Pike County Light and Power Company-Electric Div. v. Pennsylvania Public Utility Com'n, COMPANY-ELECTRIC

• Decision Date: 22 September 1983
• Docket Number: COMPANY-ELECTRIC
• Citation: 77 Pa.Cmwlth. 268,465 A.2d 735
• Parties: PIKE COUNTY LIGHT AND POWERDIVISION, Petitioner, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.
• Court: Pennsylvania Commonwealth Court

Page 735

465 A.2d 735

77 Pa.Cmwlth. 268

PIKE COUNTY LIGHT AND POWER COMPANY-ELECTRIC DIVISION, Petitioner, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.

Commonwealth Court of Pennsylvania.

Argued June 7, 1983.

Decided Sept. 22, 1983.

Christopher Zettlemoyer, Reed, Smith, Shaw & McClay, Harrisburg, and Andrew Gansberg, LeBoeuf, Lamb, Leiby & MacRae, New York City, for petitioner.

Charles Hoffman, Chief Counsel, David A. Christiansen, John F. Povilaitis, Albert W. Johnson, Harrisburg, for Public Utility Com'n.

Philip McClelland and H. Kay Dailey, Harrisburg, for Consumer Advocate.

Gerald Gornish, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, for J.O. Ryder Rendering Co.

John F. Finan, County Sol., Milford, for County of Pike.

Timothy F. Nicholson, Adler, Nicholson, Claraval & Magdule, Harrisburg, amicus curiae, for Pa. Gas Ass'n.

Gerard A. Maher, Maher & Babinecz, Garden City, pro hac vice, petitioner.

Before CRUMLISH, President Judge, and ROGERS, BLATT, WILLIAMS and DOYLE, JJ.

DOYLE, Judge.

This is an appeal by Pike County Light and Power Company (Pike) of an order of the Pennsylvania Public Utility Commission (PUC) which disallowed $597,917.00 of purchased power expense in the settling of rates under Pike's Supplement No. 12 to its Tarriff Electric-Pa. P.U.C. No. 7. ¹ We affirm.

Pike operates in the vicinity of the boroughs of Matamoras and Milford in the County of Pike, Pennsylvania and serves approximately 2,548 residential customers, 426 general service customers, 4 municipal street lighting customers, and 77 private area lighting customers. ² Pike is a subsidiary of Orange and Rockland Utilities, Inc. (Orange & Rockland), a New York State operating utility. Pike's power supply is provided by the parent company through a Power Supply Agreement filed with the Federal Energy Regulatory Commission.

Pursuant to an investigation of Pike's proposed tariff supplement, three days of evidentiary hearings were held before an administrative law judge and a record consisting of more than 200 pages of testimony, statements and exhibits was developed. On August 13, 1982, the administrative law judge submitted a Recommended Decision to the PUC, concluding that Pike's reliance on Orange & Rockland as a source of power represented an abuse of management discretion in consideration of available, alternative, more economical, supplies of electricity. Accordingly, Pike's purchased power expense was reduced $597,917.00. This resulted in a revenue increase of $361,000.00 to Pike, rather than the $438,500.00 sought in the tariff supplement.

By order adopted October 1, 1982, and entered October 15, 1982, the PUC adopted Before this Court, Pike argues that the PUC order is barred by federal preemption under the Federal Power Act, ⁴ is not supported by substantial evidence, was in part arbitrary and capricious, and constitutes deprivation of property without due process of law. We will address these arguments seriatim.

the findings and conclusions of the administrative law judge with the exception of certain mathematical errors not denied by Pike. The instant appeal followed. ³

FEDERAL PREEMPTION

In Public Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 54 (1927), the United States Supreme Court struck down, as a direct burden on interstate commerce, an attempt by the Rhode Island Public Utilities Commission to regulate the rates at which a Rhode Island utility could sell electric power to a Massachusetts distributor. As a direct response to the Attleboro decision, Congress enacted the Federal Power Act of 1935, creating the Federal Power Commission, now the Federal Energy Regulatory Commission (FERC), and vesting it with exclusive authority to regulate the rates governing interstate sales of electricity for resale. New England Power Co. v. New Hampshire, 455 U.S. 331, 102 S.Ct. 1096, 71 L.Ed.2d 188 (1982). The Act provides, in pertinent part:

It is declared that the business of transmitting and selling electric energy for ultimate distribution to the public is affected with a public interest, and that Federal regulation of matters relating to generation ... of that part of such business which consists of the transmission of electric energy in interstate commerce is necessary in the public interest, such Federal regulation, however, to extend only to those matters which are not subject to regulation by the States.

