Rankin County, Mississippi v. Mississippi Public Service Commission and Entergy Mississippi, LLC

• Court: Mississippi Supreme Court
• Decided: September 26, 2024
• Docket: 2022-UR-00803-SCT
• Status: Published

Opinion

IN THE SUPREME COURT OF MISSISSIPPI

NO. 2022-UR-00803-SCT

RANKIN COUNTY, MISSISSIPPI

v.

MISSISSIPPI PUBLIC SERVICE COMMISSION AND ENTERGY MISSISSIPPI, LLC

DATE OF JUDGMENT: 07/12/2022 TRIAL COURT ATTORNEYS: JEREMY CHARLES VANDERLOO TIANNA HILL RABY ALEXANDER CASTON MARTIN, II ALICIA SCHERINI HALL EMILY WILKINS KRUGER CORBIN ROSS HAMMONS ALICIA SCHERINI HALL MICHAEL JEFFREY WOLF ATTORNEY FOR APPELLANT: MICHAEL JEFFREY WOLF ATTORNEYS FOR APPELLEES: WILSON DOUGLAS MINOR TIANNA HILL RABY ALICIA SCHERINI HALL MICHAEL CASEY WILLIAMS STEPHEN FRIEDRICH SCHELVER MICHAEL JAMES BENTLEY RANKIN SUMNER FORTENBERRY MOLLY M. WALKER NATURE OF THE CASE: CIVIL - UTILITY RATE DISPOSITION: AFFIRMED - 09/26/2024 MOTION FOR REHEARING FILED:

BEFORE KITCHENS, P.J., MAXWELL AND CHAMBERLIN, JJ.

KITCHENS, PRESIDING JUSTICE, FOR THE COURT:

¶1. On July 12, 2022, the Mississippi Public Service Commission (the Commission)

entered an order authorizing a rate increase for Entergy Mississippi, LLC (Entergy), an electric utility company. The order adopted the recommendations of a joint stipulation filed

by Entergy and the Mississippi Public Utilities Staff (the Staff) following verification of

Entergy’s annual financial data pursuant to its Formula Rate Plan. Rankin County had

intervened in the proceedings in its capacity as an Entergy customer, disputing the

Commission’s application of the formula used for calculating rate adjustments and in

particular objecting to the exclusion of unbilled revenue from Entergy’s operating expenses.

On appeal, we find that the Commission’s order is supported by substantial evidence and is

not arbitrary or capricious. The issues Rankin County raises for the first time on appeal are

deemed waived.

FACTS AND PROCEDURAL BACKGROUND

¶2. The Mississippi Legislature has delegated to the Commission “exclusive original

jurisdiction over the intrastate business and property of public utilities[.]” Miss. Code Ann.

§ 77-3-5 (Rev. 2018). In this regulatory role, the Commission has exclusive rate-making

authority. No rate set by the Commission “shall exceed that which is just and reasonable.”

Miss. Code Ann. § 77-3-33(1) (Rev. 2018). Rates must “yield a fair rate of return to the

utility furnishing service, upon the reasonable value of the property of the utility used or

useful in furnishing service.” Id.

¶3. Utilities are authorized to request a rate adjustment by filing a notice of intent with

the Commission and the Staff.1 Miss. Code Ann. § 77-3-37(1) (Rev. 2018). A public hearing

1 The Staff is an independent state agency “established by the Mississippi Legislature to investigate utility filings.” Total Env’t Sols., Inc. v. Miss. Pub. Serv. Comm’n, 988 So. 2d 372, 373 (Miss. 2008); Miss. Code Ann. § 77-2-3(3) (Rev. 2018) (“The primary functions of the public utilities staff shall be investigative and advisory in nature.”); see also

2 is required for a rate change that would increase the utility’s annual revenues by more than

$100,000 or two percent (whichever is higher). Miss. Code Ann. § 77-3-39(1) (Rev. 2018).

