State ex rel. Pittman v. Mississippi Public Service Com'n

• Decision Date: 04 January 1989
• Docket Number: No. 57740,57740
• Citation: 538 So.2d 367
• Parties: STATE of Mississippi, ex rel. Edwin Lloyd PITTMAN, Attorney General, et al., v. MISSISSIPPI PUBLIC SERVICE COMMISSION and Mississippi Power Company.
• Court: Mississippi Supreme Court

Page 367

538 So.2d 367

102 P.U.R.4th 573

STATE of Mississippi, ex rel. Edwin Lloyd PITTMAN, Attorney General, et al., v. MISSISSIPPI PUBLIC SERVICE COMMISSION and Mississippi Power Company.

No. 57740.

Supreme Court of Mississippi.

Jan. 4, 1989.

Rehearing Denied March 8, 1989.

Edwin Lloyd Pittman and Mike Moore, Attys. Gen. by Frank Spencer, Asst. Atty. Gen., and W. Glenn Watts, Sp. Asst. Atty. Gen., Jackson, Martha Bergmark, Hattiesburg, Jesse C. Pennington, John H. Holloman, III, Robert M. Arentson, Jr., Watkins, Ludlam & Stennis, Jackson, for appellants.

Richard Wise, Jackson, Ben H. Stone, James S. Eaton, Eaton & Cottrell, Gulfport, for appellees.

En Banc.

SULLIVAN, Justice, for the Court:

On June 17 and 18, 1986, a hearing was held pursuant to an Order of the Mississippi Public Service Commission to Mississippi Power Company to file a performance evaluation plan or show cause why it could not comply. The State of Mississippi, Ex rel. Edwin Lloyd Pittman, Attorney General, Southeast Mississippi Legal Services Corporation, Mississippi Legal Services Coalition, General Motors Corporation, and Peavey Electronics Corporation intervened. On September 18, 1986, the Mississippi Public Service Commission issued its final order adopting and implementing, as a new rate, the Performance Evaluation Plan submitted by Mississippi Power Company. The intervenors/appellants appeal this order, assigning a total of seven errors. The Mississippi Public Service Commission and Mississippi Power Company, appellees, cross-appeal that the appeal should be dismissed, as this Court lacks subject matter jurisdiction over the direct appeal. In light of our disposition of this case, we address only one of the appellants' assignments and the appellees' cross-appeal.

FACTS

Shortly before November 5, 1985, Mississippi Power Company (MPC) filed with the Mississippi Public Service Commission (MPSC or Commission) a notice of intent to increase rates. On November 5, 1985, the Commission issued an order to MPC to file a Performance Evaluation Plan (PEP or plan) or to show cause why it could not comply. That order, in pertinent part, states:

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3. Under the law rates are not conditioned upon the operating efficiencies and performance of the company although such performance directly affects the revenues of the company and therefore the need for additional rates. This Commission has studied and intends to adopt some new method which will allow it to consider and monitor performance and efficiency of a company and to set rates accordingly.

4. MPC has recently filed a notice to increase rates, and it is timely and reasonable to begin the study and establishment of a new Performance Evaluation Plan with that company.

5. MPC should ... develop ... a plan which permits this commission to establish rates based upon a consideration of the company's performance.

IT IS, THEREFORE, ORDERED that MPC ... submit ... a procedure or plan whereby this Commission can, if adopted, evaluate the performance of MPC's utility responsibility and obligations, from time to time, and based upon those performance evaluations to determine the reasonableness of MPC's rates ...

On March 17, 1986, MPC filed its version of the plan at issue here. On April 4, 1986, the Commission gave notice to intervenors and to the public directing them to file comments by May 6, 1986. By the end of April, 1986, the Attorney General (AG), General Motors Corporation (GMC), Mississippi Legal Services Coalition and Southeast Mississippi Legal Services (collectively, Legal Services), had filed their notices of intervention. This cause was set for public hearing on June 17 and 18, 1986. On June 13, 1986, GMC filed a motion to dismiss the proceeding based on the Commission's lack of subject matter jurisdiction or statutory authority.

