Chesapeake Utilities Corp. v. Delaware Public Service Commission ( 2017 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
CHESAPEAKE UTILITIES .
CORPORATION, : C.A. No. K17A-01-001 WLW
: Kent County
Appellant, '
V.
DELAWARE PUBLIC SERVICE
COMMISSION,
Appellee.
Oral Argument: May 12, 2017
Decided: June 7, 2017
ORDER
Upon Appeal from a Decision of the
DelaWare Public Service Commission.
Reversed and Vacated.
William O’Brien, Esquire, Associate General Counsel for Chesapeake Utilities
Corporation, Daniel O’Brien, Esquire, Venable LLP, Wilmington, DelaWare, Brian
M. Quinn, Esquire, pro hac vice, Venable LLP, Baltimore, Maryland; attorneys for
Appellant Chesapeake Utilities Corporation.
Todd A. Coomes, Esquire and Selena E. Molina, Esquire of Richards Layton &
Finger; Wilmington, DelaWare; attorneys for Appellee DelaWare Association of
Alternative Energy Providers, Inc.
Brenda R. Mayrack, Esquire of the Department of Justice, Dover, DelaWare; attorney
for the DelaWare Public Service Cornmission
WITHAM, R.J.
Chesapeake Utilities Corporation v. DelaWare Public Service Commission
C.A. No. Kl7A-01-001 WLW
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This appeal from the DelaWare Public Service Commission requires the Court
to resolve a single issue: may an unregulated competitor intervene to protect its
interest in a regulated utility’s rate proceeding?
Applicant-BeloW/Appellant Chesapeake Utilities Corporation (“Chesapeake”)
appeals from two orders that Were part of a final determination of the DelaWare Public
Service Commission (“the Commission”). The first order grants the petition of
Intervenor-BeloW/Appellee DelaWare Association of Alternative Energy Providers,
Inc. (DAAEP) to intervene. The second denies Chesapeake’s petition for an
interlocutory appeal and affirms the earlier order granting intervention.
This Court finds that the Commission exceeded its statutory authority When it
granted DAAEP’s petition to intervene in a public utility’s rate case because the sole
interest claimed by the intervenor Was as an unregulated competitor to the public
utility. The intervention orders of the hearing examiner and the Commission are thus
reversed. Because the orders regarding intervention are reversed on that ground, the
Court does not reach Chesapeake’s second argument: that the Commission’s
determination Was unsupported by substantial evidence.
FACTS AND PROCEDURAL HISTORY
Chesapeake filed an application With the Commission in December 2015 for
a general increase in its natural gas rates and other changes to its natural gas tariff.1
The application sought to expand Chesapeake’s natural gas offerings through new
lR. at 2.
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programs.2
A few months later, in February 2016, DAAEP filed a petition for leave to
intervene in the rate doclId. at 2, 11 7.
3 Id. at 3.
4 1d.ar3,111[ 5-6,10-11.
5 See generally id. at 3.
6 Ia'. at 4.
7 In re Chesapeake Utils. Corp., No. 15-1734, Order No. 8860 (Del. Pub. Serv. Comm’n
Mar. 11, 2016).
8 See generally R. at 7, 8.
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by a four-to-one vote.9 The parties then executed a settlement agreement, which the
Commission accepted.10 The settlement resolved all of the issues in the case other
than DAAEP’s standing to intervene, which it preserved for appeal.ll
This appeal followed, limited to DAAEP’s standing to intervene. The parties
have agreed only to appeal the examiner’s decision, affirmed by the Commission.
THE PARTIES’ CONTENTIONS
I. The Commission ’s Statutory Jurisdiction
Chesapeake argues that the Commission exceeded its statutory authority to
regulate a public utility’s rates and services because the statute does not provide the
authority to balance or consider the competitive interests of unregulated competitors
to regulated companies lt points to tribunals in other states have held that
competitors of public utilities should not be able to intervene in public service
commission proceedings
DAAEP argues that the Commission has statutory authority to conduct
evidentiary hearings and discretion to determine who may intervene in its
proceedings lt points to prior dockets in which it has been allowed to intervene.
And it distinguishes all of the authority cited by Chesapeake, contending that the
9 In re Chesapeake Utils. Corp., No. 15-1734, Order No. 8878 (Del. Pub. Serv. Comm’n
May 17, 2016).
10 In re Chesapeake Utils. Corp., No. 15-1734, Order No. 8982 (Del. Pub. Serv. Comm’n
Dec. 20, 2016).
ll Id., Ex. l at 1.
