Opinion ID: 1973623
Heading Depth: 1
Heading Rank: 1

Heading: Transmission Plant Allocation

Text: OTP operates an integrated electric system in the states of Minnesota, North Dakota and South Dakota providing electric service facilities for generation, transmission, and distribution. These three functions are the basis upon which costs are determined for the entire system. The generation and transmission functions are referred to as the bulk power supply function, and their purpose is to generate and deliver power to the local areas where the electricity is then stepped down to lower voltages that are useable by, and distributed to, the ultimate consumer. OTP has 672 miles of electrical lines in South Dakota. In this proceeding, the issue was the allocation of OTP's transmission costs. OTP generation costs for the system were determined and allocated on the basis of relative demand among the three sets of customers in each state. In order to apportion rate base and expense among the three states it serves, OTP developed allocation percentages. OTP used mileage and demand as allocation factors in obtaining the percentage of the transmission plant being used in South Dakota. The percentage of the total demand on the entire system allocable to South Dakota customers and the percentage of the miles of line in this state were determined. These factors were then weighted with 40% to demand and 60% to miles of line. This resulted in about 10.3% of the total OTP transmission plant investment being allocated to South Dakota. Mr. Towers, a public utility rate consultant and PUC witness, reviewed OTP diagrams. He considered all KV (kilovolt) facilities above a certain point of KV demarcation to represent its investment in transmission facilities performing the bulk power supply function. Lower KV facilities were considered essentially local in function. In averaging the demand and line mileage factors, he gave 90.4% weight to demand and 9.6% weight to mileage. Mr. Towers calculated that approximately 8.5% of OTP transmission investment is allocable to South Dakota. The PUC adopted the 8.5% allocation, but it was rejected by the circuit court in favor of the OTP 10.3%. As we indicated in NPS v. Chamberlain, the PUC need not follow any single formula in arriving at the rates fixed so long as the method used, when applied to the facts and viewed as a whole, does not produce an arbitrary result. Since the determination reached by the PUC rested on substantial evidence, we cannot conclude it was arbitrary and capricious. Accordingly, that part of the circuit court order directing that the higher allocation be included in the rate base is reversed.