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First Quarter

United Parcel Serv. Inc. v. Pa. PUC

No. 822 C.D. 2001 (Pa. Cmwlth. 2004) (filed Jan. 6, 2004 ). 
In an unreported memorandum opinion, Commonwealth Court held that United Parcel Service, Inc. (UPS) was entitled to a refund under Section 510 of the Public Utility Code as well as to post-judgment interest on the refund amount, calculated at six percent and running from the entry of the Commonwealth Court’s December 5, 2001 order until the date of actual payment. The court determined that subsequent appeals in the matter and the fact that the refund was not fixed on December 5, 2001 did not change the PUC’s obligation to refund UPS any amount erroneously assessed and pay interest on the amount. The court stated that the parties were disputing the methodology and not the amounts to be used in the assessment, and the refund due UPS under section 510(d) could be calculated as of the December 5, 2001 order.

Consol. Rail Corp. v. City of Harrisburg

No. 220 MAP 2003, 842 A.2d 369 ( Pa. 2004) (filed Feb. 18, 2004). 
The PA Supreme Court affirmed the order of Commonwealth Court that affirmed the trial court’s denial of the City of Harrisburg and the Harrisburg Authority’s motion for summary judgment in Conrail’s action regarding allocation of relocation costs of the Authority’s water line that ran beneath the railroad crossing. The court examined whether, and to what extent, the jurisdiction vested in the PUC to allocate relocation costs for facilities of non-transportation utilities arising from improvements to rail-highway crossings foreclosed judicial enforcement of preexisting, private, cost-allocation agreements. The railroad sought to hold appellants responsible for the relocation costs and requested reimbursement from the PUC based on its rights in a prior 1941 agreement between the parties. The PUC found that the parties were responsible for their own costs, but stated that its decision was without prejudice to the parties’ private contractual rights. Conrail then filed a civil action, based on theories of express contract and quantum merit, to recover its costs under the 1941 agreement. The City’s preliminary objections were denied by the trial court, and Commonwealth Court affirmed.

On appeal, the PA Supreme Court held that the PUC has primary jurisdiction, pursuant to Section 2704(a) of the Public Utility Code, to allocate costs of facility relocation at rail-highway crossings. The court further held that Section 2704(a) does not divest the common pleas courts of jurisdiction to enforce private contractual agreements where the PUC acts within its discretion to render its directives expressly without prejudice to the judicial enforcement of such contractual agreements.

MCI Worldcom Inc. v. Pa. PUC

No. 1 EAP 2002, 844 A.2d 1239 (Pa. 2004) (decided Mar. 22, 2004).
The PA Supreme Court vacated Commonwealth Court ’s order affirming the PUC’s order setting rates for access to Verizon’s network for local telephone service. MCI Worldcom requested resale or access to unbundled network elements (UNE) from Verizon, an incumbent local exchange carrier, and the PUC approved Verizon’s rates. MCI Worldcom argued that Commonwealth Court lacked jurisdiction to review the UNE rates and, therefore, the court should vacate the portion of Commonwealth Court ’s order affirming the Global Order’s UNE rates.

The court held that the federal district court had jurisdiction to review the PUC’s determination regarding the UNE rates because it plainly constituted a determination regarding an interconnection agreement under Section 252(e)(6) of the Telecommunications Act of 1996, 47 U.S.C. §252(e)(6). The Court also held that the jurisdiction of the federal district court over the PUC's decision was exclusive because, reading Sections 252(e)(4) and 252(e)(6) together, it was clear that jurisdiction over matters involving appeals from state commission decisions on interconnection agreements rested exclusively in federal courts. Moreover, the court held that Congress had the authority under the Commerce Clause to enact Section 252 and prohibit state court review of interconnection agreements, and such action did not exceed Congress's authority under the Commerce Clause or the Tenth Amendment.