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cases apply different statutory and regulatory schemes and that some fail to discuss
intervention at all.
11. Whether The Commission ’s Orders Were Based on Substantial Evidence
Chesapeake argued before the Commission that DAAEP did not satisfy the
“public interest” prong of the Commission’s intervention rule because (1) Senate
Joint Resolution 7 demonstrated that the policy of the State of Delaware is to
encourage natural gas expansion, and (2) earlier interventions by DAAEP were not
a relevant criterion in determining whether a party may intervene. On appeal,
Chesapeake argues that the hearing examiner’s conclusion that Chesapeake Was
“attempting to virtually extinguish the economic interests of alternative fuel dealers
and the economic interests of Kent County and Sussex County residents who do not
reside near Chesapeake’s mains12 and who rely upon alternative fuels” was not
supported by sufficient evidence and was “pure supposition.”13
DAAEP argues that Chesapeake’ s argument does not address the totality of the
hearing examiner’s reasoning or even mention the Commission’s reasoning in
affirming the intervention. The hearing examiner, DAAEP contends, based his
determination on several factors The mention of Senate Joint Resolution 7 was only
in response to Chesapeake’s argument. And tinally, DAAEP argues, the hearing
12 As used here, a “main” is “a principal pipe or duct in a system used to distribute water, gas,
Main, Dictionary. com, http://www.dictionary.com/browse/main? s=t (last visited May 30,
37
etc.
2017)
13 Chesapeake Utils. Corp., Order No. 8860 11 27 (Mar. 11, 2016).
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examiner’s reasoning relating to earlier interventions was only to cite them for the
proposition that DAAEP had an interest in the proceedings and that intervention was
in the public interest.
STANDARD OF REVIEW
Both parties agree that the standard of review is found at 26 Del. C. § 510:
“[T]he Commission’s findings shall be upheld if they are supported by sufficient
evidence, free of error of law and not arbitrary or capricious When factual issues are
reviewed the Court shall take due account of the presumption of official regularity
and the quasi-legislative function and specialized competence of the Commission.”14
“A reviewing court may accord due weight, but not defer, to an agency interpretation
of a statute administered by it. A reviewing court will not defer to such an
interpretation as correct merely because it is rational or not clearly erroneous.”15
“Where an agency interpretation is longstanding and widely enforced, a reviewing
court would ordinarily accord greater weight to the underlying agency interpretation
of the statute in determining, for itself``, the optimal interpretation.”16
DISCUSSION
I. The Commission ’s Statutorjy Juri'sdiction
The Commission exceeded its statutory authority when it granted DAAEP’s
14 26 Del. C_ § 510(d).
15 Pub. Water Supply C0. v. DiPasquale, 735 A.2d 378, 382-83 (Del. 1999).
16 Id. at 382 n.8.
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petition to intervene because the Commission may not consider the competitive
interests of unregulated competitors
Chesapeake frames the issue as one of the Commission’s “authority to balance
(or even to consider) the competitive interest of unregulated fuel providers vis-a-vis
a regulated utility.” The primary question is whether the Commission, having
adopted rules that permit entities and individuals to intervene, erred as a matter of law
by permitting an unregulated competitor of the utility to intervene in rate proceedings
The Court finds that the Commission erred when it allowed an unregulated
competitor to intervene to protect its own interests
A. DelaWare ’s Utill``ly Regulatory Scherne
ln Delaware, the Public Service Commission has “exclusive original
supervision and regulation of all public utilities and also over their rates . . . so far as
may be necessary for the purpose of carrying out” the provisions of Title 26 of the
DelaWare Code.17 As a creature of the Delaware legislature, the Commission’s
“powers are limited to those conferred by the legislature.”18 The Superior Court has
held that section 201 of the Commission’s enabling statute “indicates . . . that the
legislature specifically created the Commission for the purpose of balancing the
17 26 Del. C. § 201(a).
18 E. Shore Nat. Gas Co. v. Del. Pub. Serv. Cornm ’n, 635 A.2d 1273, 1277 (Del. Super. Ct.
1993) (citing Pub. Serv. Comm ’n v. Diamona'State Tel. , 468 A.2d 1285 (Del. 1983)), aj”d, 637 A.2d
10 (Del. 1994), averruled 0n other grounds by DiPasquale, 735 A.2d 378.
