ML19347E704
| ML19347E704 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 02/17/1981 |
| From: | Wise K CENTRAL PENNSYLVANIA LEGAL SERVICES, SENIOR POWER ACTION GROUP |
| To: | PENNSYLVANIA, COMMONWEALTH OF |
| Shared Package | |
| ML19347E637 | List:
|
| References | |
| C-80072105, R-80051196, NUDOCS 8105130248 | |
| Download: ML19347E704 (39) | |
Text
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.a O
O BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION PENNSYLVANIA PUBLIC UTILITY COMMISSION, et al.,
R.I.D.-80051196 vs.
METROPOLITAN EDISON COMPANY C-80072105 BRIEF OF COMPLAINANTS LOUISE RILEY AND SENIOR POWER ACTION GROUP OF YORK REGARDING ISSUES RAISED IN THE RATE INVESTIGATION O
CENTRAL PENNSYLVANIA LEGAL SERVICES Dated: Februarv 17, 1981 BY:
4
'O Kenneth A. Wise, Esquire 213-A N. Front Street Harrisburg, PA 17101 (717) 232-0581 Attorneys for Complainants, Louise Riley and Senior Power Action Group 0N 1os13
c,L.
9 TABLE OF CONTENTS ggg Page Table of Citations Statement of Questions Involved 1
Statement of the Case 2
Summary of Argument.
3 6
Argument I.
The Residential Rate Structure Proposed Bv Met Ed Is Not In The Public Interest A'd Should Not Be Approved By The Commission.
6 n
l II.
The Public Interest Requires That Med Ed's Structure Electric Rates So That Electricity Is Reasonably A'. fordable To All Persons In Its Service Tertitory.
13 ggg III. Additional Necessary Revenues Should Be Recovered As Much As Possible As Part Of The Energy Charge.
19 IV.
Met Ed's Rates Should Be Streutured So That The Small Use Catagories O' Rates Are Exempted From The Full Effects Of The Rate Increase.
25 V.
Met Ed Exhibit C-41 Is Not Admissible Into Evidence And Should Not Be Considered In These l
Proceedings.
26 i
i 30 Conclusion.
Appendices 1.
Table I 31 32 lll 2.
Table II i
TABLE OF CITATIO"S O
Pese I.
CASES 16 Armco. Inc. v.
Pennsylvania Public Utility Commission, Pa. Commonwealth Ct.
422 A.2d 719 (1980)
Citizens Water Co.
- v. Pennsylvania Public Utility 6
Commission.
181 Pa. Super. 301, 124 A.2d 123 (1956)
Colombo v.
Pennsylvania Public Utility Commission, 6, 13 159 Pa. Super. 483, 48 A.2d 59 (1946)
I Federal Power Commission v. Hooe Natural Gas Co._,
6 320 U.S.
591, o4 S.Ct. 281 (1944)
C-)'
Follmer Trucking Co. v. Pennsvivania Public Utility 27 Commission, 171 Pa. Super. 75, 90 A.2d 294 (1952)
Hoffman v. Public Service Commission, 6
99 Pa. Super. 417 (1930)
Laurel Pioe Line Co.
v.
Pennsylvania Public Utility 27 Commission.
29 Pa. Commonwealth Ct. 351, 370 A.2d 1252 (1977)
Natona Mills. Inc.
v.
Pennsylvania Public Utility 16 Commission, 179 Pa. Super. 263, 116 A.2d 876 (1955)
Peooles Natural Gas Comoanv v. Pennsylvania Public 17 Utili:/ Commission, Pa. Commonwealth Ct.
409 A.2d 446 (1979)
O l
l 11
Page City of Philadeichia v. Pennsv1vania Public 13 Utility Commission, lll 164 Pa. Super. 96, 63 A.2d 391 (1949)
Philadelchia Suburban Transoortation Comoany v.
16
~
Pennsylvania Public Utility Commission, 3 Pa. Commonwealth Ct. 184, 281 A.2d 179 (1971)
Pittsburgh v.
Pennsvivania Public Utility Commission, 16 162 Pa. Super. 376, 126 A.2d 777 (1956)
Pittsburgh v.
Pennsylvania Public Utility Commission, 16 157 Pa. Super. 341, 144 A.2d 648 (1958)
Pittsburgh and Lake Erie Railroad Co.
v.
Pennsylvania 27 Public Utility Commission, 170 Pa. Super. All, 85 A.2d 646 (1952)
Ridley Townshio v.
Pennsylvania Public Utility 13 Commission, 172 Pa. Super. 472, 94 A.2d 168 (1953)
United States Steel Coro.
v.
Pennsylvania Public 17, 25 Utility Commission, 37 Pa. commonwealth Ct. 173, 390 A.2d 865 (1978)
II.
Miscellaneous A.
Treatises.
Bonbright, James C.,
Princioles of Public Utility 21 Rates, New York, Columbia Univeri.cy Press, 1961 Huff, Darrell, How to Lie With Statistics, New 29 York, W.W. Norton & Co.,
1954 Newman, Dorothy K. & Day, Dawn, The American 10 Energy Consumer, Cambridge (Mass.), Ballinger Publishing Co.,
1975 Young, Pauline V.,
Scientific focial Survevs 29 and Research, (4th ed.)
Englewood Cliffs (N.J.),
Printice-Hall, 1966 ggg 111
Pm
(~h U
B.
Other
- Brancato, C.H., " Con Edison's New Race Structure:
10 A Breakthrough in Electricity Pricing, New York Affairs, Vol. 1, No. 4, p. 83, 1974
" Lou Income Energy Assistance Programs-A Profile 10 of Need and Policy Options," U.S. Department of Energy pub. No. RG-0036, July, 1980
" Money Income and Poverty Status in 1975 of 9
Families and Persons in the Unites States and the Northeast Region by Division and States-1976,"
U.S. Department of Census, Series P-60, Nov., 1978
" Report on the Investigation into the Inability 15, 18 to Pay Utilities Bills in the Commonwealth of Pennsylvania," (Pa.P.U.C.) Sept. 28, 1979
(]}
Social Security Claims Manual, sec. 13127 10 t
l O
iV
STATEMENT OF THE QUESTIONS INVOLVED g
1.
