CHRISTEN, Justice.
Six weeks after the Regulatory Commission of Alaska approved the 2007 Access Charge Rates long distance telephone companies pay to local telephone companies, an association of local telephone companies realized that five of the rates the Regulatory Commission approved were based upon an erroneous spreadsheet the association included in its rate filings. The association requested that the Regulatory Commission correct the rates. The Regulatory Commission corrected the rates prospectively, but concluded retrospective application was barred by this court's case law on retroactive ratemaking. The superior court agreed that retrospective application of the adjusted rates was impermissible, and the association appealed. We reaffirm our decision in Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.
The Regulatory Commission of Alaska (RCA) regulates public utilities and pipeline carriers throughout the state.
Generally, when a utility requests a change in rates or services, the RCA provides notice to the public of the proposal and allows a
The Alaska Exchange Carriers Association (AECA) is an association of non-competing local telephone companies, known as local exchange carriers. AECA is authorized by the legislature
The access charge rates payable by long distance carriers for access to the facilities of AECA's pooling local exchange carriers are determined on an annual basis in accordance with applicable RCA regulations. Specifically, 3 Alaska Administrative Code (AAC) 48.440 (2006) provides:
The Manual sets forth a very specific and deliberate annual process pursuant to which access charges of the pooling local exchange carriers are "determined, assessed, and collected," as well as the process by which the revenues from charges are "distributed," as mandated in 3 AAC 48.440.
The two primary elements of AECA's pooled access charge rates are the collective revenue requirement and demand for AECA's pooling member local exchange carriers.
Interested parties, such as GCI and AT & T Alascom, are permitted to participate in the annual access charge proceedings and are thereby given the opportunity to test the revenue requirement and demand estimates advanced by AECA and its members. New pooled access charge rates are presented to the RCA by AECA in the form of tariff advice letters, along with underlying work papers and calculations that provide specific information on the derivation of such rates.
The 2007 Access Charge proceedings began with AECA, GCI, and AT & T Alascom filing a Joint Petition to Adopt the Access Charge Filing Schedule with the RCA. The Joint Petition was adopted by the RCA on September 26, 2006. Subsequently, AECA, GCI, and AT & T Alascom reached stipulations as to: (1) the revenue requirements for AECA and its members; and (2) the demand for access minutes. These stipulations were accepted by the RCA. The RCA also accepted a stipulation by AECA, GCI, and AT & T Alascom that the 2007 Access Charges would be effective on April 1, 2007.
Following the RCA's acceptance of the revenue requirement and demand stipulations, AECA submitted "Tariff Advice Letter No. 55-999" (TA55-999) to the RCA on May 2, 2007, with copies sent to GCI and AT & T Alascom. Incorporated into TA55-999 was the "2007 Rate Development Workpapers" submitted by AECA, setting forth calculations for the 2007 Access Rate Charges. The workpapers contain a series of spreadsheets apportioning total revenue requirements among members and dividing the overall revenue requirements into the requisite rate elements. The RCA approved TA55-999 on June 21, 2007, with an effective date of April 1, 2007 pursuant to the parties' stipulation. The RCA closed the proceedings on the 2007 Access Charge rates on June 29, 2007.
In mid-August 2007, approximately six weeks after the RCA had closed the 2007 Access Charge proceedings, AECA discovered an error in the spreadsheets it had filed with the RCA as support for its 2007 Access Charges. The error was the result of a failure to link spreadsheet cells correctly. AECA contends that three steps in the rate calculation were affected. Five rates were affected by the error; some were increased and some were decreased. The error resulted in the dial equipment minutes (DEM)
On August 20, 2007, AECA submitted a "Supplemental Filing to Tariff Advice Letter No. 55-999" to the RCA. This letter provided revised calculations and requested that the RCA modify certain 2007 rates accordingly. The RCA responded by requiring AECA to submit its request as a new tariff advice letter, rather than as a supplement to TA55-999. The next day, AECA submitted "Tariff Advice Letter No. 57-999" (TA57-999). On October 10, 2007, the RCA issued public notice of TA57-999 setting forth the changes AECA proposed to TA55-999 and inviting public comment. AECA provided a more detailed explanation of the error as well as the impact of the under-billing in response to a request for additional information from the RCA.
