Opinion ID: 1541219
Heading Depth: 1
Heading Rank: 1

Heading: Procedural History; Facts and Question Presented

Text: On December 29, 1975, Pepco filed an application with the Commission for a rate increase for retail electric service in the District of Columbia. As subsequently modified by Pepco, the requested increase would have totaled $57,578,000 annually. On October 20, 1976, after an eleven-day hearing in which WPIO, the People's Counsel, and four other parties participated as intervenors, the Commission issued a Proposed Opinion and Order (No. 5831) granting Pepco a 9.06% overall rate of return. This resulted in a total rate increase of $29,411,000 annually, amounting to slightly more than 50% of the increase requested. Subsequently, WPIO, the People's Counsel, and two of the intervenors filed exceptions and applications for reconsideration, all of which the Commission denied. Petitioner WPIO has filed for review by this court (case No. 12017). On September 30, 1975, WGL filed with the Commission an application for a retail gas rate increase of $7.5 million annually. WPIO and the People's Counsel intervened. After a hearing, the Commission on October 29, 1976, issued a Final Opinion and Order (No. 5833) granting WGL a rate of return of 9.25%, resulting in an annualized rate increase totaling $6.7 million, almost 90% of the amount requested. Applications for reconsideration by WPIO and the People's Counsel were denied, whereupon they filed petitions for review by this court (case Nos. 11780 and 11786, respectively). We have consolidated these three petitions for review. As to Pepco, the parties have stipulated that during the ten-year period 1965-74: (1) the company received a net gain of $542,179.22 ( i. e., the difference between book value and sale price on the date of sale) from 103 transactions involving the sale of land which at some prior date had been classified as having been devoted to public service; and (2) the company transferred `below the line' or out of public service 18 Sites for which the net gain ( i. e., the difference between book value and market value on the date of transfer) was $182,390.33. [1] The parties also stipulated that of the total net gain of $724,569.55 from these sales and transfers, $381,938.00 is allocable to Pepco's District of Columbia operations. Finally, the parties stipulated that in 1972, Pepco removed its 929 E Street, N.W. property from [the] Utility Property [account] . . . as no longer used and useful. In this connection, they further stipulated that when Pepco sold the property in March, 1976, the net gainthe difference between market value and depreciated book valuewas at least $468,324.06, of which at least $207,139.73 was allocable to District of Columbia operations. Accordingly, the parties have stipulated that the total net gain allocable to District of Columbia operations for the Pepco properties at issue is at least $589,077.73. As to WGL, the parties have stipulated that during the period January 1, 1965, to February 29, 1976, the company received a net gain, before taxes, of $6,343,270 from 12 transactions representing the sale of land and related improvements which at some prior date had been classified as having been devoted to public service. (The breakdown between depreciable improvements and non-depreciable land is provided only for certain Georgetown properties sold during the test year ending April 30, 1975). Each case presents the question whether, in granting the particular rate increase, the Commission improperly failed to credit the customersthe ratepayerswith the stipulated gains received by Pepco and WGL, respectively, upon disposition of land removed from each company's utility service operation. This question arises, to put it most simply, as follows: In accordance with the Uniform System of Accounts prescribed by the Federal Power Commission (FPC) and adopted by the Public Service Commission of the District of Columbia, the gains and losses from dispositions of property owned by utility companies are allocated, depending on the circumstances, either to the customer-ratepayers (called above the line treatment) or to the investor-shareholders (described as below the line). See J. Suelflow, Public Utility Accounting: Theory and Application 23-24 (1973) (hereinafter Suelflow). According to this accounting systemand subject to notable exceptionsdispositions of land previously retired from active use in utility service are usually accounted for below the line; shareholders alone benefitor losefrom each transaction through an increase or decrease in the corporate earned surplus account. Dispositions of retired depreciable plant facilities, on the other hand, are usually accounted for above the line; typically, the ratepayers stand to benefitor losein the calculation of the rates they are required to pay. See Part III.B., infra. The justification for such accounting principles, with their impact on utility rates, is generally based on the proposition that the ratepayers, who have been charged for depreciation of plant facilities, should be repaid with the gains, if any, upon eventual sale of those facilities. Because land is not depreciable, however, and the ratepayers accordingly have not been responsible for replenishing it, the gains, if any, on sales of retired land are left to the investor-owners. They are the ones, at least theoretically, who brought the land to the enterprise and, as a result, should benefit. Necessary refinements of these general principles will be discussed in due course. Suffice it to say at this point that petitioners challenge the Commission's decision to apply the uniform accounting system here, such that the land dispositions receive below the line treatment. More particularly, WPIO has asked that gains accruing to Pepco on land retirements and dispositions during the ten-year period, 1965-74, be credited to ratepayers in at least the amount of the $589,000.00 allocable to District of Columbia operations (presumably less taxes), and that gains accruing to WGL over an eleven-year period, January 1, 1965, through February 29, 1976, be allocated to ratepayers in the amount of at least $6,343,000, less taxes. (Presumably this figure, as in the Pepco case, should be reduced to reflect gains allocable to the District of Columbia.) The People's Counsel, however, asks for a credit of $2,976,217 to WGL ratepayers, limiting its request to after-tax gains during WGL's test year ending April 30, 1975. [2]