IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
January 2014 Term FILED
_____________
April 23, 2014
released at 3:00 p.m.
No. 13-1126 RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
_____________ OF WEST VIRGINIA
WEST VIRGINIA CITIZEN ACTION GROUP,
Petitioner
v.
PUBLIC SERVICE COMMISSION OF WEST VIRGINIA,
MONONGAHELA POWER COMPANY, AND
THE POTOMAC EDISON COMPANY,
Respondents
____________________________________________________________
Appeal from The Public Service Commission of West Virginia
PSC Case Nos. 12-1571-E-PC and 13-1272-E-PW
AFFIRMED
____________________________________________________________
Submitted: March 5, 2014
Filed: April 23, 2014
William V. DePaulo, Esq. Richard E. Hitt, Esq.
Charleston, West Virginia Charleston, West Virginia
Attorney for Petitioner West Virginia Attorney for Respondent
Citizen Action Group Public Service Commission
Of West Virginia
Carte P. Goodwin, Esq.
Susan C. Wittemeier, Esq.
Johnny M. Knisely, II, Esq.
Goodwin & Goodwin LLP
Charleston, West Virginia
And
Christopher L. Callas, Esq.
John Philip Melick, Esq.
Jackson Kelly PLLC
Charleston, West Virginia
Attorneys for Respondents
Monongahela Power Company and
The Potomac Edison Company
The Opinion of the Court was delivered PER CURIAM.
SYLLABUS BY THE COURT
1. “The detailed standard for our review of an order of the Public
Service Commission contained in Syllabus Point 2 of Monongahela Power Co. v. Public
Service Commission, 166 W. Va. 423, 276 S.E.2d 179 (1981), may be summarized as
follows: (1) whether the Commission exceeded its statutory jurisdiction and powers; (2)
whether there is adequate evidence to support the Commission’s findings; and, (3)
whether the substantive result of the Commission’s order is proper.” Syl. pt. 1, Cent. W.
Va. Refuse v. PSC, 190 W. Va. 416, 438 S.E.2d 596 (1993).
2. “‘[A]n order of the public service commission based upon its finding
of facts will not be disturbed unless such finding is contrary to the evidence, or is without
evidence to support it, or is arbitrary, or results from a misapplication of legal principles.’
United Fuel Gas Company v. The Public Service Commission, 143 W. Va. 33[,] [99
S.E.2d 1 (1957)].” Syl. pt. 5, in part, Boggs v. PSC, 154 W. Va. 146, 174 S.E.2d 331
(1970).
3. “This Court will not substitute our judgment for that of the Public
Service Commission on controverted evidence.” Syl. pt. 2, Chesapeake v. PSC, 171 W.
Va. 494, 300 S.E.2d 607 (1982), modified on other grounds by Cent. W. Va. Refuse v.
PSC, 190 W. Va. 416, 438 S.E.2d 596 (1993).
4. “Moot questions or abstract propositions, the decision of which
would avail nothing in the determination of controverted rights or persons or of property,
are not properly cognizable by a court.” Syl. pt. 1, State ex rel. Lilly v. Carter, 63 W. Va.
684, 60 S.E. 873 (1908).
Per Curiam:
Petitioner West Virginia Citizen Action Group appeals the October 7, 2013,
order of Respondent Public Service Commission of West Virginia (“the Commission”)
that approved a generation resource transaction between Respondent Monongahela
Power Company (“Mon Power”) and its affiliate, Allegheny Energy Supply, LLC (“AE
Supply”). In its order, the Commission approved Mon Power’s acquisition of AE
Supply’s interest in the Harrison Power Station (“Harrison plant”), which is located in
Harrison County, and Mon Power’s recovery of a portion of its investment in that
acquisition.
In this appeal, the petitioner contends that the Commission erred in
approving a $257 million acquisition adjustment in the purchase price of the plant and
allowing Mon Power, under certain conditions, to pass the $257 million acquisition
adjustment along to its customers in the setting of rates.1 Upon consideration of the briefs
and oral argument, as well as the appendices and pertinent authorities, this Court affirms
the Commission’s order.
