Understanding the Impact of the Commission’s Regulatory Authority

If your township finds itself in the middle of a utility-related hearing, rate case, or complaint, you will need to understand the Pennsylvania Public Utility Commission’s powers, rules, and regulations to successfully navigate what could be a rather complicated proceeding.  Experienced legal counsel, consultants, or accountants may be critical as well.

By Neva Stotler, Esq. / Cafardi Ferguson Wyrick Weis + Stotler, LLC
And Jonathan Nas, Esq. / Cozen O’Conner

This article first appeared in the June 2019 issue of PSATS Magazine.

Once upon a time in Pennsylvania, a borough disbanded its municipal authority and began providing water service through its own water department.  The borough painstakingly followed the dissolution process in the Municipality Authorities Act but underestimated the impact of the authority having long provided service in a neighboring township.

When the borough attempted to raise rates, a customer in the neighboring township filed a complaint with the Pennsylvania Public Utility Commission (PUC), resulting in an enforcement action for operating a public utility without a certificate of public convenience and civil penalties of up to $1,000 per day.

In a neighboring community not so far away, a longtime borough resident decided he was tired of the bumpity-bump of the railroad tracks crossing a borough street.  He had replaced the shocks on his vintage pickup truck twice of the last year and a half.  A quick search on Goggle directed him to the PUC’s jurisdiction over railroad crossings.  He filed a formal complaint with the PUC and soon, the county, borough, railroad, utility companies, resident, and PUC were visiting the tracks, submitting information to the PUC, and attending hearings in Harrisburg to determine whether the crossing was a hazard to the traveling public.

Sometimes, well-intentioned municipalities inadvertently fall subject to the PUC’s authority.  PUC administrative proceedings are unique, potentially involving a wide range of parties, including the PUC’s Bureau of Investigation and Enforcement, the Office of Consumer Advocate, the Office of Small Business Advocate, and customers.  Because of the unique and sometimes complicated matters of a PUC administrative proceeding, particularly a rate case, experienced legal counsel can be helpful in navigating these strange waters, and even better, for preparing a strategy to do so.

This means that township officials need to know, understand, and prepare for the specific powers of the PUC that could affect them.

Crossing paths with the PUC

Townships may find themselves crossing paths with the PUC in the following circumstances:

• Creating a public utility, expanding its service territory, or changing its ownership — If a township wants to provide utility service to the public for compensation outside it’s municipal boundaries, it must obtain a certificate of public convenience from the PUC.  This certificate authorizes the municipality to provide a certain type of service, such as water, in a specific territory.

For the utility to provide that service in a different territory or provide a different type of service, such as sewer, the municipality must obtain a new certificate of public convenience authorizing it to provide that service in that territory.

In the first situation above, the borough should have filed for a certificate of public convenience before it disbanded its municipal authority.  Another option would have been for the borough to file a petition with the PUC asking it to find that a certificate of public convenience is not necessary based on unusual circumstances, such as providing service to a very small number of customers outside its boundaries.

Once a municipality obtains a certificate of public convenience to serve a territory, it must obtain another certificate of public convenience to stop providing service in that territory.  Generally, these proceedings involve a sale of the system to another municipality or an investor-owned utility.

A recent state law that changed the way municipal water and wastewater systems are valued when they are sold to investor-owned utilities’ has encouraged some local governments to sell their municipal systems.  The PUC must approve such transactions.

• Rates charged by public utilities — Perhaps the most common way that the PUC affects local governments is by setting rates for a municipal utility system.  This can occur by a customer outside the municipality filing a complaint with the PUC, usually alleging that the municipality is not charging the rates in its commission-approved tariff.  More frequently, the municipality is the party filing the case, seeking commission approval to raise rates to customers outside the municipality.

To raise rates, a regulated municipal system must file a rate case with the commission, generally 60 days before the increase will take effect.  The municipality also must provide notice of the proposed rate increase to customers, who can file comments on the increase of complaints against it.  The commission can suspend the rate increase for an additional seven months to investigate it.

