Mississippi Power Company, Inc. v. Mississippi Public Service Commission

• Court: Mississippi Supreme Court
• Decided: February 12, 2015
• Docket: 2012-UR-01108-SCT
• Status: Published

Opinion

IN THE SUPREME COURT OF MISSISSIPPI

NO. 2012-UR-01108-SCT

MISSISSIPPI POWER COMPANY, INC.

v.

MISSISSIPPI PUBLIC SERVICE COMMISSION AND THOMAS A. BLANTON

DATE OF JUDGMENT: 06/22/2012 TRIAL COURT ATTORNEYS: BEN HARRY STONE RICKY J. COX MICHAEL ADELMAN CHRISTA R. BISHOP C. STEPHEN STACK SHAWN S. SHURDEN COURT FROM WHICH APPEALED: MISSISSIPPI PUBLIC SERVICE COMMISSION ATTORNEYS FOR APPELLANT: BEN HARRY STONE TIMOTHY ALAN FORD RONALD WADE ROBERTSON, JR. RICKY J. COX LEO ERNEST MANUEL ATTORNEYS FOR APPELLEES: OFFICE OF THE ATTORNEY GENERAL BY: JUSTIN L. MATHENY SHAWN STEPHEN SHURDEN MICHAEL ADELMAN NATURE OF THE CASE: CIVIL - UTILITY RATE DISPOSITION: REVERSED AND REMANDED - 02/12/2015 MOTION FOR REHEARING FILED: MANDATE ISSUED:

CONSOLIDATED WITH

NO. 2013-UR-00477-SCT

THOMAS A. BLANTON v.

MISSISSIPPI POWER COMPANY, INC. AND MISSISSIPPI PUBLIC SERVICE COMMISSION

DATE OF JUDGMENT: 03/05/2013 COURT FROM WHICH APPEALED: MISSISSIPPI PUBLIC SERVICE COMMISSION ATTORNEY FOR APPELLANT: MICHAEL ADELMAN ATTORNEYS FOR APPELLEES: BEN HARRY STONE RICKY J. COX LEO ERNEST MANUEL RONALD WADE ROBERTSON TIMOTHY ALAN FORD OFFICE OF THE ATTORNEY GENERAL BY: JUSTIN L. MATHENY SHAWN STEPHEN SHURDEN NATURE OF THE CASE: UTILITY RATE DISPOSITION: REVERSED AND REMANDED - 02/12/2015 MOTION FOR REHEARING FILED: MANDATE ISSUED:

EN BANC.

RANDOLPH, PRESIDING JUSTICE, FOR THE COURT:

¶1. Thomas Blanton asks this Court to invalidate rate increases approved by the Public

Service Commission (“Commission”) for Mississippi Power Company (“MPC”). An

examination of controlling law and statutes, the Constitutions of the United States and

Mississippi, and a comprehensive review of the proceedings before us reveals that the

Commission failed to comply with the language of the Base Load Act,1 inter alia, and

exceeded its authority granted by the Act. The increased rates were achieved by including

“mirror CWIP” in the rate base and rates. Following the inclusion of “mirror CWIP,” the

1 Miss. Code Ann. §§ 77-3-101 to 77-3-109 (Rev. 2009).

2 Commission “approve[d] the retail revenue adjustment over 2013 and 2014 . . . allow[ing]

the Company an annual rate designed to collect $125,000,000 for 2013, escalating to

$156,000,000 in 2014. This represents a 15% and 3% increase, respectively.” Commission’s

Final Order, p. 24 (Mar. 5, 2013).2 The increased rates on 186,000 South Mississippi

ratepayers fail to comport with the Act or, otherwise, with our law. Accordingly, the order

granting rate increases is reversed, and this matter is remanded to the Commission for

proceedings consistent with this opinion.

I. BACKGROUND

¶2. In State ex rel. Pittman v. Mississippi Public Service Commission, 520 So. 2d 1355

(Miss. 1987), this Court declared no authority existed for the Commission to “grant a rate

increase for power never delivered.” Pittman, 520 So. 2d at 1363. Twenty-one years later,

the Legislature passed the Base Load Act as an alternative method of cost recovery for base

load generation, “eff[ective] from and after passage (approved May 9, 2008).” See Miss.

Code Ann. §§ 77-3-101 to 77-3-109. Section 77-3-105(1)(a) reads:

The commission is fully empowered and authorized to include in an electric public utility’s rate base and rates, as used and useful components of furnishing electric service, all expenditures determined to be prudently-incurred pre-construction, construction, operating and related costs that the utility incurs in connection with a generating facility (including but not limited to all such costs contained in the utility’s “Construction Work in Progress” or “CWIP” accounts), whether or not the construction of any

2 “The Commission notes that the annual revenue adjustment will not be collected in full; that is, an annual rate designed to collect $125 million will actual collect $99 million from April – December 2013. The Commission also points out that the Commission, this day, has approved a rate reduction of approximately 2.7% relating to MPC’s non-Kemper business, which will reduce the impact to ratepayers related to the CWIP collection.” Commission’s Final Order, p. 24 (Mar. 5, 2013).

3 generating facility is ever commenced or completed, or the generating facility is placed into commercial operation. However, all costs incurred before May 9, 2008 may be reflected in rates only upon an order of the Public Service Commission after a finding of prudency.

Miss. Code Ann. § 77-3-105(1)(a) (Rev. 2009) (emphasis added). Section 77-3-105(b) reads:

The commission is further empowered and authorized to allow a public utility to accrue a just and reasonable rate of return to be determined by the commission on the unrecovered balance of any pre-construction or construction costs which shall include all costs incurred before May 9, 2008 and such costs may be reflected in rates only upon an order of the Public Service Commission after a finding of prudency.

Miss. Code Ann. § 77-3-105(1)(b) (emphasis added). The Act permits recovery of prudently

incurred “preconstruction” costs, even if construction never “commence[s]”; permits

recovery of prudently incurred “construction” costs, even if the plant is never “completed”;

and permits recovery of prudently incurred “operating and related costs,” even if the facility

is never “placed into commercial operation.” The Act further permits a “just and reasonable

rate of return,” only upon a determination of prudency. Whether it be costs incurred or a rate

of return, the Commission is required to make a determination of prudency.

¶3. Following its enactment, MPC, whose assets then totaled approximately $2 billion

($2,000,0000,000), petitioned the Commission to approve the Kemper Project, projecting a

net cost of $2.2 billion ($2,200,000,000) and a completion date of May 2014. In its most

recent “Monthly Status Report” to the Commission in Docket No. 2009-UA-0014, dated

February 3, 2015, MPC now projects the costs at more than $6.172 billion ($6,172,200,000),

a 281% increase from the original net cost. There has been an increase of $68 million

($68,000,000) since MPC’s monthly status report filed on October 2, 2014 – a $25 million

($25,000,000) increase reported on January 2, 2015, and a $43 million ($43,000,000)

4 increase reported on February 3, 2015.3 The original certification for $2.88 billion

($2,880,0000,000) is less than one half of the now-projected costs. Construction of the

project continues under a temporary certificate.

¶4. MPC requested approval of its Certified New Plant, Rate Schedule CNP-A, a rate

mechanism designed to provide recovery of the construction financing costs during the

construction period.4 The Commission denied MPC’s CNP-A rate schedule, and MPC

appealed the denial to this Court, arguing that the Commission acted arbitrarily and

capriciously when it denied MPC CWIP recovery. Blanton intervened in the appeal and also

filed a separate appeal. By agreement, MPC and the Commission dismissed MPC’s appeal.

However, Blanton’s appeal is properly before this Court.

II. ISSUES

¶5. Blanton’s arguments, inter alia, are stated verbatim as follows:

1. Do CWIP assessments under the Mississippi “Base Load Act” (Section 77-3-101, et seq., of the Mississippi Code of 1972, as amended) constitute an unauthorized illegal tax?

2. Is Section 77-3-101, et seq. (The Base Load Act) in violation of the Mississippi Constitution and the Constitution of the United States?

3. Do CWIP assessments under the Mississippi “Base Load Act” constitute substantive confiscatory takings in violation of the Due Process Clause of the Fourteenth Amendment to the United States

3 To put the expanse of the project in context, the projected cost is greater than the entire budget for the State of Mississippi for both the 2014 fiscal year ($5,772,010,253) and the 2015 fiscal year ($6,073,368,771). As of the date of this opinion, the portion of the plant which uses integrated gasification combined cycle (IGCC) is not online. 4 As referenced in MPC’s briefs, MPC was seeking to recover financing costs “as they are incurred instead of compounding those costs until the plant is complete.”

