PUC Pipeline Case Presents Issue of Who Qualifies as a Public Utility Corporation

by K&L Gates LLP

A recently filed case before the Pennsylvania Public Utility Corporation (“PUC”) raises the issue of what type of pipeline company qualifies as a “public utility corporation” under Pennsylvania statutes. The term is not defined in the Public Utility Code, although the statutes authorizing exemptions from local zoning, subdivision and land development ordinances (collectively “zoning ordinances”) and the exercise of eminent domain power require applicants to qualify as public utility corporations in order to make use of the exemptions and eminent domain. The case now before the PUC could affect the availability of the exemptions from local regulation and use of eminent domain for pipelines in Pennsylvania. 

Sunoco’s PUC Operations
Sunoco Pipeline, L.P. (“Sunoco”) is a Texas limited partnership formed in 2001. In 2002, the PUC approved a merger between Sunoco and two pipeline companies, which transferred the assets of the companies and permitted Sunoco to provide intrastate transportation of petroleum products in the former service territories of the pipelines.[1] The acquisition permitted Sunoco to operate an integrated intrastate pipeline system to transport petroleum products from east to west in Pennsylvania. In 2013, the PUC approved an application filed by Sunoco to abandon a portion of certain service along portions of its pipeline system and to suspend a portion of certain tariff services along other segments for the transportation of petroleum products.[2] Sunoco also filed a petition to temporarily suspend its tariffed transportation service for petroleum products on certain pipeline routes.[3] The PUC approved both the abandonment application and the suspension petition.[4] Sunoco filed the applications to facilitate its construction of an interstate pipeline project called Mariner East.

Sunoco’s Mariner East Project
The Mariner East project involves a combination of new pipeline facilities and the use of existing Sunoco pipeline facilities that will transport ethane, propane, liquid petroleum gas and other petroleum products from an origin point in Houston, Pennsylvania, to a delivery point located in Claymont, Delaware, within the Marcus Hook Industrial Complex (“MHIC”).[5] In March 2014, Sunoco filed 31 petitions with the PUC requesting an exemption from local zoning, subdivision, and land development ordinances pursuant to Section 619 of the Municipalities Planning Code (“MPC”), 53 P.S. § 10619. Following publication of notices of filing of the petition with the PUC, municipalities and other interested parties filed preliminary objections, protests, and letters in opposition to the petitions, arguing that the pipeline project failed to meet the standards for an exemption from local ordinances. Letters in support of the petition were also filed. An issue raised in most of the protests and objections is that Sunoco does not qualify as a “public utility corporation” as required by the MPC. The 31 petitions have been assigned to two PUC Administrative Law Judges for decisions on the protests and objections and also to hold such hearings as necessary to rule on the petitions.

Sunoco’s PUC Petitions
Sunoco’s petitions indicate that the project will require the construction of 17 valve stations in 15 different municipalities, and the construction of 18 pumping stations in 18 different municipalities. The petitions request an exemption under Section 619 of the MPC for the construction of these facilities, which will prevent local municipalities from applying their zoning and subdivision and land development ordinances to the proposed construction. In May 2014, Sunoco amended its petitions in response to the objections it received to its initial filing, indicating that Sunoco will file a tariff supplement and initiate intrastate service on the Mariner East line by transporting propane by pipeline from Mechanicsburg, Pennsylvania, to its Twin Oaks, Pennsylvania, facility at an estimated volume of 5,000 barrels per day. Additional protests and objections were filed to the amended petitions raising the same or similar objections. Additional letters in support of the amended petitions were also filed.

Section 619 of the Municipalities Planning Code
Section 619 of the MPC authorizes the PUC, upon petition by a public utility corporation, to exempt the corporation from local zoning requirements if the PUC decides that the present or proposed situation of the buildings in question is reasonably necessary for the convenience or welfare of the public.  The MPC does not define the term “public utility corporation,” but the PUC in prior cases has applied the definition contained in Section 1103 of the Business Corporation Law (“BCL”), 15 Pa. C.S. § 1103, which provides in pertinent part that a “public utility corporation” is any domestic or foreign corporation for profit that is subject to regulation as a public utility either by the PUC or by an officer or agency of the United States. Many of the preliminary objections and protests filed to Sunoco’s petitions argue that the PUC has no jurisdiction to grant the exemptions requested by Sunoco because it fails to qualify as a public utility corporation as defined in the BCL.

Sunoco’s Petition Arguments
In its initial petition, Sunoco argued that it qualifies as a public utility corporation under the BCL definition because it is a federally regulated common carrier under the Interstate Commerce Act (“ICA”).  Sunoco argued that the extent and scope of the Federal Energy Regulatory Commission’s (“FERC”) regulation of Sunoco under the ICA met all necessary indicia under Pennsylvania law to qualify Sunoco as a public utility corporation under the MPC and BCL. Sunoco also argued that the legislative drafting committee comments to the BCL demonstrated the Pennsylvania Legislature’s intended broad application of the definition of public utility corporation and that its operations should also qualify under that basis. Sunoco explained that Mariner East will be providing open service to all members of the public on a non-discriminatory basis through FERC open season requirements and, therefore, would be following all the requirements for public utility status under Pennsylvania Supreme Court precedent.  Sunoco argued in its amended petition that it qualifies as a public utility corporation under the BCL definition since its proposed intrastate propane transportation service qualifies as public utility service regulated by the PUC under existing certificates of public convenience. Sunoco argued that since it will be filing a tariff for intrastate transportation of propane, it will be operating as an intrastate public utility and will qualify on that basis as a public utility corporation as defined in the BCL.

