{ "id": 725441, "name": "HOBBS GAS COMPANY, Appellant, v. NEW MEXICO PUBLIC SERVICE COMMISSION, Appellee", "name_abbreviation": "Hobbs Gas Co. v. New Mexico Public Service Commission", "decision_date": "1993-06-22", "docket_number": "Nos. 20558, 20759", "first_page": "678", "last_page": "687", "citations": [ { "type": "official", "cite": "115 N.M. 678" }, { "type": "parallel", "cite": "858 P.2d 54" } ], "court": { "name_abbreviation": "N.M.", "id": 8835, "name": "Supreme Court of New Mexico" }, "jurisdiction": { "id": 52, "name_long": "New Mexico", "name": "N.M." }, "cites_to": [ { "cite": "102 N.M. 529", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1580041 ], "weight": 2, "year": 1985, "pin_cites": [ { "page": "531" }, { "page": "950" } ], "opinion_index": 0, "case_paths": [ "/nm/102/0529-01" ] }, { "cite": "842 F.2d 1204", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 10549033 ], "weight": 3, "pin_cites": [ { "page": "1208" }, { "page": "1205" }, { "page": "1209" } ], "opinion_index": 0, "case_paths": [ "/f2d/842/1204-01" ] }, { "cite": "590 F.2d 1250", "category": "reporters:federal", 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"reporters:state", "reporter": "N.M.", "case_ids": [ 725444 ], "weight": 2, "year": 1993, "pin_cites": [ { "page": "658" }, { "page": "769" } ], "opinion_index": 0, "case_paths": [ "/nm/115/0650-01" ] }, { "cite": "104 N.M. 36", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1594888 ], "weight": 4, "year": 1986, "pin_cites": [ { "page": "41-42" }, { "page": "1337-38" } ], "opinion_index": 0, "case_paths": [ "/nm/104/0036-01" ] }, { "cite": "94 N.M. 731", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1573092 ], "weight": 7, "year": 1980, "pin_cites": [ { "page": "735-36" }, { "page": "1120-21" }, { "page": "735" }, { "page": "1120" }, { "page": "736" }, { "page": "1121" } ], "opinion_index": 0, "case_paths": [ "/nm/94/0731-01" ] }, { "cite": "98 N.M. 749", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1582593 ], "weight": 5, "year": 1982, "pin_cites": [ { "page": "755-56" }, { "page": "1206-07" }, { "page": "755" }, { "page": "1206" } ], "opinion_index": 0, "case_paths": [ "/nm/98/0749-01" ] }, { "cite": "84 N.M. 330", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2763949 ], "weight": 2, "year": 1972, "pin_cites": [ { "page": "333" }, { "page": "313" } ], "opinion_index": 0, "case_paths": [ "/nm/84/0330-01" ] }, { "cite": "92 N.M. 721", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1557180 ], "weight": 2, "year": 1979, "pin_cites": [ { "page": "723", "parenthetical": "remanding case to Commission for entry of new order based on substantial evidence" }, { "page": "1179", "parenthetical": "remanding case to Commission for entry of new order based on substantial evidence" } ], "opinion_index": 0, "case_paths": [ "/nm/92/0721-01" ] }, { "cite": "56 N.M. 158", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1584802 ], "weight": 5, "year": 1952, "pin_cites": [ { "page": "167" }, { "page": "835" }, { "page": "169" }, { "page": "836" } ], "opinion_index": 0, "case_paths": [ "/nm/56/0158-01" ] }, { "cite": "114 N.M. 154", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 731559 ], "weight": 3, "year": 1992, "pin_cites": [ { "page": "156" }, { "page": "75" } ], "opinion_index": 0, "case_paths": [ "/nm/114/0154-01" ] }, { "cite": "75 N.M. 7", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 5376356 ], "weight": 2, "year": 1964, "pin_cites": [ { "page": "11-12" }, { "page": "651" } ], "opinion_index": 0, "case_paths": [ "/nm/75/0007-01" ] }, { "cite": "40 PUR4th 619", "category": "reporters:specialty", "reporter": "P.U.R.4th", "year": 1980, "pin_cites": [ { "page": "629" } ], "opinion_index": 1 }, { "cite": "466 F.2d 380", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 3587352, 719726 ], "year": 1972, "pin_cites": [ { "page": "390" } ], "opinion_index": 1, "case_paths": [ "/f2d/466/0380-01" ] } ], "analysis": { "cardinality": 1224, "char_count": 34515, "ocr_confidence": 0.757, "pagerank": { "raw": 1.0396681818619524e-07, "percentile": 0.5504125916221371 }, "sha256": "83047e91996228fe5e90c58b4e9745dc8acfa828a8489d4f900f60824e682283", "simhash": "1:ec2badcee3cbdadc", "word_count": 5633 }, "last_updated": "2023-07-14T14:46:31.960097+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "BACA, MONTGOMERY and FROST, JJ., concur.", "RANSOM, C.J., dissents." ], "parties": [ "HOBBS GAS COMPANY, Appellant, v. NEW MEXICO PUBLIC SERVICE COMMISSION, Appellee." ], "opinions": [ { "text": "OPINION\nFRANCHINI, Justice.