PENNSYLVANIA
PUBLIC UTILITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held August 11, 2016Commissioners Present:
Gladys M. Brown, Chairman
Andrew G. Place, Vice Chairman
John F. Coleman, Jr.
Robert F. Powelson
David W. Sweet
Petition of the Borough of Cornwall for a
Declaratory Order that the Provision of Water
Service to Isolated Customers Adjoining its
Boundaries Does Not Constitute Provision of
Public Utility Service Under
66 Pa. C.S. § 102 / P-2015-2476211
TENTATIVE OPINION AND ORDER
BY THE COMMISSION:
Before the Pennsylvania Public Utility Commission (Commission) for consideration and disposition are the Exceptions of the Office of Consumer Advocate (OCA) and the Cornwall Borough, Lebanon County, Municipal Authority (Authority), both filed on February 3, 2016, to the Recommended Decision (Recommended Decision or R.D.) of Administrative Law Judge (ALJ) David A. Salapa, issued on January 14, 2016. The Borough of Cornwall (Borough) filed Replies to Exceptions on February 16, 2016. Also before the Commission, is the Motion to Strike and Motion for Sanctions (Motion), filed by the Borough on February 29, 2016. The Authority filed an Answer to the Motion on March 21, 2016. For the reasons stated below, we will tentatively grant, in part, the Authority’s Exceptions; deny the OCA’s Exceptions; adopt the ALJ’s Recommended Decision, as modified; and grant, in part, the Borough’s Motion.
History of the Proceeding
On April 10, 2015, the Borough filed a Petition for Declaratory Order, requesting that the Commission conclude that the Borough’s provision of water service “to a small, defined, privileged, and limited group of customers who are in immediate proximity to, but outside the formal limits of, the Borough does not constitute the provision of public utility service pursuant to Section 102 of the Public Utility Code, 66 Pa. C.S. § 102.” Petition at 1. The Borough served a copy of the Petition on the OCA, the Bureau of Investigation and Enforcement (I&E), the Office of Small Business Advocate (OSBA), and each of the forty-seven customers located outside of the Borough’s municipal limits, pursuant to 52 Pa. Code §5.42.
In its Petition for Declaratory Order, the Borough stated that, on April 2, 2015, the Borough adopted Ordinance 2015-1 (Ordinance), which directed the Authority to transfer its water system assets to the Borough and to take the steps necessary to terminate the Authority’s existence.[1] A copy of the Ordinance is attached to the Petition for Declaratory Order as Exhibit B. The Borough explained that, following the transfer of assets, the Borough will assume ownership and operation of the Authority’s water system. Petition for Declaratory Order at 2. The Borough indicated that forty-seven of those customers are located outside of the Borough’s municipal boundaries. Id. at 2-3. The Borough also indicated that, in 2005, the Authority agreed to accommodate a request from a local developer to connect up to an additional twenty-five customers located in West Cornwall Township outside of the Borough’s municipal boundaries. Id. at 3.
The Borough averred that the customers located outside of its municipal boundaries constitute a small, defined, privileged and limited group of customers. The Borough stated that it will not connect additional customers located outside its municipal boundaries without seeking prior Commission approval. The Borough indicated that it will provide service to the customers located outside its municipal boundaries at the same rates that it will charge to customers located within its municipal boundaries. Id. at 4.
On April 20, 2015, the OCA filed an Answer to the Borough’s Petition for Declaratory Order. The OCA averred that the Borough’s provision of service to customers located outside its municipal boundaries constituted public utility service. The OCA argued that these customers are entitled to the protections afforded by the Public Utility Code (Code) and the Commission’s Regulations. The OCA stated that the Borough’s assertion that it will not connect additional customers located outside its municipal boundaries does not commit the Borough to seeking a Certificate of Public Convenience (Certificate) if it decides to serve additional customers located outside of its municipal boundaries. The OCA also contended that granting the Borough’s Petition for Declaratory Order would prevent the Commission from reviewing any future transaction where the customers located outside the Borough’s municipal boundaries would be transferred to another entity. Answer at 3.
Further, the OCA argued that the Borough’s representation that it will charge the same rate to all of its customers does not protect the customers located outside of its municipal boundaries, as those customers would have no recourse regarding any future rate increases, and there is no assurance that the rates would be cost based. Id. at 4. The OCA requested that the Commission deny the Borough’s Petition for Declaratory Order or, alternatively, refer the matter to the Office of Administrative Law Judge (OALJ) for development of additional facts. Id. at 5.
