Nodak Electric Coop. v. N.D. Public Svc. Commission

                                                                                    FILED
                                                                            IN THE OFFICE OF THE
                                                                         CLERK OF SUPREME COURT
                                                                              DECEMBER 8, 2022
                                                                          STATE OF NORTH DAKOTA



                  IN THE SUPREME COURT
                  STATE OF NORTH DAKOTA

                                

Nodak Electric Cooperative, Inc.,              Appellant and Cross-Appellee
      v.
North Dakota Public Service Commission,
and City of Drayton,                                               Appellees
      and
Otter Tail Power Company,                      Appellee and Cross-Appellant



                                No. 20220122

Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable Douglas A. Bahr, Judge.

REVERSED AND VACATED.

Opinion of the Court by Crothers, Justice.

Kimberly J. Radermacher, Edgeley, ND, for for appellant and cross-appellee.

Paul R. Sanderson (argued), Bismarck, ND, and Robert M. Endris (appeared),
Fergus Falls, MN, for appellee Otter Tail Power Company.

Brian L. Johnson, Special Assistant Attorney General, Bismarck, ND, for
appellee North Dakota Public Service Commission.

Steven C. Ekman (on brief), Grafton, ND, for appellee City of Drayton.

Stephanie D. Engebretson (on brief), Bismarck, ND, for amicus curiae North
Dakot League of Cities.
      Nodak Electric Coop. v. N.D. Public Svc. Commission, et al.
                            No. 20220122

Crothers, Justice.

[¶1] Nodak Electric Cooperative, Inc., appeals, and Otter Tail Power
Company cross-appeals, from a district court judgment affirming the Public
Service Commission’s order relating to electric service in the City of Drayton.
We reverse the judgment and vacate the PSC’s order, concluding the PSC
lacked jurisdiction to rule on Nodak’s complaint.

                                       I

[¶2] Otter Tail provides electric service to Drayton under a franchise
agreement. In August 2019, Drayton annexed to the city property known as
McFarland’s Addition. In November 2019, an entity purchased a portion of
McFarland’s Addition with the intention of building a truck stop. In April 2020,
Drayton passed a resolution requiring Otter Tail to provide electric service to
McFarland’s Addition.

[¶3] Nodak provides electric service to rural customers outside of Drayton.
Nodak does not provide service to any customers in McFarland’s Addition;
however, it has a line running across the south side of McFarland’s Addition.
Nodak does not have a franchise from Drayton to provide electric service in the
city.

[¶4] In July 2020, Nodak filed a complaint against Otter Tail, requesting the
PSC to prohibit Otter Tail from extending electric service to McFarland’s
Addition. Nodak alleged Otter Tail’s service would interfere with Nodak’s
existing service and be an unreasonable duplication of services. In response,
Otter Tail claimed the PSC lacked jurisdiction over Drayton’s decision on which
provider could extend service within the city.

[¶5] Otter Tail moved to dismiss Nodak’s complaint, arguing Drayton had a
constitutional right to choose which service provider to use. Otter Tail claimed
N.D. Const. art. VII, § 11, grants Drayton the exclusive authority to franchise
electric service within the city. Otter Tail asserted Nodak’s complaint with the
PSC invited the PSC to invalidate the franchise between Otter Tail and
                                       1
Drayton for electric service within the city. Otter Tail argued the PSC lacked
authority to grant Nodak its requested relief of providing electric service in
Drayton because Nodak lacked a franchise to provide service in Drayton.

[¶6] After a hearing, the PSC denied Otter Tail’s motion to dismiss, denied
the relief sought in Nodak’s complaint and dismissed the complaint. The PSC
concluded Otter Tail’s extension into McFarland’s Addition would not cause
interference with Nodak’s service and would not result in unreasonable
duplication of services. Nodak appealed the PSC’s decision to the district court.
Otter Tail cross-appealed. The court affirmed the PSC’s decision. Nodak
appeals and Ottertail cross-appeals the district court’s judgment.

