Connecticut Light and Power Co. v. Department of Public Utility Control

• Decision Date: 30 May 1986
• Docket Number: No. 0315373,0315373
• Citation: 40 Conn.Supp. 520,516 A.2d 888
• Parties: CONNECTICUT LIGHT AND POWER COMPANY v. DEPARTMENT OF PUBLIC UTILITY CONTROL et al. Judicial District of Hartford-New Britain at Hartford
• Court: Connecticut Superior Court

Page 888

516 A.2d 888

40 Conn.Supp. 520

CONNECTICUT LIGHT AND POWER COMPANY v. DEPARTMENT OF PUBLIC UTILITY CONTROL et al.

No. 0315373.

Superior Court of Connecticut,

Judicial District of Hartford-New Britain at Hartford.

May 30, 1986.

Day, Berry & Howard, Hartford, for plaintiff.

Robert Golden, Asst. Atty. Gen., for named defendant.

Richard Webb, Asst. Atty. Gen., for defendant Office of Policy and Management.

James F. Meehan, Consumer Counsel, Hartford, for defendant Division of Consumer Counsel.

SATTER, Judge.

This is an appeal by the Connecticut Light & Power Company (CL & P) from interim orders issued by the department of public utility control (DPUC) on April 4, 1985 (the April 4 order), and September 4, 1985 (the September 4 order), and from the DPUC's denial on February 19, 1986, of CL & P's petition for rescission of those orders.

I BACKGROUND AND FACTS

CL & P is a public service company organized and existing under the laws of Connecticut which provides electric and gas service to customers in Connecticut.

CL & P's current rates for gas and electric service were approved by the DPUC in a decision issued in December, 1983, in DPUC Docket No. 83-07-15. In determining the revenue that the approved rates were designed to produce, the DPUC adopted a rate of return on CL & P investments (rate base) determined to be adequate to pay all capital costs, including interest, dividends and a return on common stockholders' equity (ROE), that would be reasonable and sufficient to allow the company to attract needed capital. The ROE approved by the DPUC in DPUC Docket No. 83-07-15 was 15.9 percent.

After the December, 1983 rate order went into effect, and throughout 1984, the company's ROE was never less than 17.37 percent and for the twelve months ending December 31, 1984, it was 20.68 percent.

On November 16, 1984, the division of consumer counsel (DCC), petitioned the DPUC to open, reconsider and partially reverse the December, 1983 rate order on the grounds that the then current and projected earnings of CL & P were excessive and Pursuant to a notice of hearing dated January 8, 1985, a public hearing on the matter was convened on March 5, 1985. The hearing continued on March 6, 11, 12, 13, 25 and 26, 1985. The DPUC proposed an interim order on March 11, 1985, and a public hearing on the proposed interim order was held on March 12 and 13, 1985. The DPUC proposed a further interim order which was distributed on March 22, 1985, and a public hearing on the further proposed interim order was held on March 25 and 26, 1985. All parties were given the opportunity to file briefs and written comments on each proposed interim order.

                were likely to remain excessive for the foreseeable future.   On December 8, 1984, the DPUC determined that a [40 Conn.Supp. 523] new proceeding (DPUC Docket No. 84-12-11) would be instituted for the purpose of determining whether the rates of the company should be adjusted in light of current and or projected earning levels.   The investigation was undertaken pursuant to §§ 16-9, 16-11, 16-19 and 16-19e of the General Statutes
                

Among those granted party status were the attorney general and the DCC, which have appeared in this appeal.

The hearing focused on the sharp rise in the deferred fuel account. To understand this account requires some background on CL & P's sources of energy for generating electricity and how it recovers these energy expenses. CL & P has three sources of energy: hydroelectric power, nuclear power and fossil fuel. Hydroelectric power costs a fraction of a cent per kilowatt hour, nuclear power one cent per kilowatt hour and fossil fuel four cents per kilowatt hour.

The base rate per kilowatt hour is a mix of these three costs and it was set in the 1983 rate proceeding at two cents per kilowatt hour. Pursuant to General Statutes § 16-19b(a), the fossil fuel adjustment clause (FFAC), the DPUC authorized CL & P to superimpose upon existing rate schedules, payable by its customers, an amount which reflected changes in the price of fossil fuel required for the generation of electricity, and also, pursuant to § 16-19b (g), the generation utilization adjustment clause (GUAC), an amount which reflected changes in electric costs resulting from changes in the level of operation of the several components of its generation system.

