Chester Water Auth. v. PUBLIC UTILITY COMM'N

• Decision Date: 23 February 2005
• Citation: 581 Pa. 640,868 A.2d 384
• Parties: CHESTER WATER AUTHORITY, Appellee v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Appellant, Philadelphia Suburban Water Company, Intervenor. Chester Water Authority, v. Pennsylvania Public Utility Commission, Philadelphia Suburban Water Company, Intervenor. Appeal of Philadelphia Suburban Water Company, Intervenor.
• Court: Pennsylvania Supreme Court

868 A.2d 384

581 Pa. 640

CHESTER WATER AUTHORITY, Appellee v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Appellant, Philadelphia Suburban Water Company, Intervenor.

Chester Water Authority, v. Pennsylvania Public Utility Commission, Philadelphia Suburban Water Company, Intervenor.

Appeal of Philadelphia Suburban Water Company, Intervenor.

Supreme Court of Pennsylvania.

Argued December 2, 2004.

Decided February 23, 2005.

Stanley Eugene Brown, Bohdan R. Pankiw, Frank B. Wilmarth, Harrisburg, for Public Utility Commission.

Richard Dylan Procida, Arthur Levy, Media, for Chester Water Authority.

Carl Robert Shultz, Harrisburg, Michael D. Klein, Blue Bell, for National Association of Water Companies, Pennsylvania Chapter.

William T. Hawke, Harrisburg, for Philadelphia Suburban Water Company.

Before: Cappy, C.J., Castille, Nigro, Newman, Saylor, Eakin, Baer, JJ.

OPINION

Justice SAYLOR.

This appeal concerns a municipal water authority's challenge to Public Utility Commission approval of an extension of service by an investor-owned water company to a new real estate development that the authority wishes to serve.

Appellant, Philadelphia Suburban Water Company ("Philadelphia Suburban"), presently known as Aqua Pennsylvania, Inc., is an investor-owned water company that is incorporated in Pennsylvania and regulated by the Pennsylvania Public Utility Commission (the "Commission" or the "PUC"), pursuant to the Public Utility Code.¹ Appellee, Chester Water Authority is a municipal authority organized under the predecessor to the current Municipality Authorities Act.²

In August of 2001, Philadelphia Suburban filed a verified and duly-noticed application for a certificate of public convenience under Section 1102(a)(1) of the Public Utility Code, 66 Pa.C.S. § 1102(a)(1), which requires a public utility to obtain the Commission's prior approval (as evidenced by a certificate of public convenience) before offering or rendering new service. The company's objective was to expand its service territory to supply water to a new residential, real estate development in Thornbury Township, Delaware County, known as Cherry Farm, which is proximate to existing Philadelphia Suburban facilities abutting the entrance road of the planned development. In support of its application, Philadelphia Suburban described the need for the water service relative to the new construction; referenced its financial, technical, and legal fitness, inter alia, in terms of the substantial scale of its existing, regulated operations;³ averred that the Cherry Farm developer requested water service from Philadelphia Suburban in writing, supported by a copy of a letter attached to the application; and indicated that the company would provide service to the residents of the Cherry Farm tract at the same Commission-approved rates that apply to other customers located in the company's West Chester division. The application thus facially tracked Section 1103 of the Public Utility Code, which requires an applicant for a certificate of public convenience to establish that that the proposed service is "necessary or proper for the service, accommodation, convenience or safety of the public," 66 Pa.C.S. § 1103, and the PUC's interpretation of this statute, which, as a general rule, has required that an applicant demonstrate a public need or demand for the proposed service, the inadequacy of existing service or facilities in the proposed territory, and the applicant's fitness to render such service, along technical, financial and legal lines. See, e.g., Seaboard Tank Lines, Inc. v. Pennsylvania PUC, 93 Pa.Cmwlth. 601, 605, 502 A.2d 762, 764 (1985)

.⁴

Pursuant to Commission regulations, Chester Water Authority, which also owns facilities proximate to Cherry Farm, lodged a protest in opposition to Philadelphia Suburban's application. In this submission, the authority acknowledged the need for water service to Cherry Farm and did not challenge Philadelphia Suburban's ability and fitness to furnish such service or the company's averment concerning the expression of developer preference. The authority emphasized its own fitness, however, and contended that it was in the public interest for Cherry Farm to receive water service from it, because it stood ready, willing, and able to perform at substantially lower rates as a natural extension of its own facilities, which, in fact, were located even closer to the Cherry Farm tract than those of Philadelphia Suburban.

