Opinion ID: 1526377
Heading Depth: 2
Heading Rank: 2

Heading: Seasonal Rates

Text: The Natural Resources Council of Maine, supported by testimony of its expert witness, Dr. Richard S. Bower, proposed to the Commission that two different residential rates be implemented: a higher one for the November through February heating season, and a lower one for the remainder of the year. The Commission rejected the proposed differential, and the Natural Resources Council appeals. Relying on a marginal cost analysis conducted for Central Maine Power by the National Energy Research Association (NERA), Doctor Bower concluded that the marginal cost of service varied by season, [63] and that a seasonally-differentiated rate was the proper method of reflecting that differential and producing cost-based rates. Doctor Bower's methodology for determining marginal costs per kilowatt-hour for each season was straight-forward. He adopted the NERA study's calculations as to the marginal demand-related unit costs, as to marginal energy costs, and as to allocation factors for each pricing period (November-February and March-October). Using information on residential load and total residential energy sales, Doctor Bower produced marginal costs per kilowatt-hour for each pricing period, from which in turn he developed his seasonally differentiated residential rates. [64] The Commission agreed that, on average, providing service is more costly during the winter months. It concluded, however, that it lacked sufficient information to establish seasonally differentiated rates which would be equitable in individual cases. The NERA study on which Doctor Bower relied did not attempt to break down the variations in marginal costs during the broad winter pricing period. Rather, it computed only average costs which are subject to considerable fluctuation depending upon the day of the week and the time of day. Consequently, although on average the costs of producing electricity during the heating season are higher, the Commission recognized that at many hours during that season the costs may actually be lower than during some hours of the non-heating season. Without this more detailed breakdown of costs, the Commission was concerned that the seasonal rate could be a shotgun approach, and declined to adopt it: We reject Dr. Bower's proposed seasonal rate because we find that there is a substantial likelihood that many customers would be penalized in excess of the costs they actually impose on the system. Rates that vary by season, in conjunction with rates that vary by time-of-day, may be the best way to reflect the actual cost of service. However, there are certainly many hours during the winter months which should properly be characterized as off-peak hours. Unless and until time-of-day rates are available for all customers, a seasonal rate would unfairly charge on-peak rates for a considerable amount of off-peak use. Given more information, the Commission now argues, seasonal rates might be an appropriate method of reflecting cost differences. However, it continues, on the state of the record here, the Commission acted within its discretion in refusing to implement a seasonal rate. The Natural Resources Council assails the Commission rationale, contending that the NERA study was far more comprehensive than the Commission admits, producing costs measured both seasonally and on an on-peak and off-peak daily basis, year round. Recognizing that it suffers from the limitation of being unable to precisely monitor the specific performance of specific customers as an ideal time-of-use rate structure would, the Council urges that the same limitation applies to the flat-rate structure adopted by the Commission, and that the Commission erred in not choosing the structure (i. e., seasonally differentiated) that would have minimized the discrimination the Commission found to be imposed on low and medium residential users in the form of a subsidy to heavy users. Even if, the Council says, the costs are only averages, they do vary seasonably, and the Commission itself has decreed that averages must sometimes be employed where greater precision is unattainable. Further, the principal rationale offered by Central Maine Power on this issuethat a lower summer rate could increase demand at that time, and interference with scheduled generator maintenancewas considered by NERA in producing its study, and the experience of the Central Vermont Company (an electric utility) with a seasonal differential produced no suggestion of maintenance difficulties. Finally, the Council points to, inter alia, the Maine Electric Rate Reform Act, 35 M.R.S.A. §§ 91 et seq. (1977) and the federal Public Utility Regulatory Policies Act of 1978 (PURPA), P.L. 95-617, 92 Stat. 3117 ( U.S.Code Cong. & Admin.News 1978, p. 7659) as establishing policies mandating implementation of such ratemaking techniques as seasonal differentials. The rejection of Doctor Bower's proposal, the Council concludes, was based on unsupported speculation as to its potential for error, and was arbitrary and capricious. Once more we are plunged into the thicket of the rate design briar patch. Once more we conclude that the Commission acted within its discretion, with a methodology and result that is reasonable and supported by substantial evidence. Initially we note that the resulta failure to adopt seasonally differentiated ratesderives some aura of reasonableness from the bare fact that a contrary decision would have been unprecedented. Seasonally differentiated rates have never been implemented in this jurisdiction, and one alleging that the failure to do so is in itself unreasonable shoulders not only the ordinary burden of the appellant but the weight of past practice. While tradition alone will not save unreasonable conduct, the unreasonableness of a historically