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McDaniel v. Arkansas Public Service Commission

Court of Appeals of Arkansas, Division II and III

October 8, 2014

DUSTIN MCDANIEL, ARKANSAS ATTORNEY GENERAL, CONSUMER UTILITIES RATE ADVOCACY DIVISION, APPELLANT
v.
ARKANSAS PUBLIC SERVICE COMMISSION and ENTERGY ARKANSAS, INC., APPELLEES

APPEAL FROM THE ARKANSAS PUBLIC SERVICE COMMISSION. DOCKET NO. 12-056-U.

Dustin McDaniel, Att'y Gen., by: Emon O. Mahony, Ass't Att'y Gen., for appellant.

Tucker Raney, Assistant General Counsel of Entergy Services, Inc.; N. Wesley Hunt, Counsel of Entergy Services, Inc.; Perkins & Trotter, PLLC, by: Scott C. Trotter; and Wright, Lindsey & Jennings, by: N.M. Norton, for appellees.

ROBERT J. GLADWIN, Chief Judge. PITTMAN, WALMSLEY, HIXSON, and WOOD, JJ., agree. BROWN, J., dissents.

OPINION

Page 381

ROBERT J. GLADWIN, Chief Judge.

This case comes to us from two orders of the Arkansas Public Service Commission in Docket No. 12-056-U. In Order No. 7, the Commission found that a temporary surcharge implemented by appellee Entergy Arkansas, Inc., complied with Act 310 of 1981. In Order No. 8, the Commission approved Entergy's resulting rate schedule. The Consumer Utilities Rate Advocacy Division of the Arkansas Attorney General's Office (" the AG" ) appeals both orders after unsuccessfully urging the Commission to consider certain grounds for disapproval of the surcharge. For reversal, the AG argues that the Commission erred in failing to make findings as to those grounds and in relying on a previous Commission ruling from another docket to decide an issue in this case. We agree with both of the AG's points and reverse and remand for additional findings by the Commission.

I. Act 310 of 1981

Act 310, which is codified at Arkansas Code Annotated sections 23-4-501 to -509 (Repl. 2002), allows a utility to recover certain expenditures by imposing a surcharge on its customers outside the context of a general rate case. Recovery is allowed for expenditures reasonably incurred as a direct result of legislative or regulatory requirements relating to the protection of the public health, safety, and the environment. See Ark. Code Ann. § 23-4-502.

The surcharge mechanism is unusual in that it does not require Commission approval before its implementation. Rather, the surcharge becomes effective immediately upon being filed by the utility. Ark. Code Ann. § 23-4-504. Within thirty days of the filing and upon reasonable notice to the utility, the Commission must conduct an investigation concerning the reasonableness of the surcharge. Ark. Code Ann. § 23-4-505. Following the investigation and a hearing, the Commission may modify or disapprove the surcharge. Ark. Code Ann. § 23-4-507(a).

II. Entergy's Act 310 Filing

On July 26, 2012, Entergy filed an interim rate surcharge under Act 310. Entergy's notice to the Commission and accompanying attachments declared that, since July 1, 2010 (the end of the pro-forma period in its last general rate case), it had increased its capital expenditures by approximately $39 million based on three government mandates: 1) Nuclear Regulatory Commission (NRC) requirements to upgrade security at the Arkansas Nuclear One power plant; 2) Federal Energy Regulatory Commission (FERC) requirements to upgrade information-technology security; and 3) Arkansas Highway & Transportation Department (AHTD) requirements to relocate poles and other facilities during road projects. Entergy asserted that, pursuant to Act 310, the expenditures were reasonably incurred as a direct result of legislative or regulatory requirements relating to the protection of public health and safety and were therefore recoverable through an interim surcharge under Act 310.

The AG opposed the filing, arguing that Entergy's expenditures did not meet the purposes of Act 310. According to the AG,

Page 382

Act 310 was intended to remedy a situation in which a utility faced a " gross inequity" by being forced to spend " abnormal, significant amounts of money for the public good for which the public is not providing fair compensation in the form of just, reasonable, and sufficient rates." In this instance, the AG claimed, Entergy's expenditures were neither substantial enough, nor new and different enough, to warrant Act 310 treatment, and were in fact " probably included in current rates." The AG additionally claimed that Entergy's highway-relocation expenditures did not result from legal requirements relating to the protection of public health and safety.

III. Commission Hearing

The Commission held a hearing on Entergy's interim surcharge on February 19, 2013. Entergy witnesses Bryan Ford and Christopher Peters testified that the company had recently expended money for NRC and FERC security measures in order to comply with laws or regulations relating to public health and safety. They explained that, in response to concerns that terrorists would attack nuclear plants or disrupt a utility's computer system, the NRC and FERC promulgated new regulations requiring upgrades to physical and cyber security. With regard to Entergy's highway-relocation expenditures, Bernard Neumeier testified that, as the result of government highway projects, Entergy had spent money to relocate its distribution lines and poles. Neumeier referenced the AHTD's Utility Accommodation Policy (UAP), which mandated the relocations. He said that failure to comply with the UAP would create hazardous conditions for the public during highway construction. Neumeier also testified that the Commission had ruled in a previous docket, No. 91-078-U, that the UAP's provisions were related to public safety.

Entergy witnesses Michael Considine and Cindy Layne testified as to the manner in which Entergy's surcharge was calculated. They determined which of the expenditures at issue were not already included in Entergy's rate base, and, after performing the regulatory accounting, computed a final retail revenue requirement of about $4.4 million (later modified to about $4 million), for which each residential-rate customer would pay approximately twenty-four cents per month.

PSC Staff witness Jeff Hilton agreed that Entergy's expenditures were in compliance with Act 310. He recommended approval of the interim surcharge, with the previously mentioned accounting adjustments.

William Marcus testified for the AG that a utility's interim expenditures under Act 310 must be for the purpose of substantial additional investments. He stated that the $4 million sought by Entergy did not appear to meet the substantiality requirement because it paled in comparison to Entergy's overall revenue requirement and gross plant investment. Marcus also stated that a utility must demonstrate a " gross inequity" before utilizing the Act 310 interim surcharge. He testified that Entergy could not meet that standard because the company would soon file a new general rate case[1] in which it could recover its expenditures and, in any event, Entergy may have been over-earning since its previous general rate case and could recover its expenditures without seeking interim relief. Regarding the highway-relocation expenditures, Marcus stated that

Page 383

they were not the result of a legal or administrative mandate relating to public health and safety as required by Act 310. He also testified that the Commission should not rely on its ruling in Docket 91-078-U, where it held ...


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