Court Opinion

ID: 9548720
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:07:45.842425+00
Date Added: 2024-06-11T15:19:21.341756
License: Public Domain

ERICKSON, Justice,
concurring in part and dissenting in part:
I would affirm the decision of the Public Utilities Commission of Colorado (PUC). I agree with the majority that this appeal is not moot and that the PUC had statutory authority to determine sua sponte whether the tariffs filed by Colorado-Ute Electric Association (Colo-Ute) were just and reasonable. I also agree with the majority that substantial evidence supports the PUC’s order that Colo-Ute’s proposed rate be replaced by a seasonally differentiated demand-energy rate. In my view, however, competent evidence supports the PUC’s allocation of $24,084,126, representing part of the fixed capital costs of Colo-Ute’s coal-fired plants, to the energy component of the formula used to determine the new rate. Accordingly, I would re*650verse the trial court and remand with directions to affirm the PUC’s order.
I.
The PUC’s order is supported by the testimony of Warren L. Wendling (Wen-dling),1 a Public Utilities Engineering Analyst employed by the PUC. Generally, utilities employ three types of power plants to meet fluctuating demands for electricity. Coal-fired plants typically operate continuously. They are expensive to construct, but because of the low cost of coal, cheap to operate. The combined generating capacity of plants that a utility operates continuously is called the “base load capacity” of the utility.2 When the demand for electricity exceeds the base load capacity, the utility typically uses either oil- or gas-fired plants to satisfy the “peaks” in demand.3 These plants are cheap to build, but because of the high cost of oil and gas, expensive to operate. Contrary to industry practice, Colo-Ute employs only coal-fired plants to meet all of its commitments to power users.
As an integral part of the PUC’s rate determination, Wendling performed a cost-of-service study (study) to compute the utility’s “cost of service,” the total revenues required to cover the utility’s cost of operation plus a fair return on its investment. The “cost of service” is used to set the demand-energy' rates for each of Colo-Ute’s customers.4 The study allocates costs to each customer by dividing Colo-Ute’s costs into numerous categories. The costs distributed to each category are adjusted to provide Colo-Ute with a reasonable rate of return and then allocated to each customer based in part on the customer’s consumption of electricity. Wendling’s study was the only cost-of-service study of Colo-Ute presented to the PUC.
In the cost-of-service study, Wendling followed generally accepted cost allocation methods, such as that contained in the NARUC Electric Utility Cost Allocation Manual. Generally accepted allocation methods assume that a utility uses either oil- or gas-powered plants to meet peaks in demand. Accordingly, Wendling concluded that the study results had to be modified to reflect Colo-Ute’s investment in coal-powered plants to meet peaks in demand. Colo-Ute’s use of coal-fired plants, rather than oil- or gas-powered plants, to meet surges in demand in excess of base load capacity results in lower fuel costs but higher plant construction costs (capital costs). To strictly follow the unmodified study results would defeat the purpose of the study itself; that is, the study’s results would not accurately track Colo-Ute’s actu*651al cost of service.5 Without appropriate adjustments, the demand-energy rates would cause non-peak users of electricity to subsidize peak users. Accordingly, based upon his analysis of Colo-Ute’s operations Wendling modified the results of his study by allocating $24,086,126, the plant capital costs required to supply peak demand, from the demand component of the demand-energy rate to the energy component. The modification caused customers to pay more for electricity used to satisfy peak demands than under the unadjusted rates.6
Based on the testimony of Wendling, the PUC made the following findings:
Wendling testified that ... there should be a recognition of the utilities’ [sic] investment in thermal coal-fired generation plants. Investment in such plants minimizes the cost of fuel relative to investment in peaking plants with its attendant low capacity or capital costs and high fuel costs for fuels such as oil or gas.
... Substantial portions of [Colo-Ute’s coal-fired units] are being used for peaking purposes. In effect, units with high capital costs and low running costs have been substituted for units with low capital costs and high running costs in meeting Colorado Ute’s [electrical needs]. Although such capital substitutions may accord with the national energy policy, it nevertheless creates an artificially high demand charge and an artificially low energy charge. Moreover, no recognition is given to the off-peak use of base load capacity.
The PUC examined Wendling’s modification of the study results and concluded that the allocation would enable more accurate tracking of Colo-Ute’s costs.7
II.
Atlantic Richfield Company (ARCO) and Exxon Corporation (Exxon), two customers of Colo-Ute who will pay higher power costs as a result of Wendling’s modification, contend that the PUC’s decision to modify the study results is not supported by substantial evidence. They argue that the capital costs of the coal-powered plants are “fixed costs” and can only be recovered in the demand variable of the demand-energy rate and that the allocation of $24,084,-126 to the energy component of the rate was arbitrary and capricious. Finally, they *652claim that the PUC’s prescribed energy rates are discriminatory in violation of sections 40-3-102 and -106, 17 C.R.S. (1984 & 1987 Supp.).
A.
In reviewing the propriety of the PUC’s modification to the demand-energy rate, we must consider two issues: (1) whether the decision to modify the rate formula constituted an abuse of discretion and (2) whether the amount of the modification was supported by the record. Concerning the first issue, the PUC has broad discretion in determining rates, provided the rates are just and reasonable. Colorado Ute Elec. Ass’n, Inc. v. Public Util. Comm’n, 198 Colo. 534, 602 P.2d 861 (1979); Consumers’ League v. Colorado & S. Ry., 53 Colo. 54, 125 P. 577 (1912); § 40-3-102. It is the result reached, not the method employed, which determines whether a rate is just and reasonable. City of Montrose v. Public Util. Comm’n, 629 P.2d 619 (Colo.1981). Orders of the PUC are presumed to be just and reasonable. Id. at 623. Rate-making is not an exact science but a legislative function involving many questions of judgment and discretion based upon a myriad of factors including evidentiary facts, calculations, known factors, and adjustments that may affect the relationship between known factors. City of Montrose, 629 P.2d at 623; Colorado Ute Elec. Ass’n, 198 Colo. at 539, 602 P.2d at 864. A reviewing court has neither the expertise nor resources of the PUC and, absent a clear abuse of discretion, should not substitute its judgment for that of the PUC. Atchison, T. & S. F. Ry. v. Public Util. Comm’n, 194 Colo. 263, 572 P.2d 138 (1977).
