ML19308B974
| ML19308B974 | |
| Person / Time | |
|---|---|
| Site: | Salem, Crane  |
| Issue date: | 12/28/1978 |
| From: | PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| References | |
| TASK-TF, TASK-TMR NUDOCS 8001170716 | |
| Download: ML19308B974 (16) | |
Text
f
/
. n
."1 j y'a v \\
g
'ys
)
/
PENl YL'/A:ilA
.O PUBLIC UTIL:TY CCBC1!SSICN Harrisburg, PA 17120 Public Mc : ting held Eecember 20, 1973 I'O Coraminnioners Present:
jtBgc.Mh(M' k
gl Y, [7 ~
U. Wilson Goode, Chair =n, Conc?: ring f(
e p)t('.-
p
/
Robert K. Bloca f-g 1 >"
Louis J. Carter, dissenting gc 9
g p
f L len D. O'Dc.nnoa
/ Ny
>dh y 4
Michael Johnson, dir. c c a tin, 4l A
A c0'\\
R.I.D. 43S PE'C!SYI.VA'i!A PUBLIC UMTY CC101ISSION MA
/
C.
22500 c.nd C-R 043000E MEENAN OIL COMPA?iT !.ND PE iNSTLTA'!!A PETROLEl?.! ASSCCIITION C.
22531 MARK P. UIEOFF, CONEU 'ZR ADVCCATZ C.
'"a; 6 ~'
I~r "., F. N..>. ". '.,
.".a s '...'..m.. ' ' A..
" ". aT..".. a EDUCATION AND PRGTECTIE ASSCCIATION C.
22S88 JCIC! DeMANIO C.
22S92 UILLIA!! L EAUER, III C.
22597 FRAN.< K. JONES C.
2259C CLYDE SiEGFRIED C.
22599 NICIIDI.AS 3.132Ci C-R 0428001 ROEERT A. CRIST C-R 043F002 JACX J. ALOFF C-R 0433003 CITY OF PHILADELPHIA C-H 0432004
!!IRIAM MAlTITE:!AN, ET AL C-R 04';3005 ADMINIF/1RATOR OF GE:.Z?AL SER'/ ICES (G3A)
C-R 0420006 E:!IL SABATINI AND ACTICN ALLIANCZ OF SENIOR CITITE'iS Gi GRZAIER ?!ilLAEELPHIA C-H 0435007 MRS. DCRCAS D. McCLELLAND C-R 0430009 LO' ENS STEEL COMP /.'iY, T:iF. CELOTEX CORPOR?. TION, SCOTT PAP.at COMP 3.NY, STAUFFER CHEMICAL COMPANY, U'! ION CARBIDE CCRPORATION CR 0438010 MS. FEANCES S?!ITH AND PE"NST'/. ?.NIA ASSOCIATIO.'i 0F CCFl! UNITY ORGANIEATIO:t FOR REFO ' I ( AC0!UO J
i C-R 04:',3011 GEORGE C.
EACH C-R 0423012 EDWAPS A. SC:iUAR'rg C-R 0430013 UNITED STATES STEEL CCEPOPa: ION C-H 0438014 CONCETTA lENSLET C-R 0438015 PARK TOWNE AND MADWAY ENGIITEERS A" 5
CONSTRUCTORS (Pid'.X T
D 3
Y=
i
'ig )
(
)HILADELPHIA ELECTRIC COMPANY l
r 8oo wro7/4 i
G i,
k
f u,
r.
),.,
V e"
APPEARA';CES MORGA'i, LEWIS & BROKIUS, ESQUIPIS ROBERT !!. YOUNG, ESQUIRE WALTER R. IIALL, II, ESQUIRE For:
Philadelphia Electric Company MICIL'IL P. KERRIGA'i, ESQUIPI For: Pennsylvania Public Utility Com:aiasion MARK P. WIDOFF, ESQUIRE LARRY SELK0WITZ, ESQUIP2 MARTHA W. EUSH, ESQUIP2 For:
Office of Consumer Advocate M. MARK MENDEL, ESQUIRE IIARRIS T. ECCK, ESQUIP2 STEPHEN MILLER, ESQUIPI For:
City of Philadelphia McKNEES, WALLACE & NURICK, ESQUIPIS ROBERT C. GRISWOLD, ESQUIPI IIENRY R. MacNICHOLAS, ESQUIRE EDWARD J. RIEHL, ESQUIPS For:
Lukens Steel. Company The Celotex Corporation Stauffer Chemical Company Union Carbide Corporation PHILIP P. KALODNER, ESQUIPS For:
Park Towne Madway Engineers and Contractora JOHN J. CASSIDY, ESQUIP2 DEEORA!! S. FERNBACH, ESQUIPI For:
Administrator of General Services WICK, VUON0 & LW"!.LII, ESQUIRES IIENRY M. WICK, ESQUIRE CHARLES J. STPIIFF, ESQUIRE For:
United States Steel Corporation ANDRE DASENT, ESQUIPI For:
Emil Sabatini and Action Alliance of Greater Philadelphia Ms. Frances Smith and Pennsylvania Association of Cormaunity Organination for Reform (ACOR'i)
TUBIS, SClf4ARTZ & ZIEGIIR, ESQUIPIS RONALD ZIEGIIR, ESQUIRE For: Meenan Oil Company, Inc.
