Docket UE20306
Order UE92-7IN THE MATTER of a complaint by the Town of Summerside, dated January 21, 1992, that certain rates, tolls, charges or schedules as contained in the Maritime Electric Company, Limited General Tariff are unjustly discriminatory.
BEFORE THE COMMISSION
on Tuesday, the 11th day of August, 1992.
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Deborah MacLellan, Commissioner
Order
Contents
Appearances & Witnesses
Reasons for Order
1 Introduction
2 Specifics of the Complaint
3 Unjust Discrimination
4 Findings
Order
Appearances & Witnesses
1. For the Town of Summerside
Counsel:
Benjamin B. TaylorWitnesses:
Thomas E. Richardson, Consultant
Robert O'Rourke, Consultant2. For Maritime Electric Company, Limited
Counsel:
William G. LeaWitness:
James A. Lea, Vice-President
Customer Service and Energy Management3. For the Island Regulatory and Appeals Commission
Counsel:
Thomas A. MathesonStaff:
George W. Mason, Senior Analyst Utilities Division
Donald G. Sutherland, Director Utilities Division
Gloria Dalziel, Recording Secretary
Reasons for Order
1 Introduction
This is a complaint under Section 28 of the Electric Power and Telephone Act, R.S.P.E.I. 1988, Cap. E-4, by the Town of Summerside (hereinafter referred as the "Complainant", the "Town" or "Summerside"). The Town seeks an order of The Island Regulatory and Appeals Commission ("Commission") determining that the interruptible rates of Maritime Electric Company, Limited ("Maritime Electric" or the "Company") are unjustly discriminatory and modifying the rates of the Company to eliminate this alleged discrimination. Specifically, the Town seeks modification to the demand credit component of the rate calculation so that the reduction in the demand credit resulting from the utilization factor is eliminated.
Summerside's complaint was initially filed with the Commission on January 29, 1992. The Town's prefiled testimony in this matter was subsequently filed with the Commission on May 13, 1992. In accordance with s.28 of the Act, the Commission served notice of the complaint to Maritime Electric and gave notice of a public hearing into the matter to commence on May 29, 1992. Maritime Electric filed written evidence in response to the complaint on May 28, 1992. No other parties participated in the hearing process.
The public hearings were conducted on May 29 and June 1 and 2, 1992 in Charlottetown. Final summations were made orally at the conclusion of the hearing on June 2, 1992.
2 Specifics of the Complaint
The Complainant is a municipal corporation and-through its Electric Department-a customer of Maritime Electric. The Town purchases virtually all of its electricity from Maritime Electric and distributes the electricity to customers in the Town and a number of outlying areas. In addition, the Town owns a generating station that is used primarily for standby purposes and allows the Town to operate as an interruptible customer of Maritime Electric.
The Town of Summerside is one of three interruptible customer classes served by Maritime Electric. Subject to certain conditions, interruptible customers agree to reduce their electrical load to their declared firm level when called upon to do so by Maritime Electric. These customers therefore accept a lower level of service than firm customers and, hence, have a lower rate. The rate reduction is determined using a calculation which includes a number of factors including the utilization factor which forms the basis of this complaint.
The current rates charged to Summerside by Maritime Electric are based upon the General Tariff of the Company approved by the Public Utilities Commission under Order E91-9, dated August 5, 1992. In its complaint to the Commission, the Town makes the following claims:1
- [T]he interruptible demand credit is determined on the basis of a utilization factor which is unjustly discriminatory.
- The utilization factor places the burden of a certain cost to the system disproportionately upon a particular type of customer (the interruptible customers), which cost, named "lumpiness" in electric capacity additions, is not attributable to the interruptible customers, or is no more attributable to the interruptible customers than it is to any other type of customer.
- The utilization factor is not used by any other electric utility in Canada to determine the credit to interruptible customers and has the effect of unjustly discriminating against interruptible customers.
- The utilization factor produces a volatile interruptible credit which, according to Maritime Electric Company, Limited's own future projections could result in the Town of Summerside interruptible credit decreasing by $500,000 or more per year from the current level of about $730,000.
At the hearing of this matter, Maritime Electric took the position that, while it disagreed with the arguments put forward by the Town, it did so as a matter of principle only, since the ultimate decision of the Commission would have no negative affects upon the revenue base of the Company.
The complaint and the hearings on the complaint were limited to the narrow issue of the utilization factor which forms a component of the calculation of the rates for interruptible customers.
3 Unjust Discrimination
In order to succeed in its complaint, the Town must first demonstrate that the rate in question is unjustly discriminatory. If unjust discrimination is determined by the Commission to exist, the offending rate must be modified or altered.
At law, unjust discrimination in rates appears to exist in cases where customers of a particular rate class are treated differently or where rate classes themselves are arbitrary or unreasonable. An argument that a particular component of a rate or the methodological approach in establishing a rate is unjust is not enough.
In The State of North Carolina Utilities Commission v. the City of Wilson (1960), 35 PUR3rd, 141, the Supreme Court of North Carolina restored an order of the North Carolina Utilities Commission setting aside a concession by the Carolina Telephone and Telegraph company to provide free phone service to certain municipalities. The court concluded that a fundamental basis for the regulation of utilities is to assure that once monopoly powers have been granted the utility will provide all its customers similarly situated with service on a reasonable equal basis. (p. 146) The court went on to cite a previous North Carolina case which stated that.
[T]he obligation of a public service corporation to serve impartially and without unjust discrimination is fundamental. It is not essential that customers who are charged different rates for service should be competitors in order to invoke this principle. There must be substantial differences in services or conditions to justify differences in rates. There must be no unreasonable discrimination between those receiving the same kind and degree of service.
