State ex rel. Public Counsel v. Pub. Serv. Comm'n of State

Citation397 S.W.3d 441
Decision Date28 May 2013
Docket NumberWD 74848,WD 74849,WD 74678,WD 74850.,Nos. WD 74676,s. WD 74676
CourtCourt of Appeal of Missouri (US)
PartiesSTATE of Missouri, ex rel., PUBLIC COUNSEL, Appellant, State of Missouri, ex rel., Ameren Missouri, Appellant, State of Missouri, ex rel., Kansas City Power & Light Company and KCP & L Greater Missouri Operations Company, Appellant, v. PUBLIC SERVICE COMMISSION OF the STATE of Missouri, Respondent. Earth Island Institute, Respondent.

OPINION TEXT STARTS HERE

Paul A. Boudreau, Jefferson City, for Appellant Ameren Missouri.

Lewis R. Mills, Jr., St. Louis, for Appellant Office of Public Counsel.

Larry W. Dority, Jefferson City, for Appellant Kansas City Power & Light Company & KCP & L Greater Missouri Operations Company.

Henry B. Robertson, for Respondent Earth Island Institute.

Jennifer L. Heintz, for Respondent Public Service Commission.

Before Division Two: JOSEPH M. ELLIS, Presiding Judge, ALOK AHUJA, Judge and MARK D. PFEIFFER, Judge.

JOSEPH M. ELLIS, Judge.

Appellants Union Electric Company d/b/a Ameren Missouri (Ameren), Kansas City Power & Light Company and KCP & L Greater Missouri Operations Company (collectively KCP & L), and the Office of Public Counsel (“the OPC”) appeal from four final orders of rulemaking entered by the Public Service Commission (“the Commission”) adopting rules to implement the Missouri Energy Efficiency Investment Act, § 393.1075. For the following reasons, the four orders of rulemaking are affirmed.

In 2009, the Missouri legislature enacted the Missouri Energy Efficiency Investment Act (“the MEEIA”). The MEEIA establishes that it is Missouri's policy “to value demand-side investments equal to traditional investment in supply and delivery infrastructure and allow recovery of all reasonable and prudent costs of delivering cost-effective demand-side programs.” § 393.1075.3 RSMo Cum.Supp.2009. The MEEIA further provides that the Commission, in support of the State's demand-side investment policy, shall:

(1) [p]rovide timely cost recovery for utilities; (2) [e]nsure that utility financial incentives are aligned with helping customers use energy more efficiently and in a manner that sustains or enhances utility customers' incentives to use energy more efficiently; and (3) [p]rovide timely earnings opportunities associated with cost-effective measurable and verifiable efficiency savings.

§ 393.1075.3(1)(3). The MEEIA also instructs the Commission that it “may develop cost recovery mechanisms to further encourage investments in demand-side programs” and that, when setting rates, the Commission must “fairly apportion the costs and benefits of demand-side programs to each customer class.” § 393.1075.5.

Following the MEEIA's enactment, the Commission opened a workshop docket and ordered its staff to file a draft rule regarding implementation of the MEEIA no later than June 30, 2010. On June 17, 2010, the Commission issued its Notice Finding Necessity for Rulemaking, which opened a formal rulemaking docket. On June 30, 2010, the Staff of the Commission provided its Proposed Rules, which set forth four rules: 4 C.S.R. § 240–3.163, 4 C.S.R. § 240–3.164, 4 C.S.R. § 240–20.093, and 4 C.S.R. § 240–20.094.

On November 15, 2010, notice of the proposed rules, along with the proposed rules themselves, were published in the Missouri Register.1 The period for public comment on the proposed rules concluded on December 15, 2010, and, on December 20, 2010, a hearing was held before the Commission regarding the Proposed Rules. Seventeen entities participated in the hearing, including Appellants Ameren, KCP & L, and the OPC. Respondent Earth Island Institute d/b/a Renew Missouri (“Renew Missouri”) also participated in the public hearing.2 Amici Curiae AARP, the Consumers Council of Missouri, and Missouri Industrial Energy Consumers (collectively “Amici Curiae”) all submitted comments to the Commission concerning the proposed rules.

On February 9, 2011, the Commission issued its final Orders of Rulemaking with respect to each of the four rules. Appellants Ameren, KCP & L, and the OPC all filed motions for rehearing with the Commission. On March 14, 2011, the Commission denied their motions for rehearing. Ameren, KCP & L, and the OPC each filed a petition for writ of review by the Circuit Court of Cole County challenging the lawfulness and reasonableness of the Commission's four final orders of rulemaking. On December 27, 2011, the circuit court issued its Amended Findings of Fact, Conclusions of Law and Judgment 3 in which it affirmed the Commission's orders of rulemaking as lawful and reasonable. Each Appellant appeals from the circuit court's judgment affirming the Commission's orders of rulemaking. We have consolidated their appeals for purposes of this opinion.