Pennsylvania Petroleum Association I
I 1
t 'a a
f=
- (,
LEE RISSELL, Ccmplainant
!!AX WEINER, Complainant
!!IRI!J! DUTE:Uf!Ji, Complainant FI w n: K. JONES, Complainant CIXDE SIEGRFIED, Complainant liIC IOLAS B.13:1DI, Complainant E!!IL SAEATINI, Complainant GEORGE C. BACll, Complainant EDWARD R. SCIR!ARTZ, Complainant 1
\\
~
1 l
l i
{
?
O R D ",R BY THE CO':c!ISSION:
On August 5, 1977, Philadelphia Electric Company (PECO) filed Supplements Nos. 72 and 73 to its Tariff Electric Pa.
P.U.C.
No. 24 to become effective October 4, 1977.
Supplement No. 72 clininates the fuel adjustrent clause for residential and soall commercial customers while rolling into their base rates approximately 0. 9 /.. hwh.
The Supplement creates a new energ'/
adjustaent clause for all other customers, primarily large cc=mer-cial and industrial, and rolls into their base rates a portion of No. 73, PECO requests a base Supplement the present charge.
In of approximately $115.8 aillion or 11 rate increase in the amount per cent based on operating results for the tent. year ended December 31, 1977.
August 17,
- 1977, the Pennsylvania By order adoptedinitiated an investigatio_n and suspended Public Utility Com:aission six conths period' provided under each Supplement for the initial Section 308(b) of the Public Utility Law.
By Order adopted September 26, 1977, the Commission did not lift the suspension of_
fluppl ement No. 72, but provided that PECO should be pe rm t.ted form of continued accruals of AFDC q%
(ai w m ;>
interim relief in the lof funds during construction) ou us investuent in 6alem No.
nuclear plant from July 1 to veccmaer 31, 1977.
Thc7ommisnon further directed that the Administrative Law Judge assigned to the case file an interim decision prior to December 31, 1977, indicating "whether this interi:a relief should be extended o r, additional
- relief, either in the form envisaged by whether Supple:oent 72 or otherwise, should be granted."
Petitions for Modification and Clarification of the Com:ni::sion's September 26 order were filed by Mark P.
- Vidoff, Con mmer Advocate on October 12 and October 14, 1977, respectively.
In these Petitions, the Consumer Advocate requested that the Scotembe. /,
nr h be nodified by eliminatiEn the per:3ission '
cranted to continue AFDC accruals on Salen No. 1 and be clarifica to restrict the scope of the Administrative Law Judge's interia decision to the grant e-denial of Supplement No. 72.
These petitions werc denied by the Commission at its public ceeting on November 1,197/.
total of twenty-two Complaints have been filed against A
consolidated the proposed rate increase, which Complaints were with the Commission's~ investigation for hearing and decision purposes.
Parties actively participating in this ' proceeding ucre The Trial Staff of the Public Utility Commission (CO!c!ISSION STAFF);
the Consumer Advocate; The City of Philadelphia; Park Towne and !!adway Engineers and Constructors '(PARK TOWNE);
the s
s v
s
- ~ ~ ~ ~ - -
(.
i In our view, the evidence presented by TE&A snows a N
lack of. prudent management in connection with the construction Salem No.,1.
PECO offered no testimony through PSE&G to retut TELA's findi:tas.
Instead, in defense, PECO offered evidence fa l comparison of the Salem No. 1 per kilowatt cost to other clear projects in Northeast United States, as proof that the overall installed costs ~ per kilowatt generated by ::alem No. I w te within the range of other compa rable plants.
Td&A admits that such comparison shows that Salem No. 1 costs are in liae with other Northeast plants, but avers that such comparison dop not provide he best evidence o f \\ the appropriate and proper ost for Salem o.
1.
While such comparable evidence submitted by the Company s some probative value, it is not of suf' cient weight to erride the TE&A evidence.
Such comoarisons o not reflect the u igue costs of environment \\ protection, labo and other variable p-cts in building a particular clear plant.
as We agree with the Consumer Advp ate that PECO exercised nyacceptable imprudent management \\ pragt. ices in regard to its engagement in, and its total abdicati d of responsibility for the m nagement of the construction of the S 1,em No.1 project.
N The very limited exten. of PECO's involvement in this pr ect in which the Company wpI expendin'g upwards of $40 million a
ar, did not provide reas nabla managerial concern, and cannot be xcused.
In these days f rapidly escalating costs of energy, suc imprudent management ractice cannot be ' condoned.
Efficient and economical managemen has always been a requirement of regu-lat :d industries.
While our authority to intrude into management areas may be limited, w can hold regulated utilities ac' countable for or imprudent management in theg ratemaking abu e of discret' ion pro ess.
