Opinion ID: 1301361
Heading Depth: 3
Heading Rank: 1

Heading: Excessive Burden

Text: The first factor the Commission considered was whether enforcement of the rule would impose an excessive burden upon the applicant or others affected by the rule. Minn. R. 7829.3200, subp. 1. CenterPoint makes several arguments for why the Commission's failure to find an excessive burden was arbitrary and capricious. CenterPoint asserts that the Commission: (1) was inconsistent with its prior decisions when it determined that nearly $21 million in unrecovered costs was not an excessive burden; (2) was inconsistent with its decision in NSP when it failed to grant a variance for the two years in which unrecovered costs amounted to more than 10% of CenterPoint's return on equity; [1] (3) improperly compared the total amount of unrecovered costs to CenterPoint's total gas costs; and (4) significantly understated the amount of unrecovered costs in its first order and then failed to find an excessive burden upon learning of its mistake. In the original order, the Commission provided several reasons for not finding an excessive burden. The Commission noted that CenterPoint's losses resulted from company-initiated changes which went unnoticed by CenterPoint for approximately five years. The Commission specifically pointed to CenterPoint's explanation of why the unrecovered costs had gone unnoticed for so many years  that the omissions were too small to be detected on a monthly or annual basis. The Commission also noted that the calculations submitted by CenterPoint were improper because CenterPoint compared four years of errors to one year of operating income. Finally, the Commission relied on evidence that the losses amounted to only $2.4 million and that the unrecovered amounts constituted only 0.5% of the total gas costs incurred by CenterPoint during the time at issue. After the rehearing, the Commission amended its order. In the amended order, the Commission recognized that it had been mistaken in finding that the unrecovered losses amounted to only $2.4 million and acknowledged that CenterPoint's losses were approximately $21 million. The Commission's amended order not only addressed the Commission's errors, but also provided a further explanation for the Commission's conclusion to deny the variance. The Commission explained that its two prior cases, NSP and Interstate, did not compel it to grant CenterPoint's variance because its inquiry in each case was fact-intensive and specific to the economic conditions of the times. Reasserting its rationale from the first order, the Commission denied CenterPoint's request. Because the Commission offered an explanation for why CenterPoint's case was different from prior decisions, we must analyze whether the explanation offered was arbitrary and capricious. E.g., Sierra Club, 755 F.2d 608. The Commission does not have a lengthy list of prior variance cases. In fact, the Commission has only decided two prior variance cases, and in both cases it granted the variance. The fact that the Commission has granted its two prior variance requests does not, however, lead to a presumption that the Commission is obligated to grant all subsequent requests. In denying CenterPoint's variance request, the Commission highlighted the facts that were specific and even unique to CenterPoint's case. Thus, it appears the Commission has not articulated a new rule, nor has it varied from previous decisions. Rather, the Commission has merely narrow[ed] the zone and applied a more discriminating invocation of the variance rule based on the facts of CenterPoint's case. See Atchison Topeka & Santa Fe Ry. Co., 412 U.S. at 807, 93 S.Ct. 2367. Therefore, we must determine whether the two prior cases in which the Commission granted variance requests are factually distinct from CenterPoint's case, where the Commission denied the request. In analyzing the Commission's excessive burden analysis, we begin by noting the subjective aspect of the first variance factor. The variance rule requires the Commission to consider whether enforcement of the rule would impose an excessive burden upon the applicant or others affected by the rule. Minn. R. 7829.3200 subp. 1 (emphasis added). The language of the rule is not focused on the size of the under-recovery, but instead instructs the Commission to consider what effect that under-recovery will have on the particular company seeking the variance. Thus, the fact that the amount of money CenterPoint failed to recover over the 2000-4 time period is greater than the amount at issue in NSP and Interstate is not determinative. The Commission is required to consider that amount in the context of its effect on CenterPoint. As the Commission noted, there are significant factual differences between CenterPoint's case and the NSP and Interstate cases. In neither of the two prior cases had the utility company allowed unrecovered costs to accumulate on a monthly basis for such a lengthy time period  five years. CenterPoint not only failed to recover the gas costs on a regular basis over an extended period of time, but it also failed to notice the accumulation of those costs. Further, when explaining how the unrecovered amounts had gone unnoticed, CenterPoint stated that the amounts were too insignificant on a monthly or annual basis to be noticed. Thus, despite the size of the unrecovered costs as now accumulated, the fact that CenterPoint failed to notice the losses for a period of five years does suggest that the missing amounts did not excessively burden the company. The Commission did significantly understate the amount of unrecovered costs in its first order denying the variance request, but the Commission corrected the amount in its second order, at which time it reasserted the reasons stated above for denying CenterPoint's request. The approximately $21 million at issue here is larger than the amounts at issue in NSP and Interstate. According to CenterPoint, the amount these losses represent in terms of return on equity amounted to 0.55% in 2000, 2.68% in 2001, 15.31% in 2002, 14.24% in 2003, and 13.79% in 2004, and thus did rise to levels similar to those in NSP at least two of the years in question. Nonetheless, CenterPoint itself has said that it failed to notice the losses over a five-year period because the accumulating losses were not noticeable on a monthly or annual basis. Therefore, we conclude that it was not arbitrary and capricious on the distinct facts of this case to suggest the unrecovered costs did not impose an excessive burden. CenterPoint also objects to the fact that the Commission compared the unrecovered costs to the total amount of gas costs incurred by CenterPoint. The comparison may have been important in part because CenterPoint failed to provide accurate annualized figures during the Commission's initial investigation. As a result, CenterPoint's annualized return on equity numbers were not investigated or verified by an outside agency. Further, the total amount of gas costs incurred by CenterPoint is relevant to the overall size of the company  and explains how the unrecovered costs could go unnoticed for such a long time. In fact, CenterPoint itself explained that the reason it did not detect the unrecovered costs was because the dekatherm volumes of the misstatement in any month or year in relationship to the total throughput was so small. Based on the record before us, we acknowledge that, ultimately, there may be room for differing opinions on whether the unrecovered costs were an excessive burden to CenterPoint. See Wells, 288 Minn. at 472, 181 N.W.2d at 711 (explaining that where there may be room for reasonable differing opinions, a decision is not arbitrary and capricious). But we conclude that the Commission was not arbitrary or capricious in concluding that CenterPoint had not met the excessive burden requirement when CenterPoint conceded that it failed to notice the losses for five years because they were not sufficiently large to stand out on a monthly or annual basis.