Court Opinion

ID: 3163947
Source: CourtListenerOpinion
Date Created: 2015-12-18 16:09:55.152089+00
Date Added: 2024-06-11T11:47:53.811795
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Tanya J. McCloskey,                              :
Acting Consumer Advocate,                        :
                 Petitioner                      :
                                                 :
                      v.                         :
                                                 :
Pennsylvania Public Utility                      :
Commission,                                      :   No. 1023 C.D. 2014
                  Respondent                     :   Argued: June 17, 2015

BEFORE:       HONORABLE DAN PELLEGRINI, President Judge
              HONORABLE BERNARD L. McGINLEY, Judge
              HONORABLE BONNIE BRIGANCE LEADBETTER, Judge
              HONORABLE RENÉE COHN JUBELIRER, Judge
              HONORABLE ROBERT SIMPSON, Judge
              HONORABLE P. KEVIN BROBSON, Judge
              HONORABLE PATRICIA A. McCULLOUGH, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE McGINLEY                                    FILED: December 18, 2015

              Tanya J. McCloskey, Acting Consumer Advocate from the Office of
Consumer Advocate (OCA/Petitioner) petitions for review of the Opinion and
Order of the Pennsylvania Public Utility Commission1 (Commission/PUC) entered

     1
         Specifically, the Commission ordered:

              1. That PPL Electric Utilities Corporation’s proposed Storm
              Damage Expense Rider is approved subject to the modifications
              outlined in this Order.
              2. That the rates, rules and regulations proposed in Supplement No.
              130 to Tariff Electric-Pa. P.U.C. No. 201 are rejected, and will not
              be placed into effect.
              3. That PPL Electric Utilities Corporation shall file a tariff
              supplement with its initial Storm Damage Expense Rider, as
              approved and modified by this Order, with 60 days’ notice to be
              effective January 1, 2015. Subsequent annual and interim changes
(Footnote continued on next page…)
on April 3, 2014, that approved a storm damage expense rider (SDER) proposed by
PPL Electric Utilities Corporation (PPL).2

                                 I. Procedural History
       On March 20, 2012, PPL filed a base rate case3 with the Commission and
sought a $104.6 million rate increase.               Definitive Brief for Respondent
Pennsylvania Public Utility Commission (Commission’s Brief) at 4. PPL included
in proposed rates “a claim for storm damage expense within which it included
recovery of storm damage insurance PPL purchased from an affiliate.”4
Commission’s Brief at 4. The Bureau of Investigation and Enforcement (BIE)
recommended disallowance of the PPL storm damage insurance claim and argued
“that it was neither prudent nor beneficial to ratepayers because its premium and
deductible were too high given the coverage provided.”5 Commission’s Brief at 4.
Morrissey recommended “recalculating an annual budget amount to reflect a five

(continued…)

               to the Storm Damage Expense Rider may be filed within 30 days’
               notice.
               ....
PUC’s Opinion and Order, April 3, 2014, at 31; The Office of Consumer Advocate’s
Attachments A-K, Appendix A.
       2
         PPL submitted a brief as Intervenor to this Court supporting the Commission’s order.
PP&L Industrial Customer Alliance (PPLICA) submitted briefs to this Court opposing the
Commission’s Order.
       3
         Supplement No. 118 to Tariff.
       4
         The base rate case included storm damage expense claims of $47,995,000; $12,625,000
for normal future test year storm damage, $8,750,000 for storm damage insurance, and
$5,324,000 per year for five years that reflected damage caused by Hurricane Irene and the
Halloween Snowstorm of 2011.
       5
         The BIE recommendation was based on that “ratepayers have been responsible for
amounts that exceeded actual storm costs over the historical preceding five years.” Direct
Testimony of Dorothy Morrissey (Morrissey), Fixed Financial Analyst for the BIE, submitted
June 22, 2012, at 39; Reproduced Record (R.R.) at 26a.

                                             2
year average of storm expenses to account for yearly fluctuations in storm
expenses . . . [t]o avoid financial statement impact for year to year fluctuations, a
reconcilable storm reserve account would provide an alternative solution.” Direct
Testimony of Morrissey, submitted June 22, 2012, at 32-33; R.R. at 19a-20a.

             In rebuttal, Joseph M. Kleha (Kleha) for PPL, stated:
             However, Ms. Morrissey did not provide sufficient
             details regarding possible storm damage expense rider or
             make a specific proposal that can be evaluated in this
             proceeding. There is simply not sufficient time in this
             proceeding to address the many details of a storm
             damage expense rider that would have to be resolved
             before such a rider could be implemented. Moreover, it
             is not necessary, at this time, to address such a rider
             because her proposed approach to storm damage expense
             is in error both factually and as a matter of public policy,
             as explained by Mr. Novatnack and Mr. Banzhoff.
             Nevertheless, PPL Electric is willing to consider such a
             rider in an appropriate future proceeding.

Rebuttal Testimony of Joseph M. Kleha, submitted July 16, 2012, at 48; R.R. at
55a.

             In surrebuttal, Morrissey testified:
             As an alternative to disallowance of the 2012 storm
             insurance claim, I recommended the use of reserve
             accounting treatment for storm costs, which would result
             in PPL being self-insured strictly within the regulated
             organization. This would preserve any benefits of any
             excessive accumulated storm reserves and allow them to
             be passed onto ratepayers through mitigation of future
             rate increases or as a credit toward future major storm
             costs. It would also avoid an unfavorable impact on the
             Company’s financial statement that could result from
             year-to-year fluctuations in actual storm costs.

                                          3
Surrebuttal Testimony of Morrissey at 39; R.R. at 84a.6

  A. Administrative Law Judge Susan D. Colwell (ALJ Colwell) Recommended
                                  Decision.

              On October 19, 2012, ALJ Colwell issued a recommended decision
and determined:
                         c. Storm Damage Reserve Account

              PPL Electric ‘is not conceptually opposed to such a
              mechanism for recovery of storm damage costs’ and had
              proposed it in the 2007 rate case. The settlement in that
              case, coupled with the opposition of the parties, resulted
              in the matter being dropped. However, the company
              objects to the grant of this proposal without the details.
              PPL Electric MB at 70.

              The insurance proposal was approved in 2007, and
              sufficient time has elapsed to find that it is not being used
              to the benefit of the ratepayers. PPL Electric should be
              directed to develop a plan for establishment of a storm
              damage reserve account and to submit for approval. If
              approved, it should be implemented when the insurance
              coverage provided by its present provider expires. It is
              recommended that the public advocates be included in
              the development of this program. (Emphasis added.)

                                     d. Amortization
              ....
              The Company is entitled to recover its prudently incurred
              expenses, and the amounts are not in question.
              Therefore, the 2012 budget amount and the five-year
              amortization of the 2011 storm damage costs in excess of
              insurance are approved.

       6
       At evidentiary hearings, in addition to PPL and BIE, OCA, the Office of Small Business
Advocate (OSBA) and PPLICA were present during the base rate litigation.

