Summary
In River Gas, we stated that traditional ratemaking includes three steps: an application before the commission, preapproval by the commission, and the filing of the rate with the commission prior to the collection of the rate.
Summary of this case from Ohio Edison Co. v. Office of Ohio Consumers' Counsel (In re Alt. Energy Rider)Opinion
No. 81-742
Decided March 3, 1982.
Public Utilities Commission — Natural gas companies — Uniform Purchased Gas Adjustment Clause — Gas Cost Recovery rate — Supplier refunds ordered refunded to customers — Not retroactive ratemaking — R.C. 4905.301, construed.
APPEAL from the Public Utilities Commission of Ohio.
Appellant, River Gas Company, is a natural gas company within the meaning of R.C. 4905.03(A)(6), and has served Marietta, Ohio, and several surrounding communities since 1894.
R.C. 4905.03 provides, in part, that: "(A) Any person, firm, copartnership, voluntary association, joint-stock association, company or corporation, whenever organized or incorporated, is: * * * (6) A natural gas company, when engaged in the business of supplying natural gas for lighting, power, or heating purposes to consumers within this state, * * *."
In October 1978, appellee, the Public Utilities Commission of Ohio ("commission"), pursuant to the requirement of R.C. 4905.302, adopted a Uniform Purchased Gas Adjustment Clause ("UPGA") and ordered that such clause be included in the tariffs of all gas and natural gas companies. The UPGA is designed to separate the cost of gas from all other costs incurred by a natural gas company and permits the company to recover or flow-through these costs by use of a separate component on the customer's periodic bill. This separate component is known as the Gas Cost Recovery rate ("GCR"). The formula for determining the GCR includes several factors, one of which is the amount of refunds received from suppliers. The present action involves a dispute over the treatment to be accorded to supplier refunds relating to purchases made prior to the implementation of the UPGA.
In pertinent part, R.C. 4905.302(A)(1) states as follows: "For the purpose of this section, the term `purchased gas adjustment clause' means:
"(a) A provision in a schedule of a gas company or a natural gas company that requires or allows the company to, without adherence to section 4909.18 or 4909.19 of the Revised Code, adjust the rates that it charges to its customers in accordance with any fluctuation in the cost to the company of obtaining the gas that it sells, that has occurred since the time any order has been issued by the public utilities commission establishing rates for the company pertaining to those customers;
"* * *
"(C) The public utilities commission shall promulgate a purchased gas adjustment rule, consistent with this section, that establishes a uniform purchased gas adjustment clause to be included in the schedule of gas companies and natural gas companies subject to the jurisdiction of the public utilities commission that establishes investigative procedures and proceedings including, but not limited to, periodic reports, audits, and hearings. * * *"
R.C. 4905.302 was enacted as emergency legislation and went into effect on April 27, 1976. (Am. Sub. H.B. No. 1213; 136 Ohio Laws Pt. II 3610.)
The regulations relating to the uniform purchased gas adjustment clause are found in Ohio Adm. Code Chapter 4901:1-14. The purpose and scope of such Chapter are set forth in Ohio Adm. Code 4901:1-14-02 and 4901:1-14-03, respectively, as follows:
"The purpose of this chapter is to establish a uniform purchased gas adjustment clause to be included in the schedules of gas and natural gas companies subject to the jurisdiction of the commission. The provisions of this chapter establish a gas cost recovery process, which is designed to separate the cost of gas from all other costs incurred by gas or natural gas companies, and to provide for each company's recovery of the cost of its includable gas supplies from its customers by means of the quarterly updated gas cost recovery rate and other provisions of this chapter. The provisions of this chapter also establish investigative procedures and proceedings, including periodic reports, audits, and hearings, to examine the arithmetic and accounting accuracy of the gas costs reflected in each company's gas cost recovery rate, and to review each company's gas production and purchasing policies to the extent that those policies affect the gas cost recovery rate."
"The provisions of this chapter shall apply to all gas and natural gas companies subject to the jurisdiction of the commission, with respect to all schedules of rates established or approved by the commission, including, but not limited to rate schedules approved or established under sections 4905.31, 4909.19, and 4909.39 of the Revised Code. * * *"
The GCR equals "(1) [t]he * * * natural gas company's expected gas cost for the upcoming quarter; plus or minus (2) The supplier refund and reconciliation adjustment * * * plus or minus (3) The actual adjustment, which compensates for differences between the previous quarter's expected gas cost and the actual cost of gas during that quarter; * * * plus or minus (4) the balance adjustment, which compensates for any under or over collections which have occurred as a result of prior adjustments." Ohio Adm. Code 4901:1-14-05(A).