In my view, the decision to modify the demand-energy rate formula was not an abuse of discretion. The PUC found, based on competent evidence, that the cost-of-service study did not accurately track Colo-Ute’s costs because the study’s cost allocations assumed that oil- and gas-powered plants would be used to meet peaks in power demand. The assumption of the study was inappropriate in this case since Colo-Ute employed only coal-fired plants to meet peaks in energy demand. The unmodified rates also failed to realize a policy goal of the PUC. The rates, by not charging increased costs for electricity used to supply peaks in demand, would not encourage Colo-Ute’s customers to conserve energy and encourage Colo-Ute to improve its load factor.8 Although the ability of the PUC to effect social policy through rate-making is limited, Mountain States Legal Foundation v. Public Utilities Commission, 197 Colo. 56, 590 P.2d 495 (1979), the PUC has a duty to protect the public from unreasonable and unjust rates and to prevent destructive rate-making that could adversely affect the availability of service to the public. Consolidated Freightways Corp. v. Public Util. Comm’n, 158 Colo. 239, 406 P.2d 83 (1965); see Consolidated Gas Supply Corp. v. Federal Power Comm’n, 520 F.2d 1176 (D.C.Cir.1975) (holding federal power commission’s adoption of new rate formula, shifting a greater proportion of capital costs from the demand component to the commodity component of the rate formula, to be just and *653reasonable where the modification was supported neither by technical research nor by commission studies); Fuels Research Council, Inc. v. Federal Power Comm’n, 374 F.2d 842 (7th Cir.1967) (recognizing federal power commission’s broad discretion in using rate formulas to achieve policy goals); State Corp. Comm’n v. Federal Power Comm’n, 206 F.2d 690 (8th Cir.1953) (affirming power commission’s adoption of new rate formula that was supported neither by technical literature nor by commission studies or research), cert. denied, 346 U.S. 922, 74 S.Ct. 307, 98 L.Ed. 416 (1954). Considering the innumerable factors that must be identified and quantified to determine rates, scientific precision in rate-making is not always possible and the PUC must be accorded broad discretion in setting rates. Accordingly, since the impact of the modified rate on Colo-Ute and its customers is just and reasonable, the modification of the rate was not an abuse of discretion.
B.
The second issue raised by ARCO and Exxon is whether the amount of the modification, $24,084,126, is supported by the record. Section 40-6-115(3), 17 C.R.S. (1984), limits the scope of judicial review to determinations whether a PUC decision is unconstitutional, “whether the decision ... is just and reasonable,” and “whether its conclusions are in accordance with the evidence.” It is well established that the findings and conclusions of the PUC on disputed questions of fact, when based on competent evidence, are final and must be upheld on judicial review.9 See, e.g., Mellow Yellow Taxi Co. v. Publib Util. Comm’n, 644 P.2d 18 (Colo.1982); Contact-Colorado Springs, Inc. v. Mobile Radio Tel. Serv., Inc., 191 Colo. 180, 551 P.2d 203 (1976). While the factual findings of the PUC need not be presented in any particular form and may even be implied, the findings must be discernible to the reviewing court. Caldwell v. Public Util. Comm’n, 200 Colo. 134, 613 P.2d 328 (1980).
In my view, the amount of the modification is supported by competent evidence and must be upheld on review. Based upon his analysis of Colo-Ute’s operation and his calculations, Wendling stated that a modification of the rate formula in the amount of $24,084,126 was necessary to permit accurate tracking of Colo-Ute’s costs.10 Although a time-of-day rate would also have enabled accurate tracking of Colo-Ute’s costs, Wendling testified that that rate would be much more difficult to implement and would provide less accurate results. Accordingly, the modification of the demand-energy rate must be upheld on review.
III.
Finally, ARCO and Exxon contend that the PUC’s prescribed energy rates are discriminatory in violation of sections 40-3-102 and -106, 17 C.R.S. (1984 & 1987 Supp.). They claim that the PUC’s modifications to the demand-energy rate do not *654accurately track actual costs and are discriminatory because they cause some users to subsidize rates of other users. They argue that the modified rates (1) favor winter users and discriminate against summer users and (2) favor customers with fluctuating demand for electricity during the year and discriminate against those customers with relatively constant demand each year.
Section 40-3-102 provides that the PUC has authority “to prevent unjust discrimi-nations” in rates, charges, and tariffs. (Emphasis added.) Section 40-3-106(1) states that “no public utility shall ... make or grant any preference or advantage to any corporation or person or subject any corporation or person to any prejudice or disadvantage” and that no utility “shall establish or maintain any unreasonable difference ... in any respect, either between localities or as between any class of service.” (Emphasis added.) In Mountain States Legal Foundation v. Public Utilities Commission, 197 Colo. 56, 590 P.2d 495 (1979), we found a violation of section 40-3-106(1) when the PUC ordered utility companies to provide a lower rate to low-income elderly and low-income disabled persons that was “unrelated to the cost or type of service provided.’’ Id. at 59, 590 P.2d at 498 (emphasis added).
In this case, the modification of the demand-energy formula is related to the actual costs of Colo-Ute to supply users and violates neither section 40-3-102 nor -106. On the contrary, the modification prevents non-peak users from subsidizing peak users and avoids the type of unjust discrimination raised by ARCO and Exxon. The unadjusted demand-energy rates endorsed by ARCO and Exxon discriminate against certain users since the rates do not accurately reflect Colo-Ute’s costs. Competent evidence in the record supports the PUC’s conclusion that the modified rates accurately reflect Colo-Ute’s costs and therefore charge Colo-Ute’s customers fairly.
Accordingly, I would reverse the district court and remand with directions to affirm the PUC.
I am authorized to say that Justice LOHR and Justice VOLLACK join in this dissent.