We hold PECO accountable, based upon the TB&A evidence judgrIent, for $10.5 million of expenditures in the cost and our of alem N o'. I which would not have been made had prudent manage-bee / exercised.
This is the approximate midpoint etween men; the $5 d and $15.2 million savings as developed in the TBSA aud s{.t/
j V
Accordingly, we adjust the original cost of Salem No. I or ratemaking pu rposes by a reduction of $10.5 million in rat j
b a c.
/
Salem Construction Delay originally scheduled The Salem No. 1 nuclear plant was for completion in 1971.
In 1970, it was recogni::ed that ccm-pletion would be delayed one year from 1971 to 1972.
Two years later, by May 1972, it was estimated that Salem No. I would be delafed three years to 1975.
In July 1974, it was determined that completion would be further delayed until December 1976.
17 -
The plant was placed in corr.me rcial operation on June 30, 1977 af ter some pre-corrmercial operation.
Company witnesses, Boyer and
- Nistner, gave as the reasons for constructien delays the application of additional safety and environmental regulations b'/ regulatory bodier, design changes to incorporate i:id us t r'/-wid e i:np rovements and labor and other construction related problems.
Park Towne argued that $39 cillion should be deleted from rate base on account of a " deliberate" delay of the com-plction of Salem No. 1 for one year and thrce months f ro a the 1975 catinated ccuplet. ion date.
It centended that such deliberate delay was undertaken to maninulate t.he regulatory nrocess..
Commissien Stati iL3ted that if in fa E the ccepletion date of Salea No. I was deliberately postponed for the reasons assigned by Path Towne, Commission Staff would oppose the imposition of costs associated with such delay upon the ratepayers, and would support the adjustment of Park Towne.
Park Towne claimed that such decision to delay the comple t.io n of Salen No. 1 made in Jul,, 1974 was due to the desire of the Company to avoid loss of AFDC nn Salem No. _1 until Peach Botton _No s. 2 and Qere includrd in rate base, i.e.,
the spacing out of nuclear units so that a tt.ri tion of carningc. follcwing in-service and cennation of AFDC prior to rate base inclusion of
'r n c more than one nuclear unit at a tine is avoided.
o 2m g ed fo d inancial ' id urged that such deliberate delay was load growth reason;1_
lt present.ed FE:4's 1974 Annual Report to its shareholders which it alleges contains an admission that such delay was in fact imposed.
This argument's major thrust is that the Commission vould not grant PECO necessary interin relief to prevent the attrition of carnings which would result frc;:1 the sinultaneous cosmercial op e ra t.icn of t.wo nuclear units.
The facts are otherwise in that such relief in substantial amounts has been afforded PECO both in R.I.D. 129 and R.I.D. 295, and in the prcsent case on account of such attrition.
Park Towne sechs to fortify its theory of motivation for Salen No. 1 dalay,' above stated, by the following statement contained in PSECG's 1974 Annual report to its stockholders:
4 6
b e
13 -
t i I
'e, s *.
s,,
6 Because of the reduction in current sales and anticipated sharply lower rate of future sales growth as well as difficulties encoun-tered in raising new
- capital, the Company announced in September that planned construc-tion expenditures would be reduced by $700 million over the five years 1974 to 1978.
No major projects were cancelled, but all were deferred from one to six years. The construc-tion deferrals will reduce the Company's cliance on internal financing, and together with ti=cly rate increases should be helpful in maintaining our financial condition and in improving earnings further in the future.
While it may be that this statement would appear to support the position of Park Towne, there is some question as to the weight that should be given to it.
This report, furnished for the first time in counsel's reply brief, has not been the subject of examination.
It is ambiguous in that it does not refer specifically to Salem No. I and may include other projects as well.
We must consider such statement in light of all the other pertinent evidence in the record.
The _New Jersey Public Utilities commi "o
order of September 16, 1974 directed PSE&G _ (cwC,cp f
to complete the alem nd Peach Bottom units as quickly as possible, j
C llowever, it directed PSELG to delay the in-seTvttt!~ dates of its other generating plants which were there considered.
In New Jersey _ it is an established rule that construction work in progress is allowed in raEe base.
Salem was included in PSESG's 1974 rate proceed ng, and was in that company's rate base in 1976.
Two days after the New Jersey Commission's order, on September 18, 1974, PSE&G issued the statement which apparently is the September company announcement referred to in the PSE&G's 1974 report to its stockholders.
In that press release initially announcing PSE&G's delay and cut in construction of nuclear units, it is stated, with respect to Salem No. 1, as follows:
" Work will proceed, however, on nuclear power units aircady under construction in order that the lower-priced auclear power can be made available to customers." It further states:
We will attempt to complete the first nuclear unit at Salem as soon as possible, but a recent strike of pipefitters has caused some delay in buildin:
up the work force.
This unit, which had been scheduled for completion in December, 1975, is now scheduled for com-pletion in December,1976.
The Company furnished a copy of the testimony of Mr.
