Petition of Allied Power & Light Co.

• Decision Date: 29 March 1974
• Docket Number: No. 137-73,137-73
• Citation: 132 Vt. 354,321 A.2d 7
• Court: Vermont Supreme Court
• Parties: Petition of ALLIED POWER AND LIGHT COMPANY et al.

Page 7

321 A.2d 7

132 Vt. 354

Petition of ALLIED POWER AND LIGHT COMPANY et al.

No. 137-73.

Supreme Court of Vermont.

March 29, 1974.

Rehearing Denied May 9, 1974.

Ryan, Smith & Carbine and Donald L. Rushford, Rutland, for petitioners.

Averill Laundon, Gen. Counsel, and Robert A. Mello, Sp. Counsel, Montpelier, for Public Service Bd.

Thomas L. Hayes, Burlington, for the Public.

Mary Just Skinner, Vermont Legal Aid, Inc., Montpelier, for Vt. Welfare Rights Organization.

Before SHANGRAW, C. J., and BARNEY, SMITH, KEYSER and DALEY, JJ.

BARNEY, Justice.

This is an administrative action dealing with the adoption of a purchase power and fuel adjustment clause by electric utilities in the State. An order issued by the Public Service Board implementing such chause was challenged by appeal and is now before this Court.

The critical issue is whether or not the variable clause advanced by that Board was beyond its statutory power to authorize.

The proceeding commenced with a pettion by a number of utilities to the Public Service Board (P.S.B.) with respect to a rule authorizing the inclusion of a power and fuel adjustment clause (variable clause) in electric company rate schedules. A proposed rule was made part of the petition. In response to the petition, the P.S.B. issued a notice of proposed rule-making pursuant to 3 V.S.A. § 803.

It also treated the petition as a request by petitioner as a filing for a change in their tariffs under the provisions of 30 V.S.A. §§ 208, 209, 218, 219, 225, 226, and 227. In that connection, counsel was appointed to represent the public and in particular the interests of the retail consumers of electricity. The Vermont Welfare Rights Organization, represented by Vermont Legal Aid, Inc., also asked and was granted leave to intervene in the proceedings. The public representative moved to dismiss the action, raising legal issues that were again raised during the appeal itself and will be dealt with in reviewing the final decision of the Board.

Hearings were held, evidence taken, and findings made by the Board, culminating in the promulgation of General Order No. 55 which contained the proposed variable clause with minor modifications. This order was appealed and the public representative and the welfare rights organization sought unsuccessfully to have the order stayed. Based on evidence produced at a hearing on the issue, as well as the legal considerations involved, including 30 V.S.A. § 14, the Board refused to order a stay. As a consequence, V.W.R.O. sought injunctive relief in a separate declaratory relief proceeding, which is simultaneously before this Court and will be separately disposed of.

As a result, in this case, General Order No. 55 stands challenged before us on a number of issues. It is questioned as a rule, and it is questioned as proper rate-making. The order itself, with its associated findings and statements, takes up some twenty-two pages of the record on appeal, and it is not necessary to reproduce it in full here. However, pursuant to V.R.A.P. 13(d), the certified questions briefed for answer by this Court are as follows:

1. Whether 3 V.S.A. §§ 803 and 806 provide authority to the Board to take jurisdiction over the Petition for the adoption of a rule or general order authorizing the Utilities to include in their tariff schedules the Purchase Power Clause.

2. Whether 30 V.S.A. §§ 208, 209, 218, 219, 225, 226, and 227 provide authority to the Board to take jurisdiction over the Petition for the adoption of a rule or general order authorizing the Utilities to include in their tariff schedules the Purchase Power Clause.

3. Whether the Purchase Power Clause approved and adopted by the Board which permits automatic rate changes relating to fifty percent or more of the total cost of service of the Utilities subject to its jurisdiction is in conflict with 30 V.S.A. §§ 208, 209, 218, 219, 225, 226, and 227.

4. Whether in making its determination as to the justness and reasonableness of the Purchase Power Clause, in the case of investor-owned Utilities, the Board was under a legal duty to consider four factors: gross earnings; operating expenses; rate base-net 5. Whether the Board erred in failing to make provision in General Order 55 for a reduction in the return on equity allowable to each of the Utilities in order to offset the alleged reduction in risks resulting from the Clause.

value of property on which return should be earned; and rate of return.

