduction rather than as a
zero-cost capital item (example: Order No. 4928a
in Docket No. 82.4.28) .
Including deferred taxes
and capital structure as zero-cost produces about
the same result as deducting the amount from rate
base.
In the case at bar, the rationale of PSC in determining
its treatment of the unamortized gain may be found in its
finding no. 67, where PSC stated:
... In past cases, when the Commission has
treated deferred taxes as a rate base reduction
because it is a deferred credit and has no return
requirement. Unamortized gain is also a deferred
credit. The Commission finds that because of the
reacquisition of the debt at a discount, a cash
savings to MDU results which is accounted for as a
gain. By deducting the unamortized portion of the
gain from rate base, the Commission is precluding
the Company from earning a return on the
unamortized balance of the gain, and, therefore,
allowing the consumer to realize full benefit from
the transaction. The Commission finds that the
unamortized gain is a deferred credit, similar to
deferred taxes, for rate making purposes. The
Commission determines, therefore, that the
unamortized gain on reacquired debt should be
treated as an allocated deduction from rate base in
the amount of $218,562, using the approved
allocation factors.
It is important to know the reasons given by the
District Court for holding PSC decision on unamortized gain
confiscatory. Most obviously, the District Court was
disturbed that the amortized portion of the gain was treated
to reduce interest expense (cost of borrowing) while
concurrently the unamortized gain was used to reduce rate
base. The court noted ample authority for amortizing the
gain as against interest costs, but noted no authority for
concurrent rate base reductions. Moreover, the District
Court found that the unamortized gain represented a liability
that must be discharged over the remaining life of the
original obligations; that reacquired bonds were probably
replaced by new bonds; that the actual investment in plant
was not reduced; and the District Court distinguished between
unamortized gain and deferred income taxes, saying that on
the one hand deferred income taxes result from monies paid in
by consumers, but the gain on reacquired debt comes from
investors. A gain on reacquired debt does not represent
money actually received by the utility. The District Court
determined that to deduct the unamortized gain (the phantom
profit) from the rate base while at the same time applying
the amortized gain to reduce interest expense compounded the
reduction in consumer rates and provided an unjustified
windfall for the rate payer at the expense of the utility's
stockholders. MDU relies on these contentions in this
appeal.
The arguments of PSC and Counsel on appeal negative the
determinations of the District Court and the contentions of
MDU . They point to the MDU balance sheet which lists
unamortized gain on reacquired debt under the heading of
deferred credits. They point out, as did PSC, that deferred
credits are routinely subtracted from the rate base. They
contend that since all parties agree under Manufacturer's
Li ht and Heat Company, supra, the gain should be
& - - fully
refunded to the rate payer, full compensation cannot be
accomplished without deduction of the unamortized gain from
the rate base.
Counsel cites the example of a utility which reacquires
its $ 1 0 0 0 bond for $ 9 0 0 . The original $ 1 0 0 0 received from
the investor was presumably utilized by the utility for
plant. Counsel argues that unless some adjustment is made to
the rate base of the unamortized portion of the gain during
the amortization, the utility receives the benefit of a $ 1 0 0 0
rate base before it has paid for one.
The question presented to us on this point of appeal
appears to be one of first instance. Although substantial
authority exists for the application of such gain to the cost
of interest amortized over the remaining life of the
reacquired debt, neither we nor counsel are able to point to
another court wherein the question of amortizing the gain to
interest expense has been concurrently ordered with a
reduction of rate base by the unamortized gain. We have been
informed in the brief of Counsel that the regulatory agency
of North Carolina in the Matter of Application of Piedmont
Natural Gas Company, in an order dated December 11, 1 9 8 5 ,
determined that the proper rate-making treatment to be
afforded to gain from reacquired debt is to
( 1 ) amortize the gain from the defeasance as a
reduction to the cost of service, over the
remaining life of the defeased debt; (2) reduce the
company's rate base by the unamortized gain.
We do not perceive that the order of PSC on unamortized
gain is confiscatory in nature. All agree that the objective
must be to return the full amount of gain to the rate payer.
Unless a reduction is made to rate base during the period of
amortization, the rate payer will be required to pay in that
period a return calculated on a rate base which is in fact
larger than the cost to the utility, because of the
repurchase of the debt at less than face value.
Using the example cited to us in brief, if MDU issued a
$1000 bond, and reacquired it for $900 when it had a
remaining life of five years, these results under PSC order
would follow: In the first year, $20 would be deducted from
interest expense, and $80 would be reducted from the utility
rate base. In the second year, another $20 would be deducted
from interest expense, and the rate base reduction would be
$60. At the end of five years, the utility would have
regained its rate base and the rate payer would have received
the full benefit of the $100 gain. In the meantime, during
the period of amortization, the rate payer would not be
charged with the rate of return on gain not yet refunded to
him. The shareholder is not undercompensated during the
period of amortization because his rate of return is based on
the actual cost of his investment.
By analogy, our statutes command this result. Under
S 69-3-108, MCA, the rate base for utility property can be
valued at no more than its original cost.
The PSC order does not mean that MDU must revise its
rate base in its regular accounts. An item may be treated
differently for accounting and rate-making purposes. Public
Systems v. FERC (D.C. Cir. 1979), 606 F.2d 973.
If the gain were recognized and used to reduce interest
expense in the year the gain was realized, there would be no
need, of course, for treatment of the unamortized gain. It
is because good rate-making practice requires the gain to be
amortized over the remaining life of the indebtedness, and
the amortized amount subtracted from the test period interest
expense (Consolidated Gas Supply Company v. FERC, supra),
that it then becomes necessary to consider the proper method
of treating the unamortized gain.
The difference between our view and that of the District
Court, and the intensity of positions taken by the parties in
their briefs to this Court all indicate strong arguments that
can be made for both sides of this issue. In such a case, it
behooves courts to defer to the expertise of the regulatory
commission whose duty is the fair protection of all the
parties, the rate payers, the investors, and the shareholders
of the utility. We remind ourselves that:
It follows that the responsibilities of a reviewing
court are essentially three. First it must be
determined whether the commission's order, viewed
in light of the relevant facts and of the
commission's broad regulatory duties, abused or
exceeded its authority. Second, the court must
examine the manner in which the commission has
employed the methods of regulation which it has
itself selected, and must decide whether each of
the order's essential elements is supported by
substantial evidence. Third the court must
determine whether the order may reasonably be
expected to maintain financial integrity, attract
necessary capital, and fairly compensate investors
for the risks they have assumed, and yet provide
appropriate protection to the relevant public
interests, both existing and foreseeable. The
court's responsibility is not to supplant the
Commission's balance of these interests with one
more nearly to its liking, but instead to assure
itself that the Commission has given reasoned
consideration to each of the pertinent factors.
Judicial review of the Commission's orders will
therefore function accurately and efficaciously
only if the Commission indicates fully and
carefully the methods by which, and the purposes
for which, it has chosen to act, as well as its
assessment of the consequences of its orders for
the character of future development of the
industry.. . .
Permian Basin Area Rate Cases (19681, 390 U . S . 747, 792, 88
We determine that PSC's order is not in fact
confiscatory as to the utility or its shareholders and is an
order reasonably devised to produce an equitable result for
the rate payers. In the circumstances, therefore, we reverse
the order of the District Court on this point of appeal.
IV.
A final issue raised by MDU is that this Court should
order a refund or surcharge to make MDU whole. The issue, of
course, depend on the success of MDU's appeal. In view of
our holdings here, we withold any comment on the propriety of
the issue.
Affirmed in part and reversed in part.
Q
;
Justice
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