Red Lion Municipal Auth. v. PA PUC

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Red Lion Municipal Authority, :
:
Petitioner :
:
v. : No. 186 C.D. 2019
: Argued: September 9, 2019
Pennsylvania Public Utility :
Commission, :
:
Respondent :
BEFORE: HONORABLE ANNE E. COVEY, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE ROBERT SIMPSON, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE WOJCIK FILED: October 29, 2019
Red Lion Municipal Authority (Red Lion) petitions for review of the
order of the Pennsylvania Public Utility Commission (PUC) denying Red Lion’s
exceptions to an administrative law judge’s (ALJ) Initial Decision; granting Red
Lion’s request for clarification of the Initial Decision; and modifying the Initial
Decision. The Initial Decision had approved the application of The York Water
Company (York Water) to enter an Emergency Interconnect Agreement with
Dallastown-Yoe Water Authority (DYWA) and dismissed Red Lion’s challenge to
the Emergency Interconnect Agreement. Red Lion also petitions for review of the
PUC’s subsequent order denying its application for reconsideration of the PUC’s
initial order with respect to the ALJ’s Initial Decision. We affirm.
The following are the relevant facts as found by the PUC.1 York
Water is a public utility that supplies water and wastewater services to 66,100
customers in York and Adams Counties. DYWA is a municipal authority
organized under the former Municipality Authorities Act of 1945 (Act),2 and was
created by Dallastown and Yoe Boroughs to oversee and manage their water
services, providing water to approximately 4,300 customers. Red Lion is a
municipal authority created under the Act to purchase the assets of the former Red
Lion Water Company and to provide water service to Red Lion Borough and
adjacent municipalities, including Dallastown and Yoe Boroughs. According to
Red Lion, it has exclusively supplied water for DYWA since 1959, and the most
recent May 8, 2013 Water Sales Agreement is for another 10-year term.
On May 10, 2017, DYWA executed the Emergency Interconnect
Agreement with York Water to provide an additional supply of water for resale to
its customers. Under the agreement, York Water will build a 12-inch main
extension 600-feet long from its existing distribution system to connect to
DYWA’s system. DYWA will build a 6-inch water main extension to the
interconnection location. York Water will also build a booster station with
1
“The PUC is the ultimate fact-finder, [that] determines the weight and credibility of the
evidence presented, and this Court acknowledges the PUC’s findings are conclusive on appeal,
unless they are not supported by substantial evidence.” Kviatkovsky v. Pennsylvania Public
Utility Commission, 618 A.2d 1209, 1211 (Pa. Cmwlth. 1992) (citation omitted). “Substantial
evidence is commonly defined as relevant evidence that a reasonable mind might accept as
adequate to support a conclusion.” Id. at 1212 (citation omitted).
2
Act of May 2, 1945, P.L. 382, as amended formerly, 53 P.S. §§301-322, repealed by
Section 3 of the Act of June 19, 2001, P.L. 287. See now Municipality Authorities Act, 53
Pa. C.S. §§5601-5623.
2
chemical feed systems, data controls, and back-up power supply to DYWA. The
total cost of the project is $726,049.
The Emergency Interconnect Agreement also states that York Water
will only supply water to DYWA to the extent called upon by DYWA, so that
DYWA is not required to draw a minimum amount of water. However, if called
upon, York Water could supply DYWA with a maximum of 250,000 gallons of
water per day at a flow rate not to exceed 200 gallons per minute. Because DYWA
is not paying any upfront costs, York Water will bill DYWA monthly for a
minimum of not less than 3,000,000 gallons of water, but no more than 250,000
gallons per day, whether or not DYWA uses the Emergency Interconnect
Agreement in a given month. Under its current tariff rates, and based on a
minimum of 3,000,000 gallons per month, York Water estimates that DYWA will
pay approximately $248,000 annually and that it will incur $69,596 in annual
expenses exclusive of a return on investment under the agreement.
On June 16, 2017, York Water filed an application with the PUC to
certify the Emergency Interconnect Agreement pursuant to Section 507 of the
Public Utility Code (Code).3 On July 24, 2017, Red Lion filed a formal complaint
3
66 Pa. C.S. §507. Section 507 of the Code states that “[e]xcept for a contract between a
public utility and a municipal corporation to furnish service at the regularly filed and published
tariff rates, no contract or agreement between any public utility and any municipal corporation
shall be valid unless filed with the PUC,” and that the PUC “may, prior to the effective date of
such contract or agreement, institute proceedings to determine the reasonableness, legality or any
other matter affecting the validity thereof.” Section 507 also states that “[u]pon the institution of
such proceedings, such contract or agreement shall not be effective until the [PUC] grants its
approval thereof.” In turn, Section 508 provides:
The [PUC] shall have power and authority to vary, reform, or
revise, upon a fair, reasonable, and equitable basis, any
obligations, terms, or conditions of any contract heretofore or
(Footnote continued on next page…)
3
with the PUC and alleged, inter alia, that the Emergency Interconnect Agreement
violated Section 4.3 of York Water’s PUC-approved tariff (Tariff Rule 4.3)4 and
(continued…)
hereafter entered into between any public utility and any person,
corporation, or municipal corporation, which embrace or concern a
public right, benefit, privilege, duty, or franchise, or the grant
thereof, or are otherwise affected or concerned with the public
interest and the general well-being of this Commonwealth.
