Public Service Com'n of Maryland v. Baltimore Gas and Elec. Co.

• Decision Date: 01 September 1984
• Docket Number: No. 178,178
• Citation: 483 A.2d 796,60 Md.App. 495
• Parties: PUBLIC SERVICE COMMISSION OF MARYLAND, et al. v. BALTIMORE GAS AND ELECTRIC COMPANY. ,
• Court: Court of Special Appeals of Maryland

Page 495

60 Md.App. 495

483 A.2d 796

PUBLIC SERVICE COMMISSION OF MARYLAND, et al. v. BALTIMORE GAS AND ELECTRIC COMPANY.

No. 178, Sept. Term, 1984.

Court of Special Appeals of Maryland.

Nov. 15, 1984.

Kirk J. Emge, Baltimore, for appellant, Public Service Com'n.

Gary R. Alexander, Oxon Hill, for appellant, People's Counsel, with whom was John K. Keane, Jr., Baltimore, on brief.

Valerie R. Watts, for amicus, Delmarva Power & Light Co.

Robert R. Winter, Hagerstown, for amicus, The Potomac Edison Co.

Edward A. Caine, William Dana Shapiro and Stephen G. Kozey, Washington, D.C., for amicus, Potomac Elec. Power Co.

H. Thomas Howell and John H. Mudd, Baltimore, with whom were Anthony W. Kraus, Semmes, Bowen & Semmes, Paul W. Davis and David A. Brune, Baltimore, on brief, for appellee.

Argued before BISHOP, BLOOM and GETTY, JJ.

BISHOP, Judge.

The Public Service Commission of Maryland (the Commission) and the People's Counsel appeal from orders of the Circuit Court for Calvert County which reversed, on appeal, two orders of the Commission denying Baltimore Gas and Electric Company (B.G. & E.) recovery of all of its replacement power costs for two separate power outages which occurred at B.G. & E.'s Calvert Cliffs nuclear generating plant. Md.Ann.Code, art. 78, § 91, 98 (1980, 1983 Cum Supp.). The Commission had permitted 75% recovery in one of the cases and 25% in the other. ¹ The Court directed the Commission to enter orders allowing B.G. & E. to recover the entire cost of replacement power for both outages. It held that by examining the two outages to determine whether they could have been avoided through better planning, preventive maintenance, more diligent efforts, closer supervision and more prudent management, the Commission exceeded its statutory authority to determine whether B.G. & E. had maintained the productive capacity of its generating plants at a reasonable level. We disagree. The principal question is one of statutory interpretation regarding the scope of the Commission's authority to determine fuel rate adjustments for electric companies under the Public Service Commission Law, Md.Ann.Code, art. 78, § 54F(f) (1983 Cum.Supp.).

I. Procedural Background

In March of 1981, and again in February and March of 1982, B.G. & E. filed applications with the Commission to adjust its electric fuel rate. The February and March 1982 applications were consolidated into one case. The fuel rate is the separately stated prescribed amount per kilowatt-hour which an electric company charges its customers to recover its actual cost of fuel. ² Md.Ann.Code, art. 78 § 54F(b) (1983 Cum.Supp.). It is subject to adjustment by the Commission pursuant to Section 54F(e) which provides that:

The fuel rate may be adjusted in accordance with this section only if the calculated actual fuel rate is more than 5 percent above or below the sum of the components of the fuel rate then in effect. An electric company having a decrease of more than 5 percent shall promptly file an application to adjust its fuel rate downward. To the extent that actual accumulated fuel costs are not recovered under this section, they may be deferred as an operating expense and be recovered in any base rate proceeding if the Commission finds that the costs were justified and recovery of the costs is consistent with the provisions of this article governing rates.

In each case, the Commission suspended the proposed rates for thirty days. Md.Ann.Code, art. 78, § 54F(c) (1983 Cum.Supp.). Thereafter, the Commission held public evidentiary hearings to determine whether:

(1) Only changes in the actual costs of the components of the fuel rate [were] included in the proposed change[s];

(2) The applicant has used the most economical mix of all types of generation and purchase;

(3) The applicant has made every reasonable effort to minimize fuel costs and followed competitive procurement practices; ³

(4) The applicant has maintained the productive capacity of all its generating plants at a reasonable level.

Md.Ann.Code, art. 78, § 54F(f) (1983 Cum.Supp.). "The Commission may disallow ... [the proposed fuel rate if it is the] result of the applicant's failure to comply with the[se] requirements ... unless cause be shown to the contrary." Md.Ann.Code, art. 78, § 54F(g) (1983 Cum.Supp.). The burden of proving compliance is on the applicant. Md.Ann.Code, art. 78, § 54F(i) (1983 Cum.Supp.).