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interests of the consuming public with those of regulated companies.”19
DelaWare public utilities are prohibited from imposing “any unjust or
unreasonable or unduly preferential or unjustly discriminatory individual or joint
rate.”20 And in order to change their rates, utilities must notify the commission,
which is authorized to hold proceedings on the lawfulness of the rate.21 Those
proceedings must be “conducted in accordance with the rules of practice and
procedure prescribed by the Commission.”22
The Commission’s Rules of Practice and Procedure specify what is required
to intervene in a rate proceeding23 In particular, a petition for intervention must
include “a concise statement of why the petitioner’s interest will not be adequately
represented by the parties to the proceeding or why participation in the proceeding
would be in the public interest.”24
The statute and Delaware case law do not give the Court much guidance on this
question of first impression. Neither the parties nor the Court’s own research have
uncovered another Delaware case which has dealt with whether an unregulated
19 Id. (citing Delrnarva Power & Light Co. v. Cily of Seaford, 575 A.2d 1089, 1097 (Del.
1990)) (emphasis added).
20 1a § 303(3).
211d. § 304(a), (b); id. § 305.
22 Id. § 503(a).
23 26-1001-2.0 Del. Adrnin Coa'e § 2.9.
241d. §2.9.1.3.
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energy company may intervene in rate proceedings to protect its competitive interests
The Commission’s practice has been to grant intervention liberally, and it has
at other times granted DAAEP’s requests to intervene.25 While the Court affords
some weight to its practice, it does not end the Court’s analysis The Commission’s
authority to determine whether proposed rates are unjust, unreasonable, unduly
preferential, or unjustly discriminatory is necessarily limited, by the statute, to the
relationship of the utility to its subscribers And although the Commission has the
authority to prescribe a rule for intervention in its proceedings, it may not administer
that rule in such a way as to extend its jurisdiction to areas not contemplated by the
statute. While the statute itself does not define who the members of the “consuming
public” are, it is abundantly clear that DAAEP and its members would not be
included given the fact that their sole interest here is as dealers of a competing
product.
This outcome also makes sense as a matter of policy. If permitted to intervene,
unregulated competitors may participate in discovery to the same extent as other
intervenors, increasing burdens ori the State (through the Commission and the
Division of the Public Advocate), the regulated utility and its ratepayers, and other
proper intervenors A more carefully circumscribed intervention standard thus not
only accords With the Commission’s statutory grant of authority, but also effectuates
the public interest by keeping the cost of rate proceedings in check.
25 In re Chesapeake Utils. Corp., No. 15-1734, Order No. 8878 11 18 (Del. Pub. Serv.
Comm’n May 17, 2016).
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B. The Case Law of Other Jurisdictions
The Court has reviewed the cases Chesapeake cites from other jurisdictions
While not binding on this Court, they uniformly demonstrate the trend among other
jurisdictions that apply similar statutory schemes: public service commissions may
only grant intervention when authorized by governing statute, and unregulated
competitors may not intervene in a regulated utility’s rate proceeding
Central Maine Power Co. v. Public Utilities Commission illustrates the
proposition that the jurisdiction of a public service commission is limited to its
statutory grant of authority.26 ln Central Maine, the Supreme J udicial Court held that
an oil-dealer association lacked standing to intervene in rate-making proceedings
concerning a regulated utility.27 The association, the Court held, was “outside the
class Whose interests the rate regulation facets of the public utility statute seek to
protect” and, as a matter of policy, “the rate regulation objectives of the statute
[could] be realized without need to confer intervenor status in a rate investigation on
private entities such as” the association28
DAAEP argues, forcefully, that the Maine case should be distinguished
because that state’ s intervention rule was more restrictive than Delaware’ s, permitting
only those that “are directly and substantially affected by the proceeding” to
26 See 382 A.2d 302 (Me. 1978).
27 Ia'. at 311-12.
28 Id. at 312.
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intervene.29 DAAEP also points out that the holding in Central Maine has been
superseded by new rules permitting intervention by an “interested person” in the
commission’s discretion.30 Still, the case’s reasoning is instructive: the statutory
scheme in Delaware, like Maine’ s,31 does not contemplate the Commission protecting
the interests of unregulated competitors It follows that an unregulated competitor’s
intervention in Commission rate proceedings here would likewise be improper.
Pennsylvania Petroleum Association v. Pennsylvania Power & Light Co.
further illustrates the limitations on a public service commission’s ability to protect
the interests of non-participants in a regulatory scheme.32 The case raises the issue
in the context of a rate-case intervenor’s standing to appeal, and is premised upon
case law requiring that a party be “aggrieved” by the decision of the administrative
body.33 But the case is not entirely apposite, because the court ultimately held that
the association of fuel dealers lacked standing to appeal based on the fact that
competition between the utility and the association was not governed by the same
29 Id.
211 see 65-407-110 Me. Code R. § 8(B)(2).
