[26 Pa.B. 5181]
[Continued from previous Web Page] Commissioners Present: John R. McGinley, Jr., Chairperson; Robert J. Harbison, III, Vice Chairperson; Arthur Coccodrilli; John F. Mizner; Irvin G. Zimmerman
Public meeting held
October 3, 1996State Registration Board for Professional Engineers, Land Surveyors and Geologists--General Revisions; Doc. No. 16A-473
Order On December 1, 1995, the Independent Regulatory Review Commission (Commission) received this proposed regulation from the State Registration Board for Professional Engineers, Land Surveyors and Geologists (Board). This rulemaking would amend 49 Pa. Code §§ 37.1, 37.18, 37.58, 37.59 and 37.81--37.83, and add new sections 37.36 and 37.37. The authority for this regulation is section 4(I) of the Engineer, Land Surveyor and Geologist Registration Law (Law) (63 P. S. § 150(I)). The proposed regulation was published in the December 16, 1995 Pennsylvania Bulletin with a 30-day public comment period. The final-form regulation was submitted to the Commission on September 13, 1996.
The basic purpose of this regulation is to implement Act 151 of 1992. This act transformed the State Registration Board for Professional Engineers and Professional Land Surveyors into the State Registration Board for Professional Engineers, Land Surveyors and Geologists. This regulation establishes the education and experience requirements for licensure of professional geologists.
Most of the changes are editorial in nature. In existing sections of 49 Pa. Code Chapter 37, the amendments are simple insertions of words such as ''geology,'' ''professional geologist,'' and ''Registered Professional Geologist'' in sections related to reactivation of licensure status, registration number and seal, and disciplinary process and conduct. The additions to the chapter include the design of a new authorized ''Commonwealth of Pennsylvania'' seal for use by a Registered Professional Geologist.
The proposal also adds two new sections, 49 Pa. Code §§ 37.36 and 37.37, which set forth the education and experience requirements for an applicant seeking to become a licensed geologist. An applicant needs to provide the Board with evidence of having graduated from an accredited institution with a major in geology, geophysics, geochemistry or engineering geology and a minimum of 30 semester or 45 quarter hours in these areas or their subdivisions. To fulfill the ''experience'' requirement, an applicant needs to have at least 5 years of experience in professional geological work. Both the ''education'' and ''experience'' requirements included details about excep-tions or alternatives for meeting the requirements. The regulation also adds two new terms, ''Professional geological work'' and ''Responsible position,'' to the existing definitions section at 49 Pa. Code § 37.1.
The Board contends that these amendments will have no negative fiscal impact on the Commonwealth, its political subdivisions or the general public.
During the proposed rulemaking stage, comments were submitted by Bryan J. McConnell of Cecil, Pennsylvania; Michael M. Ryan, P. E., Deputy Secretary for Highway Administration, Department of Transportation (DOT); and American Institute of Professional Geologists.
The Senate Consumer Protection and Professional Licensure Committee approved the final-form regulation on September 25, 1996. The House Professional Licensure Committee approved the regulation on October 1, 1996.
We have reviewed this regulation and find it to be in the public interest. The Board used our Comments on the proposed regulation to improve the regulation by clarifying terms, standards and procedures. For example the definition of ''professional geological work'' in the proposed regulation was unclear. The definition of this term is important because it delineates the types of experience required of an applicant to become a ''registered professional geologist'' in Pennsylvania. The definition of ''professional geological work'' in the proposed rulemaking excluded certain tasks beyond the tasks or types of work excluded by the specific language of the Law. We recommended that the additional language be deleted from the regulation. The Board made this revision in the final-form regulation and added new language which clarifies its intent and is consistent with the Law.
Another example of constructive revision is found in the Board's amendments to the regulation's reference requirements. The proposed regulation required an applicant to obtain references from professional geologists under whose direction the applicant had worked. The proposed regulation contained no exception to this rule even though the Law allows applicants to meet the experience requirement with 3 years of work under a qualified geologist or 5 years of work in a responsible position in geological work. We questioned whether an applicant with 5 years of independent work experience would be able to meet the reference requirement if he or she had never worked under the supervision of another geologist. The Board amended the regulation to allow applicants with 5 years of experience to use references who are not geologists.
