Please note that PSC Regulation Docket No. 4 was initially proposed on July 1, 1998 (2 DE Reg. 81 (7/1/98)). The regulation was subsequently re-proposed on April 1, 1999 (2 DE Reg. 1741 4/1/99). The following is the second re-proposal of Regulation Docket No. 4.
In the Matter of the Regulation |
Establishing the Minimum Filing |
Requirements for All Regulated | PSC Regulation
Companies Subject to the | Docket No. 4
Jurisdiction of the Public Service |
Commission (Reopened May 26, 1999 ) |
Regulation Docket No. 4, Establishing the Minimum Filing Requirements for All Regulated Companies Subject to the Jurisdiction of the Public Service Commission
Order No. 5349
AND NOW, this 8th day of February, 2000, the Commission having considered the briefs, statements of position, evidence, and testimony submitted to the Hearing Examiner; the Report of the Hearing Examiner dated November 30, 1999; the exceptions thereto filed by Chesapeake Utilities Corporation ("Chesapeake") and Delmarva Power & Light Company ("Delmarva") on December 22, 1999; and the oral argument presented by Chesapeake, Delmarva, Staff, and the Division of the Public Advocate on January 11, 2000;
IT IS ORDERED THAT:
1. As and for its summary of the evidence pursuant to 29 Del. C. § 10128(b)(1), the Commission incorporates by reference the "Appearances," "Background," and "Summary of the Record and Discussion" sections (sections I through III) of the Report of the Hearing Examiner herein dated November 30, 1999.
2. Pursuant to 29 Del. C. § 10128(b), the Commission adopts the following findings of fact and conclusions of law.
3. Part "A", Section I(C). Staff proposed changes to this section of the Minimum Filing Requirements ("MFRs") for the principal purpose of curtailing the alleged practice, by some utilities, of modifying test period data late in the rate review process. With one nonsubstantive exception, the Hearing Examiner recommended the adoption of Staff's proposal in its entirety.
4. The Commission adopts the Hearing Examiner's recommendation, but directs Staff to propose additional language that will vest in the Hearing Examiner the discretion to permit utilities to offer modifications in evidence simultaneously with the filing of rebuttal evidence, where extraordinary circumstances and the interests of justice so warrant.
5. Parts "A" and "B", Section I(E). This section addresses Staff's review of rate increase applications for compliance with the MFRs, and the consequences of noncompliance. Staff proposed that it be changed to permit Staff to reject defective applications where the defects are "so numerous or serious as to materially impair Staff's timely review of the application . . . ." Delmarva, Chesapeake, and others opposed Staff's proposal on due process and other grounds.
6. The Hearing Examiner rejected Staff's proposal, concluding that because "Staff is akin to a party prosecutor in all rate proceedings[,]" it would be unfair to permit Staff to reject rate applications on its own discretion. Report of the Hearing Examiner at ¶36. The Hearing Examiner agreed with Staff, however, that an amendment to this section is needed to allow Staff "sufficient time to fully review and investigate all of the complexities that are so typical of rate cases." Id. at ¶38. Accordingly, the Hearing Examiner recommended changes to this section that were (in large part) similar to those proposed by Staff, but which did not confer discretion on Staff to reject defective applications under any circumstances.
7. The Hearing Examiner's recommendation also added a new feature to the debate: It effectively provided that no rate application would be deemed finally filed with the Commission (for the purposes contemplated under the Public Utilities Act) until the completion by Staff of a review-and-notification process. Under the terms proposed by the Hearing Examiner, that process could take as long as fifteen days for nondefective applications, and as long as thirty days for defective applications.
8. Chesapeake and Delmarva took exception to the Hearing Examiner's recommendation, arguing (for example) that a nondefective application should be deemed filed ab initio. Chesapeake and Delmarva similarly alleged unfairness in the prospect that an application with only minor defects might be deemed filed a full thirty days after its actual filing date.
9. The Commission concludes that the Hearing Examiner's recommendation should be modified in two respects. First, nondefective applications should be deemed filed as of the date of their actual, initial filing. Second, where an application suffers from only minor defects, the presence of such defects should not affect the date on which it is deemed filed. Staff is directed to propose new language that will effect these modifications.
10. Effect of new proposals. The Commission finds that the new language Staff is herewith directed to draft will reflect substantive changes from its earlier proposals, and so constitute new proposals within the meaning of 29 Del. C. § 10118(c). Staff represents that these new proposals are as set forth in the notice attached hereto as Exhibit "A."
11. The Secretary of the Commission shall transmit to the Registrar of Regulations for publication in the Delaware Register the notice attached hereto as Exhibit "A."
12. The Secretary of the Commission shall cause the notice attached hereto as Exhibit "A" to be published in The News Journal and Delaware State News newspapers on or before March 1, 2000.
13. The Secretary shall cause the notice attached hereto as Exhibit "A" to be sent by U.S. mail to all public utilities who currently file rate applications under Parts "A" and "B" of the Minimum Filing Requirements for All Regulated Companies Subject to the Jurisdiction of the Commission, and all persons who have made timely written requests for advance notice of the Commission's regulation-making proceedings.
14. John S. Spadaro, Esquire, is designated Staff Coumsel for this matter.
15. The public utilities regulated by the Commission are notified that they may be charged for the cost of this proceeding under 21 Del. C. § 114.
16. Report of the Hearing Examiner generally. The Commission adopts the recommendations set forth in the Report of the Hearing Examiner dated November 30, 1999, except as modified above. A copy of the Report of the Hearing Examiner is attached as Exhibit "B."
17. The Commission retains jurisdiction in this matter, including the authority to make such further Orders as may be just or proper.
