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decided: January 28, 1983.


Original jurisdiction in the case of Leonard J. Bodack v. The Pennsylvania Public Utility Commission.


Albert D. Brandon, for petitioner.

Charles F. Hoffman, Chief Counsel, with him Daniel P. Delaney, Deputy Chief Counsel, for respondent.

W. Russell Hoerner, for intervenor, Pennsylvania Electric Association and Pennsylvania Power Company.

Judges Rogers, Williams, Jr. and Craig, sitting as a panel of three. Opinion by Judge Rogers.

Author: Rogers

[ 71 Pa. Commw. Page 455]

By means of a Petition for Review in the nature of an application for a writ of prohibition, addressed to our original jurisdiction, Leonard J. Bodack seeks an order prohibiting the Pennsylvania Public Utility Commission from effectuating in the context of pending and future public utility rate proceedings, its "Policy Statement; Procedure for Implementing Normalization of Federal Income Tax Benefits of Accelerated Cost Recovery System,"*fn1 adopted by the Commission following a public hearing conducted on

[ 71 Pa. Commw. Page 456]

April 22, 1982, promulgated in Volume 12, Number 20 of the Pennsylvania Bulletin at pages 1565-1568,

[ 71 Pa. Commw. Page 457]

    and intended to be codified as an appendix to Chapter 53 of Title 52 of the Pennsylvania Code. Now before us for consideration are the Commission's preliminary objections to Mr. Bodack's petition.

The averments, the factual verity of which for these purposes we accept, are that the petitioner*fn2 is a resident of the cities of Pittsburgh and Harrisburg; that he is a consumer of and rate-payer to five public utilities whose operations and rates are regulated by the Commission; that the Commission's policy statement referred to above permits regulated utilities to file revised rate tariffs employing a "normalization" method of accounting with respect to certain

[ 71 Pa. Commw. Page 458]

    accelerated depreciation deductions available with respect to a portion of the utilities' property for the purpose of calculating federal income tax expense; that, in this respect, the policy statement is responsive to a recent amendment to Section 168 of the Internal Revenue Code, 26 U.S.C. § 168, authorizing the accelerated depreciation deductions only if the taxpayer utility employs such a normalization accounting method and has been authorized so to do by the terms of a Commission rate order determining cost of service which rate order becomes effective before January 1, 1983; that the use of normalization with respect to accelerated depreciation deductions was declared to be unlawful in Pittsburgh v. Pennsylvania Public Utility Commission, 182 Pa. Superior Ct. 551, 128 A.2d 372 (1956); that a special committee of the Senate of Pennsylvania has conducted hearings on the matter of the normalization of accelerated depreciation deductions by regulated utilities and has adduced evidence which establishes in the opinion of the petitioner that this practice has the effect of permitting utilities to propose and to obtain unreasonable and unlawful rate increases and to engage in various managerial improprieties including unwarranted expansion of capacity and disproportionate use in capitalization of preferred equity issues; that the Commission is not empowered by any provision of the Public Utility Code, 66 Pa. C.S. §§ 101-3315 to authorize the use of normalized accelerated depreciation deductions by utilities in support of their proposed tariffs; that the Commission failed to consider or to give appropriate weight to evidence that the use of normalized deductions will have an untoward effect on the financial well-being of Pennsylvania public utilities and on the utility rates paid by consumers; and that because "[a]ppeals

[ 71 Pa. Commw. Page 459]

    in individual rate cases would be so numerous, [and] so time-consuming, as to not provide an efficient method of curtailing this practice," the issuance of the requested writ of prohibition "provides the only means by which these unfair, unjust and illegal utility rates will be stopped."

The petitioner does not allege that any of the public utilities of which he is a customer have filed a proposed tariff containing rates which are sought to be justified with reference to the accounting method set forth in the policy statement or that any such proposed tariff has been approved or that he is required as a direct or indirect result of the policy statement to pay higher utility rates than would otherwise have been the case.

The Commission, by preliminary objection,*fn3 contends that this is not a proper case for prohibition because the averments do not call into question the jurisdictional capacity of the Commission to act in the matter of a utility's use of tax normalization, but, instead, challenge the wisdom and legality of the Commission's action -- issues more properly raised by appeal from the Commission's order or by intervention in the rate proceeding of a utility of which the petitioner is a consumer and which seeks, in part, to support a rate proposal by reference to normalized tax expenses. We agree.

[ 71 Pa. Commw. Page 460]

A writ of prohibition will issue only in the clearest cases of action by an inferior tribunal in usurpation of its lawful jurisdiction. Carpentertown Coal & Page 460} Coke Co. v. Laird, 360 Pa. 94, 100, 61 A.2d 426, 428 (1948); Robertshaw Controls Company v. Commonwealth of Pennsylvania, Human Relations Commission, 67 Pa. Commonwealth Ct. 613, 447 A.2d 1083 (1982). We reject the petitioner's assertion that the matter of tax normalization is without the Commission's jurisdiction. On the contrary, the detailed consideration of the expenses and revenues of public utilities for the purpose of setting their just and reasonable rates is an enterprise at the very center of that area of regulation concerning which broad powers have been delegated to the Commission by the legislature. Section 501(b) of the Code, 66 Pa. C.S. § 501(b) provides that

The commission shall have general administrative power and authority to supervise and regulate all public utilities doing business within this Commonwealth. The commission may make such regulations, not inconsistent with law, as may be necessary or proper in the exercise of its powers or for the performance of its duties.

Section 1301 of the Code, 66 Pa. C.S. § 1301 requires the rates of public utilities to be just and reasonable and to be in conformity with regulations and orders of the Commission. Section 1308(d) of the Code, 66 Pa. C.S. § 1308(d) requires the Commission to investigate the reasonableness of any proposed general rate increase which reasonableness, as is made clear by such provisions as Section 1310(d), is to be determined with reference to the utility's constitutional right to a fair return on the fair value of its property used and useful in the public service. Section 1703 of the Code, 66 Pa. C.S. § 1703 requires each public utility to carry on its books of account a reasonable reserve representing the annual depreciation

[ 71 Pa. Commw. Page 461]

    of its property included in the rate base, requires each utility to file with the Commission a detailed supporting explanation of its accounting method in this regard, and, in subpart (c), expressly provides that the Commission shall not be bound by these accounting methods for rate-making purposes.

Pittsburgh v. Pennsylvania Public Utility Commission, 182 Pa. Superior Ct. 551, 128 A.2d 372 (1956), relied on by the petitioner, in fact supports the Commission's contention that the matter of whether to permit tax normalization is within the Commission's regulatory domain. In Pittsburgh the Superior Court upheld the Commission's determination to disallow retention by a utility of tax benefits resulting from its use of accelerated depreciation newly authorized by the Internal Revenue Code of 1954. The Court rejected the utility's arguments that Congress intended that the funds saved by reason of accelerated depreciation must, as a matter of law, be used by industry for expansion and modernization and that the Commission's failure to normalize the tax was unconstitutional as a violation of the supremacy clause, concluding that "the Internal Revenue Code of 1954, certainly did not intend to usurp or qualify the commission's delegated authority to regulate public utility rates, which is derived from the police power of the state. . . ." The Court further held:

[T]he discretion to use or not to use accelerated depreciation under the 1954 Code is solely with the utility as a taxpayer. The Pennsylvania Public Utility Commission, however, does exercise control over the amount which it will allow the utility for taxes for rate purposes the same as it does over any other annual allowance for expenses.

Id., at 577-578, 128 A.2d at 383-384.

[ 71 Pa. Commw. Page 462]

Indeed, as the petitioner acknowledges, the proper treatment both of depreciation and of federal tax expense is an important and often disputed element of a utility's tariff filing. It is rather late in the day to propose that the whole matter of the treatment of a utility's accelerated depreciation deductions is beyond the Commission's purview; a proposition which, if correct, would be equally available to invalidate a Commission order prohibiting the normalization of such deductions -- just the Commission's action which the petitioner would now have this Court require.

We believe that the petitioner raises serious questions not as to the Commission's jurisdiction but as to the legality and wisdom of its action. These questions cannot be resolved in the context of this extraordinary proceeding, however, but must await further action by the Commission in which the statement of policy is effectuated by, for example, the approval of a proposed tariff containing rates which are, in part, justified by reference to the accounting method described in the policy statement. The factual evidence and legal arguments set forth in great detail in the petitioner's Petition and written argument before this Court may be presented at that time to the Commission for initial consideration and resolution by that expert body. If the resolution of these issues is adverse to the petitioner, a complete review of the Commission's decision can then be had by an appeal to this Court in which the factual record and applicable authorities will be thoroughly examined. We could not, even if we would, give controlling weight to the petitioner's unsupported and prospective assertions that his concerns will not receive a fair hearing in the administrative forum.

Preliminary objection granted; Petition dismissed.

[ 71 Pa. Commw. Page 463]


And Now, this 28th day of January, 1983, the preliminary objection in the nature of a demurrer of the respondent Pennsylvania Public Utility Commission is granted and the Petition for Review in the nature of an application for a writ of prohibition of Leonard J. Bodack is dismissed.


Preliminary objections sustained and petition dismissed.

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