ML19347E649
| ML19347E649 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 03/30/1981 |
| From: | Russell S METROPOLITAN EDISON CO., RYAN, RUSSELL & MCCONAGHY |
| To: | PENNSYLVANIA, COMMONWEALTH OF |
| Shared Package | |
| ML19347E637 | List:
|
| References | |
| C-80072105, C-80072106, I-79040308, NUDOCS 8105130178 | |
| Download: ML19347E649 (35) | |
Text
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O BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION METROPOLITAN EDISON COMPANY C-80072105 v.
I-79040308 PENNSYLVANIA PUBLIC UTILITY COMMISSION PENNSYLVANIA ELECTRIC C-80072106 COMPANY I-79040308 v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION EXCEPTIONS OF METROPOLITAN EDISON COMPANY AND PENNSYLVANIA ELECTRIC COMPANY, COMPLAINANTS, TO RECOMMENDED DECISION OF ADMINISTRATIVE LAW JUDGE Complainants, Metropolitan Edison Company (" Met Ed") and Pennsylvania Electric Company ("Penelec") submit the following exceptions with respect to the Recommended Decision dated March 20, 1981, of the Honorable Joseph P.
Matuschak, Administrative Law Judge ("ALJ"), in the above-captioned proceedings. Complainants do not take exception to any of the numbered Pindings of Fact contained (at pages l
25-27) in the subject Recommended Decision.
18105130 @
. 1.
Complainants take exception to paragraphs 3 and 4 of the Conclusions of Law contained (at page 27) in the s ub j e c t Recommended Decision, namely, that:
"3.
Met Ed and Penelee have not met their burden in their respective complaints against temporary rates."
and "4.
The base rate relief requestad in said complaints should be donied."
2.
Met-Ed takes exception to the failure of the ALJ to conclude, on the basis of (a) the evidence, as well as (b) his 15th Finding of Fact, that Met-Ed had an annual revenue requirement of $301,918,000, that the just and reasonable standard of ratemaking applicable to complaints under Section 1310(d) of the Public Utility Code requires that Met-Ed be allowed the requested $26.9 million increase in its annual base rate revenues ef f ective June 1, 1980.
3.
Penelec takes exception to the failure of the ALJ to conclude, on the basis of (a) the evidence, as well as (b) his 16th Finding of Fact that Penelee had an annual revenue requirement of $471,942,000, that the just and reasonable standard of ratemaking applicable to complaints ut. der Section 1310(d) of the Public Utility Code requires that Penelec be allowed the requested $11.7 million increase in its annual base rate revenues effective June 1, 1980.
4.
Complainants also take exception to both l
the ordering clauses of the Recommended Order contained (at i
page 28) of the subject Recommended Decision.
l
-m
s 3-I.
INTRODUCTION In support of the foregoing exceptions, Complainants s ub mi t the following:
s 1.
Complainants believe that the Recommended Decision does not present any factual issues.
2.
Although Complainants would have given these matters somewhat different emphasis, Complainants believe that the sections of the Recommended Decision (contained at pages 1-13) entitled " History of the Proceedings", " Discussion" and " Background" present fairly and adequately the factual and other material contained therein, and Complainants adopt such presentation.
3.
Complainants submit that the sections of the Recommended Decision (contained at pages 14-25) entitled "The Issues" and " Review", which are predominantly matters of legal analysis and conclusions and which apparently underlie Conclusions of Law Nos. 3 and 4 to which Complainants take exception, are erroneous in certain fundamental respects.
It is our purpose to focus these issues sharply.
We believe that the three recommended decisions, dated March 20, 1981 (including the Recommended Decision I
i which is the subject of these exceptions) in the Complaint l
Proceedings and in the companion general rate increase proceedings involving Me t Ed and Penelec, amply demonstrate l
1 l
- the complexity, significance and unprece dented nature of the matters with which Judge Matuschak has been confronted in such proceedings.
Although, as our Exceptions in these proceedings and in the companion pro caedings make clear, we do not agree with all the conclusions that he has reached, we believe that'the care and diligence which he has demon-strated in hearing such proceedings, in ruling on issues presented during the course of the proceed ings, and in preparing his three Recommended Decisions deserve the commendation of the Commission.
II.
THE ISSUES From the outset of these complaint proceedings, it has been clear that the anomalous situation resul' ting from hearings before, and consideration by, an AI.J o f the Commission of complaints against a temporary rate order issued by-the Commission itself presents the appearance of a
" role reversal" between the Commission itself and one of its ALJ's.
In a conventional rate proceeding, the proceeding is assigned to an ALJ for hearings, findings of fact, conclusions of law, and recommendations without a prior tentative or final j udgment by the Commission on the merits of the matter and the Commission then makes its own decision for the first time in considering exceptions to the ALJ's l
l recomAendations.
. i By contrast, in the consideration of a complaint a g af.n s t a temporary rate order, it is the action of the Commission itself in prescribing temporary t'ates that is called into question.
The consequence is that, if the ALJ agrees-with the complaint, in part or in whole, he is necessarily finding that the Commission itself erred in adopting the o*: der which is the subject of the complaint.
Judge Matuschak was clearly troubled by this concept, and, understandably, he struggled valiantly to uphold the action taken by the Commission in prescribing temporary rates in its May 23, 1980 order.
