Green v. Pennsylvania Public Utility Com'n

Decision Date12 March 1984
Citation473 A.2d 209,81 Pa.Cmwlth. 55
PartiesWilliam J. GREEN and The City of Philadelphia, Petitioners, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent, Philadelphia Electric Company et al., Intervenors. William J. GREEN and The City of Philadelphia, Petitioners, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent. Walter W. COHEN, Consumer Advocate, Petitioner, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.
CourtPennsylvania Commonwealth Court

Charles F. Hoffman, Chief Counsel, Albert W. Johnson, Marlene Chestnut, John A. Levin, Harrisburg, for Pennsylvania Public Utilities Com'n.

Robert H. Young, Walter R. Hall, II, David B. MacGregor, Morgan Lewis & Bockius, Philadelphia, for Phila. Elec.

Steven P. Hershey, Mark B. Segal, Community Legal Services, Philadelphia, for Consumer Educ. & Protection Assoc.

Wayne L. Emery, Kenneth R. Pepperney, Charles J. Streiff, Wick, Rich, Fluke & Streiff, Pittsburgh, for U.S. Steel Corp.

Edward J. Riehl, David Kleppinger, McNees, Wallace & Nurick, Harrisburg, for Paieug, et al.

Alan J. Nogee, Philadelphia, for Keystone Alliance.

Jack J. Aloff, pro se.

Joseph C. Crawford, Deputy City Sol., Mark A. Aronchick, City Sol., Herbert Smolen, Deputy Sol., Michael S. Chuhinka, Asst. City Sol., Alan J. Davis, Philadelphia, for petitioners.

David Wersan, Irwin A. Popowsky, Asst. Con. Advocates, David M. Barasch, Acting Consumer Advocate, Martha Bush, Craig Burgraff, Office of Consumer Advocate, Harrisburg, for Office of Consumer Advocate.

David M. Kleppinger, Edward Riehl, McNees Wallace & Nurick, Harrisburg, for Phila. Area Ind. Users Group.

Stephen P. Hershey, Community Legal Services, Philadelphia, for CEPA, et al.

Andrew C. Dasent, Deputy City Sol., Philadelphia, for City of Philadelphia.

Before CRUMLISH, President Judge, and WILLIAMS, CRAIG, MacPHAIL and DOYLE, JJ.

OPINION

CRUMLISH, President Judge.

We have consolidated for argument and disposition appeals of William J. Green and the City of Philadelphia (City) and Walter W. Cohen, the Consumer Advocate of Pennsylvania (Consumer Advocate) from two orders of the Public Utility Commission (Commission) entered April 24, 1981 and May 21, 1982. The two orders allowed the Philadelphia Electric Company (PECO) annual rate increases of $185,899,000 and $221,708,000, respectively. We affirm. 1

NO. 2683 C.D. 1981

The City appeals the Commission's order allowing the inclusion in rate base of $185,899,000 for various types of construction work in progress (CWIP). PECO intervenes in support of the order and the Consumer Advocate intervenes in opposition to the order. We affirm.

On July 29, 1980, PECO filed Supplement No. 19 to Tariff Electric-Pa. P.U.C. No. 25 to become effective September 27, 1980. PECO requested an adjusted base rate increase for approximately $303,729,000 in annual revenue based upon a future test year ended March 31, 1981. By order dated August 28, 1980, the Commission initiated an investigation and suspended Supplement No. 19 for seven months. The ALJ issued a Recommended Decision, proposing the approval of the inclusion in rate base of the various types of CWIP. On April 24, 1981, the Commission allowed the inclusion in rate base of $185,899,000 for three types of CWIP: (1) $164,321,000 for future pollution control modifications at PECO's Eddystone and Cromby stations to be made nine months beyond the test year (December 31, 1981); (2) $1,185,000 of safety-related future modifications to the Peach Bottom nuclear plant to be made nine months beyond the test year; 2 and (3) $20,393,000 of "traditional" non-revenue producing CWIP to be completed before the end of 1981. 3

The Public Utility Code (Code) 4 "authorizes utilities to seek a just and reasonable return on the fair value of property used and useful in the public service." The Bell Telephone Co. of Pennsylvania v. Pennsylvania Public Utility Commission, 47 Pa.Commonwealth Ct. 614, 629, 408 A.2d 917, 925 (1979). Whether any particular property is used and useful in rendering such service is a policy decision left to the discretion of the Commission. Id. at 629, 408 A.2d at 925. The Commission has the authority to make adjustments to rate base, UGI Corp. v. Pennsylvania Public Utility Commission, 49 Pa.Commonwealth Ct. 69, 79, 410 A.2d 923, 929 (1980), and valuation of property. See 66 Pa.C.S. § 1311.

