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Far North Sanitation. Inc. v. Alaksa Public Utilities Comm. (2/7/92), 825 P 2d 867
<![CDATA[
NOTICE: This opinion is subject to
formal correction before publication in the
Pacific Reporter. Readers are requested to
bring typographical or other formal errors to
the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska
99501, in order that corrections may be made
prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
FAR NORTH SANITATION, INC., )
an Alaska Corporation, ) Supreme Court No. S-3796
)
Appellant, )
) Superior Court No.
v. ) 3AN-88-10643 Civil
)
ALASKA PUBLIC UTILITIES )
COMMISSION, ) O P I N I O N
)
Appellee. ) [No. 3807 - February 7, 1992]
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Elaine M. Andrews, Judge, Pro Tem.
Appearances: Kirsten Tinglum, John C.
McCarron, Asburn & Mason, Anchorage for
Appellant. Glenn M. Gustafson, Assistant
Attorney General, Anchorage, Douglas B.
Baily, Attorney General, Juneau, for
Appellee.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton, and Moore,
Justices.
RABINOWITZ, Chief Justice.
I. FACTS AND PROCEEDINGS.
Far North Sanitation, Inc. (Far North) is a garbage
collection company located in Fairbanks (City). It operates both
inside and outside the city limits. Before 1980, the Alaska
Public Utilities Commission (APUC) regulated Far North's rates
only for garbage collection outside the City's limits.
Similarly, the collection rates of Far North's competitor, Marche
Sanitation (Marche), who operated only within the City's limits,
were unregulated.
In 1980 the legislature extended APUC's jurisdiction to
include garbage collectors inside municipalities. AS 42.05.711;
see Ch. 136, 12, SLA 1980 (repealing AS 42.05.221(f)); Ch. 76
1 SLA 1973. Marche, however, was still exempt from regulation
because its revenues were less than $200,000 per year. AS
42.05.711(i). At that time, Far North and Marche were engaged in
litigation over competition and rates in Fairbanks. After the
APUC's jurisdiction was expanded, Far North, Marche, and the City
submitted a stipulation and agreement to APUC, under which the
City would oversee and control the refuse collection rates.
In February 1981, APUC adopted a modified version of
the stipulation, and issued an order exempting from regulation
Far North's rates for garbage collection within city limits. The
order noted that Marche was already exempt from regulation, and
that this order would "ensure that these two utilities -- Far
North and Marche -- will be able to compete on equal footing."
Additionally, the order stated,
this exemption, in effect a granting of
permission to compete for the business of the
commercial refuse customer, is in the nature
of an experiment. This is particularly so in
that if they are to work effectively, both
the exemption and the Stipulation and
Agreement require reliance on the good
offices of the City of Fairbanks and the
Fairbanks City Council to make them work: to
monitor the rates, quality of service and
management practices of these two utilities
and to respond to customer complaints and to
do the same with respect to its own refuse
collection operations.
Pursuant to this order, the City set a maximum rate for
the two utilities. While Far North and Marche remained in
competition, neither charged the maximum rate. In 1983 Far North
purchased Marche and later raised its rates. However, the new
rates remained below the maximum rates set by the City.
On November 18, 1986, APUC issued an "interim order"
revoking Far North's exemption from rate regulation. At all
times, Far North's rates outside the City had been subject to
regulation; however, at the time of the interim order, Far North
was charging its outside customers an unauthorized above-tariff
rate. The interim order noted this violation, and declared all
of Far North's subsequent rates both inside and outside the City
to be "interim"rates and subject to refund pending final rate
determination:
Since competition in the provision
of commercial refuse service no longer exists
within the city limits of Fairbanks, the
Commission will revoke FNS' exemption from
regulation for that portion of its operation
within the limits of the City of Fairbanks
and require FNS to submit a revenue
requirement filing based on a 1986 test year,
in accordance with 3 AAC 48.275(a) and 3 AAC
48.270.
APUC held a hearing in March 1988 at which Far North
presented evidence on the issue of the appropriate rate for
refuse collection inside the City.1 At that hearing, Far North
did not contest the legality of APUC's interim order.
