Baltimore Gas & Electric Co. v. Public Service Commission
ALPERT, Judge. This appeal by the Baltimore Gas & Electric Company (“BG & E” or “Company”) challenges Order No. 67557, dated December 2, 1986 of the Public Service Commission of Maryland (“PSC” or “Commission”) which, pursuant to the Annotated Code of Maryland, art. 78 § 54F, denied recovery to BG & E of 50% of a fuel adjustment request. The Circuit Court for Calvert County, the Hon. Perry G. Bowen, Jr. presiding, affirmed the decision in an Opinion 89 and Order dated July 15, 1987.
BG & E then noted this appeal. The essential facts are not in dispute. On October 1, 1985, BG & E filed an application with the Commission to adjust its electric fuel rate. The application was docketed as Case No. 8520 and by Order No. 67174, dated October 3, 1985, the Commission suspended the fuel rate, subject to refund, to become effective with BG & E’s November 1985 billings.
Hearings were held before Chief Hearing Examiner Paul H. Harrington on November 1, December 5, and December 20, 1985. The Commission’s Staff (“Staff”) and the Office of the People’s Counsel (OPC) noted their appearances and participated in the hearings. People’s Counsel raised an issue regarding an outage at the Calvert Cliffs No. 1 Generating Unit. A planned out of service period for repairs was extended for the two week period of August 14-28, 1985 when local overheating in the generator was noted while the unit was being returned to service.
An investigation revealed that the problem was caused by two mechanic’s rags, measuring approximately 16" x 27" and 14" x 22", which were blocking the flow in the generator’s water cooling system, technically called the stator water cooling system. The rags were removed, and after a series of tests disclosed no performance-endangering damage, the unit was returned to service. People’s Counsel argued that BG & E should be denied recovery of replacement power costs associated with that portion of the Calvert Cliffs outage extension caused by the rags’ blockage of the stator water cooling system. Specifically, OPC alleged that BG & E's failure to institute “item accountability” procedures was part of a pattern of lack of control of items in critical work areas.
BG & E contended that it had instituted all reasonable, cost-effective precautionary measures, and that item accountability was inappropriate for the type of work performed on the stator water cooling system. The Commission’s Staff suggested that consideration of BG & E’s actions during the outage should be deferred until BG & E’s next fuel rate proceeding, at 90 which time BG & E would be required to provide more detailed information concerning the cost/benefit analysis the Commission must perform in such cases. . On January 29, 1986, the Chief Hearing Examiner issued a Proposed Order in which he disposed of other issues not relevant to this appeal and retained jurisdiction over the Calvert Cliffs Unit No. 1 planned outage extension issue. No party appealed the Proposed Order, which became final by operation of law on March 1, 1986.
On March 3, 1986, the Company filed another application for a fuel rate change with the Commission. The Commission docketed that application as Case No. 8520-A. The unresolved planned outage extension issue was consolidated with the other matters to be heard in Case No. 8520-A. A second round of hearings was held on April 10, May 12, and May 27, 1986 before Chief Hearing Examiner Harrington. Staff, as well as People’s Counsel, now argued that the Company should be denied recovery of the replacement power costs associated with the extension of the planned outage caused by obstruction of the stator water cooling system. They alleged management imprudence in the failure to implement an item accountability procedure at certain times and on certain portions of the stator water cooling system.
BG & E reiterated its basic position that the Company was correct in not implementing item accountability on the entire or any part of the stator water cooling system. On July 10, 1986, the Hearing Examiner issued a Proposed Order in the consolidated proceedings rejecting Staff’s and People’s Counsel’s contentions concerning item accountability and finding that BG & E had maintained the productive capacity of Calvert Cliffs Unit No. 1 at a reasonable level during the period under review in Case No. 8520. On August 11, 1986, Staff and People’s Counsel noted appeals to the Commission, and on December 2, 1986, the Commission issued Order No. 67557. The Commission reit 91 erated its belief, as stated in former cases, that “it is axiomatic that no business can operate without the occurrence of human error.” Based upon the circumstances of the error in question, however, and more particularly the size and bulkiness of the two rags involved, the Commission did not view this incident as unavoidable human error.
Rather, the Commission found “the workers’ carelessness so great as to call into question the Company’s procedures for instilling appropriate awareness, alertness and diligence among employees to prevent the inadvertent inclusion of foreign objects in critical and sensitive generating equipment.” Therefore, the Commission ordered BG & E to bear 50% of the replacement cost incurred as a result of the outage extension. The order of December 2 is the subject of this appeal. Appellant BG & E raises four arguments for our consideration: I. The Commission's decision conflicts with its own standard for making Section 54F(f)(4) productive capacity determinations and, therefore, is arbitrary and capricious.
II
The record does not contain substantial evidence to support a finding that the company failed to instill sufficient awareness, alertness and diligence among its employees to prevent the inadvertent inclusion of foreign objects into critical and sensitive generating equipment.
III
The Commission’s decision in Order No. 67557 exceeds its statutory authority.
IV
The opinion of the circuit court does not provide any reasons to affirm the Commission’s decision in Order No. 67557. For reasons stated infra, we shall remand without affirmance or reversal. Md. Rule 1071. 92 I. Article 78, § 54F(f)(4) 1 In this first assignment of error, BG & E argues that the Commission instituted a new per se rule for making § 54F determinations. BG & E contends that inasmuch as the Commission found that BG & E’s decision not to implement item accountability did not amount to imprudent management, the Commission’s imposition of 50% of the replacement costs on BG & E was arbitrary and capricious.