                                             4
           ....
           VI. Order
           ....
           8. That PPL Electric Utilities Corporation shall develop
           and submit for approval a plan for establishment of a
           storm damage reserve account and shall serve its
           proposed plan on the parties to this docket within three
           months of the entry of the final Commission Order in this
           docket. (Emphasis added.)

ALJ Colwell’s Recommended Decision, October 19, 2012, at 38-40 and 142;
OCA’s Attachments, Appendix B.

           B. Exceptions To ALJ Colwel’s Recommended Decision.
           On November 8, 2012, PPL alleged:
           . . . However, as a result of Hurricane Sandy, the worst
           storm in the history of PPL Electric, it is now apparent
           that PPL Electric will not be able to obtain storm damage
           insurance on reasonable terms after its current policy
           expires on December 31, 2012. The issue of retaining
           storm damage insurance is moot. As a result, PPL
           Electric proposes that the Commission adopt PPL
           Electric’s revised storm damage expense. Specifically,
           the revised expense claimed by PPL Electric should be
           approved as a reasonable estimate of ongoing normal
           storm damage expense, and PPL Electric should be
           directed to file a proposed storm damage reserve/tracker
           mechanism with the Commission as soon as possible
           after a final order is entered in this proceeding.
           (Emphasis added.)
           ....
           [In conclusion of the mootness of continued storm
           damage insurance] . . . PPL proposes the following: (1)
           that the Commission approve a normal expense claim of
           $17,875,000 plus $5,324,000 for an amortization of the
           extraordinary losses in 2011 and (2) that PPL Electric
           will file for a storm damage automatic adjustment clause

                                      5
              as soon as practicable after the Commission’s final order
              in this proceeding. (Emphasis added.)
              ....
              Based on the foregoing, PPL Electric proposes a total
              storm damage expense of $23.199 million, including
              $17.875 million for normal storm losses and $5.324
              million for amortization of extraordinary losses in excess
              of insurance coverage in 2011.

Exceptions of PPL Electric Utilities Corporation, November 8, 2012, at 2, 21, and
26; R.R. at 280a, 284a, and 289a.7

              C. Commission’s Opinion And Order, December 28, 2012.
              On December 28, 2012, the Commission issued its decision:
              Based upon our review of the record and the Parties’
              Exception and Replies to this issue, we agree with the
              ALJ’s recommendation to adopt I&E [BIE] proposal for
              PPL to propose a Storm Damage Expense Rider for
              Commission review . . . . The issues to be discussed
              between PPL and the public advocates shall include, but
              not be limited to, the following: (1) provisions for
              interest on under and over collections; (2) timing of
              reconciliation; (3) reporting of storm damage expenses
              and revenue for their recovery; (4) methods for adjusting
              the annual level of the expense in rates; and (5) exact
              categories of storm damage expense that would be
              subject to the reconciliation.

              Additionally,      we     approve     I&E’s     [BIE’s]
              recommendation, and so direct, that PPL file a rider for
              storm damage expense recovery within ninety days of the
              date of entry of this Opinion and Order. PPL has stated

       7
         PPL submitted revised figures: $3,175,000 for annual non-reportable storm damage,
$9,450,000 for annual reportable storm damage expenses, $5,250,000 for the operating expense
portion of annual storm damage no longer covered by insurance and $5,324,000 for the first
year’s amortization of the 2011 extraordinary storm expenses (totaling $23,199,000).

                                             6
            its intention to file as soon as practicable after the
            Commission’s entry of a final decision in this
            proceeding.

            Recovery of PPL’s revised FTY [future test year] storm
            damage expenses of $23.199 Million shall be through
            base rates. Any recovery through a Storm Damage Rider
            shall be permitted only to the extent that such expense
            exceeds the amount included within base rates.
            (Emphasis added.)

Commission’s Opinion and Order, December 28, 2012, at 37-38; OCA’s
Attachments, Appendix C.

D. OCA’s Petition For Reconsideration Or Clarification Of The PUC’s December
                              28, 2012, Order.

            On January 14, 2013, OCA petitioned for reconsideration and/or
clarification of the Commission’s December 28, 2012, order and asserted:
            The record evidence also establishes that neither PPL nor
            I&E [BIE] took specific exception to ALJ Colwell’s
            recommendation for consideration of a storm reserve
            account, although, admittedly, both parties used the terms
            ‘reserve account’, ‘tracker’ and ‘rider’ interchangeably at
            various places in their submitted documents.
            Accordingly, the OCA submits that the discussions to
            take place between PPL and the statutory advocates as to
            storm damage expense recovery mechanisms should not
            be limited to only the creation of the rider, but should
            also include consideration of a storm reserve account.
            (Emphasis added.)

            The OCA submits that the Commission’s Order, as
            discussed herein, should be clarified or reconsidered
            given the ALJ’s recommendation. The OCA respectfully
            requests the Commission to include ALJ Colwell’s

                                        7
               recommendations as they relate to the creation of a storm
               damage reserve account in the collaborative discussions.

Petition of the Office of Consumer Advocate for Reconsideration or Clarification,
January 14, 2013, at 5; R.R. at 310a.

               E. Commission’s Opinion And Order, February 28, 2013.
               On February 28, 2013, the Commission granted OCA’s Petition for
Reconsideration or Clarification:
               We find that the OCA has satisfied the Duick [v.
               Pennsylvania Gas and Water Company, 1982 Pa. PUC
               Lexis 4, *12-13] standards in that clarification of the
               storm damage expense collaborative is needed for the
               Company to comply with our December 12 Order.
               Moreover, we are in agreement with the OCA and I&E
               [BIE] that this collaborative [sic] should include
               consideration of both a storm damage expense rider as
               well as a storm damage reserve account as funding
               mechanisms.      We further agree with the OCA’s
               contention that any discussion of a mechanism for
               recovery of storm damage expenses should include all
               alternatives that had been developed in the record.
               (Emphasis added.)

Commission’s Opinion and Order, February 28, 2013, at 8; OCA’s Attachments,
Appendix D.

               On March 6, 2013, PPL initiated the storm damage expense
collaborative discussions pursuant to the Commission’s order with BIE, OCA, and
OSBA via telephone conference calls.8 The parties failed to reach a consensus and
as a result on March 28, 2013, PPL filed Supplement No. 130 to Tariff Electric,

      8
          Two other conference calls were conducted on March 15 and March 27, 2013.

                                              8
proposing a SDER.9 Comments of the Office of Consumer Advocate, April 18,
2013, at 5; R.R. at 390a.

             On April 5, 2013, the Commission issued a secretarial letter for PPL’s
filing of a proposed SDER. The letter established a comment and reply period for
the proposed SDER. OCA and PPLICA filed comments on April, 18, 2013, urging
the rejection of the proposed SDER. Reply comments were filed on May 6, 2013.

