Towns of Concord, Norwood, and Wellesley, Mass. v. F.E.R.C.

• Decision Date: 11 February 1992
• Docket Number: No. 90-1619,90-1619
• Citation: 955 F.2d 67,293 U.S.App. D.C. 374
• Parties: , 60 USLW 2539 TOWNS OF CONCORD, NORWOOD, AND WELLESLEY, MASSACHUSETTS, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Boston Edison Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 67

955 F.2d 67

293 U.S.App.D.C. 374, 60 USLW 2539

TOWNS OF CONCORD, NORWOOD, AND WELLESLEY, MASSACHUSETTS, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Boston Edison Company, Intervenor.

No. 90-1619.

United States Court of Appeals,

District of Columbia Circuit.

Argued Sept. 20, 1991.

Decided Feb. 11, 1992.

Petition for Review of Opinions 346 and 346-A of the Federal Energy Regulatory Commission.

Charles F. Wheatley, Jr., with whom Timothy P. Ingram was on brief, for petitioners.

Thomas J. Lane, Attorney, Federal Energy Regulatory Com'n, with whom William S. Scherman, General Counsel, and Jerome M. Feit, Solicitor, were on brief, for respondent.

Albert R. Simonds, Jr., with whom Carmen L. Gentile was on the brief, for intervenor.

Before WALD, D.H. GINSBURG and RANDOLPH, Circuit Judges.

Opinion for the Court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge:

The Towns of Concord and Wellesley, Massachusetts, receive most of their power requirements from the Boston Edison Company. Until 1985, so did the neighboring Town of Norwood. Boston Edison purchased some of its power from regional nuclear power companies. Between 1973 and 1986, those companies imposed on Boston Edison certain charges relating to the storage and disposal of spent nuclear fuel. Boston Edison passed these charges on to the Towns, improperly it concedes, without prior approval from the Federal Energy Regulatory Commission. The Commission nevertheless declined to order a refund of the amounts thus collected, which the ALJ put at $33,720. The Towns contend that the filed rate doctrine rendered refunds mandatory. We sustain the Commission's decision.

I

The Federal Power Act, as amended, vests the Federal Energy Regulatory Commission with responsibility for ensuring that all rates charged by utilities within the Commission's jurisdiction are "just and reasonable." 16 U.S.C. § 824d(a). The Act requires utilities to "file with the Commission ... schedules showing all rates and charges." Id. § 824d(c); see generally City of Cleveland v. FPC, 525 F.2d 845, 854 (D.C.Cir.1976). The rates charged may not exceed those on file. See, e.g., Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 578, 101 S.Ct. 2925, 2930, 69 L.Ed.2d 856 (1981). Through a "fuel adjustment clause," 18 C.F.R. § 35.14, however, a utility may pass "on to its customers the increasing cost of fuel [and purchased economic power] without filing a new rate schedule each time the price of fuel [or purchased economic power] rises." Anaheim v. FERC, 669 F.2d 799, 806 (D.C.Cir.1981); accord Public Serv. Comm'n of New Hampshire v. FERC, 600 F.2d 944, 947 (D.C.Cir.), cert. denied, 444 U.S. 990, 100 S.Ct. 520, 62 L.Ed.2d 419 (1979). As its name suggests, such a clause adjusts the fuel cost component of a utility's energy charge to reflect deviations in fuel and purchased economic power costs from a base period. 18 C.F.R. § 35.14(a)(1). The Commission has narrowly construed the scope of these automatic charges. See, e.g., Kansas City Power & Light Co., 42 F.E.R.C. p 61,249, at 61,809 (1988). A utility seeking to employ a fuel adjustment clause must provide "detailed cost support for the base cost of fuel and purchased economic power or energy." 18 C.F.R. § 35.14(a)(9)(i). Utilities are limited in what they may include as fuel costs. Purchased economic power is defined to include "all charges incurred in buying economic power," but only if the utility could not have generated the power itself at a lower price. Id. § 35.14(a)(11)(i). Similarly, fossil and nuclear fuel costs are limited to items listed in the Commission's Uniform System of Accounts for Public Utilities and Licensees. Id. § 35.14(a)(6). Account 518 defines the cost of nuclear fuel as "the net cost of nuclear fuel assemblies"--bundles of thin tubes or rods containing enriched uranium pellets--"plus or less the expected net salvage of uranium, plutonium, and other byproducts and unburned fuel." 18 C.F.R. Part 101.

