Appeal from the Order of the Pennsylvania Public Utility Commission in the case of Pennsylvania Public Utility Commission v. Continental Telephone Company of Pennsylvania, Docket No. R-850044.
Daniel Clearfield, Assistant Consumer Advocate, with him, Robert P. Haynes, III, Assistant Consumer Advocate, David M. Barasch, Consumer Advocate, for petitioner.
Billie E. Ramsey, Assistant Counsel, with her, Bohdan R. Pankiw, Deputy Chief Counsel, Daniel P. Delaney, Chief Counsel, for respondent.
D. Mark Thomas, with him, Charles E. Thomas, Thomas & Thomas, for intervenor, Continental Telephone Company of Pennsylvania.
President Judge Crumlish, Jr., and Judges Craig, MacPhail, Barry and Colins. Opinion by Judge Colins. Judge Palladino did not participate in the decision in this case.
[ 111 Pa. Commw. Page 341]
This is an appeal from an order of the Pennsylvania Public Utility Commission (Commission) dated February 6, 1986, which authorized a proposed rate increase for Continental Telephone Company of Pa. (Continental). These proceedings began when Continental filed a $1.5 million rate increase request with the Commission on April 30, 1985. The Office of Consumer Advocate of Pennsylvania (OCA) and three Continental ratepayers filed complaints against Continental's proposed rates.
On June 25, 1985, the Commission entered an order that instituted an investigation of Continental's present and proposed rates. OCA filed a motion to consolidate Continental's rate request with an ongoing investigation of its rates and service. The Administrative Law Judge (ALJ Mindlin), who was presiding over the hearings and charged with preparing the Recommended Decision, denied the motion. This ruling was upheld when the Commission denied OCA's petition for interlocutory review.
Extensive hearings were held after which ALJ Mindlin, on December 13, 1985, issued his Recommended Decision. After the filing of Exceptions and Reply Exceptions, the Commission entered its Opinion and Order on February 6, 1986. On February 21, 1986, Continental filed its tariffs in compliance with the Commission's order. At the same time, OCA filed a Petition for Clarification and/or Reconsideration of the Order, such Petition being denied by the Commission by Order dated March 10, 1986. OCA immediately filed a Petition for Review with this Court.
OCA's challenge to Continental's proposed rates is two-fold. First, OCA contends that the Commission has allowed Continental to charge certain of its ratepayers higher rates because Continental's Emmaus ratepayers received an exemption from any rate increase. OCA argues that this decision by the Commission to allow
[ 111 Pa. Commw. Page 342]
Continental to charge its non-Emmaus ratepayers higher rates as a result of its inadequate service to the Emmaus exchange is unreasonably discriminatory, unjust and unreasonable.
The Commission's decision to exempt Emmaus from any rate increase was based on the "severe service difficulties" that the Commission found to exist in the Emmaus exchange.*fn1 The Emmaus exchange investigation was a separate rate and service investigation over which Administrative Law Judge Kashi presided. This investigation was resolved by a Joint Petition for Settlement (Settlement) between the parties which was approved by the Commission in an Order entered on January 7, 1986, as corrected on February 6, 1986.*fn2 OCA contends that Continental, in its compliance filing, interpreted the Commission's order as allowing the company to recover from ratepayers outside of Emmaus, the revenue that temporarily could not be charged to Emmaus ratepayers until its service improved. On February 21, 1986, OCA filed a Petition for Clarification or
[ 111 Pa. Commw. Page 343]
Reconsideration with the Commission, which sought clarification that the Commission did not intend that customers outside the Emmaus exchange should be charged higher rates because of the Emmaus increase exemption. This petition was denied by the Commission and, consequently, Continental's compliance tariff was approved. OCA now challenges the order as contrary to law and unsupported by substantial evidence.
In response, the Commission contends that the rate structure adopted for Continental was lawful and supported by substantial evidence. More specifically, the Commission maintains that the exemption of the Emmaus exchange from a rate increase was a reasonable preference in rates.
Secondly, OCA contends that the Commission's refusal to eliminate the full amount of ratepayer supplied working capital from Continental's claimed rate base should be reversed as contrary to the law and record evidence. The record contained uncontradicted evidence that ratepayers supplied over $800,000 annually in working capital for use by Continental. OCA argues that these cost-free ratepayer funds were available to Continental to reduce the need for funds required from investors in order to supply service and finance the rate base. The Commission applied the rule of thumb that allows a utility to earn a return on capital supplied by ratepayers and rejected the evidence of record. OCA argues that the Commission's refusal to adopt a rate base adjustment to recognize this source of funds requires reversal. The Commission argues that its adjustments to Continental's rate base that eliminated the claim for cash working capital and the claim for materials and supplies were lawful and supported by substantial evidence.*fn3
[ 111 Pa. Commw. Page 344]
The burden of proving rate structure discrimination lies with the party challenging those rates, in this case, OCA. Sharon Steel Corp. v. Pennsylvania Public Utility Commission, 78 Pa. Commonwealth Ct. 447, 468 A.2d 860 (1983). This Court does not fail to recognize that the reasonableness of rates is an administrative question for the Commission, as it is a matter peculiarly within the Commission's "flexible limit of judgment." Park Towne v. Pennsylvania Public Utility Commission, 61 Pa. Commonwealth Ct. 285, 291, 433 A.2d 610, 614 (1981).
It is well-established that mere differences in rates between classes of customers do not establish unreasonable discrimination, United States Steel Corporation v. Pennsylvania Public Utility Commission, 37 Pa. Commonwealth Ct. 195, 390 A.2d 849 (1978), and to prove discrimination, OCA must establish that Continental was collecting more than a reasonable rate from the non-Emmaus customers in order to supply a deficiency created by inadequate rates charged other customers. Park Towne. We have determined that OCA has carried its burden of proof and remand for Commission clarification of the Order in question to prohibit Continental from charging its non-Emmaus exchange customers unreasonably high rates to compensate for the lack of a rate increase in the Emmaus exchange.
In considering challenges to rates and rate differentials under Sections 1301 and 1304 of the Code, this Court has held that the reasonableness of different rates depends upon the circumstances presented in each case. Peoples Natural Gas Company v. Pennsylvania Public Utility Commission, 47 Pa. Commonwealth Ct. 512, 409 A.2d 446 (1979). As explained by the Commission in its brief to this Court, rate structure ...