76 Pa. Commw. 158 | Pa. Commw. Ct. | 1983
Opinion by
We have consolidated for argument and disposition the appeals of Sharon Steel Corporation and William Welch from a number of orders
In the appeals sub judice, Sharon Steel seeks review of the Commission’s determination that the increase in NFG’s annual operating revenues be allocated equally among the utility’s customer classes. William Welch here raises a number of issues related to the refund of off-system gas sales profits ordered by the Commission and the allowance by the Commission of the inclusion in NFG’s rates of a contractual penalty charge to be paid by NFG to Ashland Oil on account of synthetic natural gas purchases now ordered by the Commission not to be consummated. For the reasons we will indicate, our decision in National Fuel Gas Distribution Corporation v. Pennsylvania Public Utility Commission requires us to dismiss the Petition of William Welch.
Appeal of Sharon Steel
As we have indicated, Sharon Steel does not here challenge the amount of NFG’s rate increase approved by the Commission but seeks review only of the method adopted by the Commission for the allocation of the increase among NFG’s customers. On this subject, the Commission’s decision accompanying its August 28, 1980, order contains the following:
If the revenue increase were allocated in the manner proposed by the Office of Consumer Advocate, the class relationships as they presently exist would be maintained. From our review of the record we believe that it is appropriate, at this time, to maintain those historic relationships. Variable class percentage increases to the customer classes, in order to move class rates of returns closer to the system-wide*163 rate of return is dependent upon a valid and acceptable cost of service study. Tbe validity and acceptability of a cost of service study involves judgments regarding both the methodology and the demand and other data utilized. While both the Staff and the Respondent are •satisfied with the methodology utilized, and we do not agree with the criticisms raised by the Office of Consumer Advocate, from our review of the record we have concerns regarding the accuracy of data which was employed in the study. If data inputs regarding the various customer classes is [sic] inaccurate, the indicated results are inaccurate. Were we to approve an allocation similar to that proposed by the Respondent and the Staff, for the stated purpose of moving class rates of return closer to the system-wide rate of return, we are far from satisfied that that would in fact be the result. For this reason, we conclude that caution dictates that the current relationships be maintained at this time, and until such time as we become satisfied that the data inputs are reasonably accurate.
And, on the basis of this reasoning, the Commission entered the following order:
7. That the increase in operating revenues authorized in this order shall be derived from customer classes on an equal percentage increase basis under base rate revenues on a year-end, future test year, and a June 30, 1980, basis.
Concerning the method by which the proposed and requested increase was to be allocated among its customers, NFG- presented, before Administrative Law Judge Michael A. Nemec, testimony and exhibits prepared by Fred S. Duda, an expert witness employed
The proposal for allocation of any increase in revenues proposed by NFG as well as the cost of ser
An expert witness for the Office of Consumer Advocate, Steven W. Ruback, testified that a consequence of the distinction above described between customer classes and rate classes in combination with the fact that Sharon Steel is, by far, NFG’s largest customer, accounting for 11% of the utility’s total annual operating revenues and more significant in this regard than all of the customers included in five other customer classes included in the cost of service
The Commission’s trial staff presented on this issue the testimony of Vernon E. Chandler, an expert in rate structure and rate design, who joined in the criticism of other witnesses related to the failure of NFC’s cost of service study to permit the separate examination of the rate of return to the utility attributable to the provision of gas service to Sharon Steel. In addition, Mr. Chandler objected to a fundamental precept of NFC’s proposed allocation of any approved increase in revenues — the simplification of NFC’s rate classifications and the consequential inclusion of commercial and residential customers in the same Ceneral Service rate class. In the view of Mr. Chandler, the inclusion of commercial and residential customers in the same rate class is inherently and fundamentally unfair because a necessary consequence of such inclusion in combination with the utility’s generally applicable declining block rate structure (see footnote 2 above; this structure is to be continued under the new rates) would be to charge a lower price to commercial users of a particular gas service than would be charged to similar residential users. In the light of these objections to NFG’s cost
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Sharon Steel’s rate design witness, L. W. Loos, again criticized NFGr’s cost of service study for its failure to permit the examination of the rate of return to the utility produced by Sharon Steel and further testified that Sharon’s rate of return, if revealed, would be disproportionate to that produced by other customers or classes of customers of NFGr. Sharon Steel did not itself present a cost of service study nor did it propose a scheme for the allocation of any approved increase other than asserting that
On the basis of this evidence, the Administrative Law Judge, in his recommended decision dated July 16, 1980, credited a revised cost of service study submitted by NFG- shortly before the close of the record which study met, at least facially, the objections of several of the expert witnesses having to do with the separate examination of the rate of return to the utility produced by Sharon Steel. However, the Administrative Law Judge did not recommend that the Commission adopt NFG-’s proposed allocation of any approved increase, which proposed allocation was, as we have noted, also the subject of criticism. The Administrative Law Judge instead recommended that the Commission adopt the proposed allocation advanced by Vernon Chandler appearing on behalf of the Commission’s trial staff.