Eckert of PSE&G before the New Jersey Commission on November 13, 1974, in which he states that the cause, or a principal cause, of the Salem delay from 1975 to 1976 was a pipefitters strike,.
resulting in a dissipation of the Salem work force, as well as organisational delays occurring prior to the 1974 time period, resulting in the inability to complete the unit by 1975.
!!r. Boyer and Mr.
Kistner, of the Company, testified that there was no deliberate delay in the construction of Salem No. 1.
We attach considerable significance to the report of the Consumer Advocate's witnesses, of TE&A, Wheaton and Love, who testified that in their management audit they could find no intentional delay in the completion of the construction of Salen3 No. 1.
Their report shows that the Salem No. 1 project continueF at an even construction pace through 1974, 1975 and 1976, with the following expenditures (in millions):
1972
$283.7 1973 327.1 1974 360.6 1975 391.2 1976 410.3 1977 413.2 Based upon the evidence in this case, with due considera-tion to all of the presentations admitted into the record, we are unable to conclude that there has been any deliberate delay in the completion of Salem No. 1.
Accordingly, the recommendation of Park Towne that $39 million be deducted from rate base for the alleged deliberate delay in the completion of Salem No. 1 must be rejected.
Addit'ional-AFDC for. Salem No.1
~
\\
Although Salem No. I was placed in commercial servic on June 30, 197,7, resulting in, considerable savings to P s
ratepayers due tox the displacement of more expensive int change or fossil fuel gene'ra tion, the Company was receiving n return on investment, since it 'was not included in rate se, and the Company ceased to accrue AFDC after its in-servic date. According to PECO, this resulted in a\\ loss of income j about $2 million a month.
- In addition, the Compan'ys. claimed defreciation and operating c:< pens es attributable to Salem Nohljefre accruing at the rate of
$1.3 million a month and were not ref16cted in current rates.
In connectiot with the request fo Wrate increase proposed by the Company's Supplements Nos. 72 and 73 N nd because of our saib in concern regarding attrifion of earnings, we our Order of September 26, 1977: /
We are aware of the capital attrition problem faced by' utilities between the time a plant j
/-
is placed in commercial operation and the Q'/
l, w
\\
of the December 31, 1977 test period and is consintent with the test year end determination of the remainder of the claimed measure of value. This claim is not opposed by any of the parties.
k'e find the Company'n claim of $15,587,000 on account of its inventment in nuclcar fuel for Salem No. 1 to be reasonable and allow the same for inclusion in rate base.
Accumulated Deferred Income Taxes The Company had the benefit of accelerated depreciation for Salem No. 1, reflected in income taxes, since July 1, 1976.
p e rnit.ted one-half yea r's depreciation in the year 1976 It van uith a full year's depreciation in 1977.
According1'f, its taxes were reduced approximately $15,000,000.
Since the plant did not go into ccmcercial operation until. June 30, 1977, the Compan'f deducted $10,24
- 000, representing the savings associated with the pre-commercial operation of the phnt from July 1, 1976 to June 30,1977.
Cor: mis sion Staff contends that.
the Compan'f nerely reduced itu claimed mencures of value by $4,200,000 for one-half year's accumulatica of such liberalized tax depreciation, although it claimed a in11 year's expense for Salem No. 1.
Staff urges that. a full year's effect of accunulated deferred income taxec on Salem No. 1 chould be given, and that there should be an cdditional reduction from rate base on this account of $4,200,000.
The Connumer Advocate and Park Towne contend that full effect chould be made in rate base of such deferred income taxes, but
- t. bey urge that the benefits for the one and one-half year period, Julj 1, 1976 to December 31, 1977, should be reflected in rate base.
They recommend the additional deduction of $10,245,000 from rate bane to reflect the benefits act ually received by PECO on account of Salem No. 1.
The Company, on the ot.her hand, argues that such deferred taxes are not "cuatomer contribution to capital," as asserted by t.b e Connuner Advocate witnecs Towers, but rather that they are amounts owed to b u t. not yet collected by the government.
It holds that. it would be inequitable and inconsistent with other ratemaking treatment. of Salcm No. 1, including the climination of Salem pre-commercial expennes.
Further, it says t.ha t the specific t.he result of customer contribu-deferrals here in question are not
- t. ions, since cuntomers provided neither a return nor depreciation on t.he Salru plant during the period of pre-ccanercial generation.
The taxes are real.
The funds to cover these taxes, through normalization, came from the ratepayers.
It is noted that the Company has not flowed through to the ratepayers through reduction of the appropriate AfDC rate by 1.he amount of the lax
- savings, t.hus acting incons is ten t.ly with the position i t.
han taken with Commission approval as to tax deduction available on interest on debt supporting construction work in progress, which reduction of the AFDC rate applied to Salem through did lead to a the entire period.
If this amount ' is not deducted, stockholders will be carning a return on money they never provided.
