# Petition for Writ of Certiorari — National Steel Corp. v. Public Service Commission

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1986
- **Citation:** 475 U.S. 1121

## Text

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No. FEB 3 1986

INTHE '
Supreme Court of the Gnited States

OCTOBER TERM, 1985

NATIONAL STEEL CORPORATION,
Petitioner,

THE PUBLIC SERVICE COMMISSION OF
WEST VIRGINIA,
Respondent.

On Petition for Writ of Certiorari from the Supreme
Court of Appeals of West Virginia

PETITION FOR WRIT OF CERTIORARI

T. D. KAUFFELT

KAUFFELT & KAUFFELT
803 Kanawha Valley Building
Post Office Box 3082
Charleston, West Virginia 25331
(304) 345-1272

Attorney for Petitioner

i oe etnarie i oS EA A AL AT TT IT TD aS aS = RTGS
PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

QUESTION PRESENTED

Whether requiring Petitioner, who is no longer a
customer of Mountaineer Gas Company, to make pay-
ments to Mountaineer Gas Company, successor to Co-
lumbia Gas of West Virginia, Inc., for gas purchased
from Columbia between July 1, 1980, and October 31,
1984, although Petitioner has fully paid for said gas
under the rates in effect at that time and approved
by the Public Service Commission of West Virginia,
without notice to the rublic of its contemplation of
engaging in retroactive ratemaking, and without no-
tice to the public that said case would involve a mod-
ification of the Public Service Commission’s
Administrative Rule 30-C, which governed said pro-
ceedings, is a violation of the Fourteenth Amendment
of the United States Constitution, as a denial of due

process.

ii

TABLE OF CONTENTS

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THE INVALID DECISION AND THE RELEVANT
CONSTITUTIONAL PROVISIONS AND OTHER STATUTES
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TABLE OF CITATIONS

CASES Page
Arizona Grocery Co. v. Atchison, Topeka & Santa

Fe Railway Co., 284 U.S. 370 (1982)... 3
Chesapeake & Potomac Telephone Company of West

Virginia v. Public Service Commission, 300

SIE TP CWO BUND ivckacccsnnrcsecscnnccsnsosseses 14
Dirt, Inc. v. Mobile County Commission, 739 F.2d

IN TIE.» dusenchucenstessiasaréesetascoaseaces 19
Montgomery Ward & Co. Inc., v. Federal Trade Com-

mission, 691 F.2d 1332 (9th Cir. 1982) _......... 19
Morgan v. United States, 304 U.S. 1 (1938) _ ......... 17
Morton v. Ruiz, 415 U.S. 199 (1974) _.................... 19
Mullane v. Central Hancver Bank & Trust Co. 339

is ccs siscnnbmananascesbensnanenone 17
North Alabama Express, Inc. v. United States, 585

SE TE, “BINGE -ssnccccscannseresscsccecssnseees 17
Ruangswang v. Immigration and Naturalization Ser-

vice, 591 F.2d 39 (9th Cir. 1978) _ ................... 20
United States v. Nixon, 418 U.S. 683 (1974) _ ........ 19
Virginia Electric & Power Company v. Public Ser-

vice Commission, 248 S.E.2d 322 (W.Va.

ol sai sass cddcdntncancenesneunenveosencee 14
Walker v. City of Hutchinson, 352 U.S. 112

ath a chal casaeandenucshnnbecbesnsusencesenevaces 17

CONSTITUTION AND STATUTES:

U.S. Constitution, Fourteenth Amendment ............ i
Sc cissianehnennoucnnaesnnensss 2
ass ses snncnnansannnnoansataansstaessane 4
ns. cs cc nnuncunusncnnsanncbanesecssantas 4
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IN THE
Supreme Court of the Anited States

OCTOBER TERM, 1985

No.

NATIONAL STEEL CORPORATION,
Petitioner,
V.

THE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA,
Respondent.

On Petition for Writ of Certiorari from the Supreme
Court of Appeals of West Virginia

PETITION FOR WRIT OF CERTIORARI

INTRODUCTION

National Steel Corporation, Petitioner, petitions for
a writ of certiorari from the decision of the Supreme
Court of Appeals of West Virginia entered by Order
dated November 6, 1985, denying a Petition for Sus-
pension and Review of the Final Order of the Public
Service Commission of West Virginia, dated July 10,
1985, in Case No. 83-348-G-30C, Columbia Gas of
West Virginia, Inc., Application to change rates, ef-
fective November 1, 1983, according to Rule 30-C,

General Order No. 183.4, Purchase Gas Application,
and Case No. 84-100-G-SC, Columbia Gas of West
Virginia, Inc., Proceeding Upon the Commission’s
Own Motion requiring Petitioner to make payments
to Mountaineer Gas Company, successor to Columbia
Gas of West Virginia, Inc., for gas purchased from
Columbia from July 1, 1980 and October 1, 1984, even
though Petitioner paid for said gas during said time
period under the rates legally in effect at that time
and approved by the Public Service Commission of
West Virginia. Petitioner submits this statement to
show that the Supreme Court of the United States
has jurisdiction of the writ of certiorari and that a
substantial Federal question is presented.

OPINIONS BELOW

The Final Order of the Supreme Court of Appeals
of West Virginia dated November 6, 1985, is attached
hereto as Appendix A. The Final Orders of the Public
Service Commission of West Virginia in Case Nos.
83-348-G-30C and 84-100-G-SC, dated October 31,
1984, December 28, 1984, and July 10, 1985, respec-
tively, not yet reported, are attached hereto as Ap-
pendix B.

JURISDICTION

(A) The jurisdiction of this Court to review the
decision of the Supreme Court of Appeals of West
Virginia, is conferred by Title 28, United States Code,
Section 1257(3). The Final Orders of the Public Ser-
vice Commission, dated October 31, 1984, and July
10, 1985 require that Petitioner pay reparations for
a utility service previously purchased and consumed.
As such, said Orders of the Public Service Commis-

sion constitute the exercise of a delegated power ju-
dicial in nature. Arizona Grocery Co. v. Atchison,
Topeka & Santa Fe Railway Co., 284 U.S. 370 (1932).
The Order of the Supreme Court of Appeals of West
Virginia denying the petition for suspension and re-
view of said Commission Orders constitutes a judg-
ment upholding the judicial decision of the Public
Service Commission against Petitioner’s claim of in-
validity under the 14th Amendment to the United
States Constitution. The Supreme Court’s jurisdiction
in this case by writ of certiorari is thus established,
as Petitioner is specifically claiming a “‘title, right,
privilege or immunity” under the Constitution of the
United States. 28 U.S.C. §1257(3).

(B) The judgment of the Supreme Court of Appeals
of West Virginia sought to be reviewed was made
and entered on November 6, 1985. Petitioner’s Notice
of Appeal, attached hereto as Appendix C, was filed
in the office of the Clerk of the Supreme Court of
Appeals of West Virginia and in the office of the
Executive Secretary of Respondent on January 28,
1986 (that Court and Respondent then having custody
of the record).

THE INVALID DECISION AND THE RELEVANT
CONSTITUTIONAL
PROVISIONS AND OTHER STATUTES AND
REGULATIONS

The decision asserted to be improper is the Order
of the Supreme Court of Appeals of West Virginia,
entered on November 6, 1985, attached hererto as
Appendix A, affirming the Final Orders of the Public
Service Commission of West Virginia dated October
31, 1984, December 28, 1984, and July 10, 1985, at-

tached hereto as Appendix B, requiring Petitioner to
make payments to Mountaineer Gas Company, suc-
cessor to Columbia Gas of West Virginia, Inc., for
gas purchased from Columbia between July 1, 1980
and October 31, 1984, although Petitioner paid for
such gas during said time period under the lawful
rates in effect at that time and approved by the Public
Service Commission.

This decision violates a prohibition of the 14th
Amendment that:

[Njor shall any state deprive any person of
life, liberty or property, without due process
of law; nor deny to any person within its
jurisdiction equal protection of the law.

Although not asserted to be invalid, other relevant state
statutes and regulations include:

(a) provisions of the West Virginia Code of
1931, as amended, attached hereto as Ap-
pendix D:

(i) Chapter 24, Article 2, Section 3, del-
egating to the Public Service Commis-
sion the power to fix utility rates;

(ii) Chapter 24, Article 5, Section 1, pro-
viding the sole and exclusive procedure
for judicial review of a Commission or-
der;

(b) Orders of the Public Service Commission
of West Virginia, attached hereto as Appen-
dix E:

(i) General Order No. 183.2, entered
February 23, 1979, which order provides
for a notice and hearing when
Respondent amended its Rule 30-C to its
present form;

(ii) General Order No. 183.4, entered
June 26, 1979, which established the
present Rule 30-C of the Public Service
Commission Rules and Regulations. Rule
30-C concerns the establishment of a rate
for gas purchased by consumers;

(iii) Order from Case No. 83-348-G-30C,
Columbia Gas of West Virginia, Inc.,
dated October 13, 1983, which gave a
notice of the hearings of the case from
which Petitioner files its present petition,
setting forth the purpose of the hearing
and what was to be accomplished.

STATEMENT OF THE CASE

On August 10, 1983, Columbia Gas of West Vir-
ginia, Inc., (Columbia) filed a Rule 30-C application
for recovery of increased purchased gas costs. Colum-
bia applied for an increase from an interim rate of
$4.948 per Mcf (1000 cubic feet) to $5.484 per Mcf,
effective November 1, 1983. The purchased gas re-
covery rate is comprised of three components: (1) The
gas cost per Mcf of sales, (2) an actual cost adjust-
ment (ACA) increment to reflect over/under recov-
eries for a previous period, and (3) a factor accounting
for the affect of taxes. Columbia’s requested increase
was primarily based on increase in the gas cost per
Mcf of sales from the interim level of $4.905 per Mcf

to $5.255 per Mcf, before ACA and taxes. This re-
quest was reduced to $5.151 per Mcf before ACA and
taxes in an October 14 amendment of its data sup-
porting the application. Columbia stated an under-
recovery of $5,748, 829 for the twelve months ending
June, 1983, and total expenses to be recovered
through the proceeding of $236,628,100.

By Order entered September 21, 1983, a pre-hear-
ing conference was set to be held on October 5, 1983,
in order to establish the identities of the parties, the
issues to be addressed, and the procedural schedule
to be followed.

On October 13, 1983, Respondent issued an Order
establishing a procedural schedule. Two hearings were
scheduled, the final substantive hearing to be held on
January 9, 1984. Additionally, a hearing was set for
October 24, 1983, for the purpose of determining
whether an interim rate should be established until a
final determination could be reached in the 30-C Case.

On October 24 and 25, 1983, hearings were con-
ducted to determine whether an interim rate was ap-
propriate. On November 14, 1983, an interim
purchased gas cost (PGA) increment which included
a projected gas cost per volume of sales of $5.043
per Mcf, an ACA increment which reflected Colum-
bia’s stated under-recovery for the 12 months ending
June 30, 1983, and an adjustment for tax affects was
established, subject to refund.

On January 9, and January 11, 1984, hearings con-
cerning the case in chief were held. At the conclusion
of these hearings, parties submitted simultaneous in-
itial and reply briefs on all relevant issues.

‘a

On February 22, 1984, the Staff of the Public Ser-
vice Commission filed a petition to reopen the pro-
ceedings to receive further evidence and to establish
certain associated proceedings to evaluate the ade-
quacies of Columbia’s efforts to obtain cheaper gas
supplies from Ashland Exploration, Inc. On March 2,
1984, Staff’s motion to reopen the 30-C proceeding
was granted. Furthermore, Respondent initiated a
new proceeding, Case No. 84-100-G-SC, for the pur-
pose of determining the reasonableness of Columbia’s
practices and the appropriateness of associated sanc-
tions. The matters were consolidated and rescheduled
for hearing on March 22, 1984, and then rescheduled
for March 29, 1984.

Said additional hearings were held as scheduled. At
the conclusion of the hearings, all parties were given
the opportunity to submit initial and reply briefs on
the relevant issues affecting the Rule 30-C application
as well as other issues presented by the show cause
proceeding.

On May 11, 1984, Columbia petitioned to increase
its actual cost adjustment increment to provide for
accelerated recapture of its underrecovery, requesting
that Columbia’s projected underrecovery balance as
of June 30, 1984, be reduced to zero before the be-
ginning of the next PGA period by permitting Cc-
lumbia to apply an increased ACA surcharged factor
to sales during the months of May through October,
1984. This increased ACA surcharge would recover
approximately $4,152,556.

On Oétober 31, 1984, Respondent entered an order.
This order approved the interim rates and charges
established by Respondent on November 14, 1983.
Respondent also determined that Columbia’s method

of recapturing over/underrecovery balances for a prior
period purchased gas costs should be modified. Moun-
taineer Gas Company, successor to Columbia Gas
Company of West Virginia, Inc. was directed to cal-
culate the comprehensive over/underrecovery balance
for each customer in the LV-1, LV-2, IUS-1, and IUS-
2 rate schedules during the period between November
1, 1981, and October 31, 1984. These rate schedules
cover Mountaineer’s large volume customers. Moun-
taineer was to pay any outstanding overrecovery bal-
ance and obtain cash payments for any underrecovery
balance from individual customers for gas purchased
during that period. Said payments were to be made
within 12 months after notice of such payment is
provided.

On November 13, 1984, a Petition for Reconsider-
ation was filed by Mountaineer Gas Company. An
untimely filed Petition for Reconsideration of West-
vaco Corporation was filed on November 16, 1984,
and accepted.