1
According to the Commission, an “acquisition adjustment” is the difference
between the net original cost of the electric plant which is the cost incurred by the person
who first devoted the property to utility service and the amount that a purchaser pays for
the plant.
1
I. FACTS
Mon Power and the Potomac Edison Company (“Potomac”), which is also
a respondent in this case, are both subsidiaries of FirstEnergy Corporation
(“FirstEnergy”).2 AE Supply, which is not a party to this appeal, is also a FirstEnergy
subsidiary. In 2012, Mon Power and Potomac filed a petition with the Commission to
approve a generation resource transaction and related relief. The transaction consisted of
(a) Mon Power’s acquisition of the 79.46% ownership interest held by AE Supply in the
Harrison plant, resulting in Mon Power becoming the sole owner of the Harrison plant;
(b) AE Supply’s acquisition of the 7.69% ownership interest held by Mon Power in the
Pleasants Power Station resulting in AE Supply becoming the sole owner of the Pleasants
Power Station; (c) approval of certain affiliated agreements; and (d) implementation of a
temporary base rate surcharge to recover ongoing net capital and operating costs related
to the transaction, effective as of the closing of the transaction and to remain in effect
until new base rates are placed into effect. In the petition, Mon Power and Potomac
identified a significant deficit in Mon Power’s generating capacity available to supply
electricity to its West Virginia customers. To address the deficit, Mon Power and
Potomac proposed a transaction in which Mon Power would be allowed to pass along the
2
In the Commission’s statement of reasons filed in this case, the Commission
explains that Mon Power and Potomac are separate corporations but that the Commission
regulates these separate corporations as though they were a single entity. Mon Power
owns all of the generation capacity and contractual rights to energy generation for both
companies and provides energy and capacity to Potomac’s West Virginia customers. For
this reason, Mon Power’s purchase of the Harrison plant, at issue in this case, also affects
Potomac.
2
$589 million acquisition adjustment in Mon Power’s purchase of the Harrison plant to its
customers in the rates that customers pay for electricity.
After Mon Power and Potomac’s filing of its petition with the Commission,
the Consumer Advocate Division of West Virginia; Petitioner West Virginia Citizen
Action Group; the West Virginia Energy Users Group; the Utility Workers Union of
America, AFL-CIO and its Local 304; the Sierra Club; the Independent Oil and Gas
Association of West Virginia, Inc.; I.B.E.W. Local 2357, AFL-CIO; the West Virginia
Oil and Natural Gas Association; the West Virginia Coal Association; and the West
Virginia State Building and Construction Trades Council, AFL-CIO became intervenors
in the case.
The parties and certain intervenors ultimately filed a joint stipulation which
modified important aspects of the transaction as originally proposed by Mon Power and
Potomac.3 The petitioner was the only party to oppose the joint stipulation. Significant to
this case, the joint stipulation reduced the amount of the acquisition adjustment that Mon
Power would be able to recoup from its customers from $589 million to $257 million.
Further, Mon Power and Potomac agreed to a package of incentives designed to increase
employment, lend economic development support to industry, assist low-income
customers, promote energy efficiency in schools, support renewable energy, support
3
A joint stipulation essentially is a resolution of a case agreed to by the parties and
recommended to the Commission which the Commission may accept, reject, or modify.
3
lower rates, and expand funding for energy efficiency programs. In sum, the joint
stipulation purports to be in the public interest by resolving the capacity shortage of Mon
Power and Potomac, increasing the capitalization of Mon Power and Potomac, and
increasing the state’s tax base.
The Commission approved the transaction proposed by Mon Power and
Potomac, as modified in the joint stipulation, after it added the following conditions on
Mon Power, Potomac, AE Supply, and FirstEnergy4:
(1) First Energy and Mon Power must agree through written
verified statements filed in the record in this case within ten
days of the date of this Order that they understand and agree
that if First Energy does not make additional equity
investment in Mon Power to cover the decline in equity
caused by the write-off of the $332 million (pre-tax)
Acquisition Adjustment, Mon Power must agree not to pay,
and First Energy must agree that it will not receive, any
dividends from Mon Power until the equity to total capital
ratio of Mon Power returns to forty-five percent.
