City of Helena v. Mont. Dept. of Ps

No. 79-54 IN THE SUPREME COURT OF THE STATE OF MONTANA 1981

THE CITY OF HELENA, MONTANA, Petitioner and Appellant, VS . MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION et al., Respondents. .................................................... No. 81-24

CITY OF BILLINGS, a municipal corporation, Petitioner and Appellant, VS . MONTANA DEPARTMENT OF PUBLIC SERVICE et al., Respondents, and MONTANA PUBLIC CONSUMER COUNSEL, Intervenors. Appeal from: District Court of the First and Thirteenth Judicial District In and for the Counties of Lewis and Clark and Yellowstone. Honorable Nat Allen, Judge presiding. Counsel of Record: For Appellants: Calton Law Firm, Billings, Montana Calvin Calton argued, Billings, Montana Rod Hamman argued, Billings, Montana Hull and Sherlock, Helena, Montana For Respondents: Crowley Law Firm, Billings, Montana Thomas M. Kelley argued, Billings, Montana Robert F. W. Smith argued, P.S.C., Helena, Montana For Intervenors: James Paine argued, Consumer Counsel, Helena, Montana For Amicus Curiae: David V. Gliko, City Attorney, Great Falls, Montana

Submitted: July 6, 1981

Decided : SEP 2 1 1981 Filed: 8EP 2 1 198f

J u s t i c e Frank B. Morrison, J r . , d e l i v e r e d t h e Opinion of t h e Court . On March 31, 1977, t h e C i t y of Helena f i l e d a n a p p l i c a t i o n

f o r a r a t e i n c r e a s e f o r t h e w a t e r u t i l i t y s e r v i c e owned by the City. P a r t o f t h e r e q u e s t e d r a t e i n c r e a s e was f o r a m o r t i z a t i o n of a n e x i s t i n g o p e r a t i n g d e f i c i t i n t h e w a t e r s e r v i c e s fund. The amount of t h e d e f i c i t was $311,360.51.

A h e a r i n g on t h i s a p p l i c a t i o n was h e l d b e f o r e t h e P u b l i c S e r v i c e Commission (PSC) J u n e 2 1 , 1977. On A p r i l 3, 1978, t h e PSC i s s u e d o r d e r no. 4 3 3 5 ( a ) , which d e n i e d t h e C i t y ' s r e q u e s t f o r a m o r t i z a t i o n of t h e p a s t o p e r a t i n g l o s s .

The C i t y of Helena f i l e d a p e t i t i o n f o r j u d i c i a l r e v i e w w i t h t h e Lewis and C l a r k County D i s t r i c t C o u r t on May 2 4 , 1978. On J u l y 11, 1979, t h e D i s t r i c t C o u r t upheld t h e d e c i s i o n o f t h e PSC denying amor ti z a t i o n .

I n 1977, t h e C i t y of B i l l i n g s a u t h o r i z e d t h e e n g i n e e r i n g f i r m of Black and Veatch t o c o n d u c t a r a t e s t u d y r e g a r d i n g t h e municipally-owned w a t e r u t i l i t y . Black and Veatch d e t e r m i n e d t h a t i f t h e C i t y of B i l l i n g s c o n t i n u e d t o o p e r a t e under t h e c u r r e n t r a t e s , i t would have a monthly d e f i c i t of $84,000. The e n g i n e e r i n g f i r m c a l c u l a t e d t h a t a 65 p e r c e n t i n c r e a s e i n t h e w a t e r r a t e s , amounting t o a n a n n u a l i n c r e a s e i n r e v e n u e s of $1,636,000, was n e c e s s a r y t o m a i n t a i n t h e w a t e r u t i l i t y on a sound f i n a n c i a l b a s i s .

On September 1 2 , 1977, t h e recommended i n c r e a s e was a d o p t e d by a unanimous v o t e of t h e B i l l i n g s C i t y Counsel. On October 1 7 , 1977, t h e C i t y of B i l l i n g s f i l e d a p e t i t i o n w i t h t h e Montana PSC s e e k i n g a p p r o v a l of t h e new r a t e s f o r t h e p e r i o d J a n u a r y 1978 t h r o u g h J u n e 1980. The C i t y of B i l l i n g s a l s o p e t i t i o n e d f o r a temporary r a t e i n c r e a s e , t o b e e f f e c t i v e d u r i n g t h e pendency of t h e r a t e p r o c e e d i n g s .

The B i l l i n g s H e i g h t s w a t e r d i s t r i c t and t h e Montana Consumer Counsel i n t e r v e n e d i n t h e p r o c e e d i n g s .

On March 6 , 1978, t h e PSC g r a n t e d t h e C i t y of B i l l i n g s a temporary r a t e i n c r e a s e . On March 2 1 , 1978, a h e a r i n g on t h e proposed permanent r a t e i n c r e a s e was h e l d b e f o r e t h e

PSC.

On J u l y 1 7 , 1978, t h e PSC i s s u e d i t s f i n d i n g s of f a c t , c o n c l u s i o n s of law and o r d e r . The PSC g r a n t e d t h e C i t y of B i l l i n g s a 42 p e r c e n t i n c r e a s e i n i t s w a t e r r a t e s amounting t o a n a n n u a l revenue of $1,069,728. The PSC d e t e r m i n e d t h a t p a s t l o s s e s s u f f e r e d by t h e w a t e r u t i l i t y c o u l d n o t be c o n s i d e r e d i n s e t t i n g t h e new r a t e i n c r e a s e . The PSC a l s o s e t f o r t h c o s t of s e r v i c e a l l o c a t i o n s f o r t h e C i t y of B i l l i n g s t o a b i d e by.

The Montana Consumer Counsel p e t i t i o n e d t h e D i s t r i c t C o u r t of t h e F i r s t J u d i c i a l D i s t r i c t , Lewis and C l a r k County, f o r j u d i c i a l r e v i e w of t h e PSC1s o r d e r . The C i t y of B i l l i n g s s o u g h t j u d i c i a l r e v i e w of t h e same PSC o r d e r b e f o r e t h e D i s t r i c t C o u r t of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t , Yellowstone County. The venue c o n f l i c t was r e s o l v e d by a Supreme C o u r t o r d e r on A p r i l 6 , 1979, f i n d i n g t h e Yellowstone County D i s t r i c t C o u r t t h e p r o p e r venue f o r p r o c e s s i n g t h e p e t i t i o n s . Both a p p e a l s were c o n s o l i d a t e d f o r h e a r i n g by agreement of the parties.

