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decided: November 18, 1981.


Appeal from the Order of the Pennsylvania Public Utility Commission in case of Pennsylvania Public Utility Commission v. Metropolitan Edison Company, No. C-21597.


John McN. Cramer, with him Thomas L. Allen, Reed, Smith, Shaw & McClay, for petitioner.

Lee E. Morrison, Assistant Counsel, with him Daniel P. Delaney, Assistant Counsel, and Joseph J. Malatesta, Jr., Chief Counsel, for respondent.

Craig R. Burgraff, Assistant Consumer Advocate, with him Carol Karl, Legal Assistant and Peter Schannauer, Legal Assistant, for intervenor.

Judges Rogers, Blatt, Williams, Jr., Craig and MacPhail. Opinion by Judge Williams, Jr.

Author: Williams

[ 62 Pa. Commw. Page 462]

Metropolitan Edison Company (Met-Ed) has appealed from an order of the Pennsylvania Public Utility Commission (Commission) directing the company to refund to its ratepaying customers a total sum of $4,657,955.

On March 15, 1976, the Commission filed against Met-Ed a Complaint and Investigation Upon Commission Motion. The complaint averred that components of the company's fuel cost adjustment surcharge passed on or charged to its ratepayers may have been unjust, unreasonable or unlawful, in that the surcharge may have been used to recover from customers excessive and unjustifiable prices the company had paid to its fuel suppliers. The order instituting the complaint also directed that an investigation be made into the fairness, reasonableness and legality of the charges made and rates received by Met-Ed pursuant of the fuel cost surcharge.*fn1

On January 19, 1977, the Commission amended and supplemented its original complaint to allege that

[ 62 Pa. Commw. Page 463]

Met-Ed had unjustifiably paid more than the contract price on eight specified contracts for the delivery of coal; and that, further, Met-Ed had accepted under those contracts coal that did not meet the British Thermal Unit (BTU) specifications of the contracts. The relief sought by the Commission's amended complaint was a refund to ratepayers of: (1) the amount Met-Ed paid in excess of the contract base prices and (2) the additional cost associated with the company's acceptance of BTU-deficient coal from its suppliers. The questioned contract payments and coal deliveries were made during the calendar year of 1974; and, it is the fuel cost adjustment surcharge for that same year which is here in issue.

Met-Ed responded to the amended complaint with an answer which asserted, as an affirmative defense, that the company had a right of managerial discretion in selecting suppliers, in administering its coal contracts, and in accepting the price demands of its coal suppliers. Met-Ed's answer also asserted that: (1) the prices it paid for the coal were just and reasonable; (2) the Commission's original complaint was defective; and (3) the fuel cost adjustment provision of the company's tariff, under which the increased cost of the coal had been passed on to ratepayers, was a "Commission-made rate" and thus not subject to retroactive alteration and refund.

Met-Ed also filed a motion to dismiss the original and amended complaints on the following grounds: (1) that both pleadings were vague and unspecific; and (2) that the refund action was barred by the statute of limitations. In addition, Met-Ed petitioned for a declaratory order granting the motion to dismiss or, in the alternative, an order denying that motion and certifying it for appeal. On June 6, 1977, the Administrative Law Judge denied the motion to

[ 62 Pa. Commw. Page 464]

    dismiss and the alternatively petitioned for relief, as well. On November 18, 1977, the Commission affirmed that decision.

Met-Ed next requested a preliminary ruling as to how the burden of proof would be allocated in the proceedings on the merits. On September 5, 1978, the Administrative Law Judge ruled that the utility had to bear the proof burden. That ruling, too, was affirmed by the Commission.

Between September 14 and November 15, 1978, fourteen days of evidentiary hearings were conducted. On October 25, 1979, after the filing of briefs by all parties, the Administrative Law Judge entered his Initial Decision. He found that Met-Ed had failed to exercise managerial prudence in the administration of its coal contracts with three specified coal brokers; and had, thereby, caused its ratepayers to pay unjust rates in 1974. The three named coal brokers were Crown Coal and Coke Company (Crown), Allegheny and Eastern Coal Company (Allegheny) and Kittanning-Freeport Coal Company (Kittanning). The Administrative Law Judge also ordered Met-Ed to refund to its ratepaying customers the total sum of $2,661,639, with interest.

Exceptions to the Initial Decision were filed by all parties. On May 23, 1980, the Commission entered an order whereby it agreed with the determination that the utility had failed to exercise managerial prudence in the administration of the three mentioned contracts and had caused its ratepayers to bear unjust and unreasonable rates under the 1974 fuel cost adjustment provision.*fn2 However, the Commission disagreed

[ 62 Pa. Commw. Page 465]

    with the Administrative Law Judge's calculation of the refund due: The Commission calculated the utility's total refund liability to be $4,657,955. From that order followed Met-Ed's appeal to this Court.

Before this Court, Met-Ed's threshold contention is that the fuel cost adjustment provision in its tariff represents a "Commission-made rate" and thus cannot be retroactively changed. As support for this argument Met-Ed relies on the decision of the Pennsylvania Supreme Court in Cheltenham & Abington Sewerage Co. v. Pennsylvania Public Utility Commission, 344 Pa. 366, 25 A.2d 334 (1942). In our view, that decision does not address the issue in the case at bar and, accordingly, does not support Met-Ed's contention.

It is true that in Cheltenham & Abington Sewerage Co. the Supreme Court reversed a Commission decision ordering reparations or refunds for certain years, even though the Commission had found the rates for those years to be unreasonable. However, the basis for the Court's reversal was that the rates for the years in question had been previously approved by the Commission itself. When the Supreme Court spoke of rates that were "Commission-made," it was referring to rates stamped with antecedent Commission approval; it was such rates that were held to be immune from retroactive alteration. In the instant case there was no prior Commission proceeding or action giving antecedent approval of the specific surcharges collected by Met-Ed in 1974 pursuant to its fuel cost adjustment provision. Therefore, the ...

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