(2) FirstEnergy, AE Supply, Mon Power and Potomac
Edison must agree through written verified statements filed in
the record in this case within ten days of the date of this Order
that they understand and agree to allow the initial $257
million Acquisition Adjustment to be subject to adjustment
through a refund from First Energy or AE Supply if the
[Federal Energy Regulatory Commission] determines that
purchase price paid by Mon Power exceeds the fair market
valuation of Harrison. If the FERC makes such a
determination, the portion of the $257 million Acquisition
Adjustment that exceeds fair market value will be returned to
Mon Power by either First Energy or AE Supply, and the
4
Two members of the Commission supported the order on appeal in this case,
while one commissioner dissented.
4
refund will be credited to the Acquisition Adjustment
account.
(3) FirstEnergy, Mon Power, and Potomac Edison must agree
through written verified statements filed in the record in this
case within ten days of the date of this Order that they
understand and agree that the return on, and return of, the
$257 million Acquisition Adjustment will be allowed in base
rates only to the extent that fifty percent of the net margins
from off-system transactions from the additional Harrison
capacity acquired by Mon Power will support that return. The
full return requirement will be allowed each year subject to
prospective adjustment based on a review of the achieved net
margins from off-system sales in relation to the amount of
return requirement built into the initial surcharge, and
thereafter base rates. During the initial Surcharge true-up
period, and thereafter when the return component on the
Acquisition Adjustment is built into base rates, we will
consider fifty percent of net margins on off-system sales
attributable to the additional Harrison capacity as available
for return on, and of, the remaining balance of the $257
million Acquisition Adjustment authorized in this case. This
will not affect the [Expanded Net Energy Cost] calculations.
If the monthly accumulation of return requirements
previously built into the initial surcharge and thereafter base
rates of [Mon Power and Potomac] between base rates exceed
the allowable amount based on the achieved net margins on
off-system sales, a prospective adjustment credit will be
embedded in prospective base rates. If the monthly
accumulation of return requirements previously built into the
initial surcharge or base rate of [Mon Power and Potomac]
between base rate cases is less than the allowable amount
based on the achieved net margins of off-system sales, no
prospective adjustment will be made to base rates. Each base
rate case will reset the balance of the net return components
to allowable amount on the achieved net margins of off-
system sales to zero.
Mon Power, Potomac, AE Supply, and FirstEnergy accepted the conditions. Thereafter,
in its October 7, 2013, order, the Commission found the transaction, subject to the joint
5
stipulation and the additional conditions, to be fair, reasonable, and in the public interest.
The petitioner now appeals the Commission’s order.
II. STANDARD OF REVIEW
This Court’s standard of reviewing the Commission’s order in this case is
highly deferential given that this case involves complex issues and arcane concepts that
fall within the special competence of the Commission and are governed by Commission
precedent. This Court previously has recognized that “[a] public utility commission has
broad powers in supervising and regulating the actions of utilities within its jurisdiction
in the respects provided for in the statutory or constitutional provisions by which its
authority is conferred.” United Fuel Gas Co. v. PSC, 154 W. Va. 221, 241, 174 S.E.2d
304, 316 (1969) (citation omitted). Further, this Court has recognized that “on questions
of expediency, or as to what would be best in the interest of the petitioner, or the public
served . . . the Legislature intended that the judgment of the [Public Service] Commission
should prevail.” United Fuel Gas Co. v. PSC, 73 W. Va. 571, 591, 80 S.E. 931, 939
(1914).
Based on these considerations, this Court has stated our standard of review
as follows:
The detailed standard for our review of an order of the
Public Service Commission contained in Syllabus Point 2 of
Monongahela Power Co. v. Public Service Commission, 166
W. Va. 423, 276 S.E.2d 179 (1981), may be summarized as
follows: (1) whether the Commission exceeded its statutory
jurisdiction and powers; (2) whether there is adequate
6
evidence to support the Commission’s findings; and, (3)
whether the substantive result of the Commission’s order is
proper.
Syl. pt. 1, Cent. W. Va. Refuse v. PSC, 190 W. Va. 416, 438 S.E.2d 596 (1993). This
Court also has indicated that “‘an order of the public service commission based upon its
finding of facts will not be disturbed unless such finding is contrary to the evidence, or is
without evidence to support it, or is arbitrary, or results from a misapplication of legal
principles.’ United Fuel Gas Company v. The Public Service Commission, 143 W. Va.
