Public Service Commission v. Delmarva Power & Light Co.

Liss, J., delivered the opinion of the Court. This case results from an appeal by the Public Service Commission of Maryland, hereinafter the Commission, from an order of the Circuit Court for Dorchester County reversing on appeal an order of the Commission directing the Delmarva Power and Light Company, hereinafter Delmarva, to refund to its retail customers an alleged overcharge by Delmarva in the amount of $125,000.00. The original order of the Commission was issued at the conclusion of extensive hearings before a Commission hearing examiner and after a full hearing before the Commission itself. The original order included several other decisions by the Commission involving the manner of determining future fuel rate adjustment charges of Delmarva customers; however, no appeal was filed by Delmarva with respect to those other portions of the Commission’s order.

The only question on appeal is the validity of the Commission’s order directing the refund. Case No. 6759 dated April 24, 1974 was instituted by the Commission on its own motion for the purpose of investigating the Fuel Rate Adjustment clauses, hereinafter FRA, of all Maryland gas and electric public utility companies. The purpose of the FRA clause which has been used in Maryland for a number of years is to compensate for an increase or decrease in the cost of fuel used to generate electricity. The fluctuations in a company’s fuel costs are reflected in its rates by means of an FRA adjustment provision.

A typical FRA clause is stated in terms of a formula whereby a mathematical calculation from designated book figures each month establishes the fuel adjustment rate to be applied to a customer’s bill in a particular month. The fuel ⁴⁹⁴ adjustment rate added to or subtracted from the base rate determines the charge per kilowatt hour which the customer will pay. The FRA clause, therefore, automatically adjusts each customer’s monthly bill upward or downward in accordance with the company’s fuel expenses and permits a more rapid recognition and recovery of fluctuating fuel costs than would be possible in a base rate proceeding. 1 The FRA clause worked satisfactorily for a number of years, but the rapidly rising costs of oil imposed by the OPEC cartel and parallel increases in the cost of coal raised an understandable howl of protest which caused the Governor of Maryland, the members of the Legislature, citizens’ groups and consumers to complain bitterly over the effect of the FRA on the spiraling cost of electric service in Maryland and throughout the country. In response to this concern, the Commission began its investigation into the operation of fuel rate adjustment clauses in Maryland.

The Commission initially directed each of the electric companies subject to its jurisdiction to submit responses to twenty-three questions, propounded by the Commission, which were designed to elicit detailed data concerning the operation of each company’s FRA. The People’s Counsel of Maryland additionally requested answers to thirty-one questions covering the same ' area of investigation. Responses to both sets of questions were filed by each of the gas and electric utilities under the Commission’s jurisdiction. In March of 1975, the Commission engaged the services of an independent accounting firm, Haskins and Sells, to review the activities of Delmarva, as well as the other utilities not involved in this case relative to the manner of procurement ⁴⁹⁵ of fuel used in the generation of electric power and the manner of computing costs in the billing of adjusted fuel costs to the companies’ retail customers.

A report on the activities of Delmarva was submitted by Haskins and Sells on June 24, 1975, and on July 7, 1975, the Commission issued an order requiring Delmarva to file with the Commission a plan for returning to Maryland customers the sum of $400,000.00 which the Commission found was received as an overpayment by Delmarva by reason of the method of computation of the fuel rate adjustment. The FRA clause at issue in this case was initially filed with the Commission by Delmarva on April 12, 1972. Subsequently, in two successive rate increase cases filed by Delmarva in 1974 and 1976, the identical FRA clause was filed as a part of the company’s tariffs. The FRA clause remained in effect from its inception in October of 1972 until Delmarva filed a revised clause on December 27, 1976 which was accepted by the Commission and became effective on January 31, 1977.

The clause in effect from October of 1972 until December of 1976 provided as follows: The price per kwh of electricity sold will be adjusted each month to reflect changes in the cost of fuel above or below the base cost of 3.52 mills per kwh. The monthly fuel cost will be the total Delmarva System fossil fuel expense cleared during the second preceding month from FPC Account 151 to Accounts 501 and 547 expressed as mills per kwh of net Delmarva System fossil fuel generation increased by 5% to compensate for system losses. The adjustment in mills per kwh applied to sales shall be the difference between the monthly and base fuel costs, multiplied by the ratio of Delmarva’s System fossil fuel net generation to total net generation, (emphasis supplied.) The bone of contention between Delmarva and the Commission concerned the proper treatment to be accorded ⁴⁹⁶ to power produced as a result of nuclear test generation by the Company in bringing the nuclear plant at Peach Bottom into commercial operation as part of Delmarva’s system. Judge Edmondson, the trial judge, accurately and concisely stated the basis of the dispute when he said in his memorandum opinion: In calculating “total net generation” for purposes of developing the ratio between fossil fuel net generation and total net generation, Delmarva did not include the test generation from nuclear stations until they were fully tested and operational.

