# Appendix — Duquesne Light Co. v. Barasch

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0631%3A03

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1989
- **Citation:** 488 U.S. 299

## Text

EDITOR'S NOTE

THE
AT T

FOL

lh

LOWING PAGES WERE

TIME OF

REITER COPY CAN

WILT,

Bh

ISSUED,

POOR HARD COPY

FILMING. IF AND WHEN A

BE OBTAINED,

A NEW FICHE

in The Supreme Court of the in

OctToser TERM, 1987

DuqQueEsnE LIGHT COMPANY
AND

PENNSYLVANIA PowER COMPANY
Appellants,

Vv.

Davip M. Barascu,

CONSUMER ADVOCATE, ET AL.
Appellees.

On Appeal from the Supreme Court of Pennsylvania

APPELLANTS’ APPENDIX TO
JURISDICTIONAL STATEMENT

Aan L. REED
WituiaM E. Zeirer*
Joun F. Stitimun, Ill

Moreoan, Lewis & Bocxius
2000 One Logan Square
Philadelphia, PA 19103
(215) 963-5367

CHRISTINE A. HANSEN James R. Epcerty

Ricuarp S. CuristNER StTerHen L. Fetp

Larry R. CRAYNE PENNSYLVANIA Power CoMPANy
Duquesne Licgnut Company 1 East Washington Street

1 Oxford Centre New Castle, PA 16103-0891

301 Grant Street
Pittsburgh, PA 15279

Attorneys for Duquesne Light Company
and Pennsylvania Power Company

*Counsel of Record

TABLE OF CONTENTS

Appendix A—Opinion of the Pennsylvania Su-
I oe ook Wid’neaty.s os-0-0
Appendix B—Opinion of the Pennsylvania
Commonwealth Court ..........
Appendix C—Order of the Pennsylvania Public
Utility Commission (Duquesne
ERE Ae area
Appendix D—Order of the Pennsylvania Public
Utility Commission Upon Recon-
sideration (Duquesne Light Co.) .
Appendix E—Order of the Pennsylvania Public
Utility Commission (Pennsylva-
TPE ECE ee
Appendix F—Judgment of the Pennsylvania
rer ree ee

Appendix G— Notice of Appeal...............
Appendix H—Excerpts from the CAPCO Inves-
i re as 5

Appendix I—Order of the Pennsylvania Public
Utility Commission Adopting the
CAPCO Investigation ..........
Appendix J—Documents Relating to FERC
Treatment of Involved Costs... .

Appendix K—Jersey Central Power & Light Co. v

Appendix L—Excerpts from the Pennsylvania
Public Utility Code ............
Appendix M— Post Embargo Pennsylvania Rate-
making Legislation.............

Page

la

lb

le

ld

Im

w

+ Pee

lu

David M. BARASCH,
Consumer Advocate,
Vv.

PENNSYLVANIA PUBLIC UTILITY
COMMISSION.

Appeal of EQUITABLE LIFE ASSUR.-
ANCE SOCIETY, Joseph Horne
Company, Kaufmann’s and Gimbels.

David M. BARASCH, Consumer
Advocate, Appellant,

v.

PENNSYLVANIA PUBLIC UTILITY
COMMISSION,

Supreme Court of Pennsylvania,

Argued Mareh 11, 1087,
Decided Oct, 15, 1087,
[Summary by West Publishing Co,

Pennsylvania Office of Consumer Advocate appealed
from final order of the Publie Utility Commission,
which permitted inclusion of costs of construction for
cancelled nuclear plans in electric company's rate base,
The Commonwealth Court, No, 558 C.D, 1988, and No,
1864 C.D, 1084, Barry, J, 90 PacCmwith, 08, 404 A.2d
58, affirmed in part and reversed in part, The Office of
Consumer Advocate petitioned for allowance of appeal,
The Supreme Court, No. 88 W.D. Appeal Docket L086,
No, $4 W.D, Appeal Docket, L086, Nix, Cul, held that:
(1) electric utilities were prohibited from recovering
costs of cancelled nuclear plans from ratepayers, either
by making such costs part of their rate base or by con.
verting them into operating expenses through amortiza:

Zu

tion; (2) vaeunt real estate owned by utility, whieh
might not be developed by utility for next ten years
could not be included in its rate base: (3) statute, which
prohibited electric utilities from recovering costs of ean
celled plans from ratepayers, did not result in unconsti-
tutional confiscation of utilities’ property; (4) statute
did not violate constitutional provision, requiring that
bill's subject be clearly expressed in its tithe; and (5) stat.
ute did not violate electric utilities’ right to equal pro-
tection of law,

Reversed and remanded.

OPINION
NIA, Chief Justice,

Before us are two consolidated appeals questioning
the right of a public utility to recover certain costs from
Its ratepayers, We are called upon to decide whether
section 1315 of the Publie Utility Code (“Code”), 66
PaCS, § 1315, bars an electric utility from amortizing
costs ineurred in connection with plant-construction
projects whieh were cancelled prior to completion, and
whether, if the statute must be so read, it violates con
stitutional safeguards, We must also determine whether
vacant land, purportedly held by a utility company “for
future use,” is properly includible in its rate base, |

In 1978 the Central Area Power Coordinating Group
(“CAPCO”), «a group of various electric utility COMpae
nies,’ formulated a plan to construct seven nuclear elec
trie plants. By 1977, despite considerable public opposi-
tion, CAPCO had forged ahead with the construction
projects, In 1070 the Pennsylvania Public Utility

The members of CAPCO were Duquesne Light Company, Pennayh

, ' ’ ' ‘
vania Power ( orpany, Cleveland Bleetric THluminating Company, Ohio
Kdison and Toledo Bdison

Sa

Commission (“Commission”), on its own motion, began
an investigation of the CAPCO program because of
delays and other construction problems that were
afflicting the projects, In January of 1980, about six
months after the Commission had begun its investiga:
tion. CAPCO announced that construction would be
cancelled on four of the seven nuclear plants.” The
reasons assigned for that decision included: growing
political and regulatory uncertainties arising from the
nuclear accident at Three Mile Island, serious financial
constraints of various CAPCO members, and a reduced
need for additional future generating capacity,

The Duquesne Light Company (‘Duquesne”) had
joined CAPCO in 1967, and was a substantial pars
ticipant in the group's plant construction venture,
Duquesne's share of the construction costs of the four
cancelled plants was $34,607,389, In 1980, after the ean:
cellation, Duquesne instituted rate proceedings before
the Commission; and thereby sought the right to amor:
tize, over a teneyear period, the construction costs it
had borne with respeet to the four plants, The same
request was made in 1981, However, in each of those
rate proceedings the Commission deferred ruling on the
request until it received a report relative to its ordered
investigation of CAPCO's construction problems,

In April 1982 Duquesne again came before the Come:
mission, This time the company filed a tariff whieh
proposed a change in its rates to increase its annual
electric revenues by more than $165,000,000, Tn conjune-
tion, the utility once more sought to amortize its expen
ditures on the cancelled plant projects, Several parties
appeared in opposition to Duquesne'’s request, including

"The four cancelled projects were: DavieHease Unite 2 and 3) and Brie
Unite | and 2

dn

the Office of the Consumer Advocate and several com-
mereial complainants,’ On October 15, 1982, during the
pendeney of the proceedings last mentioned, an Admin-
istrative Law Judge ALI"), Joseph P. Matuschak, filed
With the Commission the awaited investigation report,

The ALJ's “Report of Investigation” set forth his
findings and recommendations concerning the CAPCO
projects and Duquesne's participation therein, Among
his determinations were the following: (1) that Du-
quesne acted prudently in joining in the ownership of
the nuclear plants; (2) that the decision to delay until
1080 the cancellation of the four plants in question was
prudent, and (3) that the interim decisions regarding
the cancelled plants were prudent, In light of these
findings or conclusions, ALJ Matusehak recommended
that the Commission allow Duquesne to amortize, in
rate proceedings over a period of ten years, its share of
the construction costs of the four cancelled units, That
recommendation, if accepted, would permit Duquesne to
include in its reported operating expenses an additional
88,400,730 for each of the ten years of amortization,

On December 80, 1982, while the Duquesne rate case
was still before the Commission, Aet No, 385, PLL. 1473,
Was enacted into law. That statute amended the Public
Utility Code by adding thereto seetion 1315, In parts
here pertinent, the text of Aet No, 335 is as follows:

AN ACT

Amending Tithe 66 (Publie Utilities) of the Penn.
sylvania Consolidated Statutes, providing @ (mata:
fron on the consideration af certain costs in the rate
base for electric public utilities.

‘Rquitable Life Assurance Sooty, Joseph Horne Company, Kauf.
manns, and Gimbels

Sa

The General Assembly of the Commonwealth of
Pennsylvania hereby enacts as follows:

Section 1. Tithe 66, aet of November 25, 1970
(P.L. 707, No. 230), known as the Pennsylvania
Consolidated Statutes, is amended by adding a see-
tion to read:

§ 1315. Limitation on consideration of certain costs
for electric utilities,

Except for such nonrevenue producing, nonexpense
reducing investments as may be reasonably shown
to be aecessary to improve environmental condi
tions at existing facilities or improve safety at
existing facilities or as may be required to convert
facilities to the utilization of coal, the cost af con
struction or expansion af a facility undertaken by a
public utility producing, generating, transmitting,
distributing or furnishing electricity shall not be
made a part of the rate base nor otherwise ineluded in
the rates charged by the electrre utility until such time
as the facility is used and useful in service to the pub-
ie. Except as stated in this section, no electric wtih
ty property shall be deemed used and useful watel
is presently providing actual utility service to the cus.
tomers,

Section 2. This act shall be applicable to all
proceedings pending before the Public Ctitity Commis:
sion and the courts at this ime, Nothing contained in
this act shall be construed to modify or change
existing law with regard to rate making treatment
of investment in facilities of fixed utilities other
than eleetric utilities,

Section 3. This act shall take effect omemediately,
APPROVED—The 80th day of December, A.D,
1OS2,

(Emphasis added.)
On January 28, 1083, almost one full month after the
enactment and effective date of the above statute, the
Commission entered an order which accepted the

6a

recommendation of the ALJ concerning the ten-year
amortization of Duquesne’s portion of the construction
costs of the four cancelled electric plants. The Commis-
sion’s order thus meant that in the rate proceeding then
before it, and for nine additional years, Duquesne could
include in its reported operating expenses a one-tenth
amortization charge of $3,469,739. The Commission’s
order also granted Duquesne leave to increase its elec-
tric operating revenues by approximately $105,850,000.

In response to the Commission’s order of January 28,
1983, the OCA petitioned for reconsideration and
modification, asserting that the order violated the new-
ly-enacted section 1315 of the Code. The Commission
granted reconsideration, but proceeded to affirm its
order after concluding that section 1315 did not prohibit
its treatment of the costs in question. In the Commis-
sion’s view, the statute was not intended to prevent
“the recovery of prudent investment in a plant which is
prematurely retired or one which is cancelled by reason
of a change in economic circumstances.” According to
the Commission, section 1315 of the Code only barred
adding the costs of incomplete construction to an elec-
trie utility’s rate base, and did not disallow passing those
costs on to ratepayers through amortization. Regarding
the express dictate in section 1315 that such costs “shall
not be made part of the rate base nor otherwise included
in the rates charged” (emphasis added), the Commission
opined that the foregoing statutory language was in-
tended solely to prevent the regulatory agency from
giving a utility dual benefits of the costs, ¢.e., including
the costs in the rate base anc’ in some other rate making
process. The Commission further concluded that the
proscription in section 1315 was but a mirror of the
agency's historic regulatory approach to the costs of
construction work in progress

7a

On May 18, 1983, in response to the Commission's
denial of the request for modification, the OCA pe-
titioned the Commonwealth Court to review the
Duquesne rate order. A petition for review was also filed,
jointly, by the several commercial complainants. The
sole issue raised in both appeals was the validity of the
Commission’s decision to allow Duquesne to recover, in
its rates, its share of the costs of the cancelled plants.

In July of 1983 another CAPCO member, Pennsyl-
vania Power Company (“Penn Power’), filed a tariff
proposing to raise its annual electric revenues by
$19,980,000. In connection with that request Penn
Power sought to amortize over a span of ten years the
sum of $9,569,665, which represented its share of the
costs of the four terminated construction projects. As a
further matter, Penn Power sought to add $824,074 to
its rate base because of certain investments denominat-
ed “land held for future use.” This latter item referred
to interests in unimproved land held by the utility pur-
portedly for future use as the sites electric substations
and transmission wires. According to the utility’s
projections, the land would be devoted to such uses
within the next ten years. Another request made by
Penn Power was that it be allowed to normalize the in-
come-tax consequences of a change in depreciation
methodology. Each of the foregoing requests was op-
posed by the OCA.

By an order dated April 11, 1984, the Commission
granted Penn Power a rate increase of $15,364,000.
Relying on its decision in the Duquesne rate case, the
regulatory agency accorded Penn Power the same ten-
year amortization right.‘ As for the land investments,

‘Penn Power received the same favorable treatment in the ALJ’s inves-
tigation report that Duquesne had been given.

Sa

the utility was permitted to include their cost in its rate
base. To justify that part of its decision, the Commis-
sion pointed to what was described as its traditional
policy of allowing such investments to be included in a
utility’s rate base if the property is held pursuant to a
definite plan for its use within a “reasonable time.” The
agency determined that the land interests in question,
though conceivably to remain unused for up to ten
years, met that requirement. In this regard, the Com-
mission observed that “historically” land or facilities
held by a utility for future use in the public service
have been a subject “separate and distinct from that of
construction work in progress.” In the agency’s percep-
tion, the legislature did not intend to abrogate that
policy in enacting section 1315 of the Code. Penn Power
also prevailed on its tax normalization claim.