GCI responded to the request for public comment with a written argument that retroactive application of the corrected rates should not be permitted under this court's decision in Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.
AECA's Petition for Reconsideration, which GCI opposed, was denied by the RCA.
AECA appealed the RCA's decision to the superior court. Following full briefing by the parties, oral argument was held on April 8, 2009. The superior court denied AECA's administrative appeal on April 16, 2009, concluding "[a] thorough reading of case law and the Alaska statutes that set forth the procedures to be followed in establishing new, revised tariffs supports the RCA's holdings." The superior court concluded that TA57-999 "may be [applied] prospective[ly] only" because "it is clear that the procedures involved here ... [are] subject to the doctrine of retroactive rate-making."
When the superior court acts as an intermediate court of appeal, we independently scrutinize directly the merits of the administrative determination.
The first issue in this case is whether the RCA properly relied on the doctrine of retroactive ratemaking when it decided that the corrected 2007 Access Charge could only be applied prospectively following its November 2007 order approving the corrected rate. AECA concedes that retroactive ratemaking is not permitted in Alaska, but argues that correcting the error in its worksheet does not constitute "retroactive ratemaking." Alternatively, AECA argues that even if the doctrine of retroactive ratemaking applies, the corrected rate should nonetheless be implemented: (1) retrospectively to April 1, 2007 because of the parties' prior stipulations; or (2) at least to August 21, 2007 when AECA initially requested the corrected rate. GCI argues that our precedent in Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc.
In Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., the parties did not dispute the impermissibility of retroactive ratemaking under Alaska law; they disputed whether this prohibition applied to the facts of their case.
Starting in "the mid-1980s, Chugach [] used a line loss factor of 5.219% in its rate filings for wholesale customers."
MEA argued that because Chugach submitted an inaccurate estimate of the line loss factor, MEA was entitled to a refund based on the difference between the inaccurate line
MEA argued that the fuel surcharges at issue in Chugach's rate were distinguishable from regular RCA-made rates, and therefore were not subject to the prohibition against retroactive ratemaking.
The primary rationale articulated in Matanuska for prohibiting retroactive ratemaking is that inaccurate estimates are not adequate
In Matanuska, we extensively cited a 1991 law review article
AECA argues that Matanuska dealt with altering a rate after a "second look" at an inaccurate estimate, that this case does not concern a "second look" at a rate derived from an inaccurate estimate, and that this is not a case of retroactive ratemaking. GCI argues that in Matanuska, we "rejected the line of cases in other jurisdictions that create a general exception to the rule against retroactive ratemaking for fuel adjustment clauses, and, instead, placed Alaska firmly in the camp of jurisdictions that strictly adhere to the rule prohibiting retroactive ratemaking." The superior court agreed with GCI, viewing our holding in Matanuska as "a strict interpretation of the doctrine" prohibiting retroactive ratemaking.
The issue in Matanuska was specific: whether the RCA could retroactively replace an inaccurately estimated line loss factor for a more accurate after-the-fact calculation that reflected Chugach's actual experience.
Matanuska represents a "second look" case where the prohibition against retroactive ratemaking clearly applies. The facts of AECA's case are different. As Krieger explains, "a rigid interpretation of the rule against retroactive ratemaking would ... prohibit any modification by the commission of a prior rate order that affects past utility gains or losses, [but] courts have allowed such changes in situations [where] the commission is remedying procedural mistakes."
Examples of "procedural" or clerical mistakes include those in Mike Little Gas Co. v. Public Service Commission, where a gas company applied for a rate of "$3.5752 for two Mcf's of natural gas" and the agency issued an order incorrectly setting the rate at "$3.5752 per Mcf for the first two Mcf's."
Other jurisdictions have similarly recognized a category of "procedural" errors, at least some of which may be retroactively remedied. In Illinois Power Co. v. Illinois Commerce Commission, the Illinois Court of Appeals held:
The Indiana court of appeals reached a similar conclusion in its unpublished decision Indiana Office of Utility Consumer Counselor v. Duke Energy Indiana, Inc., holding that where an energy company, "in previously mis-stating its [construction cost] balances ..., failed to comply with FERC accounting guidelines," a subsequent accounting correction did not create "the type of situation that should be controlled by the rule against retroactive ratemaking."