In August 1988, APUC issued its final rate
determination for Far North's operations inside the City (final
order). The rate established by APUC was lower than what Far
North had been charging, so APUC ordered Far North to refund the
difference dating back to November 18, 1986. Far North filed a
motion for reconsideration which was granted in part, but led to
no change in the result.
Far North appealed APUC's final order to the superior
court, alleging that the interim order was unauthorized and
illegal as retroactive ratemaking. APUC argued to the superior
court that Far North had waived this issue by not raising it at
the hearing or in its motion for reconsideration. The superior
court chose not to decide the issue of waiver, because it was
able to dispose of the case on its merits by ruling against Far
North. Specifically, the superior court found that:
AS 42.05.141(a) provides a broad grant
of authority to the APUC to regulate public
utilities and set their rates. In this case,
the APUC, in determining that FNS was an
utility to be regulated, provided for a "test
year" for FNS. This is a common procedure
used by the Commission when required to
establish an initial rate for a previously
unregulated entity. The APUC provides that
these initial rates be interim, to protect
the utility from having the APUC pick an
arbitrary initial rate without the ability to
determine its reasonableness and to make the
rate refundable to protect the customer so
that if the rate FNS had been charging was
excessive, consumers would be protected.
This test year interim rate-setting appears
to be one which was within the liberal
construction of AS 42.05.141 which grants the
APUC, upon its own motion, the right to
investigate and set rates which are fair to
consumers and provide a reasonable rate of
return and profit to the utility.
Far North appeals, again arguing that the interim order was an
exercise in unauthorized retroactive ratemaking.
II. DISCUSSION
A. Has Far North Waived its Right to Obtain
Review of the 1986 Interim Order of the APUC?2
As a preliminary matter, we must determine whether Far
North has waived its right to appeal. APUC argues that its
interim order was a final order, which Far North should have
appealed within thirty days of November 18, 1986. Because no
appeal was filed until August 1988, APUC believes the current
appeal should be dismissed as untimely. Furthermore, APUC argues
that Far North had an obligation to raise the issue of agency
authority before the agency itself. Because this issue was not
raised until the appeal before the superior court, APUC considers
it waived. We review APUC's arguments on waiver de novo, as they
were not addressed below.
Appellate Rule 602(a)(2) provides that appeals from
administrative agencies are to be taken "within 30 days from the
date that the decision appealed from is mailed or otherwise
distributed to appellant." However, the time for appeal
commences running only if the agency's decision is a final,
appealable order. Ostman v. State, Commercial Fisheries Entry
Comm'n, 678 P.2d 1323, 1327 (Alaska 1984). The first question,
therefore, is whether the APUC's 1986 interim order constituted a
final, appealable order.
We employ a "practical"test to determine whether or
not an order is a final order. Matanuska Maid, Inc. v. State,
620 P.2d 182, 184 (Alaska 1980). We have stated, "[a]n order by
the trial court as a general rule is said to be final if it
completely and finally disposes of the contested claims on their
merits." Mukluk Freight Lines Inc. v. Nabors Alaska Drilling,
Inc., 516 P.2d 408, 411 (Alaska 1973) (footnote omitted). See
also Greater Anchorage Area Borough v. City of Anchorage, 504
P.2d 1027, 1030-31 (Alaska 1972) (overruled on other grounds by
City and Borough of Juneau v. Thibodeau, 595 P.2d 626 (Alaska
1979)).
In Mukluk, the superior court's decision required the
parties to continue discovery before a final decision on the
merits would issue. However, the superior court simultaneously
had determined that the agency action in question was authorized.
Nevertheless, we held that the superior court's decision was not
a final order, even though it "disposed of Mukluk's claim for an
evidentiary hearing and approved the Commission's proposed use of
the procedure." Mukluk, 516 P.2d at 411. We said,
"[n]ecessarily another decision must follow resolving those
issues initially raised by the Nabors' application. Since this
is so, we must conclude that the order of the superior court was
not a final order." Id.
Similarly, Far North appeals only the 1986 interim
order, not the merits of the 1988 final decision. However, as of
November 18, 1986, the APUC gave Far North time to submit a
tariff advise letter and a revenue requirements study in support
of its rates. Under the Mukluk test, we conclude that the 1986
interim order was not a final, appealable order. The final order
was the August 1988 order from which Far North did file a timely
appeal.3 Thus we hold that the instant appeal was timely filed.