In our view, he was more defensive of the Commission's action than was the Commission itself in that Order which (at page 15) clearly recognized'the possi-bility that the Commission might subsequently determine, if complaints were filed against the temporary rates, that such temporary rates "were set unreasonably low" and that, if this occurred, "an adjustment can be granted through Respondents' balances of def erred en ergy costs."
In his discussion under the caption "The Issues",
Judge Matuschak misperceived the Complainants' position and this, we b eliev e, led to the errors in his analysis.
We, therefo:<, find it necessary to deal with those misperceptions in order to focus the issues for the Commission.
In paragraph 1 on pages 14-15, Judge Matuschak a t t rib u t e d to Complainants the position that, at the time of its May 23rd Order, the Commission was under a duty to determine
6-not only whether TMI-l should or should not he in rate base, but also whether, even with the removal of TMI-1 from rate base, the then existing permanent base rates were just and reasonable.
That is not the Complainants' position.
It was, and is, the Complainants' position that the Commission could not have fixed lower permanent rates in its May 23, 1980 Order without determining whether such lower permanent rates met the just and reasonable standards.
Clearly, the Commis-sion agreed with this view in that 0
.ar, since it made the p o in t that it was fixing teaporary rates by that Order and that the record then before it "was not developed with respect to a current test period determination of Respondents' r ev enue requirements."
In Complainants' view, the Commission had the power, at the time of its May 23, 1980 Order, to reduce Complainant's then existing base rates pursuant to Section 1310(d) by prescribing temporary lower rates, without simultaneously determining whether the prescribed temporary rates were jus t and reasonable.
But, if such temporary rates were challenged by the filing of complaints against them to the effect that they were unjust or unreasonable, l
the Commirston had the subsequent obligation - as it expressly recognized in the May 23, 1980 Order - to determine in the i
7-7:
proceedings dealing with such complaints whether the temporary J
rates had been ser unreasonably low and, if it made such l
determination, to pr ov id e Complainants with an appropriate remedy.
The Commission could have elected to preside over the hearings with respect to the complaints - just as it had presided over the hearings resulting in-the May 23, 1980 Order - and then determine whether it wished to modify or rescind that aspect of the May 23, 1980 Order.
This would 1
have given the complaint proceedings more of the appearance that what was at issue was reconsideration by the Commission of this aspect of its May 23, 1980 on a fully developed record, but it would not have been the best use of the Commission's resources.
As one alternative, it could have referred such complaints and the proceedings thereon to an ALJ who was not the administrative law j udge hearing the Met Ed and Penelec base rate increase proceedings under Section 1308.
Another choice - and the one adopted - was to refer the c omplain t proceedings under Section 1310(d) to the same l
ALJ 1aw judge hearing the base rate increase proceedings j
under Section 1308.
The obj ective would have been the same, regardless of the procedure employed, namely, to provide a j
hearing record for the Commission itself ultimately to determine whether the temporary rates prescribed under
]
Soction 1310(d) on May 23, 1980 met the just and reasonable j
i standard.
8-We believe that the choice made by the Commission in referring both the base rate increase proceedings and the complaint proceedings to Judge Matuschak was a wise one.
As noted, it conserved the limited time of the Commission.
It permitted consolidation for purposes of hearings only before a single adminis trative lau j udge, thus avoiding duplication of evidentiary hearings, while providing the means of maintaining the clear separation of the issues in the complaint proceedings which 4
are essentially addressed to one aspect of the past action of the Commission (on May 23, 1980) from those presented in the base rate increase proceedings which are addressed to the future action of the Commission.
It is our belief that the Commission has a genuine i
interest in ascertaining whether its past action in prescribing temporary rates without the benefit of a fully developed record en revenue requirements produced just and reasonable i
rates and in providing an appropriate remedy if it did not.
l We are confident that the Commission would have wished to do 1
so if it had itself heard the complaints and that this i
j interest is in no way diminiched by the fact that it elected to avail itself of the services of an ALJ to compile a l
hearing record, consider and weigh the evidence presented and define the issues.
With the benefit of his assistance, the Commission is now at the point contemplated by Section 1310(d) and by this aspect of its May 23, 1980 Order, namely, to determine whether the temporary rates were unjust and unre a s onab le and, if so,
- o fashion the appropriate i
remedy.
f I'
9-l As previously indicated, we believe that the funda-mental error in Judge Matuschak's legal analysis stemmed.
from his misperception of the Complainants' position.
Specifically he attributed to the Complainants (at page 21) the position that:
"* '
- the Comraission could not properly fix temporary rates under-Section 1310(d) unless the Commission first investigated, and on the basis of such investigation made a finding re-garding whether the existing permanent rates to be altered has (sic) themselves continued to be just and reasonable"* **
and equated that position to the position dealt with by the Maine Supreme Court in Central Maine Power Company v.
P.U.C.
(Ma ine), 414 A.2d 1217, 1231 (decided May 30, 1980).
He then stated that this position would nullify the intent of Section 1310(d) and prev en t the Commission from acting promptly to protect the pub lic interest.
As previously stated, this is not the position of Complainants.
Instead, Complainants recognize fully the power of the Commission to fix temporary rates:
"Wh en ev e r the Commission, upon examination of any annual report, or of any papers, records, books, or documents, or of the property of any t
public utility, shall be of the opinion
- that any rates of such public utility are producing l
a return in excess of a fair' return upon the fair value of the property of such public utility, used and useful in its public service * * *"
- 0bviously, such opinion should not be arbitrary since that would be open to attack on the ground of abuse of discretion.