             F. Commission’s Opinion And Order, November 15, 2013.
             On November 15, 2013, the Commission determined:
             All parties shall be afforded due process when property
             interest such as those at issue here are implicated;
             however the required level of due process must be
             determined. As the Commonwealth Court has held,
             ‘when there are no disputed questions of fact and the
             issue to be decided is purely one of law or policy, a case
             may be disposed of without resort to an evidentiary
             hearing.’ [Dee Dee Cab, Inc. v. Pennsylvania Public
             Utility Commission, 817 A.2d 593, 598 (Pa. Cmwlth.
             1995)]. Rather, in such cases a ‘paper hearing’ is
             sufficient to protect the rights of the participants.
             [Diamond Energy, Inc. v. Pennsylvania Public Utility
             Commission, 653 A.2d 1360, 1367 (Pa. Cmwlth. 1995)].
             (Emphasis added.)

             In reviewing the parties’ various Comments and Replies
             to Comments, the Commission has determined that the
             issues to be resolved are purely questions of law and
             policy that, as set forth above, do not require an
             evidentiary hearing. Further, the procedural history . . .
             shows that the parties have already been given an

      9
        Included within the proposed SDER was a placeholder for recovery of extraordinary
storm damage expense from Hurricane Sandy. SDER at 19Z.21; R.R. 321a.

                                           9
            opportunity to be heard, both before an ALJ, and through
            the allowance of the filing of Comments and Reply
            Comments. (Emphasis added.)

Commission’s Opinion and Order, November 15, 2013, at 4-5; OCA’s
Attachments, Appendix F.

            On December 16, 2013, OCA, PPL, BIE, and PPLICA submitted
comments. On December 31, 2013, OCA, PPL, I&E, OSBA, and PPLICA
submitted reply comments.     “OCA continued to argue that the proposed SDER
was contrary to sound ratemaking principles and public policy, and inconsistent
with the Public Utility Code.” Brief of OCA at 14.

              G. Commission’s Opinion And Order, April 3, 2014.
            On April 3, 2014, the Commission determined:
            Based on the analysis of PPL’s proposal, filed public
            comments and applicable law, the Commission finds that
            the proposed SDER shall be approved subject to
            modifications outlined in this Order. Balancing potential
            benefits that may accrue from the SDER against any
            potential negative effects we find that the implementation
            of a SDER is in the public interest and that the SDER, as
            modified, complies with the requirements of 66 Pa. C.S.
            Section 1307 and the just and reasonable mandate of 66
            Pa. C.S. Section 1301.

Commissions Opinion and Order, April 3, 2014, at 30-31; OCA’s Attachments,
Appendix A.

                                       10
              On April 18, 2014, PPL submitted a Petition for Reconsideration and
Clarification of the April 3, 2014, order. On May 22, 2014, the Commission denied
the petition.10

                             II. OCA’s Petition For Review
              On June 20, 2014, OCA appealed the Commission’s April 3, 2014,
order and alleged:
              16. On April 3, 2014, the Commission entered an Order
              approving PPL’s SDER in all major respects. The April
              3, 2014 Order also authorized PPL to include
              extraordinary storm expenses for Hurricane Sandy within
              the SDER, even though PPL has yet to provide any actual
              total damage amounts from the storm or underlying data
              supporting damage amounts . . . . (Emphasis added.)

              17. PPL’s SDER is not consistent with Section 1307 of
              the Public Utility Code and applicable case law, in that it
              would enable the Company to collect increases in an
              operating expense that has been claimed in base rate
              cases for decades. According to well-established and
              fundamental ratemaking principles in Pennsylvania,
              increases in normal storm damage expenses are not
              abnormal, nonrecurring or extraordinary and should
              remain a base rate expense. Expense surcharges such as
              the SDER would constitute single issue ratemaking and
              would effectively disassemble the traditional ratemaking
              process, contrary to the appellate cases interpreting the
              Public Utility Code in this area . . . . (Emphasis added.)
              ....
              19. . . . .
              a. The Commission committed an error of law by
              authorizing PPL to implement the SDER, as such
              surcharge is inconsistent with the statutory requirements
       10
          “PPL submitted this Petition in an attempt to expand the total amount of revenues that
could be collected through the SDER.” OCA Brief at 14.

                                              11
              for an automatic adjustment mechanism under Section
              1307(a) of the . . . Code and inconsistent with the
              controlling case law in this area . . . .

              b. The Commission committed an error of law by
              authorizing PPL to collect both normal ongoing storm
              damage and extraordinary storm damage expenses
              through the SDER . . . . (Citations omitted and emphasis
              added.)

              c. The Commission’s Order is not supported by
              substantial evidence as to the recovery of Hurricane
              Sandy expenses, contrary to Section 704 of the
              Administrative Law and Procedure Act. 2 Pa. C.S. §
              704. (Emphasis added.)

              d. The Commission committed an error of law by
              authorizing the collection of Hurricane Sandy expenses
              through SDER in violation of the statutory requirements
              of Section 1301 of the . . . Code that all rates be just and
              reasonable. 66 Pa. C.S. § 1301.

              e. The Commission committed an error of law by failing
              to provide sufficient due process by providing the parties
              with only a ‘paper hearing’ process when factual issues
              were in dispute . . . .[11]

Petition for Review, June 20, 2014, Paragraphs 16-17 and 19 at 8-11.

  III. Pennsylvania Public Utility Commission’s Motion To Dismiss In Part12
              On January 12, 2015, the Commission sought to dismiss in part
OCA’s substantial evidence and due process arguments concerning Hurricane
Sandy expenses. Essentially, the Commission asserts:
       11
           PPL, OSBA, PPLICA all filed notices of intervention.
       12
           The Commission’s Motion to Dismiss in Part was listed with the merits before this
Court sitting en banc.

                                            12
               28. The proceedings . . . demonstrate that the
               Commission has provided all Parties with adequate due
               process to address how the SDER is to handle Hurricane
               Sandy expenses. The OCA and PPLICA utilized that due
               process to request that the Commission terminate the
               proceeding and allow SDER rates to go into effect;
               neither the OCA nor PPLICA can maintain the argument
               they were denied due process . . . . (Emphasis added.)

               29. The Commission respectfully submits that issues
               relating to Hurricane Sandy expenses are now moot or
               waived by the Parties voluntary conduct before the
               Commission and the Parties’ agreement to permit SDER
               to go into effect and to contain Hurricane Sandy expenses
               . . . . (Emphasis added.)

