The Federal Energy Regulatory Commission said yesterday it will investigate ulilities using fuel adjustment clauses and other automatic "pass throughs" in consumer utility bills.
The FERC inquiry, ordered by Congress last year and expected to take more than a year, will focus on the fuel adjustment clauses in use in more than 40 states, including Virginia and Maryland.
"Our principal area of concern is whether automatic adjustment clauses remove the incentives for the utilities to find the most inexpensive fuel because they can pass through the costs," said William W. Lindsey, who will direct the study.
Fuel adjustment clauses have become increasingly controversial for public utility commissions and a continuing target for consumer groups ever since the 1973-74 Arab oil embargo, when world oil prices quadrupled.
A report last year by the Senate Governmental Affairs Committee said that nearly 80 percent of the $13.4 billion in electric and gas utility price increases during 1977 were passed through with fuel adjustment clauses, rather than formal rate-makeing proceedings. The report called the clauses "a boon to utilities and the bane of customers."
During 1977, the most recent year for which comprehensive reporting is available, one-third of the fuel adjustment clauses were for natural gas utilities, and two-thirds for electric utilities.
Lindsey, the director of FERC's Office of Electric Power Regulaton, said in a telephone interview that his staff also will examine the use of fuel adjustment clauses to compensate electric utilities forced to shut down nuclear power plants.
The Edison Electric Institute, an industry trade group, says that approximately 40 percent of current electric utility fuel costs are being recovered through fuel-adjustment clauses.
Lindsey said that the FERC charge to undertake the inquiry was the result of "a feeling in Congress that someone should look into fuel adjustment clauses."
While the legislation was under consideration in Congress, the investigation was supported by Rep. John D. Dingell (D-Mich.), chairman of the House Commerce subcommittee on energy and power, and liberal House members.
Earlier this year, the Massachusetts attorney general moved to block Boston Edison's call for increased utility rates after the Nuclear Regulatory Commission forced it to shut down its Maine Yankee nuclear reactor.
Similarly, consumer groups opposed a move for rate increases in the wake of the Marck 28 accident at the Three Mile Island plant near Harrisburg, Pa.
Utilities have vigorously opposed efforts to remove or weaken fuel adjustment clauses. Industry lobbyists sought to discourage lawmakers from including the FERC inquiry in the Public Utility Regulatory Policies Act last year.
Jack Schenck, of the Edison Electric Institute, says, "Fuel adjustment clauses are necessary to allow for wide swings in prices." Schenck said the FERC inquiry duplicates processes already underway at most state utility commissions and within FERC.
Richard Morgan, a consumer advocate with the Environmental Action Foundation, argues against the clauses, saying, "There is no way to get rid of abuses and simple inefficiency resulting from them." Morgan and other consumer advocates say utilities have used fuel adjustment clauses to pass through other, non-energy operating costs.
Oregon, Washington State, Nevada, Utah and West Virginia do not have fuel adjustment clauses. Georgia's utility commission moved last fall to abolish its fuel adjustment clause, but the courts have stayed the decision. CAPTION: Picture, Senate Energy Committee members Bennett Johnston, left, and Chairman Henry M.Jackson before the panel voted on portion of president's energy authority proposal. AP