WOLLHEIM, P.J.
Pursuant to ORS 756.610(1), petitioners Utility Reform Project and Ken Lewis (collectively referred to as URP) seek judicial review of an order of the Public Utility Commission (PUC) denying URP's request under ORS 757.259 to direct respondent Portland General Electric (PGE) to amortize certain deferred amounts into future rates. URP asserts that legislation passed in 2005 required the PUC to order PGE to refund amounts over-collected from ratepayers for taxes from October 5, 2005 to December 31, 2005, and that, in denying its request for amortization of the excess taxes collected, the PUC acted outside the range of its discretion and in violation of the law. We review the PUC's order pursuant to ORS 183.482(8); ORS 756.610(1), and affirm.
This case involves the utility rate treatment of federal and state taxes by PGE and the PUC for the period October 5, 2005 through December 31, 2005, in light of Senate Bill (SB) 408 (2005), enacted as Oregon Laws 2005, chapter 845, sections 2 to 5. In Industrial Customers of Northwest Utilities v. PUC, 240 Or.App. 147, 246 P.3d 1151 (2010), we summarized that legislation. As we explained, a public utility is allowed to build into its rates the amount that the utility expects to pay in income taxes. Id. at 150, 246 P.3d 1151. Before the enactment of SB 408, the PUC permitted a utility to charge ratepayers for "taxes that assume the utility is not part of an affiliate group of corporations for tax purpose." Former ORS 757.267(1)(c). As a practical matter, however, utilities were filing their taxes as part of an affiliated group, whereby losses from within the affiliated group had the potential to reduce or eliminate the utility's tax liability.
Section 2 of SB 408, enacted as former ORS 757.267,
Section 5 of SB 408 amended ORS 757.210(1), relating to hearings to establish new rates or rate schedules. Formerly, ORS 757.210(1) provided that the PUC shall "conduct a hearing to determine the propriety and reasonableness of such rate or schedule." Effective on the bill's passage, the statute provides that the PUC shall conduct a hearing to determine "whether the rate or schedule is fair, just and reasonable." Or. Laws 2005, ch. 845, § 5. The amendment also added to ORS 757.210(1) the statement that "[t]he commission may not authorize a rate or schedule of rates that is not fair, just and reasonable." Id. Section 3 of SB 408, enacted as former ORS 757.268(1),
Although SB 408 itself was effective on its passage date of September 2, 2005, Or. Laws 2005, ch. 845, § 6, the automatic adjustment provision applied only to taxes paid to units of government and collected from ratepayers on or after January 1, 2006. Or. Laws 2005, ch. 845, § 4(2). Thus, the automatic adjustment provision did not assist URP in its quest to recover taxes collected from ratepayers by PGE but not paid to a government entity during the period of October 5, 2005 through December 31, 2005.
Under ORS 757.259, in exceptional circumstances, the PUC has authority to permit the retroactive adjustment of rates through "deferral" of costs or revenues for later incorporation in rates:
Under the limited circumstances listed in ORS 757.259, the PUC may exercise its discretion to defer expenses or revenues to a subsequent rate or rate schedule.
In the exercise of its discretion to defer and amortize an expense or revenue, the PUC must hold a hearing under ORS 757.210, relating to hearings to establish new rates or rate schedules. Because the automatic adjustment clause provision of SB 408 was not applicable to the period for which URP sought relief, URP sought relief under ORS 757.259, by requesting a deferral of amounts collected from ratepayers from October 5, 2005 through December 31, 2005, for taxes during that period that were not paid to units of government. URP sought the deferral so that the amounts could then be refunded through amortization in future rates.
Although the PUC determined that URP's deferral application was "procedurally insufficient," for the sake of administrative efficiency, the PUC decided to construe URP's application liberally to assert a request for deferral. After considering the legislature's policy statement in former ORS 757.267(1)(f), as well as the statement in ORS 757.210 that "[t]he commission may not authorize a rate or schedule of rates that is not fair, just and reasonable," the PUC was persuaded that setting up a deferral account was an appropriate mechanism for treatment of taxes to be collected from ratepayers but unpaid by PGE during the "pre-adjustment clause period" — after the passage of SB 408 but before implementation of the statute's automatic adjustment clause provision. Concluding that the impact of the passage of SB 408 was "sufficient to warrant an exercise" of discretion and that the requested deferral "will appropriately match ratepayer costs and benefits pursuant to ORS 757.259(2)(e)," in Order No. 07-351, the PUC exercised its discretion under ORS 757.259 to order that PGE give deferred accounting treatment to revenue of $26.5 million, with interest, attributable to PGE's liabilities for federal and state income tax for which ratepayers were to be charged for the period beginning October 5, 2005 (the date petitioners filed their application for deferral) and ending December 31, 2005, but that PGE had not paid, as calculated using the methodology of SB 408. The PUC noted that the impact of the deferral on PGE's earnings "will be reviewed at the time we consider amortization of the deferral. ORS 757.259(5)." The PUC directed PGE to file an "earnings test" by December 1, 2007.