Municipalities filing a rate case would consider consulting with specialist in this area.  The PUC has certain rate-making methodologies, often foreign to even the most seasoned accounting professionals, that should be used in preparing a rate case.  As a result, a rate consultant or an accountant experienced in public utility matters is essential to successfully navigate the PUC process and coming out on the other side with a rate that can sustain the operation.

• Quality of facilities and services — The Pennsylvania Public Utility Code requires public utilities, including municipal systems subject to PUC regulation, to furnish and maintain adequate, efficient, safe and reasonable service and facilities.  The PUC has interpreted this law very broadly as appealing to everything from failing provide potable water to failing to adequately communicate with customers about service issues.

If a customer files a complaint with the PUC and the parties cannot reach a settlement, the municipality would need to defend itself in a trial-type proceeding, which can be expensive and time-consuming.

• Rail-highway crossings — The PUC has jurisdiction over the intersection of railroads and highways of streets.  This authority is not limited to at-grade crossings; it also includes bridges carrying a highway over train tracks and railroad bridges over highways.  Specifically, the commission regulates the construction, alteration, or removal of rail-highway crossing to promote public safety.

Generally, these proceedings begin with an application filed with the commission and served on affected parties, including the county and city, borough, or township where the crossing is located.  Many of these cases are resolved by an agreement among the parties, but, if necessary, the matter is referred to an administrative law judge for hearings.

Significantly, the commission has the authority to allocate the costs of the project among the parties, including local governments.  In some cases, the commission has held a local government did not have the financial resources to pay those costs.

• Contracts between local governments and public utilities — Contracts between local governments and public utilities must be submitted to, and approved by, the PUC before taking effort except for contracts for the provision of public utility service at regularly tariffed rates.  The failure to make the required filing renders any such contract invalid in the eyes of the law.

This provision is particularly important if a neighboring municipality sells its utility system.  For example, suppose a borough has a wastewater treatment plant and enters into a contract with a neighboring township to receive and treat sewage from that township.  If the borough sells its treatment plant to an investor-owned utility, the township’s contract with the borough would need to be assigned to the utility.  As a result, the contract would ow be the township and the utility, which means the PUC must approve the assignment of the contract.

In some cases, the commission has held a local government responsible for certain costs despite claims that the local government did not have the financial resources to pay those costs.

Involved in a PUC proceeding?

Here’s what to do if your township finds itself involved in a PUC proceeding:

• Move quickly — The time frames for responding to PUC complaints are usually short, and opportunities to extend these period are limited.

• Assemble a team — Consultants and professionals with PUC experience can steamily the process and protect your interests.  They work faster in the PUC space and know the relevant players.

Talk to your solicitor. In this situation, your solicitor may be like a family doctor who is able to identify a problem and, if necessary, refer you to a specialist who can help you address it by facilitating the assembly of the right team for a particular issue.

• Get educated — The Public Utility Code can be found at Title 66 of the Pennsylvania Consolidated Statutes, and the PUC’s regulations can be found at Title 52 of the Pennsylvania Code.  PUC decision are public documents available at www.puc.state.pa.us.

• Self-audit — With the information provided here, you can begin to thin about where your community might intersect with PUC regulations.  You can anticipate issues based on the services you provide.

There may be other ways to provide the service outside of PUC regulation, other ways to structure a deal, or early maintenance efforts to avoid complaints.

About the authors: Neva L. Stotler, Esq., is a member of the law firm Cafardi Ferguson Wyrick Weis + Stotler, LLC.  She counsels local government clients in all aspects of municipal law.  Jonathan Nas, Esq., is of counsel with the law firm of Cozen O’Conner.  Before joining the firm, Jonathan served as the deputy director-legal of the PUC’s Office of Special Assistants, where he supervised attorneys drafting orders and decisions for the PUC.  He counsels public and private clients in utility law.