Opinion ID: 2391090
Heading Depth: 1
Heading Rank: 1

Heading: The Fuel Adjustment Clause

Text: In its 1974 report and order the commission reviewed the statutory authority for authorization of an FAC, basically relying on Hotel Continental v. Burton, 334 S.W.2d 75 (Mo.1960) and § 393.130(4), RSMo 1969, discussed infra. [1] By its order it authorized recovery of fuel adjustment costs in two parts, the basic fuel recovery cost, and a fuel adjustment charge for changes up or down in the cost of fuel from the base cost previously set by the commission. Basically, the 1974 fuel adjustment formula authorized by the commission permitted the utility to file an FAC as part of its tariff schedule. The FAC permitted the company to determine its actual fuel cost and actual sales in any given month. Any change in fuel cost was converted into a change in cost per kilowatt-hour of power sold by applying a formula which arrived at the average number of BTU's of heat necessary to generate one kilowatt-hour of electricity. Certain technical adjustments were made, and a figure equal to the fuel adjustment charge (i. e., the increased or decreased cost of fuel over the base fuel cost) was determined. Thirty days notice was given to the commission and the adjustment then was included on consumers' bills. Because of the 60-120 day lag-time (each utility's lag varied depending on its practices), required to gather the figures necessary to compute the FAC charge, and the notice requirement, changes in fuel costs in, for example, October were added to the bills for the December 16 to January 15 meter readings. Certain safeguards, such as a requirement that information relevant to a determination of whether fuel costs in fact increased be given the commission, were ordered. As a result of this rather inexact method, which involved charging customers in January for fuel costs incurred in October and apportioned according to the number of kilowatt-hours sold in October, the utility overrecovered its full costs if the number of kilowatt-hours sold in January were greater than in October, and underrecovered if they were less. In its 1976 order, the commission modified the fuel adjustment clause it had previously approved. It set forth a model tariff indicating how the new FAC was to be filed. Substantial compliance with this tariff was required of any utility which wished to utilize a fuel adjustment clause. The 1976 order permitted recovery only of coal costs. In order to eliminate the possibility of under or over recovery because of a switch in the source of fuel, possible under the old clause, the heat-rate based formula was replaced by a formula permitting dollar for dollar recovery of fuel costs above or below the base fuel cost. This formula also permitted recovery of the cost of the fuel component of power purchased from other sources rather than generated by the utility. Under the new formula, the utility was still required to determine actual, rather than estimated, fuel cost changes for the month in which an increase in costs occurred, but was allowed to use estimated figures for projected sales for the month in which increased charges based on the changed fuel costs would be billed. Once actual sales became known a correction factor would be included in a later month's billing. Further, the 30-day notice period was eliminated. In this way, part of the regulatory lag between incurring the costs and passing them on to the consumer was eliminated. Certain safeguards, including monthly reports to the commission and an annual audit by the commission, were required. As an example of the operation of the 1976 FAC authorized by the commission, assume that fuel costs have risen in January. Once actual costs for that fuel are known, the utility will submit them to the commission. It will also submit its estimated sales in March and the resulting fuel adjustment charge to be used in the March billing. The staff will have the balance of the month of February to check these figures. In March, an increased fuel adjustment charge will take effect. During April, the utility will determine the difference between its actual March sales and the estimated sales used to figure the March charge. A correction factor will be figured to adjust for any inaccuracy, and will be included in figuring the May fuel charge. The same procedure would be followed each month, so that February's costs would be figured in March and applied to April estimated sales, actual April sales would be figured in May and a correction factor be included in the June billing, and so forth. The PSC also raised the base fuel cost for each utility filing an FAC to include the annualized cost of fuel for the 12 month period preceding the commission order. This is called a roll-in of fuel costs. Basically, the costs previously included in the FAC became a part of the base cost, which consequently rose by that amount. The fuel adjustment charge was thus temporarily zero, and any new charge because of increased fuel cost was thus figured from the higher base cost.