The Commission’s order in favor of Penn Power
caused the OCA to file another petition for review with
the Commonwealth Court. As in the Duquesne case the
challenge was made that the order of the regulatory
agency, in its treatment of certain costs incurred by the
utility, violated section 1315 of the Code. The OCA also

sought reversal of the ruling on the tax normalization
issue.

For purposes of argument and disposition the Com-
monwealth Court consolidated the appeals in the
Duquesne and Penn Power cases. Then, by a four to
three decision, that court held that the Commission had
correctly construed section 1315. Cohen v. Pennsylvania
Public Utility Commission, 90 Pa.Cmwlth. 98, 494 A.2d
58 (1985). Opining that section 1315 is ambiguous, the
Commonwealth Court majority looked first to the title
of Act No. 335 as a construction aid. The title declares
that the Act provides ‘a limitation on the consideration

9a

of certain costs in the rate base for electric public utili-
ties.” (Emphasis added.) Of the preceding quoted
phrase, the court said that it relates exclusively to the
rate base “and not a legislative intent to exclude the
costs of cancelled facilities from the revenue or expense
factors of ratemaking.” /d. at 105, 494 A.2d at 61.

The Commonwealth Court thus concluded that the
legislature intended the prohibition in section 1315 to ap-
ply only to rate base considerations, and not at all to ex-
pense allowances. As further support of that conclusion
the majority opinion cited other, pre-existent provisions
of the Code, namely sections 1307 and 1310, 66 Pa.C.s.
§§ 1307, 1310. Those two sections, according to the
court’s reading of their significance to ratemaking, evince
a long-standing legislative intention to restrict only the
elements of a utility’s rate base, not the items that can
be allowed as operating expenses. As for the part of sec-
tion 1315 upon which the OCA relied, 7.e., the disjunc-
tive phrase “nor otherwise included in the rates charged,”
the Commonwealth Court agreed with the Commission’s
view that the phrase was meant only to prevent a utility
from gaining dual benefits from the challenged costs.

Having equipped itself with the reasoning described
above, the Commonwealth Court affirmed the Commis-
sion’s orders allowing Duquesne and Penn Power to
amortize their respective shares of the costs of the can-
celled nuclear plants. The court also affirmed the
agency’s decision to allow Penn Power to include in its
rate base the cost of its investments in the unimproved
land, concluding that the property was “used and
useful” in the public service. However, the court
reversed the Commission as to its grant of Penn
Power's tax normalization request.

*There was no cross-appeal taken from this part of the court’s decision.

10a

The OCA petitioned this Court for an allowance of
appeal. Another such petition was filed by the commer-
cial complainants who had joined as parties-appellant
before the Commonwealth Court. We granted both peti-
tions, in light of the public significance of the issues pre-
sented and implicated. After permitting Dequesne and
Penn Power to intervene as appellees, we consolidated
the cases for argument and decision.

Urging us to reverse the Commonwealth Court’s deci-
sion relating to the cancelled plant costs and the land
investments, the appellants repeat their arguments
based on section 1315 of the Code. The Commission,
unsurprisingly asserting that the court below correctly
decided both questions, re-expounds the reasoning the
agency pursued in making its final adjudications. Giving
its reasoning a somewhat different emphasis, the Com-
mission here argues that section 1315 was intended to
prevent a utility from earning a rate of return on such
costs, but not to disallow their recovery if the expenditures
were prudently made. Contending that its reasoning
reflects the legislative intent underlying section 1315, the
agency directs our attention to section 520 of the Code,
66 Pa.C.S. § 520, a provision which became effective on
October 10, 1985, almost three years after the enact-
ment of section 1315. Section 520(c) provides as follows:

(c) Regulatory treatment of costs.—Notwithstand-
ing any other provisions of this title, for a generat-
ing unit canceled after the effective date of this section
either voluntarily or by commission order, an elec-
tric utility may be permitted to recover a return of, but
not a return on, prudently incurred costs on any par-
tally completed facility when cancellation is found by
the commission to be in the public interest. The burden
of proof to show that any costs claimed were
prudently incurred shall be on the public utility.

lla

(Emphasis added.) 66 Pa.C.S. § 520(c).

In the Commission’s view, the 1985 provision for the
recovery of cancelled plant costs indicates that the
legislature had the same intent when it enacted section
1315 in December of 1982. The Commission further
maintains that, with respect to the cancelled plant costs
of Duquesne and Penn Power, its decision to permit
recovery through amortization was a discharge of its
duty to balance the interests of consumers and utility
investors when determining what are “just and reason-
able” rates.

The two intervenors, Duquesne and Penn Power, add
arguments of a different dimension. The utilities argue
that section 1315, if given the construction propounded
by the appellants, would violate both the federal and
state constitutions. They assert that if not allowed to
recover from ratepayers prudently incurred costs of can-
celled plant projects, such a ban will amount to a confis-
eation or “taking” of their property without just com-
pensation. The intervenors also contend that, since sec-
tion 1315 of the Code applies only to electric utilities, it
violates the equal protection clause of the United States
Constitution, and the prohibition against special legisla-
tion set forth in Article III, Section 32 of the Pennsyl-
vania Constitution. The utilities advance two other con-
stitutional arguments: that section 1315 denies them due
process of law because the legislature made it retroac-
tive; and that Act No. 335, which added section 1315 to
the Code, violates the state constitution because the title
of the Act does not suggest that the legislation encom-

passes anything other than rate base considerations.”

*By “title” the intervenors refer to the first five quoted lines of Act No.
335 following the words “An Act.” Although the Commission calls that
group of words a “preamble,” we consider “title” to be the more accurate
designation and will refer to it as such. See generally Sutherland, Statutory
Construction, §§ 20:03, 20:10, and 22:08 (4th ed. 1985) (difference between
preamble and title).

l2a

Statutory Interpretation

We will consider first the competing assertions con-
cerning the proper interpretation of section 1315. As
previously noted, the OCA and the other appellants
rely on the section’s express statement that construction
costs “shall not be made part of the rate base nor other-
wise included in the rates charged by the electric utility
until such time as the facility is used and useful in ser-
vice to the public.” To the appellants the crucial
element in that proscription, relative to the instant
case, Is the phrase ‘‘nor otherwise included in the rates
charged.” Because of that phrase, the appellants main-
tain that section 1315 is a clear statement of a legisla-
tive intent to bar electric utilities from recovering the
costs of cancelled plants through rates charged to con-
sumers. The Commission asserts that section 1315
suffers from an ambiguity: perceived by the agency as
arising from the title of Act No. 335, which describes
the legislation as “providing a limitation on the con-
sideration of certain costs in the rate base of public
utilities.” To the Commission, it is significant that the
preceding language mentions only “the rate base,” and
does not include the more encompassing phrase “nor
otherwise included in the rates charged.” With that percep-
tion of an ambiguity the Commission argues that sec-
tion 1315 requires interpretation; and further argues,
along lines we have already mentioned, that the legisla-
ture’s actual intent is reflected by the more limited
terms of the title of Act No. 335.

It is well settled that the object of all interpretation
and construction of statutes is to ascertain and effec-
tuate the intention of the legislature as expressed by the
words employed. 1 Pa.C.S. § 1921(a); Commonwealth v.
Fisher, 485 Pa. 8, 400 A.2d 1284 (1979): Pennsylvania
Human Relations Commission v. Alto-Reste Park Cemetery

lita

Ass'n. 458 Pa, 124, 806 A.2d S81 (1978), Clearerew Bowl
ing Center, Ine. 0. Hanover Borough, 480 Pa, 579, 244 A.2d
20 (1908),

It ia fundamental that in ascertaining the legislature's
intent, the plain words of its laws may not be ignored,
Steqmaier Betate, 424 Pa. 4, 225 A.2d 566 (1007), A court
may not alter, under the guise of interpretation, the
express language and intent of the legislature, Common
wealth vo. Pope, 455 Pa, 884, S17 AQd S87 C1YT4), see
Zimmerman v. O'Bannon, 497 Pa, 551, 442 A2d 674
(1982). ‘Thus, where the words of a statute are clear and
free from ambiguity, a court may go no further to de.
termine the legislative intent, Arite Mytate, S87 Pa, 228,
127 A.2d 720 (1056); Rich ve. Meadville Park Theatre Corp,
860 Pa. 888, 62 A.2d 1 (1948); Commonwealth ex red Smith
». Clark, 381 Pa, 405, 200 A, 4b (1988); see LF Pas. §
1921(b), (e), [tis only when the words of the statute are
not explicit that the intention of the lewislature may be
ascertained by considering other means of statutory
interpretation or construction, Danis eo Suleowe, 416 Pa,
138, 205 A.2d 80 (1064); Commonwealth vo Chester County
Light and Power Co,, 8389 Pa. 07, 1A A 2d 814 C1ON0),

Language is “ambiguous” when it conveys two or
more reasonable meanings; or when it is otherwise
vague, uncertain or indefinite, See WEBS | bk 8
THIRD NEW INTERNATIONAL DICTIONARY,
Of the two statutory phrases respectively championed
by the opposing parties, as expressing the legislative ine
tent underlying section 1815, neither of those two word:
vets is of itself facially ambiguous, On its face, there is
nothing vague or uncertain about the language of the
title, The phrase “limitation on the consideration of cers
tain costs in the rate base’ clearly deseribes a specific
subject of concern: the impact of certain costs on an

Ida

electric utility's rate base, If this phrase is read as the
controlling expression of legislative intent, it could only
mean that the legislature's sole purpose in enacting sec-
tion 1315 was to exclude the costs of uncompleted con-
struction projects from the utility's rate base, It would
then follow that the statute itself was not intended to
bar a utility from charging those costs to ratepayers as
operating expenses, On the other hand, there is nothing
facially vague, uncertain or indefinite about the sub-
stantive proseription in section 1315 itself, That pro-
scription clearly conveys but one meaning: that the cost
of uncompleted projects shall not only be excluded from
the rate base, but shall not, in any way whatsoever, be
included in the rates charged.

Thus, the interpretational problem that confronts us
here is one arising from an inconsistency of legislative
articulation in the same enactment, To solve that prob-
lem we need look no further than the rule of statue
tory interpretation set forth in section 1934 of the Stat-
utory Construction Act of 1972, 1 Pa.C.8. § 1984. This
rule mandates that: “[e]xcept as provided in section
1933 of this title (relating to particular controls gener:
al), whenever, in the same statute, several clauses are ir-
reconctlable, the clause last in order of date or position shall
prevail.” (Emphasis added.) Since, in our view, the dis.
junctive proscription in section 1315 is of itself unam-
biguous, and since it is positioned after the title of the
statute by which it was enacted, the terms of that pro:
scription must prevail over the language of the title as
being the expression of legislative intention, Moreover,
it is an established principle of our jurisprudence that,
where the enacting clause of a statute is clear and
unambiguous, the title will not be permitted to contra:
dict it, Commonweulth v. Magwood, 503 Pa. 169, 460 A.Qd

LDa

115 (1983); American Surety Company's Case, 319 Pa, 549,
IS} A. 364 (1985); Commonwealth ex rel, The Alliance Pe-
troleum and Coal Co. ». Slifer, 53 Pa, 71 (1866), The same
is true with respect to preambles, American Surety
Company's Case, Although titles and preambles are es
cepted aids in resolving ambiguity in an enacting
clause, they may not be used to create ambiguity where
none exists in the clause,

We therefore hold that section 1315 of the Code must
be read as prohibiting an electric utility from recover:
ing the costs of cancelled plants from ratepayers, either
by making such costs part of its rate base or by con-
verting them into operating expenses through amortiza-
tion. For us to reach any other conclusion, we would
have to treat as surplusage that part of section 1315's
proscription whieh says: . . nor otherwise ineluded in
the rates charged by the electric utility” Tt is well settled
that the legislature cannot be deemed to intend that its
language be superfluous and without import, Ay,
Colodonato v. Consolidated Rail Corp, 504 Pa, 80, 470
A.2d 475 (1983); Consumers Education and Protective
Ass'n. Nolan, 470 Pa. 872, 8368 Ad 675 (1977); Daly v.
Hemphill, ALL Pa. 268, 191 Ad 835 (1963); Common:
wealth » Mack Bros. Motor Car Co, 350 Pa, 6386, 50 Ad
H28 (1048),

The appellate courts of several other jurisdictions
have interpreted their state law as preventing an elec:
trie utility from treating as “operating expenses,” and
thus recovering from ratepayers, the costs of cancelled
nuclear projects, One such case is Offiee af Consumers’
Counsel v Public Ctlities Commission af Ohio, 67 Ohio
St2d 158, 428 N Ed 820 (1981), appeal dismissed sub
nom, Cleveland Bieetric Mluminating Co. ». Offiee af Con
sumers’ Counsel, 455 U8, O14, 102 S.Ct, 1267, 71 L.Bd.2d

16a

455 (1982), In that case, the state regulatory body
granted an electric utility a rate increase of approx
imately 870,000,000, and, in conjunction, allowed the
utility to amortize over a ten-year period its $56,000,000
investment in four cancelled nuclear power plants, The
Supreme Court of Ohio reversed the agency's order as
to the amortization, holding that to allow the utility to
amortize its investment in the terminated projects, ‘and
thus permit its recovery from ratepayers as operating
expenses, Violated state law, The court concluded that
under Ohio's rate statute a utility's recoverable costs
were limited to those which are ordinary and recurrent
in the rendition of service to the public, and that the
sunk costs of uncompleted capital projects did not come
Within that category, In the words of the opinion sup-
porting the court's decision, “what the company sought
and what the Commission granted was the amortization
ax service-related costs of an investment that never
provided any service whatsoever to the utility's cus
tomers,” 67 Ohio St2d at 164, 423 N.E.2d at 827 (em-
phasis added), The opinion further stated that, in the
absence of explicit statutory authorization, the regula
tory ageney could not benefit a utility's investors by
guaranteeing the full return of lost capital at the ex-
pense of the ratepayers, /d. at 167, 423 N.E.2d at 829, I
is worth noting that the utility in the foregoing case,
Cleveland Electric Illuminating Company, was a
member of CAPCO, and that the four cancelled projects
there in issue are the same ones which are involved in
the appeals now before us,

