Court Opinion

ID: 6733266
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:15:12.120813+00
Date Added: 2024-06-11T16:01:41.606518
License: Public Domain

Judge Martin
dissenting.
In fixing rates to be charged by a public utility, the Commission is exercising a function of the legislative branch of the government, and has only that power conferred upon it by G.S. Chapter 62. Utilities Commission v. General Telephone Company of the Southeast, 281 N.C. 318, 336 (1972).
G.S. 62-130 (a) authorizes the Commission to fix rates, and G.S. 62-130 (d) authorizes the Commission to revise and change rates from time to time as circumstances may require. G.S. 62-136 (a) authorizes the Commission to investigate existing rates on its motion or upon complaint of anyone directly interested, and if the rates are found to be unjust and unreasonable, the Commission has the authority to determine the rates to be thereafter observed and in force. In investigating rates and setting rates for the future under the broad authority of G.S. 62-136(a), the legislature has given the Commission specific procedural and substantive guidelines to follow in fixing rates. G.S. 62-133 empowers the Commission to conduct a general rate hearing if the utility seeks an increase in rates which affects the entire rate structure of the utility. G.S. 62-73 and 74 allows a proceeding when the utility, a customer, or the Commission wishes to investigate a single rate or small part of the rate structure. Utilities Commission v. Carolina Power and Light *472Company, 250 N.C. 421 (1959); Utilities Commission v. Tidewater Natural Gas Company, 259 N.C. 558 (1963). G.S. 62-134 (e) provides for an investigation of a rate increase application based solely upon the increased cost of fuel. G.S. 62-137 requires the Commission to declare the scope of the hearing.
This Court has recently approved the use of a fuel escalator clause to set rates, stating that G.S. 62-3(24), which defines “rate” is worded in such a broad manner as to encompass the use of a formula. Utilities Commission v. Edmisten, Attorney General, 26 N.C. App. 662 (1975). I dissented in that case, and the question presented has not yet been decided by our Supreme Court. If it is assumed that a formula implemented under G.S. 62-3(24) is a valid rate making device, then G.S. 62-3(24) and the formula are subject to the limitations of G.S. 62-136(a).
When the statutes are viewed in harmony, and each is given its proper effect, it appears that whether rates are fixed under G.S. 62-133, G.S. 62-73, G.S. 62-74, G.S. 62-134 (e), or G.S. 62-3(24) investigation and ordered change must be made under the umbrella of the authority given by G.S. 62-136 (a) and G.S. 62-130.
A rate is fixed or allowed when it becomes effective pursuant to Chapter 62. G.S. 62-130(a). And rates must be fixed prospectively from their effective date. G.S. 62-136 (a) provides that the Commission shall determine rates “to be thereafter observed and in force.” This statute, which controls all rates set under G.S. Chapter 62, allows the Commission to set for a utility a reasonable rate for service to be rendered in the immediate future. The Commission may not fix rates retroactively so as to make them collectable for past service. Utilities Commission v. City of Durham, 282 N.C. 308, 318 (1972); Utilities Commission v. Morgan, 277 N.C. 255, 267 (1970). See Public Utilities Commission v. United Fuel Gas Co., 317 U.S. 456, 464, 87 L.Ed. 396, 63 S.Ct. 369.
In a general rate case conducted pursuant to G.S. 62-133, a utility’s historical costs and earnings during a proscribed test period must be considered. The test period operating experience of the utility must be adjudged pro forma to account for all known changes and conditions affecting revenues and expenses so that the test period will accurately reflect the immediate future. Thus specific expense items which occurred in the past are not calculated so that they may be actually recovered by future *473rates. They are calculated only to be used as the most reasonable estimate of what the company may anticipate in the future.
The use of historical operating data to set rates for the future is not limited to setting rates under G.S. 62-133 when a test period is used. It applies to setting rates under any other proceeding or rate making device used in North Carolina. These principles apply to the use of an automatic fuel adjustment clause as well as to nonautomatic procedures.
Thus, a fuel clause is a prospective device — it sets rates for the future. The fuel clause applied in any given month, could not be applied retroactively to collect past fuel costs, incurred in rendering service prior to the effective date of the fuel clause, although billings rendered under the fuel clause were based on actual past costs. Billings under the fuel clause were intended to collect fuel costs in the months billings were rendered and the costs two months prior to the billings were used in the billing month as a proxy for the actual costs in the most current months. This procedure is the same in principle as applied in setting rates under G.S. 62-133.
When the fuel clause or coal clause was initially approved on December 19, 1973, as a result of Duke’s application filed on November 30, 1973, legally it had to operate prospectively on and after December 19, 1973. Although burned coal costs on and after November 1, 1973 were used as the best estimate of or cost proxy for billings on and after January 19, 1974, Duke could not be allowed to recover its burned costs prior to that date. To have allowed the coal clause to recover coal costs burned on and after November 1, 1973, would have been the clearest example of retroactive rate making. Utilities Commission v. Morgan, Attorney General, supra. G.S. 62-136(a). The November, 1973 burned costs were simply used as the best estimate of costs to be billed from January 19, 1974 to February 19, 1974. Since the coal clause at its inception was prospective, no legally recoverable two months lag arose.
The critical factor is that the $18,503,555 in fuel costs were costs incurred in rendering service prior to the effective date of the Commission order of August 27, 1975, and the Commission acted in excess of its statutory authority by allowing these costs to be recovered retroactively. The surcharge is an illegal rate or charge for services rendered in the past. The Commission had no authority to go back and set rates for serv*474ices rendered in July and August, 1975, in order to recover un-billed revenues. G.S. 62-136 (a)., Utilities Commission v. Morgan, Attorney General, supra.
G.S. 62-134 (e) only allows for recovery of increased cost of fuel used in the generation or production of electric power. There is no increased cost of fuel ón and after September 1, 1975, involved in the costs being recovered under the temporary surcharge. These are past non-recurring expenses incurred for past service prior to the issuance of the Commissioner’s order in this case. Further, G.S. 62-134 (e) plainly prohibits attempts to carry the old fuel clause forward past September 1, 1975, and this is precisely what the Commission has attempted to do through its approval of the temporary surcharge. The Commission totally lacks statutory authority or jurisdiction to approve the temporary surcharge.
I vote to reverse.