Opinion ID: 1947875
Heading Depth: 1
Heading Rank: 7

Heading: The Public Interest Standard

Text: In determining whether ESNG is a public utility under the Act, and thus subject to the Commission's regulatory jurisdiction, the Court must focus on the definition of that term in the Public Utilities Act of 1974. A public utility is defined in Section 102(2) of Title 26 of the Delaware Code: Public utility includes every individual, partnership, association, corporation, joint stock company, agency or department of the State or any association of individuals engaged in the prosecution in common of a productive enterprise (commonly called cooperative), ... that now operates or hereafter may operate, within this State,... natural gas ... for public use. 26 Del.C. § 102(2) (emphasis added). The Commission and ESNG agree that the pivotal question is the meaning of the phrase for public use in the definition of a public utility. Under federal law, the transporting and selling of natural gas for ultimate distribution to the public is affected with a public interest and therefore, may be subject to regulation and control. 15 U.S.C. § 717(a). [4] In accordance with this statutory declaration, a majority of states have chosen to reject the indiscriminate-service-to-an-indefinite-public test, as advanced by ESNG, and instead choose to emphasize the public nature of a company's activities in relation to that public interest. For example, in Iowa State Commerce Comm'n v. Northern Natural Gas Co., Iowa Supr., 161 N.W.2d 111 (1968), the Supreme Court of Iowa, in rejecting a pipeline company's argument that it was not a public utility, aptly reaffirmed the language of Indus. Gas Co. v. Public Utilities Comm'n, Ohio Supr., 135 Ohio St. 408, 21 N.E.2d 166 (1939): [I]t is not a controlling factor that the corporation supplying service does not hold itself out to serve the public generally.... [A] business may be so far affected with a public interest that it is subject to regulation as to rates and charges even though the public does not have the right to demand and receive service.... [Thus] a corporation that serves such a substantial part of the public as to make its rates, charges and methods of operations a matter of public concern, welfare and interest subjects itself to regulation by the duly constituted governmental authority. Id. 161 N.W.2d at 114. Similarly, the Supreme Court of Minnesota held that status as a public utility did not hinge on a company's refusal to hold itself out indiscriminately to serve an indefinite public, but rather it depended on the particular facts in each case and on the public character of selling a traditionally regulated commodity. Northern Natural Gas Co. v. Minnesota Public Service Comm'n, Minn. Supr., 292 N.W.2d 759 (1980). In so holding, the Supreme Court of Minnesota specifically rejected Northern's argument that it was no longer adding direct-sales customers, noting that this was because of a Federal Power Commission prohibition, and that the gas company would probably solicit large volume customers if it could. Id. at 763. In In re Petition of South Jersey Gas Co., N.J.Supr., 116 N.J. 251, 561 A.2d 561 (1989), the Supreme Court of New Jersey affirmed the Board of Public Utilities' interpretation of the term public utility in a statute very much the same as Delaware's. The court found that public utility included a chemical company which sought to sell manufactured gas to a select group of large industrial customers. Id. 561 A.2d at 568-69. The Court focused on the public interest and the potential for destructive competition between unregulated companies and regulated utilities whose customers could be harmed by entry into the industry by the unregulated companies. Id. Delmarva makes this argument. This concern for the interest of the consuming public was best stated in language quoted in Southwest Gas Corp. v. Arizona Corp. Comm'n, Ariz.App., 169 Ariz. 279, 818 P.2d 714 (1991): [T]he purposes of regulation are to preserve and promote those services which are indispensable to large segments of our population, and to prevent excessive and discriminatory rates and inferior service where the nature of the facilities used in providing the service and the disparity in the relative bargaining power of a utility ratepayer are such as to prevent the ratepayer from demanding a high level of service at a fair price without the assistance of governmental intervention on his behalf. Id. 818 P.2d at 721, quoting Petrolane-Arizona Gas Service Co. v. Arizona Corp. Comm'n, Ariz.Supr., 119 Ariz. 257, 259, 580 P.2d 718, 720 (1978). The Arizona court further noted that when a company sells a product affected with a public interest, the company's right to be free from regulatory constraints is outweighed by the government's right to regulate that company's activities to protect the consuming public. Id., quoting Arizona Corp. Comm'n v. Nicholson, Ariz.Supr., 108 Ariz. 317, 321, 497 P.2d 815, 819 (1972). The Delaware Public Service Commission has expressed this concern for protecting the public interest when making the determination of public utility status. Eastern Shore, slip op. at 11. For example, in In re Bayview Improvement Co., PSC Docket No. 288 (May 4, 1960), the Commission found that Bayview, by supplying water service to customers other than its own lessees and stockholders, was a public utility for purposes of the Commission's regulatory jurisdiction. The Commission noted that the Public Service Commission Act (predecessor of the Public Utilities Act) was remedial in nature, intended to restrict unchecked competition between the utilities and to provide a redress for wrongs inflicted upon persons dependent upon a utility's services. Eastern Shore, slip op. at 11-12. Although the Commission was applying the indiscriminate