5 Constitution and/or the Due Process Clause of the Mississippi Constitution (Art. 3, § 14)?

4. Whether the “Settlement Agreement” is an invalid instrument and should be vacated.

III. STANDARD OF REVIEW

¶6. “When reviewing the constitutionality of a legislative enactment, there is a strong

presumption of validity. . . .” City of Starkville v. 4-Cnty. Elec. Power Ass’n, 909 So. 2d

1094, 1112 (Miss. 2005) (citing Richmond v. City of Corinth, 816 So. 2d 373, 375 (Miss.

2002)). However, it is well-settled that “a constitutional question will be passed on where the

issues involved in a particular case are such that the case may be decided on other grounds.”

Warner-Lambert Co. v. Potts, 909 So. 2d 1092, 1093 (Miss. 2005) (citing Broadhead v.

Monaghan, 238 Miss. 239, 255, 117 So. 2d 881, 888 (1960)).5

¶7. Pursuant to Section 77-3-72 of the Mississippi Code, the Commission’s Order

shall not be vacated or set aside either in whole or in part, except for errors of law, unless the court finds that the order of the commission is not supported by substantial evidence, is contrary to the manifest weight of the evidence, is in excess of the statutory authority or jurisdiction of the commission, or violates constitutional rights.

Miss. Code Ann. § 77-3-72(4) (Rev. 2009).

While broad authority and discretion has been promulgated in favor of the Commission that power is not unbridled and the rules and regulations which it has promulgated to aid in the fulfillment of its duties under the chapter must not be utilized in an arbitrary or capricious manner, “It is clear under Mississippi law that an administrative agency cannot exceed the scope of authority which was granted to it by the legislature. (citations omitted).” Mississippi Board of Nursing v. Belk, 481 So. 2d 826, 829 (Miss. 1985).

5 Blanton also argued that CWIP is a pledge in violation of Article 14, Section 258 of the Mississippi Constitution, which we decline to address.

6 Further, the Commission’s authority to interpret the statutes under which it operates may not supersede the requirements thereof, nor may it conflict with pertinent rules of law. Capital Electric Power Association v. Mississippi Power & Light Co., 240 Miss. 139, 153, 125 So. 2d 739, 744 (1961).

Pittman, 520 So. 2d at 1357-58.

VI. ANALYSIS

A. Tax

¶8. Blanton first asks this Court to declare CWIP assessment an illegal tax. The “essential

feature of any tax [is that] it produces at least some revenue for the Government[,]” and that

revenue is intended “for the use and benefit of that government.” Nat’l Fed’n of Indep.

Businesses v. Sebelius, __ U.S. __, 132 S. Ct. 2566, 2594, 183 L. Ed. 2d 450 (2012); Austin

v. Centerpoint Energy Arkla, 226 S.W.3d 814, 820 (Ark. 2006). A tax is paid to the

government, not a “privately-owned corporate entit[y]” which is “not [an] arm[] of the

State.” Austin, 226 S.W.3d at 820. These essential elements are not present in the case sub

judice.

¶9. The assessment is not paid to the government – it is paid by the ratepayers to MPC.

The exaction imposed is not used for the support of our government. “Mirror CWIP” is not

an illegal tax, for it is not a tax at all.

B. Commission’s Application of the Statute

¶10. Assuming the presumptive validity of the Act, see City of Starkville, 909 So. 2d at

1112, and following our precedent to pass on constitutional challenges when cases may be

decided on other grounds, see Warner-Lambert, 909 So. 2d at 1093, we choose the narrower

path to resolve the issues presented today. Thus, we examine whether the Commission

7 applied the Act in a statutorily permissible manner. If the Commission’s putative application

of the Act follows the directives and its application comports with due-process principles,

Blanton’s arguments are doomed to fail.

¶11. While the Court gives great deference to state agencies, “[t]he ultimate authority and

responsibility to interpret the law, including statutes, rests with this Court.” Queen City

Nursing Ctr., Inc. v. Miss. State Dep’t of Health, 80 So. 3d 73, 84 (Miss. 2011). The

Legislature had authority to enact a law; however, the Commission does not have the right

to amend or modify such act. No legitimate argument can overcome the legal principle that

the Commission is bound to comply with legislative acts. See Pittman, 520 So. 2d at

1357-58. See also Howell v. State, 300 So. 2d 774, 779 (Miss. 1974) (“an administrative

agency cannot be vested with arbitrary and uncontrolled discretion.”).

¶12. The Act permits the Commission to include CWIP only if the costs are determined to

be “prudently incurred.” See Miss. Code Ann. § 77-3-105 (Rev. 2009).6 MPC and the

Commission argue that the Act was followed when the Commission authorized MPC to

increase rates by fifteen percent for 2013 and three percent for 2014. Yet the record is devoid

of a “finding of prudency” or that MPC’s expenditures were “prudently incurred,” and for

good reason – no prudency hearings have been held. In the absence of prudency hearings,

6 In its May 26, 2010, Order, the Commission specifically authorized “one hundred percent (100%) of all construction costs (subject to prudence reviews as provided herein)” to be recovered for 2012, 2013, and 2014. Commission’s Order, p. 17 (May 26, 2010) (emphasis added). Additionally, on April 24, 2012, the Commission issued its Final Order on Remand Granting a Certificate of Public Convenience and Necessity, Authorizing Application of Baseload Act, and Approving Prudent Pre-Construction Costs. (Emphasis added.)

8 we fail to discern how a rate can be arbitrarily declared as “fair, just, and reasonable” and/or

“just and reasonable.” See Miss. Code Ann. §§ 77-3-33 and 77-3-105(b) (Rev. 2009).

¶13. Paragraph 22 of MPC’s original petition for certification reads: “. . . the Company is

proposing and requesting . . . a prudence review process for already incurred and to-be-

incurred preconstruction and construction costs [and] a rate mechanism. . . . [A]pproval of

each and every one of these measures is necessary.” By stipulation, the Commission

improperly deferred prudency hearings, which are a prerequisite to granting an increase in

rates. See Miss. Code Ann. §§ 77-3-105(1)(a) and (1)(b).7 By not conducting prudency

hearings, the Commission ignored the dictates of the Act and thus acted arbitrarily without

lawful authority.

¶14. 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. “AFUDC represents interest on borrowed funds,

dividends on preferred stock, and the imputed return on common stock.” Miss. Pub. Serv.

Comm’n v. Miss. Power Co., 429 So. 2d 883, 897 n.7 (Miss. 1983). The Act contemplates

7 By stipulation, MPC “agreed to defer a prudence review until a later date. Consistent with the stipulation, this Commission hereby declines to address the prudence of the Kemper Project costs in this proceeding, but this decision shall not disclose MPC from requesting a prudence review at a later time or this Commission conducting prudence reviews, sue sponte.” Commission’s Final Order, p. 25 (Mar. 5, 2013) (emphasis added and in original). Certainly, the Commission intended to state that the decision would not “foreclose” MPC from requesting reviews, not that such prudence hearings would not be disclosed. The Commission further ordered that “nothing contained in this Order shall be construed as a finding of prudence of any of the Kemper Project costs, which shall be subject to a separate prudence review as subsequently determined by this Commission.” Id. at 26.

9 increasing rates to pay AFUDC as incurred, which, if done, would mitigate the effect of

compounding interest.8 However, this appeal concerns “mirror CWIP,” 9 resulting in MPC

charging increased rates. 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 10 through governmental decree, by a rate increase imposed by

a privately owned corporation that cannot spend it. There is no authorization to impose

“mirror CWIP” in the statute.

¶15. The Commission has exhibited a pattern of conduct throughout these proceedings that

exceeds its authority. The Commission’s tasks remain undone and its duties unfulfilled. The

Commission does not have unbridled authority to adopt recovery mechanisms which are not

authorized by existing law. While the Act permits the Commission to include CWIP in the

utility’s rate base and rates, the Act did not authorize the Commission to adopt an entirely

new mechanism, i.e., “mirror CWIP”(a concept not previously recognized in Mississippi

rate-making practices). An affirmance of the Commission’s order can only perpetuate these

transgressions.

8 MPC maintained in its original brief that it was seeking to recover costs during construction to avoid compounding those costs upon completion of the plant. 9 “Mirror CWIP” provides that the “funds collected during the construction period . . . be recorded to a regulatory liability account and held for the sole benefit of customers for the purpose of partially or fully offsetting future rate increases that would otherwise occur after commercial operation.” Commission’s Final Order, p. 10 (Mar. 5, 2013). 10 Confiscatory taking is discussed further in Section IV(C)(1).

10 ¶16. Absent compliance with the Act, no legal authority existed to increase the rates. See

Miss. Code Ann. § 77-3-105(1)(a) (Rev. 2009). Ratepayers should not be bound by decisions

made by the Commission which do not comport with the laws of our State. This Court will

not condone the forced payments for rate increases not authorized by the Act or existing law.

