ML19347E697
| ML19347E697 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 02/13/1981 |
| From: | Kerrigan M HOSP. COUNCIL OF CENTRAL PENNSYLVANIA, CAMP HILL, HOSP. COUNCIL OF WESTERN PENNSYLVANIA, WARRENDALE, PEPPER, HAMILTON & SHEETZ |
| To: | PENNSYLVANIA, COMMONWEALTH OF |
| Shared Package | |
| ML19347E637 | List:
|
| References | |
| R-80051196, R-80051197, NUDOCS 8105130241 | |
| Download: ML19347E697 (15) | |
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O BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Before Administrative Law Judge Joseph P. Matuschak Pennsylvania Public Utility Commission, et a' v.
R-80051197 Pennsylvania Electric Company Pennsylvania Public Utility Commission, et al.
()
R-80051196 v.
Metropolitan Edison Company Brief of The Hospital Council of Western Pennsylvania and the Hospital Council of Central Pennsylvania Michael P.
Kerrigan Pepper, Hamilton & Scheet j
10 South Market Square P.
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Box 1181 Harrisburg, Pennsylvania 17108 (717) 233-8483 i
Attorneys for The Hospital Council j
of Western Pennsylvania and r
l The Hospital Council of Central
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i TABLE OF CONTENTS
? age
'F I.
Statement of the Questions Involved.
1 2
II.
Summary of Argument III. Statement of Interest 3
IV.
Comment Upon the Issues Specified By Commissioner Johnson.
.s.
5 A.
500 KWE Exemption for Residential Consumption 5
3.
Inverted and Flat Rates 6
V.
"'he Rate Allocation of Met Ed and Penelec 8
VI.
Conclusion
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O I.
STATEMENT OF THE QUESTIONS INVOLVED 1.
ARE REVENUE RESPONSIBILITY ALLOCATIONS WHICH DO NOT TRACK COSTS IN THE PUBLIC INTEREST?
2.
ARE DISCRIMINATORY REVENUE RESPONSIBILITY ALLOCATIONS CONTRARY TO THE PUBLIC UTILI"'Y CODE?
3.
ARE THE PROPOSED ALLOCATION OF REVENUES AMONG THE VARIOUS CUSTOMER CLASSES JUST, REASONABLE AND NON-DISCRIMINATORY?
4.
ARE THE PROPOSED ALLOCATION OF REVENUES WITHIN TFE VARIOUS CUSTOMER CLASSES JUST, REASONABLE AND NON-DISCRIMINATORY?
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O II.
SUMMARY
OF ARGUMENT Rate structures which are arbitrarily designed to recover return in different degrees from various c ?stomers are unlawful, tend to cause return instability with re nact to the utility company and expose the utility to the costs associated with enhanced business and financial risk.
The cost of service studies submitted by Met Ed and Penelee properly assign cost responsibility to the various customer classes.
Whatever rate increase that is ultimately granted should be allocated so as to move the rates for all classes of customers closer to the system average rate of O'
return, and the rates within the classes should be designed to track costs.
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O III.
STATEMENT OF INTEREST Tariff Electric - Pa. PUC No. 44, filed by Metropoli-tan Edison Compcny, and tariff electric - Pa.
P.U.C.
No. 75 i
filed by Pennsylvania Electric Company would increase existing rates for the intervening parties, the members of the Hospital Council of Central Pennsylvania and the Hospital Council of Western Pennsylvania located in the service territories of Met Ed and Penelec.
The interveners on whose behalf this brief is sub-i mitted take no position with respect to the revenue level to which Met Ed and Penelee are entitled inasmuch as the existing parties appear to provide adequate representation. The Hospital Councils' participation in these proceedings is limited to the manner in which whatever revenue increase the utilities are entitled to is ultimately allocated to the various customers.
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It is the position of the Hospital Councils that rate design should take into consideration the following objectives:
(1)
It should foster conservation of scarce resources, not only the traditionally perceived natural resources, but also capital.
Just as scarce natural resources such as fossil fuel should not be wasted, neither should capital be tied up in a plant O
wi=h subogeima1 use.
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'(2)
Rates should be equitable and fairly applied, and be consistent with the actual cost of serving customers.
Rates should be implemented which assign capacity costs on the basis of the actual demand imposed by various customer classes and the customers within the classes.
(3)
Rates should provide sufficient revenue to the utility to provide the return necessary under the operating conditions likely to occur.
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O IV.
COMMENT UPON THE ISSUES SPECIFIED BY COMMISSIONER JOHNSON A.
500 KWH EXFEPTION FOR RESIDENTIAL CONSUMPTION Commissioner Johnson directed interested parties to address:
The exemption of the first 500 KWH from an increase in rates and in the alternative a modified increase for the first 500 KWH producing a smaller increase for usage up to this level than for the remaining blocks of the residential and residential-heating tariffs.
