Alabama Metallurgical Corp. v. Alabama Public Service Com'n

Decision Date16 September 1983
PartiesALABAMA METALLURGICAL CORPORATION, et al. v. ALABAMA PUBLIC SERVICE COMMISSION, et al. ALABAMA TEXTILE MANUFACTURERS ASSOCIATION v. ALABAMA PUBLIC SERVICE COMMISSION, et al. Annie Bell ADAIR, Johnetta Daniels, Napolean Turner, Rosa Lee Turner, Alice Elmore, and Nettie Pendleton v. ALABAMA PUBLIC SERVICE COMMISSION. Charles A. GRADDICK, as Attorney General of the State of Alabama, on behalf of the STATE of Alabama and the affected customers of Alabama Power Company v. ALABAMA PUBLIC SERVICE COMMISSION. Charles A. GRADDICK, as Attorney General of the State of Alabama, on behalf of the STATE of Alabama and the affected customers of Alabama Power Company v. ALABAMA PUBLIC SERVICE COMMISSION. 82-272, 82-273, 82-274, 82-276 and 82-284
CourtAlabama Supreme Court

James D. Brooks and Patricia Olney, Mobile, for appellants Alabama Metallurgical Corp. and Alabama Textile Manufacturers Assoc. (82-272 and 82-273).

Stanley Weissman for Legal Services Corp. of Alabama, Inc., Montgomery, for appellants Annie Bell Adair, et al. (82-274).

Charles A. Graddick, Atty. Gen. and Wendell Cauley and Charles A. Guyton, Asst. Attys. Gen. for appellants Graddick, etc., et al. (82-276 and 82-284).

Euel A. Screws, Jr. of Copeland, Franco, Screws & Gill, and Debra Biggers, Montgomery, for appellee Alabama Public Service Com'n.

Thomas W. Thagard, Jr. of Smith, Bowman, Thagard, Crook & Culpepper, Montgomery, John Bingham, Rodney O. Mundy, Steven G. McKinney and Dan H. McCrary of Balch, Bingham, Baker, Hawthorne, Williams & Ward, Birmingham, and Robert E. Steiner, III of Steiner, Crum & Baker, Montgomery, for appellee Alabama Power Co.

EMBRY, Justice.

These are direct appeals by rate case intervenors from rate orders of the Alabama Public Service Commission (PSC or the Commission) dated 17 and 22 November 1982. The orders approved for Alabama Power Company (the Company), Rates RSE and CNP and special rules related to those rates.

These are unlike recent appeals of rate orders. Generally, the appellant from a rate order is the utility. Appellants in this case are consumers who took part in the PSC's hearings on the adoption of Rates RSE and CNP and now object to its orders enacting these rates. They are: (1) Charles A. Graddick as Attorney General (the Attorney General); (2) Alabama Metallurgical Corporation, et al. (Alabama Metallurgical); and Annie Bell Adair, et al., represented by Legal Services Corporation of Alabama, Inc. (Legal Services). Section 37-1-140, Code 1975 (Supp.1982), grants the right to appeal directly to this court from orders of the PSC.

I.

Prior to consideration of the merits of this appeal, we will examine the history of this case and explain the rate formulae enacted.

PSC Docket No. 18117

On 19 March 1981, Alabama Power Company filed new retail electric rate schedules designed to provide approximately $325,000,000 in additional revenues annually. The PSC suspended the filed rates and ordered an investigation and hearings, thus creating Docket No. 18117. The appellants participated with the Company and other parties in those hearings.

At the conclusion of those proceedings the PSC issued a "zero" order, dated 16 October 1981, denying the Company any revenue increase whatsoever. The Company appealed that order on the day it was issued and, on 19 October 1981, filed an application for supersedeas with this court seeking authority to implement its filed rates under bond, subject to refund. By order dated 12 February 1982, this court granted partial supersedeas.

After this court's 12 February supersedeas order, and a new rate filing by the Company, the PSC initiated discussions among the parties to Docket No. 18117 regarding resolution of that case and the new filing by means of ratemaking concepts embodied in Rates RSE and CNP. During these discussions, which occurred 25 March through 14 April 1982, all parties participated in the development of a settlement proposal based upon Rate RSE, Rate CNP and certain related special rules, all of which have now become the subject of this appeal. Despite efforts made during these public meetings, settlement was not reached by mid-April and the PSC suspended the new rates which had been filed by the Company and scheduled further hearings.

PSC Docket No. 18416

On 9 March 1982, the Company filed with the PSC new retail electric rate schedules designed to provide approximately $129,000,000 in additional annual revenues above the rates filed in Docket No. 18117. After suspension of the filed rates, the PSC held hearings in which the Company, appellants, and other parties participated.