33[,] [99 S.E.2d 1 (1957)].” Syl. pt. 5, in part, Boggs v. PSC, 154 W. Va. 146, 174 S.E.2d
331 (1970). Finally, we have indicated that “[t]his Court will not substitute our judgment
for that of the Public Service Commission on controverted evidence.” Syl. pt. 2,
Chesapeake v. PSC, 171 W. Va. 494, 300 S.E.2d 607 (1982), modified on other grounds
by Cent. W. Va. Refuse v. PSC, 190 W. Va. 416, 438 S.E.2d 596 (1993). With these
standards to guide us, we now proceed with our discussion of the issues.
II. DISCUSSION
A. Mootness
Before this Court considers the petitioner’s assignments of error, we first
must address an issue raised by Mon Power and Potomac in their response brief.
Specifically, these respondents assert that the subject matter of this appeal is moot
because the transaction at issue already has closed. According to these respondents, the
petitioner did not request a stay of the Commission’s order. As a result, the transaction is
now completed. Therefore this Court cannot now grant the petitioner the relief it seeks.
7
The petitioner replies that the primary legal error of which it complains is
the passing along to rate payers the $257 million acquisition adjustment paid by Mon
Power for the Harrison plant. The petitioner explains that this has not yet occurred. Thus,
says the petitioner, this Court can still grant the petitioner the relief it seeks which is
preventing the $257 million from being passed along to Mon Power’s customers.
This Court previously recognized that “[m]oot questions or abstract
propositions, the decision of which would avail nothing in the determination of
controverted rights of persons or of property, are not properly cognizable by a court.”
Syl. pt. 1, State ex rel. Lilly v. Carter, 63 W. Va. 684, 60 S.E. 873 (1908). We further
have indicated that “the heavy burden of persuading the court that the case has been
rendered moot lies with the party asserting mootness.” State ex rel. Bluestone Coal v.
Mazzone, 226 W. Va. 148, 156, 697 S.E.2d 740, 748 (2010) (internal brackets,
quotations, and citation omitted).
Mon Power and Potomac have failed to meet their heavy burden of
showing that this appeal is moot. While the transaction at issue seems to be substantially
complete, it appears to be undisputed that rate payers have not yet begun paying any of
the $257 million acquisition adjustment. At this point, this Court could still find that it is
improper to pass along any of the acquisition adjustment to the rate payers. If this Court
were to so find, it would constitute more than an abstract proposition in that it would
affect the actual rights of the parties to this appeal. Therefore, this Court determines that
8
Mon Power and Potomac’s claims of mootness must fail. Accordingly, we will now
address the assignments of error raised by the petitioner.
B. Legality of Acquisition Adjustment
In a nutshell, the petitioner’s position in this appeal is that the real purpose
of the transaction at issue is to improve the precarious financial position of FirstEnergy,
and that the transaction injures the financial position of Mon Power. In support of its
position, the petitioner cites evidence of FirstEnergy’s poor economic performance and
debt, and that officers of FirstEnergy looked to the transaction at issue to resolve
FirstEnergy’s financial problems. In addition, the petitioner contends that Mon Power’s
purchase of the Harrison plant is not necessary to solve the shortage in Mon Power’s
capacity to produce energy, and that the purchase of the Harrison plant saddles Mon
Power with a significant excess in energy for well over the next decade. Moreover, the
petitioner challenges the Commission’s finding that purchase of the Harrison plant is the
least expensive alternative available to Mon Power in acquiring a greater capacity to
produce energy. Further, the petitioner opines that Mon Power should not be permitted to
pass along $257 million of the acquisition adjustment to its customers. Finally, the
petitioner avers that the purchase of the Harrison plant is not in the public interest.
In its first assignment of error, the petitioner argues that the Commission’s
approval of Mon Power’s recoupment of the $257 million acquisition from Mon Power’s
customers is erroneous as a matter of law because it violates Commission precedent.
