BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

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3 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Petition of the Borough of Cornwall for a : Declaratory Order that the Provision of Water : Service to Isolated Customers Adjoining its : Docket No. P Boundaries Does Not Constitute Provision of : Public Utility Service Under 66 Pa.C.S. 102 : MAIN BRIEF OF THE OFFICE OF CONSUMER ADVOCATE Office of Consumer Advocate 555 Walnut Street, 5th Floor Forum Place Harrisburg, PA Phone: (717) Fax: (717) Dated: December 10, 2015 Christine Maloni Hoover Senior Assistant Consumer Advocate PA Attorney I.D. # CHoover@paoca.org Counsel for Tanya J. McCloskey Acting Consumer Advocate

4 TABLE OF CONTENTS I. INTRODUCTION... 1 II. BURDEN OF PROOF... 3 III. ARGUMENT... 4 A. Introduction... 4 B. Cornwall Borough s Petition should Be Denied On Legal And Policy Grounds... 5 IV. CONCLUSION i

5 TABLE OF AUTHORITES Page(s) Cases Borough of Ambridge v. Pa. Public Service Commission, 165 A. 47 (Pa. Super. 1933)...6 Administrative Decisions Petition of the Borough of Phoenixville for a Declaratory Order, Docket No. P (May 19, 2015)...6, 7, 8, 9 In Re Nemacolin Woodlands Resort and Spa, 91 Pa. PUC 654 (1998)...5, 6 Statutes 53 Pa.C.S et seq Pa.C.S , 5 66 Pa.C.S. 332(a) Pa.C.S , 5 ii

6 I. INTRODUCTION The Borough of Cornwall (Borough or Cornwall) filed a Petition for Declaratory Order (Petition) on April 10, 2015, seeking a declaration that providing water service to customers outside of its municipal boundaries does not constitute the provision of public utility service pursuant to Section 102 of the Public Utility Code. Petition at 1. Cornwall also requested that the Commission expedite its consideration of the request so that the Public Utility Commission (PUC or Commission) addresses the Petition at the May 7, 2015 Public Meeting. Petition at 11. The Borough also requested all necessary waivers to accomplish the expedited review, including shortening the response period from 20 to 10 days. Id. On April 20, 2015, the Office of Consumer Advocate (OCA) filed a timely Answer opposing the Petition and the Borough s request for expedited treatment. Cornwall Borough Municipal Authority (CBMA or Authority) filed an Answer and New Matter on May 7, The proceeding was assigned to the Office of Administrative Law Judge and further assigned to Administrative Law Judge (ALJ) Salapa. A hearing was held on September 24, 2015, before ALJ Salapa. The Borough and the Authority both introduced prefiled testimony into the record during the hearing. The Authority offered into evidence written testimony of Paul Vranesic, chairman of the CBMA Board, regarding the financial instability of Cornwall. Upon objection and motion of Cornwall, ALJ Salapa struck the testimony as irrelevant and inadmissible. On September 25, 2015, CBMA filed and served its Petition for Interlocutory Commission Review and Answer to Material Question. On October 5, 2015, CBMA and OCA filed briefs in support 1 On April 8, 2015, the Authority filed a Complaint Against the Borough of Cornwall for Violations of the Public Utility Code and a Petition for Declaratory Order seeking to ensure that the Borough s initiation of water service to customers outside of the municipal boundaries be done in accordance with the Public Utility Code, including the filing of an application, review of the applicant s fitness and the approval of a tariff for the extraterritorial customers. The Authority s Complaint and Petition for Declaratory Order was docketed at C and P , respectively. The OCA intervened in the Authority s Complaint and Petition for Declaratory Order on April 21,

7 of the Petition for Interlocutory Review, and Cornwall Borough filed a brief in opposition to the Authority s Petition for Interlocutory Review. On November 19, 2015, the Commission entered an Order in which it declined to answer the Material Question. This Main Brief is filed pursuant to the Briefing Order that was issued by ALJ Salapa on November 30, As discussed below, the OCA submits that the Borough s Petition should be denied. 2