On remand, the Commission is hereby instructed to (1) fix by order the rates in existence

prior to its order of March 5, 2013; (2) fix no rate increases until the Commission is in

compliance with this Court’s opinion; and (3) enter an order refunding the monies

attributable to the rate increases allowed by the March 5, 2013, Order. The Commission is

further instructed to meet its obligations as set forth in the Act regarding all future

proceedings. The decision of this Court does not foreclose MPC from seeking recovery of

its financing costs through a rate increase, as long as the laws of our state are adhered to by

the Commission. At the same time, as the Commission states in its briefs, the Act does not

provide MPC an “entitlement” to CWIP recovery. If MPC never recovers CWIP, it still may

seek to recover construction financing costs included in MPC’s AFUDC accounts, as

traditionally has been done.

C. Due Process

¶17. Blanton argues that the assessments (increased rates) ordered by the Commission

constitute confiscatory takings which violate his and others’ due-process rights. Blanton

argues that the Commission’s actions violate the Due Process Clause of the United States and

11 Mississippi Constitutions.11 In a specially concurring opinion, Justice Hawkins once

eloquently penned:

Due process has been addressed by courts in so many different ways and defined in so many situations, it would take a lifetime just to read the cases. There is nothing mysterious about the term, however. To most of us its central meaning simply is even handed fairness in legal proceedings.

...

Not only every lawyer, but most citizens are aware that no court can, under our Constitutions, take away property or valuable rights from any person without giving him fair notice and an opportunity to be heard.

Mississippi Power Co. v. Goudy, 459 So. 2d 257, 270-71 (Miss. 1984) (Hawkins, J.,

specially concurring).

1. Commission’s Noncompliance with the Act

¶18. While this Court understands that the ratepayers have no property interest in a certain

rate, the ratepayers may not be “subject to proceedings in which he or she may be deprived

of a protected property interest without adequate protection in place to certify the

fundamental fairness of the action taken by the government (in this case, the Public Service

Commission).” See Brief of Appellee/Cross-Appellant, at p. 26. In Memphis Light, Gas &

Water Div. v. Craft,436 U.S. 1, 98 S. Ct. 1554, 56 L. Ed. 2d 30 (1978), the Supreme Court

held that:

[a]n elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the

11 The Constitution of the State of Mississippi states “[n]o person shall be deprived of life, liberty, or property except by due process of law.” Miss. Const. art. 3, § 14. The Fifth Amendment to the United States Constitution states that “[n]o person shall be . . . deprived of life, liberty, or property, without due process of law. . . .” U.S. Const. amend. V.

12 circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.

Craft, 436 U.S. at 13, 98 S. Ct. at 1562 (emphasis added) (quoting Mullane v. Central

Hanover Trust Co., 339 U.S. 306, 314, 70 S. Ct. 652, 657, 94 L. Ed. 865 (1950)). See also

City of Tupelo v. Miss. Emp’t Sec. Comm’n, 748 So. 2d 151, 153 (Miss. 1999).

¶19. Blanton argues that “mirror CWIP” facilitates a confiscatory taking of property,

violating his and all ratepayers’ substantive due-process rights. By approving increased rates

based on “mirror CWIP” recovery, the Commission has deprived the ratepayers of their

property, i.e., money.12 As previously stated, the increased rates are not being used to pay for

funds during construction as provided by the Act. There is no question that the taking of

private funds is a transfer of the property and results in the deprivation of that property.

¶20. Ab initio, the Commission deprived ratepayers of procedural due process by failing

to require notice to the ratepayers.13 No notice of the original filing was provided to the

ratepayers in the overwhelming majority of the southeastern Mississippi counties constituting

12 Even though the Commission’s Order provides for a return of the ratepayers’ money if the plant does not go into operation, it is no less a deprivation of property. It is well-settled that “a temporary, nonfinal deprivation of property is nonetheless a ‘deprivation’ in the terms of the Fourteenth Amendment.” Fuentes v. Shevin, 407 U.S. 67, 84-85, 92 S. Ct. 1983, 1996, 32 L. Ed. 2d 556 (1972) (citing Bell v. Burson, 402 U.S. 535, 91 S. Ct. 1586, 29 L. Ed. 2d 90 (1971); Sniadach v. Family Fin. Corp., 395 U.S. 337, 89 S. Ct. 1820, 23 L. Ed. 2d 349 (1969)). 13 Section 77-3-13, related to certificates of need, reads in pertinent part that, “the Commission shall set the matter for hearing and shall give reasonable notice of the hearing thereon to all interested persons, as in its judgment may be necessary under its rules and regulations. . . .” Miss. Code Ann. § 77-3-13(3). In regard to changes in rates, Section 77-3- 37 reads in pertinent part that “[t]he Commission may promulgate rules and regulations providing for notice to customers of the filing by any public utility for a rate increase. . . .” Miss. Code Ann. § 77-3-37(1).

13 MPC’s service area.14 MPC sought and obtained approval for CWIP recovery that would

result in rate increases. When MPC pursued rate increases as part of its certificate filing, all

of its customers were entitled to notice. Few, if any, received it. The ratepayers are

“interested parties” in this proceeding. We read these statues, rules, and regulations to require

that the Commission, on remand, is to order that notice be provided to all ratepayers

regarding all future proceedings related to rate base, rates, rate of return, and prudency

hearings.

¶21. Blanton raises his objections, not only for himself, but also for the unnoticed

ratepayers. No argument has been advanced that all ratepayers participated in every stage of

these proceedings, because it simply is not true. Notice was not properly given. The

construction and operation of this multibillion dollar electric generation facility was going

to increase rates. Any suggestion to the contrary is facetious and wholly untenable.15

Ratepayers first received notice of MPC’s intent to increase rates after entry of the April 24,

2012, Order, when an increase in rates was a fait accompli. “[A]s a practical matter,”

ratepayers should have been provided notice in the initial proceedings in order to protect their

“substantial interest . . . [in the] outcome of the proceeding . . . .” Public Utilities Rules of

14 Notice was published in the Jackson Clarion-Ledger, Kemper County Messenger, Meridian Star, Clark County Tribune, and Jasper County News. Direct notice was not provided to a single customer in any of the twenty-three counties served. 15 Unlike some cases where speculation would be required as to the effect various events might have on a utility’s rates, here we already know rates were increased eighteen percent in response to MPC’s petition to recover only financing costs, a small fraction of the total cost of the project. Once the plant goes into full operation, MPC will attempt to maximize the costs attributed to the project to be capitalized and will seek further rate increases.

14 Practice and Procedure 6.121. Yet ratepayers were not afforded procedural due process via

notice.

¶22. MPC not only sought rate increases but separately requested that the long-range rate-

impact information furnished to the Commission be kept confidential, a direct violation of

Section 77-3-37, which requires that information regarding changes in rates be “kept open

to public inspection.” Miss. Code Ann. § 77-3-37(1) (Rev. 2009). The Commission

improperly determined rate-impact information to be confidential, concealing from the

ratepayers the amount of the projected increases. The Commission improperly sealed

information to which the public was entitled.16 The Commission and MPC claim that, since

a specific rate increase was not requested in the initial petition, it was proper to seal that

information. That argument must fail, because the public has a right to know when and how

much its rates will be increased at all stages of a proceeding. The Commission’s decision to

govern in a cloak of secrecy and grant confidentiality to rate-impact information was

arbitrary and capricious.

2. Settlement Agreement

16 In his concurring-in-part and dissenting-in-part opinion, Commissioner Presley criticized the Commission’s decision to keep rate-impact filings confidential. He stated:

The Company’s proposal and filings in this case keep confidential and out of the public’s view the possible rate impacts associated with the project. Although current Commission rules allow for this practice, the majority should have made public disclosure of the rate impact a condition that must be met by the Company to make the application consistent with the public interest. MPC ratepayers have a right to know what they will be faced with paying for such an essential service as electricity should the Company go forward with the project. This is basic information that MPC ratepayers have a right to know.

15 ¶23. On January 25, 2013, MPC and the Commission filed a Joint Motion to Dismiss with

Prejudice,17 arguing that the two parties “resolv[ed] all disputed issues” in MPC’s direct

appeal.18 MPC and the Commission attached a copy of a Settlement Agreement, which was

ironed out in private meetings, to the joint motion. In the Settlement Agreement, the

Commission acknowledged that “MPC [was denied] the recovery of CWIP financing costs

to date as well as any prudence review of such costs and [MPC] is unable to retroactively

recover these costs under law,” but agreed to consider a new petition for rate increases based

on “mirror CWIP,” a concept not previously disclosed in the proceedings. In return, MPC

agreed to dismiss its appeal of the “contested proceeding” pending before this Court.19 Both

agreed that each would be allowed to opt out of this agreement if it is determined that “the

Commission lacks the legal authority to implement a multi-year rate mitigation plan and/or

an alternate financing plan to the extent and in a manner contemplated by this Settlement

Agreement” or if any “order related to the Kemper Project previously issued or contemplated

under this Settlement Agreement is subsequently reversed by an appellate court during the

term of this Settlement Agreement.” Additionally, the Commission and MPC stipulated that

the Commission would

make every effort to consider the prudence of all Kemper Project costs incurred as of December 31, 2012 in connection with the 2013 CWIP rate

17 This Court granted MPC’s and the Commission’s joint motion on February 14, 2013. 18 MPC and the Commission also filed a joint motion, requesting that Blanton’s cross- appeal be dismissed. However, this Court denied this motion and additionally ordered supplemental briefing as to Blanton’s claims. 19 MPC appealed the Commission’s earlier denial of an increased rate based on CWIP.

