People's Organization for Washington Energy Resources v. Washington Utilities and Transp. Com'n, 50264-1

Citation104 Wn.2d 798,711 P.2d 319
Decision Date12 December 1985
Docket NumberNo. 50264-1,50264-1
CourtUnited States State Supreme Court of Washington
PartiesPEOPLE'S ORGANIZATION FOR WASHINGTON ENERGY RESOURCES, a Washington nonprofit corporation, and Edna V. Culley, Virginia Del Castillo, Josef Hamilton, and Tommie Holdman, individually, and Public Counsel, Petitioners, v. WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION and Puget Sound Power & Light Company, Respondents.
Elizabeth Thomas of Evergreen Legal Services, Seattle, for petitioner Power, et al

Kenneth Eikenberry, Atty. Gen., John R. Ellis, Deputy, Charles F. Adams, Robert F. Manifold, Assts., Seattle, for petitioner Public Counsel.

Kenneth Eikenberry, Atty. Gen., Donald Trotter, Asst., Olympia, for respondent Utilities and Transp. Com'n.

Perkins, Coie, William Weaver, Priscilla Derick, Jeffrey Hutchings, Bellevue, for respondent Puget Sound Power & Light.

Robert L. Simpson, David Meyer, Spokane, amicus curiae for respondents Washington Water Power.

ANDERSEN, Justice.

FACTS OF CASE

Petitioners are the People's Organization for Washington This case cannot be properly considered apart from the historical context in which it arose.

                Energy Resources (POWER) and the Public Counsel Section of the Attorney General's Office (Public Counsel).   They challenge orders of the Washington Utilities and Transportation Commission (WUTC) approving a rate increase for Puget Sound Power and Light Company (Puget Power).   The rate increase was not stayed and is currently in effect.   The basis of petitioners' challenge to the rate increase is the authority of the WUTC to include in rates, as an operating expense, costs prudently incurred by Puget Power for the planning and designing of the subsequently cancelled nuclear electrical generating project at Pebble Springs, Oregon.   We affirm the WUTC
                

In the 1970 National Power Survey, produced by the then Federal Power Commission, this urgent warning was sounded:

"Mounting demand, sharply rising costs, and changing social values have combined to place unusual stress on the U.S. electric power industry.... We foresee recurrent and spreading power shortage unless positive steps are taken, and taken soon, to remedy conditions which are slowing the orderly development of essential power supplies." 1

At about this same time, our Legislature enacted thermal power plant siting legislation declaring that "[i]t is the policy of the state of Washington to recognize the pressing need for increased energy facilities ..." 2

The same perceived energy shortages which were recognized by federal and state governments also influenced individual electric utilities. Puget Power's situation was that it served a territory which had historically experienced higher than average load growth and this growth was projected to continue. Puget Power's agreement to acquire an interest in the Pebble Springs nuclear generating plant By 1981, however, the situation had changed drastically. The nation had experienced the Arab oil embargo, double digit inflation, recurring economic recessions, the Three Mile Island nuclear accident (March 1979) and accelerated government control over plant siting and expansion. In addition, a substantial and broadly based effort to cut energy consumption through conservation, load management and other measures designed to reduce the projected need for new electric plant capacity was initiated. 4

which is the project involved in this case, was signed not long before President Carter gave his now famous speech to a joint session of Congress and to the American people referring to the energy crisis and its solution as "the moral equivalent of war." 3

By 1982, it was reported that in the previous decade 91 nuclear power plans had been cancelled 5 and a Nuclear Regulatory Commission report estimated that electric utilities were likely to cancel another 19 nuclear power reactors in various phases of construction. 6 These project abandonments occurred after staggering amounts of capital had been invested in planning, siting and acquiring equipment. The financial, economic and social effects of the turnaround in the demand for energy and nuclear facilities in but a single decade were calamitous. Included in the fallout from all of this is the question of who should pay for the costs associated with the abandonment of generating plants before they became operable and of any use to the electric utilities and their customers. This is a problem of national consequence which in this state we address for the first In 1976 Puget Power exchanged a portion of its share of the Skagit Nuclear Project in this state for a 23.5 percent share of the Pebble Springs Nuclear Project in Oregon which was sponsored by the Portland General Electric Company. Puget Power's objectives in this exchange were achieving maximum flexibility in scheduling generation to meet future load, attempting to optimize capital construction cash flows, spreading the risks of licensing, construction, and operation of large generating units, minimizing overall construction costs and optimizing fuel purchases and use.

time in this case.