Stated as a simple equation, GCR = EGC ± RA ± AA ± BA.
Before 1969, appellant provided service to its customers pursuant to negotiated municipal ordinances. These ordinances contained no provision allowing appellant to flow its gas costs directly through to its customers. Accordingly, no provision was made therein for supplier refunds. Between 1969 and 1977, appellant continued to provide service pursuant to negotiated ordinances. These ordinances, however, contained both a flow-through provision — a purchased gas adjustment clause ("PGA") — and a requirement that supplier refunds be taken into account. In 1977, the municipal ordinances were replaced by commission approved tariffs. However, the PGA clause remained the same as under the ordinances.
In December 1979, appellant's tariffs containing the PGA were withdrawn and cancelled and new tariffs, containing the commission promulgated UPGA, were adopted. Thereafter, in accordance with the requirements of R.C. 4905.302(C), the commission conducted an audit of appellant's initial operations under the UPGA. This audit disclosed that during the audit period — and after December 1979 — appellant received four, separate, supplier refunds. One of these refunds, amounting to $2,306.92, related to gas purchases made between November 1957, and July 1969. The other refunds totalling $458,228.28, related to gas purchases made between December 1975, and October 1979.
"`Supplier refund' means a refund from an interstate pipeline company ordered by the federal energy regulatory commission, including interest where ordered, where such refund is received as one lump sum payment or credit." Ohio Adm. Code 4901:1-14-01(AA).
As a result of the audit hearing, the commission determined that appellant was not treating these supplier refunds as required by the UPGA. Instead, appellant was accounting for the refunds as if they had been actually received during the period to which they related. The result of this treatment was that appellant retained the $2,306.92 refund relating to the 1969 and earlier period. Appellant was refunding to its customers the supplier refunds attributable to the period between December 1975, and October 1979; however, it was doing so in accordance with its PGA in effect during that period.
Following the audit hearing, the commission ordered appellant to "refund the $2,306.92 supplier refund relating to the period prior to July 1969, to its jurisdictional customers in accordance with the methodology prescribed in Chapter 4901:1-14 [Ohio Administrative Code]."
Although the only supplier refund directly at issue herein is that in the amount of $2,306.92, the following comprises all such refunds received by appellant at the time of the audit hearing:
Date Received Amount Period to which refund relates December 1979 $266,080.79 December 1975 to July 1978 February 1980 2,306.92 November 1957 to June 1969 February 1980 154,642.75 July 1978 to October 1979 March 1980 37,504.74 January 1977 to December 1978
Appellant's application for rehearing was denied and the cause is now before this court upon an appeal as of right.
Messrs. Jones, Day, Reavis Pogue, Mr. Paul T. Ruxin, Mr. Richard D. Avil, Jr. and Mr. Charles M. Kennedy, for appellant.
Mr. William J. Brown, attorney general, Mr. Marvin I. Resnik and Ms. Marsha Rockey Schermer, for appellee.
The sole question presented for resolution herein is whether the commission has engaged in unlawful, retroactive ratemaking. Appellant argues that "the proper treatment of supplier refunds must be determined by the tariffs in effect when the service to which the refunds relate was rendered." To do otherwise, would, according to appellant, constitute an illegal action on the part of the commission. For the reasons stated below, we disagree.
It is axiomatic that before there can be retroactive ratemaking, there must, at the very least, be ratemaking. We are not convinced that the commission's actions at issue herein constitute ratemaking as that term is customarily defined. In considering a case arising under the fuel cost adjustment clause of an electric light company, pursuant to R.C. 4905.301, we stated, "[a]t the outset, a distinction must be recognized between the statutory rate-making process involved in establishing fixed rate schedules, and the statutory procedure governing variable rate schedules under the fuel cost adjustment procedure. In the normal instance, a utility desiring to establish a rate, or change an existing one, must file a written application with the commission pursuant to R.C. 4909.18. The function of the commission is to determine the justness and reasonableness of the proposed rates before they become effective, and to fix lawful rates in accordance with the statutory rate plan. * * * Once computed, a schedule of the rates approved by the commission must be filed with the commission under R.C. 4905.30. The utility is admonished, by the provisions of R.C. 4905.32, that it may not charge rates which differ from those previously approved and filed with the commission.
