ÿWPC¶ …# VU:a %› 0(¡b ÉwÕ 0lå 0DQ 0J• ß 4ç 0Tû O 0^^ 0h¼ 0r$ 0|– 0† 0˜ 1u( U, 0dÉ U,-U *YB)ƒDC¬ AMï B<YŸhƒÃŠ D3Mv~€vÓþ 0@Ñ AOÆ` 0D& D/j B™˜HP LaserJet 4Si/4SiMX PS 600dpiPSCRIPTÀÌÀääÀÀÌ0 ,†r‰AZ‹"Arial RegularX($¡¡- ù -Ó€ ((3üÝ$¤¤Ý ƒ!ÝÝ  Ýà  àòòÚ  Ú0Ú  Úóó(#Ã$òòÚ  Ú0Ú  Úóó2 ÿÿ0Indent1Ô2ÔÔ3  ÔR#DÒ Ôô‚ÿÿÿÿ2" ÿÿ0Indent2à0 àÔ2ÔÔ3  Ô3|x 2, ÿÿ0Indent3à0 àà0 àÔ2ÔÔ3  Ô26 ÿÿ0Indent4à0 àà0 àà0 àÔ2ÔÔ3  Ô2@ ÿÿ0Indent5à0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2J ÿÿ0Indent6à0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2T ÿÿ0Indent7à0 àà0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2^ ÿÿ0Indent8à0 àà0 àà0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô  ÿÿ?AGMSYaioIndent0I.A.1.a.(1)(a)i)a)< Œ 9p`(ModernP ÿÿ8Mac DefaultMac DefaultÓ ` °šXÓ< Œ 9p`(Monaco< Œ 9p`(Arial% Line 7 d""""7Border 1dd€-#Cþÿ << Gÿÿ d Ý ƒ!ÝÑ  ÑÑ#€d#ÑÔ€ÔÔ€!ÔÝ  ÝÔ€!ÔÓ  Óò òÔ YYY ÔFILEDÔ€!XÔÌÌAugust€28,€1996ÌÌCecil€W.€CrowsonÌAppellate€Court€ClerkÔ  Ôó ó •Ý ƒ!ÝÑ#€d#ÑÔ€ÔÔ€!ÔÝ  ÝÒ € ÒÒ „ ÒÔ€!ôÔÓ  Óà àòòÚ  ÚÚ  ÚóóWe€should€point€out€that€the€Public€Service€Commission€was€abolished€by€the€legislatureÏand€replaced€by€an€appointed€body,€the€Tennessee€Regulatory€Authority.€€See€Acts€1995,€ch.€305Ï(effective€July€1,€1996).Ì yÝ ƒ!ÝÑ#€d#ÑÔ€ÔÔ€!ÔÝ  ÝÒ € ÒÒ „ ÒÓ  ÓÔ€!ôÔà àòòÚ  ÚÚ  ÚóóThe€investigation,€or€ratemaking€proceeding,€would€then€be€conducted€according€to€theÏcontested€case€provisions€of€the€Administrative€Procedures€Act.€€Tenn.€Code€Ann.€ðð€4„5„301.Ì ¹Ý ƒ!ÝÑ#€d#ÑÔ€ÔÔ€!ÔÝ  ÝÒ € ÒÒ „ ÒÔ€!ôÔÓ  Óà àòòÚ  ÚÚ  ÚóóWe€should€note€also€that€the€Commission€has€the€authority€at€any€time€to€investigate€anyÏpublic€utilityððs€earnings,€Tenn.€Code€Ann.€ðð€65„5„201,€and€the€Consumer€Advocate€may€requestÏsuch€an€investigation.€€€Tenn.€Code€Ann.€ðð€47„18„114.Ì%%%%'ÿÿdxdPtPtHHÚ(ÿáÿâùFG(üHHÚ(d'@Styl{WP}01•ÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃà Ãà Ãà Ãà Ãà ÃÃÃÃÃÃÃÃÃÃÃÐ ÐÐHHÐÐ  ÐÐ2ÐÐÿÿ¸æ$ÿÐÐHHÐÐÐÐÐÐÐÐ  ÐÐ ÐÐ ÐÑÑÑGenevaÑÑ ÑÑ € ÑÑ<Px–ÈÑÒÒÒ443!#4ÒÒ$ *$ÒÒ$*$ÒÒ ÿKK ÒÒ  Geneva ÒÒ  Geneva ÒÓ.,ÓÓÓÓ6ÓÓ ÓßßßßßßßßßßßßßßßßßßÑMonacoÑÑ ÑÒ  BA Op Monaco ÒÒ  BA Op Monaco Ò("ÿÿ$££Ò  ÒÒ  Ò€-‚ƒCþÿ<< CÿÿƒLevel 1Level 2Level 3Level 4Level 5($$””ò òÚ  Ú1Ú  Úó ó„„'÷ÿ dxdüÿP PdÝ ƒ!ÝÔ . ÔÔ€ÔÓ&€  X„d&ÓÑ#€  Xd#ÑÔ€!ÔÝ  ÝÑ  ÑÒ € ÒÒ ° ÒÒ € ÒÒ „ ÒÑ\R AØ'\ÑÑ\R AØ'\ÑÑ€ÑÑ7€ÇÞXXdædÈ7ÑÑ  ÑÑ  ÑÔ% € ÔCONSUMER€ADVOCATE€DIVISION,à à)ÌOffice€of€the€Attorney€Generalà àà à)ÌState€of€Tennessee,à àà àà à)Ìà àà àà àà àà àà à)Ìà àPetitioner/Appellant,à àà à)à àAppeal€No.Ìà àà àà àà àà àà à)à à01„A„01„9601„BC„00049ÌVS.à àà àà àà àà àà à)Ìà àà àà àà àà àà à)à àPublic€Service€CommissionÌÙ€€ÙÙ€€ÙßL€$&#;+'h|¢‡` ç `€€LßKEITH€BISSELL,€CHAIRMAN;à àà à)à àNo.