Court Opinion

ID: 4462429
Source: CourtListenerOpinion
Date Created: 2019-12-09 14:10:23.994335+00
Date Added: 2024-06-11T13:33:43.582524
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Philadelphia Gas Works,                :
                  Petitioner           :
                                       :
      v.                               : No. 1291 C.D. 2018
                                       : ARGUED: November 12, 2019
Pennsylvania Public Utility            :
Commission,                            :
                  Respondent           :

BEFORE:      HONORABLE PATRICIA A. McCULLOUGH, Judge
             HONORABLE ANNE E. COVEY, Judge
             HONORABLE ELLEN CEISLER, Judge

OPINION BY JUDGE CEISLER                              FILED: December 9, 2019

      Philadelphia Gas Works (PGW) petitions for review from three orders of the
Pennsylvania Public Utility Commission (Commission): a December 8, 2016 final
order; a May 18, 2018 order denying reconsideration of the December 8, 2016 order;
and an August 23, 2018 order granting in part and denying in part reconsideration of
the May 18, 2018 order. The Commission concluded that once liens securing
payment of delinquent gas bills are docketed against real property in the Philadelphia
County Court of Common Pleas (County Court), the Commission no longer has
jurisdiction over rate issues related to those bills. Based on that conclusion, the
Commission reasoned that the late fees of 1.5% per month charged by PGW,
although authorized as rates under its Commission tariff, are no longer applicable to
unpaid gas bills once liens are docketed relating to those bills. As a result, the
Commission ordered refunds of years of late fees on charges that were subject to
docketed liens, imposed financial penalties on PGW for charging those late fees, and
ordered PGW to reorganize its billing system.1 After thorough review, we reverse.
                                         I. Background
       PGW is owned by the City of Philadelphia (City). PGW functions as a public
utility providing natural gas to customers in the City. Pursuant to the Commission’s
applicable regulations and PGW’s tariff approved by the Commission, PGW charges
a late fee of 1.5% per month on all overdue gas bills. PGW charges this late fee
regardless of whether the City has docketed a lien in the County Court in relation to
an unpaid balance. Only if a lien balance is reduced to a judgment do late fees stop
accruing on that balance.2
       Colonial Garden Realty Co., L.P. (Colonial) and Simon Garden Realty Co.,
L.P. (Simon), along with their mutual property management company, SBG
Management Services, Inc. (collectively, Owners) have intervened in this appeal.3

       1
        The legal issues raised and briefed in this appeal are identical to those in Philadelphia
Gas Works v. Pennsylvania Public Utility Commission (Pa. Cmwlth., No. 1404 C.D. 2018, filed
December 9, 2019) (PGW II) and Philadelphia Gas Works v. Pennsylvania Public Utility
Commission (Pa. Cmwlth., No. 1405 C.D. 2018, filed December 9, 2019) (PGW III). All three
cases were argued on the same date.

       2
          In order to compel satisfaction of the lien, the City may reduce it to a judgment in rem in
order to force a sale of the property. See Section 31.2 of what is commonly known as the Municipal
Claims and Tax Liens Act, Act of May 16, 1923, P.L. 207, as amended, added by the Act of March
15, 1956, P.L. (1955) 1274, 53 P.S. § 7283(a). Alternatively, the City may sue the property owner
in personam, obtain a money judgment, and execute against the property. See 53 P.S. § 7185. In
either instance, the final judgment must include an adjudication of the actual amount owed.

       3
         The notice of intervention filed by SBG Management Services, Inc. (SBG) states that
SBG is also the agent for Fairmount Manor Realty Co., L.P., Elrea Garden Realty Co., L.P.,
Marshall Square Realty Co., L.P., Marchwood Realty Co., L.P., Oak Lane Court Realty Co., L.P.,
and Fern Rock Realty Co., L.P. However, those entities did not participate in this appeal.

