No. 35 May Term, 1978, Appeal from Order of the Commonwealth Court of Pennsylvania, Dated May 27, 1975, at Nos. 1092, 1122, 1123 C.D. 1974, Reversing in Part of the Order of the Pennsylvania Public Utility Commission at R.I.D. 72, Dated July 9, 1974, No. 278 January Term, 1978, Appeal from the Order of the Commonwealth Court Dated December 21, 1977, at No. 1523 Commonwealth Docket 1976, Reversing the Order of the Pennsylvania Public Utility Commission at Rate Investigation Docket No. 209, Dated August 4, 1976.
Dominic J. Ferraro, George M. Kashi, Michael P. Kerrigan, Joseph J. Malatesta, Jr., Harrisburg, for appellant.
Chas. E. Thomas, D. Mark Thomas, Patricia Armstrong, Harrisburg, W. Boyd Hughes, James J. Ligi, Wm. J. Purcell, Scranton, for appellees.
Eagen, C. J., and O'Brien, Roberts, Nix, Manderino and Larsen, JJ. Manderino, J., did not participate in the decision of this case. Roberts, J., joins the majority and filed a concurring opinion. Larsen, J., joins the majority and filed a concurring opinion.
These two appeals present this Court with the troublesome issue of the correct standard to be employed by the Public Utility Commission (PUC) in fulfilling its legislative mandate to "ascertain and fix the fair value of the whole or any part of the property of any public utility." Act of May
, 1937, P.L. 1053, art. III, § 311, 66 P.S. § 1151 (1958)*fn1 (the Act). For the reasons that follow, we are of the view that the PUC was correct in its determination and that its orders should not have been disturbed. Accordingly, we reverse the orders of the Commonwealth Court below.
The complex facts surrounding these appeals are fully set forth in the opinions of the Commonwealth Court.*fn2 For our purposes, the following brief factual recitation is sufficient. The appeal at No. 35 May Term 1978 (PG&W I) concerns construction and improvement projects undertaken by the Pennsylvania Department of Highways that were anticipated to affect the water supply of the Pennsylvania Gas & Water Company (PG&W) within its Roaring Brook watershed area. An agreement was entered into between the Department and PG&W to remedy and minimize the adverse effect of this federally funded highway project on the turbidity and purity of the water derived from the watershed. This agreement provided that the Department would contribute to PG&W a sum in excess of $2.7 million toward the construction of a new dam, reservoir, and a 30-inch pipeline. The PUC rejected the attempt by PG&W to include this $2.7 million payment in its base for accounting and rate making purposes.*fn3 The Commonwealth Court reversed the PUC on the ground that the exclusion of the $2.7 million payment from the rate base constituted a violation of the principles enunciated in Keystone Water Co. v. PUC, 19 Pa. Commw. 292, 339 A.2d 873 (1975), affirmed by an equally divided Court, 477 Pa. 594, 385 A.2d 946 (1978). We granted the PUC's petition for allocatur.
The appeal at No. 278 January Term 1978 (PG&W II) concerns PG&W's request for a two-step increase in its rates. The PUC approved the first step, but disallowed the second step after ascertaining and fixing PG&W's rate base at $87,700,000 and allowing it a return of 8.53 per cent. The Commonwealth Court reversed the PUC, finding that the PUC's determination of the fair value of PG&W's rate base was legally incorrect in view of its earlier opinions in the PG&W I and Keystone. We granted the PUC's petition for review and the petitions to intervene filed by the Attorney General and the Office of Consumer Advocate, and ordered the matters to be argued together.
1. The Appeal at No. 35 May Term, 1978
Before we discuss the legal and historical basis surrounding the "fair value" controversy, we think it proper to set forth the rationale employed by the PUC in support of its Order rejecting PG&W's attempt to include the state's $2.7 million payment in its base for accounting and rate making purposes:
For public utility accounting and rate making purposes we must reject respondent's contention. Property, which is used or useful in rendering a public utility service and which has been a part of a public utility's rate base is dedicated to a public use, and is impressed with a public trust. If (or the proceeds or accruals therefrom) is subject to regulation by the properly designated regulatory body and remains subject to that regulation until such time as that regulatory body duly finds it in the public interest to approve its release from public service. Such property must be regulated in the interest of the public no less than in the interest of the utility. Equities must be balanced and justice must be done to all concerned. Accordingly, when a utility suffers extraordinary losses in service value of utility property abandoned or otherwise retired from service, or suffers unforeseen damages to property which damages could not reasonably be anticipated, and where the utility has not otherwise recovered its investment, this
Commission can and, where equities require, does permit the utility to recover from the ratepayers, as a proper and necessary expense of rendering the public service, the necessary amount to make the utility whole. On the other hand, where, as here, the utility recovers an amount or sum as a result of compensation for particular property and the potential consequential injury to the service of the ratepayers for whom that property was dedicated to the public use, the Commission, where the equities dictate, may require that amount received by the utility to be treated, for public utility accounting and rate making purposes, in such manner as will place the utility and the ...