On May 7, 2015, the Authority filed an Answer in Opposition and New Matter to the Borough’s Petition for Declaratory Order. The Authority asserted that the Borough was violating the Code by failing to obtain a Certificate prior to acquiring the Authority’s assets. Answer in Opposition at 8-9. In addition, the Authority generally contended that the Borough lacked the required managerial, technical, legal, or financial fitness to provide safe and reliable water service. The Authority specifically denied that the customers located outside the Borough’s municipal boundaries constitute a small, defined, privileged, and limited group. The Authority also denied that the Borough will not connect additional customers outside its boundaries without seeking prior Commission approval. The Authority further denied that the Borough will provide service to the customers located outside its boundaries under the same terms and conditions as it will provide service to customers located inside its boundaries. Id. at 12.
In the New Matter, the Authority contended, among other things, that the facts alleged in the Borough’s Petition for Declaratory Order do not meet the legal requirements for the Commission to find that the provision of service by the Borough to the customers located outside its boundaries does not constitute public utility service. The Authority argued that the Borough’s service to extraterritorial customers constitutes public utility service under Section 102 of the Code, and the applicable legal precedent and the Borough’s expressed intention to deny future extension requests does not render the service “private.” New Matter at 51-59.
On May 14, 2015, the Authority filed a Motion for Consolidation of the Petition for Declaratory Order proceeding at this docket with the Authority’s Formal Complaint and Petition for Declaratory Order at Docket Nos. C-2015-2475978 and
P-2015-2475991 (Complaint Proceeding).[2] The Authority averred that both proceedings involve common questions of law and fact and requested that the Commission consolidate the proceedings for hearing and adjudication.
On May 27, 2015, the Borough filed a Reply to Answer and Answer to the Authority’s New Matter as well as Preliminary Objections. The Answer to New Matter denied the assertions in the New Matter. In the Preliminary Objections, the Borough contended that the Authority lacked standing to contest the Borough’s Petition for Declaratory Order.
On June 3, 2015, the Borough filed an Answer to the Authority’s Motion for Consolidation, averring that the Authority’s Complaint Proceeding raises issues that are outside of the scope of the Borough’s Petition for Declaratory Order.
On June 8, 2015, the Authority filed an Answer in Opposition to the Borough’s Preliminary Objections. The Authority averred that it had standing, because its legal obligation to continue to provide service depends on the outcome of the Petition for Declaratory Order proceeding.
By Order dated June 15, 2015, at Docket Nos. C-2015-2475978 and
P-2015-2475991, ALJ Salapa deferred ruling on the Authority’s Motion to Consolidate, pending a final Commission Order on the Borough’s Petition for Declaratory Order. The ALJ determined that, since the Borough’s Petition for Declaratory Order requests that the Commission determine that service to a limited group of customers residing outside of the Borough’s municipal boundaries does not constitute public utility service, it would be prudent to rule on the Borough’s Petition for Declaratory Order before taking any further action in the Complaint Proceeding.
By Order dated June 22, 2015, the ALJ denied the Borough’s Preliminary Objections and determined that the Authority had standing to participate in the Petition for Declaratory Order proceeding.
The ALJ conducted a prehearing conference on August 3, 2015. During the prehearing conference, the ALJ referenced the Commission’s decision in the Petition of the City of Titusville for a Declaratory Order that the Provision of Water Service to Isolated Customers in the Townships of Oil Creek and Cherrytree Does Not Constitute Provision of Public Utility Service Under 66 Pa. C.S. § 102, Docket No. P-2013-2376600 (Tentative Order entered April 23, 2014) (Titusville).[3] The ALJ indicated that, consistent with the decision in Titusville, the issues in the Petition for Declaratory Order proceeding would focus on whether service to the extraterritorial customers constituted public utility service. Tr. at 6, 11. As a result of the prehearing conference, the ALJ issued a Prehearing Order, dated August 4, 2015, which addressed the procedural matter raised during the prehearing conference and established a litigation and briefing schedule.
On August 31, 2015, the Authority filed a Motion to Compel Discovery, pursuant to 52 Pa. Code §§ 5.342 and 5.349. The Authority requested that the ALJ issue an order dismissing the Borough’s objections to the Authority’s discovery requests, compelling the Borough to provide responses to the Authority’s discovery requests, and modifying the litigation schedule.
