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Public Advocate v. PUC part 2

[¶10]  In NET II we considered whether the Commission could,
pending the appointment of a third commissioner, grant a temporary rate
increase subject to a refund or surcharge.  See NET II, 362 A.2d at 747-49. 
The temporary rate was to yield $9.5 million in additional revenue for NET,
was to be in effect until the full Commission issued an order determining
NET's revenue requirements and establishing the permanent rate, and was
conditioned on a refund being made or surcharge being collected at a later
time once the revenue requirements were established.  See NET II, 362
A.2d at 749-50, 753.  Both NET and the Commission contended that the
Commission had the authority to authorize such conditional rates.  See NET
II, 361 A.2d  at 753 & n.17.  We concluded otherwise.
	[¶11]  We said that the statute{4} that grants the Commission power to
establish a just and reasonable rate if it finds an existing rate to be unjust or
unreasonable does not enable the Commission to attach to a rate special
conditions that the utility would not have been authorized to include in the
first instance.  We concluded that the statute did not give to the Commission
express or implied "authority for the enactment of a rate subject to refund
or surcharge." Id. at 754 (emphasis added).
	[¶12]  We looked to the "philosophy embodied in our utilities statute"
and noted that what the legislature withheld from the Commission is the
authority to approve a refund or surcharge, the purpose of which is to allow
the Commission to determine after the fact that a rate was, when charged,
too high or too low, and to adjust the rate by refund or discharge.  Id. at 757.
(emphasis added).
	[¶13]  The action taken by the Commission pursuant to Chapter 204
is not within the purview of NET II.  The implementation of the BSCA rule
and its tracking provision is not the enactment of a rate subject to a
surcharge.  Chapter 204 does not implicate NET's earnings, and prohibits
any change in NET's rate of return from an increase in its net income that
may result.  The tracking provision is not a determination that the rates in
effect during the tracking period were unjust or unreasonable, nor does
Chapter 204 depend on a later determination of what constitutes just and
reasonable rates.  The rates in effect at the time of the implementation of
the rule already determined the utility's return on its investment entirely
independent from, and without regard to, the expansion of the basic service
calling areas.
	[¶14]  The decision to implement the BSCA tracking provision was
made prior to the time the new basic service calling areas went into effect. 
The costs of implementing the system could not be determined until the
end of the tracking period.  The tracking provision defers the recovery of
those costs (or potentially, the savings) to a time when they become known.
	[¶15] Nor does our decision in First Hartford Corp. v. Central Me.
Power Co., 425 A.2d 174, prohibit the Commission's action in this case.  In
First Hartford we affirmed the Commission's determination that it had no
authority to grant retrospective rate relief to CMP's customers for amounts
collected pursuant to fuel adjustment clauses when those clauses were no
longer in effect.  The fuel rates were fixed for a definite billing period, and
the rates so fixed were "deemed just and reasonable" for that billing period. 
Id. at 179 (quoting Central Me. Power Co. v. Public Utils. Comm'n, 414 A.2d
1217, 1226 (Me. 1980)).  We concluded that the Commission did not have
the power "to order rebates to customers if the application of CMP's former
fuel rates should result in excessive charges."  Id. at 180.  We said that the
Commission has no power to revise rates retroactively, and that the "time
for challenging a fuel adjustment rate is before the rate is approved by the
Commission."  Id. at 181.  
	[¶16]  Unlike the circumstances in the First Hartford case, the costs
of implementing the expansion of basic service calling areas were not
considered and not factored into the rates then in effect.  The BSCA
tracking provision rule was implemented subsequent to the setting of NET's
rates.  The order allowing NET to recover costs pursuant to the BSCA rule,
therefore, does not constitute a correction of past rates on the basis that
such rates were unjust or unreasonable.  Rather the impossibility of
estimating the costs of implementing the BSCA rule in advance of the
tracking period was recognized by the Commission and the costs
appropriately deferred to a time when they were precisely known.
