PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON Entered: June 2, 1983

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1 x( ZASE NO E-GI PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON Entered: June 2, 1983 II - 7IRGINIA ELECTRIC AND POWER COMPANY, 3 corporation. Review of Fuel Costs of Virginia Electric and Power Company for the period October 1, 1982 through March 31, 1983, for the purpose of establishing a fuel increment in rates to be effective July 1, 1983 through December 31, HEARING EXAMINER'S RECOMMENDED DECISION PROCEDURE By order entered on December 30, 1982, in Case No E-GI, the 'ublic Service Commission approved a fuel cost recovery level for Virginia 3lectric and Power Company (VEPCO) of $ per kilowatt hour (after 3&0 tax adjustments) to reflect fuel costs at the meter level, to be zffective during the period January 1, 1983 through June 30, This represented a fuel recovery level of $ per kilowatt hour before :he E&O tax adjustment. By order issued on April 13, 1983, in the instant case, VEPCO was nade a respondent to this proceeding and was ordered to appear at a iearing to be held in the Commission's Hearing'Room on May 25, 1983, at vhich time and place VEPCO was to present information and evidence relating to its fuel and net energy costs during the period October 1, L982 through J4arcl.1 31, The purpose of the proceeding was to 2stablish a fuel increment to be included in VEPCO's rates for the period Suly 1, 1983 through December 31, Additionally, VEPCO was ordered 20 provide estimates of fuel costs for the application period. VEPCO vas ordered to give notice of the time and place of hearing by posting a :opy of the order and by publishing a copy of the order once at least :en days prior to May 25, 1983, in Greenbrier, Monroe, Pocahontas, Xaleigh and Summers Counties. The hearing was held as scheduled with Michael A. Albert appearing )n behalf of VEPCO, William Roberts of the Legal Division appearing on lehalf of Commission.Staff, and Billy Jack Gregg appearing on behalf of the Consumer Advocate Division. PUBLIC BB

2 Pursuant to an agreement entered into by the parties, the testimony filed by VEPCO on April 25, 1983 and all the exhibits attached thereto were stipulated into evidence with the exception of the testimony of S. P. Keck, who appeared at the hearing to present his testimony in order to provide an opportunity for the Consumer Advocate to cross- examine the witness. Sirnilarily, the testimony of the Staff witness was also stipulated into the record, along with the exhibits attached to thai testimony, At the hearing, the parties agreed on the record to a joint stipulation and agreement for settlement, which was confirmed through a written joint stipulation and agreement for settlement which was submitted to thc Hearing Examiner on May 27, 1983, and which has been placed into the record of this case. At the conclusion of the hearing on May 25, 1983, the matter was submitted for a decision, subject to the filing of the written stipulation. No party was to file briefs or proposed orders. EVIDENCE In its prefiled direct testimony and exhibits, filed on April 25, 1983, VEPCO had requested a total fuel recovery level of $ per kilowatt hour (after B&O tax adjustment) to replace the current fuel recovery level of $ per kilowatt hour, after B&O tax adjustment. VEPCO's request represented a decrease in the fuel increment of $ per kilowatt hour (after B&O tax adjustment). (Exhibit CMJ-A, p. 2). Included in the requested total fuel level was an adjustment of $ per kilowatt hour (including B&O tax adjustment) to account for an underrecovery of fuel expenses experienced by VEPCO during the October 1982 through March 1983 period. The Company had calculated an underrecovery for the six months ended March 1933 of $20,737 (Exhibit SBW-2). VEPCO pointed out that, since July, 1980, when the Commission initiated the six month fuel cost reviews for VEPCO, more than $1.3 million in fuel expense had not been recovered in West Virginia. As a result, VEPC( also requested that the Commission adopt deferred fuel accounting pro- cedures in order to keep over and underrecoveries in balance, (CMJ-A, P. 4). The testimony of Larry W. Ellis set forth the actual energy mix and associated system fuel expenses for October 1982 through March 1983 and the projected system energy mix and fuel expenses for the July,through c PUBLIC OF se I"hl mn m -2- CHAI)LLSTON

