Appeals and 70 C.D. 1983, from the Orders of the Pennsylvania Public Utility Commission in cases of Pennsylvania Public Utility Commission v. Butler Township Water Company, No. R-811651, and in case of Pennsylvania Public Utility Commission et al. v. Freeport Water Company, No. R-80091319.
William J. LeBuhn, with him Walton F. Hill and Kathy Lee Pape, for petitioners.
Frank B. Wilmarth, with him Steven A. McClaren, Assistant Counsels, and Charles F. Hoffman, Chief Counsel, for respondent.
William H. Kain, Kain, Brown and Roberts, and Edward F. Sebastian, for Amicus Curiae, The National Association of Water Companies.
President Judge Crumlish, Jr. and Judges Rogers, Williams, Jr., Craig, MacPhail, Doyle and Barry. Opinion by Judge Rogers.
We have consolidated for argument and disposition the appeals of the Butler Township Water Company (Butler) and the Freeport Water Company (Freeport) from rate case orders of the Pennsylvania Public Utility Commission (PUC). The appellants are wholly owned subsidiaries of the General Waterworks Corporation (GWC) and GWC is a wholly owned subsidiary of I.U. International Corporation (IUIC).
Butler filed tariffs designed to produce additional annual revenues of $151,814 for the test year ending March 31, 1981. PUC allowed $73,615.
Freeport filed tariffs designed to produce additional annual revenues of $93,323 for the test year ending December 31, 1981. PUC allowed $53,804.
The appellants challenge: (1) PUC's treatment of their current and past rate case expenses, (2) PUC's refusal to allow recovery of what they variously call carrying charges, cost of funds or interest on items of expense required by PUC to be amortized or normalized over a period of time and, (3) PUC's disallowance as an operating expense of management service fees paid to I.U. International Management Corporation (IUIMC), another subsidiary of IUIC.
The appellants' challenges (1) and (2) above are identical as to facts and law; Freeport has not briefed them; and the parties agree that our disposition of Butler's appeals will apply to Freeport's case without further mention of Freeport. With respect to challenge (3), concerning the management service fees, Freeport says that it has adduced an item of evidence in addition to Butler's presentation, with the
result that as to (3) we will discuss and dispose of each appellant's challenges.
Current Rate Case Expense
Butler claimed an estimated current rate case expense of $37,989. The PUC allowed Butler one-half of the amount claimed, $19,996 [sic] because it believed that the utility's shareholders should bear the burden of the other half.
The PUC advances two theories for this action: The first is that of shared benefits, that is, that rate increases benefit both the shareholder and the ratepayer, and both should bear a portion of the costs incurred in securing a rate increase. The PUC cites as authority its own decision in Pennsylvania Public Utility Commission v. Pennsylvania Power Co., R-811510 (January 22, 1982), where it wrote:
Our conclusion, that a fifty-fifty sharing between the stockholders and ratepayers, of the prudently incurred current rate case expense is an appropriate balance of the respective interests.
The general rule is that a public utility is entitled to recover in rates those expenses reasonably necessary to provide service to its customers and to earn a fair rate of return on the investment in plant used and useful in providing service. Western Pennsylvania Water Co. v. Pennsylvania Public Utility Commission, 54 Pa. Commonwealth Ct. 187, 422 A.2d 906 (1980). Operating expenses include prudently incurred rate case expenses. Driscoll v. Edison Light and Power Company, 307 U.S. 104 (1939); West Ohio Gas Company v. Public Utility Commission of Ohio, 294 U.S. 63 (1935). Obviously, the refusal to allow the recovery of a proper expense diminishes to the same extent the utility's return on investment. There
is no evidence in the record that the rate case expenses claimed here were unreasonable, imprudently incurred or excessive in amount.
The second reason advanced by the PUC in support of dividing rate case expenses between the ratepayers and stockholders is that such action will discourage utilities from filing repeated and excessive rate claims, from relitigating matters previously settled, from massing legal and technical expertise in an attempt to overcome their opponents and regulators, and from operating their businesses inefficiently. It is reasonable to suppose that the policy could have this effect. But, as the appellants might argue, it is also ...