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decided: June 20, 1986.


No. 10 M.D. Appeal Dkt. 1985. Appeal from the Order of the Commonwealth Court at No. 3113 C.D. 1982, Affirming the Order of the Pennsylvania Public Utility Commission at No. I-79110324, FS. 1-16, November 3, 1982. 84 Pa. Commw. Ct. 76, Nix, C.j., and Larsen, Flaherty, McDermott, Hutchinson, Zappala and Papadakos, JJ.

Author: Mcdermott

[ 511 Pa. Page 90]


This appeal is from the order of the Commonwealth Court 84 P.Cmwlth. 76, 480 A.2d 1273, affirming the order of the Pennsylvania Public Utility Commission. The Commission had directed affected gas utilities to submit residential conservation programs to be funded by accumulated surcharges placed on specified natural gas industrial consumers.

Appellant, the Process Gas Consumers Group (hereinafter "PGCG"),*fn1 raises the fundamental issue of whether the Public Utility Commission (hereinafter "PUC") exceeded its delegated authority by ordering surcharge revenues to be used to fund residential conservation programs. An analysis of the events from which the Commission's action precipitated is necessary to understand the respective parties' contentions.

In response to the deregulation of natural gas in this country Congress enacted the Natural Gas Policy Act of 1978*fn2 (hereinafter "NGPA"), mandating a system of incremental pricing intended to rectify some of the anticipated adverse effects of deregulation.

[ 511 Pa. Page 91]

The NGPA dictated that certain large industrial consumers, specifically those who used natural gas as a boiler fuel, were to pay surcharges to utility companies in each state.*fn3 These companies would, in turn, pay "upstream" to interstate pipelines. Once received by the pipelines, the revenues would be used to reduce the rates of eligible consumers in the states served by the pipeline (including Pennsylvania). Eligible consumers included all consumers except those who use the natural gas as boiler fuel, but even the latter would be entitled to a rate reduction to the extent that they consumed gas in non-boiler uses. Thus, the surcharge imposed by the NGPA entitled eligible Pennsylvania consumers to share in the pipeline's rate reductions for the entire nation.

On December 7, 1979, in response to the NGPA, the Pennsylvania PUC (appellee) ordered jurisdictional utility companies to file a tariff, known as the Boiler Fuel Rider (hereinafter "BFR") surcharge, upon industrial consumers with "non-exempt" status as established by the aforementioned NGPA federal standards. This surcharge was set at the exact amount necessary to eliminate any gap between the base industrial gas rate and the maximum rate allowed under the federal program. The result was that it was impossible to implement the federal surcharge without exceeding the federally prescribed maximum rate.

The effect of the BFR surcharge was to preempt the federal program in Pennsylvania, allowing the funds collected therefrom to remain entirely within the state.*fn4 However, by adding the BFR surcharge to the base industrial

[ 511 Pa. Page 92]

    rates being charged by the Pennsylvania gas utilities, the resulting revenue possessed no relation to the utility companies' individual revenue requirements. Consequently, each company was ordered under the 1979 decree to place all additional monies, resulting from the BFR surcharge, in an interest bearing escrow account. The account is presently in excess of $15 million.

A hearing was held in 1980 before an administrative law judge to determine the proper method for distribution of the funds being held in escrow. On February 27, 1981, a decision was entered recommending certain minor alterations in the manner of collecting the BFR surcharge, along with a proposal for the distribution of the fund. A refund to eligible consumers through calculations based on the Gas Cost Rate was found to be most closely in conformance with the federal plan, and within the scope of the Public Utility Code.*fn5 Furthermore, this "flow-back" method of distribution was found to result in the utility companies collecting an amount from the consumers equal to their revenue requirements.

[ 511 Pa. Page 93]

An alternative proposal, and the one at issue here, providing for the implementation of conservation programs funded by the BRF surcharges, was rejected by the hearing judge as being beyond conventional ratemaking, and outside the expressed or implied powers granted the PUC through the Public Utility Code. The conservation proposal was also found to be unreasonably discriminatory in violation of section 1304 of the Public Utility Code.*fn6

After reviewing the administrative law judge's findings, the PUC remanded the matter back to the judge on July 26, 1981, for additional evidence. On April 6, 1982, the administrative law judge issued a Recommended Decision Upon Remand, finding that nothing had occurred since his first recommended decision that warranted a change in the decision.

The PUC once again rejected the administrative law judge's recommended decision and entered an opinion stating the reasons therefore on November 3, 1982. In the opinion, the PUC reasoned that since the NGPA is not the sole authority for the institution of the BFR rider, it cannot be the controlling factor in determining how any excess revenues granted by the BFR surcharge are to be disposed of. Instead, the PUC decided to establish three (3) programs aimed at the long-term effect of conservation, finding that the ...

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