The rules, as adopted in the final rulemaking orders, set forth the requirements and procedures by which electric utilities are to file for approval, modification, or discontinuation of demand-side programs with the Commission. Demand-side programs are “program[s] conducted by [a] utility to modify the net consumption of electricity on the retail customer's side of the meter including, but not limited to, energy efficiency measures, load management, demand response, and interruptible or curtailable load.” 4 C.S.R. § 240–20.094(1)(I). Stated another way, demand-side programs are programs instituted by a utility in an effort to increase energy efficiency by reducing its customers' use of and demand for electricity.

Because any reduction in consumer use of electricity ultimately affects a utility's revenue, utilities have traditionally been reluctant to implement demand-side programs. Thus, the rules also permit utilities to apply for a demand-side program investment mechanism (“DSIM”) when they apply to the Commission for approval of their demand-side programs. 4 C.S.R. § 240–20.093(1)(M). DSIMs are mechanisms approved by the Commission that encourage investments in demand-side programs. 4 C.S.R. § 240–20.093(1)(M). Under the rules, a utility's DSIM can include any or a combination of the following: (1) [c]ost recovery of demand-side program costs through capitalization of investments in demand-side programs,” (2) [c]ost recovery of demand-side program costs through a demand-side program cost tracker,” (3) [a]ccelerated depreciation on demand-side investments,” (4) [r]ecovery of lost revenues,” and (5) [u]tility incentives based on the achieved performance level of approved demand-side programs.” 4 C.S.R. § 240–20.093(1)(M).

In approving a utility's DSIM, the Commission also approves a DSIM rate. The DSIM rate is a charge attributable to a utility's DSIM that appears on customers' bills. 4 C.S.R. § 240–20.093(1)(O). Pursuant to the rules, the Commission can approve a DSIM that would permit the DSIM rate to be adjusted outside of a general rate case proceeding. 4 C.S.R. § 240–20.093(4); 4 C.S.R. § 240–20.093(1)(N).

Appellants raise the following points of error regarding the Commission's orders of rulemaking adopting rules 4 C.S.R. § 240–3.163, 4 C.S.R. § 240–3.164, 4 C.S.R. § 240–20.093, and 4 C.S.R. § 240–20.094. Ameren asserts that the Commission's orders of rulemaking are unlawful and unreasonable because (1) the Commission's definition of “lost revenues” contravenes the MEEIA in that it permits utilities to recover lost revenue only when their net system retail KWh sales drop below the level used to set rates and (2) the recovery of energy efficiency program costs occurs only on a retrospective basis thereby contravening the expressed policy objectives of the MEEIA. KCP & L contends that the Commission's orders of rulemaking are erroneous because (1) the Commission's definition of lost revenues unlawfully and unreasonably creates disincentives to investments in demand-side programs in contravention of the goals and objectives of the MEEIA; (2) the lost revenue adjustment mechanism unlawfully and unreasonably allows only for retrospective application of the lost revenue component in contravention of the goals and objectives of the MEEIA; (3) the Commission's requirements for semi-annual adjustments of DSIM rates are unlawful and unreasonable because they do not permit adjustments to lost revenue components or incentives in contravention of the goals and objectives of the MEEIA; and (4) the rules violate § 536.014. The OPC avers that the Commission's orders of rulemaking are erroneous in that (1) the rules unlawfully permit rate adjustment outside of general rate cases without having the statutory authority to do so; (2) the rules exceed the statutory authority granted to the Commission by the legislature in the MEEIA by permitting the recovery of lost revenue, (3) the Commission concluded it lacked the statutory authority to create rules, the violation of which could lead to the imposition of penalties, when it has the broad regulatory authority to impose such penalties; and (4) the Commission failed to comply with § 536.021.6(4) in the order of rulemaking pertaining to 4 C.S.R. 240–20.094 thereby making the rule unenforceable.

We begin by addressing the OPC's points of error. In its first point, the OPC asserts that the Commission erred in promulgating rules that permit DSIM rates to be adjusted outside of general rate cases because such rules are unlawful in that such adjustment mechanisms exceed the statutory authority granted to the Commission under the MEEIA. Judicial review of the Commission's order is two-fold. State ex rel. Office of Pub. Counsel v. Mo. Pub. Serv. Comm'n, 331 S.W.3d 677, 682 (Mo.App. W.D.2011). “First we must determine whether the [Commission's] order was lawful.” State ex rel. Midwest Gas Users' Ass'n v. Pub. Serv. Comm'n, 976 S.W.2d 470, 476 (Mo.App. W.D.1998). “An order's lawfulness depends on whether the [Commission's] order and decision was statutorily authorized.” Id....

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