Borough of Olyphant v. Pennsylvania PUC

• Decision Date: 28 July 2004
• Parties: BOROUGH OF OLYPHANT, Petitioner v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.
• Court: Pennsylvania Commonwealth Court

861 A.2d 377

BOROUGH OF OLYPHANT, Petitioner v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.

Commonwealth Court of Pennsylvania.

Argued June 11, 2004.

Decided July 28, 2004.

Ordered Published November 10, 2004.

John F. Woods, Annapolis, MD, for petitioner.

Robert F. Young, Harrisburg, for respondent.

David B. MacGregor, Philadelphia, for intervenor, PPL Electric Utilities Corp.

BEFORE: COHN, Judge, and SIMPSON, Judge, and MIRARCHI, JR., Senior Judge.

OPINION BY Judge COHN.

Before the Court is the Borough of Olyphant's (Borough) appeal of a declaratory order issued by the Pennsylvania Public Utility Commission (PUC). PPL Electric Utilities Corporation (PPL) had filed a Petition for Declaratory Order with the PUC, seeking to terminate controversies concerning (1) the Borough's attempt to force PPL to abandon its certificated electric service within the Mid-Valley Industrial Park (MVIP), and (2) the obligation of PPL retail customers within the certificated territory to pay competitive and intangible transition charges. The PUC issued a Declaratory Order ruling that (1) the MVIP is within PPL's certificated territory, (2) the PUC alone may require PPL to abandon its certificated service, and (3) any retail customer of PPL in the Borough must pay the transition charges. The Borough has appealed that Order to this Court claiming that the PUC lacked jurisdiction, that there are disputed issues of fact that require a remand, and that the PUC's order contains substantive errors.

In large part, resolution of this case involves the interpretation of the Electricity Generation Customer Choice and Competition Act (Competition Act), 66 Pa.C.S. §§ 2801-2812, in the context of the extensive procedural history between the Borough and PPL.

COMPETITION ACT

A brief overview of the Competition Act will help place this appeal in context. The General Assembly enacted the Competition Act in 1996. Prior to its enactment, electricity was provided as a single service comprised of three "bundled" components: generation, transmission and distribution. The Competition Act unbundled these components, and allows customers to choose among competing electric generation suppliers (EGSs) for the generation component. The transmission and distribution components remain natural monopolies regulated by both the Federal Energy Regulatory Commission (FERC) and the PUC.

In order to facilitate a smooth transition into electric competition, the Competition Act ordered retail customers to make additional payments to electric utility companies to compensate for "stranded costs." Stranded costs are the utilities'"known and measurable net generation-related costs ... which traditionally would have been recoverable under a regulated environment but which may not be recoverable in a competitive electric generation market ..." 66 Pa.C.S. § 2803 (emphasis added). To offset PUC-approved stranded costs, utilities may charge both Competitive Transition Charges (CTCs) and Intangible Transition Charges (ITCs).¹

FACTUAL BACKGROUND

The Borough has operated its own municipal electric system since 1891. However, since 1946, the Borough has obtained all of its wholesale electric capacity, energy and transmission service from PPL and its predecessors, pursuant to wholesale rates filed and approved by FERC. (R.R. 209-214, Borough brief at 10). PPL is a "public utility" and an "electric distribution company" (EDC) as defined under the Public Utility Code and is subject to the PUC's regulatory jurisdiction. 66 Pa.C.S. §§ 102, 1101, 1102, 2803.² On June 28, 1948, the PUC awarded a certificate to the Scranton Electric Company, a predecessor of PPL, granting the power, right and privilege to provide electricity service within the Borough of Olyphant to consumers whose load exceeds 100 horsepower and, with the consent of the Borough, to consumers whose load is less than 100 horsepower. Pursuant to this certificate, PPL has provided these services.³

In 1978, the Borough facilitated the development of the MVIP within the Borough limits.⁴ However, the Borough was financially unable to furnish the electrical power necessary to support the MVIP. Therefore, the Borough Council passed a resolution (1978 Resolution) indicating its support for PPL to provide electricity services to customers located in the MVIP. In accordance with the 1978 Resolution, but pursuant to its certificate, PPL began and has continued to provide these services.

In accordance with the Competition Act, the PUC required PPL to divest itself of its generation facilities and transfer its electric generation to a separate corporate affiliate (an EGS). See Final Order, PUC Docket No. R-00973954 (August 27, 1998). However, PPL remains the provider of last resort in its certificated territory, in order to ensure the availability of electric service. 66 Pa.C.S. § 2802(16). This means that throughout the period of transition to electricity competition, PPL "shall continue to have the full obligation to serve, including the connection of customers, the delivery of electric energy and the production or acquisition of electric energy for customers." 66 Pa.C.S. § 2807(e) (emphasis added).