The Supreme Court of Wyoming, in Pacific Power &
Light Co, 0 Public Service Commission af Wyoming, 677
Pld 790 (Wyo.1084), rejected an electric utility's at-
tempt to compel its customers to bear the cost, through

17a

rates, of its expenditures and gbligations in connection
with cancelled nuclear power construction projects, The
electric company, while recognizing that the terminated
projects did not constitute “used and useful” property
within the meaning of Wyoming's utility statute,
nevertheless asserted that the implicated costs were in-
cludible in its rate base as prudently incurred operating
expenses, The Supreme Court of Wyoming rejected that
argument for several reasons, not the least of which was
its conclusion that such capital costs did not qualify as
“operating expenses,” prudent or otherwise, A compa:
rable result was reached by the Court of Appeals of In-
diana in the case of Citizens Action Coalition v, Northern
Indiana Public Service Co, 472 N.B.2d 9388 (Ind.Ct.App.
1984). That court expressly embraced the decisions in
Office of Consumers’ Counsel, supra, and Pacific Power &
Light Co., supra, as being consonant with Indiana law,

Also deserving of mention is the 1984 decision of the
Supreme Court of New Hampshire in Appeal of Public
Service Co. of New Hampshire, 125 N.H. 46, 480 A.2d 20
(1984). That case, too, involved an attempt by an elec-
tric utility to recover from its ratepayers the cost of its
financial participation in a subsequently aborted project
to build a nuclear generating plant. The utility had
become part owner of the project in 1972; and, by 1981,
when the project was cancelled, the company’s invest-
ment in the uncompleted construction was nearly
$16,000,000, The New Hampshire court held that, by
force of a statute enacted in 1979, such costs could
neither be included in the utility's rate base nor amor-
tived as an operating expense, The statutory provision
relied on by the court stated that: “At no time shall any
rates or charges be based upon any costs associated
with construction work if said construction work is not

ISa

completed.” RSA 878: 80-a (Supp.1981). The same stat-
ute continued with the following mandate:

All costs of construction work in progress, includ-
ing, but not limited to, any costs associated with
constructing, owning, maintaining, or financing
construction work in progress, shall not be included
in a utility's rate base nor be allowed as an expense
Jor rate making purposes until, and not before, said
construction project is actually providing service to
consumers, (Emphasis added.)

In our view, the substantive terms of the New Hamp-
shire statute bear a striking resemblance to section 1315
of our Public Utility Code.’

The Commission's reference to section 520(¢) of the
Code is unavailing. It is true that, as a result of the
enactment of section 520, electric utilities are new per-
mitted to reeover cancelled plant costs under certain
circumstances and conditions, However, as we have al-
ready pointed out, section 520 was enacted in 1985—
almost three years after section 1315 was added to the
Code, The perceptions and purposes of the legislature in
1985 did not necessarily mirror those which existed
in 1YS82, when section 1315 became law, We have not
been presented with any persuasive reason for conclud-
ing that they were the same, We are concerned with the
legislative intent underlying the 1982 statute, section
1315; for that is the one which applies to the instant
matters. We are not here concerned with the legis-

‘Other appellate courts have held that an electric utility does have the
right to amortiae the costs of cancelled nuclear projects. Bg, Attorney Gen-
erate Department af Peble Otlites, 300 Mass. 208, 455 N_E.Qd 414 (1083);
Prople’s Organization for Washington Bnergy Resources » Washington Utitites
and Transportation Commrsston, 104 Wash 2d 708, 711 P.dd 310 (1085). Such
decisions, however, rested on conclusions about the governing statute, 1 ¢.
that it did not deprive the regulatery bedy of authority to allow amortiza-
thon

19a

lature’s intent, during a later session, in enacting a
statute which does not apply to the case before us,
Furthermore, any attempt to impute relevance to sec-
tion 520 cannot ignore the fact that it was made to
operate prospectively only: Such is an indication that the
legislature, in belatedly conferring upon electric utilities
a conditional right to recover cancelled plant costs, did
not intend for the utilities to have that right prior to
the effective date of the 1985 statute.

We turn next to the question of whether the Commis-
sion was correct in deciding that Penn Power's rate
base could be increased by the amount of its invest-
ments in the vacant land, As mentioned, the Commis-
sion based its decision on a finding that Penn Power
had a definite plan earmarking the unimproved land for
use, “within a reasonable time,” as sites of transmission
lines and substations, The OCA, in disputing the validi-
ty of the above ruling, starts with a premise that
property owned by a utility may not be included in its
rate base unless it is used and useful in the public ser-
vice, In connection with that proposition, the OCA then
focusses on the last sentence of section 1315, which in
part here pertinent, states: “[nJo electric utility proper-
ty shall be deemed used and useful until it is presently
providing actual utility service to the customers.” (Empha-
sis added.) In the view of the OCA, Penn Power's
planned, future use of the vacant land did not render
it “used and useful” under the standard dictated by
the above statutory language. This contention was, as
noted, rejected by the court below,

The threshold premise of the OCA’s argument con-
cerning the vacant land is legally accurate, One of the
cardinal principles of this state's public utility law is
that, in the setting of rates for services to the public, a

20a

utility company is entitled to a return only on such of
its property as is “used and useful” in the public ser-
vice. #.g., Pennsylvania Electric Co. v. Pennsylvania Public
Utility Commission, 509 Pa. 324, 502 A.2d 130 (1985);
Scranton v. Scranton Steam Heat Co., 405 Pa. 397, 176
A.2d 86 (1961); Erie City v. Public Service Commission,
278 Pa. 512, 529, 123 A. 471, 478 (1924); City of Pitts-
burgh v. Pennsylvania Public Utility Commission, 171
Pa.Super. 187, 90 A.2d 607 (1952), Newport Home Water
Co. v. Public Service Commission, 76 Pa.Super. 386 (1921);
CGI Corp. v. Pennsylvania Public Utiiity Commission, 49
Pa.Cmwlth. 69, 410 A.2d 923 (1980); see 66 Pa.C.S. §
1310(d). The faet that a utility owns a property does
not of itself justify its inclusion in the rate base; and the
burden is on the utility to show that the property is
“used and useful” in the public service. City of Pitts-
burgh, supra.

Based on the standard set forth by the final sentence
of section 1315 of the Code, as to when the property of
an electric utility may be deemed “used and useful,” we
must conclude that the vacant land here in issue does
not meet that test. Utility real estate that is vacant and,
according to the utility’s own plans, might remain so
for as long as ten years, cannot reasonably be charac-
terized as property “presently providing actual utility ser-
rice to the customers.” We thus hold that the addition of
the land investments to Penn Power's rate base violated
the terms of section 1315 of the Code.
~ "Penn Power's reliance on our decision in Barasch vr Pennsylvania Public
Utility Commission, 07 Pa. 430, 490 A.2d 806 (1985) is misplaced. In that
case we held that a utility could properly include in its rate base the cost
of nuclear fuel purchased for use in an uncompleted nuclear plant. How-
ever, an important fact in the case was that the fuel could also have been
used in other facilities that were currently on service. Utilities have tradh-
tionally been allowed to recover the cost of usable supplies and materials

See Boston Edison Co. v Dep't of Public Utilities, 375 Mass. 1, 375 N.E.2d

305 (1978) (pointing out that utilty was free to sell land at a profit, which
would benefit stockholders. not ratepayers)

2la

Constitutional Challenges

According to the intervenors, a statute which disal-
lows inclusion of the cancelled plant costs in the rate
base, and also bars as an alternative their being treated
as operating expenses, works a confiscation of utility
property without just compensation, in violation of the
federal and state constitutions.

It is of course true that the property of a public utili-
ty, though devoted to the public service and conve-
nience, is still private property; and neither the corpus
of that property nor the use thereof can be constitution-
ally taken for a compulsory price which falls below the
measure of just compensation. F.g., United Railways and
Electric Co. of Baltimore v. West, 280 U.S. 234, 50 8.Ct.
123, 74 L.Ed. 390 (1930). This deeply-rooted principle of
constitutional law had been articulated in more ab-
breviated form in the landmark case of Smyth v. Ames,
169 U.S. 466, 18 S.Ct. 418, 42 L.Ed. 819 (1898), in which
the Supreme Court of the United States declared that a
public utility “may not be required to use its property
for the benefit of the public without receiving just com-
pensation for the services rendered by it.” /d. at 546, 18
S.Ct. at 433. An even earlier formulation of the same
precept is to be found in Rarlroad Commission Cases, 116
U.S. 307, 6 8.Ct. 1191, 29 L.Ed. 636 (1886).

The “just compensation” safeguarded to a utility by
the fourteenth amendment of the federal constitution is
a reasonable return on the fair value of its property at
the time it is being used for public service. Denver (onion
Stock Yard Co. v. United States, 304 US. 470, 58 S.Ct.
990, S82 L.Ed. 1469 (1938); Los Angeles Gas Co. v.
Railroad Commission, 289 US. 287, 53 8.Ct. 637, 77 L.Ed.
1180 (1933); MeCardle v. Indianapolis Water Co., 272 US.

22a

400, 47 S.Ct. 144, 71 L.Ed. 316 (1926); Board of Commis-
sioners v. New York Bell Telephone Co., 271 U.S. 23, 46
S.Ct. 363, 70 L.Ed. 808 (1926); Willcoz v.
Consolidated Gas Co., 212 U.S. 19, 29 S.Ct. 192, 53 L.Ed.
382 (1909); Pennsylvania Electric Co. v. Pennsylvania Pub-
hie Utilities Commission, supra. Thus, the return which a
utility is constitutionally entitled to earn relates only to
its property that is employed in the public service.
Bluefield Water Works Co. v. Public Service Commission,
262 U.S. 679, 43 S.Ct. 675, 67 L.Ed. 1176 (1923); Smyth
v. Ames, supra; Railroad Commission Cases, supra. In that
regard, the Supreme Court has held that it is only when
a utility’s property is “used and useful” in the public ser-
vice does the federal constitution require its inclusion in
the rate base, upon which the return is calculated.
Federal Pow.r Commission v. Natural Gas Pipeline Co., 315
U.S. 575, 62 S.Ct. 736, 86 L.Ed. 1037 (1942); Denver
Union Stock Yard Co. v. United States, supra. A refined
version of the same principle can be found in Columbus
Gas & Fuel Co. v. Public Utilities Commission, 292 U.S.
398, 54 S.Ct. 763, 78 L.Ed. 1327 (1934). There, the Su-
preme Court held that a utility’s rate base need not in-
clude assets not presently in use, “unless the time for us-
ing them is so near that they may be said, at least by
analogy, to have the quality of working capital.” Id. at 406.

In addressing the confiscation argument, we must
recognize that a public utility’s constitutiona! right to
“just compensation” encompasses not only rate base
considerations, but also includes the utility’s right to
recover from ratepayers the expenses and costs of oper-
ation. West Ohio Gas Co. v. Public Utilities Commission,
294 U.S. 63, 55 S.Ct. 316, 79 L.Ed. 761 (1935); United
Railways and Electric Co. of Baltimore v. West, supra;
Smyth v. Ames, supra; Covington & Lexington Turnpike

23a

Road Co. v. Sandford, 164 U.S. 578, 17 S.Ct. 198, 41 L.Ed.
560 (1896). Indeed, a utility’s earned return on its rate
base is to be measured only after its operating expenses
have been deducted from gross revenues; and prescribed
rates which are not sufficient to allow recovery of oper-
ating expenses, in addition to providing a fair return on
the rate base, are confiscatory. E.g., United Railways and
Electric Co. of Baltimore v. West, supra. However, just as a
utility has no constitutional right to have ineluded in
its rate base assets which are not “used and useful” in
the public service, so too may it be restricted as to what
items it can properly claim as operating expenses.

In Lindheimer v. Illinois Bell Telephone Co., 292 US.
151, 54 S.Ct. 658, 78 L.Ed. 1182 (1934), the Supreme
Court described the “operating expenses” of a public
utility as “the cost of producing the service.” Id. at 167, 54
S.Ct. at 665 (emphasis added). The Court, observing
that “[c]harges to operating expenses may be as impor-
tant as valuations of property,” pointed out that an im-
proper inflation of operating expenses would produce
the same result as an increase of the allowed rate of re-
turn on the rate base. /d. at 164, 54 8.Ct. at 663. The
Court, in Lindheimer, went on to hold that the ratemak-
ing authority could properly exclude from a_ utility's
claimed operating expense the amount of excessive de-
preciation charges. The depreciation charges there in-
volved were deemed excessive because they went far
beyond any realistic measure of the degree to which the
utility’s plant was being consumed by use in the public
service. In the case of Dayton Power & Light Co. v. Public
Utelities Commission, 292 U.S. 290, 54 S.Ct. 647, 78 L.Ed.
1267 (1934), the Supreme Court held that a state, in
fixing rates for a utility, may exelude from reported
operating expenses unreasonable amounts which the

24a

utility paid to an affiliated company for supplies. See
also Columbus Gas & Fuel Co. v. Public Utilities Commis-
sion, supra. It is thus clear that the federal constitution
does not confer upon a public utility the right to claim,
for ratemaking purposes, whatever it sees fit to include
in the category of “operating expenses.” In that regard,
the significance of the Lindheimer and Dayton Power &
Light Co. cases may be stated thus: principles of “just
compensation” under the federal constitution do not en-
dow a public utility with the right to burden ratepayers
with what the utility calls an “operating expense” un-
less such item, in addition to being reasonable in
amount, represents a cost of providing present utility
service.

