Opinion ID: 1771223
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Heading: storm damage expenses

Text: As a general rule losses incurred by a utility because an existing rate is inadequate may not be recovered by excessive rates in the future. Nichols & Welch, Ruling Principles of Utility Regulation, Supp. A, pp. 318-319 (1964). Today however, many jurisdictions recognize a general exception to the blind application of the rule against retroactive ratemaking. Apparently, the exception to the rule is based upon the premise that no rule should work to undermine its original purpose. The prohibition of retroactive ratemaking tends two basic functions. Initially, it protects the public by ensuring that present consumers will not be required to pay for past deficits of the company in their future payments. Narragansett Elec. Co. v. Burke, 415 A.2d 177, 178-79 (R.I. 1980). This effectively protects the consumer from surprise surcharges from years back due to negligence or mismanagement on the part of the Company. Additionally, the rule prevents the utility from employing future rates as a means of ensuring the investments of its stockholders. Id. (citing, Georgia Rye & Power Co. v. Railroad Commission of Georgia, 278 F. 242 (D.C.Ga. 1922). If a utility company were guaranteed a certain return, it would forego all incentive toward an efficient, cost effective operation, thus resulting in even higher operating costs and frequent rate increases. The Mississippi case addressing this rule and upon which the appellants rely is Mississippi Public Service Commission v. Home Tel. Co., 236 Miss. 444, 110 So.2d 618 (1959). Although the rule is indeed cited therein, appellants' reliance thereon is misplaced. The situation at issue was one in which the Company attempted to regain, out of its operating expenses, $25,454.95 in past losses incurred by it because it waited too long to put its proposed rates in effect under bond. This Court disallowed the Company's proposal citing the rule against retroactive ratemaking. Additionally the court disallowed the company's loss on its abandoned, obsolete telephone plant proposed to be amortized from operating expenses over a five year period. See also, F.P.C. v. Tennessee Gas Transmission Co., 371 U.S. 145, 83 S.Ct. 211, 9 L.Ed.2d 199 (1962). A distinction exists between the aforementioned situations and the instant case. The exception to the rule against retroactive ratemaking applies where an extraordinary event such as a severe storm causes damage to a utility resulting in great expense on repair and restoration of service to its customers. See e.g., the recent case of Re Kansas City Power & Light Co., 75 P.U.R.4th 1 (1986) (citing Narragansett, supra, the rule against retroactive ratemaking does not apply to expenses incurred as a result of extraordinary events such as ice storms); Re Kansas City Power & Light Co., 55 P.U.R.5th 468 (1983) (citing Narragansett, supra ); Narragansett, supra ; Wisconsin's Environmental Decade, Inc. v. Public Service Commission of Wisconsin, 298 N.W.2d 205 (Wis. Ct. App. 1980); and Re Florida Power Corp., 81 P.U.R.3d 394 (1969). In Narragansett, supra, the Rhode Island Supreme Court explained the basis for allowing the power company to recoup the expense incurred from the effects of the extraordinary ice storm as follows: The application of the rule against retroactive ratemaking to prevent the company from recovering the extraordinary cost of the ice storm would serve neither of the policies expressed above. Because of the unpredictable and severe nature of the storm, it is unlikely that company officials, in planning their operational expenses, could take into account the cost of repairing the widespread damage that occurred on January 14, 1978. The existing rates, moreover, as the commission indicated in its decision, were not in any fashion [based on] the extraordinary expenses of restoration of service after the ice storm. Since the company incurred highly extraordinary expenses not covered by existing rates in combating this freakish storm, it is difficult to perceive how the future efficiency of the utility would be furthered by the application of the rule in this instance. We have also noted that the rule serves to protect present customers from paying for a utility's past operating deficits. This aspect of the rule must be weighed against the interest of providing immediate service to customers when a destructive, unexpected storm occurs. On such an occasion the public interest in quickly restoring heat and electricity to the homes of customers must prevail.       The next time a storm of this magnitude occurs, the company would have no incentive to hire outside line and tree crews to restore service efficiently and swiftly to customers if no reimbursement for extraordinary expenses would be forthcoming. Thus, application of the rule to expenses related to such an emergency situation so inextricably related to the public health and safety would serve to thwart the goal of effective customer service. The plethora of cases from other jurisdictions permitting a utility to recover the extraordinary costs associated with an unusually severe storm indicate that the rule against retroactive ratemaking does not come into play in such instances. Re United Illuminating Co., 7 P.U.R.4th 417 (Conn.P.U.C. 1974); Re Diamond State Telephone Co., 28 P.U.R.3d 121 (Del.P.S.C. 1959); Re Southern Bell Telephone & Telegraph Co., 66 P.U.R.3d 1 (Fla. P.S.C. 1966); Re Kansas Power & Light Co., 8 P.U.R.4th 337 (Kan.S.C.C. 1975); Re Baltimore Gas & Electric Co., 25 P.U.R.3d 91 (Md.P.S.C. 1958); Boston Edison Co., D.P.U. 19300 (February 28, 1977); Re Detroit Edison Co., 20 P.U.R.4th 1 (Mich.P.S.C. 1977); Re Southwestern Bell Telephone Co., 92 P.U.R.N.S. 481 (Mo.P. S.C. 1952); Re Chrisp's Telephone Co., 65 P.U.R.3d 317 (Neb.S.R.C. 1966); Re Long Beach Water Co., 53 P.U.R.3d 495 (N.J.P.U.C. 1964); Re Long Island Lighting Co., 9 P.U.R.4th 21 (N.Y.P.S.C. 1975); Pennsylvania Public Utility Commission v. Pennsylvania Electric Co., 25 P.U.R.4th 342 (Penn.P.U.C. 1978). (Emphasis Added). Narragansett at 179-180. Earlier that same year the Wisconsin Court of Appeals held that Wisconsin's statutory proscription against retroactive ratemaking did not apply to recoupment of the amortized portion of an extraordinary loss caused by a severe ice storm. In so doing the court stated: The supreme court has held that without statutory authority, rates are to be applied prospectively. Friends of the Earth v. PSC, 78 Wis.2d 388, 254 N.W.2d 299 (1977). In the case of Wisconsin Telephone Co. v. PSC, 232 Wis. 274, 303, 287 N.W. 122, 137 (1939), the court held that in establishing a rate for the future and in the absence of statutory authorization therefor, the commission may not amortize a loss or make a rate sufficiently low to recapture the excesses. We cannot conclude, however, that the prohibition against retroactive rate making applies in the recouping of an extraordinary casualty loss. Wisconsin's Environmental Decade, Inc. v. Public Service Commission of Wisconsin, 298 N.W.2d 205, 212 (Wis. Ct. App. 1980). After a hearing on the matter, the Commission could have allowed the Company recovery for the expense incurred in repairing extraordinary storm damage.