PUBLIC SERVICE COMMISSION ORIGINAL OF WEST VIRGINIA

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1 . PUBLIC SERVICE COMMISSION ORIGINAL OF WEST VIRGINIA / CHARLESTON Entered: June 8, 1984 CASE NO E-GI VIRGINIA ELECTRIC AND POWER COMPANY, a corporation. Review of fuel costs of Virginia Electric and Power Company for the period October 1, 1983 through March 31, 1984, for the purpose of establishing a fuel increment in rates to be effective July I, 1984 through December 31, HEARING EXAMINER'S RECOMMENDED DECISION PROCEDURE By recommended decision entered in Case No E-GI, which became the Final Order of the Commission on December 29, 1983, Virginia Electric and Power Company (VEPCO), a corporation, was authorized to include in its rates for the period January 1 through June 30, 1984, the amount of $ per kilowatt hour to reflect fuel costs at meter level, in lieu of the previously approved fuel recovery level. By order entered on February 17, 1984, in the above-styled and numbered proceeding, VEPCO was made Respondent to the new proceeding and was ordered to appear at a hearing to be held in the Commission's Hearing Room at the Capitol in the City of Charleston on June 4, 1984, at which time and place the Respondent was to appear and present information and evidence relating to its fuel and net energy costs for the period October 1, 1983 through March 31, Anyone interested was given leave to appear and present testimony relating to VEPCO's fuel costs. The order of February 17, 1984, established the following procedural schedule: VEPCO was required to file with the Commission on or before May PUBLIC S COMMISSION GlNlA

2 4, 1984, its actual fuel cost and net energy cost data and-net energy cost recoveries for the period October 1, 1983 through March 31, 1984, as well as estimates or the application period of July 1, 1984 through December 31, Additionally, along with the fuel data requested above, VEPCO was ordered to file direct testimony and evidence to be presented at the hearing. Commission Staff and any intervenors were required to file copies of their direct testimony and evidence on or before May 28, Additionally, VEPCO was ordered to give notice of the time and place of hearing by posting and by publication. On February 24, 1984, the Consumer Advocate Division (CAD) of the Public Service Commission filed a petition to intervene in this proceeding. On March 13, 1984, Commission Staff filed a motion with the Hearing Examiner requesting a modification of the date for filing direct testimony and date of hearing. Commission Staff requested that the date of hearing be changed from June 4, 1984, to June 1, 1984 and represented that it had contacted all counsel in this proceeding and that none had objected to the change in hearing dates. As a result, the procedural schedule was amended to require the filing of VEPCO's fuel cost data and direct testimony on or before May 4, 1984, Commission Staff and Intervenors testimony on or before May 25, 1984, and hearing to be held on June 1, VEPCO was ordered to give notice of the time and place of hearing by posting and by publication of the order of March 15, 1984, rather than the order of February 17, The hearing was held as scheduled on June 1, 1984, with Michael A. Albert and Guy T. Tripp, 111, appearing on behalf of VEPCO; Mark Thessin of the Legal Division, appearing on behalf of Commission Staff; and Billy I I PUBLIC s RGlNlA -2-

3 Jack Gregg, Director of the Consumer Advocate Division, appearing on behalf of the CAD. VEPCO presented the testimony of five (5) witnesses and introduced twenty-three (23) exhibits into evidence, in addition to a Joint Stipulation and Agreement for Settlement, designated as VEPCO Exhibit CMJ-B, which was entered into and executed by VEPCO and Commission Staff. Commission Staff presented the testimony of two (2) witnesses and introduced two (2) exhibits into the record. The Consumer Advocate Division presented no witnesses and sponsored no evidence in this proceeding. At the conclusion of the hearing held on June 1, 1984, the Hearing Examiner ordered the preparation of an expedited transcript and granted all parties to the proceeding the right to file briefs with the Hearing Examiner on or before 5:OO p.rn., June 7, Both VEPCO and the Consumer Advocate Division filed briefs with the Hearing Examiner prior to the above-stated deadline. As a result, this matter is now ripe for a decision. DISCUSSION As noted previously in this decision, by recommended decision entered in Case No E-G1, which became final on December 29, 1983, a fuel cost recovery level, including B&O tax, of $ per kilowatt hour was approved to be included in VEPCO's rates for the period January 1, 1984 through June 30, On May 3, 1984, VEPCO prefiled its direct testimony and exhibits in this case and presented estimates for an appropriate fuel recovery level based both upon a six-month period beginning July I, 1984, and a 12-month period beginning July 1, 1984, as ordered by the Hearing Examiner in the previously referenced fuel review proceeding, Case No E-GI. For the six-month period, VEPCO proposed a new fuel PUBLIC s OMMISSION GINlA -3 -

