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PITTSBURGH v. PENNSYLVANIA PUBLIC UTILITY COMMISSION. (12/28/56)

December 28, 1956

PITTSBURGH, APPELLANT,
v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION.



Appeals, Nos. 57, 58, and 64 to 103, inclusive, April T., 1956, from orders of the Pennsylvania Public Utility Commission, dated January 3, 1956, at Complaint Dockets Nos. 16264 et al., in case of City of Pittsburgh v. Pennsylvania Public Utility Commission et al. Order of commission, to extent indicated, set aside, and record remanded; in other respects, order affirmed.

COUNSEL

J. Frank McKenna, Jr., City Solicitor, with him David Stahl, Assistant City Solicitor, for City of Pittsburgh.

Jack F. Aschinger, Assistant Counsel, with him Albert E. Luttrell, William A. Donaher and Owen B. McManus, Assistant Counsel, and Thomas M. Kerrigan, Acting Counsel, for Pennsylvania Public Utility Commission.

Paul H. Rhoads, with him John P. Egan, Jr., William Anderson, Jr., Howell C. Mette, Walter W. Shearer, and Rhoads, Sinon & Reader, for Manufacturers Light & Heat Company.

Before Rhodes, P.j., Hirt, Gunther, Wright, Woodside, Ervin, and Carr, JJ.

Author: Rhodes

[ 182 Pa. Super. Page 554]

OPINION BY RHODES, P.J.

This is the second rate proceeding instituted by The Manufacturers Light and Heat Company within a period

[ 182 Pa. Super. Page 555]

    of fifteen months.*fn1 On December 30, 1954, Manufacturers filed four tariff supplements providing for increases in rates for general service and industrial service in Pennsylvania. To Tariff - Gas Pa. P.U.C. No. 37, applicable to general service and industrial service customers other than Lukens Steel Company, supplements 12 and 13 were filed. Supplement 12, to be effective March 4, 1955, proposed an increase in total revenue of $585,063; supplement 13, to be effective March 5, 1955, proposed an increase of $3,629, 149. To Tariff - Gas Pa. P.U.C. No. 38, applicable only to Lukens Steel Company, supplements 5 and 6 were filed. Supplement 5, to be effective March 4, 1955, proposed an increase in revenue of $44,816; supplement 6, to be effective March 5, 1955, proposed an increase of $121,764. The total proposed increases were $4,380,792, or 10.74 per cent of the total annual gas operating revenues in Pennsylvania of $40,791,478 at the level of operations of October 31, 1954. On February 28, 1955, the commission suspended operation of the supplements for a period of six months, and on its own motions instituted investigations to determine the fairness, reasonableness, justness, and lawfulness of the proposed rates and charges as well as the then existing rates and charges. The operation of the proposed supplements was thereafter further suspended to December 4 and 5, 1955. Thirty-nine complaints were filed by municipalities and private corporations, one of

[ 182 Pa. Super. Page 556]

    which was subsequently withdrawn. Extended hearings were held; the printed record in this Court, including the exhibits, contains 1,829 pages.

On January 3, 1956, the commission by its order disposed of all proceedings, and granted an over-all annual increase of $3,015,697 instead of the $4,398,061 requested by the utility as adjusted. Appeals were filed by the City of Pittsburgh (Nos. 57 and 58, April Term, 1956), and The Manufacturers Light and Heat Company (Nos. 64 to 103, April Term, 1956). The City of Pittsburgh and The Manufacturers Light and Heat Company were permitted to intervene as appellees in the appeals of each other, and the Lukens Steel Company was permitted to intervene as an appellee in the appeals of the City of Pittsburgh. We will dispose of all the questions involved in the several appeals in this opinion.

The City of Pittsburgh presents six questions: (1) Did the commission err in calculating accrued depreciation and depletion on the basis of a reserve requirement study instead of accepting the utility's book reserve; (2) did the commission err in the manner in which it annualized and adjusted revenues and expenses for customer changes during the test year; (3) did the commission err in rejecting the city's adjustment to demand charges for gas purchased from United Fuel Gas Company; (4) did the commission err in rejecting the city's adjustment for changes in the utility's curtailment policy effective after the test year; (5) does the record support a rate of return of 6.5 per cent; and (6) is the rate structure free from unreasonable and unlawful discrimination.

Manufacturers presents two questions which relate to the allowance made by the commission for annual federal income tax: (1) Did the commission err in refusing

[ 182 Pa. Super. Page 557]

    to permit the utility to retain the benefits of accelerated depreciation under section 167 of the Internal Revenue Code of 1954, and (2) did the commission err in computing the tax allowance on the basis of the consolidated return filed by Columbia Gas System, Inc., and its subsidiaries, including Manufacturers.