On September 4, 2015, the Borough served its direct testimony and exhibits.
On September 8, 2015, the Borough filed an Answer to the Authority’s Motion to Compel.
By Order dated September 11, 2015, the ALJ denied the Authority’s Motion to Compel. In doing so, the ALJ determined the following:
[T]he scope of this proceeding is limited to determining whether the Borough will provide service solely to the customer[s] presently being served outside its boundaries, that the Borough will not solicit or add any additional customers outside its boundaries or provide service to any other customers located outside its boundaries and that the Borough will charge the same rates to customers outside its boundaries as the rates it charges customers inside its boundaries … the Commission has stated in prior decisions that the added regulatory burden imposed on a municipal corporation by Commission oversight of a small number of extra-territorial customers is not in the public interest provided that the municipal corporation agreed to the safeguards set forth above.
September 2015 Order at 9-10 (citing Titusville).
On September 14, 2015, the Authority served its rebuttal testimony and exhibits. Also on September 14, 2015, the OCA filed a letter indicating that it would not be serving rebuttal testimony.
The evidentiary hearing was held on September 24, 2015. The Borough was represented by counsel who presented one witness and six exhibits that were admitted into evidence. The Authority was represented by counsel who presented two witnesses and four exhibits that were admitted into evidence. The OCA was represented by counsel and did not present any witnesses. The hearing resulted in a transcript of 127 pages.
During the hearing, the ALJ granted the Borough’s motion to strike the testimony of Paul C. Vranesic, ruling that the testimony was outside of the scope of the
proceeding and irrelevant.[4]
On September 25, 2015, the Authority filed a Petition for Interlocutory Review, which was assigned Docket No. P-2015-2505794. In its Petition for Interlocutory Review, the Authority sought interlocutory Commission review and answer to the following Material Question:
In a proceeding upon a municipality’s petition for an order declaring that, upon its acquisition of a public water system that serves customers located outside of the municipality’s boundaries, the municipality’s provision of service to those customers will not be subject to public utility regulation, is evidence of this Borough’s lack of financial, technical and legal fitness – and hence inability to provide safe and reliable service at just and reasonable rates – relevant to the petition and the establishment of outside customer safeguards, and therefore admissible, where:
· the municipality does not currently own or operate the water system or provide public water service;
· the municipality admits it is “broke,” recently defaulted on a tax anticipation loan, and just had a judgment equal to approximately 80% of its annual general fund revenues entered against it;
· the municipality seeks exemption from the CPC requirements of the Public Utility Code; and
· the petition is opposed on the basis of the municipality’s lack of such financial, technical and legal fitness to perform?
The Authority requested that the Commission answer the Material Question in the affirmative. Petition for Interlocutory Review at 2-3.
On October 5, 2015, the Authority filed a Brief in Support of the Petition for Interlocutory Review; the OCA filed a Brief in Support of the Petition for Interlocutory Review; and the Borough filed a Brief in Opposition to the Petition for Interlocutory Review.
By Order dated October 6, 2015, the ALJ stayed the Petition for Declaratory Order proceeding at this docket pending a Commission decision on the Petition for Interlocutory Review. On October 20, 2015, the Commission issued a Secretarial Letter waiving the thirty-day review period for the Commission’s consideration of the Petition for Interlocutory Review.
By Order entered November 19, 2015 (November 2015 Order), the Commission declined to answer the Material Question and returned the matter to the OALJ.
The Parties filed Main Briefs on December 10, 2015. On December 15, 2015, the Borough filed a Motion to Strike Portions of the Main Brief of the Authority. In support of its motion, the Borough asserted that the Authority’s Brief cited testimony that was stricken at the hearing.
The Parties filed Reply Briefs on December 21, 2015. On December 24, 2015, the Borough filed a Motion to Strike Portions of the Reply Brief of the Authority. In support of its motion, the Borough requested that the Commission strike the portions of the Reply Brief citing to testimony that was stricken at the hearing.
On January 4, 2016, the Authority filed an Answer to the Borough’s Motions to Strike Portions of the Main Brief and Reply Brief of the Authority. The Authority argued that the assertions in its Briefs are contained in the pleadings it filed with the Commission. The Authority argued that the Commission’s Regulations provide that pleadings are part of the record. The evidentiary record closed on January 4, 2016.