Finally, the Board clarified another term, corrected a typographical error, and added a provision stating that it would notify an applicant when it decides to investigate the applicant's application. The outcome is that the Board has revised the regulation in a constructive fashion that serves the public interest by bringing the regulation into greater conformity with the Law.
Therefore, It Is Ordered That:
1. Regulation No. 16A-473 from the State Registration Board for Professional Engineers, Land Surveyors and Geologists, as submitted to the Commission on September 13, 1996, is approved; and
2. The Commission will transmit a copy of this Order to the Legislative Reference Bureau.
Commissioners Present: John R. McGinley, Jr., Chairperson-Dissenting; Robert J. Harbison, III, Vice Chairperson; Arthur Coccodrilli; John F. Mizner; Irvin G. Zimmerman-Dissenting
Public meeting held
October 3, 1996Pennsylvania Public Utility Commission--Taxicab Medallion Program; Doc. No. 57-153
Order On April 11, 1995, the Independent Regulatory Review Commission (Commission) received this proposed regulation from the Pennsylvania Public Utility Commission (PUC). This rulemaking would amend 52 Pa. Code Chapter 30 relating to the taxicab Medallion Program by revising sections pertaining to equipment and reporting requirements and by adding new enforcement and administrative provisions. The authority for this regulation is section 2404(a) of the act of April 4, 1990 (Medallion Act) (66 P. S. § 2404(a)) which directs the PUC to establish regulations pertaining to taxicab inspection and recording requirements in cities of the first class. The proposed regulation was published in the April 22, 1995 Pennsylvania Bulletin with a 30-day public comment period. The final-form regulation was submitted to the Commission on September 13, 1996.
The Philadelphia taxicab industry has undergone major changes due to the passage of the Medallion Act in 1990, and the implementation of the PUC's first regulation in 1991. As proposed, this regulation furthers the goals established within the Medallion Act and makes revisions as a result of the PUC's experience in regulating the taxi industry.
The PUC is proposing to amend section 30.31 relating to ''Vehicle Equipment Requirements'' to add a requirement for functioning door locks in a taxicab which will provide greater safety for the customer. This section also requires taxi meters to have a PUC seal on the meter at all times after the meter has passed an accuracy test. The regulation requires that if the seal becomes broken or damaged, the vehicle is to be removed from service immediately.
The regulation requires that the medallion number be permanently affixed to the sides of the taxicab. The PUC intends this requirement to eliminate magnetic or temporary markings which may be easily obscured or eliminated. In addition, this section prohibits the use of any in-vehicle device which alters the approved rate of a taxi meter. This provision is to protect customers from taxi drivers who overcharge customers with fare-increasing devices.
Section 30.33(c)(6) provides for the reinspection of a taxicab which has been placed out of service for safety violations by a PUC enforcement officer or a police officer employed by a city of the first class. If the vehicle does not comply with the PUC's safety requirements after inspection, the medallion will be removed and held by the PUC. A hearing is to be held within 10 days following the date of the removal of the medallion. This requirement is designed to increase taxicab safety by providing the PUC with an easy means of identifying taxicabs with known safety violations.
In the final-form regulation, the PUC added a section which specifies that fines for violations of this subchapter will range from $250 to $1,000. The PUC amended section 30.54(e) by providing the presiding officer (also known as the administrative law judge), instead of the parties, with the discretion to require proposed findings of fact and conclusions of law. This change would remedy an error in the original rulemaking and give effect to the original intent of this section. This section would also require a presiding officer to render a written decision within 30 days (rather than 25 days) after a hearing or receipt of any proposed findings of fact and conclusions of law. The extra 5 days are intended to provide additional time for completing the decision.
New language in section 30.72(j) provides for the disqualification of a taxi driver certificate applicant who fails to be truthful on the application. Applicants who knowingly lie on their applications will not be issued a taxi driver's certificate. Subsection (k) provides for the suspension and confiscation of a taxi driver's certificate if the certificate holder's driver's license has been suspended or revoked, the certificate has expired or the certificate holder has made a false statement on the certificate application which would impact upon the public health or safety. This provision is intended to protect customers by eliminating unfit taxicab drivers. In addition, the PUC added language to the final-form regulation which specifies that a hearing on the suspension will be held within 30 days of the date of suspension.