BY ORDER OF THE COMMISSION:
Robert J. McMahon, Chairman
Joshua M. Twilley, Vice Chairman
Arnetta McRae, Commissioner
Donald J. Puglisi, Commissioner
ATTEST:
Karen J. Nickerson, Secretary
Exhibit "A"
In the Matter of the Regulation |
Establishing the Minimum Filing |
Requirements for All Regulated | PSC Regulation
Companies Subject to the | Docket No. 4
Jurisdiction of the Public Service |
Commission (Reopened May 26, 1999 ) |
Notice of Comment Period on Proposed Changes and Amendments to Minimum Filing Requirements
In 1981, the Delaware Public Service Commission (the "Commission" or "PSC") adopted its Minimum Filing Requirements for general rate increase applications. These requirements, which were last modified in 1984, govern the filing and content of rate increase applications made by utilities under the Commission's jurisdiction.
Rate increase applications submitted to the Commission are reviewed and evaluated by the Commission's Technical Staff for the justness and reasonableness of the rates proposed. Acting on proposals made by Staff, the Commission recently approved certain changes to the Minimum Filing Requirements. These changes are intended to increase the efficiency of the rate review process.
In the course of considering Staff's proposals, the Commission determined that certain proposals should be modified and published for further public comment and review. The text of the affected provisions is reproduced in its present form below, along with the proposed modifications for each:
1. Part "A," Section I(C) of the Minimum Filing Requirements governs the filing of direct testimony and supporting exhibits, as well as the modification of test period data.1 It now reads: "Prepared direct testimony and supporting exhibits must be filed coincident with the filing of the applications for rate relief. This filing requirement shall not prohibit the utility from subsequently submitting further testimony and exhibits in a timely fashion as necessary or proper to address issues raised during investigation of the application; nor shall it (or B.2., above) prohibit the utility from also proffering an exhibit or exhibits in the form of a fully projected test period (in addition to the test period described in I.B.2 above), provided: (1) such period shall consist of twelve consecutive months ending not later than the end of the first year during which the proposed rates are to become effective; (2) it is supported by relevant testimony establishing a verifiable link between the test period defined in Section B.2. and the projected test period; and (3) it is in format consistent with such test period. Modifications in test period data occasioned by reasonably known and measurable changes in current or future rate base items, expenses (i.e., labor costs, tax expenses, insurance, etc.) or revenues may be offered in evidence by the utility up until the time the utility files its rebuttal testimony." It is proposed that the last sentence of this section be deleted in favor of the following:
Modifications in test period data occasioned by reasonably known and measurable changes in current or future rate base items, expenses (i.e., labor costs, tax expenses, insurance, etc.) or revenues may be offered in evidence by the utility at any time prior to its filing of rebuttal evidence; provided, however, that if any party makes timely objection to the proffered modifications, such objections shall be promptly presented to the Hearing Examiner for a decision on due consideration of the parties' respective positions. For purposes of this Section I(C), an objection shall be timely if made within five (5) business days of the utility's proffer of modifications.
Notwithstanding anything to the contrary in this Section I(C), the Commission, Presiding Officer, or Hearing Examiner may permit the utility to offer in evidence the modifications contemplated hereunder simultaneously with the filing of rebuttal evidence, where extraordinary circumstances and the interests of justice so warrant.
2. Part "A," Section I(E) of the Minimum Filing Requirements addresses Staff's review of rate increase applications for compliance with the Minimum Filing Requirements, and the penalties for noncompliance. This section now reads: "The Commission Staff will review all filings for compliance with the format and instructions furnished herein and notify the utility within 30 days after the date of filing of any defects in compliance. The utility, after such notification by the Commission Staff, will then have 30 days to correct these defects. If such defects are not corrected, the Commission may reject a utility's rate application for non-compliance with the Minimum Filing Requirements." It is proposed that this section be modified to read as follows:
The Commission Staff will review all filings for compliance with the format and instructions furnished herein and, within fifteen (15) days after the date of filing, specifically identifyany noncompliance with such format and instructions, and immediately request the Commission's Secretary to promptly notify the utility of the alleged defects in compliance. Following such notification by the Commission's Secretary, the utility shall have fifteen (15) days within which to correct the alleged defects; and only upon the utility's filing of the corrected application shall such application be deemed filed with the Commission for the purposes contemplated under the PublicUtilities Act. In the event the alleged defects are not corrected within the time provided hereunder, Staff may move the Commission to reject the utility's application for non-compliance with these Minimum Filing Requirements.
Nothing in this Section I(E) shall prevent a utility from filing an application in draft form for Staff's informal review and approval without prejudice, such informal review and approval not to be unreasonably withheld by Staff; nor shall this Section I(E) affect or delay the filing date, for the purposes contemplated under the Public Utilities Act, of rate applications that comply with the format and instructions furnished herein, or whose noncompliance with such format and instructions is deemed minor by the Commission or its Staff.
3. Part "B," Section I(E) of the Minimum Filing Requirements is identical in terms to the corresponding section within Part "A." Accordingly, it is proposed that identical changes be made to this section as are proposed for the corresponding section within Part "A."
The Commission has authority to issue such rules, and to effect the proposed changes and additions, under 26 Del. C. §209(a).
The Commission hereby solicits written comments, suggestions, compilations of data, briefs, or other written materials concerning Staff's proposed changes and additions to the Minimum Filing Requirements. Ten (10) copies of such materials shall be filed with the Commission at its office located at 861 Silver Lake Boulevard, Cannon Building, Suite 100, Dover, Delaware 19904. All such materials shall be filed on or before March 31, 2000.
In addition, the Commission will conduct a public hearing concerning the proposed changes on Tuesday, April 11, 2000, beginning at 1:00 PM. The public hearing will be held at the Commission's Dover office, located at the address set forth above. Interested persons may present comments, evidence, testimony, and other materials at that public hearing.
The Minimum Filing Requirements, the proposed changes to the same, and the materials submitted in connection therewith will be available for public inspection and copying at the Commission's Dover office during normal business hours. The fee for copying is $0.25 per page.