                                                 2
Colonial and Simon are owners of real properties in the City improved with
apartment complexes. Their properties receive gas service from PGW.
       Owners raised several billing disputes with PGW in complaints before the
Commission. Relevant here, Owners disputed PGW’s continued accrual of late fees
on docketed liens. Viewing a docketed lien as the equivalent of a final judgment,
the Commission concluded it no longer had jurisdiction to determine the amount of
the debt once a lien was filed. The Commission further reasoned that once it no
longer had jurisdiction, its approved tariff no longer applied, and PGW could not
continue charging the monthly late fees authorized by the tariff. Instead, the
Commission determined only statutory interest could be added to the docketed lien
amount going forward.4 Based on these conclusions, the Commission ordered PGW
to refund several years of late fees charged on docketed lien amounts. Although it
acknowledged the issue of adding late fees to docketed lien amounts was one of first
impression, the Commission also imposed a financial penalty on PGW for having
charged those fees. Further, the Commission ordered PGW to undertake what would
amount to a complete reorganization of its billing operations. The Commission
directed PGW to stop adding late fees to arrearages subject to docketed liens and to
stop reflecting those arrearages on subsequent gas bills. The Commission ordered
PGW to complete its billing reorganization within 90 days of the date of the
Commission’s May 18, 2018 order.
       This petition for review by PGW followed.

       4
         However, statutory judgment interest was not applicable because, as discussed further
below, the liens were not judgments.

                                              3
                                           II. Issues
       On appeal,5 PGW presents five arguments, which we paraphrase as follows:
       1.       The Commission misinterpreted applicable statutory directives and
case law in holding that once a customer’s debt becomes subject to a docketed
municipal lien, the Commission loses jurisdiction over the debt and PGW may not
assess further late payment charges on the past due amounts consistent with its
Commission-approved tariff.
       2.       The Commission violated PGW’s constitutional due process rights by
announcing, applying, and enforcing a new legal interpretation against PGW without
prior notice.
       3.       The Commission’s monetary civil penalty imposed against PGW was
not supported by substantial evidence, and its imposition constituted arbitrary and
capricious action and/or an abuse of discretion.
       4.       The system-wide modifications of PGW’s billing as directed by the
Commission constituted arbitrary and capricious action and/or an abuse of
discretion.
       5.       The timeframe established by the Commission for PGW’s compliance
with the system-wide modifications of PGW’s billing system constituted arbitrary
and capricious action and/or an abuse of discretion.

       5
         Our review of a decision of the Commission is limited to determining whether substantial
evidence supports the necessary findings of fact, whether the Commission committed an error of
law, and whether constitutional rights were violated. Retail Energy Supply Ass’n v. Pa. Pub. Util.
Comm’n, 185 A.3d 1206 (Pa. Cmwlth. 2018) (en banc). On issues of law, our standard of review
is de novo and our scope of review is plenary. Id.

                                                4
                                        III. Discussion
       PGW charges a late fee of 1.5% per month, or 18% per year, on each unpaid
gas bill. 52 Pa. Code § 56.22(a); PHILA. GAS WORKS GAS SERV. TARIFF (2014)6 at
26. Under the Public Utility Code (Utility Code),7 the late fee is a “rate.”8 See
Kornafel v. Pa. Pub. Util. Comm’n, 538 A.2d 146, 147 (Pa. Cmwlth. 1988)
(assessment of late payments is a rate structure question). Late fees are designed to
compensate for the derivative costs incurred by a utility because of late payments.
Id. Until the Commission’s decision in this matter, PGW’s standard practice was to
continue adding late fees until a delinquent bill was paid, as authorized in its tariff,
regardless of whether the City had docketed the related municipal lien.
       However, the Commission concluded that once a lien is docketed, PGW may
not charge further late fees on the unpaid bill at issue. In its first and primary
argument, PGW contends the Commission erred in this determination. We agree.
       The Commission has jurisdiction over PGW as a public utility under the
Utility Code. See 66 Pa. C.S. § 2212. Accordingly, PGW has all the legal rights
provided under the Utility Code in billing and collecting payment for gas deliveries.
Those rights include adding late fees to overdue balances. See 52 Pa. Code § 56.22.

       6
          See https://www.pgworks.com/uploads/media/PGWGasServiceTariff.pdf (last visited
November 26, 2019). (The tariff was dated December 18, 2014, but was not effective until January
1, 2015.)

       7
           66 Pa. C.S. §§ 101 – 3316.

       8
           A “rate” includes “[e]very individual, or joint fare, toll, charge, rental, or other
compensation whatsoever of any public utility . . . and any rules, regulations, practices,
classifications or contracts affecting any such compensation, charge, fare, toll, or rental.” 66 Pa.
C.S. § 102.