Section 30.74(a) requires the original taxi driver's certificate to be clearly displayed on the taxicab's protective shield. Furthermore, subsection (b) requires that the certificate not be mutilated, damaged or unreadable, and subsection (c) requires that only one taxi driver's certificate may be displayed at any one time. The purpose of these provisions is to allow the customer to be able to easily identify the taxi driver.
Section 30.75 requires fare schedules to be printed with letters and numbers at least half-an-inch in size to help eliminate unreadable fare schedules. Other changes to this section require taxi drivers to report a change of legal name or address within 15 days to improve the accuracy of the PUC's records.
Finally, section 30.76(e) provides that operation of a taxicab by an individual not holding a current and valid taxi driver's certificate may result in cancellation of the medallion holder's taxi driver's certificate or cancellation of the medallion holder's certificate of public convenience.
The House Consumer Affairs Committee commented on the proposed regulation and requested that the PUC include guidelines for fees imposed upon violation of the regulation. The PUC agreed to this request.
The Senate Consumer Protection and Professional Licensure Committee met and voted to approve the final-form regulation at a meeting held on September 25, 1996.
In our Comments, we recommended a number of revisions to the PUC in order to resolve conflicts in the proposed regulation with the provisions of the Medallion Act or to clarify the final-form regulation. In response, the PUC amended several sections of the final-form regulation by adding provisions for post-deprivation hearings to address some of our due process concerns as well as other amendments.
We have reviewed this regulation and find it to be in the public interest. The regulation is designed to benefit persons who use taxicab service by improving the condition and maintenance of vehicles in service, and streamlining regulatory enforcement by the PUC and local government enforcement officers. The public will benefit from the added safety features which will enhance responsibility and accountability on the part of the taxicab industry. The PUC will also benefit to the extent that the current regulation is clarified and will be better able to track taxi drivers.
Therefore, It Is Ordered That:
1. Regulation No. 57-153 from the Pennsylvania Public Utility Commission, as submitted to the Commission on September 13, 1996, is approved; and
2. The Commission will transmit a copy of this Order to the Legislative Reference Bureau.
Commissioners Present: John R. McGinley, Jr., Chairperson; Robert J. Harbison, III, Vice Chairperson; Arthur Coccodrilli; John F. Mizner; Irvin G. Zimmerman
Public meeting held
October 3, 1996Pennsylvania Public Utility Commission--Termination of Utility Service to Health Care Facilities; Doc. No. 57-173
Order On September 13, 1996, the Independent Regulatory Review Commission (Commission) received this regulation from the Pennsylvania Public Utility Commission (PUC). This rulemaking would add sections 55.101--55.115, relating to termination of utility service to health care facilities, to 52 Pa. Code Chapter 55. The authority for this regulation is contained in sections 501, 1501 and 1504 of the Public Utility Code (66 Pa.C.S. §§ 501, 1501 and 1504). Notice of proposed rulemaking was omitted for this regulation; it will become effective upon publication in the Pennsylvania Bulletin.
This regulation mandates that utilities provide advance notice to health care facilities before they terminate service to such a facility. The regulation contains a two-tiered system of providing notice of termination to health care facilities. First, section 55.104 requires a utility to send a service termination notice to a health care facility at least 37 days before terminating service. The utility is also required to send a copy of the termination notice to the agency which issued the license or certificate for the facility and the PUC's Bureau of Consumer Services. Second, a utility may not terminate service without personally contacting the facility's administrator or an individual designated by the facility.
To identify existing utility customers that are health care facilities, the PUC's Bureau of Consumer Services will obtain listings of licensees that match the regulation's definition of health care facilities from the Departments of Aging (Aging), Health (Health) and Public Welfare (DPW). The utilities will use these lists to identify customers that are health care facilities and to assure compliance with this regulation. When initiating service with a new nonresidential customer, each utility will ascertain whether the applicant is a health care facility and code its records to insure compliance with this regulation. The utility may ask the facility for a copy of its license from Aging, Health or DPW. The health care facility must provide this documentation within 10 days of the utility's request.
The costs imposed on the utilities by this regulation are minimal. There will be a ''one-time'' cost to the utilities for processing the lists of currently licensed facilities provided by Aging, Health and DPW, and using the lists to identify customers as health care facilities. The PUC, Aging, Health and DPW claim that this regulation will impose no additional costs on the Commonwealth.