4 I recovery level of $ per kilowatt hour, including B&O taxes, and for the 12-month period, VEPCO proposed a fuel recovery level of $ per kilowatt hour, including B&O taxes. On May 25, 1984, Commission Staff prefiled its direct testimony and exhibits supporting a 12-month fuel recovery period and recommending a fuel recovery level of $ per kilowatt hour for the period July 1984 through December 1984, and a level of $ per kilowatt hour for the period January 1985 through June 1985, both factors including B&O taxes. At the hearing, as noted previously, Commission Staff and VEPCO presented a Joint Stipulation and Agreement for Settlement to the Hearing Examiner. In that Settlement, Commission Staff and VEPCO recommended an average fuel cost level for the 12-month period July 1, 1984, through June 30, 1985, of $0.018 per kilowatt hour, before B&O taxes. For the two specific six-month periods involved in that 12-month period, VEPCO and Commission Staff recommended a fuel recovery level of $ per kilowatt hour for the period July 1 through December 31, 1984, including B&O tax, and a fuel recovery level of $ per kilowatt hour, including B&O tax, for the period January through June, The recommended fuel recovery level for the period of July 1 through December 31, 1984, includes a reduction of $ per kilowatt hour, representing an overrecovery of fuel costs experienced by VEPCO during the period October 1983 through March Because that overrecovery was produced during a six-month period, both VEPCO and Commission Staff determined that it would be reasonable to refund that overrecovery to VEPCO's customers during another six-month period, rather than spreading it out through the entire 12-month fuel recovery period recommended by both parties. The Stipulation specifically states that the recommended and stipulated fuel I PUBLIC SERVICE COMMISSION -4-

5 increments do not include provision for the recovery of payments which VEPCO may be required to make to the Federal Government with respect to the disposal of nuclear fuel burned prior to April 7, The Stipulation does not specifically state that any other expense or factor is actually included in the recommended fuel cost recovery levels. The Stipulation provides that VEPCO and Commission Staff agree that, if a substantial over or underrecovery of fuel costs occurs by or before the midpoint of the July 1, 1984 through June 30, 1985 period, it would be appropriate for the Commission to reconsider the fuel increment for the period January 1 through June 30, The Stipulation further provides that VEPCO and Commission Staff agree that the present record is sufficient and adequate to support the fairness, reasonableness and lawfulness of the agreed-upon fuel recovery level contained in the Joint Stipulation and Agreement and both VEPCO and Commission Staff request the Hearing Examiner and Public Service Commission to make appropriate Findings of Fact and Conclusions of Law adopting and approving the Joint Stipulation and Agreement for Settlement. The Stipulation is executed by Mark T. Thessin on behalf of the Staff of the Public Service Commission and by Guy T. Tripp, 111, on behalf of Virginia Electric and Power Company. The executed Stipulation bears the date June 1, The Consumer Advocate Division of the Public Service Commission did not participate in the negotiations leading up to the agreement between Commission Staff and VEPCO, and the CAD did not enter into the Joint Stipulation and Agreement for Settlement, prior to hearing, although it was given the opportunity to do so. In its brief filed with the Hearing Examiner on June 7, 1984, the CAD indicates its opposition to the Joint I Stipulation and any increase in the net energy cost for VEPCO for two m OF PUBLIC SERVICE COMMISSION ~ R ~ N I A m -5-

