Opinion ID: 1778943
Heading Depth: 1
Heading Rank: 5

Heading: excessive coal costs associated with the nelson 6 station

Text: The Commission disallowed a total of $1.191 million in excessive coal costs associated with the Company's imprudence regarding its Nelson 6 Station. The district court affirmed the Commission's order with respect to the total $1.191 million stating that the Commission had a reasonable basis, considering all of the evidence, with which to support its decision. We agree with the trial judge's conclusion and affirm his ruling. The Commission based its disallowance on the Company's imprudent price renegotiation of its Kerr-McGee coal supply contract in 1991 which consequently made operation of the Nelson 6 more expensive, at a time when cheaper sources were available. The Commission found that the Company presented no witnesses that could attest to the Company's decisionmaking process during the relevant time period. Witnesses produced only testified to an after-the-fact explanation which the Commission found did not withstand scrutiny. Order U-19904-D at p. 21. Thus, the Commission concluded that since the Company could not supply contemporaneous documentation of any of its decisionmaking processes with regard to the Kerr-McGee contract decisions, which its own consultant witness testified that a prudent utility would do, it failed to carry its burden under the prudence inquiry to show a reasonable decisionmaking process. See Test. Schwartz, L.P.S.C. (10/06/96). The Company presented its expert witness, Mr. Seth Schwartz, who testified that the Company did not provide him with any contemporaneous documentation or analysis recording the Company's decisions regarding the renegotiation of the coal requirements contract. Test. Schwartz at p.1565, L.P.S.C. (10/06/96). Mr. Roy Giangrosso, Entergy's Director of Coal Supply, testified that his analysis of the redetermination was a reconstruction made three years after the negotiation took place. [27] Cross Test. Giangrosso at p. 2548, L.P.S.C. (3/13/95). After reviewing the testimony and other evidence from the proceedings below, we find the Commission did not act arbitrarily or capriciously, but had a reasonable basis to determine that GSU did not carry its burden of showing the reasonableness of its decisionmaking process under the prudence analysis. We therefore affirm the trial court's ruling with respect to this portion of the imprudence disallowances. V. GAS INVENTORY CARRYING COSTS AT SPINDLETOP AND THE BASE RATE ELECTRICITY COSTS BOTH SPINDLETOP AND NISCO This issue encompasses two of three disallowances ordered by the Commission. [28] The first issue which we address is the $7.58 million in gas inventory charges from Spindletop, and the second, involves both the $2.172 million disallowance associated with the rebilling of the cost of electricity supplied to Spindletop and the $.121 in base rate charges for the Nelson Industrial Steam Company (NISCO). Generally, as to the first issue, the Company entered into a contract with Sabine Gas Transmission (SGT) to construct and operate a gas storage facility known as Spindletop. Based on the terms of the transaction between the Company and SGT, and expert testimony at the hearings, the Commission found that the Company effectively owns the facility. [29] The Commission ordered a refund of $7.58 million due to the improper inclusion of gas inventory charges from this facility in the monthly fuel clause charges. The Company labeled the expenses carrying charges on the gas inventory at Spindletop and passed-through these expenses to its customers in fuel clause charges since July, 1992. The Commission found this practice objectionable because the expenses, which are not truly fuel expenses although they are related to fuel, are not properly recoverable through the use of the fuel clause. Rather, because these costs are considered predictable, known, or measurable costs, they are properly base rate charge items and the Company is required to bring the expenses before the Commission for its approval and inclusion in the base rate in an annual base rate proceeding. The Commission evaluates the Company's total revenue requirements and determines if such expenses warrant an increase in rates only in base rate proceedings. The Commission explained that to allow the Company to use the fuel clause to pass through these costs directly to customers would allow the Company to circumvent the ratemaking process. The second issue encompasses two disallowances; the $2.172 million disallowance associated with the rebilling of the base rate cost of electricity supplied to Spindletop and the $.121 in base rate charges for NISCO. Essentially, the Company supplies electric service to Spindletop and NISCO, The arrangement between the facilities and GSU allows the facilities to bill what it pays for