538 A.2d 98 | Pa. Commw. Ct. | 1988
Lead Opinion
Opinion by
Philadelphia Electric Company (PECO) appeals a Pennsylvania Public Utility Commission (PUC) order which, in pertinent part, disallowed approximately $58 million in replacement power costs incurred during certain outages at the Salem Nuclear Generating Station Unit 1 (Salem 1), the Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom 2 and 3) and the Eddystone Power Station. The Office of Consumer Advocate (OCA) has intervened on behalf of the PUC in this appeal.
On July 19, 1983, the OCA filed a Petition for an Investigation and an Order to Show Cause, alleging imprudence as to PECOs entitlement claim to replacement power costs related to a 1983 Salem 1 outage. The PUC granted the petition and instituted the investigation. Four days of hearings were held before Administrative Law Judge (ALJ) Dennis Harnish.
Prior to the issuance of a recommended decision, the petition and order were consolidated with Energy Cost Rate (ECR) Statement No. 8 which proposed an increase of approximately $151 million in the ECR.
Upon review of exceptions, the Commission reduced the disallowance to $73 million, of which approximately $58 million is attributable to the five outages here at issue. We will review seriatim the factual scenario and legal conclusions for each outage.
1983 Salem 1 Outage
This outage occurred on February 25, 1983, and ended May 20, 1983. While attempting to bring the unit up to power, Public Service Electric & Gas Company (PSE&G), the operator of Salem l,
In a lengthy analysis, the PUC denied replacement power costs based on its finding that PSE&G had failed to exercise “the high degree of care” which it determined was required of á public utility in the operation of a nuclear generating facility. PUC opinion, pp. 54-56.
PECOs principal contention is that the PUC erroneously adopted a standard of review equivalent to the strict standard applied by the NRC. PECO further argues that under a properly applied “prudence” standard, substantial evidence supports its position that reasonable procedures were . followed and prudent choices were made to maintain the units and to minimize the length of the outage, thereby reducing the necessity of purchasing replacement power.
The PUCs authority to review the internal management decisions of a utility company in a rate proceeding
In formulating its standard of review, the PUC stated:
In the case of nuclear plants, in particular, the high degree of care imposed upon PECO under the NRC standards, in our opinion, are [sic] equally applicable to the degree of care required of PECO under the reasonable standard or prudency [sic] lor rate determination purposes. . . . The very magnitude of the horrendous cost, relatively speaking, of replacement power in the event of a nuclear generation outage, which PECO claims its customers should bear, compels the conclusion that PECO, under the reasonable person doctrine or standard, must operate its generation with a high degree of care. We conclude that a reasonable person operating a nuclear generation plant would in fact operate the plant with a high degree of care in order to minimize the necessity of purchasing costly replacement power. This degree of care is closely akin to the highest degree of care as generally understood to apply in certain areas of negligence law.
PUC opinion, p. 16.
Pursuant to its authority to ensure the safe operation of nuclear facilities and to address the tremendous risks
The primary purpose of rate proceedings is not to insure public safety but to regulate the economic relationship between a utility and the public and to protect the public from unreasonably high utility costs. We discern an incompatibility of standards between the strict NRC requirement of a high degree of care as to plant safety and an equally high PUC standard as to the minimization of replacement power costs. The simultaneous imposition of these two standards would, in effect, require the utility to practice flawless safety techniques while optimizing, almost absolutely, production capacity. Such a stringent dual standard approaches that of strict liability, a principle far removed from the standard of imprudence previously enunciated by this Court. See National Fuel Gas Distributing Corp.
Therefore, we hold that in a rate proceeding involving the ongoing operation of a nuclear facility, the utility is required to demonstrate only that it did not abuse its managerial discretion, i.e., that its decisions as to optimizing energy production within federal regulatory constraints were reasonable and prudent given the facts known to it at the time. To the extent that the PUC imposed a higher standard of care, it erred as a matter of law. Accordingly, we vacate that portion of the PUC order and remand for consideration under the proper standard as enunciated herein.
This second Salem 1 outage occurred between February 24, 1984, and May 31, 1984. The record discloses that incompletely cured resins caused certain stator coils to vibrate, eventually resulting in fatigue failure and generator shutdown. It is essentially undisputed that the defective manufacture of the coils was responsible for their ultimate failure. The PUC concluded, however, that the replacement power costs associated with this outage (approximately $27 million) were to be borne by the utility rather than the ratepayers, based on its determination that the ratepayers were not at fault and that PECO was the party most capable of pursuing legal and contractual remedies against the manufacturer, Westinghouse Electric Corporation (Westinghouse).
PECO advances several arguments. It contends that the PUC erroneously relied on two of its earlier decisions, Pennsylvania Public Utility Commission v. Metropolitan Edison Co., 50 Pa. P.U.C. 82 (1976) (Met Ed I) and Pennsylvania Public Utility Commission v. Metropolitan Edison Co., 53 Pa. P.U.C. 225 (1979) (Met Ed II), to find PECO vicariously liable for Westinghouses defective manufacture of the stator coils.
