PENNSYLVANIA .us



PENNSYLVANIA

PUBLIC UTILITY COMMISSION

Harrisburg PA 17105-3265

Public Meeting held November 30, 2006

Commissioners Present:

Wendell F. Holland, Chairman, Dissenting – Statement attached

James H. Cawley, Vice Chairman

Kim Pizzingrilli

Terrance J. Fitzpatrick

Nutmeg Energy, Inc., Docket No. P-00062204

Gas City Oil and Gas Corporation,

Exley Oil and Gas Corporation

ORDER

BY THE COMMISSION:

Nutmeg Energy, Inc., Gas City Oil and Gas Corporation, and Exley Oil and Gas Corporation (collectively, “Nutmeg”) filed a Petition for a Declaratory Order pursuant to 52 Pa. Code §5.42, on March 3, 2006, asking the Commission to find that they are not a “public utility” subject to regulation and that their continued provision of natural gas service to a specific class of property owners from whom Nutmeg has obtained easement agreements or mineral leases in order to construct a natural gas gathering pipeline to transport the natural gas produced by Nutmeg’s wells to a natural gas distribution company does not constitute the provision of public utility service under 66 Pa.C.S. § 102 (defining “public utility”).[1]

Copies of this Petition were served on the Office of Consumer Advocate, the Office of Small Business Advocate, the Office of Trial Staff (“OTS”), Columbia Gas of Pennsylvania, Inc. (“Columbia”), PPL Gas Utilities, Inc. (“PPL”), and the twenty-five affected property owners. Only OTS filed an Answer. It requested the Commission to issue a declaratory order concluding that, based upon the limited facts and circumstances contained in Nutmeg’s petition, provision of natural gas service by Nutmeg to a limited number of property owners providing easements or mineral leases for a gathering pipeline does not constitute the provision of public utility service as defined by 66 Pa.C.S. §102. OTS cautioned, however, “that any provision of service by Nutmeg outside the defined, privileged and limited group of customers could conceivably constitute service ‘to or for the public,’ and the Commission should endeavor to limit its declaration to this limited set of facts and circumstances so as to eliminate any ambiguity as to its intent regarding this Petition.”

BACKGROUND

Nutmeg Energy, Inc., Gas City Oil and Gas Corporation, and Exley Oil and Gas Corporation are affiliated companies whose primary business is owning and operating natural gas wells, and transporting Pennsylvania-produced natural gas for sale into the wholesale market, in and around the community of Knox, Pennsylvania.[2] The majority of Nutmeg’s wells, along with the gathering line are located in Columbia’s service territory.[3] Nutmeg first proposed selling natural gas service to Columbia, but that company’s system restraints prevented it from purchasing the natural gas. Nutmeg then reached an agreement with PPL for the purchase of this natural gas. To reach PPL’s meters, Nutmeg was required to build a gathering pipeline, approximately four miles in length, and to acquire easements from property owners whose land would be traversed by the gathering line.

Because the gathering line was built to provide natural gas to PPL, rather than to provide natural gas service to property owners, approximately 95% of the natural gas transported through the gathering line is sold to PPL, with the remaining 5% provided to the property owners opting to receive service from Nutmeg.

The location and route of this gathering line was based upon land conditions, the location of Nutmeg’s wells, the location of PPL’s meters, and the amount of natural gas purchased by PPL. Nutmeg originally built the pipeline to accommodate the amount of natural gas purchased by PPL, thereby limiting the number of easements obtained from property owners. When PPL agreed to purchase additional natural gas, the original gathering pipeline was not large enough to accommodate the requested amount of natural gas. As a result, Nutmeg built an extension to facilitate the delivery of the additional natural gas from the wells to PPL. As of the filing of its petition, Nutmeg was finishing construction of the remaining part of the pipeline, which will supply natural gas to a third PPL meter.

Twenty-five property owners are affected by this gathering line. Five presently receive or recently received natural gas from both Columbia and Nutmeg by means of a dual-feed system. Six are presently receiving natural gas service from Columbia and have an easement agreement or mineral lease with Nutmeg but are not currently receiving service from Nutmeg and do not have a dual-feed system allowing service from both Columbia or Nutmeg. Five have an agreement or mineral lease with Nutmeg but are currently not receiving natural gas service from Columbia or Nutmeg. Four have an easement agreement or mineral lease with Nutmeg, but a Nutmeg pipeline is not yet installed to serve them. One has a Nutmeg pipeline already installed and an easement agreement was in the process of being finalized. One has an easement agreement with Nutmeg and is currently receiving natural gas from Nutmeg. Two have mineral leases with Nutmeg and are presently receiving natural gas service from Nutmeg. One has partial ownership of one of Nutmeg’s wells and is presently receiving natural gas from Nutmeg.

