Opinion ID: 2388681
Heading Depth: 1
Heading Rank: 1

Heading: fuel adjustment clause

Text: The Board based its finding that a fuel adjustment clause would be appropriate here in part upon the testimony of an expert witness for the public, John W. McCabe, III. The Board found the clause to be appropriate because Green Mountain was in a period of drastically fluctuating fuel costs and uncertain fuel supply. In permitting a fuel adjustment clause, the Board also noted that while it did not generally approve automatic clauses of any kind, it had done so in the recent case of Central Vermont Public Service Corporation, reported at 94 P.U.R.3d 34 (1972). Opportunity was provided by the Board for other parties to comment on any such clause filed by Green Mountain, and the clause was made subject to final Board review and approval. The public, in its motion for reconsideration, objected to the clause filed by Green Mountain and set forth its objections in considerable detail. These objections were responded to by the Board in its supplemental findings of July 19, 1972, and the clause proposed by Green Mountain was approved. In general terms, the fuel adjustment clause approved by the Board for Green Mountain provides for an upward or downward adjustment of all rates corresponding to any increase or decrease in the cost of fuel from a base cost. The base cost for the purpose of computation of the fuel adjustment was taken as the costs during March, 1971, and, in the case of sources added since that date the cost was that during the first month in which the source was used. The adjustment applies to the cost of fuel for thermal electric generating equipment, whether such fuel is used by Green Mountain in its plants, or by other utilities in the generation of electricity purchased by Green Mountain, provided such fuel costs can be identified as a specific charge to Green Mountain by the supplier. The question pertaining to the fuel adjustment clause as framed by the public and certified by the Public Service Board pursuant to V.R.A.P. 13(d) for review by this Court is: Whether the adoption of a fuel adjustment clause in this case is supported by substantial evidence and is just and reasonable as required by 30 V.S.A. § 218? At the outset we, as a reviewing Court, must establish what standard we are to apply when we view findings of fact made by the Public Service Board. The standard we previously applied, that being to accord the findings of fact the force and effect of a special master, has been amended. cf. North v. City of Burlington Electric Light Department, 125 Vt. 240, 214 A.2d 82 (1965). The present standard is now set forth in 30 V.S.A. § 11(b) as follows: Upon appeal to the supreme court its [the Board's] findings of fact shall be accepted unless clearly erroneous. This is the same standard of review which applies to findings of fact of a trial court under V. R.C.P. 52(a). Green Mountain Marble Co. v. State Highway Board, 130 Vt. 455, 457, 296 A.2d 198 (1972). As such, our standard of review varies from the substantial evidence standard applied by the federal courts when they review administrative proceedings. Compare Gainesville Utilities Department v. Florida Power Corporation, 402 U.S. 515, 91 S.Ct. 1592, 29 L.Ed.2d 74 (1972), with 4 K. Davis, Administrative Law Treatise § 29.02 at 121 (1958). In a rate proceeding the powers and duties of the Public Service Board are set forth in 30 V.S.A. § 218, which provides in part: When, upon hearing, the rates, tolls, charges or schedules are found unjust, unreasonable, insufficient or unjustly discriminatory, or are found to be preferential or otherwise in violation of a provision of this chapter, the board may order and substitute therefor such rates, tolls, charges or schedules, and make such changes in any regulations, measurements, practices or acts of such company relating to its service, and may make such order as will compel the furnishing of such adequate service as shall at such hearing be found by it to be just and reasonable. In fulfilling this responsibility, it is the duty of the Board to first find that the present rate is unjust or unreasonable, and then it is the duty of the Board to make such changes as it finds will make the rates just and reasonable. Petition of Milton Water Corp., 125 Vt. 487, 492, 218 A. 2d 710 (1966). A review of the testimony elicited from public's witness McCabe by counsel for the public offers considerable light on the basis for the Board's finding that a fuel adjustment clause was just and reasonable in view of the circumstances present in Green Mountain's situation. Mr. McCabe, a public utilities consultant experienced in the operation of fuel adjustment clauses, testified the Boston Edison system, the principal supplier of Green Mountain's power, had invoked a fuel adjustment clause during the test year with respect to the energy it supplied to Green Mountain. The energy charge for electricity supplied to Green Mountain by Boston Edison had been increased from 4.5 mils per kilowatt hour to 7.29 mils per kilowatt hour at the end of the test year. Mr. McCabe attributed this increase to the increased cost of fuel purchased by Boston Edison, and the fact the City of Boston had instituted a low sulfur requirement of 1% for fuel burned there. Mr. McCabe also indicated the City of Boston would institute a sulfur requirement of ½% in the period following the test year. Another factor considered by Mr. McCabe to have a bearing on the necessity for a fuel adjustment clause was the fact that the fluctuating cost of fuel could render any revenues based upon the test year inadequate if the cost of