The PUC claims this regulation may cut costs by reducing the number of emergency situations created by a pending termination of utility service to a health care facility that places facility patients at risk. Under existing rules, utilities need only give 3 days notice to health care facilities before terminating service. The existing rules can lead to crisis situations when patients or residents need to be quickly relocated. These situations often require diverting public and private staffs from other duties, and compel expedient solutions that include additional financial burdens and overtime costs. An orderly procedure with ample notice will foster a smooth and less costly resolution to service termination, and transfer and relocation of patients or residents.
The Senate Consumer Protection and Professional Licensure Committee approved this regulation on September 25, 1996. We also received letters of support for this regulation from the Hospital Association of Pennsylvania and DPW, and additional comments from Aging and Health.
We have reviewed this regulation and find it to be in the public interest. This regulation is a revised version of Regulation # 57-120. Regulation # 57-120 was disapproved by this Commission on May 24, 1995. This version of the regulation contains revisions which address the concerns expressed by the House Consumer Affairs Committee (House Committee) and this Commission with the previous regulation in May 1995. These revisions are the result of a compromise drafted by the PUC staff and based on comments and suggestions from representatives from the utilities, health care associations, House Committee staff, and Aging, Health and DPW staffs. All participants in this process are to be commended for their diligence in working toward a feasible regulation that serves the public interest.
This compromise addresses two primary concerns identified by the House Committee and this Commission. Last year's final-form version of Regulation # 57-120 contained a provision that would have required a utility to ''conspicuously post a written notice of termination'' at a health care facility that is scheduled for service termination in 10 days. Both the House Committee and the Commission stated that this requirement was duplicative and unnecessary since utilities were required to personally contact a designated individual at the health care facility as well as the agency which licensed the facility and the PUC Bureau of Consumer Services. In response to these concerns, the PUC removed the 10-day posting requirement from the current version of this regulation.
In addition, the House Committee and utilities opposed provisions in the previous regulation that required utilities to contact their current customers who were identified as health care facilities on the lists of licensees provided by Aging, Health and DPW. Through this contract, utilities would request that each existing facility in their service areas designate an individual to serve as the first point of contact for delivery of a notice of termination. The House Committee suggested that this requirement was unnecessary and excessively burdensome. With the agreement of the utilities and House Committee staff, and with help from representatives from the health care associations, the PUC developed a compromise whereby the utilities would use the listings of licensees from Aging, Health and DPW to identify customers who were health care facilities without any requirement to contact current customers. The departmental listings include the name of an administrator or responsible person at a health care facility. Utilities would list this person in their records as the ''designated individual'' who would be given the advance notice of termination. This compromise is now a part of the current regulation.
The final product represents a compromise that places little to no significant burdens on utilities while still realizing the objectives of the original regulation. The protection provided by this regulation is very important for patients or residents of health care facilities. These people are more vulnerable and less able to react to utility service termination than able-bodied residents of apartment complexes or other dwellings. Given the recent history of rapid change and inflation in health care costs, the financial solvency of health care facilities is subject to continuing stress. If facilities are unable to pay their bills, this regulation will provide additional time for resolving financial difficulties or the transfer of patients and residents to other suitable facilities.
Therefore, It Is Ordered That:
1. Regulation No. 57-173 from the Pennsylvania Public Utility Commission, as submitted to the Commission on September 13, 1996, is approved; and
2. The Commission will transmit a copy of this Order to the Legislative Reference Bureau.
Commissioners Present: John R. McGinley, Jr., Chairperson; Robert J. Harbison, III, Vice Chairperson; Arthur Coccodrilli; John F. Mizner; Irvin G. Zimmerman
Public meeting held
October 3, 1996Pennsylvania Public Utility Commission--Small Water and Sewer Company Rate Methodologies; Doc. No. 57-149
Order On August 30, 1994, the Independent Regulatory Review Commission (Commission) received this proposed regulation from the Pennsylvania Public Utility Commission (PUC). This rulemaking would amend 52 Pa. Code Chapter 53. The authority for this regulation is contained in sections 1301, 1305, 1307 and 1311 of the Public Utility Code. The proposed regulation was published in the September 10, 1994 edition of the Pennsylvania Bulletin with a 45-day public comment period. The final-form regulation was submitted to the Commission on September 13, 1996.