The PUC and the OCA respond that PECO was permissibly burdened with the instant replacement power costs based on the prerogative utilities exercise to investigate and contract with potential bidders, to oversee and supervise ongoing contractor activities, and to pursue contractual or legal remedies should there be a failure of performance such as occurred here. It is also argued that the PUC permissibly exercised its authority to make and apply policy as to the appropriate balance between consumer and investor interests, Pennsylvania Electric Co. v. Pennsylvania Public Utility Commission, 509 Pa. 324, 502 A.2d 130 (1985).
The theory of vicarious or imputed liability, adopted by the PUC, actually originates in agency law. To find a non-negligent party vicariously liable for the acts of another, the general rule is that the party to whom liability is to be imputed must exercise a significant right or degree of control over the negligent party. W. Prosser, Law of Torts §69 (4th ed. 1971). This record reveals several indicia of control upon which one might find it reasonable to impute liability to PECO. For example, the existence of the contract for the stator coils, the ongoing communications between PSE&G and Westinghouse concerning the coils, and PECOs apparent efforts to obtain compensation from Westinghouse for the stator coil failures each suggests that PECO exercised a significant degree of control over Westinghouse so as to permit an imputation of liability.
The PUCs decision, however, fails to make discernable findings of fact concerning the indicia of control which PECO may or may not have exercised. Rather, its decision appears to rely solely on the lack of ratepayer fault to justify the cost allotment to PECO. While the Met Ed I and II decisions are cited to provide the policy reason of imposing “costs on the party most capable of pursuing legal remedies and future contracts,” no actual finding is made as to the viability, extent or resolution of any such legal or contractual activity. Therefore, we hold that the PUCs decision violates the longstanding rule in Aizen prohibiting the disallowance of utility costs based exclusively on a policy choice.
1983 and 1984 Peach Bottom Outages
At issue here is a 1983, seven-day extension of an outage at Peach Bottom 3 which resulted in a disallowance of $2,023,700 in replacement power costs and a 1984, 40-hour outage extension at Peach Bottom 2 which caused a disallowance of $542,750. Each of these disallowances was based on the PUC’s determination
The record testimony reveals that a condition known as intergranular stress corrosion cracking (IGSCC)
The record detailing the 1984 Peach Bottom 2 outage disclosed that certain rubber seal gaskets within fuel pool gates were discovered to be leaking during a scheduled outage, resulting in an outage extension of one day and sixteen hours for repairs. PECO alleges that the inspection of the fuel pool gates was scheduled at the earliest point in the outage considering potential delay in other scheduled activities and, further, that this problem was unforeseeable. The PUC found, however, that this problem should have been anticipated due to a similar problem at Peach Bottom 3.
PECO contends that in both these determinations, the PUC has employed impermissible hindsight and result-oriented analyses and thereby misapplied the prudence standard. We agree.
Similarly, while the disallowance of replacement fuel costs resulting from the 1984 Peach Bottom 2 outage extension does not appear to be facially invalid, we vacate and remand this portion of the order based on our previously enunciated concerns as to the 1983 Peach Bottom 3 outage extension.
Eddystone I Outage
PECO lastly contests an alleged computational mistake resulting in a disallowance of $967,648 related to an Eddystone I outage. The PUC responds that because of the huge sums involved and the complexity of the issues, such an error is de minimis. While we recognize that mathematical precision is not required in setting rates, Park Towne v. Pennsylvania Public Utility Commission, 61 Pa. Commonwealth Ct. 285, 433 A.2d 610 (1981), we hold that the instant mathematical error is not so small as to be considered de minimis and can be easily remedied upon remand. Accordingly, we reverse and remand to the PUC for the proper calculation of this amount.
Order
The consolidated order of the Public Utility Commission, dated October 30, 1985, at Nos. P-830453, M-840375 and M-FACE8408, is reversed in part and vacated in part. The case is remanded to the Commission for further proceedings consistent with this opinion.
Jurisdiction relinquished.
Energy cost rate ór ECR is a forecast mechanism through which the utility projects fuel costs for the forthcoming year. The PUC originally challenged PECOs use of the ECR in this proceeding but later abandoned it.
The other complainants included the PUC’s trial staff, the City of Philadelphia, the Philadelphia Area Industrial Energy Users’ Group (PAIEUG) and the Consumer Education and Protective Association.
Pursuant to a PUC order, the Commissions trial staff retained an outside consulting firm, Temple, Barker and Sloane, Inc., to assist in the investigation.
PSE&G and PECO are joint owners of Salem,- with PECO holding approximately a 42-percent ownership interest. PECO does not contest its liability as a joint owner despite PSE&G’s role as plant operator.
A component of the reactor scram breaker, the undervoltage trip attachment (UVTA), failed to respond as designed. The event known as an Anticipated Transient Without Scram (ATWS) was the first such failure in the history of the U.S. commercial nuclear industry.