9
According to the petitioner, the Commission generally has allowed recoupment of
acquisition adjustments from customer rates only under extraordinary circumstances such
as where it was necessary to save a distressed utility so as not to interrupt customer
service. The petitioner cites several Commission cases in support of its argument.
The Commission asserts, to the contrary, that the allowance of a recovery
of an acquisition adjustment does not violate Commission precedent, including the cases
cited by the petitioner. The Commission distinguishes all but one of the cases relied upon
by the petitioner from the facts of the instant case. With regard to the remaining case, the
Commission cites the conclusion of law in that case which provides that absent adequate
sufficient justification, the Commission will not approve the public utility acquisition
price that is significantly in excess in net book value of the utility assets to be acquired.
The Commission further indicates that it approved the recovery of the acquisition
adjustment in that case on the bases of the combination of the operational efficiencies to
be gained and the public interest served by the subject transaction. The Commission
explains that it applied the same rule to the instant case and found sufficient justification
for allowing Mon Power’s recoupment of the $257 million acquisition adjustment in
customer rates.
In its reply brief, the petitioner argues that while it recognizes that the
Commission has allowed exceptions to the rule against passing along acquisition
10
adjustments to customers, there is no plausible basis for making such an exception in the
instant case.
With regard to the precedential value of administrative agency decisions,
this Court has indicated that a
lack of uniformity is unavoidable – after all, administrators
are not automatons – and does not in and of itself invalidate
agency action. While a certain amount of asymmetry is
lawful, an agency may not adopt significantly inconsistent
policies that result in the creation of conflicting lines of
precedent governing the identical situation. The precept
counseling avoidance of inconsistent administrative policies
at least demands that when an agency departs significantly
from its own precedent, it must confront the issue and explain
the reasonableness of its current position. Before this Court,
an agency will not be permitted to flirt [sic] serendipitously
from case to case, like a bee buzzing from flower to flower,
making up its rules and policies as it goes along.
State ex rel. Hoover v. Berger, 199 W. Va. 12, 19, 483 S.E.2d 12, 19 (1996) (quotations
and citations omitted). Upon our review of the parties’ arguments and the Commission
decisions cited, we find that the Commission has not applied a rule in the instant case that
is significantly inconsistent with its precedent.
Further, we find no merit to the petitioner’s contention that there is not a
sufficient basis for the Commission to allow the recoupment of the $257 million
acquisition adjustment under the facts of this case. In its order, the Commission
summarized the benefits of Mon Power’s purchase of the Harrison plant and cited
evidence of these benefits in the record. The Commission found that the Harrison plant is
11
a valuable asset that can meet Mon Power’s need for additional electric generating
capacity. Moreover, the Commission found that the plant will continue to contribute to
the economy and well-being of North Central West Virginia; it uses West Virginia coal
and will help preserve mining jobs over the long term; the plant has low operating costs,
it already has installed environmental controls, and it has ongoing plans for additional
controls to comply with applicable federal standards; and the plant’s additional capacity
to produce energy will generate expected profits from future sales. The Commission
further found that the risk associated with Mon Power’s continued minority ownership
interest in the Harrison plant will be eliminated by its complete ownership of the plant.
Finally, the Commission determined that the alternatives for the generation of additional
electric capacity involve higher costs. The Commission concluded that the transaction as
modified by the provisions of the joint stipulation and the additional conditions imposed
by the Commission provide a sufficient justification for allowance of the recovery of the
acquisition adjustment. This Court finds no error in the Commission’s conclusion.
C. Acquisition Adjustment and Previous Merger Order
Prior to discussing the petitioner’s second assignment of error, we find it
necessary to set forth some background information. In 2010, there was a merger of
Allegheny Energy and FirstEnergy, the holding company for both Mon Power and AE
Supply. At that time, Mon Power had a 21% ownership interest in the Harrison power
plant and AE Supply had a 79% ownership interest in the plant. After the merger of
FirstEnergy and Allegheny Energy, FirstEnergy increased the book value of AE Supply’s
12
79% ownership interest to its estimated fair market value. The Commission approved the
2010 merger of FirstEnergy and Allegheny Energy subject to a condition, which was
recorded in a joint stipulation and incorporated into the Commission’s final order in that
case as follows:
FirstEnergy will make no attempt to recover through
the rates of Mon Power or Potomac Edison in West Virginia
Merger transaction costs, which include: purchase price
goodwill, consultant fees, fees for investment services, legal
fees, regulatory fees, or lender consents; costs associated with
the shareholders’ meetings and proxy statement/registration
statement related to the Merger, tail insurance, change in
control payment, or retention payment resulting from
completion of the Merger and the costs associated with the
imposition of conditions or approval of settlement terms in
other state jurisdictions (collectively, “Transaction Costs”).
