## Facts

- Nashville Gas Company sought a general rate increase from the Tennessee Regulatory Authority (TRA).
- After an evidentiary proceeding, the TRA entered a final order approving increased rates and rate-design changes affecting customer classes, including large interruptible customers.
- During the proceeding, TRA staff who did not appear as advocates or parties provided technical and policy advice to the decision-making commissioners.
- The Consumer Advocate Division (CAD), acting as the statutory consumer representative, characterized these staff communications as improper ex parte contacts and moved for discovery of the communications.
- The TRA denied discovery, treating the communications as part of its internal decisional process, and issued the rate order.
- CAD petitioned for appellate review under Tennessee appellate procedures, challenging (1) the denial of discovery and alleged procedural unfairness, and (2) the legality and evidentiary support for aspects of the rate design.

## Issues

1. Whether internal advice from non-adversarial agency staff to TRA commissioners constituted improper ex parte communications requiring disclosure, and whether denial of discovery violated due process.
2. What standard of judicial review applies to TRA rate-making and rate-design decisions, and how much deference is owed to the TRA’s technical and policy judgments.
3. Whether the approved rate design (including charges affecting large-volume customers) was unlawful, arbitrary or capricious, unjustly discriminatory, or unsupported by substantial and material evidence.

## Decision

- The Court of Appeals affirmed the TRA’s rate order.
- The court held that communications from staff who played no adversarial role were permissible intra-agency консультаtion and did not violate due process.
- The court upheld the TRA’s denial of discovery into internal staff communications, finding no showing that the advice involved adversarial influence or improper extra-record factual inputs.
- Applying deferential review, the court concluded the challenged rate-design choices were supported by substantial and material evidence and fell within the TRA’s statutory discretion.

## Legal Principles

- In quasi-legislative utility rate-making, due process generally requires notice, an opportunity to be heard, and a decision grounded in the record; it does not categorically bar internal consultation with non-adversarial agency staff.
- Internal, non-adversarial staff advice to agency decisionmakers is distinct from improper ex parte communications by interested adversaries; absent a showing of prejudice or reliance on undisclosed extra-record facts, such internal communications need not be disclosed.
- Courts reviewing agency rate orders apply a substantial and material evidence standard and do not reweigh proof or substitute judicial judgment for an agency’s technical and policy determinations.
- Rate design is not confined to strict cost-of-service allocations; the regulator may consider additional factors, including the intrinsic value of service and broader policy considerations, so long as the resulting rates are within statutory bounds and not unjustly discriminatory.

## Conclusion

The court upheld the TRA’s approval of Nashville Gas’s rate increase and rate design, ruling that intra-agency advice from non-adversarial staff did not violate due process and was not subject to discovery, and that the challenged rate-making determinations were supported by substantial and material evidence and within the TRA’s discretion.


Consumer Advocate Div. v. Tenn. Regul. Auth., No. 01A01-9708-BC-00391, 1998 Tenn. App. LEXIS 428 (Tenn. Ct. App. July 1, 1998)