                                                 5
They also include establishing Commission-approved payment arrangements for
delinquent accounts. See 66 Pa. C.S. §§ 1405(a), 1414(c).
      Municipal utility bills are the personal debts of the customers receiving
service. See 53 P.S. § 7251;9 Skupien v. Borough of Gallitzin, 578 A.2d 577 (Pa.
Cmwlth. 1990) (citing McArther v. City of Phila. Tax Review Bd., 541 A.2d 415 (Pa.
Cmwlth. 1988)) (property owner is personally responsible for utility charges,
independent of and in addition to a lien against the property, and regardless of
whether owner or tenant receives the utility service). However, the City, as PGW’s
owner, also has statutory rights under the statute known as the Pennsylvania
Municipal Claims and Tax Liens Act (Lien Act) to apply municipal liens as further
security for the collection of overdue gas bill payments. Of critical importance here,
under the Lien Act, a municipal lien arises automatically, by operation of law, as
soon as a charge for a municipal service is assessed. See Section 3 of the Lien Act,
53 P.S. § 7106(a)(1); Borough of Ambler v. Regenbogen, 713 A.2d 145 (Pa. Cmwlth.
1998). Although the underlying debt is personal to the customer, the lien is in rem
against the real property at which service was provided. Section 4 of the Lien Act,
53 P.S. § 7107; Pa. R.C.P. No. 3190; City of Philadelphia v. Perfetti, 119 A.3d 396
(Pa. Cmwlth. 2015). Just as, for example, a mortgage secures payment of an
underlying personal loan, a municipal lien secures payment of the property owner’s
personal debt for unpaid gas bills.10            Accord Perfetti (property benefitted by
municipal service can be held responsible for satisfaction of related charges).

      9
          Section 1 of the Act of April 17, 1929, P.L. 527, as amended.

      10
         We do not intend to imply that mortgage liens and municipal liens are otherwise
analogous than as discussed here.

                                                6
      When the City dockets a lien in the County Court, that filing merely perfects
the preexisting lien. See 53 P.S. § 7106(b); Vurimindi v. LandAmerica Fin. Grp.,
Inc. (Pa. Cmwlth., No. 2082 C.D. 2011, filed Nov. 29, 2012), 2012 Pa. Commw.
Unpub. LEXIS 903 (unreported). It provides notice to third parties, such as banks,
other creditors, and potential real estate purchasers, that there is an unsatisfied lien
against the real property where the utility service was provided. See Graffen v. City
of Philadelphia, 984 F.2d 91 (3d Cir. 1992). However, recording of a lien, like
recording of a mortgage, is not entry of a judgment. See Regenbogen (execution on
municipal lien requires obtaining a judgment).         It does not even amount to
commencement of a civil action, which the Commission has acknowledged does not
divest it of jurisdiction. See, e.g., Ford v. Duquesne Light Co. (Pa.P.U.C., Docket
No. Z-00245911, filed May 9, 1995) (Initial Decision), 1995 Pa. PUC LEXIS 49,
and additional Commission decisions cited therein.
      The legislature added Chapter 1411 to the Utility Code to protect lien rights
from interference by the Commission, specifically intending to provide the
collection aids of both the Utility Code and the Lien Act as cumulative remedies,
not as alternative or preclusive choices. See 66 Pa. C.S. §§ 1402(4), 1414(a); see
also 66 Pa. C.S. § 2212(n). The Legislature expressly declared its intent “to provide
additional collection tools to city natural gas distribution operations to recognize the
financial circumstances of the operations and protect their ability to provide natural
gas for the benefit of the residents of the city.” 66 Pa. C.S. § 1402(4) (emphasis
added). Notably, a major motivation for supporting enhanced collection remedies
was the Legislature’s recognition that unpaid gas bills can result in higher rates to
PGW’s paying customers. 66 Pa. C.S. § 1402(1).

      11
           66 Pa. C.S. §§ 1401 – 1419.