We have not been presented with any convincing ar-
gument for concluding that the “just compensation”
provision of our state constitution compels a broader
conception of the nature of an ‘‘operating expense.” The
judicial decisions of this state are not wanting in expres-
sions concerning the type of outlays or cost items which
a utility may properly charge to ratepayers as operating
expenses. For example, in Shirk v. Lancaster City, 313
Pa. 158, 169 A. 557 (1933), this Court generally defined
a utility’s “operating cost” as including “all charges and
expenses involved in the production, supply and distribu-
tron of the commodity.” Id. at 171, 169 A. at 563 (empha-
sis added). Later, in Barasch v. Pennsylvania Public
Utility Commission, 507 Pa. 561, 493 A.2d 653 (1985), we
indicated that “proper operating expenses’ are ones
which relate to the cost of service. We have also observed,
regarding a utility's right to recover expenses, that the

“As examples of such expenses, the Court included such items as sala-
ries, telephone, insurance, taxes and stationery.

25a

policy in this state has been for current ratepayers to
bear “only the actual expenses of providing current utility
service’ and that such policy was reaffirmed in the
enactment of section 1315 of the Public Utility Code.
Barasch v. Pennsylvania Public Utility Commission, 507
Pa. 496, 516-17, 491 A.2d 94, 104 (1985) (emphasis
added); see also Pennsylvania Electric Co. v. Pennsylvania
Public Utility Commission, supra. These expressions ba-
sically coincide with the mentioned federal view of what
kinds of costs a utility is constitutionally entitled to
pass to ratepayers under the classification of “operating
expenses.” Therefore, without the benefit of a valid and
otherwise applicable statute conferring a broader right,
the only expenses which a public utility in this state
may recover from ratepayers, through rates, are those
expenses which represent the actual cost of providing
present utility service. That is so regardless of whatever
convenient accounting label the utility might employ to
characterize a nonqualifying outlay.

It is absolutely clear that the four uncompleted nu-
clear plants here involved have no capacity to produce
any present utility service to the customers of the two
intervenors. Those aborted projects are of no use what-
soever to the public. It should be recalled that in Penn-
sylvania Electric 0. v. Pennsylvania Public Utility Com-
mission, supra, we held that a nuclear reactor at Three
Mile Island was properly excluded from the utility’s
rate base because it had been so damaged by a near
melt-down as to be useless in the public service. Cer-
tainly, no reasonable argument can be made that the
four uncompleted plants have any higher degree of
usefulness. Given that the terminated plants are so use-
less as to preclude their being an element of a utility’s
rate base, we cannot imagine by what magic the-inter-

26a

venors’ investments in the useless projects can be con-
sidered a cost of providing present utility service as to
qualify as “operating expenses.” We therefore hold that
interpreting section 1315 of the Code as barring the
amortization of cancelled plant costs does not work an
unconstitutional confiscation of utility property.

As a further constitutional challenge, intervenor
Duquesne argues that section 1315 is violative of due
process standards because it was made to operate ret-
roactively. We reject this argument as being without
merit. Neither the federal constitution nor our state
constitution invalidates a non-penal statute merely
because it is retroactive, unless such legislation impairs
contractual or other vested rights. U'sery v. Turner Elk-
horn Mining Co., 428 U.S. 1, 96 S.Ct. 2882, 49 L.Ed.2d
752 (1976); Chase Securities Corp. v. Donaldson, 325 US.
304, 65 S.Ct. 1137, 89 L.Ed. 1628 (1945); Kentucky Union
Co. v. Kentucky, 219 U.S. 140, 31 S.Ct. 171, 55 L.Ed. 137
(1911); League v. Texas, 184 US. 156, 22 S.Ct. 475, 46
L.Ed. 478 (1902); Campbell v. Holt, 115 U.S. 620, 6 S.Ct.
209, 29 L.Ed. 483 (1885); Arenzelak v. Krenzelak, 503 Pa.
373, 469 A.2d 987 (1983); Smith v. Fenner, 399 Pa. 633,
161 A.2d 150 (1960). It cannot be said that either
Duquesne or Penn Power had a contractual or other
vested right to recover from ratepayers the cost of in-
vestments which do not provide utility service.

Duquesne also contends that because the title of Act
No. 335 does not mention the retroactivity of section
1315 the legislation is invalid. As support for that asser-
tion, the company relies on Article II], seetion 3 of the
Pennsylvania Constitution, which in part states: “No
bill shall be passed containing more than one subject,
which shall be clearly expressed in its title. ... ” This
argument must fail. The preceding constitutional provi-

27a

sion requires merely that the title of a statute put rea
sonably inquiring minds on notice of the legislations
contents, /n re Condemnation by Commonwealth, Depart:
ment af Transportation, SLL Pa, 620, 515 A.2d 800 (1086);
LJ W. Realty Corp, v. City af Philadelphia, 300 Pa, 197,
134 A.2d 878 (1057); /n re Gumpert’s state, 343 Pa. 405,
28 Ald 470 (1042). All that is required is that the title
shall contain words sufficient to cause one having a rea-
sonably inquiring state of mind to examine the statute
to determine whether he may be affected by it, Boyer:
town Burial Casket Co, », Commonwealth, 366 Pa, 574, 79
A2d 440 (1951), Although Aet No, 335 does not in its
title mention the retroactivity of section 1315, such is
expressly set forth in the next-to-last part of the Act,
We cannot believe that a statute's tithe which an-
nounces that the legislation is an amendment of the
Publie Utility Code, and which also mentions “promding
a limitation on the consideration of certain costs in the rate
hase Jor electric public utilities,” would not induce an elec-
trieeutility company to examine and study the entire
enactinent,

Duquesne and Penn Power join in making the addi-
tional assertions that Aet No, 335 denies them the equal
protection of the laws as guaranteed by the Fourteenth
Amendment of the United States Constitution, and that
the Act also violates the prohibition against “special
legislation” set forth in Article IIL, section 82 of the
Pennsylvania Constitution, These arguments are predi-
cated on the fact that Aet No, 885, by its terms, applies
only to electric-utility companies, and not to other type
public service companies such as gas and water utilities,
The intervenors contend that, if the public interest is
served by protecting utility ratepayers from being bur-
dened with the costs of unproductive construction

ZNu

projects, a statute which targets only electric utilities in
that regard is an unreasonable, and thus uneonstitu-
tional, classification,

The equal protection clause of the United States Con:
stitution requires that “Call persons similarly eireume
staneed shall be treated alike’ Plyler e. Doe, 457 U8.
202, LO2 8.01, 2882, 72 Ld 2d 786 C1082); BUS. Royster
Guane Coe Virginia, 258 US. 42, 415, 40 S.Ct 560,
O62, OF Ld O80) (120) Among its various applica.
tions, the equal protection clause of the federal constitu:
tion forbids a state legislature from imposing on a
person, natural or artificial, or on a class, burdens
Which are not cast upon others similarly situated, Aiy.,
Mehison, Topeka and Santa Pe RAR». Matthews, 174 U8,
YH, TO SOL GOO AS Ld, G00 L890). The equal protec:
tion of the laws, it has been said, means that the rights
of all persons must rest upon the same rule under
similar circumstances, Hartford Steam Boiler Inspection
and Insurance Co. eo. Harrison, 8301 US, 450, 461, AT S.C,
S3S, NSH ST Ld. 1228 C1087): Lowiseille Gas & Blectric
Co. 0 Coleman, 277 US. 82, 87, 48 S.Ct. 428, 425. 72
Lod. 770 (LORS),

The intervenors in the cause at bar, in asserting that
Act No, 885 denies them the equal protection of the
laws, assume that, beeawuse the legishition applies exclu:
sively to eleetric utilities, it will have the effeet of
requiring only public utilities of that class to bear the
burden of aborted construction projects but will permit
other type utilities to pass such costs on to their rates
pavers. Phis assumption is palpably erroneous, Given
What we have already seid about the fundamental prin
Miples of this state's publieutility. jurisprudence, it
should be clear that no utility of any type is permitted,
Without express and validd logishitive authorization, to

200

charge ratepayers for property which is not used and
useful in the production of current utility service, In
our view, Act No, 335 was mainly an attempt by the
1OS82 legislature to make clear, by codification, that the
above mentioned general principle of utility law should
govern the then-ongoing efforts of some electric utilities
to recover cancelled plant costs from their customers.

There is nothing in Act No, 385 to indicate that the
legislature which enacted it, after going to such lengths
to make it absolutely clear that the Commission had no
authority to allow the electric utilities to recover the
costs of uncompleted projects, also intended to abrogate
pre-existent legal principles which would compel the
same result with respect to other type public utilities,
Indeed, the very last sentence in section 2 of the Act ex.
pressly states: “Nothing contained in this act shall be
construed to modify or change existing daw with regard
to the rate making treatment of investment in facilities
Of fined utilities other than electric utilities.” (Emphasis
added.) We read this proviso to mean that, although the
Act focusses on electric utilities, such does not mean
that other type utilities are relieved of the proseriptions®
of preexisting law concerning the recovery of costs,
Thus, Aet No, 385 has no disparate impact on electric
utilities; and, for that reason, we conclude that the stat.
ute does not deny the intervenors the equal protection
of the laws, See Califano ». Boles, 448 US. 282, 90 S.C,
2707, OL L. Bd 2d S4b C1970): National Crnion of Marine
Cooks & Stewards » Arneld, 348 US. 87, TH SCL 82, 00
Lhd, 46 (104), In determining whether the equal pro:
lection guaranteed by the federal constitution has been
afforded, consideration must be given to the entire body
of law operating upon the subjeet matter in issue, Seer
Interstate Busses Corp. e Blodgett, 270 US. 245, AS

S0a

230, 72 L.Ed. 551 (1928); Farmers and Mechanies Savings
Bank vo. Minnesota, 282 U.S. 516, 384 S.Ct. 854, 58 Ld,
706 (1914); see also Loniseille Gas & Blectrie Co. ».
Coleman, supra, at 50 (Brandeis, J., dissenting).

Regarding the bar against “special legislation” con-
tained in Article IIL, section 82 of the Pennsylvania
Constitution, this Court has held that the provision, in
its meaning and purpose, is sufficiently similar to the
equal protection clause of the United States Constitu-
tion as to warrant like application, Landenberger ». Port
Authority af Allegheny County, 496 Pa, 52, 67 no 18, 436
Ad 147, 155 n. 18 C1O81); Baltimore & Ohio RR. o Com
monwealth, Department af Labor & Industry, 461 Pa. 68,
834 Ald 686 (1975), Therefore, the same considerations
that invalidate the intervenors’ reliance on the federal
guarantee also defeat their resort to the analogous
provision in our state constitution,

We hold that the Public Utility Commission exceeded
its lawful authority in allowing Duquesne and Penn
Power to amortize the costs of the cancelled construc.
tion projects, We also conclude that the Commission
erred likewise in permitting Penn Power to add to its
rate base the cost of its investments in the vacant land
here involved, [tis clear, beyond any need for citation,
that the function of ratemaking for public utilities is
legislative in nature, The Commission is but an ine
strumentality of the state legislature for the perfor:
mance of that funetion; and the ageney has only such
powers as are expressly conferred upon it by statute or
exist by necessary implication, Ay, City af Philadelphia v.

Philadelphia Kleetrre Co, HOA Ba. 812, 473 Ad O97 (1084),

By entering the decisions here reviewed, the Commis:
sion not only failed to apply long-established principles

Sla

of public utility law, but also failed to heed the legisla-
ture's statutory re-confirmation of them with respect to
the costs at issue in these cases,

For the reasons set forth herein, the orders of the
Commonwealth Court are reversed, These causes are
hereby remanded to the Commission for proceedings
consistent with this opinion,

APPENDIX B

Opinion of the Pennsylvania Commonwealth Court

lb

Walter W. COHEN, Consumer
Advocate, Petitioner,

Vv

PENNSYLVANIA PUBLIC UTILITY
COMMISSION, Respondent.

David M. BARASCH, Consumer
Advocate, Petitioner,

Vv

PENNSYLVANIA PUBLIC UTILITY
COMMISSION, Respondent.

Commonwealth Court of Pennsylvania.
Argued April 10, 1985.
Decided June 13, 1985.

As Amended June 14, 1985.

BARRY, Judge.
553 C.D. 1983

The Office of Consumer Advocate (OCA) appeals a
final order of the Pennsylvania Publie Utility Commis-
sion (PUC) which permitted inclusion in its rate base of
the cost of construction of four cancelled nuclear plants
by Duquesne Light Company (Duquesne).

In 1967, Duquesne became a member of the Central
Area Power Coordination Group (CAPCO)' which
developed a plan to construct seven nuclear power
plants. In January, 1980, CAPCO, however, cancelled
plans to construct four nuclear plants. At that
time Duquesne’s share of the expended cost was
$34,697,389.00. In April, 1982, Duquesne requested an

‘The other members of CAPCO are Pennsylvania Power Company

(Penn Power), Cleveland Electric Illuminating Company, Ohio Edison and
Toledo Edison.

2b

annual base rate increase of $155,000,000.00 effective
June 29, 1982.

In January, 1983, the PUC issued a final order which
granted Duquesne $105,850,000.00 on its rate request
and allowed an annual revenue of $3,469,739.00 repre-
senting the amortization for the first year of a ten year
period of the costs of $34,697,389.00 for the four can-
celled nuclear plants. Thereafter, the OCA filed for
reconsideration and modification based on a newly
enacted statute added Section 1315 of the Public Utility
Code (Code), 66 Pa.C.S. § 1315, which allegedly disal-
lowed recovery of these plant cancellation costs in rates.