¶4. The Legislature has authorized the Commission to “adopt a formula type rate of return

evaluation rate[.]” Miss. Code Ann. § 77-3-2(3)(a)(i) (Rev. 2018). Formula rate plans may

“[p]eriodically review and adjust, if required, the utility’s level of revenues based upon the

actual books and records of the utility which are periodically the subject of independent

audits and regulatory audits[.]” Id.2 “Each periodic evaluation shall be supported with a

sworn filing by the utility incorporating the data specified in the formula rate adopted by the

commission, and such data shall be verified by the commission[.]” Miss. Code Ann. § 77-3-

2(3)(c)(i) (Rev. 2018).

¶5. Entergy is an electric utility company regulated by such a formula rate plan. Currently,

Entergy’s periodic rate adjustments are governed by Formula Rate Plan Rider Schedule FRP-

7 (second revised) (the Formula Rate Plan). Applying financial data provided annually by

Entergy and verified by the Commission and the Staff, the Formula Rate Plan is used to

determine whether the rates charged by the utility should stay the same, increase, or decrease.

The rate adjustment calculated to recover a change in revenues for the upcoming year is

known as the Annual Rate Adjustment. In a separate, retrospective calculation, the Formula

Rate Plan is used to determine whether the utility’s returns for the past year were within an

Miss. Code Ann. § 77-2-9(3) (Rev. 2018) (enumerating responsibilities of the Staff).

2 In contrast to less frequent general rate proceedings, formula rate plans gradually phase in rate adjustments.

3 appropriate range, were too low, or were too high. If the past year’s returns were too low or

too high, a temporary rate adjustment is warranted to change the past year’s revenues. This

is known as the Interim Rate Adjustment.

¶6. Every March, Entergy files a prospective “Evaluation Report” (used to calculate the

Annual Rate Adjustment) and a retrospective “Look Back Report” (used to calculate the

Interim Rate Adjustment). Consistent with the directive that rates must “yield a fair rate of

return to the utility furnishing service, upon the reasonable value of the property of the utility

used or useful in furnishing service,” the appropriate rate of return is calculated by measuring

the utility’s revenues against its rate base.3 § 77-3-33(1). If Entergy’s Earned Rate of Return

on Rate Base4 falls within a bandwidth set around a Benchmark Rate of Return on Rate

Base,5 no rate adjustment is warranted. However, if the Earned Rate of Return on Rate Base

is below or above the bandwidth, an adjustment to the rates is warranted to bring the utility’s

revenues to an appropriate rate of return. When application of the formula results in an

3 The rate base includes the value of the utility’s property used or useful in furnishing the utility service. See S. Hinds Water Co. v. Miss. Pub. Serv. Comm’n, 422 So. 2d 275, 281 (Miss. 1982). 4 The Formula Rate Plan defines the Earned Rate of Return on Base Rate as “the Company’s net utility operating income divided by its rate base” and contains a formula for determining this component. 5 The Formula Rate Plan defines the Benchmark Rate of Return on Rate Base as “the composite weighted embedded cost of capital reflecting the Company’s annualized costs of Long-Term Debt, Quarterly Income Preferred Securities . . . and Preferred Equity at the end of the Evaluation Period together with the Evaluation Period Cost Rate of Common Equity . . .” and contains a formula for determining this component. The bandwith set around the Benchmark Rate of Return on Rate Base has an upper limit of the Benchmark Rate plus 0.50 percent and a lower range of the Benchmark rate minus 0.50 percent.

4 increase in revenues for the utility, those revenues are subject to a 4 percent cap on

unadjusted revenues for the relevant evaluation period.

¶7. The financial data in the annual reports are verified independently by the Staff.

Entergy provides the Staff with all required confidential data and records. The Commission

and the Staff are entitled to “have access to and the right to inspect and examine all accounts,

records, memoranda, and property of the public utilities.” Miss. Code Ann. § 77-3-79 (Rev.

