UTAH DEPARTMENT OF BUSINESS REGULATION, DIVISION OF PUBLIC UTILITIES, Plaintiff, v. PUBLIC SERVICE COMMISSION OF UTAH; Brent H. Cameron, Chairman; David R. Irvine, Commissioner; and James M. Byrne, Commissioner, Defendants. COMMITTEE OF CONSUMER SERVICES, Plaintiff, v. PUBLIC SERVICE COMMISSION OF UTAH; Brent H. Cameron, Chairman; David R. Irvine, Commissioner; and James M. Byrne, Commissioner, Defendants.
Nos. 19361, 19362.
Supreme Court of Utah.
May 22, 1986.
Rehearing Denied June 30, 1986.
720 P.2d 420
ZIMMERMAN, Justice
Thomas W. Foresgren, Rosemary Richardson (Utah Power), Public Service Commission, Patrick J. Oshie, Atty. Gen. Office, Salt Lake City, for defendants.
ZIMMERMAN, Justice:
The Department of Business Regulation asks this Court to reverse two orders issued by the Utah Public Service Commission (“PSC“) which allowed Utah Power & Light (“UP & L“) to transfer $6 million from an energy balancing account (“EBA“) to UP & L‘s general revenue account. The Department of Business Regulation argues that the PSC‘s actions amounted to retroactive rate making. We agree and reverse.
Some background discussion concerning utility rate making is necessary to a consideration of the issues presented. Following lengthy hearings, utility rates are fixed prospectively by the PSC.
Fuel costs comprise a substantial portion of a utility‘s operating expenses. Historically, these costs did not fluctuate wildly. However, in the early 1970‘s, rapid and unanticipated escalation of fuel costs had devastating effects on utility earnings. Because of statutory limitations that prohibit utilities from recovering for past underestimates of costs, and the length of time required to obtain a rate increase to adjust for future cost increases, these fuel costs posed a substantial enough threat to the utilities’ financial health to prompt a request for legislative relief.
In 1975, the legislature modified the utility regulation statutes to permit the PSC to deal with the problem of escalating fuel costs outside of general rate-making proceedings. 1975 Utah Laws, ch. 166, § 2. Under this legislation, the PSC was authorized to permit utilities to pass increased fuel costs through to ratepayers without the requirement of lengthy hearings. Tentative orders permitting increased rates adjusted for fuel costs could be entered before detailed hearings on the need for the rate increase were held. Provision was also made for accelerated hearings to determine the need for the increase. In such hearings, the PSC was required to consider only whether there was a need to increase that component of the rate attributable to energy or fuel costs, rather than the overall reasonableness of the rates proposed, as is normally required in general rate proceedings. The legislature was careful to limit such accelerated pass-through procedures to use in connection with increased fuel or energy costs. All other utility costs were to be considered only in general rate-making proceedings.1
Subsequent to and independent of the pass-through legislation, the PSC undertook to design a rather unique device for handling not only the utilities’ unstable fuel costs, but also other cost and revenue items which the PSC felt were subject to rapid and unpredictable fluctuation. This device was the energy balancing account, or “EBA,” that was created in 1979 by order of the PSC. Report & Order, Case No. 78-035-21, 79-035-03, pp. 14-17, paras. 31-34 (July 20, 1979).
The EBA was meant to monitor costs incurred and revenues derived from a number of unstable items. The PSC had found that not only were fuel costs subject to rapid fluctuation, but also revenues from nontariff and surplus energy sales, and the cost of the utilities’ own energy purchases varied widely from year to year. The PSC‘s order therefore allows utilities to set up separate energy balancing accounts to keep track of these items of cost and revenue. These items of cost and revenue are apparently not included in fixing the general rates; however, the utilities were authorized to seek the establishment of a separate EBA rate to take into account fore-
Revenues derived from the EBA component of a consumer‘s utility bill are segregated and held in the energy balancing account. If the EBA rate has been set too low and the energy balancing account shows a deficit, at the next EBA rate proceeding the utility will seek an increase in the rate. On the other hand, if the EBA shows a surplus, the EBA rate will be adjusted downward at the next proceeding. Report & Order at 16, para. 33. Ideally, over the long term the account is zeroed out, i.e., the revenues flowing into the account will equal the expenditures charged to it. Thus, the EBA accomplishes the purpose of the pass-through legislation to allow expeditious rate response to those elements of cost which are subject to frequent fluctuation, and it does so without bypassing the more formal requirements of general rate making. See
With this background in mind, we consider the instant case. The Department of Business Regulation challenges the PSC‘s orders allowing UP & L to divert money accumulated in its EBA into its coffers to make up for an unexpected shortfall in general revenues. The facts leading up to the transfer are as follows: In 1982, UP & L‘s tariff sales revenues were $40 million short of projections because of decreases in general consumer demand for energy. This slack in demand meant that UP & L had idle generating capacity, the fixed costs of which were borne by the company‘s shareholders. To minimize the resulting loss, UP & L aggressively sought nontariff customers for energy that could be generated from these idle facilities, and it managed to make sales totaling $18 million. This $18 million was placed in the utility‘s energy balancing account, rather than its general revenue account, because it was revenue produced from nontariff sales.
