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DUQUESNE LIGHT COMPANY v. PENNSYLVANIA PUBLIC UTILITY COMMISSION. CITY PITTSBURGH (08/30/54)

: August 30, 1954.

DUQUESNE LIGHT COMPANY, APPELLANT,
v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION. CITY OF PITTSBURGH, APPELLANT, V. PENNSYLVANIA PUBLIC UTILITY COMMISSION



COUNSEL

Nos. 78, 79, 80, April Term 1954.

Thomas J. Munsch, Jr., and Henry G. Wasson, Jr., Pittsburgh, David Dunlap, Harrisburg, Charles E. Kenworthey, Reed, Smith, Shaw & McClay, Pittsburgh, for appellant.

Lloyd S. Benjamin, Counsel Harrisburg, for Pennsylvania Public Utility Comm., J. Frank McKenna, Jr., City Sol., David Stahl, Asst. City Sol., Pittsburgh, for City of Pittsburgh, intervening appellee.

No. 88, April Term 1954.

J. Frank McKenna, Jr., City Sol., and David Stahl, Asst. City Sol., Pittsburgh, for appellant.

Lloyd S. Benjamin, Counsel, Harrisburg, for Pennsylvania Public Utility Comm., Thoms J. Munsch, Jr., Henry G. Wasson, Jr., Pittsburgh, David Dunlap, Harrisburg, Charles E. Kenworthey, Reed, Smith, Shaw & McClay, Pittsburgh, for Duquesne Light Co., intervening appellee.

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

Author: Wright

[ 176 Pa. Super. Page 573]

WRIGHT, Judge.

These appeals mark the third time in recent years that proposed rate increases sought by the Duquesne Light Company (hereinafter called Duquesne) have been before this court. The litigation had its beginning on February 6, 1950, when Duquesne filed with the Pennsylvania Public Utility Commission (hereinafter called Commission) Tariff No. 10 superseding Tariff No. 9, and providing for increases in rates to become effective April 10, 1950, and designed to produce additional annual revenue of $7,720,612. Complaints were filed against the proposed tariff and hearings were held by the Commission. By its order of August 29, 1951, the Commission disallowed the full increase proposed, and allowed instead an increase of $3,556,924. The Commission found annual operating revenues to be $60,574,238 based upon the 1949 level of operations, and allowed a rate of return of 6 percent or $12,900,000 on a fair value of $215,000,000. On appeal to this court the order was (July 17, 1952) reversed and the case remanded to the Commission. See City of Pittsburgh v. Pennsylvania P.U.C., 171 Pa. Super. 187, 90 A.2d 607. Following this decision, the Commission held further hearings as a result of which it issued its order of March 9, 1953. This order reduced the rate base from $215,000,000 to $208,000,000 and the allowable return from $12,900,000 to $12,080,000. Annual operating revenues were reduced from $60,574,238 to $59,921,499. The Commission did

[ 176 Pa. Super. Page 574]

    not, however, reduce the rate increase which it had originally allowed. The City of Pittsburgh (hereinafter called City) and Duquesne both appealed this order and this court (August 28, 1953) affirmed the Commission. See Duquesne Light Co. v. Pennsylvania P.U.C., 174 Pa. Super. 62, 99 A.2d 61. The new rates were embodied in Tariff No. 11.

Meanwhile, on December 11, 1952, Duquesne had filed with the Commission its Tariff No. 12, proposing new rates resulting in a total increase in gross revenues of $4,732,022 to become effective March 1, 1953. The effective date of Tariff No. 12 was suspended by the Commission for a total period of nine months to December 1, 1953. By an order dated November 23, 1953, the Commission prescribed Tariff No. 11 as temporary rates to be in force until the final disposition of the proceedings involving Tariff No. 12. Complaints were filed by the City and by the St. Joseph Lead Company (hereinafter called St. Joseph). There were eighteen days of hearings with a considerable amount of testimony and numerous exhibits.*fn1 On December 22, 1953, the Commission issued an order finding the proposed rates of Tariff No. 12 to be unjust and unreasonable. The fair value of the utility's property was found to be $297,000,000 upon which the Commission allowed a return of 6 percent or $17,820,000. The Commission also found that the allowable annual operating revenues should be $77,518,493 or $1,811,000 less than the annual revenues under the prior rates. The entire reduction was allocated to industrial consumers.