The m a t t e r s w e r e h e a r d b e f o r e t h e T h i r t e e n t h J u d i c i a l D i s t r i c t C o u r t on May 8, 1980. On September 1 9 , 1980, t h e D i s t r i c t C o u r t i s s u e d a n o p i n i o n and o r d e r , a f f i r m i n g t h e PSC1s d e c i s i o n e x c e p t i n one r e s p e c t . The D i s t r i c t C o u r t found t h a t t h e PSC e r r e d i n h o l d i n g t h a t p a s t l o s s e s of t h e u t i l i t y c o u l d n o t be t a k e n i n t o c o n s i d e r a t i o n i n d e t e r m i n i n g a r a t e increase.

The ~ i s t r i c C o u r t ' s o r d e r was c e r t i f i e d a s f i n a l and t

s u b j e c t t o a p p e a l by a n o r d e r d a t e d October 1 4 , 1980.

The f o l l o w i n g i s s u e s a r e r a i s e d on a p p e a l :

1. Whether t h e PSC h a s j u r i s d i c t i o n o v e r t h e C i t y of B i l l i n g s water u t i l i t y service?

2. Whether t h e PSC h a s j u r i s d i c t i o n o v e r t h e B i l l i n g s Heights water d i s t r i c t water u t i l i t y s e r v i c e ?

3 . Whether t h e PSC f a i l e d t o g r a n t t h e C i t y of B i l l i n g s and t h e C i t y of Helena a s u f f i c i e n t r a t e i n c r e a s e t o m e e t t h e r e v e n u e needs of t h e r e s p e c t i v e w a t e r u t i l i t i e s b e c a u s e t h e PSC r e f u s e d t o c o n s i d e r p a s t l o s s e s s u f f e r e d by t h e municipal w a t e r u t i l i t i e s ?

4 . Whether t h e PSC f a i l e d t o g r a n t t h e C i t y of B i l l i n g s a s u f f i c i e n t r a t e i n c r e a s e by r e f u s i n g t o a c c e p t t h e C i t y ' s p r o j e c t e d o p e r a t i o n and maintenance c o s t s ?

5. Whether t h e PSC was r e q u i r e d t o comply w i t h a l l c i t y bond o r d i n a n c e r e q u i r e m e n t s when e s t a b l i s h i n g a s u f f i c i e n t r a t e increase?

6. Whether t h e PSC d e t e r m i n e d s u f f i c i e n c y of t h e r a t e i n c r e a s e without normalizing test-year d a t a t o r e f l e c t weather conditions?

7 . Whether t h e PSC e r r e d i n a l l o c a t i n g t h e c o s t of s e r v i c e s among C i t y of B i l l i n g s c u s t o m e r s by r e f u s i n g t o accept the C i t y ' s e x t r a capacity f a c t o r assigned the ~ i l l i n g s Heights water d i s t r i c t pursuant t o a c o n t r a c t provision contained i n the C i t y - D i s t r i c t water supply c o n t r a c t ?

8. Whether t h e PSC e r r e d i n a l l o c a t i n g t h e c o s t of

s e r v i c e s among c i t y c u s t o m e r s by g r a n t i n g a r a t e of r e t u r n c r e d i t of 2 7 . 5 p e r c e n t t o B i l l i n g s H e i g h t w a t e r d i s t r i c t

c u s t o m e r s who l i v e w i t h i n c i t y l i m i t s ?

9. Whether t h e PSC o r d e r r e q u i r i n g t h e C i t y of ~ i l l i n g s t o e s t a b l i s h a r e c u r r i n g a n n u a l c a p i t a l improvements a c c o u n t and r e p o r t a c t i v i t y i n such a c c o u n t i n t e r f e r e s w i t h t h e C i t y ' s management a u t h o r i t y ?

1 0 . Whether t h e PSC o v e r s t a t e d t h e C i t y of B i l l i n g s ' r e v e n u e needs by n o t c o n s i d e r i n g t h e e x c e s s " c o v e r a g e f a c t o r " monies t o be a n o f f s e t t o t h e C i t y ' s r e q u i r e d e x p e n d i t u r e needs.

11. Whether t h e D i s t r i c t C o u r t e r r e d by a l l o w i n g a d d i t i o n a l e v i d e n c e s u b s e q u e n t t o t h e agency h e a r i n g .

The C i t y of B i l l i n g s c o n t e n d s t h a t p r o v i s i o n s c o n t a i n e d i n t h e Municipal Revenue Bonds Act of 1939, s e c t i o n s 7-7-4 4 0 1 , e t s e q . , MCA, which c o n f e r ratesetting a u t h o r i t y upon m u n i c i p a l i t i e s , exempts muncipally-owned w a t e r u t i l i t i e s from t h e j u r i s d i c t i o n of t h e PSC. The s p e c i f i c p r o v i s i o n s r e a d as f o l l o w s :

" I n a d d i t i o n t o t h e powers which i t may now have, any m u n i c i p a l i t y s h a l l have t h e power under t h i s p a r t t o :

" ( 3 ) p r e s c r i b e and c o l l e c t r a t e s , f e e s , and c h a r g e s f o r t h e s e r v i c e s , f a c i l i t i e s , and commodities f u r - n i s h e d by such u n d e r t a k i n g . " ( S e c t i o n 7-7-4404, MCA.)

"The g o v e r n i n g body of a m u n i c i p a l i t y i s s u i n g bonds p u r s u a n t t o t h i s p a r t s h a l l p r e s c r i b e and c o l l e c t reasonable r a t e s , f e e s , o r charges f o r t h e services, f a c i l i t i e s , and commodities of such u n d e r t a k i n g and s h a l l r e v i s e such r a t e s , f e e s o r c h a r g e s from t i m e t o t i m e whenever n e c e s s a r y s o t h a t s u c h u n d e r t a k i n g s h a l l be and always remain s e l f - s u p p o r t i n g . " ( S e c t i o n 7-7-4424 (1) MCA. ) , The P u b l i c U t i l i t i e s and C a r r i e r s A c t , s e c t i o n s 69-1-

1 0 1 , e t s e q . , MCA, e n a c t e d i n 1913, g r a n t s t h e PSC ". . . f u l l power of s u p e r v i s i o n , r e g u l a t i o n , and c o n t r o l of . . .

public u t i l i t i e s . . . t o t h e e x c l u s i o n of t h e j u r i s d i c t i o n , r e g u l a t i o n , and c o n t r o l of such u t i l i t i e s by any m u n i c i p a l i t y , town o r v i l l a g e . " S e c t i o n 69-3-102, MCA. It is clear that a municipally-owned w a t e r u t i l i t y f i t s within the definition of a "public u t i l i t y " , s e t f o r t h i n s e c t i o n 69-3-101, MCA:

