In re Application of City of Neligh

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Nebraska Supreme Court A dvance Sheets
299 Nebraska R eports
IN RE APPLICATION OF CITY OF NELIGH
Cite as 299 Neb. 517
In re A pplication of City of Neligh, Nebraska.
City of Neligh, Nebraska, appellee, v.
Elkhorn Rural Public Power
District, appellant.
___ N.W.2d ___
Filed March 30, 2018. No. S-17-433.
1. Nebraska Power Review Board: Appeal and Error. A decision of
the Nebraska Power Review Board will be affirmed if it is supported
by the evidence and is not arbitrary, capricious, unreasonable, or other-
wise illegal.
2. Statutes: Appeal and Error. The meaning of a statute is a question of
law, and a reviewing court is obligated to reach conclusions independent
of the determination made below.
Appeal from the Power Review Board. Reversed and
remanded for further proceedings.
David A. Jarecke and Ellen C. Kreifels, of Blankenau,
Wilmoth & Jarecke, L.L.P., for appellant.
David C. Levy and Krista M. Eckhoff, of Baird Holm,
L.L.P., and Joseph McNally, of McNally Law Office, for
appellee.
Heavican, C.J., Cassel, Stacy, and Funke, JJ., and R iedmann
and A rterburn, Judges.
Heavican, C.J.
INTRODUCTION
The City of Neligh, Nebraska (Neligh), filed an application
with the Nebraska Power Review Board (Board) seeking to
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IN RE APPLICATION OF CITY OF NELIGH
Cite as 299 Neb. 517
transfer two newly annexed territories from the Elkhorn Rural
Public Power District (ERPPD) to Neligh’s electrical service
area and to have the Board determine the total economic
impact of the transfer to the ERPPD. The Board transferred
the service and assessed the economic impact at $490,445.90.
ERPPD appeals. We reverse the decision and remand the cause
for further proceedings.
BACKGROUND
Relevant Statutes.
Neb. Rev. Stat. § 70-1008(2) (Reissue 2009) provides:
A municipally owned electric system, serving such munic-
ipality at retail, shall have the right, upon application to
and approval by the board, to serve newly annexed areas
of such municipality. Electric distribution facilities and
customers of another supplier in such newly acquired
certified service area may be acquired, in accordance with
the procedure and criteria set forth in section 70-1010,
within a period of one year and payment shall be made
in respect to the value of any such facilities’ customers
or certified service area being transferred. The rights
of a municipality to acquire such distribution facilities
and customers within such newly annexed area shall be
waived unless such acquisition and payment are made
within one year of the date of annexation. If an applica-
tion is made to the board within one year of the date of
annexation for a determination of total economic impact
as provided in section 70-1010, such right shall not be
waived unless the municipality fails to make payment of
the price determined by the board within one year of a
final decision establishing such price. Notwithstanding
other provisions of this section, the parties may extend
the time for acquisition and payment by mutual writ-
ten agreement.
Neb. Rev. Stat. § 70-1010 (Reissue 2009) further provides:
(1) The board shall have authority upon application
by a supplier at any time to modify service areas or
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IN RE APPLICATION OF CITY OF NELIGH
Cite as 299 Neb. 517
customers to be served as previously established. The
same procedures as to notice, hearing, and decision shall
be followed as in the case of an original application.
Suppliers shall have authority by agreement to change
service areas or customers to be served with the approval
of the board. This section shall not apply to agreements
referred to in subsection (2) of section 70-1002.
(2) In the event of a proposed transfer of customers
and facilities from one supplier to another in accordance
with this section or section 70-1008 or 70-1009, the par-
ties shall attempt to agree upon the value of the certi-
fied serv­ice area and distribution facilities and customers
being transferred. If the parties cannot agree upon the
value, then the board shall determine the total economic
impact on the selling supplier and establish the price
accordingly based on, but not limited to, the following
guidelines: The supplier acquiring the certified service
area, distribution facilities, and customers shall purchase
the electric distribution facilities of the supplier located
within the affected area, together with the supplier’s
rights to serve within such area, for cash consideration
which shall consist of (a) the current reproduction cost if
the facilities being acquired were new, less depreciation
computed on a straight-line basis at three percent per year
not to exceed seventy percent, plus (b) an amount equal
to the nonbetterment cost of constructing any facilities
necessary to reintegrate the system of the supplier outside
the area being transferred after detaching the portion to
be sold, plus (c) an amount equal to two and one-half
times the annual revenue received from power sales to
existing customers of electric power within the area being
transferred, except that for large commercial or industrial
customers with peak demands of three hundred kilowatts
or greater during the twelve months immediately preced-
ing the date of filing with the board, the multiple shall be
five times the net revenue, defined as gross power sales,
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IN RE APPLICATION OF CITY OF NELIGH
Cite as 299 Neb. 517
less costs of wholesale power including facilities rental
charges, received from power sales to large commercial
or industrial customers with measured demand of three
hundred kilowatts or greater during the twelve months
immediately preceding the filing with the board for serv­
ice area modification. After the board has determined the
price in accordance with such guidelines, the acquiring
supplier may acquire such distribution facilities and cus-
tomers by payment of the established price within one
year of the final order.
