State ex rel. Union Elec. Co. v. Pub. Serv. Comm'n of State

• Decision Date: 14 May 2013
• Docket Number: Nos. WD 75403,WD 75404.,s. WD 75403
• Citation: 399 S.W.3d 467
• Parties: STATE ex rel. UNION ELECTRIC COMPANY d/b/a Ameren Missouri, Respondent, v. PUBLIC SERVICE COMMISSION OF the STATE of Missouri, Appellant, Missouri Industrial Energy Consumers, Appellant.
• Court: Missouri Court of Appeals

399 S.W.3d 467

STATE ex rel. UNION ELECTRIC COMPANY d/b/a Ameren Missouri, Respondent,

v. PUBLIC SERVICE COMMISSION OF the STATE of Missouri, Appellant,Missouri Industrial Energy Consumers, Appellant.

Nos. WD 75403, WD 75404.

Missouri Court of Appeals, Western District.

May 14, 2013.

James B. Lowery, Columbia, MO and Thomas M. Byrne, St. Louis, MO, for respondent Union Electric Company d/b/a Ameren Missouri.

Shelley E. Brueggemann, Jefferson City, MO, for appellant Public Service Commission.

Brent E. Roam, St. Louis, MO, for appellant Missouri Industrial Energy Consumers.

Before Division Three: CYNTHIA L. MARTIN, Presiding Judge, JOSEPH M. ELLIS, Judge and GARY D. WITT, Judge.

CYNTHIA L. MARTIN, Judge.

Union Electric Company d/b/a Ameren Missouri (“Ameren”) appeals from the Public Service Commission's (“PSC”) report and order that required Ameren to refund $17,169,838 to its ratepayers following prudence review of a rate adjustment under a fuel adjustment clause. The PSC concluded that Ameren acted imprudently, improperly, and unlawfully in failing to treat revenues it received from two power sales contracts as off-system sales for purposes of calculating the rate adjustment. Ameren argues that the PSC erroneously interpreted the definition of “off-system sales” in the fuel-adjustment clause. Ameren also argues that the PSC inappropriately ordered refunds because Ameren did not act imprudently and Ameren's ratepayers were not harmed by its failure to classify two power sales contracts as off-system sales. On writ of review, the circuit court of Cole County reversed the PSC's determination.

Because we conclude that the fuel adjustment clause required Ameren to treat revenues it received from two power sales contracts as off-system sales and because we conclude that Ameren's failure to treat those revenues as off-system sales was imprudent and harmed ratepayers who were required to pay higher rates than permitted by the fuel adjustment clause, we reverse the judgment of the circuit court and affirm the PSC's report and order.

Background

Ameren's 2008 General Rate Case

On April 4, 2008, Ameren filed tariff sheets and supporting testimony with the PSC to initiate a general rate increase case, PSC Case Number ER–2008–0318 (“2008 general rate case”). The tariff sheets proposed the implementation of a fuel adjustment clause, as authorized by section 386.266.¹ A fuel adjustment clause permits electric utilities to adjust base rates periodically outside a general rate proceeding “to reflect increases and decreases in an electric utility's prudently incurred fuel and purchased power costs.” 4 C.S.R. 240–20.090(1)(C). The parties to the 2008 general rate case included Ameren, the PSC Staff, and Missouri Industrial Energy Consumers (“MIEC”). Though these parties did not agree that Ameren should be permitted a fuel adjustment clause, they did stipulate to agreed language should a fuel adjustment clause be approved by the PSC.

On January 27, 2009, the PSC entered a report and order approving the tariff sheets (“Ameren tariff”) in the 2008 general rate case. The PSC's report and order approved a fuel adjustment clause in the form stipulated by the parties. The PSC added a 95/5 percent sharing mechanism to the fuel adjustment clause. ² As a result, 95 percent of any interim rate adjustment calculated under the fuel adjustment clause would be passed through to ratepayers, and 5 percent would be absorbed or retained by Ameren. The tariff sheets were to take effect (and did take effect) on March 1, 2009.

The report and order in the 2008 general rate case set base rates for Missouri retail customers at a level intended to generate the revenue necessary to cover Ameren's fixed and variable costs and to provide a return on investment. ³ The base rates presumed certain levels of electricity consumption (also known as “load”) for Ameren's Missouri retail customers, the largest of which is Noranda Aluminum, Inc. (“Noranda”). Noranda operates an aluminum smelter and consumes more power than any other Ameren customer—approximately 9–10 percent of Ameren's anticipated retail load.

