Appeal from the Order of the Pennsylvania Public Utility Commission in case of Pennsylvania Public Utility Commission v. Lower Frederick Township Water Company, Rate Investigation Docket, No. 395.
Miles Warner, for petitioner.
Joseph J. Malatesta, Jr., Deputy Chief Counsel, with him George M. Kashi, Chief Counsel, for respondent.
President Judge Bowman and Judges Wilkinson, Jr., Rogers, Blatt, DiSalle, Craig and MacPhail. Judges Crumlish, Jr. and Mencer did not participate. Opinion by Judge DiSalle. Judge MacPhail concurs in the result only.
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The Lower Frederick Township Water Company (Company) appeals the order of the Public Utility
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Commission (PUC) adopting the decision of an Administrative Law Judge (ALJ) which denied the Company's request for a rate increase. The Company argues on this appeal that the PUC acted capriciously, arbitrarily, unreasonably and with a gross abuse of discretion.
On February 3, 1977, the Company filed a supplement with the PUC proposing an increase of $26,029 or 82.9% in its annual operating revenue. The Company provides water service to some 238 customers and consists largely of a distribution system with no water source of its own and with no pumping, purification or storage facilities. It purchases water from a neighboring borough and delivers a substantially lesser amount of water to its customers by way of a system of apparently leak-ridden pipes and ill-maintained meters.
The ALJ found that the Company failed to support its proposed rate increase with substantial evidence. Specifically, the ALJ concluded that the Company failed to provide evidence sufficient to permit accurate calculation of its operating revenue and expenses, and its rate of return, factors necessary, in the ALJ's opinion, to proper evaluation of the Company's rate hike request.
The alleged operating revenue of the Company was found to be greatly understated for two reasons. Of the 24.5 million gallons of water purchased in the test year, the Company reported revenue based upon the sale of only 13.4 million gallons. While the Company claimed that 5 million of the gallons it purchased were sold under the minimum allowance permitted each customer, analysis revealed that only 2.8 million gallons of water could possibly have been sold under such allowance and that any amounts sold in excess of this limit should have been billed outside the minimum allowance rate block (a minimum charge being assessed
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for amounts of water used under the minimum allowance). The ALJ thereby concluded that, pursuant to the data provided by the Company, the additional 2.2 million gallons of water which the Company alleges were subject to a minimum charge were not in fact billed for, the net effect of which was to markedly understate operating revenue. Secondly, the ALJ found that a substantial amount of the water loss during the test year (approximately 45% of the total) could be attributed to the fact that the distribution system operated by the Company had fallen into a state of disrepair and to the fact that customers were diverting water at the metering point. While unable to quantify ...