\nIn these consolidated cases, Hobbs Gas Company (Hobbs) seeks review of two orders of the New Mexico Public Service Commission (Commission) pursuant to NMSA 1978, Sections 62-11-1 to -6 (Repl.Pamp.1984). The April 1, 1992, order in Case No. 2369 denied Hobbs\u2019 application for continued use of its purchased gas adjustment clause (PGAC) and required Hobbs to refund its customers close to one million dollars in \u201covercollections\u201d relating to the period September 1, 1988, to August 31, 1990. The order also disapproved Hobbs\u2019 PGAC reconciliation report for the period September 1, 1990, to August 31, 1991. Hobbs was required to file a revised reconciliation report containing computations mandated by the order and to refund approximately $521,389 in \u201covercollections\u201d later identified by the Commission for that period. Finally, the Commission ordered Hobbs to cease charging its ratepayers for \u201cfree gas,\u201d to file a rate case by July 1, 1992, and to propose appropriate overcollection refund schedules.\nThe other case under review, Case No. 2454, concerns Hobbs\u2019 noncompliance with the Commission\u2019s prior order to cease charging ratepayers through its PGAC for \u201cfree gas\u201d and to implement the correct methodology determined by the Commission in the earlier case. The order directs Hobbs to utilize the Commission\u2019s methodology in determining its PGAC. Pursuant to Section 62-11-5, we annul and vacate both orders of the Commission.\nI.\nHobbs has included a PGAC in its tariffs since 1981. A PGAC allows a company to periodically adjust rates to reflect changes in the unit cost of gas supplies. This protects a natural gas utility from sudden increases in its fuel costs by allowing the utility to pass on the increased fuel costs without having to undergo a rate case. Similarly, ratepayers automatically receive any reductions in fuel costs, without the delay of a rate case. In order to continue use of a PGAC, a utility must file an application for approval by the Commission pursuant to Purchased Gas Adjustment Clauses For Gas Utilities, NMPSC Rule 640 (June 30, 1988). Rule 640 requires a gas utility to apply to the Commission every two years for permission to continue use of the PGAC for the next two-year period. The application process requires the submission of a reconciliation audit, by which under- or overcollections for the preceding period are computed.\nRule 640.16(d) provides that the utility can either include a portion of its gas costs in its basic rates with the remaining portions to be collected through the PGAC (base rate/PGAC), or it can separate gas costs entirely from other costs, including any gas losses, through the PGAC. Hobbs uses the base rate/PGAC methodology. This form of PGAC does not contemplate a dollar-for-dollar pass through of gas costs or savings insofar as line losses and savings from reduction of line losses are concerned. Where a portion of gas costs is included in a utility\u2019s base rates, Rule 640 requires the use of a \u201cpurchase/sale ratio\u201d in the computation of gas cost and reconciliation factors used to increase or decrease the amount of recovery under the utility\u2019s rate schedules. Where a utility has experienced significant line losses, the utility will purchase more gas to meet its customers\u2019 requirements without increased sales; accordingly, the ratio of purchases to sales will exceed one. Conversely, should a utility receive unbilled gas from its suppliers, the ratio of purchases to sales will be less than one.\nSince 1985, Hobbs has received a portion of its purchased gas from suppliers without being charged for it, possibly from meter malfunctions, meter-reading errors, or other causes. In its application in Case No. 2369, as in its two preceding PGAC continuation filings, Hobbs used the same methodology for computing the portion of its costs of gas recovered through base rates and for computing its reconciliation factor. The purchase/sale ratio reported in computing the reconciliation factor and the purchase/sale ratio utilized in computing the portion of the gas recovered through base rates were determined using the amount of gas it had purchased in the numerator of the ratio and the amount of gas sold to its customers in the denominator. This was apparent from the fact that the purchase/ sale ratio shown in these calculations was less than one. In Case No. 2081, the Commission granted Hobbs the continued use of its PGAC for the periods ending August 31, 1985, and August 31, 1987. In Case No. 2246, the Commission granted Hobbs the continued use of its PGAC for the periods ending August 31, 1988, and August 31, 1989. In Case No. 2369 (one of the cases on review here) the Hearing Officer ruled that Section 640.21, when read in its entirety, requires that delivered units (which includes the unmetered, cost-free gas) be used in the numerator of the purchase/sale ratio. Even though Hobbs\u2019 use of purchased units in the numerator of the purchase/sale ratio had been tacitly approved in the two prior PGAC continuation cases, the Commission adopted the Hearing Officer\u2019s recommendation that the purchase/sale ratio be recalculated using the newly recognized \u201cproper\u201d methodology, thus holding Hobbs responsible for a refund of the difference in the sums as recalculated.\nII.