               30. The Commission also respectfully submits that the
               doctrine of judicial estoppel[13] prohibits the OCA and
               PPLICA from continuing to litigate these same issues in
               the instant appeal. The positions taken by the OCA and
               PPLICA before this Court are inherently inconsistent
               with their successfully maintained position below-that
               the SDER should take effect and should include
               Hurricane Sandy expenses . . . . (Emphasis added.)
               ....
               33. The Commission respectfully requests that this Court
               grant it relief from continued litigation concerning
               whether: 1) substantial evidence supports the recovery of
               Hurricane Sandy expenses; 2) the Commission
               committed error of law by authorizing the recovery of
               Hurricane Sandy expenses through the SDER; and 3)

       13
          In Marazas v. Workers’ Compensation Appeal Board (Vitas Healthcare Corporation),
97 A.3d 854 (Pa. Cmwlth. 2014), this Court determined that “[a]ccordingly, judicial estoppel is
properly applied only if the court concludes the following: (1) that the appellant assumed an
inconsistent position in an earlier action; and (2) that the appellant’s contention was ‘successfully
maintained in that action.’ Id. at 859, quoting Black v. Labor Ready, Inc., 995 A.2d 875, 878
(Pa. Super. 2010).

                                                13
            factual issues remained in dispute regarding Hurricane
            Sandy expenses as a rate component in the approved PPL
            Storm Damage Expense Rider.

Pennsylvania Public Utility Commission Motion to Dismiss in Part, January 12,
2015, Paragraphs 28-30 and 33 at 9-11.

            In response, OCA states:
            A. Introduction.

            The PUC [Commission] Motion bases all of its
            allegations and proposed conclusions as to the continued
            viability of the OCA’s appeal before this Court on the
            limited Compliance Filing proceeding . . . . (Emphasis
            added.)

            B. The Compliance Filing Proceeding.
            ....
            . . . The ALJ properly recognized the scope of the
            Compliance Filing proceeding as being narrow, not only
            for the obvious reason that compliance filings by their
            very nature are focused on data and calculations, but also
            fully recognizing that the merits of this matter were on
            appeal to this Court . . . . (Emphasis added.)

            . . . The PUC’s [Commission’s] attempt to portray the
            Compliance Filing Proceeding as a far-reaching
            opportunity for an in-debt prudence review is misplaced,
            unsupported by the record and at odds with the
            determinations of its own ALJ.

            C. The PUC’s [Commission’s] Judicial Argument Is
            Without Merit.
            ....
            The OCA’s position in the Compliance Filing proceeding
            is not inconsistent with its position before this Court - the
            two matters deal with different issues. As explained in
            this Answer, the Compliance Filing proceeding consisted

                                         14
of verifying that PPL had complied in all respects with
the PUC’s [Commission’s] April 3, 2014 Order by
submitting expense data and then by mathematically
creating an initial rate for the SDER based on the
numbers provided. Whether the SDER is a legal
construct under the law, or whether the design elements
of the SDER, including all extraordinary storm damage,
expensing all extraordinary storm damage over three
years, providing the parties with an extremely limited
time frame in which to perform a ‘prudence’ [sic] review
and other design and implementation features of the
SDER were not before ALJ Colwell. Those issues, and
others, are properly before this Court. (Emphasis added.)
....
D. The OCA’s Substantial Evidence Arguments Have
Not Been Waived.

. . . The OCA’s appeal in this matter as to lack of
substantial evidence focuses on the fact that the PUC
[Commission] approved the recovery of all extraordinary
storm damage expense on a going forward basis, in full,
over a period of three years with no further review as to
whether such a brief amortization period was reasonable .
. . . The discussion as to Hurricane Sandy in this appeal
process tends to show the level of examination that is
needed to thoroughly evaluate such expenses, yet will
never occur under a Section 1307(a) mechanism.
(Emphasis added and footnote omitted.)

E. The OCA’s Error of Law Arguments Have Neither
Been Waived Nor Have They Become Moot As A Result
Of The Compliance Filing Proceeding.
....
The OCA presented two separate arguments to this Court
as to errors of law committed by the PUC [Commission]
below, and neither of those arguments have been
diminished or otherwise made moot by the limited
Compliance Filing proceeding. (Emphasis added.)
....

                           15
            . . . The PUC’s [Commission’s] attempt to carve out one
            small subset of the issues before this Court, Hurricane
            Sandy expenses, and thereby have the Court dismiss the
            majority of the OCA’s arguments in this matter should be
            disregarded.

            F. The OCA’s Due Process Challenge Has Not Been
            Waived.
            ....
            . . . [H]ad a full and complete record been created before
            the PUC [Commission] through evidentiary proceedings,
            rather than the submission of comments, the OCA would
            have introduced evidence to rebut PPL’s claimed lack of
            any control over storm damage expense, among other
            evidentiary showings that could have been possible.
            Once the April 3, 2014 Order was issued, however, the
            due process deprivation became uniquely permanent.
            (Emphasis added.)

Answer of Petitioner Tanya J. McCloskey, Acting Consumer Advocate, April 8,
2015, Paragraphs A-F at 6, 10-14, and 16-17.

      IV. This Court’s Ruling On The Commission’s Motion To Dismiss
            A review of the record persuades this Court to deny the Commission’s
motion to dismiss in part OCA’s following issues: 1) whether substantial evidence
supports the recovery of Hurricane Sandy expenses; 2) whether the Commission
committed an error of law by authorizing the recovery of Hurricane Sandy
expenses; and 3) whether the Commission failed to provide the OCA with
sufficient due process based on waiver and mootness.     As OCA astutely noted,
“necessary facts and evidence to support a conclusion that all storm damage
expense is ‘substantial, variable and beyond the utility’s control’ . . . were not
going to be adduced in the Compliance Filing proceeding as such issues were

                                       16
beyond the scope of that proceeding.”           Answer of Acting Consumer Advocate at
17.

                                          V. Issues
1. Did The Commission Commit An Error Of Law Or Abuse Its Discretion When
   It Authorized PPL To Implement The Recovery Of Normal, Ordinary Storm
              Damage Expenses Pursuant To 66 Pa. C.S. § 1307(a)?

              Initially, OCA contends14 that the SDER is impermissible single-issue
ratemaking which is inconsistent with the controlling case law. According to OCA,
the automatic adjustment mechanisms under Section 1307(a) of the “Public Utility
Code” (Code), 66 Pa. C.S. § 1307(a), are only to be used in limited circumstances
and for unique situations. Popowsky v. Pennsylvania Public Utilities Commission,
869 A.2d 1144, 1160 (Pa. Cmwlth. 2005); and Pennsylvania Industrial Energy
Coalition v. Pennsylvania Public Utilities Commission, 653 A.2d 1336, 1349 (Pa.
Cmwlth. 1995). A surcharge15 recovery under 1307(a) of the Code, 66 Pa. C.S. §