The Commission and People’s Counsel, of course, argue that the Commission’s decision was consistent with its well-established interpretation of § 54F(f)(4). The Public Service Commission Law provides, in pertinent part: § 54F. Fuel rate adjustments of electric companies. (f) The issues to be determined, and upon which the Commission shall make specific findings of fact and conclusions based thereon, shall be whether: (1) Only changes in the actual costs of the components of the fuel rate are included in the proposed change; (2) The applicant has used the most economical mix of all types of generation and purchase; (3) The applicant has made every reasonable effort to minimize fuel costs and followed competitive procurement practices, taking into account the reliability of local transportation; (4) The applicant has maintained the productive capacity of all its generating plants at a reasonable level.
(g) The Commission may disallow such increased costs as it finds were a result of the applicant’s failure to comply with the requirements of this section, unless cause be shown to the contrary. 93 (i) The applicant shall have the burden of proving that it has complied with the requirements of this section. Md.Ann.Code art. 78, § 54F (1980 & Supp.1987) (emphasis added). The standard by which the Commission implements § 54F was reviewed in Baltimore Gas & Elec. Co. v. Public Serv.
Comm’n, 305 Md. 145 , 501 A.2d 1307 (1986) (“BG & E v. PSC ”). That case consolidated the appeal by BG & E of three fuel rate adjustment cases. In each of the three cases, the Commission concluded that BG & E had satisfied the requirements of § 54F(f)(l)-(3) but had failed to prove that it had “maintained the productive capacity of all its generating plants at a reasonable level” as required by § 54F(f)(4). Id. at 158-59, 501 A.2d 1307 .
Therefore, although the Commission found that “BG & E had achieved an excellent overall record in maintaining the output of its nuclear units,” the Commission permitted BG & E recovery of only 75% of the replacement costs occasioned by an outage in Case No. 7238-0, and only 25% in Case Nos. 7238-T and 7238-U. The Court of Appeals upheld these orders. Case No. 7238-O, Re Baltimore Gas & Elec. Co., 73 Md. PSC 719 (1982), is somewhat analogous to the case at bar. In that case, a planned maintenance outage at Calvert Cliffs Unit No. 1 was extended for 17 days.
This extension was caused by a standard one-half inch nut found under the turbine shaft. According to BG & E, the nut probably fell off the hoisting equipment during the planned outage and lodged under the turbine shaft where it could not be seen during the inspection of the assembly. This caused high thrust bearing temperatures and required the turbine to be taken out of service. After hearings on BG & E’s application for an adjustment in its fuel rate charges, the Commission concluded: [W]e find that the Company has not shown that its control procedures were, in all respects, reasonable and appropriate for preventing the outage in this case.
However, the evidence also indicates that this is not a case where feasible cost effective supplemental procedures 94 would have clearly prevented the outage which occurred. In addition, direct evidence has been presented which indicates that the plant’s overall performance greatly exceeds the capacity factor of other nuclear generating units. Upon weighing these determinations, the Commission finds that management bears some responsibility for the outage and that a portion of the cost of the outage should be borne by the Company. 73 Md. PSC at 725. In affirming the Commission’s Orders, the Court of Appeals rejected BG & E’s argument that the Commission’s acknowledgment that the overall performance of the nuclear unit was outstanding compared to industry averages compelled a finding that the productive capacity was reasonable as a matter of law.
Chief Judge Murphy, writing for the Court, explained: “Reasonable level” is a vague term, and its presence in an administrative statute such as the Public Service Commission Law suggests that the General Assembly intended to entrust the formulation of specific standards to the technical expertise of those charged with enforcing the statute. 305 Md. at 159 , 501 A.2d 1307 (citations omitted). The Court then quoted with approval from the Commission’s own summary of the procedure through which it implements § 54F(f)(4), reading in part: [I]f the actual performance falls below the higher of the two standards [that measure the plant’s performance] or if evidence indicates that a specific outage or series of outages may be the result of imprudent management, the Commission will review the facts and circumstances surrounding the specific outages at the generating plant in question. In reviewing the factual circumstances associated with a particular outage, the Commission recognizes that forced outages cannot be completely eliminated or controlled____ ... Therefore, an outage occasioned by human error is not a per se violation of this statutory standard.
How 95 ever, a decision must be made by the Commission as to whether the facts and decisions associated with the incident constituted mismanagement. In making this determination, the Commission will examine the extent to which the increased costs for replacement generation could have been avoided through better planning, preventive maintenance, more diligent efforts, closer supervision, and more prudent management. Specifically, in reviewing a particular outage, the Commission will examine whether the Company had instituted reasonable and appropriate procedures to prevent human error or equipment failure and to minimize the consequences of those occurrences. Id. at 160-61, 501 A.2d 1307 (quoting Re Baltimore Gas & Elec.
Co., 73 MD PSC 719 (1982)). The Court concluded that the Commission’s orders in the consolidated cases were consistent with the Commission’s past practice. The Court stated that “the interpretation of § 54F(f)(4) applied by the Commission in the present case is entitled to considerable weight as a contemporaneous agency interpretation consistently adhered to for four years.” Id. at 165, 501 A.2d 1307 . In the Order at bar, the Commission likewise restated its long-standing policy of requiring more stringent and detailed maintenance practices at nuclear plants than at other generating units because of the high cost consequences of outages at these plants.
See Re Baltimore Gas & Elec. Co., 73 MD PSC 719, 723 (1982); Re Baltimore Gas & Elec. Co., 72 MD PSC 336, 342 (1981). The Commission acknowledged that employee error is inevitable and a fact of business life, and that “a small increment of operating costs will be incurred because employees, in contravention of every safeguard devised by management, make errors.” Therefore, the Commission will also
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