\nJudicial review of a Commission\u2019s order is limited to a determination of whether the Commission acted fraudulently, arbitrarily, or capriciously, and whether the Commission\u2019s order is supported by substantial evidence. Llano, Inc. v. Southern Union Gas Co., 75 N.M. 7, 11-12, 399 P.2d 646, 651 (1964). The burden is on Hobbs to show that the order of the Commission is unreasonable or unlawful. Section 62-11-4; Behles v. New Mexico Pub. Serv. Comm\u2019n (In re Timberon Water Co.), 114 N.M. 154, 156, 836 P.2d 73, 75 (1992). This Court has no power to modify the order appealed from, but \u201cshall either affirm or annul and vacate the same.\u201d Section 62-11-5. We are required to \u201cvacate and annul the order complained of if it is made to appear to the satisfaction of the court that the order is unreasonable or unlawful.\u201d Id. If we vacate the order, we must \u201cvacate and set aside en toto.\u201d Transcontinental Bus Sys., Inc. v. State Corp. Comm\u2019n, 56 N.M. 158, 167, 241 P.2d 829, 835 (1952). We are \u201cpowerless to change, modify or amend an order by holding part of it lawful and reasonable and another part or parts unlawful or unreasonable.\u201d Id. The limitations on our power to amend or modify Commission orders are soundly grounded in the separation of powers. Amending or modifying Commission orders would be substituting our judgment for that of the Commission, and we thus would be acting legislatively and not judicially. Id. at 169, 241 P.2d at 836. However, we are not precluded from declaring or determining that parts of a Commission order are unlawful and/or unreasonable (which requires vacating and annulling en toto) but at the same time declaring other parts of the order to be reasonable and lawful. Following remand to the Commission, the Commission may properly enter an order embodying those provisions in the earlier, vacated order that have been declared reasonable and lawful. See Public Serv. Co. v. New Mexico Pub. Serv. Comm\u2019n, 92 N.M. 721, 723, 594 P.2d 1177, 1179 (1979) (remanding case to Commission for entry of new order based on substantial evidence).\nHobbs contends that requiring PGAC refunds for the period September 1, 1988, to May 1, 1992, is unreasonable and unlawful. We partially agree. \u201cAlthough a Commission should be able to change its procedure, it should not arbitrarily or capriciously do so without good reasons.\u201d Southern Union Gas Co. v. New Mexico Pub. Serv. Comm\u2019n, 84 N.M. 330, 333, 503 P.2d 310, 313 (1972). Thus, regulatory treatment which \u201cradically departs from past practice without proper notice\u201d will not be sustained. General Tel. Co. v. Corporation Comm\u2019n, 98 N.M. 749, 755-56, 652 P.2d 1200, 1206-07 (1982).\nIn General Telephone, the Commission utilized a novel and different method of calculating General Telephone\u2019s working capital in a rate case. General Telephone had calculated its working capital on the basis of a method approved and utilized by the Commission in prior rate cases. The Commission asserted that it was not bound by any particular method in determining rates. We disagreed, stating:\nThe [Commission] is bound by, and limited to, its existing rules and regulations, proper application of the law, compliance with the constitutional mandate, and by previously established methods of rate-making, absent a change in circumstances peculiar to the company and the pending case, making it necessary that there be a departure from established method.\nGeneral Telephone, 98 N.M. at 755, 652 P.2d at 1206.\nApplying this standard to the Commission\u2019s change of position, we noted that \u201c[t]he record does not reflect prior notice to [General Telephone] of any \u2018changed circumstances\u2019 affecting the method of calculating cash working capital since prior orders of the [Commission] approved the method utilized by [General Telephone].\u201d Id. Prior notice is required before any prospective change in policy can be made. To allow a radical departure from past practice, such as a new method of calculating the PGAC, to have retroactive effect without putting the utility on notice that such a change was contemplated would be inconsistent with our opinion in General Telephone.\nIn Hobbs Gas Co. v. New Mexico Public Service Commission, 94 N.M. 731, 735-36, 616 P.2d 1116, 1120-21 (1980), this Court held that application of the principles of res judicata and equitable estoppel in review of a Commission order was not error. In Hobbs, we upheld a lower court determination that the Commission was equitably estopped from retroactively applying a valuation policy which was \u201cunprecedented and contrary to previous policy of the Commission and previous orders of the Commission.\u201d Id. at 735, 616 P.2d at 1120. While acknowledging that the Commission was free \u201cto adapt to changes in circumstances in the rate-making determination from one year to the next,\u201d we also stated that the Commission may still \u201cbe bound by prior decisions as they affect a particular factual situation.