                                       II

[¶7] An appeal from a decision of the PSC is governed by the Administrative
Agencies Practice Act, N.D.C.C. ch. 28-32. Cap. Elec. Coop., Inc. v. City of
Bismarck, 

, 

. In an appeal to this Court from
a district court’s decision on an appeal from a PSC decision, this Court reviews
the PSC’s order in the same manner as the district court. N.D.C.C. § 28-32-49.
Under N.D.C.C. § 28-32-46, the district court must affirm the PSC’s order
unless:

      “1. The order is not in accordance with the law.
      2. The order is in violation of the constitutional rights of the
      appellant.
      3. The provisions of this chapter have not been complied with in
      the proceedings before the agency.
      4. The rules or procedure of the agency have not afforded the
      appellant a fair hearing.
      5. The findings of fact made by the agency are not supported by a
      preponderance of the evidence.
      6. The conclusions of law and order of the agency are not supported
      by its findings of fact.
      7. The findings of fact made by the agency do not sufficiently
      address the evidence presented to the agency by the appellant.
      8. The conclusions of law and order of the agency do not sufficiently
      explain the agency’s rationale for not adopting any contrary
      recommendations by a hearing officer or an administrative law
      judge.”

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The PSC’s decision on questions of law is fully reviewable. Cap. Elec., at ¶ 31.

                                      III

[¶8] Otter Tail and Drayton claim the constitution grants Drayton the
exclusive authority to franchise electric service. They argue the PSC did not
have jurisdiction to rule on the merits of Nodak’s complaint because Nodak
lacked a franchise to provide electric service in Drayton.

[¶9] Article VII, § 11, N.D. Const., provides, “The power of the governing
board of a city to franchise the construction and operation of any public utility
or similar service within the city shall not be abridged by the legislative
assembly.” See also N.D.C.C. § 40-05-01(57) (stating municipalities have the
power “[t]o grant franchises or privileges to persons, associations, corporations,
or limited liability companies.”).

[¶10] The PSC’s jurisdiction is limited to that provided by the legislature. Env’t
L. & Pol’y Ctr. v. N.D. Pub. Serv. Comm’n, 

, 

;
Cap. Elec. Co-op., Inc. v. Pub. Serv. Comm’n of State of N.D., 

 (N.D. 1995). The term “jurisdiction” has three components in the
administrative context:

      “(1) personal jurisdiction, referring to the agency’s authority over
      the parties and intervenors involved in the proceedings; (2) subject
      matter jurisdiction, referring to the agency’s power to hear and
      determine the causes of a general class of cases to which a
      particular case belongs; and (3) the agency’s scope of authority
      under statute.”

Env’t L. & Pol’y Ctr., at ¶ 11. A party may raise the issue of subject matter
jurisdiction at any time. Great Plains Royalty Corp. v. Earl Schwartz Co., 

, 

. When raised, the jurisdictional issue is
predominant:

      “Jurisdiction precedes adjudication. Before a court may say
      anything worth listening to regarding the (de)merits of a party’s
      claim, that court must have authority to speak. That court has
      such authority only when the claim is one within the court’s subject
      matter jurisdiction and after the court has acquired personal

                                        3
      jurisdiction of the parties. If the court is without jurisdiction—
      subject matter or personal—no one is bound by anything the court
      may say regarding the (de)merits of the case.”

Smith v. City of Grand Forks, 

 (N.D. 1991) (quoting Petters
v. Petters, 

 (Miss. 1990)).

[¶11] Chapter 49-03, N.D.C.C., governs electric utility franchises and is known
as the Territorial Integrity Act. Cap. Elec. Co-op., Inc., 

. As
defined in the Act, Otter Tail is an “electric public utility,” and Nodak is a “rural
electric cooperative.” N.D.C.C. §§ 49-03-01.5(2) and (6). Both entities are
“electric providers” under N.D.C.C. § 49-03-01.5(1).

[¶12] Under the Act, an electric public utility must obtain a certificate of public
convenience and necessity from the PSC before extending electric service
outside a municipality. Cap. Elec. Co-op., Inc., 

; N.D.C.C. §§
49-03-01 and 49-03-01.1. The Act “explicitly gives the PSC jurisdiction to hear
and determine an electric public utility’s application for a certificate of public
convenience and necessity to extend service to areas outside the corporate
limits of a municipality.” Cap. Elec. Co-op., Inc., at 591.

