Eastern Shore Natural Gas Co. v. Delaware Public Service Com'n
| Decision Date | 13 November 1992 |
| Citation | 635 A.2d 1273 |
| Parties | EASTERN SHORE NATURAL GAS COMPANY, a Delaware corporation, Appellant, v. The DELAWARE PUBLIC SERVICE COMMISSION, Appellee. . Submitted: |
| Court | Delaware Superior Court |
Appeal from a Decision of the Delaware Public Service Commission. AFFIRMED.
William A. Denman, of Schmittinger & Rodriguez, P.A., Dover, for appellant.
Regina A. Iorii and James McC. Geddes, of Ashby & Geddes, Wilmington, for appellee.
A. Hays Butler and Peter F. Clark, of Delmarva Power & Light Co., and Gregory A. Inskip, of Potter, Anderson & Corroon, Wilmington, for Delmarva Power & Light Co., amicus curiae.
Eastern Shore Natural Gas Company ("Eastern") appeals a decision from the Public Service Commission ("Commission") in which the Commission held that Eastern is a public utility pursuant to 26 Del.C. § 102(2) subject to regulatory supervision by the Commission. Eastern further appeals the Commission's determination that regulation of Eastern with regard to the rates for direct end use sales within the State of Delaware is not federally preempted by the Federal Energy Regulatory Commission ("FERC") and the Natural Gas Act, 15 U.S.C. Ch. 15B.
Eastern asserts that the Commission erred as a matter of law in its interpretation of the phrase "for public use" contained in the definition of "public utility" in 26 Del.C. § 102(2). Eastern further argues that substantial evidence does not exist to support the Commission's finding that Eastern is a public utility. Finally, Eastern maintains that the Commission erroneously determined it was not federally preempted from regulating Eastern with regard to its direct end users. The Court finds no merit to these claims and concludes that the decision below should be affirmed.
On September 29, 1964, Chesapeake Utilities Corp., the parent company of Eastern, and Delaware Power & Light Company ("Delaware Power") entered into a Stipulation of Settlement designed to resolve various territorial disputes within the Delaware area. The 1964 Stipulation addressed Eastern's natural gas obligations to two companies located within Delaware Power's territory, one of which was Stauffer Chemical Company ("Stauffer"). The Stipulation authorized Eastern to continue its service obligations to Stauffer as long as Eastern was able to fulfill Stauffer's natural gas requirements. 1
On August 30, 1990, Formosa Plastics Corp., the successor in interest of Stauffer Chemical Co. ("Formosa"), filed a complaint with the Commission against Eastern, Chesapeake, and Delmarva Power & Light Co., the successor in interest of Delaware Power & Light Company ("Delmarva"), based on its inability to transport natural gas it had purchased in Texas to its manufacturing plant in Delaware. The complaint primarily asserted that Eastern's service obligations to Formosa were inadequate to meet Formosa's natural gas requirements because of Eastern's refusal to provide transportation services. 2 The Commission opened Complaint Docket No. 299-90 to consider Formosa's complaint. Delmarva, Chesapeake, and Eastern were directed to answer the complaint, and a hearing examiner was assigned to conduct evidentiary hearings. Chesapeake and Eastern answered the complaint alleging, inter alia, that the Commission did not have jurisdiction over the agreement between Formosa and Eastern. In addition, Chesapeake and Eastern raised the affirmative defense that any complaints by Formosa regarding quality of service should be directed to FERC.
On June 3, 1991, Formosa, Delmarva, Chesapeake, and Eastern filed a settlement agreement with the Commission and informed the Commission that the complaint had been resolved to the satisfaction of the parties.
On June 21, 1991, Commission staff issued a recommendation that the Complaint docket remain open and the relationship between Eastern and its direct-sale customers be investigated to determine whether the Commission could assert jurisdiction over Eastern as a public utility. Subsequent to the investigation and oral arguments by counsel, the Commission determined Eastern is a public utility pursuant to 26 Del.C. § 102(2) and, therefore, subject to regulation by the Commission with regard to the eleven direct-sale customers located in Delaware.
On February 19, 1992, Eastern filed a Notice of Appeal in the Court of the Commission's order. The Court granted Eastern's motion to stay enforcement of the order pending this appeal on March 20, 1992. On April 15, 1992, Delmarva moved for leave to file a brief as amicus curiae, and this motion was granted.
