Court Opinion

ID: 9762214
Source: CourtListenerOpinion
Date Created: 2023-08-29 02:16:48.340193+00
Date Added: 2024-06-11T07:29:32.031830
License: Public Domain

DISSENTING OPINION BY
Judge SMITH-RIBNER.
I respectfully dissent from that part of the Majority’s decision affirming the order of the Public Utility Commission (Commission) allowing the Pennsylvania-American Water Company (Utility) to recover increased security costs for the period from September 11, 2001 through August 2003. I cannot agree that the increased security costs, are properly characterized as extraordinary and nonrecurring expenses; therefore, allowing such a recovery would ■violate the principle that the Commission may not engage in retroactive ratemaking.
This Court in Philadelphia Electric Co. v. Pennsylvania Public Utility Commission, 93 Pa.Cmwlth. 410, 502 A.2d 722 (1985), affirmed in part a Commission order disallowing -the retroactive' recovery of operation and depreciation expenses incurred because of the operation of pollution control equipment required by a consent degree imposed during litigation by state and federal environmental protection agencies. The Court stated what I find to be the most useful formulation of principles governing a request to retroactively recover unforeseen expenses:
In our judgment, the Commission has here correctly applied these basic regulatory tenets. The general rule is that there may be no line examination of the relative success or failure of the utility to have accurately projected its particular items of expense or revenue and an excess over the projection of an isolated item of revenue or expense may not be, without more, the subject of the Commission’s order of refund or recovery, respectively, on the occasion of the utility’s subsequent rate increase requests.
An exception to this rule in the case of retroactive recovery of unanticipated expenses has been recognized where the expenses are extraordinary and nonrecurring. We agree with the Commission that the pollution control facilities’ expenses here at issue are clearly neither extraordinary nor nonrecurring. Indeed, PECO here claimed and was granted the prospective operating, maintenance, and depreciation expenses associated with these facilities.
Id. at 727-728 (citations omitted). See also Popowsky v. Pennsylvania Public Utility Commission, 164 Pa.Cmwlth. 338, 642 A.2d 648, 651 (1994) (“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”).
Section 1501 of the Public Utility Code, 66 Pa.C.S. § 1501, requires that every public utility “furnish and maintain adequate, efficient, safe, and reasonable service. and facilities.” Part of that ongoing obligation in this case is to secure the water supply and infrastructure against contamination and violence and, as the ALJ noted, that duty existed before September 11, 2001 and it continues today. The Utility’s unopposed claim for prospective security costs of some $3.5 million per *615year is evidence of its ongoing obligation. Although the events of September 11, 2001 were by any fair measure unanticipated and extraordinary, the types of expenses necessary to secure public utility facilities are normal and ever-present operation and maintenance expenses.
The Commission noted that the Utility’s actions in making such expenditures are commendable. However, because of the ongoing and mandatory nature of security expenses, and in light of the Utility’s annual revenue requirement of approximately $857 million and a rate base of approximately $1.5 billion, I cannot conclude that the approximately $16.7 million in deferred security costs, accrued over a nearly two-year period, constitutes an extraordinary expense. Elevated levels of spending for security are now part of the regulatory environment, more so than in the past, but those expenses should be addressed prospectively through comprehensive rate review and not retroactively by separating unforeseen expenses from the previously agreed upon rate structure.
I do not believe this case presents a compelling argument for an exception to the rule that the Commission may not allow recovery of unanticipated expenses through retroactive ratemaking. Instead, I am persuaded by the following observation of the ALJ in assessing the nature of the deferred costs for increased security:
It is, in fact, the belief that vulnerable PAWC facilities will be targeted in some manner for future attack that justifies the allowance of PAWC’s claim for $3,586,179 in security expenses per year on a going-forward basis. It is, sadly, a fact that for- the foreseeable future PAWC will, each and every year, have to incur security costs to protect its facilities used in providing public utility service from potential terrorist attacks. These costs, like all of PAWC’s costs in providing public utility sendee, must be reasonably and prudently incurred, but if they are, they are recoverable from the ratepayers. These costs will recur on an annual basis for as far as anyone can presently predict into the future. To say that the deferred costs are nonrecurring, as they must be to qualify for rate recovery as an exception to the rule against retroactive ratemaking, would be totally illogical and inconsistent with the obviously recurring security costs claimed by PAWC for future years.
ALJ Recommended Decision at p. 32. For the foregoing reasons, I respectfully dissent.