Opinion ID: 2202769
Heading Depth: 2
Heading Rank: 1

Heading: Chalk Point Unit 4

Text: Construction of Chalk Point Unit 4 was begun in 1972 and completed in late 1981. [3] In the rate proceeding, PEPCO sought to include in the rate base the full amount of its end-of-test-period investment. [4] A majority of the Commission decided instead to allow PEPCO to include the average amount of test-period investment in the rate base. Chairwoman Ruth Hankins-Nesbitt dissented. She maintained that because CP-4 had operated only once during the test period, it was not used and useful, and therefore PEPCO should not be allowed to recover the full average value of CP-4 in rate base. . . . Order No. 7716, dissent at 4 (emphasis added). OPC adopts the argument in the dissent that CP-4 was not used and useful, but carries it a step further and contends that the Commission should not have allowed PEPCO to include any allowance for additional CWIP in its rate base. [5] Specifically, OPC argues that CP-4 was not used and useful because it rendered extremely minor service and because it was not until July 1982 that the unit provided  some service and demonstrated that it was reasonably free from significant design or construction defects and would continue to function in the proximate future. [A]n item may be included in a rate base only when it is `used and useful' in providing service. In other words, current rate payers should bear only legitimate costs of providing service to them. Tennessee Gas Pipeline Co. v. Federal Energy Regulatory Commission, 196 U.S.App. D.C. 187, 202, 606 F.2d 1094, 1109 (1979), cert. denied, 445 U.S. 920, 100 S.Ct. 1284, 63 L.Ed.2d 605 (1980); accord, Washington Gas Light Co. v. Public Service Commission, supra, 450 A.2d at 1226. In determining whether an item is used and useful, i.e., whether it benefits ratepayers, the Commission must consider the most recent available material, which would normally be found in post-test-year data. Potomac Electric Power Co. v. Public Service Commission, supra, 402 A.2d at 18. The Commission noted that CP-4 was being operated as a peaking unit and that it would continue to be in operation during the period that the rates resulting from this case [would] be in effect. Order No. 7716 at 62-63. The Commission also observed that Paul Waltz, an expert on its own staff, [6] had inspected the unit twice and . . . [found] it to be a good fuel oil cycling unit with good flexibility of operation. Id. at 63-64. Furthermore, it considered the testimony of a PEPCO witness, Edward Mitchell, who stated that CP-4 incorporates heat rate improvement features not found in other units designed for cycling, and . . . that CP-4 [had] the most useful design for meeting installed reserve and supply of peak period energy requirements. Id. Thus, while it is true that CP-4 was in service for only a minuscule portion of 1981, post-test-year data demonstrated that CP-4 provided service to ratepayers. CP-4 functions as a peaking unit. The Commission found that [h]ad CP-4 been delayed, projected reserves [in 1982] would have been 5.8%  far below the minimum necessary to maintain reliability of service. Order No. 7716 at 65. It considered alternative ways to treat CP-4 in determining the rate base and decided to permit PEPCO to include the average end-of-period value. OPC has not sustained its burden of showing that the Commission's decision in this respect was arbitrary or unreasonable. OPC also assails the Commission's treatment of CP-4 on the ground that PEPCO's decision to complete it was imprudent. Specifically, it argues that [a]s a result of PEPCO's demonstrated failure to conduct, during the course of its planning and construction of Chalk Point Unit 4, the kind of timely economic studies that the Commission has held are required to assure properly efficient service, there can be no doubt that PEPCO has not proved the prudency of its investment in Chalk Point Unit 4. OPC recognizes that the Commission relied on two studies performed by PEPCO, one in 1975 and the other in 1979, in concluding that the record [did] not support a finding that CP-4 was an imprudent investment. Order No. 7716 at 66. OPC contends, however, that this reliance was improper because those same studies were criticized in Formal Case No. 737 by the Commission. Its argument is misdirected. Formal Case No. 737 was divided into two phases. [7] The first phase culminated in Order No. 7425, in which the Commission found that, given the inadequacy of generating reserves, CP-4, which was virtually completed, should be brought on line as soon as operational. Order No. 7425 at 7. The order also said, however: [T]he Commission will proceed to take appropriate action on the question of conversion of CP-4 to coal-fired capability. The record clearly establishes the economic desirability of conversion, and we agree that PEPCO should have begun its evaluation far sooner. We cannot understand why PEPCO did not and we question the wisdom or prudence of PEPCO's management in this regard. Id. at 8. After receiving additional information, the Commission concluded in Order No. 7795 not to require conversion of CP-4 from oil to coal. That order, which ended the second phase of Formal Case No. 737, was affirmed by this court in People's Counsel v. Public Service Commission, 474 A.2d 835 (D.C.1984). In its order denying OPC's application for reconsideration in this case, the Commission observed: Essentially OPC is attempting here to parlay our criticism of PEPCO's system planning methodologies made in [Formal Case] No. 737 into a finding of imprudence with respect to the specific system planning decisions made by PEPCO in the 1970's and early 1980's.       Even if the Commission were to eventually determine that conversion of CP-4 to duel-fuel [ sic ] or coal capability is a feasible, cost effective path, that would not necessarily require a finding that PEPCO was imprudent in bringing the unit on line as an oil-fired unit. Order No. 7751 at 10-11. The Commission did not find, in any phase of Formal Case No. 737, that PEPCO's decision to continue construction of CP-4 as a coal-fired unit was imprudent. On the contrary, in the first phase of that case it agreed that CP-4 should be brought on line as soon as operational. In Formal Case No. 785 (the instant case) it considered two studies by PEPCO which concluded that completion of CP-4 was the most cost-effective course of action. OPC has not convinced us that the Commission's agreement with this conclusion was arbitrary or unreasonable.