Eastern was incorporated under the laws of this State as a wholly-owned subsidiary of Chesapeake in March 1955. In 1957, Eastern Shore filed an application for a Certificate of Public Convenience and Necessity with the Federal Power Commission ("FPC") to create and direct an interstate natural gas pipeline from Parkesburg, Pennsylvania to Salisbury, Maryland. 3
Eastern initially applied to serve several sales-for-resale customers and one direct-sales customer. The FPC rejected Eastern's application on the grounds that such an arrangement was not economically viable. Eastern then selected a group of high-volume industrial customers whose special needs and natural gas requirements could not be met by the existing facilities of the local distribution company. This group was included as direct-sale customers in Eastern's application for a Certificate of Public Convenience and Necessity. The FPC approved Eastern's application, and operation of the pipeline commenced in 1959.
From 1959 to 1965, Eastern entered into individual contractual agreements to service several high-volume industrial direct-sales customers. In each case, Eastern received authorization from the FPC or its successor, the FERC, prior to providing natural gas service. At present, Eastern provides natural gas service to thirteen direct-sales customers. Eleven direct-sale customers are located within the State of Delaware, and two are located in Maryland. Of the eleven direct sale customers located in Delaware, seven are located within Chesapeake territory. The other four customers, including Formosa, are located within Delmarva territory. While Eastern has not accepted any new direct-sale customers since 1965, it does not purport to limit itself to the direct-sale customers it currently serves.
In 1990, Eastern's eleven direct-sale customers within Delaware consumed approximately 283,000 cubic feet ("Mcf") of natural gas. In contrast, the eleven largest retail customers of Chesapeake's Delaware Division consumed an average of 38,000 Mcf.
The Commission has not received any complaints concerning the direct-sales activities of Eastern. In addition, other than the dismissed complaint of Formosa, no utility company has sought Commission intervention.
The Commission determined Eastern was a public utility based on a "public interest" construction of the phrase "for public use" contained in the 26 Del.C. § 102(2) definition of "public utility." The Commission concluded that jurisdiction over Eastern was necessary due to Eastern's sale of natural gas, a typically regulated commodity, to companies autonomous from Eastern. The Commission reasoned such operations by Eastern affected the public interest to the extent of creating a "potential for 'destructive competition' with resulting adverse consequences for ... [a currently] existing [public] utility and its customers."
In addition, the Commission also determined it was not federally preempted by FERC from regulating the rates charged by Eastern to its direct-sale customers. However, it elected to limit its regulatory supervision over Eastern as long as Eastern continues to demonstrate that any acquisition of new direct-sale customers remains consistent with the public interest and "does not rise to the level of injurious competition with another existing gas utility, including the Delaware Division of Chesapeake."
Nevertheless, the Commission ordered that a separate docket remain open for the purpose of determining to what extent Eastern should be regulated in the future. Pending resolution of the new docket, the Commission limited regulatory supervision to: (1) considering complaints by customers and other utilities concerning Eastern's service; (2) requiring Eastern to file its annual and periodic reports required of other regulated natural gas utilities; and (3) payment by Eastern of annual public utility assessments on gross interstate operating revenues. Finally, until such time that the Commission determines the extent of regulation necessary, the Commission restricted Eastern from taking any new service obligations or materially altering sales or services to existing customers without Commission authorization, except as authorized by the FERC.
The applicable standard of review is governed by the Administrative Procedures Act. 29 Del.C. § 10161(3); Delmarva Power & Light Co. v. Public Service Commission, Del.Supr., 508 A.2d 849 (1986). Therefore, on appeal of a decision from the Public Service Commission, this Court does not sit as a trier of fact with authority to weigh evidence, determine credibility, or make factual findings and conclusions. Johnson v. Chrysler Corp., Del.Supr., 213 A.2d 64 (1965). The role of the Court is to determine whether substantial evidence exists on the record to support the Commission's factual findings and to correct errors of law. 29 Del.C. § 10142; Chicago Bridge and Iron Co. v. Walker, Del.Supr., 372 A.2d 185 (1977); Johnson v. Chrysler Corp., supra. However, where the Commission's determination is based on the interpretation of a statute, a legal issue, and the application of the law to undisputed facts, the Court's review is plenary, and it is in no way bound by the Commission's conclusion. Stoltz...
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