. The qualifications and experience of Wendling were admitted as evidence. Wendling has a bachelors degree in electrical engineering, a masters degree in science, and a masters degree in business administration. He is a registered professional engineer in Colorado with over eight years’ experience in electrical engineering. He has previously testified as an expert witness before the PUC in other cases involving rate determinations.

. "Base load" units are those units that are in continuous operation and “base load capacity” is the generating capacity of those units. Mississippi Indus. v. Federal Energy Regulatory Comm'n, 808 F.2d 1525 (D.C.Cir.), vacated in part, 814 F.2d 773 (D.C.Cir.), opinion reinstated, 822 F.2d 1103 (D.C.Cir.), cert. denied, — U.S. -, 108 S.Ct. 500, 98 L.Ed.2d 499 (1987). The “generating capacity” of a power plant refers to the maximum amount of electricity that it can generate.

. Peak demand refers to demand in excess of base load capacity. The plants used to meet peaks in demand are called "peaking plants." The typical period of peak demand for utilities is during the winter, when energy demand far exceeds demand during other times of the year. During non-peak periods, demand is typically met by the base units, which are generally coal powered plants. When the demand of cooperative members is less than base load capacity, Colo-Ute sells the unused capacity to non-members.

.The demand variable is a component used to determine the demand-energy rate and is the sum of several components, including a generation component. The generation component is based on total average and excess demand (also called "Average and Excess Demand”), which is the sum of the average demand and excess demand figures. Demand-related costs are allocated by the generation component based on "average demand" (annual kilowatt hour usage) and "excess demand" (difference between the utility’s peak and average demands).