On December 28, 1984, an Order entitled ‘‘Com-
mission Order on Petition for Reconsideration’”’ was
entered. This order modified the Order of October 31,
1984. Said December 28, 1984 Order permitted the
IUS and LV customers who are required to make
cash payments to make them in 12 equal monthly
payments, without interest, after receiving notifica-
tion of the outstanding bill. Any refund that Moun-
taineer is required to make will be made in the same
manner. Said Order also held that calculation of the
over/underrecovery balances should begin not on No-
vember 1, 1981, but on July 1, 1980.

On January 24, 1985, Westvaco Corporation filed
an appeal of Respondent’s Orders with the Supreme

Court of Appeals of West Virginia. A similar petition
was filed by Petitioner on January 28, 1985. The
Supreme Court of Appeals of West Virginia rejected
these appeals without opinion on April 23, 1985.

On February 1, 1985, Mountaineer Gas Company
filed calculations of outstanding underrecovery bal-
ances with the Respondent which purportedly satis-
fied the Respondent’s directive. Upon review of these
calculations, it was clear that the Company, without
Respondent’s approval, included underrecovery bal-
ances for the month of November, 1984 within its
calculations and so, the filing was rejected.

By Order entered February 28, 1985, Respondent
directed the Commission Staff to review Mountai-
neer’s data, develop corrected figures, and file these
calculations and supporting data by March 20, 1985
with the Executive Secretary of Respondent and pro-
vided interested parties the opportunity to file com-
ments by April 4, 1985. Said comment period was
subsequently extended to April 12, 1985.

By Order entered April 24, 1985, Respondent rein-
stituted the respective repayment obligations, ap-
proving the Staffs calculations. Under this Order, an
IUS-1, IUS-2, LV-1 or LV-2 customer was to pay any
outstanding underrecovery balance determined to ex-
ist as of October 31, 1984, per Staff’s calculations in
twelve (12) equal monthly installments after notice of
the outstanding balance is provided by Mountaineer,
without accrual of interest. Mountaineer was to pay
any outstanding underrecovery balance determined to
exist for an IUS-1, IUS-2, LV-1 or LV-2 customer as
of October 31, 1984, per Staff’s calculations.

On May 3, 1985, Mountaineer Gas Company re-
quested the Order be clarified or modified so as to

a

10

allow Mountaineer Gas Company to account for B&O
taxes which will accrue against the balance. On May
17, 1985, Petitioner filed a motion which requested
that Respondent reopen the period for receiving com-
ments on Staff’s over/underrecovery calculations and
underlying methodologies. Petitioner noted that it was
not provided copies of the February 28, 1985, April
1, 1985 and April 29, 1985 Orders.

On June 13, 1985, Respondent entered an Order
on further reconsideration which reopened the period
for commenting on Staff’s calculations and metho-
dologies used in determining over/underrecovery bal-
ances for LV and IUS customers, which were
performed in accordance with the Commission’s Or-
ders in these cases. The comment period was re-
opened through Monday, June 24, 1985, and the
respective repayment obligations established by
Respondent’s April 24, 1985 Order was suspended
until further order. Said Order also included appli-
cable B&O taxes would be assessed upon the respec-
tive over/underrecovery balances in the net amounts
to be paid under the terms of the Order.

By Order entered on June 21, 1985, the period for
submitting appropriate comments was extended
through July 1, 1985.

Comments on the matter were submitted by West-
vaco Corporation and Petitioner on June 24, 1985 and
July 1, 1985, respectively. Petitioner’s filing also in-
cluded a Petition for Reopening and Reconsideration.

On July 10, 1985, Respondent issued an Order en-
titled “Commission Order Approving Repayment Ob-
ligations After Further Comment”’ denying National
Steel Corporation’s Petition for Reopening and Re-
hearing and reaffirming its previous position regard-

11

ing required repayments. On August 9, 1985,
Petitioner filed an appeal of said Order with the
Supreme Court of Appeals of West Virginia. A similar
petition was filed by Westvaco Corporation. The
Supreme Court of Appeals of West Virginia rejected
these appeals without opinion on November 6, 1985.

REASONS FOR PLENARY CONSIDERATION
OF THE PETITION FOR WRIT OF CERTIORARI

The proceeding from which Petitioner’s petition for
writ of certiorari is taken was convened pursuant to
Public Service Commission of West Virginia Rule 30-
C of the Rules and Regulations for the Government
and the Construction and Filing of Tariffs of Public
Utilities and Common Carriers by Motor Vehicle. (Ap-
pendix E.) Rule 30-C concerns the establishment of
a rate for gas purchased by consumers. Normally, a
gas rate has three components: customer costs, de-
mand costs, and gas costs. The first two components
of the rate, customer costs, which are basically ad-
ministrative expenses, and demand costs, which are
expenses incurred in establishing a physical plant, are
not dealt with in a 30-C proceeding. The 30-C pro-
ceeding deals only with the third component, gas
costs.

Under Rule 30-C, a utility submits to the Public
Service Commission of West Virginia an estimate of
its expected gas costs for the upcoming year. These
estimates are filed with the Commission on or before
August 1 for the 12 month period beginning Novem-
ber 1. The Commission then holds hearings and, nor-
mally in late October, issues an Order establishing
the gas cost component of the utility’s rate for the
year beginning November 1. Rule 30-C permits the

12

utilities to submit estimates which include amounts
attributable to the previous 12 month period, if there
has been an “‘underrecovery”’ of such gas costs. Such
an “underrecovery’”’ would occur when the utility has
underestimated its actual costs for the previous 12
months. The Commission, as set forth in Rule 30-C,
allows such an ‘‘underrecovery’”’ to be factored into
the rates for the upcoming year and recovered from
the gas customers. Thus, any “underrecovery” re-
sults, in a 30-C proceeding, in an increase in future
rates.

In the case below, Respondent acknowledged the
nature of the 30-C proceedings:

The purpose of this proceeding is to es-
tablish a reasonable and appropriate pur-
chased gas cost increment to be included in
Columbia’s tariff sheets. This established in-
crement should reflect Columbia’s reasonable
purchased gas expenses for the twelve month
period projected from November 1, 1983, its
prior underrecovery experienced during the
twelve month period ending June 30, 1983,
plus an adjustment for tax effects.

October 31, 1984, Order, p.4 (Appendix B)

Respondent then proceeded to abandon the contem-
plated prospective rate making and to require ad-
justments of rates for the period November 1, 1981
(later changed to July 1, 1980) through October 1,
1984. Respondent authorized Mountaineer Gas Com-
pany (successor to Columbia Gas of West Virginia,
Inc.) to assign responsibility for the underrecoveries
attributable to industrial customers under certain rate
schedules during the prior period, notify these cus-

13

tomers of their assigned underrecoveries, and require
the customers to make cash payments in the assigned
amount, which was to be determined by Mountaineer
Gas Company. This is stated in the October 31, 1984
Order:

2. On or before January 1, 1984, Columbia
Gas of West Virginia, Inc. (Mountaineer Gas
Company) shall calculate the comprehensive
over/underrecovery balance for each cus-
tomer in the LV-1, LV-2, IUS-1 and IUS-2
rate schedules during the period between No-
vember 1, 1981 through October 31, 1984.
Columbia (Mountaineer) shall inform each
IUS and LV customer of any outstanding
Overrecovery or underrecovery balance by
February 1, 1985.

3. An IUS or LV customer shall pay an
outstanding underrecovery balance deter-
mined to exist as of October 31, 1984 within
twelve (12) months after notice of the out-
standing balance is provided by Mountaineer,
without accrual of any interest.

October 31, 1984 Order, p. 36. (Appendix B)

Petitioner was a customer of Mountaineer Gas
Company until January 11, 1984. Mountaineer pro-
vided gas service at Petitioner’s Weirton Steel Di-
vision in Weirton, West Virginia. On January 11,
1984, Petitioner sold the Weirton Steel Division to
Weirton Steel Corporation. Petitioner received no
other gas service from Mountaineer Gas Company.
The October 31, 1984 Order of Respondent thus cre-
ated an approximately $2 million liability for
Petitioner, a liability which would not have existed

14

under a normal application of Rule 30-C, since normal
30-C proceedings result in increases in future rates.

West Virginia Code §24-2-3 states, in part,:

The commission shall have the power to
enforce, originate, establish, change and pro-
mulgate tariffs, rates, joint rates, tolls and
schedules for all public utilities: Provided,
that the commission may exercise such rate
authority over municipal utilities only under
the circumstances set forth in section four-b
[§24-2-4b] of this article. And whenever the
commission shall, after hearing, find any ex-
isting rates, tolls, tariffs, joint rates or sched-
ules unjust, unreasonable, insufficient or
unjustly discriminatory or otherwise in vio-
lation of any of the provisions of this chapter,
the commission shall by an order fix reason-
able rates, joint rates, tariffs, tolls or sched-
ules to be followed in the future in lieu of
those found to be unjust, unreasonable, in-
sufficient or unjustly discriminatory or oth-
erwise in violation of any provisions of law

West Virginia Code §24-2-3 (Emphasis
added) Appendix D).

The Supreme Court of Appeals of West Virginia
has, in construing this section, unequivocally held that
Respondent, in setting rates, operates prospectively
and cannot operate retroactively. Chesapeake & Po-
tomac Telephone Company of West Virginia v. Public
Service Commission, 300 S.E.2d 607, 619 (W.Va.1982).

15

Virginia Electric & Power Company v. Public Service
Commission, 248 S.E.2d 322 (W.Va.1978).

In Chesapeake & Potomac Telephone Company of
West Virginia v. Public Service Commission, 300
S.E.2d 607, 619 (W.Va.1982), the Supreme Court of
Appeals of West Virginia stated that “retroactive ra-
temaking occurs when a utility is permitted to recover
an additional charge for past losses.” It held that such
ratemaking was illegal. Mountaineer Gas Company,
however, was permitted by Respondent in the case
below to do just that. Petitioner, and other industrial
customers, during the period July 1, 1980 to October
1, 1984, purchased gas from Columbia under the rates
lawfully established by Respondent and on file with
Respondent at that time. By its Order of July 10,
1985 (Appendix B), Respondent authorized Mountai-
neer Gas Company, Columbia’s successor, to presently
recover an additional charge for losses on past gas
sales. Mountaineer may, according to Respondent,
send a bill to its gas customers for any underrecovery
of gas costs for gas purchased in the past, July 1,
1980 to October 1, 1984.

In attempting to provide some justification for its
position, Respondent claimed that this position was
adopted pursuant to an Actual Cost Adjustment pro-
vided under Rule 30-C, which establishes an annu-
alized true-up adjustment in the PGA which represents
a difference between the actual cost of purchased gas
during a prior period and the projected cost of gas
for various suppliers at the time of the prior PGA
filing. Respondent failed to explain that the existing
30-C mechanism deals only with prospective rate-
making. Once an amount that has been “‘underrecov-

16

ered” in a prior period is determined, it is added to
future rates. See Rule 30-C (Appendix E). No bills
are sent.

Respondent did not follow the provisions of its own
Rule 30-C. Rule 30-C specifically calls for the addition
of any underrecovery for purchased gas for a pre-
ceding period to be added to future gas rates. Rule
30-C(D); Rule 30-C(D\3\e) (Appendix E). Respondent
did not do this and admits that it did not follow its
own administrative rule by describing its actions as
“‘a case-specific modification” of Rule 30-C. July 10,
1985 Order, p. 5. (Appendix B).

Respondent, however, failed to follow proper pro-
cedures in order to modify Rule 30-C. Respondent’s
Order of February 23, 1979, (Appendix E), demon-
strates the procedure previously used by Respondent
to modify Rule 30-C. This order provided for a notice
and hearing when Respondent amended Rule 30-C to
its present form. When the present Rule 30-C was
adopted, by Respondent’s Order of June 26, 1979,
(Appendix E), the Rule was filed with the Secretary
of State, pursuant to West Virginia Code §29A-1-2.
Respondent followed no such procedure to amend this
Rule 30-C in the case below. Rather, Respondent en-
gaged in what it admits was “a case-specific modi-
fication’”’ of Rule 30-C. July 10, 1985 Order, p. 5
(Appendix B).

The public notice of the hearings in the case below,
contained in the Order of October 13, 1983, (Appendix
E) set forth the purpose of the hearing and what was
to be accomplished. The notice gave no indication that
gas consumers might be charged a new rate on gas
consumed between July 1, 1980 and October 31, 1984,
and paid for under the provisions of the tariff prop-

OE LE LD LE LS

17

erly filed with and approved by Respondent at that
time. The notice gave no hint that a ‘‘case-specific
modification” of Rule 30-C was contemplated. The
only matter of which the public was notified was a
compliance with the present Rule 30-C and the es-
tablishment of rates for the future.

Reasonable notice to interested persons that their
legally protected interests may be adversely affected
by administrative action is a requirement of due proc-
ess. Walker v. City of Hutchison, 352 U.S.112 (1956);
North Alabama Express, Inc. v. United States, 585
F.2d 783 (5th Cir. 1978). In the administrative con-
text, due process requires that interested parties be
given a reasonable opportunity to know the claims of
adverse parties and an opportunity to meet them.
Mullane v. Central Hanover Bank & Trust Co., 339
U.S. 306 (1950); Morgan v. United States, 304 U.S.
1 (1938).

In the case below, Petitioner was not given a rea-
sonable opportunity to know the claims of the adverse
parties and an opportunity to meet them. As dem-
onstrated above, the statutory language upon which
Petitioner had to rely, the decisions of the Supreme
Court of Appeals of West Virginia interpreting that
statutory language, the specific language of Rule 30-
C, and the language of the notice given for the case
below all indicated that a normal Rule 30-C proceed-
ing was to occur. A normal Rule 30-C proceeding did
not occur.

In the proceeding below, no suggestion of Petitioner
paying Mountaineer Gas Company for gas previously
purchased and consumed arose until well into the pro-
ceedings. As the record indicates, the subject was not
mentioned until near the end of the proceedings when

18

it was injected into the case in the rebuttal testimony
of a member of Respondent’s Staff. This was then
the basis for Respondent’s decision.