Is Met Ed entitled to increase its base rates to its customers so as to realize $76.5 million in additional revenues, or any lesser amount of additional revenues?
2.
Is Met Ed's proposed rate structure fair and in the public interest?
O i
i l
l O
STATEMENT OF THE CASE The matters presently consolidated for consideration by the Commission concern a filing for a general rate increase brought by Metropolitan Edison Company (" Met Ed")
and the Pennsylvania Electric Company ("Penelec"), and complaints against temporary rates brought by both Met Ed and Penelec.
On July 29, 1980, Met Ed and Penelec filed general base rate increase requests with this Commission.
Met Ed's request was for $76.5 million in additional annual revenues, and Penelec's request was for $67.4 million in annual rate increases.
Met Ed also filed on said date a Petition for Extraordinary Rate Relief requesting permission for an immediate general rate increase of $35 million.
4 Hearings on the Petition for Extraordinary Rate Relief i
were held in late. July and early August.
On August 20, 1980, Judge Matuschak issued his decision finding that Met Ed was not entitled to emergency rate relief.
This Commission, by Order of August 28, 1980, afirmed to this finding.
Also on July 29, 1980, Met Ed and Penelec filed with this Commission a Complaint Against Temporary Rates set by the Commission in its order of May 23, 1980, when it found TMI-l not to be'used and useful, found that the annual revenues associated with TMI-1 were approximately O._
$26.9 million for Met Ed and $11.7 million for Penelec, and ggg o2dered both companies to reduce their base rates accordingly (R.I.D. No. I-79040308).
A number of complaints were timely made to this Commission to Met Ed's and Penelec's July 29, 1980 base rate increase ests.
On September 22, 1980, a pre-hearing conference was held, and hearings on the rate investigation were scheduled for October.
On October 16, 1980, Administrative Law Judge Matuschak entered an order consolidating hearings on the Complaint Against Temporary Rates with the race increase investigation for hearing purposes only.
Oral argument on the Complaint Against Temporary Rates was held before Judge Matuschak on December 3, 1980.
O Hearings on the rate increase investigation took place from October, 1980 through January, 1981.
The record in the race increase request was closed on January 23, 1981.
The matters are now before Administrative Law Judge Matuschak for consideration.
l
SUMMARY
OF ARGUFENT The Complainants herein are Louise Riley,and Senior Power Action Group of York ("SPAG"), an unincorporated association formed to promote the general betterment and well being of senior citizens.
This complaint was directed against the proposed rate increase of Met Ed, and not Penelec.
'The Complainants herein adopt the position taken by the Office Consumer Advocate ("0CA") with respect to the maximum amount of base revenues which Met Ed should be allowed to collect from its customers.
Complainants adopt herein the arguments advanced by OCA in support thereof.
Met Ed's proposed rate structure for the low use residential class of customers unfairly places a disproportionate amount of the general rate increase on this customer strata.
The proposed tariff is against the public interest in this regard since it falls most heavily on persons least able to absorb the shock of the increase.
Met Ed should be ordered to structure rates within the residential class so as to keep the customer charge as low as possible to its current rate (viz. $3.75 per month)'
and to place any additional cost associated with the customer charges as part of the energy charge.
The summer / winter differential should be maintained in the interest of conser-vation,-and this Commission should consider tail-blocking the l()
high-usage categories in the interest of conservation.
Phase- __
out of the all-electric residential class can be postponed gg or eliminated and a separate inverted rate tail-block can be implemented t'o cvoid hardship on this subclass.
In addition, the high-use residential farm operations should be separately classified since their usage patterns bear no resemblance to the typical residential customer using electricity for domestic purposes.
Costs of service should be more heavily allocated towards the industrial class as opposed to the residential class, since the industrial class is more responsible for system growth than residential class customers.
O O.
O ARGUMENT V
I.
THE RESIDENTIAL RATE STRUCTURE PROPOSED BY MET ED IS NOT IN THE PUBLIC INTEREST AND SHOULD NOT BE APPROVED BY THE COMMISSION.
In all proceedings before this Commission, the interests of the public must be kept foremost:
The primary purpose of the public service laws is not to establish a monopoly or to guarantee the security of investment in public service corporations, but first and at all times to serve the interests or public.
[ Emphasis supplied.]
Hoffman v. Public Service Commission, 99 Pa. Super. 417, 429 (1930); Colombo v.
Pennsylvania Public Utility Commission, 159 Pa. Super. 483, 48 A.2d 59 (1946).
Accordingly, "The Commission is charged with the duty of protecting the rights of the public...." Citizens Water Co. v.
Pennsylvania Public Utility Commission, 131 Pa. Super. 301, 124 A.2d 123, 126 (1956).
As applied to rate cases, the consumer interest must be balanced with the invester interest:
The rate-making process i.e.,
the fixing of "just and reasonable rates", involves balancing of the invester and the consumer interest
" regulation does not insure that the business shall produce net revenues".
Federal Power Commission v. Hope Natural Gas Co.,
320 U.S.
591, 603, 64 S.Ct. 281, 288 (1944).
Met Ed's proposed residential rate structure is (gg against the public interest because the bulk of the increase falls on small users.
The overall rate increase is 17.17%
for the total Met Ed system, and 16.97% for residential service persons. Met Ed Exhibit C-1.
However, for all subclasses of residential service, the person with average or less than average usage is hit with a considerable increase.
For basic RS Residential Service, a person with an average conthly consumption of 500 kwh is hit with a 27.0% increase.
Persons consuming 200 kwh per month are hit with a 45.9% increase.
By contrast, an RS customer consuming 1500 kwh a month will only receive a 15.9% increase in his bill, roughly only half of the increase of 63% of the O
persons who consume 500 kwh a month and under.
See Met Ed Exhibit B-5, page 2.
The story with the rest of the residential class rate structure is the same:
for the customer who consumes =nre, he or she will have to pay less of an increase Met Ed's proposed tariff revision for the residential class is against the public interest also because certain residential subclasses are being phased out, and some large use residential customers who use electricity for their business are not classified separately.
Furthermore, the su=mer-winter differential for large users has been eliminated.