The PUC denied this petition reasoning that Section
1315 was inapplicable to such costs. It held that Section
1315 prohibits the inclusion of the costs of plants not
used and useful to the public in rate bases but does not
prohibit the inclusion of reasonable costs of these plants
in revenues as an expense.

The seminal issue involves whether costs of cancelled
nuclear power plants can be included in Duquesne’s
rates. The resolution of this question depends upon
whether Section 1315 prohibits amortization of the can-
cellation costs. Act 335, adding Section 1315, states as
follows:

AN ACT

Amending Title 66 (Public Utilities) of the Penn-
sylvania Consolidated Statutes, providing a limita-
tion on the consideration of certain costs in the rate
base for electric public utilities.

‘Act of Assembly No. 335, approved December 30, 1982.

3b

The General Assembly of the Commonwealth of
Pennsylvania hereby enacts as follows:

Section 1. Title 66, act of November 25, 1970
(P.L. 707, No. 230), known as the Pennsylvania
Consolidated Statutes, is amended by adding a sec-
tion to read: § 1315. Limitation on consideration of
certain costs for electric utilities.

Except for such nonrevenue producing, nonex-
pense reducing investments as may be reasonably
shown to be necessary to improve environmental
conditions at existing facilities or improve safety at
existing facilities or as may be required to convert
facilities to the utilization of coal, the cost of con-
struction or expansion of a facility undertaken by a
public utility producing, generating, transmitting,
distributing or furnishing electricity shall not be
made a part of the rate base nor otherwise included
in the rates charged by the electric utility until
such time as the facility is used and useful in ser-
vice to the public. Except as stated in this section,
no electric utility property shall be deemed used
and useful until it is presently providing actual
utility service to the customers.

Section 2. This act shall be applicable to all
proceedings pending before the Publie Utility Com-
mission and the courts at this time. Nothing con-
tained in this act shall be construed to modify or
change existing law with regard to rate making
treatment of investment in facilities of fixed utili-
ties other than electric utilities.

Section 3. This act shall take effect immediately.

Our scope of review is limited to a determination of
whether constitutional rights have been violated, an er-
ror of law committed or whether the findings, determi-
nations or order of the PUC are supported by substan-
tial evidence. U.S. Steel Corp. v. Pennsylvania Public
Utility Commission, 37 Pa. Commonwealth Ct. 195, 390

4b

A.2d 849 (1978). The interpretation given a statute by
the agency charged with its execution and application is
entitled to great weight and should be disregarded or
overturned only for cogent reasons or if such construc-
tion is clearly erroneous. Chappell v. Pennsylvania Public
Utihty Commission, 57 Pa. Commonwealth Ct. 17, 425
A.2d 873 (1981).

The OCA contends that the PUC erred when it con-
strued Section 1315 to allow amortization of the cancel-
lation costs. It asserts that, under this provision, the
cost of construction of an electric generating facility
cannot be included in the rates charged until it is, by its
definition, used and useful, that is, providing actual
utility service. It thus maintains that Duquesne cannot
amortize cancellation costs since the four plants. will
never provide service.

By contras., it is the position of the PUC that, under
Section 1315, Duquesne should be permitted to amortize
its share of the cancelled plant costs over a ten year
period because this provision does not prohibit the
amortization of prudently incurred cancelled plant costs
in customer rates. The PUC alleges it allowed
Duquesne a recovery of its investment in the cancelled
plants but that Duquesne received no return on its in-
vestment nor any portion of the cancelled plant costs.
Section 1315, it asserts, merely codified the long stand-
ing practice of disallowing the inclusion of construction
work in progress (CWIP) in the rate base.

In Bell Telephone Co. v. Pennsylvania Public Utility
Commission, 47 Pa. Commonwealth Ct. 614, 408 A.2d
917 (1979), we stated that the Code

authorizes utilities to seek a just and reasonable re-
turn on the fair value of property used and useful

5b

in the public service. What constitutes used and
useful utility property is committed to the discre-
tion of the Commission. If the Commission reason-
ably finds that a particular class of property is not
used or useful in serving the public, it may exclude
the value of that property from the rate base and
thus disallow the utility’s return on that property.
(Emphasis added.)

47 Pa. Commonwealth Ct. at 629, 408 A.2d at 924.
Furthermore, “[i]n the area of adjustments to rate base,
the [PUC] has wide discretion.” UGI Corp. v. Pennsyl-
vania Public Utility Commission, 49 Pa. Commonwealth
Ct. 69, 79, 410 A.2d 923, 929 (1980). In our view, the
PUC has correctly applied Section 1315 and, therefore,
we agree with its interpretation and analysis of this
provision.

According to the rules of statutory construction, the
title and preamble of a statute may be considered in the
construction of that statute. Section 1924 of the Statu-
tory Construction Act, | Pa.C.S8. § 1924. The limiting
title and preamble of Act 335, adding Section 1315,
described itself as one “providing a limitation on the
consideration of costs in the rate base for electric public
utilities.” (Emphasis added.) This phrase relates exclu-
sively to a consideration of rate base and not a legisla-
tive intent to exclude the costs of cancelled facilities
from the revenue or expense factors of ratemaking.
This interpretation, moreover, may be inferred from the
provisions of the Code where “used and useful’ relates
only to rate base inclusions and not at all to expense
allowances. For instance, Section 1307 of the Code, 66
Pa.C.S. § 1307, provides that a public utility should es-
tablish rates which provide a just and reasonable return
on the fair value of its property “used and useful” in

6b

the public service; and, Section 1310 of the Code, 66
Pa.C.8. § 1310, authorizes the PUC to investigate rates
which produce a possible return “in excess of a fair re-
turn... upon property used and useful in its public ser-
vice.” The Code nowhere employs this phrase regarding
the allowance of items of expense. Case law also in-
dicates that the “used and useful” concept is uniformly
employed in considering only rate base questions. See,
for erample, Philadelphia Electric Co. v. Pennsylvania Pub-
lie Utility Commission, 61 Pa. Commonwealth Ct. 325,
433 A.2d 620 (1981); Bell Telephone Co.; Keystone Water
Co., White Deer District v. Pennsylvania Public Utility
Commission, 477 Pa. 594, 385 A.2d 946 (1978).

Properly interpreted, the key language upon which
OCA relies, that is, “nor otherwise included in the rates
charged”, serves to prohibit the inclusion of CWIP in
rate base and safeguard against alternative ratemaking
methods which seek to accomplish the same or a similar
result. We believe that when the legislature added Sec-
tion 1315, it codified the already existing PUC policy
regarding the exclusion of CWIP in the rate base. We,
in fact, have held that CWIP is not used and useful
property and thus not entitled to a return until actually
in service. Bell Telephone Co.

Act 335, adding Section 1315, was adopted following
a controversy which involved the cost of constructing
Philadelphia Electric Company’s nuclear generating
system on the Schuylkill River. It had requested the in-
clusion of $500,000,000.00 of the construction costs of
the plant in rate base and proposed the removal of all
restraints associated with the PUC policy of limited in-
clusion of CWIP in rate base. The PUC, however,
rejected this claim and proposal as a matter of policy
and affirmed its statutory authority to permit these

7b

costs in rate base. Pennsylvania Public Utility Commis-
sion v. Philadelphia Electric Company, R-811626, May 21,
1982, 56 Pa. PUC (1982). In March, 1982 the Pennsy!-
vania Senate passed a resolution expressing a viewpoint
that the Code did not permit the inclusion of CWIP in
rate base.’ Act 335, adding Section 1315, was adopted on
December 30, 1982, effective immediately, and was ob-
viously meant to settle the issue regarding CWIP in
accordance with the resolution.

In our view, the words and meaning of Section 1315
are not entirely clear. Under Section 1921(c) of the
Statutory Construction Act, where the meaning of a
statute is not explicit, the intention of the legislature
may be ascertained by considering:

(1) The occasion and necessity for the statute.
(2) The circumstances under which it was enacted.
(3) The mischief to be remedied.

(4) The object to be attained.

(5) The former law, if any, including other statutes
upon the same or similar subjects.

(6) The consequences of a particular interpretation.

(7) The contemporaneous legislative history.

(8) Legislative and administrative interpretations
of the same statute.

1 Pa.C.S. § 1921(c). The legislature enacted the Act
specifically to counter Philadelphia Electric Company's
controversial request to include CWIP in rate base
before the facilities actually served the public. By doing
so, the legislature endorsed the longstanding PUC
policy regarding treatment accorded CWIP rate base
claims thereby codifying the exclusion of rate base in

‘The resolution was implemented by the introduction of Senate Bill No
1366, Session of 1982.

Sb

the cost of a facility before it has been completed or has
begun providing service to the public.

We believe the PUC properly permitted the inclusion
of the cost of the cancelled nuclear plants and, there-
fore, affirm its order.

1364 C.D. 1984

The OCA appeals an order of the PUC which permit-
ted inclusion of the costs of four cancelled nuclear units
and allowance of land held for future use in rate base
by Penn Power. The PUC order also permitted normal-
ization of tax benefits for state income tax purposes.

In July, 1983, Penn Power filed tariff revisions in
order to increase annual revenues by $19,890,200.00.
This request included additional return revenues result-
ing from inclusion of $842,074.00 in rate base of land
held for future use, the amortization over ten years of
Penn Power’s $9,569,665 investment in four cancelled
nuclear plants, and normalization of tax benefits as-
sociated with effects of depreciation in application to
state income taxes. On April 11, 1984, the PUC adopted
Penn Power's proposals for ratemaking purposes and
this appeal followed.

Because we have resolved the issue regarding the
amortization of Penn Power's investment in the nuclear
plants, we need not further address it.

The OCA asserts that the PUC violated Section 1315
when it permitted an allowance of land held for future
use in rate base because it provided a return thereon to
Penn Power. This claim, the OCA maintains, involved
electric utility facilities none of which could be deemed
“used and useful” as contemplated by Section 1315. We
disagree.

Yb

We reiterate that Section 1315 contemplates disallow-

ing the inclusion of CWIP in rate base and further that
the Code and decisional law uniformly apply “used and
useful” only to rate base questions.

The OCA next contends that normalization of the tax
benefits associated with state income taxes violates the
“actual taxes paid” doctrine. The case of Barasch, Con-
sumer Advocate of Pennsylvania v. Pennsylvania Public
Utility Commission and Pennsylvania Power Company,
Pa. —, 491 A.2d 94 (1985), supports the OCA and we,
therefore, reverse on the normalization issue.

PALLADINO, J., dissents.
No. 553 C.D. 1983
ORDER

Now, June 13, 1985, the order of the Pennsylvania
Publie Utility Commission, entered January 28, 1983,
and April 18, 1983, at No. R-821945, is affirmed.

No. 1364 C.D. 1984
ORDER

NOW, June 13, 1985, the order of the Pennsylvania
Public Utility Commission, entered April 11, 1984, at
No. R-832409, regarding the inclusion of costs of can-
celled nuclear plants and land held for future use in
rate base, is affirmed and the order regarding nor-
malization of actual state income tax expenses is
reversed,

CRUMLISH., Jr., President Judge, concurring.

| agree with the able and articulate reasoning of the
majority, but include an additional comment.
If we had concluded that Section 1315 extended

bevond rate base and encompassed all components of
rate structure, I would still have held it inapplicable to

10b

the costs of these cancelled nuclear plants. This statute
is only intended to prevent the inclusion in rates of con-
struction work in progress. When construction is can-
celled, a fortiori it does not progress. Section 1315's pro-
scriptive effect attaches “until such time as the facility is
used and useful... .” (Emphasis added.) The General
Assembly's language unmistakably connotes a concept
of delayed recoupment, not of total forfeiture, as would
result if this provision barred recovery of costs associat-
ed with plants never to be completed.

Serious constitutional problems would be raised by
precluding a utility from ever regaining monies
prudently invested for the public benefit. Also, as allud-
ed to by the majority, Section 1315 was enacted in re-
sponse to a specific instance where a utility sought to
charge rates for the costs of ongoing construction on a
facility scheduled for future completion.’ | would therefore
construe Section 1315 as a provision concerned solely
with construction work in progress.

COLINS, Judge, dissenting.

| I must disagree with the conclusion by the majority
in Cohen v. Pennsylvania Public Utility Commission. -
Pa. Commonwealth Ct. —, 494 A.2d 58 (1985). that
losses incurred by Duquesne as a result of expenditures
on now-abandoned nuclear power plants should be
borne by the consumer. Section 1315 of the Publie Utili-
ty Code’ clearly disallows the inclusion of the costs of
construction of a facility in the rate base until it is used
and useful, a practice already followed by the Public
Utility Commission (PUC). But Section 1315 did not
merely reiterate an existing PUC practice, but rather

‘See majority opinion, at 62
‘66 Pa.CS. § 1315.

llb

went on to state that these costs shall not be “otherwise
included” in the rates charged until the facility is used
and useful. Obviously, the legislature intended that the
costs of CWIP’s should not be included anywhere in the
rates charged until the facility is being used.

Section 1921(a) of the Statutory Construction Act’
states that “[e]very statute shall be construed, if pos-
sible, to give effect to all its provisions.” Section 1921(b)’
directs that “[w]hen the words of a statute are clear and
free from all ambiguity, the letter of it is not to be dis-
regarded under the pretext of pursuing its spirit.” The
interpretation given Section 1315 by the majority ig-
nores a directive in the statute that “the cost of con-
struction ... of a facility undertaken by a public utility
producing, generating, transmitting, distributing or fur-
nishing electricity shall not be made a part of the rate
base nor otherwise included in the rates charged by the elec-
iric utility until such times as the facility is used and
useful in service to the public.” (Emphasis added.)

