Ruling May Bring Higher Electric Bills
In a ruling that could prove costly to electric consumers in the East and South, the Supreme Court decided Friday that state officials in regions served by a multistate power system may not protect their residents from paying for expensive and perhaps unneeded nuclear power plants.
On a 6-3 vote, the justices said states may not renege on paying their share of the cost of a multi-state agreement among their utilities to build a nuclear plant. The Federal Energy Regulatory Commission oversees such multi-state pacts, the court said, and state officials may not contest how federal regulators divide the costs.
The decision is not expected to have much impact in California, according to attorneys for the California Public Utility Commission, because the state’s utilities have not entered into pacts with utilities in other states to build power plants.
Such arrangements are increasingly common in New England, the upper Midwest and the South as a way to spread the high cost of constructing power generating facilities. In such cases, the high court said, federal regulation supplants the traditional state regulation.
Allocations of Power
“States may not alter FERC-ordered allocations of power by substituting their own determinations of what would be just and fair,” wrote Justice John Paul Stevens for the court. “FERC-mandated allocations of power are binding on the states and states must treat those allocations as fair and reasonable when determining retail rates.”
Historically, state public utility commissions have been aggressive defenders of consumer interests and they have often forced utilities and their stockholders to swallow part of the cost of unduly expensive power plants.
By contrast, FERC is considered more friendly to the utilities and has been inclined to conclude that the costs of new plants should be passed entirely to the rate-payers.
In the case before the court, Middle South Utilities Inc., a consortium of four power companies that provided electricity to Mississippi, Arkansas, Louisiana and Missouri, decided in 1974 to build a nuclear plant at Port Gibson, Miss. Known as the Grand Gulf plant when it was begun, it was called the “Grand Goof” when it was finished in 1980. It cost $3.5 billion, $2.3 billion more than had been projected.
Expensive Electricity
Acting under agreements among the four utilities, FERC officials decided that Mississippi Power & Light Co. had to take one-third of the expensive electricity produced by Grand Gulf. For the utility’s 330,000 customers in western Mississippi, this expensive electricity would raise their utility bills by an estimated $326 million over the next 10 years.
Officials of the state public utility commission balked and said they must decide whether Grand Gulf’s costs were “prudently incurred” before the utility could pass those costs on to rate-payers. The Mississippi Supreme Court agreed with that conclusion and the utility appealed to the Supreme Court.
“This decision strikes at the unique and historic state role of deciding what will be built and who will pay for it,” said Scott Hempling, an attorney who represented the Consumer Federation of America and the Environmental Action Foundation, which urged the court to support the state utility commissions.
Hempling and other lawyers representing states and consumers said the court’s ruling (Mississippi Power & Light vs. State of Mississippi, 86-1970) would give utility officials a free hand to decide what plants will be built and more assurance that their rate-payers would be forced to pay the full costs of those plants. For utilities faced with the cost overruns for exorbitantly expensive nuclear power plants, they said, this assurance could save their shareholders billions of dollars.
Robert L. Baum, general counsel for the Edison Electric Institute, the trade association representing most of the nation’s electric utilities, said the high court’s ruling would prevent “Balkanization” among the states. If Mississippi’s officials could refuse to pass on the state’s share of the utility generating costs, he warned, other states would soon follow suit.
Michael Day, deputy general counsel for the California Public Utilities Commission, said many California utilities buy electric power and natural gas from other states but that they have not joined multistate consortiums to build plants. When the utility buys power from outside the state, he said, California regulators may challenge the decision if the price of the power is too high.