In his direct testimony, Med Ed's rate witness Carter indicated l
that one of the reasons for his opposition to putting a greater khI l
~
(%>)
portion of customer expenses as part of the energy charge was to ease a burden on these high use customers as they were. phased into the non-preferential. rate classifications.
Thus, in order to ease the burden on these high use persons, a greater amount of the increase is passed on to the low use customers.
As for residential customers with farm-related activities, Med Ed Exhibit C-31 shows that 90 out of the 100 largest RS residential customers purchased electricity for farm-related activities.
PUC trial staff witness Japak indicated during his cross-examination on January 21, 1981 that Med Ed customers on residential class service with farm activities have patterns of usage distinct from other residential class customers.
He indicated that it would be advantageous to put such customers on the general service classifications, but for the temporary hardship that would be faced by the changeover.
Thus, in the case of the 100 largest RS users,. the 90 who have farm-related activities will receive an increase of approximately 6% or less.
Thus, because of a lack of proper sub-classification within the residential class, residential customers with distinct usage patterns who purchase relatively large amounts of electricity receive a relative advantage under the proposed tariffs at the expense of the smaller usage customer.
) __
In sum, it is the customer that uses a smaller amount of electricity who is being made to bear the brunt of lll the increase. 'Furthermore, the extremely high customer charge for residential customers makes the proposed residential rate structure one of declining rates, even though declining rate blocks have been p:cnosed to be eliminated.
Elderly customers will be especicily hard hit by the proposed rate increase.
Senior citizens in Pennsylvania now comprise of substantial portion of Pennsylvania's population.
The most recent U.S. Census Bureau figures for Pennsylvar.'a show that there are 1,342,000 Pennsylvanians aged sixty and over out of a total population of 11,663,000, or 7.51%.1 A great many of the elderly are either poor or are living on only modest income at best.
The median annual income for O
an elderly individual was S3,513, while the mean (i.e. weighted average) income was $4,948.
This disparity between the mean and median income strongly suggests a large clustering in the lower income range.
This suggestion is strengthened by the fact that 25% of the persons aged sixty and over live within 125% of the poverty level established by the U.S. Community Services Administration.
(Today the poverty level is established at $4,738 for a single individual and $6,262 for a two-person household.
45 Fed. Reg. 36415 (5/30/80).)
1Unless otherwise stated, the figures stated in this paragraph are taken from or computed from:
" Money Income and Poverty Status in 1975 of Frmilies and Persons in the United States and the Northeast.tegion by Division and States-W 1976" (U.S. Dept. of Census, Series P-60, Nov., 1978).
_9
Contrary to widespread belief, most elderly persons
,-(
do not have substantial pension income.
Over 70% of the elderly count on Social Security benefits as either the sole 9
or major source of their income.'
For persons receiving OASDI old age social security benefits and retiring in 1980, annual benefits will range from $3,859 to $7,437, with the average benefit being $5,862.
See C.C.H. Unemp. Ins. R., "1980 Social Security Explained," (1980).
For elderly persons in Pennsylvania receiving SSI, an individual receives $3,245, annually and an elderly couple receives $4,868 annually.3 Thus, the elderly depending on Social Security benefits are primarily lower income persons.
Lower income persons are smaller users of electricity,
(}
Numerous recent studies have shown that low income persons consume significantly less electricity and that their use of electricity is inelastic.
See, "Lew Income Energy Assistance Programs-A Profile of Need and Policy Opti6ne," (U.S. Dept.
of Energy Publication No. 2G-0039, July,1980; Newman, D.K.,
The American Energy Consumer, Ballinger,
'.'.975, pp.98-101;
- Brancato, C.H., " Con Edison's New Rate Structure: A Breakthrough in Electricity Pricing," New York Affairs, Vol.
1, No.
4, 1974, pp. 83-85.
Even Med Ed witness Eugene Carter has tacitly recognized the inelasticity of use with respect to low-use customers.
TR. 1186.
- Indeed, the premise that low use residential customers have inelastic O
9
-"Lov r inergy Assistance Programs-A Profile of Need and Polic; 2
~
/U.S. Dept. of Energy, RG-0039, July, 1980.)
3 ocial sec
.t< Claims Manual, sec. 13127.
S m~
demand is practically tautological, since normal use of basic necessary household appliances can closely approximate the llh average RS residential consumation.
A recent study of SPAG members, supplied to the Commission as part of the generic rate structure proceeding held by the Commission (76 P.R.M.D.-7),
showed that nearly all of the members surveyed had monthly consumption that was significantly lower than that of the average Med Ed residential customer.
It can therefore be seen that there are significant numbers of elderly persons in Pennsylvania, many of whom are low income persons.
Low income persons are small consumers of electricity who simply cannot afford spiraling race increases of the type Met Ed proposes, and who do not hnto any discretionary use for them to cut back.
ggg
'The following estimates for basic residential appliance use are provided by the Edison Institute, 1975:
Average Residential Monthly kwh Acoliance Profile Consumotion washing machine 10 electric iron 10 refrigerator (average of 110-150 manual and frost-free models) motor load for heating season 55 l
television (average of black 40-80 and white and color models) miscellaneous appliances 20 (e.g.,
radio, vacuum cleaners, clocks, etc.)
lighting for a six-room house 60 minimal electrical cooking 100 (e.g.,
toaster, small even, other cooking appliances)
AVERAGE TOTAL CONSUMPTION 455 kwh per month (range:
415-495 kwh/mo.) O
= _,
Met Ed has not addressed the problem of the elderly i
()
in being able to afford the increases.
In his supplemental direct testimony (page 16), Met Ed witness Carter advances reasons in support of his position that " Met Ed provides a variety of services to assist customers in making their electric bills more managable".5 However, an examination of these services indicate that they are nothing more than what is required by this Commission's regulations or what has been existing practice on the part of Met Ed.
None of l
these-services address the higher rate which the customers must pay.
Met Ed opposes shifting the weight of ra'te increase to higher use customers as a means of helping low income elderly g
persons.
It has offered into the evidence an Exhibit (Met Ed's (V
Exhibit C-41) which it says showr, that a significant number of 1
low income individuals will be adversely affected by placing a greater amount of the rate increase on high use customers.