The majority has misinterpreted the statute by ignor-
ing the key phrase “nor otherwise included in the rates
charged.” The entire statute as it stands is not am-
biguous. Any costs incurred in constructing a new facili-
ty by a public utility furnishing electricity cannot be
included anywhere in its rates until that facility is
actually providing utility service to its customers. If the
legislature merely wished to codify a practice already
utilized by the PUC in its rate computation, it would
have simply disallowed the inclusion of these costs in
the rate base. The legislature clearly intended that the
costs of facilities which are not actually providing

1 PaCS. § 1921(a).
‘1 PaCS. § 1921(b).

12b

service should not be borne by consumers anywhere in
the rates paid until they are producing electricity.

Therefore, the decision of the PUC should be
reversed.

MacPHAIL and PALLADINO, JJ., join.

APPENDIX C

Order of the Pennsylvania Public Utility
Commission (Duquesne Light Co.)

le

Pennsylvania Public Utility Commission
v.
Duquesne Light Company

Intervenors: United States Steel Corporation, Office of
Consumer Advocate, Pennsylvania Alliance for Jobs and
Energy, Equitable Life Assurance Society of the United
States, Joseph Horne Company, Kaufmann’s, Gimbels,
Gulf and Western Manufacturing Company, Armco,
Inc., and Hospital Council of Western Pennsylvania

R-821945 et al.
January 27, 1983

APPLICATION for authority to increase electric rates; grant-
ed as modi fied; income tax allowance reduced by hypothetical
interest associated with accumulated deferred tax credits.

By the Commission:
Opinion and Order
I. Introduction

On April 30, 1982, Duquesne Light Company (respon-
dent or Duquesne) filed, with the commission, Tariff
Electric-Pa. PUC No. 15. The proposed tariff contained
changes in rates, rules, and regulations designed to
produce an increase in annual Pennsylvania jurisdic-
tional electric revenues of approximately $165,013,000
based upon a future test-year level of operations for the
twelve months ending December 31, 1982.

This proposed tariff was suspended by operation of
law until January 29, 1983. By order entered June 4,
1982, we instituted this investigation at R-821945. Nine
formal complaints were filed against the proposed rate
increase and these were consolidated with our investiga-
tion for purposes of hearing, briefing, and disposition.’

‘Four of the complaints were filed by commercial customers which are
owners of buildings in downtown Pittsburgh, and are referred to herein as
“commercial complainants.”’ These are the Equitable Life Assurance Society
of the United States, Joseph Horne Company, Kaufmann’s and Gimbels.

2c

The Hospital Council of Western Pennsylvania was
granted intervenor status.

Twenty-four days of hearings were held in Pittsburgh
and Harrisburg before Administrative Law Judge
Joseph J. Klovekorn (ALJ). Duquesne presented twen-
ty-three witnesses. The commission trial staff (staff)
presented four witnesses as did the Office of Consumer
Advocate (OCA). The commercial complainants and
United States Steel Corporation (USS) each presented a
witness in the area of rate structure.

Main briefs have been filed by Duquesne, staff, OCA,
commercial complainants, USS, Armco, Gulf and West-
ern, and the Hospital Council. Reply briefs were filed
by all parties except USS and the Hospital Council.

The ALJ’s recommended decision was issued on
December 10, 1982. Exceptions were filed on or before
December 20, 1982, by Duquesne, staff, OCA, commer-
cial complainants, Armco, and the Pennsylvania Al-
liance for Jobs and Energy (PAJE). Replies to excep-
tions were filed on or before December 27, 1982, by

Duquesne, staff, OCA, commercial complainants, and
USS.

In addition to accomplishing disposition of this
proceeding, this opinion and order completes the dispo-
sition of the respondent's petition regarding normaliza-
tion of federal income taxes under the accelerated cost
recovery system and also grants amortization of the re-
spondent’s cancellation costs arising from cancelled
Central Area Power Coordination Group (CAPCO),
construction which was the subject of investigation in
the proceeding at I-79070315.

3c

II. Rate Base
A. Fair Value

The respondent presented only original cost measures
of value in this proceeding. Consequently, we shall
adopt as the fair value of the respondent’s rate base, the
original cost measure of value as it shall be hereinafter

determined.
B. Electric Plant in Service

Duquesne’s claimed undepreciated original cost for
electric plant in service on a total company basis as of the
end of the future test year or December 31, 1982, is
$2,246,044,570. This is based upon the reclassification of
the plant accounts, effective December 31, 1936, as ap-
proved by the coimmission’s orders of January 7, 1946,
and February 9, 1948, at E.0.C. 10. Beginning January
1, 1938, the methods, procedures, and records for all
property additions and retirements have been main-
tained in a manner compatible with the requirements of
the basic plan approved by the commission. The com-
pany’s continuing property records have also been
maintained since that time in accordance with the ap-
proved CPR system. The Federal Energy Regulatory
Commission (FERC) and the commission staff have
periodically audited Duquesne’s continuing records and
related construction work order system and inspected
its physical plant to ensure compliance.

The company’s original cost measure of value con-
tained in the original filing was predicated on the com-
pany’s 1982 construction budget. During the course of
the proceeding, numerous revisions, consisting of con-
struction additions and deletions, changed in-service
dates, revised construction costs, were made in the con-

4c

struction programs reflected in the company’s 1982 con-
struction budget. Updated exhibits were filed to reflect
these revisions.

Duquesne’s claim is uncontested. We approve the
claim.

C. Depreciation Reserve

Duquesne’s claim for accrued depreciation (calculated
reserve) applicable to its original cost—electric plant in
service is $493,030,725, on a total company basis. In the
last four Duquesne proceedings, we have approved
Duquesne’s estimated average service lives and sur-
vivor curves, and methodologies with respect to accrued
depreciation for the transmission, distribution, and gen-
eral plant accounts. In this proceeding Duquesne again
prepared a life span analysis for all of its production
plant, by unit. For each plant account, these exhibits
set forth the original cost dollars, the probable retire-
ment year of each unit, the estimated interim survivor
curves, and the statistical support for each interim sur-
vivor curve. The depreciation calculations relating to
production for each station are presented by plant ac-
count showing the original cost of the surviving plant
by year of installation, the average life of the plant in-
stalled in each year, the annual accrual amount, the
average remaining life expectancy, and the calculated
reserve related to the original cost of each vintage.

The ALJ concluded that Duquesne’s claim for ac-
crued depreciation was supported by the uncontested
evidence and recommended that it be accepted in this
proceeding. We approve the claim.

D. Additions to Rate Base
1. Property Held for Future Use and Other Items

Duquesne has claimed $552,853, on a total company
basis, for plant held for future use. This property con-

5e

sists of land with estimated in-service dates on or before
1988. No party has contested this claim. We find that
the claim is reasonable and accordingly, it is allowed.

Duquesne has also claimed $61,482 as the undepre-
ciated original cost of the used and useful plant of the
Monongahela Light and Power Company. The asso-
ciated depreciation reserve is $27,405. No party has con-
tested this claim. We find the claim and the associated
accumulated reserve to be reasonable and accordingly it
is approved.

Additionally, Duquesne has claimed $355,000 as the
undepreciated additional cost of the borough of Aspin-
wall plant, with an associated accumulated depreciation
reserve of $275,125. No party has contested the claim
and finding it otherwise reasonable, it is approved.

2. Construction Work in Progress

Duquesne’s claim for electric plant in service reflects
investment in plant which it expects to be in service at
December 31, 1982. Additionally, it has claimed inclu-
sion of construction work in progress (CWIP) with
regard to certain nonrevenue-producing, regulatorily
mandated projects, such as environmental control; and
Nuclear Regulatory Commission (NRC) mandated
projects. Duquesne’s claim of $70,769,052, construction
work in progress, on a total company basis is comprised
of the following:

Construction Work in Progress Caiculated Accrued
(Net of Associated Retirements) Original Cost Depreciation
Environmental Control
Projects $52,479,898 a 5
NRC Mandated 18,289,154 288,204
Claim $70,769,052 $1,050,579

6e

The company states that its claim reflects the esti-
mated expenditures to complete the projects, all of
which are expected to be in service during 1983, the
year in which the rates to be set in this proceeding will
be in effect. This claim, it urges, is consistent with al-
lowances in other proceedings; citing Pennsylvania Pub.
Utility Commission v Pennsylvania Power Co. R.I.D.
243, Jan. 27, 1977; Pennsylvania Pub. Utility Commis-
sion v. Dauphin Consol. Water Co. R-78050616, April 5,
1979; Pennsylvania Pub. Utility Commission v Phila-
delphia Electric Co. R-811626, May 21, 1982. These ex-
penditures, it claims, are necessary for Duquesne to
comply with environmental air and water pollution
standards and NRC mandated requirements, in order
to retain the existing capacity of generating stations al-
ready in service.

While not contesting the accuracy of the company’s
claim, the OCA opposes inclusion in rate base of any
post-test-year expenditures. In support of its position,
OCA cites our opinion and order in Pennsylvania Pub.
Utility Commission v Penn Power, R-811510, Jan. 22,
1982.

The ALJ recommended approval of the respondent’s
claim. The OCA has excepted. We shall allow the claim
based upon our decision in Pennsylvania Pub. Utility
Commission v Philadelphia Electric Co. R-811626, May
21, 1982, wherein we distinguished a factual situation
on almost all fours with the one present here, from that
present in the Penn Power case. The essential feature of
the claim here, which brings to within our policy of per-
mitting the inclusion of pollution control and NRC man-
dated construction work in progress in rate base, is that
the claim is limited to projects which will be in service
within one year after the end of the future test year.

7c

E. Cash Working Capital

Duquesne has submitted a cash working capital claim
of $54,660,529, on a total company basis, as set forth
below:

SUMMARY OF WORKING CAPITAL CLAIM

Operation and Maintenance Expense $14,829,313
Prepayments:
Prepaid Insurance $1,477,277
Prepaid Taxes—Real Estate 180,691
Prepaid Federal Use Taxes on Highway
Motor Vehicles 8,826
Prepaid PUC Assessment 620,143
Prepaid West Virginia Franchise Tax 513
Prepaid Excise Tax 25,467 2,312,917
Deferred Rental under Nuclear Lease 20,596,196
Deferred Quarto Coal Cost 16,922,103
Total Cash Working Capital
Requirement $54,660,529

The staff proposes numerous adjustments to the com-
pany’s claim. The staffs proposed cash working capital
allowance is $13,450,086. The OCA also proposes
numerous adjustments and an allowance of approxima-
tely $10 million. We will address each area of conten-
tion individually.

1. Operation and Maintenance Expense—Lead-lag Study

Duquesne’s cash working capital claim associated
with operation and maintenance expenses is based on a
lead-lag study which uses 38.3 days for the average lag
in the receipt of revenues and 24.5 days for the average
lag in the payment of operating expenses.

The staff witness stated that the company’s 38.3-day
revenue lag includes a two-day allowance for processing
and bank collection after receipt of payment, while, on
the other hand, the 24.5-day expense lag claimed by the
company includes only the period between the date
goods and services are delivered or performed, and the

Se

date of the check or disburseinent voucher, no al-
lowance being made for a disbursement float allegedly
arising from mailing lag and bank processing.

The staff argues that if the lead-lag study is to in-
clude an allowance for disbursement float on the reve-
nue side, it should also include an allowance for
disbursement float on the expense side. The addition of
a two-day expense lag to account for disbursement float
would, according to the staff witness, decrease the cash
working capital claim by $2.7 million.

The OCA would also reduce this claim by $2.7 mil-
lion on the basis that this disbursement float amounts
to the alternative equivalent of a claim for compensat-
ing bank balances.

Duquesne argues that the staff’s adjustment erro-
neously assumed a two-day lag. It also states that the
staff’s proposed adjustment would recognize the same
dollars which Duquesne has recognized by not claiming
a compensating bank balance requirement, as the alter-
native to paying fees for banking services.

According to Duquesne’s treasurer, R. G. Males:

“Checks are dated, entered in the cash book, and
mailed the same day. The value of the checks mailed to
the vendor and not yet presented for payment at the
bank is disbursement float. A recent one-month analysis
of cash disbursement indicates that 62.1 per cent of the
total dollars expended during the month were processed
through the bank account the same day entries were
made to the cash book of the company. This is primari-
ly attributable to sending large payments by bank
wires. Bank wires are charged to the company’s bank
account on the same day the payment is sent and
reduce both the bank ledger balance and collected bank

9c

balance in the bank account. The remainder of the cash
disbursements is disbursement float. For the month
analyzed, January, 1982, $1,918,000 was disbursement
float. Of the total cash disbursements for the month
14.1 per cent of the dollars was one-day disbursement
float, 8.3 per cent was two-day, 9.9 per cent was three-
day, with 5.6 per cent being four-day float or longer.
As stated in the response to interrogatories of the
consumer advocate, Set No. II, Item No. 2.20a last
paragraph, the amount of the disbursement float is ap-
proximately equal to the amount of compensating
balances required by the bank in ‘payment’ for demand
deposit services. The company has made no claim for
these required compensating balances. This is discussed
in Duquesne Exh II, Item II-A-15, p. 2 of 2 and Item
II-A-l6e. The amount of the required compensating
balances for demand deposit services is stated in
Duquesne Exh II-A-16, p. 5, which is a portion of a
copy of a letter from Roger N. Stanier, vice president of
Mellon Bank. Should it be necessary to include the dis-
bursement float in the calculation of the cash working
capital expense lag days, it would then also be appro-
priate to include the amount of the disbursement float
as a compensating balance requirement to be included
in the cash working capital needs of the company.”

