Mississippi Court Overturns Deposit Waiver Rule

Finding that state law does not confer upon the Mississippi Public Service Commission authority to regulate nonprofit organizations, the Mississippi Supreme Court has overturned a lower court ruling that had sustained a commission directive that all utilities in the state, including nonprofit ones, waive deposit requirements for certified domestic violence victims for a period of sixty days.

The commission’s mandate had been appealed by the Mississippi Rural Water Association, which operates as a trade association and has more than 500 water and/or sewage disposal members, most of which are governed as a cooperative or another form of a nonprofit. The group had argued that Mississippi’s statutory construct does not extend to commission authority over nonprofit associations.

The state high court agreed that the commission lacks jurisdiction under state law to adopt any rule that has the effect of regulating or otherwise controlling the rates of nonprofit water utility associations and corporations. Indeed, the court noted that the law clearly distinguishes between regulated public utilities and exempt nonprofit water ventures.

More specifically, the court explained that while the state legislature had granted the commission exclusive original jurisdiction over the intrastate business operations and properties of public utilities, it had carved out an exception with regard to the “rates” charged for the sale and/or distribution of water or sewage disposal service of those nonprofit entities where the governing body is elected by the consumers or appointed by a county board of supervisors.

The court said that the plaintiff association had been correct that the deposit waiver rule in question was in violation of the statute because it was incontrovertible that customer deposits fall within the parameters of the rate-setting process. Thus, the court held, because the commission’s deposit waiver requirement would have a direct impact on the rates billed the nonprofits’ members, and because such rates are outside the commission’s purview, the waiver rule could not stand, at least as applied to nonprofit organizations.

Moreover, the court rejected the commission’s attempt to draw a distinction between a “rate” and a “deposit.” The commission had contended that the former is compensation for a service actually rendered while the latter is a precondition to receiving service in the first place.

The commission had asserted that because customer deposits are collected before any sales occur and before service is provided, they do not fall within the definition of “rates for the sales and/or distribution” of service. The commission likewise had pointed out that public utility tariffs covering rates and charges for service generally include initial deposits, service extension policies, and regulations unique to each company, in addition to base rate schedules. The commission further defended its rule by averring that it really affected only the timing of a company’s security deposit collections. But the court rebuffed those lines of argument.

The court maintained that, traditional public utility tariffs notwithstanding, the commission’s deposit waiver requirement would have a definitive effect on utility companies’ rate-making formulas. The court added that the commission’s attempt to regulate the payment of customer deposits, which are embedded in the rate-making process, would do more than impact the timing of payment.

As to the matter of timing of payment, the court said that a nonprofit association’s ability to timely collect deposits is critical to its overall ability to (1) determine the amount of the deposit and protect against bad debts, (2) ensure that the deposit is paid since services already would be provided, and (3) protect itself against losses arising from a customer’s failure to pay for service, especially if that customer is a transient one.

In the end, the court found that the arguments on timing were secondary to the ones on the extent of the commission’s statutory authority. The court stated that the bottom line was that the commission simply has no legal grounds to regulate the rates of nonprofit water associations. Although the court struck down the deposit waiver requirement as it applied to nonprofit water utilities, the court did not reject the waiver rule as to other utilities.

Consequently, the waiver mandate remains in effect for such investor-owned utilities as Entergy, Mississippi Power, Atmos Energy, and CenterPoint Energy. Mississippi Rural Water Association, Inc. v. Mississippi Public Service Commission et al., No. 2015- CC-01249-SCT, June 8, 2017 (Miss.Sup.Ct.)