\u201d Id. at 736, 616 P.2d at 1121. Thus, we stated:\n[T]he trial court found that the specific issue of acquisition adjustment had been dealt with by the Commission in a previous proceeding in a manner inconsistent with its theory in this case. Under the facts in this case that inconsistency was not allowed by the district court. We affirm the trial court on this issue.\nId.\nMountain States Telephone & Telegraph Co. v. New Mexico State Corp. Commission, 104 N.M. 36, 715 P.2d 1332 (1986), is also instructive to our analysis. In Mountain States, we held that the Commission\u2019s prospective \u201cchange in methodology\u201d was not an arbitrary and capricious departure from past Commission practice because Mountain Bell had received proper notice of the proposed change and the Commission had demonstrated that the change was justified. Id. at 41-42, 715 P.2d at 1337-38. Prior notice was shown by Mountain Bell\u2019s receipt of prefiled testimony of staff and intervenor witnesses proposing to change to the flow-through method of calculating state income tax.\nThus, Hobbs, General Telephone and Mountain States instruct us that a regulatory body is not free to change its position without good cause and prior notice to the affected parties, if the regulatory change is to be imposed retroactively. Other courts recognize that while regulatory interpretations can have retroactive effect, it is necessary to balance the competing interests to determine whether that effect is desirable or permissible. See generally 4 Kenneth C. Davis, Administrative Law Treatise \u00a7 20:7 (2d ed. 1983) (examining retroactive lawmaking). While we approved the application of principles of equitable estoppel under these circumstances in Hobbs, courts, including this one, are generally circumspect in the use of estoppel against government agencies. See Rainaldi v. Public Employees Retirement Bd., 115 N.M. 650, 658, 857 P.2d 761, 769 (1993); see also 4 Davis, supra, \u00a7 20:2 (\u201c... Supreme Court law has moved unevenly from a rigid refusal in all circumstances to apply equitable estoppel against the government to the present somewhat uncertain law that the government may be estopped in some circumstances.\u201d) Rather than analyzing the propriety of applying new regulatory interpretations retroactively as an equitable estoppel problem, courts tend to use a \u201cretroactive lawmaking\u201d analysis. As Davis notes: \u201cAn agency that creates law could be \u2018estopped\u2019 from departing from that law with respect to a party who has relied and who has had insufficient notice of the contemplated change; the customary language is not \u2018estoppel\u2019 but \u2018retroactive lawmaking.\u2019 \u201d 4 Davis, supra, \u00a7 20.12.\nBy approving Hobbs\u2019 prior PGAC\u2019s, the Commission established a practice of calculating purchase/sale ratios on the basis of gas purchased. In changing this interpretation in the most recent PGAC hearing so as to base the purchase/sale ratio on gas delivered, the Commission made its revised regulatory interpretation retroactive, effectively making new law through its adjudicatory proceeding. In SEC v. Chenery Corp., 332 U.S. 194, 67 S.Ct. 1575, 91 L.Ed. 1995 (1947), the Supreme Court held that the decision to make new law through rule-making or adjudication \u201cis one that lies primarily in the informed discretion of the administrative agency.\u201d Id. at 203, 67 S.Ct. at 1580. The question remains, however, whether to apply the ruling prospectively or retroactively. While at one time any rule properly established through adjudication would be applied with full retroactive effect, see Linkletter v. Walker, 381 U.S. 618, 622-24, 85 S.Ct. 1731,1733-35, 14 L.Ed.2d 601 (1965), \u201cthe accepted rule today is that in appropriate cases the Court may in the interest of justice make the rule prospective.\u201d Id. at 628, 85 S.Ct. at 1737.\nIn Chenery, the United States Supreme Court established a balancing test used to ascertain whether adjudicatory rulemaking should be applied prospectively only. 332 U.S. at 203, 67 S.Ct. at 1580. The court in Retail, Wholesale & Department Store Union v. NLRB, 466 F.2d 380 (D.C.Cir. 1972), elucidated the balance suggested in Chenery by focusing on the following factors:\n(1) whether the particular case is one of first impression, (2) whether the new rule represents an abrupt departure from well established practice or merely attempts to fill a void in an unsettled area of law, (3) the extent to which the party against whom the new rule is applied relied on the former rule, (4) the degree of the burden which a retroactive order imposes on a party, and (5) the statutory interest in applying a new rule despite the reliance of a party on the old standard.\nId. at 390.\nApplying the five-factor balancing test articulated in Retail, Wholesale, we find that the statutory interest in using the new method of calculating the purchase/sale ratio is outweighed by the unfairness of upsetting Hobbs\u2019 reasonable reliance on a method of calculating the purchase/sale ratio that had been tacitly approved in the past two PGAC applications.