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About The Author:

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:

Brown, Olson & Gould, PC
2 Delta Drive
Suite 301
Concord, NH 03301
(603) 225-9716









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STATELINE by Robert Olson

October 1998
Pennsylvania: PUC Declares Cogeneration Facility Serving Limited Class, Not A Public Service Utility
by Robert Olson  --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 10/98)

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.

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."

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.

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.

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.

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.

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.

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:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301 | (603) 225-9716

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