Any individual with disabilities who wishes to participate in these proceedings should contact the Commission to discuss any auxiliary aids or services needed to facilitate such review or participation. Such contact may be in person, by writing, telephonically, by use of the Telecommunications Relay Service, or otherwise. The Commission's toll-free telephone number is (800) 282-8574. Persons with questions concerning this application may contact the Commission's Secretary, Karen J. Nickerson, by either Text Telephone ("TT") or by regular telephone at (302) 739-4333 or by e-mail at knickerson@state.de.us.
Exhibit "B"
In the Matter of the Regulation |
Establishing the Minimum Filing |
Requirements for All Regulated | PSC Regulation Companies Subject to the | Docket No. 4
Jurisdiction of the Public Service |
Commission |
Report of the Hearing Examiner
Dated: November 30, 1999
G. Arthur Padmore, Hearing Examiner
G. Arthur Padmore, duly appointed Hearing Examiner in this Docket pursuant to 26 Del. C. §502 and 29 Del. C. Ch. 101, by Commission Orders No. 4805 and 5051, respectively dated May 26, 1998 and March 23, 1999, reports to the Commission as follows:
I. APPEARANCES
On behalf of Artesian Water Company (“Artesian”): MORRIS, NICHOLS, ARSHT & TUNNELL
BY: MICHAEL HOUGHTON, ESQUIRE
On behalf of Chesapeake Utilities Corporation (“Chesapeake”): SCHMITTINGER & RODRIGUEZ
BY: WILLIAM A. DENMAN, ESQUIRE
On behalf of the Division of the Public Advocate (“DPA”): PATRICIA A. STOWELL, The Public Advocate
On behalf of Delmarva Power & Light Company (“Delmarva): RANDALL V. GRIFFIN, ESQUIRE, Delmarva Power & Light Company
On behalf of United Water Delaware (“UWD”): THE BAYARD FIRM
BY: WILLIAM D. BAILEY, JR., ESQUIRE
On behalf the Public Service Commission Staff (“Staff”): MURPHY, SPADARO & LANDON
BY: JOHN S. SPADARO, ESQUIRE
II. BACKGROUND
1. In 1981, the Public Service Commission of Delaware (the “Commission” or “PSC”) adopted “Minimum Filing Requirements For General Rate Increase Applications” (“MFR” or “requirements”). These requirements, which were last modified in 1984, govern the filing and content of rate increase applications made by utilities subject to the Commission’s jurisdiction. Rate increase applications submitted to the Commission are reviewed and evaluated by the Commission’s Staff for the justness and reasonableness of the rates proposed.
2. By memorandum dated May 22, 1998, the Commission’s Staff proposed that the Commission implement certain changes and additions to the MFR that would purportedly increase the procedural and practical efficiency of the Staff’s oversight of the ratemaking process, as well as lessen the administrative burdens related thereto.
3. In response to the Staff proposal, the Commission issued Order No. 4805, dated May 26, 1998, and reopened this rulemaking docket to re-examine the MFR. The Commission’s Order also designated this Hearing Examiner to conduct proceedings concerning this matter, invited comments from interested persons, and directed the Commission’s Secretary to publish notice of a public hearing2 to be conducted on August 5, 1998 that would consider comments concerning the Staff-proposed changes to the MFR. The Hearing Examiner was further authorized, at his discretion, to solicit additional public comment, to conduct further public hearings as might be required and, thereafter, to file a report with recommendations to the Commission concerning the Staff proposals.
4. At the conclusion of the August 5, 1998 hearing, the participants agreed to meet on September 9, 1999 in order to consult informally to discuss possible proposals concerning changes to the MFR. (Tr. at 56.) I directed Staff Counsel, Mr. Spadaro, to report to me the results of this meeting no later than September 16, 1998 and noted that following my review of Mr. Spadaro’s report, I would schedule a brief public hearing to consider whatever proposals resulted from the consultation. (Id.)
5. Although the participants met on several occasions, they failed to reach consensus on any proposal related to modifying the MFR. Subsequently, by letter dated December 2, 1998, Staff withdrew its proposed changes to the MFR. On the same date, I recommended that, under the circumstances, the Commission suspend this docket pending further action by Staff.3
6. Staff subsequently filed new proposed modifications to the MFR and, on March 23, 1999, the Commission issued Order No. 5051, which reopened this rulemaking proceeding. The Commission’s Order directed this Hearing Examiner to receive and examine comments from all interested persons, to conduct proceedings, and to make recommendations concerning the new Staff proposals. Pursuant thereto, I convened a pre-hearing conference of the participants on May 13, 1999. A procedural schedule was developed that afforded the participants an opportunity to conduct discovery upon each other and, thereafter, to file their respective statements of position.
7. By letter dated May 27, 1999, Artesian Water Company formally withdrew from further participation in this docket.4
8. In accordance with the procedural schedule and upon due notice,5 I conducted a public hearing concerning this matter in Dover on the morning of September 22, 1999. Staff presented the testimony of Commission Public Utilities Analyst William C. Schaffer in support of its proposed modifications to the MFR. All participants present were afforded an opportunity to cross-examine Mr. Schaffer on Staff’s proposals. Previously filed Comments and Statements of Position of the participants were entered into the record at the hearing. No member of the public attended the hearing or otherwise participated in this docket.
9. At the conclusion of the September 22, 1999 hearing, the record consisted of sixteen exhibits and a 207-page verbatim transcript of the proceedings. With my permission, the Staff and participants Chesapeake, Delmarva, and UWD filed briefs for my consideration. The initial comments of the participants that were received into evidence at the August 5, 1998 hearing are identified as Exhibits 2 through 8. Since this Report discusses only Staff’s “new” proposals (i.e., proposals that were incorporated in the public notice attached to Order No. 5051), I have not considered the material contained in Exhibits 2 through 8. My recommendations herein are based upon my consideration of materials filed since the issuance of Order No. 5051, i.e., the transcript of the September 22, 1999 hearing, Exhibits 10 through 16, and the post-hearing briefs.6 Based thereon, I submit for the Commission’s consideration this Report with recommendations.
