MEA v. Chugach Elec. Ass'n, S-9839.

• Decision Date: 23 August 2002
• Docket Number: No. S-9839.,S-9839.
• Citation: 53 P.3d 578
• Parties: MATANUSKA ELECTRIC ASSOCIATION, INC., a non-profit electric membership cooperative, Appellant, v. CHUGACH ELECTRIC ASSOCIATION, INC., a non-profit electric membership cooperative, Appellee.
• Court: Alaska Supreme Court

53 P.3d 578

MATANUSKA ELECTRIC ASSOCIATION, INC., a non-profit electric membership cooperative, Appellant, v. CHUGACH ELECTRIC ASSOCIATION, INC., a non-profit electric membership cooperative, Appellee.

No. S-9839.

Supreme Court of Alaska.

August 23, 2002.

Stephen M. Ellis and Jeffrey P. Stark, Delaney, Wiles, Hayes, Gerety, Ellis & Young, Inc., Anchorage, for Appellant.

Donald W. Edwards, Chugach Electric Association, Anchorage, and Andrew F. Behrend, Heller Ehrman White & McAuliffe LLP, Anchorage, for Appellee.

Virginia A. Rusch, Assistant Attorney General, Anchorage, and Bruce M. Botelho, Attorney General, Juneau, for Amicus Curiae Regulatory Commission of Alaska.

Before: FABE, Chief Justice, MATTHEWS, BRYNER, and CARPENETI, Justices.

OPINION

CARPENETI, Justice.

I. INTRODUCTION

Retroactive ratemaking by a utility is prohibited in Alaska, as it is in the majority of jurisdictions in the United States. The Regulatory Commission of Alaska compelled Chugach Electric Association to refund payments collected as a result of a miscalculation in the cost of generation and transmission line loss. The superior court, concluding that the commission's ruling constituted retroactive ratemaking, reversed the commission's order. We agree, and therefore affirm the decision of the superior court.

II. FACTS AND PROCEEDINGS

"To comprehend the rule against retroactive ratemaking [as well as the facts involved in a retroactive ratemaking case], it is necessary first to understand the process for the setting of public utility rates."¹

A. Background

The provision of electric service by Chugach Electric Association, Inc. (Chugach) and Matanuska Electric Association, Inc. (MEA) is governed by AS 42.05. Because Chugach and MEA are electrical cooperatives organized under AS 10.25, they come under the provisions of AS 42.05.

Chugach generates electricity and sells it wholesale to MEA. Chugach's rates have two components: a base rate and an adjustment to that rate known as a fuel surcharge. The base rate reflects the fixed costs of providing electric service, as well as other costs that tend to remain stable. The fuel surcharge is a fluctuating charge that operates to protect Chugach against those costs associated with purchasing and generating power that are not as stable.

A utility's rates and business practices are governed by the tariffs it has in effect with the Regulatory Commission of Alaska² (commission).³ The filing or revision of a tariff is a complicated and lengthy process.⁴ As a means of expediting the procedure, Alaska state law allows utilities to utilize a simplified rate filing process.⁵ The simplified rate filing process allows utilities to modify their base rates through quarterly or semi-annual rate filings.⁶ Through this process, utilities are allowed to adjust their base rates, subject to certain limitations,⁷ without filing and litigating full rate cases. While the simplified rate filing is a means for a utility to have an expedited procedure to establish its base rate, a Cost of Power Adjustment Filing allows the same expedited process for surcharges. The Fuel and Purchased Power Cost Adjustment Factors (fuel surcharge filing) is an adjustment Chugach filed with the commission to its base rate and is the focus of the present dispute. This surcharge is calculated through a procedure established in a tariff similar to the simplified rate filing process. Through this mechanism, the commission permits utilities such as Chugach to collect a surcharge designed to recover fluctuations in fuel costs relative to costs in the base rate.⁸ Fuel surcharge filings are not subject to the same review as the base rate, although there are some similarities between the fuel surcharge filing procedure and simplified rate filing procedure.

This appeal involves the use of an estimated generation and transmission system energy loss in Chugach's fuel surcharge filings. A generation and transmission line loss factor is an adjustment to the base rate to reflect the amount of electric energy that is lost through its generation and transmission. This amount varies and cannot always be accurately predicted. Because of the fluctuations, it is part of the fuel surcharge and is adjusted on a periodic basis.