The disputed issues in this case were the standard to be used and the extent of the Commission's statutory authority to determine whether B.G. & E. had "maintained the productive capacity of all its generating plants at a reasonable level." Md.Ann.Code, art. 78, § 54F(f)(4) (1983 Cum.Supp.).

II. Facts

In each case, B.G. & E. showed that its productive capacity was outstanding in comparison with that of nuclear power units of electric companies in the rest of the country. In fact, in 1980, the Calvert Cliffs plant set a new productivity record. Its availability factor, the percentage of time the plant was ready for or was actually in service, for the twelve month period ending January 31, 1981, was 81.61% as compared with 68.4% which was the expected industry average. In its order, the Commission acknowledged that B.G. & E. won an award "for the best operating record in 1980 of any commercial nuclear power plant in the United States."

In 1981, the Calvert Cliffs plant increased its output by 12% and set another plant record. Its availability factor was 83.1% as compared to the 68.4% expected industry average, and its capacity factor, the average load on the equipment compared to its rating, was the fourth highest among nuclear power units in the United States.

In each case, however, the People's Counsel presented evidence that particular forced outages could have been avoided by reasonable and prudent management designed to prevent employee error.

In both cases the Commission decided that the level of productive capacity and the fuel costs were unreasonable because the forced outages were unnecessary, since they were caused by imprudent managerial decisions. This concept was succinctly explained in B.G. & E.'s brief at page 4:

One fact which directly determines a utility's available sources of generation, and therefore its fuel rate, is plant outages. "Scheduled" outages of generating plants are planned in advance to facilitate maintenance work on equipment and the allocation of manpower. "Forced" outages occur at random, prompted by equipment malfunctions and other operational problems. In the event of any outage, replacement power must be obtained from a utility's own reserve units or purchased from another utility or the PJM Interconnection (whichever is least expensive). The cost of replacement power is then included in the calculation of the utility's fuel rate.

Outages at B.G. & E.'s Calvert Cliffs plant invariably necessitate the procurement of replacement power at a higher cost than the cost of generation at Calvert Cliffs. This higher cost results because nuclear energy is produced far less expensively than power from traditional, alternative fuels, such as coal and oil. The temporary increase in B.G. & E.'s fuel costs caused by an outage may necessitate adjustment of B.G. & E.'s fuel rate.

In December of 1980, at Calvert Cliffs Unit No. 1 a forced outage occurred near the end of the planned refueling and maintenance outage as the generator turbine was rolled in preparation for the resumption of operations. This seventeen day unplanned outage was caused by damage from a foreign object in the generator turbine--a standard 1/2"'' nut which, according to B.G. & E.'s own report, apparently fell from hoisting equipment used for maintenance procedures performed on the turbine during the planned outage.

The People's Counsel presented evidence that the presence of the nut from the maintenance equipment in the turbine was the result of negligence on the part of B.G. & E. Whitfield A. Russell, an engineer who specializes in utility matters, testified that because the company "did not carefully control access to its units nor inventory parts and equipment entering a secured area around the disassembled equipment," the Commission should not permit B.G. & E. to recover the cost of replacement power for that outage.

Another forced outage occurred near the end of a maintenance outage at Calvert Cliffs Unit No. 1 in July of 1981, after condensor tubes had been removed from the unit for testing. B.G. & E.'s own report concluded that the outage was caused by the failure of a B.G. & E. maintenance employee to replace one of the condensor tubes with a "dummy tube", or plug, when the condensor tube was removed for testing. As a result, when operations resumed with a start up of the unit on July 14, 1981, saline bay water leaked through the unplugged opening and contaminated the unit's feed water system. Because the leak was not detected until approximately ten hours later, the report also concluded that several acts and omissions on the part of B.G. & E. operations and chemistry personnel contributed to the severity of the outage. The incident caused a forced outage of approximately eight days.

The People's Counsel presented evidence that the bay water leak was the result of negligence on the part of B.G. & E. David Rosenbaum, an expert testifying on behalf of the People's Counsel, stated that the outage was the result of serious error in judgment and management and could have been avoided through better planning, more diligent efforts, closer supervision and more prudent management. Specifically, he stated that B.G. & E. did not have adequate inventory and inspection procedures in place with regard to tube replacements and that the situation was increased in severity because B.G. & E. did not (1) have adequate instrumentation on line during the unit's start up; (2) have a sufficient number of qualified chemistry technicians present; and (3) adequately train...