State ex rel. Utilities Commission v. Edmisten

• Decision Date: 21 December 1976
• Docket Number: No. 39,39
• Citation: 230 S.E.2d 651,291 N.C. 327
• Court: North Carolina Supreme Court
• Parties: , 83 A.L.R.3d 903 STATE of North Carolina ex rel. UTILITIES COMMISSION and Carolina Power and Light Company v. Rufus L. EDMISTEN, Attorney General.

Page 651

230 S.E.2d 651

291 N.C. 327, 83 A.L.R.3d 903

STATE of North Carolina ex rel. UTILITIES COMMISSION and Carolina Power and Light Company v. Rufus L. EDMISTEN, Attorney General.

No. 39.

Supreme Court of North Carolina.

Dec. 21, 1976.

Rufus L. Edmisten, Atty. Gen. by Robert P. Gruber, Sp. Deputy Atty. Gen., and Jesse C. Brake, Associate Atty. Gen., Raleigh, for intervenor-appellant.

William E. Graham, Jr., Vice President and General Counsel, Raleigh, Carolina Power & Light Co., and Joyner & Howison by Robert C. Howison, Jr., Raleigh, for Carolina Power & Light Company, appellee.

Edward B. Hipp, Gen. Counsel, and Wilson B. Partin, Jr., Asst. Commission Atty., Raleigh, for the Utilities Commission, appellee.

EXUM, Justice.

In conjunction with a pending application for a general rate increase filed October 29, 1973, the utility on January 25, 1974, applied to the Commission for approval of the utility's use as an adjunct, or rider, to its regular rate schedules a fuel adjustment clause. On February 5, 1974, the Commission on the basis of the utility's application and before hearing entered an ex parte order permitting the utility to use the fuel adjustment clause on an interim basis pending a hearing and final determination. The Commission, after full hearing, entered on December 19, 1974, its order finally approving the use of the clause in principle and approving further all revenues collected under it on bills rendered through September 30, 1974. This order provided for continued monitoring of the utility's application of the clause to all bills rendered after September 30, 1974. The Attorney General, having intervened under General Statute 114--2(8) on behalf of the using and consuming public, appealed to the North Carolina Court of Appeals assigning errors to the Commission's orders of February 5, 1974, and December 19, 1974, respectively. A majority of the Court of Appeals' panel hearing the matter affirmed the Commission.

On the Attorney General's further appeal to this Court two principal questions are presented for decision: Did the Utilities Commission exceed its statutory authority by permitting, after notice and full hearing, the utility to utilize a fuel adjustment clause as an adjunct, or rider, to its regular rate schedule? If not, did the Commission exceed its statutory authority by entering its ex parte order authorizing the utility to incorporate such a device on an interim basis pending a hearing and final determination? We hold that both questions are properly answered in the negative and affirm the decision of the Court of Appeals.

The fuel adjustment clause, when used as an adjunct to the utility's regular rate schedule, permits the utility to add to its regular charges to customers an amount which represents, in effect, any given customer's share of the amount by which the utility's fossil fuel cost, i.e., cost for coal, gas, and oil used to generate electricity, exceed during a given current period its cost pre-established for an historical base period. The utility must also give a credit to customers under the terms of the fuel clause if the current cost of fuel falls below its cost during the base period. The 'clause' itself is nothing more than a relatively simple mathematical formula by which the utility computes the additional charges or credits.

Under the formula in question in this case the utility figures its total cost for fossil fuel actually burned for one month. The month used is the second preceding month to that for which the customer is being billed. The utility then figures what its cost for fossil fuel actually burned would have been during this second preceding month had it paid for the fuel at base period prices by multiplying the pre-determined base cost stated in terms of dollars per kilowatt hour by the total kilowatt hours generated by its fossil fuel plants during this second preceding month. The second figure is subtracted from the first and the difference is divided by the utility's total kilowatt hour sales in the second preceding month. The result, after an adjustment for applicable state gross receipts taxes, is a factor stated in terms of dollars per kilowatt hour. This factor is then applied to each customer's bill by multiplying it by the number of kilowatt hours used by that customer in the month for which he is being billed. The result is either an added charge or a credit to that customer's bill.

