Court Opinion

ID: 8904638
Source: CourtListenerOpinion
Date Created: 2022-11-27 01:42:59.973947+00
Date Added: 2024-06-11T17:08:04.770319
License: Public Domain

Judge MARTIN (Robert M.)
dissenting.
I respectfully dissent from the majority opinion. In my opinion the holding by the majority that the Commission was and is without authority to include or consider the cost of any portion of purchased power or interchange power in determining a fuel adjustment clause proceeding pursuant to G.S. 62434(e) is clearly erroneous.
In purchase and interchange power transactions there are two components of price paid by the purchasing utility for such purchased and interchange power. One component is the capacity cost, which reflects generating plant, transmission and distribution costs and other fixed costs of the selling utility. This component is not included by the Commission in setting rates pursuant to G.S. 62434(e).1 The other component is the energy cost, which is the cost of fuel utilized to generate the electricity produced. This component is required by the Commission’s Rule Rl-36 to be included in establishing rates pursuant to G.S. 62434(e).
The Commission has no authority except that given to it by statute. Utilities Comm. v. Telephone Co., 281 N.C. 318, 189 S.E. *4612d 705 (1972). The legislative mandate under G.S. 62434(e) provides “[notwithstanding the provisions of this Article, upon application by any public utility for permission and authority to increase its rates and charges based solely upon the increased cost of fuel used in the generation or production of electric power, the Commission shall . . .” and the declaration that a proceeding under the subsection “shall not be considered a general rate case” is clear and unambiguous. It therefore must be given effect and its clear meaning may not be evaded by an administrative body or a court under the guise of construction. Peele v. Finch, 284 N.C. 375, 200 S.E. 2d 635 (1973); Utilities Comm. v. Electric Membership Corp., 275 N.C. 250, 166 S.E. 2d 663 (1969).
Neither the language of G.S. 62434(e) nor this Court’s opinion in the Vepco Case limit recoverable fuel costs under the fuel adjustment clause or statute to the utility that generates electricity. When a generating utility sells electricity to another utility, as here, the purchasing utility must bear the energy component as part of the purchase price. Normally under the fuel adjustment clause, these costs would be passed directly to serviced customers as an expense of the utility which generates the electricity.
In Consumers’ Counsel v. Public Utilities Commission, 56 Ohio St. 2d 319, 384 N.E. 2d 245 (1978), the Office of Consumer Counsel argued that it was not within the Commission’s rule making authority to permit the pass-through of purchased power which is neither an acquisition nor a delivery cost. The Ohio Edison company generated electricity on its own system. On occasion, however, for reasons of necessity or economy, the company purchased electricity generated by other utilities. The company’s practice was to pass costs related to the purchased electricity to serviced customers through a fuel cost adjustment clause. The company charged its customers for the acquisition and delivery costs of fuel incurred by the generating, or selling, utility. These costs were reflected in a portion of the purchase price paid by the company for the electricity. The court rejected the O.C.C.’s position, stating that costs of fuel do not cease to exist on sales of power, but are incorporated in the price paid for electricity. The ultimate consumer, receiving the benefit of power purchases, is in effect charged for the acquisition and delivery costs of the *462generating company.2 Thus, the court permitted the inclusion of these costs in the FAC of the purchasing utility, which through a chain of transactions was actually absorbing these costs.
Appellant argues essentially that the words “purchased power” do not appear in these definitions. While this is true, it is not dispositive of the issue. R.C. 4905.01 does not limit recoverable fuel costs under a fuel cost adjustment clause to the utility that generates electricity. Its scope is far broader. The statute merely states that the cost of acquiring title to, and delivery of, fuel is recoverable under a fuel cost adjustment clause. Normally these costs would be passed directly to serviced customers as an expense of the utility which generates the electricity. However, when a generating utility sells electricity to another utility, as here, the purchasing utility must bear the acquisition and delivery costs as part of the purchase price. These costs have not ceased to exist upon sale; they have merely been incorporated in the price paid for the electricity. Customers of the purchasing utility who receive the benefit of these fuel expenditures are, in fact, charged for the acquisition and delivery costs of the generating utility, via the purchasing utility, which the statute permits.
Consumers’ Counsel v. Public Utilities Commission, 56 Ohio St. 2d 319, 321-22, 384 N.E. 2d 245, 247 (1978).