Additionally, if the Commission fails to make this adjustment now, it would necessi-tate a continuing modification of the tax depreciation calculation for as long as Salem No. 1 exists to treat it as a 1977 plant for ratemaking purpo s es, while treating it as a '1976 plant for book purposes.
~
- Further, the treatment adopted by the Company runs foul of the well-settled Ccemission I,rinciple that tax deprecia-tion benefits must either be flowed through to the benefit of the ratepayer, or if not, then deducted from rate base. The Company's L
treatment confers a benefit; to the stockholders never contemplated by the Commission.
In effect, it treats depreciation benefits as if the'/ were investment tax credits. ~
a 1
Under PECO's proposal, the stockholders would be permitted to retain these tax benefits on which they,would earn a return; and the ratepayers would be obligated to provide a return to the stockholders on funds made available by the federal government.
We agree with Commission Staff, Consumer Advocate and Park Towne, that simple equity to ratepayers, Commission policy regarding the treatment of accelerated depreciation benefits, and consistent treatment of such depreciation for book and ratemaking
- accounts, require that additional deduction in this regard be made to rate base.
We adopt the position of the Consumer Advocate and Park further reduction of $10,245,000 should be Towne, and find that a from rate base on account of the accumulated deferred
- deducted income taxes relating to Salem No.1.
' ~ - -
._.m Custoner-Decosits and Advances for Construction
~
The pan 's measures of value fail to deduct c omer deposits and :ustomer dvances for construction which a customer o
e Commission supplied funds.
It has bbc(me standard practice to deduct these amounts from Pa (e base.
Pa. P v.
Pennsvlvania Electric C o._,
R.I.D. 392 (decih J n(3, 1973).
Investors should not earn a return on such funds PECO's customer posits amount
$2,556,000, while customer advances fo construction amount to 14S,000, for a
{ total of $2,704,0).
Of this amount, 86.151 percen is allocated
..dition l to electric operations, in the sum o f $2,330,000. A sma to operat' ( expenses must be allowed to account for thu 't erest paid o e custcmer deposits.
_s ' l,
as
i..
So CWIP could have subs tant.ia l effect upon the Company's finances.
When this policy was first enunciated with this Compan'j (Pa.
P.U.C v.
Philadelphia Electric Co.,
R.I.D.
29), the tax expense of $8,455,000 equivalcut. t.o CWIP ta> savings, required an increase In that case, the Commission said:
of $17,429,000 to offset. it.
Respondent submits data and testimony for the record to sub s ta nt.ia t e its clain for the normalization of tax savings associated with on debt used to finance con-interest paid Since 1961, CWIP s t ruc t. ion work in progress.
has risen from 1.4 percent of net plant to 13.3 percent.
in 1966 and 25.0 percent in 1971.
Respondent. states related tax savings increased from
$123,000 in 1961 to have
$1,350,000 in 1966, and $7,548,000 in 1971.
In this case, during the test year, the tax savings on interest on debt relating to CWIP were approximately $26 nillion, vit.h a revenue effect of some $54 million.
In additica, CWIP has risen to ripp roxim tel y 36 percent of net plant investment.
All e,va n c e of funds used during construction as a percentage of total income available for ceramon z.tock carnings equaled 49.1 percent in 1972.
During the t.e s t year, the percent. age equaled to 64.9 percent.
Applying t.h e 1973 Conraission rationale, t.h e reason for continuing normalization would now only be enhanced.
The recorr.menda tion of the Consumer Advocate and Park Towne to require flow-through to ratepayers of the tax benefit.s resulting frca. interest deductions assoc:' ited with CWIP is rejected since we find that. such treatment at this tirae with this Company would be unreanonable.
Tiepair Allowance principle of utility regulation It has always been a that regulated utilities are expected to take advantage of all available tax deductions.
A utility should utilize all available cont-saving opportunitics, including tan savings, in order to heep rates at a reasonable level.
El Paso Nat. Gas Co. v. Federal.
Power Co:rmi n s ion, (CA Sth 1960) 35 PI'R 3rd 257, 281 F. 2d 567,573; He Midwestern Ga:, Transmission Co., 64 Pts 3rd (FPC 1966), quoting He Arkansa:. Louisiana Gas Co. v.
City of Texarkana_, (DC Ark 1936) 17 PUR NS 241,17 F. Eupp. 477:
i
)
"a ut.ility should be permitted to charge into operating expenses only the amount of inco:ce which would be pay'ble after t.he utility taxes has taken advantage of every deduction from gross income allowed b'j law."
f*
~
Under Federal income tax regulations, the Class Life Asset Depreciation Range System (ADR), permits a corporate taxpayer to depreciate its property in a nanner different from the no rma l depreciation rules.
Since 1971, these Federal income tax regula-to deduct a " repair allowance" tions permitted a corporate taxpayer in lieu of actual expenditures for plant maintenance. Ostensibly, minimize disputes between the IRS the purpose of this rule was to cl a ssificat. ion of expenditures and a taxpayer over the proper bet.wcen capital and expense.
a company must Generally speaking, for tax purposes, capitali:e expendi tures that either increase the produttive capacity of the plant investment.
