Opinion ID: 453189
Heading Depth: 2
Heading Rank: 1

Heading: Delmarva's Filing and Interim Proceedings

Text: 6 Delmarva supplies electric power at wholesale to customers in Delaware, Maryland, and Virginia, including eight municipalities in the state of Delaware, four of which are petitioners in this case. 1 On May 31, 1978, Delmarva submitted to FERC proposed wholesale rate increases designed to generate a revenue increase of $7,819.530 over Delmarva's prior rates for the 12-month period ending December 31, 1978. Upon receipt of objections by a number of Delmarva's customers, FERC suspended the proposed rates for the maximum period of five months, set the case for hearing, and granted intervention to a number of Delmarva's wholesale customers, including six Delaware municipally-owned utilities and the three rural electric cooperatives, see supra note 1, and others. 2 7 Wholesale rate filings before FERC must include some method by which the utility proposes to allocate its total cost of providing service among the utility's various classes of customers. One major category of costs is that of so-called demand costs. As a general matter, demand costs encompass a utility's fixed or capacity-related costs, including the cost of providing generating and transmission facilities. Apportioning these costs among customers presents theoretical and practical problems, Cities of Batavia, et al. v. F.E.R.C., 672 F.2d 64, 80 (D.C.Cir.1982), for the customers typically use the system capacity on a joint basis. 3 8 Delmarva's 1978 rate filing proposed to allocate demand costs among its wholesale customer classes on the basis of a four-day coincident peak (4-DCP) cost allocation method. This method allocates demand costs to customers based on each customer's average contribution to demand for electricity during Delmarva's four highest power sales days. 4 In support of its choice of the 4-DCP method, Delmarva argued essentially that its system peak consistently occurred during the summer, and that its annual system peak load was the most important factor affecting its decision regarding additions to its power supply capacity. See Delmarva Power & Light Company, 17 F.E.R.C. p 63,044, at 46 (December 2, 1981) (initial decision of Administrative Law Judge). 5 The revenue increase sought by Delmarva on the basis of the 4-DCP allocation methodology amounted to $4,002,947 from its wholesale municipal customers and $3,888,636 from its wholesale cooperative customers. 9 Several of Delmarva's customers, including the petitioners here, raised objections to Delmarva's filing. Of relevance to this case, the petitioners argued before the Commission that Delmarva's use of the 4-DCP method was unsupportable and unreasonable. They noted that Delmarva had submitted no studies or support for its use of 4-DCP peaks or for the method by which it projected those peaks. The petitioners asserted that Commission precedent as applied to Delmarva's system and demand characteristics dictated that demand costs be allocated under the 12-CP method. Under this method, demand costs are based upon the average of each month's peak demand during the year; the allocation among customer classes is based upon their average contribution to the average monthly peak. Cities of Batavia, 672 F.2d at 81. The municipalities assert that, based upon the 12-CP methodology, Delmarva would have sought a revenue increase of $3,873,953 from its wholesale municipal customers and $5,768,869 from its wholesale cooperative customers. Thus, compared with the 4-DCP method, the 12-CP method results in a substantially greater proportion of total demand costs being allocated to Delmarva's cooperative customers. 10 In September 1978, prior to the commencement of proceedings before the Commission, Delmarva and its wholesale cooperative customers entered into a settlement, which the parties filed with the Commission for its approval. The settlement provided for a 36 percent reduction in Delmarva's filed rates to the cooperatives. 6 Delmarva made the same offer to the municipalities, but they rejected it. Delmarva and its cooperative customers stipulated that the agreement represents a compromise for the purpose of settlement and is not to be regarded as a precedent with respect to any ratemaking principle. Joint Appendix at 370 (motion for approval of settlement agreement). The Commission, however, appears to have assumed that the settlement was based on the 4-DCP method, see 24 F.E.R.C. p 61,199 at 61,645 (1983) (Opinion No. 185) (reprinted in Joint Appendix at 85) ([t]he discrimination [found by the ALJ to violate Sec. 205(b)] arose at the settlement stage solely from Delmarva's use of a 4-day CP demand cost allocation method), and the municipalities take the same position before this Court. 11 The municipalities subsequently withdrew their objections to the settlement on the understanding that it had no precedential effect on the question of what constituted the fair and reasonable rate which the Commission was obliged to fix under Sec. 205(a) of the Federal Power Act, 16 U.S.C. Sec. 824d(a) (1974), and that the municipalities did not thereby forfeit their right to contest at a later date the issues of demand cost allocation methodology and any resulting discrimination. The staff of the Commission supported the agreement, and the Commission approved it, as amended, see supra note 6, on Feb. 19, 1981. Joint Appendix at 48. In due course the matter of Delmarva's filing with respect to its non-settling customers came on before an Administrative Law Judge (ALJ).