Although prior approval of the investment, as such, by the WUTC is not required under the statutes and regulations of this state, the WUTC did review Puget Power's involvement in the Pebble Springs project in a variety of contexts--rate cases, approval of budgets, approval of securities issues, and in at least one proceeding which focused on Puget Power's forecasted load-resource imbalance.

The Pebble Springs project was ultimately cancelled as a result of a number of factors, including large drops in forecasted load growth, rapidly escalating construction costs and the passage of Ballot Measure 7 in Oregon (an Oregon initiative passed in November 1980) which prohibited siting nuclear plants in that state until approval of a nuclear waste storage site. Actual construction on the project was never begun. Ultimately, on October 8, 1982, a termination agreement was entered into by the project participants.

Puget Power's investment in the Pebble Springs project as of June 30, 1982, the end of the "test year" in the rate case being appealed, was $76.9 million. The termination produced a loss for income tax purposes, leaving a net investment of $53.5 million. Puget Power asked the WUTC for permission to recover back its net investment in rates over a 5-year period. It also asked permission to earn its authorized rate of return on the declining unamortized balance during this period as compensation for its costs of capital associated with carrying the investment over the The WUTC denied Puget Power's request and, instead, authorized a lesser recovery over a 10-year period but with no recovery to Puget Power of the costs of capital connected with the unamortized balance. Thus the WUTC allowed Puget Power to ultimately recover, through rates, $47.5 million rather than Puget Power's full $53.5 million net investment. The part of the rate increase attributable to Pebble Springs increased the average residential customer's monthly billing by $1.12.

write-off period.

In its rate order, the WUTC reviewed the history of the Pebble Springs project and Puget Power's role therein. The WUTC also reviewed the presentation of the WUTC staff, the only party to present direct evidence on the prudence of Puget Power's investment in Pebble Springs and the subsequent abandonment. The staff was of the opinion that costs for the plant should have ceased being accrued by Puget Power as soon as Oregon's Ballot Measure 7 became law. The Commission, however, decided that the company had needed time to study its options after that event and, in disagreeing with both staff and Puget Power, reasoned that as of April 9, 1982, costs for the Pebble Springs project should have ceased being accrued.

On the issue of prudence, apart from the cutoff time for the accrual of costs, the WUTC noted that "witness after witness denied that they were questioning the prudence of any of the company's decisions." The WUTC nonetheless indicated that it did weigh the evidence in deciding the prudence issue. 7

The WUTC found that Puget Power's investment in Pebble Springs, as well as its subsequent abandonment of the project, were both prudent. We do not understand the petitioners to contest this.

In its rate order, the WUTC also reiterated in this case a statement it had made in a prior rate case, reasoning in part: It is simply one of the realities facing both investors and consumers of electric utility service that in order to provide continuity of service and to provide for continuing generation needs, a utility must undertake massive investments yet must maintain its financial integrity. Where necessary, this may involve a sharing of responsibilities and risks by both shareholder and ratepayer groups. 8

Then, applying this reasoning to Puget Power's situation in this case, the WUTC added:

In order to preserve the ability of the company to render service to the public at reasonable rates, a shared responsibility of the loss in Pebble Springs is required.

The Commission is of the opinion that the most equitable allocation of the company's loss associated with the Pebble Springs project is to allow it to expense the loss over a period of ten years, and to reject its request to include the unamortized balances in rate base. 9

The WUTC also found the rates set by its order to be "just, reasonable and sufficient." 10

On July 25, 1983, the WUTC served its Order on the merits of the case, which was denominated its Third Supplemental Order. An addendum was issued on July 28, 1983. Then, following the filing by Puget Power of a petition for reconsideration on August 4, 1983, the WUTC on September 8, 1983 issued its Fifth Supplemental Order.

Petitions for review were filed in the Superior Court for Thurston County by POWER on September 9, 1983, and by Public Counsel on September 16, 1983. The Superior Court...

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