McCloskey v. Pa. Pub. Util. Comm'n

• Decision Date: 18 December 2015
• Docket Number: No. 1023 C.D. 2014,1023 C.D. 2014
• Court: Pennsylvania Commonwealth Court
• Parties: Tanya J. McCloskey, Acting Consumer Advocate, Petitioner v. Pennsylvania Public Utility Commission, Respondent

Tanya J. McCloskey, Acting Consumer Advocate, Petitioner v. Pennsylvania Public Utility Commission, Respondent

No. 1023 C.D. 2014

COMMONWEALTH COURT OF PENNSYLVANIA

Argued: June 17, 2015

December 18, 2015

BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION BY JUDGE McGINLEY

Tanya J. McCloskey, Acting Consumer Advocate from the Office of Consumer Advocate (OCA/Petitioner) petitions for review of the Opinion and Order of the Pennsylvania Public Utility Commission¹ (Commission/PUC) enteredon April 3, 2014, that approved a storm damage expense rider (SDER) proposed by PPL Electric Utilities Corporation (PPL).²

I. Procedural History

On March 20, 2012, PPL filed a base rate case³ with the Commission and sought a $104.6 million rate increase. Definitive Brief for Respondent Pennsylvania Public Utility Commission (Commission's Brief) at 4. PPL included in proposed rates "a claim for storm damage expense within which it included recovery of storm damage insurance PPL purchased from an affiliate."⁴ Commission's Brief at 4. The Bureau of Investigation and Enforcement (BIE) recommended disallowance of the PPL storm damage insurance claim and argued "that it was neither prudent nor beneficial to ratepayers because its premium and deductible were too high given the coverage provided."⁵ Commission's Brief at 4. Morrissey recommended "recalculating an annual budget amount to reflect a fiveyear average of storm expenses to account for yearly fluctuations in storm expenses . . . [t]o avoid financial statement impact for year to year fluctuations, a reconcilable storm reserve account would provide an alternative solution." Direct Testimony of Morrissey, submitted June 22, 2012, at 32-33; R.R. at 19a-20a.

In rebuttal, Joseph M. Kleha (Kleha) for PPL, stated:

However, Ms. Morrissey did not provide sufficient details regarding possible storm damage expense rider or make a specific proposal that can be evaluated in this proceeding. There is simply not sufficient time in this proceeding to address the many details of a storm damage expense rider that would have to be resolved before such a rider could be implemented. Moreover, it is not necessary, at this time, to address such a rider because her proposed approach to storm damage expense is in error both factually and as a matter of public policy, as explained by Mr. Novatnack and Mr. Banzhoff. Nevertheless, PPL Electric is willing to consider such a rider in an appropriate future proceeding.

Rebuttal Testimony of Joseph M. Kleha, submitted July 16, 2012, at 48; R.R. at 55a.

In surrebuttal, Morrissey testified:

As an alternative to disallowance of the 2012 storm insurance claim, I recommended the use of reserve accounting treatment for storm costs, which would result in PPL being self-insured strictly within the regulated organization. This would preserve any benefits of any excessive accumulated storm reserves and allow them to be passed onto ratepayers through mitigation of future rate increases or as a credit toward future major storm costs. It would also avoid an unfavorable impact on the Company's financial statement that could result from year-to-year fluctuations in actual storm costs.

Surrebuttal Testimony of Morrissey at 39; R.R. at 84a.⁶

A. Administrative Law Judge Susan D. Colwell (ALJ Colwell) Recommended

Decision.

On October 19, 2012, ALJ Colwell issued a recommended decision and determined:

c. Storm Damage Reserve Account

PPL Electric 'is not conceptually opposed to such a mechanism for recovery of storm damage costs' and had proposed it in the 2007 rate case. The settlement in that case, coupled with the opposition of the parties, resulted in the matter being dropped. However, the company objects to the grant of this proposal without the details. PPL Electric MB at 70.

The insurance proposal was approved in 2007, and sufficient time has elapsed to find that it is not being used to the benefit of the ratepayers. PPL Electric should be directed to develop a plan for establishment of a storm damage reserve account and to submit for approval. If approved, it should be implemented when the insurance coverage provided by its present provider expires. It is recommended that the public advocates be included in the development of this program. (Emphasis added.)

d. Amortization

. . . .

The Company is entitled to recover its prudently incurred expenses, and the amounts are not in question. Therefore, the 2012 budget amount and the five-year amortization of the 2011 storm damage costs in excess of insurance are approved.. . . .

VI. Order

. . . .