Petitioner, prior to this rebuttal testimony, was
never apprised of the possibility of liability for pre-
vious gas purchases. Other than the opportunity to
cross-examine the rebuttal witness, Petitioner was un-
able to fully develop its opposition to the rebuttal
witness’ surprise position.

This surprise testimony also created a conflict for
Petitioner’s legal counsel. At the commencement of
the case below, Petitioner was a customer of Moun-
taineer Gas Company, as it still owned the Weirton
Steel facilities. During the case, the sale to Weirton
Steel Corporation occurred. Counsel for Petitioner
then began to represent both Petitioner and Weirton
Steel Corporation, as there was no reason to believe
that these parties had conflicting positions. When the
rebuttal testimony of a member of Respondent’s Staff
raised the issue of direct billing to customers for past
gas purchases, instead of rolling the underrecoveries
into future rates, it created a sudden conflict between
Petitioner, an old customer, and Weirton Steel Cor-
poration, a present customer. Yet it was far too late
for Petitioner to obtain new counsel during the hear-
ing, further reducing Petitioner’s opportunity to meet
the adverse claims. Nor did the urgent need for sep-
arate counsel become apparent until Respondent is-
sued its initial decision, as the notice and control
presentation of the case, as well as the statutes, case
law, and language of Rule 30-C, did not make Staff’s
rebuttal position seem in any way feasible. Petitioner
had no notice that it would be seriously considered,
and Rule 30-C ‘‘case-modified”’ to accomplish this goal.

19

The notice in the case below (Appendix E) made
no mention of the potential liability for prior gas pur-
chases, or the possibility of a “‘case-specific modifi-
cation” of Rule 30-C. Certainly, these are central
issues for the proceeding below. The operative test
of a notice is that the notice as published must rea-
sonably apprise any interested party of the issues
involved in the proceeding. North Alabama Express,
Inc., supra. The notice in the case below cannot pos-
sibly have met this test.

Proper notice is a jurisdictional prerequisite to valid
agency actions. Dirt, Inc. v. Mobile County Commis-
sion, 739 F.2d 1562 (11th Cir. 1982). The notice in
the case below did not adequately apprise Petitioner,
and other like persons, of the potential liability pres-
ent in the case and the possibility of rule modification.
Respondent, in assigning such liability and modifying
its Rule 30-C, was acting beyond its jurisdictional au-
thority. The failure to provide Petitioner with notice
and a hearing compatible with due process also denies
Petitioner due process by permitting Respondent to
act beyond its jurisdictional authority.

Agencies cannot depart from their own regulations
if prejudice results. So long as a regulation is extant,
it has the force of law, United States v. Nixon, 418
U.S. 683 (1974), even where the internal procedures
are more rigorous than otherwise would be required.
Morton v. Ruiz, 415 U.S. 199 (1974). An amendment
is proper only when adequate notice is provided to
affected parties pursuant to appropriate rulemaking
procedures. Montgomery Ward & Co. Inc., v. Federal
Trade Commission, 691 F.2d 1332 (9th Cir. 1982).
Amendment of an administrative rule in a manner
not consistent with appropriate rulemaking proce-

20

dures denies affected persons due process, as such
action would fail to provide the public with proper
notice of the proposed rule change. See Ruangswang
v. Immigration and Naturalization Service, 591 F.2d
39 (9th Cir. 1978).

In the proceeding below, Respondent admittedly de-
parted from its own Rule 30-C, without prior notice.
Prejudice certainly resulted, as Petitioner, due to this
departure, now has an approximately $2 million lia-
bility that would not have otherwise existed. The
“case-specific modification” of Rule 30-C was without
notice and did not follow any of the procedures pre-
viously followed to amend Rule 30-C. This constitutes
a clear denial of due process.

CONCLUSION

WHEREFORE, Petitioner hereby respectfully re-
quests that this Court grant the Petition for Writ of
Certiorari from the Supreme Court of Appeals of
West Virginia, for the reasons cited herein above.

Respectively, submitted,

T. D. KAUFFELT

KAUFFELT & KAUFFELT
803 Kanawha Valley Building
Post Office Box 3082
Charleston, West Virginia 25331

Attorney for Petitioner

APPENDIX

la

APPENDIX A

Final Order of the Supreme Court of Appeals
of West Virginia of November 6, 1985

STATE OF WEST VIRGINIA

At a Regular Term of the Supreme Court of Appeals,
continued and held at Charleston, Kanawha County, on
the 6th day of November, 1985, the following order was
made and entered, to-wit:

Columbia Gas of West Virginia, Inc., a corporation
Case No. 83-348-G-30C

National Steel Corporation
vs.
The Public Service Commission of West Virginia

Upon an appeal from, suspension and review of the final
order of the Public Service Commission of West Virginia
made and entered on July 10, 1985.

The Court having maturely considered the petition and
exhibits; the record consisting of all papers, documents
and evidence which were before the Public Service Com-
mission at the hearing which resulted in the entry of the
final order complained of; the statement of reasons for
the entry of its order of the 10th day of July, 1985, filed
herein by the respondent, Public Service Commission of
West Virginia on October 31, 1985; and the oral argument
of counsel on the 5th day of November, 1985, the date
fixed by the Court for hearing upon the aforesaid petition;
is of opinion that the petitioner has not shown itself en-
titled to the relief prayed for in its said petition. It is
therefore considered and ordered that the prayer of the
petition for an appeal from, suspension and review, in this
proceeding, be, and the same is hereby denied.

2a

It is further ordered that leave be, and the same is
hereby, granted to the Public Service Commission of West
Virginia to withdraw from the office of the Clerk of this
Court, the record consisting of all papers, documents and
evidence originally filed with the Public Service Commis-
sion of West Virginia.

A True Copy

Attest:
Clerk Supreme Court of Appeals

3a

APPENDIX B

Orders of the Public Service Commission of West
Virginia, dated October 31, 1984, December 28, 1984,
and July 10, 1985.

PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON

At a session of the PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA in the City of Charleston on the 31st
day of October, 1984.

CASE NO. 83-348-G-30C

COLUMBIA GAS OF WEST VIRGINIA, INC.,
a corporation.

Application to change rates,

effective November 1, 1983,

according to Rule 30C, General

Order No. 183.4, Purchased Gas

Application.

CASE NO. 84-100-G-SC

COLUMBIA GAS OF WEST VIRGINIA, INC.,
a corporation.

Proceeding Upon the Commission’s

Own Motion.

FINAL ORDER

APPEARANCES

Charles R. McElwee, Thomas E. Morgan and Andrew J.
Sonderman, appearing on behalf of Columbia Gas of West
Virginia, Inc.;

Richard E. Hitt and Mark Thessin, Legal Division, ap-
pearing on behalf of Commission Staff;

Denise Goulet and Billy Jack Gregg, of the Consumer
Advocate Division of the Public Service Commission;

4a

J. Randolph Cox and Lee F. Feinberg, appearing on
behalf of Weirton Steel Corporation; and :

John J. Carrara and Thomas M. Hanna, appearing on
behalf of Westvaco Corporation.

PROCEDURE

On August 10, 1983, Columbia Gas of West Virginia,
Inc. (Columbia) filed a Rule 30C application for recovery
of increased purchased gas costs with the Public Service
Commission in accordance with the Commission’s General
Order No. 183.4, issued on June 26, 1979. The Company
requested a purchased gas adjustment (PGA) which would
permit Columbia to recover the total projected expenses
of $236,628,100 for the twelve-month period beginning No-
vember 1, 1983 and a prior period underrecovery of
$5,743,829 experienced during the twelve months ending
June, 1983.

Due to the complex nature of the underlying issues, the
substantive hearings in this case were delayed to allow
the parties adequate time for preparation. By order issued
on October 14, 1983, the Commission established the pro-
cedure for October 24, 1983 hearings on matters concern-
ing the establishment of an interim rate and January 9,
1984 hearings on the case in chief.

On October 24 and 25, 1983, the Commission conducted
hearings to determine an appropriate interim rate. On No-
vember 14, 1983, the Commission established an interim
purchased gas cost (PGA) increment which included a proj-
ected gas cost per volume of sales of $5.048 per Mcf, an
ACA increment which reflected the Company’s stated un-
derrecovery for the twelve months ending June 30, 1983,
and an adjustment for tax effects. This interim PGA in-
erement became effective November 1, 1983, subject to
refund.

Hearings concerning the case in chief were conducted
January 9, 1984 through January 11, 1984. At this time,
Columbia presented the testimony of R. G. Stalnaker and

5a

J. R. Lee; Staff presented the testimony of David J. Ellis;
Consumer Advocate presented the testimony of W. E. Ben-
nett and E. R. duPont; and Weirton Steel Corporation
presented the testimony of M. A. Wilkinson and T. W.
Merrill, Jr. At the conclusion of these hearings, parties
submitted simultaneous initial and reply briefs on all rel-
evant issues.

On February 22, 1984, the Commission Staff filed a
petition to reopen the proceedings to receive further evi-
dence and to establish certain associated proceedings to
evaluate the adequacy of Columbia’s efforts to obtain
cheaper gas supplies that were offered by Ashland Explo-
ration, Inc. (Ashland). Furthermore, Staff contended that
Columbia’s failure to reveal the existence of Ashland’s of-
fer within its Rule 43 data, response to data requests, or
Supporting testimony may violate Commission’s General
Order No. 185.7, and the silence of James R. Lee, Colum-
bia’s witness with respect to gas purchasing practices, re-
garding this opportunity, may be tantamount to the giving
of false testimony to the Commission.

By order issued March 2, 1984, the Commission granted
Staff’s motion to reopen the 30C proceeding to evaluate
this additional evidence. Furthermore, the Commission in-
itiated a new proceeding, Case No. 84-100-G-SC, for the
purpose of determining the reasonableness of Columbia’s
practices and the appropriateness of associated sanctions.
The matters were consolidated and scheduled for hearing
on Thursday, March 22, 1984. In response to a joint mo-
tion, these hearings were rescheduled for Thursday, March
29, 1984.

These additional hearings were convened on March 29
and March 30, 1984. Staff presented the testimony of L.
Eugene Dickinson, Director of Gas Sales for Ashland Ex-
ploration, Inc., and Columbia presented the testimony of
James R. Lee. At the conclusion of these hearings, all
parties were given the opportunity to submit initial and
reply briefs on the relevant issues affecting the Rule 30C
application as well as other issues presented by the show
cause proceeding.

6a

On May 11, 1984, Columbia petitioned the Commission
to increase its actual cost adjustment increment to provide
for accelerated recapture of its underrecovery. The petition
requested that this Commission reduce Columbia’s proj-
ected underrecovery balance as of June 30, 1984 to zero
before the beginning of the next PGA period by permitting
the Company to apply an increased ACA surcharge factor
to sales during the months of May through October of
1984. The increased ACA surcharge was designed to re-
cover approximately $4,152,556. (See Revised Exh. B, Sch.
No. 2, Sheet 2 of 3, Columbia Petition, May 11, 1984).
All parties to the proceeding were provided the opportu-
nity to comment on this petition by the close of business
on May 25, 1984.

BACKGROUND AND ISSUES

The purpose of this proceeding is to determine a rea-
sonable and appropriate purchased gas cost increment to
be included in Columbia’s tariff sheets. This established
increment should reflect Columbia’s reasonable purchased
gas expenses for the twelve month period projected from
November 1, 1983, its prior underrecovery experienced
during the twelve month period ending June 30, 1983, plus
an adjustment for tax effects.

The following issues concerning Columbia’s PGA were
raised at the January hearings:

1. The reasonableness of Columbia’s basic purchased gas
costs, including the propriety of Columbia’s inclusion of
amortized start-up costs of $194,000 associated with syn-
thetic natural gas (SNG) supplies in light of recent Com-
mission decisions to limit Columbia’s recoverable SNG
costs.

2. Columbia’s compliance or non-compliance with the
standard of care to be exercised in its natural gas pur-
chasing practices, as established by the Commission’s de-
cisions in Case Nos. 80-336-G-30C, 81-366-G-30C and 82-
379-G-30C, and by the Legislature in Code §24-2-4c.

7a

3. The appropriateness of suggested modifications to the
current methodology for determining an actual cost ad»
justment increment (ACA) for the allocation and collection
of underrecoverable from Columbia’s customers.

4. The appropriateness of suggested modifications in the
Commission’s current method of determining a PGA and
assigning utility rates to customers.

The March 29 and March 30, 1984 hearings presented
issues related to Columbia’s procurement practices with
regard to volumes available from Ashland Exploration, Inc.
One issue is whether Columbia failed to make a good faith
effort to procure cheaper supplies of natural gas that were
offered by Ashland, and whether Columbia’s actions justify
repricing of Columbia’s PGA for non-compliance with the
standards of care enunciated in prior Columbia 30C cases
and Code §24-2-4c. Furthermore, since the existence of this
Ashland offer was not revealed within Columbia’s Rule 43
data, Columbia’s response to various data requests, or in
Columbia’s supporting testimony given at the prior pro-
ceedings, related issues address the appropriateness of var-
ious sanctions arising from Columbia’s conduct.

After the conclusion of all of the hearings, Columbia
petitioned the Commission for an accelerated recapture of
its June 30, 1983 underrecovery balance. Since Columbia’s
petition represents a deviation from the existing method
employed by this Commission in making actual cost ad-
justments, we will address whether this accelerated re-
capture of underrecovery should be approved by the
Commission under the circumstances.