Whenever the [PUC] shall determine, after reasonable notice and
hearing, upon its own motion or upon complaint, that any such
obligations, terms, or conditions are unjust, unreasonable,
inequitable, or otherwise contrary or adverse to the public interest
and the general well-being of this Commonwealth, the [PUC] shall
determine and prescribe, by findings and order, the just,
reasonable, and equitable obligations, terms, and conditions of
such contract. Such contract, as modified by the order of the
[PUC], shall become effective 30 days after service of such order
upon the parties to such contract.
66 Pa. C.S. §508.
4
Tariff Rule 4.3 states:
When a York County municipality or authority has exhausted all
alternatives to obtaining an adequate high-quality source of supply,
[it] may apply to [York Water] for the purchase of water. Upon
the execution of an agreement satisfactory to [York Water], [York
Water] will supply water to the municipality or authority for resale
within the service boundaries of the municipality or authority.
[York Water] will bill the municipality or authority at [York
Water’s] single-point meter rate where monthly the number of
customers of the municipality or authority times 1200 gallons will
be billed at the first block rate and any remainder consumption will
be billed at the regular block rate or rates.
Reproduced Record (R.R.) at 184a.
4
that it was an ordinary water purchase agreement. On August 15, 2017, Red Lion
filed a petition to intervene in the application.
On August 18, 2017, Red Lion filed an amended complaint and again
asserted that the Emergency Interconnect Agreement violates York Water’s Tariff
Rule 4.3. Reproduced Record (R.R.) at 203a-204a. Red Lion also alleged that the
agreement is a bulk water purchase agreement and that it violates Section 1501 of
the Code5 because the introduction of York Water’s chloramine-treated water into
DYWA’s free-chlorine-treated water supply will negatively impact the water
chemistry and stability of DYWA’s water system. Id. at 204a-205a. Red Lion
further alleged that the Emergency Interconnect Agreement is silent as to how a
joint supervisory control and data acquisition (SCADA) system will be established
to assure safe and consistent water supply and pressure among the three different
water systems. Id. at 206a.
5
66 Pa. C.S. §1501. Section 1501 states, in pertinent part:
Every public utility shall furnish and maintain adequate, efficient,
safe, and reasonable service and facilities, and shall make all such
repairs, changes, alterations, substitutions, extensions, and
improvements in or to such service and facilities as shall be
necessary or proper for the accommodation, convenience, and
safety of its patrons, employees, and the public. Such service also
shall be reasonably continuous and without unreasonable
interruptions or delay. Such service and facilities shall be in
conformity with the regulations and orders of the commission.
Subject to the provisions of this part and the regulations or orders
of the commission, every public utility may have reasonable rules
and regulations governing the conditions under which it shall be
required to render service. Any public utility service being
furnished or rendered by a municipal corporation beyond its
corporate limits shall be subject to regulation and control by the
commission as to service and extensions, with the same force and
in like manner as if such service were rendered by a public utility.
5
On September 7, 2017, York Water filed an answer to the amended
complaint, with new matter and preliminary objections, that denied that the
Emergency Interconnect Agreement violates Tariff Rule 4.3 or that it constitutes a
bulk water purchase agreement. R.R. at 220a-230a. York Water also argued that
the PUC is without jurisdiction to interpret or enforce the May 8, 2013 Water Sales
Agreement between DYWA and Red Lion or Red Lion’s issues with the quality of
DYWA’s water supply. Id. at 224a-225a. York Water also preliminarily objected
because Red Lion lacked standing to raise claims of unreasonable service on behalf
of DYWA or its customers. Id. at 231a-246a. Red Lion filed an answer to York
Water’s preliminary objections and a PUC ALJ denied the preliminary objections.
Id. at 247a-271a.6
Four witnesses testified before the ALJ, and exhibits were submitted,
at a January 23, 2018 hearing. Joseph Hand, York Water’s Chief Operating
Officer, testified that he is responsible for the day-to-day company operations.
R.R. at 78a. He outlined the system to be constructed under the Emergency
Interconnect Agreement, including the specifications and allocation of costs, and
stated that York Water had enough water supply available to meet its commitment.
Id. at 78a-80a. He testified that the Pennsylvania Department of Environmental
Protection (DEP) encourages community water suppliers to maintain more than
one source of water supply. Id. at 80a. He stated that Red Lion adds fluoride to its
water while York Water does not, and that York Water uses chloramines to
disinfect its water, but that Red Lion uses free chlorine. Id. Hand testified that
York Water has supplied water to 7 municipalities over the last 25 years, including
6
In September 2017, the matters were consolidated for disposition without objection at a
Prehearing Conference.
6
3 with chorine-treated water, and that there have never been any issues regarding
the blending of supplies. Id.
Mark Snyder, York Water’s Vice President of Engineering, testified
that he oversees the analysis, planning, engineering, and construction activities for
its capital projects. R.R. at 81a. He outlined the connections and pumping station
for the system supply, and stated that the results of hydraulic analysis showed that
the emergency interconnect will not negatively affect the hydraulics of York
Water’s system, DYWA’s system, or Red Lion’s system. Id. at 82a. He stated that
communications between the Red Lion system and DYWA system via DYWA’s
SCADA system will remain unchanged after the emergency interconnect is
completed. Id.
