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Chesapeake Utilities Corp. v. Delaware Public Service Commission

Superior Court of Delaware, Kent

June 7, 2017


          Oral Argument: May 12, 2017

         Upon Appeal from a Decision of the Delaware Public Service Commission.

          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 Commission.


          William L. Witham. Jr. Resident Judge.

         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.


         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 programs.[2]

         A few months later, in February 2016, DAAEP filed a petition for leave to intervene in the rate docket.[3] In its petition, DAAEP asserted interests based on (1) its prior interventions, (2) its participation in prior settlement agreements, and (3) the harm that would be done to DAAEP's members and their employees if Chesapeake were permitted to expand its service offerings.[4] It also identified issues it wished to explore if permitted to intervene.[5] Chesapeake opposed the intervention on the grounds that (1) DAAEP was not entitled to intervene to protect its own competitive interests, (2) it was already sufficiently represented by other parties, (3) its intervention did not serve the public interest, and (4) its participation in prior proceedings was irrelevant.[6]

         The intervention petition was heard by a hearing examiner, who granted the intervention.[7] Chesapeake filed a petition for interlocutory appeal of the examiner's order, which DAAEP opposed.[8] The full Commission affirmed the examiner's order 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.[11]

         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.


         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. It 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. It 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 cases apply different statutory and regulatory schemes and that some fail to discuss intervention at all.

         II. 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 mains[12] 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 finally, DAAEP argues, the hearing 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.


         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]


         I. The Commission's Statutory Jurisdiction

         The Commission exceeded its statutory authority when it granted DAAEP's 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 Utility Regulatory Scheme

         In 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 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 proceeding.[23] 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 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 ...

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