€94„04283ÌSTEVE€HEWLETT,€COMMISSIONER;à à)ÌSARA€KYLE,€COMMISSIONER;à àà à)ÌConstituting€the€Tennessee€Publicà à)ÌService€Commission,à àà àà à)Ìà àà àà àà àà àà à)Ìà àRespondents/Appellees.à àà à)ÌÌÌà@ àCOURT€OF€APPEALS€OF€TENNESSEEÌà@ àMIDDLE€SECTION€AT€NASHVILLEÌÌà@ àAPPEALED€FROM€THE€PUBLIC€SERVICE€COMMISSIONÌà@ àAT€NASHVILLE,€TENNESSEEÌÌÌòòÌFOR€PETITIONER/APPELLANT:à àà àFOR€RESPONDENTS/APPELLEESóó:ÌÌCHARLES€W.€BURSONà àà àà àH.€EDWARD€PHILLIPS,€IIIÌAttorney€General€&€Reporterà àà àTennessee€Public€Service€CommissionÌà àà àà àà àà àà à460€James€Robertson€ParkwayÌMICHAEL€E.€MOOREà àà àà àNashville,€Tennessee€37243„0500ÌSolicitor€GeneralÌà àà àà àà àà àà àòòFOR€KINGSPORT€POWER€COMPANY:óóÌDAVID€W.€YATESà àà àà àà àWILLIAM€C.€BOVENDERÌAssociate€Consumer€Advocateà àà àT.€ARTHUR€SCOTTÌ404€James€Robertson€Parkwayà àà àP.€O.€Box€3740ÌNashville,€Tennessee€37243„0500à àKingsport,€Tennessee€37664Ìà àÌà àà àà àà àà àà àJAMES€R.€BACHAÌà àà àà àà àà àà àOne€Riverside€PlazaÌà àà àà àà àà àà àColumbus,€Ohio€43215ÌÌÌÌà@ àAFFIRMED€AND€REMANDEDÌÌà àÌÌà àà àà àà àà àà àà àà àBEN€H.€CANTRELL,€JUDGEÌÌÌCONCUR:ÌLEWIS,€J.ÌKOCH,€J.ÌÇÓÓÓ  Óà@ àò òòòÔ€!„ÔO€P€I€N€I€O€Nó óóóÔ€!XÔÌÌà àà àThe€only€question€in€this€case€is€whether€the€Public€ServiceÏCommission€exceeded€its€authority€by€approving€a€tariff€which€allows€KingsportÏPower€Company€to€pass€its€purchased€power€costs€along€to€its€customers€withoutÏgoing€through€a€ratemaking€proceeding.€€We€affirm€the€action€of€the€PublicÏService€Commission.ÌÌà@ àò òI.ó óÌÌà àà àKingsport€Power€Company€(KPC)€furnishes€electric€power€to€retailÏcustomers€in€upper€East€Tennessee.€€It€buys€its€electricity€from€an€affiliatedÏcompany,€Appalachian€Power€Company.€€Both€companies€are€wholly€owned€byÏAmerican€Electric€Power€(AEP).ÌÌà àà àThe€price€KPC€pays€Appalachian€for€electric€power€is€regulated€byÏthe€Federal€Energy€Regulatory€Commission€(FERC),€and€state€regulatoryÏcommissions€must€accept€the€FERC„approved€rates€as€reasonable.€€òòNantahalaÏPower€&€Light€v.€Thornburgóó,€476€U.S.€953,€90€L.Ed.2d€943,€106€S.Ct.€2349Ï(1986).€€Under€the€FERC€rules,€however,€Appalachian€may€put€its€increased€ratesÏinto€effect€while€FERC€conducts€its€investigation.€€If€upon€concluding€itsÍinvestigation,€FERC€decides€that€the€rate€increase€was€not€justified,€AppalachianÏis€required€to€refund€the€amount€of€the€increase€to€KPC,€with€interest.ÌÌà àà àHistorically,€when€Appalachian€increased€its€rates€to€KPC,€KPCÏwould€file€an€application€with€the€Tennessee€Public€Service€Commission€(PSC)Ïfor€an€increase€in€its€retail€rates€to€its€customers.€€The€PSC€would€then€conduct€aÏratemaking€proceeding€under€Tenn.€Code€Ann.€ðð€65„5„203.