On January 11, 1954, Duquesne appealed from the order of December 22, 1953, to Nos. 78, 79, and 80

[ 176 Pa. Super. Page 575]

April Term, 1954. On January 18, 1954, St. Joseph was permitted to intervene as a party appellee at Nos. 78 and 80 April Term, 1954, and the City was permitted to intervene as a party appellee at Nos. 78, 79, and 80 April Term, 1954. On January 21, 1954, the City appealed from the order of December 22, 1953, at No. 88 April Term, 1954. On February 11, 1954, Duquesne was permitted to intervene as a party appellee at No. 88 April Term, 1954. On petition of Duquesne we directed that its appeal should operate as a supersedeas on condition, however, that it should not have the right, in the event it was successful on appeal, to amortize or recover the deficiency between the temporary rates which went into effect prior to the date of the Commission's final order and any increased rates which might be allowed by this court or by the Commission after remand.

Preliminary Considerations

Commission Procedure. Duquesne contends that the Commission was in error 'in reducing allowable revenues under existing rates where no complaint was filed against such revenues and the Commission did not institute any proceeding against them'. It is the position of Duquesne that the only issue before the Commission was the reasonableness of the proposed increase in revenues set forth in Tariff No. 12, and that, so far as the present proceeding is concerned, the Commission could not provide for any revenues below the levels established by Tariff No. 11. Duquesne relies upon Section 309 of the Public Utility Law, Act of May 28, 1937, P.L. 1053, as amended, 66 P.S. § 1149, which provides that the Commission shall not impose a reduction in existing rates except 'after reasonable notice and hearing'. Its position is that, since there was no complaint against, or investigation initiated concerning, existing rates, and no notice in connection

[ 176 Pa. Super. Page 576]

    therewith, the Commission had no power to reduce revenues under existing rates. We are not in agreement with this contention.

Section 309 concerns the fixing of rates by the Commission upon its own motion or upon complaint. It is Section 308, 66 P.S. § 1148, which sets forth the procedure to be followed in cases where a utility has filed new tariffs proposing voluntary changes in rates. Duquesne initiated the present proceedings by filing Tariff No. 12. Paragraph (c) of Section 308 provides in such event: 'If, after such hearing, the commission finds any such rate to be unjust or unreasonable, or in anywise in violation of law, the commission shall determine the just and reasonable rate to be charged or applied by the public utility for the service in question, and shall fix the same by order to be served upon the public utility; and such rate shall thereafter be observed until changed as provided by this act.' There is thus imposed upon the Commission the duty of prescribing just and reasonable rates, and it is necessarily implied that such rates may be either higher or lower than the existing rates which the utility voluntarily seeks to change.

Duquesne cites West Penn Power Co. v. Pennsylvania P.U.C., 174 Pa. Super. 123, 100 A.2d 110, but that case is not controlling. We there held that the Commission, having made a conclusive affirmative order, thereafter had no authority without notice and hearing to reverse such action and enter a different order. Nor does Armour Transportation Co. v. Pennsylvania P.U.C., 138 Pa. Super. 243, 10 A.2d 86, 90, also cited, support Duquesne's position. We there said: 'The question of what is proper notice, or, as here, of what constitutes a specific designation of the issue raised or charges made, depends necessarily upon the facts of each case, the type of investigation being conducted, the violations

