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<title>Pennsylvania: PUC Declares Cogeneration Facility Serviing Limited Class, Not A
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="69%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u>
<br>
<br>
October 1998<br>
</u><font face="Arial"><big><big><big>Pennsylvania: PUC Declares
Cogeneration Facility Serving Limited Class, Not A Public Service Utility<br>
</big></big></big></font></b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
10/98</em>)</font></p>
<font FACE="Palatino" SIZE="1"><p ALIGN="JUSTIFY"></font><font face="Arial">On September
3, 1998, the Pennsylvania Public Utility Commission declared that a proposed utility
service by PEI Power Corporation ("PEI Power") which would provide electricity
and steam to industrial and commercial tenants and property owners in its industrial park
does not constitute a public utility service regulated by the Commission, but rather falls
within the "defined, limited and privileged group" exemption. The
Commission’s decision was premised upon the placement of restrictive covenants,
binding upon successors, in contracts with the consumers who were landowners.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">A Pennsylvania statute defines a public utility as
those " . . . producing, generating, transmitting, distributing, or furnishing . . .
electricity, or steam . . . to or for the public." 66 Pa. C.S. �102. The "to or
for the public" element has been discussed by Pennsylvania’s courts. Under
Pennsylvania law, a private utility is one that serves a "defined, limited and
privileged group," exempting the utility from regulation by the Commission. The
leading Pennsylvania case concerning this exemption permitted a landlord to provide gas,
electricity, and water service to the residents of its apartment complex and stores in the
complex without regulation by the Commission. Each of the consumers was in a
landlord-tenant relationship with the utility, thus allowing the utility to control and
restrict who could demand service. The Pennsylvania decision set forth a test for
determining whether a utility is public or private. The determination depended upon
whether "anyone outside of the special class, which the service provider has the
ability to control and restrict to a defined group, is privileged to demand service."
</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">A utility opposing PEI Power’s petition for
declaratory order argued that PEI Power is a public utility. The Utility argued that the
inclusion of landowners in the class could result in unknown successor landowners and PEI
Power would ultimately not be able to control and restrict the members of the class of
people who could demand service. In supporting its argument, the Utility cited another
Pennsylvania case in which a service provider sought to provide water to tenants and
property owners in a condominium association. There, because the utility had only a
service provider and customer relationship with the property owners at the condominium,
and could not control successor owners, it could not control and restrict the ultimate
members of the class. Under those facts, the water service provider for the condominium
association was considered a public utility. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">In response to the problem of control over successor
landowners, PEI Power proposed to place restrictive covenants on the landowners. PEI Power
explained that some of the potential occupants of the industrial park, for financing
reasons, would choose to purchase land rather than leasing land, which prevented it from
limiting the industrial park to tenants only. PEI Power stated that the special class
which could demand power of PEI Power consisted of "large, sophisticated industrial
and commercial" business tenants and landowners located within PEI Power’s
industrial park. In further support of its proposal, PEI Power pointed out that its plant
and the industrial park will revitalize the region. The plant was closed last year by a
prior owner, eliminating fifty jobs, and had been slated for demolition. Another benefit
of PEI Power’s proposal was that it intended to eventually move toward a 100%
waste-source methane gas fired facility. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The Commission found that PEI Power’s proposal
to provide service to landowners, without restrictive covenants, placed it outside the
exemption because PEI Power would not have sufficient control over the landowners.
However, because PEI Power owns all the land in the industrial park, the Commission found
it is able to place restrictive covenants in contracts with purchasers which would provide
that any subsequent purchaser (a) is a substantial energy user, (b) would use the property
in a manner consistent with the industrial park, and (c) would not cause PEI Power to
become a public utility. The restrictive covenants are to prohibit the landowners from
selling their property without approval from PEI Power. In light of the restrictive
covenants, the Commission found PEI Power has the requisite control to restrict the
special class which constitutes its customers to a "defined, limited and privileged
group." The Commission added the fact that a class of persons served is of a defined
geographic region, is of a certain number, or of a certain class (commercial and
industrial as opposed to residential) does not determine whether a "defined, limited
and privileged group" is served. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">PEI Power also sought a declaration that it is not a
regulated public utility under the "designed, constructed, and utilized
exception" to Commission jurisdiction. This exception applies where a facility is
"designed or constructed to serve a select type of business" and where the
facility is "constructed or sized to serve a definite number of customers." The
Commission found the facility did not fall under this exception. According to the
Commission, while the facility would be for commercial and industrial businesses, this
designation is not selective enough for the exception. Also, the facility will not be
constructed and designed to service a definite number of customers; rather, PEI Power
actually planned for expansion for any additional customers within the industrial park who
would be interested in receiving their service. </font></p>
<p><font face="Arial">Soon after the order was issued by the Commission, PEI Power
announced a contract with an industrial user in the 275 acre park. A PEI Power spokesman
said its power prices will run 25%-30% below the market. PEI Power has already been
selling power into the Pennsylvania-New Jersey-Maryland Interconnection and steam to a
greenhouse at the park.</font></p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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