                                           7
         PGW correctly asserts that the Commission’s decisions improperly force
PGW to choose between forgoing late charges on unpaid balances once a lien is
perfected and taking the chance of not perfecting the lien. Such a choice is utterly
untenable. Late charges are authorized by PGW’s tariff. They are essential as
leverage to encourage payment, as well as to cover administrative costs of late
payments. Thus, PGW cannot afford to forgo them in exchange for perfecting a lien.
However, if PGW does not perfect its lien and thereby give notice of the lien to third
parties, PGW’s security arising from the lien could be at risk if there is a later transfer
or encumbrance of the property and the third party involved in that transaction has
no notice of the lien.
         The Commission relies largely on two decisions, Gasparro v. Pennsylvania
Public Utility Commission, 814 A.2d 1282 (Pa. Cmwlth. 2003), and Equitable Gas
Co. v. Wade, 812 A.2d 715 (Pa. Super. 2002), for its conclusion that a docketed
municipal lien constitutes a judgment that forecloses the Commission’s jurisdiction.
Contrary to the Commission’s reasoning, neither Gasparro nor Equitable Gas
supports the Commission’s conclusion here. Indeed, both decisions support PGW’s
authority to continue imposing late fees on delinquencies that are subject to docketed
liens.
         In Gasparro, this Court found the Commission no longer had jurisdiction after
entry of a final money judgment on a delinquent billing claim. However, no final
money judgment is at issue here. Notably, this Court specifically observed in
Gasparro that the Commission retained jurisdiction to review the underlying facts
and determine the correctness of the billing until the entry of a final money judgment.
         Similarly, in Equitable Gas, the Superior Court found the Commission’s
jurisdiction ended with entry of a final money judgment. However, the court also

                                            8
specifically found the utility was entitled to continue charging the 18% annual late
fee authorized by its tariff until the entry of a final judgment in court. Here, no final
judgment is entered by merely docketing an existing lien. Thus, PGW is likewise
entitled to continue adding late fees as authorized by its Commission-approved tariff,
unless and until it reduces a docketed lien to a final money judgment.12
       In short, a municipal lien arises automatically and is not converted to a
judgment or anything else by merely docketing it in the County Court. This basic
precept of municipal law highlights the fundamental fallacy in the Commission’s
analysis. Charges for natural gas are a lien on the relevant property from the time
those charges are imposed. Docketing the lien does not change that fact; there is
always a lien on every penny owed by the customer, whether that lien is docketed or
not. Following the Commission’s reasoning that a lien precludes late charges, PGW
could never impose the late charges the Commission has approved in PGW’s tariff,
because the lien would always predate any delinquency in payment. Because
docketing a lien does not invoke judicial process, there is no legal basis to conclude
that merely docketing an existing lien affects the Commission’s jurisdiction.
       Therefore, we hold that the Commission committed an error of law in holding
that it lacked jurisdiction over gas charges subject to docketed liens. We further hold
that the Commission committed an error of law in holding that PGW could not
continue to impose late fees of 1.5% per month on delinquent accounts once the City
docketed its municipal liens relating to those accounts.

       12
           The money judgment at issue in Equitable Gas Co. v. Wade, 812 A.2d 715 (Pa. Super.
2002), was in personam, not in rem. Thus, although the issue of collectability of the 1.5% monthly
late fee in Equitable Gas is analogous to the issue here, the question of collecting the fee after
docketing a municipal lien is, as the Commission observed, a matter of first impression.

                                                9
       Because we find PGW is entitled to continue adding late charges to delinquent
accounts after the City dockets its liens relating to those delinquencies, it follows
that the Commission also erred in imposing penalties, ordering refunds of previously
imposed late fees, and directing billing changes relating to charges subject to
docketed liens. Thus, our holding effectively disposes of all of PGW’s issues on
appeal. Accordingly, we need not further address PGW’s arguments on those
issues.13
                                        IV. Conclusion
       Based on the foregoing discussion, we conclude the Commission erred in
directing that PGW cannot continue to add late fees to delinquent gas bills that are
subject to docketed municipal liens. We likewise conclude the Commission erred
in ordering refunds of late fees, imposing financial penalties, and directing PGW to
revise its billing system in relation to the late fees and docketed liens. Accordingly,
we reverse the Commission’s orders.

                                              __________________________________
                                              ELLEN CEISLER, Judge

       13
            We likewise find it unnecessary to address PGW’s constitutional due process argument.

                                                10
           IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Philadelphia Gas Works,            :
                  Petitioner       :
                                   :
      v.                           : No. 1291 C.D. 2018
                                   :
Pennsylvania Public Utility        :
Commission,                        :
                  Respondent       :

                                 ORDER

      AND NOW, this 9th day of December, 2019, the orders of the Pennsylvania
Public Utility Commission are REVERSED.

                                   __________________________________
                                   ELLEN CEISLER, Judge