8 II. BURDEN OF PROOF Section 332(a) of the Public Utility Code provides that the proponent of a rule or order has the burden of proof. 66 Pa.C.S. 332(a). As the petitioner and the proponent of an order seeking to be exempt from PUC jurisdiction, Cornwall Borough carries the burden of proof in establishing a prima facie case. The OCA submits that Cornwall Borough has not met its burden under Section 332(a) of establishing a prima facie case that it should not be subject to PUC jurisdiction for its service to current and future customers who are outside of the Borough boundaries. For the reasons discussed in detail below, the OCA submits that the Borough s Petition should be denied. 3

9 III. ARGUMENT A. Introduction At this time, the Authority serves 48 water customers who reside outside of the Borough of Cornwall. CBMA St. 2 at 4. The customers outside of the Borough are located in South Lebanon Township (8), West Cornwall Township (29), and North Cornwall Township (11). Authority St. 2 at 4. In addition, pursuant to an existing agreement with a developer, the Authority has agreed to provide service for an additional 24 residential customers in West Cornwall Township. Id. At this time, all of these customers are served by the Cornwall Borough Municipal Authority. Authority St. 2 at 3. Cornwall Borough has determined to terminate the Authority and take possession of its assets (Borough of Cornwall St. 1 at 2), at which time, these existing customers and the additional 24 future residential customers in West Cornwall Township will be water customers of Cornwall Borough and who reside outside of Cornwall Borough. Borough of Cornwall St. 1 at 2, 3. Service by the Borough to those extraterritorial customers would constitute public utility service and would require Cornwall Borough to first file an application seeking a certificate of public convenience under the Public Utility Code. 66 Pa.C.S. 102, Cornwall, by its Petition for a Declaratory Order, is asking the Commission to allow it to operate outside of the Commission s jurisdiction. Upon termination of the Authority, the Borough will assume ownership and operation of the water system, which currently serves 1,364 customers. Borough of Cornwall St. 2 at 3. The Borough states that, upon termination of the Authority, it will provide service to a small, defined, privileged, and limited group of customers outside of its municipal boundaries and that it will not connect additional customers without seeking prior Commission approval. Cornwall St. 1, Exh. C-3. In addition, if the Petition is 4

10 approved, Cornwall states that it will provide service at the same rates, terms and conditions that are applicable to its customers in the Borough. Id. As discussed below, the OCA submits that the Petition should be denied. The Commission has jurisdiction over the extraterritorial customers that will be served by the Borough of Cornwall because the service will constitute public utility service under the Public Utility Code. B. Cornwall Borough s Petition should Be Denied On Legal And Policy Grounds. Cornwall Borough asks to be exempt from PUC jurisdiction for its extraterritorial customers and through its Petition, it seeks to avoid the filing of an application seeking a certificate of public convenience and an approved tariff to serve the extra-territorial customers following the dissolution of the Authority. As discussed below, Cornwall s position is contrary to the requirements of the Public Utility Code and is contrary to sound public policy. Cornwall argues that the percentage of customers it would serve outside of the Borough would be very small. The Public Utility Code does not have a threshold or minimum number of customers above which would require PUC jurisdiction and below which jurisdiction is discretionary. The so-called small size of the customers outside of the municipality should not be the determining factor given the plain language of the statute. The Commission has held that a water provider serving condominium units and a small number of individual home owners was not able to adequately restrict its service to a defined, privileged, and limited few and thus, was providing service as a public utility. In Re Nemacolin Woodlands Resort and Spa, 91 Pa. PUC 654 (1998)(Nemacolin). The Commission noted that the provider in Nemacolin could not control the property owners who may sell or lease their property without regard to the provider, 5

