Baltimore Gas and Elec. Co. v. Public Service Com'n of Maryland

• Decision Date: 01 September 1985
• Docket Number: No. 27,27
• Citation: 305 Md. 145,501 A.2d 1307
• Parties: BALTIMORE GAS AND ELECTRIC COMPANY v. PUBLIC SERVICE COMMISSION OF MARYLAND et al. ,
• Court: Maryland Court of Appeals

Page 145

305 Md. 145

501 A.2d 1307

BALTIMORE GAS AND ELECTRIC COMPANY v. PUBLIC SERVICE COMMISSION OF MARYLAND et al.

No. 27, Sept. Term, 1985.

Court of Appeals of Maryland.

Jan. 8, 1986.

H. Thomas Howell and John H. Mudd (Anthony W. Kraus and Semmes, Bowen & Semmes and David A. Brune and Paul W. Davis, on the brief), Baltimore, for appellant.

Kirk J. Emge, General Counsel, Baltimore, for Public Service Com'n of Maryland.

Thomas C. Gorak, Asst. People's Counsel (John K. Keane, Jr., Maryland People's Counsel, on brief), Baltimore, for Maryland People's Counsel.

Argued before MURPHY, C.J., and SMITH, ELDRIDGE, COLE, RODOWSKY, COUCH and McAULIFFE, JJ.

MURPHY, Chief Judge.

Maryland Code (1957, 1980 Repl.Vol.) ARTICLE 78, § 54F¹ provides a procedure through which large electric utility companies may obtain expedited review by the Public Service Commission (the "Commission") of applications for adjustment of their fuel rates. ² In this case, we are called upon to consider for the first time the manner in which the Commission has implemented § 54F.

I.

An electric utility company is authorized by statute to charge its customers "just and reasonable rates," as determined by the Commission. §§ 28(d), 68(a). These rates must enable the company to recover its "necessary and proper expenses" and to provide a "reasonable return" to the company's investors. § 69(a); see Potomac Edison Co. v. PSC, 279 Md. 573, 579-82, 369 A.2d 1035 (1977); Public Serv. Comm'n v. Baltimore Gas & El., 273 Md. 357, 363-64, 329 A.2d 691 (1974); C. & P. Tel. Co. v. Public Service, 230 Md. 395, 400-01, 187 A.2d 475 (1963). See generally E. Nichols, Ruling Principles of Utility Regulation 1-9 (1955 & Supp.1964).

Prior to 1955, changes in a company's expenses, including its fuel costs, were reviewed by the Commission only as part of a lengthy base rate proceeding. As a result, a substantial regulatory lag generally existed between the time increased or decreased costs were incurred by a company and the time those costs were reflected in customer rates.

As part of its comprehensive revision of the Public Service Commission Law in 1955, the General Assembly acted to alleviate this regulatory lag with regard to fuel cost recovery by enacting chapter 441 of the Acts of 1955. This statutory provision, now codified as part of § 54, provided that "[a]ny ... electric company may establish a sliding scale for the automatic adjustment of charges for ... electricity ...." Under the authority of this provision, most electric utility companies, including the Baltimore Gas and Electric Company ("BG & E"), amended their tariff schedules to include fuel rate adjustment clauses. A fuel rate adjustment clause permits a company to adjust its rates automatically, subject to later Commission approval, to reflect changes in fuel costs.

As fossil fuel prices increased dramatically during the mid-1970s, the General Assembly acted to subject the rising fuel costs experienced by electric utility companies, and ultimately paid by consumers, to closer scrutiny by the Commission. By chapter 418 of the Acts of 1975, the legislature enacted § 54D, which required companies using fuel rate adjustment clauses "to verify and justify the adjusted fuel costs to the Commission" on a monthly basis. Section 54D was amended by chapter 695 of the Acts of 1977 to direct the Commission to disallow any charge a company had passed on to its customers through a fuel rate adjustment clause if the company "has improperly calculated the charge, has failed to use proper fuel procurement practices, or has used this charge to the detriment of the public."

In 1978, the General Assembly removed large electric utility companies from the purview of § 54D and enacted § 54F, which provides a discrete procedure through which these companies may adjust their fuel rates. ³ See Acts of 1978, chapter 173. The procedure provided by § 54F differs from that of § 54D in several significant respects, two of which are particularly relevant here. First, § 54F furnishes the Commission with more definite standards than does § 54D for evaluating fuel rate adjustment applications. Specifically, § 54F(f) directs the Commission to base its decision in a fuel rate adjustment proceeding upon its findings regarding whether

"(1) Only changes in the actual costs of the components of the fuel rate are included in the proposed change;

(2) The applicant has used the most economical mix of all types of generation and purchase;

(3) The applicant has made every reasonable effort to minimize fuel costs and followed competitive procurement practices;

(4) The applicant has maintained the productive capacity of all its generating plants at a reasonable level."