Connie Stokes, Dallastown Borough’s and DYWA’s Manager,
testified that DYWA customers have complained of issues with their water
including discoloration, and that between December 4, 2016, and July 11, 2017,
Red Lion’s water supplied to DYWA’s Park Street Tanks was below that which
was contractually required. R.R. at 82a. She stated that in 2009, there was a
system-wide turbidity issue in Red Lion’s water system that affected all consumers
supplied by Red Lion. Id. She testified that DYWA determined that it would be in
its best interest and that of its customers to have an additional source of water
supply. Id. She stated that one of the main benefits of having an emergency
interconnect with York Water is the existence of an alternative source when Red
Lion cannot supply its contractually obligated minimum amount of water. Id. at
83a. She testified that DYWA determined that there would not be an issue with
receiving the differently treated water supplies so long as York Water and Red
7
Lion comply with their permits and DYWA monitors and controls the two supplies
in its system. Id.
Keith Kahwajy, Red Lion’s Water and Sewer Superintendent, testified
that he is not a licensed engineer and does not have any engineering or chemistry
degrees, and has no experience in operating, managing or overseeing an emergency
interconnect system. R.R. at 83a. He stated that undetected or unrepaired system
leaks would cause the tank levels in DYWA’s system to fall below 77 feet, and
that tank levels would have to fall significantly below 77 feet to be a safety
concern. Id. at 84a. He testified that DYWA is required to notify Red Lion of any
leaks or repairs so that he can record the information on the daily water usage
spreadsheet and use the information for leak detection and other potential problems
in the system. Id. He stated that there has never been an issue with Red Lion’s
ability to supply water to meet the demands of DYWA’s customers, and that
although its system is not connected to an alternative supply source, it has the
option of using water from both Beaver Creek and the Susquehanna River if a
problem arises with its main source of supply. Id.
On June 7, 2018, the ALJ issued an Initial Decision in which he
concluded:
The request of York [Water] and DYWA for an
emergency interconnect agreement is approved because it
is reasonable and in the public interest. The agreement
satisfies Sections 507 and 508 of the [Code] because it
will provide DYWA with more than one source of
supply, as is encouraged by the DEP. York [Water] and
DYWA are commended for having the foresight to enter
into this agreement so that DYWA can be prepared in the
event of a problem with DYWA’s lone source of water
supply. In contrast, the complaint filed by Red Lion will
be dismissed because Red Lion has failed to demonstrate
that the proposed emergency interconnect in anyway
8
violates the [Code], a [PUC] order or regulation or a
[PUC]-approved tariff of the company.
R.R. at 104a. Accordingly, the ALJ granted York Water’s application and
dismissed Red Lion’s amended complaint. Id. at 106a. On July 6, 2018, Red Lion
filed exceptions7 to the ALJ’s Initial Decision and sought clarification of the
decision.
On September 20, 2018, the PUC issued an Opinion and Order
disposing of Red Lion’s exceptions. R.R. at 8a-37a. The PUC rejected Red Lion’s
first exception that York Water satisfied its burden of proving that the Emergency
Interconnect Agreement is reasonable and in the public interest. Id. at 24a-28a. In
rejecting this exception, the PUC explained:
[W]e note that all the issues Red Lion raised in its
Exception No. 1 have already been considered and
rejected by the ALJ in his Initial Decision. Here, we
concur with the ALJ’s conclusion that York Water
satisfied its burden to demonstrate that the [Emergency]
Interconnect Agreement is reasonable and in the public
interest. We are not convinced by the arguments set forth
by Red Lion to support its position that the agreement is
not an emergency interconnect agreement but rather a
bulk water sales agreement.
We find no merit in Red Lion’s argument that the
[Emergency] Interconnect Agreement is a bulk water
sales agreement because the word “emergency” is only
referenced in passing in the agreement. We agree with
York Water that the agreement provides an additional
source of water supply to DYWA in case of an
interruption to Red Lion, currently the only other source
to provide water to DYWA. Further, the record is clear
that DEP requires water utilities to have more than one
7
Section 5.533(a) of the PUC’s regulations states, “In a proceeding, exceptions may be
filed by a party and served within 20 days after the initial . . . decision is issued unless some
other exception period is provided.” 52 Pa. Code §5.533(a) (emphasis added).
9
source of water supply. And as noted by DYWA, the
DEP, has, in the past, encouraged DYWA to secure an
additional water provider. We believe the [Emergency]
Interconnect Agreement provides DYWA the ability to
acquire an additional source of water supply in case of an
emergency impacting DYWA’s current and only source
of water supply. We also agree that while DYWA may
never take advantage of the emergency interconnect, the
fact that such an agreement is in place and will be
available when the opportunity presents itself compels us
to approve the [Emergency] Interconnect Agreement to
protect the best interest of the public. As such, we shall
deny Red Lion’s Exception No. 1.
Id. at 27a-28a.
The PUC also rejected Red Lion’s second exception, explaining:
Here, Red Lion’s argument is based on a statement made
by DYWA’s Manager that DYWA did not explore, let
alone exhaust, any alternatives to obtaining an inadequate
high-quality source of water prior to entering into an
agreement with York Water. The ALJ correctly
determined that, as the party with the burden of proof,
Red Lion needed to present more evidence than just
relying on Ms. Stokes’ comment. Therefore, we agree
with the ALJ’s determination that the comment made by
Ms. Stokes is not substantial evidence to support Red
Lion’s argument because more is required than a mere
trace of evidence or a suspicion of the existence of a fact
sought to be established. We also acknowledge York
Water’s argument that it is the only other feasible water
supplier alternative available to DYWA and the only
certificated water utility at the proposed point of
interconnection or within the general vicinity of
DYWA’s lower pressure zone. In our opinion, Red Lion
has not presented sufficient evidence to refute this claim;
nor has Red Lion presented any viable alternative water
supplier located at the proposed point of interconnection
or within the general vicinity of DYWA’s lower pressure
zone. Therefore, we conclude that Red Lion has failed to
satisfy its burden of proof to show that York Water
violated the Code, a [PUC] Order or Regulation, or its
10
[PUC]-approved Tariff, when it entered into the instant
emergency interconnect agreement with DYWA. As
such, Red Lion’s Exception No. 2 is hereby, denied.
