State ex rel. Noranda Aluminum, Inc. v. Pub. Serv. Comm'n of Missouri, s. SD 30865

• Court: Missouri Court of Appeals
• Writing for the Court: DON E. BURRELL
• Citation: State ex rel. Noranda Aluminum, Inc. v. Pub. Serv. Comm'n of Missouri, 356 S.W.3d 293 (Mo. App. 2011)
• Decision Date: 29 November 2011
• Docket Number: SD 30890,SD 30892.,SD 30888,Nos. SD 30865,s. SD 30865
• Parties: STATE ex rel. NORANDA ALUMINUM, INC., and Missouri Office of the Public Counsel, Relators–Appellants/Respondents, v. PUBLIC SERVICE COMMISSION OF the STATE of Missouri, and Union Electric Company, d/b/a AmerenUE, Respondents–Respondents/Cross–Appellants.

356 S.W.3d 293

STATE ex rel. NORANDA ALUMINUM, INC., and Missouri Office of the Public Counsel, Relators–Appellants/Respondents,

v.PUBLIC SERVICE COMMISSION OF the STATE of Missouri, and Union Electric Company, d/b/a AmerenUE, Respondents–Respondents/Cross–Appellants.

Nos. SD 30865

SD 30888

SD 30890

SD 30892.

Missouri Court of Appeals, Southern District, Division One.

Nov. 7, 2011.Rehearing Denied Nov. 29, 2011.Application for Transfer

Denied Jan. 31, 2012.

Edward F. Downey, Jefferson City, MO, for Appellant/Respondent Noranda Aluminum.

Lewis R. Mills, Jr., Jefferson City, MO. for Appellant/Respondent Missouri Office of the Public Counsel.

Jennifer Heintz, Jefferson City, MO, for Respondent/Cross–Appellant Missouri Public Service Commission.James B. Lowery, Columbia, MO, for Respondent/Cross–Appellant Union Electric Company d/b/a/ AmerenUE.DON E. BURRELL, Presiding Judge.

Noranda Aluminum, Inc. (“Noranda”) and the Missouri Office of the Public Counsel (“Public Counsel”) appeal an order of the Missouri Public Service Commission (“the Commission”) allowing Union Electric Company d/b/a AmerenUE (“AmerenUE”) to increase annual revenue collected from its Missouri customers by approximately $161.71 million. Although the order was first challenged in the circuit court—which reversed the Commission's order—on appeal to this court, we review the decision of the Commission, not that of the circuit court. ¹ State ex rel. Missouri Gas Energy v. Public Serv. Comm'n, 210 S.W.3d 330, 334 (Mo.App. W.D.2006).

In a joint brief, Noranda and Public Counsel (“Appellants”) present five points challenging the Commission's findings and rulings as to: 1) the common equity component of AmerenUE's capital structure; 2) the appropriate return on equity (“ROE”) for AmerenUE investors; 3) the recovery of excess depreciation for AmerenUE's Callaway nuclear plant (“Callaway”); 4) the fuel adjustment clause (“FAC”) permitting AmerenUE to pass on 95% of its changes in fuel costs to its customers; and 5) the treatment of increased vegetation management and infrastructure inspection expenses (“vegetation/infrastructure expenses”) incurred by AmerenUE.

Because the Commission acted within its lawful authority and its findings contested on appeal were just and reasonable, we affirm the order of the Commission.

Standard of Review

We review the Commission's decision to determine whether it was lawful and reasonable. Missouri Gas Energy, 210 S.W.3d at 334. The order is considered lawful if the Commission acted within the language of the relevant statute. Id. The order is considered reasonable “if it is supported by substantial and competent evidence on the record as a whole.” Id. We presume the Commission's order valid; the challenging party must prove its invalidity. State ex rel. Missouri Office of Pub. Counsel v. Public Serv. Comm'n of the State of Missouri, 293 S.W.3d 63, 69 (Mo.App. S.D.2009). In a rate case where the increase was suspended pending hearing, we view the evidence in the light most favorable to the Commission. Id. The Commission is also afforded the benefit of reasonable inferences that may be drawn from the facts. State ex rel. Associated Nat. Gas Co. v. Public Serv. Comm'n of the State of Missouri., 37 S.W.3d 287, 292 (Mo.App. W.D.2000). The Commission's rulings on questions of law are reviewed de novo, Environmental Utilities, LLC v. Public Serv. Comm'n, 219 S.W.3d 256, 263 (Mo.App. W.D.2007), but we defer to the Commission all determinations of witness credibility. Public Counsel, 293 S.W.3d at 69. If substantial evidence supports either of two conflicting factual propositions, we are bound by the Commission's resolution of that conflict. Id. at 80. “It is only where a Commission order is clearly contrary to the overwhelming weight of the evidence that we may set it aside.” State ex rel. Missouri Gas Energy v. Public Serv. Comm'n, 186 S.W.3d 376, 382 (Mo.App. W.D.2005).