DISCUSSION
I. Projected Gas.Costs in Columbia’s PGA

Columbia’s projected gas cost from November 1, 1983
through October 31, 1984 was established to be $5.043 per
Mcf in the Commission’s Interim Order. This purchased
gas cost was derived by dividing the total cost of pur-
chased gas for that period of $236,628,100 by the projected
sales volume of 46,919,600 Mcf. (See Appendix A, Sheet

8a

1 of 3, Interim Order, November 14, 1983). Though Co-
lumbia’s supporting data lists a slightly higher total cost
of purchased gas ($236,634,100) for the twelve-month pe-
riod, its projected gas cost per Mcf of sales is also $5.043
per Mcf. (Columbia Exh. No. 3, Schedule No. 2, Sheet 2).

The only issue raised by the parties in regard to Co-
lumbia’s projected gas cost concerned the inclusion of
$194,300 for the amortization of deferred start-up costs
assuciated with the production of Synthetic Natural Gas
(SNG) in Columbia’s current gas costs.

Columbia asserts that the $194,300 for the amortization
of SNG costs deferred in prior Commission cases was prop-
erly included in this purchased gas cost recovery rate.
These deferrals resulted from start-up costs experienced
during the first years of operation of the Green Springs
facility by Columbia LNG Corporation which were amor-
tized by the Commission over a twenty-five year period in
Columbia Gas of West Virginia, Inc., Case No. 8000, 53
ARPSCWYV 559 at 576 (1976). This decision was reaffirmed
in subsequent Commission cases involving Columbia, Case
No. 9147, 66 ARPSCWV 488 (1978) and Case No. 79-088-
G-42T, 68 ARPSCWV 293 (1980). Columbia contends that
the Commission’s recent decision to reprice SNG volumes
purchased by Columbia in Case Nos. 80-336-G-30C, 81-366-
G-30C and 82-379-G-30C does not exclude the recovery of
these deferred SNG start-up and depreciation expenses
that were authorized by the Commission in prior cases.
(See Columbia Exh. No. 3, Schedule 4; RGS Exh. C, p.
9; Columbia Initial Brief, pp. 9-11).

The Staff notes that the recent Commission decisions
have repriced SNG volumes to reflect the average Colum-
bia Gas Transmission Corporation rate, with adjustments
for transportation. The Staff’s position is that the addi-
tional allowance of nearly $200,000 per year for deprecia-
tion and amortization of the SNG facilities and start-up
costs of the Green Springs plant would result in a total
SNG cost which exceeds the repricing standard and would
therefore be contrary to the evidence and language of Case

9a

Nos. 80-336-G-30C and 81-366-G-30C. (See Staff Exh. No.
3, pp. 5-9; Staff Initial Brief, pp. 16-18).

We are of the opinion that Columbia’s projected gas
costs properly included $194,300 for the amortization of
SNG costs deferred in prior Commission cases. The ra-
tionale for repricing of SNG (in Case Nos. 80-336-G-30C
and 81-366-G-30C) volumes was based on the established
lack of need for SNG supplies. We repriced SNG volumes
according to the average CGTC rate to alleviate the bur-
den piaced on consumers by Columbia’s continued purchase
of these unneeded and more expensive supplies. Since the
amortized start-up costs at issue have previously been
found reasonable and their recovery deferred by the Com-
mission, we do not find that the continued allowance of
these deferred start-up costs are unreasonable under the
circumstances. Therefore, we shall permit the inclusion of
these deferred charges in Columbia’s PGA.

Review of Columbia’s rates and charges reveals that
Columbia’s basic purchased gas cost of $5.043 per Mcf
accurately reflects Columbia’s projected actual cost of gas
and projected sales, with an appropriate repricing adjust-
ment for SNG volumes purchased through March 31, 1984,
when Columbia’s SNG supply contract expired. Since we
continue to hold that this SNG contract is unreasonable
and unnecessary, we find that Columbia’s projected PGA
accurately reflects Columbia’s basic cost of purchased gas.

II. Columbia’s Compliance With Statutory and Com-
mission Standard of Care

In recent Columbia 30C proceedings, this Commission
has maintained that Columbia Gas of West Virginia, Inc.
has engaged in purchasing practices and management
practices which do not adequately promote the interests
of Columbia’s jurisdictional customers. (See Final Order of
the Commission in Joint Cases 80-336-G-30C and 81-366-
G-30C at p. 52, June 28, 1982). To remedy the situation,
this Commission established the following standards of care
which Columbia must satisfy in subsequent 30C cases:

10a

1. Columbia is to let out bids for the purchase
of some significant quantity of natural gas sup-
plies needed to fulfill its customer requirements.

2. Columbia is to make a substantial effort to
purchase West Virginia produced natural gas.

3. Columbia must demonstrate that dependa-
ble, lower priced supplies of natural gas are not
readily available from other sources, and that any
contracts between Columbia and a corporate af-
filiate or combination of corporate affiliates are
not detrimental to the customers of Columbia. If
this standard is not satisfied by Columbia, the
Commission indicated that it may choose to limit
any proposed increase to a level which reflects
the reasonable cost of natural gas which is de-
termined to be readily available in the State of
West Virginia.

4. In future proceedings, Columbia must dem-
onstrate efforts which it has taken to more ad-
equately represent the interest of its West
Virginia jurisdictional customers in the Columbia
Gas System, as opposed to stbordinating the in-
terests of its West Virginia service area to those
of the Columbia Gas System as a whole. (Final
Order in Joint Cases 80-336-G-30C and 81-366-G-
30C, at pp. 56-57).

Similar standards of care have been required for all
natural gas utilities by the adoption of Senate Bill No.
117, effective March 12, 1983, which amended provisions
of Chapter 24 of the West Virginia Code in response to
dramatically increasing gas rates during recent years. In
particular, Code §24-2-4¢ provides in part:

At any hearing involving a rate increase for a
natural gas public utility, the burden of proof to
demonstrate that dependable lower priced sup-
plies of gas are not readily available from other
sources and that contracts between the public
utility and its suppliers for purchase of natural

lla

gas are negotiated at arm’s length and are not
detrimental to customers of the utility’s services
shall be upon the public utility making application
for such change. Should the applying public util-
ity not satisfactorily meet this burden, then the
Commission may not authorize an increase
greater than that which reflects the reasonable
cost of natural gas which is determined to be
readily available.

This statute also requires the establishment of a compet-
itive bid program by gas utilities.

The testimony of James R. Lee, Vice President of Sup-
ply Planning and Services for Columbia Gas of West Vir-
-ginia, Inc., addressed Columbia’s compliance with these
standards. Though Mr. Lee noted that Columbia continues
to seek cheaper supplies of natural gas from the various
sources shown in Columbia’s Rule 43 data, Columbia be-
lieves that its greatest opportunity to obtaining supplies
of gas at rates that are cheaper than Columbia Gas Trans-
mission Corporation’s commodity rate would be through
local purchases. Columbia has instituted a local gas pro-
curement program which embodied a comprehensive effort
to locate available local gas, including the implementation
of a competitive bid program. Four bids were received as
a result of the initial bid program and Columbia is pro-
ceeding to work out satisfactory arrangements for the pur-
chase of these lower cost gas supplies. Columbia believes
that its competitive bid program could provide significant
volumes of cheaper gas supplies in the future and will
continue to modify and develop this program. (JRL Exh.
A, pp. 8-10; Tr. 1/10, pp. 64-67).

Columbia’s efforts to obtain local West Virginia gas for
its system supply are coordinated by its local gas pro-
curement manager, whose sole responsibility is to secure
local supplies of West Virginia gas for Columbia Gas of
West Virginia, Inc. In addition to maintaining the bidding
procedure, this officer contacts producers by various means
to locate cheaper gas supplies for Columbia’s system. (Tr.
1/16, pp. 60-63).

12a

For the twelve months ending October 31, 1984, Co-
lumbia projected that it would obtain 3,286 Bcf from Cabot
Corporation (Columbia Exh. No. 3, Schedule No. 6, Sheet
1 of 14), 181 Bef from other local producers, and noted
the anticipated satisfaction of up .to five percent of its
supply needs through the purchase of locally produced gas
under CGTC’s Phase II Transportation Program. By com-
bining these supplies, Columbia anticipated that over eleven
percent of its total requirements would be supplied from
sources other than Columbia Transmission at a price below
Columbia Transmission’s commodity rate. (JRL Exh. A,
pp. 15-16). However, even with an aggressive local pro-
duction acquisition program, Mr. Lee testified that Colum-
bia must continue to rely on Columbia Transmission as its
primary source of supply in the forseeable future because
there is not enough local gas available to serve firm, long-
term requirements of Columbia’s customers. (JRL Exh. A,
p. 16).

David J. Ellis, Director of the Commission’s Finance and
Special Studies Division, testified that Columbia has not
demonstrated its gas procurement practices are as efficient
as they could be and that it obtains gas at the lowest
possible price. However, he believed that Columbia’s evi-
dence has demonstrated a significant change in its previous
policy of near total reliance on Columbia Gas Transmission
Corporation as a supply source and did not recommend
any adjustment to the actual cost levels reflected in Co-
lumbia’s filings. (See Staff Exh. No. 3, pp. 1-2).

The Consumer Advocate Division of the Public Service
Commission contended that Columbia has failed to satisfy
its burden of proof that dependable, lower priced supplies
are not readily available from other sources and that ex-
isting contracts are negotiated at arm’s length and are
not detrimental to customers. The Consumer Advocate as-
serted that Columbia has made little effort to obtain non-
affiliated gas supplies from sources other than local pro-
ducers and thus ignored major gas markets. Furthermore,
CAD asserted that Columbia’s efforts to acquire locally
produced gas were inadequate due to the limited scope of

13a

their program. (See CAD Initial Brief, pp. 9-15). Accord-
ingly, CAD proposed a variety of repricing methodologies.

The Consumer Advocate proposed to reprice certain Co-
lumbia volumes on the basis of theoretically available local
gas at $3.00 to $3.50 per Mcf. We are of the opinion that
the record does not contain adequate justification for the
repricing of Columbia’s PGA on this basis. Consumer Ad-
vocate witness William E. Bennett only ambiguously stated
that undeveloped sources of local gas supplies would be
available to Columbia if it sought such volumes more ag-
gressively. Mr. Bennett did not recommend that Colum-
bia’s volumes be repriced accordingly. (See CAD Exh.
WEB-A pp. 5-9, Tr. 1/11, p. 8). Therefore, even if we
were to accept CAD’s contention that Columbia’s local gas
procurement program is inadequate, we do not find that
the record contains a sufficient basis for repricing Colum-
bia’s PGA.

The Consumer Advocate also asserted that Columbia
failed to adequately investigate the availability of off-sys-
tem purchases which were sold as surplus non-affiliated
interstate pipeline supplies and suggested that the weighted
average and volumes of the gas which other local distri-
bution companies were able to purchase from the surplus
market could serve as a reasonable basis for repricing
Columbia’s gas under Code §24-2-4c. (Tr. 1/10, pp. 135-
139, 149-151). The weighted average cost of such trans-
actions was represented to be $3.86 per Mcf. (See Con-
sumer Advocate Exh. ERD-1).

We do not accept this basis for repricing for three rea-
sons. First, there is not a showing that this type of supply
is reasonably available since it is not apparent that ade-
quate transportation of these surplus volumes can be ar-
ranged in a cost effective manner. (Tr. 1/10, pp. 34-36).
Second, it is not established that such volumes could be
attained at a rate that is cheaper than CGTC’s commodity
rate of $4.18 per Mcf since the analysis of CAD witness
Edmund duPont omitted necessary transportation costs and
associated shrinkage charges in some transactions (Tr. 1/

l4a

10, pp. 126-128, 137). Third, since the surplus market rep-
resents an intermittant supply source instead of a contin-
uous supply of gas, Columbia’s decision to pursue reliable,
constant gas supplies which are perceived to be more cost
effective in the long run appears to be a reasonable man-
agement decision.

Finally, the Consumer Advocate urges the Commission
to reduce the demand cost included in Columbia’s rates
because Columbia has apparently determined that the total
daily entitlement (TDE) level of demand included in Co-
lumbia’s service agreement with Columbia Transmission
was, in fact, too high and should be reduced. (Tr. 1/9, p.
71). Columbia requested that its TDE level be reduced in
February of 1983, but the Consumer Advocate asserts that
the evidence indicates a reduction should have been re-
quested earlier. (CAD Initial Brief, 2/22, pp. 27-31).

Even if we adopt CAD’s position that Columbia im-
properly failed to reduce its TDE’s during prior periods,
there is not an adequate basis in the record for repricing
Columbia’s PGA. Since CGTC’s other customers are also
in the process of reducing TDE’s as a result of a perceived
permanent reduction in demand throughout the system,
Columbia Gas Transmission Corporation’s fixed costs will
necessarily be recovered over a smaller number of demand
units. As a result, it is uncertain what benefit will result
to Columbia from reducing its total daily entitlements. (See
Tr. 1/9, pp. 19-20). Additionally, due to the speculative
nature of the management decision to adjust its TDE’s,
we believe that the CAD’s recommendation effectively pun-
ishes Columbia for making a determination to take a po-
sitive rate reducing step for the potential benefit of its
customers, thereby deterring such actions in the future.

In summation, we are satisfied that the evidence in this
case establishes that Columbia is actively seeking alter-
native gas supplies to displace higher priced CGTC supplies
and the projected gas supplies which comprise Columbia’s
purchased gas costs represent the lowest priced reliable
supplies of gas that are reasonably available to Columbia

15a

Gas of West Virginia during the period in question. There-
fore, Columbia has satisfied its burden of proof required
under prior 30C cases and Code §24-2-4c. Furthermore,
even if Columbia failed to satisfy its burden, we find that
the record does not contain an adequate basis for repricing
Columbia’s PGA for failure to obtain reasonably available
lower-priced supplies of gas.