Despite its inadmissiblity and dubious scientific valdity (see sub-section V, infra),it is of little value since the definition of " low income elderly" used is so different from generally recognized income standards for defining low income elderly.
For a person with an annual income of $9,000 (Met Ed's limit for a low income person), that person's income is nearly twice the poverty level, 65% above the annual income of the 4
5 It r,hould also be noted that the Commission has ordered
~
(d' an investigation into Met Ed's termination practice '.
Order of Jan. 22, 1981 (Docket No. Z-1526759).
4 t,
1 average Social Security OASDI old age recipient, and 177%
over the annual income of
- ne SSI individual recipient in Pennsylvania.
If anything, Met Ed's assumption of what constitutes a low income person shows that it is far removed from the hard economic facts of life faced by the elderly.
While Met Ed may now show a concern for its least affluent customers, this Commission must do so.
II.
THE PUBLIC INTEREST REQUIRES THAT MED ED'S STRUCTURE ELECTRIC RATES SO THAT ELECTRICITY IS REASONASLY AFFORDA3LE TO ALL PERSONS IN ITS SERVICE TERRITORY.
A Public Utility must meet must makes its services available to all of the public at reasonable prices.
"A Public Utility cannot collect the cream in its territory and reject the skimmed milk."
Ridley Two. v. Pennsvivania Public Utility Commission, 172 Pa. Super. 472, 94 A.2d 168, 171 (1953).
His-torically, the public utility laws of this Commonwealth have been interpreted to require public utilities to furnish service to all of the public, even where some parts of its business are less profitable or even where some parts of its business are operated at a loss.
City of Philadelohia v. Pennsvlvania Public Utility Commission, 164 Pa. Super. 96, 63 A.2d 391 (1949);
Ridley Two.
v.
Pennsylvania Public Utility Commission, suora.;
Colombo v.
Pennsvivania Public Utilirf Commission, suora.
As discussed in Section I, above, in orcer to help make service 1
reasonably affordable to all the public, even the lower income llk
(])
persons in Met Ed service territory, Met Ed should be directed to j
fashion rates so as to ease the burden of the increase on lower use residential customers.
This Commission has repeatedly recognized that the duty of serving the public includes making service available at prices everybody can reasonably afford.
In its order of June 15, 1979 in ebe investigation into the iccident at Three Mile Island power station (Docket No. I-79040308),
t-his Commission stated; The brief submitted by the Central Pennsylvania Legal Services on behalf of several groups and individual complainants was primarily concerned with the subj ect of the ability of low and fixed income and elderly customers to pay utility charges.
Legal Services requests that any increases charged to low and fixed income
({}
and elderly customers to pay utility rates Legal Services requests that any increases charged to low and fixed income and elderly et;tomers be either a small percentage of the amounts charged to other residential customers or in the alternative to exempt from any increase, the first 250 KWH of their residential use per month.
The brief raises the very real problems confronting the low fixed income and elderly utility customers and their ability to pay increased utility costs.
The Commission, moreover, is deeply aware of the impact of double digit inflation on not only the utilities themselves but those who have to pay utility bills.
The Commission has, through its visits to communities throughout the state where it has met with and discussed these "ery problems with ratepayers in all economic I
circumstances, developed its own indepen-dant awareness and appreciation of many
.r the problems so graphically described by the Pennsylvania Legal Services.
O
The Commission therefore concludes that it cannot at this time orovide a definitive response to the issues raised lll by Central Pennsylvania Legal Services.
These issues will be examined in the near future pursuant to Federal law requiring hearings on " lifeline" rates.
(Sec. 114 of Public Utility Regulatory Policies Act, 1978, Pub. L.95-617). [ Emphasis supplied.]
Now is the time for these issues to be reexamined.
This Commission has expressed similar concern in its
" Report of the Investigation to the Ability to Pay Utilities Bills in the Commonwealth of Pennsylvania", issued September 28, 1979.
On page 23 of that record, the Commission plainly expressed its concern:
"...the Commission must not forget the plight of the energy user on a fixed or low income."
The report went on to express this Commission will as to how the problem is to be lll addressed:
A way to resolve the inability to pay for these fixed income families is for the Commission to develop an essential needs rate structure.
By guaranteeing all residential customers a minimal of amount of electricity for daily use-cooking. heating, lighting-the Commission recognizes the essential nature of utility service.
The Commission should accept energy usage as a basic necessity that should be guaranteed.
Special rates for residential customers can be justified.
1
" Report of the Investigation into the Inability to Pay Utilities Bills," suora., page 23.
Much mention has been made about the various costs of service methodologies used in allocating rates.
Race structure witness Mark Dara:en, appearing on behalf of certain ggg industrial complainants, went so far as to suggest that rates should based entirely on cost of service studies.
Such slavish adherence to cost of service studies as a basis for designing rates is inappropriate and against the public interest.
Courts of our Commonwealth have recognized that this Commission must consider many factors in determinating appropriate rates.
In Pittsburgh v.
Pennsylvania Public Utility Commission, 182 Pa. Super. 376, 393, 126 A.2d 777, 785-86 (1956), the Superior Court recognized the appropriateness of:
... such factors as the recent and past rate history and program of the utility, the sales characteristics of the various classes of consumers, the practicality of administering the schedules, the value of the service to the various consumers, the promotional aspect of the races, and the competition in certain areas by other
(])
fuels.
Other examples of appropriate considerations include principles of value of service (Pittsburgh v. Pennsvivania Public Utility Commission, 187 Pa. Super. 341, 144 A.2d 648 (1958)), promotional rates (Natona Mills. Inc. v.
Pennsylvania Public Utility Commission, 179 Pa. Super. 253, 115 A.2d 876 (1955)), and savings realized by classes of customers (Armco, Inc.
- v. Pennsylvania Public Utility Commission, Pa. Commonwealth Ct.
, 422 A.2d 719 (1980).
The Courts of our Commonwealth have also approved this Commission's actions in structuring rates so as to ease the hardship on ratepayers who are vulnerable to raising utility races.
In Philadelphia Suburban Transporation Company v.