6 reasons. The first reason given by the CAD for its opposition to the Joint Stipulation and any increase in the net energy cost for VEPCO is because the CAD believes that it is inappropriate to reflect any increase in historic coal costs based upon VEPCO's forecasts. As discussed in VEPCO's prefiled testimony and in the transcript of the hearing held in this proceeding, VEPCO included, in its coal cost estimates, the projection of a general strike by the United Mine Workers of America, lasting approximately 102 days, beginning October 1, The CAD is of the opinion that such a forecast requires VEPCO's customers to pay in advance for VEPCO's assumptions about the future. The Hearing Examiner is of the opinion that the CAD'S position on this point is without merit. By their very nature, all fuel cost pro- jections are based upon someone's assumptions about events that will occur in the future. All of the Commission's accelerated fuel recovery proceed- ings, including fuel review proceedings for generating electric utilities, Rule 30-C proceedings for natural gas utilities and Rule 30-D proceedings for non-generating electric utilities, require that assumptions be made about events that will take place in the future in order to determine an estimated fuel recovery level for a future period of time. All of these proceedings include a mechanism for the adjustment of the projected fuel cost recovery levels at a later date, to reflect actually incurred over and underrecoveries. In the Hearing Examiner's opinion, these "true-up" provisions are considerably more important than the actual projection which is utilized at the beginning of a fuel recovery period to establish an estimated cost recovery level. In this proceeding, VEPCO would have been irresponsible had it not included in its projections the possibility and probability of a strike by the United Mine Workers of America. It is! PUBLIC SERVICE COMMISSION OF m:znia -6-

7 generally known that the contract between the United Mine Workers of America and the Bituminous Coal Operators expires on October 1, It is also known, based upon events that have occurred in the past, that the United Mine Workers of America have generally engaged in strikes at the expiration of their contracts with the Bituminous Coal Operators. Based upon the historical evidence available to all of the parties in this proceeding, a strike by the UMWA is the most reasonable assumption for actions that will occur at the expiration of the contract. Everyone hopes this will not occur; however, in attempting to establish a projected fuel recovery level, it is the Commission's obligation and responsibility to look at the most probable and reasonable factors. The Consumer Advocate Division's second objection to the Joint Stipulation and any increase in VEPCO's fuel cost recovery level results from the inclusion in the fuel increment, in both the original VEPCO and original Staff recommendations, of capacity charges related to the purchase of 400 megawatts of coal-fired capacity by VEPCO from Hoosier Energy Rural Electric Cooperative, Inc., to begin on October 1, Although the Stipulation does not state that these capacity charges are included in the stipulated fuel cost recovery level, since the stipulated level is higher than the original Staff recommendation, and since the original Staff recommendation included these capacity charges, it is reasonable to infer that the stipulated level is at least partially made up of the inclusion of these capacity charges. According to the CAD, based upon a previous Commission Order in a VEPCO fuel review proceeding, Case No E-GI, it is inappropriate to include capacity charges in VEPCO's fuel cost recovery level for purchases other than "economy-type transactions in which the Company is purchasing GlNlA CHARLESTON m OMMISSION -7-

8 power to decrease its net energy cost.... Company Witness Green, at page 6 of his direct testimony, designated as Exhibit DJG-A, represented that the purchases from Hoosier were capacity purchases, designed to replace the loss of the capacity from VEPCO s North Anna Unit 3. (Tr., p. 91). The order in Case No E-GI, cited by Mr. Gregg in his brief to the Hearing Examiner, states that VEPCO was permitted to include capacity charges from its oil displacement purchases in its NEC if the aggregate cost of the purchased power transaction was less than the energy cost of the Company s own generation of power or another source which is being replaced and the order also states that such treatment applied only when the Company was purchasing power to decrease its NEC and not just to add additional capacity to its system. According to Mr. Gregg, there is no evidence in the record to support a finding that the total cost of the Hoosier purchases, including energy and capacity charges, are at a level below the Company s fuel or energy cost to generate the same amount of power from its own capacity or to purchase it from other sources. The cost of the Hoosier purchases is an average cost of 2.2~ per kilowatt hour, which includes the capacity charges. (See, Exhibit DJG-A, page 6). The transaction discussed in Case No E-GI, in which the Commission did permit VEPCO to include certain capacity charges in its purchase power expense, dealt with an oil displacement contract between VEPCO and American Electric Power Service Corporation, at an average price of 2.9~ per kilowatt hour. (See, Exhibit DJG-A, page 5). The Hearing Examiner does not necessarily agree with the position of the Consumer Advocate Division, that such capacity charges, related to the Hoosier purchases, are inappropriate to be included in VEPCO s fuel cost recovery level. To begin with, the Hoosier purchases are not designed to PUBLIC S OMMISSION GINIA CHARLESJON -8-