III. Columbia’s Acquisition Practices and Associated
Issues Regarding Ashland Exploration, Inc. Vol-
umes

By letter dated October 20, 1983, Ashland Exploration,
Inc. offered to sell certain volumes of its production from
Martha, Kentucky gas fields to Columbia Gas of West
Virginia, Inc. This gas was to be delivered directly to
Columbia Gas of West Virginia’s Huntington market area.
The initial quantity of gas available through this offer
would be over 1800 Mcf per day and the ultimate maxi-
mum quantity to’be delivered under the arrangement would
be 5000 Mcf per day. The maximum price for this gas was
to be the lesser of CGTC’s commodity price or $3.40. This
offer represented that if agreement could be reached, Ash-
land could begin delivery of these volumes within six to
eight months. (See Staff Exh. 1-A).

The initial response of the purchasing agents for the
Columbia Gas of West Virginia was to investigate the pos-
sibility of purchasing these gas volumes for either Colum-
bia Gas of Kentucky or Columbia Gas of West Virginia
both of which are distribution companies within the Co-
lumbia Gas System. (Tr. 3/29, pp. 32-36). These primary
purchasing agents, including Mr. Lee, are officers of all
seven distribution companies within the Columbia Gas Sys-
tem. (Tr. 3/29, p. 160). During the course of the negoti-
ations, Columbia officials indicated to Mr. L. Eugene
Dickinson, Director of Gas Sales for Ashland, that either
Columbia Gas of Kentucky or Columbia Gas of West Vir-
ginia would purchase the gas. Mr. Dickinson interpreted
this representation to mean that Columbia Gas System
officials would determine which of the two distribution

16a

companies would receive the gas. (Tr. 3/29, p. 34). On
February 2, 1984, a proposed contract was submitted to
Ashland on behalf of Columbia Gas of Kentucky for the
purchase of the Martha Field production. Ashland deter-
mined that the proposed purchase of gas by Columbia Gas
of Kentucky was not as desirable as a sale to Columbia
Gas of West Virginia, and Mr. Dickinson contacted the
Staff of the Public Service Commission of West Virginia
to discern what options were available to Ashland. (Tr. 3/
29, pp. 34-39).

On the basis of the information provided by Mr. Dick-
inson, Staff filed the February 22, 1984 petition to (1)
force Columbia Gas of West Virginia to negotiate in good
faith with Ashland for the purchase of these cheaper gas
supplies; (2) determine if Columbia Gas of West Virginia’s
actions warrant repricing of its PGA pursuant to Code §24-
2-4c and prior Commission orders for failing to procure
cheaper supplies of natural gas which were reasonably
available; and (8) investigate Columbia Gas of West Vir-
ginia’s failure to reveal the existence of the Ashland offer
at the January hearings.

On March 8, 1984, Columbia Gas of West Virginia, Inc.
and Ashland Exploration, Inc. entered into a contract for
the sale of these volumes. (See Stipulation Exh. No. 1;
Tr. 3/29, pp. 44-46). Though the shared management of
Columbia Gas distribution companies initially sought to ob-
tain these volumes on behalf of Columbia Gas of Kentucky,
Inc., Mr. Dickinson testified that the signing of the con-
tract was not significantly delayed as a result of the ac-
tions of Columbia Gas of Kentucky or Columbia Gas of
West Virginia (Tr. 3/29, p. 47).

The evidence revealed that three matters must be re-
solved before deliveries can commence under the contract.
First, the magnitude of volumes delivered under the agree-
ment require that Ashland construct larger cleaning fa-
cilities, which are estimated to require up to eight months
to construct. Second, Ashland will need to construct an
additional one-half mile of pipeline to connect its existing

17a

facilities to the Columbia Gas of West Virginia distribution
facilities, which would take a maiter of weeks. Third, Ash-
land must obtain a certificate of public convenience and
necessity to construct facilities across state lines from the
Federal Energy Regulatory Commission (FERC) since this
sale requires the transfer of gas in interstate commerce.
Mr. Dickinson estimated that four to six months would be
required to obtain FERC approval (Tr. 3/29, pp. 45-48).

Columbia Gas of West Virginia’s shared management
asserted that it sought to obtain the Ashland volumes on
behalf of the Kentucky distribution company as well as
the West Virginia distribution company because the pur-
chasing officers overseeing the negotiations, including Mr.
Lee, were charged with locating and evaluating gas sup-
plies for all of distribution companies within the Columbia
Gas System. Therefore, in addition to acting as the bar-
gaining arm of Columbia Gas of West Virginia, they had
a dual responsibility to seek viable supply sources for other
Columbia Gas distribution systems, including Columbia Gas
of Kentucky. This dual role was further complicated by
the fact that in a recent rate case the Public Service
Commission of Kentucky had directed Columbia Gas of
Kentucky to obtain more local gas from nonaffiliated pro-
ducers. (Tr. 3/29, pp. 160-163). It was asserted that Co-
lumbia Gas of West Virginia’s shared management
proceeded to evaluate the availability of these volumes on
behalf of both distribution systems and reached a deter-
mination to issue a proposed contract on behalf of Colum-
bia Gas of Kentucky.

After presentation of the evidence, Staff asserted that
there was insufficient factual basis to pursue remedial
measures arising from Columbia Gas of West Virginia’s
failure to make a good faith effort to obtain reasonably
available, lower priced supplies of natural gas, particularly
since the contract had in fact been consummated. The
Staff also contended that other forms of relief to force
Columbia Gas of West Virginia to negotiate in good faith
for these volumes had likewise become inappropriate. (Staff
Initial Brief, May 4, 1984; Tr. 3/29, p. 100). The CAD

18a

asserted that Columbia Gas of West Virginia failed to make
a good faith effort to obtain the lower priced Ashland
volumes until it had no choice in the matter and recom-
mended a full. gamut of remedial sanctions, including re-
pricing of certain volumes in Columbia Gas of West
Virginia’s PGA pursuant to Code §24-2-4c. (CAD Initial
Brief, May 4, 1984, pp. 4-12). Weirton Steel Corporation
supported CAD’s arguments, contending that prompt re-
sponse by Columbia Gas of West Virginia could have re-
sulted in some volumes being delivered as early as the
summer of 1984. Therefore, Weirton suggests that the
Commission reprice a portion of Columbia Gas of West
Virginia’s volume (up to 1.8 Bef) accordingly. (Weirton
Reply Brief, 4/18, pp. 1-2).

We recognize that if Columbia Gas of West Virginia had
acted upon the Ashland Offer as if it were independent
from the other distribution companies within the Columbia
Gas distribution system, it would have proceeded to ne-
gotiate for the Martha Field volumes without involving
Columbia Gas of Kentucky. The reluctance and inability
of the shared management of Columbia Gas of West Vir-
ginia to effectively advocate actions for the benefit of the
customers of Columbia Gas of West Virginia, Inc., even
though it may detrimentally affect another arm of the
Columbia System, is one of the primary factors which ne-
cessitated the development of the Commission’s standard
of care set forth in Section II of this order (evolved in
pages 48-58 of the Commission’s June 28, 1982 order in
Case Nos. 80-336-G-30C and 81-366-G-30C), as well as sup-
port the subsequent sale of Columbia Gas of West Virginia
to a nonaffiliated entity. However, even though the shared
management of Columbia Gas of West Virginia initially
sought to obtain the gas for Columbia Gas of Kentucky,
the end result of the efforts to obtain these supplies for
Columbia Gas of West Virginia were ultimately timely and
reasonable. Therefore, we find that Columbia of West Vir-
ginia’s actions in obtaining the Ashland volumes do not
constitute a failure to procure reasonably available and
dependable lower priced supplies for gas. Furthermore,

19a

even if we were to accept the argument that Columbia’s
response to the offer did not comply with the utility’s
standards of care regarding gas procurement practices, we
find that the chronology of events which must occur prior
to delivery does not adequately support the repricing rem-
edies proposed by CAD and Weirton Steel Corporation.

Columbia Gas of West Virginia’s failure to reveal the
existence of the Ashland offer in response to associated
data requests, in updating its Rule 43 data and through
the testimony of its witnesses appears to be a result of
Columbia Gas of West Virginia’s narrow construction of
the pertinent questions and the limited scope of its re-
sponses. For example, Mr. Lee testified that in response
to the Chairman’s request at the January hearings Colum-
bia Gas of West Virginia’s Rule 43 data which summarized
contacts with various suppliers during the twelve month
period ending June 30, 1983, he merely updated the Com-
mission with respect to the present status of the previously
specified contacts. Any potential gas source which arose
subsequent to June 30, 1983 was thus not included in his
discussion. (Tr. 3/29, pp. 167-170).

After review of the testimony presented by Mr. Lee at
the show cause proceeding, we are of the opinion that the
evidence fails to establish that Mr. Lee falsely gave tes-
timony before the Commission or intentionally misled or
deceived the Commission. Therefore, we do not determine
that sanctions for Mr. Lee and Columbia Gas of West
Virginia are appropriate in this case. However, we remain
concerned that Columbia Gas of West Virginia strictly and
narrowly answered questions in a manner which would not
reveal information that Columbia Gas of West Virginia
knew or should have known was of interest to the Com-
mission and the various parties to the case. Since such a
narrow construction fails to accomplish the aim of the
Commission’s discovery process to provide for a full and
complete development of pertinent facts and information
within the Commission’s time constraints, we place Co-
lumbia Gas of West Virginia on notice that future data
requests and inquiries are expected to be broadly construed

20a

so as to permit the unencumbered development of relevant
facts before this Commission.

IV. ACA Considerations

The interim order in this case established an actual cost
adjustment (ACA) increment according to the ‘“‘Westvaco”’
method adopted in Columbia Gas of West Virginia, Inc.,
Case No. 82-379-G-30C. This method provides for an al-
location of the prior period’s underrecovery according to
rate schedules, as described in the interim decision (In-
terim Order, pp. 13, 14, November 14, 1983).

At the January hearings, Staff made a correction re-
garding the effect of Kaiser Aluminum Company’s shift
from rate schedule LV-2 to rate schedule LV-1, effective
November 1, 1983 (Tr. 1/11, p. 45). Because the corrected
calculations of the respective ACA increments under the
‘‘Westvaco” method are minor and are the only changes
we are approving vis-a-vis the interim rates, we will not
require the Company to change its rates at this time to
reflect the change. Columbia shall reflect the appropriate
Kaiser Aluminum underrecovery and the effect of Kaiser’s
shift from LV-2 to LV-1 in future over/underrecovery .cal-
culations.

No party disputes the fact that Columbia experienced
an underrecovery of $5,743,829 from July, 1982 through
June, 1983 and no challenges were raised to Staff’s re-
calculated ACA increments under the ‘‘Westvaco”’ method.
However, various parties addressed the fairness of the
current ACA structure and suggested alternate metho-
dologies for allocating over/underrecoveries to Columbia’s
customers. These proposals are summarized as follows:

1. Columbia advocated the adoption of a total company
ACA methodology in place of the existing rate schedule
methodology used by the Commission. The proposed
method would simply divide the total underrecovery by the
projected sales volume to determine a uniform factor for
each Mcf. (See Columbia Initial Brief, 2/22/84, pp. 7-8).

2. Staff proposed that the Commission continue to as-
sign underrecoveries under the Westvaco rate schedule

2la

methodology adopted in Case No. 82-379-G-30C, and pro-
posed to track the underrecoveries in the LV-1 and LV-
2 rate schedules and make each industrial customer di-
rectly responsible for past underrecoveries attributable to
that customer. (See Staff Exh. No. 5, pp. 4-5; Tr. 1/11,
18-20). The objective of this proposal was to reduce the
burden placed on remaining industrial customers in a rate
schedule when other customers in that schedule signifi-
cantly reduce their gas consumption or go off the system
during a period of under-recovery. Columbia agreed that
such measures should be taken to provide stability to re-
maining customers if the Commission does not adopt its
“total company’”’ ACA approach. (RGS Exh. D, p. 11).

Westvaco Corporation and Weirton Steel Company con-
tended that Staff's recommendation amounted to retro-
active ratemaking since industrial customers would be
required to make payments to Columbia for natural gas
that was consumed in a prior period. Thus they contended
that Staff's proposal was prohibited under the principles
enunciated in Virginia Electric and Power Company v.
Public Service Commission of West Virginia, —. W.Va. —
, 248 §.E.2d (1978). Furthermore, it was contended that
this method would further skew the industrial customer’s
ability to evaluate future gas costs since there would be
an uncertainty with regard to the cost of current gas
consumption. (See Westvaco Initial Brief, 2-22-84, pp. 6-
8; Weirton Reply Brief, 3-13-84, p. 7).

3. If Staff's proposal is adopted by the Commission,
Weirton Steel proposed that the Commission restructure
industrial customers’ obligations to repay underrecoveries.
Weirton proposed that each industrial customer be re-
quired to repay its portion of the underrecovery over the
same volume of gas in which the underrecovery accrued
or repay its portion over a minimum period of three years.
(See Weirton Initial Brief, 2/22/84, p. 14.) Columbia agreed
that an extended payment period of 18-24 months for in-
dustrials to repay underrecovery balance may be reason-
able if it included an appropriate finance charge. (Tr. 1/
11, p. 102; Columbia Initial Brief, 2-22-84, pp. 8-9).

22a

We reject Columbia’s proposed total company ACA
methodology in this case. Since industrial load loss is proj-
ected to occur regardless of whether a rate schedule or a
total company methodology is utilized and the total com-
pany method permits industrial customers to pay less than
their allocated share of fixed demand charges and requires
that general residential customers absorb these costs, we
do not find that the adoption of a total company ACA
methodology is justified in this case.

