Supreme Court Ruling May Cost Utility Users Billions : Holds States Must Pass On Hikes
The Supreme Court, in a decision that could cost consumers billions, ruled today that states must let utilities pass on to customers wholesale rate hikes approved by the federal government.
The justices, voting 6 to 3, reversed the Supreme Court of Mississippi, which ruled in February, 1987, that the state utility commission was not obliged to grant a $327-million rate hike requested by the Mississippi Power & Light Co. to cover nuclear power plant costs incurred by its parent company.
In the short term, the ruling means Mississippi utility customers will see sharp increases in their bills. But consumers everywhere may feel the impact since states must now automatically pass on to consumers wholesale rate hikes approved by the Federal Energy Regulatory Commission.
FERC Takes Precedence
Writing for the court, Justice John Paul Stevens used a three-part analysis to conclude that the Constitution’s “supremacy clause” bars states from taking action that conflicts with decisions made by FERC.
“First, FERC has exclusive authority to determine the reasonableness of wholesale rates,” he said. “This principle binds both state and federal courts and is in the former respect mandated by the Supremacy Clause.
“Second, FERC’s exclusive jurisdiction applies not only to rates, but also to power allocations that affect wholesale rates,” he said. “Third, states may not bar regulated utilities from passing through to retail consumers FERC-mandated wholesale rates.”
Second Rejection
It was the second ruling in three years rejecting efforts by state utility commissions to save consumers money by denying rate increases allowed by FERC.
Joining Stevens in the ruling were Chief Justice William H. Rehnquist and Justices Byron R. White, Sandra Day O’Connor and Anthony M. Kennedy. Justice Antonin Scalia filed a concurring opinion.
Justices William J. Brennan Jr., Thurgood Marshall and Harry A. Blackmun dissented.
The case was a classic battle pitting states, responsible for setting in-state utility rates, against the Federal Energy Regulatory Commission, which sets wholesale rates for interstate public utilities.
The case involved the Mississippi Power & Light Co., one of several subsidiaries of the Middle South Utilities, an interstate public utilities holding company that also owns utilities in Arkansas and Louisiana.
Cost Rises 500%
In the early 1970s, MSU decided to build the Grand Gulf 1 nuclear power plant near Port Gibson, Miss., to meet an expected increased demand in energy.
The construction of the plant was authorized by the Mississippi Public Service Commission in 1974, but by the time it was completed in 1985, its cost had risen 500%, from $500 to $2,500 per kilowatt hour.
Because MSU is an interstate company, FERC had jurisdiction to determine how the costs of the plant should be distributed and assessed MPL a 33% share. The FERC ruling meant MPL was required to pay its parent company $327 million a month.
To avoid bankruptcy, Mississippi Power & Light requested a $327-million rate increase from the Public Service Commission. The agency initially rejected the proposal but eventually agreed to allow the utility to phase in the increase over a 10-year period.
On appeal, the Mississippi Supreme Court overturned the rate hike, ruling that the state commission must first determine for itself the prudence of the Grand Gulf expenditures. After a hearing, the commission rescinded the increase and ordered the utility to submit a plan to refund $200 million to customers, a decision overturned by today’s high court ruling.