ACCRUED DEPRECIATION AND DEPLETION. The fair value of the utility's property used and useful in the public service allocated to retail sales in Pennsylvania was found by the commission to be $90,000,000 at the level of operations of October 31, 1954.*fn2 In arriving at fair value, the commission considered evidence of original cost and original cost trended to average price levels of 1953 and of the two, three, and five-year periods prior to 1954.*fn3 The amounts for accrued depreciation and depletion which were deducted from the measures of value were determined from a reserve requirement study prepared by the utility at the request of the commission. The utility also submitted evidence of its book reserve for accrued depreciation and depletion, but the commission found the book reserve to be unreliable for several reasons and rejected it. The amount of accrued depreciation and depletion in the book reserve was greater than that shown by the reserve requirement study. The acceptance of the book reserve would have had the effect of reducing the rate

[ 182 Pa. Super. Page 558]

    base and consequently the amount of allowable return. However, since both accrued depreciation and depletion and annual depreciation and depletion must be calculated on a reasonably consistent basis, the acceptance of the book reserve would also have resulted in a higher allowance for annual depreciation and depletion. Pittsburgh v. Pennsylvania Public Utility Commission, 178 Pa. Superior Ct. 46, 58, 112 A.2d 826.

The city contends that the commission erred in using the reserve requirement study and in rejecting the book reserve. This same contention was before us in the prior rate proceeding, and we sustained the commission in rejecting the book reserve. Pittsburgh v. Pennsylvania Public Utility Commission, supra, 178 Pa. Superior Ct. 46, 57, 112 A.2d 826. The same reasons given for the rejection in that case were applied to the present rate proceeding. In discussing this matter in the prior case, we said (page 57 of 178 Pa. Uperior Ct., page 831 of 112 A.2d): "... the commission, within the sphere of its authority, could have accepted the utility's book reserve if convinced of its reliability and accuracy. The commission is not bound to accept any particular method in estimating accrued depreciation and depletion which are essentially judgment figures, and if based on substantial evidence are binding on appellate review. ... But in so determining accrued depreciation and depletion the book reserve is by no means conclusive and may be inaccurate. ... The fact that the book reserve showed a higher or lower amount than the reserve requirement study has no effect on the principles applicable to such administrative finding." The city urges us to review our previous determination of this issue because it believes that the decision of our Supreme Court in Berner v. Pennsylvania Public Utility Commission, 382 Pa. 622, 116 A.2d 738,

[ 182 Pa. Super. Page 559]

    declaring that the affirmative burden of supporting a rate increase is, by statute, on the utility, changes the legal principles which we applied in the prior case. The city also argues that the record in the present proceeding does not support our conclusion.

The principles applicable in the prior case are not in conflict with any pronouncement in the Berner case. Of course the burden of sustaining the reasonableness of rates shall be upon the public utility. See section 312 of the Public Utility Law of May 28, 1937, P.L. 1053, 66 PS ยง 1152. Here the utility initially met its burden with respect to accrued depreciation and depletion when it submitted in evidence its book reserve. When the commission found this to be inaccurate and unreliable it was not obliged to modify or adjust the book reserve without some further and acceptable evidence. The commission had the power to require the utility to prepare a reserve requirement study. In preparing and submitting such study to the commission the utility was acting in furtherance of its burden of proof. We did not say or imply in the prior case (Pittsburgh v. Pennsylvania Public Utility Commission, supra, 178 Pa. Superior Ct. 46, 55, 112 A.2d 826), that the affirmative burden was upon complainants to show that the excess of the book reserve over the reserve requirement was genuine, as the city contends. We said merely that the commission was not required to find that the excess was genuine, in view of the historical background of the book reserve and the methods by which it was computed and modified by the utility throughout the years. Although the city might have submitted evidence of the reliability of the book reserve, which the commission could have considered in weighing the reserve requirement study, there was no duty upon the city to submit such evidence. The commission

[ 182 Pa. Super. Page 560]

    acted within its fact-finding capacity as to the validity of the book reserve, and its determination on the facts was permissible.

Consequently, we find no merit in the city's contention that on this record the commission was bound to accept the book reserve. The evidence of the historical background of the book reserve in this proceeding, as in the prior case, begins with its inception in 1910. The various revisions and changes in method employed through the intervening years which made it unreliable in the prior case are the same here. Naturally the same result follows. The use of an amount of accrued depreciation and depletion lower than the book reserve does not necessarily establish capital contributions by customers for property now included in the rate base. See Pittsburgh v. Pennsylvania Public ...


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