As the Supreme Court observed in the Central Maine case cited:
"So deciding, we take the precaution to add the caveat that the Commission should not exercise such power lightly or routinely." (at 1223)
. Clearly, the Commission can act expeditiously under Section 1310(d), if it is of the opinion that such action is required, to p r e sc rib e temporary rates without a finding at that time that the resulting rates will be just and reasonable.
But the distinguishing and saving factor that makes such action permissible - from a statutory and Constitutional point of view - is that the rates so prescribed are temporary and that the Commission can take remedial action if it sub sequently determines that such remedial action is appropriate.
This is illuminated by contrasting Section 1310(d) with Section 1309.
In the case of proceedings under Section 1309, brought on the Commission's own motion or upon complaint, the Commission can reduce existing rates and prescribe lower permanent rates only if the Commission, after notice and hearing, first finds that the existing rates are unjust and unreasonable and then determines the just and reasonable permanent rates.
In the case of a maj or utility, this is likely to be a laborious and time consuming process.
Section 1310(d), on the other hand, permits the Commission to proceed without notice or hearing or any prior finding that existing rates are unjust and unreasonable and that the new temporary rates will be just and reasonable.
At the time of the fixing of temporary rates, the Commission may act without affording the public utility the usual
11 -
precedural or substantive due process rights.
- Moreover, because the action of the Commission in fixing temporary rates is non-final and is subject to possible correction through action by the Commission in response to complaints under Section 1310(d), judicial review may not be obtained of a temporary rate order until the Commission has acted in response to a complaint against the temporary rate order.
Cf. Ducuesne Light Company v.
Pa.P.U.C.,
34 Pa.Cawlth. 50, 382 A.2d 991 (1978).
The consequence of Judge Matuschak's analysis is to give to a Section 1310(d) temporary rate order the same result as would be achieved by a Section 1309 order prescrib-ing reduced permanent rates.
We submit that this flies in the face of the specific provisions of Section 1310(d) and of the controlling judicial decisions with respect to this and similar statutes.
In the proceedings in which the May 23, 1980 Order was issued, it was not clear before the Commission acted whether the Commission was considering the prescription of l
new lower permanent rates under Sectisa 1309 or temporary l
rates under Section 1310(d).
Indeed, the tenor of the discus-sions in that proceeding appeared to focus on new lower permanent rates.
It was in that context that Complainants urged th the statutory and judiciary criteria required that the Commission first determine whether the new permanent rates would be just and reasonable.
It was also in that
12 -
context that, on November 27, 1979, the Complainants proposed that a future test year (i.e. calendar year 1980) be utilired 1
p to p rov id e the necessary factual basis for possible revisions of their base rates if TMI-1 costs were to be removed from their respec tive base rates.
In its Prehearing Order, adopted December 21, 1979, the Commission declined to set a test year for such purposes on the grounds that the levels of just and reasonable rates for Complainants were not an issue before the Commission in that proceeding.
i Thus, in the proceedings that led to the May 23, 1980 Order, complainants were denied an opportunity to present the, factual evidence to demonstrate that, even if all TMI-1 costs were elim in a t e d, the then existing rates were not in excess of the just and reasonable lev.e1.
Indeed, in that proceeding, the factual position of the Complainants appeared to be reinforced by the Trial staff's witness who testified in substance that his preliminary 1
j analysis indicated at that time that the Complainants' costs I
and rate base justified approximately their then existing rates.
He argued, however, that such facts should not be 4
taken into account because the Complainants had not filed a rate increase application under Section 1308.
Judge Matuschak states, at page 23 of his. Recommended Decision, that Complainants are attempting to infuse into
. Section 1310(d) the rate increase procedures provided for in Section 1308.
This is simply not the case.
On the contrary, Complainants are relying in these complaint proceedings solely on Section 131C(d).
Complainants are not seeking an increase in these complaint proceedings of the base rates
)
in effect immediately prior to the May 23, 1980 Order.
We are solely attempting to demonstrate that the temporary rates prescribed in that Order were set unreasonably low and that, upon reconsideration of that Order in these complaint proceedings, based on a fully developed record of revenue requirements excluding all TMI-1 costs, the base rates in effect before entry of that Order were not in excess of the just and reasonable level.
With this clarification and amplification, we believe that the positions a t tr ib ut e d to Complainants by Judge Matuschak in paragraphs 5-8, inclusive, on page 15 of his Recommended Decision are correct.
It necessarily follows that we disagree with the following statement of Judge Matuschak on page 18 of his Recommended Decision:
"As we see it, the only issues are:
(1) Did the Commission act properly in removing TMI-1 from rate base?; (2) Did the Commission make the proper calculation in determining the revenue effect of taking TMI-1 out of rate base?;
and (3) Was there such a change in ev en t s (such as the return of TMI-1 to commercial operation) as would require a change in the level of the temporary rates?"
14 -
First, although we believe for other reasons stated in the base rate increase companion proceedings that TMI-1 should not have been removed from rate base, we have assumed in these complaint proceedings that all TMI-1 costs and investment will be excluded from consideration in the determination as to whether the temporary rates prescribed in the May 23, 1980 Order are unjust and unreasonable.