Throughout its order, the Commission has repeatedly stated that the capacity portion of purchased and interchange power fuel cost are not permitted to be recovered in the Commission’s fuel *463cost adjustment formula. In its order the Commission found as a fact and concluded:
The capacity costs of purchased and interchange power were and are not included in said formula. The fuel cost adjustment formula was adopted to enable the Commission and Staff to review more effectively the fuel cost filings made in accordance with G.S. 62434(e) in the expedited proceedings provided for by that statute.
The inclusion of the allowed fuel costs of purchased power and interchange power has not been modified or altered since the adoption of the formula in 1976. In nearly forty individual proceedings and two generic proceedings concerning the formula and the recovery of fuel costs, this Commission has consistently allowed the recovery of CP&L’s allowed fuel costs for purchased power and interchange power. As acknowledged in our Order dated May 18, 1978, in Docket No. E-2, Sub 316, the Public Staff has also heretofore recognized that “(p)roperly monitored, the formula accurately tracks changes in the cost of all fuel, nuclear as well as fossil, and the energy portion of purchased and interchange power.”
A review of our application of the language and procedures of G.S. 62434(e) clearly indicates our uniform and undisturbed interpretation that the cost of a utility’s fuel to be recovered in a fuel proceeding includes allowed fuel costs for purchased and interchange power which are described in the fuel cost adjustment formula. The formula’s computation includes only the costs of fuel used to generate or produce power or the cost of equivalent energy purchased. For example, the cost of a ton of coal burned by Duke Power Company included in the price of power purchased by CP&L is just as much a cost of fuel to CP&L as if CP&L had actually burned the coal itself. Consequently, the cost of fuel burned by a selling utility should be considered a component of the fuel cost of the purchasing utility which may be recovered in a proceeding pursuant to G.S. 62434(e) .... Any other conclusion is simply at odds with the language of G.S. 62434(e) and our consistent construction of such language.
The Public Staff has urged the Commission to abandon that consistent construction of the provisions of G.S. 62434(e) *464based on the Public Staffs interpretation of the recent decision of the Court of Appeals of North Carolina in Virginia Electric and Power Company, 48 N.C. App. 452, supra (Vepco). While the Public Staff acknowledges that our previously adopted treatment of the costs of purchased and interchange power in fuel cost adjustment proceedings was the appropriate application of G.S. 62-134(e), the Public Staff now argues that as a consequence of the Vepco decision, the consideration of such costs must be reserved for a general rate making proceeding pursuant to G.S. 62-133.
It is a fundamental rule of statutory interpretation that the construction placed upon a statute by the regulatory body required by law to administer the statute is entitled to great weight. Gill v. Board of Commissioners, 160 N.C. 176, 76 S.E. 203 (1912). See also State ex rel. Utilities Commission v. McKinnon, 254 N.C. 1, 118 S.E. 2d 134 (1961).
The Commission found and concluded that:
In addition to North Carolina, twenty-two of the other twenty-four states east of the Mississippi River permit purchased power to be included in their fuel clauses. The Federal Energy Regulatory Commission (FERC) also includes purchased power in wholesale fuel clauses. The Public Utility Regulatory Policies Act (PURPA) of 1978, requires states with automatic fuel adjustment clauses “to provide incentives for efficient use of resources (including incentives for economical purchase and use of fuel and electric energy). . .” and authorizes the FERC to exempt electric utilities from any provision of state law, or from any state rule or regulation, which prohibits or prevents the voluntary coordination of electric utilities if the FERC determines that such voluntary coordination is designed to obtain economical utilization of facilities and resources.
The energy portion of purchased and interchange power fuel costs has been allowed to be included in fuel clause proceedings for Carolina Power & Light Company since 1976; the capacity portion of such costs are not permitted to be recovered in the Commission’s fuel cost adjustment formula. In 1980, the purchased power and interchange transactions of Carolina Power & Light Company reduced its power produc*465tion costs by approximately $4.5 million on a total company basis. In the four-month period ending December 31, 1980, such transactions reduced CP&L’s total company power production costs by approximately $1 million. Substantially all of the power purchased in the four-month test period by CP&L was economy power which is inherently cheaper than power generated at that point in time from CP&L’s own generating plants.