The NRC imposed an $850,000 civil fine on PECO and PSE&G, the largest such fine ever imposed. The sanction was not appealed.
PECO relies heavily upon the New Jersey Board of Public Utilities decision concerning PSE&G’s liability emanating from the 1983 Salem 1 outage. The New Jersey tribunal determined essentially that PSE&G had acted prudently in all respects and denied replacement power costs only as to the period in which the NRC’s investigation was extended due to its concerns over certain management activities.
While we recognize the potential for inconsistent results, we do not believe that this is of major consequence, as each regulatory body was separately presented the facts of the case and was entitled to weigh the evidence independently and make its own credibility determinations.
In pertinent part, the PUC stated:
We do not share PECO’s interpretation of the Met-Ed cases, supra. ALJ Kashi accurately stated our holding in Met-Ed when he concluded: ‘the Commission concluded that even if Met-Eds contractor, and not Met-Ed, was responsible for the improper installation, Met-Eds ratepayers were certainly fault-free, and therefore should not be required to pay for the portion of the plant representing the imprudently incurred costs.’
PUC opinion, pp. 72-73.
In Pennsylvania Electric, our Supreme Court stated:
In cases where the balancing of consumer interests against the interests of investors causes rates to be set at a ‘just and reasonable’ level which is insufficient to ensure the continued financial integrity of the utility, it may simply be said that the utility has encountered one of the risks that imperil any business enterprise, namely the risk of financial failure. The express language of the Hope decision weighs against regarding utilities as a protected class of business enterprises' which are to be relieved of such normal business risks.
Id. at 331-332, 502 A.2d at 134. The Hope decision refers to Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591 (1944).
PECO was granted leave by this Courts order dated May 19, 1987, to file a supplemental brief addressing two recent PUC decisions which reached results contrary to its decision here on the imputation issue. The PUC and OCA were likewise permitted to submit reply briefs.
PECO contends that these two previously unavailable decisions, Pennsylvania Public Utility Commission v. Duquesne Light Co., Docket No. R-860378 (March 5, 1987), affd on reconsideration, and Pennsylvania Public Utility Commission v. Philadelphia Electric Co., Docket No. R-850152 (June 26, 1986), support its position that a utility should not be held accountable for manufacturing defects or contractor error absent a finding that it imprudently selected or supervised the contractors activities. PECO also contends that these decisions demonstrate the danger of a case-by-case policy approach to this issue. The PUC and OCA respond that these cases are factually dissimilar and therefore do not control the instant matter.
We note, however, that PUC decisions are not binding on this Court. Moreover, inasmuch as the issue here is a question of first impression before this Court, we expect that our decision here will serve as precedent for these later PUC decisions should they come before us.
IGSCC was described by the PUC as “a generic problem in boiling water reactors (BWR) which refers to small cracks occurring along the ‘grain boundaries’ of BWR pipe metal in the ‘heat affected zone’ adjacent to piping welds in the cooling and recirculation systems.” PUC opinion, pp. 75-76.
PECOs witnesses consistently testified that a testing method known as fracture mechanics analysis, previously accepted by the NRC, had been applied to the piping by independent inspection teams prior to its restart request. Therefore, it contends that its request was reasonable.
Further, PECOs witnesses testified that its failure to submit a manufacturers affidavit at the time of its restart request was due to the .NRCs practice of rendering a decision based on an assurance that such documentation would later be submitted for formal docketing. The PUC, in feet, found this to be the case (PUC opinion, p. 114) but found the delay to be imprudent despite evidence that PECO had requested the affidavit two or three weeks before the submittal date.
Concurrence in Part
Concurring and Dissenting Opinion by
I agree with all of the majority opinion except for that portion discussing the 1983 Salem 1 outage. Hence, this separate opinion dissenting from that part of the majority’s resolution of the case.
As the majority notes, we are concerned with the prudence of PECO with regard to the operation of the Salem 1 power plant. The majority recognizes that the Nuclear Regulatory Commission is empowered to police nuclear facilities to protect, inter alia, the public’s health, safety and welfare. While performing this mandated function with regard to the Salem 1 outage, the NRC found that the outage was the result of PECO’s inadequate maintenance and supervisory practices. Despite this finding of the NRC, which finding PECO did not appeal, the majority concludes, citing a “heightened standard of care” applicable to NRC proceedings, that PECO may, nevertheless, have acted prudently and, thus, may be entitled to recover energy replacement costs. I cannot agree.
The majority recognizes that nuclear power plants pose risks to the public that are much greater than the risks associated with non-nuclear power plants. Therefore, one cannot conclude that a public utility acted prudently in the face of an express finding that the utility was guilty of inadequate maintenance and supervisory practices.
The PUC did state in this case that “[t]his degree of care is closely akin to the highest degree of care as generally understood to apply in certain areas of negligence law.” PUC opinion, p. 16. From this, the majority believes the PUC is applying a standard approaching strict liability. I believe the PUC’s choice of language
I respectfully dissent to that portion of the majority’s opinion dealing with the Salem 1 outage.
