Appeal from the Order of the Pennsylvania Public Utility Commission in the case of Pennsylvania Public Utility Commission v. The Peoples Natural Gas Company, No. R-850270, dated October 30, 1986.
Daniel Clearfield, Assistant Consumer Advocate, with him, David M. Barasch, Consumer Advocate, for petitioner.
Veronica A. Smith, Assistant Counsel, with her, John F. Povilaitis, Deputy Chief Counsel, and Daniel P. Delaney, Chief Counsel, for respondent.
Thomas P. Gadsden, with him, Walter R. Hall, II, Lynn A. Clouser and Susan Garland George ; Of Counsel: William P. Boswell, Morgan, Lewis & Bockius, Secretary and General Counsel for The Peoples Natural Gas Company, for intervenor, The Peoples Natural Gas Company.
President Judge Crumlish, Jr., and Judges Craig, MacPhail, Doyle, Barry, McGinley and Smith. Opinion by Judge Craig. This decision was reached prior to the resignation of Judge MacPhail.
[ 120 Pa. Commw. Page 294]
The Office of Consumer Advocate (OCA) petitions for review of an order of the Pennsylvania Public Utility Commission (PUC or commission) that approved a rate increase for the Peoples Natural Gas Company (Peoples or utility).*fn1
Peoples does not pay federal income taxes directly to the federal government, but rather participates in a consolidated tax return filed by its parent corporation, Consolidated Natural Gas Company (CNG or parent). The PUC acknowledges that, where a utility realizes federal income tax savings because of its participation in a consolidated return, Pennsylvania law requires that those savings be passed on to the ratepayers by means of an adjustment to the utility's allowance for tax expense. However, the method that the PUC used to calculate consolidated tax savings in this case yielded no adjustment, although the method proposed by OCA would have reduced Peoples' tax expense allowance by approximately $1.7 million.
Therefore, this case presents the issue of whether the method used by the commission to calculate federal income tax savings resulting from consolidation should be determined as a matter of law or should be regarded as a matter within the discretion of the commission.
[ 120 Pa. Commw. Page 295]
against the proposed increase. After prehearing conferences and sixteen evidentiary hearings, Administrative Law Judge Morris Mindlin issued a recommended decision on September 10, 1986, proposing that Peoples be permitted to increase its base rates by $13.1 million.
After the filing of exceptions and reply exceptions to the recommended decision, the PUC issued an opinion and order on October 31, 1986, authorizing Peoples to increase its rates by $7.1 million. On the issue of consolidated tax savings, the PUC, applying the method of calculating such savings advocated by the commission's Office of Trial Staff, known as the "pour-over" or United Gas Pipe Line method, concluded as follows:
We concur in the conclusion of the AJL that [Peoples] has not experienced and will not experience a consolidated tax savings which should be reflected in our tax calculations for Peoples.
Therefore, the commission allowed the full tax expense claimed.
We note that, by contrast, in our recent Continental Telephone case, the commission did not use the pour-over method in a consolidated tax return issue, and consequently reduced allowable tax expense.
Before Continental Telephone, this court had also considered the problem of consolidated tax returns in Cohen v. Pennsylvania Public Utility Commission, 78 Pa. Commonwealth Ct. 545, 468 A.2d 1143 (1983), aff'd sub nom. Barasch v. Pennsylvania Public Utility Commission, 507 Pa. 561, 494 A.2d 653 (1985). Cohen involved a utility ...