As scheduled, the hearing on the show cause order was held on June 17 and 18, 1986. The first major item on the agenda was GMC's motion to dismiss. Chairman Cochran, in denying the motion, stated that he was "of the opinion that this Commission does have the authority to review" the PEP Plan. Counsel for the AG, in response to the denial of the motion to dismiss, stated that he agreed that the Commission had the authority to review new ratemaking techniques, but that if MPSC wanted to implement the plan, the appropriate course of action would be to go to the legislature for a change in the law. Chairman Cochran then stated that he did not think that they were here to "necessarily adopt a plan" but rather to review it. Then, he stated, "If we think it has merit in some form, then certainly we'll take the appropriate action, be it going to the legislature, if we need to, to have some adjustments in the existing laws to adopt a new type of rate setting process." The record next reflects much confusion about the nature of the proceeding and the burden of proof. Counsel for Legal Services expressed concern about the possibility of this proceeding merging into a rate filing. Chairman Cochran responded:

I'm not prepared for a rate filing either ... I'm prepared to review this proposed evaluation program and see if it has merit and if there might be some alternatives or some other source of efforts to set rates other than what we commonly refer to if somebody files a rate case.

The AG's representative then requested a ruling by the Commission that this proceeding was purely investigative and would not result in a rate change. That request was denied. Extensive examination and cross-examination of all witnesses on various aspects of the PEP Plan followed. On August 7, 1986, MPSC issued an order adopting and implementing PEP with some modifications, with Commissioner Snyder dissenting.

THE PEP PLAN

The plan operates by comparing, on a quarterly basis, MPC's actual earned return on equity for the preceding twelve months with the returns of utilities with similar risks. The utilities chosen for comparison are those with the same bond rating as MPC and the plan excludes any utilities that have suspended dividends. The average cost of common equity capital of this group of utilities is calculated using a Discounted Cash Flow (DCF) model contained in the PEP Plan. This average is called the Benchmark Return on Equity (BROE or Benchmark) and represents the percentage return on equity which MPC should have received by comparison to similar companies for the past twelve months. MPC's actual Retail Return on Equity (RROE) for the preceding twelve months is calculated by using data from the utility's books. If, in any quarter, MPC's RROE is above or below the Benchmark, an adjustment in revenues might be made depending on how well the utility has performed. However, the plan places a two percent (2%) cap on any increase or decrease in revenues per quarter.

MPC's performance rating is determined through the use of seven indicators. All of these indicators were determined by formulae developed by MPC. Each of these indicators is given a percentage, so that the total weight is one (1). The weight given each indicator was decided by MPC with "fairness to all concerned in mind" but without any formula because no such formula exists.

Construction performance, measures how well the company has estimated the cost of completing any construction projects which will be included in the retail rate base and which will require three years or less to complete. The plan provides that, if a project should "substantially" increase or decrease in scope, the company may petition the Commission for approval to change the certificated estimate. Construction performance is weighted at .11.

The second indicator of MPC's performance is contribution to load factor. This indicator "measures the effectiveness and contributions of the company's efforts to utilize its facilities." Contribution to load factor is weighted at .11. The third indicator is customer satisfaction. This indicator is based on a survey conducted twice a year by a "nationally recognized survey firm" in which the firm asks three questions and then asks the customer to respond to three statements by indicating to what degree they agree or disagree with the statement. This indicator is weighted at .15.

The fourth indicator is equivalent availability which measures the "average percentage of time the fossil steam electric generating units operated by the company were ready and available to produce electricity" during the preceding twelve months. Outages beyond MPC's control are not included in the calculations. Equivalent availability is weighted at .16.

The fifth indicator is residential cost which measures how MPC's charges compare with the rates charged by other utilities in the Southeastern Electric Exchange. The rates charged by other companies are provided by NARUC Residential Electric Bills studies which are prepared twice a year. This indicator is weighted at .20.

The sixth indicator is safety and measures MPC's safety performance over the last twelve months based on the number of: employee accidents; lost time cases; days lost; and, fleet accidents. Safety is weighted at .11.

The seventh indicator is service reliability which measures reliability based on customer interruptions. Some interruptions are excluded. Reliability is weighted at .16.

When MPC's performance under these indicators is tallied, MPC's total performance rating combined with the return on equity comparison described above provide the basis for determining whether an increase/decrease in revenues is appropriate or whether MPC's revenues should remain the same. In other words, if MPC is performing well, but is also above the Benchmark Return on Equity, it will not suffer a decrease in revenues if it is within the range of no change. Conversely, if MPC is performing poorly and its actual return on equity is below the Benchmark, but within the range of no change, it will not be allowed an increase in revenues. On the other hand, if MPC's...