Factual and Procedural Background

AmerenUE is a utility company that provides electric service to significant portions of Missouri. In April 2008, AmerenUE filed tariff sheets with the Commission seeking an annual revenue increase of $251 million to commence in May 2008, and the Commission suspended the tariff sheets until March 2009 in order to permit public notice and an opportunity for interested parties to intervene. Public Counsel (on behalf of the public pursuant to section 386.710 ²), Noranda, and certain other parties were permitted to intervene.³ Noranda is an industrial customer of AmerenUE that requires a significant level of electrical service to produce 571 million pounds of aluminum each year.

Public hearings were held, and the parties were allowed to file transcripts of direct, rebuttal, and surrebuttal testimony in advance of the evidentiary hearing. The evidentiary hearing was held on multiple dates in November and December, 2008. The Commission issued its findings, conclusions of law, and order on January 27, 2009.⁴ The circuit court reversed the Commission's order, remanded the case to “the [Commission] for further action [,]” and, by separate order, suspended judgment such that the funds payable by Noranda pursuant to the Commission's order would continue to accrue and be impounded in the registry of the circuit court pending conclusion of the appeal pursuant to its previous stay order.

Not every issue contested before the Commission is being appealed. As a result, the factual summary we present here focuses on the facts relevant to the resolution of Appellants' points.

The Commission stated that its order would permit “AmerenUE to increase the revenue it may collect from its Missouri customers by approximately $162.6 million, based on the data contained in the True-up Reconciliation filed by the [Commission] Staff on January 9, 2009.” ⁵ In its order approving the revised tariff sheets, the Commission stated that the Commission Staff had made a more detailed calculation regarding the increase that would result from the Commission's report and order and found the amount to be “$161,709,205 annually.”

The increase was based upon the revenue required by AmerenUE to operate as a regulated electric utility. The parties agreed on the formula that should be used to determine the revenue required by AmerenUE. That formula included consideration of operating expenses, depreciation on the plant, taxes, and an appropriate return on the utility's investment.⁶ The figures for a revenue requirement are generally “based on the costs and income the company experienced during a historical test year.” AmerenUE's “test year” was “the 12–month period ending March 31, 2008, with certain pro forma adjustments through September 30, 2008, trued-up as of September 30, 2008.”

1. Capital Structure

Although they agreed on the elements of the required revenue formula, the parties disagreed on what amounts should be included in those elements. For instance, the return requirement addresses AmerenUE's costs to obtain capital such as “generating plants, electric meters, wires and poles, and the trucks driven by AmerenUE's repair crews.” A senior capital markets specialist for Ameren Services Company, Michael O'Bryan, testified that AmerenUE's capital consists of long and short term debt, preferred stock, and common equity. The parties do not dispute the costs for AmerenUE's short and long-term debt or preferred stock, and they agree that any figure used for common equity should not include unregulated earnings.

For purposes of calculating the cost—or rate of return to investors—for common equity, O'Bryan stated in his April 2008 pre-filed, direct testimony that he was using for his initial testimony data from a twelve-month period that ended on December 31, 2007. He then testified that he planned on supplementing his “testimony with updated schedules to reflect the test year period ending March 31, 2008 when the data is available.” O'Bryan testified that his December 31, 2007, figure for common equity was “adjusted to remove the effects of its investment in its wholly-owned subsidiary, Union Electric Development Corporation.” He noted that as of January 1, 2008, this entity “was no longer a subsidiary of AmerenUE[.]” He also adjusted the common stock's book value to remove the company's “total other comprehensive income as well as the Company's investment in Electric Energy, Inc.” After these adjustments, O'Bryan calculated AmerenUE's percentage of common equity to be 51.119%.

O'Bryan testified in “supplemental direct testimony” in June 2008 that he had updated his data to reflect the twelve-month period ending on March 31, 2008, in accord with the test year specified by the Commission. Once again, O'Bryan adjusted the figure “to remove the effects of [AmerenUE's] investments in its formerly wholly-owned subsidiaries, Union Electric Development Corporation and Electric Energy, Inc. As of March 31, 2008, these subsidiaries are no longer owned by AmerenUE.” He also “remov[ed] AmerenUE's total other comprehensive income.” After adjusting the dates used for the twelve-month period and removing the stated elements, O'Bryan determined that common equity accounted for 50.928% of AmerenUE's capital structure.

In his October 2008 rebuttal testimony, O'Bryan made “a correction to reverse an incorrect adjustment that was a part of AmerenUE's March 31, 2008 common equity balance that [he] submitted in [his] supplemental direct testimony in June 2008.” O'Bryan responded as follows to questions regarding his correction.

Q. Please explain the correction you are making to AmerenUE's common equity balance.

A. When I prepared my supplemental direct testimony I incorrectly made an adjustment to AmerenUE's common equity balance. The adjustment of ($145,181,525) was to account for Undistributed Earnings of Subsidiaries (“UES”) of AmerenUE. This total UES balance has historically been subtracted from AmerenUE's common equity balance to remove any earnings related to unregulated...