Central Vermont Public Service Corp., In re

• Decision Date: 13 January 1984
• Docket Number: 83-240,Nos. 82-460,s. 82-460
• Citation: 144 Vt. 46,473 A.2d 1155
• Parties: , 58 P.U.R.4th 339 In re CENTRAL VERMONT PUBLIC SERVICE CORPORATION.
• Court: Vermont Supreme Court

Page 1155

473 A.2d 1155

144 Vt. 46, 58 P.U.R.4th 339

In re CENTRAL VERMONT PUBLIC SERVICE CORPORATION.

Nos. 82-460, 83-240.

Supreme Court of Vermont.

Jan. 13, 1984.

Donald L. Rushford and Joseph M. Kraus, Rutland, for plaintiff-appellee.

Gerald R. Tarrant, Michael L. Burak, Peter H. Zamore, and Michael Marks, Montpelier, for defendant-appellant.

Before HILL, UNDERWOOD, PECK and GIBSON, JJ., and LARROW, Judge (Ret.), Specially Assigned.

GIBSON, Justice.

The Department of Public Service (the Department) appeals from two orders of the Public Service Board (the Board) approving a power adjustment clause for Central Vermont Public Service Corporation. For the reasons stated herein, we reverse.

On September 4, 1980, Central Vermont filed a petition for a $3,450,000 rate increase; on November 26, 1980, the company filed for an additional $18,000,000 increase. In its second filing Central Vermont included a request for a power adjustment clause. The Public Service Board consolidated the rate requests for hearing and, after sixteen days of hearings, issued its decision on December 4, 1981. In its decision the Board rejected the proposed power adjustment clause, but retained jurisdiction to consider the possibility of some other mechanism that would allow the company to recover its reasonable power costs on a timely basis.

On December 14, 1981, Central Vermont filed a new proposal for a power adjustment clause. Further hearings were held, and on July 2, 1982, the Board, by a two-to-one vote, approved a modified form of power adjustment clause for Central Vermont.

Pursuant to the Board's approval, Central Vermont, on December 15, 1982, filed its first power adjustment tariff, to take effect February 1, 1983. Denying a request from the Department of Public Service that the tariff be suspended, the Board allowed the tariff to go into effect as scheduled, but, pursuant to 30 V.S.A. § 227(b), ordered an investigation into the justness and reasonableness of the new rate. Following hearings, the Board, on April 29, 1983, issued a decision finding the tariff to be reasonable. The Department appeals from the Board's orders of July 2, 1982, and April 29, 1983.

The tariff, referred to by the parties as the current power year (CPY) tariff, is designed to allow the company full recovery of its purchased power and energy costs on an annual basis, and operates in the following manner. On or before October 15 of each year Central Vermont must file preliminary estimates of its power and energy costs for the ensuing calendar year, as well as estimates of sales for the same period. By December 15 of each year Central Vermont is required to file new rates based on a forecast of its sales and its power and energy costs for the following calendar year; at the same time Central Vermont must also submit a statement of its actual sales and power and energy costs for the twelve-month period that ended October 31. The proposed rates will, unless suspended, go into effect on February 1, some 47 days after the date of filing.

Prior to the February 1 effective date, the Board must either approve the change or suspend it. 30 V.S.A. § 225(b). If the Board accepts the change, the changed rate will take effect as scheduled, and there will be no further proceedings. If the Board suspends the change or if, as in this instance, the Board institutes an investigation on its own initiative under § 227(b), hearings will then be held.

The most controversial aspect of the power adjustment clause is the mechanism referred to as the "true-up." The "true-up" is a reconciliation of the actual sales revenues and power and energy costs for the year ending October 31 with those that were forecast one year earlier. If the historical data reveal that Central Vermont collected rates in excess of its predicted power and energy costs, the over-collection, with interest, is refunded to customers by allowing a credit on the rates for the following year. If the historical data show that Central Vermont failed to recover all its power and energy costs, the shortage is collected by imposing a surcharge on the following year's customers.