electricity back to the Company as part of the cost of services provided to GSU. The Company then reimburses the facilities for the amount originally paid to the Company for their electric service. This amount, which the Company repays to the facility, is then recouped by the Company by inclusion in the fuel charges passed-through to ratepayers. The Commission disallowed these costs stating that GSU should not have the ability to unilaterally charge ratepayers base rate charges in the fuel clause. GSU conceded that the amount in question is a base rate charge that has been billed through the fuel clause. Order U-19904-D at p. 18. The Commission explained [t]he rationale for disallowing both the NISCO and the Spindletop base rate charges is the same base rate costs should not be billed through the fuel clause. Id. Making the activity even more objectionable to the Commission, during part of the review period the Company was under a base rate freeze, which would have precluded the Company even from recouping these expenses properly through a base rate increase. Thus, inclusion of these charges during the freeze through the use of the fuel clause effectively circumvented the effects of the base rate freeze. GSU sought and obtained the base rate freeze after a base rate increase, and as a result, GSU agreed not to seek another rate increase prior to December 31, 1992. Order U-19904-D at p. 19 (citing Order 17282-J at p. 32.) Thus, the decision to funnel these costs, only properly recoverable in base rates, through the fuel clause charge, effectively circumvented both the rate freeze in effect during much of the review period and the proper ratemaking processes. The district court found that the Commission had a reasonable basis upon which to make this determination and affirmed the Commission's disallowance. The Company argues that the Commission's disallowance is arbitrary in that no basis in fact or law exists for the Commission's determination that the Company is not entitled to recover fuel transportation costs through use of the fuel clause. The Company argues that the reasons given by the Commissionthe classification of the costs, circumvention of the rate freeze and ratemaking process and the relationship between the Company and the supplierfail to support the ordered refunds. Essentially, the Company asserts that the characterization of the relationship between SGT and GSU is an improper basis upon which to order a refund. The Company argued that Spindletop is no more than an ordinary service provider to the Company and that Spindletop and NISCO just happen to also be electric service customers as well as suppliers. As such, whenever the Company pays a legitimate fuel bill to a supplier and records that payment as an expense, whether that supplier is a customer or not, the Company is paying the cost of electricity incurred by the supplier as the supplier will include in its price of service the total costs of operation. Thus, the only difference with regard to these facilities is that these two suppliers itemized their bills. The Commission considered these explanations through the testimony of the Company's expert on the matter, Mr. Kenneth F. Gallagher, as well as the Staff's expert, Mr. Lane Kollen. After consideration of the evidence, the Commission found that the facility was in fact effectively an asset of GSU. As an asset, the facility's electric service cannot be billed to the ratepayers because the Company's utilization of electricity at its own plants is not properly categorized as a fuel expense, but is rather an operational expense which can only be included in the base rate. The Commission's decisions regarding interpretation of its own rules and orders are entitled to great weight, and will not be disturbed on appeal unless shown to be arbitrary, capricious or abusive of authority. See Central Louisiana Elec. Co., Inc., 370 So.2d 497. The Commission is an expert within its own specialized field and its interpretation and application of its own General Orders, as distinguished from legislative statutes and judicial decisions deserve great weight, because the Commission is in the best position to apply its own General Orders. Dixie Elec. Membership Corp. v. Louisiana Pub. Serv. Comm'n., 441 So.2d 1208, 1210 (La.1983) (citing Central Louisiana Elec. Co., Inc., 370 So.2d 497). The trial court found a reasonable basis in the record to support the Commission's conclusions with respect to these issues and affirmed. Likewise, we find a reasonable basis in the record to support the Commission's findings and conclusions, and have found no error of law in the Commission's interpretation of its own rules and order. Accordingly, since the Commission's Order has not been shown to be arbitrary, capricious or abusive of its authority, we agree with the trial court, and affirm his ruling.