"In contrast, the fuel cost adjustment provisions of R.C. Chapters 4905 and 4909 represent a statutory plan which authorizes a utility to pass variable fuel costs directly to consumers. Rates are thereby varied without prior approval of the commission, and independently from the formal rate-making process incorporated in R.C. 4909.18 and 4909.19. * * *." Consumers' Counsel v. Pub. Util. Comm. (1979), 57 Ohio St.2d 78, 82-83. See, also, Ford Motor Co. v. Pub. Util. Comm. (1977), 52 Ohio St.2d 142, at 151. Notwithstanding the fact that the commission may refuse to permit a flow-through of gas costs under certain prescribed conditions, it does not appear that application of the UPGA constitutes ratemaking in its usual and customary sense.
"The public utilities commission may not at any time prevent or restrain such costs as are distributable under this section from being so distributed, unless the commission has reason to believe that an arithmetic or accounting inaccuracy exists with respect to such a distribution or that the company has not accurately represented the amount of the cost of a special purchase, or has followed imprudent or unreasonable procurement policies and practices, has made errors in the estimation of cubic feet sold, or has employed such other practices, policies, or factors as the commission considers inappropriate." R.C. 4905.302(E).
Assuming that the commission engaged in ratemaking in this cause, the question remains as to whether such ratemaking was retroactive. Appellant argues, specifically, that [t]he commission's retroactive application of the UPGA rule was unlawful, and must be reversed." In support of its argument, appellant relies, primarily, upon this court's decision in Keco Industries v. Cincinnati Suburban Bell Tel. Co. (1957), 166 Ohio St. 254. That reliance is misplaced. In Keco, the court was confronted with a situation where a consumer was suing for restitution of amounts collected under a commission approved tariff which was later determined to be unreasonable and unlawful. There, we held, at page 257, that an action for restitution would not lie, since a "utility must collect the rates set by the commission." In this case, we are not confronted with a situation where a customer is suing for a return to it of the supplier refunds. Instead, the commission has determined that, in calculating the gas costs which may be recovered, prospectively, from appellant's customers, it is not only appropriate but also required that the amount of supplier refunds which were received after the date the UPGA was incorporated into appellant's tariffs be deducted. With this we find no error.
Moreover, it is undisputed that appellant's previous tariffs have been cancelled and that its current tariff, the only "rates set by the commission" still extant, includes the UPGA. The UPGA does not differentiate between supplier refunds on the basis of the period to which they relate.
Before this court will disturb a finding and order of the commission, it must appear from the record that the commission's determination is manifestly against the weight of the evidence and so clearly unsupported as to show misapprehension or mistake or willful disregard of duty. Ford Motor Co. v. Pub. Util. Comm., supra; Franklin Co. Welfare Rights Org. v. Pub. Util. Comm. (1978), 55 Ohio St.2d 1.
The order of the commission, being neither unreasonable nor unlawful, is hereby affirmed.
Order affirmed.
CELEBREZZE, C.J., W. BROWN, SWEENEY, HOLMES, C. BROWN and KRUPANSKY, JJ., concur.
R.C. 4905.32 provides, in pertinent part: "No public utility shall charge, demand, exact, receive, or collect a different rate, rental, toll, or charge for any service rendered, or to be rendered, than that applicable to such service as specified in its schedule filed with the public utilities commission which is in effect at the time. "No public utility shall refund or remit directly or indirectly, any rate, rental, toll or charge so specified or any part thereof * * *." (Emphasis added.) This provision should lead to a straightforward result in this case. That is, when appellant's rates were set before 1969, appellant and its customers struck a bargain. Appellant accepted the risk of an increase in gas prices and its customers accepted the risk of a decrease. Common sense, the principle of freedom of contract and R.C. 4905.32 require that we and the commission leave the negotiated risks as we find them.
Similar reasoning applies to the interest on refunds received under the 1969 ordinance. Appellant's customers did not bargain for interest. Therefore, they should not receive it.
Accordingly, I would reverse the order of the commission because it is neither reasonable nor lawful.