3 -~ ~~~ December 1983 period, as it did in VEPCO's last fuel review proceeding before the Commission. For the October 1982 through March 1983 period the system's energy mix was 39.9% nuclear generation, 42.9% fossil fuel generation and 15.4% purchase and interchange power. For the applicatior period, the system energy mix was projected to include 45.4% nuclear generation, 38.9% coal-fired generation, 6.7% heavy oil fired generation,.3% combustion turbine generation and 8.7% purchase and interchange power. The testimony of S. B. Watkins described how the fuel expense level was calculated and how it would be included in the Company's rates during the period July through December The estimated system fuel expense provided in Mr, Ellis's testimony was divided by the estimated system kilowatt hour sales for the application period, provided in the testimony of Mr. C. M. Jarvis, to calculate a fuel level of $ per kilowatt hour, excluding the tax adjustment, This amount is then multi- plied by the B&O tax factor of in order to derive the requested fuel level at meter. Mr. Watkins recommended that the proposed fuel level decrease requested by VEPCQ be placed into effect on the same date as the rate schedules approved by the Commission in VEPCO's pending general rate case, Case No E-42T, which rates will become effective on June 15, According to Mr. Watkins, this would give the customers the benefit of the proposed fuel decrease for an additional fifteen days and eliminate the need to change rates twice in the period between June 15 and July 1, Mr. M. S. Bolton, Jr., provided VEPCO's testimony concerning the actual fuel expenses incurred by the Company during the period October 1982 through March Mr. Bolton also testified in favor of the adoption of deferred fuel accounting, to insure the proper matching of fuel expenses and fuel revenues. According to Mr. Bolton, this procedurt would provide for full recovery of fuel expenses when incurred on an reasonable and prudent basis and any actual over or underrecovery could be corrected in a subsequent fuel proceeding. The Company requested that deferred fuel accounting be approved for use~by VEPCO beginning on July 1, The final witness whose testimony was entered into the record in this proceeding was S. P. Keck, the Supervisor of Fuel Economic Analysis in the Fuel Resources Department of VEPCO. Mr. Keck reviewed actual OF CHARLCSTON

4 delivered fossil fuel prices and actual nuclear fuel expense rates for the six month period ended March 31, 1983, and reviewed projected delivered fossil fuel prices and nuclear fuel expense rates for the six month period July through December According to Mr. Keck, VEPCO continues to supply its coal generating stations through contract and spot purchases. Six coal contracts were in effect during the six month period ended March 31, 1983, These contracts served the Rremo, Portsmout and Mt. Storm stations. The coal sapply for these stations is augmented by spot coal purchases. The Chesterfield and Possum Point stations are supplied exclusively by spot market purchases. Delivered coal prices continued to be generally lower than the forecasted prices for this period as a result of the prolonged economic recession, which has lowered the demand for coal. Additionally actual delivered prices were influenced by changes in rail freight rates, as a result of the Staggers Rail Act of 1980 and a new agreement between VEPCO and CSX Corporation regarding in-system coal, which became effective on January 29, Actual delivered oil prices fell during the period ending March 1983 as a result of the continuing oil glut, conservation, the prolonged economic recession and the use of energy substitutes. The process for developing projected delivered fossil fuel prices includes information from VEPCO's fossil fuel price consultant; various publications relating to the coal and oil markets; key economic market indicators; VEPCO supply sources; and Company operational requirements as they relate to fuel type. The final projections are subject to unanticipated economic or political activity, either on a national or international scale, or deviations from Company-planned operations. The major considerations in forecasting coal prices are the Company's current and future contracts; projected spot coal market prices; coal rail freight rates; and the consumption patterns of the various coal- burning stations. Mr. Keck projects that delivered coal prices will show a small increase due to continued moderate inflation and an antici- pated modest rebound from the currently depressed state of the national economy. He forecasts that delivered oil prices are projected to remain relatively constant during the upcoming fuel period. The primary assumptions used to develop the projections for nuclear expenses for the application period are front-end costs, which are the direct and indirect costs for the initial purchase and fabrication of the nuclear fuel; OF CHARLESTON -4-

