State ex rel. A.P. Green Refractories, Inc. v. Public Service Com'n of State of Mo.

• Decision Date: 12 April 1988
• Docket Number: No. WD,WD
• Parties: STATE ex rel. A.P. GREEN REFRACTORIES, INC., American Can Company, Chrysler Corporation, Dundee Cement Company, Ford Motor Company, General Motors Corporation, Mallinckrodt, Inc., McDonnell Douglas Corporation, Monsanto Company, Nooter Corporation, PPG Industries, Inc., Pea Ridge Ore Company, and St. Joe Minerals Corporation, Relators-Respondents, and State ex rel. Anheuser-Busch, Inc., Relator-Respondent, v. PUBLIC SERVICE COMMISSION OF the STATE OF MISSOURI, Respondent-Appellant. 39610.
• Court: Missouri Court of Appeals

Page 835

752 S.W.2d 835

STATE ex rel. A.P. GREEN REFRACTORIES, INC., American Can

Company, Chrysler Corporation, Dundee Cement Company, Ford

Motor Company, General Motors Corporation, Mallinckrodt,

Inc., McDonnell Douglas Corporation, Monsanto Company,

Nooter Corporation, PPG Industries, Inc., Pea Ridge Ore

Company, and St. Joe Minerals Corporation, Relators-Respondents, and State ex rel. Anheuser-Busch, Inc., Relator-Respondent, v. PUBLIC SERVICE COMMISSION OF the STATE OF MISSOURI,

Respondent-Appellant.

No. WD 39610.

Missouri Court of Appeals,

Western District.

April 12, 1988.

Motion for Rehearing and/or Transfer to Supreme Court Denied

May 31, 1988.

Motion for Modification or Clarification of Opinion Denied

May 31, 1988.

Application to Transfer Denied July 26, 1988.

Paul H. Gardner, Deputy Gen. Counsel, Jefferson City, for Public service comn.

Francis J. Hruby, St. Louis, for Anheuser-Busch, Inc.

Robert C. Johnson/George M. Pond, Peper, Martin, Jensen, Maichel and Hetlage, St. Louis, for A.P. Green Refractories, et al.

Before GAITAN, P.J., and TURNAGE and CLARK, JJ.

TURNAGE, Judge.

In February 1984, Union Electric Company of St. Louis submitted proposed tariffs to the Public Service Commission reflecting increased rates for electric service provided to Missouri customers. The tariffs were designed to increase revenues by about $639,000,000. The increase was sought primarily to cover costs connected with the construction of the nuclear generator plant in Callaway County. The Commission issued its report and order by which it increased revenues by $652,382,000, with a phase-in of the increased rates over a period of eight years. Several industrial users intervened in the rate proceeding and after the Commission issued its order, they filed a petition for writ of review in the Circuit Court of Cole County. That court found that the Commission had failed to make findings of fact to support the method the Commission used in allocating costs to customers; found that certain conclusions were not supported by facts in the record; that the Commission erred in adopting the method of allocations supported by the Commission staff; that the fuel cost allocation was not supported by findings of fact; and that the elimination of the three-step declining block demand charge and the phasing in of Rider B credits and the refusal to amend Rider E were not supported by findings of fact. The Commission has appealed. Affirmed in part and reversed in part.

In its order and report, the Commission established the fair value rate base, i.e. the trended original cost less depreciation of UE's electrical property including the investment in the Callaway plant of $2,013,361,000. The Commission established the rate on equity that should be allowed to UE and from this determined the amount of the increase in rates that UE would need to charge to realize the allowed return on equity.

The Commission noted that this proceeding offered the Commission the first opportunity in a number of years to make a comprehensive assessment of the allocation of the total revenue requirements of UE to its customer classes and within those classes. This was the first rate proceeding conducted by the Commission in which the impact of the construction of the Callaway plant was considered. The Commission noted that the parties had made an issue of the proper cost of service method for assigning the total revenue requirement to the various classes of customers and within those classes. The classes of customers are 1) residential, 2) small general service, 3) large general service, 4) primary service, and 5) lighting.

The Commission stated that in order to perform a class cost of service study it is first necessary to functionilize costs into cost categories. The parties agreed that those categories are: 1) production, 2) transmission, 3) distribution, and 4) other costs. These allocation factors are used to allocate those costs which cannot be directly assigned to a customer class. The Commission found that it was those allocation factors which generated the primary controversy in this case.

The Commission found that the parties had very nearly agreed that the proper method to allocate costs should assign costs based upon cost causation as closely as practical. The Commission found that the parties had presented two basic theories concerning the causes of costs to UE and how those costs should be assigned to the customer classes and within each class. The Commission found that its staff and the public counsel had adopted the theory that the need for generating capacity is caused by the total system demand for electricity. UE and the Industrials adopted the theory that generating capacity is caused primarily by system peak demand. The Commission stated that the rate design in this case primarily involved the allocation of the production costs of the Callaway plant, and, for that reason, the major focus of all of the arguments was upon production costs.

The Commission found that UE had performed eleven cost of service studies but that it did not propose any one of those as the proper method of allocating the cost of the Callaway plant. Rather, UE proposed that the Commission allocate the revenue requirement among the various customer classes on an equal percentage basis, except for lighting. The Staff developed its cost-of-service study. In its study, the Staff took the position that production capacity costs are caused by the total demand placed on the system which varies from hour to hour throughout the year. The Staff's method asserted that, theoretically the most correct approach to designing rates is a method that determines the production costs of meeting system demand in each hour of the year. Thus, there would be 8,760 (total hours in the year) power pools to be allocated to customer classes based upon the use of the system during each hourly pool. This method is described as the time-of-use (TOU) method. However, the Staff found that there was insufficient data to determine the hourly demand on the UE system and for that reason the Staff proposed a TOU/average-and-peak (AP) method, which it considered most closely approximates the preferable hourly TOU. The AP method allocates the monthly production costs to the classes based upon the class contribution to system average and to system peak demand. ¹

The Industrials proposed their method, which was referred to as the 2CP method. This method uses the two highest peaks on the system and is based upon the principle that the UE system is built to meet peak demands. The Industrials contended that UE only constructs new production capacity to meet system peaks. The Industrials' method allocates production costs to those that use the system during peak and provides that off-peak users should pay only energy costs. The Industrials contended that once UE had installed sufficient capacity to meet peak demands, the system could be utilized to meet all other monthly demands without additional investment. The Industrials contend that the result of other methods of allocation costs would cause unfair rate increases to primary and large service class customers, in which categories the Industrials fall.

The evidence in...