6. Whether the Purchase Power Clause is unjust and unreasonable or otherwise unlawful on the grounds that if a Utility has achieved excess earnings the Board will not be aware of such condition until after the end of the year under examination, would be able to adjust rates prospectively only, and would not be able to return excess earnings to the ratepayers.

7. Whether the filing of the January 19, 1973 Petition for the initiation of the rule-making proceedings with the Board constituted a filing of rate changes in compliance with 30 V.S.A. § 225.

The most crucial of the seven questions advanced on appeal is as to whether the purchase power and fuel adjustment clause adopted by the P.S.B. allowing automatic rate changes is in conflict with Chapter 5 of Title 30. It is answered in the affirmative. Since this is despositive of the litigation, direct answers to the other questions are not necessary. However, some will be answered in the opinion as they relate to this adjudication and their further resolution must be foregone in view of the necessity of further proceedings affecting any or all of them.

The clause with which this proceeding is concerned provides for upward and downward adjustment of utility bills as measured by the increase or decrease in the cost of purchased power or the cost of fuel required to operate generating equipment. This adjustment moves up or down from a base value established from the system's cost in 1970 or more recently, as determined by the Public Service Board. The adjustment shall be determined monthly, filed with the Board, and applied to the billings for the second succeeding month from the period of computation.

The order specified certain conditions to be attached to use of the clause, and defined the manner of its implementation. Each utility was free to elect to use the clause, but precluded from using any other form of purchase power or fuel adjustment clause. Prior to putting the clause into effect, each utility is required to file with the Board tariff revisions incorporating the clause and determining the base value to be used. The power and fuel costs subject to the operation of the clause are to be averaged over a moving six months period. Utilities making use of the clause are required to agree either to reduce the amount of any billing increase under the clause by any expense reductions achieved in nonfuel and non-power cost items, or refrain from increasing its earnings distribution, either as dividends of investor-owned utilities, patronage refunds of cooperative utilities, or payments to a municipality in excess of the level of property taxes properly assessed in the case of municipal utilities. At the end of a year, each utility is required to file with the Board a cost of service study showing its earned rate of return related to an average year rate base.

The clause was to have an effective date of a year, expiring on July 1, 1974. However, any electric utility desiring an extension may file a petition ninety days prior to the termination date and a public hearing, with the public represented, will be held. In addition, the order provides that the Board will retain jurisdiction over this case and upon good cause shown by any interested person, shall 'investigate and/or hold a public hearing with respect to any matter, concerning the Clause' whether or not the matter is raised prior to the ninety day period in which an extension is to be sought.

The Board made a number of factual findings as a basis for its issuance of General Order No. 55. It found the adoption of a purchase power and fuel adjustment clause in the public interest so long as the safeguards enumerated in the order were built into the use of the clause. To underscore this conclusion, the Board found that approximately fifty per cent of the cost of service of electric utilities under the Board's jurisdiction is the cost of purchased power. This cost is, at the same time, the major cause of rate increase requests presently filed by these utilities. The Board also found that this major cause of rate cases is virtually never adjusted or varied by the rate proceedings. This is because substantially all power purchases are made through Velco or from out of state sources and are already supervised by the Board, to say nothing of the Federal Power Commission's review of cost reasonableness of wholesale power rules under the Federal Power Act.

From this the Board determined that rate cases are an inferior method for handling and reviewing purchased power costs. They are expensive to the consumer, so time-consuming they seldom result in rates reflecting current costs and insufficiently flexible to provide a rapid response of revenues to costs in times of rapid cost change to properly maintain the financial integrity of utilities. The Board also found that, because of its acts in a strong supervisory capacity with respect to power purchases anyway, the public is adequately protected against any failure on the part of any utility to seek the lowest available price, or against any real prospect of excessive earnings by the utilities. All these factors led the Board to conclude the use of the purchased power and fuel adjustment clause in accordance with the conditions of General Order No. 55 satisfied the test of 'just and reasonable' of 30 V.S.A. § 218.

The first challenge to General Order No. 55 is that it is not authorized rule-making under the provisions of 3 V.S.A. §§ 803 and 806. These...