5 Westinghouse uranium litigation settlement credits; and rear-end costs, which are based on a present worth methodology for interim storage and which include a federal government charge for permanent disposal of spent nuclear fuel in accordance with the Nuclear Waste Policy Act of The only Staff witness whose testimony was stipulated into the record was David T. Carden of the Finance and Special Studies Division of the Commission. Mr. Carden's testimony supported a fuel recovery level of $ per kilowatt hour after B&O tax adjustments, or a fuel increment decrease of $ per kilowatt hour, after B&0 tax adjust- ments. The only difference between the Staff and Company recommendations is the elimination from the Staff calculation of the increment for past underrecoveries of $ per kilowatt hour, requested by VEPCO. Staff accepted the Company's projections of sources of power by fuel type generation for the six month period ending December 1983; cost per megawatt hour for the various sources, as well as the total dollar amounts; and total system and West Virginia sales projections. PJr. Carden noted that, for the application period, the Company was projecting that the projected cost per ton of coal from Laurel Run (VEPCO's mining subsidiary) will be lower than the projected cost per ton from Island Creek, therefore eliminating the need for repricing of the Laurel Run, or affiliated, coal costs. Staff will later audit the actual results and recommend any changes in future fuel review cases. Staff is opposed to the collection of any past under or over- recoveries; however, Staff, like VEPCO, recommends that deferred fuel accounting be approved for VEPCO, effective July 1, 1983, as has already been done by the Commission for Appalachian Power Company, Monongahela Power Company and The Potomac Edison Company. According to Mr. Carden this will permit adjustments for future under and overrecoveries of prudently incurred fuel expenses. Staff calculated the over and under- recoveries by months for the six month period ended 14arch 1983 and calculated a net underrecovery for that period of $10,899. between the Staff stated underrecovery and the Company's calculated underrecovery of $20,737 results from the repricing of Laurel Run production to the lesser of its own production costs or the price paid to Island Creek. The differenc As noted previously in this order, all of the parties to this case, including the Consumer Advocate Division, entered into a joint stipulatio I' PUBLIC se CHARLLSTON

6 and agreement for settlement. Under the terms of the joint stipulation, the parties agree that a resonable fuel recovery level to be approved in this case is $ per kilowatt hour (after B&O tax adjustment). This agreement is made without prejudice to the respective positions of the parties in subsequent cases regarding VEPCO on any issue contained in this case. The parties further agree and stipulate, after consideration of evidence received in this case and after consideration of Commission precedent in fuel review proceedings of other electric utilities, that beginning July 1, 1983, VEPCO should defer any prudently incurred fuel costs which vary from the level agreed upon in this case and that such deferred costs (whether over or underrecoveries) should be reflected in subsequent fuel review proceedings. The parties agree and stipulate tha the present record is sufficient and adequate to support the fairness, reasonableness and lawfulness of the agreed upon fuel recovery level and the adoption of deferred fuel accounting as set forth in the joint stipulation. DISCUSSION In any rate case in which the parties enter into a joint stipulatioi and agreement for settlement, it is the responsibility of the presiding Hearing Officer to insure that the joint stipulation represents a just and reasonable resolution of all of the issues contained within the case and constitutes a fair and equitable rate to be charged to a utility company's customers. In this case, the Hearing Examiner has thoroughly reviewed the evidence stipulated into the record, as well as Commission decisions in past VEPCO fuel review cases and fuel review cases involvin; other generating electric utilities in this jurisdiction. The Hearing Examiner is convinced that the joint stipulation and agreement for settlement entered into by the parties to this case represents a fair and reasonable resolution of the issues involved and should be adopted by the Examiner. The fuel review levels independently calculated by VEPCO and Commission Staff were precisely the same, with the exception of the adjustment for past underrecoveries requested by VEPCO. The Staff witness accepted as accurate the Company's projections of sales and fuel costs for the upcoming six month period, prior to the time that a stipu- lation was entered into by the parties. Considering the Commission's past decisions with regard to the appropriateness of including = adjustrents PUBLIC OF %E w mimm -6- CHARLESTON