Next, APUC argues that Far North had an obligation to
raise the issue of the agency's authority to issue interim
refundable rate orders before the agency itself. In Amerada Hess
Pipeline Corp. v. Alaska Pub. Util. Comm'n, 711 P.2d 1170, 1181
n.22 (Alaska 1986), we stated, "[a]s a general rule, we will not
consider arguments never raised before the trial court. We agree
with the APUC that this same rule should apply to arguments never
presented to an agency whose decision is appealed." (citation
omitted). See also United States v. L.A. Tucker Truck Lines,
Inc., 344 U.S. 33, 37 (1952) ("orderly procedure and good
administration require that objections to the proceedings of an
administrative agency be made while it has opportunity for
correction in order to raise issues reviewable by the courts"); 4
K. Davis, Administrative Law Treatise, 441-44 (2d ed. 1983).
However, we have acknowledged that questions of subject matter
jurisdiction or plain error can be raised de novo before this
court. Burrell v. Burrell, 696 P.2d 157, 162 (Alaska 1984)
(subject matter jurisdiction); Wettanen v. Cowper, 749 P.2d 362,
364 (Alaska 1988) (plain error).
Jurisdictional defects deprive the agency of power to
adjudicate or regulate the subject matter. See, e.g., State,
Dep't of Labor v. University of Alaska, 664 P.2d 575 (Alaska
1983) (Department of Labor had no jurisdiction to hear claim
which was not a wage claim because statute required that a wage
claim be properly filed to bring claim within jurisdiction;
exhaustion of administrative remedies not required when alleged
infirmity is jurisdictional); Leedom v. Kyne, 358 U.S. 184, 188-
89 (1958) (NLRB had no jurisdiction to issue order which went
beyond its statutory authority); Van Sickle v. Industrial Comm'n,
588 P.2d 857, 859-60 (Ariz. App. 1978) (agency had no
jurisdiction to consider claim where no formal claim had been
filed; question of jurisdiction could be raised for first time on
appeal). Here, as in Kyne, we are asked to "strike down an order
of the [agency] made in excess of its delegated powers." Kyne,
358 U.S. at 188.
There are difficulties in determining whether an
asserted error is jurisdictional.4 If Far North's claim of
unauthorized illegal rate making is not jurisdictional, then it
has waived any errors it now asserts by virtue of its failure to
raise any such claims of error before the administrative agency.
Here Far North's primary claim is that the APUC lacked authority
to enter the 1986 interim rate. 5
B. Was the 1986 Interim Order a Valid Order?6
Far North quotes from McDaniel v. Cory, 631 P.2d 82, 88
(Alaska 1981) to establish that administrative agencies are
"creatures of statute and therefore must find within the statute
the authority for the exercise of any power [they] claim." It
emphasizes that Alaska statutes do not expressly authorize APUC
to declare a rate interim, except when a utility has requested a
rate increase. AS 42.05.421(c). Given that AS 42.05.421(c)
establishes a specific and detailed procedure for declaring a
rate interim, Far North concludes that the legislature did not
intend to grant APUC broad powers to declare rates interim.
Moreover, Far North argues that AS 42.05.431, which requires a
hearing before APUC may establish rates, also does not expressly
authorize suspending existing rates. By negative inference, Far
North concludes that APUC's action was unauthorized.7
The APUC reaches the opposite conclusion. It argues
that the question is "whether the Commission has the power to
declare rates to be charged by a public utility, prospectively
interim and refundable, during the time in which the Commission
goes through the process of setting permanent just and reasonable
rates." The APUC views the legislature's authorization of
interim rates in AS 42.05.421(c) as proof that the legislature
favors interim rates where necessary to ensure a fair process.
Under the APUC's approach, the legislature's failure to
explicitly address the circumstance where rates are too high is
immaterial. The legislature granted APUC broad powers to
accomplish its purposes, and further provided that those powers
should be liberally interpreted. AS 42.05.141(a)(1). Moreover,
the APUC sees its ability to declare rates interim, particularly
when a rate is too high, as indispensable to fair procedures.