The Commission, as we indicated at the outset, wrote that it was dissatisfied with all of the data and other evidence introduced in support of the several proposed schemes of allocation intended to alter existing class rate of return relationships and, therefore, that it was impelled to accept the alternative recommendation of the Office of the Consumer Advocate’s expert witness and to order that the approved increase in revenues be allocated across-the-board, that is; so as to allocate to each customer class a portion of the approved increase equivalent to that portion of NFG’s total revenues contributed by that customer class under the rates previously in force. This scheme of allocation produces as corollary effects the maintenance of customer class relationships with respect to rates of return and the production of a percentage increase in experienced rates equivalent for each customer class (in this case each
Sharon Steel argues that the scheme of allocation adopted by the Commission and just described is unsupported by the evidence of record and must be set aside by this court on that account as well as for the asserted failure of the Commission to sufficiently explain the reasons for its decision. These arguments are without merit. As we have explained in some detail, the seheme of allocation finally adopted by the Commission was one of those proposed by the expert witnesses testifying on this issue before the Administrative Law Judge, Steven "W. Ruback called by the Office of the Consumer Advocate. Two other allocational paradigms were proffered but each was the subject of criticism and each was predicated on an evidentiary foundation said by expert witnesses to be fundamentally flawed and misleading. It is true that NFC submitted a revised cost of service study thereby meeting some of the criticism previously expressed with respect to the evidentiary foundation of the utility’s proposed allocation. However, NFC’s proposed allocation remained the subject of criticism for its treatment of residential and commercial customers. It may be for this reason that the Administrative Law Judge credited the revised cost of service study but rejected NFC’s proposed allocation. Moreover,
[W]e have concerns regarding the accuracy of the data which was employed in the study. If the data input regarding the various customer classes is inaccurate, the indicated results are inaccurate. Were we to approve an allocation similar to that proposed by [NFG] and the [trial staff], for the purposes of moving class rates of return closer to the system-wide rate of return, we are far from satisfied that that would in fact be the result.
We cannot disagree. And we repeat that the across-the-board allocation recommended by the Office of the Consumer Advocate and adopted by the Commission is expressly intended and designed to treat each customer class equally in the matter of the approved increase. Sharon Steel has been allocated 11.3% of the $8.5 million approved increase, a portion of the increase determined by and equivalent to Sharon Steel’s proportional contribution to the utility’s total annual revenues. The dollar amount of the increase — $940,473.00—represents a 4% increase in Sharon Steel’s gas service expense, the same 4%
The establishment of a rate structure is an administrative function 'peculiarly within the expertise of the Commission. Peoples Natural Gas Co. v. Pennsylvania Public Utility Commission, 47 Pa. Commonwealth Ct. 512, 537, 409 A.2d 446, 458 (1979). The burden of proving the allocation to be unreasonable or discriminatory is on the customers challenging such rates. Armco, Inc. v. Pennsylvania Public Utility Commission, 54 Pa. Commonwealth Ct. 542, 548, 422 A.2d 719, 722 (1980). In order to prove discrimination, Sharon Steel must show that NFGr “was bent on collecting more than a reasonable rate from [Sharon Steel] ... for the purpose of supplying a deficiency created by inadequate rates charged other customers.” Park Towne v. Pennsylvania Public Utility Commission, 61 Pa. Commonwealth Ct. 285, 291, 433 A.2d 610, 614 (1981). See also Alpha Portland Cement Co. v. Public Service Commission, 84 Pa. Superior Ct. 255 (1925). Sharon Steel brings to our attention no evidence which would support a finding that its rates are so high and that they are subsidizing the inadequate rates of others served by NFGr.