ÌÌà àà àIn€1992€the€Commission€suggested€that€its€staff€and€KPC€work€out€aÏrule€or€a€tariff€that€would€allow€the€increased€power€costs€to€be€passed€along€toÏKPCððs€customers€without€going€through€a€formal€ratemaking€proceeding.€€OnÏNovember€14,€1994,€KPC€petitioned€the€PSC€to€implement€a€tariff€called€aÏpurchased€power€adjustment€rider.€€After€several€skirmishes€with€the€ConsumerÏAdvocate€Division€of€the€Attorney€Generalððs€Office€and€with€the€Kingsport€PowerÏUsers€Association,€the€Commission€entered€a€final€order€on€November€30,€1995Ïapproving€the€tariff.€€As€we€have€noted,€the€tariff€allows€KPC€to€raise€its€rates€by€aÏformula€in€the€tariff€to€pass€the€increased€cost€of€power€along€to€its€customers.€€InÏthe€event€KPC€receives€a€refund€after€a€final€order€from€FERC,€KPC€is€required€toÏpass€the€refund€along€to€its€customers€as€well.ÌÌà@ àò òII.ó óÌà@ àò òRatemaking€In€GeneralÌó óÌà àà àA€public€utility€has€the€authority€to€set€its€own€rates€„„€subject€toÏbeing€regulated€by€the€legislature€or€by€a€body€delegated€the€legislative€power.€ÏòòSeeóó€64€Am.€Jur.€2d€òòPublic€Utilitiesóó€ðð€81;€133;€240:ÌÒ 0 ÒÒ „ ÒÒ 0 ÒÒ  ÒÓÓUntil€the€legislature€or€other€body€having€the€right€toÏprescribe€the€rates€to€be€charged€by€public€utilities€hasÏexercised€this€power,€the€rates€are€the€subject€of€contractÏbetween€the€corporation€and€its€patrons€.€.€.€.€ÌÌÒ € ÒÒ  ÒÒ € ÒÒ „ ÒÓÓòòId.óó€ðð€81.ÌÌà àà àThe€legislative€control€over€public€utility€rates€at€the€time€thisÏcontroversy€arose€was€expressed€in€Part€2€of€Title€65€Chapter€5€of€the€TennesseeÏCode.× ƒ' ××  ×€€The€first€section€of€that€chapter€provided:ÌÒ 0 ÒÒ „ ÒÒ 0 ÒÒ  ÒÓÓThe€commission€has€the€power€after€hearing€upon€notice,Ïby€order€in€writing,€to€fix€just€and€reasonable€individualÏrates,€joint€rates,€tolls,€fares,€charges€or€schedules€thereof,Ïas€well€as€commutation,€mileage,€and€other€special€ratesÏwhich€shall€be€imposed,€observed,€and€followed€thereafterÏby€any€public€utility€as€defined€in€ðð€65„4„101,€wheneverÏthe€commission€shall€determine€any€existing€individualÏrate,€joint€rate,€toll,€fare,€charge,€or€schedule€thereof€orÏcommutation,€mileage,€or€other€special€rates€to€be€unjust,Ïunreasonable,€excessive,€insufficient,€or€unjustlyÏdiscriminatory€or€preferential,€howsoever€the€same€mayÏhave€heretofore€been€fixed€or€established€.€.€.€.ÌÌÒ € ÒÒ  ÒÓÓTenn.€Code€Ann.€ðð€65„5„201.Ìà àà àThat€chapter€also€provided:ÌÒ 0 ÒÒ  ÒÓÓà à(a)€€€When€any€public€utility€shall€increase€anyÏexisting€individual€rates,€joint€rates,€tolls,€fares,€charges,€orÏschedules€thereof,€or€change€or€alter€any€existingÏclassification,€the€commission€shall€have€power€eitherÏupon€written€complaint,€or€upon€its€own€initiative,€to€hearÏand€determine€whether€the€increase,€change€or€alterationÏis€just€and€reasonable.