Section 54F(g) authorizes the Commission to disallow recovery of increased fuel costs that were incurred as a result of a company's failure to comply with these requirements. In addition, while § 54D sets no limit upon the amount of time within which the Commission must review an application and issue a final order, § 54F(c) expressly provides that "[t]he Commission's final order shall be issued promptly but in no event later than 90 days after the filing of the application." ⁴

II.

This appeal arises from three fuel rate adjustment cases initiated by BG & E and conducted by the Commission under the authority of § 54F. BG & E filed its application in the first of these cases, Case No. 7238-O ("Case O"), on March 2, 1981. In conformance with industry custom, BG & E included among the fuel costs stipulated in its application certain costs it incurred in purchasing supplemental power for its customers during a forced outage that occurred in December 1980 and January 1981 at one of its nuclear generating units. ⁵ The Commission suspended BG & E's proposed fuel rate adjustment for 30 days, the maximum suspension permitted by § 54F(c), and authorized BG & E to apply the proposed rate, subject to further review by the Commission, beginning with its April 1981 billings.

After conducting evidentiary hearings, the Commission issued its Order No. 65299 on June 1, 1981, 90 days after the application's filing. In the order, the Commission discussed the circumstances surrounding the forced outage and concluded that, because BG & E had failed to demonstrate that the forced outage was not the result of imprudent management, it had not met its burden of proving that it had maintained the productive capacity of all its generating plants at a reasonable level, as required by § 54F(f)(4). The Commission also recognized, however, that BG & E had achieved an excellent overall record in maintaining the output of its nuclear units. The Commission therefore concluded that BG & E would be permitted to recover 50% of the purchased power costs occasioned by the outage. The order further provided that the Commission would retain jurisdiction to consider additional evidence regarding the extent of BG & E's responsibility for the outage, and indicated that the Commission might reconsider its apportionment of the purchased power costs in light of this additional evidence.

The Commission issued its Order No. 66011 in Case O on November 22, 1982, 630 days after BG & E filed its application. In its order, the Commission concluded that, in light of the additional evidence it had reviewed, BG & E would be permitted to recover 75% of the purchased power costs resulting from the forced outage. The order also purported to terminate Case O on the Commission's docket.

The second fuel rate adjustment case before us in this appeal, Case No. 7238-T ("Case T"), was initiated by BG & E's filing of its application on February 1, 1982. The Commission suspended the proposed rate adjustment for the maximum permissible period of 30 days and authorized BG & E to apply the proposed rate, subject to further review by the Commission, beginning with its March 1982 billings. BG & E filed its application in the third proceeding, Case No. 7238-U ("Case U"), on March 1, 1982. Again, the Commission suspended the proposed adjustment for 30 days and authorized BG & E to apply the proposed rate, subject to further Commission review, beginning with its April 1982 billings. Cases T and U were then consolidated for evidentiary hearings before the Commission. The fuel costs submitted in BG & E's applications in Cases T and U included certain purchased power costs occasioned by a forced outage at one of the company's nuclear generating units during July 1981. ⁶

On April 2, 1982, the hearing examiner issued a proposed order in Case T authorizing BG & E to continue to assess the full amount of the proposed fuel rate adjustment, and providing that the Commission would retain jurisdiction to further review all the issues in the case. The proposed order became final by its terms as Commission Order No. 65755 on May 3, 1982, 90 days after BG & E had filed its application in Case T. Subsequently, after conducting evidentiary hearings, the Commission issued its Order No. 65800 in the consolidated Cases T and U, by which it allowed the full fuel rate adjustment requested in BG & E's application in Case U to remain in effect pending further Commission review and indicated that it would retain jurisdiction over the consolidated cases. Order No. 65800 was issued on May 28, 1982, 88 days after the filing of BG & E's application in Case U.

On November 22, 1982, the Commission issued its Order No. 66012 in the consolidated Cases T and U, 266 days and 294 days, respectively, after BG & E's filing of its applications in these cases. In the order, the Commission discussed the circumstances surrounding the forced outage in July 1981 and concluded that, in light of the additional evidence it had reviewed, BG & E would be permitted to recover from its customers only 25% of the purchased power costs occasioned by the forced outage. This conclusion was based upon the Commission's findings that, although BG & E had achieved a superior overall...