Factual and Procedural
Background.
On July 14, 2015, Neligh passed ordinances Nos. 578 and
579, annexing areas to the north and the south of Neligh. On
July 13, 2016, Neligh filed an application under § 70-1008 to
transfer these territories from the ERPPD, which had provided
electrical service to those areas, to an electrical service area
operated by Neligh. As part of that application, Neligh sought
to have the Board assess the economic impact of the transfer
to ERPPD.
A hearing was held on January 27, 2017, to determine the
total economic impact of the proposed transfer and the com-
pensation owed to ERPPD by Neligh under § 70-1010. The
parties stipulated that Neligh owed $490,445.90 for the loss
of the service area, customers, and facilities inside the south
annexation, as well as a partial amount owed for reintegra-
tion costs. As relevant to this appeal, the issue presented at
this hearing was what compensation was due to ERPPD under
§ 70-1010(2)(b) for remaining reintegration costs in the south
annexation area.
The substation in question is substation 71-18, located out-
side the south annexation area but near the southeast edge of
the annexed territory. The substation was built in or around
1998. The record establishes that at the time of its construction,
the substation was not built at the center point of its load. Such
substations usually have a life cycle of about 50 years. The
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IN RE APPLICATION OF CITY OF NELIGH
Cite as 299 Neb. 517
substation serves approximately 4 megawatts of load over three
circuits. One of these three circuits is used primarily to serve
the load in the south annexation area. Overall, the substation
will lose approximately 26 percent of its current load following
the annexation.
Given this loss, ERPPD investigated options for the substa-
tion following the annexation. The option ERPPD felt was
most cost efficient and feasible was to move the substation
21⁄2 miles to the northeast. Such a move would allow ERPPD
to best serve its remaining load following the annexation, but
also had the potential to increase the capacity of the substation.
ERPPD calculated that the total cost of moving the substa-
tion would be approximately $935,000 and that $337,567 was
solely attributable to the Neligh annexation.
The Board found in Neligh’s favor, concluding that ERPPD
had not built the substation in the center of its load and that
to require a move partially paid for by Neligh would be a bet-
terment to which ERPPD was not entitled. The Board denied
ERPPD’s motion for reconsideration. ERPPD appeals.
ASSIGNMENTS OF ERROR
ERRPD assigns three assignments of error that can be
restated as one: The Board erred in failing to award compensa-
tion for reintegration costs under § 70-1010(2)(b) to ERPPD
for the lost substation circuit.
STANDARD OF REVIEW
[1,2] A decision of the Board will be affirmed if it is sup-
ported by the evidence and is not arbitrary, capricious, unrea-
sonable, or otherwise illegal.1 The meaning of a statute is a
question of law, and a reviewing court is obligated to reach
conclusions independent of the determination made below.2
1
In re Application of City of North Platte, 257 Neb. 551, 599 N.W.2d 218
(1999).
2
Id.
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IN RE APPLICATION OF CITY OF NELIGH
Cite as 299 Neb. 517
ANALYSIS
This appeal presents the question of what compensation is
owed to ERPPD for reintegration costs under § 70-1010(2)(b).
On appeal, ERPPD observes it is largely undisputed that
one of the three circuits of the substation at issue carries no
load as a result of the annexation and that the substation has
lost 26 percent of its total load due to the nonuse of this cir-
cuit. As such, ERPPD contends that moving the substation
nearer to the center of its load is the most efficient solution
to the loss of capacity and is a direct result of the annexation.
ERPPD seeks reimbursement for a portion of this cost as rein-
tegration costs under § 70-1010(2)(b).
Neligh, however, argues that this loss of load was already
accounted for via the payment Neligh stipulated to under
§ 70-1010(2)(c). Neligh also notes that prior to the annexation,
the substation was not at the load center. Because the substa-
tion was not at the load center and would allow ERPPD to
more efficiently serve its existing customers as well as offer
the potential for new customers, Neligh contends that such a
move is a betterment not permitted under § 70-1010(2)(b). The
Board concurred with Neligh.
Under § 70-1010(2), Neligh, as the “supplier acquiring the
certified service area, distribution facilities, and customers,” is
statutorily required to “purchase the electric distribution facili-
ties of the supplier located within the affected area, together
with the supplier’s rights to serve within such area.” This pay-
ment should include
(a) the current reproduction cost if the facilities being
acquired were new, less depreciation computed on a
straight-line basis at three percent per year not to exceed
seventy percent, plus (b) an amount equal to the nonbet-
terment cost of constructing any facilities necessary to
reintegrate the system of the supplier outside the area
being transferred after detaching the portion to be sold,
plus (c) an amount equal to two and one-half times the
annual revenue received from power sales to existing
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IN RE APPLICATION OF CITY OF NELIGH
Cite as 299 Neb. 517
customers of electric power within the area being trans-
ferred . . . .3
The parties agree as to the consideration due for
§ 70-1010(2)(a) and (c). At issue are certain “reintegrat[ion]”
costs under § 70-1010(2)(b).