Indeed, the PUC did subsequently consider the impact of the deferral on PGE's earnings. On January 11, 2008, URP requested that the PUC order PGE to amortize the amount in the deferred account, as authorized by ORS 757.259(5). In a further proceeding,
The PUC agreed with PGE, concluding that a review of PGE's earnings during the deferral period of October 5, 2005 through December 31, 2005, showed that PGE's return on equity was significantly lower than authorized by the PUC, that an amortization of the deferred amount would result in a return on equity below a reasonable range, and that PGE needed to retain the deferred revenues in order for PGE's return to not fall further outside the range of reasonableness. The PUC therefore denied URP's request to amortize the deferral amount. The PUC's Order No. 09-316, denying URP's request to amortize the deferred amount, is the subject of this judicial review.
In a single assignment of error, URP asserts for multiple reasons that the PUC erred in declining to return to ratepayers the deferred amount via amortization in subsequent rates. As best we can determine, URP's arguments distill down to four main assertions, and we consider most of them in turn:
(1) In determining whether to amortize the deferred amount, the PUC erred in considering PGE's earnings, because there is no statutory basis for consideration of a utility's earnings, and doing so results in a violation of the rule against retroactive rulemaking. URP's contention boils down to this: Although the PUC agreed with URP that during the last three months of 2005 PGE had charged ratepayers $26.5 million for income taxes not actually paid, the PUC allowed PGE to keep that money, using the excuse that during the period October 2005 to September 2006, PGE did not earn its authorized level of profits. URP contends that PGE's earnings during that time are irrelevant to the unlawfulness of the rates charged during that same period and cannot relieve PGE of the obligation to return the unlawfully charged amounts to ratepayers with interest. URP contends that the PUC's order violates the rule against retroactive rulemaking (which prohibits applying past profits or losses in determining future rates unless the legislature authorizes otherwise) because it allows PGE to offset the deferred amount unlawfully collected against past losses (or under-earnings) that have not been and could never be deferred.
We readily reject URP's argument. Contrary to URP's contention, ORS 757.259(5) expressly provides for consideration of a utility's earnings in making the determination whether to amortize the amount deferred. That subsection states that,
(Emphasis added.) That subsection required the PUC to consider PGE's earnings in determining whether to amortize the deferred amount. In considering PGE's earnings, the PUC is to take them into account in determining, in its discretion, if the deferred account should be amortized into future rates. If, as URP contends, the effect of that provision is to authorize retroactive ratemaking, then it should be viewed as an exception that the legislature itself has mandated.
(2) If PGE's earnings are lawfully to be considered, then the PUC considered the incorrect earnings period. This contention is more nuanced and presents a question of statutory construction. As noted, ORS 757.259(5) provides that the PUC may allow deferred amounts in rates only "upon review of the utility's earnings at the time of application to amortize the deferral." OAR 860-027-0300(9) provides in turn that upon request
If, as the PUC held, PGE's earnings are to be considered, URP questions the PUC's decision to consider URP's earnings during a 12-month period beginning October 1, 2005, and ending September 30, 2006, rather than its earnings beginning at the time of the request for amortization and during the most recent period for which earnings data is available. In URP's view, the text and context of ORS 757.259 show that the legislature's concern in requiring the PUC to examine the utility's earnings was the impact of amortizing the deferral on rates of the utility at the time of the amortization, and not on whether the utility was sufficiently profitable during the period when the deferred amount was originally accruing. To the extent that OAR 860-027-0300(9) requires consideration of a different period by requiring review of earnings during the deferral period but not necessarily the time of the request for amortization, URP contends, the administrative rule is inconsistent with the statute.
URP's interpretation that the "earnings review" applied by the PUC must include the time of amortization is certainly a plausible one under the statute's text. As URP notes, under the principle of the "last antecedent," where no contrary intention appears, referential and qualifying words and phrases refer solely to the last antecedent, i.e., the last word, phrase, or clause that can be made an antecedent without impairing the meaning of the sentence. See State v. Webb, 324 Or. 380, 386, 927 P.2d 79 (1996) (describing principle). In applying the rule of the last antecedent, it is plausible that the qualifying phrase "at the time of application to amortize the deferral" as used in ORS 757.259(5) modifies the immediately prior noun phrase "utility's earnings," rather than the entire antecedent phrase "upon review of the utility's earnings."