Pennsylvania Public Utility Commission, 3 Pa. Commonwealth Ct.
184, 196, 281 A.2d 179, 186 (1971), the Court quoted with
$ i
approval the follcwing language from an epinion of this O
Commission describing the fixing of reasonable rate schedules:
There is no requirement that rates for different classes of services must be either uniform or equal or that they must be equally profitable.
Differences in rates between classes of customers based on such criteria as the quantity of electric used, the nature or the use, the time of the use, the pattern of the use, or based on differences of conditions of service or cost of service are not only permissible but often are desirable and even necessary to achieve reasonable efficiency and economy of operation.
Rate structure, which is an essential, integral component of rate-making, is not merely a mathematical exercise applying theoretical principles.
Rate structure must be based on the hard economic facts of life and a complete and thorough knowledge and understanding of all the facts in circumstances which affect rates and services; and the rates must be desizned to furnish the most efficient and satisfactory service at the lowest reasonable crice for the greatest number of customers, i.e.,
the puolic generally.
[ Emphasis supplied.]
The Commonwealth Court has, in fact, spoken in disapproving terms of persons coming before that Court to challenge reasonableness of this Commission's determinations of rates where those parties seek to do so "emphasiz[ing] the cost-l of-service study, to the exclusion of other equally appropriate factors."
Peoples Natural Gas Company v.
Pennsylvania Public Utility Commission, Pa. Commonwealth Ct.
, 409 A.2d 446, 458 (1979).
In the United States Steel Corporation v. Pennsylvania Public Utility Commission, 37 Pa. Commonwealth Ct. 173, 390 A.2d ggg 1
865, 871 (1978), the Court specifically approved of this
/,
(_)
Commission's exercising its " flexible limit of judgment in fixing rates" to hold low-use residential class customers exempt. from a large portion of rate increase where the customers with this type of usage would be especially hard hit:
We see no reason why in times of stringency the utility might not propose, and the Commission might not approve, rates for residential users less than the rates which an allocation of large increases in necessary revenues by a strict application of cost of service studies would suggest.
It is therefore in the public interest, in making electric service available at the lowest reasonable cost for the greatest number of customers, of having large use customers share more equitably the burden of the increase which falls most heavily
()
on low use residential customers under the proposed rates.
Ccnservation is another consideration of rate making which must be taken into account.
This is particularly so in the case of Met Ed, where the long term outage of TMI Unit 2 and the current outage at TMI-l have made Met Ed customers bear the heavy cost of purchased power, the cost in which increases as more must be purchased.
This Commission has spoken approvingly of designing rates so as to send the appropriate " signals" to the consumer to conserve. " Report of the Investigation into the Inability to Pay Utilities Bills " suora.
There is ample evidence supporting the fact that indeed the more power that must be purchased from other utility companies, the greater the expense to everyone.
O It is appropriate for rates to be structured so as to send the appropriate pricing signal to persons with larger and more discretionary uses of electricity to conserve.
Placing a larger portion of the rate increase on higher usage customers than Met Ed has proposed is the proper way to make such an appropriate signal.
III. ADDITIONAL NECESSARY REVENUES SHOULD BE RECOVERED AS MUCH AS POSSIBLE AS PART OF THE ENERGY CHARGE.
The testimony indicates that the company and the trial staff differ as to what the residential customer charge should be.
Met Ed rate structure witness Mr. Carter proposed that the customer charge should be raised from S3.75 to $8.00 monthly for all residential class customers with the exception of rate class RT.
Direct Testimony, E. Carter, pp. 11-13.
His proposal is based on the company's allocation of residential customer cost of approximately $11.52 per month.
Met Ed Exhibit C-3, page 14 PUC trial staff witness Robert Rosenthal recommended raising the customer charge from $3.75 to $5.00.
Direct Testimony, Robert Rosenthal, summary.
Mr. Rosenthal calculated customer costs by two different methods, both of which used Met Ed's own data.
Using the one method, he calculated monthly customer costs of $3.59, and in the other method he computed a customer cost $4.33.
Direct Testimony, Robert Rosenthal, page 3; PUC Trial Staff Exhibit RAR-13.
For the reasons set forth below, O
(][)
this Commission should reject both the recommendations of Mr.
Carter and Mr. Rosenthal and instead make the customer charge closer to its current level of $3.75.
The monthly residential customer charge closer to
$3.75 is cost based.
A charge of $4.00 would fall roughly midway between the customer charge as developed by the two methodologies employed by Mr. Rosenthal.
While Mr. Carter's calculation of the customer cost is much greater than the figures calculated by Mr.
Roc cathal, it must be borne in mind that there is nothing sacred e
orthodox about the methodology used by Mr. Carter.
While Mr.
Carter has boldly asserted in these proceedings that his methodology is the only correct one (TR. 1191-1193), he did admit that his assertion was inconsistent with the statement that he gave this O
Commission in a prior rate proceeding (i.e. R. I.D. 434) when he stated:
I am sure that one can o.uestion every one of the allocation methods, and obviously you can do them in any number of ways, and there is nothing thac is more right chan wrong.
[ Emphasis supplied.]
[ Transcript of proceedings in R.I.D. 434, at page 2385.]
Id.
Even in the current proceedings, Mr. Carter did recognize that cost of service methodologies differ widely:
I doubt if you would have any cost
+
of service witness agree on the same methodology absent some order of the commission.,-
TR. 1191.
This statement by Mr. Carter more frankly illustrates O the difference of opinion among rate structure experts and shows that there is no one universally recognized cost of service allocation method.
The fundamental reason why opinions as to what consti-tutes customer costs are so varied lies in the theoretical bases for assigning costs as either customer costs, energy costs, or demand costs.
This type of fully distributed cost analysis is at best only an approximation of true costs, since in actuality the various costs of providing electricity defy precise categorization.
As a result, many costs which cannot be strictly allocated to any of the cost categories end up being classified as a customer cost, not because it is the most appropriate al. location, but Ih rather because it is the least inappropriate classification.
As a result, the customer cost can of ten be an inflated cost.