An example of a mistake that was considered substantive and was not permitted to be corrected occurred in General Motors Corp. v. Public Service Commission.
Other types of mistakes require further examination of the rationale for the rule against retroactive ratemaking to determine whether a particular mistake justifies retrospectively altering a rate. Krieger's article provides an overview of how different courts treat the rule of retroactive ratemaking in different contexts and it examines the purpose behind the doctrine. Krieger proposes the following outcome:
Applying this rule in the context of "procedural mistake" cases, Krieger states that "the proposed method generally would allow retroactive relief."
We do not decide that application of these considerations "would generally" allow for retroactive relief in "procedural mistake" cases; in our view, even "procedural mistake" cases will have to be examined individually and with caution. But we agree with Krieger that at one end of the spectrum "it is difficult to understand how a party could have a rational or legitimate expectation that a court would not rectify clerical [errors] in a commission order."
GCI challenges AECA's distinction between "procedural" or clerical mistake cases and "second look" cases, arguing that "human error" was to blame for Chugach's failure to update its line loss factor to reflect actual experience, and that "human error" was also responsible for the failure to link the spreadsheets filed by AECA. AECA argues that GCI misunderstands the rationale underlying the rule against retroactive ratemaking, and that the goals of the rule are not undermined by correcting the rate in this case.
We think AECA has the better argument. As we have explained, the error in this case cannot be equated to a "second look" at an inaccurate prediction of the cost of providing service to utility customers. Further, rectifying the error in this case could return the parties to the position they agreed to when they entered into stipulations for the demand and revenue requirements to determine the 2007 rates. It appears uncontested that the corrected rates would have been adopted as the 2007 rates if AECA's spreadsheets had been properly linked.
The parties do not dispute that because of AECA's spreadsheet error, GCI and its ratepayers will receive a windfall at the expense of AECA and its ratepayers. GCI emphasizes that it was AECA, and not the RCA, that made the procedural mistake, suggesting that AECA must live with the consequences of its own error. But GCI does not address the potential situation where AECA's error cuts in its favor. And during oral argument before our court, GCI declined to answer whether it would advocate for the same bright-line rule if AECA's error led to AECA receiving a windfall rather than GCI. GCI insists that the issue of overbilling as a result of a calculation mistake "is not before, and need not be addressed by, this Court," but this hypothetical seems to be the other side of the same problem.
While the underlying facts of this case are undisputed, both sides characterize the error and its impact quite differently. AECA characterizes its error as a "simple calculation `mistake,'" based on the failure to link spreadsheets correctly. But GCI argues that "[t]he rate changes in TA57-999 ... required the approval of two new tariff pages and changed 5 different rates," and that "the error at issue occurred in AECA's calculation of the revenue requirement, not in the calculation of the rates." GCI also argues that the RCA's determination that the error was not "merely ministerial" is backed up "by AECA's own description of the error, which explains that it was a computational error buried in the spreadsheets and work papers supporting the requested rates."
From the record available to our court, it is difficult to tell which party's characterization of the error is more accurate. Under AECA's characterization, once the underlying revenue requirement and demand factors are determined (in this case through stipulations), the rest of the ratemaking process is fairly mechanical, following the "noncontroversial rate calculation procedures" set forth by the Manual. GCI and the RCA paint a more complex picture; GCI describes a multi-step process leading from the stipulations of the pooled revenue requirement and demand to the actual access charge rate. The RCA distinguishes between the stipulated pooled revenue requirements and the "subcomponent `intrastate revenue requirements' that are ultimately used to develop the five specific ... intrastate access charge rates which are at issue here."
The approval of the rate change prospectively, without dispute about the material
At oral argument before our court, the RCA made clear that its decision to deny any retrospective application of the corrected 2007 rates was based on its understanding that it lacked the authority to grant this relief. But it is apparent that there are some cases in which the RCA would be obliged to correct an erroneous rate—such as correcting a typographical error of its own. Because the RCA's expertise makes it uniquely well suited to identify the type of error at issue, the ramifications of correcting it, and the ways in which errors do or do not implicate the considerations we articulated in Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc., we remand this case to the RCA for consideration of AECA's request. On remand, the RCA is empowered to retrospectively apply the corrected 2007 rates if, after considering the underlying rationale for the doctrine against retroactive ratemaking, it determines this is an appropriate case for making such an adjustment.
