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PENNSYLVANIA GAS AND WATER COMPANY v. PENNSYLVANIA PUBLIC UTILITY COMMISSION (01/09/84)

decided: January 9, 1984.

PENNSYLVANIA GAS AND WATER COMPANY, PETITIONER
v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION, RESPONDENT



Appeal from the Order of the Pennsylvania Public Utility Commission in the case of Pennsylvania Public Utility Commission v. Pennsylvania Gas & Water Company -- Water Division, No. C-80031919, R.I.D. 72, R.I.D. 209, C-R0597001-03.

COUNSEL

D. Mark Thomas, with him Charles E. Thomas and Patricia Armstrong, for petitioner.

John A. Levin, Assistant Counsel, with him Albert W. Johnson, Deputy Chief Counsel, and Charles F. Hoffman, Chief Counsel, for respondent.

H. Kay Dailey, Assistant Consumer Advocate, with her David M. Barasch, Acting Consumer Advocate, for intervenor, Office of Consumer Advocate.

Judges MacPhail, Doyle and Barbieri, sitting as a panel of three. Opinion by Judge MacPhail.

Author: Macphail

[ 79 Pa. Commw. Page 417]

Pennsylvania Gas and Water Company (PG&W) has petitioned for review of the order of the Pennsylvania Public Utility Commission (PUC) adopted October 29, 1982, and entered November 3, 1982, ordering payment of refunds to PG&W's water customers.*fn1

This is a complex case which began more than ten years ago. The procedural and factual history was fully set forth by the PUC in its November 1982 opinion and order, the pertinent parts of which follow:

On January 30, 1973, the Pennsylvania Gas and Water Company (PG&W) filed a two-step water rate increase to produce $4,870,103 in additional annual operating revenues based upon a test year ending September 30, 1972. The $2,213,683 first-step became effective by operation of law on April 12, 1973. By order dated

[ 79 Pa. Commw. Page 418]

April 10, 1973, the Commission suspended the $2,656,420 second-step increase, and instituted an investigation at R.I.D. 72. Following 13 days of public hearing, the Commission, by Order adopted July 9, 1974, disallowed $628,318 of the second-step of the rate increase. Pa. P.U.C. v. Pennsylvania Gas and Water Company -- Water Division, 47 Pa. P.U.C. 750 (1974).

The R.I.D. 72 Order was based in part on the disallowance in PG&W's original cost measure of value of $2,558,634, representing water facilities constructed with the proceeds of a highway damage payment; the exclusion of the property constructed with these monies from consideration in the determination of the fair value rate base; and the disallowance of the annual depreciation expense associated with the property constructed with these monies. The $2,558,634 represented a Department of Highways payment to PG&W for damages which were to be inflicted on its water supply property as a result of highway construction, less the unrecovered investment in the facilities rendered useless.

Pursuant to the R.I.D. 72 Order, the Company, on July 31, 1974, filed tariff supplements increasing its water rates to produce $2,028,102 in additional annual revenues effective for service rendered retroactive to March 15, 1974, the date on which temporary rates were established.

PG&W, the City of Scranton and the County of Lackawanna appealed the R.I.D. 72 Order to the Commonwealth Court. The Commonwealth Court reversed the Order in respect to

[ 79 Pa. Commw. Page 419]

    the findings relating to the water facilities financed with the highway damage payment. Pa. P.U.C. v. Pennsylvania Gas and Water Co. (hereinafter "PG&W I"), 19 Pa. Commonwealth Ct. 214, 341 A.2d 239 (1975). The Court remanded the matter to the Commission with the following instructions:

". . . to amend its rate-based calculations, both for net original cost and fair value, by including the appropriate amount of money representing the payment by the Pennsylvania Department of Transportation to Pennsylvania Gas and Water Company under the agreement dated October 21, 1969, to amend its findings with regard to annual depreciation to be allowed on the said property involved in the rate-base adjustment mentioned immediately hereinbefore, and to make any other cost of service adjustments which may be necessary as a result thereof. . . ."

On January 17, 1975, PG&W had filed a two-step water rate increase to produce $2,643,212 in additional annual operating revenues based upon a test year ending September 30, 1974. The $1,321,606 first-step increase was permitted to become effective by operation of law on March 26, 1975. The $1,321,606 second-step increase was suspended by Commission Order dated March 25, 1975, pending further investigation of the entire increase at R.I.D. 209. Following four days of public hearings, the Commission, by Order entered August 4, 1976, approved

[ 79 Pa. Commw. Page 420]

    the $1,321,606 first-step increase but disallowed the $1,321,606 second-step increase in its entirety. In upholding the first-step of the increase, the Commission, in accordance with the Commonwealth Court's PG&W I decision, included in its rate base and depreciation expense determinations, the facilities financed with the Department of Highways damage payment.

PG&W appealed both the fair value and fair rate of return findings made by the Commission in the R.I.D. 209 proceeding to the Commonwealth Court. . . . [T]he Court held that the Commission's fair value finding constituted a manifest abuse of discretion. Since the Court concluded as a matter of law that the fair value of the water property was well in excess of the amount necessary to support the entire rate increase, it did not remand the matter for further proceedings nor did it address the fair rate of return finding. The Court instead ordered the Commission to allow the second-step rates as the Company's permanent rates. See Pennsylvania Gas and Water Co. v. Pa. P.U.C. (hereinafter "PG&W II"), 33 Pa. Commonwealth Ct. 143, 381 A.2d 996 (1977). On January 20, 1978, the Commission petitioned the Pennsylvania Supreme Court for an allowance of appeal.

Subsequently, the Commission by its Order of February 24, 1978, permitted the second-step R.I.D. 209 rates to become PG&W's effective water rates on April 1, 1978, and allowed the Company to recoup such rates retroactively to January 1, ...


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