Joint Petitioners believe that this reflects an exhaustive list of
Transaction Costs; however, the other Parties reserve the right
to see whether there are other incurred costs that might fit
within such category and advocate in the next base rate case
that such costs should be disallowed as non-recoverable
Transaction Costs.
The 2010 merger stipulation further states that “FirstEnergy agrees that in future base rate
proceedings of Mon Power or Potomac Edison in West Virginia, the regulatory capital
structure used for Mon Power and Potomac Edison will not reflect any acquisition
premium or ‘goodwill’ associated with the Merger transaction.”
The Commission determined in its order in the instant case that the 2010
merger stipulation does not prohibit the transaction in the instant case, and explained its
determination as follows:
13
The intent of the [2010] Merger Stipulation was to
prevent First Energy and [Mon Power and Potomac] from
requesting an increased West Virginia jurisdictional rate base
valuation related to the First Energy purchase price of
Allegheny Energy in excess of book value at the time of the
merger. . . . Pursuant to the Merger Stipulation, First Energy
could not push down or allocate any return requirement or
expenses that would be intended to compensate it for the
excess purchase price of Allegheny Energy. The Commission
has found no evidence in the record that indicates the value of
the current assets of [Mon Power and Potomac] have been
impacted by the Merger-related accounting entries.
....
[T]he effect of the argument that the [2010] Merger
Agreement is violated by the Transaction [between Mon
Power and AE Supply] is to contend that the Commission is
precluded from determining whether it is in the public interest
for [Mon Power and Potomac] to acquire Harrison at a price
that exceeds net original book value. We believe that the
contention that the Merger Stipulation from [the 2010 case]
binds our efforts in this and future cases is inconsistent with
the delegation of Legislative authority that is the heart of the
public utility regulatory scheme in place.
(Footnote omitted).
The petitioner posits that the plain and unambiguous language of the 2010
merger stipulation prohibits exactly what the Commission approved in the instant case
which is the pass through to West Virginia customers of a portion of the $589 million
acquisition adjustment in AE Supply’s ownership interest in the Harrison plant as a result
of the 2010 merger. The petitioner emphasizes the specific language of the merger
stipulation which bars the inclusion in the rate base of “any acquisition premium or
‘goodwill’ associated with the Merger transaction.” Clearly, opines the petitioner, the
14
$257 million acquisition adjustment in the instant case is “associated with the Merger
transaction” in that this sum represents a portion of the acquisition adjustment made to
AE Supply’s ownership interest in the Harrison plant at the time of the merger.
The Commission replies that the 2010 merger stipulation does not contain a
specific provision about the potential future transfer of AE Supply’s ownership in the
Harrison plant to Mon Power. Consequently, the Commission characterizes the
petitioner’s argument that the 2010 merger stipulation affects the current transaction as
idle speculation. Further, the Commission contends that there is no legal precedent or
justification for the petitioner’s claim that the Commission is contractually bound by a
previous merger stipulation.
Respondents Mon Power and Potomac assert that the Commission has
broad powers, granted by the Legislature, to appraise and balance the interests of current
and future utility customers, the general interests of the state’s economy and the interests
of utilities subject to its jurisdiction. These respondents assert that to carry out its duties
properly, the Commission necessarily must have the flexibility to address the needs and
interests of each party to a case at the time the case arises. Thus, say these respondents,
the Commission cannot be handcuffed by a prior stipulation that occurred in a separate
case.
15
In its reply brief, the petitioner avers that Mon Power and Potomac’s
petition for approval of the transaction, as originally proposed, recognized that they were
seeking to recoup the $589 acquisition adjustment that resulted from the 2010 merger.
