Pennsylvania public utility commission

East Conemaugh Borough. Docket No. C-00015095

The Borough claims that the requested increase reneges on the promise to keep a cap on electric power costs until 2010 and urges the Commission to reject the increase. Attached to the Complaint are two newspaper articles about the Borough’s opposition to the increase and a petition, containing 414 signatures, opposing the rate increase request and urging the Commission to keep the cap on electric rates to protect the consumers.

C. APPLICABLE LEGAL STANDARD

In its Order on Certification of a Material Question of February 1, 2001 (February 1 Order), the Commission directed GPU Energy to perfect their filings to address the mandatory language of Section 2804(4)(iii)(D) of the Act, 66 Pa. C.S. §2804(4)(iii)(D), relating to the price of purchased power that is beyond the control of the utility and which would deny the utility the opportunity to earn a fair rate of return without an increase in rates. In its Order on Reconsideration, entered February 21, 2001, the Commission clarified its February 1 Order in response to GPU Energy’s claim that the Commission was wrong to convert the request for a deferral into a request for a rate cap exception. The Commission stated as follows:

The Commission did not convert the request for a deferral into a request for a rate cap exception. Rather, the Commission recognized that by seeking approval to recover amounts above the existing caps for service rendered now through a mechanism designed to defer collection of those amounts until a later time, the Companies are effectively seeking permission to exceed the rate caps.
Order at 4. Later in the Order, the Commission stated:
We continue to believe that it is necessary for the Companies to meet the requirements of the Act before they can be permitted to recover, in whatever form, rates in excess of the rate caps. The Petitions were predicated on our issuing a “final order that insures the ultimate recovery of all net costs….” Petitions, p. 10. We believe that those parties opposing the Petitions were correct in pointing out that it was necessary for the Companies to comply with that portion of the Act relating to exceptions to the rate cap. This represents the Companies’ threshold burden of proof. Therefore, we will clarify that the Companies must meet the requirements of the Act regarding rate cap exceptions for either present or deferred recovery of rates which exceed the rate cap for service rendered during the rate cap.
Order at 5. (emphasis added)
Section 2804(4)(iii)(D) provides as follows:
(iii) An electric distribution utility may seek, and the commission may approve, an exception to the [rate cap] limitations....only in any of the following circumstances:

* * *

(D) The electric distribution utility is subject to significant increases in the unit rate of fuel for utility generation or the price of purchased power that are outside of the control of the utility and that would not allow the utility to earn a fair rate of return.
This is the legal standard to be applied in this proceeding.
To determine if increases in the rate of fuel for utility generation or the price of purchased power were outside of GPU Energy’s control, it is necessary to review GPU Energy’s PLR procurement program and determine if it was reasonable. This requires hindsight. The Commission, however, must assess the reasonableness of a utility’s decision-making based upon the state of information available when decisions had to be made and without reliance on hindsight. See Pennsylvania Public Utility Commission v. Philadelphia Electric Company, 71 Pa. PUC 42, 1989, Pa. PUC LEXIS 188 (December 7, 1989).
In a Commission prudence review, utility actions must be based upon facts known or information available at the time a decision is made. “Prudence” is that standard of care which a reasonable person would be expected to exercise under the same circumstances encountered by utility management at the time a decision has to be made. In determining whether a judgment was prudently made, only those facts available at the time the judgment was exercised can be considered. Hindsight review is impermissible. See Re: Salem Nuclear Generating Station, 60 Pa. PUC 249, 70 PUR 4^th 568, 574 (1985).

During the years it reviewed claims for nuclear plant disallowances allegedly resulting from cost overruns, the Commission developed a series of principles used in applying its prudence standard. These principles apply to this case. In Pennsylvania Public Utility Commission v. Philadelphia Electric Company, Docket Nos. C-860693 and C-860703 (July 18, 1988), the Commission applied the following criteria when addressing prudence issues:

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  An analysis of the prudence standard starts with the principle that a public utility is entitled to recover all of its reasonably incurred expenses.
  

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  The Commission cannot deny recovery of an expense absent an affirmative finding, based upon record evidence, that the utility's management abused its discretion.
  

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  In determining whether utility management has abused its discretion, the Commission must employ a reasonable person standard.
  

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  The reasonableness of the utility's management decision-making must be based upon the state of information available at the time the decision has to be made and without reliance upon after-discovered facts or hindsight.
  

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  The events beyond the ability of a utility to foresee or control cannot serve as a basis for a finding of imprudence.
  

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  Reliance upon perfect action is contrary to proper application of the prudence standard.
  

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  Even if imprudence is found, a cost disallowance cannot be justified unless the utility's imprudent conduct was the real and proximate cause of some injury to customers.
  

These principles apply to a review of the strategy GPU Energy followed for power purchases to meet its PLR obligation.