Second, we have assumed in these complaint proceed-ings that the Commission.made the proper calculation in determining the revenue effect of taking TMI-1 out of rate base.
Third, we believe that there is no need for a change in events to require a change in the level of the temporary rates.
Instead, as we have previously stated - possibly at wearisome length -
Section 1310(d) itself and the applicable judicial precedents require that the Commission determine, in response to the complaints, whether the temporary rates in effect since June 1, 1980 were just and reasonable.
The Commission would have been required to make a prior determination on this score if it had proceeded under Section 1309 before imposing new permanent rates.
It may not c o nv er t temporary rates p r es cr ib ed in an Order l
l under Section 1310(d) into permanent rates by refusing to l
l
15 -
determine, in response to complaints under Section 1310(d),
ather those temporary rates are unjust and unreasonable and conclude that Complainants' only remedy is to seek a rate increase under Section '308.
Yet, this is the conclusion that Judge Matuschak would have the Commission adopt.
We cannot belf
-hat the Commission would wish such a result for it wou.. quickly result in a determination that Section 1310(d) is violative of the State and Federal constitutions and, therefo re, void and deprive the Commission of the means of taking quick preventive action that is the purpose of Section 1310(d).
While we cannot agree with the ALJ's characteriza-tion (on page 21-22 of his Reccamended Decision) of Complain-an t's position, we can agree with him that, when the Commission invokes Section 1310(d) to prescribe temporary rates, after eliminating a major capital investment of a utility from its rate base, it runs the risk that such action, from a rate aspect, could be nugatory.
All that this means is that, at the t im e the Commission took such action, the utility's rates were so far below the just and reasonable level that the elimination of that investment from rate base still did not justify a reduction in the utility's base rates, even though the Commission had initially concluded otherwise by prescribing louer temporary rates before it had an t
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opportunity to consider the matter on the basis of a fully developed record.
This is the situation here presented.
It does not diminish in any respect the efforts of the Co= mission to protect the pub lic interest against excessive rates.
On the contrary, it merely demonstrated that the public had already been more than protected by the Commission against excessive rates.
We agree with Jr: ige Matuschak that Section 1310(d) is noc the proper vehicle for a utility to seek an incr;ase in its permanent base cates.
But Complainants have made no such effort.
Section 1310(d) is a vehicle whereby the Commission may take quick preventive action to reduce ratas on a temporary basis - if it is of the opinion that such action is called for -
secure in the knowledge that if it has done more than it should have it has the means to restore the appropriate status af te r completion of the proceedings in response to complaints.
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III.
COMPLAINANTS HAVE MRT THEIR BURDEN OF PROOF IN THEIR RESPECTIVE COMPLAINTS AGAINST THE TEMPORARY RATES PRESCRIBED BY THE COMMISSION'S MAY 23. 1980 ORDER Judge Matuschak has not specified with any particu-larity the basis for his Conclusion of Law No. 3 that Met Ed and Penalec have not met their burden of proof in their respective complaints against temporary rates.
Certainly, he cannot mean that, from a factual standpoint, Met Ed and Penalec have fallad to present credible evidence to demonstrate
)~
that their base rate revenue requirements for a test year measured by the period during which such temporary rates hav e been ir effect were in excess of those which would be produced if the complaints were granted in full.
On this score, Judge Matuschak found, in Findings of Fa c t Nos. 14 and 15, that based on the future test year ending March 31, 1981, the annual revenue requirement for Met Ed is $301,918,000 and for Penelec is $417,942,000, which are the same annual revenue requirements he found in the companion rate increase proceedings in Dockets R-80051196 and R-80051197 Decisions in those Dockets.
He also found at page 82a of his Recommended Decision in Docket R-80051196 l
i
18 -
that a rate increase for Met Ed of $50,148,000 is necessary to provide for such annual revenue requirements of Met Ed and at page 69a of his Recommended Decision in Docket R-80051197 that a rate increase for Penelsesof $54,890,000 is necessary to provide for such annual revenue requirements of Penelec.
Thus, since. Met Ed is seeking in the complaint proceeding restoration of only $26.9 million on an annual
^
basis, the amount so sought is only slightly more than one-half of the additional amount which he has found is necessary to provide Met Ed with just and reasonable rates for that test year period.
Correspondingly, since Penalec I
is seeking in the complaint proceeding only $11.7 million i
on an annual basis, the amount so sought is less than one-quarter of the additional amount which he has found is necessary to provide Penelee with just and reasonable rates for that period.
Complainants repeatedly sought during the course of the complaint proceedings co obtain an expedited decision on the complaints, but this did not prove f e a s ib le.
In that context, Couplainants submitted evidence for other po s sible test years, although their primary reliance was on data for a future test year ending March 31, 1981.
Although Judge Matuschak did not make Findings of Fact for such other possible test years, he summarized the data relating thereto
- 19 on pages 16-17 of his Recommended Decisions.
As there set forth, for each of those possible alternate test years, the Met Ed data support findings of annual revenue requirements appreciably in excess of the amount sought by Met Ed in its complaint proceeding.
Similarly, for such possible alternate test years, the Penelec data support findings of annual revenue. requirements in excess of, or in one instance approximating, the amount sought by Penalec in its complaint proceeding.
