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4 N.J.A.R. 365

In Re: Rockland Electric
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Citation: 4 N.J.A.R. 365
Decision Date: 1982
Synopsis: The Rockland Electric Company applied to the Board of Public Utilities for a change in its fuel cost adjustment rate (Levelized Energy Adjustment Clause). After a hearing before an administrative law judge, the judge determined that two unresolved issues existed: 1) interest sought on the utility's under and overrecovery and 2) the need for an automatic clause of prior period's L.E.A.C. As to the first issue, the administrative law judge found that under the existing 'one-way' interest system, the utility returned over- recovered funds to its customers with interest over the succeeding 12 month period. The utility proposed that there also be collection of interest on underrecoveries during the effective period of the L.E.A.C. arguing that the allowance of interest on underrecoveries as well as overrecoveries is an equitable response to monthly fluctuations in the cost of fuel. The judge noted that the philosophy behind fuel adjust- ment clauses was that the procedure allows a utility to rapidly pass on changes in its fuel costs to its customers without the necessity of going through a formal regulatory hearing and thus represents a 'make whole' approach to the utility. The fuel adjustment clause is fixed--in this instance for 12 months and thus the necessity of full regulatory rate hearings in response to fluctuating fuel costs is precluded. The administrative law judge found that the adoption of two-way interest would dissuade it from overestimating future energy costs and encourage it to accept a lower and stipulated L.E.A.C. than under the present 'one-way' system. Additionally, the judge found that requiring customers to pay interest on fuel costs in excess of those provided for in the L.E.A.C. does no more than compensate a utility for the actual costs of fuel and that such a system would promote a reduction of risk to the utility which was found to be in both the best interest of the utility and its customers. Accordingly, the administrative law judge concluded that a 'two- way' interest system should be permitted as it would best serve the goal of compensation of actual costs. The judge noted, however, that In Re: Rockland Electric equity does not necessarily require that the utility and its customers be subject to interest at the same rate, but requires only that parties be reimbursed the actual charges incurred by them in financing over- and underrecoveries. Thus the judge ordered that the utility should be reimbursed for underrecoveries with interest at a rate which reflects actual borrowing costs to it, the current monthly rate on short-term commercial paper. When the utility overrecovers, the customer was to be reimbursed at a rate which reflects his less favorable borrowing position. As to the question of an automatic termination clause in the utility's Levelized Energy Adjustment Clause, the administrative law judge noted that the utility's L.E.A.C. does not currently contain an auto- matic termination clause but that Rate Counsel had proposed that such a clause be included in the L.E.A.C. The judge observed that what was desirable was a system which is equitable to all parties while promoting the goal of assuring that the utility is fully compensated for actual costs incurred with current ratepayers assuming current fuel costs. The judge found that automatic termination of a L.E.A.C. rate does not further the policy of ensuring that ratepayers assume current fuel costs, while also being basically inequitable, since it would subject the utility to an automatic termination even where a new rate has not been established by the termination date solely to forces beyond the utility's control. Accordingly, the judge ordered a filing date 105 days before the end of the utility's L.E.A.C. rate in order to allow sufficient time for the regulatory process to be completed. Walter W. Weber, Jr., and Clinton A. Poff, Esqs., for petitioner (Weber, Muth & Weber, attorneys) M. Diana Johnston, Deputy Public Advocate, and Margery S. Golin, Assistant Deputy Public Advocate, for Division of Rate Counsel (Joseph H. Rodriguez, Public Advocate, attorneys)