Additionally, because the fuel surcharge is an estimate, the amount collected might fall short or exceed the actual cost of a utility's fuel and purchased power. After a given period, the commission reconciles fuel cost recoveries collected through a fuel surcharge. Such recoveries are collected in a balancing account and only balance "over-or undercollections occurring in the immediately preceding quarter through adjustments for the following quarter." "The purpose of these `true-up' proceedings is to determine whether the amounts passed through to customers were in accordance with the [actual surcharge]."⁹ Thus, whatever variances occur are taken into account when calculating the next quarterly fuel surcharge filing.

B. Facts

Chugach's fuel surcharge was approved in 1987 and governed Chugach's collection of fuel surcharges. Approval authorized Chugach to collect fuel surcharges as an adjustment to base rates if certain requirements were met. Approval of the surcharge permitted adjustments to the rate on a quarterly basis. The amount of the permissible adjustment was the difference between the estimated fuel and purchase power costs for the upcoming quarter and the base amount established in the tariff. To support these estimates, Chugach was required to file a tariff advice letter with the commission, no later than forty-five days after the beginning of each quarter, along with tariff sheets showing the fuel surcharges, studies of its fuel and purchased power costs, documentation of those costs, as well as other supporting documentation.

The Fuel and Purchased Power Cost Adjustment Factors established a balancing account to reconcile the fuel surcharge with actual fuel costs. Through separate accounts for wholesale and retail customers, Chugach debited the actual monthly fuel and purchased power costs and credited the total of the base rate plus the fuel surcharge in effect for that month multiplied by the number of kilowatt hours sold. The commission was permitted to adjust Chugach's fuel surcharge rates individually and in its simplified rate filing each quarter, but only under limited circumstances. The procedures established by the Fuel and Purchased Power Cost Adjustment Factors provided that all fuel surcharge rates are subject to review and adjustment after being implemented unless "sooner authorized" by the commission.

Chugach sought and gained the approval of the commission before each surcharge was implemented. At the time the commission's approval is sought, the same information is submitted to Chugach's customers. Thus, MEA received a copy of Chugach's fuel surcharge documentation each time it was submitted to the commission. A fuel surcharge filing can total well over 100 pages.

Upon submitting its fuel surcharge filing to the commission, Chugach's documents are reviewed and a tariff action memorandum is prepared by a utility tariff analyst. All of the tariff action memoranda in this case reflect that the documents were in fact received, reviewed, and that the calculations contained in them were correct. In each tariff action memorandum, the utility tariff analyst recommended the commission approve Chugach's tariff advice letter submitting that quarter's fuel surcharge. Each tariff advice letter submitted for the 1995-1997 period received commission approval before it became effective. Each contained that quarter's fuel surcharge rate.

Since the mid-1980s, Chugach has used a line loss factor of 5.219% in its rate filings for wholesale customers. In a general rate case in 1987, the commission issued an order formally approving this factor as an appropriate reflection of Chugach's transmission line losses. This line loss factor was identified in all of Chugach's simplified rate filings and each of the quarterly fuel surcharge filings that the commission later approved.

In November 1997 Chugach and MEA discovered a discrepancy in the line loss factor Chugach used in its projected fuel surcharges. Chugach's own documents showed the actual line loss experienced by Chugach in 1995, 1996, and 1997 was substantially lower than the 5.219% Chugach had claimed in its simplified rate filings and fuel surcharge filings. On June 25, 1999 a utility tariff analyst recommended suspension of the surcharge.

When confronted with the discrepancy between its actual line losses and what it had charged for line losses, Chugach acknowledged and rectified the error. Chugach then submitted revised tariffs to the commission that more accurately reflected the line loss factor in future rates. Chugach, however, refused to refund the overcharged tariffs, invoking the doctrine prohibiting retroactive ratemaking.

C. Proceedings

This appeal arises from commission docket number U-96-37. Until December 1997 the issues in that docket were limited to Chugach's base rates established through the simplified rate filing process. On December 19, 1997 MEA raised the issue of the incorrect generation and transmission line loss factor. MEA asked the commission to correct Chugach's line loss factor and demanded a refund based on the difference between the incorrect line loss factor and the corrected one.

In Order U-96-37(13) issued on July 1, 1998, the commission ordered Chugach to recalculate its fuel surcharges for 1995 using the actual line loss factor for that year. The commission also ordered Chugach to refund an amount based on the difference between the original line loss factor and the revision to its wholesale customers. In making its decision, the commission noted that "the principles relevant to retroactive ratemaking are not applicable to fuel adjustment clauses."

Both Chugach and MEA sought reconsideration of the...