Separatt plant classes have been created for hydroelectric p rcdu c t.i on and combustion turbine p r oduc t.io n plant.
Electric transmi: sion and distribution consti-single class.
The regulationr permit a utility to be very selective in deciding whether or not to use the repair allowance.
tute a The utilit.y may use t.h e repair allowance for one class of plant for another class in the same and use actual maintenance expenses year.
Moreover, the election is made each year, so that a decision to use the repair allowance for one class of plant in one year because it is advantageous to do so, does not require that the repair allowance for the same class of plant be used in a subsc-i l
quent year when it may be beneficial not to do so.
In 1976 the repair allowance percentage of electric i
utility steam production plant, and transmission and distribution and from 2.0 to 4.5 plant, was incretsed from 2.5 to 5.0 percent, percent, respectivel'/.
Consumer Advocate's witness Iowers contends that the Company failed to claim an additional repair tax deduction of an amount between $5.4 million and 34.2 million, the latter being the maximum t.h eo re tica l deduction that might be obtained under impossible the repair allowance provision.
He states that it was for him to do a complete revicu of all the records, in the ti:ac period alloted to him, to arrive at an appropriate deduction.
Mr.
- Pageette, manager of the finance and accounting department of the Company (now Vice-President of Financial Opera-tions), testified that PECO made an analysis regarding the utili-zation of the repair allowance in 1972 and had decided not to pursue that procedure.
This analysis is set forth in a Compa naf memorandun from J.
C.
Saylor to J.
F.
Paquette, dated July 27, 1972 (Exhibit P-19), wherein the reasons are given for not utilining the repair allowance.
It is there claimed that for electric steam production plant t.h e normal allowance would be 4.1 percent of the plant original cost versus a 2.5 percent (at that time) slight under the repair allowance.
While it uas admitted that a I
benefit then would be available for the hydroelectric generation and the transmission and distribution classes, it cites other reasons as making use of the repair allowance not feasible, including the following: -
t e..
At present there is no requirement
{cxcept AICPA rules which are not.
rnandato ry for utilities) that normalization accounting be used as a condition for adoption of the ADR allowance.
Consequently, the Pa.
PUC may require flow-throuch accounting (p.2 Exhibit P-19; Emphasis adaed)
On cross-examination, !!r. Paquette testified that PECO had perforned no
" formal" studies since the 1972 study (even t.hou gh the repair allowance had more than doubled since 1976),
but that the Company had reviewed the s i tua t.io n periodically and determined that thete would be no material benefit to be achieved by adopting the repair allowance s y s t e;a.
lle adnitted, houever, that after review of the ma t.te r,, h e found that PECO could claim
$5.003 nillion additional repair allowance deduction.
Neverthe-less, the Company refuses to concede that it should clain such additional repair allouance because (1) it would entail the loss of 10 percent investment tax credit in t.he amount of $500,000; (2) the repair alle,wance is not a permancat tax saving but nerely a deferral.ince depreciation cannot be taken on the same property once it in expensed; (3) it would lower the effective income tar rate if the increased t a >. deduction is flowed-through; and (4) it vould reduce pretas. coverage by the flow-through of the benefits.
Based upon the inquiries which he has made, Mr. Paquette disputed Towers' testimony that "many utilities -have elected to use the repair allowance."
In rebuttal, witness Towers stated that Vest' Penn Power Company, for one, claimed a repair allowance of $1.83 million in 1977 and $1.87 million in 1976, and that his review of the annual reports of 24 large electric and combination companies with 1975 investments in excess of $1.5 million for 3977 (1976 uhere 1977 d a t.a not available) filed wit.h the Federal I
Energy llegula to ry Commission (FERC),
showed that 13 electric ut.il i t.ic s cl ai:acd a repair allouance and that 11, includin;; PECO, did not.
The Consumer Advocate and Park Towne contend that the
\\ Company should at least claim the $5.003 million addi9 onal f
repair deduction admitted by the Company to be availat' f
a that. the benefits theref rom be flowed-through to the ratepayers.
By doing so, PECO could reduce its Stat.c and Federal income taxes currently payable by $2.1 million (51.628 percent of
$5.003 million),
and its tax expense for ratemaking purposes would be reduced by $2.6 million -because the investment tax credit. is deferred.
By flowing-through the tax savings of the
$5.003 million addit.ional repair' allowance, the annual revenue requirement in t.his case vould be reduced by about $5.4 million (2.6 million divided by 0.48372).
D.
p
e
~.
It is admitted by the Company that the repair allowance substantially with for 1977 is not atypical, since it comparen the a d di t.i ona l repair allowance that would have been available in 1975 and 1976.
Since the irrevocable election of pECO not to use the repair allowance for 1975 and 1976 does not pe rrai t such claims to be recovered for those years in amended tax returns, the recommendation of witness Towers to make such atended returns in without. merit.