It would appear from this record, therefore, that
there is not a two-day lag, rather over 62 per cent of the
total dollars expended during the month are processed
the same day and have no lag. Duquesne states that the
disbursement float which does exist is used to compen-
sate the Mellon Bank for deposit and disbursement ac-
tivity services. Such bank services normally require a
fee or may take the form of a compensating balance
requirement and such a claim has not been made here.

i0c

The record shows that the Mellon Bank would require
some $1,980,000 in compensating balances for the depos-
it and disbursement activity services which it provided
at the 1981 level.

The ALJ recommended that the proposed adjustment
be rejected for two principal reasons: First; there is no
support for the assumption that because there is a two-
day revenue lag for processing and bank collection,
there is a similar lag on the expense side. Second; the
proposed adjustment fails to recognize that the disburse-
ment float that does exist eliminates the need for a com-
pensating balance requirement.

Both the staff and the OCA except. The proposed ad-
justments are rejected and the exceptions are denied.
We have previously recognized that it is appropriate to
offset disbursal float against compensating balance
requirements (Pennsylvania Pub. Utility Commission v
Pennsylvania Power Co. R-815510, Jan. 22, 1982). Here
the waiver of a compensating balance claim constitutes
the same result.

2. Expense Payment Lag for Net Energy Clause Expenses

Office of Consumer Advocate witness, Henkes,
proposed reducing the company’s cash working capital
claim by $1,759,000 to reflect the expense lag associated
with net energy clause energy expenses. The ALJ
recommended that this adjustment be rejected: First, on
the basis that Duquesne includes in its calculation, dol-
lars associated with demand charges which Duquesne is
not permitted to collect through its net energy clause
and, therefore, to the extent those costs are in excess of
the amount in base rates; dollars which it never
recovers from its customers. Second; on the basis that
the purchased power dollars (sales) are a net amount

lle

and reflect sales of power by Duquesne to other com-
panies, which at some subsequent point in time pay
Duquesne for this power either in cash or in equivalent
power. These dollars are reflected in the net energy
clause as a credit to the customer when the power is
delivered, not when they are actually paid. The OCA
has excepted. The exception is denied. We conclude that
the proposed adjustments are inappropriate for the rea-
sons proffered by the ALJ.

3. Prepayments

Duquesne’s claim with respect to prepayments of
$22,312,917 is calculated on the basis of a 13-month
average balance and is detailed in Duquesne Exh No.
Ill, Item No. III-A-14. The claim is uncontested. The
ALJ recommends its allowance. We find the claim rea-
sonable and accordingly it is approved.

4. Deferred Rentals under Nuclear Lease

The company’s claim of $20,596,196 for deferred ren-
tal under its nuclear fuel lease includes (1) $11,691,099
related to fuel presently in the reactor, (11) $5,848,344
associated with the next reload, the fabrication of which
will be completed before the rates in this proceeding
will be in effect, and (iii) $3,056,753 for nuclear fuel still
in process. The ALJ recommended approval of the first
two items and disapproved of the third item.

The staff urges that that portion of deferred rental
under its nuclear lease associated rental under its nu-
clear lease associated with nuclear fuel still in process
(Items ii and iii above) be excluded from cash working
capital allowance. It, therefore, proposed reducing the
company’s claim by $8,905,097. The OCA proposed a
similar adjustment.

12e

The issue of rate base treatment for nuclear fuel in
process was recently considered in our opinion and
order in Pennsylvania Pub. Utility Commission v
Philadelphia Electric Co. R-811626, May 21, 1982.
There we approved a claim for the company’s invest-
ment in nuclear fuel in process. The company relies on
that opinion and order to support its present claim.

There was no opposition to the inclusion in cash
working capital of the $11,691,099 in rentals related to
the fuel currently in the reactor. The ALJ recommend-
ed approval of this portion of the claim. No party ex-
cepted. We find this claim appropriate and accordingly,
it is approved.

The objections to inclusion of the $5,848,344 associat-
ed with the next reload seem minor. Staff notes that this
fuel will not be delivered until February, 1983, “well
beyond the end of the 1982 test year.”” The OCA argues
that there is no assurance that this fuel load will occur
as currently scheduled. We know, however, that Beaver
Valley will require a reload sometime shortly after these
rates go into effect. Further, the delivery date is only a
matter of some weeks past the end of the test year. This
amount shall be allowed. Accordingly, the exceptions of
the staff and OCA are denied.

With respect to the remaining $3,056,753, represent-
ing rentals on fuel in process, the ALJ recommended
disallowance based upon the absence of the special cir-
cumstances which we found present in our opinion and
order in Pennsylvania Pub. Utility Commission v
Philadelphia Electric Co. R-811626, May 21, 1982. We
stated there that:

“Based upon the particular circumstances of this case and
our determination that Limerick Unit No. 1 is in the public

13e

interest and is to be completed in the near future, we are of
the conviction that recovery of the investment in nu-
clear fuel in process, other than that associated with
Limerick Unit No. 2, is in the best interest of both the
ratepayers and the company. We find merit in PECO’s
argument that a guaranteed fuel supply and avoidance
of spot market purchases benefits both current and fu-
ture ratepayers.” (Emphasis added.)

We agree with the ALJ that those special circum-
stances are not present here. We conclude that the com-
pany’s claim for deferred rentals for the remaining
nuclear fuel in process should not be allowed for the
reasons which we stated in our opinion and order in
Pennsylvania Pub. Utility Commission v Pennsylvania
Power Co. R-811510, Jan. 22, 1982, which was that this
expense is most analogous to deferred energy costs, and
that our long-standing policy is to allow a return on
“used and useful” property but not on operating
expenses. The company’s exception is, accordingly, de-
nied. As an alternative to inclusion in rate base, we
shall permit, as suggested by the OCA, the company to
accrue allowance for funds used during construction
(AFUDC) on the disallowed sum of $3,056,753, in the
manner and for the period set forth in the pertinent
ordering pragraph.

5. Accumulated Interest and Preferred Dividends Offset

Although recognizing that in its rate proceeding, at
R-80011069, we offset its cash working capital claim by
an amount equal to its accumulated debt interest and
preferred and preference stock dividends, Duquesne did
not make such an adjustment here. The adjustment
proposed by the staff for these items totals $12,622,000.
The OCA proposed a similar adjustment although
different in amount from the staff ($12.8 million).

l4e

Duquesne states that there is no actual basis for such
an adjustment. It asserts that the basis for a cash work-
ing capital adjustment for accumulated interest expense
and accumulated preferred stock dividends should be
no different than any other aspect of a lead-lag study.
That is, such an offset, is only appropriate where the
recovery of interest and dividends from ratepayers ac-
tually leads the disbursement of such interest and
dividends to the investors.

Duquesne then states that the evidence in this record
shows that, rather than the interest expense and
preferred stock dividends being collected by the
company from ratepayers prior to disbursement to
Duquesne’s investors, interest expense and preferred
stock dividends are, in fact, paid by Duquesne to the
company's investors well in advance of any payments
received from Duquesne’s ratepayers. In other words,
Duquesne claims that receipt of the payments from
ratepayers lag the actual cash payments to company’s
investors, a lag for which, Duquesne says, it has never
sought compensation.

Interestingly, we note that Duquesne’s witness Mr.
Ellenberger acknowledged that in our opinion and order
at R-80011069, we rejected this identical argument.
Nonetheless, Duquesne pursues this matter yet again,
citing a decision of the supreme court of the state of
Rhode Island, which reversed a similar adjustment by
the Rhode Island commission, on the basis that ac-
cumulated interest are investor-supplied funds, urging
us to follow that decision. We are unpersuaded that
such is the law in this commonwealth. This issue has
been litigated by various utilities since an adjustment
was first made by the commission in 1978. To date we

L5e

have made such an adjustment in at least 18 proceed-
ings’ and we have consistently been affirmed by the com-
monwealth court.’ The ALJ recommends the adoption
of an adjustment which was recalculated based upon his
adopted rate base.

The respondent has excepted. The exception is denied
and we will reduce the cash working capital claim, by
$12,674,000, based upon our adopted rate base, which
amount is identical to that calculated by the ALJ.
Because of this identity of result, no commission adjust-
ment to the ALJ’s adopted rate base appears in Table

II [omitted herein].

‘Pennsylvania Pub. Utility Commission v Philadelphia Electric Co.
R-811626, May 21, 1982; Pennsylvania Pub. Utility Commission v Penn-
sylvania Electric Co. R-811510, Jan. 22, 1982; Pennsylvania Pub. Utility
Commission v Philadelphia Electric Co. R-80061225, April 24, 1981; Penn-
sylvania Pub. Utility Commission v Pennsylvania Gas & Water Co.
R-80071235, April 24, 1981; Pennsylvania Pub. Utility Commission v.
Duquesne Light Co. (1981) 54 Pa PUC 695, 43 PUR4th 27; Pennsylvania
Pub. Utility Commission v West Penn Power Co. (1981) 54 Pa PUC 602;
Pennsylvania Pub. Utility Commission v Pennsylvania Power & Light
Co. (1981) 54 Pa PUC 645; Pennsylvania Pub. Utility Commission v Na-
tional Fuel Gas Distribution Corp. (1980) 54 Pa PUC 401, 40 PUR4th 101;
Pennsylvania Pub. Utility Commission v Carnegie Gas Co. R-79100981,
July 25, 1980; Pennsylvania Pub. Utility Commission v_ Philadelphia
Suburban Water Co. R-78040824, Feb. 1, 1980; Pennsylvania Pub. Utility
Commission v West Penn Power Co. (1979) 53 Pa PUC 410, 32 PUR4th
245; Pennsylvania Pub. Utility Commission v Pennsylvania Electric Co.
(1979) 53 Pa PUC 203; Pennsylvania Pub. Utility Commission v Metro-
politan Edison Co. (1979) 53 Pa PUC 225, 28 PUR4th 555; Pennsylvania
Pub. Utility Commission v Pennsylvania Power Co. (1978) 52 Pa PUC
457, 27 PUR4th 426; Pennsylvania Pub. Utility Commission v Philadel-
phia Electric Co. (1978) 52 Pa PUC 772, 31 PUR4th 15; Pennsylvania
Pub. Utility Commission v Peoples Nat. Gas Co. (1978) 52 Pa PUC 616,
28 PUR4th 180; Pennsylvania Pub. Utility Commission v Pennsylvania
Electric Co. (1978) 51 Pa PUC 649; Pennsylvania Pub. Utility Commis-
sion v UGI Corp. (1978) 52 Pa Pue 383.

‘Philadelphia Electric Co. v Pennsylvania Pub. Utility Commission
(1981) 62 Pa Cmwlth 325, 433 A2d 620; UGI Corp. v Pennsylvania Pub.
Utility Commission (1980) 49 Pa Cmwlth 69, 410 A2d 923; Peoples Nat.
Gas Co. v Pennsylvania Pub. Utility Commission (1980) 52 Pa Cmwith
201, 415 A2d 937: Penn Electric Co. v Pennsylvania Pub. Utility Commis-
sion (1980) 53 Pa Cmwlth 186, 417 A2d 819

160
6. Deferred Quarto Coal Costs

A portion of the coal requirements for the Mansfield
units, Which are owned in part, by Duquesne, is supplied
from the Quarto mine. On December 11, 1980, we insti-
tuted an investigation at [-80120343 regarding the
reasonableness of the cost of coal from this mine.
On January 12, 1981, we entered an interim order
providing:

“[t]hat for purposes of calculating the current net
energy clauses of Duquesne Light Company and Penn-
sylvania Power Company, the companies shall limit
pricing of Quarto coal to market prices determined by
the same methodology used prior to removing the mines
from development; such limitation shall commence
upon entry of the order and shall remain in effect until
that instant investigation is concluded, or until other-
wise ordered by the commission.

“That Duquesne Light Company and Pennsylvania
Power Company shall defer collection of the cost of the
Quarto coal that may be uncovered as a result of Order-
ing Par No. 1, pending the termination of the instant
investigation.”

Duquesne’s cash working capital claim includes
$16,922,103 for deferred Quarto coal costs. The com-
pany argues that these coal costs were reasonably in-
curred and its inability during the continuance of the
investigation to pass on to its customers the full costs
incurred by it for such coal does not change this fact.
Duquesne then argues that the carrying costs created
by the deferrals are busines cost incurred by it, no
different than other investor-supplied expenditures.

The staff and the OCA oppose this claim. They argue
that by including those costs in its cash working capital
claim, Duquesne is requesting a current return on costs

17e

that are now under investigation and may be found to
be excessive and unreasonable.

The ALJ recommends disallowance of this claim, at
least pending completion of the investigation.

The respondent has excepted. We adopt the proposed
adjustment and deny Duquesne’s exception. Our in-
terim order of January 12, 1981, effectively questioned
the reasonableness of those costs which were required to
be deferred. It would be inconsistent for us to permit a
return on such deferred costs, by permitting their inclu-
sion in rate base.

7. Customer Deposits

The OCA proposes a $1.7 million deduction to reflect
the elimination of customer deposits from rate base,
and proposes that interest on customer deposits be in-
cluded as an above-the-line expense. Duquesne opposes
the adjustment as a change without substance, and
urges that the adjustment be rejected, as was done in
the proceeding at R-811470. In that proceeding, the ad-
justment proposed by the Pennsylvania Alliance for
Jobs and Energy was rejected, because of a failure to
address the subject of the treatment to be accorded the
associated interest expense. Here the OCA proposes a
concomitant interest expense adjustment. The ALJ
recommends adoption of the proposed adjustment. We
agree that such an adjustment is appropriate, and
Duquesne’s exception is denied. It is well established in-
vestors should not be permitted to earn a return on
funds which they do not supply. Conversely, the in-
terest that Duquesne pays on such amount is a legiti-
mate business expense for which it should be made
whole. We shall, therefore, make the concomitant ad-
justment for interest expense.