The PUC and PGE respond that, although ORS 757.259(5) is "open to interpretation," the correct interpretation, when the text is viewed in its context and in light of ratemaking principles, is that, although the review of the utility's earnings is to take place at the time of the request for amortization, the earnings to be reviewed are not mandated for any particular time period and are those that the PUC determines in its discretion are relevant to the particular deferral and amortization. In this case, the PUC and PGE assert, the PUC concluded within its discretion that the particular relevant time period is the 12 months beginning October 5, 2005, when PGE's revenues from overcharges from taxes were assigned to a deferred account.
The PUC makes a textual argument that it contends supports its view that the qualifying phrase "at the time of application to amortize the deferral" modifies the entire antecedent phrase "review of the utility's earnings." The PUC explains that a review of earnings necessarily encompasses a review of an interval of time, rather than a moment in time. In contrast, the phrase "at the time" appears to describe a moment in time, which would not be apropos of a review of earnings. PGE joins in the PUC's textual analysis, but adds one of its own, viewing the word "review" as the operative noun modified by two prepositional phrases, "of the utility's earnings," and "at the time of application to amortize the deferral." The first prepositional phrase answers "what is being reviewed" — PGE's earnings. The second prepositional phrase answers "when the review occurs" — at the time of the application.
Additionally, the PUC argues, other subsections of ORS 757.259 show that when the legislature wants to identify an interval of time, it unambiguously does so. See e.g., ORS 757.259(6) (identifying interval of time to be used in calculating maximum annual rate impact of an amortization). Thus, the PUC reasons, the legislature's requirement that an earnings review occur "at the time of application to amortize the deferral" shows that the legislature intended to refer to the
The PUC makes a number of contextual arguments as well in support of its view that the PUC possesses the flexibility to determine the period of the earnings review and that the legislature did not intend to bind the agency to a review of the utility's earnings at the particular moment in time when the request for amortization is made. For example, ORS 757.259(8) provides that, for an electric utility, the PUC may authorize amortizations "not to exceed six percent of the electric utility's gross revenues for the preceding calendar year." But if the authorized amortization is greater than three percent, with an overall average rate impact not to exceed six percent of the utility's gross revenues for the preceding calendar year, the PUC "shall estimate" the electric utility's "cost of capital for the deferral period" and "costs and revenues during the deferral period." The PUC asserts that if the review of the utility's earnings for purposes of ORS 757.259(8) is to include consideration of costs of capital and costs and revenues during the deferral period, it only makes sense that the legislature contemplated that the earnings review conducted under ORS 757.259(5) would also encompass earnings during the deferral period. PGE makes the further contextual argument that the PUC promulgated OAR 860-027-0300 shortly after the enactment of ORS 757.259(5) and, although ORS 757.259 has been amended several times in subsequent legislative sessions, the legislature has never repudiated the PUC's interpretation of ORS 757.259(5), as expressed in OAR 860-027-0300.
URP for its part, contends that ORS 757.259(8) suggests just the opposite: By specifically mentioning that an earnings review required under the circumstances of ORS 757.259(8) must include review of costs and revenues during the deferral period, the legislature necessarily intended that a review under ORS 757.259(5) would not include consideration of those costs and revenues.
At this point, it is helpful to consider in somewhat greater detail the PUC's reasoning in its order denying URP's request to amortize the deferred amounts. The PUC was not satisfied that the textual and contextual clues, or the legislative history and maxims of construction, resolved the question of what period was to be included in the earnings review. The PUC pointed to legislative history and other sources suggesting that, when the legislature enacted ORS 757.259(5), it did not have in mind or contemplate a factual scenario like this case, where there was a delay of almost two years between the period for which the deferral was authorized and the requested amortization. The PUC reasoned that it is likely that the legislature envisioned that the reviewed earnings would be contemporaneous with both the deferral period and the request for amortization, because those events would be almost simultaneous. Faced with the conflicting views of its own staff, URP, and PGE, the PUC stated the question thusly:
In resolving the question, the PUC broadened its inquiry, and asked what interpretation would be most consonant with the principles of utility ratemaking, especially the principles that rates must be reasonable and that a utility's earnings must be within a reasonable range. The PUC discussed the fundamental ratemaking goal of setting future rates, which provides the utility with the opportunity to collect revenue sufficient to recover reasonable operating expenses, and to earn a reasonable return on investments made to provide service. Necessarily, future rates must be based on the utility's best estimates of its future expenses and revenues, and the utility must operate with rates in effect until future rates are approved in the next rate case. Because of the rule against retroactive ratemaking, as a general matter, adjustments to rates can compensate the utility on a going-forward basis only. The general rate case does not provide a
The PUC explained that, in contrast, the deferred accounting process set forth in ORS 757.259, is a mechanism intended to deal with unanticipated expenses and revenues for future recovery in rates. It allows rates to be tracked in a balancing account and adjusted outside of the general rate case when certain expenses or revenues arise that are deemed to be exceptional. The PUC explained:
As we understand the PUC's reasoning, amortization is an exception to the rule against retroactive ratemaking, because it allows an adjustment to future rates based on past earnings or expenses; for that reason, it is permitted only in exceptional circumstances. A review of a utility's earnings allows the PUC to inquire whether the extraordinary measure of amortization of the deferred amount is justified, i.e., despite the deferred costs or revenues, did the utility earn a reasonable return on its equity during the period of the deferral and did ratepayers pay an appropriate rate for services received? If, despite the deferred costs or revenues, the utility earned a reasonable return of its equity and ratepayers paid a reasonable rate for services, then, according to the PUC's reasoning, the deferred amounts were not exceptional and should not be amortized. Necessarily, that means that the period of the deferral must be a part of the earnings review, because that is the only way to determine whether the deferred amounts were indeed exceptional. OAR 860-027-0300(9) is consistent with that reasoning to the extent that it requires that "[t]he period selected for the earnings review will encompass all or part of the period during which the deferral took place or must be reasonably representative of the deferral period." Applying that reasoning, the PUC explained that a review of PGE's earnings during a period that included the deferral period, beginning October 1, 2005 through September 30, 2006, showed a return of equity outside any reasonable range. For that reason, the PUC explained, PGE needed to retain deferred revenues in order not to fall further outside the zone of reasonableness.
