Opinion ID: 1740878
Heading Depth: 2
Heading Rank: 2

Heading: failure to join msei and msu as parties

Text: MSU, as the owner of all of the voting stock of its operating companies, obviously controls them, as well as MSEI. The evidence shows that MP & L entered into two contracts with its sister companies  the UPSA and the advance payment agreement  which were advantageous to its sister companies and detrimental to MP & L. The result of these agreements was the August Grand Gulf bill for approximately $27 million, presented to the MPSC as evidence of the emergency need for increased rates. The substance of the bill was as follows: To bill you for cost of service for July, 1985 $30,092,473 Less Purchase Power Advance Payment Credit 3,199,397 ___________ Net Payment 26,893,076 ___________ The MPSC was acutely aware in this case that it was dealing with transactions that were not arm's-length, yet it accepted as evidence of the reasonableness and prudency of Grand Gulf costs this bare-bones invoice. This is directly contrary to the rationale of Western Distributing Co. v. PSC, 285 U.S. 119, 52 S.Ct. 283, 76 L.Ed. 655 (1931), which held that state authorities had the right, despite federal regulation, to inquire into transactions between a controlling corporation and its subsidiary: The state authority whose powers are invoked to fix a reasonable rate is certainly entitled to be informed whether advantage has been taken of the situation to put an unreasonable burden upon the distributing company, and the mere fact that the charge is made for an interstate service does not constrain the Commission to desist from all inquiry as to fairness. 285 U.S. at 124-25, 52 S.Ct. at 284, 76 L.Ed. at 658. We do not read Nantahala to the contrary, although it cited with approval several cases involving purchases by closely related entities. The Court noted that FERC's regulation still preempted review by state utility commissions of FERC approved rates. ___ U.S. at ___, 106 S.Ct. at 2356, 90 L.Ed. at 953-54. Neither the UPSA, which allocated more capacity to this state than it will be able to use until the mid-1990's, if ever, nor the Power Purchase Advance Payment Agreement, which was merely a conduit of construction financing from MP & L to MSEI, fall under the category of FERC approved rates. The MPSC had the authority, indeed, the duty, to inquire into the prudency of these suspect agreements. Such a review could only be effective if MSU and MSEI (now SERI) were joined as parties. Motions were made for such a joinder and denied by the Commission. We hold that these parties should be joined in the prudency review to be accomplished on remand of this case, in order to accomplish a complete review of the transactions between MP & L, MSEI, and MSU, and their effect on Grand Gulf expense.