R.R. at 32a-33a (citation omitted).
Finally, with respect to Red Lion’s clarification request, the PUC
stated:
Upon review, we shall grant Red Lion’s request
for clarification to the extent that Red Lion is requesting
that we clarify in this instant proceeding that our review
of this matter is limited to the [Emergency] Interconnect
Agreement and not the [2013] Water Sales Agreement
[between Red Lion and DYWA]. We note that [we] do[]
not have the authority to interpret, enforce or adjudicate
claims regarding a contract between private, non-
jurisdictional entities or municipalities. See, Pettko v.
[Pennsylvania American Water Company], 39 A.3d 473,
478 n.9 (Pa. Cmwlth. 2012) (“[T]here can be no dispute
that the courts of common pleas have subject matter
jurisdiction over common law claims such as conversion
and breach of contract involving private individuals and
businesses.”); Adams v. [Pennsylvania Public Utility
Commission], 819 A.2d 631, 635 (Pa. Cmwlth. 2003)
(“[T]he PUC lacks jurisdiction over private contractual
disputes.”).
Here, the matter before the [PUC] is the
“Emergency Interconnect Agreement” between York
Water and DYWA[.] Pursuant to Section 507 of the
Code, [] we have the authority to review the [Emergency]
Interconnect Agreement. However, we are not
authorized to review the Water Sales Agreement as both
municipalities involved are non-jurisdictional entities.
Consequently, our review in the instant proceeding is
limited to the [Emergency] Interconnect Agreement and
not the Water Sales Agreement. Accordingly, we shall
grant Red Lion’s request and clarify, to the extent any
clarification is needed, that our review in the instant
proceeding does not make any determination regarding
the Water Sales Agreement as that agreement is outside
the purview of [the PUC].
11
Also, based on our review of the [Emergency]
Interconnect Agreement, we find it to be reasonable and
in the public interest. Therefore, we shall approve the
[Emergency] Interconnect Agreement between York
Water and DYWA.
R.R. at 34a-35a.
Accordingly, the PUC issued an order: (1) denying Red Lion’s
exceptions to the ALJ’s Initial Decision; (2) granting Red Lion’s request for
clarification to the extent that it is limited to the Emergency Interconnect
Agreement and not the Water Sales Agreement; (3) adopting, as modified, the
ALJ’s Initial Decision; (4) dismissing Red Lion’s Amended Formal Complaint; (5)
approving the Emergency Interconnect Agreement between York Water and
DYWA; and (6) closing the record in the matter. R.R. at 36a-37a.8
On October 5, 2018, Red Lion filed a petition for reconsideration and
a stay that the PUC granted on October 19, 2018. On January 17, 2019, the PUC
addressed the merits of the petition for reconsideration and a stay at a public
meeting and denied the petition, essentially reaffirming its September 20, 2018
Order. 9 Red Lion then filed the instant petition for review.10
8
On October 22, 2018, Red Lion filed a petition for review of the PUC’s September 20,
2018 order, which was docketed in this Court at No. 1417 C.D. 2018. However, the notice of
appeal was dismissed as inoperative by this Court’s October 25, 2018 order pursuant to
Pa. R.A.P. 1701(b)(3) (providing that the PUC’s grant of reconsideration rendered inoperative
the petition for review and that the time for filing a petition for review begins to run anew from
the date of the entry of a subsequent PUC decision on reconsideration).
9
With respect to its disposition of Red Lion’s reconsideration request, the PUC outlined
the legal standards to be applied:
The Code establishes a party’s right to seek relief following
the issuance of our final decisions pursuant to Subsection 703(f),
relating to rehearing, as well as Subsection 703(g), relating to the
rescission and amendment of orders. 66 Pa. C.S. §703(f) and
(Footnote continued on next page…)
12
(continued…)
§703(g). Such requests for relief must be consistent with Section
5.572 of our Regulations, relating to petitions for relief following
the issuance of a final decision. 52 Pa. Code §5.572.
The standards for granting a Petition for Reconsideration
were set forth in Duick v. Pennsylvania Gas and Water Company,
56 Pa P.U.C. 553[, 559] (1982):
A Petition for Reconsideration, under the provisions of 66
Pa. C.S. §703(g), may properly raise any matters designed
to convince the [PUC] that it should exercise its discretion
under this Code section to rescind or amend a prior order in
whole or in part. In this regard we agree with the Court in
[Pennsylvania Railroad Co. v. Pennsylvania Public Service
Commission, 179 A. 850, 854 (Pa. Super. 1935)], wherein
it was stated that “[p]arties . . ., cannot be permitted by a
second motion to review and reconsider, to raise the same
questions which were specifically decided against them
. . . .” What we expect to see raised in such petitions are
new and novel arguments, not previously heard, or
considerations which appear to have been overlooked by
the [PUC].
R.R. at 46a-47a.