". . . e v e r y c o r p o r a t i o n , b o t h p u b l i c and p r i v a t e , company, i n d i v i d u a l , a s s o c i a t i o n of i n d i v i d u a l s , t h e i r l e s s e e s , t r u s t e e s , o r r e c e i v e r s a p p o i n t e d by any c o u r t w h a t s o e v e r , t h a t now o r h e r e a f t e r may own, o p e r a t e , o r c o n t r o l any p l a n t o r equipment, any p a r t of a p l a n t o r equipment, o r any w a t e r r i g h t w i t h i n t h e s t a t e f o r the production, delivery o r furnishing f o r o r t o o t h e r persons, firms, associations, o r c o r p o r a t i o n s , p r i v a t e o r municipal:

". . . (5) water f o r business, manufacturing, household u s e , o r sewerage s e r v i c e , whether w i t h i n t h e l i m i t s of m u n i c i p a l i t i e s , towns, o r v i l l a g e s o r elsewhere . . ." A s p e c i f i c f u n c t i o n of t h e PSC i s t h e s u p e r v i s i o n and

r e g u l a t i o n of r a t e s c h a r g e d by p u b l i c u t i l i t i e s . Sections 69-3-301 and 69-3-302, MCA. Under t h e s e p r o v i s i o n s a p u b l i c u t i l i t y must f i l e s c h e d u l e s of i t s r a t e s , t o l l s , o r c h a r g e s w i t h t h e PSC. Any changes i n t h e s e s c h e d u l e s must b e approved by t h e PSC. The PSC, p u r s u a n t t o s e c t i o n 69-3-303, MCA, must n o t i f y t h e p u b l i c of such proposed changes and s c h e d u l e a h e a r i n g on t h e m a t t e r .

Following a h e a r i n g , i f t h e proposed r a t e s c h e d u l e s a r e found t o be ". . . u n j u s t , unreasonable o r u n j u s t l y discriminat o r y o r t o be p r e f e r e n t i a l o r o t h e r w i s e i n v i o l a t i o n of t h e provisions of t h i s c h a p t e r , " t h e n " t h e commission s h a l l have t h e power t o f i x and o r d e r s u b s t i t u t e d t h e r e f o r such r a t e s , t o l l s , c h a r g e s , o r s c h e d u l e s a s s h a l l be j u s t and reasonable . . ." S e c t i o n 69-3-330, MCA.

The C i t y of B i l l i n g s c o n t e n d s t h a t t h i s power of t h e PSC i s i r r e c o n c i l a b l e w i t h t h e m u n i c i p a l powers s e t f o r t h i n t h e Municipal Revenue Bonds Act of 1939. The Bonds Act s p e c i f i c a l l y p r o v i d e s t h a t Z " ( 3 ) I n s o f a r a s t h e p r o v i s i o n s of t h i s p a r t a r e i n c o n s i s t e n t w i t h t h e p r o v i s i o n s of any o t h e r g e n e r a l , s p e c i a l , o r l o c a l law, t h e p r o v i s i o n s of t h i s p a r t s h a l l be c o n t r o l l i n g . " S e c t i o n 7-7-4403(3), MCA. C i t y of B i l l i n g s a r g u e s t h a t t h e r a t e s e t t i n g a u t h o r i t y of a m u n i c i p a l i t y under t h i s Bonds Act n e c e s s a r i l y p r e c l u d e s PSC j u r i s d i c t i o n .

I t must be n o t e d a t t h e o u t s e t t h a t t h e Municipal Revenue Bonds Act of 1939 d o e s n o t e x p r e s s l y r e p e a l t h e P u b l i c U t i l i t i e s and C a r r i e r s A c t , T i t l e 69. To g i v e c r e d e n c e t o t h e c o n t e n t i o n s of t h e C i t y of B i l l i n g s would n e c e s s i t a t e a f i n d i n g of r e p e a l by i m p l i c a t i o n . Such r e p e a l by i m p l i c a t i o n i s n o t f a v o r e d i n Montana. London Guaranty & A c c i d e n t Co. v. I n d u s t r i a l Acc. Board ( 1 9 2 8 ) , 82 Mont. 304, 266 P . 1103. This Court has s t a t e d t h a t ". . . a n implied repeal r e s u l t s o n l y from an e n a c t m e n t , t h e terms and n e c e s s a r y o p e r a t i o n of which c a n n o t be harmonized w i t h t h e terms and n e c e s s a r y e f f e c t of a n e a r l i e r Act. " ( C i t a t i o n s omitted.1) London Guaranty & A c c i d e n t Co., s u p r a , 266 P. a t 1105. I n determining whether t h e Municipal Revenue Bonds Act of 1939 and t h e P u b l i c U t i l i t i e s and C a r r i e r s A c t c a n be harmonized t h e i n t e n t i o n of t h e l e g i s l a t u r e i s c o n t r o l l i n g . S e c t i o n 1-2-102, MCA.

A f t e r a c a r e f u l r e v i e w of t h e Municipal Revenue Bonds Act o f 1939 and t h e P u b l i c U t i l i t i e s and C a r r i e r s A c t , w e f i n d t h a t t h e p r o v i s i o n s of t h e two a c t s can be harmonized. The l e g i s l a t u r e r e c o g n i z e d t h a t m u n i c i p a l i t i e s had t h e b e s t r e s o u r c e s a v a i l a b l e t o a r r i v e a t a n i n i t i a l d e t e r m i n a t i o n of what t h e r a t e o r t o l l s h o u l d be f o r t h e u t i l i t y s e r v i c e provided. The l e g i s l a t u r e f u r t h e r r e c o g n i z e d t h e m u n i c i p a l i t i e s ' i n h e r e n t i n t e r e s t i n c o l l e c t i n g t h e r a t e s o r t o l l s charged. Thus t h e l e g i s l a t u r e g r a n t e d m u n i c i p a l i t i e s t h e s e powers under t h e Municipal Revenue Bonds Act a s w e l l a s o t h e r a c t s .

However, n o t h i n g i n t h e Municipal Revenue Bonds Act p r e c l u d e s a r e v i e w of s u c h r a t e d e t e r m i n a t i o n s . This i s p r e c i s e l y t h e f u n c t i o n o f t h e PSC. The l e g i s l a t u r e i n t e n d e d s u c h a r e v i e w p r o c e s s by t h e v e r y c r e a t i o n of such a r e g u l a t o r y and s u p e r v i s o r y body.

W e hold t h a t m u n i c i p a l i t i e s - e s t a b l i s h r a t e s f o r do

t h e i r s e r v i c e s a s r e q u i r e d by s e c t i o n s 7-7-4404 and 7-7-4 4 2 4 , MCA, when m u n i c i p a l i t i e s comply w i t h t h e PSC r e p o r t i n g r e q u i r e m e n t s s e t f o r t h i n s e c t i o n s 69-3-301 and 69-3-302, MCA. The r e g u l a t o r y a u t h o r i t y of t h e PSC d o e s n o t d i m i n i s h a m u n i c i p a l i t y ' s a b i l i t y t o e s t a b l i s h an i n i t i a l r a t e s c h e d u l e . The two a c t s a r e n o t i r r e c o n c i l a b l e , and t h e PSC h a s j u r i s d i c -t i o n o v e r municipally-owned utilities.