2018). However, utilities have the right to protect “trade secrets or confidential commercial

or financial information” from public disclosure. Miss. Code Ann. § 79-23-1(2) (Rev. 2013).

Commission Rule 109(6)(c) provides that “information related to . . . rates regulated by the

Commission shall be presumed to be accessible public records.” But a utility can seek a

confidential designation by providing “the legal and factual basis for its assertion that the

information qualifies as either confidential or a trade secret pursuant to Mississippi law and

shall state why the information cannot be reasonably redacted and filed publicly.”

Commission Rule 109(8)(b).6

¶8. Entergy filed the instant Evaluation Report and Look Back Report in March 2022. On

June 2, 2022, Entergy and the Staff submitted a joint stipulation to the Commission

presenting the change in revenues and corresponding net rate adjustments to customer

billing7 as calculated under the terms of the Formula Rate Plan. As approved in the

Commission’s final order, Entergy’s March 2022 prospective Evaluation Report resulted in

6 https://www.psc.ms.gov/sites/default/files/Documents/ProceduralRules.pdf 7 For residential customers, the net rate adjustments resulted in an increase of $3.13 per month per 1,000 kilowatt hours (as calculated for a twelve-month billing cycle).

5 a change in revenues as follows:8

Rate Base $3,949,547,994 Earned Rate of Return on Rate Base (ERORB) 5.15% Benchmark Rate of Return on Rate Base (BRORB) 6.71% Range of No Change 6.21% to 7.21% Point of Adjustment 6.48% Change in Revenues $71,008,322 Maximum Change in Revenues for the 2022 Evaluation Report, as permitted by FRP-7 (4% of unadjusted Evaluation Period Revenue) $48,606,128

Total Change in Revenues $48,606,128

Entergy’s anticipated Earned Rate of Return on the Base Rate was below the lower end of

the bandwidth, triggering an increase in revenue of approximately $70 million. However,

application of the Formula Rate Plan’s 4 percent cap reduced the permissible recoverable

revenues to $48,606,128. The Commission approved a corresponding Annual Rate

Adjustment calculated to recover the $48,606,128 change in revenue.

¶9. As approved in the Commission’s final order, Entergy’s March 2022 Look Back

Report resulted in a change in revenues as follows:

Rate Base $3,614,832,397.00 Earned Rate of Return on Rate Base (ERORB) 5.99% Benchmark Rate of Return on Rate Base (BRORB) 6.85% Range of No Change 6.35% to 7.35% Point of Adjustment 6.69% Change in Revenues $34,138,394.00 DSM True-up $124,439.00

Total Change in Revenues $34,262,832.00

8 Prior to entering into the joint stipulation, the Staff disputed aspects of the March 2022 annual reports, including the inclusion of certain operating and maintenance expenses. Entergy revised its data in response to the Staff’s verification process.

6 Entergy’s Earned Rate of Return on Rate Base for the Look Back period was below the lower

end of the bandwidth, triggering an increase in recoverable revenues. The Commission

approved a corresponding Interim Rate Adjustment calculated to recover the $34,262,832

change in revenues.

¶10. Rankin County moved to intervene in the proceedings on March 29, 2022. The

Commission held a public hearing on June 7, 2022, in which Rankin County participated,

cross-examining Entergy’s witnesses on the rate calculation process and in particular on the

practice of excluding unbilled revenue from operating income. In a pretrial order, the

Commission authorized Rankin County to provide prefiled testimony and evidence to support

its opposition to the rate adjustments, but the county ultimately did not offer admissible

testimony or evidence.

¶11. The Commission entered an order on July 12, 2022, approving the rate changes. The

joint stipulation originally calculated the net rate adjustments to span a twelve-month billing

cycle beginning in July 2022. However, when the Commission had not entered its final order

by the start of the July 2022 billing period, Entergy submitted supplemental testimony with

updated net rate adjustments to account for an eleven-month billing cycle beginning in

August 2022. The sworn supplemental testimony represented that the methodology for

determining the revisions was consistent with both the Formula Rate Plan and the Joint

Stipulation. The Commission adopted the updated eleven-month rate adjustments into its

final order without additional public notice or a hearing.