As Professor Bonbright pointed out in his treatise, Princiales of Public Utility Rates (1961) at pages 348 and 349:
[T]he fully-distributed cost analyst dare not [ consider certain types of costs as non-allocatable], since he is the prisoner of his own assump-tion that "the sum of the parts equals the whole."
He is therefore l
under the impelling pressure to
" fudge" his cost apportionments by using the category of cu.stomer costs l
as a dumping ground for costs chac i
he cannot plausibly impute to any of his other cost categories.
O Professor Bonbright goes on to note that cost analysts frequently
()
U
" fudge" cost allocations to support a predetermined result.
... one may suspect that the choice of the (cost allocation] formul2 depends, not on principles of cost imputation but rather on types of apportionment which tend to justify whatever rate structure is advocated for non-cost reasons.
Id. at p. 368.
Met Ed's current financial position is such that it is considerable pressure to " fudge" cost allocation figures to collect as much as possible "up front".
As Mr. Carter himself admitted during his cross-examination on December 10, 1980, a high customer charge helps insulate the company from the effects of decreasing customer demand due to economic sloudowns.
In addition, a high
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customer charge also insulates the company from the effects of decreased demand due to customer conservation.
One must seriously question whether Met Ed has succombed to the temptation to " dump"
.l i
ambiguous charges in the customer charge category when 60 to 70 percent of the increase in residential revenues is planned to come from the increase in the customer charge, as testified by Mr. Carter during cross-examination last December 10.6 In sum, complainants herein to not suggest that the allocation of charges l
as customer, demand, and energy related cannot serve as a basis for setting just and reasonable rates; rather, it must be borne in mind that this methodology has serious limitations which must l
be considered in the setting of just and reasonable races.
()
6For basic RS customers 79.8% is planned to come from an l
increase in the customer charge.
l.
Not only does the theoretical basis have serious gg limitations, the data used by Met Ed is also suspect.
As PUC trial staff witness Walter Japack stated in his direct testimony, "Because (Met Ed] utilizes load data for residential and commer-cial customers that dates back as far as 1972, the appropriateness of [ Met Ed's] rate design and revenue allocation is questionable."
Walter Japack, Direct Testimony, page 1.
In addition, Met Ed's use of the peak responsibility method of allocating capacity costs using the two summer and two winter peak method benefits rate groups whose peak usage is not coincident with the system peak, and it specifically benefits industrials, whose usage is not weather -
sensitive to the extent of that of other race classes.
PUC trial staff witness Japack also criterized the peak responsibility method for this reason.
Walter Japack direct testimony, page 6.
Because both of the theoretical basis of the cost of service study and the data used in the study have serious flaws and weaknesses the cost of service study should be given minimal value in the setting of just and reasonable rates.
Principles of energy conservation should be given major consideration in the setting of races.
Because of the outage at IMI, and the resulting need of Met Ed purchase as much as 50% of the electricity sold to its customers, electricity is a scarce commodity in Met Ed's system which must be conserved.
Rates should be structured so that the appropriate price signals are sent to Met Ed customers to conserve.
O -
Structuring rates so as to recover most of the necessary revenues as part of the energy charge is the best way i
of sending the appropriate price signal to customers.
The result of such a pricing mechanism is to make price much more a direct function of the amount used.
The result is that a customer who cuts down on usage is rewarded more and the customer who consumes more must pay more for his extravagance.
As PUC trial staff witness Rosenthal recognized on cross-examination, Met Ed's bills to its residential customers do not list customer charges and energy charges.
It is therefore the bottom line, namely the t,tal bill,'that sends the economic signal to customers that they must conserve.
Appendix 1 to this brief is a table showing the effects
(])
of Met Ed's proposed increase on the bills of RS class residential customers, assuming thac the customer charge is kept at its current rate of $3.75 per month with the remaining necessary revenues recovered as part of the energy charge.
The table shows that the greater percentage _ncrease is placed on the high use customer, as opposed to Met Ed proposal which actually insulates the high use, more discretionary use customer from much of the increase in the rates.
While this is merely an illustrative example, it does show graphically the effects of 1
recovering revenues as part of the energy charge as opposed to and "up front" charge.
As the ecble plainly indicates, the greater emphasis that is placed recovering revenues as part of the energy charge, the greater the expense that will fall on high
use customers, and the more incentive to conserve.
O IV.
MET ED'S RATES SHOULD BE STRUCTURED SO THAT THE SMALL USE CATAGORIES OF RATES ARE EXEMPTED FROM THE FULL EFFECTS OF THE RATE INCREASE.
Met Ed's rates should be structured so that smaller amounts of monthly consumption be exempt from the full increase.
This Commission has entered such orders in the past, and such a concept has been upheld as being within this Commission's broad s
powers in setting just and reasonable rates.
See e.g. U.S.
Steel Corporation v.
Pennsylvania Public Utility Commission, suora.
Such a rate stucture is justifiable in this case.
There is considerable justification for implementing such a race structure.
As Mr. Cherry of Met Ed stated, system demand is continuing to grow, even in the face et the outage (l) at TMI and the company's own so-called conservation efforts.
Such growth is occuring at a time when Met Ed can least afford to accommodate it, and it must purchase considerable power to meet demands.
The more power that must be purchased, the higher the cost to all customers.
It is entirely fair and reasonable to price electricity so that discretionary uses are discouraged.
Exempting low use categories is a means of providing revenue stabilization to persons who are less able to absorb the increase, and as discussed above, less able to cut back.
Electric heating residential customers can similarly be insulated from increase in the price of electricity, where O
\\
\\
their consumption is shown to be inelastic.
There is nothing in 1
(~s the Public Utility Regulatory Policy Act or any other statute that says that Met Ed must phase out its residential sub-classes.
Continuing to " grandfather" such categories constitutes rate stabilzation, which is a legitimate consideration in structuring rates.
Attached to this brief as Appendix II is one method of providing relief.
This example applies to basic RS residential class customers, and it assumes that the necessary revenues to be allocated to this class are as stated in Met Ed Exhibit C-1.
In this example, the customer charge is kept at its current rate, the first 200 kwh billed at the base energy rate of 3.60 mills per kwh, and the necessary revenues collected
(]j through an increase in the energy charge for usage above 200 kwh per month.