16 proceeding provided for in subsection (a) above, but in any event shall make a prudence determination concerning these costs within six (6) months of executing this Settlement Agreement. . . .

¶24. The Agreement also provided that the customers (ratepayers), who ultimately bear the

majority of the risks of the project, would be credited with ten percent of any royalties

derived from the sale of “TRIG TM technology in the commercial electric power generation

market,” although the Agreement fails to explain the allocation of the remaining ninety

percent. The Settlement Agreement was the first public disclosure of that separate agreement.

¶25. No authority exists for the Commission to conduct public business in private. Pursuant

to Section 77-2-13(4)(a), the Commission is forbidden from all ex parte communication

regarding a “contested proceeding.” The argument that the case was on appeal is without

merit. The private meetings clearly violate the statutes governing the Commission. The

public has a right to see and hear its business being conducted. The rate increase resulting

from the private agreement to dismiss MPC’s appeal and facilitate a refiling resulted in the

increases being contested today. Because the Commission lacked authority to enter into a

private settlement agreement, the agreement is unenforceable.

IV. CONCLUSION

¶26. 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. As such, the Commission did not balance the ratepayers’

interests with those of the utility, as our law requires. Miss. Pub. Serv. Comm’n v. Miss.

Power Co., 429 So. 2d 883, 887 (Miss. 1983). An affirmation of the Commission’s actions

17 would constitute a grave injustice. U.S. Const. amend. V, XIV; Miss. Const. art. 3, § 14;

Goldberg v. Kelly, 397 U.S. 254, 267-68, 90 S. Ct. 1101, 25 L. Ed. 2d 287 (1970) (The

“fundamental requisite of due process . . . is the opportunity to be heard.”) Government’s

powers must be exercised in satisfaction of due process, including adequate notice and the

opportunity to be heard. See Webb v. Town Creek Master Water Mgmt. Dist., 903 So. 2d

701, 707 (Miss. 2005). See also Armstrong v. Manzo, 380 U.S. 545, 552, 85 S. Ct. 1187, 14

L. Ed. 2d 62 (1965); Grannis v. Ogden, 234 U.S. 385, 394, 34 S. Ct. 779, 58 L. Ed. 1363

(1914) (parties denied “‘the opportunity to be heard[]’ . . . at a meaningful time and in a

meaningful manner”). Therefore, we reverse the March 5, 2013, Order granting the rate

increases and order the Commission to enter an order directing that the funds be refunded to

the ratepayers. The Commission is instructed further to provide notice to the ratepayers in

future proceedings related to rate base, rates, rate of return, and prudency hearings. We

otherwise remand to the Commission for proceedings consistent with this opinion.

¶27. REVERSED AND REMANDED.

LAMAR, KITCHENS AND KING, JJ., CONCUR. PIERCE, J., SPECIALLY CONCURS WITH SEPARATE WRITTEN OPINION JOINED BY RANDOLPH, P.J., AND LAMAR, J. DICKINSON, P.J., DISSENTS WITH SEPARATE WRITTEN OPINION JOINED BY WALLER, C.J., CHANDLER AND COLEMAN, JJ.

PIERCE, JUSTICE, SPECIALLY CONCURRING:

¶28. I concur with the majority decision, but I write separately to provide additional

analysis regarding the interplay between public utility regulation and the subject Base Load

Act. In authorizing the Commission to include in an electric utility’s rate base and rates all

cost expenditures determined by the Commission to be prudently incurred in connection with

18 a generating facility, the Base Load Act sanctions the prudent investment theory that arose

out of a series of United States Supreme Court decisions–culminating with the Court’s

landmark decision in Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 64 S. Ct.

281, 88 L. Ed. 2d 333 (1944). By allowing recovery of such costs, regardless of whether the

generating facility is ever placed into service, the Base Load Act advances this particular

regulatory theory to the nth degree. This undoubtedly takes us into new and unchartered

territory–which warrants discussion.

¶29. Like any business, a utility company is a “profit making enterprise, run by

[businesspeople, who] no doubt . . . seek to charge the rate [they think] the traffic will bear.”

Miss. Power Co. v. Goudy, 459 So. 2d 257, 271 (Miss. 1984) (Hawkins, J., specially

concurring). But, unlike most other businesses, it is precluded from doing so. Based on

principles of English common law, government has the right to regulate businesses charged

with a public interest, for reasons discussed by the United States Supreme Court in Munn

v. Illinois, 94 U.S. 113, 134, 24 L. Ed. 77 (1876), the case which marked the beginning of

the constitutional price-regulation doctrine in this country, with its holding that Illinois had

the power to fix the prices charged by grain- elevator operators.20 On the other hand, because

20 Munn explained:

This brings us to inquire as to the principles upon which this power of regulation rests, in order that we may determine what is within and what without its operative effect. Looking, then, to the common law, from whence came the right which the Constitution protects, we find that when private property is “affected with a public interest, it ceases to be juris privati only.” This was said by Lord Chief Justice Hale more than two hundred years ago, in his treatise De Portibus Maris, 1 Harg. Law Tracts, 78, and has been accepted without objection as an essential element in the law of property ever

19 it is allowed monopoly status, the utility company, in large measure, is immune from the

natural forces of competition that regulate prices in the open market. In trade for this

privilege, the utility is allowed to charge only rates that are just and reasonable to the

ratepayers and which will yield a fair rate of return to the utility for its services. State ex. rel.

Allain v. Miss. Pub. Serv. Comm’n, 435 So. 2d 608, 612 (Miss. 1983).

¶30. Under Mississippi law, the consumer has the “unquestionable right” that the rates

charged by a monopoly will be fair and reasonable. Miss. Code Ann. § 77-3-33 (Rev. 2009);

since. Property does become clothed with a public interest when used in a manner to make it of public consequence, and affect the community at large. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by discontinuing the use; but, so long as he maintains the use, he must submit to the control.

Thus, as to ferries, Lord Hale says, in his treatise De Jure Maris, 1 Harg. Law Tracts, 6, the king has “a right of franchise or privilege, that no man may set up a common ferry for all passengers, without a prescription time out of mind, or a charter from the king. He may make a ferry for his own use or the use of his family, but not for the common use of all the king’s subjects passing that way; because it doth in consequence tend to a common charge, and is become a thing if public interest and use, and every man for his passage pays a toll, which is a common charge, and every ferry ought to be under a public regulation, viz., that it give attendance at due times, keep a boat in due order, and take but reasonable toll; for if he fail in these he is finable.” So if one owns the soil and landing-places on both banks of a stream, he cannot use them for the purposes of a public ferry, except upon such terms and conditions as the body politic may from time to time impose; and this because the common good requires that all public ways shall be under the control of the public authorities. This privilege or prerogative of the king, who in this connection only represents and gives another name to the body politic, is not primarily for his profit, but for the protection of the people and the promotion of the general welfare.

Munn v. Ill., 94 U.S. at 125-126.

20 Goudy, 459 So. 2d at 273 (Hawkins, J., specially concurring). And the utility has the

“unquestionable right” to receive a fair and reasonable return for the services it renders. Id.

The inherent complexities faced by the Commission in trying to balance these rights cannot

be exaggerated, as this Court articulated in Allain, 435 So. 2d at 612:

The duties of the Commission are awesome and their responsibilities great in a most difficult, ongoing situation. Mississippi Code Annotated, § [77-3-33], authorizes the Commission to establish rates that are just and reasonable to the ratepayers and which will yield a fair rate of return to the utility for its services. In effect the Commission is the counterpart of the market place by which other businesses are measured. This is so because public utilities are monopolies engaged in the business of furnishing necessary services to the public. Obviously, the legislative intent in creating the [Commission] was to interpose an authoritative body between the rate payers of the utility and the investors in the utility so that their respective interests, necessarily antagonistic, might be equitably served.

¶31. Since the passage of the Public Utilities Act of 1956 (“1956 Act”), the Commission

has rejected construction-work-in-progress (CWIP) costs from rate bases in almost every

instance where the item was proposed,21 for these reasons: (1) CWIP costs were not “used

and useful in the rendition of [utility] service to rate payers[;]” and “it was not the general

practice of this jurisdiction to include CWIP in the rate base.” Miss. Pub. Serv. Comm’n v.