\nThe method of calculating the purchase/sale ratio has been tacitly approved for the past four years in Hobbs\u2019 PGAC applications, so it is not a question of first impression. This factor weighs against the Commission, as does the second factor, because the new rule represents an abrupt departure from the Commission\u2019s previous practice of approving Hobbs\u2019 PGAC applications that used the amount of gas purchased in the numerator of the purchase/sale ratio.\nAs to the third factor, extent of reliance, Hobbs did rely on its method of calculation, which was reasonable under its interpretation of the regulations. In Daughters of Miriam Center for the Aged v. Mathews, 590 F.2d 1250, 1262 (3d Cir.1978), the court found that a central question in the Retail, Wholesale analysis is how the party\u2019s conduct would have differed had the rule been applied from the start. As it was, Hobbs relied upon the method of calculation used in the approved PGAC application, which allowed Hobbs to sustain an income such that it had no need to apply for modification of the base rates established in its last rate case in 1982. Had the Commission given notice to Hobbs that the proper method of calculating the purchase/sale ratio was to use gas delivered in the numerator of the ratio, instead of the amount purchased, Hobbs could have filed a rate case to adjust its projected income accordingly.\nIn Southwestern Public Service Co. v. FERC, 842 F.2d 1204, 1208 (10th Cir.1988), the court noted that a good-faith reliance on a prior policy was an important factor in applying the Retail, Wholesale balancing test. In Southwestern, the Federal Energy Regulatory Commission had approved prior rate filings by Southwestern that included, since 1971, a flow-through-to-earnings method of accounting in calculating its investment tax credits. In a 1987 order entered pursuant to a rate increase request, the Commission required that all investment tax credits since 1971 be accounted for under the normalization method of investment tax credit treatment. Southwestern, 842 F.2d at 1205. The court found Southwestern\u2019s reliance upon approvals of rate applications containing accounting practices for the investment tax credits reasonable. Id. at 1209. Similarly, Hobbs has relied on approvals of PGAC\u2019s containing computations of purchase/sale ratios using the cost of purchased gas in the numerator of the ratio. If action by the agency leads to reasonable reliance on a certain interpretation of the rules, retroactive application of a change in policy is arbitrary and capricious.\nThe degree of the burden placed upon Hobbs by the new interpretation of \u201cpurchase/sale ratio\u201d is substantial. The effect is to require Hobbs to write off forty percent of its net equity and experience no cash flow in the first year of refunds. Hobbs maintains that the refund will require it \u201cto seek the protection of bankruptcy laws, and would further render it unable to meet its debts as they came due (the indicator of insolvency) or attract financing.\u201d\nFinally, we must consider the statutory interest in applying the new interpretation despite Hobbs\u2019 reliance on the old standard. It appears that the purpose the Commission is attempting to effectuate through its requirement for PGAC reports is to \u201cassure the existence of adequate regulatory control over a utility\u2019s operations under the PGAC.\u201d NMPSC Rule 640.1(b). Rule 640.14 allows the Commission to order refunds when the Commission determines that \u201cthe utility\u2019s collection of such amounts is contrary to the provisions of Rule 640 or otherwise is unjust and unreasonable.\u201d Thus, the intent of the refund is to allow for the reparation of money collected in contravention of an approved PGAC. Hobbs, however, did not collect more than was permitted under its approved PGAC. The refund is based solely on a new interpretation of the proper method for calculating the purchase/sale ratio. The amount collected from Hobbs\u2019 customers was not unreasonable, because it was based on a PGAC application approved by the Commission, nor was it unjust, considering that Hobbs\u2019 residential rates (including its PGAC) are among the lowest in the country.\nThe statutory interest in applying the new method of determining the pur.chase/sale ratio retroactively does not strike us as outweighing Hobbs\u2019 reliance interest on the method of calculation used in the approved PGAC\u2019s. Considering that Hobbs could have applied for a rate increase had-it been notified in a timely manner of the proper method of calculating the purchase/sale ratio, that the financial burden of reparations might bankrupt the utility, and that Hobbs\u2019 rates are already among the lowest in the country, it seems fundamentally unfair to apply the new interpretation to Hobbs retroactively.