In dealing with a dispute between a gas company and electric company2, the New York Court of Appeal struck down an attempt by the electric company to privately contract for the provision of space heat at a considerably reduced rate when it was prohibited from doing so directly by the Public Service Commission of New York. The New York state law contained a provision against unjust discrimination or unreasonable practices which the court concluded was to prevent such illicit practices whether created by Tariff or private contract (p.228). The court acknowledged that a utility may, in fixing rates, favor a particular class of customers but indicated that such discrimination would be improper if it violated the laws against unfair competition.
In another case3, the Nebraska Supreme Court upheld a rate differential for the transport of crushed sand and gravel by rail where such rate was not available to carriers of crushed rock. In doing so, the court stated as follows (at p.59):
[O]ur statutes prohibit unjust discrimination and unreasonable preferences but all discrimination is not unjust discrimination and all preferences are not unreasonable ones.
The court concluded that mere discrimination does not render a rate illegal; only such rates as are unreasonable or unjustly discriminatory are prohibited.
The Commission is of the view that unjust discrimination can result from the following circumstances:
- Customer classes are established such that different rates are charged to different customers for the same service under substantially the same conditions;
- Different rates are charged to customers within the same customer class; or,
- Rate differences between customer classes are not justified by reasonable differences in the cost or level of service.
The first two cases are not at issue here. The interruptible customers-which fall under three rate classifications-are all assigned an interruptible credit based on the same utilization factor. Within each class, all customers are charged the same rates. The Town has not disputed either of these issues.
The Town of Summerside complaint that the rates are unjustly discriminatory focuses on three issues:
1. the burden on interruptible customers;
2. the instability in the interruptible rate; and
3. the practice in other jurisdictions.
In issue 1-the burden on interruptible customers-the Town submits that the utilization factor places an undue share of the costs of excess capacity on the interruptible customers. The Town argues that these costs are attributable proportionately to all customers and that the interruptible customers do not cause nor should their rate reflect a disproportionate share.
Maritime Electric argues that the credit is based on reasonable cost of service considerations-the interruptible credit is based on savings in system cost-and that Summerside has not demonstrated otherwise.
The Commission notes that the onus in this case is on Summerside to demonstrate that the utilization factor results in a rate which is unjustly discriminatory. In this instance, Summerside must establish to our satisfaction that the rate cannot be justified based on reasonable differences in cost or level of service.
In the Commission's view, the Town has shown that there may be an alternative philosophy for setting rates for interruptible service. However, this falls short of establishing that rates calculated using the utilization factor in question cannot be justified in this instance based on reasonable differences in service cost or level.
The second issue raised by the Town-instability in the interruptible rate-is said by the Town to exist in that the utilization factor produces great potential for volatility in the interruptible rate. Maritime Electric argues that the volatility results from changes in savings and that the Town has not demonstrated that the result is unjust.
The Commission believes that rate volatility is a separate and distinct issue from that of unjust discrimination. The utilization factor may result in fluctuating rates if the savings to Maritime Electric associated with interruptible customers also fluctuate. However, such rates would not necessarily be considered unjustly discriminatory.
Any arguments that may be made as to the desirability of rate stability and the affect of a particular rate on such stability are distinct from the issue of unjust discrimination.
The final issue raised by the Town-that of practice in other jurisdictions-is said by the Town to indicate that a utilization factor is not in use by any other utility in Canada. In the view of the Commission, the practice in other jurisdictions does not provide assistance in the determination of unjust discrimination. Different jurisdictions may, and indeed do, use different principles for designing rates and each, while different, may be considered just and reasonable. In fact, not all jurisdictions in Canada are required to meet the test of just and reasonable rates.
4 Findings
Based on the above discussion, the Commission is unable to accept the argument and evidence of the Town that Maritime Electric's interruptible rates are unjustly discriminatory. Given the Town's reliance upon certain future scenarios included in the Advance Plan of Maritime Electric-a document not available at the time the rate in question was designed-the Town, if it wishes to pursue the issue of potential volatility resulting from the utilization factor, may wish to file with the Commission and Maritime Electric written argument on why its submissions herein on the issue of potential volatility meet the criteria for review under Section 12 of the Island Regulatory and Appeals Commission Act. If the Town files argument on this issue, the Company will be given the opportunity to respond.
1. The complaint by the Town of Summerside that certain rates, tolls, charges or schedules as contained in the Maritime Electric Company Limited General Tariff are unjustly discriminatory is dismissed;
An Order will therefore issue.
IN THE MATTER of a complaint by the Town of Summerside, dated January 21, 1992, that certain rates, tolls, charges or schedules as contained in the Maritime Electric Company, Limited General Tariff are unjustly discriminatory.
Order
THE TOWN OF SUMMERSIDE, having filed a complaint in this matter dated January 21, 1992;
AND THE COMMISSION having heard the complaint at public hearings conducted in Charlottetown on May 29, June 1 and 2, 1992 after due public notice;
AND THE COMMISSION having issued its findings in this matter in accordance with the Reasons for Order issued with this Order;
NOW THEREFORE, pursuant to the Island Regulatory and Appeals Commission Act and the Electric Power and Telephone Act;
IT IS ORDERED THAT
1. The complaint by the Town of Summerside that certain rates, tolls, charges or schedules as contained in the Maritime Electric Company, Limited General Tariff are unjustly discriminatory is dismissed.
DATED at Charlottetown, Prince Edward Island, this 11th day of August, 1992.
BY THE COMMISSION:
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Deborah MacLellan, Commissioner
1 Exhibit S-1, p.2.
2 Columbia Gas of New York Inc. v. the New York State Electric and Gas Corporation (1971), 89 PUR3rd, 23.
3 Re Limestone Producers Association, (1959) 32 PUR3rd, 56.