€€The€burden€of€proof€to€show€thatÏthe€increase,€change,€or€alteration€is€just€and€reasonableÏshall€be€upon€the€public€utility€making€the€same.€€InÏdetermining€whether€such€increase,€change€or€alterationÏis€just€and€reasonable,€the€commission€shall€take€intoÏaccount€the€safety,€adequacy€and€efficiency€or€lack€thereofÏof€the€service€or€services€furnished€by€the€public€utility.€ÏThe€commission€shall€have€authority€pending€suchÏhearing€and€determination€to€order€the€suspension,€notÏexceeding€three€(3)€months€from€the€date€of€the€increase,Ïchange,€or€alteration€until€the€commission€shall€haveÏapproved€the€increase,€change,€or€alteration;€provided,Ïthat€if€the€investigation€cannot€be€completed€within€threeÏ(3)€months,€the€commission€shall€have€authority€to€extendÏthe€period€of€suspension€for€such€further€period€as€willÏreasonably€enable€it€to€complete€its€investigation€of€anyÏsuch€increase,€change€or€alteration;€and€provided€further,Ïthat€the€commission€shall€give€the€investigationÏpreference€over€other€matters€pending€before€it€and€shallÏdecide€the€matter€as€speedily€as€possible,€and€in€anyÏevent€not€later€than€nine€(9)€months€after€the€filing€of€theÏincrease,€change€or€alteration.€€It€shall€be€the€duty€of€theÏcommission€to€approve€any€such€increase,€change€orÏalteration€upon€being€satisfied€after€full€hearing€that€theÏsame€is€just€and€reasonable.ÌÌà à(b)(1)à à€If€the€investigation€has€not€been€concludedÏand€a€final€order€made€at€the€expiration€of€six€(6)€monthsÏfrom€the€date€filed€of€any€such€increase,€change€orÏalteration,€the€utility€may€place€the€proposed€increase,Ïchange€or€alteration,€or€any€portion€thereof,€in€effect€at€anyÏtime€thereafter€prior€to€the€final€commission€decisionÏthereon€upon€notifying€the€commission,€in€writing,€of€itsÍintention€so€to€do;€provided,€that€the€commission€mayÏrequire€the€utility€to€file€with€the€commission€a€bond€in€anÏamount€equal€to€the€proposed€annual€increaseÏconditioned€upon€making€any€refund€ordered€by€theÏcommission€as€hereinafter€provided.ÌÌÒ 0 ÒÒ „ ÒÒ € ÒÒ „ ÒTenn.€Code€Ann.€ðð€65„5„203(a)(b)(1).ÌÌÌÌÓÓà àà àThus€the€legislature€has€recognized€that€a€public€utility€may€set€itsÏown€rates,€subject€to€the€PSCððs€power€to€suspend€the€rates€for€a€certain€period€ofÏtime€while€it€makes€the€utility€prove€that€the€rates€are€just€and€reasonable.€ÏòòCumberland€Tel.€&€Tel.€Co.€v.€Railroad€and€Public€Utilities€Commissionóó,€287€F.Ï406€(M.D.€Tenn.€1921).€€If€the€utility€fails€to€carry€that€burden,€the€agency€has€theÏadditional€authority€to€fix€rates€that€meet€the€just€and€reasonable€criteria.€€òòCFÏIndustries€v.€Tennessee€Public€Service€Commissionóó,€599€S.W.2d€536€(Tenn.Ï1980).ÌÌà àà àUnder€these€statutes€the€rates€charged€by€a€public€utility€are€notÏalways€the€product€of€a€ratemaking€proceeding€in€the€Commission.