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decided: March 20, 1980.


Appeal from the Order of the Pennsylvania Public Utility Commission in case of Pennsylvania Public Utility Commission v. West Penn Power Company, R.I.D. No. 369.


W. Russel Hoerner, with him Vincent Butler, Morgan, Lewis & Bockius, and Franklin L. Morgal, for petitioner.

William T. Hawke, Assistant Counsel, with him Patrick D. Ward, Assistant Counsel, Daniel F. Joella, Deputy Chief Counsel, and 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 Blatt. President Judge Bowman did not participate in the decision in this case. Judge DiSalle did not participate in the decision in this case.

Author: Blatt

[ 50 Pa. Commw. Page 166]

The West Penn Power Company (West Penn) appeals here from an order of the Public Utility Commission (PUC) which denied its request for a rate increase.

On September 29, 1976, West Penn filed with the PUC two tariff supplements which proposed to increase its rates so as to produce additional annual revenues of $47,220,718, with its proposal based on an experienced test year which ended June 30, 1976. On December 21, 1976, the PUC ordered that the proposed increase be suspended and an investigation be conducted to determine the reasonableness of the request, and at the same time, it allowed West Penn to file a tariff supplement designed to produce, on a temporary basis, additional annual revenues not in excess of $11,000,000. After hearings and argument, the PUC ultimately adopted a final order which directed West Penn to file tariff supplements which would increase annual revenues by $10,624,011, which is $35,596,707 less than West Penn sought.

In its appeal to us, West Penn argues that the PUC made improper determinations with regard to fair value, fair rate of return, operating revenues, and operating expenses. It also alleges confiscation, an issue

[ 50 Pa. Commw. Page 167]

    which we need not decide inasmuch as we are remanding the case to the PUC for further consideration. See Equitable Gas Co. v. Pennsylvania Public Utility Commission, Pa. Commonwealth Ct. , 405 A.2d 1055 (1979).

Fair Value

West Penn maintains a generating facility known as the Mitchell Generating Station, and this facility has three generating units, two of which are oil-fired and one of which (Mitchell No. 3) is coal-fired. Apparently most of the output of the Mitchell facility during the test year had been from the more economically operated Mitchell No. 3. In 1977, however, the United States Government forced the closing of Mitchell No. 3 because of problems in complying with federal environmental regulations. Although this event occurred after the conclusion of the test year, the PUC took notice of the closing in its determination of the fair value of West Penn's "used and useful" property, reasoning as follows:

The unit is not now entirely used and useful for current ratepayers. Under these circumstances ratepayers should not be required to pay West Penn a full return on this property. We believe that an appropriate treatment would be to allow a return of the investment in the plant by leaving it in the original cost of the rate base. However, we will reduce the return on investment by eliminating this unit from the present value measure of the five-year average price level. While there might well be other means of accomplishing the same result, this procedure is reasonable.

West Penn argues now that the PUC improperly excluded Mitchell No. 3 and its fuel inventory from the five-year average price level because West Penn might

[ 50 Pa. Commw. Page 168]

    resolve the present environmental difficulties and put the unit back into operation and because the closing occurred more than fifteen months after the end of the test year and no reference to the closing is made in the record. We must agree that the PUC's consideration of the closing of Mitchell No. 3 warrants our remanding this matter.

In Duquesne Light Co. v. Pennsylvania Public Utility Commission, 176 Pa. Superior Ct. 568, 587-88, 107 A.2d 745, 754 (1954), our Superior Court discussed the effect of changes occurring after the test year but before the PUC's final order:

We recognize that, in practical application, the use of a test year and cut-off date in determining a rate case is not free from difficulty, since changes may become known before the order is entered. In strict theory perhaps, these subsequent developments should be ignored. However, this court has stated that the Commission 'cannot be oblivious' to them: Pittsburgh v. Pa. P.U.C., 171 Pa. Superior Ct. 187, 90 A.2d 607. It must be kept in mind that rates are being fixed for the future, and the Commission, having 'a wide area of discretion as to the extent and the type of adjustments to be made to base year figures': Pittsburgh v. Pa. P.U.C., supra, 174 Pa. Superior Ct. 62, 99 A.2d 61, could properly make an adjustment to reflect [subsequent changes].

It is clear, therefore, that the PUC can consider events which occur after the end of the test year. We believe, moreover, that the PUC was entitled to take official notice of its previous order allowing the discontinuance of the ...

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