Uc cannot accept the Company's position that is should forgo the opportunity of taking and flowing-through a present
$2.6 million tax benefit to the ratcpayers in order to obtain a
$500,000 investment ta:. credit and a deferred benefit of $2.3 million.
The present value of the repair allowance far czceeds worth oi depreciation allowance and investment tax present 1.h e so that the repair allowance should be utilized.
c r e d it.,
On the state of the record we cannot determine the exact amount of repair allowance possible for the test yearq We complete analysis of the various direct the Company to do a accounts t.o the end that_ it secure the maxinum possible deductipn to the diGpayer will benefit
_fron its tax liability, so that t.n u i.ia:-:imun ext ent pos sible.
We find that the failure of the Company to utilize the tax benefits through additional repair alleuance of $5.033 milion,
--pECO to be available, is unreasnn,bl e and that the charged in this proceeding for such ta:c benefits admitteo q
~
~
Dm wQ arising in the 1. cst year, in the amount of S2.o millica.
e 3 nvestry:nt Ta: Credit The Consumer Advocate proposes certain adjustments of the investment ta:. credit amortization:
- 1) to reflect amortization over a thirty-one year average plant life consistent with Compan';'-
proposed composite depreciation life ra t.he r than over the longer thirt.y-four years currently used by the Company; and 2) to bring the level of amortization to year end.
Park Towne recomnends the latter treatment only.
The Company reflected the actual amorti-za t. ion during the test year en the lower balance existing during the test year, at $2,022,000.
Complainants contend that it is necessary to calculate the arnortination on the accumulated year end investment tax credit, just as was done with tax depreciation.
the Since we have increased, for ratemaking purposes, lives of the plants creating the investment tax credit over that proposed by the Company, the Consumer advocate's proposal under 1) is re j e c t.ed.
By dividing the investment tax credit still subject to amo r t iza t. ion,
$121,342,000 by the thirty-four year life used currently by the Company, an annual amortization in -
i 3
l l
i
,. -. -.. ~ _ _ ~
]
1 i'
PI'.NSSYIN ANI A PU111.IC UTII.I'l Y COMMISSION PliNNST).I'.-INIA PUllLIC liTILITY Co.\\l.\\llMION gpn founir )
pany. 1 Pennsylvania Public Utility Commission l1 V
West Penn Power Company lic l l
(""
Additional complainantv Cerro Metal Pioducts, C. 21999, Tow nship O,
of lioth r, C. 2 20tu), Cit y of liuticr, C. 22hh6, A: nn o Steel Corporation.
DL C 22027, County of Allegheny, C 22015, Alico Spt.cr Cathon-(""I -
Graphite, C 22078, St;n kpole Cmbon Company, C. 22079, Wilco Chemical Corporation, C. 22080, Alhance for Consumer Protection of Westmmeland County, C. 22092, Allegheny I udlum indusnics, Inc.,
C. 22095, Washington Sicel Corporation, C. 22102, lhoikway Glass l
Company, C. 22103, Jcwop Steel Company, C 22104, lloroughs of p
Milesburg and State College, C. 22138, C. 22207, liald 1,aule Area 1,h-.9 t
School District, State Colict;e Area Sthool Distri< t, C. 22158 et al.
I,c ro to 'l muctmesn.w k.ntuttri No %9
.\\ lay 23,1976 Sujig lilei.
iwrrasr raks emd A<rrucxrtos I,y a fuca wmparq pr ant %rity to
< rew
!mryr; ganted as r>.alifwd.
cff.et t
I dem woLi
(
Valuation, } 213 - Construction work in tion - Property temporarily out of t h"".'
piogrcss - Power company.
,Phc use.
,j
[PA.] A power < ompany's t on trn< iion
[PA.] 'Ihe most reasonable pro < edutc for h
wmk in promess repirsenting expenditures treating a power (ompany's imbonenuater rau :
M to imprme the emiinnment weie deducted whic h was tempoitrily eut of use was to al-pc<,
[Ly fiom its iate her where tbe expendituns low a irtm n on the imestment in the plant by
,)
,s wer e made on a power pl mt whit h w as not in leasing it in the oriemal (ost rate base but senicc at the rnd of the tcst y car. lij p. 494.
redm ing the ret ur n on investment by 5 "'.l Q lt V - 1 Valnation, s 213 - Construction work in climinating the unit from present value tard progress - Power company, measure of the five-year aserage price lesC s est l PA.] A power company's ( onst r ut tion 14 } p. 490.
Invt l i
3, l
Qk k wo[rk in process was climinated fmm its rme !!eturn, p 26.1 - Capital structure -
a h.ne in the absnu e of any showing of a sescre Power company.
3 'N
-E]y 2
financial noti s.ity whic h would war rant in.
