Court Opinion

ID: 9697700
Source: CourtListenerOpinion
Date Created: 2023-08-25 19:27:11.256614+00
Date Added: 2024-06-11T18:20:34.666307
License: Public Domain

DISSENTING OPINION BY
Judge PELLEGRINI.
I respectfully dissent from the majority decision because this case does not involve tariff violations, but only a business decision by Pennsylvania-American Water *1063Company (PAWC) affecting its shareholders.
In 1998, the City of Coatesville (Coates-ville) announced it was accepting bids for the acquisition of its waterworks system which had to include free fire hydrant service to Coatesville in perpetuity as a non-negotiable term. Philadelphia Suburban Water Company (Suburban Water) sought a declaratory order from the Pennsylvania Public Utility Commission (PUC) that the bid term for free hydrant service was unlawful under the Public Utility Code (Code). The PUC determined that PAWC could structure the provisions of any agreement as it saw fit, bearing in mind that the PUC had to review and approve the provisions for compliance with the Code, and that the utility had to charge rates that were consistent with its approved tariff rate. PAWC was selected as the winning bidder, the parties entered into an Agreement, and PAWC submitted an application, along with the Agreement, to the PUC for approval. Suburban Water, as well as various other parties, protested the Agreement, arguing that the free service covenant violated the Code.
Following hearings before an Administrative Law Judge (ALJ), PAWC and Coatesville amended the Agreement by deleting the free service covenant and replacing it with a new provision in which PAWC agreed to bill Coatesville for the fire hydrant service and Coatesville agreed to pay PAWC the invoiced amount. Further, PAWC agreed to make an annual contribution to the Coatesville Economic Development Fund in an amount equal to Coatesville’s annual charge for fire hydrant service. PAWC agreed to use shareholder funds rather than ratepayer funds to make these contributions. The ALJ issued a decision recommending the approval of PAWC’s acquisition but with the stipulation that the free service covenant and the amendment be deleted because they violated the Code as PAWC would be receiving free fire hydrant service. PAWC and Coatesville filed exceptions to the ALJ’s decision. Finding that the use of shareholder funds as a below-the-line item to consummate the acquisition was not without precedent and was not improper under the Code, the PUC rejected the ALJ’s recommendation and approved the amendment to the Agreement subject to the establishment of a tracking mechanism to ensure that only shareholder funds were used to make the annual payments. Suburban Water then appealed, requesting this Court to reverse the PUC’s approval of the Agreement allowing for the free fire hydrant service because it violates the Code.
The majority agrees with Suburban Water and reverses the PUC, concluding that the Agreement violates Section 1308 of the Code, 66 Pa.C.S. § 1308, prohibiting a utility from charging any rates other than those specified in its tariff and Section 1304 of the Code, 66 Pa.C.S. § 1304, prohibiting against , the establishment of unreasonable preferences between classes of service. I respectfully dissent because there is no violation of either of those Code sections, and ratepayers are not being harmed because they are not paying for that free hydrant service.
Although Section 1303 of the Code prohibits any person from paying a lesser rate for service than that specified in the tariff of a public utility, a tariff is not at issue here because the Agreement between PAWC and Coatesville involves an expenditure of PAWC and not a difference in the payment of any rate. The PUC was correct in concluding that PAWC’s ratepayers would not be harmed if the annual payment came from shareholder profits because their contribution would not decrease the cost of service to customers, the *1064financial integrity of PAWC would not be placed at risk, and the tracking mechanism required would prevent any pecuniary impacts from reaching customers. As to Section 1304 of the Code, a diminution in profit does not establish the existence of unreasonable discrimination. After PAWC receives payment of the lawful tariff rate, like any private company, what it does with its own money is its own business, and it is entitled to spend its profits as it sees fit.
Accordingly, because I agree with the PUC that the Agreement as amended does not violate the Code, I would affirm the PUC’s decision.
Judge SMITH-RIBNER joins in this dissenting opinion.