Court Opinion

ID: 9736527
Source: CourtListenerOpinion
Date Created: 2023-08-26 18:58:54.977131+00
Date Added: 2024-06-11T18:27:07.195503
License: Public Domain

Opinion by
Gunther, J.,
dissenting in part and CONCURRING IN PART:
Pennsylvania Power & Light Company (hereinafter called Company) filed with the Public Utility Commission a proposed tariff for increased rates in September, 1951. After hearings, the Commission issued an order July 30,1952, authorizing rate increases totalling over |3,000,000. Several of Company’s industrial consumers have appealed from the Commission’s order, alleging error in the allowance as deductions of certain amortizations and in the readjustment of certain rates.
1. Amortization of Acquisition Gosts. At various times in the last thirty years Company has acquired the property of other, smaller utilities, by merger or purchase. The cost of these acquisitions was formerly recorded in an unsegregated fashion, but in 1937 the Commission directed the use of a uniform system of accounts. This system required the segregation of the costs of utilities acquired by merger or purchase into *564one account for the original cost when first devoted to public service and another account for the difference between original cost and acquisition cost. The latter is called account 100.5, Electric Plant Acquisition Adjustments. The validity of this accounting system was upheld by this Court in Scranton-Spring Brook Water Service Co. v. Pa. P. U. C., 165 Pa. Super. Ct. 286, 67 A. 2d 735. In 1944 the Commission ordered the classification of approximately $26,000,000 to Company’s account 100.5. The present order permits the Company to deduct as an operating expense about $1,-700,000 annually for amortization of the accounts in account 100.5. It is this amortization allowance which is now being attacked.
It is clear that this order does nothing more than to permit the Company to depreciate on the basis of the actual cost of acquisition. The appellants contend that this makes the allowance of expenses and the cost of service dependent on the fortuitous occurrence of a sale or transfer of the utility property, in the absence of which there would be allowed only the annual depreciation based on original cost. This argument overlooks the fact that the sales or transfers were in the public interest and resulted in benefits properly paid for by the consumers. Each transfer or merger must be approved by the Commission. It is not alleged that any of Company’s prior acquisitions were not in the public interest nor the result of Anything but bona fide arms-length transactions. Elementary principles of equity and justice require the allowance of amortization of depreciable investment, the cost of which has not been challenged here. The Company’s acquisitions were much more than mere fortuitous occurrences, but were approved by the Commission as of benefit to the public, on whom should properly fall the costs of such benefits. ,
*565It is also contended that the courts have held that annual depreciation must he based solely on original or historical cost. The book cost in this case would be the costs of acquisition of various other utilities, which costs were previously determined to be fair and reasonable. Since the present system of accounting permits depreciation on original cost only, the amortization of the excess between original cost and cost of acquisition is necessary, in order to depreciate the entire book cost and thereby insure the return of the actual capital outlay.
2. Amortisation of Depreciation Deficiency. A recent study of actual depreciation by the Company showed that the accrued depreciation accounted for in past years did not equal the actual depreciation of the property by some $9,700,000. The Company proposed, and the Commission so ordered, that this past deficiency be made up by having the shareholders absorb $5,000,000 thereof, and by having the remainder amortized over the remaining life of the property. This results in an addition to annual depreciation of $118,000.
The principle of this authorization is called the remainder-life theory and has since been abandoned by the Commission for various reasons. The allowance of amortization to recover such a deficiency was, however, approved by the Court in Pittsburgh v. Pa. P. U. C., 171 Pa. Superior Ct. 187, 90 A. 2d 607, where an order of the Commission authorizing a similar addition to annual depreciation was affirmed.
We agree with the Commission that the result of this allowance is de minimis for it will result in an increase in Company’s rate of return from 5.82% to fair value to 5.86%. In view of the fact that the Commission’s findings in any rate ease on such matters as fair value and actual depreciation represent judgment values and not precise mathematical calculations, we feel
*566that this error, if such, falls within the area of the Commission’s reasonable judgment as to actual figures.
3. Lancaster B. Rates. Both the Company and the other appellants have protested a third aspect of the order appealed from. For over twenty years the consumers in the Lancaster area have enjoyed preferential rates known as B rates, because at the time the Company acquired the utility property serving that area, there was no connection between that area and the remaining area served by Company. For many years the power supplying the Lancaster area was purchased from the Pa. Water & Power Co. at a low rate and this saving was passed on to Lancaster consumers. The Commission has now ordered that these lower rates be equalized because, it was found, all of Company’s consumers are now served by a wholly integrated system and the Lancaster area is no longer supplied exclusively from the cheaper power source. The continuance of preferential rates was therefore held to be unjustly discriminating and proscribed by §304 of the Public Utility Law, 66 PS 1144.
The reasonableness of classification and the different rates applicable are administrative questions, and if there is competent evidence to support the Commission’s findings, the order must be affirmed. Phila. Suburban Water Co. v. Pa. P. U. C., 164 Pa. Superior Ct. 320, 64 A. 2d 500. A preferential rate must be unreasonable before it can be held discriminatory. The rules for unreasonableness were set forth in Alpha Portland Cement Co. v. Public Service Comm., 84 Pa. Superior Ct. 255, and followed in subsequent cases. The rule is that a preferential rate is unlawful if it results in an advantage to one consumer and a resulting disadvantage to another, such as where consumers of the same class are charged different rates.
*567The record reveals that there was sufficient competent evidence to sustain the Commission’s findings in this case. In recent years the Lancaster area has become connected to the rest of Company’s system by the construction of several power lines. The result is that the power supplied from Lancaster enters a general power pool along with all of Company’s other sources of power. Therefore, no consumer can trace any of his electricity to any specific power source. Although the amount of power purchased by Company from the cheaper Lancaster source is gauged by the approximate total required in the preferred area, that area is also served by the power and facilities of all the other areas in Company’s domain. Appellants’ arguments ignore the fact that the interconnection of Lancaster has resulted in benefits to that area in the form of a constantly guaranteed flow of power insuring against the breakdown of their hitherto sole power source. The integration therefore results in benefits to all consumers. There is also no reason why the saving of the cheaper Lancaster power should not be spread equally among all the consumers to whom it is available. There is, therefore, evidence to show that the reason for the preferential rates has passed, and the differences are now unreasonable and discriminatory.
Appellant Armstrong Cork Co. further contends that the elimination of the Lancaster B. rates was a violation of due process in that it received no notice of the hearing on that question. Such an argument presupposes that a consumer has a substantive right to a preferential rate. Also, there is no requirement in the Public Utility Law that every consumer be given notice by the Commission of a proposed hearing.