According to the petitioner, the Commission rewrote Mon Power and Potomac’s petition
to evade the unambiguous 2010 merger stipulation. The petitioner reiterates that the
Commission’s interpretation of the merger stipulation contravenes the stipulation’s
express language.
This Court agrees with the Commission’s determination that its order in the
instant case does not violate the 2010 merger stipulation. First, the 2010 merger
stipulation does not expressly anticipate the future transfer of AE Supply’s ownership of
the Harrison plant to Mon Power. Therefore, we cannot conclude that the merger
stipulation unambiguously applies to the transaction before us. Further, the Commission
has broad power to address the interests of each party, ratepayers, and the state in every
case that comes before it based on the standards set forth in W. Va. Code § 24-2-12
(1984).5 Consequently, the Commission generally should not be bound by a stipulation in
5
With regard to the Commission’s broad authority, W. Va. Code § 24-1-1(a)
(1986) provides:
It is the purpose and policy of the Legislature in
enacting this chapter to confer upon the Public Service
Commission of this State the authority and duty to enforce
and regulate the practices, services and rates of public utilities
in order to:
(1) Ensure fair and prompt regulation of public utilities
in the interest of the using and consuming public;
16
a prior case when the application of the prior stipulation to the case currently before the
Commission is not indisputable. Therefore, this Court concludes that the Commission did
not err in ruling that the 2010 merger stipulation does not affect the Commission’s
disposition of the instant case.
D. Arbitrariness of $257 Million Acquisition Adjustment
The petitioner’s third assignment of error is with regard to the additional
conditions that the Commission placed on the purchase of the Harrison plant which are
set forth above.
The petitioner essentially contends that these conditions are arbitrary in
their disparate treatment of Mon Power’s $332 million acquisition adjustment that cannot
(2) Provide the availability of adequate, economical
and reliable utility services throughout the State;
(3) Encourage the well-planned development of utility
resources in a manner consistent with state needs and in ways
consistent with the productive use of the State’s energy
resources, such as coal;
(4) Ensure that rates and charges for utility services
are just, reasonable, applied without unjust discrimination or
preference, applied in manner consistent with the purposes
and policies set forth in article two-a [§§ 24-2A-1 et seq.] of
this chapter, and based primarily on the costs of providing
these services;
(5) Encourage energy conservation and the effective
and efficient management of regulated utility enterprises . . . .
In addition, in W. Va. Code § 24-1-1(b), the Legislature charges the
Commission “with the responsibility for appraising and balancing the interests of current
and future utility customers, the general interests of the State’s economy and the interests
of the utilities subject to its jurisdiction in its deliberations and decisions.”
17
be passed along to customers and the $257 million that can be passed along. The
petitioner further contends the Commission’s attempt to shield ratepayers from risk via
the conditions is ineffective, and that the benefits of the transaction at issue to the citizens
of West Virginia have been overstated.
The Commission responds that W. Va. Code § 24-2-12 expressly permits it
to conditionally approve a transaction. In addition, the Commission explains that its
concerns with the transaction, even as modified by the joint stipulation, caused it to
approve a lesser acquisition adjustment than originally sought. While the petitioner
suggests that these concerns should have caused the Commission to deny the acquisition
adjustment in toto, the Commission does not agree.
Respondents Mon Power and Potomac counter that there is nothing
arbitrary about the Commission’s conditions for the transaction. Rather, these conditions
are closely tailored to address the Commission’s concerns about the joint stipulation as
proposed. The respondents further indicate that while the Commission-imposed
conditions do not protect customers of Mon Power from all risk, the customers receive
greater protection than if Mon Power was allowed to pass along the whole $589 million
to its customers.
This Court does not find the decision at issue regarding the Commission-
imposed conditions to be arbitrary. The Commission explained its concerns which caused
18
it to add conditions to the proposed transaction, as modified by the joint stipulation, and it
appears to this Court that the conditions are closely tailored to address these concerns.
Therefore, we find no error.
