PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON. At a session of the PUBLIC SERVICE COMMISSION OF WEST

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1 At a session of the OF WEST YIRGINLA at the Capitol in the City of Charleston on the 2nd day 2f February, SASE NO blonongahela POWER COMPANY, 3 corporation e Petition for recovery of certain unrecovered fuel expenses. PROCEDURE On the 15th day of December, 1975, Monongahela Fower Company, a corporation, filed with the Commission a petition for recovery af unrecovered deferred fuel expenses or the months of February and March, 1975, the purpose of the petition being to request the Commission's authority to recover unrecovered deferred fuel expenses due to a two months lag period between the time the company incurred fuel costs and their recovery of those costs through their fuel adjustment clause which was canceled by the Commission's order in Case No By order entered on the 4th day of February, 1976, I'lonongahela Power Company was made respondent to this proceeding and the latter was set for hearing to be held in the Commission's Hearing Room at. the Capitol in the City of Charleston on the 22nd day of March, 1976, at 9:30 a.m., EST, at which tjme and place the respondent was directed to appear and prosecute said application. Leave was granted to anyone interested to file objection to said application at any time on or before the date of said hearing. Respondent was further ordered to give notice of the filing of the aforesaid petition and of the time and place of hearing thereon by publication and posting. The case was called as sch.eduled on March 22, 1976, with the understanding that it would be heard following Case No. 8127, Monongahela Power Company.

2 On March 24, 1976, this case was called for hearing. It anpeared that proper posting and publication had been made as ordered. The respondent was represented by Willis 0. Shay and Richard S. Weygandt, its counsel. John El. Tinney appeared as counsel for Weirton Steel Division of National Steel Corporation, et al. The staff of the Commission was represented by E. Dandridge McDonald and Joel Sliifman, Legal Division; David Ellis, Lairmi N. Melira, and Thomas Wagoner, Division of Accounts, Finance and Rates; and David Mathews, Dfivision of Engineering. There we:re two petitions and one letter of protest lodged in the file. At the close of the hearing the case was continued to April 27, 1976, at 9:30 a.m. On April 27, 1976, the hearing in this matter was resumed. The respondent was represented by Willis 0. Shay, Richard S. Weygandt, and L. Eugene Dickinson, its counsel. Charles Woody appeared on behalf of John 13. Tinney, counsel for West Virginia Phltiple Inter- venors. The staff of the Commission was represented by E. Dandridge McDonald, Legal Di.vision; David Ellis and Thomas Wagoner, Division of Accounts, Finance and Rates.; and David Mathews, Division of Engineering. At the close of the hearing the case was submitted for decision, subject to the filinq of briefs. The matter in issue was briefed by respondent and its brief was filed on June 29, EVIDENCE Monongahela Power Company presented one witness who testified in support of its petition. This witness (V. Dean Gibson) filed two exhibits containing supporting data. The first exhibit calculated the company's unrecovered fuel cost to be $4,028,946, not taking into consideration post-april 1, 1975, collections on prorated billings. The second exhibit indicated the loss to be $1,999,058. This reduction of $2,029,888 resulted from post-april 1, 1975, uel adjustment revenues collected relating to fuel costs that had been incurred prior to the date of termination of the fuel adjustment

3 clause. This recovery procedure was approved by the Commission in Monongahela's fuel roll-in rate filing (Case No. 8234), which was heard and decided after the filing of the instant petition and before the hearing on March 24, At the time of the submission of the case, respondent relied upon its claim for under-recovery based upon the lesser amount of $1,999,058. Staff adduced the testimony of one witness (David J. Ellis) who presented one exhibit relating to his testimony. This witness contended that Monongahela had over-recovered on its fuel adjustment clause during the time it had. been in general use for a11 rate schedules. His testimony was based upon a 39-month calculation beginning with January 1372, and reflected an over-recovery by respondent of $192,716 during the period January 1, 1972, through March 31, ISSUES AND FINDINGS 5;taff in presenting its case used a LIFO (Last-In-First- Out) method of inventory valuation, contending that though Monongahela did not fully use the LIFO method, it did substantially follow it i.n its formerly effective fuel clause adjustment computations. Respondent contends it does not use a LIP0 method for booking fuel expenses charged to Account 501 but rather uses a weighted average stockpile cost (Account 151) to measure the coal expenses, as burned. It appears that the company has, during the life of the fuel clause, departed from both the average and the LIFO method for determining the cost of fuel for fuel cost adjustment purposes, in that it computed the price of those quantities of coal burned which exceed purchases based upon the last and most current coal purchase cost experienced by it in monkhs during which purchases exceed usage, regardless of khe volume of such purchase. Monongahela, in calculating its under-recovery, looks only 3.