III. SUMMARY OF THE RECORD & DISCUSSION
10. Introduction This matter comes to the Commission based upon certain concerns raised by the Commission’s Staff, which normally reviews rate increase applications submitted by public utilities subject to the Commission’s jurisdiction. Staff informed the Commission that the frequency and number of such applications has recently increased significantly, resulting in a corresponding increase in the administrative burdens associated with Staff’s review.
11. Staff contends that, with respect to rate applications, the regulated utilities have engaged in certain practices that tend to add significantly and unreasonably to these administrative burdens. According to Staff, these practices typically involve changes made by the utility to data on which the application relies, including changes to the test year, and changes in rate base items, expenses, or revenues. Staff contends that the burden occasioned by such practices is most severe where multiple and material changes are made at different points in time during the pendency of a single application.
12. Staff further contends that, where such changes are sought, they are often of a type that are avoidable through the applicant’s exercise of ordinary diligence in preparing its rate increase application. Staff, therefore, has proposed several modifications to the MFR which, according to Staff, will increase efficiency in the rate review process as well as reduce administrative burdens. Primarily, the proposed changes affect: Part “A”,7 Section I(B)(1); Part “A”, Section I(C); Part “A”, Section I(E); Part “A”, Schedule No. 2-B; Part “B”, Section I(B); and Part “B”, Section I(E). In addition, Staff proposes other miscellaneous changes to the “General Information” section of the MFR. These proposals are discussed in greater detail below.
13. Section I(B)(1)Section I(B)(1) . The first of Staff’s proposed modifications relates to Part A, Section I(B)(1) of the MFR, which defines the “test year” and specifies the time period to be reflected by the “test year.” Specifically, the last two sentences of this section now state:
In addition, the twelve-month period must end no more than seven months prior to the filing of the application for increased rates. For example, if the actual results of the operations for the twelve months ending March 31, xxxx, are used for the purpose of the test year, the application must be filed no later than October 31, xxxx.
Staff proposes that these sentences be changed to read:
In addition, the twelve-month period must end no more than seven months prior to the filing of the application, but no sooner than one month after the final closing of the company’s books for the last month of the test year (post reversal of accrual entries), so that actual expenditures are reflected in the books of account. For example, if the actual results of operations for the twelve months ending March 31, xxxx, are used for purposes of the test year, the application must be filed no sooner than April 30, xxxx, but no later than October 31, xxxx.
Staff contends that with this change, a utility’s test year will reflect actual booked results. (Ex. 10 at 2.) According to Staff, such a result will “lessen the burdens associated with post-filing changes to test year data.” (Id.)
14. Discussion . No participant appears to have objected to the above changes proposed to Section I(B)(1). I have considered the Staff proposal, and it appears to be reasonable. Accordingly, I recommend that it be adopted.
15. Section I(C). This section of the MFR relates to the filing of direct testimony and supporting exhibits, as well as to procedures for modifying test period data. Currently, Section I(C) reads as follows:
Prepared direct testimony and supporting exhibits must be filed coincident with the filing of the applications for rate relief. This filing requirement shall not prohibit the utility from subsequently submitting further testimony and exhibits in a timely fashion as necessary or proper to address issues raised during investigation of the filing; nor shall it (or B.2., above) prohibit the utility from proffering an exhibit or exhibits in the form of a fully projected test period, provided (1) such period shall consist of twelve consecutive months ending not later than the end of the first year during which the proposed rates are to become effective; (2) it is supported by relevant testimony establishing a verifiable link between the test period defined in Section B.2. and the projected test period; and (3) it is in format consistent with such test period.
Modifications in test period data occasioned by reasonably known and measurable changes in current or future rate base items, expenses (i.e., labor costs, tax expenses, insurance, etc.) or revenues may be offered in evidence by the utility up until the time the utility files its rebuttal testimony.
16. Staff has proposed that the first paragraph of Section I(C) be modified to read:8
Prepared direct testimony and supporting exhibits must be filed coincident with the filing of the applications for rate relief. This filing requirement shall not prohibit the utility from subsequently submitting further testimony and exhibits in a timely fashion as necessary or proper to address issues raised during investigation of the application; nor shall it (or B.2., above) prohibit the utility from also proffering an exhibit or exhibits in the form of a fully projected test period (in addition to the test period described in I.B.2. above), provided (1) such period shall consist of twelve consecutive months ending not later than the end of the first year during which the proposed rates are to become effective; (2) it is supported by relevant testimony establishing a verifiable link between the test period defined in Section B.2. and the projected test period; and (3) it is in format consistent with such test period.
17. Staff also proposes that the last paragraph of Section I(C) be changed to read:9
Modifications in test period data occasioned by reasonably known and measurable changes in current or future rate base items, expenses (i.e., labor costs, tax expenses, insurance, etc.) or revenues may be offered in evidence by the utility at any time prior to its introduction of rebuttal evidence; provided, however, that if any party makes timely objection to the proffered modifications, such objections shall be promptly presented to the Hearing Examiner for a decision on due consideration of the parties’ respective positions. For purposes of this Section I(C), an objection shall be timely if made within five (5) business days of the utility’s proffer of modifications.
18. Staff asserts that the late-filing of changes to rate applications has become “a serious problem.” (Tr. at 100-101.) Witness Schaffer testified that Staff’s recent experience has been that utilities are making changes to their rate applications “later and later in the [rate review] process.” (Id.) According to Mr. Schaffer, this tendency “makes it a lot more difficult for Staff to complete a case in a timely manner” and has become “a real drag on efficiency.” (Id.) Staff contends that although the need for the proposed language changes is “compelling,” it is also reasonable because it affords the Commission a reasonable opportunity to evaluate the changed data. (Ex. 10 at 2, 5.)