A dispute over the provision of wholesale power was resolved by a Settlement Agreement dated January 29, 1998, approved by FERC, along with a 5-year Power Supply Contract.⁵ The text of the Settlement Agreement provides that "[PPL] will not seek any stranded cost recovery or exit fee against any of the Parties to this Settlement Agreement, and hereby waives any present or future rights to any such claims." (Borough of Lansdale, et al., Settlement Agreement, FERC Docket No. SC97-1-000, Article 2.6 (January 29, 1998)). The Power Supply Contract incorporates, by reference, all terms of the Settlement Agreement and provides that it is for the Borough's "firm power requirements (capacity and energy)." (Article V, R.R. 252).

One source of the instant controversy is Section 2805(b) of the Competition Act which permits a borough to prohibit EGSs from serving end-use customers within the borough limits, if the borough wants to do so, as long as the borough does not provide service outside of borough limits. 66 Pa.C.S. § 2805(b). Relying upon that Section, in December 1997, the Borough passed a Resolution (1997 Resolution) declaring that it was in Olyphant's interest "to be the exclusive electric supplier within the Borough Limits of the Borough of Olyphant" and resolving "to prohibit electrical generation suppliers from serving end-use customers within the Borough [l]imits." (R.R. 40).

In March 2001, the Borough sent a letter to WEA Manufacturing, PPL's largest customer in the MVIP (WEA Letter). In that letter, the Borough cited Section 2805(b) in support of the Borough's exclusive right to serve customers within the Borough, and the 1997 Resolution as indication of its intent to do so. Referring to the terms of the Settlement Agreement, the Borough asserted that if the MVIP customers, including WEA Manufacturing, received electric service from the Borough, they would not have to pay PUC-approved transition charges to PPL. (R.R. 47).⁶

In a letter to PPL on April 25, 2001, the Borough advised PPL of its intention to serve customers within the MVIP. Further, the Borough indicated its understanding that PPL service within the MVIP is pursuant to the 1978 Resolution and asserted its right to change the 1978 Resolution at any time. Finally, the Borough offered to negotiate a transition period during which the Borough would replace the existing distribution infrastructure with one supplied by the Borough.⁷

PPL then filed its Petition requesting a Declaratory Order with the PUC in October, 2002. There ensued a complex procedural history, marked by delays, a change in venue and non-conformity to administrative, procedural regulations. After receiving an Extension of Time to Answer PPL's Petition from the PUC, the Borough failed to submit an Answer. Rather, the Borough filed a Notice of Removal in United States District Court for the Middle District of Pennsylvania, purporting to remove PPL's Petition from the PUC to the Middle District. Upon receipt of the Notice of Removal, the PUC stayed all actions in the matter before it. In June 2003, the Middle District granted PPL's Motion to Strike Notice of Removal, and the PUC regained jurisdiction over the Petition. Borough of Olyphant v. Pennsylvania Power & Light Company, 269 F.Supp.2d 601 (M.D.Pa.2003). The Borough did not appeal the Middle District's order, but, again, the Borough failed to submit an Answer. Rather, on August 11, 2003, the Borough filed a Petition to Intervene and Motion to Deny the Petition. Nevertheless, the PUC treated these petitions as the Borough's Answer. On December 18, 2003, the PUC issued the Declaratory Order which is the subject of this appeal.⁸

DISCUSSION

The Borough asserts the same arguments before this Court as it asserted before the PUC:⁹ 1) whether the PUC properly had jurisdiction over this matter; 2) whether there are disputed issues of material fact that require a remand for an evidentiary hearing; and 3) whether the PUC Order contains substantive errors.

1. The Jurisdiction of the PUC

The Borough challenges PUC jurisdiction on dual grounds.¹⁰ First, the Borough argues there was no controversy sufficient for the PUC to address in its Declaratory Order. Second, the Borough contends that the PUC has addressed matters exclusively within federal jurisdiction.

a. Existence of a Controversy

The PUC may issue declaratory orders, where, as here, there is controversy or uncertainty.¹¹ By statute and through official correspondence, the Borough has asserted that it can prevent PPL from providing electricity service within the borough limits, particularly in the MVIP. Further, it has asserted that former PPL customers are not responsible for paying stranded costs. See 1997 Resolution at R.R. 289; the Undated Letter at R.R. 45; the WEA Letter...