Second Quarter

Consumer Educ. and Protective Ass'n v. Pa. PUC

No. 1728 C.D. 2003, 847 A.2d 789 (Pa. Cmwlth. 2004) (filed Apr. 26, 2004).
Commonwealth Court quashed the appeal of the petitioners that sought review of the PUC’s order approving Philadelphia Gas Works’ (PGW) restructuring filing with modifications under the Natural Gas Choice and Competition Act. In its order, the PUC determined that any tariff provision that did not comply with Chapter 56 of the PUC’s regulations, pertaining to standards for billing and payment, service interruption, termination and restoration of service, dispute resolution, and maintenance of public information, was void and directed PGW to provide a compliance filing with tariff revisions to comply with Chapter 56. The court quashed the petitioners’ appeal on the grounds that the PUC order they appealed from was interlocutory. The court reasoned that the order was not a final, appealable order because the Commission directed that all contentions regarding the tariff’s compliance with Chapter 56 be addressed in the context of PGW’s compliance filing.

United States Steel Corp. v. Pa. PUC

No. 1075 C.D. 2003, 850 A.2d 783 (Pa. Cmwlth. 2004) (filed May 10, 2004 ), review denied, 863 A.2d 1151 ( Pa. 2004).
In an en banc decision, Commonwealth Court affirmed the decision of the PUC that granted Duquesne Light’s (Duquesne) petition for a declaratory order and concluded that a “Generation Avoidance Energy” (GAE) provision in Duquesne’s High Voltage Power Service (HVPS) rate class did not violate the rate cap protections in Section 2804(4)(ii) of the Electricity Generation Customer Choice and Competition Act (Competition Act), 66 Pa. C.S. §2804(4)(ii). First, the court held that the Commission’s decision did not violate section 2804(4)(ii) of the Competition Act because the Commission’s order did not alter or eliminate the language of Duquesne’s HVPS tariff provisions and it did not force U.S. Steel or Duquesne to break rate caps. Instead, the Commission’s order simply applied the plain language of a lawfully filed tariff that pre-dated the Competition Act. The PUC's order essentially made GAE an option, not a right. Next, the court noted that in applying the “just and reasonable” standard, the Commission’s decision only discussed the standard in relation to Duquesne’s interpretation of its tariff and not Reliant’s.

The court further determined that it would not reweigh the historical, economic, and policy factors that were the basis for the Commission’s decision, reasoning that when the Commission issues a determination involving its expertise or requiring the exercise of its discretion, the court will not substitute its judgment for that of the Commission, absent an error of law or a total lack of supporting evidence. Finally, the court held that the Commission did not violate U.S. Steel’s due process rights by not holding an evidentiary hearing because the Commission decided the case solely upon an interpretation of the GAE provision and did not need to resolve disputes of material fact. The court found that the PUC did not err in its plain language analysis of the tariff language because its interpretation of the GAE provision was reasonable and consistent with the Competition Act.

The dissenting opinion filed by Judge Smith-Ribner argues that because the practical effect of the Commission’s interpretation is to require U.S. Steel to pay a greater cost for the generation component of its electricity purchases while still paying for “transition or stranded costs”, the order violates the rate-cap protections in section 2804(4)(ii) of the Competition Act. In other words, a revised interpretation of an existing tariff provision that would increase generation rates is prohibited during the transition period.

Hatfield Township Mun. Auth. v. Pa. PUC

No. 1379 C.D. 2003, 853 A.2d 1 (Pa. Cmwlth. 2004) (filed June 4, 2004).
Commonwealth Court affirmed the decision of the PUC that dismissed the municipal authority’s complaint against PECO. In its complaint, the municipal authority alleged that PECO’s use of a 3.93 percent discount rate was in conflict with the energy company's tariff and would result in an over-collection of competitive transition charge (CTC) and intangible transition charge (ITC) obligations. The PUC adopted the decision of the ALJ determining that the municipal authority was not entitled, under a restructuring settlement and the energy company's tariff, to a discount rate of 8.71 percent for its proposed CTC/ITC buyout. The court concluded that the PUC did not err in adopting the initial decision of the ALJ. The court agreed with the PUC that applying a current after-tax cost of capital at the time of negotiation of a CTC/ITC buyout did not result in unlawful discrimination among customers. The ALJ and the PUC, in the proper exercise of their expertise, concluded that such an application was required by the restructuring settlement.