We find that Staff’s proposal to make each industrial
customer under rate schedules LV-1 and LV-2 directly
responsible for the underrecoveries attributable to that
customer during prior periods is reasonable and should be
adopted by this Commission. The effect of our current
ACA by-rate-schedule method places an unjust burden on
remaining industrial customers in a rate schedule when a
customer in that schedule significantly reduces its gas con-
sumption or goes off the system during a period of un-
derrecovery. By making each industrial customer directly
responsible for underrecoveries experienced as a result of
that customer’s individual consumption, the inequities
which result from the current situation would be dimin-
ished. Adoption of this methodology should also alleviate
cash flow problems which are experienced by the distri-
bution company as a result of excessive underrecovery
balances.

—————- = ee

We also determine that this tracking methodology should
further be extended to provide that customers served un-
der IUS rate schedules be held responsible for over/un-
derrecoveries as they accrue. We do not determine that
this practice should be extended to general service cus-
tomers in light of the administrative inconvenience of trac-
ing actual over/underrecoveries specifically to each general
service and residential customer. Therefore, we shall make
each [US and LV customer directly responsible for or
entitled to over/underrecoveries as they accrue.

Therefore, we determine that the over/underrecovery
balances for each IUS and LV customer shall be deter-

23a

mined as of October 31, 1984, the conclusion of this PGA
period. Mountaineer Gas Company (Mountaineer), the suc-
cessor entity to Columbia Gas of West Virginia which was
formed after the recent sale of Columbia Gas of West
Virginia stock, shall calculate the comprehensive over/un-
derrecovery balance for each IUS and LV customer during
the period from November 1, 1981 (when the Commission’s
initially began determining ACA’s according to rate sched-
ule) through October 31, 1984. These calculations shall be
completed by January 1, 1985, and Mountaineer shall in-
form each IUS and LV customer of any outstanding ov-
errecovery or underrecovery balance by February 1, 1985.
Customers shall then be given twelve months in which to
pay any remaining underrecovery balance existing as of
October 1, 1984 and the company shall be provided an
equivalent amount of time to make a refund of any ov-
errecovery balance existing as of October 1, 1984. No in-
terest shall accrue to any party during this initial
repayment period.

Wé determine that Weirton’s proposal to establish an
extended payment period for the repayment of underre-
coveries attributable to each industrial customer is accom-
odated by the decision above. We do not anticipate that
this decision will result in undue hardship to customers
since extensive supplier refunds from Columbia Gas Trans-
mission Corporation to Mountaineer shall be forthcoming
due to the implementation of a federal appeals court de-
cision in Interstate Natural Gas Association of America v.
FERC, 716 F2d 1 (D.C., 1983), cert. den. 104 S.Ct. 1616.
Refunds flowing from that decision could be traced to in-
dividual customers based on prior consumption, offsetting
outstanding underrecovery balances.

The prohibition against retroactive ratemaking by this
Commission does not preclude the Commission from track-
ing over/underrecoveries to large volume users or other
customers. This recommendation is being adopted pursuant
to an Actual Cost Adjustment provided under Rule 30C
of the Commission’s Rules and Regulations for the Gov-
ernment of the Construction and Filing of Tariffs of Public

24a

Utilities and Common Carriers by Motor Vehicle. Our ex-
isting 20C mechanism, adopted in General Order No. 183.4
(June 26, 1979), establishes an annualized true-up adjust-
ment in the PGA which represents the difference between
the actual cost of purchased gas during a prior period and
the projected cost of gas from various suppliers at the
time of the prior PGA filing. This annualized method was
adopted over the pre-existing method of making monthly
PGA adjustments, which was deemed inadequate because
it resulted in monthly fluctuations in gas rates (see General
Order No. 183.4, pp. 4-5, June 26, 1979). Without an actual
cost adjustment, the two ways a utility could recover its
reasonable purchased gas costs would be (1) through an
automatic readjustment of its rates as purchased gas costs
increased, which would not provide an adequate ability to
review their underlying reasonableness and (2) in a general
rate case. Therefore, the ACA increment represents an
alternative mechanism to continual reevaluation and read-
justment of an appropriate rate or delayed recovery of the
principal component of a utility’s cost of service. The ACA
methodology permits a utility to recover its reasonable
purchased gas costs in a timely fashion while protecting
consumers from wildly fluctuating unit costs. Since a cus-
tomer would be responsible to pay the actual cost of gas
as used if the PGA were continually readjusted, we find
it proper to make over/underrecoveries experienced during
the prior period directly attributable to the specific cus-
tomer.

Westvaco would have us determine that the practice of
making specific customers responsible for underrecoveries
as they accrue is improper while continuing to uphold the
practice of passing through supplier refunds to specific
customers on the basis of actual overpayments. We find
Westvaco’s distinctions are contradictory and unconvincing
since both practices constitute price adjustments made to
correct inaccuracies which occurred in a prior cost pro-
jection. Tracing an underrecovery directly to a customer
is in substance no different than directly tracing a refund
to that same customer.

/

25a

Under the provisions of this decision and due to the
proximity of time to the conclusion of the PGA period, no
adjustment shall be made to the AGA’s established by our
November 14, 1983 interim decision through October 31,
1984. However, this decision will result in individual al-
location of all over/underrecovery balances existing as of
October 31, 1984 which are attributed to IUS and LV
customers. Therefore, the respective ACA’s which have
been built into rate schedules LV-1, LV-2, IUS-1 and IUS-
2 should be removed from the PGA and associated rates
and charges as of October 31, 1984. The ACA contained
in the GS (General Service) rate schedule shall remain in
effect until modified by subsequent tariffs filed in Moun-
taineer’s next 30C case.

V. Modifications in PGA Determinations and Rate De-
sign

Throughout the course of the hearings, various sugges-
tions and proposals were presented to the Commission
which represented modifications of existing methods in de-
termining a PGA and alterations in rate design. These
proposals may be summarized as follows:

1. Columbia Gas of West Virginia, Inc., raised the ques-
tion of whether CGTC demand costs should be allocated
to customer classes based on respective class demands
rather than allocated by the currently employed commodity
basis (per Mcf). (Tr. 1/9, p. 60).

2. Columbia asserted that its future PGA should be per-
mitted to track major changes in purchased gas costs such
as semiannual rate determinations of the FERC involving
CGTC.

3. Columbia asserted that it should be permitted to proj-
ect anticipated fluctuations in purchased gas costs in future
30C proceedings instead of relying on an Actual Cost Ad-
justment for underrecoveries resulting from such changes.

4. Weirton urged the Commission to construct or require
Columbia to formulate methods of innovative ratemaking
to keep industrial customers on its system. One of Weir-

26a

ton’s suggestions is to develop a flex rate which is deter-
mined as a function of a corresponding price of an alternate
fuel and the ability of the utility to recover its costs
through these rates. (See Weirton Steel Exh. No. 1, p. 4;
Weirton Steel Exh. No. 2, pp. 4-5; Weirton Initial Brief,
2/22/84, pp. 8-12).

The Commission is of the opinion that the record in this
case does not adequately develop a justification for de-
viating from the existing method of determining a PGA.
Specific proposals need to be scrutinized with respect to
their effect on the various classes of customers before the
Commission could properly evaluate the appropriateness of
a reallocation of demand charges by customer class or the
adoption of a specific flex rate or other form of innovative
ratemaking. We are also unwilling to adopt either of Co-
lumbia’s suggested alternatives for absorbing subsequent
purchased gas cost fluctuations without additional sup-
porting evidence. If any party wishes to pursue these is-
sues in the future, we invite them to address these
_ proposals in future 30C proceedings.

VI. Accelerated Recapture of Columbia’s Underrecovery
Balance

After the conclusion of all hearings in this case, Colum-
bia petitioned the Commission to increase its ACA incre-
ment for the remainder of the rate period to reduce its
projected underrecovery balance on June 30, 1984 to zero
by October 31, 1984. Columbia proposed that an additional
$4,152,556 be recovered through increased ACA sur-
charges for the months of May through October of 1984
as shown in Exhibit B, Schedule No. 2, attached to Co-
lumbia’s petition. If Columbia’s petition were granted the
following increased ACA surcharges would have been ap-
plied to volumes sold from May through October:

27a

GS LV-1 LV-2 IUS-1 IUS-2

Existing ACA Surcharge per In-

terim Order $ .0385 $ 301 $ 447 $ 094 $ .039
Proposed Increased in ACA Sur-

charge 381 266 .109 927 1.255
Proposed ACA Increment 416 567 556 1.021 1.292

Columbia’s petition represents a marked deviation from
the current actual cost adjustment methodology utilized by
the Commission’s Rule 30C. Previously, this balance would
normally be addressed in Columbia’s next purchased gas
cost proceeding and recovered over a twelve-month period
through the operation of the Commission’s Rule 30C mech-
anism. Though Columbia’s underrecovery balance as of
June 30, 1980 is substantial and a source of concern, it
appears from Columbia’s petition that this underrecovery
balance is in fact diminishing through October 31, 1984,
the beginning of the next PGA period. Furthermore, the
underrecovery balance for LV and IUS customers as of
October 32, 1984 is being individually assigned and col-
lected pursuant to our ACA decision in Section IV of this
order. We therefore find that it is more appropriate to
address the remaining underrecovery balance of general
service customers during the course of Columbia’s next
purchased gas cost case.

FINDINGS OF FACT

1. Columbia Gas of West Virginia, Inc. has applied for
a new purchased gas « st increment of $5.043 per Mcf
for all rate schedules. The Company has stated an under-
recovery of $5,743,829 for the twelve months ending June
1983 and total expenses to be recovered through this pro-
ceeding of $236,634,100 (Columbia Exh. No. 3, Schedule
No. 2, Sheet 2).

2. On November 14, 1983, the Commission established
an interim purchased gas cost increment which incl ted
a purchased gas cost by volume of sales of $5.043 pc.
Mcf, an ACA increment which reflected the Company’s

28a

stated underrecovery for the twelve month ending June
30, 1983, plus tax effects (Interim Order, November 14,
1984, Case No. 83-348-G-30C).

3. The only objection raised by any party to Columbia’s
projected purchased gas cost was with regard to the in-
clusion of $194,300 for deferred start-up costs associated
with the production of Synthetic Natural Gas (SNG) in
Columbia’s current gas costs (Staff Exh. No. 2, pp. 2, 7).

4. Though the Commission had neither approved nor
disapproved the terms and conditions of the contract be-
tween Columbia Gas of West Virginia, Inc. and Columbia
LNG Corporation for purchase of SNG volumes, the Com-
mission ordered Columbia Gas of West Virginia, Inc. to
defer the start-up costs experienced during the first year
of operation of the Green Springs facility by Columbia
LNG Corporation and amortized these costs over a twenty-
five year period, as opposed to the ten year period pro-
vided by contract (Columbia Gas of West Virginia, Inc.,
Case No. 8000, 53 ARPSCWV 559 at 576 (1976)). This
decision was reaffirmed in subsequent Commission cases
involving Columbia, Case No. 9147, 66 ARPSCWV 488
(1978) and Case No. 79-088-G-42T, 68 ARPSCWV 293
(1980).

5. In recent cases, the Commission has determined that
the SNG volumes are unnecessary and the contract terms
are unreasonable. Therefore, in determining recoverable
purchased gas costs this Commission has repriced SNG
volumes to reflect the average Columbia Gas Transmission
Corporation rate, with adjustments for transportation (Co-
lumbia Gas of West Virginia, Inc., Case Nos. 80-336-G-
30C and 81-366-G-30C, June 28 - 1982; Columbia Gas of
West Virginia, Inc., Case No. 82-379-G-30C, October 21,
1983).

6. The SNG supply contract in question expired on March
31, 1984.

7. In this proceeding, Columbia Gas of West Virginia,
Inc., is required to ‘demonstrate that dependable lower
priced supplies of gas are not readily available from other

29a

sources and that contracts between the public utility and
the suppliers for purchase of natural gas are negotiated
at arm’s length and are not detrimental to the customers
of the utility’s services. . .Should the applying utility not
satisfactorily meet this burden, then the Commission may
not authorize an increase greater than that which reflects
the reasonable cost of natural gas which is determined to
be readily available. . .’’ Code §24-2-4c.

8. In recent cases involving Columbia Gas of West Vir-
ginia, Inc,, this Commission has established four standards
of care to be complied with by Columbia in future 30C
proceedings to promote adequate and efficient gas pro-
curement and management practices. These standards of
care are set forth in Part II, supra.

9. Columbia Gas of West Virginia, Inc. has implemented
a bid program for the purpose of soliciting locally produced
supplies of natural gas. Columbia has also employed a local
procurement officer whose sole responsibility is to secure
local supplies of West Virginia. Both of these steps rep-
resents movement from Columbia’s near total reliance on
Columbia Gas Transmission Corporation as a supply source
(JRL Exh. A, pp. 8/10; Tr. 1/10, pp. 63-67).

10. For the twelve months ending October 31, 1984,
Columbia projected that it will obtain 3.286 Bef from Cabot
Corporation (Columbia Exh. No. 3, Schedule No. 6, Sheet
1 of 14), 6.181 Bef from other local producers, and noted
the anticipated availakWity of up to five percent of its
supply requirements from local suppliers under Columbia
Gas Transmission Corporation’s Phase II Transportation
Program. By combining these sources, Columbia antici-
pated that over eleven percent of its total supply require-
ments would be provided from sources other than Columbia
Transmission at a price below Columbia Transmission’s
commodity rate (JRL Exh. A, pp. 15-16).

11. By letter dated October 20, 1983, Ashland Explo-
ration, Inc. offered to sell certain volumes of its Kentucky
volumes directly to Columbia Gas of West Virginia’s Hun-
tington market area. These volumes would initially be over

30a

1800 Mcf per day, with a maximum quantity of 5,000 Mcf
per day in the future. (See Staff Exh. 1-A).

12. This Ashland offer was not disclosed by Columbia
Gas of West Virginia, Inc. at the January hearings or in
response to any data requests made by the respective par-
ties.