Following Commission procedure, Philadelphia Suburban sought, inter alia, judgment on the pleadings, see 52 Pa.Code § 5.102(a), asserting that the authority's protest simply did not bring into question the essential requisites to certification. In other words, according to Philadelphia Suburban, the Commission could freely accept as true all factual allegations made in the protest and nevertheless grant Philadelphia Suburban's application in conformity with the Public Utility Code and the Commission's long-standing interpretation. Thus, the company suggested that there was no need for a hearing on the application or protest. Philadelphia Suburban also observed that the central averment of the protest (that Chester Water Authority was capable of providing water service to the development at lower rates) was the same as that which was raised and rejected in a recent and substantially similar protest lodged by the authority to another Philadelphia Suburban application pertaining to different Thornbury Township tract, which was decided on a full hearing record.⁵

The PUC granted Philadelphia Suburban's motion, issued the requested certificate of public convenience without a hearing, and ultimately denied the authority's exceptions and efforts to obtain reconsideration.⁶ The Commission's reasoning was consistent with Philadelphia Suburban's position that the allegations in the authority's protest did not raise any material issue of fact regarding the essential criteria of need, inadequacy of existing service, and fitness. In this regard, the PUC characterized as immaterial the authority's assertion of a rate differential, since it would have no impact on the final disposition of Philadelphia Suburban's application, in particular, as the Commission lacks jurisdiction to enforce rates charged by municipal authorities.⁷ The PUC also noted its recent rejection of Chester Water Authority's argument in the similar application proceeding, in which the Commission had also emphasized that nothing in existing law requires an applicant for amended authority to demonstrate that its rates are the lowest among potential service providers. See Commission Op. at 8.

The subsequent appeal by Chester Water Authority was initially addressed by a Commonwealth Court panel, which issued a divided, unpublished opinion. See Chester Water Auth. v. Pennsylvania PUC, 822 A.2d 146 (Pa.Cmwlth.2002). The majority concluded that the Commission properly granted judgment on the pleadings relative to the authority's protest, but that the agency should have conducted a hearing on Philadelphia Suburban's application as such before granting a certificate. Concerning the protest, the panel reasoned that the authority failed to challenge Cherry Farm's need for water service or Philadelphia Suburban's ability to supply it, but rather, implicitly acknowledged that water service was needed. Furthermore, it observed that there was no allegation in the protest refuting Philadelphia Suburban's averment that it is structurally, financially, and legally able to provide such service. Consequently, the panel determined that the protest submission effectively constituted an admission that Philadelphia Suburban was capable of sustaining its burden of proof supporting the grant of a certificate of public convenience, and therefore, the matter was appropriately resolved on the pleadings. Like the Commission, the panel treated the authority's allegation of lower-cost service as tangential to the essential certification inquiry. In concluding, however, that a hearing was required on Philadelphia Suburban's application, the majority highlighted language from Section 1103 of the Public Utility Code that prescribes, inter alia, that the Commission "shall hold such hearings, which shall be made public" on applications for certificates of public convenience. 66 Pa.C.S. § 1103(b). The majority also analogized the PUC certification process to proceedings on the adoption of zoning ordinances, see Chester Water, at 151 (citing Appeal of Kurren, 417 Pa. 623, 208 A.2d 853 (1965)), and the sale of public property. See id. at 8-9, 208 A.2d 853 (citing In re Petition of the Bd. of Sch. Dirs. of the Hampton Tp. Sch. Dist., 688 A.2d 279 (Pa.Cmwlth.1997)). President Judge Colins dissented, endorsing the Commission's position that no hearing was required, as the authority had failed to advance a dispute concerning facts pertinent to the certification criteria, and the Commission's order was both within its province and proper.

Subsequently, on applications for reargument lodged by the Commission and Philadelphia Suburban, the en banc Commonwealth Court altered course in a divided opinion. See Chester Water Auth. v. PUC, 822 A.2d 146 (Pa.Cmwlth.2003). Although the en banc majority rejected the panel's reasoning that Section 1103 requires a public hearing on every application for a certificate of public convenience,⁸ it determined that Chester Water Authority's protest had indeed raised material issues of fact that required the Commission to conduct an evidentiary hearing, and that the Commission had therefore abused its discretion by rendering judgment on the pleadings. See id. at 150. In particular, the majority found the averment concerning lower rates to be relevant to the "public necessity" facet of the certification inquiry, as follows:

The propriety of permitting competition in a particular field is an administrative question for the PUC in the exercise of its discretion.

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