\nWe hold that a regulatory body cannot, without prior notice, abruptly depart from past practice on which the regulatee has relied and impose a retroactive refund requirement upon the regulatee. Therefore, the ordered refund for the period September 1, 1988, to August 31, 1990, is unreasonable and unlawful. The requirement in the order in Case No. 2369, decretal paragraph G, that Hobbs refund \u201covercollections\u201d for the period September 1, 1990, to August 1, 1991, is also unreasonable and unlawful. The Commission did not give notice of its new requirements respecting Hobbs\u2019 PGAC until April 1, 1992, when it issued the Case No. 2369 order. From that point on, Hobbs was on notice of the new regulatory treatment that would be applied to its PGAC, and at its own risk it continued using its PGAC in the way it had done before. Once notice was given, nothing prevented the Commission from adopting a new regulatory practice and applying it prospectively; if Hobbs chose not to comply, it did so at its own peril. Therefore, decretal paragraph D of the order was a reasonable and proper exercise of the Commission\u2019s regulatory authority. That paragraph directed that: \u201cBy no later than May 1,1992, Hobbs shall cease charging its ratepayers through its PGAC for free gas and implement the correct methodology determined in this case.\u201d Thus, on remand, the Commission is free to enforce the requirement that Hobbs implement the new methodology as of May 1, 1992, and may order appropriate refunds for any overcollection it finds to have occurred after that date, adjusted as may be appropriate for the passage of time, provided it either omits the requirement of using a purchase/sale ratio of 1.042067 or establishes an evidentiary basis for doing so.\nThis brings us to our next issue concerning Case No. 2454. The order in that case should be vacated. The order directs Hobbs to utilize the Commission\u2019s methodology in determining its PGAC as the means of complying with decretal paragraph D. Although we hold that the Commission was entitled to enforce the portion of its order in Case No. 2369 not stayed by this Court, the method it chose to do so lacked an evidentiary foundation and was accordingly unreasonable and unlawful. The Commission acted arbitrarily when, in calculating the amount of gas cost which cannot be passed on in its PGAC, it mandated a purchase/sale ratio of 1.042067, which imputes a 4.2 percent line loss.\nIn computing the amount of gas costs recovered through the utility\u2019s basic rates, Hobbs could no longer use a purchase/sale ratio in which the numerator was the units of gas purchased from its suppliers and the denominator was the units of gas sold to its customers. When Hobbs was receiving unbilled gas, the purchase/sale ratio was less than one. The final order required that Hobbs not merely apply a purchase/sale ratio of one but assume line losses in the reporting period equal to more than 4 percent of sales to customers. While the Commission acknowledged that a utility is entitled to retain savings from reduction of line losses between rate cases, the forced imposition of a purchase/sale ratio in excess of one assumed that Hobbs had experienced line losses in the reporting period of 4.2 percent in excess of the gas it sold to its customers. There is no evidence in the record to support this assumption. The Commission incorrectly assumed that line losses which Hobbs experienced in 1981 or 1982 accurately reflect its line losses in the 1988-90 reporting period. Uncontroverted testimony concerning Hobbs\u2019 actual experience was that it had no line losses during the reporting period. Thus, there was no factual basis for assuming that Hobbs\u2019 gas acquisitions exceeded its sales to customers by 4.2 percent. \u201cThe standard of review for appeals from administrative agencies is whether there is substantial evidence in the record as a whole to support the agency decision.\u201d Gonzales v. Pub. Serv. Comm\u2019n (In re Elec. Serv. in San Miguel County), 102 N.M. 529, 531, 697 P.2d 948, 950 (1985). Because the Commission arbitrarily required use of a purchase/sale ratio of 1.042067 without any evidentiary basis for the use of that figure, we hold that the order in Case No. 2454 is unreasonable and unlawful.\nIn view of the foregoing, we annul and vacate the Commission\u2019s orders in Case No. 2369 and in Case No. 2454. Because we vacate the order in Case No. 2454, Hobbs\u2019 contention that it is free to elect not to use a PGAC at all is moot. Moreover, Hobbs\u2019 contention that it could not be ordered to file a rate case is also moot. An order on this rate case (Case No. 2462) was issued April 30, 1993, and Hobbs is appealing.\nIT IS SO ORDERED.\nBACA, MONTGOMERY and FROST, JJ., concur.\nRANSOM, C.J., dissents.\n. Since 1985, Hobbs has filed dozens of documents disclosing that more gas was sold than purchased and that the company was experiencing negative line losses. These documents include six years of annual reports and two sets of PGAC continuation filings.