accepted practice in the circumstances under consideration must be shown. See Central Maine Power Company v. Public Utilities Commission, supra, 382 A.2d 302 at 328, n. 39. Several witnesses testified as to the proper rate design; only Doctor Bower recommended a seasonal rate. Central Maine Power's Anderson rejected a seasonal differential on the basis of the necessity for summer maintenance noted above; we do not find the evidence on that facet of the issue conclusively supportive of either position, nor does it appear that the Commission necessarily assigned any significance to it. Doctor Wilson specifically rejected use of a seasonal differential for several reasons, including the relatively small winter-summer peak differential, the scheduled maintenance problem, and Central Maine Power's responsibilities as part of NEPOOL. In abbreviated form his testimony was that: On the Central Maine Power Company system, I've not made any seasonal differential. That's kind of unusual. Normally, in a situation like this I would recognize a seasonal differential. There are several reasons for not doing it. One, the winter peak and the summer peak tend to be pretty close together with each other. . . . . . Moreover . . . there's reason to believethat the excess capacity during the off peak periods and particularly during the spring and the fall is necessary for planned maintenance anyway . . . . there's not so much of that off peak time that it would appear obvious to me that an off peak rate ought to be charged. . . . . . Moreover, we've got another complication . . . [i. e.] whether or not the rates for the Central Maine system ought to reflect NEPOOL peaks and whether they ought to reflect peaks in Maine. . . . Well, as it turns out, other than the seasonal differential between CMP and NEPOOL the daily loads look pretty much the same. On a daily basis we don't have terribly much in the way of complication as to whether we ought to use CMP or NEPOOL. . . . . . [G] iven the fact that the summer peak is nearly as great as the winter peak, given the fact that the off peak periods are needed for system maintenance and given the fact that NEPOOL doesn't have the kind of winter peaks that the CMP systems has, I thought that the most directcertainly the least complex and perhaps the most accurate way of designing rates was to impose no seasonal differential at all. Doctor Bower referred on several occasions to the experience of Central Vermont Company under a seasonally differentiated rate. As Central Maine points out, however, Central Vermont's winter/summer peak differential has historically been much larger than Central Maine's and as of the 1977 test year was still slightly above Central Maine Power's. [65] The impact of a seasonal rate in leveling the differential could be expected to be far less in the case of Central Maine Power than in the Vermont experience; moreover, the perceived necessity for a leveling would be correspondingly reduced. The Commission's conclusion that the risks of a seasonal rate outweighed the prospective advantages is buttressed by these distinctions between the comparative problems and potential gains of the utilities involved. Perhaps the Commission would have considered the risks it foresaw in a seasonal rate worth undertaking had Central Maine's seasonal differential like Central Vermont's, hovered around 40 percent. We cannot so determine, but we can evaluate the shortcomings of evidence supporting a seasonal rate in determining whether the Commission's rejection of it was erroneous as a matter of law. The citation by the Council of state and federal legislation establishing policies variously urging and mandating consideration of more clearly cost-based rate designs and structures does not suggest unlawful Commission action. The Maine Electric Rate Reform Act specifically states that the Commission is authorized to implement experimental or other reforms as [it] may determine is appropriate, 35 M.R.S.A. § 94. Similarly, the Public Utility Regulatory Policies Act requires state regulatory commissions to consider such standards as seasonal rates, and determine whether or not it is appropriate to implement such [a] standard . . . § 111(a); See also H. Conf. Rep. No. 95-1750. The Act, as the Council concedes, was not signed into law until nearly a month after the Commission's Decree in this case, and allows commissions three years to consider the implementation of the standards set forth therein. § 111(b). The question, the Council says in its reply brief, is not whether the Commission has violated any specific directive of PURPA, but whether it violated its policy in declining to adopt seasonal rates. On the basis of this record, we cannot find such a violation. The Commission made its decision after hearing conflicting evidence as to the propriety of seasonal rates. In choosing the more conservative path of declining to adopt seasonal rates without further assurances of precision in tracking actual costs, it was faithful to its obligation to make no findings without substantial evidence. We deny the appeal of the Natural Resources Council of Maine as to this issue. The entries are: 1. As to Central Maine Power Company: Section 303 appeal denied in part and sustained in part. Section 305 complaint granted in part and denied in part. Judgment for defendant on Section 305 complaint as respects the capital structure issue, for plaintiff as respects remaining issues. Appeal from Superior Court denied as moot. 2. As to Intervenors St. Regis Paper Company, Consumer Action Coalition, and Natural Resources Council of Maine, et al.: Section 303 appeals denied. Remanded to the Public Utilities Commission for further proceedings consistent with this opinion. McKUSICK, C. J., and DELAHANTY, J., did not sit. WERNICK, ARCHIBALD, GODFREY and NICHOLS, JJ., concurring.