The second j u r i s d i c t i o n a l i s s u e a r i s e s a s a r e s u l t of t h e PSC o r d e r r e q u i r i n g t h e C i t y of B i l l i n g s and t h e B i l l i n g s Heights water d i s t r i c t t o e n t e r i n t o a s t i p u l a t i o n through which a c o s t of s e r v i c e c r e d i t f o r d i s t r i c t c u s t o m e r s l i v i n g w i t h i n B i l l i n g s c i t y l i m i t s c o u l d be implemented. In a p r i o r o r d e r , no. 4366, r e n d e r e d J u l y 20, 1977, of which t h i s

C o u r t t a k e s j u d i c i a l n o t i c e p u r s u a n t t o Rule 202 ( b ) ( 4 ) , Mont. R. Evid. , t h e PSC determined t h a t " [ r ]a t h e r than b e i n g s u b j e c t t o Commission c o n t r o l , t h e s e [County Water D i s t r i c t s ]

a r e s u b j e c t t o t h e c o n t r o l and r a t e m a k i n g power o f t h e i r own b o a r d of d i r e c t o r s . . ." I f t h i s determination holds t r u e , t h e PSC had no a u t h o r i t y t o o r d e r t h e B i l l i n g s H e i g h t s w a t e r d i s t r i c t t o e n t e r i n t o t h e s t i p u l a t i o n w i t h t h e C i t y of Billings. Thus, t h i s C o u r t must r e v i e w t h e j u r i s d i c t i o n a l p a r a m e t e r s of t h e PSC o v e r c o u n t y w a t e r d i s t r i c t s c r e a t e d under s e c t i o n s 7-13-2201 t h r o u g h 7-13-2348, MCA.

Although t h e PSC acknowledged i n o r d e r no. 4366 t h a t c o u n t y w a t e r d i s t r i c t s c l e a r l y f i t t h e d e f i n i t i o n of a " p u b l i c u t i l i t y " a s s e t f o r t h i n s e c t i o n 69-3-101(5), MCA,

i t d e c l i n e d j u r i s d i c t i o n o v e r county w a t e r d i s t r i c t s based p r i m a r i l y on s e c t i o n 7-13-2301 ( I ) , MCA. This s t a t u t e provides

that: "The board of d i r e c t o r s s h a l l f i x a l l w a t e r and sewer r a t e s and s h a l l , t h r o u g h t h e g e n e r a l manager, c o l l e c t t h e sewer c h a r g e s and t h e c h a r g e s f o r t h e s a l e and d i s t r i b u t i o n of water t o a l l users."

The board of d i r e c t o r s i s a s p e c i a l l y e l e c t e d body whose s o l e f u n c t i o n i s t o govern t h e w a t e r d i s t r i c t . Section 7-13-2231 ( 2 ) , MCA. I t i s t h e p o s i t i o n of t h e PSC t h a t t h i s

s t a t u t o r i l y - c r e a t e d g o v e r n i n g body d i s p l a c e s t h e r e g u l a t o r y f u n c t i o n of t h e PSC.

A f t e r r e v i e w of s e c t i o n s 7-13-2201 t h r o u g h 7-13-2348, MCA, w e c a n n o t a g r e e w i t h t h i s p o s i t i o n . Nothing w i t h i n t h e s e s t a t u t e s e x p r e s s l y p r e c l u d e s t h e r e v i e w and r e g u l a t o r y p r o c e s s of t h e PSC p u r s u a n t t o T i t l e 69, MCA. T h i s board of d i r e c t o r s was o n l y i n t e n d e d t o d i s p l a c e t h e c o u n t y comm i s s i o n e r s ' a u t h o r i t y w i t h r e g a r d t o w a t e r and sewer f u n c t i o n s . S e c t i o n 7-13-2231(2), MCA. Thus, t h e f u n c t i o n of c o u n t y w a t e r d i s t r i c t commissioners r e s e m b l e s t h e f u n c t i o n of m u n i c i p a l i t i e s i n t h e ratemaking p r o c e s s . The board of d i r e c t o r s i s empowered t o e s t a b l i s h r a t e s ; however, such r a t e s a r e s u b j e c t t o r e v i e w and a l t e r a t i o n by t h e PSC i f u n j u s t , unreasonable o r discriminatory. S e c t i o n 69-3-330, MCA. T h i s i n t e r p r e t a t i o n i s b u t t r e s s e d by s e c t i o n 7-13-2202, MCA:

"Nothing i n t h i s p a r t and p a r t 23 s h a l l be s o con- s t r u e d a s r e p e a l i n g o r i n any w i s e modifying t h e p r o v i s i o n s of any o t h e r a c t r e l a t i n g t o w a t e r o r sewers .. .I1

S u r e l y , t h e l e g i s l a t u r e had i n mind t h e p r o v i s i o n s of T i t l e 69, MCA, r e g a r d i n g t h e r e g u l a t i o n , s u p e r v i s i o n , and c o n t r o l of p u b l i c u t i l i t i e s when i t e n a c t e d l e g i s l a t i o n g i v i n g r i s e t o county water d i s t r i c t s . T h e r e f o r e , w e h o l d t h a t t h e PSC i s i n v e s t e d with j u r i s d i c t i o n over county water d i s t r i c t s r e l a t i n g t o the r a t e s e t t i n g process. The PSC had t h e a u t h o r i t y t o o r d e r t h e C i t y of B i l l i n g s and t h e B i l l i n g s H e i g h t s w a t e r d i s t r i c t t o e n t e r i n t o necessary s t i p u l a t i o n s .

I n d i s p o s i n g of i s s u e s no. 3 t h r o u g h 8 , t h i s C o u r t i s g u i d e d by t h e s t a n d a r d of r e v i e w s e t f o r t h i n Cascade County Consumers A s s ' n . v. P u b l i c S e r v . Comfn. ( 1 9 6 4 ) , 1 4 4 Mont. 169, 192-193, 394 P.2d 856, 868, c e r t . d e n . , 380 U . S .

" W e have r e p e a t e d l y h e l d t h a t t h e r e w i l l be no i n t e r f e r e n c e w i t h t h e o r d e r s of t h e Commission unless:

" (1) t h e y go beyond t h e power c o n s t i t u t i o n a l l y given; o r ,

" ( 2 ) beyond t h e i r s t a t u t o r y power ; o r " ( 3 ) t h e y a r e based upon a m i s t a k e of l a w .

"However, q u e s t i o n s of f a c t may be i n v o l v e d i n d e t e r m i n a t i o n of q u e s t i o n s of law, s o t h a t a n o r d e r , r e g u l a r on i t s f a c e , may be s e t a s i d e i f i t a p p e a r s :

" (1) t h a t t h e r a t e i s s o low a s t o be c o n f i s c a t o r y and i n v i o l a t i o n of t h e c o n s t i t u t i o n a l p r o h i b i t i o n a g a i n s t t a k i n g p r o p e r t y w i t h o u t due p r o c e s s of law; or

" ( 2 ) t h a t t h e Commission a c t e d s o a r b i t r a r i l y and u n j u s t l y a s t o f i x r a t e s contrary t o evidence, o r without evidence t o support it, o r

" ( 3 ) t h a t t h e a u t h o r i t y t h e r e i n i n v o l v e d h a s been e x e r c i s e d i n such a n u n r e a s o n a b l e manner a s t o c a u s e i t t o be w i t h i n t h e e l e m e n t a r y r u l e t h a t s u b s t a n c e , and n o t shadow, d e t e r m i n e t h e v a l i d i t y of t h e ex- e r c i s e of t h e power. " ( C i t a t i o n s o m i t t e d . )

The C i t y of B i l l i n g s f i r s t c o n t e n d s t h a t t h e PSC e r r e d by r e f u s i n g t o a c c e p t p r o j e c t i o n s of f u t u r e o p e r a t i n g and maintenance e x p e n s e s . The C i t y a s s e r t s t h a t t h i s r e f u s a l amounts t o a m i s t a k e of l a w because t h e r e f u s a l was made i n

". . . a c c o r d a n c e w i t h numerous p a s t c a s e s . . ." N s t a t u t e e x i s t s denominating t h e method o r methods o

t h e PSC must u s e i n r e v i e w i n g and d e t e r m i n i n g r a t e s . In the c a s e a t b a r t h e PSC used known f i n a n c i a l d a t a s u p p l i e d by t h e C i t y of B i l l i n g s and t h e n e i t h e r added o r s u b t r a c t e d known normalized changes and a d j u s t m e n t s i n a r r i v i n g a t a test-year calculation. This Court has a l r e a d y determined t h a t u s e of t e s t - y e a r c a l c u l a t i o n and a v e r a g e - y e a r r a t e b a s e i s a c o r r e c t and p r o p e r method of v a l u a t i o n . P e t i t i o n of Montana Power Co. E t c . (1979), -Mont. -, 590 P.2d 1 1 4 0 , 36 St.Rep. 312. T h e r e f o r e , we a f f i r m t h e PSC's u s e of t h i s p a r t i c u l a r method of v a l u a t i o n i n t h e c a s e b e f o r e u s .

Secondly, t h e C i t y o f B i l l i n g s and t h e C i t y of Helena c o n t e n d t h a t t h e PSC e r r e d by r e f u s i n g t o c o n s i d e r p a s t l o s s e s s u f f e r e d by t h e municipally-owned water u t i l i t i e s , when d e t e r m i n i n g t h e new r a t e s .

I t i s c l e a r l y t h e law t h a t u t i l i t i e s may n o t s e t t h e i r r a t e s so a s t o amortize p a s t d e f i c i t s . The f o u n d a t i o n case f o r t h i s r u l e i s G a l v e s t o n E l e c . Co. v . G a l v e s t o n ( 1 9 2 2 ) , 258 U.S. 388, 395, 4 2 S.Ct. 351, 354, 66 L.Ed. 678, 683, where t h e U n i t e d S t a t e s Supreme C o u r t s t a t e d :

" A company which h a s f a i l e d t o s e c u r e from y e a r t o y e a r s u f f i c i e n t e a r n i n g s t o keep t h e i n v e s t m e n t un- i m p a i r e d and t o pay a f a i r r e t u r n , whether i t s f a i l - u r e was t h e r e s u l t of imprudence i n engaging i n t h e e n t e r p r i s e , o r of e r r o r s i n management, o r of o m i s s i o n t o e x a c t proper p r i c e s f o r i t s output, cannot e r e c t o u t of p a s t d e f i c i t s a l e g a l b a s i s f o r h o l d i n g con- f i s c a t o r y f o r t h e f u t u r e , r a t e s which would, on t h e b a s i s of p r e s e n t r e p r o d u c t i o n v a l u e , o t h e r w i s e be compensatory. "

Based on t h i s , f e d e r a l c o u r t s have c o n s i s t e n t l y a d h e r e d t o

t h e "no l o s s e s r u l e . ' ! T h i s r u l e was r e c e n t l y espoused i n (D.C. Cir. Nader v . F.C.C. / 1 9 7 5 ) , 520 F.2d 182, 202, where t h e c o u r t

stated:

" I t i s , of c o u r s e , a c a r d i n a l p r i n c i p l e of r a t e - making t h a t a u t i l i t y may n o t s e t r a t e s t o r e c o u p p a s t l o s s e s , n o r may t h e Commission p r e s c r i b e r a t e s on that principle. "

However, a s t h e C i t y c o r r e c t l y p o i n t s o u t , t h i s l i n e of cases involves only p r i v a t e investment u t i l i t i e s . The C i t y would have t h i s C o u r t d i s t i n g u i s h between m u n i c i p a l u t i l i t i e s , where no p r o f i t o r r a t e of r e t u r n i s a l l o w e d and p r i v a t e i n -v e s t m e n t u t i l i t i e s , where a p r o f i t margin i s all-owed i n t h e rate. The C i t y c l a i m s t h a t s i n c e m u n i c i p a l u t i l i t i e s have no p r o f i t margin t o f a l l back on, t h e i r l o s s e s s h o u l d be a m o r t i z e d by f u t u r e r a t e i n c r e a s e .

A d m i t t e d l y , m u n i c i p a l i t i e s a r e c a u g h t i n an i n f l a t i o n a r y squeeze. However, t h e c a s e l a w r e g a r d i n g t h e "no l o s s r u l e " does n o t r e s t r i c t t h a t r u l e t o p r i v a t e investment u t i l i t i e s . The PSC h a s n o t been unmindful of t h e problems f a c e d by t h e City. The PSC h a s i n t h e p a s t , and i n t h i s c a s e , g i v e n m u n i c i p a l i t i e s s p e c i a l t r e a t m e n t , by a l l o w i n g m u n i c i p a l i t i e s s u f f i c i e n t money t o complete a l l improvement p r o j e c t s which have been d e f e r r e d . D e f e r r a l of improvements i s one means a c i t y h a s t o p r o v i d e money f o r o t h e r e x p e n d i t u r e s . When t h e PSC g r a n t s s u f f i c i e n t f u n d s t o make up t h e s e p r o j e c t s , i t i s i n e f f e c t , making up p a s t l o s s e s of t h e c i t y under a c o n t r o l l e d p l a n . T h i s a p p e a r s t o be a b e t t e r p o l i c y r e g a r d i n g l o s s e s and t o a n e x t e n t a v o i d s i n e f f i c i e n t management. Therefore, we h o l d t h a t t h e PSC i s n o t r e q u i r e d t o c o n s i d e r t h e p a s t l o s s e s s u f f e r e d by t h e municipally-owned u t i l i t y a s p a r t of t h e r a t e b a s e f o r e s t a b l i s h i n g a new r a t e .

The C i t y of B i l l i n g s n e x t c o n t e n d s t h a t t h e PSC e r r e d by n o t c o r r e c t l y a p p l y i n g a l l of t h e C i t y ' s r e v e n u e bond c o v e r a g e t e s t s c o n t a i n e d i n t h e C i t y ' s bond o r d i n a n c e s . The C i t y p o i n t s o u t t h a t t h e s e bond o r d i n a n c e s c o n t a i n t h r e e s e p a r a t e c o v e r a g e t e s t s ; one h i s t o r i c a l i n a p p l i c a t i o n and two p r o s p e c t i v e i n a p p l i c a t i o n .

The b a s i c p u r p o s e of t h e s e c o v e r a g e t e s t s i s t o p r o v i d e some s e c u r i t y f o r p r e s e n t bond h o l d e r s . These t e s t s s t a t e t h a t t h e m u n i c i p a l i t y may n o t i n c u r new bond i n d e b t e d n e s s u n l e s s n e t r e v e n u e t o be g e n e r a t e d by t h e u t i l i t y e q u a l s a n est a b l i s h e d amount b o t h a t t h e t i m e of i s s u a n c e a s w e l l a s f o r

f i v e consecutive years following issuance. Thus, a s conceded by c o u n s e l f o r t h e C i t y a t o r a l argument, t h e s e c o v e r a g e

tests r e l a t e s o l e l y t o t h e C i t y ' s a b i l i t y t o i s s u e new bonds. I f t h e s e t e s t s c a n n o t be met by t h e r a t e s a l l o w e d by

t h e PSC, t h e C i t y c a n n o t i n c u r new i n d e b t e d n e s s ; however, t h i s d o e s n o t p l a c e e x i s t i n g bonds i n d e f a u l t .

I n e s t a b l i s h i n g a new r a t e f o r t h e C i t y o f B i l l i n g s ,

t h e PSC a p p l i e d o n l y t h e h i s t o r i c a l c o v e r a g e t e s t i n d e t e r m i n i n g t h e C i t y ' s revenue r e q u i r e m e n t s n e c e s s a r y t o s a t i s f y i t s

bond d e b t s e r v i c e f o r t h e p e t i t i o n e d a p p l i c a t i o n p e r i o d .

The C i t y of ~ i l l i n g s had a proposed bond i s s u a n c e s c h e d u l e d

f o r 1979 which c o u l d have been p r e c l u d e d f o r f a i l u r e t o m e e t t h e bond o r d i n a n c e r e q u i r e m e n t s . However, t h e PSC e l i m i n a t e d such an occurrence, a t l e a s t with regard t o r a t e s u f f i c i e n c y , by o r d e r i n g t h a t t h e C i t y ". . . upon s a l e of 1979 bond issue . . . f i l e t a r i f f s r e f l e c t i n g a n a c r o s s t h e board percentage i n c r e a s e equal t o t h e i n c r e a s e i n revenues necessary t o m e e t t h e e x p e n s e s i n c u r r e d i n t h e new bond i s s u a n c e . " Thus, t h e PSC, a l t h o u g h n o t i n s t r i c t compliance w i t h t h e C i t y o r d i n a n c e s , g r a n t e d a s u f f i c i e n t r a t e t o meet t h e C i t y ' s r e q u i r e d bond d e b t s e r v i c e amount.

There i s no d i r e c t i v e , e i t h e r s t a t u t o r y o r j u d i c i a l , which r e q u i r e s t h e PSC t o s t r i c t l y comply w i t h C i t y bond o r d i n a n c e mandates. Such o r d i n a n c e s a r e n o t b i n d i n g upon t h e PSC and t h e PSC i n no way a c t s a s a n i n s u r e r f o r m u n i c i p a l bond i s s u a n c e s . T h e r e f o r e , t h e PSC p r o p e r l y a c t e d w i t h i n i t s r e a l m of d i s c r e t i o n i n d e t e r m i n i n g t h e C i t y ' s n e c e s s a r y bond d e b t s e r v i c e r e q u i r e m e n t s and i n s e t t i n g r a t e s a c c o r d i n g l y .

The l a s t i s s u e r a i s e d by t h e C i t y of B i l l i n g s w i t h r e g a r d t o i n s u f f i c i e n c y of t h e r a t e g r a n t e d , c o n c e r n s n o r m a l i z a -t i o n of t e s t - y e a r d a t a t o r e f l e c t w e a t h e r c o n d i t i o n s . The C i t y a s s e r t s t h a t t h e PSC e r r e d i n n o t t a k i n g i n t o a c c o u n t d r o u g h t c o n d i t i o n s i n 1977, t h e y e a r which t h e PSC used a s i t s t e s t year f o r calculations. The C i t y a s s e r t s t h a t t h i s f a i l u r e on t h e p a r t of t h e PSC o v e r e s t i m a t e s t h e C i t y ' s r e v e n u e s and t h u s u n d e r e s t i m a t e s t h e needed r a t e i n c r e a s e .

The PSC h a s no s t a t u t o r y d u t y t o n o r m a l i z e t e s t - y e a r data. Therefore it i s within i t s d i s c r e t i o n t o determine

when n o r m a l i z a t i o n i s n e c e s s a r y . Testimony r e g a r d i n g n o r m a l i z a - t i o n w a s p r e s e n t e d t o t h e PSC a t t h e h e a r i n g . The c a l c u l a t i o n s of t h e PSC based on t h e 1977 t e s t - y e a r d a t a do n o t r e f l e c t

any a d j u s t m e n t s w i t h r e s p e c t t o w e a t h e r c o n d i t i o n s . Impliedly, t h e PSC deemed n o r m a l i z a t i o n u n n e c e s s a r y i n t h i s c a s e .

W e w i l l n o t s u b s t i t u t e o u r judgment f o r t h a t o f t h e PSC on a p p e a l . The PSC had e v i d e n c e b e f o r e i t upon which t o r e a c h a d e t e r m i n a t i o n on t h i s i s s u e . The PSC d i d n o t a c t u n r e a s o n a b l y n o r d i d i t e s t a b l i s h a r a t e which w a s s o low a s t o be c o n f i s c a t o r y . Cascade County Consumers A s s ' n . , supra. T h e r e f o r e , t h e PSC's d e t e r m i n a t i o n i s n o t c l e a r l y e r r o n e o u s

and must be u p h e l d . Rule 52 ( a ) , M. R.Civ. P . The C i t y of B i l l i n g s c o n t e n d s t h a t t h e PSC e r r e d i n

a l l o c a t i n g c o s t of s e r v i c e s t o t h e B i l l i n g s H e i g h t s w a t e r d i s t r i c t based upon a d i f f e r e n t e x t r a c a p a c i t y f a c t o r t h a n t h a t proposed by t h e C i t y and upon a d i f f e r e n t r a t e o f r e t u r n f o r c i t y r e s i d e n t s who r e c e i v e w a t e r from t h e D i s t r i c t . The PSC h e a r d t e s t i m o n y from a l l p a r t i e s r e g a r d i n g t h e c a l c u l a t i o n of t h e e x t r a c a p a c i t y f a c t o r t o be a s s i g n e d t h e B i l l i n g s Heights water d i s t r i c t f o r use i n a l l o c a t i n g t h e d i s t r i c t ' s c o s t s of s e r v i c e . The PSC c h o s e t o r e j e c t t h e C i t y ' s proposed e x t r a c a p a c i t y f a c t o r which was based upon a c o n t r a c t p r o v i s i o n between t h e two p a r t i e s . I n s t e a d t h e PSC c h o s e t o a s s i g n a n e x t r a c a p a c i t y f a c t o r b a s e d upon a c t u a l w a t e r u s e a s d e r i v e d from w i t n e s s e s t e s t i f y i n g f o r t h e d i s t r i c t a s w e l l a s comparisons d e r i v e d from l a r g e w a t e r consumers w i t h demands s i m i l a r t o t h e B i l l i n g s H e i g h t s w a t e r district. The PSC had s u b s t a n t i a l e v i d e n c e b e f o r e i t i n determining the e x t r a capacity f a c t o r t o be assigned t o t h e district. T h i s d e c i s i o n i s n o t c l e a r l y e r r o n e o u s and t h u s must be upheld. Rule 5 2 ( a ) , M.R.civ.P.

Secondly, t h e PSC d e t e r m i n e d t h a t C i t y r e s i d e n t s who were w a t e r c u s t o m e r s of t h e d i s t r i c t were e n t i t l e d t o t h e same c o s t of s e r v i c e b e n e f i t which i n s i d e C i t y c u s t o m e r s received. I n s i d e C i t y customers w e r e a s s i g n e d a 6 . 2 p e r c e n t r a t e of r e t u r n whereas o u t s i d e C i t y c u s t o m e r s were a s s i g n e d a 7 . 5 p e r c e n t r a t e of r e t u r n . The r e a s o n f o r t h i s d i f f e r e n t r a t e of r e t u r n was g i v e n by R o b e r t Benson, r a t e a n a l y s t f o r t h e Black & Veatch c o n s u l t i n g f i r m . H i s testimony revealed that ". . . t h e r e a r e c e r t a i n a n c i l l a r y c o s t s and o b l i g a t i o n s a s s o c i a t e d w i t h t h e Water System which t h e C i t y r e s i d e n t s alone bear i n taxes." Examples of t h e s e c o s t s and o b l i g a t i o n s a r e t V F i r e and p o l i c e p r o t e c t i o n , t h e l o n g term p r o v i s i o n and maintenance o f s t r e e t s (which may be a d v e r s e l y a f f e c t e d by o p e r a t i o n of t h e Water S y s t e m ) , and t h e o b l i g a t i o n of t h e C i t y t o p r o v i d e t h e Water System i r r e s p e c t i v e of t h e f l e x i b i l i t y which may be e x e r c i s e d by o u t s i d e C i t y r e s i d e n t s t o o b t a i n an a l t e r n a t i v e water supply ... "

A s a r e s u l t of t h i s t e s t i m o n y , t h e PSC d e t e r m i n e d t h a t

- C i t y r e s i d e n t s , r e g a r d l e s s of whether t h e y were C i t y all

w a t e r c u s t o m e r s o r d i s t r i c t w a t e r c u s t o m e r s were e n t i t l e d t o t h e c o s t of s e r v i c e b e n e f i t . T h e r e f o r e , t h e PSC o r d e r e d t h a t t h e C i t y and t h e d i s t r i c t e n t e r i n t o a s t i p u l a t i o n by which t h i s b e n e f i t c o u l d be p a s s e d on t o t h e d i s t r i c t c u s t o m e r s who r e s i d e d w i t h i n C i t y l i m i t s .

The C i t y c o n t e n d s t h a t t h e d e t e r m i n a t i v e f a c t o r i n d e c i d i n g who r e c e i v e s t h e c o s t of s e r v i c e b e n e f i t i s n o t whether t h e p a r t y i s a C i t y t a x p a y e r , b u t i n s t e a d whether

t h e p a r t y i s a C i t y w a t e r customer. W disagree. e he

a n c i l l a r y c o s t s and o b l i g a t i o n s t e s t i f i e d t o by M r . Benson a r e e l e m e n t s which C i t y t a x d o l l a r s s u p p o r t . It matters not t h a t t h e m u n i c i p a l u t i l i t y i s p a i d f o r c o m p l e t e l y by g e n e r a t e d r e v e n u e and n o t t h r o u g h t a x d o l l a r s . here fore, a l l c i t y r e s i d e n t s who a r e t a x p a y e r s a r e e n t i t l e d t o t h e c o s t of service benefit.

S i n c e w e have a l r e a d y d e t e r m i n e d t h a t t h e PSC h a s j u r i s d i c t i o n over t h e B i l l i n g s Heights water d i s t r i c t , t h e o r d e r of t h e PSC r e q u i r i n g t h e C i t y and d i s t r i c t t o e f f e c t t h e p a s s i n g on of t h e c o s t of s e r v i c e b e n e f i t t o C i t y r e s i d e n t s r e c e i v i n g w a t e r from t h e d i s t r i c t , i s v a l i d .

The C i t y n e x t c o n t e n d s t h a t t h e PSC's o r d e r r e q u i r i n g t h e C i t y t o e s t a b l i s h a n a c c o u n t t o show a c t i v i t y r e g a r d i n g f u n d s g r a n t e d f o r r e c u r r i n g a n n u a l c a p i t a l improvements i n t e r f e r e s with t h e C i t y ' s managerial a u t h o r i t y , thus contravening t h e r e q u i r e m e n t s of t h e Municipal Revenue Bond Act of 1939

and c i t y o r d i n a n c e no. 3647. W f i n d t h i s i s s u e completely e

without authority.

The PSC d e t e r m i n e d t h a t :

"An i n c r e a s e of $442,518 i n FtACI i s j u s t i f i e d and r e a s o n a b l e ; however, t h e Commission i n e x e r c i s i n g i t s regulatory d i s c r e t i o n d i r e c t s t h a t t h e Applicant i s t o keep t h e Commission c u r r e n t l y informed of t h e r e v e n u e s expended f o r FtACI. In order t o assure j u s t and r e a s o n a b l e r a t e s and s e r v i c e t h e Commission h e r e i n r e q u i r e s t h a t t h e A p p l i c a n t e s t a b l i s h and m a i n t a i n a n a c c o u n t e n t i t l e d R e c u r r i n g Annual C a p i t a l Improvements. F u r t h e r m o r e , t h e Commission r e q u i r e s t h a t t h e A p p l i c a n t p r o v i d e t h e Commission w i t h monthly r e p o r t s d e t a i l i n g a c t i v i t y i n t h i s account."

T h i s o r d e r i n no manner d i c t a t e s which p r o j e c t s may r e c e i v e C i t y C a p i t a l Improvements f u n d s . I t a l s o does n o t r e q u i r e any s p e c i f i c t i m e t a b l e f o r such e x p e n d i t u r e s . Thus, i t d o e s n o t i n t e r f e r e w i t h t h e C i t y ' s decision-making p r o c e s s w i t h r e g a r d t o t h i s fund; i t merely e s t a b l i s h e s a means of accountability.

P u r s u a n t t o s e c t i o n 69-3-106, MCA, t h e PSC i s g r a n t e d s u p e r -v i s o r y a u t h o r i t y o v e r municipally-owned utilities. This provision states that:

" (1) The commission s h a l l have a u t h o r i t y t o i n q u i r e i n t o t h e management of t h e b u s i n e s s of

a l l p u b l i c u t i l i t i e s , s h a l l keep i t s e l f informed a s t o t h e manner and method i n which t h e same i s conducted, and s h a l l have t h e r i g h t t o o b t a i n from - public u t i l i t y a l l necessary information t o any e n a b l e t h e commission t o perform i t s d u t i e s . " - (Emphasis a d d e d . )

Furthermore, s e c t i o n 69-3-202, MCA, p r o v i d e s i n p e r t i n e n t part:

" (1) Every p u b l i c u t i l i t y s h a l l keep and r e n d e r t o t h e Commission, i n t h e manner and form p r e - s c r i b e d by t h e commission, uniform a c c o u n t s of a l l business transacted."

Clearly, t h e l e g i s l a t u r e envisioned t h e p r e c i s e r e p o r t i n g r e q u i r e m e n t o r d e r e d by t h e PSC. The maintenance of t h e r e c u r r i n g a n n u a l c a p i t a l improvements a c c o u n t does n o t r u n c o n t r a r y t o t h e p r o v i s i o n s of t h e C i t y ' s bond o r d i n a n c e n o r t h e p r o v i s i o n s of t h e Municipal Revenue Bonds Act of 1939. The maintenance of such a n a c c o u n t i s a l e g i t i m a t e means by which t h e PSC c a n s t a y a b r e a s t of a c t i v i t i e s o v e r which i t h a s s u p e r v i s o r y and r e g u l a t o r y a u t h o r i t y . Therefore, t h i s a s p e c t of t h e PSC's d e c i s i o n i s a f f i r m e d .

The Montana Consumer Counsel r a i s e s two i s s u e s on a p p e a l . The Consumer Counsel f i r s t c o n t e n d s t h a t t h e PSC e r r e d w i t h r e s p e c t t o t h e C i t y ' s needed bond d e b t s e r v i c e requirements. A s s t a t e d previously, t h e PSC d e t e r m i n e d t h e C i t y of B i l l i n g s bond d e b t s e r v i c e r e v e n u e needs v i a a t e s t -y e a r method. The PSC t h e n chose t o a p p l y t h e h i s t o r i c a l c o v e r a g e f a c t o r c a l c u l a t i o n c o n t a i n e d i n bond o r d i n a n c e no. 3647, i n o r d e r t o a i d t h e C i t y i n f u t u r e bond i s s u e s . This

t e s t r e q u i r e s t h a t r e v e n u e g e n e r a t e d by t h e C i t y must a t l e a s t be 125 p e r c e n t of t h e revenue g e n e r a t e d by t h e C i t y i n

any 1 2 c o n s e c u t i v e months i n t h e 1 8 t h month p e r i o d p r i o r t o the application f o r a r a t e increase. The Consumer Counsel a s s e r t s t h a t t h i s e x t r a 25 p e r c e n t c o v e r a g e f a c t o r money d o e s n o t a c t u a l l y have t o be p a i d , f o r bond d e b t s e r v i c e , b u t c a n be used by t h e C i t y f o r o t h e r e x p e n d i t u r e s .

T h i s i s s u e s t r i k e s a t t h e h e a r t of t h e PSC's d i s c r e t i o n i n c a l c u l a t i n g revenue r e q u i r e m e n t s . The PSC d e t e r m i n e d t h e bond d e b t s e r v i c e r e v e n u e needs of t h e C i t y of B i l l i n g s and t h e y chose t o i n c l u d e t h i s c o v e r a g e f a c t o r money i n t h e i r calculations. W e f i n d t h e method employed by t h e PSC t o be w i t h i n t h e i r d i s c r e t i o n and l a w f u l . Ratemaking c h o i c e s of t h e PSC w i l l be honored by t h i s C o u r t i f w i t h i n l a w f u l parameters.

The Montana Consumer Counsel a l s o a p p e a l s t h e d e c i s i o n of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t C o u r t , a l l o w i n g t h e C i t y of B i l l i n g s t o i n t r o d u c e a d d i t i o n a l documentary e x h i b i t s f o r p u r p o s e s of j u d i c i a l review. I n l i g h t of t h i s C o u r t ' s d e c i s i o n t o a f f i r m t h e o r d e r of t h e PSC i n i t s e n t i r e t y , t h i s i s s u e i s moot.

I n c o n c l u s i o n , w e a f f i r m t h e d e c i s i o n of t h e D i s t r i c t C o u r t of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t i n a l l r e s p e c t s , e x c e p t a s t o a m o r t i z a t i o n of p a s t l o s s e s , which i s r e v e r s e d . W e a f f i r m t h e d e c i s i o n r e n d e r e d by t h e F i r s t J u d i c i a l D i s t r i c t Court. r W e concur:

Chief J u s t i c e Justice

James B. Wheelis sitting of Honorable Daniel J. Shea.