This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
Hobbs Gas Company (Hobbs) included a Purchased Gas Adjustment Clause (PGAC) in its tariffs since 1981, allowing it to adjust rates to reflect changes in gas costs without undergoing a rate case. The New Mexico Public Service Commission (Commission) denied Hobbs' application to continue using the PGAC, ordered refunds for alleged overcollections from customers, and required Hobbs to cease charging ratepayers for "free gas." The dispute arose over the methodology used to calculate the purchase/sale ratio in the PGAC, which the Commission retroactively altered (paras 1-5).
Procedural History
- Case No. 2081: The Commission approved Hobbs' PGAC for periods ending August 31, 1985, and August 31, 1987 (para 5).
- Case No. 2246: The Commission approved Hobbs' PGAC for periods ending August 31, 1988, and August 31, 1989 (para 5).
- Case No. 2369: The Commission denied Hobbs' application to continue using the PGAC, ordered refunds for overcollections, and required changes to the PGAC methodology (paras 1-2).
- Case No. 2454: The Commission found Hobbs noncompliant with its prior order and directed it to use the revised methodology for its PGAC (para 2).
Parties' Submissions
- Appellant (Hobbs Gas Company): Argued that the Commission's retroactive application of a new methodology for calculating the purchase/sale ratio was unreasonable and unlawful. Hobbs contended that it relied on the previously approved methodology and that the retroactive refund order would cause severe financial harm, potentially leading to bankruptcy (paras 7, 17-19).
- Appellee (New Mexico Public Service Commission): Asserted that Hobbs' methodology violated Rule 640 by failing to account for free gas and that the retroactive refunds were necessary to correct unjust and unreasonable overcollections. The Commission maintained that Hobbs had not disclosed the receipt of free gas and that the new methodology was consistent with regulatory principles (paras 27-32).
Legal Issues
- Was the Commission's retroactive application of a new methodology for calculating the purchase/sale ratio unreasonable or unlawful?
- Did the Commission act arbitrarily or capriciously in ordering Hobbs to refund overcollections and cease charging for free gas?
- Was the Commission's imposition of a specific purchase/sale ratio without evidentiary support reasonable?
Disposition
- The Supreme Court of New Mexico annulled and vacated the Commission's orders in Case Nos. 2369 and 2454 (paras 22-25).
Reasons
Majority Opinion (Per Franchini J., with Baca, Montgomery, and Frost JJ. concurring):
Retroactive Application of New Methodology: The Court held that the Commission's retroactive application of a new methodology for calculating the purchase/sale ratio was unreasonable and unlawful. Hobbs had reasonably relied on the previously approved methodology, and the Commission failed to provide prior notice of the change. Retroactive application imposed an undue financial burden on Hobbs, violating principles of fairness and regulatory consistency (paras 7-21).
Lack of Evidentiary Support: The Commission's imposition of a purchase/sale ratio of 1.042067, which assumed a 4.2% line loss, lacked evidentiary support. The Court found no evidence of such line losses during the relevant period, rendering the Commission's order arbitrary and capricious (paras 23-24).
Prospective Application Permitted: The Court clarified that while the Commission could adopt a new methodology and apply it prospectively, it could not impose retroactive refunds based on the revised approach. The Commission was free to enforce the new methodology from May 1, 1992, onward (paras 22, 24).
Dissenting Opinion (Per Ransom C.J.):
Commission's Authority: Chief Justice Ransom dissented, arguing that the Commission acted within its discretion to enforce Rule 640 and require refunds for charges collected contrary to the rule. He emphasized that Hobbs failed to disclose its receipt of free gas and that the Commission's actions were supported by substantial evidence (paras 27-32).
No Established Practice: The dissent rejected the majority's characterization of the Commission's prior approvals as an "established practice." Instead, Ransom viewed the Commission's earlier inaction as administrative oversight, not a tacit endorsement of Hobbs' methodology (paras 28-30).
Burden on Hobbs: The dissent found no compelling evidence that the refund order would bankrupt Hobbs and deferred to the Commission's judgment on the financial burden imposed (paras 33-34).