. Wendling testified:
The energy charge was computed [after the demand charge]. Here Staff is proposing only for generation costs to recognize the increase[d] investment in demand related dollars made by Colorado-Ute in its generating plant so that they can bum coal. A utility can minimize its investment in generation plant by constructing oil or gas fired generators. However, a fuel cost penalty is [incurred]. On the other hand a utility may expend more capital and build a coal fired unit and bum a lower priced fuel. Therefore, this additional investment should be recovered in the energy charge. To accomplish this consistent with the cost of service methodology the average portion of the average and excess demand allocation factor was split....

. Wendling testified that another way to accurately track Colo-Ute’s costs is through a time-of-day rate. He stated that a portion of the average demand component of the average and excess demand allocation for Colo-Ute should be recovered in the energy charge since that component is analogous to the base load portion of generating capacity. In time-of-day rates, the costs of base load generating capacity are recovered through the rate’s energy component. He stated that a similar formula was used in two prior PUC rate determinations. According to Wendling, his rate design tracked costs better than time-of-day rates and was much easier to implement. The PUC and Wendling use the terms "time-of-day rate” and "time-of-use” rate interchangeably.

.Other pertinent parts of the PUC order stated: One way to address [Colo-Ute’s investment in coal fired plants to meet peaks in demand] is by the use of a time-of-use rate which would recognize the use of capacity at the time it occurs.
The disadvantages of a time-of-use rate, of course, is the increased complexity of metering and billing and the need to perform cost allocation studies for the distribution cooperatives. As a surrogate for such a rate, Mr. Wendling proposed a modification of the demand-energy rate. In this modified rate, the dollars of generation costs associated with the average portion of the [average and excess demand] allocation were spread into the energy charge. Mr. Wendling testified that for the Colorado-Ute system, the amount so calculated approximated very closely the dollars of base load generation that would have been spread to all hours by a time-of-use rate.

. A customer’s annual "load factor” is the percentage relationship of its average daily demand (annual use/365) to its maximum daily demand. Northern Ind. Pub. Serv. Co. v. Federal Energy Regulatory Comm’n, 782 F.2d 730 (7th Cir.1986). Concerning the modification of the demand-energy rate, the PUC order stated:
... For Colorado-Ute’s particular load shape and seasonality, the excess portion of the AED [average and excess demand] is a proxy for the peaking portion of the generating facilities. This peaking capacity was allocated on the basis of coincident peak demand recognizing that the members exhibit a high coincidence with the Colorado-Ute system peak. Placing only the excess portion of the AED allocation in the demand charge provides an automatic incentive to Colorado-Ute to improve its system load factor since the higher the load factor becomes, the higher is the proportion of generation costs collected in the energy charge and the lower is the demand charge. This provides the incentive to maintain and improve the system load factor that was absent in the flat energy rate.... This should, if applied in conjunction with an effective resource management plan, produce essentially a flat rate, the very rate Colorado Ute seeks to employ. This rate form has the additional advantage that, in the present application, it comports with the regulatory objective of rate stability.

. We have also held that the PUC’s findings and conclusions may be set aside or modified if not supported by substantial evidence. See, e.g., City of Montrose, 629 P.2d at 622; Public Util. Comm’n v. City of Loveland, 87 Colo. 556, 289 P. 1090 (1930). The substantial evidence standard requires a party challenging the findings and conclusions of the PUC to carry a heavy burden.
Substantial evidence is more than a scintilla, and must do more than create a suspicion of the existence of the fact to be established. "It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion,” ... and it must be enough to justify, if the trial were to a jury, a refusal to direct a verdict when the conclusion sought to be drawn from it is one of fact for the jury. National Labor Relations Bd. v. Columbian E. & S. Co., Inc., 306 U.S. 292, 300, 59 S.Ct. 501, 505, 83 L.Ed. 660 (1939) (quoting Consolidated Edison Co. v. National Labor Relations Bd., 305 U.S. 197, 229, 59 S.Ct. 206, 216, 83 L.Ed. 126 (1938)). See generally 5 K. Davis, Administrative Law Treatise § 29:5 (2d ed. 1984) (discussing substantial evidence standard). In my view, the PUC’s findings and conclusions in this case are supported by substantial evidence.

. Wendling’s opinion that a modification in the amount of $24,084,126 was necessary was based on the staffs separation of demand functional-ized costs and revenues. See supra note 5. The $24,084,126 is the sum of the total of the average demand portion as set forth in Exhibit 60 in the PUC hearing.