We are persuaded by the PUC's reasoning. As a textual matter, under the principle of
URP's final contention on this point is that the PUC's current interpretation is inconsistent with the PUC's prior interpretations of the rule, which have included the amortization period in the earnings review, and that the PUC has not explained the inconsistency. Contrary to URP's contention, however, the PUC did recognize that its interpretation had changed and it did provide an explanation for that change as well as for its conclusion to apply an earnings test to the 12 months beginning with the date of the requested deferral that does not encompass the moment when URP requested amortization of the deferral account.
(3) The deferral period encompasses the entire period until the unauthorized payment is refunded to ratepayers. As previously noted, under OAR 860-027-0300(9), upon request for amortization of a deferred amount, a utility must provide the PUC with
The PUC treated the period from October 5, 2005 through December 31, 2005 — the period for which a deferred accounting was authorized — as the deferral period. In URP's view, the deferral period described in the administrative rule is not limited to the period of the deferred accounting, but encompasses
Thus, URP argues, although the deferral commenced on October 5, 2005, it continues to the present day, because it has not been terminated and the money has not been refunded to ratepayers; accordingly, looking only at data from 2005 and 2006 is not representative of the deferral period. URP further contends that, to the extent that the administrative rule permits the deferral period not to include the time of amortization, it is inconsistent with ORS 757.259.
In view of our rejection of URP's interpretation of ORS 757.259, we also reject URP's contention that an interpretation of the administrative rule to permit the PUC to select a deferral period that does not encompass the amortization period is inconsistent with the statute. We further conclude that the PUC's interpretation of "deferral period," as used in its own administrative rule, to refer to the period during which the deferred accounting was authorized, is consistent with the statute and also constitutes a plausible reading of the administrative rule's text. Don't Waste Oregon Com. v. Energy Facility Siting, 320 Or. 132, 142, 881 P.2d 119 (1994) (agency entitled to deference on plausible interpretation of its own rule).
(4) The PUC's order declining to amortize the deferred account into future rates violates SB 408, which created a new category of "legally unacceptable rates," i.e., rates that include an amount for income
The PUC responds that the PUC's decision whether to amortize revenues that were deferred under ORS 757.259(2)(e) is a discretionary decision, reviewed by this court to determine whether it is "outside the range of discretion delegated to the agency by law," ORS 183.482(8), and that the agency did not act outside its discretion.
As we have noted, SB 408 provided a mechanism for an adjustment of revenues for taxes collected but unpaid beginning January 1, 2006. However, contrary to URP's contention, there is no statutory provision requiring the PUC to order utilities to refund amounts collected prior to January 1, 2006. Additionally, although, pursuant to ORS 757.259, the PUC had authority to require PGE to create a deferred account for the revenues collected from ratepayers for unpaid taxes between October 5, 2005 and December 31, 2005, the PUC's authority to require an amortization of the deferred amounts is discretionary. ("In addition to powers otherwise vested in the Public Utility Commission * * * under amortization schedules set by the commission, a rate or rate schedule * * *[m]ay reflect * * * [a]mounts deferred." ORS 757.259 (emphasis added).) We conclude for those reasons that the PUC did not act unlawfully when it decided not to require PGE to amortize the deferred amount. We further conclude that the PUC did not abuse its discretion in concluding that it would not order an amortization of the deferred amount.
Affirmed.
OAR 860-027-0300 is the PUC's rule relating to the use of deferred accounting by energy utilities and provides:
