NO. 94-309
IN THE SUPREME COURT OF THE STATE OF MONTANA
1995
CITY OF BILLINGS,
Petitioner and Appellant,
STATE OF MONTANA,
DEPARTMENT OF REVENUE,
Respondent and Respondent.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Russell K. Fillner, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Bonnie J. Sutherland, Assistant City Attorney,
Billings, Montana
For Respondent:
Lawrence G. Allen, Special Assistant Attorney
General, Department of Revenue, Helena, Montana
Submitted on briefs: December 15, 1994
Decided: March 21, 1995
Filed:
Justice Fred J. Weber delivered the Opinion of the Court.
This is an appeal by the City of Billings from an Order of the
District Court of the Thirteenth Judicial District, Yellowstone
County. The District Court's Order held that the City of Billings
is not exempt from payment of fees for the funding of the
Department of Public Service Regulation and the Montana Consumer
Counsel during years when its municipal water utility rates are not
increased more than twelve percent. We affirm.
The sole issue for review is whether the District Court erred
in holding that the City of Billings, as owner and operator of a
municipal utility, must always pay a Public Service Commission fee
and a Montana Consumer Counsel fee.
The City of Billings owns and operates a municipal water and
sewer utility serving customers in and near Billings. On August 7,
1992, the Montana Department of Revenue (DOR) assessed the City of
Billings for Public Service Commission (PSC) and Montana Consumer
Counsel (MCC) fees of $14,890.98 and $14,886.16, respectively, for
the City's 1991 and 1992 fiscal years.
After the assessment, the City questioned whether it was
subject to the PSC and MCC fees. The City took the position that
it could not be required to pay these fees when it had never raised
its rates in excess of twelve percent in any one year following
deregulation of its utility activities in 1982. In response to the
City's query, both the PSC and DOR took the position that the City
must pay the fees annually. The City appealed the assessment,
claiming it did not owe the fees because it had not raised its
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rates more than twelve percent in either of the two fiscal years
concerned and, thus, had no revenues from regulated activities.
Because DOR had issued an opinion stating its position on the
matter prior to assessing the fees, the parties waived informal
agency appeal proceedings with DOR and brought the matter directly
to the State Tax Appeal Board. The City filed a Notice of Appeal
with the State Tax Appeal Board on February 24, 1993. On April 22,
1993, following DOR's answer to the Notice of Appeal indicating
that the parties could resolve the only remaining factual issue,
the City petitioned the District Court for interlocutory
adjudication pursuant to §§ 15-Z-304 and -305, MCA.
After briefing by the parties and without an oral hearing, the
District Court ruled in favor of DOR and it is from this ruling
that the City of Billings now appeals.
Did the District Court err in holding that the City of
Billings, as owner and operator of a water and sewer utility, must
always pay PSC and MCC fees?
The operations of the PSC and MCC are not funded through the
general fund like most state government agencies. The method of
funding them is provided for as follows:
69-1-223. Funding of office of consumer counsel. .
. . (2) In addition to all other licenses, fees, and
taxes imposed by law, all regulated companies shall:
(a) within 30 days after the close of each calendar
quarter, file with the department of public service
regulation and the department of revenue a statement, in
a form that the commission and department may determine,
showing the gross operating revenue from all activities
regulated by the commission within the state for that
calendar quarter of operation or portion of a quarter,
separately stating gross revenue from sales to other
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regulated companies for resale; and
(b) at that time pay to the department of revenue a
fee based on a percentage of the gross operating revenue
reported, as determined by the department of revenue
under 69-l-224. . .
69-l-402. Funding of the department of public
service regulation. . (2) In addition to all other
licenses, fees, and taxes imposed by law, all regulated
companies shall, within 30 days after the close of each
calendar quarter, pay to the department of revenue a fee
based on a percentage of gross operating revenue reported
pursuant to 69-l-223(2) (a), as determined by the
department of revenue under 69-l-403.
DOR assessed the PSC and MCC fees to the City of Billings Public
Utility Department for the sale of water for fiscal years 1991 and
1992 according to the formula set forth in § 69-1-224, MCA.
DOR assesses the PSC and MCC fees to "regulated companies" in
Montana based on a percentage of gross operating revenues generated
within the state by the regulated company. Sections 69-l-201(3),
and -401(2), MCA, both set forth the following definition of
"regulated companies":
"Regulated companies" means all those organizations,
corporations, associations, or other public or private
entities which now are or may hereafter become subject to
regulation in any manner by the department of public
service regulation or the public service commission or
any successor agency.
