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HARRISBURG STEEL CORPORATION v. PENNSYLVANIA PUBLIC UTILITY COMMISSION AND PENNSYLVANIA POWER AND LIGHT COMPANY. L. B. SMITH (08/30/54)

August 30, 1954

HARRISBURG STEEL CORPORATION, APPELLANT,
v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION AND PENNSYLVANIA POWER AND LIGHT COMPANY. L. B. SMITH, INC., MOTOR DIVISION, APPELLANT, V. PENNSYLVANIA PUBLIC UTILITY COMMISSION AND PENNSYLVANIA POWER AND LIGHT COMPANY. MAGEE CARPET COMPANY, APPELLANT, V. PENNSYLVANIA PUBLIC UTILITY COMMISSION AND PENNSYLVANIA POWER AND LIGHT COMPANY. LANCASTER ICE MANUFACTURING COMPANY, APPELLANT, V. PENNSYLVANIA PUBLIC UTILITY COMMISSION AND PENNSYLVANIA POWER AND LIGHT COMPANY. PENNSYLVANIA POWER AND LIGHT COMPANY, APPELLANT, V. PENNSYLVANIA PUBLIC UTILITY COMMISSION



COUNSEL

Earl V. Compton, William D. Boswell, Compton, Handler & Berman, Harrisburg, for Harrisburg Steel Corp. and L. C. Smith, Inc., Motor Div.

G. Thomas Miller, J. Paul Rupp, Storey, Bailey & Rupp, Harrisburg, Carl Rice Witmer & Rice, Sunbury, for Magee Carpet Co.

W. Russell Hoerner, Asst. Counsel, Lloyd S. Benjamin, Counsel, Harrisburg, for Pennsylvania Public Utilities Commission.

Charles E. Thomas, John C. Kelley, Hull, Leiby & Metzger, Harrisburg, Austin Gavin, Jack K. Busby, Allentown, for Pennsylvania Power & Light Co.

Homer Kripke, New York City, Roberts R. Appel, Herbert S. Levy, Appel, Ranck, Levy & Appel, Lancaster, for appellant and Radio Corp. of America.

Frank B. Ingersoll, Emory R. Kyle, Smith, Buchanan, Ingersoll, Rodewald & Eckert, Pittsburgh, for Armstrong Cork Co.

Before Hirt, Acting P. J., and Ross, Gunther, Wright and Ervin, JJ.

Author: Hirt

[ 176 Pa. Super. Page 552]

HIRT, Acting President Judge.

On September 12, 1951, Pennsylvania Power and Light Company (hereinafter referred to as the Company) filed supplements to its existing tariffs with Pennsylvania Public Utility Commission. The various supplements contemplated increases in tariffs applicable to 2,435 large commercial, industrial and resale

[ 176 Pa. Super. Page 553]

    customers, only. More than 500,000 other customers of the Company were not affected. Complaints were filed by the present appellants and by many others, which were consolidated for hearing with an investigation, instituted by the Commission of its own motion to determine whether the proposed new rates were fair, just and not unreasonably discriminatory. Pending disposition of the consolidated proceeding, the operation of the proposed tariffs was suspended by successive orders, to August 12, 1952. In its decision and order dated July 30, 1952, the Commission allowed a return of not more than 5.82% on $310,000,000 which it found to be the fair value of the Company's property for rate making purposes as of October 31, 1951. These determinations as well as specific amounts allowed as operating expense are not involved in the present appeals.

Three questions are raised: (1) May the Company recoup from the rate payers by a process of amortization an amount in excess of $25,000,000 paid by the Company, on the purchase of various utility companies, over and above the total of their depreciated original cost? (2) Having failed, over a period of years, to make an adequate allowance for annual depreciation, may the Company recover a resulting deficiency in its depreciation reserve, by means of additional annual charges to operation expense? (3) Are the large commercial and industrial customers of the Company in Lancaster entitled to a continuation of an advantage in rates over other customers of the same class located elsewhere?

Pennsylvania Power and Light Company was formed by the merger of eight utility companies and was incorporated on June 4, 1920 under the laws of this State. During the following ten years the Company acquired by purchase many other utility companies

[ 176 Pa. Super. Page 554]

    which were merged into its system for the supply of electric energy throughout the eastern section of central Pennsylvania. The problem which gave rise to the first question here involved, had its origin in the promulgation of a uniform accounting system for public utilities by the Federal Power Commission in 1936. A like system of accounting was adopted by Pennsylvania Public Service Commission which, on January 1, 1937, directed all electric utilities to maintain their books on an original cost basis in accord with the uniform accounting provisions. We are concerned primarily with account 100.5 in the uniform system entitled Electric Plant Acquisition Adjustment Clause. In this account the Company was required to include 'the difference between (a) the cost to the accounting utility of electric plant acquired as an operating unit or system by purchase, merger, consolidation, liquidation, or otherwise and (b) the original cost, estimated if not known, of such property, less the amount or amounts which may be credited to the depreciation and amortization reserves of the accounting utility at the time of acquisition with respect to such property.' In this case the account was intended to disclose the amount in excess of depreciated original cost which was paid by the Company for the utilities purchased by it. On December 19, 1944 the Commission in an accounting proceeding initiated by it found that $25,930,121.01 was classifiable in account 100.5 under Electric Plant Acquisition Adjustments. The Federal Power Commission had previously classified the same amount in the same fashion. And both Commissions ordered that the amount be written off the books of the Company by amortization over a 15-year period at the rate of $1,746,150 per year. There was a vital difference, however, in the two orders: The Federal Power Commission directed that the amount be written off

[ 176 Pa. Super. Page 555]

    by charges to 'Miscellaneous Amortization' as a disposition of income; the Pennsylvania Commission directed the amortization by charges as operation expense. And in the instant proceeding the Commission made final its tentative order of December 19, 1944 and thus put the burden on the present rate payers of providing $1,764,150 annually over a fifteen-year period in addition to a return of a maximum of 5.82% on fair value of $310,000,000 in ...


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