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decided: February 24, 1988.


Appeal from the Order of the Pennsylvania Public Utility Commission in the cases of Petition of the Office of Consumer Advocate for an Investigation and Order to Show Cause with regard to the outage at the Salem Nuclear Generating Station, No. P-830453; Pennsylvania Public Utility Commission v. Philadelphia Electric Company -- Energy Cost Rate Statement No. 8, No. M-840375, and Philadelphia Electric Company's Reconciliation of Fuel Cost Adjustment Revenues and Expenditures for a 12-month period ending January 31, 1984, No. M-FACE8408, dated October 30, 1985.


Robert H. Young, with him, Walter R. Hall, II, Donald F. Clarke and Anthony C. DeCusatis. Morgan, Lewis & Bockius, Of Counsel: Edward G. Bauer, Jr., Vice President and General Counsel, for petitioner.

Louis G. Cocheres, Assistant Counsel, with him, Daniel P. Delaney, Chief Counsel, for respondent.

David Wersan, Assistant Consumer Advocate, with him, Susan Perkins Weston and Irwin A. Popowsky, Assistant Consumer Advocates and David M. Barasch, Consumer Advocate, for intervenor, Office of Consumer Advocate.

President Judge Crumlish, Jr. and Judges Craig, MacPhail, Barry and Colins. Opinion by President Judge Crumlish, Jr. Judge Colins dissents. Judge Palladino did not participate in the decision in this case. Concurring and Dissenting Opinion by Judge Barry.

Author: Crumlish

[ 114 Pa. Commw. Page 24]

Philadelphia Electric Company (PECO) appeals a Pennsylvania Public Utility Commission (PUC) order which, in pertinent part, disallowed approximately $58 million in replacement power costs incurred during certain outages at the Salem Nuclear Generating Station Unit 1 (Salem 1), the Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom 2 and 3) and the Eddystone Power Station. The Office of Consumer Advocate (OCA) has intervened on behalf of the PUC in this appeal.

On July 19, 1983, the OCA filed a Petition for an Investigation and an Order to Show Cause, alleging imprudence as to PECO's entitlement claim to replacement power costs related to a 1983 Salem 1 outage. The PUC granted the petition and instituted the investigation. Four days of hearings were held before Administrative Law Judge (ALJ) Dennis Harnish.

Prior to the issuance of a recommended decision, the petition and order were consolidated with Energy Cost Rate (ECR) Statement No. 8 which proposed an increase of approximately $151 million in the ECR.*fn1 This amount purported to represent undercollections of energy costs associated with the 1983 Salem 1 outage, as well as projected costs attributable in large measure to a 1984 Salem 1 outage, 1983 and 1984 Peach Bottom 2 and 3 outages and a 1983-1984 Eddystone 1 outage. Complaints were filed by OCA and others;*fn2 the PUC

[ 114 Pa. Commw. Page 25]

    then suspended approximately $106 million of PECO's ECR request and conducted a consolidated investigation.*fn3 Following eleven days of hearings, ALJ George M. Kashi, who succeeded ALJ Harnish, issued a Recommended Decision disallowing approximately $82 million of PECO's ECR request.

Upon review of exceptions, the Commission reduced the disallowance to $73 million, of which approximately $58 million is attributable to the five outages here at issue. We will review seriatim the factual scenario and legal conclusions for each outage.

1983 Salem 1 Outage

This outage occurred on February 25, 1983, and ended May 20, 1983. While attempting to bring the unit up to power, Public Service Electric & Gas Company (PSE&G), the operator of Salem 1,*fn4 experienced certain mechanical difficulties which necessitated a shutdown. Two automatic reactor scram breakers, designed to shut down the unit automatically in such circumstances, failed.*fn5 The unit was shut down manually, but the automatic shutdown failure went undetected until three days later, when the reactor scram breakers again failed. Based on these two unprecedented incidents, the Nuclear Regulatory Commission (NRC) instituted

[ 114 Pa. Commw. Page 26]

    an investigation and ultimately found that the outage was caused by inadequate maintenance and supervisory practices.*fn6 On April 29, 1983, the NRC authorized PSE&G to restart Salem 1, but further delays occurred due to shellfish infestation found in certain cooling water lines.

In a lengthy analysis, the PUC denied replacement power costs based on its finding that PSE&G had failed to exercise "the high degree of care" which it determined was required of a public utility in the operation of a nuclear generating facility. PUC opinion, pp. 54-56.

PECO's principal contention is that the PUC erroneously adopted a standard of review equivalent to the strict standard applied by the NRC. PECO further argues that under a properly applied "prudence" standard, substantial evidence supports its position that reasonable procedures were followed and prudent choices were made to maintain the units and to minimize the length of the outage, thereby reducing the necessity of purchasing replacement power.*fn7

The PUC's authority to review the internal management decisions of a utility ...

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