	[¶17]  Prior to deciding Maine Pub. Advocate v. Public Utils. Comm'n,
476 A.2d 178, we had determined that in calculating CMP's fuel cost
adjustment{5} the Commission had erroneously factored in certain of CMP's
statutorily provided saving shares earned by CMP through sales to other
utilities.  This resulted in lower fuel cost adjustments and effectively
prevented the utility from collecting $5.7 million from its customers in fuel
adjustments to which it was entitled.  The Commission had removed these
saving shares from the revenues in CMP's base rate calculation because they
were being factored into rates as a reduction in fuel costs.  See Central Me.
Power Co. v. Public Utils. Comm'n, 458 A.2d 739, 741 (Me. 1983) (The
"[l]egislature did not intend to include sales-related shares within the scope
of the fuel cost adjustment" (construing former 35 M.R.S.A. § 131)); see also
Maine Pub. Advocate, 476 A.2d at 180. 
	[¶18]  After remand, the Commission acted to compensate CMP
retrospectively for its $5.7 million loss resulting from the Commission's
erroneous calculation of the statutory fuel cost adjustment amount, and we
upheld that order.  Maine Pub. Advocate, 476 A.2d at 181-82.  The Public
Advocate contended in its appeal that the $5.7 million fuel cost adjustment
returned to CMP should be offset by the amount of the $2.9 million
reduction to base rates that would have occurred if the Commission had
correctly factored the savings shares in the base rate calculation rather than
in the fuel cost adjustment in the first place.  See id.
	[¶19]  In denying the Public Advocate's appeal we said:  "[t]he
Commission is correct in its recognition that it cannot amend, via the fuel
cost adjustment provisions . . . what it now perceives to have been error in
the calculation of base rates . . . .  [I]mplementation of the offset proposal, no
matter how ingeniously it might be characterized, would necessarily involve
a reconsideration of the calculations made in the base rate proceeding."  Id.
at 183.  (emphasis added).  Maine Public Advocate reiterates that the
prohibition against retroactive ratemaking precludes the retroactive
correction of prior inaccuracies or errors in the ratemaking process.  See id. 
("It is well established that errors made in the calculation of a utility's base
rates may be remedied only prospectively.") (emphasis added).
	[¶20]  The BSCA rule's tracking account provision does not adjust
rates to reflect prior errant cost or revenue projections formerly included in
the utility's rates.  Nor does the BSCA rule implicate the investors' rate of
return.  NET's rate of return is not improved or affected in any way by its
ability to collect for the costs of the BSCA plan.  What Chapter 204 does is
isolate a specific operating expense--the cost of implementing the BSCA rule
pursuant to a plan imposed on NET subsequent to the setting of the base
rates--and impossible to calculate beforehand, and defers NET's recovery of
that cost in order to meet, but not exceed, the return on investment
previously determined to be just and reasonable in the rates that were in
effect upon NET's implementation of the rule.  Contrary to the contention of
the Public Advocate, the holdings in the cases on which he relies do not
prohibit the Commission's implementation of the surcharge pursuant to the
BSCA tracking provision.  
	[¶21]  The rule against retroactive ratemaking serves two basic
functions:  (1) "it protects the public by ensuring that present consumers
will not be required to pay for past deficits of the company in their future
payments,"  Narragansett Elec. Co. v. Burke, 415 A.2d 177, 178 (R.I. 1980);
and (2) "it prevents the company from employing future rates as a means of
ensuring the investments of its stockholders," thereby removing the utility's
incentive to operate in an efficient, cost-effective manner.  Id. at 179.  In
Burke, the utility was allowed a temporary rate increase to recoup
extraordinary expenses it incurred after a severe ice storm.  The existing
rates in Burke did not factor in the extraordinary expenses of restoration of
service necessitated by the ice storm.  See id.  Moreover, denying the
recovery of those ice storm expenses would decrease the efficiency of the
utility in Burke by removing any incentive to act quickly to address the
extraordinary situation.  See id.  Here, as in Burke, the expansion of basic
service calling areas throughout the state was not considered in setting the
existing rates, and the rate adjustment was not used to insure or improve
the return of investors in the utility.  As in Burke, the reasons for the rule
against retroactive ratemaking are not implicated by the implementation of
the BSCA tracking mechanism.