\n. Decretal paragraph G in the order in Case No. 2369 provides that: \"Hobbs shall refund the amount of any overcollection which is later determined by the Commission to have taken place during the 1991 Reconciliation period (September 1, 1990 to August 31, 1991) through its corrected PGAC over the twelve-month period following the Commission's determination.\u201d\n. By order dated July 8, 1992, we refused to stay the order in Case No. 2369 insofar as that order required Hobbs to \u201ccease implementing its Purchased Gas Adjustment Clause from May 1, 1992, ... pending approval of a new PGAC.\u201d", "type": "majority", "author": "FRANCHINI, Justice." }, { "text": "RANSOM, Chief Justice\n(dissenting).\nI respectfully dissent. The Commission has designed the adjustment clause under New Mexico Public Service Commission Rule 640 to allow a natural gas utility to adjust its pricing in response to fluctuations in natural gas prices without going through the expense and delay of a rate case. Under Rule 640.14, when ordered at the discretion of the Commission, the utility must make refunds of charges collected contrary to Rule 640 (or if the collection is otherwise unjust and unreasonable). We should review the Commission\u2019s exercise of discretion to determine whether it acted arbitrarily without support of substantial evidence. I do not agree with the way the majority opinion applies this appropriate standard of review to the facts of this case.\nAt all times relevant to this case, the Commission\u2019s announced purpose for Rule 640 has been to assure that only a utility\u2019s actual legitimate gas purchase costs are recovered through the adjustment clause. Re Standard Purchased Gas Adjustment, 40 PUR4th 619, 629 (NMPSC 1980). It is undisputed that Hobbs Gas never affirmatively disclosed to the Commission that it was receiving delivery of substantial amounts of free gas which it was selling to its ratepayers. The evidence adduced before the Commission was that the Commission\u2019s staff was unaware of the purchase costs of the gas sold. Nevertheless, my colleagues on this Court believe that the inclusion of negative purchase/sales ratios in reports to the Commission imputes to the Commission as a matter of law knowledge that Hobbs Gas was receiving substantial amounts of free gas, and that the free gas had been sold to its customers for the same price as gas for which it had paid.\nFrom the imputation of knowledge of free gas, the majority opinion attributes to the Commission an \u201cestablished practice\u201d of calculating purchase/sales ratios without adjusting for free gas. From this premise, the majority then charges the Commission with \u201cchanging this interpretation so as to base the purchase/sale ratio on gas delivered.\u201d (Emphasis added.) This, in turn, gives rise to application of the balancing test suggested in Chenery to ascertain whether adjudicatory rule making should be applied retroactively. I endorse the use of a \u201cretroactive rule making\u201d analysis in favor of an equitable estoppel analysis. I question only the premise for its application and the discussion of detrimental reliance and imposition of burden under the third and fourth prongs of the balancing test as elucidated in Retail, Wholesale & Department Store Union v. NLRB, 466 F.2d at 390.\nI am impressed with the fact that, because it never adjusted its charges to account for the acquisition of the free gas, the calculations made by Hobbs Gas, resulting in the anomalous ratios, were incorrect and contrary to the adjustment clause rule. As I read the rule, the Commission is correct in its assertion that the \u201cpurchase\u201d side of the purchase/sales ratio always was supposed to include all gas delivered to the utility. The purchase/sales ratio is defined in Rule 640.21(e) under the heading of \u201cMethodology.\u201d The number to be used for the \u201cpurchase\u201d side of the ratio is the same number that is used as the divisor in the calculation of the average cost of gas. The divisor in the' calculation of the average cost of gas is \u201cthe number of units used for computing the cost of gas.\u201d Rule 640.21(b). The \u201ccost of gas\u201d factor is to be determined, in part, by applying the appropriate rates and charges to the \u201cquantities of gas delivered by each major supplier.\u201d Rule 640.21(d) (emphasis added). \u201cAppropriate rates\u201d means the price paid for a particular unit of gas that was delivered\u2014 presumably the contract price on the date of delivery. The number of delivered units is then used as the divisor in the average cost of gas calculation and in the purchase/sales ratio. Had the unmetered gas been included as delivered gas in the \u201ccost of gas\u201d calculation, the units of free gas would have resulted in a lower \u201caverage cost of gas\u201d and would have been carried through to the purchase/sales ratio, giving a ratio of more than one.