As the table shows, the increase for the customer using 500 kwh of electricity is roughly the average residential increase proposed by Met Ed, with larger use customers being assessed a large amount of the increase over smaller use customers.
Similar adjustments can be and should be made in this case using the actually-allcaed increase in revenues that this Commission allocates to the various classes of customers.
V.
MET ED EXHIBIT C-41 IS NOT ADMISSIBLE INTO EVIDENCE AND SHOULD NOT BE CONSIDERED IN THESE PROCEEDINGS.
Met Ed Exhibit C-41 purports to be a graph showing usage distribution among Met Ed's senior citizen low income oV 1
customers. (Met Ed defines a low income senior citizen as an individual with an annual income of $9,000 or less or a couple with an income of $12,000 or less.)
This exhibit was introduced on the last day of hearings on January 23, 1981.
TR 2587-2588.
Complainants herein obj ected to its admissibility on the basis of incompetence and i= materiality.
TR. 2713-2714.
No ruling was made on these objections.
Aside from the fact that the survey defines a low income person as having a much higher annual income then most other generally utilized surveys in Pennsylvania (see section II, pages 9-10 suora. ) the exhibit is nevertheless incompetent and immaterial, and it should not be admitted into evidence.
A public utility has the burden of proof and rate llg cases.
Pennsylvania Public Utility Commission v. Laurel Pioe Line Comoany, 29 Pa. Commonwealth Ct. 351, 370 A.2d 1252 (1977).
This Commission does not have the burden to try the company's case for it.
Id.
While evidentiary rules are somewhat more relaxed in these proceedings than in a court trial, nevertheless the essential principles of evidence must be observed.
Pittsburgh and Lake Erie Railroad Comoany v.
Pennsylvania Public Utility 1
Commission, 170 Pa. Super. 411, 85 A.2d 646 (1952).
Any decision made by this Commission must be made on substantial evidence, and substantial evidence is synonymous with competent evidence having a rational probative force.
Follmer Trucking Comoany v.
Pennsylvania Public Utility Cr 2mision, 171 Pa. Super. 75, 90 A.2d 294 (1952).
O The exhibit itself shows the results of a survey of
(^)/
usage patterns of Met Ed's senior citizen residential customers.
^-
The results shown were taken from a general survey of all customers on Met Ed's system.
The information was gathered from a four-page questionnaire sent to certain Met Ed customers.asking 55 questions.
The information was taken from those surveys returned by those customers who chose to respond.
The fatal flaw with the exhibit is that neither it nor the supporting testimony of Mr. Carter shows whether or not the survey elicited scientifically valid responses.
The challenge to the evidence made by complainants herein relates to the sampling technique in the form of the manner in which the questions were asked.
The opinions and heresay expressed
(])
by Mr. Carter related to the accuracy of the calculations, assuming that the sample data were accurate.
In this case, l
however, the sample data were not taken at random, but only from these persons who chose to respond.
There is nothing in the
~
record to suggest that the responses themselves were accurate.
The validity of the sampling techniques used in such 4
a survey simply cannot be assumed.
In the present case, for example, responses can be inaccurate because the persons responding are not aware of their actual annual income (most people only know their monthly income), or because some persons responding want to intentionally mislead the surveyor as to actual income.
(It is common for persons to understate their actual income.)
- Thus, i
~
e
+
.np,,
.-n,,
l for any survey to be considered scientifically valid, the Oj sample data itself must be at least spot checked to determine the accuracy of the sample data.
See generally Young, P.V.,
Scientific Social Surveys and Research, pp. 186-213, 246-265 (4th ed. 1966);
- Hoff, D.,
How to Lie with Statistics, pp. 11-26 (1954).
Met Ed's study can therefore not be considered valid based on the information of record since it cannot be presumed that the sample data are accurate.
Met Ed Exhibit C-41 and the supporting testimony are unsufficient to support the study as being a scientifically valid survey.
The obj ections raised to the exhibit should therefore be substained.
O i
iip
(~s CONCLUSION
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For the reasons discussed above, any increase in necessary revenues should be structured so that small use customers bear a lesser amount of the increase and large use customers bear a greater amount of the increase.
Such a rate structure is justifiable as a neans of promoting residential conservation, and is a means of assuring rate stability for low use customers with little or no discretionary use in their patterns
.of electricity consumption.
Such a rate structure is a means of ensuring that this Commission fulfills its goal of making affordable service available to as much of the public as possible, including those least able to cope with spiraling raises in the O
x_-
cost of electricity.
Respectfully submitted, CENTRAL PENNSYLVANIA LEGAL SERVICES
/ennethA.
Date:
K Wise, Esquire 213-A N. Front Street Harrisburg, PA 17101 (717) 232-0581 Attorneys for Complainants, Louise Riley and Senior Power Action Group o
TAIIIE 1: CAlfUIATION OF EFFECPS Q1 IIII.lS OF llS ItESllEtirIAL CUS'IU1 Ells OF VAltYING ClNIRElt GIAllCES ASSLMING 'lllE NECFSSAllY ADDITIONAL REVENUES '10 !!E AS STATED BY MET-EDI N sPTEIP.'3
!!N11(IN IW.SFNPtt) TII:f N 11 idiMEDTAllt lWIT$~9f'Il[' $3. 75]WitCE IWI1YflI'I1g $4.00~01 ARM lWrIFTT111Q4 50 OtAltf USAGE IIATE ($) 2 BIIL ($)
INCit. (%)
BIIL ($)
INCR. (%)
BIIL ($)
INCit. (%)
BIIL ($)
INat. (1)
O(Wil) 0 4.02 8.58 113.4 4.02 0
4.29 6.72 4.83 20.10 100 10.24 15.10 47.5 11.67 13.99 11.88 16.01 12.37 20.77 200 16.48 21.61 31.1 19.32 17.25 19.46 18.10 19.91 20.79 300 22.72 28.12 23.8 26.97 18.71 27.04 19.05 27.44 20.79 500 35.21 41.15 16.9 42.27 20.05
'2.21 19.91 42.52 20.77 700 47.70 54.17 13.6 57.57 20.69 57.39 20.31 57.60 20.76 800 53.94 60.68 12.5 65.22 20.91 64.97 20.45 65.14 20.76 900 60.19 67.20 11.6 72.87 21.06 72.56 20.55 72.68 20.75
~4 1000 66.43 73.71 11.0 80.52 21.21 80.14 20.65 80.22 20.76 as 1500 96.80 106.27 9.8 118.77 22.70 118.07 21.98 117.92 21.81 2000 127.16 133.83 9.2 157.02 23.48 156.00 22.68 155.61 22.37 0
2500 157.52 171.39 8.8 195.27 23.96 193.93 23.11 193.30 22.72 E.