E. Undue Advantage
In its final assignment of error, the petitioner argues that FirstEnergy had an
undue advantage in executing the transaction in this case in that its officers were in a
position to dictate the terms of the transaction between and among its subsidiaries.6 The
petitioner asserts that the real purpose of the sale of the Harrison plant to Mon Power was
not to remedy a shortfall in Mon Power’s electric generation capacity but rather to shore
up FirstEnergy’s widely-recognized highly precarious financial position. According to
the petitioner, evidence of the motivation for the transaction is found in the fact that Mon
Power produced no documents in discovery evidencing the purported arms-length
negotiations between FirstEnergy’s wholly-owned subsidiaries which resulted in “this
totally unbalanced” transaction. Finally, the petitioner opines that the absence of an arms-
length negotiation is the best explanation for Mon Power’s casual agreement to the joint
stipulation’s $332 million reduction from the $589 million initially proposed to be
included in Mon Power’s rate base.
6
According to W. Va. Code § 24-2-12, the Commission may grant its consent to a
transaction “upon proper showing that the terms and conditions thereof are reasonable
and that neither party thereto is given an undue advantage over the other, and do not
adversely affect the public in this State.” (Emphasis added).
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The Commission counters that W. Va. Code § 24-2-12 does not require
arms-length negotiations as a part of its prohibition against an undue advantage in inter-
affiliate transactions. Instead, contends the Commission, the test is whether the
transaction, as negotiated, gives one of the parties an undue advantage over the other. The
Commission asserts that the fact that one of the entities had a superior bargaining position
during the transactions is not relevant under the above-referenced code section. Also,
says the Commission, the determination whether there is an undue advantage is
necessarily addressed in the Commission’s analysis of the overall transaction. The
Commission concludes that its approval of the transaction did not violate the statutory
prohibition against an undue advantage in inter-affiliate transactions.
Respondents Mon Power and Potomac contest the petitioner’s version of
the facts on this issue, and assert that the petitioner’s claim of undue advantage is
demonstratively wrong and not supported by the evidence. According to these
respondents, affirmative evidence was presented below that the Transaction was
negotiated with the objective of zealously advancing Mon Power’s interests and those of
its customers. These respondents conclude that the petitioner’s arguments to the contrary
are conjectural.
In its reply brief, the petitioner disputes the Commission’s construction of
the statutory term “undue advantage” by citing to several Commission orders in which
the Commission discussed whether negotiations were arms-length in determining the
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issue of undue advantage. Also, the petitioner maintains that evidence of undue
advantage exists through the testimony of the two persons who negotiated the transaction
which demonstrated they made no attempt to negotiate a smaller ownership stake in the
Harrison plant, that they made no attempt to use the issue of the potential 2010 merger
stipulation violation to negotiate a lower purchase price, and that they did not attempt to
negotiate the transaction as a stock deal.
This Court finds that there is evidence to support the Commission’s finding
that the transaction at issue did not provide an unfair advantage to any of the parties.
Significantly, inter-affiliate transactions are not per se invalid under W. Va. Code § 24-2
12. Moreover, this Court has found it proper for the Commission to approve inter-
affiliate transactions. See United Fuel Gas Co. v. PSC, 154 W. Va. 221, 174 S.E.2d 304
(1969) (reversing the PSC’s denial of a realignment plan between public utilities all of
which were subsidiaries of a parent holding corporation). The Commission specifically
found that the transaction at issue does not give one party an undue advantage over
another party, and the petitioner has failed to convince us that this finding is in error.
In sum, while conflicting evidence was presented below and reasonable
parties can disagree regarding the proper resolution of this case, it is the Commission’s
role to weigh the evidence and make a decision. The Commission has carefully explained
its decision in an order that contains findings of fact, conclusions of law, and a reasoned
analysis of the issues. The petitioner has failed to convince this Court that the
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Commission’s findings are contrary to the evidence, without evidence to support them,
arbitrary, or that the Commission’s application of the law is inconsistent with
Commission precedent. As a result, under this Court’s highly deferential standard of
review, we find no reason to disturb the Commission’s order.
IV. CONCLUSION
For the reasons stated above, the October 7, 2013, order of the Public
Service Commission in case numbers 12-1571-E-PC and 13-1272-E-PW is affirmed.
Affirmed.
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