19. The DPA supports the Staff proposal and urges the Commission to place limitations on the changes that will be accepted10 or to require the utility “to waive its right to implement interim rates within a seven-month statutory period.” (Ex. 15 at 4.)
20. Delmarva contends that Staff’s proposed changes to Section I(C) are neither necessary nor appropriate. (Ex. 11 at 1.) Delmarva fully endorses UWD’s position that the Commission should retain the “common practice” of allowing utilities to “file modifications with their rebuttal testimony because the information to be considered by the Hearing Examiner and the Commission should be as up-to-date as possible.” (Id.; Ex. 12 at Exhibit “A”, page 1.) Chesapeake joined Delmarva and UWD in recommending that if adopted, Staff’s proposal should be amended to allow utilities to file modifications to test period data “up to and including its introduction of rebuttal evidence.” (Ex. 12 at 3; Ex. 11 at 1-2; Ex. 13 at 1; Ex. 14 at 1.)
21. Discussion. The participants appear to have expended significant amounts of time and energy debating the issue of whether modifications to test period data, occasioned by known and measurable changes, ought to be filed “up until” or “prior to” the utility-applicant files its rebuttal testimony in a rate case. As interesting as the debate may have been to some, on closer examination, the problem is not of the magnitude that defies resolution. I see very little difference between “up until” and “prior to”; however, I will concede that “prior to” more accurately reflects what I believe was the Commission’s original intent, i.e., that modifications to test period occasioned by known and measurable changes should be made before a utility files its rebuttal testimony. I say this after considering the plain meaning of “rebuttal testimony,” which, in the context of a rate case, means testimony filed by a utility which refutes or addresses issues raised by the Staff and/or intervenors in their direct testimony.
22. Generally, the utilities have taken the position that the Commission must consider all “late” or so-called “up-dated” data. Most of the utility-participants argue that not only should they be allowed to file data relating to changed circumstances, but also that such materials should be included in rebuttal testimony. (UWD at 4; DPL at 8-9)
23. I disagree with the contention that rebuttal testimony is the appropriate mechanism by which to introduce new material for consideration in a rate proceeding. As the Public Utility Act recognizes, in rate cases, the utility is the party that has possession of and control over most of the data that is necessary to develop the kind of evidentiary record which the Commission needs to make an informed judgment concerning the justness and reasonableness of proposed rate changes. This is why in all rate proceedings, the Act places the burden of proof on the utility. (26 Del. C. §307.)
24. Moreover, it is a ratemaking principle of long-standing that, as a general rule, rates are examined within the confines of a test year and test period.11 This means that there must be a cut-off period for the data that is used to determine appropriate rates for prospective application. What the utilities propose would turn this principle on its head, and the result would be to place the Commission in the untenable position of having to determine rates in a constantly changing evidentiary environment in which its investigative Staff could never fully examine all aspects of a utility’s rate filing. This would severely impair the Commission’s ratemaking ability and, therefore, would not be in the public interest.
25. On the other hand, I do not think it reasonable for the Commission to inflexibly preclude a utility from supplementing the record where appropriate. Citing a 1975 Superior Court decision, Delmarva and UWD argue that the Commission is bound to consider post-test year data in making its rate determinations. This suggests that Staff’s proposed modifications to the MFR would be unlawful. I disagree. In the 1975 case, the Court held
Rate fixing is prospective: the rates should be just and reasonable in the foreseeable future as well as the present. Use of a test year for particular study is accepted practice. The test year, which is past experience, is evaluated as a basis for predicting the future. While the Commission has discretion in setting the test year, this does not mean that it may arbitrarily refuse to consider later available accurate information. (Citations omitted.) Later information is especially important as a check on the continuing validity of the test year experience in a period of rapid change like the present. Ignoring later information increases the likelihood of frequent costly and unsettling rate proceedings.
The policy of prompt decisions in rate proceedings . . . is important, but must be balanced against the Commission’s ultimate duty of fixing just and reasonable rates. . . [The Commission] has broad powers of inspection, 26 Del. C. §125, and need not accept book entries without investigation. (Citations omitted.) It had already investigated Delmarva’s 1972 accounts and accepted the statement of earnings. It does not appear, and there is no reason to assume, that the method of calculating the 1973 figures is significantly different. It is thus unlikely that verification of the 1973 figures would take undue time or effort. It was error, under the circumstances, not to consider this evidence . . . (Emphasis added.)
Application of Delmarva Power & Light Co., Del. Super., 337 A.2d 517, 518 (1975)
In my view, the Court’s opinion is that in the particular circumstances cited, the Commission could, without taking undue time or effort, have verified the utility’s later available material. Thus, while the Commission should consider later-available modifications to test period data, such consideration should be undertaken only where the Commission has a reasonable opportunity to investigate such data.
26. “Reasonableness,” in this instance, would suggest to me circumstances under which such investigation would not unreasonably delay the ratemaking process. I do not, however, construe the Court’s decision as requiring the Commission to accept any and all post-test year data that a utility wishes to fling at the Commission however late it may be into the seven month-ratemaking time-frame. The Court clearly recognized the need to establish a cut-off period within which the Commission can scrutinize the data upon which a utility has based its proposed rates. If the utility subsequently wishes to present any post-test year data for the Commission to consider, such data must be material and its tardiness should, at the very least, be caused by circumstances more compelling than the utility’s ineptitude or desire to “game” the process.
27. In view of the foregoing, I find reasonable and recommend Commission adoption of Staff’s proposed requirement that post-test year data be submitted “prior to” the filing of any rebuttal testimony. The proposed modifications do lend greater clarity to the Commission’s intent that post-test year data should be presented before, not in conjunction with, the filing of rebuttal testimony.12 Such timing will also ensure that the Commission’s mandate to fully investigate all data upon a utility relies for its proposed rates will not be compromised.