The formula by which the factor is figured may be stated mathematically in this form: F = E - (.00513 G)/S 1/1 - T 'F' is the factor. 'E' is the burned fossil fuel cost for the second preceding month to the month on which the current bill is figured. 'G' represents the total number of kilowatt hours generated by the utility's fossil fuel plants in the second preceding month which is multiplied by the base cost stated in terms of dollars per kilowatt hour. 'S' represents the utility's total kilowatt hour sales in the second preceding month. 'T' is the applicable state gross receipts tax rate.

A full statement of the facts by which these issues are presented is: On October 29, 1973, the utility applied for a general rate increase of approximately $48,394,744 or approximately 21 percent overall. It also asked for an interim rate increase of approximately $25,052,209 or approximately 11 percent overall pending final determination and subject to the utility's undertaking for refund. It suggested that a larger interim rate increase than requested 'would be justified because of currently sharply rising fossil fuel prices, which undoubtedly will. . . prevent the Company from realizing the previously authorized rate of return of 12% That the interim increase is designed to produce on the historic test period ended June 30, 1973,' and alleged that the interim increase actually requested was, therefore, 'absolutely essential . . ..' While the utility's application was based on figures derived from a test period ending June 30, 1973, it suggested that a more appropriate end of test year would be December 31, 1973. On November 9, 1973, the Commission suspended the proposed increases and advanced the test period to the year ending December 31, 1973.

After several interventions including that of the Attorney General were allowed, hearings on the request for the interim rate increase were held on December 19 and 20, 1973. On January 25, 1974, the Commission, by order, allowed an interim increase of $12,675.745 or 5.94 percent. In this order the Commission relied in part upon increases in fuel cost. In reducing the interim increase from that sought by the utility, however, the Commission found that the utility had used 'actual test year fuel costs instead of properly annualized end of test year fuel cost.' By utilizing an end of test year fuel cost and removing a $69,945,960 investment from the test year rate base which the utility had included, the Commission found that an interim increase of only 5.94 percent was proper. The interim increase was to become effective on bills rendered after February 25, 1974, for service rendered after January 25, 1974. The interim rate increase was made subject to the utility's undertaking for refund which was approved by the Commission.

On January 25, 1974, the same day upon which the Commission entered its order permitting the interim increase, the utility applied for approval of the fuel adjustment clause as above described to be effective on bills rendered on and after March 1, 1974. Attached to this application was the utility's undertaking for refund with interest of all amounts collected under the fuel clause which may later be found to exceed rates finally determined to be just and reasonable. This application recited pendency of the application for an ultimate and interim general rate increase, hearings on the latter, and that an order was 'being awaited.' The application further alleged in summary: Earnings had declined dramatically during the last calendar year. In the Request for an interim rate increase no increase in the cost of fossil fuel over its cost during the test year ending June 30, 1973, was taken into account. Fuel cost, in the meantime, had skyrocketed to unprecedented extremes and further increases during 1974 were expected. Fossil fuel cost was by far the greatest operating expense of the utility having accounted for 57 percent of this expense during 1973. If the company was to continue to have reasonable earnings and provide adequate service, it must be permitted to recover its rapidly rising fuel cost in addition to receiving the ultimate and interim general rate increase already requested. It asked that a base cost of fossil fuel be used which reflected the utility's cost during the twelve months period ending on June 30, 1973. The base cost suggested by the utility was $.00481 per kilowatt hour, which it said was 'the actual cost of fossil fuel burned in CP&L's plants in the twelve months' period which ended on June 30, 1973, and reflects a heat rate of 9,899 BTU's.'

To this application the utility attached affidavits which explained the operation of the fuel clause and which attested to the recent dramatic rise in fuel costs. By affidavit a vice president of the utility testified to estimates that the cost of fossil fuel actually burned for 1974 would increase 55 percent over similar cost during the test period; that coal on the spot market had gone from $8.50 per ton in August, 1973, to over $25.00 per ton in January, 1974; and that oil prices were up 100 percent since October, 1973.

On February 5, 1974, the Commission on the basis of the utility's application and documents attached thereto found and concluded essentially that the fossil fuel market was unstable and likely to remain so for some future time; that the utility could not absorb the rapid increases in its fuel cost being currently experienced without impairment of its ability to provide adequate and reasonably priced...