Third Quarter

Popowsky, Consumer Advocate v. Pa. PUC

No. 1995 C.D. 2003, 853 A.2d 1097 (Pa. Cmwlth. 2004) (filed July 13, 2004).
Commonwealth Court affirmed the decision of the PUC that dismissed three complaints filed against Pennsylvania-American Water Company (PAWC). The complainants requested that the PUC order PAWC to install, at its sole expense, 19 miles of water mains and a one million-gallon storage tank in Mount Pleasant Township . The PUC found that such relief was not available to the complainants under the PUC’s water line extension regulations. On appeal, the OCA challenged the PUC’s decision that required the Township residents to contribute to the cost of extending PAWC’s main to the Township.

The court held that the PUC did not err in its application of the line extension regulations in the instant situation and that the regulations did not conflict with Section 1501 of the Public Utility Code. The court stated that the “public need” exception to the regulations advocated by the OCA would result in all line extension disputes being resolved by protracted, case-by-case litigation regarding whether the utility’s condition for extension was reasonable. The court additionally held that the PUC did not relinquish its discretion by adopting the line extension regulations, reasoning that the regulations establish a workable and practical standard for line extensions by setting forth the maximum investment that the PUC can require a utility to invest in a line extension. Moreover, the court held that the PUC’s decision was supported by substantial evidence. The court noted that there was no evidence that a PennVest loan was available for the project, and there was no evidence of any “bona fide” applicants as required by the regulations.

The dissenting opinion filed by Judge Smith-Ribner states that the Commission applied its regulations in a manner that represented an abuse of discretion and reversible error. The judge argues that the Commission’s application of the regulations eliminated “public need” from consideration as an independent factor in determining when customer advances may be required for line extension projects and, thus, contravened the mandate in Section 1501 of the Code.

Util. Workers Union of America v. Pa. PUC

No. 156 C.D. 2004, 859 A.2d 847 (Pa. Cmwlth. 2004) (filed July 14, 2004 ).
Commonwealth Court dismissed the petition for review of the Union, as moot. The Union petitioned for review of the PUC’s decision holding that a utility may use outside contractors to read customers’ gas meters and that neither Section 2206(a) of the Code, 66 Pa. C.S. §2206(a), nor Section 56.12 of the regulations, 52 Pa. Code §56.12, prohibited this practice. The court initially determined that the Union’s complaint was moot because since the complaint was filed, the utility had hired the only outside contractor it was using to read meters and, therefore, an actual case or controversy did not exist at all stages of the proceedings as is required by law. Moreover, the court found that even if it decided the case on the merits, it would affirm the PUC’s decision because the PUC’s interpretation of the Code and regulation was reasonable and consistent with the statutory language.

Borough of Olyphant v. Pa. PUC

No. 110 C.D. 2004, 861 A.2d 377 (Pa. Cmwlth. 2004) (filed July 28, 2004 ), review pending.
Commonwealth Court affirmed the PUC’s Declaratory Order ruling that the Mid-Valley Industrial Park (MVIP) was within PPL’s certificated territory; the PUC alone could require PPL to abandon its certificated service; and any retail customer of PPL in the Borough was required to pay the transition charges. The court initially held that the PUC had jurisdiction over the matter. The court reasoned that undisputed facts demonstrated the existence of an actual controversy appropriate for a declaratory order and that the issues addressed by the PUC’s Declaratory Order pertaining to retail stranded costs were entirely state law matters.

Next, the court held that an evidentiary hearing was not required because there were no disputed issues of material fact, and the issues raised by the Borough were fundamentally legal issues. Moreover, the court held that the PUC correctly interpreted PPL’s certificate of public convenience by finding that the MVIP was located within PPL’s certificated area. The court also upheld the PUC’s determination that, pursuant to Section 1102(a)(2) of the Public Utility Code and the court’s holding in Borough of Grove City v. Pennsylvania Public Utility Commission, 505 A.2d 346 (Pa. Cmwlth. 1986), only the PUC can authorize PPL to abandon its certificated territory. Finally, the court held that the PUC correctly interpreted the Electricity Customer Choice and Competition Act to require every retail customer of PPL located within the Borough, including those customers who switch to the Borough for their service, to pay transition charges to PPL throughout the transition period.