Finally, for the reasons we have indicated including our reproduction of the Commission’s statement of reasons ipsissimis verbis, which we find to be completely adequate to permit our appellate review, we reject the petitioner’s challenge based on Section 703(e) of the Public Utility Code, 66 Pa. C. S. §703(e). See Clemmer v. Pennsylvania Public Utility Commission, 207 Pa. Superior Ct. 388, 393, 217 A.2d 800, 804 (1966) (Section 1005 of the Act of May 28, 1937, which provides, in terms identical to Section 703(e) of the Code, that orders of the Commission must be supported by sufficient findings and statement of reasons is primarily for the benefit of the reviewing court); City of Philadelphia v. Pennsylvania Public Utility Commission, 162 Pa. Superior Ct. 425, 429, 57 A.2d 613, 615 (1948) (same).
Appeal of William Welch
The petitioner William Welch here challenges in three respects the Commission’s disposition of NFGr’s
The disposition of the first two of these challenges has been implicitly effected by our decision in Na
Finally, concerning the $ .50 take-or-pay penalty, we reject Welch’s assertion of error. Briefly, Welch contends that payment of the penalty will serve no public purpose and, therefore, that the Commission erred in permitting recovery by NFG of the amounts to be paid. However, it was precisely on account of the availability of the take-or-pay penalty that the Commission determined prospectively to disallow NFG’s purchase of Ashland SNG to which purchases NFG was contractually committed by a 1972 agreement with Ashland Oil Company. The Commission did not find that NFG’s negotiation and execution of the 1972 agreement was imprudent and, indeed, all of the evidence is to the contrary; that the agreement initially and for much of its life was of great benefit to NFG’s Pennsylvania ratepayers. It was for the Commission to judge the relative and attendant risks
Order in 2281 C.D. 1980 and 321 C.D. 1982
And Now, this 4th day of August, 1983, the Petition for Review of William Welch is hereby:
(1) Dismissed; insofar as it seeks review of paragraph 6 of the order of the Pennsylvania Public Utility Commission dated August 28, 1980;
(2) Dismissed, insofar as it seeks review of the letter order of the Pennsylvania Public Utility Commission dated March 17, 1981; without prejudice to the Petitioner’s right to renew his claim for counsel fees and costs following the proceedings required by order of remand dated August 4,1983;
(3) Dismissed; insofar as it seeks review of paragraph 5 of the order of the Pennsylvania Public Utility Commission dated December 18, 1981.
Order in 2338 C.D. 1980
And Now, this 4th day of August, 1983, the order of the Pennsylvania Public Utility Commission entered and adopted August 28, 1980, is affirmed insofar as it requires any increase in the rates of the National Fuel Gas Distribution Corporation to be allocated on an equal percentage basis to each of the utility’s customer classes.
Entered, respectively, August 28, 1980, March 17, 1981, and December 18,1981.
A declining block rate structure is one in which the price to a particular customer for a given volumetric unit of gas declines in relation to the total volume of gas purchased by that customer during the billing period.
This relationship is unexplored in the testimony but can, be easily established. If we let “Ra” stand for revenues from one customer class and “$T” stand for the utility’s total revenues and “%I” stand for the percentage increase approved, the relationship between the experienced percentage increase in, rates and the proportion of the dollar increase allocated to the customer class can be expressed as follows:
Ra x [%I ($T) ] = Ra x %I
$T
Paragraph 2 of the Commission’s order adopted December 18, 1981, requires NFG to refund some $13 million to its ratepayers representing the additional costs of Ashland SNG during the GCR-2 period. This aspect of the Commission’s decision is challenged in Paragraph 14 of Welch’s Petition for Review docketed to No. 2281 C.D. 1980 but this challenge has been apparently abandoned as this ordering paragraph is not referred to in the statement of orders appealed from contained in Welch’s written argument presented to this Court. Preserved for review is that portion of the Commission’s August 28, 1980, order having to do with the required refund of NFG’s off-system gas sales margin. With respect to the December 15, 1981, order, only paragraph 5 having to do with the Commission’s allowance of the contractual take-or-pay penalty is expressly presented
We note this procedural detail because many of Welch’s discussive arguments appear to be relevant t,o the Commission’s order requiring the refund of SNG purchase costs. We have by our order dated August 4, 1983, returned the matter of the SNG costs refund to the Commission for further proceedings and our decision herein is without prejudice to Welch’s right to review, if otherwise appropriate, any challenge to the Commission’s action following our order of remand.