Opinion ID: 408190
Heading Depth: 1
Heading Rank: 1

Heading: The Middle South Utilities System and Its Operation :

Text: 3 MSU is composed of Middle South Utilities, Inc., a public utility holding company, Middle South Services, Inc. its subsidiary-agent for regulatory matters, and four electric utility subsidiaries: Louisiana Power and Light Co., Arkansas Power and Light Co., Mississippi Power and Light Co. and New Orleans Public Service, Inc. The Agreement, approved as the operating tariff by FERC in 1973, composes the contractual framework for the interchange of power among the four affiliated electric utilities. 49 FPC 1472 (June 29, 1973). Section 3.01 of the Agreement provides that the purposes of the Agreement are:... to provide the contractual basis for the continued planning, construction, and operation of the electric generation, transmission and other facilities ... and to provide a basis for equalizing among the Companies any imbalance of costs associated with the construction, ownership and operation of such facilities as are used for the mutual benefit of all the Companies. 4 Charges under the Agreement are made under five separate service schedules: (1) capability equalization, (2) transmission equalization, (3) exchange of electric energy, (4) distribution of revenue from sales made for the joint account of all the companies, and (5) distribution of operating expenses of the system operations center. The issues in this appeal revolve around capability and transmission equalization service schedules. 5 The Agreement requires each of the affiliated utility companies to maintain the generating capacity and other facilities necessary to supply its own local requirements. However, in order to achieve economies of scale through the construction of large units, an individual utility may be required to construct, own, and operate a new generating unit of sufficient size to help provide the power necessary to obtain the operating requirements of the entire MSU system. A utility that has a generating capacity less than its respective responsibility (a short or buying company) is required to pay a capability equalization charge to utilities generating, or capable of generating, power in excess of their respective responsibilities (long or selling companies). 6 Although the service schedules at issue in this proceeding govern the amounts paid and received among operating companies as a result of system-wide transactions, the same payments and receipts are accounted for in wholesale and retail regulatory proceedings in the respective states of each utility. In other words, the amounts received by a selling company may be utilized as income in determining the rates that ratepayers in the selling company's territory must pay in order to achieve the rate of return permitted in that particular territory. Likewise, payments made by a buying company may be considered expenses in determining the rates that ratepayers in the buying company's territory must pay in order to achieve the rate of return permitted in that particular territory. Consequently, the amounts charged ratepayers of different territories are dependent upon the status of the utility operating in each territory. 7 Under the previously approved operating tariff, operation and maintenance costs, general administrative over-heads attributable to the production function, return on common equity, and the structure ratios were fixed, but, the other components were adjusted automatically as their values increased or decreased. MSU, through its subsidiary-agent, Middle South Services, Inc., sought to place operation, maintenance, and general and administrative expenses under the automatic adjustment formula, thereby making all costs, except cost of equity, subject to the automatic adjustment formula. FERC granted MSU the requested changes in the automatic adjustment formula, and, furthermore, increased the rate of return on common equity to 14%. Louisiana Commission has perfected this appeal complaining of FERC's decision as to the appropriate expenses subject to the automatic adjustment formula and the proper return on common equity.