Fourth Quarter

Emporium Water Co. v. Pa. PUC

No. 2205 C.D. 2003, 859 A.2d 20 (Pa. Cmwlth. 2004) (filed Oct. 5, 2004).
Commonwealth Court affirmed the decision of the PUC that denied the utility’s petition for relief; ordered the utility to file tariffs or tariff supplements containing proposed rates, provisions, and regulations consistent with the PUC’s March 8, 2001 Order; and ordered the utility to file a plan for a refund of the rates actually charged by the utility. On appeal, the utility argued that a refund should not have been ordered because it collected less than the $680,004 in actual annual revenues authorized by the PUC's March 8, 2001 Order during each year in the refund period.

Commonwealth Court found that the utility could not charge unlawful rates and not be subject to a refund merely because its actual annual revenue was less than the level of annual operating revenues assumed for rate making purposes. It was undisputed that the utility was charging rates from June 29, 2001 , through October 21, 2003 , in excess of the rates approved in its last effective tariff. The Court reasoned that because the utility’s rates were not in compliance with the March 8, 2001 Order and therefore not lawful, the PUC had the power and authority to make an order requiring the utility to refund the amount of any incremental revenues collected from any patron, in consequence of such unlawful rates being in charged, within four years prior to the date of the filing of the complaint. Moreover, the utility did not present any evidence of any imminent financial collapse or service failure that would justify retaining the ratepayer's money.

Popowsky, Consumer Advocate v. Pa. PUC

No. 301 C.D. 2004 (Pa. Cmwlth. 2004) (filed Nov. 8, 2004).
In an unreported memorandum opinion, Commonwealth Court affirmed the decision of the PUC that approved a general rate increase for Pennsylvania-American Water Company (PAWC) under the Public Utility Code. On appeal, the Consumer Advocate specifically questioned (1) the legality of the PUC’s decision to allow retroactive recovery of increased security costs for a closed period following September 11, 2001 , and (2) whether the PUC’s adjustment in the cost of common equity was supported by the record and consistent with established economic theory.

The Court held that the PUC did not err in its decision to allow recovery of increased security costs for the period after September 2001 and before the proposed effective date of the current tariff. The Court applied the analysis established in prior cases involving recovery of expenses alleged to be extraordinary and, thus, justifying the retroactive recovery of costs incurred. The Court found that there was no credible argument that the increased costs arose from inaccurate projections, and there was no reasonable dispute that the increased costs were imposed from the outside. The Court additionally found that the increased security costs were extraordinary, unanticipated, and, hopefully, nonrecurring. Moreover, the increased security costs were legitimate operating expenses. Finally, the Court found that PAWC took immediate and responsive action to seek timely recovery of its costs. The Court also upheld the PUC’s adjustment in the cost of common equity. The Court reasoned that the PUC’s determination was supported by testimony and case law, the amount of the adjustment was identical to the adjustment in the last rate proceeding involving PAWC, and the PUC offered an explanation for its finding on common equity cost rate.

The dissenting opinion filed by Judge Smith-Ribner questioned the PUC’s decision to allow PAWC to recover increased security costs. The judge disagreed that the increased security costs are extraordinary ($16.7 million) when compared to total operating revenues of the utility ($357 million) and that the security expenses were nonrecurring given the current claim for such expenses. Accordingly, such a recovery would violate the principle that the PUC may not engage in retroactive ratemaking. The dissent further noted that elevated levels of spending for security are now part of the regulatory environment, but that such expenses should be addressed prospectively through comprehensive rate review and not retroactively by separating unforeseen expenses from the previously agreed upon rate structure.

UGI Utilities Inc. v. Pa. PUC

No. 2768 C.D. 2003, 2004 Pa. Commw. LEXIS 912 (Pa. Cmwlth. 2004) (filed Dec. 8, 2004). 
Commonwealth Court affirmed the decision of the PUC that adopted, as modified, the recommended decision of the administrative law judge (ALJ). The decision concluded that UGI was required to utilize the historic 12-month period in calculating the rate of interest on over/under collection of annual purchased gas costs, thereby requiring the company to return funds to its ratepayers. The decision also required UGI to utilize a seven-month weighting factor in calculating the amount of interest owed and to cease and desist from making any interim rate adjustment filings.