In support of its assertion that the Emergency Interconnect Agreement was actually a
bulk water sales agreement, Red Lion relied upon, inter alia, York Water internal emails and the
minutes of York Water’s Board of Director’s June 26, 2017 meeting that were not previously
made part of the record. See R.R. at 52a. York Water argued that the PUC’s consideration of
this extra-record evidence was improper. See id. at 54a. The PUC ultimately determined:
Red Lion asserts a sixth argument pertaining to alleged contacts
between York Water and DYWA which were not raised
previously. Specifically, Red Lion asserts arguments regarding
York Water’s internal emails and minutes of York Water’s June
26, 2017 Board of Directors meeting. These documents are not in
the record and Red Lion has offered no excuse for its failure to
present this evidence prior to the close of [the] record. We agree
with York Water that Red Lion has failed to establish in this
(Footnote continued on next page…)
13
In this appeal, Red Lion claims that the PUC erred in: (1) determining
that the Emergency Interconnect Agreement between York Water and DYWA is
legal, reasonable, and in the public interest under Sections 507 and 508 of the
Code; (2) determining that Red Lion did not meet its burden of proving that the
Emergency Interconnect Agreement is illegal, unreasonable, and that its approval
is not in the public interest; and (3) denying Red Lion’s motion for
reconsideration.11
(continued…)
proceeding that this evidence is newly discovered or constitutes a
change in circumstances. Because Red Lion is attempting to
reference this new evidence in support of its argument, and there
has been no good cause shown for considering this extra-record
evidence, we shall decline to rely upon it for purposes of reaching
a final determination in this proceeding pursuant to Section 5.431
of our Regulations, 52 Pa. Code §5.431. See also, Hess v. Pa.
PUC, 107 A.3d 246, 265-66 (Pa. Cmwlth. 2014).
Id. at 63a. See also Section 5.243(e) of the PUC’s regulations, 52 Pa. Code §5.243(e) (“A party
will not be permitted to introduce evidence during a rebuttal phase which: (1) Is repetitive[;] (2)
Should have been included in the party’s case-in-chief[; and] (3) Substantially varies from the
party’s case-in-chief.”); Section 5.431(b), 52 Pa. Code §5.431(b) (“After the record is closed,
additional matter may not be relied upon or accepted into the record unless allowed for good
cause shown by the presiding officer or the [PUC] upon motion.”).
10
“This Court’s review is limited to a determination of whether an error of law was
committed, whether necessary findings of fact were supported by substantial evidence, or
whether constitutional rights were violated.” Pennsylvania State University v. Public Utility
Commission, 988 A.2d 771, 777 n.15 (Pa. Cmwlth. 2010).
11
We consolidate Red Lion’s appellate claims for the sake of clarity.
14
I.
Red Lion first claims that the PUC erred in determining that the
Emergency Interconnect Agreement between York Water and DYWA is legal,
reasonable, and in the public interest under Sections 507 and 508 of the Code.
Specifically, Red Lion contends that Section 332(a) of the Code12 required York
Water, as the applicant for approval of the Emergency Interconnect Agreement, to
shoulder the burden to prove that the obligations, terms or conditions of the
agreement are reasonable and legal and that approval is in the public interest
consistent with Sections 507 and 1501 of the Code and Tariff Rule 4.3, 13 and that
the PUC erred in prematurely shifting the burden of proof to Red Lion to rebut the
legality, reasonableness, and public interest of the agreement. Red Lion contends
that in doing so, the PUC capriciously disregarded York Water’s uncontradicted
evidence that the agreement violates Tariff Rule 4.3 because DYWA may only
enter such an agreement after it has “exhausted all alternatives to obtaining an
adequate high-quality source of supply.” R.R. at 210a. The evidence demonstrates
that DYWA has a safe and adequate supply from Red Lion under the 2013 Water
Supply Agreement and York Water did not require DYWA to exhaust all other
alternatives prior to executing the Emergency Interconnect Agreement. The
evidence also establishes that although Red Lion has never had a problem with
supplying adequate water, it has alternative supply sources from both Beaver
Creek and the Susquehanna River. Id. at 84a.
12
66 Pa. C.S. §332(a). Section 332(a) states, “Except as may be otherwise provided in
section 315 (relating to burden of proof) or other provisions of this part or other relevant statute,
the proponent of a rule or order has the burden of proof.”
13
Tariff Rule 4.3 has the force and effect of law. Brockway Glass Co. v. Pennsylvania
Public Utility Commission, 437 A.2d 1067, 1070 (Pa. Cmwlth. 1981).
15
Additionally, Red Lion asserts that the Emergency Interconnect
Agreement violates Section 1501 because the introduction of York Water’s
chloramine-treated water into DYWA’s free-chlorine-treated water supply will
negatively affect the water chemistry and the stability of DYWA’s water system,
and it does not address the establishment and implementation of a SCADA system
to assure safe and consistent water supply and pressure among the three different
water systems. Further, the PUC erred in failing to look past the title of the
agreement and examine its contents, which provide that it really acts as a bulk
water sales agreement that can only serve a fraction of DYWA’s customers and is
prohibited by Section 4.1 of the 2013 Water Sales Agreement.
Finally, Red Lion submits that the PUC applied the incorrect standard
in determining that the Emergency Interconnect Agreement is in the public interest
by failing to consider that the emergency interconnect is unnecessary because Red
Lion’s service is adequate to cover all of DYWA’s customers; the water supplied
under the interconnect agreement will only serve a fraction of DYWA’s customers;
and yet all of DYWA’s customers are bearing the cost under the agreement.
Moreover, the PUC abdicated its responsibility to reach its own public interest
determination notwithstanding DEP’s policy regarding emergency interconnect
agreements with more than one supplier.
