Appeal from the Order of the Pennsylvania Public Utility Commission in the case of Investigation of the Reasonableness of the Cost of Quarto Mine Coal for Duquesne Light Company and Pennsylvania Power Company, No. I-80120343, dated September 11, 1984 and December 10, 1984.
Eric P. Reif, with him, W. Thomas McGough, Jr., Reed, Smith, Shaw & McClay, and Charles E. Thomas and Patricia Armstrong, Thomas and Thomas, for petitioners.
Lee E. Morrison, Assistant Counsel, with him, Robert F. Frazier, Assistant Counsel, Daniel P. Delaney, Deputy Chief Counsel, and Charles F. Hoffman, Chief Counsel, for respondent.
Daniel Clearfield, Assistant Consumer Advocate, with him, Kathleen Cook, Legal Assistant, and David M. Barasch, Consumer Advocate, for intervenor, Office of Consumer Advocate.
President Judge Crumlish, Jr. and Judges Rogers, Craig, Doyle, Barry, Colins and Palladino. Opinion by Judge Rogers.
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Duquesne Light Company and Pennsylvania Power Company (Companies) seek review of two orders of the Pennsylvania Public Utility Commission (Commission). The first order, dated September 11, 1984, adopted in part and modified in part a Stipulation Agreement entered into by the Companies and the Commission Trial Staff which established a market price capping mechanism by which the Companies could recover the cost of coal purchased from certain mines known as the Quarto mines. The second order, dated December 10, 1984, provided amplification of the Commission's previous order.
The Companies are members of the Central Area Power Coordination Group (CAPCO). In 1969 and
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, CAPCO entered into agreements with the Quarto Mining Company for the development of three underground coal mines. CAPCO's purpose was to secure a long-term source of coal.
In December, 1980, the Commission instituted an investigation into the reasonableness of the costs of coal purchased from the Quarto mines incurred by the Companies, and thereupon recovered through their energy adjustment clauses. In its December 11, 1980 opinion and order, the Commission stated:
Upon a review of current reports from Duquesne and Penn Power concerning Quarto coal and the utilities' energy adjustment clause, the Commission has reason to believe that the cost of Quarto coal being recovered through the utilities' energy adjustment clause may be excessive and unreasonable.
The Commission thereafter entered an interim order establishing a cap for the purpose of pricing Quarto coal in the Companies' net energy clauses.
In September, 1982, the Trial Staff and the Companies entered into a Stipulation Agreement which established a new Quarto mine price cap formula for adjusting the market price per ton of coal. The market price agreed to was based on determinations made by Julian Tobey, the Companies' coal market expert, of Tobey S. Associates, a fuel and energy consulting firm, and was to be escalated and deescalated using a methodology employed by the John T. Boyd Company, a mining and geological engineering consulting firm. The Stipulation Agreement also provided that the Companies could charge customers the Quarto market price for all coal purchased for use at their Mansfield Plant, whether or not the coal was actually purchased from the Quarto mines. The difference between the Companies' actual cost of such coal and the cost calculated pursuant
[ 96 Pa. Commw. Page 401]
to the new Quarto formula was to be used to reduce previously deferred Quarto mine costs. An Administrative Law Judge (ALJ) approved the Stipulation Agreement and adopted it as his initial decision, subject to Commission approval. The ALJ wrote that the terms of the Stipulation Agreement "for the purposes of calculation of their respective energy cost rates provide for a fair and reasonable resolution of the investigation concerning the reasonableness of the cost of such coal."
In October, 1982, the Office of Consumer Advocate (OCA) filed a notice of intervention with the Commission expressing concern that the Stipulation Agreement approved by the ALJ did not adequately protect ratepayers from being charged unjust and unreasonable costs for coal from the Quarto mines. After public hearings, the Commission remanded the matter to the ALJ for a determination whether the Commission should or should not make a final determination of the reasonableness of the deferred Quarto mine costs, whether the Stipulation Agreement was in the public interest, whether the Tobey/Boyd methodology adopted in the Stipulation Agreement should be changed, and whether the settlement would produce rates which would be fair, just, reasonable, and lawful.
At hearings before the ALJ, the Commission's Trial Staff presented the testimony of John Dial, Director of the Commission's Bureau of Audits, and Dennis Dougherty, a staff member in that Bureau, concerning the appropriate price cap formula to be applied after 1984. At the conclusion of the hearings, the ALJ once again approved the Stipulation Agreement and concluded (1) that the Companies were not imprudent in initiating and continuing the Quarto project, and (2) that the Stipulation Agreement was in ...