Section 1307(f) of the Public Utility Code established a procedure by which natural gas distribution companies could establish rates to recover their projected fuel costs, or purchased gas costs (PGC), from ratepayers. In order to recover these costs, companies are required to file a tariff with the Commission reflecting actual and projected increases or decreases in their natural gas costs. On June 2, 2003 , UGI submitted its annual PGC filing and proposed tariff to the Commission. That filing contained proposed modifications to the company's prospective PGC rates. The ALJ concluded that the company was required to utilize the historic 12-month period from April 1, 2002 to March 31, 2003 , in calculating the rate of interest on over/under collection of annual PGC, thereby requiring the company to refund its ratepayers.

On appeal, Commonwealth Court affirmed, finding that because UGI utilized a June 1 filing date each year with respect to its annual filing under Section 1307(f), the 12-month period ending two months prior to the June 1 filing would fall between April and March. Therefore, the 12-month period, or the historic year, would run from April 1, 2002 , to March 31, 2003 . In finding that the Commission did not err in its determination, the Court stated that “the Commission’s expertise in interpreting its own statute and regulations is entitled to great deference and will only be reversed if it is clearly erroneous.” Moreover, the Court found that the Commission did not err in adopting a seven-month weighting factor, as the Commission is the ultimate finder of fact and makes all determinations regarding the weight and credibility of the evidence. Finally, the Court held that the Commission did not err by considering UGI’s July 30, 2003 , interim PGC filing during the course of its 2003 PGC rate filing since UGI did not comply with the quarterly filing schedule set forth in the Commission’s regulations.

City of Philadelphia v. Pa. PUC

No. 04-2726, 2004 U.S. Dist. LEXIS 25151 (E.D. Pa. 2004) (filed Dec. 13, 2004).
In a memorandum opinion, the U.S. District Court for the Eastern District of Pennsylvania granted the city’s Motion for Remand and remanded the case to Commonwealth Court . In this case, the PUC opened an investigation regarding costs incurred by the Southeastern Pennsylvania Transportation Authority (SEPTA) for removing and securing blast plates under a bridge in Philadelphia . The PUC subsequently ordered the city to reimburse SEPTA for the costs, finding that it could not allocate the costs to SEPTA due to a consent decree the PUC entered into with SEPTA. The city filed a petition for review, which the PUC removed to district court on the ground that the petition implicated federal question jurisdiction. On the city's motion, the court held that it would remand the case to state court because the city's petition for review did not arise under federal law and, thus, there was no federal jurisdiction under 28 U.S.C. §1331. The court found that (1) the city's cause of action was grounded in Pennsylvania state law on cost allocation; (2) the centrality of the consent decree was insufficient to establish federal question jurisdiction; (3) a disputed question of federal law was not a “necessary element” of the city's cause of action because the city's petition did not ask the state court to invalidate or nullify the consent decree; and (4) to the extent that the consent decree was an issue in the case, it was only as a defense to SEPTA's liability, which was inadequate to confer federal jurisdiction because the court may only look at the allegations contained in the plaintiff’s well-pleaded complaint to determine the presence or absence of federal question jurisdiction.

Core Communications Inc. v. Pa. PUC

No. 362 C.D. 2004 (Pa. Cmwlth. 2004) (filed Dec. 20, 2004).
In an unreported opinion, Commonwealth Court affirmed the decision of the PUC that determined that the interconnection agreement between Verizon Pennsylvania, Inc. (Verizon) and Core Communications, Inc. (Core) contained a change of law provision that was triggered by a Federal Communications Commission (FCC) order and permitted Verizon to stop paying reciprocal compensation for internet bound calls. The FCC order established a compensation regime for internet bound traffic for carriers negotiating expired or expiring interconnection agreements, but did not alter existing contracts unless they contained a change-of-law provision. The change-of-law provision in the agreement between Verizon and Core specifically provided that Verizon reserved its right to not pay reciprocal compensation for internet traffic if the Commission’s Global Order was overturned or modified or no longer constituted applicable law. The Court held that the FCC’s order changed the applicable law, thus triggering the change-of-law provision in the agreement. Moreover, the court found that a hearing regarding the parties’ intent was not required in this case because the contract language at issue was not ambiguous.

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