       14
            This Court’s review of a Commission’s order is to determine whether the
Commission’s findings of fact are supported by substantial evidence, whether an error of law
was committed or whether constitutional rights were violated. Popowsky v. Pennsylvania Public
Utility Commission, 910 A.2d 38 (Pa. 2006). The standard of review to be applied when
reviewing the Commission’s decision is that the Court should not substitute its judgment for that
of the Commission when substantial evidence supports the Commission’s decision on a matter
within the Commission’s expertise. City of Lancaster (Water) v. Pennsylvania Public Utility
Commission, 769 A.2d 567 (Pa. Cmwlth. 2001) citing Popowsky v. Pennsylvania Public Utility
Commission, 706 A.2d 1197, 1201 (Pa. 1997). Substantial evidence is such evidence that a
reasonable mind might accept as adequate to support a conclusion. Borough of East McKeesport
v. Special/Temporary Civil Service Commission, 942 A.2d 274, 281 (Pa. Cmwlth. 2008).
        15
           This Court has previously stated:
                A surcharge is an amount added to a customer’s regular bill that is
                established outside the normal ratemaking procedure.          The
                surcharge is imposed pursuant to an ‘automatic adjustment clause’
                in a utility’s approved tariff. The surcharge allows the add-on of
                expenses and changes to those expenses without including any
(Footnote continued on next page…)

                                               17
1307(a), is only permissible where expressly authorized by the General Assembly
or where an expense is easily identifiable and beyond the utility’s control.
Popowsky v. Pennsylvania Public Utility Commission (Newtown), 13 A.3d 583,
591 (Pa. Cmwlth. 2011).           OCA concludes that the allowance of a surcharge
recovery for things that are beyond the utility’s control occurs only when the
“mathematical” review performed under Section 1307(a) is inadequate to
determine whether a surcharge is “just or reasonable.”16 Id.

               The Commission responds that the amount of storm damage to PPL’s
infrastructure is beyond the control of PPL. Storm damage expenses may occur “at
any future time” at nature’s “sole discretion” as to scale, and “without notice” of
any kind. Brief of the Commission at 41. The Commission argues that a surcharge
was “necessary and appropriate” for PPL to restore power to its customers after a
storm for public safety reasons and for compliance with Section 1501 of the Code,
66 Pa. C.S. § 1501. Brief of Commission at 43. The Commission claims OCA
failed to consider that the costs of having a surcharge are less than the expenses
incurred from extended power outages.

               Section 1307 of the Code, 66 Pa. C.S. § 1307, provides:

(continued…)

               profit or other recovery; this add-on is known as ‘dollar for dollar’
               recovery.
Popowsky v. Public Utility Commission, 869 A.2d 1144, 1152 (Pa. Cmwlth. 2005), appeal
denied, 895 A.2d 552 (Pa. 2006).
       16
          OCA also argues the SDER is impermissible because the amount of storm damage is
not beyond PPL’s control. OCA stresses that PPL can mitigate storm damage with its pre-storm
maintenance and planning activities and that it has control over the post-storm activities and the
resources used to repair storm damage. OCA argues the storm expenses cannot be subjected to a
mathematical review because the expenses are controlled by the utility.

                                               18
            (a) General rule.-Any public utility . . . may establish a
                sliding scale of rates or such other method for the
                automatic adjustment of the rates of the public utility
                as shall provide a just and reasonable return on the
                rate base of such public utility, to be determined upon
                such equitable or reasonable basis as shall provide
                such fair return. A tariff showing the scale of rates
                under such arrangement shall first be filed with the
                commission, and such tariff, and each rate set out
                therein, approved by it. The commission may revoke
                its approval at any time and fix other rates for any
                such public utility if, after notice and hearing, the
                commission finds the existing rates unjust or
                unreasonable.

            A reading of the plain language of Section 1307(a) of the Code in no
way prohibits the recovery of storm damage expenses or any other expenses
through the use of a surcharge.     In Popowsky v. Pennsylvania Public Utility
Commission (Newton), 13 A.3d 583 (Pa. Cmwlth. 2011), this Court addressed the
issue of whether the Commission had discretion to establish an automatic
adjustment clause:
            Based on the foregoing cases, and keeping in mind that
            the PUC’s interpretation of the Code will not be
            disturbed unless clearly erroneous [Popowsky v.
            Pennsylvania Public Utility Commission, 706 A.2d 1197
            (Pa. 1997)] Popowsky 1997, . . . 706 A.2d at 1203, we
            find that the PUC has the authority under Section 1307(a)
            of the Code to allow NAWC [Newtown Artesian Water
            Company] to implement the PWAC [Purchased Water
            Adjustment Clause]. While we recognize that a base rate
            filing under Section 1308 of the Code is the preferred
            method for a public utility to recover the costs of
            providing service, we cannot ignore the fact that the
            General Assembly envisioned the automatic adjustment
            of rates in enacting Section 1307(a) of the Code.

                                        19
               . . . The only statutory requirement contained in Section
               1307(a) of the Code is that the surcharge ‘provide a just
               and reasonable return on the rate base of [the] public
               utility, to be determined upon such equitable or
               reasonable basis as shall provide such fair return.’
               Masthope [Masthope Rapids Property Owners Council v.
               Public Utility Commission, 581 A.2d 994 (Pa. Cmwlth.
               1990)] [Pennsylvania Industrial Energy Coalition v.
               Public Utility Commission, 653 A.2d 1336 (Pa. Cmwlth.
               1995), affirmed 670 A.2d 1152 (Pa. 1996)] [PIEC], and
               [Popowsky v. Public Utility Commission, 869 A.2d 1144
               (Pa. Cmwlth. 2005), appeal denied, 895 A.2d 552 (Pa.
               2006)] Popowsky 2005 support the proposition that
               surcharge recovery is available under Section 1307(a) of
               the Code (1) where expressly authorized by the General
               Assembly, or (2) where an expense is easily identifiable
               and beyond the utility’s control. The basis for this
               distinction lies with the PUC’s review under Section
               1307(a) of the Code . . . . (Emphasis in original and
               added.)

Popowsky (Newtown), 13 A.3d at 591.

               In Masthope, this Court described the Commission’s review under
Section 1307(a) of the Code:
               [T]he      Commission’s     review    is    appropriately
               characterized as preliminary and cursory. Indeed, the
               very function of the typical automatic adjustment clause
               is to permit rapid recovery of a specific, identifiable
               expense item, with a more comprehensive analysis upon
               reconciliation of actual costs and previously projected
               costs used to establish the effective rate. The initial
               process is essentially a mathematical review of the
               projections provided by the public utility. (Emphasis in
               original.)

Id. at 1000.

                                          20
            Here, the scale and scope of PPL’s storm damage expense addressed
by the SDER were well beyond its control. Pursuant to Popowsky 2011 and
Masthope, the very function of an automatic adjustment clause is to permit the
rapid recovery of a specific identifiable expense item. The Commission’s April 4,
2014, order clarified its expectations concerning the discretionary surcharge
dealing with storm damage expenses under Section 1307(a) of the Code, 66 Pa.
C.S. § 1307(a). The Commission examined the proposed SDER and conditioned
final approval for PPL’s discretionary Section 1307 surcharge upon satisfaction of
the following burden:
            1) The surcharge recovers a legitimate rate component.

            2) The expense in question is capable of degrading utility
            return on rate base to a significant degree.

