13 Pa. Commw. 135 | Pa. Commw. Ct. | 1974
Opinion By
This is an appeal by Lower Paxton Township (Township) from an order dated March 20, 1973 of the
This case had its beginning on June 29, 1971 when Dauphin filed a revised tariff providing for rate changes in existing metered rates calculated to produce increased additional annual revenues in the amount of f1,136,985 (approximately a 103 percent increase) exclusive of an item termed “State tax adjustment surcharge.” Dauphin is in the public utility business of supplying water to 14,873 customers, 92.8 percent of which are residential customers, in approximately 16 municipalities located in three counties. Ten formal complaints were filed, nine by municipalities and one by Smith.
On August 30, 1971, the PUC suspended the effective date of the proposed new tariff for six months (to March 1, 1972). In accordance with its rules, the PUC held prehearing conferences which resulted in Dauphin agreeing to reduce the proposed annual increase in rates to a total of $664,076 (a 59.9 percent increase), provided the rates necessary to produce the reduced proposed increase be made effective without further delay. On January 10, 1972, the Commission issued an order which permitted Dauphin to file an amendment or supplement to its tariff, which would produce the 59.9 percent annual increase in revenues, to become effective on five days’ notice. As a result of these negotiations and the order of January 10, 1972, eight of the ten complainants withdrew their complaints, leaving only the complaints of Lower Paxton Township and Smith. These new rates went into effect on January 17, 1972. In view of the fact that not all
The PUC held six days of hearings through May 1, 1972, at which the PUC received evidence in support of and in opposition to the proposed and amended new rates. Oral argument was held on July 12, 1972, and on March 20, 1973, the PUC issued its long form order in which it exhaustively covered the many issues presented and ultimately approved the rates filed pursuant to its January 10, 1972 order. Both the Township and Smith appealed to this Court. Smith’s appeal, however, was quashed by an order of this Court as having been improperly filed, and his petition to intervene also was denied.
Although the Township filed a dozen assignments of error, it has presented three basic issues: (1) Did the P.U.C. err in approving this rate increase which the Township alleges to be in violation of the guidelines established by the Federal Price Commission? (2) Did the Commission err in considering the capital structure of General Waterworks Corporation (GWC) instead of the capital structure of International Utility Corpora/tion (IUC) ? (3) Did the Commission err in its determination of the cost of capital for Dauphin?
In at least three recent cases, this Court has set forth its scope of review on appeals from orders of the PUC. See Western Pennsylvania Water Company v. Pennsylvania Public Utility Commission, 10 Pa. Commonwealth Ct. 533, 311 A. 2d 370 (1973); Pennsylvania Power and Light Company v. Pennsylvania Public Utility Commission, 10 Pa. Commonwealth Ct. 328, 311 A. 2d 151 (1973); and Tranter v. P.U.C., 4 Pa. Commonwealth Ct. 585, 288 A. 2d 837 (1972). In all of those cases we referred to Section 1107 of the Public Utility Law, Act of May 28, 1937, P. L. 1053, as amended,
We can dispose of the Township’s contention concerning the guidelines established by the Federal Price Commission for public utility rates by reference to the federal act itself. The Economic Stabilization Act of 1970 (P. L. 91-379, 84 Stat. 779, as amended, 12 U.S. C.A. §1904 note), in Section 211, clearly states that “[t]he district courts of the United States shall have exclusive original jurisdiction of cases or controversies arising under this title, or under regulations or orders issued thereunder, notwithstanding the amount in controversy. . . .” In another recent case, Rankin v. Chester-Upland School District, 11 Pa. Commonwealth Ct. 232, 312 A. 2d 605 (1973), we held that this Court has no jurisdiction to pass upon whether prices or wages
On the subject of the corporate capital structure used by the PUC (in its determination of cost of capital), it is first necessary to understand the corporate relationships involved. Dauphin is a wholly-owned subsidiary of GWC. GWC is a holding company, which in turn is a wholly-owned subsidiary of IUO (since March 1, 1968). Prior to 1968, GWO was a publicly-owned company, having water, sewage, heating, industrial, dairy and communications subsidiaries. After its acquisition by IUC, GWC was reorganized so that all of its operations, and that of its subsidiaries, were restricted to public utility businesses. As of July 22, 1971, GWC operated 71 water companies (eight of which also provided sewage service), one sewage company and eight heating companies. IUC is a holding company, the interests of which are varied, much of which is not related to public utility service. The record discloses that GWC carries out autonomously its own debt financing. GWC has been the source of capital contributions for Dauphin. The record also discloses that Dauphin has not paid dividends to GWC for a considerable period of time. Furthermore, funds affecting the capital structure of GWC or Dauphin do not flow from IUC. In summary, then, the record supports the PUC’s conclusion that GWC provides its own financing.
As we delve into this subject, it is important to remember that, in this type of case, the ultimate aim of the PUC is to determine or fix public utility rates for service which are just and reasonable. (See Section 301 of the Public Utility Law, 66 P.S. §1141.) In addition, we note that a public utility is entitled to a fair return, based upon the fair value of its property used and useful in the public service. Historically, the PUC (with approval of the courts) has followed a statistical
The capital structure of a corporation may affect, sometimes drastically, the cost of capital. The capital structure is, in reality, little more than those dollars represented by its common and preferred stock and its debt. In some cases where the public utility is a wholly-owned subsidiary, its capital structure may not be comparable to another public utility which is obliged to obtain its equity and debt financing in the open market. In other words, it may have on balance a too heavily weighted debt or equity. In this case the record discloses that Dauphin has a capital structure wherein 100 percent is equity capital. Under such circumstances the PUC must make adjustments based upon substantial evidence in order to reach a fair result. See Riverton, supra; Pittsburgh v. Pennsylvania Public Utility Commission, 182 Pa. Superior Ct. 551, 128 A. 2d 372 (1956) ; and Pittsburgh v. Pennsylvania Public Utility Commission, 182 Pa. Superior Ct. 376, 126 A. 2d 777 (1956). In such cases our Superior Court has approved PUC adjustments, whereby the capital structure and cost of capital of the parent company were utilized in determining the same for the subsidiary. It is also conceivable that there may be evidence on the record which will permit the PUC to utilize the capital structure and cost of capital statistics of comparable public utilities instead of those of the company or its parent. See Wall v. Pennsylvania Public Utility Commission, 182 Pa. Superior Ct. 35, 125 A. 2d 630 (1956). In any event, we are instructed by precedent that where the findings of the PUC relative to cost of capital are within “the scope of the evidence” its findings will not be disturbed. See Riverton, supra.
In this case Dauphin presented evidence in support of an adjusted capital structure of 50 percent debt and 50 percent equity. This was based upon a five¡-year
Lastly, the Township contends that the PUC erred in determining the cost of capital for Dauphin, and, in its brief, restricted its argument to the determination of the cost of equity capital. Although it is difficult to discern from the Township’s brief the exact nature of its complaint, it would appear that the Township contends that it was error for the PUO not to utilize the cost of equity capital to IUC in arriving at the cost of equity capital for Dauphin. Riverton, supra, gives us some guidance wherein the court held that the cost of capital should be based upon evidence of the company’s recent past experience in order to obtain the cost of debt and equity capital in the future. The cost
Although not mentioned in the Township’s brief, we add that the record likewise supports the PUC’s determination that the cost of debt capital “would be in the range of 6.5-6.6 percent.” The PUC’s conclusion that the rate of return of 7.48 percent when ap