31 See generally Me. Stat. tit. 35-A, § 101 (“The basic purpose of this regulatory system as
it applies to public utilities subject to service regulation under this Title is to ensure safe, reasonable
and adequate service, to assist in minimizing the cost of energy available to the State ’s consumers
and to ensure that the rates of public utilities subject to rate regulation are just and reasonable to
customers ana1 public utilities.” (emphasis added)).
32 377 A.2d 1270 (Pa. Commw. Ct. 1977).
33 See ia'. at 1271, 1273.
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regulatory Scheme.34
Chesapeake also cites Cole v. Washington Utilities & Transportati'on
Commission.35 Cole was an appeal of a decision of the Utilities and Transportation
Commission which denied an association of fuel oil dealers’ petition for intervention
because the commission’s standard, either under its “substantial interest” or “public
interest” test, did not embrace the association, and because the statute did not grant
the commission “authority to consider the effect of a regulated utility upon a
nonregulated business36 DAAEP argues that Washington’s standard was more
restrictive than Delaware’ s, and that even Washington’ s standard has been liberalized
and now permits competitors to intervene. But as before, the case still demonstrates
that a public service commission’s jurisdiction is necessarily limited by its enabling
Statut€.
Dayton Communications Corp.37 and In Re Michigan Consolia'ated Gas Co.38
support the same basic proposition as Cole. Dayton involved an unregulated
competitor of a regulated telephone company that wanted to purchase wiring inside
34 Ia'. at 1273 (“Because we can find here no evidence of a regulatory scheme in which both
parties participate which prohibits competition between them, we must conclude that [the intervenor]
does not have a substantial interest in the [Commission] order sufficient to bring this appeal.”)
33 485 P.2d 71 (Wash. 1971) (en banc).
36 Id. at 73-74.
37 Dayton Commc’ns Corp. v. Pub. Utils. Comm’n, 414 N.E.2d 1051 (Ohio 1980) (per
curiam).
33 No. 282810, 2010 WL 199571 (Mich. Ct. App. Jan. 21, 2010) (per curiam).
12
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a customer’s buildings.39 The wiring was installed and owned by the regulated
company.40 The Ohio Supreme Court held that the commission could not “balance
the interests of a public utility . . . vis-a-vis its competitors in a complaint
proceeding.”41 DAAEP points out, accurately, that the case is disconnected from the
standard for intervention before a public utility commission But the case, like the
others, is useful for understanding the limits of the commission’s jurisdiction, not for
its illustration of the intervention standard.
In In re Michigan Consoll``a'atea' Gas Co., the Michigan Court of Appeals
sustained its public service commission’s denial of two competitors’ motions to
intervene.42 The court stated that “we are not convinced of the propriety of holding
that a business competitor is entitled to intervene as a matter of right in its
competitor’s case absent a showing of something more than possible future damage
to the competitor’s bottom line. Such a rule could easily lead to abuse.”43 DAAEP
argues that the intervention-as-of-right test used by the Michigan commission is more
restrictive than the Delaware standard and more akin to a standing test. lt points out
that the commission in Michigan also has a broader permissive intervention rule
39 Dayton, 414 N.E.2d at 1052.
40 Ia’.
41 Ia'. at 1054.
43 In re Mich. Consol. Gas Co., 2010 WL 199571, at *6.
43 Ia'.
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which has been used to permit competitors to intervene in proceedings.44 As
Chesapeake points out, however, the permissive intervention case cited by DAAEP
is a commission order only and was not appealed. And, as before, the case
demonstrates that intervention rules must be applied consistently with the agency’s
enabling statute.
ln Commonwealth ex rel. Mia'-Atlantic Petroleum Distributors Association,
Virginia’s Division of Energy Regulation held that an association of unregulated
sellers of alternative energy sources did not have standing to challenge a regulated
3 Chesapeake argues that the case demonstrates that unregulated
utility’s rates4
providers have no standing in rate cases because protecting unregulated providers
from competitive injury is not a statutory concern of the commission. DAAEP merely
points out that the intervention standard in Virginia was a higher standard than
Delaware’ s, requiring a “legal right” to bring a challenge. But the case remains useful
for its essential holding.