However, Sections 102 and 501(b) of the Code, 66 Pa. C.S. §§102,
501(b), confer on the PUC the power to supervise and regulate public utilities in
Pennsylvania. Sections 1302 and 1308, 66 Pa. C.S. §§1302, 1308, grant the PUC
the authority to review and approve tariffs. Section 507 merely provides a
mechanism by which a public utility may seek an exception to tariff rules, and the
PUC may approve a contract for service at a rate other than the tariff. The relevant
16
inquiry in a case such as this is whether the contract is reasonable and in the public
interest and is within the PUC’s discretion. City of Pittsburgh v. Pennsylvania
Public Utility Commission, 33 A.2d 641, 642 (Pa. Super. 1943).
The credited evidence shows that, at present, Red Lion is DYWA’s
only source of a water supply. R.R. at 69a. If Red Lion’s water quality or quantity
diminishes, DWYA would experience an interruption in service during which it
could not meet the needs of its customers. Id. at 70a. The evidence also shows
that DEP encourages water suppliers to maintain more than one source of supply
including interconnections with other systems. Id. at 69a-70a. Likewise, the PUC
encourages management practices such as the interconnection of water systems
that enhance customer benefits. See, e.g., Section 69.721(a) of the PUC’s
regulations, 52 Pa. Code §69.721(a) (“The [PUC] believes that further
consolidation of water and wastewater systems within this Commonwealth may,
with appropriate management, result in greater environmental and economic
benefits to customers. The regionalization of water and wastewater systems
through mergers and acquisitions will allow the water industry to institute better
management practices and achieve greater economies of scale.”).
DYWA presented evidence that it has experienced issues with Red
Lion’s supply in the past. R.R. at 334a. DYWA determined that, based on the
issues that it has experienced with Red Lion’s supply, it is in the best interest of its
customers to have an additional source. Id. at 335a. The PUC agreed with the ALJ
and DYWA that the Emergency Interconnect Agreement with York Water is
reasonable and in the public interest. Id. at 58a, 69a. The evidence also shows that
although the agreement with York Water only affects a portion of DYWA’s
customers, during a period of interruption it can divert the remaining supply from
17
Red Lion to the other customers. Id. at 498a-499a. Thus, there is ample
substantial evidence from the witnesses presented at the hearing to support the
PUC’s conclusion that the agreement is reasonable and in the public interest and
should be approved.
Contrary to its assertion, the PUC did not “ignore” the evidence
presented by Red Lion. Rather, the PUC does not have jurisdiction over the
services provided and rates charged by municipal authorities operating under the
Municipality Authorities Act, 53 Pa. C.S. §§5601-5623, because Section
5607(d)(9) of that statute vests jurisdiction over such matters in the courts of
common pleas. 53 Pa. C.S. §5607(d)(9)14 As a result, the PUC cannot review
DYWA’s consideration of alternative sources or whether the Emergency
Interconnect Agreement violates the 2013 Water Sales Agreement. Likewise,
Section 1501 of the Code does not confer PUC jurisdiction over water disinfection
methods such as the use of chloramines versus chlorine, which is within the
jurisdiction of the DEP. Pickford v. Pennsylvania Public Utility Commission, 4
A.3d 707, 714-15 (Pa. Cmwlth. 2010). Further, the PUC can properly bifurcate
and decide the issue within its jurisdiction, i.e., whether the Emergency
Interconnect Agreement is reasonable and in the public interest.
14
Specifically, Section 5607(d)(9) states, in relevant part:
Any person questioning the reasonableness or uniformity of a rate
fixed by an authority or the adequacy, safety and reasonableness of
the authority’s services, including extensions thereof, may bring
suit against the authority in the court of common pleas of the
county where the project is located or, if the project is located in
more than one county, in the court of common pleas of the county
where the principal office of the project is located. The court of
common pleas shall have exclusive jurisdiction to determine
questions involving rates or service.
18
In sum, there is ample substantial evidence demonstrating: (1) an
alternative source of water supply will benefit DYWA and its customers; (2) the
minimum charge under the Emergency Interconnect Agreement will meet
DYWA’s goals and protect York Water’s customers; (3) there will be no
operational issues resulting from the emergency interconnect; and (4) there will be
no issues with the blending of York Water’s and Red Lion’s differently-treated
water supplies. R.R. at 28a, 57a-58a, 61a-62a, 273a, 276a-278a, 278a-279a, 284a,
360a-367a, 389a, 394a. Moreover, the PUC properly found that the agreement is
permissible under the Water Sales Agreement, id. at 27a-28a, 57a, and does not
violate Tariff Rule 4.3 because “[m]atters relating to the tariff . . . are peculiarly
within the expertise of the [PUC].” County of Erie v. Verizon North, Inc., 879
A.2d 357, 364 (Pa. Cmwlth. 2005). See R.R. at 28a-33a, 57a-59a. Moreover, the
PUC expressly evaluated the benefits of the proposal, including the benefits to
DYWA’s customers, and rejected Red Lion’s claims in determining that the
agreement was in the public interest. R.R. at 24a-28a, 56a-63a.
II.
Red Lion next claims that the PUC erred in determining that Red Lion
did not meet its burden of proving that the Emergency Interconnect Agreement is
illegal and unreasonable, and that its approval is not in the public interest. Red
Lion asserts that assuming that York Water established a prima facie case under
Section 507, the PUC erred in determining that Red Lion did not sustain its burden
of proving15 that the Emergency Interconnect Agreement is illegal, unreasonable,
15
As this Court has stated:
(Footnote continued on next page…)
19
and not in the public interest. DYWA agreed in Section 4.1 of the 2013 Water
Sales Agreement to purchase its water supply from Red Lion unless Red Lion is
unable to do so due to a force majeure or to purchase water for an emergency
interconnect. R.R. at 124a. Red Lion contends that, as a result, the Emergency
Interconnect Agreement clearly violates this provision because it acts as a bulk
water sales agreement as evidenced by: (1) the language of the agreement itself;
(2) Ms. Stokes’ testimony that DYWA intends to use it as a bulk purchase
agreement; and (3) the consequences effectuated by the agreement.