This resulted in a higher ratio between fossil fuel and total generation than would have been the case if the test generation had been included in calculating the total, and accordingly resulted in a higher fuel cost for purposes of application of the fuel adjustment clause. Haskins & Sells pointed out in its report that Delmarva’s exclusion of nuclear test generation resulted in the collection of approximately $400,000 more in fuel revenue than would have been the case if nuclear test generation had been included to calculate the ratio. Of the $400,000 which Haskins & Sells calculated to be the difference in FRA revenues depending on whether nuclear test generation was included or excluded, $275,000 was effectively returned to the customers through lower rates before Delmarva’s next rate proceeding was concluded, so that Order No. 62552 directed Delmarva to refund only the remaining difference of $125,000. The hearing examiner of the Commission after extensive hearings filed a proposed order which included a provision that Delmarva be required to refund $125,000.00 to its retail customers.

On August 30, 1977, the Commission adopted the recommendation of the hearing examiner. It should be noted that the hearing examiner’s proposed order required the inclusion of nuclear test generation in all future computations of Delmarva’s FRA, and that the Commission included this ⁴⁹⁷ recommendation in its order. It should also be noted that Delmarva, in anticipation of the Commission’s order, had already filed an adjustment in its FRA computation prior to the issuance of that order. There is, therefore, no pending appeal from that portion of the Commission’s order.

Delmarva appealed only that portion of the Commission’s order which directed it to refund $125,000.00 to the Circuit Court for Dorchester County. After a hearing and argument, the trial judge reversed the Commission on the basis that “this Court is unable to reach the factual conclusion the Commission reached. It is also unable to find any express or implied law or authority to sustain the Commission’s action and concludes that the Commission did not have the power to order the refund in question.” It is from that order that this appeal was filed. The issues raised by the appeal may be stated as follows: 1.

During the period in question did Delmarva’s tariffs require the inclusion of nuclear test generation in the computation of its FRA clause? 2. Was there substantial evidence in the record considered as a whole to support the Commission’s order for refund? 3. Was the order for refund under the circumstances of this case within the statutory authority of the Commission? We shall answer each of these questions in the affirmative and shall reverse the trial judge’s order.

These issues are so inextricably entwined that we shall consider them together. The Commission contends that its authority to require the refund ordered in this case is inherent in Article 78 of the Annotated Code of Maryland. Code (1957,1975 Repl. Vol.) Art. 78, Sec. 27 (a) (2) provides: (a) Prohibited Acts — No public service company shall in its utility operations: (2) Demand or collect a greater or less compensation for any service or commodity than specified therefor in its schedules as in force at the time.

Code (1957,1975 Repl. Vol., 1978 Cum. Supp.) Art. 78, Sec. 56 gives the Public Service Commission broad general ⁴⁹⁸ supervision of the activities of public utilities in the following language: The Commission shall supervise and regulate all public service companies subject to its jurisdiction to assure their operation in the interest of the public and to promote adequate, economical and efficient delivery of utility services in the State without unjust discrimination, giving consideration to the public safety, the economy of the State, the conservation of natural resources, and the preservation of environmental quality. To these ends the Commission shall enforce compliance by such companies with all the requirements of law, including, but not limited to requirements with respect to financial condition, capitalization, franchises, plant, manner of operation, rates and service.

The powers and duties enumerated specifically in this subtitle are not intended to limit the scope of the general powers and duties of the Commission provided for by this Article. Code (1957,1975 Repl. Vol.) Art. 78, Sec. 1 requires that the powers of the Commission shall be liberally construed and spells out the overall authority of the Commission as follows: The jurisdiction and powers of the Public Service Commission shall extend to all public service companies, as hereinafter provided, to the full extent permitted by the Constitution and laws of the United States. The powers of the Commission shall be liberally construed; and the Commission shall have the powers specifically conferred by this Article and by any other law, and also all implied and incidental powers necessary and proper to carry out effectually the provisions of this article.

Code (1957, 1975 Repl. Vol.) Art. 78, Sec. 97 specifies the scope of judicial review of Commission decisions and provides that: Every final decision, order, rule or regulation of the Commission shall be prima facie correct and shall ⁴⁹⁹ be affirmed unless clearly shown to be (1) in violation of constitution provisions, or (2) not within the statutory authority or jurisdiction of the Commission, or (3) made upon unlawful procedure, or (4) arbitrary or capricious, or (5) affected by other error of law, or (6) if the subject of review is an order entered in a contested case after hearing, such order is unsupported by substantial evidence on the record considered as a whole. The Court of Appeals has on many occasions noted that the decisions of the Commission are prima facie correct, and that the burden of proof is on the party seeking to set aside an order to show by clear and satisfactory evidence that the Commission’s decision is unreasonable or unlawful. See Baltimore Gas & Electric Co. v. McQuaid, 220 Md. 373 , 152 A. 2d 825 (1959); Montgomery County v. Public Service Commission, 203 Md. 79 , 98 A. 2d 15 (1953).

As the Court has said, the reviewing court