¶12. Rankin County did not file a petition for rehearing with the Commission as permitted

7 by Mississippi Code Section 77-7-293 (Rev. 2018) but appealed directly to this Court. This

Court retained jurisdiction of the case pursuant to Mississippi Code Section 77-3-72 (Rev.

2018).9

STANDARD OF REVIEW

¶13. This Court’s standard of review over decisions of the Public Service Commission

provides that “[t]he 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. 2018); Miss. Pub. Serv. Comm’n v. S. Cent. Bell Tel. Co.,

464 So. 2d 1133, 1135 (Miss. 1984). “[T]he findings of the public service commission are

prima facie correct and as a reviewing court, we will not substitute our judgment for the

judgment of the commission.” Id.; State ex rel. Pittman v. Miss. Pub. Serv. Comm’n, 538

So. 2d 387, 394 (Miss. 1989). “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[.]” Miss. Power Co. v. Miss. Pub. Serv. Comm’n, 168

So. 3d 905, 910 (Miss. 2015) (quoting State ex rel. Pitman v. Miss. Pub. Serv. Comm’n, 520

9 Article 6, section 146, of the Mississippi Constitution, provides that “[t]he Legislature may by general law provide for the Supreme Court to have original and appellate jurisdiction as to any appeal directly from an administrative agency charged by law with the responsibility for approval or disapproval of rates sought to be charged the public by any public utility.” See also M.R.A.P. 19.

8 So. 2d 1355, 1357-58 (Miss. 1987)).

DISCUSSION

¶14. The Legislature regulates utilities with the policy to “provide fair regulation of public

utilities in the interest of the public,” and to “promote adequate, reliable and economical

service to all citizens and residents of the state[.]” Miss. Code Ann. § 77-3-2(1)(a), (c) (Rev.

2018). No rate set by the Commission “shall exceed that which is just and reasonable.” §

77-3-33(1); see also S. Hinds Water Co., 422 So. 2d at 281. The Legislature has delegated

its regulatory authority to the Commission, and “the functions of the commission, with the

aid and assistance of its staff, shall be regulatory and quasi-judicial in nature.” Miss. Code

Ann. § 77-2-3(2) (Rev. 2018).

I. Whether the Commission exceeded its authority by permitting “unbilled revenue” to be excluded from Entergy’s operating income.

¶15. Rankin County argues that the Commission should not allow Entergy to exclude

unbilled revenue from its operating income. Unbilled revenue is estimated revenue that has

not been billed to or collected from customers. Under Entergy’s accounting practices, its

December unbilled revenue estimates are categorized as either a credit or debit depending

on how the balance relates to the prior December’s unbilled revenue estimates.10 If the prior

year’s unbilled estimate is greater than the current year’s estimate, the end-of-year balance

in the unbilled revenue account is treated as a debit, decreasing Entergy’s operating income.

However, if the prior December’s unbilled revenue estimate is less than the current

10 The unbilled revenue account is reflected as a line item in Entergy’s year-end balance sheet.

9 December’s unbilled revenue estimate, then the end-of-year balance of the unbilled revenue

account is treated as a credit, increasing Entergy’s operating income.

¶16. The Formula Rate Plan does not mandate how unbilled revenue should be accounted.

Since 2016, the Commission has permitted Entergy to exclude unbilled revenue estimates

from its operating income calculation.11 The Commission accepted Entergy’s rationale that

this approach would result in the use of twelve months of actual usage data to measure

revenues.12 In the instant Formula Rate Plan proceedings, the exclusion of Entergy’s unbilled

revenue from its operating income had the effect of increasing Entergy’s operating income

by $2.6 million because the unbilled revenue account had been classified as a debit when

related to the previous December’s account balance. Therefore, excluding the unbilled

revenue from Entergy’s operating income did not benefit Entergy in these rate proceedings

in that it did not contribute to the positive change in revenue approved by the Commission.