11 making them an open class of persons. Id. Similarly, Cornwall Borough can not control the property owners who may sell or lease their property, thus they are an open class of persons. In Petition of the Borough of Phoenixville for a Declaratory Order, Docket No. P (May 19, 2015) (Phoenixville), the Commission denied the Borough of Phoenixville s Petition for a Declaratory Order seeking to be released from the Commission s jurisdiction over its extraterritorial customers. Phoenixville holds a certificate of public convenience for its customers outside of the Borough boundaries but sought relief from ongoing PUC jurisdiction for those customers. The Commission found that Phoenixville s water and wastewater service to extraterritorial customers in three different townships, and equal to 9.1% of its total customer base, was not service to a small defined, privileged and limited group. Slip op. at 5 citing Borough of Ambridge v. Pa. Public Service Commission, 165 A. 47 (Pa. Super. 1933). In this case, Cornwall Borough s service to 48 current customers and 24 future customers in three different townships is equal to approximately 5.2% of its total customers of 1,376. See Borough of Cornwall St. 1 at 2. Although the percentage of extraterritorial customers is not as high as it was in Phoenixville, the number of customers affected by the Petition is still a significant portion of the total number of customers. Moreover, as discussed above, the Public Utility Code does not require a minimum number of extraterritorial customers in order for the Commission s jurisdiction to be exercised. The Authority operates under the Municipal Authorities Act, 53 Pa. C.S et seq. Upon termination of the Authority, and with a duly issued certificate of public convenience and approved tariff, the rights of the extraterritorial customers would be protected under the Public Utility Code. However, because of the Borough of Cornwall s proposal to be exempt from Commission regulation for the extraterritorial customers, it has passed a resolution indicating 6

12 that it will keep rates the same for its outside customers and inside customers. Borough of Cornwall St. 1, Exh. C-3; Petition at 4. A resolution is not a lawful, reasonable or sufficient substitute for PUC jurisdiction under the Public Utility Code for its extraterritorial customers. There are many additional issues raised by the Borough s proposal. For example, the customers outside of the Borough would have no recourse regarding any future increases and would not be afforded the notice and opportunity to be heard that they would have as PUC-jurisdictional customers. Moreover, unlike rate proceedings before the PUC, there is no assurance that the rates are cost based. Further, unlike rate proceedings before the PUC, there is no protection that would ensure that the rates reflect only those costs related to providing utility service. As a municipal system, Cornwall Borough could decide to include costs related to municipal functions, such as street cleaning, that would not be properly charged to customers outside of the municipality. While that may be a reasonable determination for those costs to be included in the rates of Borough residents, it would not be reasonable for those costs to be included in the rates of customers outside of the Borough. Without the protections afforded by the Public Utility Code, those customers outside of Cornwall Borough may have to pay costs that are properly charged only to Borough residents. Such a result is inconsistent with the Public Utility Code and is contrary to sound policy. See Phoenixville, slip op. at 6. The Commission also must consider the impact on the service to these customers outside of the Borough, regarding quality of the water, billing, and service issues, as those customers lack any other recourse to address these issues. In Phoenixville, the Commission highlighted the importance of the Commission s role in overseeing service as a substitute for the power of the ballot box that extraterritorial customers lack with respect to inside-borough operations. Id. Addressing issues raised that extraterritorial customers would not receive proper protections with 7