3000 187.88 203.96 8.6
,233.24 24.14 231.85 23.40 231.00 22.95 e
1 All figures conputed using energy adjustnent of $0.02650/Imh and a tax surcimrge of 7.29%.
2.
Custmer Charge = $3.75; Base Energy O mrge = 3.35d/ladi 3.
Customr Charge = $8,00; Base Energy a mrge = 3.6004/ladi 4.
Custaner Omrge = $3.75; Base Energy Q uro,e = 4.4804/ladi 5.
Customer Charge = $4.00; Base Energy Qurge = 4.429d/ladi 6.
Custaner Charge = S4.50; Ilase Energy Q urge = 4.3774/ladi e
9 O
TABLE 2:
Lru;d ON BIILS OF RS RESIDDTIAL CUSTOMERS OF RECOVERING
-()
IHE ECESSARY REVENUES AS STATED BY MEI-ED BY KEEPING THE CUSTOER CHARGE AT S3.75 PER FONIH, GARGING IHE FIRST 200 EE FDNIELY CDNSOFFION AT THE BASE ENERGY RATE OF $0.0360/EE, AND RECOVERING IHE BAIANCE OF REVENIES IN A COR.
NDINGLY HIGHER BASE ENERGY CHARGE EOR CONSEPTION OVER 200 53.
Fresent Met-Ed proposed rate Rate with lgss Incr.
monthly conthly 0-200 EE a usage Bill (S)
Incr (7.)
Bill ($)
Incr. (7.)
usage 0
4.02 8.58 113.4 4.02 0
100 10.24 15.10 47.5 10.73 4.8 200 16.48 21.61 31.1 17.43 5.8 300 22.72 28.12 23.8 26.07 14.8 400 29.77 35.40 18.9 j
34.70 16.6 500 35.21 41.15 16.9 43.35 23.1 600 42.65 48.82 14.5 51.98 21.9 700 47.70 54.17 13.6 60.62 27.1 800 53.94 60.68 12.5 69.26 28.4
)
900 60.19 67.20 11.6
/7.89 29.4 1000 66.43 73.70 11.0 86.53 30.3 1500 96.80 106.27 9.8 129.71 34.0 2000 127.16 138.83 9.2 172.90 36.0 i
2500 157.52 171.39 8.8 216.08 37.2 3000 187.88 203.96 8.6 259.27 38.0 1.
All figures ccmouted using energy adjustment of ?0.02650/EE and a tax surcharge of 7.297.
2.
Custa:er charge =$8.00; Base energy charge =3.6006/EE 3.
Custa:er charge =$3.75; Base energy (0-200 LE) =3.3600d/EE; Base energy (201EH) =4.59.54/EE.
APPENDIX 2 32,
O BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION PENNSYLVANIA PUBLIC UTILITY COMMISSION, et al.,
R.I.D.-80051196 vs.
METROPOLITAN EDISON COMPANY C-80072105 PROOF OF SERVICE I am this day sending a copy of the foregoing in-instrument to the following parties of record by first class U.S. mail, postage pre-paid:
gg)
Honorable Joseph R. Matuschak W. Edwin Ogden, Esquire Administrative Law Judge Ryan, Russell & McConaghy Public Utility Commission P.O. Box 699 c/o 97 E. Main Street Reading, PA 19063 Uniontown, PA 15401 Bernard A. Ryan, Jr., Esquire Steven A. McClaren, Deputy Dechert, Price & Rhoads Chief Counsel 800 North Third Street Bohdan R. Pankiw, Assistant Harrisburg, PA 17102 Counsel Pa.
P.U.C., Law Bureau William L. Moyer, Esquire P. O. Box 3265 Dechert, Price & Rhoads Harrisburg, PA 17120 3400 Centre Square West l
1500 Market Street l
Gerald Gornish, Esquire Philadelphia, PA 19102 Wolf, Block, Schorr and Solis-Cohen Ms. Laura Berger 12th Floor, Packard Building 2975 Broxton Lane Philadelphia, PA 19102 York, PA 17402 O
w
(')
David M. Barasch, Assistant Donald H. Yost, Esquire
'~'
Consumer Advocate Blakey, Yost, Bupp & Kilgore 1425 Strawberry Square York, PA 17401
-Harrisburg, PA 17120 David C. Thomsen Stephen A. George, Esquire P. O. Box 15030 Buchanan, Ingersoll, Rodewald, Philadelphia, PA 19130 Kyle & Buerger 57th Floor, 600 Grant Street Pittsburgh, PA 15219 Ecbert E. Kelly, Jr., Esquire Donald F. Spang, Esquire Duane, Morris & Heckscher P. O. Box 1256 P. O. Box 1003 Reading, PA 19603 Harrisburg, PA 17108 Maurice A. Frater, Es'uire Richard Kirschner, Esquire McNees, Wallace & Nurick 1429 Walnut Street P. O. Box 1166 Philadelphia, PA 19102 Harrisburg, PA 17108 Robert Jude Jenison John W. Purcell, Jr., Esquire R.D. #1, Box 280-6 Purcel?., Nissley, Krug & Haller Wellsville, PA 17365 1709 Ncrth Front Street
({}
Harrisburg, PA 17102 Michael P. Kerrigan, Esquire Pepper, Hamilton & Scheetz P. O. Box 1181 Harrisburg, PA 17108 C I l'Il!
Date: G(,;7,if Kenneth A. Wise, Esquire l
Central Pennsylvania Legal Services 213-A N. Front Street Harrisburg, PA 17101 Attorneys for Complainants, Louise Riley and Senior Power Action Group n
m-
_.