As a result, of the twenty-five property owners with agreements, nine are currently receiving natural gas service from Nutmeg. The two currently receiving natural gas pursuant to mineral leases do not remit any money to Nutmeg under the terms of their lease. The property owner with partial ownership in one of Nutmeg’s wells balances any costs with any profits from the partial ownership, resulting in a net effect. The six property owners currently receiving natural gas from Nutmeg under easement agreements are charged (1) the cost of any natural gas used by the customer in a given month, with the cost set at the same amount paid by PPL for the natural gas commodity; (2) sales tax; and (3) a flat fee of approximately $10 per month per customer to account for any billing costs.

Prior to filing its petition, Nutmeg and Columbia, which alleged that Nutmeg was providing either Commission jurisdictional natural gas distribution service or natural gas supply services, executed a settlement agreement, which was attached to Nutmeg’s petition. It provides that Nutmeg will clarify its current easement agreements or mineral leases to ensure that all of the property owners must determine by a date certain whether they seek to obtain natural gas service from Nutmeg under these agreements. Once the property owners have made this decision, Nutmeg will record these clarifications with the easement or leases. Thus, if the current property owners choose not to exercise their option to obtain natural gas from Nutmeg and later sell their land, the new property owners will be unable to request service from Nutmeg because the option under the agreement or lease will have already been exercised.

Nutmeg also agreed that, if it must extend the gathering line for purposes of selling natural gas into the wholesale market, it will not offer natural gas service to any property owners from whom an easement is required unless a property owner will not agree to an easement without the provision of natural gas service and Nutmeg must have the easement in order to reasonably extend the gathering line. In such case, Nutmeg will offer the customer the option of obtaining natural gas service from the gathering line but will only provide this option if the customer is otherwise unwilling to provide the easement. These provisions are among those contained in Paragraph 4 of the settlement agreement, which provides as follows:

Nutmeg’s Agreement Not to Solicit Customers. Nutmeg agrees that it shall not hold itself out to the public as being in a position to provide natural gas distribution service to any entity, unless it seeks and obtains a certificate of public convenience from the Pennsylvania Public Utility Commission. Nutmeg agrees that it shall not hold itself out to the public as being in a position to provide natural gas supply service to any entity, unless it seeks and obtains a Natural Gas Supplier license from the Pennsylvania Public Utility Commission. Nutmeg agrees that it shall not extend its pipeline to any residential, commercial, or industrial customer solely for the purpose of providing gas to that customer. If, in the course of extending its pipeline, Nutmeg requires an easement that the property owner will grant only upon Nutmeg agreeing to offer natural gas service, Nutmeg will contact Columbia with a description of the pipeline extension, the reason for the easement, and a summary of the discussions that have been held to obtain the easement.

Consequently, Nutmeg has committed (1) not to hold itself out to the public as providing natural gas service; (2) not to offer natural gas service in exchange for easements except under very limited circumstances which it must explain to Columbia (which doubtless stands ready to enforce the settlement agreement); and (3) not to offer natural gas service to any entity other than those with whom it has an easement agreement or mineral lease.

In a memorandum of law attached to its petition, but not in the petition itself, Nutmeg also indicates its willingness, without conceding its non-public utility status, to adhere to the Commission’s procedures, contained at 52 Pa. Code § 59.33, to ensure safe and reasonable natural gas service as overseen by the Commission’s Gas Safety Division. In fact, a Commission inspector examined Nutmeg’s gathering line in December 2005 and suggested improvements that Nutmeg agreed to implement.

DISCUSSION

The OTS correctly concluded that, based upon the limited facts and circumstances contained in Nutmeg’s petition, provision of natural gas service by Nutmeg to a limited number of property owners providing easements or mineral leases for a gathering pipeline does not constitute the provision of public utility service as defined by 66 Pa.C.S. §102, but that any provision of service by Nutmeg outside the defined, privileged and limited group of twenty-five customers could conceivably constitute service “to or for the public.”

Pennsylvania appellate court and Commission precedents have established the criteria that are considered in determining whether a particular utility service is being offered or provided “to or for the public.” As explained in Waltman v. Pa. Pub. Util. Comm’n, 596 A.2d 1221, 1224 (Pa. Cmwlth. 1991), aff’d per curium, 533 Pa. 304, 621 A.2d. 994 (1991), the fundamental principle is that the public or private character of an enterprise does not depend on the number of persons using the service but whether it is open to the use and service of all members of the public who may require it. Borough of Ambridge, 108 Pa. Super. 298, 304, 165 A. 47, 49 (1933), allocatur denied, 108 Pa. Super. xxiii (1933); Drexelbrook Associates v. Pa. Pub. Util. Comm’n, 418 Pa. 430, 434-435, 212 A.2d 237, 239 (“The public or private character of the enterprise [depends] … upon whether or not it is open to the use and service of all members of the public who may require it”) (quoting Borough of Ambridge) (emphasis in original).