[¶13] An electric public utility need not obtain a certificate of public
convenience and necessity to extend its electric service within a city’s corporate
limits where it has commenced lawful operations. N.D.C.C. § 49-03-01.3.
However, a public utility’s extension within a city’s corporate limits “shall not
interfere with existing services provided by a rural electric cooperative or
another electric public utility within such municipality; and provided
duplication of services is not deemed unreasonable by the commission.” Id. If
an electric public utility “interferes with or threatens to interfere with the
service or system of any other electric public utility or rural electric
cooperative,” the aggrieved party may file a complaint with the PSC. N.D.C.C.
§§ 49-03-01.4(1) and 49-03-05. After notice and hearing, the PSC may restrain
or enjoin the electric public utility “from constructing or extending its
interfering lines, plant, or system.” N.D.C.C. § 49-03-01.4(1). The concluding
sentence of N.D.C.C. ch. 49-03 provides, “Nothing in this chapter shall be
construed to limit the authority of a governing board of a city to exercise its
franchise authority under section 40-05-01.” N.D.C.C. § 49-03-06(8).
                                         4
[¶14] Here, Otter Tail lawfully provides Drayton electric service under a
franchise agreement. After the annexation of McFarland’s Addition, Drayton
passed a resolution stating “Otter Tail Power Company is obligated under its
existing franchise agreement to provide electrical service to McFarland’s
Addition.” Nodak filed a complaint against Otter Tail, alleging Otter Tail’s
proposed extension of service to McFarland’s Addition would interfere with
Nodak’s existing service and be an unreasonable duplication of services.

[¶15] The PSC declined to address Otter Tail’s motion to dismiss and
constitutional argument, concluding “[s]uch determination may be better
suited for [the] judiciary to decide.” The PSC further concluded, “However,
N.D.C.C. § 49-03-01.3 provides that the Commission has jurisdiction to prevent
interference with existing services and unreasonable duplication caused by an
electric utility extension.” The district court also declined to address Otter
Tail’s constitutional argument, concluding “this Court reviews the
Commission’s Order and the Commission’s Order does not address those
issues.” The court concluded Nodak’s appeal could be resolved on the merits
without addressing the constitutional issue.

[¶16] Otter Tail and Drayton claim N.D. Const. art. VII, § 11 grants Drayton
the exclusive authority to franchise electric service. They contend that because
Nodak does not provide electric service to McFarland’s Addition or have a
franchise to provide electric service in Drayton, the PSC lacked authority to
rule on the merits of Nodak’s complaint. Otter Tail and Drayton do not argue
the Territorial Integrity Act is unconstitutional; rather, the Act must be read
in conjunction with a city’s constitutional authority to franchise electric
service. Otter Tail argues the PSC has jurisdiction to hear the complaint only
if both Otter Tail and Nodak are authorized to provide electric service in the
city. We agree.

[¶17] In Cap. Elec. Coop., Inc. v. City of Bismarck, 

, Montana-
Dakota Utilities Company (MDU), an electric public utility, and Capital
Electric Cooperative, a rural electric cooperative, sought to extend electric
service to an annexed area of Bismarck. Both electric providers had franchises
to provide electric service within Bismarck. Id. at ¶¶ 2-3. Bismarck decided
MDU was entitled to provide service to the annexed area. Id. at ¶ 6. Capital

                                       5
Electric filed a complaint with the PSC, seeking to enjoin MDU from providing
service to the annexed area. Id. at ¶ 8. After a hearing PSC decided Capital
Electric was entitled to provide service to the annexed area. Id.

[¶18] On appeal, we recognized a city’s constitutional and statutory franchise
authority. Cap. Elec., 

 (citing N.D. Const. art. VII, § 11 and
N.D.C.C. § 40-05-01(57)). After recognizing both MDU and Capital Electric had
franchises to provide electric service in Bismarck, we stated:

      “Under North Dakota law, Capital Electric must have a franchise
      to serve Boulder Ridge after that area was annexed to Bismarck.
      See Montana-Dakota Utils. Co. v. Divide County Sch. Dist., 

 (N.D. 1971) (holding right of electric
      cooperative without franchise to provide electric service to area
      outside city terminated when area became annexed to city that
      required franchise to provide service within city). If both MDU and
      Capital Electric have franchises to provide electric service to
      Boulder Ridge, the PSC has authority to decide whether either
      entity’s extension of services in Boulder Ridge will unreasonably
      interfere with and duplicate services of the other under N.D.C.C.
      § 49-03-01.3 and this Court’s decisions culminating in Cass County
      Elec. Coop. v. N.S.P., 

 (N.D. 1988), and N.S.P. v.
      P.S.C., 

 (N.D. 1990). In Cass County Elec. Coop.,
      

, both a public utility and a rural electric
      cooperative were authorized by the City of Fargo to serve the South
      Pointe area that had been annexed to Fargo. This Court decided
      the PSC must look at both entities’ existing facilities in the entire
      surrounding area to determine whether the public utility’s
      extension of services into South Pointe would constitute an
      unreasonable duplication of capital-intensive facilities and
      services already provided by the rural electric cooperative and
      remanded for further proceedings. 