Finally, the APUC argues that the peculiar facts of the case at
bar required its action. Here, the utility was essentially
exempt from regulation "by way of an experiment." When the basis
for this experiment ended, the broad powers of APUC to set "just
and reasonable"rates mandated declaring existing rates interim.
The APUC concludes that the "power to issue interim orders is
necessarily implied from the express liberal ratemaking power
granted to the Commission."
Our analysis begins by examining the relevant statutory
provisions. APUC has the power to make or require just, fair and
reasonable rates for public utilities. AS 42.05.141(a)(3).
Under the statute, this power "shall be liberally construed to
accomplish its stated purposes." AS 42.05.141(a)(1). However,
the statute also states, "[a] legally filed and effective tariff
rate . . . may not be changed except in the manner provided in
this chapter."AS 42.05.371.
Alaska Statute 42.05.431(a) establishes the power of
the commission to fix rates. It provides that,
[w]hen the commission, after an
investigation and hearing, finds that a rate
demanded, observed, charged or collected by a
public utility for a service subject to the
jurisdiction of the commission . . . is
unjust, unreasonable, unduly discriminatory
or preferential, the commission shall
determine a just and reasonable rate . . . to
be observed or allowed and shall establish it
by order.
(emphasis added). This provision indicates that rates are
generally prospective, and that an investigation and hearing must
precede the imposition of a new rate. There are significant
principles embodied in these requirements. "A fundamental rule
of ratemaking is that rates are exclusively prospective in
nature." New England Tel. & Tel. Co. v. Public Util. Comm'n, 358
A.2d 1, 20 (R.I. 1976). From the point of the utility, the
general rule against retroactive rate making is critical. "The
wholesale purchasers of electricity cannot plan their activities
unless they know the cost of what they are receiving. . . ."
Electric Dist. No. 1 v. Federal Energy Regulatory Comm'n, 774
F.2d 490, 493 (D.C. Cir. 1985). See also Petition of
Elizabethtown Water Co., 527 A.2d 354, 361 (N.J. 1987) (investor
confidence, utility credit rating, and integrity of service may
be affected); Michigan Bell Tel. Co. v. Michigan Pub. Serv.
Comm'n, 24 N.W.2d 200, 206 (Mich. 1946).
In brief, APUC may establish rates only after an
investigation and hearing. AS 42.05.431(a). This provision pro
vides notice to both the public and the utility, and helps ensure
that the ensuing rates are fair and just. Here, APUC adopted the
"interim rate" without first holding a hearing. Granted, the
interim rate was the same as the previous rate. Nevertheless,
the interim rate was subject to refund. As such, it represented
a change of rate. Therefore, under AS 42.05.371, APUC erred by
failing to hold a hearing before its 1986 adoption of the interim
refundable rate.
Review of the record persuades us that Far North,
however, waived this error by failing to raise it before the
APUC. See Tucker, 344 U.S. at 33. Had Far North brought this
error to APUC's attention, APUC could have taken steps to remedy
the error. Here, the only party harmed by the failure to hold a
hearing would be Far North. No member of the public has raised
an objection to failure to hold a hearing before issuing the
interim rate. Moreover, it was in Far North's interest to fail
to raise this error before the agency. By delaying assertion of
this error, Far North could possibly profit if this court
determined that the error was jurisdictional. A holding that the
APUC lacked jurisdiction to issue its 1986 interim order would
necessitate vacation of the interim order, making the interim
rates in question nonrefundable. This would reward Far North for
its failure to assert error.8 Thus, insofar as the error goes to
APUC's failure to hold a hearing before ordering the 1986 interim
refundable rate, we hold that the error is nonjurisdictional and
on the record has been waived by Far North.
Remaining for determination is the question whether
APUC has authority to declare a rate interim and refundable after
hearing. There is conflicting case law on this question.
Electrical Dist. No. 1, 774 F.2d at 492-93, for example, held
that the plain language of 16 U.S.C. 824e(a), requiring the
commission to fix rates which are to be observed thereafter,
mandated that the commission may only establish final rates.
We think the better view is that the APUC has implied
authority to set interim rates. See Pueblo Del Sol Water Co. v.