LSe

F. Other Working Capital
1. Materials and Supplies

As shown in Duquesne Exh No. 1B, p. F-2,
Duquesne’s total working capital claim includes a
materials and supplies (other than fuel) inventory claim
of $29,123,728 based upon the 13-month average bud-
geted balance of the materials and supplies inventory.
No party has contested this claim.

The company’s materials and supplies working capi-
tal claim is consistent with the commission’s tariff
regulations which specifically request the monthly ma-
terials and supplies book balances for the thirteen
months prior to the end of the test year. (52 Pa Code,
§ 53.53, item I-A-15.)

The ALJ includes [sic] that Duquesne’s materials
and supplies working capital claim of $29,123,728 is rea-
sonable and recommends approval of its claim. We
agree and approve the claim.

2. Fuel inventory

As shown in Duquesne Exh No. 1B, p. F-1, Du-
quesne’s working capital claim includes a fuel on hand
claim of $44,537,267 for coal and oil in inventory. This
figure was based upon adjusted test-year conditions as
to load distribution for assumed Beaver Valley Unit
No. 1 operation under conditions comparable to a 63.6
per cent capacity factor and Shippingport shutdown all
year. No party to the proceeding has submitted
evidence contesting this claim.

The company’s fuel inventory claim is consistent
with the commission’s regulations which specifically
request the monthly fuel on hand balances (quantity
and price) for the thirteen months prior to the end of

19¢

the test year (52 Pa Code, § 53.53, Item I-A-16). In
previous proceedings we have allowed similar claims.
See, e.g., Pennsylvania Pub. Utility Commission v
Pennsylvania Power & Light Co. (1981) 54 Pa PUC
645; Pennsylvania Pub. Utility Commission v Du-
quesne Light Co. (1981) 54 Pa PUC 695, 43 PUR4th 27.

Duquesne’s fuel on hand working capital claim of
$44,537,267 is reasonable and it is approved.

G. Conclusion

Our adopted fair value rate base on a Pennsylvania
jurisdictional basis, is $1,779,313,000.

We should note for the benefit of the reader that no
party contested the company’s proposed rate base
reduction applicable to sales for resale under the juris-
diction of the Federal Energy Regulatory Commission.
We approve that jurisdictional allocation without addi-
tional comment herein.

III. Operating Revenues

Duquesne estimated its test-year total company, oper-
ating revenues at present rates at $693,113,000, which
includes a number of adjustments, most of which were
uncontested. Additionally, the staff proposed one ad-
justment. These shall be addressed seriatim.

A. Uncontested Adjustments

Seven adjustments by Duquesne to its estimated
operating revenues were uncontested by the parties.
These were:

(1) A reduction of $33,310,000 to eliminate the state
tax adjustment Rider 10 revenues;

(2) A reduction of $134,590,000 to. eliminate the
energy cost rate revenues;

20¢

(3) An inerease of $3,796,000 vo reflect the estimated
additional revenues resulting from annualizing the in-
crease in the number of customers during the test year;

(4) An increase of $1,266,000 to reflect the estimated
additional revenues resulting from annualizing the in-
crease in use per customer during the test year;

(5) An increase of $18,000 to reflect the estimated
additional revenues resulting from annualization of late
payment charges to reflect increases in number of
customers and increases in usage per customer;

(6) An increase of $3,000 to reflect the estimated
revenue from the residential conservation program for
the test year. (Although this estimate was reduced to
$1,785 in Duquesne Exh No. 313-4 the claim was not
revised ); and,

(7) An increase in miscellaneous service revenues of
$93,000 to reflect the revenues expected to result from
the proposed returned check and reconnection charges.

These uncontested adjustments and the amount
thereof appearing to be reasonable are accepted.

B. Sales to Crucible Steel

Duquesne reduced test-vear revenues by $18,649,916
to reflect the loss of sales associated with the shutdown
of Crucible Steel’s Midland plant which oecurred during
the future test year but which was unanticipated when
the 1982 budget was prepared. The reduction of
$18,649,916 is a net amount; that is, the annualized bud-
get revenue for the Midland plant of $26,696,696, less
the amount of $8,046,780 expected to be recovered
under the demand ratchet provisions of Duquesne’s
tariff. This adjustment was based upon an estimated
loss of 693,880,000 kilowatt-hours of sales, which in turn

a ee?

ot eee ne Re cae eee Re, ii Rs A TR pees BPM oe 1 heres OB dy Me A we oe

lal Aly + ta tet DR PAA VA at AN eae, em

ok el 6 te Rm

oe lhe,

2le

was based upon annualized sales, predicated upon the
then highest demand months of 1981.

The staff contested the Duquesne proposal with a
proposed alternative adjustment of $15,814,395. The
staff’s proposed downward adjustment of $2,835,521 to
Duquesne’s proposed adjustment is accompanied by a
concomitant adjustment (increase) in operating ex-
penses of $933,739.

The difficulty encountered with regard to an adjust-
ment for the closing of Crucible Steel’s Midland plant,
is that while the 1982 budgeted sales estimates contains
a projected sales estimate of 4,430 million kilowatt-
hours for the seven largest steel producers, it does not
contain an individual figure for Crucible Steel’s Mid-
land plant. While the company’s adjustment was based
upon the highest three-month demand period of June to
August, 1981, the staff’s proposed adjustment was based
upon the demands for ‘he eight-month period of May to
December, 1981.

In rebuttal the company, through its witness Dudt,
attempted to bolster its proposed adjustment by point-
ing out that its 1982 sales estimate of 4,430 million
kilowatt-hours for all seven steel producers, prepared in
late September or October, 1981, is compatible with the
February 12, 1981, estimate prepared by the industrial
service department of 4,400 million kilowatt-hours, of
which Crucible Steel sales at the Midland plant repre-
sented 775 million kilowatt-hours. Therefore, reasons
Mr. Dudt, the 1982 budgeted sales estimate reasonably
could have included as much as 780 million kilowatt-
hours of sales for the Midland plant, as contrasted with
Duquesne’s proposed adjustment based upon 694 mil-
lion kilowatt-hours of sales.

22¢

We are confronted with what is essentially a budget
forecast of sales to the seven largest steel producers of
4,430 million kilowatt-hours, prepared by Data Re-
sources, Inc., based upon “outputs” and peaks that are
developed in the official load forecasts‘ prepared in Sep-
tember or October, 1981, and a similar estimate of 4,400
million kilowatt-hours prepared some months earlier, in
February, 1981, based upon an unknown methodology.
Based upon the similarity of results we are asked to ac-
cept that the ingredients are reasonably the same and
that the 1982 budget estimate of sales includes 775 or
780 million kilowatt-hours of sales for the Crucible Steel
Midland plant. We cannot accept this type of reasoning
and the conclusion urged upon us by Duquesne.

The question posed by staff counsel at Tr. p. 169 was
most pertinent. That question was: “Isn’t the real ques-
tion here, Mr. Maxwell, what was in the budget for
Crucible Steel not what’s a reasonable load for Crucible
Steel?”’ However, it appears that we do not have an ac-
ceptable answer to the first portion of the question and
must be satisfied with an answer to the second portion
of the question. In examining Duquesne’s adjustment
methodology as contrasted with that of the staff, we
find nothing to commend it over the staff’s meth-
odology, insofar as validity is concerned, and therefore,
we conclude that Duquesne has failed to meet its bur-
den of proof with regard to this adjustment.

Duquesne excepted to the ALJ’s recommendation of
the staff’s proposed adjustment. Having concluded that
Duquesne failed in its burden to establish that its ad-
justment was more appropriate, its exception is denied.

“This is an oversimplified description of an estimating process the de-
scription of which is contained in approximately 30 pages of text, tables,
and diagrams in Exh 1, Item 1-B-6-8.

23¢e
C. General Public Util’ Revenues

Duquesne adjusted future test-year revenues down-
ward by $720,000 to eliminate revenues received by the
company pursuant to the CAPCO basic operating
agreement as an indirect participant in capacity and
energy sales from Ontario Hydro to General Public
Utilities (GPU). The company argues that it has no
control over the GPU/Ontario Hydro agreement, which
may be canceled at any time by mutual agreement of
the parties, and therefore, it cannot be certain that it
will actually receive such revenues.

The staff and the OCA oppose this adjustment. Staff
argues that there is no evidence on this record that the
contract with Ontario Hydro has been canceled or is
about to be canceled. Moreover, no evidence exists in
this record to support the view that GPU’s purchased
power requirement would be reduced in the near-term
future. As of the close of this record, that contract is
still in effect and producing revenues for Duquesne.
The ALJ recommended that the staff's position be
adopted and the company’s claimed operating revenues
be increased by $720,000 to account for the Ontario Hy-
dro transaction.

Duquesne has not excepted, and failing to perceive
any factual basis for Duquesne’s proposed adjustment,
it is rejected. Estimated operating revenues will be in-
creased accordingly.

D. St. Joe’s Mineral Corporation Purchases and Sales

Staff proposed an increase of $211,800 in operating
revenues as a result of sales of power purchased from
St. Joe Minerals Corporation, which is eventually sold
to General Public Utilities through the CAPCO system.

24c

Of the revenues of $35,300 per. month projected by
Duquesne approximately one-half are credited through
the energy cost rate, leaving the annualized amount of
$211,800 not presently reflected as revenues. Although
Duquesne did not address this subject in its briefs, the
apparent reason for not including the revenues in its es-
timates is the uncertainty of the continuation of the
arrangement through 1983. The ALJ recommended
adoption of the staff’s proposed adjustment. Duquesne
has not excepted. Finding the staff's proposed adjust-
ment reasonable and appropriate, it is adopted. Reve-
nue estimates will be accordingly adjusted.

E. Deductions from Rate Base
Accumulated Deferred Income Taxes

The respondent has proposed a total company deduc-
tion from rate base of $136,980,140 by reason of ac-
cumulated deferred income taxes. No party has ques-
tioned the appropriateness of this amount. The amount
appearing reasonable, it is adopted as the proper deduc-
tion from rate base by reason of accumulated deferred
income taxes.

IV. Expenses

Duquesne’s estimated operating expenses, as of
December 31, 1982, were adjusted to reflect annualiza-
tion to the level of operations at December 31, 1982.
Based upon such pro forma levels of operations,
Duquesne’s operating expense claim (excluding income
taxes) is $472,632,000, which amount reflects the elimi-
nation of $125,361,000 of energy cost rate related ex-
penses. The various individual adjustments are dis-
cussed seriatim.

ee eee

De

~t

A. Operation and Maintenance
1. Wages, Pensions, and Employee Benefits

Duquesne included in its pro forma level of opera-
tions, additional operations and maintenance expenses
to: (1) annualize the effect of wage increases to various
groups of employees (increases effective October 1, 1982,
pursuant to the International Brotherhood of Electrical
Workers [IBEW] contract and merit increases to non-
union employees effective on the same date); (2) an-
nualize the increase in pension and other employee ben-
efits applicable to the salary and wage increases of Oc-
tober 1, 1982; and (3) to annualize charges by operators
of jointly owned generating stations for increases in
wages and fringe benefits for employees at each station.

After noting that Duquesne is increasing wages by
10.05 per cent in 1982, staff “suggests that some recog-
nition should be given to the current economic climate
with respect to wage increases by moderating the
amount of the claimed wage increases for rate-making
purposes.” The ALJ rejected this suggestion emphasiz-
ing that a speculative wage adjustment was not includ-
ed, but, rather, a known wage increase, effective Oc-
tober 1, 1982, pursuant to the respondent's contract
with the International Brotherhood of Electrical
Workers.

The staff excepted to the ALJ’s conclusion and re-
ferred to a similar adjustment made by the Wisconsin
Public Service Commission in a Wisconsin Electric
Power rate case. Upon examination, we find that the
Wisconsin commission held that the projected 8.20) per
cent wage increase Was unreasonable in light of the
smaller wage settlements being negotiated by unregu-
lated firms (Electric Week, November 29, 1982). Du-

26¢

quesne has replied by contending that this was the
second year of the contract, which Duquesne would be
required to break if the adjustment suggested by staff
were made.

We concur with the ALJ’s disposition of the adjust-
ment proposed by the staff. Its proposed wage expense
adjustment to reflect “current economic conditions” has
not been supported by any record evidence. The staff
has not presented specific evidence which would in-
dicate that the subject wage increase is excessive.

2. Rate Case Expense

Duquesne’s rate case expense claim in this proceeding
is comprised of an amount related to the current
proceeding and amounts related to prior proceedings
before this commission. With respect to the expenses for
the current proceeding, the respondent has claimed a
“normalized” annual level of $600,000.. The respon-
dent’s prior proceeding claim of $151,328 is based on
the unrecovered costs associated with RID 198 and
RID 373 and the unrecovered amount associated with
R-79010740, amortized over five years.

The staff contends that the respondent's claim. is
“grossly inflated” and “inconsistent” with prior com-
mission decisions which establish clear commission
policy in this area. The staff relies upon Pennsylvania
Pub. Utility Commission v Pennsylvania Power Co.
R-811510, pp. 21-23, Jan. 22, 1982, in arguing that the
following commission policy on rate case expense has

been established:

“As Duquesne notes in its main brief, it did not adjust operating and
maintenance expenses in its final income statement to reflect a $100,000 in-
crease from its original estimate of rate case expenses at Duquesne Exh
No. 1B, Note 15, p. 111.

27¢

“First, the unrecovered portion of prior rate case ex-
penses is to be amortized over ten years, after which
that component ceases to be a factor in the rate-making
process. Second, the normalized level of rate case ex-
pense is to be shared e

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0631%3A03. Public record. Not legal advice.