[ 176 Pa. Super. Page 577]

    alleged, and the penalty or order sought to be imposed. Where the purpose of the investigation by the Commission is only to determine the reasonableness of rates charged by a utility, a different standard would seem to apply than where the franchise of the utility is sought to be revoked for violation of the utility laws and a penalty or fine imposed.' As provided by Section 308, the Commission acted upon the evidence submitted by Duquesne in support of its proposed rate schedule under Tariff No. 12. If such evidence fell short of justifying the revenues under rates previously established by Tariff No. 11, it was not necessary for the Commission to abandon the proceeding. While Tariff No. 11 and Tariff No. 12 involved two separate rate schedules, the findings previously made in the proceeding upon Tariff No. 11 were not conclusive for the future. Orders fixing rates are not res judicata: City of Philadelphia v. Pennsylvania P.U.C., 173 Pa. Super. 38, 95 A.2d 244. We have concluded that the action of the Commission, if otherwise correct, was entirely within the broad powers committed to it by the Public Utility Law. See Latrobe Bus Service v. Pennsylvania P.U.C., 175 Pa. Super. 164, 103 A.2d 442.

Court Function. In the words of Judge Head in the early case of Baltimore & Ohio R.R. Co. v. Public Service Commission, 66 Pa. Super. 403: 'Establishing a schedule of the rates or tolls that a public service company may lawfully demand is one of the most complicated and important of all of the many important tasks imposed by the legislature on the Public Service Commission. The proper determination of such questions necessarily involves the consideration of many matters and things far removed from the atmosphere of an appellate court of law.' The ascertainment of fair value for rate making purposes 'is not a matter of formulas, but it is a matter which calls

[ 176 Pa. Super. Page 578]

    for the exercise of a sound and reasonable judgment upon a proper consideration of all relevant facts. * * * Much must be left to the sound discretion of the appraising body, the tribunal appointed by law and informed by experience, for the discharge of these delicate and complex duties.' Ben Avon Borough v. Ohio Valley Water Co., 260 Pa. 289, 103 A. 744, 750. The classification and reasonableness of rates is an administrative question for the Commission: Sheets v. Pennsylvania P.U.C., 171 Pa. Super. 151, 90 A.2d 633. As pointed out by Judge Cunningham in Boland v. Public Service Commission and Abington Electric Co., 101 Pa. Super. 102, we are not a second administrative tribunal. And see City of Pittsburgh v. Pennsylvania P.U.C., 174 Pa. Super. 363, 101 A.2d 761.

In enacting the present Public Utility Law the legislature provided: 'The order of the commission shall not be vacated or set aside, either in whole or in part, except for error of law or lack of evidence to support the finding, determination, or order of the commission, or violation of constitutional rights.' Act of May 28, 1937, P.L. 1053, Section 1107, as amended, 66 P.S. § 1437. See City of Pittsburgh v. Pennsylvania P.U.C., 158 Pa. Super. 229, 44 A.2d 614. It is further provided in Section 1112 of the Act (66 P.S. 1142): 'Whenever the commission shall make any rule, regulation, finding, determination, or order under the provisions of this act, the same shall be prima facie evidence of the facts found.' See Pennsylvania R. Co. v. Pennsylvania P.U.C., 154 Pa. Super. 86, 35 A.2d 588. It is only where the utility appeals on the ground of confiscation that we may take independent findings. Otherwise we are bound by the findings made by the Commission if there is evidence to support them, and if they support the Commission's order. See Schuylkill Valley Lines, Inc. v. Pennsylvania P.U.C., 165 Pa. Super. 393, 68 A.2d 448,

[ 176 Pa. Super. Page 579]

    and City of Pittsburgh v. Pennsylvania P.U.C., 169 Pa. Super. 400, 82 A.2d 515. With the foregoing restatement as a guide, we will proceed to consider the several arguments advanced by the respective appellants as a basis for their attack upon the merits of the order of the Commission.