A decision of the New York commission, In re Promotional Activin``es by Gas
and Electric Corps. , demonstrates that a public service commission “cannot be called
upon to protect a nonregulated industry from competition by a regulated utility
company when it is unable to protect the latter from the competition of the former.”46
44 See In re DTE Gas Co., No. U-17691, slip op. at 5-6 (Mich. Pub. Serv. Comm’n Nov. 22,
2016).
43 No. PUE830010, 1983 WL 20094, at *3 (Va. S.C.C. Feb. 15, 1983).
46 68 P.U.R.3d 162, 169 (N.Y. Pub. Serv. Comm’n 1967).
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The New Jersey Commission iri Superz``or Propane Co. v. South Jersey Gas Co.,
arrived at a similar conclusion.47 DAAEP seeks to distinguish both cases by noting
that the competitors were permitted to bring the complaints and receive a decision on
the merits But DAAEP’s argument misses the mark, because both decisions
ultimately resulted in the commissions finding themselves without jurisdiction to
consider competitors’ claims
Two more cases accord with this general theme. The first, Public Service Co.
v. Trigen-Nan``ons Energy Co., L.L.L.P, was a case in which the Colorado Supreme
Court affirmed its public utility commission’S denial of intervention where allowing
the intervention of competitors in the rate agreement by-pass procedure would have
frustrated the statute’s purpose.48 DAAEP points out that the intervention standard
differs from Delaware’s and that the court decided the case under an abuse of
discretion standard. But the case nonetheless shows that intervention must be granted
only in accordance with the enabling statute.
The second, In re Chittena'en Recycling Services, deals with a state
environmental board which denied intervention to a competitor.49 As DAAEP rightly
noted, the state environmental board’s intervention and party-status standard
envisioned a property interest and not merely an interest in competing with the
47 60 P.U.R.3d 217 (N.J. Bd. of Pub. Util. Comm’rs 1965).
43 982 P.2d 316, 319, 326-27 (Colo. 1999) (en banc).
49 643 A.2d 1204, 1205-06 (Vt. 1994).
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potential permittee. Yet Chittena'en is still helpful insofar as it shows, again, that
agencies may only allow intervention in a manner consistent with their enabling
statutes
The case law from other jurisdictions, While not binding on this Court, is
persuasive despite the diversity of regulatory schemes and intervention standards the
reviewing courts described. A public service commission may not grant intervention
in a manner inconsistent with its statutory grant of authority.
The order affirmed by the Commission granted the DAAEP’s intervention
petition based primarily on DAAEP’s interest as a competitor in the outcome of the
proceedings50 Such an intervention policy is far too liberal because it ignores the
Commission’s status as a creature of statute. The presence of intervenors on a
Commission docket must be limited to those that have an interest in the proceedings
that the Commission is authorized to consider. lntervention based upon a purely
economic interest as a competitor would grant the Commission unlimited authority
not contemplated by the General Assembly.
II. Whether lee Commission ’s Orders Were Basea1 on Substantial Evz``a'ence
Having reversed the Commission’s orders as to intervention on the preceding
ground, the Court does not consider Chesapeake’s second claim, that the Commission
failed to base its order on substantial evidence when it concluded that Chesapeake’s
offerings would virtually extinguish the interests of fuel oil dealers and when it relied
30 In re Chesapeake Utils. Corp., No. 15-1734, Order No. 8860 1111 1-3, 19, 24 (Del. Pub.
Serv. Comm’n Mar. 11, 2016).
16
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upon DAAEP’s intervention in earlier cases
Additionally, Chesapeake failed to preserve the argument about the hearing
examiner’s remark by raising it before the Commission. “[S]tandalone arguments in
footnotes are usually not considered fairly raised in any court.”51 At best,
Chesapeake’s appeal of the hearing examiner’s order mentioned the statement it has
now placed at issue, but it failed to challenge it meaningfully in the body of its
appeal.52 And a thorough reading of the transcript of the hearing before the
Commission disclosed no discussion of the issue.33 The Court will not decide a
matter that was never properly put before the Commission.
CONCLUSION
The Commission has no statutory authority to consider the competitive
interests of unregulated providers in a rate proceeding Order 8860, granting
DAAEP’s intervention, and order 8878, affirming the hearing examiner’s order, are
thus REVERSED and VACATED.
lT lS SO ORDERED.
/s/ William L. Witham Jr.
Resident Judge
WLW/dmh
31 Sabee Envtl. & Constr., Inc. v. Summit Dredging, LLC, 149 A.3d 517 (Table), 2016 WL
5930270, at *l (Del. Oct. 12, 2016).
33 See R. Ex. 7, at 2 n.5.
33 Rawle at 9.
17