fuel went up; or conversely, if the cost of fuel went down the revenues would be excessive. In his review of what should be reflected in a fuel adjustment clause for Green Mountain, Mr. McCabe testified any such clause should be drafted so as to take into consideration both increases and decreases in the cost of fuel. He also testified such a clause should not encompass energy produced by atomic or hydro facilities now in existence or coming on line at some point in the future. Witness McCabe concluded his testimony by recommending what he referred to as a purchase power adjustment clause when he stated: I normally hesitate to gear cost increases or decreases to one particular item of cost within a company's total cost of service, but in this case I think that it would be appropriate, particularly since they are subject to a fuel adjustment clause of their major purchase [ sic ] of power. . . . Having first found a fuel adjustment clause to be just and reasonable in view of the circumstances then present, the Board next proceeded to allow Green Mountain to propose a clause. Opportunity was also provided for the other parties to comment upon the clause filed by Green Mountain before it was approved by the Board. The public, in its motion for reconsideration, objected in considerable detail to the clause proposed by Green Mountain, and proposed a clause of its own. These objections were responded to by the Board in its supplemental findings and the two proposed clauses were compared before the clause proposed by Green Mountain was approved as being a just and reasonable addition to Green Mountain's rate tariff. The arguments for and against fuel adjustment clauses are well summarized in Re: Southern California Edison Company, 94 P.U.R.3d 252, 256-62 (1972), and from them one cannot help but reach the conclusion that such clauses are to be only approved with caution. The public argues the clause approved by the Board fails to encourage hard bargaining on the part of Green Mountain, and in support of this position the public relies upon Re: Union Electric, 92 P.U.R.3d 254 (1971), where a commission rejected a fuel adjustment clause. The clause proposed by Union Electric would have passed on to the public only increases in the costs of coal used to generate electricity in its own plants, while providing no way for the Missouri Public Service Commission to determine if the increased charges were warranted. However, the circumstances in the case at bar are far different from those in Union Electric, for here Green Mountain purchases some 87% of its power requirements from other companies, and as a consequence, it has no control over the source of fuels purchased by its suppliers. The clause adopted by the Board in the case at bar provides for both an upward or downward adjustment, while that rejected by the Commission in Re: Union Electric, supra, only provided for an upward adjustment. But most importantly, the Board stated that Green Mountain would have to notify it in advance before any increase could take effect, and the Board would review the basis for any such increases. For these reasons, we can see a clear distinction between Re: Union Electric, supra, and this case. In its brief the public contends the decision of the Board to invoke a fuel adjustment clause is based upon insufficient evidence because the Board failed to adhere to the essentials of due process and adopted the clause without providing the public with any real opportunity to be heard. In the field of administrative regulation the essentials of due process must be met if a fair and open hearing is to be provided by the Board. Petition of New England Tel. & Tel. Co., 120 Vt. 181, 188, 136 A.2d 357 (1957); Morgan v. United States, 304 U.S. 1, 58 S.Ct. 999, 82 L.Ed. 1129 (1938). The question on review is not the adequacy of the original notice or pleading but is the fairness of the whole procedure. Critical to a determination of whether the procedure was fair is whether or not the parties were given an adequate opportunity to prepare and respond to the issues raised in the proceeding. 1 K. Davis, Administrative Law Treatise § 8.04 at 525 (1958). Green Mountain proposed a purchase power adjustment clause to the Board shortly before filing its petition for an increase in rates and withdrew the proposal following discussions with the Board's staff. Then in its petition for an increase in rates Green Mountain did not request a fuel adjustment clause. As a consequence of these two events, one could be easily led to believe a clause would not be placed in issue by the Board or Green Mountain. Unfortunately, that did not prove to be the case, and after hearing testimony on the need for a fuel adjustment clause, the Board in its findings decided to allow Green Mountain to propose one. Green Mountain proposed a clause and the Board provided the public with an opportunity to comment upon the clause. The public took this opportunity in its motion for reconsideration, and the Board responded to the public's objections setting forth its reasons for not adopting the Clause proposed by the public and approving the clause submitted by Green Mountain. While it would have been highly desirable for the Board to have given notice to all the parties as soon as it became apparent a fuel adjustment clause would become an issue in the proceeding, we cannot say that on the record before us the public was denied the opportunity to be heard on both the need for a clause and its provisions. We conclude the Board properly discharged its function under 30 V.S.A. § 218 when it approved the use of a fuel adjustment clause by Green Mountain.