28. There is nothing in this record upon which I can rely as a basis for adopting the DPA’s recommendation that the Commission should limit the magnitude of subsequent changes to any component of a utility’s revenue, expense, or rate base claim to 10%. In any event, in my opinion, consideration of any such limitations, if appropriate, are better dealt with on a case by case basis.
29. Section I(E). This section addresses Staff’s review of rate increase applications for compliance with the Minimum Filing Requirements, and the penalties for noncompliance. Section I(E) now reads:
The Commission Staff will review all filings for compliance with the format and instructions furnished herein and notify the utility within 30 days after the date of filing of any defects in compliance. The utility after such notification by the Commission Staff will then have 30 days to correct these defects. If such defects are not corrected, the Commission may reject a utility’s rate application for non-compliance with the Minimum Filing Requirements.
Staff recommends that the first sentence of the section cited above be changed to read:13 “The Commission Staff will review all applications for compliance with the format and instructions furnished herein and notify the utility within 30 days after the date of application of any defects in compliance.”
30. In addition, Staff recommends that the following language be added to the end of Section I(E):
Notwithstanding anything to the contrary in this Section I(E), if such defects are, in Staff's discretion, so numerous or serious as to materially impair Staff's timely review of the application, Staff may reject the same thereby rendering it a nullity for all purposes (including without limitation the purposes contemplated under 26 Del. C. § 306), provided, however, that any such rejection by Staff may be challenged by the utility upon timely request for reconsideration to the Commission. For purposes of this Section I(E), a request for reconsideration shall be timely if presented in writing to the Commission within five (5) business days of Staff's rejection of the application to which it relates. In the event a utility's challenge to Staff's rejection of an application under this Section I(E) is successful, the application shall be reinstated ab initio. Nothing in this Section I(E) shall prevent a utility from filing an application in draft form for Staff's informal review and approval without prejudice, such informal review and approval not to be unreasonably withheld by Staff. The requirements of this Section shall be in addition to, and not in place of, the requirements of Rule 6.2 of the Rules of Practice and Procedure of the Delaware Public Service Commission.
31. Staff contends that, contrary to the utilities’ contentions, its proposal does not “vest new discretion in Staff” since Staff is already charged with identifying defects in rate applications and enforcing compliance with the MFR. (Ex. 10 at 5.) According to Staff, the change is not in kind but in degree. (Id.) Staff asserts that this change in the degree of its discretion is “manifestly needed” and, in light of the fact that Staff is now “inundated with work,” the proposed change will have the salutary effect of increasing the utilities’ compliance with the MFR. (Id.) The DPA supports the Staff proposal. (Ex. 15 at 5.)
32. Delmarva contends that it is inappropriate “to give one party, Staff, a power to reject a filing by another party, subject only to an appeal right.” (Ex. 11 at 2.) According to Delmarva, the current mechanism for addressing Staff’s concerns appear to be adequate. (Id.) Delmarva asserts that under the Staff proposal, Staff would be given “a power that it does not currently have,” and this results in bestowing on Staff a “litigation benefit” that would “shift[] a burden to the utility to justify why [its] filing should not be rejected.” (Id.)
33. UWD argues that the Staff proposal would require the Commission to delegate its authority in a manner that is beyond the scope of the authority conferred on it by the Delaware General Assembly. (Ex. 12 at 3.) In addition, UWD contends, the Staff proposal is “offensive to the elementary notions of due process” because it would permit one party to exclude evidence offered by another party. (Id. at 3-4.) Furthermore, UWD asserts, “in the event that the presentation of modified material impacts the adequacy of the time for examination of the [utility’s] case and development of the Staff and DPA position, then the utility should have the option to extend the statutory period of time for the Commission’s decision,” rather than having updated material excluded from consideration. (Id. at 4.) Accordingly, UWD recommends that Staff’s proposed modifications should not be approved.
34. Chesapeake contends that the Staff should not have the power to render an application a “nullity” without first providing the utility with a reasonable period of time to correct the alleged deficiencies. (Ex. 14 at 1.) According to Chesapeake, there is no need to modify the existing procedure which would provide the utility with a 30-day period to correct any defects. (Id.) Under the current rule, if the utility fails to correct the defects, then the Commission may reject the application for noncompliance. (Id.) This provision is adequate and should be retained. (Id.)
35. Discussion . The utilities contend that the present provisions of Section I(E) should be retained. Staff, on the other hand, seeks to modify those provisions in a way that confers upon Staff the “discretion” to reject or dismiss defective utility rate applications. In my view neither position is appropriate nor suitable for adoption. As currently structured and in instances where a utility presents a non-compliant filing for consideration, Section I(E) potentially impinges upon Staff’s ability to review rate filings within the statutory time permitted. The outcome of such a scenario is that the Commission’s ability to establish just and reasonable rates could be adversely affected.
36. The Staff position is inappropriate for the fundamental reason that procedurally, Staff is akin to a party prosecutor in all rate proceedings before the Commission. It is Staff’s duty, after initial review, to litigate a utility rate case and develop an evidentiary record that forms the basis for a Commission decision on rates that are found to be just and reasonable. Indeed, Staff often takes positions adverse to those taken by the utility. Thus, to delegate to Staff the discretion to dismiss a filed utility rate application offends any reasonable perception of fairness.