Miss. Power Co., 429 So. 2d 883, 897 (Miss.1983). (2) The utility company suffered no

21 An exception is in the case of State ex rel. Pittman v. Mississippi Public Service Commission, 538 So. 2d 367 (Miss. 1989), in which the Commission adopted a performance formula rate plan proposed by MPC, which contained a provision allowing MPC to include CWIP costs in rate bases without any allowance for funds used during construction (AFUDC), for all projects commenced after July 1, 1987. Without speaking to the CWIP provision itself, this Court reversed the Commission, finding that the Commission had acted outside its statutory authority by adopting the rate plan. See id. at 373 (adoption of the rate plan, itself, was an “utter abrogation by the Commission of its statutory responsibilities and a relinquishment of control to the very entity the Commission is charged by law to regulate”).

21 injustice from having CWIP costs excluded from the rate base, because, after construction

work is completed and the plant is put into service, its entire cost, including interest, taxes,

and overhead, is capitalized, and these costs could then be added to the utility’s rate base.

United Gas Corp. v. Miss. Pub. Serv. Comm’n, 240 Miss. 405, 127 So. 2d 404 (1961). (3)

Requiring ratepayers to pay a utility a return on CWIP costs is inequitable, because this

would force current ratepayers to pay a return on property constructed for future

ratepayers–with the result that, when the future ratepayers begin to receive the new, upgraded

service, the utility would derive a double return on the cost of construction. Southern Bell

Tel. & Tel. Co. v. Miss. Public Serv. Comm’n, 237 Miss. 157, 113 So. 2d 622 (1959).

¶32. We affirmed the Commission’s decision to exclude CWIP costs from the rate base in

each mentioned case under our limited standard of review, without any real discussion why.

The “used and useful” language relied upon by the Commission for excluding CWIP is an

important concept in utility regulation and requires discussion.

¶33. The language was included in the 1956 Act through the predecessor to Section 77-3-

33, Section 7716-08 of the Mississippi Code 1942 (1956), which reads:

No rate made, deposit or service charge demanded or received by any public utility shall exceed that which is just and reasonable. Such public utility, the rates of which are subject to regulation under the provisions of this article, may demand, collect and receive fair, just and reasonable rates for the services rendered or to be rendered by it to any person. Rates prescribed by the commission shall be such as to yield a fair rate of return to the utility furnishing service, upon reasonable value of the property of the utility used or useful in furnishing service.

It was added to Mississippi Code Section 77-3-43 in 1983, when that Section was amended,

as shown by the following (highlighted) language:

22 In regulating the rates of any public utility subject to the provisions of this chapter, the commission shall, on hearing after reasonable notice, ascertain and fix the rate base of the property of the public utility in such manner as to be fair both to the public utility and to the consumer when the same is relevant or material to the exercise of the jurisdiction of the commission. The commission shall make readjustments from time to time, and ascertain the cost of all new construction, extensions and additions to the property of every public utility. In arriving at such rate base, the commission shall give due consideration to: (a) the reasonable original costs of the property used and useful, or to be used and useful within a reasonable time after the test period; (b) the portion of the cost which has been consumed by previous use recovered by depreciation expense; (c) the allowance for funds used during construction [AFUDC], not to exceed on borrowed funds the true net interest cost of such funds, computed according to the actuarial method, and, on the equity component thereof, a rate of return granted on common equity in the last rate proceedings before the commission, or if such rate has not been established within the preceding three (3) years, then the average rate of return actually earned on equity during the preceding three (3) years; (d) any other elements deemed by the commission to be material in determining the rate base for rate-making purposes.

The “used and useful” language is carried over into the new Base Load Act through

Mississippi Code Section 77-3-105(1)(a), which reads:

The commission is fully empowered and authorized to include in an electric public utility’s rate base and rates, as used and useful components of furnishing electric service, all expenditures determined to be prudently-incurred pre-construction, construction, operating and related costs that the utility incurs in connection with a generating facility (including but not limited to all such costs contained in the utility’s “Construction Work in Progress” or “CWIP” accounts), whether or not the construction of any generating facility is ever commenced or completed, or the generating facility is placed into commercial operation.

¶34. Most authorities regard the “used and useful” language, conceptually, as having

derived from the United States Supreme Court’s decision in Smyth v. Ames, 196 U.S. 466,

546, 18 S. Ct. 418, 42 L. Ed. 819 (1898), in which the Court held that:

[T]he basis of all calculations as to the reasonableness of rates to be charged by a [public utility] must be the fair value of the property being used by it for

23 the convenience of the public. . . . What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the other hand, what the public is entitled to demand is that no more be exacted from it . . . than the services rendered by it are reasonably worth.

Id. at 546-47 (emphasis added). The concept, however, was also expressed in Munn, where

the Supreme Court spoke to an English case, Aldnutt v. Inglis, 12 East, 527, decided in 1810,

in which the question was presented whether the London Dock Company could charge

arbitrary rates for storing imported wines, after having obtained authority under the general

warehousing act to engage in such services. Munn, 94 U.S. at 127. Munn noted:

¶35. Upon this point, Lord Ellenborough said:

There is no doubt that the general principle is favored, both in law and justice, that every man may fix what price he pleases upon his own property, or the use of it; but if for a particular purpose the public have a right to resort to his premises and make use of them, and he have a monopoly in them for that purpose, if he will take the benefit of that monopoly, he must, as an equivalent, perform the duty attached to it on reasonable terms. The question then is, whether, circumstanced as this company is, by the combination of the warehousing act with the act by which they were originally constituted, and with the actually existing state of things in the port of London, whereby they alone have the warehousing of these wines, they be not, according to the doctrine of Lord Hale, obliged to limit themselves to a reasonable compensation for such warehousing. And, according to him, whenever the accident of time casts upon a party the benefit of having a legal monopoly of landing goods in a public port, as where he is the owner of the only wharf authorized to receive goods which happens to be built in a port newly erected, he is confined to take reasonable compensation only for the use of the wharf.

Aldnutt v. Inglis, 12 East, 527, 537 (1810) (emphasis added).

¶36. After Smyth, it was believed that the United States Constitution required rates to be

set according to the actual present value of the assets employed in public service–a precedent

known as the “fair value” rule. Duquesne Light Co. v. Barasch, 488 U.S. 299, 308, 109 S.

Ct. 609, 102 L. Ed. 2d 646 (1989). Smyth analogized ratemaking with eminent-domain

24 principles. Smyth, 169 U.S. at 544. And the “fair value” rule necessitated that property be

“used and useful” before it could be included in the rate base. Glustrom v. Colorado Pub.

Utils. Comm’n, 280 P. 3d 662, 669 (Colo. 2012) (citing Denver Union Stock Yard Co. v.

U.S., 304 U.S. 470, 475, 58 S. Ct. 990, 82 L. Ed. 1469 (1938)). As the United States Court

of Appeals for the District of Columbia explained:

Under [Smyth], courts had [to] meticulously scrutinize[] rate orders to ensure that investors received the “fair value” of the property dedicated to public use. The “fair value” standard required courts to estimate the current market value of the property, and rates that provided anything less were deemed confiscatory. The governing theory required that consumers pay the market value of the property they were using because the property was regarded as having been taken. Recovery was therefore required only on property “used and useful” to the public, for property that was not being used could not be considered to have been taken.

Jersey Central Power & Light Co. v. FERC, 810 F.2d 1168, 1176 (D.C. Cir. 1987)

(emphasis added).

¶37. Smyth’s “fair value” rule functioned adequately until World War I, when tremendous

inflation skewed the valuation of utility property upward to the point that ratemaking

valuation of utility property greatly exceeded the actual amount of investment capital in the

utility. Application of Diamond State Tel. Co., 9 Terry 317, 103 A.2d 304 (Del. Super.

1954). “The Smyth rule resulted in such high constitutional limits on rates that most utilities

were satisfied with rates below the constitutional minimum.” John N. Drobak, From

Turnpike to Nuclear Power: The Constitutional Limits on Utility Rate Regulation, 65 B.U.L.

Rev. 65 (1985). “The Smyth rule came to mean that utility companies could charge what the

market would bear, and government was constitutionally unable to moderate their charges

in order to protect the public from excessive charges.” Id.

25 ¶38. Economists and legal commentators soon became critical of Smyth because the “fair

value” rule produced arbitrary and fluctuating results. And in his classic concurrence in

Missouri ex rel. Southwestern Bell Telephone Co. v. Public Service Commission, 262 U.S.

276, 43 S. Ct. 544, 67 L. Ed. 981 (1923), Justice Brandeis began the Supreme Court’s

attempt to correct the ratemaking problems caused by Smyth. Southern Bell, 113 So. 2d at

645-46. Justice Brandeis urged the Court to replace the “fair value” rule with a principle that

gave the utility the opportunity to earn a fair return on the amount prudently invested in it.