Since the base rate assumes almost full use of cheap hydroelectric and nuclear power, when sales volumes exceed the sales volumes of the test year, the additional energy has to come from the more expensive fossil fuel. In 1981, the DPUC ruled that for sales up to the test year volume CL & P was required to charge to current operating expenses fuel costs recovered from base rates and FFAC and GUAC. For sales in excess of test year volume, however, the 1981 order allowed the company to defer, for future recovery in another rate year, fuel costs above the revenue recovered from base rates and from FFAC and GUAC. Under that ruling $3 million in deferred fuel costs accumulated and were allowed in the 1983 rate decision to be amortized over the year 1984.

In its March, 1985 hearings the DPUC observed that the financial indicators for CL & P were much better than had been forecasted when the rates were set in 1983, due to a stronger economy, lower inflation and more favorable financing conditions. The primary reason for the company's high earnings, however, was sales growth at a rate exceeding cost increases. This sales growth had two effects on the company's financial situation: first, it increased CL & P's ROE, as of the twelve months ending February, 1985, to 19.8 percent; second, simultaneously, it increased the deferred fuel balance to $84 million. CL & P itself estimated that the balance in that account as of April 30, 1986, when it was expected new rates would go into effect, would be $129 million.

The DPUC also anticipated that when CL & P filed its expected rate application for 1986, it would request that some portion of its Millstone III investment (amounting to $2.48 billion) be brought into The DPUC stated in its April 4 order: "We find that the extremely large and growing balance in the deferred fuel account poses a critical problem in our efforts to protect ratepayers from unwarranted accumulations of past period expenses, continued error in a company's financial projections or excessive rates of return. The orders set forth in this interim decision are designed to address these deficiencies."

                the rate base.   Thus, the extraordinarily high deferred fuel account, which had to be amortized in future years, together with the Millstone III situation, clearly indicated a serious 1986 rate problem
                

The DPUC made the following findings of fact:

"(1) For the twelve month period ending February 28, 1985, CL & P's ROE on an average equity basis averaged 20.30 percent (cost of capital method). This is significantly above the company's ROE of 15.9 percent allowed in Docket No. 83-07-15.

"(2) The company's average ROE, according to its own calculations, over the twenty-eight months ending April, 1986 (the maximum anticipated time the present rates are estimated to be in effect), will be 18.1 percent....

"(3) The company's deferred fuel account, typically amortized in rates as a result of a rate hearing, has grown significantly since the last rate case, primarily due to higher sales than those reflected in Docket No. 83-07-15.

"(4) The balance in the deferred fuel account as of April 30, 1986, without any adjustment, is estimated at $129 million...."

The DPUC entered the following two orders:

"(1) The authority hereby orders that, effective March 1, 1985, the company shall commence expensing monthly, in subaccount 501.05, an amount equal to the difference between its actual monthly fossil fuel expense and the monthly fossil fuel revenues obtained from base rates, the FFAC and the net of GUAC deferrals....

"(2) The company is further directed, commencing March 1, 1985, to remove and divert current construction work in progress (CWIP) revenues to reduce the deferred fuel balance, subaccount 186.13, on a going forward basis."

CL & P did not protest the elimination of the CWIP revenue and its use of $19 million to reduce the deferred fuel account balance.

It should be emphasized that the April 4 order protected the fossil fuel costs which had been properly deferred through February 28, 1985, for recovery in future years.

On August 6, 1985, the DPUC issued a supplemental interim order which applied the credit balance which had accumulated under the GUAC (amounting to about $19 million) to reduce the deferred fuel balance even further. CL & P did not oppose, and in fact actually supported, this adjustment.

In August, 1985, the DPUC continued its hearing on DPUC Docket No. 84-12-11.

In the September 4 order the DPUC made the following findings of fact:

"(1) The company's twelve month average return on common equity, based on the cost of capital method, has been excessive, far above the 15.9 percent found just and reasonable in the company's last rate proceedings, as demonstrated by the most recent return for the twelve months ending June 30, 1985, of 19.43 percent.

"(2) The company's average return on common equity should not be allowed to continue to exceed unduly the level of 15.9 percent found just and reasonable in the company's last rate proceeding. The most direct way of addressing the contingency is to limit the company's earnings on a prospective basis."

The September 4 order then provided in part:

"(2) Beginning with the month of August, 1985, in any month where CL & P's monthly annualized ROE, computed on a On November 24, 1985, CL & P requested approval of the DPUC to amend its existing rates to increase annual revenues by $155,497,000, or 9 percent over the test year revenues. Included in the application was a request to amortize $45 million in the deferred fuel account accumulated prior to the effective...