Such a proposal clearly amounts to an inter-class subsidy and runs directly counter to Section 1304 of the Public Utility Code which states that:
No public utility shall, as to rates, make or grant any unreasonable preference or advantage to any
- person, corporation, municipal corporation, or subject any person, corporation or municipal corpora-tion to any unreasonable prejudice or disadvantage.
No public utility shall establish or maintain any unreasonable difference as to rates, either as between localities or as between classes of ser-vice.
. 66 P.C. A. 51304.
In The Peoples Natural Gas gmpany, et al. v. Pennsvl-vania Public Utility Commission, Pa. Commonwealth Ct.
409 A.2d 446, 455 (1979), the Commonwealth Court concluded that S.e essence of Section 304 is that rates for one class of service shall not be unreasonably prejudicial and disadvanta-geous to a patron in any other class of service.
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The Court went on to point out that a preferential rate is one which results in an advantage to one class with a resulting injury to another.
Thus, the subsidy concept described in Commissioner Johnson's directive would appear to be unduly preferential and discriminatory under the Public Utility Code.
In addition to being at odds with the Public Utility Code, when rates are not based upon the actual costs of service the utility is more vulnerable to revenue and return instabil-ity. Ecr example, if industrial customers of the utility provide a disproportionately large amount of the utility's return entitlement, an event such as mandatory curtailment of industrial energy consumption because of fuel shortage would O
-gufv ee 1=gact ugon ee utmty's retu=n.
B.
INVERTED AND FLAT RATES Commissioner Johnson also directed the parties to address:
An inverted rate structure for residential customers and a flat rate structure for general service customers.
The fundamental problem with an inverted rate struc-ture is that it does not track costs and thereby exposes the t
utility to revenue and profit instability.
The same can be said for a flat rata schedule if it is not designed on the basis of cost of service.
Electric utilities traditionally recover their O
allowable return and fixed costs through demand charges,.
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the eby reducing their susceptuility to economic or climatic situations which reduce electrical consumption.
A flat energy charge, based upon actual energy cost, accompanied by cost ba nd customer and demand charges are appropriate.
However, to the extent that the energy charge contains return or fixed costs, minor changes in KWH consumption 4
will have major impact on achieved return. This is particularly serious for electric utilities because they are so highly leveraged.
An inverted rate structure is potentially more serious because the tail block by its very nature contains a j
disporportionately large component of " profit. "
The increased business and associated financial risk to which the utility is exposed will eventually'be felt in the form of higher debt and equity costs, and as such will be borne by all the ratepayers, including those who are sheltered by such a pricing scheme.
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V.
TIC RATE ALLOCATION OF MET ED AND PENELEC Met Ed and Penelee take the position that rates should be based primarily upon the cost incurred to serve the various customer classes. (Met Ed Statement C, p.7; Penelec Statement C, p. 8). The Hospital Counells support this philoso-phy, as does the Commission Staff and the irdustrial complain-ants.
(Staff Statement RAR-1, Summary Page; Staff Statentent WJ-1, p. 2; Drazen Testimony, p. 3 ).
Met Ed and Penelee submitted cost of service studies which allocated demand on the basis of a weighted average of the winter season and summer season demand responsibilities O
for each of the rate groups.
(Met Ed Statement C,
p.
20; Penelec Statement C,
p.
20).
The cost of service studies demonstrate that the general service customers are providing a return in excess of system average rate of return at present rates and at proposed rates.
(Met Ed exhibit C-3, pp.
3, 4,
1 20, 21; Penelec exhibit C-3, pp.
3, 4,
20, 21).
However, the proposed allocation of the rate increase tends to move the class rates of return toward system average, and it is the position of the Hospital Councils that whatever rate increase is granted for each utility be applied to the various customer classes in the same proportion as that proposed by respondents.
Such an allocation is supported by the Commission Staff (Staff
)
O s= t at w3-1. 9 3)-
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However, the Hospital Councils further urge that within each customer class the rates be designed to track I
costs.
Penelec Exhibit No. 21 and Met Ed Exhibit No. 20 i
demonstrate that low load factor customers under existing and i
proposed rates are being charged rates substantially below i
cost at the expense of high load factor customers.
This is the result of setting customer and demand charges below cost, and energy charges above cost (cf. Drazen Met Ed Statement,
- p. 11).
This is not only counterproductive and unfair to the high load factor customers who utilize utility equipment most afficiently, but it also tends to expose the utility to poten-tially severe return erosion during periods of economic and O
climatic anomalies if energy charges contain a disp *:oportionate-ly large element of return.
Penelec's proposed rate GP (general service - pri-mary) consists of a customer charge that recovers only 55% of the customer cost, a demand charge that recovers only 89% of the demand cost, and energy charges which recover 132% of the energy cost during on-peak periods and 107% during off-peak periods. (Penelec Exhibit C-21, p. 5 of 8).
