Bryant v. Arkansas Public Service Commission

Melvin Mayfield, Judge;

dissenting. I would reverse the Commission’s allowance of the $13 million in CDP expense charged to SWBTA by GHQ because SWBTA failed to demonstrate that the charges were just and reasonable as required by Ark. Code Ann. § 23-4-104 (1987). In the audit report, Staff stated that its “primary objective in evaluating the GHQ prorate process was to determine the nature of the costs flowing to SWBTA from GHQ to gain assurance that these costs were appropriate and necessary to provide utility service.” Staff admitted in the report that it could not trace any of the CDP charges to the originating source documents and that it was impossible to determine the amount of the CDP charges SWBTA actually received:

[D]ue to the lack of totals by source code in the FD98-Prorate Audit Trail Report; and as demonstrated by Staff’s previous example of the manual calculation necessary to ascertain a total; and due to time constraints, Staff could not verify the accuracy of the information supplied by SWBT. In addition, Staff requested copies of all internal and external audit reports which included a review of the CDP Process. [SWBT’s] response to Staff... states “A review of our auditing reports (1988 through 1994) indicates that no audits were performed on the Costs Distribution Chargeback Process.

Notwithstanding the uncontroverted fact that Staff could not trace the CDP costs to their originating sources, the Commission in Order No. 14 failed to address the issue of whether these expenses should be allowed and again refused to do so in Order No. 15.

In affirming this point, the majority relies on Staff’s statement in the audit report “that the alternative steps taken were adequate to assess the appropriateness of these expenses for ratemaking purposes,” the testimony of Staff witness Marie James, and the testimony of SWBT witness Steve Usselmann. Although the report and James and Usselmann in their testimony conclude that the charges are reasonable, no facts were testified to that demonstrate the reasonableness of the charges for rate-making purposes. Usselmann testified that “auditing around the system”, provides assurance on the reliability of the process and is an acceptable method of auditing. He offered no evidence, however, to support his opinion. Apparently, the Commission accepted the conclusions of these witnesses without any supporting evidence because they have “accounting credentials”; whereas, the Attorney General’s witness, who challenged the lack of evidence, was a mere economist who specializes in energy and utility economics.

The majority states that the concerns of the Attorney General regarding the lack of an audit trail were addressed in the Agreement that was approved by the Commission in Order Nos. 14 and 15. That Agreement, however, which concerns steps to be taken in the future to ensure the proper verification of such expenses, does not abrogate this Court’s duty to determine whether the Commission’s findings are supported by substantial evidence and whether the Commission has regularly pursued its authority. Bryant v. Arkansas Pub. Serv. Comm’n, 50 Ark. App. 213, 219, 907 S.W.2d 140 (1995).

The Commission has wide discretion in choosing its approach to rate regulation, and it is not the function of the appellate court to advise the Commission as to how to make its findings or exercise its discretion. See Bryant v. Arkansas Pub. Serv. Comm’n, 46 Ark. App. 88, 101, 877 S.W.2d 594 (1994). Nevertheless, on review this Court must determine whether the findings of the Commission are supported by substantial evidence, not whether its conclusions are supported by substantial evidence. See Bryant v. Arkansas Pub. Serv. Comm’n, 45 Ark. App. 56, 63, 871 S.W.2d 414 (1994).

Here, the Commission made no finding that the CDP costs were just and reasonable. Nor is there any evidence to support such a finding. Accordingly, I would reverse.

Neal, J., joins in this dissent.