13. Columbia Gas of West Virginia, Inc. and Ashland
Exploration, Inc. entered into a contract for the sale of
the Kentucky volumes on March 8, 1984. (See Stipulation
Exh. No. 1; Tr. 3/28, pp. 44-46).

14. Before deliveries of the Ashland supplies can com-
mence, Ashland must construct larger cleaning facilities
to accommodate the increased volumes, construct an ad-
ditional one-half mile of pipeline to correct existing Ash-
land facilities to Columbia Gas of West Virginia, Inc.’s
distribution facilities and Ashland must obtain a certificate
of public convenience and necessity from the FERC to
construct facilities for the transportation of natural gas
across state lines. The construction was estimated to re-
quire up to eight months to complete and FERC approval
was estimated to require four to six months (Tr. 3/29, pp.
45-48).

15. Columbia Gas of West Virginia, Inc. experienced an
underrecovery of $5,743,829 during the twelve months
ending June 30, 1983.

16. This Commission allocates over/underrecoveries to
customers by a rate schedule methodology, as modified by
the “‘Westvaco”’ method, adopted in Case No. 82-379-G-
30C.

17. The effect of our current ACA by rate schedule over/
underrecovery methodology places an unjust burden in in-
dustrial customers remaining in a rate schedule when a
customer in that schedule significantly reduces its gas con-
sumption and goes off the system during a period of un-
derrecovery. If each industrial customer is made directly
responsible for underrecoveries experienced as a result of
the customer’s consumption, this inequity would be alle-
viated.

3la

18. After the conclusion of the hearings, Columbia
petitioned the Commission to increase its ACA increment
for the remainder of the rate period to reduce its projected
underrecovery balance on June 30, 1984 to zero by October
31, 1984. Columbia’s proposal requested that an additional
$4,152,556 be recovered through increased ACA sur-
charges for the remainder of the PGA period.

CONCLUSIONS OF LAW

1. This Commission shall continue to reprice SNG vol-
umes purchased by Columbia Gas of West Virginia, Inc.
to reflect the average Columbia Gas Transmission Cor-
poration rate, with adjustments for transportation, through
the expiration of the SNG supply contract on March 31,
1984.

2. We determine that Columbia’s projected purchased
gas costs properly included the $194,300 amortization of
start-up costs experienced during the first year of oper-
ation of the Green Springs facility by Columbia LNG Cor-
poration. Our recent decisions to reprice the recoverable
purchased gas costs associated with SNG costs were not
intended to disallow or limit the recovery of these deferred
start up costs, which were amortized over a twenty-five
year period in Case No. 8000, 53 ARPSCWV 559 (1976).

3. Columbia’s basic purchased gas cost of $5.043 per
Mef accurately reflects Columbia’s projected cost of gas
and sales, as repriced in accordance with the SNG re-
pricing decision in Columbia Gas of West Virginia, Inc.,
Case Nos. 80-336-G-30C and 81-366-G-30C, (October 30,
1981).

4. We determine that the evidence in this case estab-
lishes that Columbia is actively seeking alternative gas
supplies to displace higher priced Columbia Gas Trans-
mission Corporation’s supplies and the projected gas sup-
plies which comprise Columbia’s purchased gas costs
represent the lowest priced reliable supplies of gas that
are reasonably available to Columbia Gas of West Virginia,
Inc. during the period in question, Therefore, Columbia

32a

has satisfied its burden of proof required under West Vir-
ginia Code §24-2-4C and prior Commission cases. —

5. Furthermore, if Columbia’s gas procurement practices
failed to satisfy its burden under Code §24-2-4C and the
standards of care established by the Commission in Case
No’s 80-336-G-30C and 81-366-G-30C, we find that the re-
cord does not contain an adequate and appropriate basis
for reducing Columbia’s PGA for failure to obtain reason-
ably available lower-priced gas supplies.

6. We determine that the record is insufficient to war-
rant repricing Columbia’s PGA or imposing related sanc-
tions as a result of Columbia Gas of West Virginia, Inc.’s
efforts to obtain supplies offered by Ashland Exploration,
Inc. to Columbia’s Huntington Market area.

7. Columbia’s continued reliance in the near future on
Columbia Gas Transmission Corporation as a primary
source for supply is reasonable in light of its limited ability
to obtain volumes from alternative supply sources.

8. We find it reasonable and proper to continue to utilize
the ACA by rate schedule methodology, as modified by
the Westvaco method adopted in Case No. 82-379-G-30C,
for allocating over/underrecovery balances to the respec-
tive customers of Columbia Gas of West Virginia, Inc.

9. We find it reasonable and proper to make each in- °
dustrial customer under rate schedules LV-1 and LV-2
directly responsible for the underrecoveries attributable to
that customer, as proposed by Staff. (See Staff Exh. No.
5, pp. 4-5; Tr.1-11, pp. 18-20). We further determine that
this methodology should be similarly extended to IUS-1
and IUS-2 customers for similar reasons. We shall, there-
fore, provide that the comprehensive over/underrecovery
balances for each IUS and LV customer be determined
from November 1, 1981 through October 31, 1984. Each
IUS and LV customer shall be responsible for repayment
of any remaining underrecovery balance or shall be entitled
to refund of any remaining overrecovery.

33a

10. We do not conclude that tracking prior perod un-
derrecoveries directly to each industrial customer is pre-
cluded by the prohibition against retroactive ratemaking
by the Commission. Adoption of this recommendation, pur-
suant to Rule 30C of the Commission’s Rules and Regu-
lations for the Government of the Construction and Filing
of Tariffs of Public Utilities and Common Carriers by Mo-
tor Vehicle represents an alternative mechanism to the
continued re-evaluation and readjustment of an appropriate
rate to permit a utility to recover its purchased gas costs.
Since a customer would be responsible to pay the actual
cost of gas as used if the PGA were continually adjusted,
we find it proper to assign responsibility for prior period
over/underrecoveries in this manner.

11. The June 30, 1984 underrecovery balance addressed
in Columbia’s petition would normally be addressed in Co-
lumbia’s next purchased gas proceeding and recovered over
a twelve-month period through the operation of the Com-
mission’s Rule 30C mechanism. Though this underrecovery
balance as of June 30, 1984 is substantial and a source of
concern to Columbia, it appears from Columbia’s petition
that this balance will in fact diminish through October 31,
1984, the beginning of the next PGA period. Furthermore,
the underrecovery balance for LV and IUS customers as
of October 31, 1984 is being individually assigned and col-
lected pursuant to this decision. We, therefore, determine
that it is more appropriate to address this underrecovery
balance of general service customers through the course
of Columbia’s next purchased gas cost case instead of im-
plementing a short term adjustment which dramatically
affects rates over a short segment of the PGA period.

12. We, therefore, find it reasonable and proper for
Columbia to calculate purchased gas costs as implemented
by the Commission’s November 14, 1983 Interim Order in
this case through October 31, 1984. A new interim rate
approved in Case No. 84-460-G-30C shall be effective.

13. After review of the facts and surrounding circum-
stances, we do not determine that it is appropriate to issue

34a

sanctions against Columbia and its witnesses for failure to
reveal Columbia’s opportunity to purchase certain volumes
from Ashland Exploration, Inc. However, we remain con-
cerned that Columbia’s narrow construction placed on cer-
tain data requests and inquiries impedes the ability of the
Commission and the respective parties to fully develop the
facts and underlying issues in Commission cases. Because
of this, we place Columbia on notice that future data re-
quests and inquiries should be broadly construed to require
the development of relevant facts that are known or should
be known to be of interest to the Commission and the
various parties in the case.

14. Since the conclusion of these proceedings, Columbia
Gas System, Inc.’s interest in Columbia Gas of West Vir-
ginia, Inc. has been purchased by Allegheny & Western
Energy Corporation. Though Columbia Gas of West Vir-
ginia, Inc. continued as a corporate entity after the sale,
its name has subsequently been changed to Mountaineer
Gas Company (Mountaineer). All directions and obligations
created by this order with respect to Columbia Gas of
West Virginia, Inc. shall be binding © on Mountaineer Gas
Company.

ORDER

IT IS, THEREFORE, ORDERED that:

1. The interim purchased gas costs (PGA) approved by
Commission Order entered on November 14, 1983, are
hereby approved for continuing use through October 31,
1984.

2. On or before January 1, 1985, Columbia Gas of West
Virginia, Inc. (Mountaineer Gas Company) shall calculate
the comprehensive over/underrecovery balance for each
customer in the LV-1, LV-2, IUS-1 and IUS-2 rate sched-
ules during the period between November 1, 1981 through
October 31, 1984. Columbia (Mountaineer) shall inform each
IUS and LV customer of any outstanding overrecovery or
underrecovery balance by February 1, 1985.

MANSELL ANS LOE EE eT TT LETS EE!
7 i ;

35a

3. An IUS or LV customer shall pay any outstanding
underrecovery balance determined to exist as of October
31, 1984 within twelve (12) months after notice of the
outstanding balance is provided by Mountaineer, without
accrual of any interest.

4. Mountaineer Gas Company shall pay any outstanding
overrecovery balance determined to exist for IUS or LV
customers as of October 31, 1984 within twelve (12) months
after notice of the outstanding balance, without accrual of
interest.

5. The Executive Secretary of the Commission shall
serve a copy of this order upon all parties of record by
United States First Class Mail.

6. Mountaineer Gas Company shall provide notice of this
decision to all affected IUS and LV customers of Columbia
Gas of West Virginia, Inc. and its successor entity, Moun-
taineer Gas Company, who are not formal parties to this
proceeding by sending a copy of this decision to said cus-
tomers by United States First Class Mail.

A TRUE COPY
TESTE:
HOWARD M. CUNNINGHAM
Executive Secretary
RFW:1c

Chairman McDonald took no part in the consideration of or
decision in Case No. 84-100-G-SC.

one 36a

PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON

At a session of the PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA, in the City of Charleston on the
28th day of December, 1984.

CASE NO. 83-348-G-30C

COLUMBIA GAS OF WEST VIRGINIA, INC.,
a corporation.
Application to change rates,
effective November 1, 1983,
according to Rule 30C, General an
Order No. 183.4, Purchase Gas
Application.

CASE NO. 84-100-G-SC
COLUMBIA GAS OF WEST VIRGINIA, INC.,
a corporation.

Proceeding Upon the Commission’s

Own Motion.

COMMISSION ORDER ON PETITION FOR
RECONSIDERATION

PROCEDURE

On August 10, 1983, Columbia Gas of West Virginia,
Inc. (Columbia) filed a Rule 30C Application for recovery
of increased purchased gas costs. After certain modifica-
tions, the Company requested a purchased gas adjustment
(PGA) which would permit Columbia to recover total proj-
ected expenses of $236,628,100 for the twelve month pe-
riod beginning November’1, 1983, and a prior period
underrecovery of $5,743,829 experienced during the twelve
months ending June, 1983.

By Order entered November 14, 1983, the Commission
set an interim rate which was designed to allow Columbia

37a

to recover its projected expenses as stated above, pending
final resolution of the case.

After extensive review of Columbia’s purchasing prac-
tices and related issues, this Commission entered an Oc-
tober 31, 1984 order which finally approved the interim
rates and charged established by the Commission’s No-
vember 14, 1983 Order for continued use through October
31, 1984. As a part of this Order, this Commission de-
termined that the Company’s method of recapturing over/
underrecovery balances related to prior period purchased
gas costs should be modified to provide for the tracing of
over/underrecovery balances to individual customers within
the IUS and LV rate schedules. Mountaineer Gas Com-
pany, formerly Columbia Gas of West Virginia, Inc., was
directed to calculate the comprehensive over/underrecovery
balance for each customer in the LV-i, LV-2, IUS-1 and
IUS-2 Rate Schedules during the period between Novem-
ber 1, 1981 through October 31, 1984. Mountaineer was
to pay any outstanding overrecovery balance or receive
payment for any outstanding underrecovery balance within
12 months after notice of such balance is provided. (Oc-
tober 31, 1984 Order, ordering paragraph Nos. 2-4).

On November 13, 1984, a Petition for Reconsideration
was timely filed by Mountaineer Gas Company with the
Commission. An untimely filed Petition for Reconsideration
was submitted by Westvaco Corporation on November 16,
1984. In light of the nature of the concerns raised by
Westvaco’s Petition, we determine that it is in the public
interest to consider Westvaco’s arguments.

On December 20, 1984, Mountaineer Gas Company filed
a motion to extend the deadline by which it is to calculate
the outstanding over/underrecovery balance as of October
31, 1984 for each LV and IUS customer.

DISCUSSION

Mountaineer’s Petition for Reconsideration challenges
two aspects of the October 51, 1984 decision, both of which

38a

relates to the Commission’s modification of the Company’s
method of recapturing over/underrecovery balances.

First, Mountaineer asserts that the Commission’s Order
left the repayment schedule of underrecovery balances
open-ended over the twelve month repayment period.
Mountaineer submits that this enables IUS and LV cus-
tomers who owe large underrecovery balances to withhold
any repayment until the end of the 12 month repayment
period, at no interest expense. Mountaineer asserts that
such a result would place an excessive burden on its lim-
ited financial resources by creating cash flow problems.
The Company urges the Commission to modify its order
to provide that IUS and LV customers must repay out-
standing underrecovery balances in twelve (12) equal
monthly installments. (See Mountaineer Petition, pp. 1-3).

The staff's proposal to modify the Company’s 4CA
methodology to track over/underrecoveries to specific iUS
and LV customers included the prc ‘ion that repayment
of any outstanding underrecovery b..ance shall be made
in twelve (12) equal monthly installments. This portion of
the proposal was consistent with the twelve month am-
ortization of over or underrecoveries embodied in Rule
30C. (See Staff Exhibit No. 3, pp. 4-5).