The Department contends that the CPY violates Vermont statutory and case law in numerous respects. One series of objections challenges the tariff as a device that improperly sets rates in two stages, the second stage coming one year after filing and only after the service has been provided to the customer. It is the Department's position that the Board's action on each rate filing is not complete until the "true-up" has taken place. Accordingly, the Department contends that the CPY violates the requirements of 30 V.S.A. § 225(a) and Vermont case law relative to advance notice of rate changes; § 225(a)'s prohibition against amending filings; § 227(a)'s requirement that rate cases be decided within seven months of filing; and § 229's prohibition against assessing rates different from those in effect when service was rendered.

We disagree that the CPY is a two-stage proceeding. The CPY is not a temporary rate subject to revision one year after filing, nor is it an amendment to a pending rate case. Rather, each CPY filing is a separate proceeding based on a new test year. Each year the filing must comply with the notice requirements of § 225 and is subject to suspension and public hearings as in the case of any new rate filing. The order the Board issues is final, and absent appeal, the case is closed; thereafter, the company's rates may be changed only by following the statutory procedures for a new rate filing. Accordingly, we will not address further the objections of the Department based on its view of the CPY as a two-step process.

The Department further contends that the CPY illegally reinstates recoupment which has been abolished by the legislature, 1981, No. 226 (Adj.Sess.), § 4, implements rate changes on the basis of selective data, violates the public's right to a fair hearing by requiring a decision within too short a period of time, and institutes retroactive ratemaking. Finally, the Department contends that the Board's findings and conclusions are inadequate and contradictory.

Before embarking on a consideration of the issues, we will review the guidelines the Board and this Court must follow.

I.

Under current Vermont law a company subject to the Board's jurisdiction may not change its rates except upon forty-five days' notice to the Board and to the Department, and such notice to other parties as the Board directs. 30 V.S.A. § 225(a). It is the duty of the Department to investigate the justness and reasonableness of the proposed change, and at least fifteen days prior to the effective date, the Department must recommend to the Board that it either accept the change or reject it. § 225(b). If the Department opposes the change, the Board must hold a hearing and, prior to the effective date, issue an order either accepting the change and allowing it to go into effect or suspending it. Id. Such hearing must be held expeditiously, since the Board must give the company notice of any suspension at least six days prior to the effective date of the proposed change. § 226(a). The Board must also be alert to give at least twelve days' notice in advance of any hearing. § 10. If the Board suspends the change, it must hold further hearings and issue an order within seven months of the effective date; otherwise, the change will then automatically go into effect and become final. § 227(a).

The short time frame puts great pressure on the Department, which must investigate and report to the Board within 30 days on a matter that a utility may have had months to prepare. Further, the Department must be prepared to go to hearing on very short notice to justify any objection it has to a proposed change. However, the Department's burden initially, if it objects to a proposed change, is merely to convince the Board that there is good reason to suspend. Further hearings will then follow and the Department will have additional time to prepare its case. In this instance, the Board chose not to suspend, but did exercise its right under § 227(b) to order an investigation. Hearings followed, as contemplated by the statute, and there was adequate opportunity for all parties to be heard. The CPY tariff thus complies with the statutory procedure established by the legislature, and we are unable to say on the record before us that the public's right to a fair hearing has been violated.

II.

The crux of this case is the Department's contention that the CPY tariff constitutes illegal retroactive ratemaking. Retroactive ratemaking has been defined as "the setting of rates which permit a utility to recover past losses or which require it to refund past excess profits collected under a rate that did not perfectly match expenses plus rate-of-return with the rate actually established." State ex rel. Utility Consumers Council of Missouri, Inc. v. Public Service Commission, 585 S.W.2d 41, 59 (Mo.1979) (citing Board of Public Utility Commissioners v. New York Telephone Co., 271 U.S. 23, 31, 46 S.Ct. 363, 366, 70 L.Ed. 808 (1926)). In other words, retroactive ratemaking is a device that enables a utility to balance its accounts for a prior period of time by making a future adjustment in its rates. In this case, the CPY allows Central Vermont annually to balance its prior year's power and energy accounts through adjustments on its bills to future customers.

The arguments against retroactive ratemaking are: (1) that it violates the statutory requirement that ratepayers should receive advance notice of all rate changes; (2) that it unfairly forces the ratepayer to pay a utility's past deficits, incurred when some ratepayers may not even have been customers; (3) that it promotes inefficient utility operation, resulting in higher costs to the public; and (4) that it deprives either the utility (if forced to make a refund) or the ratepayer (if required to...