Based on this fundamental principle and Pennsylvania case law, the criteria and associated case law may be summarized as follows:

(1) The service being provided by the alternative energy system is merely incidental to non-utility business with the customers which creates a nexus between the provider and customer. Drexelbrook Associates v. Pa. Pub. Util. Comm’n (a real estate owner/management company providing natural gas, electric and water utility service to its tenants in a garden-type apartment village containing 90 buildings is merely incidental to a non-utility business relationship and is not public utility service because “the corporation served only those who were selected as tenants--a special class of persons not open to the indefinite public”); Brink’s Express Co. v. Pub. Serv. Comm’n, 117 Pa. Super. 268, 178 A. 346 (1935) (business of safeguarding money and securities and transportation of valuables is merely incidental to its business of guarding them); Aronimink Transportation Co. v. Pub. Serv. Comm’n, 111 Pa. Super. 414, 170 A. 375 (1934) (a landlord providing bus service to its tenants is not service to the public as the bus service is merely incidental to non-utility business relationship); Erb v. Pub. Serv. Comm'n, 93 Pa. Super. 421 (1928) (freight hauler is a common, not a contract, carrier when hauling is its only business and is not merely incidental to some other business or employment and performed by virtue of special contracts); Protective Motor Service Co. v. Pa. Pub. Util. Comm'n, 286 A.2d 30 (Pa. Cmwlth. 1972) (transportation of money from shipping offices or banks to vessels is incidental to the primary business of providing security services and thus outside PUC jurisdiction); Society Hill Carriage v. Pa. Pub. Util. Comm’n, 581 A.2d 702 (Pa. Cmwlth. 1990) (horse-drawn carriages are entertainment and so incidental transportation, not a public utility).

(2) The facility is designed and constructed only to serve a specific group of individuals or entities, and others cannot feasibly be served without a significant revision to the project. Borough of Ambridge (selling of excess water by a manufacturer to a neighboring manufacturer through a line designed solely for that purpose is not for the public); Hazleton Associates Fluidized Energy, Inc., 62 Pa. P.U.C. 619 (1986) (the provider “physically would not be able to serve any significant, additional load without a major overhaul and upgrading of its system’s capacity”).

(3) The service is provided to a single customer or to a defined, privileged, and limited group when the provider reserves its right to select its customers by contractual arrangement such that no one among the public, outside of the selected group, is privileged to demand service, and resale of the service is prohibited. Bethlehem Steel Corp. v. Pa. Pub. Util. Comm’n, 552 Pa. 134, 713 A.2d 1110 (1998) (the pipeline facility “Bessie 8” was designed and constructed to serve only a specific group of customers, and others could not be served without a significant revision to the project); Re Megargel’s Golf, Inc., 59 Pa. P.U.C. 517, 521 (1985) (“[W]e conclude that the term, ‘defined, privileged and limited’ group does not mean ‘the residents of a particular development’ but connotes a situation where the purveyor of … service has control over the persons selected to be provided … service”) (emphasis in original). The important consideration is the ability to select and control who will be served through contractual arrangements or otherwise.

CONCLUSION

Nutmeg’s natural gas service is not open to the use and service of all members of the public who may require it, but only to those with whom it has contracted in order to obtain essential easements to construct a gathering pipeline to transport natural gas to PPL for sale at wholesale. Pursuant to its settlement agreement with Columbia, Nutmeg has agreed that it shall not extend its pipeline to any residential, commercial, or industrial customer solely for the purpose of providing gas to that customer, and, if, in the course of extending its pipeline, Nutmeg requires an easement that the property owner will grant only upon Nutmeg agreeing to offer natural gas service, Nutmeg will contact Columbia with a description of the pipeline extension, the reason for the easement, and a summary of the discussions that have been held to obtain the easement.

The service being provided by Nutmeg is merely incidental to its non-utility business of natural gas production and transportation, with a nexus between the provider and customer created by the need to obtain easements for a gathering pipeline.