Missouri, 262 U.S. at 306-07.

¶39. In 1942, the Supreme Court overruled much of Smyth with its holding in Federal

Power Comm’n v. Natural Gas Pipeline Co., 315 U.S. 575, 62 S. Ct. 736, 86 L. Ed. 1037

(1942) (construing the Natural Gas Act of 1938), that “[t]he Constitution does not bind rate-

making bodies to employ any single formula or combination of formulas” in regulating rates.

Two years later, in the landmark decision Power Commission v. Hope Natural Gas Co., 320

U.S. 591, 603, 64 S. Ct. 281, 288, 88 L. Ed. 2d 333 (1944), the Supreme Court decisively

abandoned the “fair value” rule by reasoning that: “Rates which enable [a] company to

operate successfully, to maintain its financial integrity, to attract capital, and to compensate

its investors for the risk assumed certainly cannot be condemned as invalid, even though they

might produce only a meager return on the so called ‘fair value’ rate base.” Hope, 320 U.S.

at 605. Hope explained that:

From the investor or company point of view it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business. These include service on the debt and dividends on the stock. . . . By that standard the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks.

26 Id. at 603. The Court instructed that: “The rate-making process . . ., i.e., the fixing of ‘just

and reasonable’ rates, involves a balancing of the investor and the consumer interests.”

Hope, 320 U.S. at 590.

¶40. As recognized by this Court in Southern Bell, the leading case in Mississippi on

utility ratemaking, Hope “radically altered the course of utility regulation” throughout the

country with its holding that, under the statutory standard of just and reasonable, it is not the

method employed that is controlling, but the end result reached. Southern Bell, 113 So. 2d

at 647. Southern Bell explained that:

The effect of the decision in the Hope case was to free the state commissions as far as the Federal Constitution was concerned from any restriction in their choice of a rate base. Many state courts and commissions turned from fair value to original cost, although elsewhere fair value continued as the accepted rate base, not because of Federal constitutional requirements but because of state law.

Southern Bell, 113 So. 2d at 647.

¶41. The used-and-useful principle was relegated to one of multiple theories or tests by

Hope’s end-result standard. And the principle no doubt has been blurred by the accession

of modern ratemaking. As one commentator points out, the U.S. Court of Appeals for the

D.C. Circuit “struggled mightily” with the application of the used-and-useful principle in

three successive Jersey Central Power & Light Co. v. FERC decisions dealing with a

canceled nuclear power plant–all majority opinions authored by Judge Robert H. Bork.22 See

22 Jersey Central Power & Light Co. v. FERC, 730 F.2d 816 (D.C. Cir. 1984) (Jersey Central I) (unanimously affirming the Commission’s summary denial of Jersey Central Power & Light’s (JCP&L) application to recover $397 million prudently invested in a later-abandoned nuclear plant); Jersey Central Power & Light Co. v. FERC, 768 F.2d 1500 (D.C. Cir. 1985) (Jersey Central II) (remanding the case because of the Commission’s

27 James J. Hoecker, “Used and Useful”: Autopsy of a Rate Making Policy, 8 Energy Law

Journal 303 (1987). In Jersey Central (III), Judge Bork said:

In addition to prohibiting rates so low as to be confiscatory, the holding of [Hope] makes clear that exploitative rates are illegal as well. If the inclusion of property not currently used and useful in the rate base automatically constituted exploitation of consumers, as one of the amici maintains, then the Commission would be justified in excluding such property summarily even in cases where the utility pleads acute financial distress. A regulated utility has no constitutional right to a profit, see FPC v. Natural Gas Pipeline Co., 315 U.S. at 590, 62 S. Ct. at 745, and a company that is unable to survive without charging exploitative rates has no entitlement to such rates. Market Street Ry. v. Railroad Comm’n of Cal., 324 U.S. 548, 65 S. Ct. 770, 89 L. Ed. 1171 (1945). But we have already held that including prudent investments in the rate base is not in and of itself exploitative, Washington Gas Light Co. v. Baker, and no party has denied that the Forked River investment was prudent. Indeed, when the regulated company is permitted to earn a return not on the market value of the property used by the public, see Smyth v. Ames, but rather on the original cost of the investment, placing prudent investments in the rate base would seem a more sensible policy than a strict application of “used and useful,” for under this approach it is the investment, and not the property used, which is viewed as having been taken by the public. The investor interest described in Hope, after all, is an interest in return on investment. Hope, 320 U.S. at 603.

Jersey Central (III), 810 F.2d at 1180-81.

¶42. Here, there are compelling arguments on both sides for why CWIP costs should or

should not be allowed in the rate base.23 As mentioned, prior to the Base Load Act,

failure to explain how its summary application of its used-and-useful rule affected the overall end result of the rate, later vacated in favor of en banc review in Jersey Central Power & Light v. FERC, 776 F.2d 364 (1985)); Jersey Central, 810 F.2d 1168 (Jersey Central III) (vacating and remanding the Commission’s order for failure to inquire under Hope, whether a rate that excludes recovery of the investment in the abandoned plant is just and reasonable in light of its effect on the investors in the financially distressed utility). 23 See, e.g., Neufeld, CWIP: Shifting the Investment Risk to Utilities’ Consumers (1979), available at http://www.nccppr.org/drupal/content/insightarticle/991/cwip-shifting- the-investment-risk (last accessed February 6, 2015).

28 Mississippi traditionally did not allow CWIP, because such costs were not considered used

and useful in the rendition of utility service to existing ratepayers. Under this precept, CWIP

was considered inequitable because it allowed a double return for the utility. Ostensibly,

though, with the advent of AFUDC method accounting and other modern regulatory theories,

the double-return concern has likewise been downgraded–as CWIP could still potentially be

more beneficial to the ratepayer. But, with AFUDC, the risk of loss from an abandoned

project remained with the utility and its investors. Even after a plant went into service and

the AFUDC was capitalized and included in the rate base, the risk of loss still remained with

the utility company and its investors if the plant were aborted for whatever reason. This is

because of the used-and-useful principle.

¶43. The difficulties that confronted the D.C. Circuit in the Jersey Central trilogy illustrate

that, despite the demise of Smyth’s fair-value rule, “the ‘used-and-useful’ principle,

enunciated [by Smyth], has stood as a bedrock principle of utility rate regulation.” Kentucky

Utils. Co. v. F.E.R.C., 760 F.2d 1321, 1324 n.4 (C.A.D.C. 1985). The simplicity of its basics

(quid-pro-quo concept) has been recognized and understood by courts going back to the

regulation of ferry boats and port facilities by the kings of England. See Hoecher, “Used and

Useful”: Autopsy of a Rate Making Policy, 8 Energy Law Journal 303 (1987) (citing Lord

Hale, De Jure Maris & Brachiorum Ejusdem, in 1 Harg. Law Tracts 6-8 (1787)). The

consumer pays for what he or she gets and gets what he or she pays for.

¶44. The Base Load Act effectively abandons the traditional notion of “used and useful”

by characterizing CWIP as a “used and useful component” of furnishing utility service. See

Miss. Code Ann. § 77-3-105(1)(a). For our purposes, we are judges–not utility experts. We

29 may only review the methods and results of the Commission’s activity. Our role, though,

based on the dictates of the Public Utilities Act, remains: to ensure that the utility rates are

lawfully established and that they are fair, just and reasonable, based on the evidence.

¶45. What the Legislature has left in place, however, with the adoption of the Base Load

Act, is the Commission’s duty under Sections 77-3-33 and 77-3-43 to establish a fair, just

and reasonable rate base, which requires the Commission to consider and balance the

interests of the utility company, its investors, and the ratepayers. Based on the strictures of

Sections 77-3-33 and 77-3-43, exploitive rates are illegal in Mississippi. How the scope of

Sections 77-3-105(1)(a), (2)(a), and (1)(b) can be squared with the mandates of Sections 77-

3-33 and 77-3-43, we do not (nor cannot) know at this juncture.

RANDOLPH, P.J., AND LAMAR, J., JOIN THIS OPINION.

DICKINSON, PRESIDING JUSTICE, DISSENTING:

¶46. Before 2008, public power utilities were allowed to raise their customers’ rates to pay

for the construction of new power-generation plants after the plants began to generate

electricity. The Mississippi Baseload Act now allows the Public Service Commission to

approve rate increases while construction of the plants is in progress (CWIP), before they

begin to generate electricity.24

¶47. In order to construct a new power generation plant in Kemper County, Mississippi

Power Company sought and obtained the Commission’s approval to raise its rates during

construction. The case before us involves one Mississippi Power customer—Thomas

Blanton—who makes four claims related to that rate increase.