37. Nonetheless, I can understand and empathize with Staff’s discomfiture in dealing with defective rate applications under Section I(E) as currently constituted in the MFR. Among other things, the provisions of 26 Del. C. §306(2)(b) dictate that a utility may place its proposed rates into effect if the Commission has not made a decision concerning its application within seven months after the initial filing. This means that the seven-month regulatory clock begins ticking on the date of the initial filing. Section I(E) directs the Commission Staff to “review all filings for compliance with the format and instructions furnished [in the MFR] and notify the utility within 30 days after the date of filing of any defects in compliance.” After such notification, the utility has another 30 days within which to cure the defects. Thereafter, the Commission “may reject the rate application for non-compliance with the [MFR].” (Id.) Thus, where a rate application is defective, Staff potentially stands to lose two months of the seven-month period in which it must review the application, litigate its position on the many complex issues that typically arise in rate proceedings, and work to bring this matter before the Commission for a final decision. Clearly, under such circumstances, Staff’s ability to perform its function effectively could be significantly impaired. I am, therefore, convinced that the structure established under the MFR needs adjustment to some degree.
38. I believe that one reasonable solution to this problem would be for the Commission to redefine when a rate filing would be effected. At present, an application is deemed “filed” when it is delivered to the Commission’s office. At that point, the application is date-stamped as having been received by the Commission. The presumption at the time is that the filing complies with the Commission’s minimum filing requirements. However, rate-setting proceedings are a peculiar breed of dockets in that they are very time-sensitive and must be completed within in a statutorily mandated period. It is, therefore, of utmost importance that a rate filing proceed in a manner that allows the Staff sufficient time to fully review and investigate all of the complexities that are so typical of rate cases.
39. In view of this need to keep rate proceedings on track, it is my recommendation to the Commission that it find that the mere delivery of rate applications and other filings that are of a time-sensitive nature will not be deemed filed until it has been determined that such filings have complied with applicable filing requirements. To effectuate this recommendation, the Commission should modify Section I(E) to read as follows:
The Commission Staff will review all filings for compliance with the format and instructions furnished herein and, within 15 days after the date of filing, specifically identify any non-compliance of the requirements and immediately request the Commission Secretary to promptly notify the utility of the alleged defects in compliance. The utility after such notification by the Commission Secretary will then have 15 days to correct these defects. Upon receipt of the corrected application, the Commission Secretary shall promptly stamp, or cause to be stamped, such filing as having been duly filed with the Commission. If such defects are not corrected, the Staff may move the Commission to reject a utility’s rate application for non-compliance with the Minimum Filing Requirements.
Nothing in this Section I(E) shall prevent a utility from filing an application in draft form for Staff's informal review and approval without prejudice, such informal review and approval not to be unreasonably withheld by Staff. The requirements of this Section shall be in addition to, and not in place of, the requirements of Rule 6.2 of the Rules of Practice and Procedure of the Delaware Public Service Commission.
40. The Commission has legal authority to implement the foregoing recommendations. Pursuant to 26 Del. C. §106 and 29 Del. C. §10111, the Commission may establish rules of practice and procedure to govern its proceedings. Moreover, the Commission’s approval of the proposed rule changes would be consistent with the legislature’s grant to the Commission of broad discretion to prescribe “duties and powers [for persons in its employ] as it deems necessary for the proper conduct of the work of the Commission.” 26 Del. C. §108. Furthermore, the recommendation above is consistent with Rule 6(b) of the Commission’s recently adopted Rules of Practice and Procedure, which authorizes the Commission Secretary to “reject any filing that does not conform to these rules.”14
41. Other Proposed Changes . In addition to the changes discussed above, Staff has proposed other changes to Part “A”, Schedule No. 2-B (titled “Intangible Assets Claimed in Rate Base”), to the MFR’s explanatory memorandum (titled “General Information”), and to Section I (B) and (E) of Part “B” that are identical to the proposed changes to corresponding sections in Part “A”.15 These changes are largely ministerial updates. They are unopposed, appear to be reasonable, and I recommend their adoption. I have summarized the proposed below for the Commission’s consideration.
42. Schedule No. 2-B . Part “A”, Schedule No. 2-B is titled “Intangible Assets Claimed in Rate Base.” This schedule includes a column heading titled “Revenue Included Test Year.” Staff recommends that this column heading be deleted.
43. Part “B”, Section I(B)Part ñBÑ, Section I(B) . This section provides a definition of the “test year,” and specifies the time period to be reflected by the test year. Staff recommends that the language of this section be replaced in its entirety by the language it proposes for the corresponding section within Part “A” of the MFR (including the language of the existing Sections I(B)(2)(a) and (b) of Part “A”, which remain unchanged under Staff's proposals).
44. Part “B”, Section I(E)Part ñBÑ, Section I(E) . Part “B”, Section I(E) of the Minimum Filing Requirements addresses Staff’s review of applications for compliance therewith and the penalties for non-compliance. Staff recommends identical changes to those it proposes for the corresponding section within Part “A” of the MFR.
45. General Information . The MFR include an explanatory memorandum entitled “Minimum Filing Requirements - General Information.” Under the heading “Part A - Rate Increase Applications - Major Utilities,” this document includes a brief explanation of the applicability of Part “A” of the Minimum Filing Requirements. The first sentence of that explanation now reads: “Part A applies to utilities or divisions thereof with annual gross intra-State revenues of $1 million or more.” Staff proposes to add the following parenthetical language at the end of the sentence: “(at the time of filing).”
46. The second paragraph of the explanation now reads:
Based on 1978 intra-State revenue levels, the following Delaware utilities would be subject to Part A at the present time:
Artesian Water Company
Chesapeake Utilities Corporation
Delmarva Power & Light Company (Electric Division)
Delmarva Power & Light Company (Gas Division)
Rollins Cablvue, Inc.
The Diamond State Telephone Company
Wilmington Suburban Water Corporation
Staff proposes to delete this paragraph.