¶17. Rankin County argues that, in a year in which the unbilled revenue account is

classified as a credit, the exclusion of the account from Entergy’s operating income

conceivably could increase rates in what amounts to an improper double-billing of customers.

It argues that Entergy should be required to treat unbilled revenue as ordinary income. In

compliance with federal law, unbilled revenue is treated as ordinary income by Entergy for

purposes of federal taxation. See I.R.C. § 451. Entergy argues that companies routinely and

11 See 2014-UN-132 (Miss. P.S.C. June 17, 2016). 12 Entergy argued that December is an unpredictable month for weather and power usage and that using unbilled estimates could result in dramatic fluctuations in operating revenues.

10 appropriately use different accounting methods for tax purposes versus other purposes. It

argues that the United States Tax Court has noted that utilities may treat unbilled revenue

differently for ratemaking purposes. See Orange & Rockland Utils., Inc., v. Comm’r of

Internal Revenue, 86 T.C. 199, 206 (1986); see also MidAm. Energy Co. v. Comm’r of

Internal Revenue, 114 T.C. 570 (2000).

¶18. Entergy argues that the Commission’s treatment of unbilled revenue is consistent with

its precedent. “[A]n agency must either conform to its prior norms and decision or explain

the reason for its departure from such precedent.” Methodist Specialty Care Ctr. v. Miss.

Div. of Medicaid, 305 So. 3d 1098 (Miss. 2020) (quoting Miss. Methodist Hosp. & Rehab.

Ctr., Inc. v. Miss. Div. of Medicaid, 21 So. 3d 600, 609 (Miss. 2009), abrogated on other

grounds by King v. Miss. Mil. Dep’t, 245 So. 3d 404 (Miss. 2018). Additionally, this Court

defers to the Commission’s determinations of net income components when the decisions are

based on substantial evidence. See United Gas Corp. v. Miss. Pub. Serv. Comm’n, 127 So.

2d 404, 428-29 (Miss. 1961); see also S.E. Miss. Legal Servs. Corp. v. Miss. Power Co.,

605 So. 2d 796, 798 (Miss. 1992) (“[t]he component parts of the utility’s rate base

calculations come under our eye only as they push the end result in excess of that which is

just and reasonable.”)

¶19. We find that Rankin County has not shown how the Commission’s approval of

Entergy’s practice of excluding unbilled revenue from its operating income is an arbitrary

approach unsupported by substantial evidence or resulting in unfair or unjust rates. It is a

reasonable approach within the Commission’s regulatory discretion to measure Entergy’s

11 revenue from twelve months of actual usage data rather than incorporating unbilled revenue

estimates. The approach is not designed to unfairly manipulate rates, as evidenced in these

proceedings by the circumstance that the exclusion of the unbilled revenue increased

Entergy’s operating income due to the unbilled revenue estimates’ classification as a debit.

II. Issues Raised by Rankin County for the First Time on Appeal

¶20. On appeal, Rankin County raises numerous issues for the first time. It challenges: (1)

the absence of a public hearing on the recalculation of the net rate adjustments to account for

an eleven month billing period, (2) the application of the Formula Rate Plan’s 4 percent cap

on revenue increases, and (3) the Commission’s designation of and management of Entergy’s

confidential records.

¶21. Entergy and the Commission urge us to find that these arguments have been waived

given that none of these issues was presented to the Commission for consideration at any

time during the proceedings or on a motion for rehearing as permitted by Section 77-7-293.

Federal jurisdictions apply the administrative waiver rule, and it is applied by federal courts

to the Mississippi Public Service Commission. See Dixie-Net Commc’ns, Inc. v. BellS.