I Since
-t did not prove feasible to obtain an earlier decision in the complaint proceedings, Met Ed and Penelec believe that the data for the test year ending Mari,h 31, 1981 provides the best basis for evaluation of the complaints, both because (a) ten of the twelve months encompassed in that test year are the months that the temporary rates have been in effect, and (b) such data h av e r e ce iv ed the most searching analysis by the parties to the proceeding and by Judge Matuschak.
However, as the data referred to in the immediately preceding paragraph demonstrate, ev en if other test year periods were utilized, the same l
result would be produced - namely, that if the additional amounts sought by the complainants are restored, the resulting l
races would not be in excess of the.just and reasonable l
level.
I l
Given these facts and, indeed, the ALJ's own Findings of Fact 14 and 15, we submit that it is abundantl>
clear that Complainants have met their evidentiary burden of proof to establish that the temporary rates prescribed
~
by the May 23, 1980 Order were and are unjust and unreasonable.
I_ would appear, therefore, that Judge Matuschak's Conclusion of Law No. 3 that Complainants have not met their burden relates to his characterization of the relief sought by the complaints as tantamo?snt to interim rate increases.
We are some what baffled by his apparent view on this score since it appears to be inconsistent with his Interim Order of October 16, 1980 where he determined that Met Ed and Penelec were entitled to file the complaints.against tempo-rary rates under Section 1310(d) and have the issues raised therein determined, in addition to and independent of the issues in the general rate increase proceedings under Section 1308.
Indeed, he there stated:
"Further, due process, constitutional require-ments, and statutory mandate require that both the temporary rate proceedings and the general rate increase investigations should proceed to final determination."
There does not appear to be any major dispute with the proposition that the complaint proceedings deal solely with the action to be taken concerning the temporary rates l
l i
l l
l
1
- 21 in effect for the period from June 1, 1980 until the effective date of the Commission's determination of new permanent rates in the general rate increase proceeding (assumed for the purpose of this discussion to be April 27, 1981), while the general rate increase proceedings deal solely with the permanent rates to be in effect beginning on April 27, 1981.*
Ignoring for the moment the remedy to be granted, it appears incontrovertible that Section 1310(d) mandates, and the Co mmis s ion' s Order of May 23, 1980 contemplates, a determination by the Commission as to whether the temporary rates prescribed by that Order are unjust and reasonable if timely complaints against those temporary rates are filed.
Since the temporary rates were prescribed prior to the filing of the general rate increases, Complainants believe that the Commission could have changed the temporary rates
- It is noteworthy that, in its brief to Judge Matuschak, the Commission's Trial Staf f stated:
"There are only two rates to be set here: (1) l prospective rates for the period April 27, 1981 and thereafter and (2) retroactive rates for the period June 1, 1980 through April 27, 1981." (at page 18) i i
i i
o l
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(or rescinded, in effect, the temporary rate order) during the pendency of the general rate increase proceeding, without violating the third from last sentence of Section 1308(d).
But the passage of time has made that issue irrelevant, since that sentence is only applicable (it it is applicable at all)
"* *
- unring the pendency of a general rate increase proceeding or prior to a final determination of a general rate increase request We, therefore, return to the final two sentences of Section 1310(d).
What is the burden they impose upon Complainants? The penultimate sentence of Section 1310(d)
I public utility f or which temporary unquestionably authorizes a
rates have been prescribed pursuant to the first sentence of i
Section 1310(d) to file a complaint with the Commission I
"that the rates so prescribed are unjust and unreasonable".
The last sentence of Section 1310(d) provides that:
"Upon such complaint, the commission, after hearing, shall determine the issues involved and pending final determination the rates so prescribed shall remain in effect."
Wh a t are the " issues involved"?
While the statute ii*
is not explicit, the " issues involved" must clearly center on (1) the question of whether the temporary rates so prescribed are " unjust and unreasonable", since that is the contemplated subject matter of the complaint, (2) if such
.=.
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preacribed rates are determined to be " unjust and unreasonable",
st what level should such prescribed rates have been set so that they would not have been unjust and unreasonable, r,
(3) what remedies are to be provided to correct the impact of~the unjust and unreasonable temporary rates.
It is precisely those issues which Complainants have addressed in the evidence they have presented and in the arguments they have submitted.
We believe that it is also clear that the standard to be employed in determining whether temporary rates are
" unjust and unreasonable" under Section 1310(d) is the same standard to be employed in determining whether rates are "just and reasonable", namely, the criteria specified in FPC v.
Hope Natural Gas Company, 320 U.S.
591 (1944).
In that connection it is relevant that, in Permian Basin Rata Cases, 390 U.S.
747 (1968), the Court stated that:
"* *
- the just and reasonable standard of the Natural Gas Act ' coincides' with the applicable constitutional standards * * *" (at page 770).
Since the matter of the criteria for just and I
reasonable rates as established in the Hope case and subse-quently are dealt with at pages 25-49 in our Brief in the companion general rate increase proceedings we need not l
l repeat that material here.
Instead, we hereby refer to, and i
incorporate by reference, that material.
l i
l
\\
. IV.
THE CONSTITUTIONAL VALIDITY OF SECTION 1310(d) REQUIRES THAT IT BE CONSTRUED IN A MANNER WHICH PROVIDES AN APPROPRIATE REMEDY ACAINST TEMPORARY RATES WHICH ARE DETERMINED TO BE UN-JUSTLY AND UNREASONABLY LOW.