The City argues that the Commission's decision to include non-revenue producing CWIP in rate base amounts to an arbitrary abuse of discretion. Consumer Advocate intervenes by contending the Commission's decision was based upon factual error and non-specific and inconsistent reasoning.

Section 1311 of the Code, 66 Pa.C.S. § 1311, states:

The commission may, after reasonable notice and hearing, ascertain and fix the fair value of the whole or any part of the property of any public utility, insofar as the same is material to the exercise of the jurisdiction of the commission, and may make revaluations from time to time and ascertain the fair value of all new construction, extensions, and additions to the property of any public utility. When any public utility furnishes more than one of the different types of utility service, the commission shall segregate the property used and useful in furnishing each type of such service, and shall not consider the property of such public utility as a unit in determining the value of the property of such public for the purpose of fixing rates. In fixing any rate of a public utility engaged exclusively as a common carrier by motor vehicle, the commission may, in lieu of other standards established by law, fix the fair return by relating the fair and reasonable operating expenses, depreciation, taxes and other costs of furnishing service to operating revenues.

The Commission has included CWIP in rate base in limited circumstances. 5 "[S]ubstantial expenditures for projects to be completed after the end of the test year will be allowed only if they do not affect the level of operations at year end, i.e., they arenon-revenue producing and non-expense reducing, 6 and improve the environment and/or reliability and safety of service." The Bell Telephone Co., 47 Pa. Commonwealth Ct. at 630, 408 A.2d at 926. Construction which will be completed within a short time following the end of the test year is generally includable in rate base because allowance for funds used during construction (AFUDC) may no longer be accumulated after the plant is completed and no substantial cost is shifted to ratepayers. "[T]o the extent that revenues and expenses for the test year do not accurately indicate future revenue and cost trends, the Commission has the duty to make adjustments." Id. at 624, 408 A.2d at 923. To provide PECO with a fair opportunity to recover its full operating costs, including a just and reasonable profit, the Commission has discretion to adjust for conditions beyond the test year. See West Penn Power Co. v. Pennsylvania Public Utility Commission, 50 Pa. Commonwealth Ct. 164, 412 A.2d 903 (1980); Pike County Light and Power Co. v. Pennsylvania Public Utility Commission, --- Pa. Commonwealth Ct. ---, 465 A.2d 735, 739 (1983). The rate-making process is prospective. See City of Pittsburgh v. Pennsylvania Public Utility Commission, 42 Pa. Commonwealth Ct. 242, 245, 400 A.2d 672, 674 (1979).

The Superior Court held that it was appropriate for the Commission to include in the rate base a portion of investment in a new generating plant, even though the plant was not in operation until after the close of the test year. Duquesne Light Co. v. Pennsylvania Public Utility Commission, 176 Pa.Superior Ct. 568, 583-84, 107 A.2d 745, 752 (1954). This Court held that the Commission had discretion to include in the rate base a portion of investment in a coal-fired generating unit which was closed after the test year. West Penn Power.

The City and the Consumer Advocate argue that any investment beyond six months after the test year should be disallowed. This Court has decided that it is within the Commission's discretion to allow in rate base some expenses six months after the end of the test year but to reject expenses twelve months beyond the end of the test year. Dauphin Consolidated Water Supply Co. v. Pennsylvania Public Utility Commission, 55 Pa. Commonwealth Ct. 624, 638, 423 A.2d 1357, 1364 (1980). By providing a nine-month extension after the test year for the rate base adjustment in the instant case, the adjustment falls between these extremes. We therefore conclude that the Commission reasonably exercised its discretionary authority.

The City's next argument is that the Commission's decision is unsupported by the evidence. The burden is on the utility to establish that the property sought to be included in rate base is used and useful in the public service. The Bell Telephone Co., 47 Pa. Commonwealth Ct. at 629, 408 A.2d at 925. We hold that PECO has carried its burden. With respect to the $164,321,000 of pollution control equipment, PECO's evidence shows the Eddystone and Cromby stations were actually in use and the equipment was necessary for the continued operation of the stations according to a federal consent decree. 7 The Commission found that the continued operations of the plants allows PECO to produce coal generation at a lower cost to the present ratepayers 8 because, if these plants were closed, PECO would have to substitute the capacity lost with more expensive power through use of its reserves or through spot market purchases. The record further reveals that the Commission was correct in finding that the equipment,which includes SO sub2 scrubbers and associated devices for the coal generating stations met the criteria for inclusion of pollution control equipment in rate base. The Commission properly relied on Pennsylvania Public Utility Commission v. West Penn Power Co., 53 P.U.C. 410 (1979), which stated such unusual expenditures will never be...

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