Pennsylvania PUC Clarifies Ruling on Whether Gas Gathering Service Constitutes "Public Utility" Status

Pennsylvania PUC Press Release 
August 25, 2011

PUC Clarifies Decision on Laser Northeast Gathering Co.’s Proposed Service Meeting Threshold as ‘Public Utility’

The Pennsylvania PUC on August 25 issued an order in the Laser Northeast proceeding which provides additional clarification on whether the activities of a natural gas gathering and midstream company constitute a “public utility” for purposes of regulation by the PUC. Laser Northeast Gathering Company is proposing to construct a gathering system in Pennsylvania extending into New York, where it would interconnect with an interstate natural gas pipeline. Laser is seeking “public utility” status under Pennsylvania law to give it the capability of exercising eminent domain power (i.e., the authority to “take” property from unwilling landowners, upon payment of just compensation to the owners). In its June 2011 order, the PUC found that Laser’s activities met the definition of a public utility. In its August 25 order on reconsideration, the PUC further defined the parameters of its earlier determination, and thus provided additional guidance on the circumstances under which a gathering service would constitute a “public utility” service. The order clarifies that (1) not all gathering and transportation service providers will be considered public utilities, and (2) the PUC as a general matter has no intention of imposing economic regulation on such providers. In the case of Laser Northeast, it was offering to serve any and all potential customers needing to move gas through the pipeline system, and made a commitment to expand its capacity, as needed, to meet increased customer demand. Holding oneself out as offering service to “the public” is a fundamental consideration in determining “public utility” status, and Laser Northeast is doing so. The issue on reconsideration was the use of contracts, and whether that affected the “public” offering of service. Because Laser used contracts only to establish technical requirements, delivery points, and other terms and conditions of service – and, importantly, not in an exclusionary manner to determine which producers are privileged to demand service – Laser’s activities fall within the scope of “public utility” as it is holding itself out to serve “the public.”

This is an interesting proceeding, and the issues relate to the common law definition of a “public utility,” an issue covered by this writer in his Energy Regulation and the Environment class at WVU College of Law this past week. An advantage of having “public utility” status is the power of eminent domain. At the same time, that status subjects the company to rate regulation by the PUC, and formalizes the commitment to serve all customers seeking access to the gathering pipeline. Not all such gathering and transportation service providers want the “public utility” status, and the PUC order clarifies that not holding oneself out to serve “the public” generally – such as through the use of contracts to narrow the range of potential “customers” – can be an effective means of avoiding the “public utility” designation.