JACKSON, Miss. (Legal Newsline) - Last week, the Mississippi Supreme Court ruled that more than 180,000 Mississippi Power Company customers be granted refunds for a rate increase that was wrongly approved by the state’s Public Service Commission in 2013.
In its Feb. 12 opinion, the state’s high court concluded that the PSC failed to comply with the language of the Base Load Act and exceeded its authority granted by the law. The state law allows utility companies to charge customers for construction costs before a new plant is finished -- if ever.
As a result of the ruling, the PSC must force Mississippi Power to refund $281 million that it earned in 2013 and 2014 from the rate increases. The commission first approved a 15 percent rate hike, then an additional 3 percent increase, to help build the company’s new Kemper County energy facility.
“One component of the Act is to allow utility companies to collect prudently incurred preconstruction costs, construction costs and finance costs as incurred to reduce the finance costs, which are capitalized in the utility’s allowance for funds used during construction (‘AFUDC’) upon commercial operation,” the justices wrote, noting that AFUDC represents interest on borrowed funds, dividends on preferred stock and the imputed return on common stock.
“The Act contemplates increasing rates to pay AFUDC as incurred, which, if done, would mitigate the effect of compounding interest. However, this appeal concerns ‘mirror CWIP,’ resulting in MPC charging increased rates.”
The justices continued, “But the ratepayers’ property (money) is placed into a regulatory liability account controlled by the Commission. Thus, the money exacted is not being used to pay for funds used during construction as expenses are incurred. The ratepayers’ property (money) is being confiscated through governmental decree, by a rate increase imposed by a privately owned corporation that cannot spend it.”
Simply put, there is no authorization to impose “mirror CWIP” in the statute, the court ruled.
“An analysis of these proceedings leads to the inescapable conviction that the Commission failed to fulfill its duties and obligations pursuant to statutory directives and our existing law and that the overwhelming majority of 186,000 ratepayers was not accorded due process from the beginning,” according to the court’s 5-4 ruling. “As such, the Commission did not balance the ratepayers’ interests with those of the utility, as our law requires.
“An affirmation of the Commission’s actions would constitute a grave injustice.”
The court reversed the PSC’s order granting the rate increases and remanded the case to the commission.
In addition to the refunds, the court also ruled that rates must return to those that were in force as of March 5, 2013 -- the date of the PSC order -- and no increases will be allowed until the commission complies with the opinion.
Mississippi Power, in a statement issued the day after the court’s ruling was released, said it will seek a rehearing later this month.
“We believe collecting the costs while constructing the Kemper County energy facility helps Mississippi families realize the long-term benefits of this innovative project at the lowest possible cost,” Mississippi Power President and CEO Ed Holland said.
Approving the 18 percent increase in the 2013 rate plan mitigated what otherwise would have been a base rate increase of at least 35 percent, he said.
Under the 2013 rate order, the utility said it has collected nearly $257 million through Dec. 31, 2014. Of that, about $32 million has been recognized in income related directly to the assets at the plant that have already been placed in service, such as the mine, transmission lines and other rate base items.
Any required refunds also would include carrying costs accrued since the rate order went into effect, the company noted.
Holland said it is up to the PSC to determine how and when any required refunds would happen. Once a mandate is issued, the company will “fully comply” with all conditions required by law and commission ruling.
“Mississippi Power remains committed to acting in the best interests of its customers,” Holland said, but added that the court’s ruling could force Mississippians to pay “significantly more” to realize the same long-term benefits of the plant.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.