~
It has been recognized for many decades that temporary rates may be prescribed without a prior determina-i tion that such rates meet the appropriate statutory and constitutional standards only if there exists an appropriate mechanism to make the utility whole if it is susequently determined that the temporary rates are unreasonably low.
In Frendergast v.
New York Telephone Company, 262 U.S.
43 (1923), the New York Commission had fixed temporary rates which were to continue in effect pending final determina-tion by that commission in a pending rate proceeding.
The f
company sought a temporary inj unction f rom the U.
S.
District Court claiming that the temporary rates were confiscatory.
The District Court concluded that the temporary rates presc ribed by the Commission could not possibly yield a fair return upon the value of the utility's property upon which it was entitled to a return and were, therefsre, confiscatory and granted the temporary inj unc tion.
U. on appeal, the Supreme Court upheld the action of the District Court, noting that the public utility could only be protected from loss by the injunction.
In that context, it is noteworthy l
that the Court equated deprivation of a reasonable return on its property during the period that the temporary rates were in effect with confiscation, stating (at page 49):
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"No r did the fact that the orders of the Commission merely prescribed temporary rates to be effective until its final determination, d epr iv e the Company of its right to relief at i
the hands of the court.
The orders required the new reduced rates to be put into effect on a given date.
They were final legislative acts j
as to the period during which they should remain in effect pending the final determina-tion; and if the rates prescribed were con-fiscatory the Company would be deprived of a reasonable return upon its property during such period, wi tho ut remedy, unless their enforce-ment should be enj o ined.
Upon a showing that such reduced rates were confiscatory the Company was entitled to have their enforcement enj oined pending the continuance and completion of the rate-making process." (at page 49)
(emphasis supplied)
Several years after the Prendergast decision, the New York Public Service Law was amended to include a now section on temporary rates which, in many pertinent respects, is similar to the present Suction 1310 of the Pennsylvania Public Utility Code.
Pursuant to the new section, the New York commission prescribed temporary reduced rates and the affected utilities appealed to the New York courts contending that the new section was unconstitution-4 al in the light of the Prendergast decision.
In Bronx Gas &
Electric Company v.
Maltbie, 271 N.Y.
364, 3 N.E.
2d 512 (1936),
the New York Court of Appeals upheld the constitutionality of the new section, on the ground that, in contradistinction to the situation presented in the Prendergast case:
"This section, as we have said, forces the Public Service Commission to consider the returns from the temporary rate and to establish the permanent rate, or the final rate accordingly; that is, if the temporary rate has proved to be too low, the final rate must make it up to the Company." (at page 375) l l
i
. In the course of its opinion, the New York Court ob served that the factors required to be taken into account in establishing temporary rates under the temporary rate statute did not include all the factors required to be taken into account in fixing any rate which had the effect of being final and in that context stated:
"Therefore we must conclude, in fact it is apparent and conceded that, if this temporary rate, fixed according to this added section, is to be final, or has any element of finality, it is unconstitutional and void."
The Court also observed that it was true that all the consumers paying the final rate, including that to make up for the utility's revenue loss suffered as a consequence of the temporary rate, may not be the same as those who paid the temporary rate, but that was of no consequence, stating in that connection:
"Anyhow, this is no concern of the company, for its complaint here is that because of the temporary rate it will suffer loss.
If the loss is made up to it in the final rate, the objection is obviated.
That the commission is authorized, in fact compelled, to make up this loss, if any, through the final rate, is the meaning, and must be the meaning, of these words in section 114: 'The commission is hereby
+
authorized in any proceeding in which temporary rates are fixed, * *
- to consider the effect of such rates in fixing, * *
- rates * *
- on l
final determination.'."(at page 375)
Although the Pennsylvania temporary rate statutory i
provisions in effect from 1938 until 1977 made express provision for recoupment by a utility of the excess of the final rates over the temporary rates for the period when the temporary rates were
27 -
in effect whereas the present Section 1310(d) does not contain such express provisions for recoupment, this is not a controlling consideration in construing the present Section 1310 and the Constitutional considerations affecting its interpretation.
Specifically, the provisions of the New York statute set forth in pertinent part in the last quotation from the Maltbie' case are strikingly similar to the present Section 1310(e) of the Pennsylvania Public Utility Code.
As noted, the New York Court of Appeals held in the Maltbie case that such provisions must be construed as compelling the New Yo rk Commission to make up the loss.*
Elsewhere in its opinion, that Court also stated:
"We cannot imagine the Legislature, in the face of the Prendergast Case, doing such a foolish thing as re-enacting, though in different language, s law giving the Public Service Commission power to do that which the United States Supreme Court had determined it could not do.
The Legislature, evidently by section 114, intended to meet the criticism in the Prendergast case and to follow the way implied-ly pointed cut for a proper law.
If the courts required the public utility company to put up a bond to pay back to the consumers the over-charges which it had exacted, pending a hearing, why was it not just as feasible and
- 1ndeed, in his concurring opinion in Driscoll v.
Edison Light &
Power Company, 307 U.S.
104, 123, discussed below, Mr. Justice Frankfurter stated:
"* *
- the two States in which utilities play the biggest financial part - New York and Pennsylvania - have evolved *he so-called recoupment scheme for temporary rate fixing * *
- as a fair means of accommodating public and private interests."
1 legal to turn the remedy about and provide that the consumers or the public should make good to the company the loss which it may have sustain-ed in temporarily exacting too little?