AECA argues that even if the prohibition against retroactive ratemaking is implicated by the facts of this case, RCA should nonetheless have instituted the revised rate prior to its November 2, 2007 order. It argues for an April 1, 2007 effective date based on the parties' stipulation that the 2007 rates would become effective on that date. Alternatively, AECA argues that the corrected rate should have been implemented as of August 21, 2007, when public notice was given of the spreadsheet error.
Having considered the parties' arguments, we hold that notice of a proposed rate is presumptively sufficient to overcome the reliance interest concerns raised when correcting a "procedural mistake."
We VACATE the order of the superior court and REMAND this case to the RCA for further proceedings consistent with this opinion.
STOWERS, Justice, concurring in part and dissenting in part.
WINFREE, Justice, dissenting in part.
I agree in part and disagree in part with the court's opinion. I begin by noting that the court's opinion, recognizing that the Regulatory Commission of Alaska (RCA) has the authority to correct some procedural mistakes, does not expressly hold that these permissible corrections would constitute retroactive ratemaking. I think a fair reading of the opinion implies that these corrections are retroactive ratemaking, and the court is carving out a narrow exception where it is permissible for the RCA to engage in retroactive rulemaking.
My first disagreement with the court arises from my conclusion that Alaska Exchange Carriers Association's position in this appeal is correct: this is not a case of retroactive ratemaking, but rather a case of a correction of a mathematical or clerical mistake; in other words, a procedural correction to a procedural mistake. I would hold that, on the facts of this case and given the nature of the error and the simple way that it can be corrected, any such correction would be merely a mathematical, or clerical, or procedural correction—not ratemaking.
Regardless, whether the correction is retroactive ratemaking or not, I agree with the court that RCA has the authority to correct mathematical, clerical, or procedural mistakes of the kind in this case, for the reasons given by the court's opinion.
My second disagreement with the court goes to the remedy on remand. Given that all parties agree that the underlying assumptions and data (i.e., the numbers that were used to generate the agreed upon rate) are correct, and that but for the procedural mistake made in this case the rate would have been correctly calculated, I would remand this case to the RCA with instructions to make the necessary correction. I see no reason to have RCA further consider any issue in this case; the parties have previously agreed to the correct figures and calculations and RCA has already approved those figures and calculations, both with respect to the original rate and with respect to the rate's prospective application. Under these circumstances, all the court need do is explain that RCA, with its new authority to correct procedural errors, should correct this one.
Hypothetically, if there were some evidence that a party had acted improperly or unfairly to obtain a benefit from a procedural calculation error, then I would agree with Justice Winfree's dissent and hold that the RCA should use its discretion to determine an appropriate corrective date. One of the factors the RCA could consider is the majority's policy rationale for using the date of first public notice of the error—to create an incentive to promptly identify and correct procedural errors.
In all other respects, I concur with the court's opinion.
WINFREE, Justice, dissenting in part.
I agree with the court in all respects but one. I would leave it to the discretion of the Regulatory Commission of Alaska (the RCA), after it concludes that a rate-making "procedural mistake" was made when setting a tariff, to determine an appropriate corrective date in light of all relevant facts and circumstances of the particular case. I see insufficient justification for establishing the mistake's date of public notice as the earliest possible corrective date. And there is no reason to foreclose the possibility that in a particular case the original rate approval date, or some date after the original rate approval date but before the mistake's date of public notice, would be the appropriate corrective date. The court rightfully relies on the RCA's expertise to make the initial determination of whether a procedural mistake was made; I would also rely on the RCA's expertise to determine an appropriate corrective date. I therefore respectfully dissent on this narrow issue.
(Emphasis added) (citation omitted).
Similarly, in Ill. Power Co. v. Ill. Commerce Comm'n, 254 Ill.App.3d 293, 193 Ill.Dec. 403, 626 N.E.2d 713, 724 (1994), the court explained:
(Emphasis added).
And in Ind. Office of Util. Consumer Counselor v. Duke Energy Ind., Inc., 896 N.E.2d 936, 2008 WL 4892553 at *4-5 (Ind.App. Nov. 14, 2008), the court said:
