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WILLIAM WELCH ET AL. v. PENNSYLVANIA PUBLIC UTILITY COMMISSION (08/04/83)

decided: August 4, 1983.

WILLIAM WELCH ET AL., PETITIONERS
v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION, RESPONDENT. WALTER W. COHEN, CONSUMER ADVOCATE ET AL., INTERVENORS. WILLIAM WELCH ET AL., PETITIONERS V. PENNSYLVANIA PUBLIC UTILITY COMMISSION, RESPONDENT. SHARON STEEL CORPORATION, PETITIONER V. PENNSYLVANIA PUBLIC UTILITY COMMISSION, RESPONDENT. NATIONAL FUEL GAS DISTRIBUTION CORPORATION ET AL., INTERVENORS



Appeals from the Orders of the Pennsylvania Public Utility Commission in case of Pennsylvania Public Utility Commission et al. v. National Fuel Gas Distribution Corporation, Docket No. R-79090956, and M-FACG8004.

COUNSEL

George M. Schroeck, with him Edward A. McQuaid, Howard L. Rubenfield and Stephen A. George, Buchanan, Ingersoll, Rodewald, Kyle & Buerger, for petitioners, William Welch et al.

Stephen A. George, with him George M. Schroeck, and Howard L. Rubenfield, Buchanan, Ingersoll, Rodewald, Kyle & Buerger, for petitioner, Sharon Steel Corporation.

Charles F. Hoffman, Chief Counsel, with him Allison K. Turner, Assistant Counsel, Steven A. McClaren, Deputy Chief Counsel, and Albert W. Johnson, for respondent.

Philip M. McClelland, with him Daniel Clearfield and Norman J. Kennard, for intervenors, Walter W. Cohen, Consumer Advocate et al.

Michael W. Gang, with him W. Russel Hoerner, Morgan, Lewis & Bocius, and Heino H. Prahl, Phillips, Lytle, Hitchock, Blain & Huber, for intervenors, National Fuel Gas Distribution Corporation et al.

President Judge Crumlish, Jr. and Judges Rogers, Blatt, Williams, Jr. and Doyle. Opinion by Judge Rogers.

Author: Rogers

[ 76 Pa. Commw. Page 160]

We have consolidated for argument and disposition the appeals of Sharon Steel Corporation and William Welch from a number of orders*fn1 of the Pennsylvania Public Utility Commission deciding issues raised by National Fuel Gas Distribution Corporation's (NFG) request for a general rate increase which request was embodied in NFG's Pennsylvania Gas Tariff No. 19 filed November 29, 1979. We have recently decided other issues raised by NFG's Tariff Supplement No. 19, National Fuel Gas Distribution Corporation v. Pennsylvania Public Utility Commission, 76 Pa. Commonwealth Ct. 102, 464 A.2d 546 (1983), and we will not repeat our discussion of the

[ 76 Pa. Commw. Page 161]

    facts and applicable legal principles contained in our opinion in that case. It will suffice at this juncture to note that NFG requested authorization from the Commission to collect from its customers additional annual revenues of approximately $21 million; that the Commission disapproved the proposed rates and instead authorized NFG to increase its annual revenues by approximately $8.5 million which increase was ordered to be allocated equally among NFG's customer classes; that the Commission further ordered NFG to refund to customers some $13 million associated with the purchase of synthetic natural gas produced by the Ashland Oil Company, an unregulated petroleum refiner located in Tonawanda, New York and to submit a plan for the refund to customers of a portion of NFG's profits from off-system gas sales transacted during a specified period in 1979 and 1980; and that the Commission delayed the effective date of the authorized rates until October 4, 1980. In the opinion last cited, we affirmed the Commission's decision no longer to permit NFG's purchase of synthetic natural gas from Ashland Oil Company, but we set aside the Commission's order insofar as it required NFG to refund monies previously expended for Ashland synthetic natural gas and we returned the matter to the Commission for further proceedings intended to clarify the legal and factual basis for that refund order. In addition, we reversed the orders of the Commission insofar as they required NFG to refund profits from off-system gas sales because the revenues from such sales were included in NFG's rates previously approved by the Commission and the Commission did not find that NFG's rates during the specified refund period were unjust or unreasonable, and, finally, we ordered the Commission to reconsider the issue of the effective date of NFG's rates

[ 76 Pa. Commw. Page 162]

    newly approved in the light of recent authority of this court.