The PUC is proposing this rulemaking to assist small water and wastewater utilities in the Commonwealth. The PUC observes that many of these small utilities are presently and unjustifiably unable to obtain the needed rate relief under a rate base/rate of return ratemaking model. Additionally, the PUC claims that many small water utilities are financially unable to comply with recent State and Federal safe drinking water regulations. Therefore, the PUC is proposing four specific provisions that it believes will solve these problems.
First, the PUC is proposing to allow small water and wastewater utilities to establish their rates based upon an operating ratio methodology, instead of the traditional rate base/rate of return methodology. The PUC believes that an operating ratio will allow the utilities to establish rates that are more sufficient because many small utilities have limited capital investment. The operating ratio is calculated as a ratio of operating expenses to operating revenues, with the PUC determining the target ratio.
The second substantive change is allowing small water and wastewater companies to establish an emergency maintenance and operation fund (emergency fund). The purpose of this fund is to pay for extraordinary repairs and maintenance because of drought conditions, environmental and physical damages, floods, storms, freeze-ups, or other health and welfare threatening situations. The amount in this fund may not exceed 45 days of the average operating expenses, excluding taxes and depreciation.
The third provision in the regulation would permit the establishment of a reserve account. The reserve account will be a segregated account to be funded by customer contributions collected through base rates for the purpose of making future capital improvements to a utility's plant pursuant to a long range plan developed in conjunction either with the PUC or the Department of Environmental Protection (DEP). The amounts to be allocated to the reserve account will be determined by the Commission after review of the utility's proposed capital budget and the justification for that budget.
The final major provision of the regulation will allow a water utility to establish a sliding scale of rates, upon 60 days notice to customers, to recover the cost of purchased water obtained from municipal authorities.
On September 25, 1996, the Senate Consumer Affairs and Professional Licensure Committee approved the final-form rulemaking.
We submitted detailed comments expressing concern with the legality of the PUC establishing the emergency fund and the reserve account, as well as the appropriateness of the operating ratio. The PUC did not make any changes to the regulation in response to our Comments or those of other commentators. As we will discuss, our concerns remain with the rulemaking.
During the proposed rulemaking stage, the OCA commented that the PUC does not have the authority to establish the emergency fund because it would enable small water and wastewater utilities to violate sound regulatory policy by permitting these companies to charge for contingencies which may never occur. Similarly, both the OCA and the PUC's Office of Trial Staff (OTS) commented that the reserve accounts violate section 1315 of the Public Utility Code because the regulation would allow a utility to collect, through rates, revenues to be used for capital improvements before capital improvements are ''used and useful.'' They note that the Supreme Court has held, in Barasch v. Pa. PUC (Barasch) 532 A.2d 325 (Pa. 1987), that a utility may not base rates on future capital projects.
In our Comments, we agreed with the OCA's and OTS's position on this issue. In reviewing the decision in Barasch, we believe the OTS and the OCA have raised a legitimate legal concern. In Barasch, the OCA objected to the PUC allowing utilities to recover the cost of obtaining land and capital for the construction of nuclear plants, which were subsequently canceled. The court, agreeing with the OCA, stated:
We therefore hold that section 1315 of the Code must be read as prohibiting an electric utility from recovering the costs of canceled plants from ratepayers, either by making such costs part of its rate base or by converting them into operating expenses through amortization. . . . One of the cardinal principles of this state's public utility law is that, in the setting of rates for services to the public, a utility company is entitled to a return only on such of its property as is used and useful in the public service. . . . Given what we have already said about the fundamental principle of this state's public utility jurisdiction, it should be clear that no utility of any type is permitted, without express and valid legislative authorization, to charge ratepayers for property which is not used and useful in the production of current utility service. (Emphasis added)In a subsequent Commonwealth Court case, Staffaronei v. Pa. PUC, 562 A.2d 414 (Pa. Cmwlth. 1989) the OCA objected to the PUC including the principal and interest of a loan obtained by a water company. The OCA observed that the loan was not used by the water utility to provide water service to ratepayers. The OCA argued that the PUC could not include this loan in establishing rates because it was not used for purposes directly related to providing services to ratepayers and therefore contradicted the Supreme Court's decision in Barasch. The PUC argued that the decision in Barasch applied only to electric utilities and not water utilities.