However, under Section 332(a) of the Code, “the proponent of a rule
or order has the burden of proof.” 66 Pa. C.S. §332(a). York Water was the
proponent and bore the burden of proof with respect to the application for Section
507 approval. Likewise, Red Lion bore the burden of proof with respect to the
complaint that York Water violated Tariff Rule 4.3 and Section 1501. Regarding
its intervention in York Water’s application proceeding, Red Lion only had the
secondary burden of production, which shifted to Red Lion after York Water had
established its prima facie case. After York Water sustained its initial burden of
proving that the Emergency Interconnect Agreement is reasonable and in the
public interest, as required by Section 507, the PUC determined that Red Lion
(continued…)
The term “burden of proof” is used to refer to two distinct
burdens—the burden of production and the burden of persuasion.
The burden of persuasion never leaves the party on whom it is
originally cast, but the burden of production may shift during the
course of the proceedings. The burdened party cannot shift the
burden of the production of evidence it has failed to establish.
Department of Transportation v. Agricultural Lands Condemnation Approval Board, 5 A.3d
821, 828 (Pa. Cmwlth. 2010) (citations omitted).
20
failed to present sufficient credible evidence to sustain the shifted burden of
production to refute the reasonableness of the agreement and the resultant public
benefits. R.R. at 27a, 32a, 49a, 61a. As to the purported Tariff Rule 4.3 violation,
the PUC also determined that Red Lion failed to establish its prima facie case
because it primarily relied on evidence pertaining to matters outside the PUC’s
jurisdiction. Id. at 32a-33a, 69a.
Contrary to Red Lion’s assertion, the PUC did not prematurely require
it to demonstrate that the agreement is not reasonable or in the public interest. The
PUC merely required Red Lion to rebut York Water’s evidence to the contrary. As
outlined above, the PUC does not have jurisdiction over the services provided and
rates charged by municipal authorities operating under the Municipality
Authorities Act because Section 5607(d)(9) of that statute vests jurisdiction over
such matters in the courts of common pleas. As a result, the PUC cannot compel
DYWA service or rates, lacks authority over the Water Sales Agreement, and does
not regulate water disinfection as a service under Section 1501 of the Code.
Accordingly, Red Lion could not have prevailed on its request for relief in this
regard.
Finally, the only claim that Red Lion presented regarding the
application of a “burden of proof” related to the showing of alternatives relative to
the Emergency Interconnect Agreement. R.R. at 565a. Now Red Lion challenges
the burden of proof regarding all aspects of the approval of the Emergency
Interconnect Agreement. Red Lion has waived all of these alternative burden of
proof claims. See Pa. R.A.P. 1551(a) (“No question shall be heard or considered
by the court which was not raised before the government unit . . . .”); Section
703(a) of the Administrative Agency Law, 2 Pa. C.S. §703(a) (“[A] party may not
21
raise upon appeal any other question not raised before the agency . . . unless
allowed by the court upon due cause shown.”).
Red Lion alleged in its amended complaint that York Water was
acting in violation of its Tariff and Section 1501. R.R. at 19a. As a result, the
burden was on Red Lion to prove these allegations because they were not part of
the proceedings on York Water’s application until the two separate matters were
consolidated for disposition. Moreover, assuming that the PUC erred in placing
the burden of proof on Red Lion, the burden of proof applied by the PUC is
immaterial with respect to our review on appeal. When the PUC reviews and
evaluates “the weight and probative value of all the evidence,” the burden of proof
standard that the PUC applied “is of no consequence on appeal.” Milkie v.
Pennsylvania Public Utility Commission, 768 A.2d 1217, 1220-21 (Pa. Cmwlth.
2001). Rather, “the proper focus of [this Court’s] review is whether the [PUC’s]
decision is supported by substantial evidence.” Id. In this case, the PUC weighed
the competing evidence and found York Water’s evidence to be more compelling
and the PUC’s determination in this regard is supported by substantial evidence
and this Court will not disturb the PUC’s determination on appeal. Id.
III.
Finally, Red Lion claims that the PUC erred in denying its petition for
reconsideration by concluding that its arguments were either waived or without
merit.16 Red Lion contends that the PUC improperly based its determinations on
16
“[T]his Court’s scope of review of [the PUC’s] denial of reconsideration is limited to
determining whether the [PUC] abused its discretion. An abuse of discretion occurs if the [PUC]
decision demonstrates bad faith, fraud, capricious action or an abuse of power. Moreover, in
deciding whether to deny reconsideration, the [PUC] considers whether the petitioner has
(Footnote continued on next page…)
22
justifications regarding DYWA’s exhaustion of alternatives that were not advanced
by York Water until it filed its reply exceptions. 52 Pa. Code §5.243(e).
Moreover, Red Lion’s failure to introduce York Water’s internal emails or the
minutes of its Board of Directors’ June 26, 2017 meeting is excused because York
Water had the burden of proof with respect to the approval of the Emergency
Interconnect Agreement. Red Lion further asserts that the PUC’s failure to
consider these arguments violates Red Lion’s due process rights because they were
offered to rebut the assertion that York Water raised in its reply exceptions, which
were considered and accepted by the PUC in denying Red Lion’s reconsideration
motion.
