Arkansas Electric Energy Consumers, Inc. v. Arkansas Public Service Commission

In response to a nationwide energy crisis in the 1970s, Arkansas enacted the Energy Conservation Endorsement Act (ECEA). The ECEA authorized the Arkansas Public Service Commission (the commission) (defendant) to propose, develop, approve, implement, and monitor energy-conservation measures that the commission determined would be beneficial to the utilities and the utilities’ ratepayers. Section 405(a)(3) of the ECEA provided that if the commission approved a conservation measure, the commission had to allow any affected public-utility company to raise rates or charges to recover the utility’s costs incurred in complying with the measure. However, § 405(b) stated that nothing in the statute should be construed as limiting the commission’s authority to promote or engage in other energy-conserving measures. Between 2006 and 2008, the commission began ordering utilities to implement energy-efficiency programs. The commission also opened several public dockets to encourage input on energy-efficiency issues from commission staff, state authorities, utilities, and public-interest groups. In one docket, the commission sought feedback about the commission’s concern that emphasizing energy efficiency could decrease consumers’ resource usage and negatively impact the utilities’ revenue recovery. Commenters suggested that adjustments needed to be made to the traditional rate-making process so that utilities could recover their program costs and fixed costs. Commenters also suggested that the commission provide financial incentives to utilities that were able to meet or exceed energy-conservation performance goals set by the commission. The commission ultimately determined that it had the authority to award incentives under the ECEA and issued orders that (1) allowed incentives to reward utilities for meeting or exceeding energy-conservation standards and (2) set energy-conservation standards for the 2011–2013 program years. Arkansas Electric Energy Consumers, Inc. and Arkansas Gas Consumers, Inc. (collectively, the consumer groups) (plaintiffs) appealed the commission’s orders, asserting that the incentives were not within the scope of the commission’s authority under the ECEA. The consumer groups asserted that although the ECEA allowed the utilities to recover costs incurred in complying with conservation programs, incentives could not be defined as costs. The consumer groups also argued that the commission had improperly abandoned traditional rate-making practices.