On 15 October 1982, the PSC issued an order which denied the Company's filed rates but retained jurisdiction. It requested that the parties withhold any appeals and directed them to resume negotiations. The PSC gave notice and conducted public hearings for that purpose beginning 3 November 1982.

Consolidation of Dockets Nos. 18117 and 18416

Upon consideration of the merits of the Company's appeal of Docket No. 18117, this court determined the PSC's "zero" rate order of 16 October 1981 to be confiscatory. On 6 November 1982, it reversed and remanded the order to the PSC with instructions to set new nonconfiscatory rates by no later than 1 December 1982. Alabama Power Co. v. Alabama Public Service Commission, 442 So.2d 767 (Ala.1982).

After hearings, for the receipt of evidence on 11 and 12 November 1982 in the consolidated matter of both the remanded Docket No. 18117 and Docket No. 18416, the PSC issued an order setting new rates for the Company and adopting Rate RSE, Rate CNP and certain related special rules. Five days later, the Commission issued its order and opinion of 17 November 1982 with its findings and reasoning in support of its earlier ratemaking decision. After receiving new rate schedules filed by the Company pursuant to the PSC's previous order, the PSC issued an order dated 22 November 1982, approving those filed rate schedules as being in compliance with the orders of 12 and 17 November 1982. The Commission's orders of 17 and 22 November are, respectively, Appendix I and II to this opinion.

The appellants, intervenors in both dockets resolved by the PSC's rate orders of 17 and 22 November, challenge its adoption of Rate RSE, Rate CNP, and the special rules relative to those rates.

Rate RSE

Rate RSE is a mathematical formula designed by the PSC, its staff and the Company. It contemplates numerous expense items taken from the Company's uniform "RSE" is an acronym for Rate Stabilization and Equalization. It represents a ratemaking formula designed to provide periodic revenue adjustments (increases or decreases) calculated to allow the Company to earn 15% return on its common equity capital. In this connection, rate RSE is responsive to this court's order in Alabama Power Co. v. Alabama Public Service Commission, 422 So.2d 767 (Ala.1982), which ordered the PSC to establish rates which were not confiscatory. In that case, this court stated a 15% return on equity to be the minimum which would not result in confiscation of the Company's property. 422 So.2d at 773. We also emphasized any rate of return formula established by the PSC should be prospective, rather than retrospective, in nature. 422 So.2d at 770.

system of accounts in determining the kilowatt-hour charge to be applied to the customer's usage. While it is complex in application, the theory behind the rate is not difficult to understand.

Under Rate RSE, Company revenues are adjusted in the following manner: At predetermined dates in 1983 (February 1 and October 1) and 1984 (quarterly), the Company's actual rate of return on year-end common equity is measured by the formula contained in Rate RSE using figures from the Company's records. The Company's records must be maintained in accordance with the uniform system of accounts prescribed by the PSC. If the Company's retail return on common equity is within the equity return range, no adjustment of charges is made under Rate RSE. If the return is either above or below the range, an adjustment limited to a specific percent of total revenue is made in order to move the return toward 14%, the adjusting point specified in Rate RSE.

There are several limiting factors incorporated in Rate RSE. First, if the Company's retail return on equity exceeds 15%, Rate RSE requires a downward revenue adjustment.

Second, no matter how much upward revenue adjustment is needed to reach an appropriate level of return, on equity, each adjustment is limited to a specified percentage of total revenues. This limiting factor was designed to lessen the harsh effect of utility rate increases on the consumer and encourage the Company to operate efficiently.

Third, any growth in the Company's common equity ratio in excess of 2 1/2% per year cannot be considered in the adjustment. This provision ensures the Company will not inject common equity into the enterprise capital in an effort to generate revenue increases.

Fourth, a number of expenses are excluded from the operation of Rate RSE. Advertising expenses, lobbying expenses, and charitable donations cannot be considered; neither can club dues, nor a portion of the salaries of the Company's executive officers. Thus, Rate RSE excludes from its operation, expenses of the Company which have been customarily excluded in rate proceedings, plus certain expenses which were considered in rate adjustments prior to Rate RSE.

The special rules governing Rate RSE require increased PSC monitoring of Company operations over past current levels of reporting, auditing, and inspection. These rules require the Company to provide certain reports and documents to the PSC, its staff, and the Attorney General in advance of any adjustments under Rate RSE. The rules further provide that the PSC can initiate complaint proceedings for the purposes of inquiring into the amount, accuracy or compliance with uniform system of...

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