Upon reconsideration of this matter, we find that our
Order should have indicated that IUS and LV customers
are to pay any outstanding underrecovery balance in 12
equal monthly payments, without interest, after receiving
notification of the outstanding balance. Similarly, our Or-
der should have indicated Mountaineer is required to re-
fund any overrecovery accrued to an individual IUS and
LV customer in twelve equal monthly installments after
notification of the balance. These clarifications should pro-
tect Mountaineer from cash flow problems resulting from
our October 31, 1984 decision.

Second, Mountaineer objected to the manner in which
we stated our expectation that the payment requirements
of the October 31 order would not result in undue hardship
to IUS and LV customers. Our decision indicated that

39a

extensive supplier refunds flowing from a Federal Appeal’s
Court decision in Interstate Natural Gas Association of
American v. FERC, 715 F.2d 1 (D.C., 1983), cert denied
104 S.Ct. 1616, could be traced to individual customers
based on prior consumption, offsetting outstanding over-
recovery balances. These anticipated supplier refunds were
cited as one reason why Weirton’s proposal to establish
an extended payment period for all LV customers was
unnecessary. Mountaineer indicates that our statements
could be interpreted to relieve an IUS or LV customer
from payment responsibilities to Mountaineer Gas Com-
pany if the supplier refunds are not in fact realized before
payment begins.

We determine that it is clear that the payment obli-
gation to Mountaineer related to outstanding underrecov-
ery balances is in no manner dependent on the availability
of pending supplier refunds. However, we continue to rec-
ognize that such supplier refunds, after they are passed
on to Mountaineer, would become available sources of funds
which may be used to offset prior payment obligations.

Westvaco’s Petition for Rehearing requested that fur-
ther proceedings be convened for the purpose of clarifying
the manner in which the underrecoveries for each individ-
ual LV-1 and LV-2 customer is to be determined under
the Commission’s tracking methodology. In support of its
petition, Westvaco cited the following as remaining ques-
tions:

a) How are underrecoveries of purchased gas costs
related to load loss (i.e. demand related underre-
coveries) to be distinguished from underrecoveries
of commodity related costs?

b) How is one to determine an individual customer’s
contribution to demand related underrecoveries as-
sociated with purchased gas costs?

c) How are underrecoveries for LV-1 and LV-2 cus-
tomers no longer in existence going to be assigned?
(Westvaco Petition, Item 4, p. 3)

40a

We do not determine that Westvaco’s questions justify
additional hearings on the application of the methodology.
After reviewing the October 31, 1984 Order, we find that
these questions are sufficiently addressed or do not war-
rant further hearing at this time. Our reasons for deter-
mining this are reflected in the following responses to
Westvaco’s questions:

a) Under the methodology adopted by the Commission
in assigning over/underrecoveries in this case, un-
derrecoveries of purchased gas costs related to load
loss are not to be distinguished from underrecov-
eries of commodity related costs. Rather, Moun-
taineer shall continue to utilize the ACA by rate
schedule methodology, as modified by the Westvaco
method adopted in Case No. 82-379-G-30C, for al-
locating over/underrecovery balances to the re-
spective customer classes ‘See Conclusion of Law
No. 8, October 31, 1984 Order, p. 33). Under this
method, the aggregate demand charges for each
twelve month ACA period are allocated to each
month according to the proportions share of sales
volumes for that period. The demand charges al-
located to each month are then treated as a com-
modity charge in determining the total cost of gas
for that month. Therefore, it appears clear that
the intent of our October 31, 1984 Order was for
Mountaineer to continue to calculate a single over/
underrecovery increment for each rate schedule
without regard to the factors which make up that
underrecovery increment.

b) An individual customer’s demand related under-
recoveries associated with purchased gas costs are
determined on a commodity basis through the ex-
tended application of the ACA by rate schedule
methodology currently utilized by the Commission.
After an over/underrecovery increment is deter-
mined for a rate schedule according to the method
discussed in answer a), above, the month’s under-
recovery for each customer within that rate sched-

4la

ule is determined by multiplying this commodity
increment by the customer’s consumption during
that month. Therefore, an individual customer’s
contribution to demand related costs continue to
be determined according to the Westvaco ACA by
rate schedule methodology.

c) Under the Commission’s orders, Mountaineer shall
prepare bills reflecting the underrecoveries for LV-
1 and LV-2 customers. The collectibility of bills
from customers no longer in existence will depend
on a variety of factors, some of which may relate
to bankruptcy or contractual concerns. Since we do
not yet know the extent and magnitude of uncol-
lected underrecoveries attributed to customers no
longer in existence, we find that it is more appro-
priate to address an equitable manner for assigning
these uncollected expenses in future proceedings.

Upon mature consideration of the concerns raised by West-
vaco’s Petition for Rehearing, we shall deny Westvaco’s
Petition.

In reviewing the terms of the Commission’s October 31,
1984 Order, we have determined that our order should
have directed Mountaineer to calculate over/underrecovery
balances from July 1, 1980. Our order referred to Novem-
ber 1, 1981 as the date on which the Commission initially
began determining ACA’s according to rate schedules and
concluded that calculations should reflect data from that
date forward. Though the first tariffs utilizing ACA’s de-
termined on a rate schedule basis became effective No-
vember 1, 1981, the period in question over which this
rate schedule methodology was first utilized was from July
1, 1980 through June 30, 1981. Since our intent was to
fairly account for each IUS and LV ctstomers’ contribu-
tion to the outstanding underrecovery balance as of Oc-
tober 31, 1984, we find that this calculation should be done
through July 31, 1980 so that these calculations would
reflect the best available data.

42a

Finally, upon review of Mountaineer’s motion to extend
the deadline by which it is to calculate the outstanding
over/underrecovery balance as of October 31, 1984, we are
of the opinion that the requested fifteen (15) day extension
should be granted. Such calculations are to be performed,
pursuant to contractual arrangements, by employees of
Columbia Gas Distribution Companies (CGDC). Further-
more, the billing information needed to do the calculations
is in the possession of CGDC. Mountaineer represents that
it has been informed that CGDC requires an extension of
the deadline until January 16, 1985 to perform the task.
We shail then modify our order to provide that calculation
of the pertinent over/underrecovery balances shall be done
by January 16, 1985, and Mountaineer shall notify the
respective customers of the outstanding balance by Feb-
ruary 16, 1985.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. By order entered on October 31, 1984 in Case No.
83-348-G-30C, this Commission determined that Columbia
Gas of West Virginia, Inc.’s method of recapturing over/
underrecovery balances should be modified to provide for
the tracing of over/underrecovery balances to individual
customers within the IUS and LV rate schedules. Moun-
taineer Gas Company, formerly Columbia Gas of West Vir-
ginia, was directed to calculate the comprehensive over/
underrecovery balance for each customer in the LV-1 LV-
2, IUS-1 and IUS-2 rate schedules during the period be-
tween November 1, 1981 through October 31, 1984. Moun-
taineer was to pay any outstanding overrecovery balance
or receive payment for any outstanding underrecovery bal-
ance within 12 months after notice of such balance is pro-
vided.

2. After review of Mountaineer’s petition and the Staff's
original recommendation to track over/underrecoveries to
specific IUS and LV customers, this decision shall be clar-
ified to provide that IUS and LV customers shall pay any
outstanding underrecovery balance in twelve equal monthly
installments after receiving notice of the balance. Moun-

43a

taineer shall refund any outstanding overrecoveries in the
same manner.

3. The obligation of LV and IUS customers who have
outstanding underrecovery balances to repay these bal-
ances as set forth above is not dependent on Mountaineer
receiving substantial supplier refunds. However, we do rec-
ognize that extensive supplier refunds flowing from a Fed-
eral Appeals Court decision in Interstate Natural Gas
Association of America v. FERC, 716 F 2d 1 (D.C., 1983),
Cert.denied 104 S.Ct. 1616, once passed on to Mountai-
neer, would represent an available source of funds which
could be utilized to offset prior payment obligations.

4. Upon mature consideration of the concerns and al-
legations set forth by Westvaco’s petition, we determine
that additional hearings in the case for the purpose of
examining the adopted ACA methodology which incorpo-
rates the tacing of over/underrecovery balances to indi-
vidual LV and IUS customers are not warranted.
Therefore, Westvaco’s petition for additional hearings shall
be dismissed.

5. Since July 1, 1980 represents the initial date through
which an ACA by rate schedule methodology was utilized
and we intended to fairly determine each IUS and LV
customer’s contribution to Mountaineer’s underrecovery
balance as of October 31, 1984, we determine that our
October 31, 1984 order should have directed Mountaineer
to calculate each IUS and LV customer’s outstanding over/
underrecovery balance from July 1, 1980 through October
31, 1984.

6. Upon consideration of Mountaineer’s motion for an
extension of time, we determine that we should modify
our decision to provide that Mountaineer shall complete
the comprehensive over/underrecovery calculations re-
quired by our decision by January 16, 1985, and shall
notify appropriate customers of the outstanding balance
by February 16, 1985.

ORDER

IT IS, THEREFORE, ORDERED that:

1. The Petition for further hearings in this case, as
submitted by Westvaco Corporation on November 16, 1984,
is hereby denied.

2. The Commission’s October 31, 1984 decision in this
case shall remain in full force and effect, except that the
following paragraph shall be substituted for ordering par-
agraphs, 2, 3 and 4 of the October 31, 1984 Order, for
purposes of clarification:

(2) On or before January 16, 1985, Mountaineer Gas
Company shall calculate the comprehensive over/
underrecovery balance for each customer in the
LV-1, LV-2, IUS-1 and IUS-2 rate schedules dur-
ing the period between July 1, 1980 through Oc-
tober 31, 1984. Mountaineer shall inform each IUS
and LV customer of any outstanding overrecovery
or underrecovery balance by February 16, 1985.

(3) An IUS or LV customer shall pay any outstanding
underrecovery balance determined to exist as of
October 31, 1984 in twelve (12) monthly install-
ments, without accrual of any interest, after notice
of the outstanding balance is provided by Moun-
taineer.

(4) Mountaineer Gas Company shall pzy any outstand-
ing overrecovery balance determined to exist for
an IUS or LV customer as of October 31, 1984
in twelve (12) monthly installments, without ac-
crual of interest, after notice of the outstanding
balance is provided by Mountaineer.

3. The Executive Secretary of the Commission shall
serve a copy of this Order upon all paties of record by
United States First Class Mail.

A TRUE CO: .
TESTE:

'-HowarRD M. CUNNINGHAM
Executive Secretary
RFW/ds

45a

PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON

At a session of the PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA, in the City of Charleston on the
10th day of July, 1985.

CASE NO. 83-348-G-30C

COLUMBIA GAS OF WEST VIRGINIA, INC.,
a corporation.

Application to change rates,

effective November 1, 1983,

according to Rule 30C, General

Order No. 183.4, Purchase Gas

Application.

CASE NO. 84-100-G-SC

COLUMBIA GAS OF WEST VIRGINIA, INC.,
a corporation.

Proceeding Upon the Commission’s
Own Motion.

COMMISSION ORDER APPROVING REPAYMENT
OBLIGATIONS AFTER FURTHER COMMENT

On August 10, 1983, Columbia Gas of West Virginia,
Inc. (Columbia) filed a Rule 30C Application for recovery
of increased purchased gas costs. After certain modifica-
tions, the Company requested a purchased gas adjustment
(PGA) which would permit Columbia to recover total proj-
ected expenses of $236,628,100 for the twelve month pe-
riod beginning November 1, 1983, and a prior period
underrecovery of $5,743,829 experienced during the twelve
months ending June, 1983. Interim rates recovering these
costs were approved by order entered November 14, 1983.

After extensive review of Columbia’s purchasing prac-
tices and related issues, this Commission entered an Oc-
tober 31, 1984 order which finally approved the interim

46a

rates and charges established by the Commission’s No-
vember 14, 1983 Order for continued use through October
31, 2984. As a part of this Order, this Commission de-
termined that the Company’s method of recapturing over/
underrecovery balances related to prior period purchased
gas costs should be modified to provide for the assignment
of a specific over/underrecovery balance to individual cus-
tomers within the IUS and LV rate schedules.

The Commission’s October 31, 1984 order was further
clarified by a December 28, 1984 order on reconsideration. ©
According to these orders, Mountaineer Gas Company, for-
merly Columbia Gas of West Virginia, Inc., was directed
to calculate the comprehensive over/underrecovery balance
for each customer in the LV-1, LV-2, IUS-1 and IUS-2
Rate Schedules during the period between July 1, 1980
through October 31, 1984. Mountaineer is to pay any out-
standing overrecovery balance or receive payment for any
outstanding underrecovery balance in 12 monthly install-
ments after notice of such balance is provided. (December
18, 1984 Order, ordering paragraph No. 2).

On January 28, 1985, National Steel Corporation
appealed the Commission’s orders to the Supreme Court
of Appeals of West Virginia. A similar petition was filed
by Westvaco Corporation on January 24, 1985. The
Supreme Court rejected these appeals without opinion on
April 23, 1985.

On February 1, 1985, Mountaineer Gas Company filed
calculations of outstanding underrecovery balances with the
Commission which purportedly satisfied the Commission’s
directive. Upon review of these caiculations, it was clear
that the Company, without Commission approval, included
underrecovery balances for the month of November, 1984
within its calculations. (See February 1, 1984 Filing, Ex-
hibit B). Since the inclusion of the month of November,
1984 significantly altered the Commission decision, this
filing was rejected on

[Text truncated at 120,000 characters. The full text is on the page linked above.]

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_1495%3A1. Public record. Not legal advice.