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Missouri Public Service Commission v. Union Electric Co.

Supreme Court of Missouri, En Banc

July 3, 2018



          Paul C. Wilson, Judge.

         Staff of the Public Service Commission ("Commission") filed a complaint alleging Union Electric Co. ("Ameren") violated a Commission rule when it failed to use certain 2014 data to calculate Ameren's "net shared benefits" under an energy-efficiency plan approved by the Commission in 2012. Staff and Ameren filed motions for summary determination and, following briefing and argument, the Commission granted Staff's motion for summary determination. Ameren appealed, and this Court has jurisdiction under article V, section 10, of the Missouri Constitution.

         It is not without some trepidation that the Court forays into the complex subjects at issue in this case. But buried beneath the blizzard of acronyms and torrents of technicalities lies a simple issue well within the competency of this Court to determine, i.e., the meaning of the term "methodology" as used in Rule 20.093(1)(F). The Commission determined "methodology" in this context means not only the formula used to compute a sum (i.e., the variables to be used) but also the values of those variables. This was error. Accordingly, because the Commission's erroneous determination of the meaning of the term "methodology" played a central role in its decision, that decision is vacated, and this matter is remanded to the Commission for further proceedings consistent with this opinion.[1]


         As a general matter, utilities such as Ameren recover their costs (plus a reasonable return on their investments) through the sale of electricity at the rates set by the Commission. As a result, Ameren has little or no incentive to encourage energy efficient practices by its customers because, again generally, the more electricity Ameren sells the more money it makes. To remove this disincentive and encourage utilities to develop and implement programs encouraging energy efficient practices by its customers, the legislature enacted the Missouri Energy Efficiency Investment Act ("the Act"), see § 393.1075, RSMo, et seq.[2]

         Under the Act, the Commission is authorized to "develop cost recovery mechanisms to further encourage investments in demand-side programs[3] including … allowing the utility to retain a portion of the net benefits of a demand-side program for its shareholders." § 393.1075.5. The Commission promulgated detailed regulations[4]allowing utilities to seek Commission approval of a "[d]emand-side programs investment mechanism, or DSIM." Rules 3.163(1)(F), 20.093(1)(M). These regulations provide that a DSIM is "a mechanism … to encourage investments in demand-side programs," and may include "[r]ecovery of lost revenues" resulting from decreased electricity consumption, and a "[u]tility incentive based on the achieved performance level of approved demand-side programs." Id. The utility incentive component is implemented through a "DSIM utility incentive revenue requirement," which is designed "to provide the utility with a portion of annual net shared benefits based on the approved utility incentive component of a DSIM." Rules 3.163(1)(J), 20.093(1)(Q) (emphasis added).

         This case concerns the calculation of Ameren's share of the "annual net shared benefits" produced by its Commission-approved programs. "[A]nnual net shared benefits" is defined to mean:

the utility's avoided costs measured and documented through evaluation, measurement, and verification (EM&V) reports for approved demandside programs less the sum of the programs' costs including design, administration, delivery, end-use measures, incentives, EM&V, utility market potential studies, and technical resource manual on an annual basis.

Rules 3.163(1)(A), 20.093(1)(C). "Avoided costs" is defined to mean:

the cost savings obtained by substituting demand-side programs for existing and new supply-side resources. Avoided costs include avoided utility costs resulting from demand-side programs' energy savings and demand savings associated with generation, transmission, and distribution facilities including avoided probable environmental compliance costs. The utility shall use the same methodology used in its most recently adopted preferred resource plan[5] to calculate its avoided costs.

Rules 3.163(1)(C), 20.093(1)(F).

         In January 2012, Ameren submitted to the Commission its proposed 2013-2015 Energy Efficiency Plan ("Plan") covering the energy-efficiency measures it would implement during this period and the terms under which it would be compensated for those measures. Following a stipulation between Ameren and others modifying some of the Plan's terms, the Commission approved the Plan in August 2012.

         The details of the DSIM proposed by Ameren are not relevant to this appeal. What is relevant is how the Plan proposed to calculate its share of the annual net shared benefits. Ameren proposed that it be entitled to a share of net shared benefits to compensate it for two separate disincentives associated with demand-side programs: (1) the throughput disincentive (representing lost revenues from foregone electricity sales); and (2) the loss of earnings opportunities associated with supply-side investments (which would be compensated by a "performance incentive"). The Plan proposed each of these disincentives be addressed by permitting Ameren to retain a separate specified percentage of net shared benefits.

         Ameren estimated the present value of the total net benefits that would be achieved by implementing its Energy Efficiency Plan would be $364.3 million. It estimated the present value of three years of lost net income associated with decreased electricity consumption (i.e., the throughput disincentive) was $56 million and the present value of the performance incentive necessary to compensate for lost earnings opportunities was $17 million. Ameren, therefore, proposed a total net benefit sharing percentage of 20.2 percent (assuming it achieved 100 percent of the Plan's performance targets), which would entitle it to retain a portion of the program's net benefits having a total present value of $73 million.

         Determining net shared benefits, and Ameren's share of those benefits, requires consideration of a number of factors. First, total energy savings - calculated by multiplying the estimated number of customers who would actually implement each of Ameren's different energy-efficiency measures (i.e., the total customers minus the "opt out customers") times the estimated energy savings in megawatt hours for each of these measures. Second, avoided costs - calculated, in simple terms, by multiplying the total estimated energy savings above (in megawatt hours) times a per-hour estimate of the costs (e.g., the costs of energy production, energy transmission and distribution, and environmental compliance) Ameren would have incurred had it supplied that energy.[6]

         Understandably, the foregoing description (though highly generalized) is dauntingly complex. But this description does highlight the key role played by the "avoided costs estimate," i.e., the estimated cost to Ameren to supply each megawatt of energy during the succeeding three years of the Plan. Many, if not most, of the factors affecting those costs - including, most notably, Ameren's fuel costs over the next three years - were beyond Ameren's control and very difficult to measure. Because those factors would have a significant impact on Ameren's potential recovery over the Plan - and, therefore, on Ameren's willingness to volunteer the Plan in the first place - the question of whether this "avoided costs" variable would be fixed at the outset or calculated using actual costs during and at the end of the Plan was a highly material - perhaps even central - question. Because it was so material, one would have expected Ameren to address the issue expressly in its Plan. It did.

         Ameren's Energy Efficiency Plan clearly provides the estimates of avoided costs due to decreased energy consumption would not be updated during the life of the Plan as part of the calculation of Ameren's performance incentive. The Plan explains:

[T]he mechanics of sharing net benefits need to be precisely defined. Table 2.12 shows the items associated with estimating net benefits and whether those items will be updated for purposes of assessing performance and benefits as part of the implementation process. Notice that several items will not be updated, so the focus remains on the cost of the programs and the number of measures implemented. The TRM [Technical Resource ...

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