Opinion ID: 1219567
Heading Depth: 4
Heading Rank: 2

Heading: The Standard of Fairness was Applied in an Arbitrary and Capricious Manner.

Text: The attorney general and NMIEC argue that the Commission based its decision in part on fairness to shareholders without defining fairness. By relying on an undefined standard, the Commission is alleged to have acted arbitrarily and capriciously when it applied the standard to the facts that it found. Much of the final order is devoted to explanation of why shareholder interest is not paramount and to analysis of risk allocation whereby the risk of investment in excess capacity is assumed by investors, as well as to why the Commission is not required to provide rates that compensate for loss caused by PNM's own actions. Nonetheless, the Commission concluded that the return to investors would be too low and unfair under total exclusion, and this decision is asserted to have been in error. Our analysis indicates that this issue, too, is not yet ripe for review. The ultimate question of fairness to shareholders cannot be resolved until rates are set. [4] After the Commission has finally determined rates, having again entertained evidence on the issue, if the parties still believe that the Commission has not properly defined its standards, the issue will be reviewable to determine whether the conclusions were arbitrary and capricious. Until that time, although a legal issue has been presented, we have no basis to determine if the Commission's decision was arbitrary or capricious, because no final decision has been made. The Commission merely determined that, as a threshold matter, total exclusion would be unfair. It has not determined, however, what rates will be fair, and we do not feel it appropriate at this point interfere with its exercise of discretion. [5] In Duquesne Light Co. v. Barasch, 488 U.S. 299, 109 S.Ct. 609, 619, 102 L.Ed.2d 646 (1989), the Court, with respect to an alleged confiscatory rate methodology, stated: [A]n otherwise reasonable rate is not subject to constitutional attack by questioning the theoretical consistency of the method that produced it. It is not theory, but the impact of the rate order which counts. The economic judgments required in rate proceedings are often hopelessly complex and do not admit of a single correct result. The Constitution is not designed to arbitrate these economic niceties. Errors to the detriment of one party may well be canceled out by countervailing errors or allowances in another part of the rate proceeding. The Constitution protects the utility from the net effect of the rate order on its property. Inconsistencies in one aspect of the methodology have no constitutional effect on the utility's property if they are compensated by countervailing factors in some other aspect. (quoting Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S.Ct. 281, 288, 88 L.Ed. 333 (1944)); see also State v. Mountain States Tel. & Tel. Co., 54 N.M. 315, 337, 224 P.2d 155, 170 (1950) (adopting end results test as articulated in Hope ). This analysis is relevant to whether the fairness issue is properly before us at this time. Although we do not face the question of whether a rate is confiscatory  the issue is whether the Commission was overly generous to investors without adequately explaining its reasoning  we cannot evaluate a rate until it is set. The Commission, in further exercise of its discretion may balance out or alter, in the face of new evidence, the perceived error in its methodology, and we leave to it that opportunity to exercise its good judgment.