8. That PPL Electric Utilities Corporation shall develop and submit for approval a plan for establishment of a storm damage reserve account and shall serve its proposed plan on the parties to this docket within three months of the entry of the final Commission Order in this docket. (Emphasis added.)

ALJ Colwell's Recommended Decision, October 19, 2012, at 38-40 and 142; OCA's Attachments, Appendix B.

B. Exceptions To ALJ Colwel's Recommended Decision.

On November 8, 2012, PPL alleged:

. . . However, as a result of Hurricane Sandy, the worst storm in the history of PPL Electric, it is now apparent that PPL Electric will not be able to obtain storm damage insurance on reasonable terms after its current policy expires on December 31, 2012. The issue of retaining storm damage insurance is moot. As a result, PPL Electric proposes that the Commission adopt PPL Electric's revised storm damage expense. Specifically, the revised expense claimed by PPL Electric should be approved as a reasonable estimate of ongoing normal storm damage expense, and PPL Electric should be directed to file a proposed storm damage reserve/tracker mechanism with the Commission as soon as possible after a final order is entered in this proceeding. (Emphasis added.)

. . . .

[In conclusion of the mootness of continued storm damage insurance] . . . PPL proposes the following: (1) that the Commission approve a normal expense claim of $17,875,000 plus $5,324,000 for an amortization of the extraordinary losses in 2011 and (2) that PPL Electric will file for a storm damage automatic adjustment clauseas soon as practicable after the Commission's final order in this proceeding. (Emphasis added.)

. . . .

Based on the foregoing, PPL Electric proposes a total storm damage expense of $23.199 million, including $17.875 million for normal storm losses and $5.324 million for amortization of extraordinary losses in excess of insurance coverage in 2011.

Exceptions of PPL Electric Utilities Corporation, November 8, 2012, at 2, 21, and 26; R.R. at 280a, 284a, and 289a.⁷

C. Commission's Opinion And Order, December 28, 2012.

On December 28, 2012, the Commission issued its decision:

Based upon our review of the record and the Parties' Exception and Replies to this issue, we agree with the ALJ's recommendation to adopt I&E [BIE] proposal for PPL to propose a Storm Damage Expense Rider for Commission review . . . . The issues to be discussed between PPL and the public advocates shall include, but not be limited to, the following: (1) provisions for interest on under and over collections; (2) timing of reconciliation; (3) reporting of storm damage expenses and revenue for their recovery; (4) methods for adjusting the annual level of the expense in rates; and (5) exact categories of storm damage expense that would be subject to the reconciliation.

Additionally, we approve I&E's [BIE's] recommendation, and so direct, that PPL file a rider for storm damage expense recovery within ninety days of the date of entry of this Opinion and Order. PPL has statedits intention to file as soon as practicable after the Commission's entry of a final decision in this proceeding.

Recovery of PPL's revised FTY [future test year] storm damage expenses of $23.199 Million shall be through base rates. Any recovery through a Storm Damage Rider shall be permitted only to the extent that such expense exceeds the amount included within base rates. (Emphasis added.)

Commission's Opinion and Order, December 28, 2012, at 37-38; OCA's Attachments, Appendix C.

D. OCA's Petition For Reconsideration Or Clarification Of The PUC's December28, 2012, Order.

On January 14, 2013, OCA petitioned for reconsideration and/or clarification of the Commission's December 28, 2012, order and asserted:

The record evidence also establishes that neither PPL nor I&E [BIE] took specific exception to ALJ Colwell's recommendation for consideration of a storm reserve account, although, admittedly, both parties used the terms 'reserve account', 'tracker' and 'rider' interchangeably at various places in their submitted documents. Accordingly, the OCA submits that the discussions to take place between PPL and the statutory advocates as to storm damage expense recovery mechanisms should not be limited to only the creation of the rider, but should also include consideration of a storm reserve account. (Emphasis added.)

The OCA submits that the Commission's Order, as discussed herein, should be clarified or reconsidered given the ALJ's recommendation. The OCA respectfully requests the Commission to include ALJ Colwell'srecommendations as they relate to the creation of a storm damage reserve account in the collaborative discussions.

Petition of the Office of Consumer Advocate for Reconsideration or Clarification, January 14, 2013, at 5; R.R. at 310a.

E. Commission's Opinion And Order, February 28, 2013.

On February 28, 2013, the Commission granted OCA's Petition for Reconsideration or Clarification:

We find that the OCA has satisfied the Duick [v. Pennsylvania Gas and Water Company, 1982 Pa. PUC Lexis 4, *12-13] standards in that clarification of the storm damage expense collaborative is needed for the Company to comply with our

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