The Commonwealth Court disagreed with the PUC's assertion that the Barasch decision did not apply to water companies. The court stated:
It is clear that Barasch first is a restatement in case law of the long held premise that property owned by a utility may not be included in its rate base unless it is used and useful in the public service . . . The court next made it clear that the used and useful principle applies to all Pennsylvania public utilities, not merely the electric utilities that were parties to Barasch.In our Comments, we observed that the establishment of the emergency fund and the reserve account would allow a water utility to base part of its rates for the purpose of funding future projects that the utility may need to provide service in the future. In essence, ratepayers would be asked to pay for projects that may never be implemented or when a project is completed, a ratepayer who contributed to the fund may no longer be a customer of the utility. Therefore, we recommended the PUC delete the provisions relating to the reserve account and the emergency account.
The PUC did not adopt our recommendation. The PUC's response only discusses its belief that it had the legal authority to establish an emergency fund; it did not discuss the legality of the reserve account. With respect to the emergency fund, the PUC believes that it is clearly ''use and useful'' in that it provides a reserve for coping with emergencies in a manner similar to insurance. The PUC justifies the legality of the emergency fund by comparing it to contributions in aid of construction, which are legal. Finally, at the Commission's October 3, 1996 public meeting, the PUC asserted that a September 19, 1995 Pennsylvania Supreme Court decision, Papowsky v. Pennsylvania Public Utility Commission et. al., 665 A.2d 808 (Pa. 1994) distinguished Barasch and supports the legality of the reserve account and the emergency fund.
We disagree with the PUC's response. First, the PUC's assertion that the emergency fund is ''use and useful'' because it provides a reserve for emergencies ignores the Barasch decision that states ''. . . no utility of any type is permitted, without express and valid legislative authorization, to charge ratepayers for property which is not used and useful in the production of current utility service'' (emphasis added). We believe the decision is clear that revenues generated from rates may only be used for current utility services. Since the revenues placed in the emergency fund (as well as the reserve account) will not be used for current utility service, but for an unknown future project, it contradicts the holding in the Barasch decision.
Second, we believe the PUC's comparison of the emergency fund to contributions in aid of construction to be inappropriate. Contributions in aid of construction are contributions a ratepayer makes to a utility for a specific utility service, such as extending water lines to a secluded home. In this instance, the customer will directly be using and benefiting from the utility service. In contrast, the emergency fund and reserve fund will pay for future projects that may not be used by the ratepayers who contributed to the fund.
Finally, we disagree with the PUC's assertion that the Supreme Court's decision in Popowsky limits the Barasch decision on this rulemaking. In Popowsky, the court was considering whether the PUC could base rates, in part, on the cost associated with the decommissioning of a nuclear plant. The court ruled that the PUC could include these costs because it is reasonably anticipated that the utility will have to incur the costs with decommissioning the nuclear plant under Federal law. However, the Popowsky decision distinguished between property that has been use and useful in the actual production of utility service and that property that was or has not been placed into service. Specifically, the Supreme Court in Popowsky stated the following:
While Barasch and Penelec bar a utility from earning an investment return on property that is not used and useful, and protect ratepayers from being charged for property that was never placed in service, neither prevents expenses related to properties that were previously in service from being charged to ratepayers where a balance of consumer and investor interests make it just and reasonable to do so. (emphasis added)We believe the distinction between something that may never be used and that which has been used in the production of utility service is important to this rulemaking. Specifically, the emergency fund and reserve account are for potential future projects and are not comparable to the costs associated with removing a facility that has provided utility service. Since the revenues placed into the emergency fund and reserve account will be for projects that may occur at some point in the future or not at all, we do not believe the Popowsky decision either limits the application of Barasch to this proposal nor supports the creation of these two funds.
Therefore, for the reasons stated we continue to believe the PUC lacks the necessary authority to allow utilities to create either the emergency fund or the reserve account and recommended they both be deleted from the rulemaking.
Our second concern is with the lack of justification for the use of an operating ratio. Our Comments expressed concern with the economic basis of using an operating ratio. Specifically, we questioned how the use of an operating ratio will insure that a small water or wastewater company will invest the capital necessary to improve its water system or comply with new State and Federal regulations. Although the use of an operating ratio may result in increased revenues, we noted that there were no guarantees that the company will use the increased revenues for capital improvements. We also noted that the PUC had asked commentators to address the questions of whether there was any economic or financial theory that supports the use of an operating ratio for these types of utilities or if it will discourage utility management from operating efficiently. In our Comments, we agreed these were legitimate questions, but also believed the PUC has the duty to answer these questions to justify the use of an operating ratio.
