In re Application of City of Neligh , 299 Neb. 517 ( 2018 )


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    05/25/2018 09:07 AM CDT
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    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
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    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
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    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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    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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    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
    
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    IN RE APPLICATION OF CITY OF NELIGH
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    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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    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
    
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    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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    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
    .