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decided: August 17, 1981.


Appeals from the Order of the Pennsylvania Public Utility Commission in case of Pennsylvania Public Utility Commission v. Philadelphia Electric Company, R.I.D. 438.


Philip P. Kalodner, with him Jerrold V. Moss, Fell, Spalding, Goff & Rubin, for petitioner, Park Towne and Madway Engineers and COnstructors.

Robert H. Young, with him Walter R. Hall, II, Thomas P. Gadsden and Susan L. Gordon, of counsel; Edward G. Bauer, Jr. and Morgan, Lewis & Bockius, for petitioner, Philadelphia Electric Company.

William T. Hawke, Counsel, with him Albert W. Johnson, III, Assistant Counsel, Steven A. McClaren, Deputy Chief Counsel, and Joseph J. Malatesta, Chief Counsel, for respondent, Pennsylvania Public Utility Commission.

Edward J. Riehl, McNees, Wallace & Nurick, for intervenor, Lukens Steel Company, Union Carbide Corporation and Celotex Corporation.

Henry M. Wick, Jr., with him Charles J. Streiff, of counsel: Kenneth R. Pepperney, Wick, Vuono & Lavelle, for intervenor, United States Steel Corporation.

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

Steven P. Hershey, with him Mark B. Segal, for intervenors, Consumers Education and Protective Association, Pennsylvania Association of Community Organizations for Reform Now, Action Alliance for Senior Citizens, and Max Weiner.

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 287]

On August 5, 1977, the Philadelphia Electric Company (PECO) filed with the Pennsylvania Public Utility Commission (Commission) Supplements Nos. 72 and 73 to its Tariff Electric -- Pa. P.U.C. No. 24 to become effective October 4, 1977. Supplement No. 72 eliminated the fuel adjustment clause for residential and small commercial customers while rolling into their base rates approximately 0.9 cents per kwh and created a new energy adjustment clause for all other customers, primarily large commercial and industrial, rolling into their base rates a portion of the present charge. By Supplement No. 73, PECO proposed a

[ 61 Pa. Commw. Page 288]

    base rate increase in annual revenues in the amount of about $115.8 million or 11 per cent based on operating results for the test year ending December 31, 1977. Complaints against the proposed rate increase were filed by, among others, Park Towne and Madway Engineers and Constructors (Park Towne), apartment house owner customers of PECO, and the Consumer Advocate.

To R.I.D. 438 the Commission initiated an investigation of the proposed rates and suspended both Supplements. By order adopted September 26, 1977, the Commission declined to lift the suspension of Supplement No. 72, but gave PECO interim relief in the form of continued accruals of Allowance of Funds During Construction (AFDC) on its investment in Salem No. 1 nuclear plant from July 1 to December 31, 1977, although the plant had gone on line June 30, 1977. The Commission further directed that the Administrative Law Judge (ALJ) assigned to the case file an interim decision indicating what additional relief, if any, should be granted. Pursuant to this Order, a Recommended Order was issued by the ALJ on December 30, 1977, calling for the approval of an interim revenue increase of $32.5 million. (PECO had by this time made it clear that, by reason of events happening since its filing, Supplement No. 72 would no longer be an effective measure for increasing revenues and should therefore not be further considered by the Commission.)

On February 24, 1978, the Commission allowed the company interim relief in the amount of $11.883 million. In response to a petition by PECO requesting the establishment of temporary rates to provide additional relief in the amount of $41.8 million, the Commission on July 10, 1978, established temporary rates at the level of the previously effective interim relief, $11.883 million.

[ 61 Pa. Commw. Page 289]

On November 15, 1978, the ALJ presented a recommended order allowing $73,247,000 of additional annual revenues. On December 28, 1978, the Commission held a public session and adopted an order, finally entered February 5, 1979, allowing an increase of annual revenues of $78,894,000 and requiring PECO to restructure rates for the HT (high-tension voltage) and PD (primary voltage) customers so as to "eliminate to the extent reasonably possible variations in rate of return from customers within these classes." Park Towne and PECO each filed appeals from this order. A rate schedule (Alternative 1) was submitted by PECO and eventually adopted by the Commission by an order entered April 7, 1980. Park Towne also appealed the April 7, 1980, order.

Our review is limited to a determination of whether constitutional rights have been violated, an error of law committed, or whether the findings, determinations and order of the Commission are supported by substantial evidence. Blue Mountain Consolidated Water Company v. Pennsylvania Public Utility Commission, 57 Pa. Commonwealth Ct. 363, 426 A.2d 724 (1981).

We shall first examine Park Towne's questions.

I. Park Towne's Appeal

A. Rate Structure

Park Towne contends that the Commission erred in approving what it terms a discriminatory rate schedule assertedly imposing a disproportionate share of the utility's costs on mid-demand (HT-500 and 1,400 kw, PD-125 and 175 kw) HT and PD rate class customers causing them to provide PECO with a disproportionately higher return on cost of service than that contributed by low (HT-25 and 100 kw, PD-25 kw) and high (HT-50,000 kw, PD-500 kw) demand apartment owners.

[ 61 Pa. Commw. Page 290]

In its February 5, 1979, order, the Commission recognized fault in the rate structure proposed in PECO's tariffs and suggested a plan for restructuring the rate schedule HT and PD. On February 20, 1979, Park Towne, the Consumer Advocate and an another public interest group filed a Petition for Modification, Correction and Reconsideration by the Commission of certain aspects of the February 5, 1979, order, including the rate structure in issue. The Commission agreed to reconsider rate structure especially as PECO demonstrated that the Commission-ordered rate design increased some customer's rates more than 80% while decreasing the rates of others. PECO offered another rate structure, Alternative 1, which the Commission found "to accomplish a significant reduction in the inequality of returns from customers within those schedules." The Commission then ordered Alternative 1 to be put into effect temporarily and opened the rate structures issue for reconsideration of whether Alternative 1 or some other structure would be more effective in reducing the inequality of rates of return. On April 19, 1979, the Commission expressed dissatisfaction with the record, ordered PECO to submit additional information suggesting that other alternatives "be developed which might strike a middle ground balance between the Commission-ordered rate design" and Alternative 1. PECO then suggested as a possibility proposed Rate PD and HT tariff sheets appearing in its later rate case filed as Supplement No. 6 at R.I.D. 865 (test year ending March 31, 1980). Finally, by order entered April 7, 1980, the Commission adopted the Alternative 1 rate structure for use for revenues allowed in this proceeding.

Parke Towne argues that the Commission, by adopting Alternative 1, failed to accomplish its proclaimed goal to "eliminate to the extent reasonably

[ 61 Pa. Commw. Page 291]

    possible, variations in rates of return from customers" in Rate HT and PD classes. Park Towne insists that although Alternative 1 reduces the inequality between low-load factor users and median and high-load factor users, it actually increases the inequality between mid-demand and high demand users. Park Towne asks us to require the installation in this case of the rate structure proposed by PECO for the later (R.I.D. 865) case, which Park Towne contends is the only structure which is fair to it.

The question of reasonableness of rates and the difference between rates in their respective classes is an administrative question for the Commission to decide and this court's scope of review is limited. Peoples Natural Gas Co. v. Pennsylvania Public Utility Commission, 47 Pa. Commonwealth Ct. 512, 409 A.2d 446 (1979). Rate structure is a matter peculiarly within the Commission's flexible limit of judgment. U.S. Steel Corp. v. Pennsylvania Public Utility Commission, 37 Pa. Commonwealth Ct. 173, 390 A.2d 865 (1978). The burden of proving that rates set by the Commission are discriminatory is on the customers challenging such rates. U.S. Steel, supra. To prove discrimination, Park Towne was bound to show that PECO was bent on collecting more than a reasonable rate from Park Towne (and other mid-demand customers) for the purpose of supplying a deficiency created by inadequate rates charged other customers. Alpha Portland Cement Co. v. Public Service Commission, 84 Pa. Superior Ct. 255 (1925). All that Park Towne here proved was that some other users in different demand classes pay lower rates than mid-demand HT users. We have repeatedly held that such differences do not establish the existence of unreasonable or discriminatory rates:

Differences in rates between classes of customers based on such ...

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