The PUC did not directly respond to our questions on the rationale for using an operating ratio. Instead, the PUC stated that their goal remains, under any ratemaking methodology, to set just and reasonable rates and that it cannot make the ratemaking process so arduous and expensive that small companies cannot obtain the rate relief to which they are otherwise entitled. The PUC believes that the current costs associated with filing a revision to a tariff under a rate base/rate of return system are cost prohibitive. The PUC believes that the use of an operating ratio will decrease these costs.
We continue to question the appropriateness of the use of an operating ratio for small water and wastewater utilities. First, the PUC still has not shown that there is any economic or financial theory that supports the use of an operating ratio for water utilities or demonstrate that it will encourage the utilities to upgrade their system. Second, while we understand the PUC's concern that the current ratemaking system may be too cost prohibitive for a small water or wastewater utility, we believe that the costs of filing a new rate case will still be significant with an operating ratio. Specifically, the questions on what are the utility's legitimate and reasonable operating expenses will remain and arguments over what constitutes a reasonable rate of return will be replaced with debates as to what is the appropriate target ratio. If the current ratemaking process is too costly for small water utilities and wastewater utilities, perhaps the PUC should consider amending their internal processes for these ratemaking processes instead of proposing to use an unproven rate methodology.
Finally, in our Comments we expressed concern with the proposal that would not allow a water utility to recover all costs associated with an increase in their purchased water costs. Specifically, a utility using a purchased water cost adjustment must pass the entire amount of any reduction in purchase water costs to its ratepayers. However, if purchased water costs increase, the utility may only collect increases prospectively from the date it files for an increase, not the date of the increase when the purchased water costs occurred. Depending on the amount of notice the utility receives, this could result in a utility not being able to recover a significant portion of all its costs. This could create additional problems for small utilities which, in theory, these regulations have been promulgated to help. Therefore, we recommended that this provision be revised to allow utilities to recover all increases in purchased water costs.
The PUC responded that our observation was correct that a utility may not be able to collect all of its increased cost. However, the PUC did not amend the regulation to allow for a utility to collect for the increased costs. The PUC believes that the provision prevents companies from attempting to ''net out'' cost increases and decreases by delaying the reporting of purchased water cost decreases until later increases have netted out the difference.
We disagree with the PUC's response. First, we do not believe the PUC should be crafting a regulation based upon the assumption that a utility will not act in a responsible manner. If the intent of the regulation is to provide relief for small water utilities, than the PUC should allow these companies to recoup all increased purchased water costs. Second, a water company may not have notice of the increase cost of water and would be unable to file a revision to its tariff until after the price increase. Therefore, we continue to believe the regulation should allow the water utility to collect all increases in purchased water costs.
We have reviewed this regulation and find it not to be in the public interest. We believe the PUC lacks the necessary authority to allow water utilities and wastewater utilities to establish either the emergency fund or the reserve account because they violate the used and useful clause in section 1315 of the Public Utility Code. In addition, we believe that the PUC has not provided adequate justification that demonstrates the use of an operating ratio will help resolve the current financial problems facing small water and wastewater utilities. Finally, we believe the regulation should allow a water utility to collect all costs associated with a purchased water increase.
Therefore, It Is Ordered That:
1. Regulation No. 57-149 from the Pennsylvania Public Utility Commission, as submitted to the Commission on September 13, 1996, is disapproved;
2. The Pennsylvania Public Utility Commission shall, within 7 days of receipt of this Order, notify the Governor, the designated Standing Committees of the House of Representatives and the Senate, and the Commission of its intention to either proceed with the promulgation of the regulation without revisions, to revise the regulation, or to withdraw the regulation. Failure to submit notification within the 7-day period shall constitute withdrawal of the regulation;
3. The Commission will transmit a copy of this Order to the Legislative Reference Bureau; and
4. This Order constitutes a bar to final publication of Regulation No. 57-149 under section 6(b) of the Regulatory Review Act (71 P. S. § 745.6(b)).
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