Telecomms., Inc., 915 F. Supp. 2d 784, 789 (N.D. Miss. 2012) (“Failing to raise an issue at

the administrative level waives the right to appellate review of the issue.”) (citing Sw. Bell

Tel. Co. v. Pub. Util. Comm’n of Tex., 208 F.3d 475, 487 (5th Cir. 2000)); see also United

States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37, 73 S. Ct. 67, 97 L. Ed. 54 (1952);

Int’l Tel. & Tel. Corp. v. United Tel. Co. of Fla., 550 F.2d 287, 289 (5th Cir. 1977).

¶22. However, “[a] court might undertake review of such a question in exceptional

12 circumstances.” AT&T Corp. v. Miss. Dep’t of Info., 298 So. 3d 938, 953 (Miss. 2020)

(citing Myran v. Martin, 670 F.2d 49, 51 (5th Cir. 1982)). While applying the general rule,

we have held that:

[w]e reserve the right to consider an issue that was not raised before an administrative agency where . . . the facts are undisputed and the issue is one that would allow an erroneous application of a statute, and where failure to address such issue will result in a possible deprivation of substantive rights.

Id. (alterations in original) (quoting Dean v. Pub. Emps.’ Ret. Sys., 797 So. 2d 830, 837

(Miss. 2000)).

¶23. The issues at hand do not warrant an exception to our general waiver principles, and,

regardless, they are without merit. Rankin County does not argue that the net rate adjustments

were miscalculated when they were adjusted to span an eleven-month billing cycle instead

of a twelve-month billing cycle. The change in revenues, vetted thoroughly in the public

proceedings before the Commission, remained unchanged.

¶24. Rankin County argues that the terms of the Formula Rate Plan should be construed

to apply a single 4 percent cap on revenue collectively to both annual reports. This challenge

to a specific component of the Formula Rate Plan should not be made for the first time on

appellate review of these regulatory proceedings. In its capacity as intervener, Rankin County

was granted full opportunity to raise such a challenge in the proceedings below, and it was

authorized to present evidence and testimony to the Commission to support its objection to

the rate increase. Regardless, the Commission, the Staff, and Entergy properly have

construed the plain language of the Formula Rate Plan to apply two separate 4 percent caps

13 on revenues, one under the Evaluation Report and one under the Look Back Report.13

¶25. Finally, Rankin County has not shown how the Commission’s designation or

management of Entergy’s confidential information constitute grounds for reversing the

Commission’s order. Rankin County appears correct in its assertion that Entergy designated

certain records as confidential without complying strictly with Commission Rule 109(8)(b)’s

requirement to articulate the basis for why that designation is required. However, Rankin

County does not dispute that the materials did, in fact, warrant a confidential designation,

and has had full access to the sealed, confidential records in preparation for this appeal. It

did not raise a challenge related to its access to Entergy’s confidential material during the

proceedings below and has presented no argument on appeal to support that the

Commission’s management of Entergy’s confidential information resulted in unfair or unjust

rates.

CONCLUSION

¶26. The Commission, the Staff, and Entergy complied with the statutory and regulatory

procedures for making a utility rate adjustment. Rankin County has not demonstrated how

the Commission’s application of its adopted Formula Rate Plan regulatory scheme resulted

in unfair or unjust rates. The Commission’s approval of the net rate adjustments as calculated

under the Formula Rate Plan was supported by substantial evidence and was not arbitrary or

capricious. Therefore, the Commission’s order is affirmed.

13 The Annual Adjustment Rate formula applies a 4 percent cap on the “Evaluation Period Retail Revenues” found in the current, prospective Evaluation Report. But the Interim Rate Adjustment formula is retrospective, relying on the previous year’s Evaluation Report’s revenues. Therefore, the formulas are applying two separate 4 percent caps.

14 ¶27. AFFIRMED.

RANDOLPH, C.J., KING, P.J., COLEMAN, MAXWELL, BEAM, CHAMBERLIN, ISHEE AND GRIFFIS, JJ., CONCUR.