Fair Value

Trended Cost. The City contends that the Commission should have rejected the evidence of trended original cost presented by Duquesne as measures of value. This evidence showed, inter alia, the original cost of Duquesne's property trended to the cut-off date of December 31, 1952, and to three-year, five-year, and ten-year average price levels. In determining these trended prices, 15 of 91 plant accounts were trended by the use of factors developed from Duquesne's own experienced unit costs. The remaining accounts were trended by the use of various published index numbers from which trending factors were derived. The Commission found that the 15 accounts were the only ones for which Duquesne's experience costs were available. They had been considered reliable in the prior rate case and were so considered in this proceeding. By use of factors reflecting Duquesne's own experienced costs, the original cost trended so far as these 15 accounts were concerned, amounted to $118,419,399. By using published Handy-Whitman index numbers, the trended original cost of these same 15 plant accounts amounted to $95,692,331. The City's objection to the use of trend factors developed by Duquesne is that they are unreliable since they do not take into account differences in quality of units of property installed in different years. There can be no question that any trended original cost study will contain certain inherent errors or inconsistencies arising out of changes in the nature of property, and the

[ 176 Pa. Super. Page 580]

Commission does not take the position that the figures developed by the use of Duquesne's factors have an accurate mathematical certainty. Its position is that any trended original cost study is merely an estimate of the translation of past costs into terms of present-day values; and is merely a guide to enable the Commission, in the exercise of its judgment on all the evidence, to ascertain the fair value. Furthermore, the Commission was of the opinion that Duquesne's figures based on its own experience were preferable to the hypothetical indices representing general experience, since they more accurately reflected the exact conditions which Duquesne has had to face. As was said in Solar Electric Co. v. Pennsylvania P.U.C., 137 Pa. Super. 325, 9 A.2d 447, 469: 'We also agree with the assumption of the commission that where the actual experience of a particular utility is available and the rates of that utility are being examined, such information is of great value.'

The City also argues that Duquesne admittedly included in trended cost measures of value items which had previously been charged to expense. These items were amounts representing purchasing and warehousing costs which, prior to 1931, had been charged to expense. The Commission found that seven accounts included such costs and, accordingly, adjusted the various price levels by amounts to correct this error. This was in accord with our decision in City of Philadelphia v. Pennsylvania P.U.C., 173 Pa. Super. 38, 95 A.2d 244, wherein we pointed out that amounts charged to operating expense cannot be capitalized and included in the rate base. Essentially, it would appear that the question involved here is one of the weight to be given the trended cost evidence. Such evidence is merely a guide in the determination of fair value. It cannot be seriously contended that even under the best of conditions it is

[ 176 Pa. Super. Page 581]

    free from error, and the fact that it does contain defects would not justify the Commission in rejecting it. So long as the evidence is reasonably accurate, the weight to be given it is a matter for the Commission; Equitable Gas Co. v. Pennsylvania P.U.C., 160 Pa. Super. 458, 51 A.2d 497; City of Pittsburgh v. Pennsylvania P.U.C., 171 Pa. Super. 187, 90 A.2d 607.

Accrued Depreciation. The Commission found that the accrued depreciation applicable to original cost of Duquesne's property on the cut-off date of December 31, 1952, amounted to 26.5 percent, that the accrued depreciation applicable to trended original cost amounted to 34.5 percent, and that the accrued depreciation applicable to reproduction cost amounted to 34 percent. Both Duquesne and the City object to these findings. Duquesne contends that they are too high while the City asserts that they are too low.

The Commission had before it the following: a reserve requirement study by the City, a reserve requirement study by Duquesne, the finding of the Commission in the prior rate proceeding, and the book reserve. The Commission did not consider the book reserve controlling since it had not been accumulated on actual service life but from percentages of revenues and by lump sum appropriations from surplus. Duquesne's witnesses stated that the company's records were not adequate to enable it to prepare a reserve requirement study based on its own experience, and based the study presented upon the retirement experience of utilities in the State of New York. In the words of the Commission: 'We quite agree that failing a utility's own retirement experience, the second best measure would be the ...


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