Court Opinion

ID: 6362412
Source: CourtListenerOpinion
Date Created: 2022-06-24 23:37:14.969436+00
Date Added: 2024-06-11T15:49:43.858105
License: Public Domain

Dissenting Opinion by
Judge Blatt:
In reviewing the proposed tariff by the Keystone Water Company — White Deer District (Keystone), the Public Utility Commission (PUC) excluded from the rate base $1,292,000 representing the amount contributed by the Commonwealth, Department of Transportation (PennDOT) as that part of the condemnation award allocable to the construction of a water filtration plant, a necessary functional substitute for the land taken by PennDOT when it constructed Interstate Route 80 across the watershed utilized by Keystone as its water source. Without the filtration plant clean potable water could no longer be 'supplied to Keystone customers.
The PUC apparently concluded that because Keystone had no investment in the plant the customers should not be subject to a rate increase which would result in their having to pay for the plant twice — once through tax dollars and a second time through rates charged by the utility company. Perhaps more important is the fact that the PUC has refused to subject the paying customers to rate increases where they will not receive improvements in services, and where the company made no business *313investment upon which it can equitably claim a right to earnings.
The majority holds that to exclude from the rate base the dollar amount consumed in construction of the new filtration plant would amount to a confiscation of Keystone’s property in violation of the Fifth and Fourteenth Amendments to the United States Constitution and Article I, Sections 9 and 10 of the Pennsylvania Constitution of 1968. I disagree and must, therefore, respectfully dissent.
The majority relies upon the basic proposition that a utility is entitled to receive a fair return on the fair value of its property used and useful in the public service without regard to the source of the money used to purchase the property, citing Board of Public Utility Commissioners v. New York Telephone Company, 271 U.S. 23 (1926) and Peoples Natural Gas Company v. Pennsylvania Utility Commission, 153 Pa. Superior Ct. 475, 34 A.2d 375 (1943). However appropriate this proposition may be in the normal case, this is not such a case. And, as I view the PUC’s departure from the rule, it is both constitutional and just under the laws of Pennsylvania.
Initially I do not believe that the action of the PUC raises issues of constitutional dimension. It is no longer a constitutional requirement that utilities earn a “fair return” on the “fair value” of the property devoted to the public use. What the Constitution requires is that rates be “just and reasonable” so as to provide the equity owners a return commensurate with other enterprises having corresponding risks. Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591 (1944); Cities Service Gas Co. v. Federal Power Commission, 155 F. 2d 694 (10th Cir. 1946). These requirements are distinguished in that the return upon the individual or collective values of property no longer determines the constitutionality of a rate schedule; it is determined instead *314by the justness and reasonableness of the impact of the final rate upon the utility. The return, therefore, should be sufficient so as to allow the regulated company to operate successfully, maintain its financial integrity, attract capital, and compensate its investors for- the risks assumed. See Federal Power Commission and Cities Service Gas Co., supra. There is not even a suggestion that under this constitutional standard the return allowed by the PUC in this case was not sufficiently met. It seems to me, therefore, that what this Court should have determined is whether or not the PUC ruling fell within the Commission’s statutory authority.
Under the Public Utility Law1 (Act) “ [e]very rate made, demanded, or received by any public utility . . . shall be just and reasonable.” Section 301 of the Act, 66 P.S. §1141. Under judicial interpretation “just and reasonable” have been construed so that a utility might receive a fair return upon the fair value of that which it employs for the public convenience. Scranton v. Scranton Steam Heat Company, 405 Pa. 397, 176 A.2d 86 (1961). On the other hand it cannot be disputed that the words “just and reasonable” indicate that the public is entitled to demand that no more be exacted from it for the use of services rendered by a utility than those services are reasonably worth. Smyth v. Ames, 169 U.S. 466 (1898). Are the services of the Keystone here worth any more because they are provided through a new filtration plant constructed out of public moneys? Are the equity investors entitled to any greater return or greater profits as a just and reasonable consequence of the fortuitous condemnation of their watershed where its functional substitute has been provided through public moneys? Surely the answer to both must be in the negative.
*315The heart and substance of the PUC’s determination, and the factor which distinguishes this case from those cited by the majority is the fact that the filtration plant here was constructed with public money designated for that purpose. In those cases cited by the majority the properties included in the rate base were acquired as a result of normal business judgments and investment concepts even though the money used in the acquisitions was not derived from the capital contribution of the equity holders. And, of course, the company should be entitled to reap the benefits of its prudent financial decision making. This case lacks similarity for when the condemnation taking occurred Keystone was obligated absolutely to allocate the money received by the condemnation award to the construction of the new filtration plant. The majority departs from this interpretation stating that the condemnation award merely compensates the utility for the taking of the land as in any condemnation case, and thus the majority suggests that the plant was constructed through company investments from a general company fund. Such an interpretation, however, is belied by the express terms of the condemnation agreement and ignores the true character of this unusual situation. As I view the PUC decision, Keystone would not be forced to operate a plant representing 20 percent of its net investments without any earning whatsoever as the majority postulates.
It might be added, as the majority observes, that the PUC did permit Keystone to recover the expenses involved in operating this filtration plant. This was proper, of course, as the company must be permitted to recover its expenses. The majority also observes that the PUC failed to allow Keystone to recover annual depreciation of the plant as an operating expense. Inasmuch as depreciation is an operating expense, Penn Sheraton Hotel v. Pennsylvania Public Utility Commission, 198 Pa. Superior Ct. 618, 184 A.2d 324 (1962), the PUC should have provided some means by which Keystone could have *316recovered this expense through the rate paying customers even though the plant itself was excluded from the rate base.
Because of the need, however, to balance the interests of the equity holders in Keystone against the interests of the rate paying public, I believe that it was just and reasonable for the PUC to exclude the $1,292,000 allocated to the filtration plant from the rate base in this case. I, therefore, dissent.

. Act of May 28, 1937, P.L. 1053, as amended, 66 P.S. §1101 et seq.