Arizona Corp. Comm'n, 772 P.2d 1138, 1140 (Ariz. App. 1988)
(although no express authority exists, it is only "logical"that
commission can impose interim rates subject to a decrease);
United Tel. Co. of Florida v. Mann, 403 So.2d 962 (Fla. 1981);
Grindstone Butte Mut. Canal Co. v. Idaho Power Co., 574 P.2d 902,
906 (Idaho 1978) (implied in an on-going investigation is the
power to set temporary rates); see also Potomac Elec. Power Co.
v. Public Serv. Comm'n of Dist. of Columbia, 457 A.2d 776, 780
n.1 (D.C. App. 1983) (Commission's power to grant interim rate
increases is "implied from Commission's specifically granted
statutory powers"). Alaska's statute mandates that the powers of
the APUC be liberally construed. AS 42.05.141(a)(1). Because
the APUC must first conduct an investigation and hold a hearing
pursuant to 42.05.431(a) before exercising its implied authority,
the utility will have an opportunity to be heard, and will know
the rate range and the amount at risk. This is consistent with
the policy reasons behind prohibiting retroactive ratemaking.9
Additionally, proper procedure will provide the utility with
sufficient prospective notice to enable it to plan for the
future.10 This is consistent with the policy reasons behind
prohibiting retroactive rate making.
In sum, we hold that the legislature intended to grant
the APUC broad powers to establish "fair and just" rates.
Implied within that broad grant of powers is the authority for
the APUC to declare a rate interim and refundable, so long as the
APUC provides protection for the interests of both the utility
and the public. Given that the APUC has the substantive power to
declare rates interim any error asserted by Far North in the
instant case is non-jurisdictional. Accordingly, we hold that
Far North waived any procedural objections it had to the
establishment of the 1986 interim rate by not raising such
objections before the APUC.
The decision of the superior court upholding APUC's
1986 interim refundable order is AFFIRMED.
_______________________________
1. It is undisputed that Far North's rates within Fairbanks
were always within the maximum limits established by the
Fairbanks City Council.
2. We reject Far North's argument that APUC waived this
argument by not filing a cross appeal. We may affirm the
superior court on any basis appearing in the record. Sea Lion
Corp. v. Air Logistics of Alaska, Inc., 787 P.2d 109, 116 (Alaska
1990). Accordingly, APUC's waiver argument could be raised in
its appellee brief.
3. APUC quotes from Alaska Pub. Util. Comm'n v. Greater
Anchorage Area Borough, 534 P.2d 549, 557 n.25 (Alaska 1975), to
the effect that interim rates are "final acts." There we were
referring to interim rates which were held confiscatory in
Prendergast v. New York Tel. Co., 262 U.S. 43, 49 (1923). As
those rates were not refundable, they were final for the period
in which they were in force. Also, that case discussed interim
rates in connection with a request for preliminary injunctive
relief. These factors differentiate Greater Anchorage Area
Borough from the case at bar.
4. Professor Davis has analyzed court holdings that dealt
with assertions that an administrative agency lacks jurisdiction.
K. Davis, supra, 26:4 at 425-31. He states that "Supreme Court
cases throughout the twentieth century have gone both ways on the
question." Id., 26:5 at 431. He has proposed that courts
consider three factors when determining a question of agency
jurisdiction: "extent of injury from pursuit of administrative
remedy, degree of apparent clarity or doubt about administrative
jurisdiction, and involvement of specialized administrative
understanding in the question of jurisdiction." Id. at 432.
Here, the first of Davis's factors does not apply because this is
not a case of failure to exhaust administrative remedies. The
second factor, clarity of lack of jurisdiction cuts both ways.
It is clear that APUC has jurisdiction to set rates. Therefore,
APUC has subject matter jurisdiction here. However, it is not
clear that APUC was given statutory authorization to set interim
rates. To that extent, we must analyze Far North's claim to
determine whether it is jurisdictional. The third factor, extent
of specialized agency understanding, is not applicable here as
the validity of the interim rate in question is a matter of
statutory interpretation.
5. A party cannot, by waiver, endow an administrative
agency with powers beyond those which are authorized by
legislative grant. Therefore, we must review Far North's claim
to the extent that it requires an analysis of APUC's statutory
authority. However, following Tucker, 344 U.S. at 37, we caution
that any procedural errors which Far North could have raised at
hearing will be considered waived.
