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decided: August 17, 1981.


Appeal from the Order of the Pennsylvania Public Utility Commission in the case of Pennsylvania Public Utility Commission v. Philadelphia Electric Company, No. R-79060865.


Robert H. Young, with him Walter R. Hall, II, and Thomas P. Gadsden, of counsel: Edward G. Bauer, Jr., and Morgan, Lewis & Bockius, for petitioner.

Gregg C. Sayre, Assistant Counsel, with him, Steven A. McClaren, Deputy Chief Counsel, and Joseph J. Malatesta, Jr., Chief Counsel, for respondent.

Edward J. Riehl, McNees, Wallace & Nurick, for intervenor, Lukens Steel Company.

Martha W. Bush, Assistant Consumer Advocate, with her Craig R. Burgraff, Assistant Consumer Advocate, for intervenor, Mark P. Widoff, Consumer Advocate.

Mark B. Segal, with him Steven P. Hershey, for intervenors, Consumer Education and Protective Association International, Inc. (CEPA), Association of Community Organizations for Reform Now (ACORN), and Action Alliance of Senior Citizens of Greater Philadelphia.

President Judge Crumlish and Judges Rogers, Blatt, MacPhail and Palladino. Judges Mencer, Williams, Jr. and Craig did not participate. Opinion by Judge Rogers.

Author: Rogers

[ 61 Pa. Commw. Page 327]

On July 27, 1979, the Philadelphia Electric Company (PECO) filed Supplement No. 6 to Tariff Electric-Pa. P.U.C. No. 25, designed to produce additional annual revenues from PECO's electric service of $122,731,000, based on a future test year ending March 31, 1980. Supplement No. 6 was to become effective on September 25, 1979. The PUC suspended operation of the proposed rates and ordered that an investigation and hearing be conducted to determine the lawfulness of the proposed rates, at R.I.D. 865.

Twenty-nine days of evidentiary hearings and five public comment hearings were conducted by an Administrative Law Judge, who thereafter issued a Recommened Decision in which he found that PECO was entitled to $79,871,000 in additional annual revenues. PECO filed exceptions to the Recommended Decision. The PUC thereafter issued an order approving rates designed to produce additional annual revenues of $88,813,000 from which PECO has appealed.

PECO contends that the PUC's order is erroneous in three respects. In this class of case our review is "limited to a determination of whether constitutional rights have been violated, an error of law committed or whether the findings, determinations or order of the Commission are supported by substantial evidence." U.S. Steel Corp. v. Pennsylvania Public Utility Commission, 37 Pa. Commonwealth Ct. 195, 201, 390 A.2d 849, 853 (1978).

A. Excess Capacity Adjustment

PECO contends that the PUC improperly disallowed $25,043,000 of its claimed rate base as a dollar amount representing excess generating capacity. The PUC found that, for the test year, PECO had installed generating capacity of 7,689 megawatts (MW)

[ 61 Pa. Commw. Page 328]

    at summer estimated peak, but that it required only 6,914 MW of capacity to service its projected peak load and to maintain a generating reserve margin of 18%, which the PUC found to be the margin necessary to insure a reliability criterion of loss of load probability of one day in ten years. Thus, the PUC found that PECO had 775 MW of excess capacity, i.e., capacity over and above that necessary to meet peak demand and margin.

In eliminating excess capacity from rate base, the PUC identified as the generating units most representative of excess capacity those which were the least economical -- Chester 5 and 6, Richmond No. 9, Barbados Nos. 6 and 7 and Southwark Units 1-6, totaling 748 MW -- and deducted the depreciated original cost of these units -- $25,043,000 -- from PECO's claimed rate base.

PECO contends that because its decisions to construct the eliminated units as well as its decisions to construct every other of its generating units, when made, were prudent, the PUC may not now remove any of these properties from rate base because there is presently excess capacity. This argument, however, misses the point of the determination. The PUC's order specifically states that the PUC was "not questioning PECO's management decisions made when these units were constructed." The basis for the order is the finding that to the degree that there is excess capacity, there are generating properties which are not used and useful in rendering service to rate payers.

A unit may be properly excluded from a utility's rate base if the investment in that unit is found to be a result of managerial imprudence occurring at the time the decision to invest was made. See, e.g., UGI Corp. v. Pennsylvania Public Utility Commission, 49 Pa. Commonwealth Ct. 69, 86-87, 410 A.2d 923, 932

[ 61 Pa. Commw. Page 329]

(1980). It does not follow that a unit prudently constructed must always be included in the rate base. The touchstone for determining whether or not a prudently constructed unit should be included in a utility's rate base is whether or not, during the test year involved the unit will be used and useful in rendering service to the public. Id. at 78, 410 A.2d at 928; Pennsylvania Power & Light Co. ...

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