The disparity is even more pronounced for Met Ed, where the proposed rate GP customer charge recovers only 42%
of the cost to serve, and the demand charge recovers only 75%
of cost, whereas the energy charge recovers 162% of the cost on-peak and 117% off-peak. (Met Ed Exhibit C-20, p. 5 of 6).
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O It is the position of the Hospital Councils that the utility and the customers would be better served if the customer and demand charges were established on the basis of cost, and if the combined on-peak and off-peak energy charge equalled energy cost. The magnitude of the on-peak /off-peak differential can be retained by pricing the on-peak energy above the average cost and the off-peak below average cost; this is compatible with the change in System Lambda between on-peak and off-peak periods.
Thus, if the utility experiences a down turn in KWE consumption, its earnings should be relatively secure because the customer and demand components are traditionally more q
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-stable. To the extent that the energy charge does not contain a return component, the reduction in revenue attributable to decreased KW'-I consumption would be offset by the accompanying decrease in running cost.
Mr. Drazen is of the opinion that Met Ed's proposed rate design can be corrected by increasing both demand and energy charges by roughly the same percentages.
(Drazen Met Ed testimony, pp. 12 & 13; exh. MMD-1 schedule 7 & 9).
Penelec's proposed rate design can be corrected by increasing demand charges by a slightly greater percentage than energy charges.
(Drazen Penelee supplemental testimony, p. 3).
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VI.
CONCLUSION i
To the extent that the Commission authorizes an increase in revenues for Metropolitan Edison Company and Pennsylvania Electric Company, it is the position of the Hospital Councils that a rate increase be applied to the various classes so as to move the rate of return earned from each class closer to the system average rate of return, and that within each customer class the rate design track costs.
Respectfully submitted, PEPPER, HAMILTON & SCHEETZ '
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2' By:
Michael P. Kerrigav 10 South Market Sq.lare P.
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Box 1181 Harrisburg, Pennsylvania 17108 (717) 233-8483 Attorney for Hospital Council of Western Pennsylvania and Hospital Gouncil of Central Pennsylvania l
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CERTIFICATE OF SERVICE I,
Michael P.
Karrigan, hereby certify that on February 13, 1981, a true and correct copy of the foregoing was served on each of the following by United States mail, first class, postage prepaid, addressed as follows:
Honorable Joseph P. Matuschak Craig R. Burgraff Administrative Law Judge Assistant Consumer Advocate Pa. Public Utility Commission David M. Barasch P.
O.
Box 3265 Assistant Consumer Advocate Harrisburg, PA 17120 1425 Strawberry Square Harrisburg, PA 17120 Samuel B.
Russell, Esquire W.
Edwin Ogden, Esquire Stephen A.
George, Esquire Ryan Russell & McConaghy Buchanan, Ingersoll, Rodewald, P.
O.
Box 699 Kyle & Buerger Reading, PA 19603 57th Floor, 600 Grant Street O
Pittsburgh, PA 15219 Steven A. McClaren Deputy Chief Counsel Wtfne L. Emery, Esquire Julian Suffian, Asst. Counsel Kenneth R.
Pepperney, Esquire Pa. Public Utility Commission United States Steel Corporation Law Bureau 600 Grant Street P.
O. Box 3265 Pittsburgh, PA 15230 Harrisburg, PA 17120 Bernard A.
- Ryan, Jr., Esquire David C.
Thomsen Dechert, Price & Rhoads P.
O. Box 15030 800 North Third Street Philadciphia, PA 19130 Harrisburg, PA 17102 Maurice A.
Frater, Esquire Thomas Maloney Robert H. Griswold, Esquire Regional Administrator Henry R.
MacNicholas, Esquire Department of Housing and McNees, Wallace & Nurick Urban Development P.
O.
Box 1166 625 Walnut Street Harrisburg, PA 17108 Philadelphia, PA 19106 O
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William Costello Dr.
W.
R. Clark Acting Area Manager 1546 Woodlawn Avenue Department of Housing and Erie, PA 16510 Urban Development 445 Fort Pitt Boulevard Charles B.
Zwally Esquire Pittsburgh, PA 15219 1801 North Front Street a
Harrisburg, PA 17102 Gerald Gornish, Esquire Wolf, Block, Schor:
Daniel Brocki, Esquire and Solis-Cohen Hammermill Paper Company 12th Floor, Packard Building P.
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Box 1440 Philadelphia, PA 19102 Erie, PA 16533 David L. Kurts, Esquire John E Fullerton, Esquire 100 North Main Street 407 No.th Front Street Moscow, PA 18444 Harrisburg, PA 17101 PEPPER, HAMILTON & SCHEETZ By Ikub:l f nm (3
Michael P. ' Kerrig' n a
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10 South Market Square P.
O.
Box 1181 Harrisburg, Pennsylvania 17108 (717) 233-8483 Attorneys for Hospital Council of Western Pennsylvania and Hospital Council of Central Pennsylvania l
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