13 regard to rates and service, the Commission found that relinquish[ing] jurisdiction is clearly not in the public interest. Id., slip op. at 7. In this case, failing to assume its legal jurisdiction and authority would not be in the public interest.. If the Commission grants the Petition and later, Cornwall Borough decides to serve more customers beyond the 24 additional customers identified in the Petition, then the grant of the Petition undermines the PUC s ability to address actions that may contravene the Borough s current resolutions. The Borough s resolution commits only to notifying the Commission if the resolution is repealed or expires. The Commission should consider that the resolutions do not commit the Borough to seeking a certificate of public convenience if it decides to serve even more customers who would be under PUC jurisdiction. Rather, under the Borough s proposal, it would seek Commission approval, through an unspecified process, if it sought to add customers. There are no parameters, such as how many additional customers can be added under this process, or how the filing would be made by an entity not subject to the PUC s jurisdiction, for example. In addition, the grant of the Petition would keep the PUC from reviewing any possible transfer of the customers to another entity at any point in the future. Further, these commitments could be changed by future Borough councils, and the Commission would have no jurisdiction over Cornwall Borough. The OCA s position, as set forth in its Answer to the Borough s Petition, is that the Borough s provision of water service to 48 water customers outside the Borough plus an additional 24 future water customers outside of the Borough pursuant to the Authority s existing agreement with a developer constitutes public utility service. As a municipal system that will begin serving outside its municipal boundaries, the extraterritorial customers are entitled to the protections afforded by the Public Utility Code and Commission regulations. The Public Utility 8

14 Code provides these protections to customers outside of the municipal boundaries because the customers residing outside of the Borough have no power to vote in the Borough. If the Borough begins to provide water service without a certificate of public convenience, the grant of this Petition would result in those customers never receiving the protections which they should be afforded. Accepting, arguendo, Cornwall Borough s position, it appears that many municipalities would be able to escape PUC jurisdiction, despite the plain language of the Public Utility Code, so long as they pass resolutions that state that they will charge the same rates and agree not to add more outside customers. As discussed above, the OCA submits that this result is not consistent with the requirements of the Public Utility Code and does not permit the customers outside of the Borough to be afforded the required protections. It is not in the public interest to permit Cornwall Borough to be exempt from Commission jurisdiction upon dissolution of the Authority. Allowing Cornwall to operate a water system for extraterritorial customers without Commission oversight is inconsistent with the Public Utility Code and sound policy. The Commission addressed the importance of its oversight in its Opinion and Order in Phoenixville, stating, Commission oversight provides voiceless extraterritorial customers with service protections and it ensures reasonable rates that will provide for safe and reliable service over the long term. Phoenixville, slip op. at 7. Given the Commission s important oversight role for the extraterritorial customers the OCA submits that the Commission should deny Cornwall Borough s Petition and require it to file an application for a certificate of public convenience. 9

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16 Proposed Findings of Fact Proposed Conclusions of Law Proposed Ordering Paragraphs

17 Proposed Findings of Fact 1. There are 48 current water customers who reside outside of the Borough. CBMA St. 2 at The customers outside of the Borough are located in South Lebanon Township (8), West Cornwall Township (29), and North Cornwall Township (11). Authority St. 2 at Pursuant to an existing agreement with a developer, the Authority has agreed to provide service for an additional 24 residential customers in West Cornwall Township. Authority St. 2 at At this time, all of these extraterritorial customers are served by the Cornwall Borough Municipal Authority. Authority St. 2 at The Authority serves a total of 1,376 water customers. Borough of Cornwall St. 1 at The extraterritorial customers equal 5.3% of the total customers that would be served by the Borough of Cornwall. Borough of Cornwall St. 1 at Cornwall Borough has determined to terminate the Authority and take possession of its assets. Borough of Cornwall St. 1 at When the Authority is dissolved, the Borough of Cornwall will be providing service to customers in three townships that are outside of the Borough of Cornwall. Borough of Cornwall St. 1 at 2, 3.

18 Proposed Conclusions of Law 1. Service by the Borough of Cornwall to extraterritorial customers constitutes public utility service. 66 Pa. C.S. 102, Proposed public utility service to extraterritorial customers requires the Borough of Cornwall to file an application seeking a certificate of public convenience under the Public Utility Code. 66 Pa.C.S Proposed Ordering Paragraphs 1. That the Petition for Declaratory Order filed by the Borough of Cornwall on April 10, 2015, at Docket No. P is hereby denied. 2. That the Borough of Cornwall shall file an application for a Certificate of Public Convenience within 60 days of the entry date of this Order. 3. That failure to comply with this Order may expose the Borough of Cornwall to civil penalties as provided by the Public Utility Code.