4 to the months of February and. March, 1975, not taking into account the over-recoveries or under-recoveries experienced by it in prior nonths. If we follow this procedure there is no dispute as to the non-recovery of the $1,999,058 through a fuel cost adjustment. Staff zalculates the over-recoveries and under-recoveries for a 39-monkh period in which the fuel clause adjustment was in effect, as to al.1 zlasses of measured users. It shows fuel cost over-recoveries of $255,129 in 1972, $760,465 in 1973, $5,712,741 in 1974, and $215,988 for January, After deducting a consistently calculated underrecovery for February and March, 1975, staff shows a net over-recovery 3f $192,716. Looking at the over-recovery for the months of December, 1974 and January, 1975, their total, as presented by staff, is in excess of the under-recovery claim of Monongahela. Furthermore, Mr. Ellis testified that had he used a weighted average inventory valuation method, as suggested by Monongahela, his calculation would show an over-recovery of $6,03T,436. This testimony was not rebutted by the respondent. %either responden-t nor staff presented rehuttal testimony challenging the accuracy or responsiveness of the calculations of the other. Each has relied upon different theories, accounting techniques and time frames in their approach to a complicated problem. The accouiit:lnq procedures associated with the application of this clause are complex and involve many judgment factors. The problems presented herein are: 1. What is the pur- pose of the fuel clause adjustment? 2. How should the adjustment clause be applied to the facts of the instant case? The fuel clause adjustment was implemented for the purpose of allowing an electric utility to recover its actual cost of generation fuel as it fluctuated from the fuel cost embedded in base rates by means of billing its customers directly by an incremental surcharge for any incremental increase in fuel cost or similarly by crediting customers' bills for any decrease in incremental fuel cost. It was intended to recover such fuel cost only, and was not intended

5 c would protect the utility from revenue losses due solely to fluctuations in actual fuel costs and assumed no impact on its rate of return. An ideal fuel clause when implemented should produce only enough revenue to make the utility whole as to its fuel cost increases and should not allow any surplus collection from this source. Because of the nature of the fuel clause, complete accuracy of recovery was not possible: but it should, when properly applied, allow a recovery of fuel expenses within a reasonable range. This Commission terminated the use of the fuel clause adjustment by its order of February 20, 1975, effective April I, 1975, in Case No. 7945, and we now have before us a question as to how the over-recoveries, if any, are to be applied, if at all, in treating the under-recoveries of the affected utilities arising from fuel costs for the two last and lag months, i.e., February and March of Should we make a computation of these two months only, ignoring prior months of the same year? Should we make a final decision that considers a. number of prior months, or should OUT' decision be based upon the en.tire time this clause had been in operation to the extent it affected substantially all classes of service?, We have been assured by the utilities that have made use of the fuel clause that it was not being used as a profit item and that it covered only fuel costs above those included in the base rates. These cost adjustments have been made and filed by the utilities with the understanding they should have been calculated to cover only such actual incremental fuel costs. It appears, therefore, that in reviewing the experience of a utility, as to whether it is entitled to recover additional fuel costs from its subscribers for the last 'two months the fuel clause was in effect, that such entitlement should 'depend upon whether or not there have been over-recoveries by it, and i if so, have these over-recoveries been so large as to offset its proposed under-recoveries during the 1.as.t: two months the fuel clause was ~ 5.

6 _... in effect. In this case we find, when looking to the experience of Monongahela over the period of January 1, 1972, to March 31, 1975, it has enjoyed a substantial over-recovery. That the under-recoveries Df February and March 1975 should be offset by the over-recoveries of prior months and thak such application will allow respondent a reasonable overall recovery in compliance with the intent of the fuel adjustment clause. The prayer of respondent's petition for additional recovery Df fuel costs should be denied. ORDER 13: IS HEREBY ORDERED: That the prayer of Monongahela Power Company's petition for recovery of fuel cost expenses for the months of February and March 1975 be, and the same is hereby, denied. C I3 A I R M A N MLG/P.lac 6.