€€New€tariffsÏautomatically€become€effective€unless€the€Commission€elects€to€suspend€themÏwhile€conducting€an€investigation.× ƒ( ××  ×€€Therefore,€there€is€nothing€inherently€wrongÍin€KPCððs€power€costs€being€passed€along€to€its€customers€without€a€ratemakingÏproceeding€in€the€Commission.× ƒ) ××  ×ÌÌà@ àò òIII.ó óÌà@ àò òRetroactive€Ratemakingó óÌÌà àà àThe€Consumer€Advocate€argues,€however,€that€the€CommissionððsÏorder€is€illegal€because€it€amounts€to€retroactive€ratemaking.€€This€conclusion€isÏdrawn€from€the€fact€that€if€FERC€later€finds€that€the€increase€it€allowedÏAppalachian€was€unjustified,€Appalachian€must€refund€any€overpayment€to€KPCÏand€the€tariff€requires€KPC€to€pass€the€refund€along€to€its€customers.ÌÌà àà àThis€court€has€consistently€held€that€the€Commission€does€not€haveÏthe€authority€to€approve€temporary€or€tentative€rates€subject€to€refund.€€In€òòSouthÏCentral€Bell€v.€Tennessee€Public€Service€Commissionóó,€675€S.W.2d€718€(Tenn.ÏApp.€1984)€€we€said€that€the€Commissionððs€power€to€order€refunds€was€limited€toÏthat€expressly€stated€in€Tenn.€Code€Ann.€ðð€65„5„203.€€(The€conditions€describedÏin€that€section€are€not€involved€here.)ÌÌà àà àWe€are€of€the€opinion,€however,€that€under€the€circumstances€of€thisÏcase,€the€PSC€had€the€power€to€approve€a€tariff€with€a€contingent€refundÏprovision.€€The€tariff€allows€KPC€to€pass€its€increased€power€costs€along€to€itsÏcustomers,€but€it€also€requires€KPC€to€give€back€to€its€customers€that€part€of€theÏincrease€(if€any)€that€is€refunded€by€Appalachian€to€KPC.€€If€our€analysis€in€Part€IIÏof€this€opinion€is€correct,€the€only€offending€part€of€the€tariff€is€the€refund€provision.€ÏOtherwise,€the€tariff€operates€prospectively€and€comes€within€the€powers€grantedÏthe€PSC€by€the€legislature.€ÌÌà àà àBut,€what€makes€this€case€different€from€òòSouth€Central€Bell€v.ÏTennessee€Public€Service€Commission,óó€supra,€is€that€the€refund€in€thisÏproceeding€is€merely€the€third€step€in€a€larger€proceeding,€the€first€two€steps€ofÏwhich€are€governed€by€federal€law.€€First,€the€PSC€must€accept€the€FERC„regulated€cost€of€KPCððs€power€purchased€from€Appalachian.€€Then,€AppalachianÏmust€refund€to€KPC€that€part€of€the€cost€found€by€FERC€to€be€unreasonable€after€itÏconcludes€its€investigation.€€The€third€step,€the€refund€included€in€KPCððs€tariff,€isÏnecessary€to€complete€the€obvious€intent€of€the€federal€scheme€to€return€theÏrefund€to€the€class€that€ultimately€has€had€to€pay€it.€€If€we€struck€the€refundÏprovision€in€the€tariff,€KPC€would€receive€the€refund€and€keep€it.