## Facts

- The Arkansas Public Service Commission (PSC) opened public dockets to develop and require electric and gas utility energy-efficiency (demand-side management) programs.
- The PSC found that traditional volumetric rates could discourage conservation because reduced sales could impair utilities’ recovery of fixed costs.
- The PSC issued orders for the 2011–2013 program years that:
  - Approved energy-efficiency programs for Arkansas utilities,
  - Allowed recovery of program costs through rates, and
  - Created a performance-based incentive mechanism permitting utilities to earn incentives if they met or exceeded Commission-set efficiency targets.
- Industrial consumer groups (Arkansas Electric Energy Consumers, Inc., and Arkansas Gas Consumers, Inc.) appealed, challenging only the incentive component.
- The consumer groups argued the Energy Conservation Endorsement Act (ECEA) authorizes only recovery of “costs” incurred to comply with conservation measures and that incentive payments are not recoverable “costs.”
- The consumer groups also contended the incentives unlawfully departed from traditional rate-making principles.

## Issues

1. Whether the ECEA authorizes the PSC to approve performance-based financial incentives for utilities as part of energy-efficiency programs, beyond recovery of compliance “costs.”
2. Whether adoption of incentives and related mechanisms was an unlawful departure from traditional rate-making or an abuse of the PSC’s discretion.

## Decision

- The Arkansas Court of Appeals affirmed the PSC’s orders.
- The court held the PSC acted within its statutory authority under the ECEA in approving incentive mechanisms tied to energy-efficiency performance.
- The court concluded the incentive mechanism was consistent with Arkansas utility regulation and was supported by substantial evidence.
- The court rejected the claim that the PSC impermissibly abandoned traditional rate-making.

## Legal Principles

- Statutes with conservation purposes may be construed broadly to effectuate their remedial objectives.
- Under the ECEA, the mandate to allow recovery of conservation-program “costs” does not bar the PSC from adopting additional conservation-related regulatory measures authorized by the Act’s broader grant of authority.
- A clause stating that nothing in the Act limits the agency’s authority to pursue “other” energy-conserving measures can authorize tools beyond explicit cost-recovery provisions, including incentives designed to encourage conservation.
- Courts generally defer to an agency’s reasonable interpretation of the statute it administers when the interpretation is not clearly contrary to statutory text.
- A regulatory commission may implement nontraditional rate mechanisms if consistent with statutory standards and if the resulting rates and mechanisms are supported by substantial evidence and are not arbitrary or capricious.

## Conclusion

The court upheld the PSC’s performance-based incentive mechanism for utility energy-efficiency programs, ruling that the ECEA’s broad conservation authority and agency deference principles permitted incentives as a conservation tool and that the PSC’s orders were reasonable and supported by the record.


Ark. Elec. Energy Consumers, Inc. v. Ark. Pub. Serv. Comm'n, 410 S.W.3d 47 (Ark. Ct. App. 2012)