service to an indefinite public test at the time, the Commission's liberal construction of the Act exhibited an overall concern by the Commission of the need to protect the public interest. Eastern Shore, slip op. at 12; see also In re First State Pipeline Co., PSC Docket No. 524, at 8 (Feb. 14, 1968) (stating that the Act's purpose was to place under state regulation those businesses so affected with the public interest that the rates for and extent of their services could not be privately determined). The Superior Court was not persuaded that the `public use' test, which requires indiscriminate service to an indefinite public, adequately addresses the need to protect the public interest from the potential adverse consequences caused by the unregulated sale of natural gas. Eastern Shore, slip op. at 13. Nor are we. The pivotal issue in the determination of a company's status as a public utility is whether the company's activities have a significant impact on the public interest the Commission was designed to protect. This requires an examination of the potential effects of the sale of natural gas by unregulated companies upon the public interest  regardless of the number or type of customers serviced. ESNG argues that adoption of the public interest test would authorize the Commission to regulate any company which engages in the sale of natural gas to others, regardless of whether the company sells to less than the general public. This argument presumes too much. The Commission is specifically empowered under the Public Utilities Act to grant or deny Certificates of Public Convenience and Necessity at its discretion in order to limit competition between utility companies. [5] 26 Del.C. § 203A(a)(1). The Commission is empowered to define or limit the territory or territories in this State within which the activities authorized by the Certificate may be conducted. 26 Del.C. § 203A(b)(3). The Legislature has also conferred on the Commission the discretion to refrain from normal supervision and regulation of public utility services, and to exercise such authority if deemed necessary to serve the public interest. 26 Del.C. § 201(c). As the Superior Court correctly points out in its opinion, the enactment of section 201(c), in conjunction with sections 203A(a)(1) and (b)(3), indicates ... that the legislature specifically created the Commission for the purpose of balancing the interests of the consuming public with those of regulated companies and, accordingly, conferred broad discretionary power upon the Commission to certify or not certify a company for purposes of regulation. Eastern Shore, slip op. at 14; see also Delmarva Power & Light Co. v. City of Seaford, Del. Supr., 575 A.2d 1089, 1097 (1990). The following statement by the Commission is particularly pertinent: It is impossible for the Public Service Commission to monitor and effectively control the extent of competition in the provision of traditionally regulated commodities if an unregulated firm with no obligation to serve all similarly situated customers and without a general obligation to provide service to all who require it in a specific territory can essentially enter the public utility business and cherry pick or cream skim away the existing utility's highest volume customers.       The absence of such ability to regulate the extent of competition creates the potential for destructive competition with resulting adverse consequences for the existing utility and its customers. In re Eastern Shore Natural Gas Company, PSC Docket No. 92-2, Order No. 3372, at 22-23 (Feb. 11, 1992). Delmarva so argues. ESNG sells natural gas to eleven direct-sale end users; they are industrial companies that are independent concerns and not wholly-owned subsidiaries of ESNG. This being so, ESNG's activities are not exclusively private, and naturally affect the public interest. Although ESNG has not added any customers since 1965, it reserves the right to so petition in the future. Accompanying this possibility, is the possibility of adverse competition which may affect the public interest. These facts demonstrate that the potential for adverse competition is substantial, and [ESNG's] activities with regard to the rates it charges its direct-sale customers should be regulated to prevent a potential breakdown of the rate structures of those utilities already under Commission jurisdiction. Eastern Shore, slip op. at 15. We reject ESNG's argument that since its services are not available on demand to the general public, it is a private, not a public, company. To accept this argument would allow ESNG to avoid 26 Del.C. § 102(2) by simply stating it would not sell to certain customers, and therefore, avoid compliance with the Act. See In re South Jersey Gas Co., N.J.Super.A.D., 226 N.J.Super. 327, 544 A.2d 402, 408 (1988). Additionally, allowing the public use test would encourage other companies to enter the field by the device of entering into contracts with industrial directsale users on a one-to-one basis. This would defeat the regulatory scheme established by the Legislature under the Act and divert revenue that would have otherwise gone to the regulated utilities in the area to unregulated producers. PW Ventures, Inc. v. Nichols, Fla.Supr., 533 So.2d 281, 283 (1988). The diverted revenue would then have to be compensated for by the customers of the regulated utilities, whose fixed costs would not be reduced. Id. For the foregoing reasons, this Court holds that regardless of whether a company sells to less than the general public, when a company engages in the sale of a regulated commodity to independent third parties, the company becomes a public utility, subject to the jurisdiction of the Delaware Public Service Commission under the Public Utilities Act of 1974 for the purposes of regulation.