[PA.] A reasonahic capital strm tme for a
~
m iru G
G (Imion l2) p 495.
power e ompany was found to < onsist of 52 cA a p Valuation, { 2 t3 - Plant beht for future p< r i rr.t debt. 35 per c ent common ripdty.
ndM
\\z) 2 "
j use - Powc r company.
and 13 per tent picfened stock. [5] p. 499.
pro IPA 1 A power inmpany's piani hrht for Itciurn, t 26.1 - cmt or wmnum equity iari G.' M / utuir use was rhminated from its rate base f
- Power company.
het '
i 30 !
where sut h plant w as not bring u,rd h3 the
[PA.} An 11.5 per rent c ost of t onunon I
- ~ D '. \\ company and. thus, the c ompany should not equity was found f.iir and reason.ibic for a PD g carn a return on that plant. [3] p. 493, power company. [6l p. 499, pre Valuation, { 222 -~ 11 ate base determina-licturn, { !)7 - Power company, to '
492 25 tt'll 4th
.._,-...,.-.....-n._
,-,.-~.,,,<-,.---,r.,----.,.m.
,.n.,-w
-w,ww-,-r-wwn.~,o--w---s v
t 1
1 i
t i
~.--J
.--n~
-~~w
,.. ~.
I'l:NNSYl.VANI A l'Ulil.lc UTil.1lY COhlMISSR)N same amount to measures of salue to South Penn division (former Potomac Jiuh
]
refin t disallow.mcc of respondent's Edison (ustomcis) be merged in the ap.
rn e s l
daim for capitalized over heads, and a propriate West Penn l'ower Cornp,my a pu i
redm tion of 5116,460 to (laimed inmme t.uifis. I uring the acconsideration phase pc.d.
incil taxes and an addition of SW,760 to of this proceeding, the minpany statal measm es of v.due to r efic< t disalh>wante that both the encigy and demand rate Ain of the claim for icpair allowain cs. Our se hedules for Somh Penn can be con-Cad disallowant e of t he claim for the nm-seniently merged with timse of West Cor; malization of pic-1970 propeny woubl Penn. Under this proposal, which we date mis adapt, the South Penn customers will ex.
involve a r edut tion of $2,412,000 to of11 c laimed inmme f ases and an addition of pt rien(c a 10 - 15 per < cnt reduction in bric the s.une ainnunt to measures of salue.
sates.
Another inajor item under mntention The second staff exception deals with set :
was the issuc of income tax refunds.
Wr>t l'enn's t urn ni llate S( hedule 31.
in< r West Penn icc eived federal im ome tax The s:att position is that the sc hedule pre!
cefunds including interest of $2,910,403 which now provides an off-peak hours phd relaicd to tax > car s prior to 1970. 'I hese provision from 4:00 v.st. to 7:00 A.M. be c e p' n funds were not amorti/cd and flowed c hange d to the hours 10.00 v.st. to 7.00 dnL )
through to the hencfit of the,a rpay ers A.u. We agire with staff's general posi-det: j on the grou nds that tion. This c hange should be phased in ne' l
hy i csponth nt to ! l defit icm y awessments by the lits in the over a thr ee-year priiod.
amount of 5 3,W.624 for the tax years Staff excepts to the promotional water pac this sub3cquent to 1970 execeded the amount heating provision on Itate Sc hedule 10 f
of refunds. We acc ept the. company's and the mutinued existen< c of the now san argument s it is the resipibili1LaLa closed all-clectric Itate Schedule ll. 'lhe sta!j ylility_td inmrmive in < laiminq all in-argument is that Schedule 10 should he the I
come tax d:duulow-imkua_Lttp.its immediately closed and the company taxes low !!cre the company did this but sbould provide a uhedule merging thesc
.' its < laims wac reiccted. Since the tax re-customers and ihme in Schedule 1I with funds and tax drficiencies herc piar tical-the general residential Schedule 10
(
ly balanc e cat h other out and the dif-mstomers. We agree with this position.
sur l
lerence is negligible, neither shouhl be Another argument of staff's is that the the I
c onsidered at this time.
company should investigate the fm feasibility of the introduc tion of a (on.
Sil R.nr Sinu tme trolled, off.pcak residential rate (for opt water heating and other purposes) and
> h.
led J
Judge Niannix in his remmmended file the appropriate tmiff along with the det ision found no mmpelling reason to next rate icquest, or justify the omission gn change or alter West Penn's pmposed of such a tariff filing. In our Itc Generic t h.
sate design. Ilis condusion w as based on l'.lcu ric ltate So ut ture investigai!on m
< rc l
the fac t that seiy little factual data had (76 PitN!I) 7) we considcied and ap-l been pla(cd in the recoid n garding pnned a similar recommendation. We pn s et i
modifications of the existing rate design. do so here also.
St:df execpts on five rate structme issues.
The fifth staff ex< cption deals with the m:
Staff argues that the all encigy only issue of the detrimination of billing de-ca:
(nondem.md metered) tarif fs for the mands. Originally, staif had ex< cpted to it n ruiuih 506 L
t
.,_%e,
,-w
..y,a,%.,.y,mm,,yw.p.me,4..,.,,..
%g - er.
c
..+y.
r,e m.
.,.,,3
.p
%., m.
, e 9 7.,,.
, v e -.,.,, _ --
.e.,-.
---w
~v--