16 U.S.C. § 824(a) (1976) (emphasis added). The Act further provides, in pertinent part:

The provision of this subchapter shall apply to the transmission of electric energy in interstate commerce and to the sale of electric energy at wholesale in interstate commerce, but except as provided in paragraph (2) shall not apply to any other sale of electric energy....

16 U.S.C. § 824(b)(1) (emphasis added).

The language of the Act and the case law interpreting it make clear that Congress' intent was to "fill the gap" in regulation of electric power sales created by Attleboro, see New England Power, and to displace prior state regulation with comprehensive federal regulation of wholesale electric rates. Federal Power Commission v. Southern Cal. Edison Co., 376 U.S. 205, 84 S.Ct. 644, 11 L.Ed.2d 638, reh. denied, 377 U.S. 913, 84 S.Ct. 1161, 12 L.Ed.2d 183 (1964). Any attempt by the PUC to regulate the rates in the agreement between Pike and its parent, Orange & Rockland, therefore, would be preempted by the federal legislation.

The Consumer Advocate, intervenor in this appeal, points out, however, that the action by the PUC which is challenged here is not a regulation of wholesale rates nor a determination that Orange and Rockland's wholesale rates are unjust and unreasonable. It is urged that the PUC action is a regulation only of Pike's retail rates, and as such proceeded, not from an analysis of In carrying out its regulatory function, the FERC examines the cost of service data of Orange & Rockland to determine that its wholesale rates provide a fair return to the utility's stockholders without being unfair to Orange & Rockland's purchasers. The FERC does not analyze Pike's cost of service data or purchased power alternatives in making its determination. ⁵ The FERC focuses on Orange & Rockland to determine whether it is just and reasonable for that company to charge a particular rate, but makes no determination of whether it is just and reasonable for Pike to incur such a rate as an expense. The PUC, on the other hand, has no jurisdiction to analyze Orange & Rockland's cost of service data and makes no determination as to the reasonableness for Orange & Rockland to charge its rates. The PUC focuses on Pike and its cost of service data to determine whether it is reasonable for Pike to incur such costs in light of available alternatives. So while the FERC determines whether it is against the public interest for Orange & Rockland to charge a particular rate in light of its costs, the PUC determines whether it is against the public interest for Pike to pay a particular price in light of its alternatives. The regulatory functions of the FERC and the PUC thus do not overlap, and there is nothing in the federal legislation which preempts the PUC's authority to determine the reasonableness of a utility company's claimed expenses. In fact, we read the Federal Power Act to expressly preserve that important state authority. ⁶

Orange & Rockland's cost of service data, analysis within the exclusive jurisdiction of the FERC, but rather from analysis of Pike's cost of service and comparison with alternative costs of purchased power. Therefore, it is argued, the PUC action does not intrude on the exclusive jurisdiction of the FERC. We agree.

SUBSTANTIAL EVIDENCE

Pike next argues that the alternative rate used by the PUC to determine a reasonable level of purchased power expense is unsupported by substantial evidence. Our review of the record indicates to the contrary. The record contains testimony from expert witnesses regarding the viability of power purchases from Pennsylvania Power & Light Company (PP & L) on the basis of existing PP & L rates approved by the FERC. The record contains expert testimony that a purchase from PP & L was feasible technically, that economic advantages would accrue to Pike by transmission of power from PP & L over Orange & Rockland transmission lines, and that because PP & L's generation mix was predominantly coal, its production costs were less than the predominantly oil and natural gas fired generation of Orange & Rockland. Also admitted into the record was a letter from PP & L indicating the company's...