* * *
Adoption of the adjustment proposed herein by the Public Staff would lead to the result that for the test period, Vepco would be denied the right to recover in its base fuel cost rates the amount which the Company expended for allowed fuel costs of purchased and interchange power in an effort to reduce system fuel costs and thereby benefit the using and consuming public. In this regard, Vepco witness Keesecker testified that, on a total company basis, Vepco expended approximately $68 million for purchased and interchange power during the four-month period ending December 31, 1980, and that if Vepco had itself generated the same level of power which it purchased during said period by use of its own oil-fired generating units, the Company’s fuel costs would have been increased by approximately $54 million. Vepco had every right and expectation that it would recover such fuel-related costs since the Commission has permitted those types of recoveries since late 1975 pursuant to the fuel cost adjustment formula adopted in general rate cases and generic hearings.
The Commission further found and concluded that: “It is the declared policy of the State of North Carolina to encourage the coordination of the operation of utility systems to increase the economy and reliability of utility service.”
Thus, inclusion of purchased power in the fuel adjustment clause is often considered an incentive to use low-cost sources of power. Purchased power is a substitute for that power which a utility ordinarily would generate itself. The ability to buy power from another utility at a price less than the cost of self-generation is clearly desirable from the standpoint of economic efficiency and there is little question that it is beneficial to the ultimate con*466sumer. Purchased power transactions involve millions of dollars in split-second decisions of utility dispatchers. Although administrative review of purchased power transactions has to be extremely difficult, this fact did not present an issue in these proceedings. Public Staff witness Sullivan verified the fact that the calculations submitted by CP&L and Vepco were mathematically accurate and that, had the Public Staff included the allowed fuel cost of purchased power and interchange power, its computation of the base fuel cost component would have been identical to that filed by CP&L and Vepco.
G.S. 62-2 declares the public policy of the State of North Carolina to be, in pertinent part, to “provide fair regulation of public utilities in the interest of the public,” to “promote adequate, reliable and economical utility service,” to “provide just and reasonable rates . . . consistent with long-term management and conservation of energy resources by avoiding wasteful, uneconomic and inefficient uses of energy,” to “foster the continued service of public utilities on a well-planned and coordinated basis that is consistent with the level of energy needed,” and to promote and coordinate “interstate and intrastate public utility service and reliability of public utility energy supply.” Thus, it is consistent with these policies for utilities to supply power to each other from available capacity in order to increase the reliability and economy of the operations of each other and to improve the quality and economy of the services provided to their consumers. It is my opinion that G.S. 62434(e) did not prevent the purchasing utility, who absorbed the fuel component cost of the generating utility, from having such energy expenditures included in its fuel based rates. The Commission met the statutory mandate by requiring all fuel costs, including the fuel cost portion of purchased and interchanged power, to be included in fuel based rates and its order should be affirmed.
House Bill 1594, amending Chapter 62 of the General Statutes, ratified 17th June 1982, repealed G.S. 62434(e). It has no application to this case, it having been enacted subsequent to the order of the Commission to which this appeal relates. I note, however, that the new legislation provides that the Commission may allow the utility to charge as a rider to their rates the cost of fuel and the fuel component of purchased power used in providing their North Carolina customers with electricity from the *467cost of fuel and the fuel component of purchased power established in their previous general rate case.

. Capacity factor is simply a means of measuring plant operating efficiency. In Utilities Comm. v. Power Co., 48 N.C. App. 453, 269 S.E. 2d 657, disc. rev. denied, 301 N.C. 531, 273 S.E. 2d 462 (1980), this Court held that “. . . plant efficiency as it bears upon fuel cost is not a factor to be considered in the limited and expedited proceeding provided for by G.S. 62-134(e).” Id. at 462, 269 S.E. 2d at 662.

. Delivery and acquisition costs are defined in R.C. 4905.01(E) and (F), respectively:
(E) “Delivery cost” means the cost of delivery of fuel, to be used for the generation of electricity, from the site of production directly to the site of an electric generating facility.
(F) “Acquisition cost” means the cost to an electric light company of acquiring the title of fuel to be used for the generation of electricity. * * * Such term does not embrace any associated cost including, but not limited to, delivery cost, the cost of handling the fuel after its delivery to such facility, the cost of such processing, readying, or refinement of the fuel as may be necessary in order to use the fuel to generate electricity or the cost of disposing of any residue of such fuel after it has been so used.