However, Red Lion’s argument ignores that it had the burden of
production to refute York Water’s prima facie case for Section 507 approval in
addition to having the burden of proof with respect to its amended complaint. Red
Lion does not contest the denial of its stay request. Requests for reconsideration
cannot raise the same questions that were previously decided; rather, they should
present new and novel arguments not previously heard or considerations that the
PUC may have overlooked. See, e.g., J.A.M. Cab Co. v. Pennsylvania Public
Utility Commission, 572 A.2d 1317 (Pa. Cmwlth. 1989); Pennsylvania Railroad
Co. v. Pennsylvania Public Service Commission, 179 A. 850 (Pa. Super. 1935);
Duick v. Pennsylvania Gas and Water Company, 56 Pa P.U.C. 553 (1982):
The PUC denied Red Lion’s reconsideration request because Red
Lion failed to raise any new or novel legal or factual questions and failed to raise
(continued…)
presented new evidence, changed circumstances, or previously unconsidered law.” J.A.M. Cab
Co. v. Pennsylvania Public Utility Commission, 572 A.2d 1317, 1318 (Pa. Cmwlth. 1989).
23
and preserve several issues in its exceptions. R.R. at 57a, 59a, 63a. For example,
Red Lion did not raise the mixing of chloramines with chlorine, the number of
customers served by the interconnection, and the minimum charge for DYWA
service under the agreement. Id. at 59a. As the PUC explained, it is not required
to grant reconsideration when a party fails to preserve an argument, id. at 60a, and
the failure to preserve issues in exceptions results in a waiver of those arguments.
See HIKO Energy, LLC v. Pennsylvania Public Utility Commission, 209 A.3d 246,
263 (Pa. 2019) (“[W]e find that HIKO failed to preserve a constitutional challenge
to the fines imposed pursuant to Section 54.4(a) [of the regulations, 52 Pa. Code
§54.4(a),] because it did not articulate its constitutional theory until its application
for a stay of the [PUC’s] decision.”) (citation omitted); Springfield Township v.
Pennsylvania Public Utility Commission, 676 A.2d 304, 309 (Pa. Cmwlth. 1996)
(“The Township also challenges PUC’s conclusion that the Township failed to
prove an unreasonable delay by PECO in changing the rate . . . . However, that
issue was not raised by the Township in its exceptions to the ALJ’s initial decision
and was not considered by PUC. Therefore, the issue was waived and may not be
considered on appeal.”) (citations omitted). Even if preserved for review, the PUC
rejected these claims on the merits by “adopt[ing] the ALJ’s thorough disposition
of these issues.” R.R. at 59a-63a.
Additionally, Red Lion failed to timely introduce York Water’s
internal emails and Board minutes and attempted to introduce them after the record
was closed. Red Lion has not demonstrated the “good cause” that is required by
the PUC’s regulations to permit reopening the record for the consideration of this
evidence by the PUC. See, e.g., City of Lancaster (Sewer Fund) v. Pennsylvania
Public Utility Commission, 793 A.2d 978, 984 (Pa. Cmwlth. 2002) (“Concerning
24
the claimed 4 percent wage increase [as an administrative expense], the City
improperly proffered direct evidence of this wage increase in the rebuttal phase of
the rate proceeding. See 52 Pa. Code. §5.243(e) (prohibiting the introduction of
evidence during a rebuttal phase that ought to have been included in the case-in-
chief).”); Shoemaker v. State Employes’ Retirement Board, 688 A.2d 751, 753 (Pa.
Cmwlth. 1997) (“[T]o serve as a basis to reopen the record, the material changes of
fact must not have been discoverable prior to the conclusion of the hearing. See
generally, Pennsylvania Labor Relations Board v. Northeastern Educational
Intermediate Unit No. 19, [505 A.2d 1068 (Pa. Cmwlth. 1986)].”). Herein, the
PUC properly found that Red Lion’s reconsideration petition should be denied
because Red Lion either re-raised arguments that the PUC previously considered
and rejected or tried to raise new arguments not preserved in its exceptions or
introduce new evidence. 17
Accordingly, the PUC’s orders are affirmed.
MICHAEL H. WOJCIK, Judge
Judge Fizzano Cannon did not participate in the decision of this case.
17
Red Lion’s due process argument in this regard is untenable because it is based on the
false premise that York Water bore the burden of proof with respect to its application. As
outlined above, Red Lion bore the initial burden of proving a violation of Tariff Rule 4.3 and the
PUC properly found that it failed to sustain its burden in this regard. See R.R. at 32a (“[W]e
agree with the ALJ’s determination that the comment made by Ms. Stokes is not substantial
evidence to support Red Lion’s argument because more is required than a mere trace of evidence
or a suspicion of the existence of a fact sought to be established.”). Moreover, the purported
violation is based on a theory that Red Lion did not present prior to filing its Main Brief and in
support of which it did not present any relevant or material evidence in its case in chief. In sum,
Red Lion was afforded any process that was due on this claim and its failure to sufficiently
exploit its opportunity in this regard is not a basis for finding a constitutional violation.
25
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Red Lion Municipal Authority, :
:
Petitioner :
:
v. : No. 186 C.D. 2019
:
Pennsylvania Public Utility :
Commission, :
:
Respondent :
ORDER
AND NOW, this 29th day of October, 2019, the orders of the
Pennsylvania Public Utility Commission dated September 20, 2018, and January
17, 2019, are AFFIRMED.
__________________________________
MICHAEL H. WOJCIK, Judge