“Reintegration” is not explicitly defined in statute or by
Nebraska case law. As such, we turn to other jurisdictions for
guidance. In City of Cookeville v. Upper Cumberland Elec.,4
the Sixth Circuit, applying Tennessee statutes nearly identical
to Nebraska’s statutes, noted that the dictionary definition of
“‘reintegrate’” was “‘to restore to unity after disintegration.’”
The court observed:
The structure of [subsection (a)(2) of the relevant statute]
suggests that the reintegration costs are those necessary
to place the system in the same state of integration that
it was in prior to the condemnation. [Subsection (a)(2)
(A) of the statute] provides for replacement costs for any
facilities acquired by the municipality whereas [subsec-
tion (a)(2)(B)] then provides for the cost of construct-
ing “necessary facilities to reintegrate the system of the
cooperative.” This scheme suggests that the reintegration
costs are those necessary to reconnect the replaced facili-
ties into the cooperative’s existing electrical system. To
bring the system back to “unity” would involve placing
the system in as integrated a condition as existed prior to
the annexation.5
ERPPD presented the Board with multiple options for
allowing it to restore unity to its system following the south
annexation: (1) upgrading the line to extend the reach of the
substation to new customers, (2) moving the substation to the
exact load center, or (3) moving the substation 21⁄2 miles closer
to the load center. In addition, the Board heard testimony on
3
§ 70-1010(2).
4
City of Cookeville v. Upper Cumberland Elec., 484 F.3d 380, 392 (6th Cir.
2007).
5
Id.
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IN RE APPLICATION OF CITY OF NELIGH
Cite as 299 Neb. 517
a fourth option: reducing the capacity of the substation by
replacing its existing transformers with smaller ones. ERPPD’s
expert testified that ERPPD’s preferred method was to move
the substation 21⁄2 miles closer to the load center. ERPPD
sought a portion of the costs of this move as reintegration
costs under § 70-1010(2)(b).
The Board rejected ERPPD’s proposed substation move,
instead agreed with Neligh that “any effect on the total eco-
nomic impact [on ERPPD was] captured by the compensation
[Neligh] will pay to [ERPPD] for the loss of the customers and
facilities located inside the south annexation” area, and accord-
ingly rejected ERPPD’s claim for reintegration costs under
§ 70-1010(2)(b). The Board noted that the relocation of the
substation would be a betterment to ERPPD.
This court will affirm decisions of the Board unless they
are unsupported by the evidence or are arbitrary, capricious,
unreasonable, or otherwise illegal. We conclude that in this
case, the Board’s actions were arbitrary, capricious, and
unreasonable.
It is undisputed that ERPPD’s loss of load came from cus-
tomers in the south annexed area. Indeed, the parties have
stipulated to the compensation due for lost revenue. But rein-
tegration costs are based on the amount needed to compensate
ERPPD for the impact to its physical asset—the substation—
and are not related to the loss of revenue or loss of facilities,
which are provided for separately under § 70-1010(2).
We held as much in In re Application of City of Lexington.6
In that case, we affirmed the Board’s decision, made on simi-
lar facts, that compensation was owed for surplus property—a
transmission line substation and feeder circuits—lying outside
of an annexed area. We agreed with the Board’s conclusion that
this cost was not subsumed in the compensation provided for
under § 70-1010(2)(c) and was instead distinct from that loss
of revenue.
6
In re Application of City of Lexington, 244 Neb. 62, 504 N.W.2d 532
(1993).
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IN RE APPLICATION OF CITY OF NELIGH
Cite as 299 Neb. 517
Section 70-1010(2) clearly contemplates compensation for
loss of revenue, facilities, and impact to physical assets.
ERPPD was entitled to have its system “‘restore[d] to unity’”
following the south annexation.7 By conflating the revenue due
for the load under § 70-1010(2)(c) with the reintegration costs
ERPPD was entitled to under § 70-1010(2)(b), and despite our
prior holding in In re Application of City of Lexington sug-
gesting that the two types of compensation are distinct, the
Board failed to provide compensation for ERPPD’s reintegra-
tion costs and acted in an arbitrary, capricious, and unreason-
able manner.
Moreover, the Board also acted in an arbitrary, capricious,
and unreasonable manner when it focused its analysis solely
on the preferred route of moving the substation 21⁄2 miles to
the northeast without also considering the alternative propos-
als presented or otherwise determining Neligh’s liability for
the undisputed injury caused to ERPPD’s system by the south
annexation. The Board abdicated in part its statutory duty
under § 70-1010(2) to “determine the total economic impact
on the selling supplier and establish the price accordingly
based on, but not limited to, the . . . guidelines” set forth in
§ 70-1010(2)(a), (b), and (c).
There is merit to ERPPD’s argument on appeal. We reverse
the decision of the Board and remand the cause for further
proceedings.
CONCLUSION
The decision of the Board is reversed, and the cause is
remanded for further proceedings.
R eversed and remanded for
further proceedings.
Wright, Miller-Lerman, and K elch, JJ., not participating.
7
See City of Cookeville v. Upper Cumberland Elec., supra note 4, 484 F.3d
at 392.