2011 Summaries of PUC Court Decisions

First Quarter

Irwin A. Popowsky v. Pa. PUC

No. 715 C.D. 2010 (Pa. Cmwlth. 2011)(Filed January 21, 2011)
In a reported Opinion, Commonwealth Court held that the PUC had the authority under Section 1307(a) of the Public Utility Code, 66 Pa. C.S. § 1307(a), to permit the Newtown Artesian Water Company (NAWC) to recover increases in purchased water expenses with an automatic rate adjustment mechanism.

NAWC purchases about 57% of its water supply from the Bucks County Water and Sewer Authority (BCWSA) pursuant to an agreement that was entered into in 1984 and has a term of 40 years. The agreement requires NAWC to purchase at least one million gallons of water per day and permits BCWSA to modify its rates at any time and without notice. BCWSA’s rates are based on what it pays to its own water supplier, the City of Philadelphia.

NAWC filed a supplement to its tariff for PUC approval to allow it to recover the difference between the cost of purchased water reflected in the most recent base rate and any subsequent increases in BCWSA’s purchased water rate, referred to as the Purchased Water Adjustment Clause (PWAC).The Office of Consumer Advocate (OCA) filed a formal complaint. After a hearing, the ALJ issued a recommended decision permitting NAWC to implement the PWAC, with the surcharge to be capped at 3% of billed revenue. Exceptions were filed and the PUC affirmed the ALJ’s decision.

On appeal, OCA argued that the PUC lacks authority under Section 1307(a) to allow NAWC to implement the PWAC. After analyzing preceding case law, the Court reaffirmed that a Section 1307(a) automatic rate adjustment is appropriate where expressly authorized in the Code or for easily identifiable expenses that are beyond a utility’s control. The surcharge is not permitted to be used to fund capital improvements unless expressly authorized by statute.

In the present case, the Court found that increases in purchased water rates are easily identifiable; the PUC is able to determine whether the surcharge under the PWAC is just and reasonable by comparing the cost of purchased water in NAWC’s most recent base rate case to any subsequent increases in BCWSA’s rates. Further, the purchased water expenses are beyond NAWC’s control, as BCWSA has the right to modify its rate at any time. The Court also determined that the PWAC will not be an alternative to a rate case.  NAWC must file a base rate case to recover purchased water expenses exceeding the 3% cap, and the costs recovered under the PWAC will be incorporated into NAWC’s next base rate and the PWAC reset to zero.

The OCA also argued that the PWAC constitutes impermissible single-issue ratemaking. The Court disagreed. Citing in its decision in Pennsylvania Indus. Energy Coal. v. Pa. PUC, 653 A.2d 1336 (Pa. Cmwlth. 1995), affirmed, 670 A.2d 1152 (Pa. 1996), the Court held that single-issue ratemaking does not apply to surcharges under Section 1307.

California Wilderness Coal. v. United States Dep’t of Energy

631 F.3d 1072, (9th Cir. 2011)
The U.S. Court of Appeals for the Ninth Circuit vacated and remanded the United States Department of Energy’s (DOE) congestion study. Thirteen petitions for review were filed from this study and numerous parties, including the PUC, intervened.

In the Energy Policy Act of 2005, 16 U.S.C.S. § 824p, Congress directed DOE to undertake a congestion study in consultation with affected states. Congress further directed that in undertaking the study and in designating national interest electric transmission corridors (NIETCs), DOE was to comply with the National Environmental Policy Act (NEPA) and consider the potential environmental consequences of its designation of NIETCs.

DOE completed the congestion study before it sought comments from the affected states. In seeking comments from the states, DOE declined to give the states access to data supporting its study. The Court determined that DOE’s actions did not constitute consultation. The Court further found that the failure to consult was prejudicial.

DOE did not prepare an environmental impact statement or assessment for its NIETC designation, in violation of NEPA. DOE reasoned that because NIETCs do not approve of the siting of any transmission facility, they do not have any environmental effects. The Court found that this reasoning was not persuasive, since NIETCs influence the areas in which electric transmission facilities will be located. Further, DOE’s statement that its designation of NIETCs did not significantly affect the quality of the human environment was not supported by sufficient evidence to show that DOE had taken the requisite “hard look” at the environmental consequences. The Court further found that this error was harmless.

Because the designation of the NIETCs and the congestion study were vacated, the Court declined to consider the petitioners’ challenges under the Endangered Species Act and the National Historic Preservation Act, and to specific aspects of the Mid-Atlantic and Southwest Corridors.

Judge Ikuta dissented, disagreeing with the majority that DOE’s failure to consult with the states regarding its congestion study constituted harmless error. Judge Ikuta found that the petitioners were not deprived of the opportunity to submit information or make arguments to DOE and the petitioners did not show that DOE would have made a different decision absent the error. Judge Ikuta also concluded that DOE complied with NEPA in documenting its determination that no environmental impact statement was required.

William R. Lloyd v. Pa. PUC, No. 496 C.D. 2010

(Pa. Cmwlth. 2011)(Filed March 1, 2011)
In a reported Opinion, Commonwealth Court affirmed the PUC’s approval of a merger between two telecommunications companies, CenturyTel and Embarq. The merging companies submitted their Joint Application for PUC approval and a hearing was held. The ALJ issued an initial decision recommending approval of the application without conditions and the Small Business Advocate (SBA) filed exceptions. The PUC entered an order adopting the ALJ’s decision and denying the exceptions. However, the PUC’s order was conditioned upon the right to amend it based upon conditions that the Federal Communications Commission (FCC) might later place on the merger. The SBA filed a petition for review from this order.

Subsequently, the PUC filed an application to remand so that the PUC could modify its order in light of the FCC’s determination approving the merger. The matter was remanded and the PUC issued a final order, which incorporated the FCC’s considerations, to which the SBA filed a petition for review. The SBA argued that the PUC erred in concluding that the financial strengthening and enhanced ability of the company to compete was a public benefit of the merger. The SBA also argued that as a result of the merger, an ILEC would be strengthened, which hinders a CLEC’s ability to compete and is thus anti-competitive.

The Court noted that in reviewing merger applications, the PUC must examine whether substantial evidence supports that a merger will affirmatively benefit the public. The PUC must also evaluate the competitive effects of a merger and if the effects are anti-competitive, the PUC must examine whether the anti-competitive effects outweigh or negate the affirmative public benefit.

The SBA argued that the PUC erred in determining that the competitive impact of merger would be positive for competition in Pennsylvania. The Court disagreed and held that substantial evidence supported the PUC’s determination that the merger would provide affirmative benefits for the state’s citizens and that the merger would positively affect competition in Pennsylvania.

The SBA also argued that the PUC must examine competitive impact as a negative factor against affirmative public benefits. The Court disagreed and found that the PUC followed the precedent established by the Pennsylvania Supreme Court and properly evaluated the impact of the merger on competition. Because the PUC found that the merger would have a positive competitive effect, such an analysis as proposed by the SBA was unnecessary.