\nBecause Hobbs Gas calculated its purchase/sales ratio based on an error in its cost of gas, it had an obligation under Rule 640.14 to make refunds. This error was not caught by the Commission until the third review of the adjustment clause practices of Hobbs Gas. The hearing officer found that since it was not apparent on its face, the Commission' was justified in failing to notice the effect of a purchase/sales ratio of less than one in its previous reviews. This finding was, in part, based on the fact that Hobbs Gas was the only utility that used this particular formula in reporting to the Commission. Evidence supports the finding that the Commission actually was not aware of the effect of the negative ratio, even though the ratio tacitly indicated premises from which the Commission staff could have deduced that Hobbs Gas was getting some gas for free.\nThe fact that the anomalous purchase/sales ratio was not caught the first two times it was reported did not establish a \u201cpractice\u201d by the Commission. Rather, the Commission simply committed administrative oversight. Catching the error in the third review was not a change of the rule or of the Commission\u2019s position. Because there was no change, the majority\u2019s retroactive-rule-making analysis is unnecessary. Even if the analysis should be done, I would not agree that Hobbs Gas has shown that it detrimentally relied on the \u201cformer rule,\u201d or that the question of the degree of the burden in making the refund is a proper question for this Court. I am inclined to agree with the Commission that, \u201cQuite simply, Hobbs knew that it was charging for free gas and the Commission did not.\u201d\nFinally, I fail to see how overcharging its customers could be construed as an action detrimental to Hobbs Gas other than the fact that when it was found out, Hobbs Gas had to refund money. There was no change by Hobbs Gas in reliance on the Commission\u2019s previous failures to recognize the effect of the purchase/sales ratio used; there was merely a continuation of the same behavior. Regardless of whether Hobbs Gas was \u201cprofiteering\u201d from its use of the adjustment clause, I can see no detrimental reliance that would prevent the order of a refund of charges collected contrary to Rule 640. I find it purely speculative that, as argued in the majority opinion, \u201cHad the Commission given notice to Hobbs that the proper method of calculating the purchase/sale ratio was to use gas delivered in the numerator of the ratio, instead of the amount purchased, Hobbs could have filed a rate case to adjust its projected income accordingly.\u201d\nWhile Hobbs Gas may \u201cmaintain\u201d that the refund would require it \u201cto seek the protection of bankruptcy laws, and would further render it unable to meet its debts ... or attract financing,\u201d I find in the record no irrefuted evidence establishing the truth of those dire predictions. I would leave it to the Commission to decide the degree of the burden which a retroactive order imposes on Hobbs Gas. In essence, Hobbs Gas has admitted it could pay the refund over a six-year period; and the Commission believes the utility can borrow the necessary funds now and pay the loan back over a six-year period or longer. The question for the Court should be whether this was a factual question supported below by substantial evidence.\nAlthough I agree with the recitation of the law in the majority opinion, I would dissent from the application of that law to the facts of this case and defer to the decision of the Commission, which I find to be supported by substantial evidence.\n. There was evidence that in 1981 Hobbs Gas had line losses of 4.2% of its gas, and that it used that figure in subsequent year calculations. There was no evidence that this figure was no longer accurate for line losses. The hearing examiner properly justified its use because there was no better figure available. Hobbs Gas reasonably could have been charged with knowledge of the amount of total (metered and unmetered) deliveries through use of the established line loss figure of 4.2%, i.e., sales X 1.042.\n. As the majority opinion acknowledges, one purpose of the adjustment clause is for ratepayers automatically to receive the benefit of reductions in fuel costs. Regardless of the failure of Hobbs Gas to use the proper formula for calculating the purchase/sales ratio, it violated Rule 640 by not giving its ratepayers an adjustment for the free gas.", "type": "dissent", "author": "RANSOM, Chief Justice" } ], "attorneys": [ "Simons, Cuddy & Friedman, Daniel H. Friedman, Santa Fe, for appellant.", "Lee Huffman, Com\u2019n Counsel, Santa Fe, for appellee." ], "corrections": "", "head_matter": "858 P.2d 54\nHOBBS GAS COMPANY, Appellant, v. NEW MEXICO PUBLIC SERVICE COMMISSION, Appellee.\nNos. 20558, 20759.\nSupreme Court of New Mexico.\nJune 22, 1993.\nRehearing Denied July 28, 1993.\nSimons, Cuddy & Friedman, Daniel H. Friedman, Santa Fe, for appellant.\nLee Huffman, Com\u2019n Counsel, Santa Fe, for appellee." }, "file_name": "0678-01", "first_page_order": 718, "last_page_order": 727 }