Nutmeg’s gathering pipeline is primarily designed and constructed only to serve PPL, and only secondarily to serve the affected property owners. Ninety-five percent of the natural gas transported through the line is sold to PPL. The positioning and size of the line was based upon land conditions, the location of Nutmeg’s wells and PPL’s meters, and the amount of natural gas PPL was willing to purchase from Nutmeg, not on the needs or locations of the property owners over whose properties the line traverses. Others cannot feasibly be served without a significant revision to the gathering line, which would require notification and explanation to Columbia, which remains vigilant to the addition of even a single customer.

Nutmeg’s service is provided to a defined, privileged, and limited group consisting of some, but quite possibly not all, of twenty-five affected property owners. When the petition was filed, the group consisted only of nine property owners, and its eventual composition will consist of no more than twenty-five, depending on how many opt to receive service from Nutmeg. Under the terms of the settlement agreement, Nutmeg has reserved its right to select its customers by contractual arrangement such that no one among the public, outside of this selected group of eligible property owners, is privileged to demand service.

Under these circumstances, Nutmeg is not a “public utility” subject to regulation and its continued provision of natural gas service to a specific class of twenty-five property owners from whom Nutmeg has obtained easement agreements or mineral leases in order to construct a natural gas gathering pipeline to transport the natural gas produced by Nutmeg’s wells to a natural gas distribution company does not constitute the provision of public utility service under 66 Pa.C.S. § 102 (defining “public utility”).

The Commission has jurisdiction to ensure that public utilities operate in accordance with safety requirements of pipeline or conduit facilities in the transportation of natural gas. See 66 Pa. C.S. § 3301 (c). In the case of non-jurisdictional facilities, the Commission is not empowered to prosecute safety violations which may be uncovered during an inspection by the Commission’s Gas and Safety Division. We are generally concerned about safety and enforcement issues for projects determined to be non-jurisdictional but providing service to residential customers as in the instant case.

Here, while we find that Nutmeg is not a public utility under the specific factual scenario and applicable law, we can only rely on Nutmeg’s good faith offer in this matter to submit to the Commission’s regulatory procedures to ensure the provision of safe and reasonable natural gas service. Nutmeg should provide notice to all residential customers who opt to receive natural gas service that the service does not fall within the Commission’s jurisdiction. We note that the issue of whether or not a particular aspect of service or safety enforcement should be regulated is within the legislature’s purview, and we believe it may be necessary to revisit the law to ensure public safety. THEREFORE,

IT IS ORDERED THAT:

1. Nutmeg Energy, Inc, Gas City Oil and Gas Corporation and Exley Oil and Gas Corporation’s Petition for Declaratory Order seeking a determination that its limited provision of natural gas service to a specific class of property owners from whom it has obtained easement agreements or mineral leases in order to construct a natural gas gathering pipeline does not constitute the provision of public utility service pursuant to the Public Utility Code is granted.

2. A copy of this order be served on Nutmeg Energy, Inc., Gas City Oil and Gas Corporation and Exley Oil and Gas Corporation, the twenty-five affected property owners, the Office of Consumer Advocate, the Office of Small Business Advocate, the Office of Trial Staff, Columbia Gas of Pennsylvania, Inc. and PPL Gas Utilities, Inc.

3. Prior to providing natural gas service for compensation to any additional customer, Nutmeg as owner of the wells, Gas City Oil and Gas Corporation as owner of the gathering line, and Exley Oil and Gas Corporation as the operating company maintaining the wells located in and around the community of Knox, Pennsylvania, shall notify the Public Utility Commission of its intent to do so to allow the Commission to evaluate Nutmeg’s status as a non-jurisdictional entity. Written correspondence should be filed with the Secretary with a copy forwarded to the Commission’s Gas Safety Division.

4. Nutmeg shall adhere to the Commission’s processes and procedures to ensure safe and reasonable natural gas service, contained at 52 Pa. Code § 59.33, and shall cooperate fully with the Commission’s Gas Safety Division.

5. The Secretary mark this docket closed.

BY THE COMMISSION

James J. McNulty,

Secretary

(SEAL)

ORDER ADOPTED: November 30, 2006

ORDER ENTERED: February 26, 2007

-----------------------

[1] Nutmeg’s Petition contains the factual averments recited herein, supported by the verification of John T. Exley, President of Nutmeg Energy, Inc. While the averments are uncontested for the purposes of this proceeding, the Commission’s recitation of these averments does not establish them as “findings of fact.”

[2] Nutmeg Energy, Inc. is the owner of these wells. In order to transport the natural gas, Gas City Oil and Gas Corporation, one of Nutmeg Energy’s affiliates, built and owns the resulting gathering line. Exley Oil and Gas Corporation, another affiliate of Gas City and Nutmeg, is the operating company that maintains the wells.

[3] Four of the property owners over whose land the gathering line traverses are located in PPL’s service territory.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download