            3) The expense is capable of evading recovery in a
            prospective Section 1308 base rate proceeding.

            4) The surcharge will not recover capital costs, i.e., it is a
            pure expense.

            5) The expense is discrete and easily identified.

            6) The expense is variable and beyond the utility’s
            control.

            7) The annual reconciliation procedure is adequate.

            8) The surcharge will reset to $0 at each base rate
            proceeding or use other mechanisms to prevent double
            recovery.

Commission’s Opinion and Order, April 3, 2014, at 19-20, OCA’s Attachments,
Appendix A.

                                         21
             Here, the Commission did not err or abuse its discretion when it
determined that the automatic adjustment clause was proper in order for PPL to
recover storm damage expenses.

             Additionally, this Court rejects OCA’s claim that the SDER
constitutes impermissible retroactive or single-issue ratemaking. In PIEC, this
Court stated:
             Single-issue ratemaking is similar to retroactive
             ratemaking and, in general, is prohibited if it impacts on
             a matter that is normally considered in a base rate case.
             This is, however, not a base rate case. No party has
             asked for a specific recovery of a line item that
             traditionally would be requested in a rate-making
             procedure. The PUC applied Section 1307’s [of the
             Code] authorization to specifically allow an automatic
             adjustment of rates outside of the rate-making
             procedures. Because the surcharge is permitted under the
             Code, with procedures to determine the reasonableness of
             the charges outside of a base rate case, the doctrine of
             single-issue ratemaking is inapplicable.         (Footnote
             omitted and emphasis added.)

PIEC, 653 A.2d at 1350.     Pursuant to Popowsky (Newtown), this Court finds that
the Commission had the authority under Section 1307(a) of the Code to allow PPL
to implement the SDER and, as such, it did not “constitute impermissible single-
issue ratemaking.” Id. at 593.

 2. Did The Commission’s Order Violate 2 Pa. C.S. § 704 “Because The Specific
 Determinations As To The Approval Of An Automatic Adjustment Mechanism
For Storm Damage Expense Recovery” Were Not Based On Substantial Evidence?

             OCA next contends the Commission’s ruling was not supported by
sufficient evidence as required by 2 Pa. C.S. § 704 (Disposition of appeal), and that

                                         22
PPL failed to meet its burden of proof showing the proposed rates are reasonable
under Section 315(a) (Burden of proof) of the Code, 66 Pa. C.S. § 315(a).
Specifically, OCA asserts that the information used by PPL in proposing the SDER
was mere speculation about the occurrence of future events which lacked the actual
damage figures caused by the extraordinary storms such as Hurricane Sandy.
OCA further contends the Commission failed to show how the proposed SDER is
“just and reasonable”.

            The Commission responds that this Court will accept the
Commission’s discretionary findings and conclusions unless they totally lack
support and that this Court “may not indulge in the process of weighing evidence
and resolving conflicts in testimony.”        Philadelphia Electric Company v.
Pennsylvania Public Utility Commission, 502 A.2d 722, 731 (Pa. Cmwlth. 1985).
The Commission continues that there is clear evidence in the record of the
unavailability of commercial storm insurance and the need to immediately repair
storm damage. Direct Testimony of Morrissey at 33; R.R. at 20a and Executive
Summary at 1; R.R. 123a. The Commission concluded that there will be an
additional proceeding where OCA is a party which will provide a forum to discuss
expenses from “super” storm Sandy and other storms.             Therefore, OCA’s
arguments are premature.

            Section 315(a) of the Code, 66 Pa. C.S. § 315(a), provides in pertinent
part that [i]n any . . . proceeding upon complaint involving any proposed increase
in rates, the burden of proof to show that the rate involved is just and reasonable
shall be upon the public utility.” (Emphasis added.)

                                        23
            Here, the evidence of record supported the Commission’s conclusion
that future weather events and the cost incurred were beyond PPL’s control. As
the Commission noted:
            PPL’s proposed SDER contemplates the recovery of
            reportable storm damage expense that exceeds the $14.7
            million that is currently being recovered in base rates.
            Reportable storm damage expense that is recoverable
            under the SDER will include operations and maintenance
            expenses, excluding straight time wages and benefits, for
            damages caused by these storms. Capital costs and
            damage caused to transmission facilities will be excluded
            from recovery under the SDER. The SDER will recover
            only actual incurred expense; no forecasted or projected
            expenses will be used. (Emphasis added.)

Commission’s Opinion and Order, April 3, 2014, at 27; OCA’s Attachments,
Appendix A.

            The actual storm costs claimed by PPL under both the fixed and
adjustable portions of the SDER will be examined in each base rate proceeding
under Section 1308 of the Code, 66 Pa. C.S. § 1308.          The SDER base rate
“threshold will be adjusted up or down in each base rate case proceeding, as
appropriate, and the SDER will be reset to zero (0).” Commission’s Opinion and
Order, April 3, 2014, at 27; OCA’s Attachments, Appendix A. The burden will
rest upon PPL to establish it prudently incurred the expenses collected through the
SDER. If PPL fails to sustain its burden, ratepayers will experience rate decreases.

            Additionally, OCA’s assertion that the inclusion of Hurricane Sandy
expenses in the SDER lacked record support because the storm damage was
unknown and is premature.       The Hurricane Sandy expense does not become

                                        24
relevant until PPL seeks to claim those costs through the SDER. PPL submitted its
claim to recover the cost associated with Hurricane Sandy after the Commission’s
April 3, 2014, order. Therefore, the OCA and other interested parties will have the
opportunity to review and challenge these costs in future filings and proceedings.

                Therefore, the Commission’s approval of the SDER was supported by
substantial evidence.17           “Substantial evidence” is relevant evidence that a
reasonable mind may accept as adequate to support its conclusion. This is more
than a trace of evidence or the suspicion of the existence of such a fact sought to be
established.18 Norfolk & Western Railroad Co. v. Pennsylvania Public Utilities
Commission, 413 A.2d 1037 (Pa. 1980); Murphy v. Department of Public Welfare,
White Haven Center, 480 A.2d 382 (Pa. Cmwlth. 1984).

   3. Did The Commission Fail To Provide Sufficient Due Process When It Only
                 Provided The Parties With A Paper Hearing?

                Last, OCA contends the Commission erred when it determined that
there were no issues of fact in dispute and as such a paper hearing was sufficient to
satisfy due process. OCA argues that there were issues of fact in dispute because
PPL only submitted its proposed SDER after the conclusion of ALJ hearing which

        17
           PPL stated in its brief that “the SDER was approved based on the comments submitted
into the record after the conclusion of the 2012 rate case. The OCA does not dispute that these
comments were submitted . . . or otherwise assert that it was precluded from submitting
comments to the record.” Definitive Brief for Intervenor PPL Electric Utilities Corporation at
48.
        18
           Additionally, this Court is satisfied that the Commission did not violate Section 704 of
the Administrative Law and Procedure, 2 Pa. C.S. § 704, which relevantly provides that “[a]fter
hearing, the court shall affirm the adjudication unless it shall find that . . . that any finding of fact
made by the agency and necessary to support its adjudication is not supported by substantial
evidence.”