In 1981, the Montana Legislature enacted House Bill 765,
transferring regulation of municipal utilities from the PSC to the
municipality, except as expressly retained in § 69-7-102, MCA. The
following statutes govern the PSC's regulation of rates by the
municipality:
69-7-101. Municipal utilities -- regulation by
municipality -- limitation. A municipality has the power
and authority to regulate, establish, and change, as it
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considers proper, rates, charges, and classifications
imposed for utility services to its inhabitants and other
persons served by municipal utility systems. Rates,
charges, and classifications shall be reasonable and just
and, except as provided in 69-7-102, they may not be
raised to yield more than a 12% increase in total annual
revenues or, in the case of mandated federal and state
capital improvements, the increase may not exceed amounts
necessary to meet the requirements of bond indentures or
loan agreements required to finance the local
government's share of the mandated improvements. Annual
revenues must be computed on any consecutive 12-month
period for purposes of this chapter.
69-7-102. Rate increases over maximum. (1) If a
municipal utility requires rate increases that yield an
increase in total revenues in excess of 12% in any one
year or rate increases for mandated federal and state
capital improvements for which the increase exceeds
amounts necessary to meet the requirements of bond
indentures or loan agreements required to finance the
local government's share of the mandated improvements, it
must make application for such increases to the public
service commission.
These statutes exclude municipal utilities from PSC jurisdiction
over rate increases if the utility does not increase its rates by
more than twelve percent for any twelve-month period.
Section 69-l-223, MCA, providing for funding of the MCC,
states that the MCC fee is calculated with reference to "the gross
operating revenue from all activities regulated by the commission."
The PSC fee is determined in the same manner as the MCC fee, except
that gross revenues from sales to other regulated companies for
resale, as calculated by the PSC, must be excluded from the
determination of the total gross operating revenue.
Section 69-l-224, MCA, sets forth the method for calculating
the MCC fee. It contains a limitation stating that no regulated
company owned and operated by any municipal corporation can be
required to pay more than .06 of one percent of its gross operating
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revenue. Section 69-l-403, MCA, provides that the PSC fee shall be
calculated in the manner described in fj 69-l-224, MCA, for the MCC
fee. The statutory formula for determining both PSC and MCC fees
is based on a utility's gross operating revenue from "activities
regulated by the commission."
The City contends that it had no such activities and therefore
owed no MCC or PSC fees. However, none of the statutes which are
applicable to the funding of the PSC and MCC in Chapter 1, Parts 2
and 4, or in Chapter 7, Part 1, entitled Regulation of Rates by
Municipality, include any specific exemption for municipal
utilities for the payment of the PSC and MCC fees. Although the
City asserts that §§ 69-7-101, MCA, through 69-7-201, MCA, give
municipalities all regulatory power and authority over municipal
utilities, it acknowledges that a municipality must obtain PSC
approval if it wishes to increase rates, charges, or
classifications to yield more than a twelve percent increase in any
one year.
The City argues, however, that because it did not raise its
rates, charges, or classifications in fiscal years 1991 and 1992 to
yield more than twelve percent in total annual revenues, the PSC
had no regulatory power over the City and the City is not subject
to either of the fees under Chapter 1, Parts 2 and 4. The City
argues that the fees are "user fees" to be assessed for involvement
of the PSC and MCC in utility rate proceedings of which it will
never be a participant unless it raises its rates more than twelve
percent in one year.
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DOR contends that the fees are not "user fees" and that they
are in fact taxes. It further contends that the sale of water is
an activity regulated in Montana, the City generated revenue from
the sale of water and, therefore, the City must be taxed for that
activity. It contends that the City is subject to the fees because
the Billings Public Utility Department meets the statutory
definition of "regulated company" as set forth in 55 69-l-201(3)
and -401(2), MCA. Not only is the City's water and sewer utility
a "regulated company," but as such, it was statutorily required to
file an annual statement with the PSC for regulation purposes.
Therefore, according to DOR, the City's utility is subject to the
fees.l
Clearly, the City's municipal utility is included within the
statutory definition of "regulated companies." Both the PSC and
the MCC fee statutes use the term "regulated company," both
statutes include definition of "regulated companies" and both
definitions of "regulated companies" include the language "public
entities . . subject to regulation in any manner." The City's
rate increases are subject to regulation if they are in excess of
twelve percent in any one year and it must submit annual statements
to the PSC detailing its gross operating revenues. Although PSC
regulation of municipal utilities is limited by Part 7, clearly the
definition of "regulated companies" includes the City of Billings'
'The City of Billings did file the statutorily required
statements showing its gross revenues from regulated activities.