Ameren's Fuel Adjustment Clause

Ameren's fuel adjustment clause provided that in each accumulation period,⁴ 95 percent of the difference between “Actual Net Fuel Costs” and “Net Base Fuel Costs” would be reflected as a fuel adjustment credit or debit on ratepayers' bills. Generally, “Net Base Fuel Costs” were defined in the tariff as Ameren's base fuel and purchased power costs reduced or offset by Ameren's base off-system sales revenue, and “Actual Net Fuel Costs” were defined in the tariff as Ameren's actual fuel and purchased power costs incurred in an accumulation period reduced or offset by off-system sales revenues received in an accumulation period. “Fuel costs” were defined in the tariff, in pertinent part, as fuel or purchased power costs “incurred to support sales to all [Missouri] retail customers and Off–System Sales allocated to Missouri retail electric operations.” Ameren's fuel adjustment clause thus “reflected” off-system sales, meaning that off-system sales revenues and associated costs were factors in the fuel adjustment calculation. ⁵

Where off-system sales and associated costs are reflected in a fuel adjustment clause formula, actual fuel costs are reduced by off-system sales to calculate net fuel costs because the utility's fixed costs (which permit off-system sales to be generated) are paid by retail ratepayers. State ex rel. Pub. Counsel v. Pub. Serv. Comm'n, 274 S.W.3d 569, 585 (Mo.App. W.D.2009). In operation, where a fuel adjustment clause formula reflects off-system sales and associated costs, the electric utility will benefit from increased rates if fuel costs rise or if off-system sales drop, but ratepayers will benefit from decreased rates if fuel costs drop or if off-system sales increase.

Typically, revenues received by an electric utility are either retail sales revenues (sales to ratepayers) or off-system sales revenues (sales to other than ratepayers). 4 CSR 240–20.090(1)(B); Public Counsel, 274 S.W.3d at 585 (observing that electric utilities sell most of their electricity to retail customers and that any unused electricity is sold to “off-system buyers”). The Ameren tariff defined “off-system sales” in a manner that differed from the typical definition. The tariff defined off-system sales as follows:

Off–System Sales shall include all sales transactions ... excluding Missouri retail sales and long-term full and partial requirements sales....

(Emphasis added.) The exclusion of retail sales from this definition reflected nothing more than the fact that all non-retail sales are off-system sales. See Public Counsel, 274 S.W.3d at 585. However, the further exclusion of “long-term full and partial requirements sales” from the definition of “off-system sales” was of material import. The exclusion operated to remove a category of “off-system sales” from consideration in calculating fuel adjustments. Stated differently, but for the exclusion of “long-term full and partial requirements sales,” such sales would have been off-system sales required to pass through the fuel adjustment clause subject to the 95/5 percent sharing mechanism. The atypical definition of “off-system sales” permitted Ameren to keep 100 percent of the revenues from “long-term full and partial requirements sales,” instead of requiring Ameren to subtract the revenues from actual fuel costs to calculate net fuel costs.

Despite the Ameren tariff's exclusion of “long-term full and partial requirements sales” from the definition of “off-system sales,” and thus from consideration in applying the fuel adjustment clause formula, the phrase was not defined.

The Ice Storm

On January 28, 2009, one day after the PSC approved the Ameren tariff, an ice storm struck Ameren's service territory in southeast Missouri. Ninety-five percent of Ameren's retail customers in six counties, including Noranda, lost service. Thousands of Ameren-owned electric poles were destroyed. Because of the loss of service, molten aluminum hardened in Noranda's production lines. The aluminum had to be removed with a jack hammer. There was no way to determine when Noranda would return to full service, though it was expected to take at least a year. Noranda's electricity consumption (load) decreased by approximately two-thirds. As a result, retail revenue that had been presumed in setting Ameren's base rates in the 2008 general rate case was unexpectedly lost,⁶ while Ameren's fixed costs over the same period were not expected to change.

Because the report and order in the 2008 general rate case was not final, ⁷ Ameren filed a request for rehearing with the PSC. Ameren asked “that the [PSC] alter the terms of the fuel adjustment clause tariff to exclude revenues from all incremental off-system sales resulting from the loss of the Noranda load from being credited to customers under the fuel adjustment clause.” ⁸ In other words, Ameren sought to sell the unused Noranda retail load off-system and to retain 100 percent of the revenues, even though the revenues would otherwise have been required to pass through the fuel adjustment clause subject to the 95/5 percent sharing mechanism. Ameren argued that this would keep “both customers and Ameren [ ] in precisely the same position that they would have been in had the ice storm and the consequent loss of Noranda's load not occurred” ⁹ because Ameren would be treating the revenue the same as if it been received as retail revenue from Noranda. Ameren argued that without a temporary modification to its fuel adjustment clause, its off-system resale of Noranda's load would “credit[ ] [retail] customers with [95 percent of] the revenues from those sales ... an enormous windfall occasioned by an Act of God, [while] Ameren [would] experienc[e] an equally enormous under-collection of its costs.” ¹⁰

“[I]n an order dated February 19, 2009 the [PSC] denied...