This is what our Legislature has done, and this we think is the meaning which we must give to its language, if it is to have any sense at all in the light of the past.
The commission fixes a temporary rate pending the hearing.
It is based upon the elements stated, which are not all of those required to fix a permanent rate.
As before stated, this would be impossible, if we must consider in fixing a temporary rate all the elements required for the final rate; no temporary rate could ever be fixed.
This also is self-evident.
Therefore, to meet these conditions the temporary rate is fixed, within reasonable limits, upon figures which can be with some exactness obtained from the books of the company, showing original cost or investment; j
and if finally, when the proceeding ends, the temporary rate is proved to have been too low, the utility must be permitted and authorized to charge enough for its service to make up the loss." (at pages 3 73-4)
Three years after the Maltbie decision, the issue of the constitutionality of the Pennsylvania temporary rate statue was presented to the U.
S.
Supreme Court in Driscoll v.
Edison Light & Power Company, 307 U.S. 104 (1939).
In that case, however, the Pennsylvania Commission had fixed temporary rates on the evidence then thought to be constitu-tionally required under Smyth v. Ames, 169 U.S.
466 (1898) in fixing final rates.
Consequently, the case did not present to the Court the question as to whether, if temporary rates had been fixed on a basis that did not take into consideration all the elements required in fixing rates, l
p r ov isio ns for recoupment of the loss would be sufficient to t
1
29 -
sustain the cons titutionality of the temporary rate statute.
The Court merely stated that this was a novel and important question of constitutienality that it need not decide, and contented itself with t.o ting, by a comparative reference, the Prendermast and Maltbie decisions.
Subsequently other courts have held that the provisions for recoupment in the statute in effect prior tc 1977 satisfied constitutional requirements and thus permitted the prescription of temporary rates prior to a determination of the level of just and reasonable rates.
- See, e.g.
Besver Valley Water Company v.
Driscoll, 28 F.
Supp. 722 (D.C., 1939).
Thus far, neither the Commission nor the courts h av e 1 ad occasion to consider the possible consequences if the present Section 1310 were to be construed - as it has apparently been construed by Judge Matuschak - as permitting the Commission to prescribe temporary rates under Section 1310(d) and relegating the affected utility to a rate increase request under Section.308 - which can only operate prospectively - as its only possible source of relief - i.e.
I as denying the utility some means of being made whole for the revenue loss when it is sub sequently established o
that the temporary rates were unjust and unreasonably low.
However, the Prendergast, Maltbie and Edison _ Light decisions I
clearly support the view that such a construction of the statute would require that it be held unconstitutional.
Indood, it to inconoistont with conson conoo notions of fair sud do not - believ e that the Commission play.
We cannot intended such a possible construction in the light of the fact that it spelled out in the May 23, 1980 Order the potential for restating the deferred energy balance if it were determined that the temporary rates were set unreason-ably low.
Although, in contrast to the predecessor Section 310 of the prior Pennsylvania Public Utility Law, the present Section 1310 of the Public Utility Code makes no express provision for recoupment, the availaility of recoup.
ment under the present Section 1310 is confirmed by Section 1308(d).
Specifically, the chird from last sentence of j
Section 1308(d) p rov id e s :
"The Commission shall consider the effect of such supsension the suspension of a general rate increase filed under Section 1308(d) in finally determining and prescribing the rates to be thereafter charged and collected by such public utility, except that the commission shall have no authority to prescribe, determine or fix at any time during the pendency of a general rate increase proceeding or prior to a final determination of a general rate increase request, temporary rates as provided in section 1310, whia.h rates may provide retroactive increases through recoupment." (emphasis supplied)
Thus, Section 1308(d) reflects a legiciative consistent with Constitutional requirements - i.e intent that the Commission continues to have av ailab le to it under Section 1310 the recoupment remedy (as well as other possible remedies) notwithstanding the changes in language from the former Section 310.
31 -
V.
THE APPROPRIATE REMEDY Although the Commission has broad discretion in fashioning the appropriate remedy when it determines that temporary rates set by it were unreasonably low, the remedy f o re shadowed in the Commission's May 23, 1980 order -
namely, " restatement of Respondents' balances of deferred energy costs" is best suited to the circumstances of Complain-ants and their customers.
Discussion of this matter will particularly focus on Het Ed since Met Ed's financial condition is more critical than that of Penelec.
The amounts of the restatement that are appropriate are, we believe, abundantly clear.
As discussed previously, if the base rates in effect immediately prior to the May 23, 1980 Order had remained in effect, they would not hsve bee.n in excess of (indeed, would have been well below) the just and reasonable level.
Consequently, for the period of ten months and 27 days (June 1, 1980 - April 27, 1981) that the temporary rates will have been in effect until the assumed effective date of the Commission's order in the companion general rate increase proceedings, Complainants should be made whole for the reduction in base rates prescribed by the May 23, 1980 order.
Such reduction was $26.9 million l
annually in the case of Met Ed and $11.7 million annually in the case of Penelec.