24 Miss. Code Ann. §§ 77-3-101 to 77-3-109 (Rev. 2009).

30 ¶48. First, he argues that raising his rates during construction of the Kemper plant, before

it begins to deliver electricity, amounts to an unconstitutional and illegal tax. Second, he

claims CWIP assessments under the Mississippi Baseload Act violate due process because,

through the rate increases, Mississippi Power is taking his property without affording him

notice and an opportunity to be heard. Third, he claims that the rate increase violates Article

14, Section 258 of the Mississippi Constitution, which prohibits pledging the credit of the

State of Mississippi “in aid of any person, association, or corporation . . . .” And fourth, he

claims that a settlement agreement reached between Mississippi Power and the Commission

should be set aside because he was not allowed to participate in it; because Mississippi

Power had ex parte communications with the Commission in violation of Section 77-2-13;

and because the only notice he received of the agreement was posted on the Commission’s

website.

¶49. The majority opinion rests on two conclusions. First, the majority believes every

ratepayer is entitled to individual notice of every rate proceeding before the PSC. While this

may or may not be true, Blanton is the only aggrieved party in this appeal, and he actively

participated in this rate proceeding since the beginning and at every stage.

¶50. Second, the majority concludes that Mississippi Code Section 77-3-105 requires

prudency findings before a rate increase based on CWIP recovery. But Blanton argued that

Mississippi Power Company’s proposed rate schedule should have been dismissed for the

four reasons stated above, and he moved to dismiss the proposed rate schedule for those four

reasons alone. He made no other challenge to the Commission’s decision to grant CWIP

recovery. So I will address the questions he actually raised below.

31 ANALYSIS

¶51. This Court will not reverse administrative agencies’ decisions unless we find them to

be arbitrary, capricious, unsupported by substantial evidence, outside the scope of the

agency’s authority, or illegal or unconstitutional.25 Appellants who raise constitutional

challenges are “burdened with carrying [their cases] beyond a reasonable doubt before this

Court has authority to hold the statute, in whole or in part, of no force or effect.” 26

¶52. When, as here, we are required to review the Legislature’s authority to enact a

particular law, we must remain cognizant of the grant of legislative power in our Mississippi

Constitution. Unlike the United States Congress, which possesses only those powers

specifically enumerated and delegated to it by the United States Constitution,27 our state

Legislature possesses plenary power to enact any law that is not prohibited by the Mississippi

Constitution or in violation of an individual right guaranteed by the Mississippi or United

States Constitutions.28

¶53. So, to prevail in this case, Blanton’s hill is steep. He must cite some specific

constitutional provision precluding the Legislature’s decision to allow utilities to collect their

25 BellSouth Telecomm., Inc. v. Mississippi Pub. Serv. Comm’n, 18 So. 3d 199, 201 (Miss. 2009) (citing Town of Enterprise v. Mississippi Pub. Serv. Comm’n, 782 So. 2d 733, 735 (Miss. 2001)). 26 State v. Mississippi Ass’n of Supervisors, Inc., 699 So. 2d 1221, 1223 (Miss. 1997). 27 United States v. Morrison, 529 U.S. 598, 607, 120 S. Ct. 1740, 1748, 146 L. Ed. 2d 658 (2000). 28 Moore v. Gillis, 205 Miss. 865, 888, 89, 39 So. 2d 505 (1949) (citing Farrar v. State, 191 Miss. 1, 2 So. 2d 146 (1941)).

32 financing costs of construction prior to the project’s completion. Much of the parties’ dispute

stems from a disagreement as to whether these financing costs should be considered a tax or

a utility rate. But, because Blanton has failed to meet his burden to show that the Base Load

Act violates the Constitution—regardless of whether the CWIP allowance constitutes a tax

or a rate—I will not address that question.

I. CWIP allowance is not an unconstitutional or illegal tax.

¶54. First, Blanton argues that, when the Commission exercised its authority under the

Mississippi Base Load Act to include CWIP recovery in utility rates, it imposed an

unconstitutional and illegal tax on rate payers. Blanton cites three constitutional provisions

and one statute in support of that argument. He first cites Section 112 of the Mississippi

Constitution, which states that “[t]axation shall be uniform and equal throughout the State.” 29

But, because we clearly have held that Section 112 applies only to property taxes,30 I must

reject this argument without further analysis.

¶55. Next, Blanton cites Section 80, which states:

Provisions shall be made by general laws to prevent the abuse by cities, towns, and other municipal corporations of their powers of assessment, taxation, borrowing money, and contracting debts.31

29 Miss. Const. art. 4, § 112. 30 Southern Package Corp. v. State Tax Comm’n, 174 Miss. 212, 164 So. 45, 46 (1935). 31 Miss. Const. art. 4, § 80.

33 ¶56. Blanton does not argue—and he cites no authority to support the proposition—that

either the Commission or Mississippi Power falls within the definition of “cities, towns, and

other municipal corporations.” So Section 80 also is equally inapplicable.

¶57. Third, Blanton cites Article 6, Section 172A, which states:

Neither the Supreme Court nor any inferior court of this State shall have the power to instruct or order the State or any political subdivision thereof, or an official of the State or a political subdivision, to levy or increase taxes.32

¶58. Blanton provides little explanation as to how this provision applies. It was the

Legislature—not this Court—that authorized the Commission to approve the CWIP

allowance. Section 172A prevents a court from ordering a political subdivision to levy a tax,

and no court has levied any tax in this case. Accordingly, this argument is without merit.

¶59. Finally, Blanton argues that CWIP constitutes an illegal tax because it violates Section

7-9-19,33 which requires that “[a]ll taxes, fees and penalties that may be hereafter collected

for or in the name of the State of Mississippi shall be paid direct to the Treasurer of the state

. . . .” 34 And because customers pay CWIP directly to Mississippi Power, rather than to the

Treasurer, Blanton argues that the CWIP collection process is illegal.

¶60. Even assuming arguendo that CWIP is a tax, this merely would present conflicting

statutes. Both the Baseload Act and CWIP recovery conflict with Section 7-9-19. But this

Court has held that:

32 Miss. Const. art. 4, § 172A. 33 Miss. Code Ann. § 7-9-19 (Rev. 2002). 34 Id.

34 in resolving the conflict of specific versus general statutory provisions: “To the extent that two constitutional or statutory provisions overlap or conflict, specific provisions control over general provisions.” 35

And because the Baseload Act—which specifically provides the Commission authority to

authorize Mississippi Power to collect CWIP—is more specific than Section 7-9-19’s general

taxing provision, the Baseload Act would govern.

¶61. Neither the constitutional provisions nor the statute cited by Blanton prevent the

Legislature from exercising its plenary power and authority to authorize CWIP recovery,

even were we to assume CWIP imposes a tax. Accordingly, Blanton has failed to carry his

burden to show beyond a reasonable doubt that some constitutional provision would preclude

CWIP recovery even if CWIP recovery imposes a tax.

II. CWIP assessments under the Mississippi Baseload Act do not violate Blanton’s due-process rights.

¶62. Next, Blanton argues that, because CWIP imposes a tax, these assessments deprive

him of money without any guaranteed connection to a public benefit and violate his

substantive due-process rights. In his original cross-appeal, Blanton also argued that,

because the Commission conducted proceedings without individual notice to ratepayers, it

violated his procedural due-process rights.

¶63. Mississippi Power and the Commission argue that Blanton lacks a protected property

interest in any certain utility rate and cite our opinion in Mississippi Power Company v.

Goudy, in which a utility ratepayer claimed that Section 77-3-33 violated due process

35 Harrison v. State, 800 So. 2d 1134, 1137 (Miss. 2001) (quoting Yarbrough v. Camphor, 645 So. 2d 867, 872 (Miss. 1994); McCrory v. State, 210 So. 2d 877, 877-79 (Miss. 1968); Lenoir v. Madison, 641 So. 2d 1124, 1128 (Miss. 1994)).

35 because it allowed utility companies to change rates subject to refund under bond, pending

a determination by an administrative entity or court, with no procedural rights for

ratepayers.36 We upheld the statute because a ratepayer has no property interest that would

implicate due-process protections in reasonable utility rates.37 Accordingly, if CWIP

constitutes a utility rate as the Commission argues, Blanton lacks a property interest subject

to due-process protections.

¶64. But Blanton attempts to distinguish Goudy by arguing that CWIP assessments impose

a tax and therefore constitute takings by the government. This taking through a tax, he

argues, violates his protected property interest in money.38 Were I to agree with Blanton that

CWIP imposes a tax, still, he would be unable to succeed on his due-process claim. This

Court rejected a similar due-process attack in Albritton v. City of Winona,39 in which the

statute that created the Mississippi Industrial Commission allowed it to authorize the use of

municipal taxes to purchase land and facilities that then would be leased to individuals or

36 Mississippi Power Co. v. Goudy, 459 So. 2d 257, 259 (Miss. 1984). 37 Id. at 263. 38 Blanton also points us to State ex rel. Pittman v. Mississippi Public Service Commission, in which we held that the Commission could not approve—and the power company could not recover—utility rates for profits lost during a hurricane, because it would compensate the power company for services never provided to the ratepayer. State ex rel. Pittman v. Pub. Serv. Comm’n, 520 So. 2d 1355, 1363 (Miss. 1987). However, our holding in that case was based on the Commission’s statutory authority and was completely unrelated to due process. Blanton, however, challenges a Commission decision specifically authorized by statute. 39 Albritton v. City of Winona, 181 Miss. 75, 178 So. 799 (Miss. 1938).