In order to understand this dispute, it is necessary to go back to a decision by two nuclear power companies, Connecticut Yankee Atomic Power Company (Connecticut Yankee) and Yankee Atomic Power Company (Massachusetts Yankee), to charge Boston Edison and other customers the cost of storing and disposing of nuclear waste they had originally thought would be reprocessed. The two Yankees were owned by a consortium of power companies, including Boston Edison, which held a 9.5 percent share. Each month the Yankees sent Boston Edison and the other shareholders a bill for cost of service. One of those costs stemmed from maintenance of the reactor core. A nuclear power plant generates energy by inducing chain reactions to split enriched uranium atoms and produce heat. Eventually the enriched uranium loses its ability to sustain a chain reaction and must be replaced with fresh fuel. The "spent" nuclear fuel assemblies continue to generate enormous heat and contain highly toxic radioactive materials. They are stored in steel-lined concrete basins filled with water which absorbs both the heat and the radioactivity generated by the spent fuel.

In the early 1970s, it was thought that the cost of storing and disposing of spent nuclear fuel rods would be offset by the value of the fresh fuel that could be recycled from them. In 1977, however, the Carter Administration banned private reprocessing of nuclear waste in favor of permanent government storage and disposal. Although President Reagan initially lifted this ban, no commercial reprocessing plants ever became operational, and in January 1983 the President signed the Nuclear Waste Policy Act, 96 Stat. 2201, 42 U.S.C. §§ 10101-10226, entrusting the federal government with responsibility for the permanent storage and disposal of spent nuclear fuel.

These changes in national policy forced a change in the Yankees' accounting and billing practices. Originally, they considered spent nuclear fuel an asset because the estimated value of the recycled fuel exceeded the estimated cost of storage and reprocessing. When it became clear that national policy barred reprocessing, spent nuclear fuel became a liability, having a negative salvage value. Accordingly, at some point the Yankees added to their cost-of-service tariffs a charge for spent nuclear fuel disposal costs (SNFDC) from both current and prior reactor cores.

As it did with all other components of the Yankees' cost-of-service bills, Boston Edison passed these charges on to the Towns through a fuel adjustment clause. At first, Boston Edison had no way of knowing that it was doing so. The prior core SNFDC in the cost-of-service bills was not identified by Connecticut Yankee until 1980 and not until 1983 by Massachusetts Yankee. But even after these costs were identified, Boston Edison continued to pass them on through the fuel adjustment clause--according to Boston Edison's testimony, because the charges were so small that no one focused any attention upon them. In any event, the Towns continued to pay for "prior burn SNFDC" until it was fully amortized in December 1986.

About the same time the Yankees probably began charging Boston Edison for prior burn SNFDC, the Commission determined that although such costs might be recoverable through a filed rate, the utilities could not automatically pass such costs through to their customers by way of the fuel adjustment clause. When the Commission first authorized the use of fuel adjustment clauses in connection with nuclear fuel costs in 1974, Fuel Adjustment Clauses in Wholesale Rate Schedules, 52 F.P.C. 1304, 1306 (1974) (Order No. 517), it did not explicitly consider the proper treatment of costs like SNFDC. In 1980, however, the Commission determined that prior burn SNFDC could not be passed on through a fuel adjustment clause. As the Commission read its regulations, the fuel adjustment clause incorporated only costs incurred in the current period; prior burn SNFDC is by definition not a current cost. Florida Power Corp., 11 F.E.R.C. p 61,083, at 61,120 (1980); see also 18 C.F.R. § 35.14(a)(1). Later Commission decisions excluded all nuclear fuel storage and disposal costs from the fuel adjustment clause on the ground that the clause was not meant to include estimates of future costs, especially if those estimates were dependent upon changing government policies. Carolina Power & Light Co., 17 F.E.R.C. p 61,118, at 61,237-38 (1981). As a consequence, the Commission ruled that SNFDC, both from current and prior cores, could only be recovered through regularly filed rates subject to Commission scrutiny and approval. Virginia Electric & Power Co., 15 F.E.R.C. p 61,052, at 61,105 (1981). After enactment of the Nuclear Waste Policy Act in 1983, the cost of disposing of current core SNFDC came to reflect the price charged by the Department of Energy for permanent disposal. The Commission then reversed itself and allowed fluctuations in current core SNFDC to be passed on to customers through the fuel adjustment clause. See, e.g., Western Massachusetts Elec. Co., 24 F.E.R.C. p 61,278, at 61,574 (1983).

In 1986, the Commission turned its attention to prior burn SNFDC originating in utility-owned companies like the Yankees. The Chief Accountant of the Commission, apparently ignoring the fact that the fuel adjustment clause regulations define purchased economic power as "all charges incurred in buying economic power" (18 C.F.R. § 35.14(a)(11)(ii) (emphasis added)), informed several utilities that prior burn SNFDC originating in nuclear power plants owned by them would be treated just like prior burn SNFDC incurred by the utilities themselves. See, e.g., Bangor Hydro-Electric Co., 36 F.E.R.C. p 61,192, at 61,486-87 (1986); Iowa-Illinois Gas & Elec. Co., 35 F.E.R.C. p 61,186, at 61,431-32 (1986). Ultimately, the Commission determined that it should end this "contested accounting matter" and avoid "extensive and costly litigation" by encouraging...