9 add additional capacity to the VEPCO system, but, rather, are designed to replace capacity which had previously been counted upon, but which will now no longer be available to VEPCO, as a result of the cancellation of North Anna Unit No. 3. Thus, it is not clear to the Hearing Examiner that the Hoosier transaction represents a transaction which would apparently be disallowed by the language of the Commission in Case No E-G1, when a transaction is designed to just add additional capacity to a Company's system. Additionally, even though the Hoosier contract is not specifically designated as being a transaction designed to decrease VEPCO's net energy cost, since the cost of the energy per kilowatt hour is 2.2~, compared with the 2.9~ per kilowatt hour charge associated with the AEP purchase, which is included in VEPCO's fuel cost recovery level, the Hearing Examiner is of the opinion that it would not necessarily be unreasonable to also include the capacity charges relating to the Hoosier purchases in VEPCO's fuel cost recovery level. However, the Hearing Examiner does not have to specifically rule on this issue at this time. Having reviewed the entire record in this case, including all of the prefiled testimony submitted by Commission Staff and Virginia Electric and Power Company, the Hearing Examiner is of the opinion that the stipulated fuel cost recovery levels for the 12 months beginning July 1, 1984, are reasonable and are fully supported by the evidence, whether or not the specific capacity charges related to the Hoosier purchases are actually permitted to be included in VEPCO's fuel cost recovery level. Particularly, as a result of the uncertainty regard- ing the expiration of the contract between the United Mine Workers of America and the Bituminous Coal Operators, and questions regarding VEPCO's fuel mix, as discussed by VEPCO Witness Daniel Green, (in DJG-A and at D PUBLIC s OMMISSION GlNlA -9-

10 t transcript pages 29-32), the Hearing Examiner believes that the record in this case is more than sufficient to justify the approval of the stipulated fuel cost recovery levels, without regard to the capacity charges related to the Hoosier purchases. Further, since a stipulation, by its nature represents a figure which is the result of negotiations and a free "give and take'' between the parties to a proceeding, the Examiner is of the opinion that it is unreasonable to arbitrarily pick out only one factor and attempt to "fine tune" a stipulated rate, particularly in a case where the stipulated rate is an estimate of future costs, and any over or underrecoveries will be considered and applied in future proceedings. Therefore, the Hearing Examiner will adopt the Joint Stipulation and Settlement for Agreement, executed and entered into by Virginia Electric and Power Company and Commission Staff, on June 1, 1984, and will approve the fuel cost recovery levels set forth therein for the period July 1, 1984 through June 30, Specifically, these fuel cost recovery levels are $ per kilowatt hour, including B&O tax, for the period July 1 through December 31, 1984, and $ per kilowatt hour, including BFrO tax, for the period January 1 through June 30, The Hearing Examiner also accepts and agrees to the provision included in Paragraph No. 8 of the Joint Stipulation and Agreement for Settlement which states that, if a substantial over or underrecovery occurs by or before the midpoint of the 12-month period, it would be appropriate for the Commission to reconsider the fuel increment for the second six months of that period. m PUBLIC S COMMISSION RGlNlA