In the appeals sub judice, Sharon Steel seeks review of the Commission's determination that the increase in NFG's annual operating revenues be allocated equally among the utility's customer classes. William Welch here raises a number of issues related to the refund of off-system gas sales profits ordered by the Commission and the allowance by the Commission of the inclusion in NFG's rates of a contractual penalty charge to be paid by NFG to Ashland Oil on account of synthetic natural gas purchases now ordered by the Commission not to be consummated. For the reasons we will indicate, our decision in National Fuel Gas Distribution Corporation v. Pennsylvania Public Utility Commission requires us to dismiss the Petition of William Welch.

Appeal of Sharon Steel

As we have indicated, Sharon Steel does not here challenge the amount of NFG's rate increase approved by the Commission but seeks review only of the method adopted by the Commission for the allocation of the increase among NFG's customers. On this subject, the Commission's decision accompanying its August 28, 1980, order contains the following:

If the revenue increase were allocated in the manner proposed by the Office of Consumer Advocate, the class relationships as they presently exist would be maintained. From our review of the record we believe that it is appropriate, at this time, to maintain those historic relationships. Variable class percentage increases to the customer classes, in order to move class rates of returns closer to the system-wide

[ 76 Pa. Commw. Page 163]

    rate of return is dependent upon a valid and acceptable cost of service study. The validity and acceptability of a cost of service study involves judgments regarding both the methodology and the demand and other data utilized. While both the Staff and the Respondent are satisfied with the methodology utilized, and we do not agree with the criticisms raised by the Office of Consumer Advocate, from our review of the record we have concerns regarding the accuracy of data which was employed in the study. If data inputs regarding the various customer classes is [sic] inaccurate, the indicated results are inaccurate. Were we to approve an allocation similar to that proposed by the Respondent and the Staff, for the stated purpose of moving class rates of return closer to the system-wide rate of return, we are far from satisfied that that would in fact be the result. For this reason, we conclude that caution dictates that the current relationships be maintained at this time, and until such time as we become satisfied that the data inputs are reasonably accurate.

And, on the basis of this reasoning, the Commission entered the following order:

7. That the increase in operating revenues authorized in this order shall be derived from customer classes on an equal percentage increase basis under base rate revenues on a year-end, future test year, and a June 30, 1980, basis.

Concerning the method by which the proposed and requested increase was to be allocated among its customers, NFG presented, before Administrative Law Judge Michael A. Nemec, testimony and exhibits prepared by Fred S. Duda, an expert witness employed

[ 76 Pa. Commw. Page 164]

    as a senior consultant with the management firm of Stone & Webster Consultants, Inc. Mr. Duda testified that he and another member of his firm, Russell A. Feingold, had performed a cost of service study intending thereby to reveal as to each customer class the cost to NFG of providing gas service to that class, the revenues received by the utility as a result of the provision of gas service to the class and, from these two quantities, the rate of return to the utility attributable to the class. On the basis of this cost of service study, Mr. Duda proposed that the approved increase in revenues be allocated equally in percentage terms among the rate blocks of the utility's declining block rate structure, considering in the calculation only the non-gas portion of each rate block.*fn2 This scheme of allocation was appropriate, in the expert's opinion, because the cost of service study indicated some disparity among customer classes in the rates of return to the utility produced by each class and, assertedly, the allocation proposed would, for some classes, ameliorate this disparity. Finally, Mr. Duda proposed the simplification of NFG's rate structure which consisted at the time of hearing of three rate classes (General Service, Heating Service and Large Industrial Service) and which the utility proposed to be modified by the elimination of the Heating Service class so that all customers other than those served pursuant to the Large Industrial Service rate class would be in the General Service rate class.

The proposal for allocation of any increase in revenues proposed by NFG as well ...


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