ÌÌà àà àWe€should€note,€also,€that€the€problem€would€be€no€different€if€KPCÏwere€required€to€go€through€a€ratemaking€proceeding€before€beginning€to€collectÍits€increased€power€costs.€€The€question€of€what€could€be€done€with€a€refundÏreceived€by€KPC€after€the€new€rates€had€gone€into€effect€would€still€have€to€beÏanswered.€€Because€a€refund€order€by€the€PSC€would€amount€to€retroactiveÏratemaking,€KPC€could€not€be€forced€to€account€for€the€refund€to€its€customers.ÌÌà àà àà@ àò òIV.ó óÌà@ àò òDue€Processó óÌÌà àà àThe€Consumer€Advocate€also€argues€that€the€tariff€violates€theÏratepayersðð€right€to€due€process.€€This€argument€is€based€on€the€part€of€Tenn.ÏCode€Ann.€ðð€65„5„201€that€says€ð ðthe€Commission€has€the€power€after€hearingÏupon€noticeðð€to€fix€just€and€reasonable€rates.€€We€think,€however,€that€the€noticeÏrequired€by€that€section€is€notice€to€the€utility.€€When€the€PSC€exercises€itsÏstatutory€authority€to€modify€the€utilityððs€posted€rates€the€utility€is€entitled€to€theÏstatutory€notice€and€hearing.ÌÒ 0 ÒÒ „ ÒÒ 0 ÒÒ  ÒÓÓWhether€notice€and€a€hearing€in€proceedings€before€aÏpublic€service€commission€are€necessary€depends€chieflyÏupon€the€statutory€or€constitutional€provisions€applicableÏto€such€proceedings,€which€may€make€notice€and€hearingÏprerequisite€to€action€by€the€commission,€and€upon€theÏnature€and€object€of€such€proceedings,€that€is,€whether€theÏproceedings€are,€on€the€one€hand,€legislative€and€rule„making€in€character,€or€are,€on€the€other€hand,Ïdeterminative€and€judicial€or€quasi„judicial,€affecting€theÏrights€and€property€of€private€or€specific€persons.ÌÌÒ € ÒÒ  ÒÒ € ÒÒ „ ÒÓÓ64€Am.€Jur.€2d€òòPublic€Utilitiesóó€ðð€266.ÌÌà àà àRatemaking€is€a€legislative€function.€€òòSeeóó€64€Am.€Jur.€2d€òòPublicÏUtilitiesóó€ðð€240.€€It€is€not€an€adjudicatory€proceeding€affecting€the€vested€propertyÏrights€of€the€individual€ratepayers.€€òòHatten€v.€City€of€Houstonóó,€373€S.W.2d€525Ï(Tex.€App.€1963).€òò(See€also€Cope€v.€Bethlehem€Housing€Authorityóó,€514€A.2d€295Ï(Pa.€1986)€on€the€general€question€of€what€process€is€due€when€an€agency€dealsÏwith€non„vested€rights).€€Therefore,€since€it€is€a€legislative€function,€a€change€inÏrates€by€the€PSC€does€not€require€notice€to€the€individual€ratepayers.€€ÌÌà àà àWe€hold€that€the€tariff€does€not€violate€the€due€process€rights€of€theÏrate„payers€because€it€raises€or€lowers€their€rates€without€a€hearing.ÌÌà àà àThe€order€of€the€Commission€is€affirmed€and€the€cause€is€remandedÏfor€any€further€proceedings€that€may€become€necessary.€€Tax€the€costs€on€appealÏto€the€State.ÌÓÓÌÌÌÌà àà àà àà àà àà à________________________________Ìà àà àà àà àà àà àBEN€H.€CANTRELL,€JUDGEÌÌÌÌCONCUR:ÌÌÌÌÌ_______________________________ÌSAMUEL€L.€LEWIS,€JUDGEÌÌÌÌÌ_______________________________ÌWILLIAM€C.€KOCH,€JR.,€JUDGEÌÌÇÑ  Ñ