36 corporations for industrial use.40 There, we found that the only limit on the State’s authority

in this respect is that the policy must not be arbitrary,41 and that using a tax to acquire

property to be leased to industry was not arbitrary because it reasonably related to the

purposes of promoting the development of industry and reducing unemployment.42

¶65. Here, Blanton correctly argues that the Kemper Plant lacks guaranteed success.

Mississippi Power admitted as much at oral argument. And it is quite possible that, even if

the plant is successful, it may not result in lower utility rates for Blanton. But the

Legislature’s stated purposes for the Baseload Act do not include lowering a customer’s

future utility rates. Section 77-3-101 sets out the State’s need to promote the expansion of

electrical power generation, and that availability of electricity is vital to economic growth.

It also states that new power-generating technologies are an important part of needed growth,

that additional investment in power infrastructure is necessary to take advantage of certain

financial incentives, and that energy independence for the State is an important goal.43

¶66. In Albritton, we held that the State may invest tax money in the development of

industry.44 So, even if CWIP imposes a tax, I cannot say that the investment of tax revenues

in the construction of a power plant that proposes to use new technology for generating

electricity for future generations is unrelated to the Legislature’s stated public-policy

40 Id. at 801. 41 Id. at 805. 42 Id. at 805. 43 Miss. Code Ann. § 77-3-101 (Rev. 2009). 44 Albritton, 178 So. at 805.

37 purposes for allowing the Commission to approve CWIP.45 Accordingly, I cannot find that

the Baseload Act is arbitrary if, as Blanton argues, it is a tax.

¶67. Therefore, Blanton’s substantive due-process claims fail regardless of whether I

consider CWIP a tax or a utility rate.

¶68. As to Blanton’s procedural due-process challenge, he cites Londoner v. City and

County of Denver to support his argument that CWIP denies Mississippi Power customers’

right to procedural due process. In Londoner, the city council of Denver, Colorado,

delegated to an equalization board the job of setting a tax on property owners to be used in

paving a roadway abutting their property.46 The United States Supreme Court—noting that

the property owners were given neither notice nor an opportunity to be present at a hearing

on the issue,47 and that Colorado law provided landowners no right to challenge the taxes in

court48 —held that due process required either personal notice or notice by publication and

a hearing.49

¶69. Londoner has no application here. Both Mississippi Power and the Commission point

out that Blanton has participated actively in this litigation at every stage. And he has

forcefully challenged both the constitutionality of CWIP and the public-policy use of the

45 Miss. Code Ann. § 77-3-101(a) (Rev. 2009). 46 Londoner v. City and County of Denver, 210 U.S. 373, 385, 28 S. Ct. 708, 52 L. Ed. 1103 (1908). 47 Id. 48 Id. 49 Id. at 385.

38 proceeds. He does not allege that, because of a lack of notice or hearing, he has been

deprived of making any argument or any challenge to CWIP. Further, the dictates of

Londoner have been satisfied, because notice of the rate proceedings was provided by

publication.

III. CWIP assessments under the Mississippi Baseload Act do not unconstitutionally pledge the credit of the State of Mississippi in aid of a corporation.

¶70. Blanton next directs us to Section 258 of the Mississippi Constitution, which prohibits

the State from pledging its credit in aid of a corporation.50 He suggests that when the state

imposed CWIP on ratepayers to support the Kemper construction project, it somehow

pledged the state’s credit to protect Mississippi Power’s credit rating.

¶71. Section 258 states:

The credit of the state shall not be pledged or loaned in aid of any person, association, or corporation; and the state shall not become a stockholder in any corporation or association, nor assume, redeem, secure, or pay any indebtedness or pretended indebtedness alleged to be due by the state of Mississippi to any person, association, or corporation whatsoever, claiming the same as owners, holders, or assignees of any bond or bonds, now generally known as “Union Bank” bonds and “Planters Bank” bonds.51

¶72. Once again, assuming arguendo that CWIP recovery is a tax, we must look to our

opinion in Albritton, in which we held that the use of municipal taxes to purchase land and

facilities to be leased to corporations for industrial use did not violate Section 258, because

50 Miss Const. art. 15, § 258. 51 Miss Const. art. 15, § 258.

39 the expenditure of public revenue served the legitimate public purpose of economic

development.52

¶73. Likewise, in Craig v. North Mississippi Community Hospital, we found that Section

258 did not preclude the State from spending public funds to support a private, nonprofit

hospital because of the State’s interest in providing healthcare to indigent patients.53 And in

Chance v. Mississippi State Textbook Rating and Purchasing Board, we held that,

consistent with Section 258, the State could provide free textbooks to private schools.54

¶74. As discussed above, CWIP supports legitimate governmental interests, including the

development and use of new technologies to expand energy production within the State.

Accordingly, even if I accepted Blanton’s argument that CWIP recovery is a tax, his

argument still fails. Further, Blanton cites no case in which this Court has struck down a

similar provision under Section 258. Accordingly, I would hold that the State’s imposition

of CWIP does not violate Article 14, Section 258 of the Mississippi Constitution.

IV. Any ex parte contact between the Commission and Mississippi Power during settlement negotiations does not invalidate the Settlement Agreement or the Commission’s subsequent approval of CWIP recovery.

¶75. Blanton claims that the settlement negotiations between the Commission and

Mississippi Power violated Mississippi Code Section 77-2-13’s prohibition of ex parte

contact in contested Commission proceedings. Accordingly, he argues that the contact

52 Albritton, 178 So. at 809, 810. 53 Craig v. North Miss. Cmty. Hosp., 206 Miss. 11, 39 So. 2d 523, 529 (Miss. 1949). 54 Chance v. Miss. State Textbook Rating and Purchasing Bd., 190 Miss. 453, 200 So. 706, 711 (1941).

40 renders the settlement agreement and second rate proceeding invalid. Blanton requests that

this Court vacate the settlement agreement, the second rate proceeding, and the resulting

CWIP approval. I disagree.

¶76. Section 77-2-13 states:

A public service commissioner, commission or public utilities staff employee, or consultant assisting the commission in investigating, compiling, evaluating and analyzing the record shall not communicate, directly or indirectly, regarding any issue in a contested proceeding other than communications necessary to procedural aspects of maintaining an orderly process, with any commission employee or consultant who has participated in the proceeding in a public advocacy or prosecutorial capacity, any party, his agent or other person acting on his behalf who has a direct or indirect pecuniary interest in the outcome of the proceeding, without notice and opportunity for all parties to participate.55

¶77. Blanton claims that the entire Commission violated this provision when it engaged in

settlement negotiations without allowing him to participate. These negotiations occurred

during Mississippi Power’s appeal of the Commission’s denial of its proposed rate increase.

¶78. The Commission and Mississippi Power argue that they did not violate Section 77-2-

13 because the communications occurred during an appeal of the Commission’s final order.

Accordingly, they suggest that the communications were not “regarding any issue in a

contested proceeding” before the Commission.56 Blanton argues that the Commission should

not now be heard to argue that its order was final, when previously it argued the opposite to

this Court, claiming that because its order was not final, Mississippi Power had no right to

appeal.

55 Miss. Code Ann. § 77-2-13(1) (Rev. 2009). 56 Id.

41 ¶79. While I find it interesting that the Commission would now choose to defend against

this claim by asserting that its original order denying Mississippi Power’s proposed rate

increase was indeed final, when it vigorously argued the opposite in the original appeal, I

conclude that Blanton’s argument fails for a different reason.

¶80. Section 77-2-13 provides that relief for a violation of the statute shall be granted when

“necessary to ensure that such violation does not prejudice any party or adversely affect the

fairness of the proceedings.” 57 Blanton does not claim or show that the settlement

negotiations caused him prejudice or rendered these proceedings unfair. Despite the fact that

the settlement resulted in a dismissal of Mississippi Power’s original appeal, we allowed him

to continue with his cross-appeal. The ex parte communications and settlement agreement

have in no way prejudiced Blanton’s opportunity or ability to litigate his claims.

¶81. Because I find that all of Blanton’s contentions from the rate proceedings below lack

merit, I would affirm the Commission’s decision.

WALLER, C.J., CHANDLER AND COLEMAN, JJ., JOIN THIS OPINION.

57 Miss. Code Ann. § 77-2-13(4) (Rev. 2009).