47. Lastly, the General Information includes a corresponding explanation of the applicability of Part “E” of the Minimum Filing Requirements entitled “Part E - Quarterly Reporting Requirements - Major Utilities.” The first sentence under this heading now reads: “All major utilities subject to the jurisdiction of the Commission (those with annual gross intra-state revenues of $1 million dollars or more shown in Part A of these instructions) are required to file quarterly information in accordance with the instructions contained in Part E.” Staff proposes to revise this sentence to read: “All major utilities, except Bell Atlantic-Delaware, Inc., subject to the jurisdiction of the Commission (i.e., those with annual gross intra-state revenues of $1 million dollars or more) are required to file quarterly information in accordance with the instructions in Part E.”
48. DPA ProposalsDPA Proposals . The Public Advocate recommended several additional MFR modifications to those proposed by Staff, to wit:
• That Part “A”, Section II, (A) be modified to require a “Description of the Company” in all cases.
• That Part “A”, Section III(B) be modified to require utilities to file two years of Annual Reports to Stockholders, Securities and Exchange Commission (“SEC”) 10K Reports, and securities prospectuses with its application, regardless of whether such documents may also be on file with the Commission.16
• That Part “A”, Sections IV(C)(2), (E)(2), and (I)(1) be modified to the “thirteen-month average.”
• That Part “A”, Section V(B)(2) be modified to include 10 years of unit sales data and that such information be provided by rate class.17
• (Ex. 16 at 3-4.)
•
49. With respect to Part “B” of the MFR, the DPA made the following recommendations:
That Part “B”, Section II(A) be modified to require all applicants to provide the “Description of Company,” even if some of this information may already be on file with the Commission.
That Part “B”, Section V(A)(6) be modified to require small utilities to provide at least five years (and preferably ten years) of average customer count data and unit sales, by customer class.
(Id. at 4.)
50. In written comments, Chesapeake opposed the DPA’s additional recommendations, asserting that the purpose of this docket was to consider the Staff recommendations. (Ex. 14 at 2.) According to Chesapeake, the proposed changes and amendments to the MFR advocated by the DPA were not included in the public notice of this proceeding; therefore, in would be inappropriate to consider them at this time.
51. Discussion . Except for the concerns expressed by Chesapeake regarding the lack of notice of the DPA’s additional proposals, neither Staff, nor any other participant commented on those proposals. Arguably, the parties were, to a limited extent aware of the DPA’s proposals, which first appeared in initial comments filed in April 1999. (See Ex. 15.) Other than the DPA’s initial comments and Position Statement, there is very little in this record that lends support to a conclusion that these recommendations should be adopted. (Ex. 15 and 16.) Indeed, at the September 22, 1999 hearing, DPA witness Crane conceded that 10K filings with the Securities Exchange Commission (“SEC”) are available from a publicly accessible data base and that 10-year sales data is available through the normal discovery process. (Tr. at 194-195.) Thus, there would appear to be no compelling reason at this time for me to recommend that the Commission adopt these additional modifications. Accordingly, I decline to make such a recommendation.
IV. RECOMMENDATIONS
52. In summary, and for the reasons discussed above, I propose and recommend the following changes to the Minimum Filing Requirements For General Rate Increase Applications:
A) That Part A, Section I(B)(1) be modified as set forth and discussed in ¶¶ 13 and 14, above;
B) That the Commission adopt in their entirety the Staff-proposed modifications to Part A, Section I(C) as set forth in ¶¶ 16 and 17 above;
C) That the Commission modify Part A, Section I(E) as recommended herein and set forth above at ¶ 39; and
D) That, as discussed above, the Commission adopt all other proposed changes to Part A, Schedule No. 2-B, the “General Information” Section, and Sections I(B) and I(E) of Part B; and
E) That the Commission decline to adopt the additional changes proposed by the Division of the Public Advocate.
Respectfully submitted,
G. Arthur Padmore
Hearing Examiner
Dated: November 30, 1999
3 DE Reg. 1185 (03/01/00) (Prop.)
1 Part "A" of the Minimum Filing Requirements governs the filing of rate increase applications by major utilities. Part "B" governs filings by small utilities.
2 Ex. 1. The exhibits of record will be referred to as “(Ex. __ at ___)” or “(Ex. ___)”. The transcripts of proceedings in this docket will be referred to as “(Tr. at __.)”
3 See December 2, 1998 Letter to the Participants from the Hearing Examiner.
4 May 27, 1999 Letter from David B. Spacht, Vice President and CFO of Artesian Water Company.
5 Ex. 9.
6 The briefs will be cited as “([Participant] at ___).”
7 Part “A” of the Minimum Filing Requirements governs the filing of rate increase applications by major utilities. Part “B” governs filings by smaller utilities.
8 The proposed modifications are italicized.
9 The proposed modifications are italicized.
10 In this regard, DPA suggests limiting the magnitude of changes to any component of a utility’s revenue, expense or rate base claim to 10%. (Ex. 16 at 2.)
11 The MFR defines the “test period” as consisting of “twelve consecutive months ending at the end of a reporting quarter utilized by the utility to support its request for relief. The test period may be the same as the test year or may include some of the months included in the test year and some months projected, such as six months ‘actual’ and six months ‘projected’, but may not include more than nine months ‘projected’.” MFR, Part A, Section I(B)(2)(b).
12 In this regard, for the sake of clarity, the language of Staff’s proposal should be changed to read “. . . prior to its filing of rebuttal evidence.”
13 The proposed modifications are italicized.
14 The Commission should also, in the near future, consider updating Rule 6 of its Rules of Practice and Procedure to reflect the special requirements for rate applications as detailed in the MFR.
15 Since Part “B” is identical to Part “A” (except that it applies to smaller utilities), the Part “B” changes must, for consistency, mirror the Part “A” changes.
16 In this regard, the DPA also recommends that if the Commission does not have on file the remaining three years of data, then the utility should be required to file all five years of data for these items. (Ex. 16 at 3.)
17 In addition to providing unit sales data for this 10-year period, the DPA recommends that the utility also provide 10 years of average customer count data, by customer class. (Id. at 4.)