. After remand, this
      Court held that a preponderance of evidence supported the PSC’s
      decision that the public utility’s extension of services into the
      South Pointe area was a duplication of the electric cooperative’s
      facilities in the area. N.S.P., 

.

      ...

            “We conclude the ‘non-exclusive’ franchises, when construed
      as a whole and in conjunction with the area service agreement,
                                       6
      authorize both Capital Electric and MDU to provide electric
      service in Bismarck as ‘now, or hereafter constituted’ and Capital
      Electric’s franchise does not preclude it from serving Boulder
      Ridge. The practical effect of interpreting the franchises to give
      both Capital Electric and MDU a franchise in the Boulder Ridge
      area is that the issue of unreasonable duplication is subject to the
      jurisdiction of the PSC under N.D.C.C. § 49-03-01.3 and this
      Court’s decisions culminating in Cass County Elec. Coop., 

, and N.S.P., 

. In the absence of
      any explicit language providing otherwise, we believe that
      interpretation ultimately favors the public’s interest in preventing
      unreasonable duplication of facilities, while recognizing a
      municipality’s constitutional authority to grant a franchise. That
      interpretation does not interfere with Bismarck’s constitutional
      authority to issue a utility franchise; rather, that interpretation
      recognizes that Bismarck has granted both Capital Electric and
      MDU a franchise for Boulder Ridge.”

Cap. Elec., at ¶¶ 13, 27. This Court concluded both MDU and Capital Electric
had a franchise to serve the annexed area of Bismarck, and the PSC had
jurisdiction to hear Capital Electric’s complaint and decide the issue of
unreasonable duplication of services under N.D.C.C. § 49-03-01.3. Cap. Elec.,
at ¶¶ 13, 27. We interpreted the PSC’s authority to decide disputes arising
under N.D.C.C. § 49-03-01.3 to avoid conflict with Bismarck’s constitutional
authority to franchise public utilities. Cap. Elec., at ¶ 27.

[¶19] Under the Territorial Integrity Act, the PSC has jurisdiction when an
electric public utility proposes to extend electric service outside the corporate
limits of a municipality. Cap. Elec. Co-op., Inc. v. Pub. Serv. Comm’n of State
of N.D., 

; N.D.C.C. §§ 49-03-01 and 49-03-01.1. However,
when a public utility extends electric service within a city’s limits, the PSC’s
jurisdiction is limited by the city’s constitutional authority to franchise electric
service. If the utility’s extension threatens to interfere with another electric
provider’s authorized service within the city, the PSC has jurisdiction to decide
whether there would be interference or an unreasonable duplication of
services. Cap. Elec., 

; N.D.C.C. § 49-03-01.3.

[¶20] Here, Drayton exercised its constitutional franchise authority and
contracted with Otter Tail to provide electric service in the city. Nodak does not
                                         7
have a franchise to provide service in Drayton, nor did it provide service to
McFarland’s Addition. After Drayton annexed McFarland’s Addition, Drayton
passed a resolution obligating Otter Tail to provide service to McFarland’s
Addition under the existing franchise agreement. See Montana-Dakota Utils.
Co. v. Divide Cty. Sch. Dist., 

 (stating a city’s powers are
extended to annexed property).

[¶21] Otter Tail is not extending its service outside Drayton’s city limits under
N.D.C.C. § 49-03-01.1. Additionally, Otter Tail’s extension will not interfere
with another existing lawful service nor be an unreasonable duplication of
services under N.D.C.C. § 49-03-01.3 because Nodak does not provide electric
service to McFarland’s Addition or have a franchise with Drayton. Therefore,
the PSC was without jurisdiction under N.D.C.C. ch. 49-03 to hear Nodak’s
complaint.

[¶22] Otter Tail’s motion to dismiss should have been granted because the PSC
did not have jurisdiction to hear Nodak’s complaint. The district court erred in
affirming the PSC’s order because the “order [was] not in accordance with the
law.” N.D.C.C. § 28-32-46(1). Therefore, we reverse the judgment and vacate
the PSC’s order.

                                      IV

[¶23] We have considered the parties’ remaining arguments and conclude they
are either without merit or not necessary to our decision. We reverse the
judgment and vacate the PSC’s order.

[¶24] Jon J. Jensen, C.J.
      Gerald W. VandeWalle
      Daniel J. Crothers
      Lisa Fair McEvers
      Jerod E. Tufte




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