However, it stated on the forms that it had no revenue from
regulated activities for fiscal years 1991 and 1992.
water and sewer utility. Therefore, the plain language of these
statutes includes the City's municipal utility as an entity subject
to regulation by the PSC.
Nonetheless, the City maintains that both the MCC fee and the
PSC fee are "user fees." It claims that its revenue is not derived
from a "regulated activity" as that term is used in § 69-l-223,
MCA, because it can raise its rates up to twelve percent a year
without PSC approval. Section 69-l-223, MCA, sets forth the
procedure for collecting the fees to fund the MCC; it does not
address the question of what entities are subject to the taxes.
Parts 2 and 4 of Title 69, Chapter 1, which specifically apply to
the funding of the MCC and PSC and determine how the fees for such
are to be calculated and assessed by the DOR, both include
definitions of "regulated companies" which we have stated above
apply to the City of Billings Public Water Department. There would
be no reason to include entities such as the City's municipal
utility in the definitions if such entities were not to be assessed
the fees which Parts 2 and 4 authorize.
The City also relies on Lechner v. City of Billings (19901,
244 Mont. 195, 797 P.2d 191, for its position that it does not owe
the PSC or MCC fees. The issue in Lechner was whether the City of
Billings could adopt by resolution a new system for funding the
expansion of water and sewer facilities. The City assessed a
"systems development fee" on customers who requested new or
upgraded water or wastewater service. In Lechner, 797 P.2d at 195,
we noted that municipal utilities were excluded from the definition
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of "public utility" in 5 69-3-101, MCA. However, the exclusion
from the definition of "public utility" does not determine that it
is not a "regulated company." The Court did not conclude that the
PSC had no regulatory power over the City's water utility. The
Lechner case does not support a conclusion that the sale of water
at a rate set by a municipal utility is revenue from unregulated
activities.
According to the City, regulated companies do not have to pay
the fees unless they "use" the services of the PSC and the MCC
during a given year for rate making. Under this rationale, a
municipal utility could control and avoid the imposition of the PSC
and MCC fees, except under extraordinary circumstances. The
municipal utility could decide never to "use" the services of the
PSC and this could place the burden of funding the MCC and PSC
totally on other regulated companies. There is no indication that
this is what the legislature intended.
Moreover, the "user fee" rationale would not seem to apply to
the MCC according to the statutes governing that entity. The
City's argument that the MCC and PSC fees are "user fees" is
weakened by the express provision contained in § 69-7-111(5), MCA,
which mandates that notice of all public hearings for regulating,
establishing or changing rates, charges, or classifications imposed
on customers be mailed to the MCC. Section 69-7-112, MCA,
expressly provides that all affected or interested persons and
entities, including the MCC, may be present and represented by
counsel, and, if the MCC chooses to be present and represented by
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counsel, the MCC shall be allowed to make arguments as it may
consider proper at the conclusion of the municipal rate hearing.
When the legislature relaxed the PSC's regulation of municipal
utility rate proceedings in 1981, it did not change the role of the
MCC in municipal rate cases. Municipal utilities must still notify
the MCC of all rate hearings and the MCC is specifically authorized
to represent the consumer's interest at rate hearings conducted by
municipalities. Although the MCC has discretion concerning its
involvement in municipal rate hearings, clearly the appearance of
the MCC at municipal rate hearings is not discretionary on the part
of the municipal utility. Although the City can control the
jurisdiction of the PSC in its decisionmaking concerning rate
increases to its customers, it has no power to control the
participation of the MCC in the rate hearing process.
The DOR contends, and we agree, that the City of Billings'
interpretation of the statutes is contrary to legislative intent
underlying the fee statutes. The legislature was aware that
municipal utilities were subject to the MCC fees when it enacted
the provisions of Title 69, Chapter 1, Part 4, to fund the PSC in
1986. At that time, it established methods for calculating the
PSC fee which referred to and incorporated the formula used by DOR
in calculating the MCC fee. The legislature chose not to provide
an exemption from either of these fees for municipal utilities
subject to limited regulation by the PSC. We conclude the City's
municipal water utility must pay the MCC and PSC fees as determined
by DOR using the method set forth in §§ 69-l-223(2) and -224, MCA.
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We hold the District Court did not err in holding that the
City of Billings, as owner and operator of a municipal utility,
must always pay the PSC and MCC fees.
Affirmed.
/’ Chief Justice
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