7 -~ for under or overrecoveries in a fuel increment, it is very likely that absent the stipulation, the Staff recommendation would have been adopte in this case, which recommendation is the fuel increment stipulated to ' the parties. Additionally, the Hearing Examiner is of the opinion that deferred fuel accounting would likely have been adopted in this case, without the stipulation, since both Commission Staff and VEPCO recommen ed it and since there appears to be no good reason for denying to VEPCO a procedure approved by the Commission for use by the other three generating electric utilities operating in this jurisdiction. The result reached in the joint stipulation and agreement for settlement could have, and most likely would have, been reached by the Hearing Examiner absent a joint stipulation and agreement for settlement. Thus a fair and impartial review of the evidence and exhibits presented in this case independently supports and justifies the result contained within the joint stipulation and agreement for settlement. In its pre-filed testimony, VEPCO requested that it be permitted t place the fuel increment approved herein into effect at the same time that the Company implements any new rates which would result from its pending general rate case, Case No T. These rates will be effective on June 15, At the hearing held on May 25, 1983, Commi sion Staff and the Consumer Advocate Division indicated that they had n objection to this procecure. objection to this procedure. The Hearing Examiner likewise has no However, to implement the new fuel incre- ment on J'une 15, 1983, the parties will have to request a waiver of the 15-day exception period and 5-day Commission suspension period applicab to Hearing Examiners' Recommended Decisions, established in W. Va. Code Such a waiver may not be granted by a Hearing Examiner under the new policy established by the Commission in its April 29, 1983 orde in Case No T-D. Therefore, an appropriate joint motion must be filed by the parties to this case with the Commission in order to place the new fuel increment for VEPCO into effect prior to July 1, FINDINGS OF FACT 1. The independently calculated fuel increments submitted by VEP and Commission Staff in their pre-filed testimony were precisely the same with the exception of an adjustment for underrecoveries requested by VEPCO. (Staff Stipulated Exhibit DTC-A, p. 2). PUBLIC BE -7- CHARLEWON

8 .- 2. The Public Service Commission has approved the use of deferred fuel accounting for the three other generating electric utilities operating in this state (Staff Stipulated Exhibit DTC-A, p. 3). 3. The stipulated fuel recovery level, after BSGO taxes, of s per kilowatt hour is the same as the Staff recommended fuel recovery level contained in its pre-filed testimony (Staff Stipulated Exhibit DCC-A, p. 2; Joint Stipulation and Agreement for Settlement, p. 2) CONCLUSION OF LAW The fuel recovery level recommended in the joint stipulation and agreement for settlement of s p'er kilowatt hour after B&O taxes constitutes a just and reasonable fuel recovery level, which could be independently justified on the basis of the exhibits and testimony presented in this case and should be approved for use by VEPCO for the six month period beginning July 1, Additionally, the use of deferred fuel accounting should be approved for use by VEPCO effective July 1, 1983, as a reasonable way to account for future over and underrecoveries. ORDER IT IS, THEREFORE, ORDERED that Virginia Electric and Power Company be permitted to include in its rates the amount of $ per kilowatt hour (after BSGO tax adjustment), or 1.987p5 per kilowatt hour, which reflects a fuel cost at meter level of $ per kilowatt hour. The fuel increment approved in this proceeding represents a $ per kilowatt hour decrease from the previously approved fuel recovery level effective for the period January 1 through June 30, IT IS FURTHER ORDERED that beginning July 1, 1983, Virginia Electric and Power Company should defer any prudently incurred fuel costs which vary from the level agreed upon herein and that such deferred costs, whether over or underrecoveries, should be reflected in subsequent fuel review proceedings. IT IS FURTHER ORDERED that the Company shall, within fifteen (15) days of the date of entry of this order, file revised tariff schedules incorporating therein the fuel increment approved in this proceeding. Such new tariff sheets shall contain the following language: The above rates include a fuel increment of per kilowatt hour. PUBLIC 6E CHARLESTON -8-

9 The Executive Secretary is hereby ordered to serve a copy of this order upon the Commission by hand delivery, and upon all parties of record by United States Certified Mail, return receipt requested. Leave is hereby granted to the parties to file written exceptions supported by a brief with the Executive Secretary of the Commission within fifteen (15) days of the date this order is mailed. If excep- tions are filed, the parties filing exceptions shall certify to the Executive Secretary that all parties of record have been served said exceptions. If no exceptions are so filed this order shall become the order of the Commission, without further action or order, five (5) days following the expiration of the aforesaid fifteen (15) day time period, unless it is ordered stayed or postponed by the Commission. Any party may request waiver of the right to file exceptions to a Hearing Examiner's Recommended Decision by filink an appropriate petitior in writing with the Secretary. No such waiver will be effective until approved by order of the Commission, nor shall any such waiver operate to make any Hearing Examiner's Order or Decision the order of the Commission sooner than five (5) days after approval of such waiver by the Commission, unless the Commission likewise waives its statutory 5-day suspension period. Melissa K. Marland Hearing Examiner PUBLIC OF S ~ M 1 lnla N MKM:n= -9- CHARLLSTON