On that basis, the amounts of restate-
)
ment to be provided in response to the complaints are:
l
(1) for Met-Ed,
$26.9 million times 10 9 months or $24.4 million 12 months (2) for Penelec
$11.7 million times i
10.9 months, or $10.6 million 12 months In the tastimony presented by Met Ed and in the positions urged by Met Ed to Judge Matuschak, Met Ed has urged that the objectives should be to accomplish the following:
(a)
Provide Met Ed with enough' cash through a combination of additional revenues and additional bank credit, to meet Met Ed's cash needs through April, 1982; (b)
Provide a sufficient rate of recovery of accumulated deferred energy that the banks will be satisfied that chey will be repaid if they finance a higher level of deferred energy over a longer period, and (c)
Smooth out the impact on customers, to the extent compatible with b o th obj ec tiv es.
It is in that context that Met Ed proposed, and Judge Matuschak recommended, that the surcharge of $5 I
million per month to amortize the deferred energy balance be j
reduced to $2.5 million per month and that the period for collection of the surcharge be correspondingly extended.
At pages 15-20 of their Brief to Judge Matuschak, Complainants presented both verbally and graphically the impact on 1
customers and upon Met Ed's bank credit (assuming renewal
1 33 of the Revolving Credit Agreenent on essentially the present terms) of granting (1) the full base rate herease requested by Het Ed of $76.5 million, (2) a simultaneous reduction in the energy surcharge from $5 million per month to $2.5 million per month (3) a simultaneous restatement of the deferred energy balance in the full amount, and (6) the resumption of generation by THI-1 in January 1982 at essen-tially full power.
Th'e consequences, in terms of the averaSe charges to Het Ed's customers in 1981 and 1982 and in terms of available bank credit and borrowings, are shown in th e' following graphs:
RET-ED: AVE tuSTcrER COST--FULL RATE RELIEF 9.0 g g g g g g g g g g g g g 3 g g a 3 5.5 C
N 8 N *"E8I87ED*
B E
- 0 REDUCEP EP.facy SURow&CE Corff!NUE5 Pk57 FmY 1932 M 7.5 T 7
$.0 P *5 E
/ m RnTE IncaEASE\\
S.O
~
~
3 S.5
~
\\
Enracy sunoweecE tREDUCED ENS 13 K
.0 5
X U
ENERGY CLAUNE N
H 4.5 4.0 CURRDtT pst R4TEs 0.5 I I I I I I I I I I I I I I I I I I "3.0 J F nh n 2 J h $ 0 it D J F tt 9 n J
/-
'1911
/
1932
-/
F:ET-ED SHORT-TERM CE3T CUTSTANDDtG 140 4 4 4 i i 1 6 4 4 4 4 i i i i i i i
~
~
R RATE RELIEFt 373.5 MILLIOM.EEDUCED EM2CY SURCMancE, I 120
- RESTATED
- cdERRED DeGY BALANCE L ggg 3931 SPDtDINC JM-Jure AT st49 MILLICH ANNUAL RATE L
JUL-NC AT S1G5 MILLIcet ANM.iAL RATE I 100 O go' R.C.o. ' 2317,, -
]
N
~
' ~ '
B0
- ~
~
D 70 0
60 t 50 A 40 SH0rtT-TZ21 Ef77 d
! 30 R.c.A.
ExPlats 20 10 r I I I I I I I I I I I I I I I I I I O
J F nA n J J A S 0 nD J F n A n J
/
1931
/
1930
/
34 If granted, Met-Ed's recommendation would resul'c (on the basis of the assumptions set forth above) in a monthly increase in TOTAL CHARGES TO CUST011ERS OF $3.875 million for the seven-month period May - December 1981, at which time (by reason of the expected return of TMI-l to s erv ic e). TOTAL charges to customers would decline to approxi-mately their present level.
Since Penelec's surcharge to recover the deferred energy balance is already small, namely, approximately $5.2 million per year, Penelec did not suggest that it be reduced The restatement of its deferred energy balance in response to its complaint would simply result in continuance of that surcharge at the same level for approximately two years after the time when it would otherwise end, November 1981.
Since Judge Matuschak held that the complaints should be denied, he stated that he need not address the question of whether the increase in the deferred energy balance that would result from granting the complaints should be on a KWH basis or otherwise.
However, he observed:
"* **a substantial recoupment of base rates, if granted, through a deferred energy charge on a KWH b asis, may not be the most appropriate treatment." (at page 18)
Co mplain t s concur in that observation.
They recommend that recovery of this increment of the deferred energy balance resulting from restatement be recovered through a charge consistent with the reduction in base rates effected by the temporary rate provisions of the May 23, 1980 order.
. CONCLUSION Complainants Met Ed and Penelec, therefore, urge that:
1.
The Commission determine that the temporary rates prescribed by the May 23, 1980 order are unjust and un r e a s onab le ;
2.
The Commission grant the subject complaints by directing a restatement of Complainants' deferred energy balances so as to increase Met Ed's deferred energy balance by $24.4 million and Penelec's deferred energy balance by
$10.6 million; 3.
The Commission direct that recovery of such increment of the deferred energy balance be effected in a manner consistent with the reduction in base rates effected by the temporary rate provisions of its May 23, 1980 order.
Respec tf ully submitted,
adu el' B'. ' Ru's s ell W.
Edwin Ogden Alan Michael Seltzer Frederick L.
Reigle Eric L.
B.
Strahn Ryan. Russell & McConaghy 530 Penn Square Center P.
O.
Box 699 Reading, Pennsylvania 19603 James B.
Liberman Berlack, Israels & Liberman 26 Broadway March 30, 1981 New York, New York 10004
-.