In Tucker, the administrative hearing concededly did
not conform to the requirement of the federal Administrative
Procedure Act. The United States Supreme Court held that this
"was an irregularity which would invalidate a resulting order if
the Commission had overruled an appropriate objection made during
the hearings. But it is not one which deprives the Commission of
power or jurisdiction . . . ." 344 U.S. at 38. Similarly, other
courts which have considered challenges to an agency's authority
have not automatically concluded that the challenge was
jurisdictional. See e.g., Inter-Tribal Council of Nevada v.
United States Dep't of Labor, 701 F.2d 770, 771 (9th Cir. 1983)
(issue of Secretary of Labor's authority to recoup misspent funds
"does not go to the jurisdiction of the agency"and "is not a
case where the agency was without power to adjudicate"so it was
waived when not raised before the agency); Calixto v. Industrial
Comm'n, 616 P.2d 75, 77 (Ariz. App. 1980) (alleged noncompliance
with statute does not "constitute jurisdictional defects
affecting the Commission's power to adjudicate"); Campbell v. Key
Millwork & Cabinet Co., 778 P.2d 731, 734 (Idaho 1989) (claim
that agency exceeded its statutory authority by reconsidering its
decision will not be heard on appeal when not raised at agency
hearing); Hay v. Motor Vehicles Div., 713 P.2d 641, 642 (Or. App.
1986) (claim that agency violated statutory procedures by failing
to give adequate notice will not be heard on appeal when not
raised before agency).
6. We exercise our independent judgment on this issue
concerning the scope of an agency's authority since it involves
statutory interpretation, or analysis of legal relationships,
about which courts have specialized knowledge and expertise. See
Kelly v. Zamarello, 486 P.2d 906, 916 (Alaska 1971); see also
Tesoro Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896,
903 (Alaska 1987). We give no deference to the superior court's
decision when it acts as an intermediate court of appeals.
Instead, we independently review the administrative agency's
decision. Thorne v. Department of Public Safety, 774 P.2d 1326,
1329 (Alaska 1989); Tesoro, 746 P.2d at 903.
7. We reject Far North's argument that their due process
rights are implicated by a rate which is made prospectively
refundable. See Great Northern RR v. Sunburst Oil & Ref. Co.,
287 U.S. 358, 363 (1932).
8. We do not intend to intimate that Far North was
intentionally dilatory. Rather, we reiterate that our conclusion
that Far North's failure to object or raise the point before the
APUC constitutes waiver, because any other result would
inevitably create an incentive for dilatory failure to assert
error.
9. While APUC argues that Far North delayed the
Commission's hearing for its own economic self-interest, we note
that the APUC allowed Far North to use 1986 as a test year and
granted Far North's motion to continue the hearing. As the
Commission admits, "the Commission granted Far North every
reasonable accommodation during the course of its proceedings."
Moreover, we note 3 AAC 48.155(b) and (c) provides sufficient
authority to the APUC to set a timetable in a rate case and hold
the utility to it.
10. While we have concluded that the APUC has the implied
authority to set interim rates in the circumstance where the
utility has charged too high a price for its services, our
disposition in the instant case turns upon a waiver analysis.
Thus, because Far North has waived any assertions of procedural
error, we do not address whether this specific instance of
ordering an interim refundable rate comports with appropriate
procedures.
Nevertheless, we note that in order to survive review,
future determinations by APUC of interim rates not controlled by
AS 42.05.421(c) should be reached after according appropriate pro
cedural protections to the utility. Pursuant to AS 42.05.151(b),
the APUC should adopt regulations which set the procedures for
determining when an existing rate should be made interim, in the
circumstance where AS 42.05.421 does not apply. Consistent with
the prospective language of AS 42.05.431(a), such regulations
should require APUC to indicate to the utility a minimum and
maximum rate, from which the ultimate rate will be set. This
affords the utility notice of its maximum potential liability.
Given that the interim rate cannot be fixed until after hearing,
the agency will have sufficient data to make this determination.
See United Tel. Co. of Florida v. Mann, 403 So.2d 962, 967 (Fla.
1981). Additionally, APUC should consider including in its
regulations provisions for redistribution of excess funds. See
AS 42.05.421(c).
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