                                                  25
deprived OCA of the opportunity to cross-examine witnesses, conduct discovery or
submit expert testimony. OCA states that it was denied due process.19

              The Commission responds that OCA and PPLICA waived their rights
to present evidence and testimony. The Commission’s October 31, 2013, Opinion
and Order determined that any additional attempts to relitigate the appropriateness
of an alternative funding mechanism to replace the disallowed storm damage
insurance will be disregarded.       OCA and PPLICA chose to remain silent and
relied on the litigation efforts of BIE to raise issues of fact. Therefore, OCA and
PPLICA cannot argue there was a denial of due process rights.

              In Conestoga National Bank of Lancaster v. Patterson, 275 A.2d 6, 9
(Pa. 1971), our Pennsylvania Supreme Court stated that “[p]rocedural due process
does not require notice and a hearing in every conceivable situation involving
administrative action.”

              In Diamond Energy Inc. v. Pennsylvania Public Utility Commission,
653 A.2d 1360 (Pa. Cmwlth. 1995), this Court quoted our Pennsylvania Supreme
Court:
              We do not believe, however, that due process requires
              that the [Pennsylvania Coal Mining] Association receive
              a full hearing before rates can become effective. While
              oral proceedings may be necessary for determinations
              likely to turn on witness credibility, written submissions
              may be adequate when economic or statistical questions
              are at issue. (Emphasis added.)
         19
          The issues of fact OCA claims were in dispute were the storm damage amounts and
whether those expenses were “just and fair.” OCA stresses that these issues did not become
material until after PPL filed its exceptions to the ALJ’s recommended decision.

                                           26
Diamond Energy, 653 A.2d at 1367, quoting Pennsylvania Coal Mining
Association v. Pennsylvania Insurance Department, 370 A.2d 685, 693 (Pa. 1977).

             In the present controversy, this Court agrees with PPL’s assessment
that OCA was not denied due process:
             In summary, the OCA’s and PPLICA’s due process
             arguments are misplaced. The Supreme Court has clearly
             concluded that the review process provide in Section
             1307 does not violate due process rights [Allegheny
             Ludlum Steel Corp. v. Pennsylvania Public Utility
             Commission, 459 A.2d 1218, 1222 (Pa. 1983)]. Further,
             the OCA’s and PPLICA’s ‘disputed material facts’ are
             premature. Any factual issues regarding the amount of
             storm damage expenses that PPL incurred from storms
             and whether the expenses were just and reasonable do not
             arise unless and until PPL Electric submits a claim
             seeking to recover these costs and expenses through the
             SDER. Clearly, no such claims were submitted for
             approval in the SDER Order; rather, these claims were
             submitted for the first time in PPL Electric’s preliminary
             tariff supplement and calculation of storm damage
             expenses filed on October 31, 2014. Finally, the OCA
             and PPLICA have numerous remedies at hand, and in
             fact have taken advantage of those remedies, to review
             the amount of storm damage expenses that PPL Electric
             incurred from storms and whether the expenses were just
             and reasonable. (Emphasis added.)

Brief for Intervenor PPL Electric at 55.

             The Commission did not violate OCA’s and PPLICA’s due process
rights.

                                           27
Accordingly, this Court affirms the decision of the Commission.

                         ____________________________
                         BERNARD L. McGINLEY, Judge

                           28
          IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Tanya J. McCloskey,                    :
Acting Consumer Advocate,              :
                 Petitioner            :
                                       :
                     v.                :
                                       :
Pennsylvania Public Utility            :
Commission,                            :   No. 1023 C.D. 2014
                  Respondent           :

                                  ORDER

              AND NOW, this 18th day of December, 2015, the order of the
Pennsylvania Public Utility Commission in the above-captioned matter is affirmed.
Additionally, the Pennsylvania Public Utility Commission’s Motion to Dismiss in
Part is denied in its entirety.

                                       ____________________________
                                       BERNARD L. McGINLEY, Judge
             IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Tanya J. McCloskey,                     :
Acting Consumer Advocate,               :
                 Petitioner             :
                                        :   No. 1023 C.D. 2014
      v.                                :
                                        :   Argued: June 17, 2015
Pennsylvania Public Utility             :
Commission,                             :
                  Respondent            :

BEFORE:     HONORABLE DAN PELLEGRINI, President Judge
            HONORABLE BERNARD L. McGINLEY, Judge
            HONORABLE BONNIE BRIGANCE LEADBETTER, Judge
            HONORABLE RENÉE COHN JUBELIRER, Judge
            HONORABLE ROBERT SIMPSON, Judge
            HONORABLE P. KEVIN BROBSON, Judge
            HONORABLE PATRICIA A. McCULLOUGH, Judge

OPINION NOT REPORTED

DISSENTING OPINION BY
JUDGE McCULLOUGH                                    FILED: December 18, 2015

            I respectfully dissent from the Majority’s decision to affirm the order
of the Pennsylvania Public Utility Commission (Commission) approving the storm
damage expense rider (SDER) submitted by PPL Electric Utilities Corporation
(PPL). I would conclude that the SDER is invalid as a matter of law because it
effectuates retroactive ratemaking.
            Notably, the Commission has already rejected a SDER surcharge
under section 1307(a) of the Public Utility Code (Code), 66 Pa.C.S. §1307(a),
because expenses incurred for storm damage are most appropriately handled
through a base rate proceeding under section 1308 of the Code, 66 Pa.C.S. §1308.1
Pennsylvania Public Utility Commission v. Metropolitan Edison Company, 2006
Pa. PUC LEXIS 116, **301-15 (Pa. PUC 2006, filed October 31, 2007), aff’d 2007
Pa. PUC Lexis 5, *273.
                Consistent with this principle, PPL’s storm damage expenses,
although modified by the surcharge adjustments in the SDER, have their genesis in
– and are currently subjected to – a base rate, particularly “a fixed $14.7 million in
storm damage expenses for base rate recovery.”                    (Commission’s brief at 11.)
According to the Commission’s order:

      1
          As this Court elucidated:

                A surcharge is an amount added to a customer’s regular bill that is
                established outside the normal ratemaking procedure.             The
                surcharge is imposed pursuant to an “automatic adjustment clause”
                in a utility’s approved tariff. The surcharge allows the add-on of
                expenses and changes to those expenses, without including any
                profit or other recovery; this add-on is known as “dollar for dollar”
                recovery.