	[¶22]  Contrary to the contentions of the Public Advocate, the
Commission's authorization of the surcharges pursuant to the BSCA tracking
provision does not constitute retroactive ratemaking.  The tracking account
provision is authorized pursuant to the Commission's powers provided for by
35-A M.R.S.A. § 502(1) (1988).{6}  The tracking provision functions as an
accounting mechanism because it is premised on the impossibility of
predicting the increased costs of expanded service required by the
Commission's rule, and deferring the imposition of those costs to a time
when they are known.  See Town of Norwood, Mass. v. F.E.R.C., 53 F.3d 377,
383 (D.C. Cir. 1995) (distinguishing between permissible deferral of charges
until the point at which they become ascertainable and impermissible
practice of devising "a formula intended to estimate actual charges--to serve
as a proxy for actual charges--and then go back and collect any shortfall
caused by imperfections in that proxy"); see also Popowsky v. Pennsylvania
Pub. Util. Comm'n, 695 A.2d 448, 452-53 (Pa. 1997) (not impermissible
retroactive ratemaking to allow utility in base rate case to recover costs of
complying with change in accounting standards from pay-as-you-go to
accrual method because request did not arise out of inaccurate cost
projection by utility); Utilities Comm'n v. Nantahala Power & Light Co., 388
S.E.2d 118, 127 (N.C. 1990) (order requiring utilities to place savings from
federal tax decrease in deferred account to be refunded to ratepayers was
not retroactive ratemaking, because it did not constitute "adjustments to
future rates to rectify undue past profits"); Popowsky v. Pennsylvania Pub.
Util. Comm'n, 643 A.2d 1146, 1149-50 (Pa. 1994) (recovery of transitional
obligation in change from cash to accrual accounting qualifies as an
unanticipated, extraordinary, and nonrecurring expense and an exception to
the rule against retroactive ratemaking); Cities for Fair Util. Rates v. Public
Util. Comm'n of Tex., 884 S.W.2d 540, 550 (Tex. App. 1994) ("The
Commission's orders allowing deferred-accounting treatment do not inquire
into the reasonableness of prior rates or allow the utility to recoup losses
resulting from previously set rates which were insufficient. Furthermore, the
deferred assets were not a factor in the old rates." (citations omitted)).
	[¶23]  The Commission has reasonably broad implied powers.  See,
e.g., New England Tel. & Tel. Co. v. Public Utils. Comm'n, 470 A.2d 772, 779
(Me. 1984) ("In addition to its powers expressly conferred by statute, the
Commission has implied powers to the extent necessary to fulfill its
obligations effectively.").  It has the implied power to defer the imposition of
the charge resulting from the tracking account deficit.
	[¶24]  The BSCA rule is the implementation of a statutorily authorized
accounting practice.  The rates in effect during the tracking period did not
take into account the cost of implementing the basic service calling areas.
The Commission took no action to change the utility's rate of return, and
consciously undertook to avoid placing itself in the situation where it would
have to correct rates that were incorrectly estimated.  It authorized a
surcharge to provide for substantial changes in revenue resulting from the
BSCA rule imposed prior to the costs being incurred, the amounts of which
were impossible to predict, and deferred the imposition of those costs to a
time when the costs became known.  This is not retroactive ratemaking
beyond the Commission's power.  The BSCA rule is a sensible means of
addressing an extraordinary cost imposed by the Commission upon NET and
other LECs by the Commission.  It assures that the rate of return established
in rate proceedings before the BSCA change is not upset by the changes
imposed by the Commission.  It is consistent with utility industry practice
allowing amortization of unusual and extraordinary costs during different
periods than those in which the costs actually occurred to be reflected in
future rates.
	The entry is:
			Order affirmed.

On to the dissenting opinion.

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