The Minnesota Court of Appeals Tuesday said the state’s utilities regulator have to reconsider their decision to block CenterPoint Energy from recovering $21 million from customers that it underbilled over four years.

The 21-page opinion by the four-judge panel reversed and remanded a decision by the Minnesota Public Utilities Commission (MPUC) in Case A07-0653; File Nos. E, G-999/AA-05-1403, G-008/AA-05-1423 (Northern Area), G-008-AA-05-1424 (Viking Area).

CenterPoint informed the MPUC in January 2006 that an internal accounting process had overstated sales of natural gas between 2000 and 2005. CenterPoint said it misstated sales in two ways: it mistakenly recognized sales for gas that was lost, and it mistakenly recognized underbilled sales (i.e., sales that were billed to customers in the future). About 80% of the revenue CenterPoint receives from customers is attributed to the costs incurred in obtaining gas from suppliers, the court noted.

The accounting error resulted in CenterPoint failing to recover $28 million in costs for natural gas delivered to Minnesota customers over the period. The MPUC allowed CenterPoint to recover one year of the underbilling, but it denied the utility’s request for a variance to the MPUC rules to recover the remaining amount because the agency said it was not in the public’s interests.

The appeals court disagreed.

“CenterPoint argues that the commission’s decision was inconsistent with the commission’s decisions in response to prior, similar requests for variances,” the court said. “We conclude that the commission’s decision was arbitrary and capricious because the commission neither applied the principles it had applied to prior decisions nor announced new principles concerning variances. Therefore, we reverse and remand to the commission for further proceedings.”

The court said the MPUC had adopted a “measurement of the financial burden that it had not previously applied,” measuring the burden on CenterPoint by expressing the unrecovered costs as a percentage of total gas costs for the nonrecovery period. The commission reasoned that $21 million was not an excessive burden for CenterPoint because the amount was only 0.5% of CenterPoint’s total gas costs of $4.2 billion for the period at issue. This mode of reasoning fails to recognize any impact on CenterPoint’s profitability due to the unrecovered gas-acquisition costs.

“CenterPoint passes its gas-acquisition costs on to consumers without any mark-up,” stated the court. “Thus, the percentage relationship between CenterPoint’s unrecovered gas costs and its total costs is, as a practical matter, irrelevant to its profitability.”

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