Arguments of the Protestants
The preliminary objections and the protests filed by interested parties argue that Sunoco does not qualify as a public utility corporation under the BCL definition. Although the protestants agree that Sunoco is a common carrier pipeline company under the ICA and regulated by the FERC, they cite several decisions of the FERC that state that common carriers are not considered public utilities by the FERC.[6] These parties cite FERC decisions that explain that, unlike public utilities, pipelines do not serve consumers and pipeline regulation under the ICA was not designed to protect consumers.[7] As a consequence, the regulation of common carrier pipeline companies is subject to different standards, and the FERC and the federal courts do not consider pipeline companies such as Sunoco to be public utilities since they are not engaged in service to the public.[8] Under the decisions cited by the protestants, Sunoco is a common carrier but does not qualify as a public utility for purposes of the BCL definition. The protestants also cite a recent decision of the York County Court of Common Pleas that held that Sunoco did not qualify as a public utility corporation since it was regulated as a common carrier by the FERC and not as a public utility.[9]

The protestants and objectors also challenge Sunoco’s arguments that the proposed intrastate propane service identified in Sunoco’s amended petition results in Sunoco qualifying as a public utility corporation. Citing the lack of detail in the amended petition, these parties argue that the proposed intrastate use of the pipeline identified in the amended petition is a subterfuge designed to create PUC jurisdiction over the project. These parties note that Sunoco’s Twin Oaks facilities are directly connected to the MHIC by pipeline and that any propane delivered to Twin Oaks could be readily transported to an interstate destination using the existing pipeline connections with the MHIC. These parties also question whether it is physically possible to deliver propane directly to Twin Oaks as Sunoco claims since the identified use of the pipeline is to transport both ethane and propane together. An industrial process would be required to split the natural gas liquids transported by the pipeline into its component parts, including ethane and propane. Since Sunoco has not announced plans to install an ethane/propane splitter on its intrastate system, it is physically impossible for the pipeline to be used for the intrastate transportation of propane as Sunoco has claimed in its amended petition. These parties argue that Sunoco has failed to demonstrate any realistic intrastate use of the propane and that it will ultimately be transported in interstate commerce to other destinations for foreign export.  Sunoco has not filed responses to the amended protests and objections filed by the interested parties.

Sunoco’s petitions will be decided initially by the two PUC Administrative Law Judges (“ALJs”) who have been assigned these cases. The ALJs decisions will ultimately be reviewed by the PUC itself.  The arguments presented by Sunoco and the protestants raise issues that have not been previously decided by the PUC in Section 619 MPC proceedings. Several of the arguments present factual issues, which may be resolved by testimony.  If the case is fully litigated, it may take six to nine months before the PUC enters a final order on the petitions.

[1] Joint Application of Sunoco Pipeline, L.P., et al., PUC Dkt. No. A-140001, et seq. (corrected order entered January 28, 2002). 

[2] Application of Sunoco Pipeline, L.P., PUC Dkt. No. A-2013-2371789. 

[3] Petition of Sunoco Pipeline, PUC Dkt. No. P-2013-2371775.

[4] Order entered at the above dockets on August 29, 2013 and clarified subsequently on October 17, 2013.

[5] Most of the Mariner East project makes use of Sunoco’s existing pipeline infrastructure.  However, Sunoco has recently filed an application with the PUC to add a 51-mile extension to its system from Houston, Pennsylvania, to Delmont, Pennsylvania, for the project at PUC Dkt. No. A-2014-2425633.  See 44 Pa. B. 3825, published June 21, 2014.

[6] See Farmers Union Central Exchange v. FERC, 584 F.2d 408, 413 (D.C. Cir. 1978), cert. denied, 439 U.S. 955 (1978); Williams Pipe Line Co., 21 FERC ¶ 61, 260 (1982).

[7] Lakehead Pipeline Co., 65 FERC ¶ 63, 021 (Initial Decision Dec. 1993), and Williams Pipe Line Co., 21 FERC ¶ 61, 260 (1982).

[8] Revisions to Oil Pipeline Regulations Pursuant to the Energy Policy Act of 1992, 65 FERC ¶ 61, 109 (1993).

[9] Sunoco Pipeline, L.P. v. Loper, Dkt. No. 2013-SU-4518-05 (York Co. Feb. 24, 2014), affirmed on reconsideration at Dkt. No. 2013-SU-4518-05 (York Co. issued Mar. 25, 2014).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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