11 FINDINGS OF FACT 1. The two parties who presented testimony and evidence in this proceeding have entered into a Joint Stipulation and Agreement for Settlement, regarding appropriate fuel cost recovery levels for Virginia Electric and Power Company, for the 12-month period July 1, 1984 through June 30, The stipulated fuel cost recovery levels, as set forth in the Joint Stipulation and Agreement for Settlement, are significantly lower than the requested fuel cost recovery levels originally filed by Virginia Electric and Power Company in this proceeding and are only slightly higher than the fuel cost recovery levels recommended by Commission Staff in its prefiled testimony in this proceeding. (See, Exhibit CMJ-B, Joint Stipulation and Agreement for Settlement, at pages 1 through 3). 3. Both Commission Staff and Virginia Electric and Power Company represent that the Joint Stipulation and Agreement for Settlement entered into by those two parties is a reasonable and fair resolution of the issues presented in this proceeding. (See, Joint Stipulation and Agree- ment for Settlement, VEPCO Exhibit CMJ-B). CONCLUSIONS OF LAW 1. A review of the entire record in this proceeding, including all of the prefiled testimony and exhibits of Virginia Electric and Power Company and Commission Staff, as well as the transcript of the hearing held on June 1, 1984, indicates that the proposed and stipulated fuel cost recovery levels for the 12-month period January 1, 1984 through June 30, 1985, recommended by Comission Staff and Virginia Electric and Power Company are just, reasonable and should be approved for inclusion by PUBLIC S OMMISSION GINIA

12 Virginia Electric and Power Company in its rates to be charged to its customers for that 12-month period. 2. The Commission, or any Hearing Examiner of the Commission, has a responsibility and obligation to base projected fuel cost recovery levels upon the most reasonable and probable scenarios for events which will occur during the specific fuel cost recovery period, rather than refusing to acknowledge probable occurrences because such recognition may result in a higher projected fuel cost expense for a particular period. 3. Because the record in this proceeding fully supports the stipulated fuel cost recovery levels, recommended by Commission Staff and Virginia Electric and Power Company, the Hearing Examiner does not need to determine the reasonableness of any particular factor which may or may not have been included in the stipulated fuel cost recovery levels and specifically declines to rule favorably or unfavorably upon any specific factor which may or may not have been included in those levels. 4. It is reasonable to approve the following fuel cost recovery levels, as recommended by Virginia Electric and Power Company and Comnission Staff in their Joint Stipulation and Agreement for Settlement: For the period July 1, 1984 through December 31, 1984, $ per kilowatt hour, including B&O tax; and, for the period January 1 through June 30, 1985, $ per kilowatt hour, including B&O tax. ORDER IT IS, THEREFORE, ORDERED that the Joint Stipulation and Agreement for Settlement entered into by Commission Staff and Virginia Electric and Power Company, on June I, 1984, be, and it hereby is, accepted and adopted PUBLIC s OMMISSION GlNlA -12-

13 as a just and reasonable resolution of the issues presented in this proceeding. IT IS FURTHER ORDERED that the following fuel recovery levels be approved for use by Virginia Electric and Power Company for the 12-month fuel recovery period of July 1, 1984 through June 30, 1985: For the period July 1, 1984 through December 31, 1984, $ per kilowatt hour, including BdO tax; and, for the period January 1 through June 30, 1985, $ per kilowatt hour, including B&O tax. The Executive Secretary is hereby ordered to serve a copy of this order upon the Commission by hand delivery, and upon all parties of record by United States Certified Mail, return receipt requested. Leave is hereby granted to the parties to file written exceptions supported by a brief with the Executive Secretary of the Cormnission within fifteen (15) days of the date this order is mailed. If exceptions are filed, the parties filing exceptions shall certify to the Executive Secretary that all parties of record have been served said exceptions. If no exceptions are so filed this order shall become the order of the Commission, without further action or order, five (5) days following the expiration of the aforesaid fifteen (15) day time period, unless it is ordered stayed or postponed by the Commission. Any party may request waiver of the right to file exceptions to a Hearing Examiner's Order by filing an appropriate petition in writing with the Secretary. No such waiver will be effective until approved by order of the Commission, nor shall any such waiver operate to make any Hearing PUBLIC s OF COMMISSION RGlNlA ON -13-

14 Examiner's Order or Decision the order of the Commission sooner than five (5) days after approval of such waiver by the Commission. PIKM mal Melissa K. Marland Hearing Examiner 1 PUBLIC CO M M 155 ION IRGlNlA TON -14-

PUBLIC SERVICE COMMISSION CHARLESTON

PUBLIC SERVICE COMMISSION CHARLESTON ENTERED MqSc Pa@ CASE NO. 93-0484-S-MA TOWN OF FAYETTEVILLE, a municipal corporation, Fayette County. Investigation and suspension of increase in sewer rates and charges as a result of petition filed in