Due to the $40 million shortfall in revenues from tariff customers in 1982, UP & L‘s shareholders stood to receive a return on equity of only 13.25 percent, compared to the 16.3 percent authorized by the PSC in the last general rate-making proceeding. Therefore, UP & L petitioned the PSC to make an “accounting adjustment” which would allow it to transfer $6 million of the $18 million nontariff revenues out of the EBA into its general revenue account. UP & L argued that the diversion was a fair split of nontariff revenues between ratepayers and the company, but it provided no evidentiary support for its claim that this division of revenues was fair to both consumers and to UP & L.
Relying upon its general authority to supervise the business of a public utility under
Before this Court, the Department of Business Regulation asserts that the PSC‘s decision has effectively increased utility rates for consumers and constitutes retro-
UP & L argues that the PSC‘s action was merely an “accounting adjustment” which does not constitute retroactive rate making. UP & L contends that the ratepayers reap a windfall by having nontariff sales included in the EBA. It claims this is patently unfair because the company incurs fixed costs even when generating facilities are idled, and the revenues from nontariff sales should be available to mitigate those costs. Finally, as an alternative argument, UP & L asserts that to the extent that nontariff revenues in the EBA are restricted to offsetting increased energy and fuel costs, the EBA is invalid in its entirety.
We will overturn the PSC‘s order only if there is no substantial evidence supporting the PSC‘s findings, if the PSC acted in excess of its statutory authority, or if the order violated a statutory or constitutional right of the parties. See, e.g., Department of Business Regulation v. Public Service Commission, Utah, 614 P.2d 1242, 1250 (1980); Jeremy Fuel & Grain Co. v. Public Utilities Commission, 63 Utah 392, 348 and 400, 226 P. 456 (1924). We conclude that the PSC exceeded its statutory authority here because its order effectively allowed UP & L to tap the EBA to make up for a general revenue shortfall, thus violating the proscription against retroactive rate making.
The PSC has broad authority to regulate a utility‘s business.
The PSC‘s reliance on the pass-through statute to justify its order is misplaced.4 Nothing in the pass-through statute allows the revenues which are specifically collected to cover anticipated fuel costs to be used
We have previously held that a utility‘s attempt to use procedures established in the fuel cost pass-through statute to recover specific nonfuel-related expenses is invalid. See Utah Department of Business Regulation, 614 P.2d at 1248-49. The decision in this case extends that holding to prohibit the use of the pass-through statute to enable a utility to recover revenue shortfalls resulting from errors in forecasting or calculating an appropriate general rate. The pass-through statute has not modified the risk relationship that exists between a utility and its customers by reason of the requirement of prospective rate making. The utility cannot use the energy cost pass-through procedure to shift to ratepayers the risk of misprojecting nonenergy components of the general rate. Our holding is consistent with those of other courts that have considered fuel cost adjustment statutes and have determined that such statutes cannot be used to guarantee that a utility will actually earn its authorized rate of return. See, e.g., Southern California Edison Co., 576 P.2d at 945.
UP & L argues very offhandedly that we should find the EBA invalid because it takes nontariff sales and allocates them to the benefit of ratepayers. That issue was not the focus of any presentation before the Commission or this Court. We decline to determine the overall validity of the PSC‘s order establishing the EBA and the propriety of the PSC‘s determination that certain costs and revenues (including revenues from nontariff sales) should be segregated from a utility‘s general account and held in the EBA. These issues were not raised below, and the information before this Court is inadequate to permit their reasoned determination.
Even if we did address the issues raised by UP & L, it would not affect our holding. It is of no import that the nontariff revenue, which flowed into the EBA rather than into general revenues, might be available to UP & L if the EBA did not exist or were structured differently. In determining the validity of the order here under review, the fact that the PSC‘s motive was to correct some untoward effects of a faultily constructed EBA would be irrelevant. The bar on retroactive rate making has no exception for missteps made in the rate-making process. Corrective action can be taken, but it must be prospective only. See
The orders of the PSC are reversed.
HALL, C.J., and DURHAM, J., concur.
STEWART, Justice (dissenting):
The Commission‘s order did not retroactively change the rates paid for electricity. What the order apparently did was to adjust the Energy Balancing Account (EBA) so that additional nontariff revenues are attributable to the company, rather than the ratepayers. Whether that “accounting adjustment,” as Utah Power and Light (UP & L) calls it, constitutes retroactive rate-making is not clear to me on the facts of this case because the Commission‘s findings simply do not explain how the EBA operates, especially with respect to the inclusion in that account of jurisdictional and nonjurisdictional revenues, rather than just fuel costs. Furthermore, I think the concept of retroactive rate-making is more complicated than the majority opinion indicates, and might not apply in this case. Since the Commission‘s findings of fact and conclusions of law fail to explain adequate-
I would remand the case to the Commission for additional findings.
HOWE, J., concurs in the dissenting opinion of STEWART, J.
Notes
If a public utility files a proposed rate increase based upon an increased cost to the utility for fuel or energy purchased or obtained from independent contractors, other independent suppliers, or any supplier whose prices are regulated by a governmental agency, the commission shall issue a tentative order with respect to the proposed increase within 10 days after the proposal is filed, unless it issues a final order with respect to the rate increase within 20 days after the proposal is filed. A public hearing shall be held by the commission within 30 days after issuance of the tentative order to determine if the proposed rate increase is just and reasonable.