                The surcharge is quite different from a base rate. In Pennsylvania,
                as in most jurisdictions, rates for public utilities are set using what
                is known as the test year concept, which requires taking a snapshot
                of the utility’s revenues, expenses and capital costs during a one-
                year period. The object of using a test year is to reflect typical
                conditions. Test year expenses may be adjusted or normalized
                where atypical or non-recurring. Under the test year concept,
                revenues, expenses and capital costs are to be simultaneously
                reviewed for the same period of time so that a utility may prove its
                new rates are “just and reasonable.”

Popowsky v. Pennsylvania Public Utility Commission, 869 A.2d 1144, 1152 (Pa. Cmwlth. 2005)
(citations omitted).
                                              PAM - 2
             In future base rate proceedings, PPL must show that it is
             entitled to recover all SDER-eligible storm damage
             expenses (appropriately accounting for deferrals and
             amortizations) in base rates in accord with traditional rate
             setting techniques. That is, only prudent, known and
             measureable expenses can be recovered. With the setting
             of new base rates, the adjustable portion of the SDER
             rate . . . will reset at $0 as all valid storm damage
             expenses will be reflected in base rates – as is the
             traditional practice.
(Id. at 11-12.)
             At its core, then, the surcharge adjustments in the SDER are
incorporated into the base rate proceedings and this case is a “base rate case.”
Therefore, the rule against retroactive ratemaking applies, see Popowsky v.
Pennsylvania Public Utility Commission (Purchased Water Surcharge), 13 A.3d
583, 593 (Pa. Cmwlth. 2011), and the adjustments in the SDER cannot allow PPL
to recover excess expenses, when compared to the $14.7 million base rate figure,
or refund excess revenue.
             It is well-settled that a utility that has failed to accurately project
expenses and revenue in its base rate cannot effect an after-the-fact correction by
rate increases when profits are lower than predicted or refunds to customers when
profits are higher than predicted. Popowsky v. Public Utility Commission, 869
A.2d 1144, 1153 (Pa. Cmwlth. 2005). In other words, “the utility may not receive
retroactive rate relief on account of expense items which are greater than
anticipated” and the “Commission clearly may not establish rates which are
calculated to retroactively . . . refund deficits created by inaccuracies in its prior
rate authorizations.” Philadelphia Electric Co. v. Public Utility Commission, 502
A.2d 722, 727 (Pa. Cmwlth. 1985). Conversely, “the Commission is without the
power to order a regulated utility to refund to its ratepayers a particular item of

                                      PAM - 3
revenue in excess of that anticipated at the time of rate approval unless the utility’s
rates, considered as to the whole of their effect on the utility’s revenues, are
unreasonable or unjust.” Id. These precepts have been described as the rule
against retroactive ratemaking.
             In probably the most elaborate language to date, our current President
Judge has explained the prohibition of retroactive ratemaking as follows:

             Ratemaking, by its nature, is prospective. Typically, a
             utility files a general rate case with a record of revenues
             and expenses for the past year and a projection of
             anticipated expenses and revenues for a future test
             year. . . .

             Because of the prospective nature of rates, a rule against
             retroactive ratemaking has developed. The rule against
             retroactive ratemaking prohibits a public utility
             commission from setting future rates to allow a utility to
             recoup past losses or to refund to consumers excess
             utility profits. The policy reasons behind this rule are
             that if retroactive ratemaking is allowed, it makes the
             “test year” method of ratemaking meaningless and the
             general principle that those customers who use power
             should pay for its production rather than requiring future
             ratepayers to pay for past use.
Popowsky v. Public Utility Commission, 642 A.2d 648, 650-51 (Pa. Cmwlth. 1994)
(citations omitted) (“Popowsky I”).
             In Popowsky I, this Court held that a utility may not recover, in a
future base rate case, costs that were previously and incrementally incurred due to
changes in accounting standards. Explaining that “the rule against retroactive
ratemaking applies to the recovery of costs relating to prior periods,” id. at 652, we
determined that, because the utility’s current and incremental costs would be
recovered in a future rate case, the costs were prohibited by the rule against
retroactive ratemaking.
                                      PAM - 4
             Here, the Commission all but concedes in its brief that the SDER
constitutes retroactive ratemaking. More specifically, by using a surcharge under
section 1307 of the Code as the guise by which to alter the base rate, the
Commission has permitted the SDER to serve as a supplemental mechanism for
PPL to recoup expenses that are above and beyond the $14.7 million that it can
recover. The SDER also permits PPL to provide customers with refunds in the
event that revenue is over-anticipated. As the Commission attests in its brief:

             Should PPL experience reportable storm damage in
             excess of the amount included in base rates, PPL may
             make monthly interim changes [i.e., increases] to the
             adjustable SDER rate. . . . Thus, the adjustable portion
             of the SDER provides a limited safety valve to reflect
             actual reportable and extraordinary storm damage
             incurred between [base] rate cases. The [Commission]
             points out that the adjustable portion of the SDER
             expressly excludes projections or forecasts; only known
             and measurable expenses may be included in the
             adjustable SDER rate. Conversely, if PPL does not
             experience reportable storm damage, and the fixed
             amount of the SDER exceeds actual storm damage
             expenses, the annual SDER reconciliation will direct
             PPL to provide SDER credits to ratepayers.
(Commission’s brief at 12) (emphasis supplied).
             In my view, the SDER clearly constitutes retroactive ratemaking. As
framed by its terms and explained by the Commission, the SDER permits PPL to
make monthly increases to its SDER surcharge rate in order to recoup previously
incurred expenses. Otherwise, if storm damage expenses do not exceed the SDER
surcharge, then PPL will refund (or provide credits to) the ratepayers for money
they paid as part of their monthly SDER surcharge. In both instances, the rule
against retroactive ratemaking is violated. Popowsky I, 642 A.2d at 650-51 (“The
rule against retroactive ratemaking prohibits a public utility commission from

                                      PAM - 5
setting future rates to allow a utility to recoup past losses or to refund to consumers
excess utility profits.”).
              If PPL wants to increase its base rate for storm damage expenses, it
must do this prospectively at the next base rate proceeding. In the meantime, PPL
cannot, under the authority of the SDER, intermittently increase its surcharge rates
to effectuate a retroactive recovery because the base rate was later proven to be too
“low.”    See Popowsky I, 642 A.2d at 652 (“Because the incremental costs
recovered in some future rate case would relate to [previous] years up until the
next rate case, what [the utility] requested and the [the Commission] awarded is
retroactive ratemaking.”). Without question, the functional purpose of the SDER
is to ensure that, in the worst case scenario, PPL will be able to escalate its
surcharge rate after a storm and collect more money from future ratepayers in order
to compensate PPL for past expenses paid in connection with that storm.
Consequently, the SDER is a prototypical example of retroactive ratemaking.
              Because the Commission’s approval of the SDER sanctions
retroactive ratemaking, I would reverse the Commission’s order approving the
SDER. Accordingly, I respectfully dissent.

                                            ________________________________
                                            PATRICIA A. McCULLOUGH, Judge

President Judge Pellegrini and Judge Cohn Jubelirer join in this dissent.

                                       PAM - 6