2 July 2014
Practice Groups:
Oil & Gas
Energy
Environmental, Land
and Natural
Resources
PUC Pipeline Case Presents Issue of Who Qualifies
as a Public Utility Corporation
By Daniel P. Delaney
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
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.
PUC Pipeline Case Presents Issue of Who Qualifies as a Public Utility
Corporation
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
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PUC Pipeline Case Presents Issue of Who Qualifies as a Public Utility
Corporation
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
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).
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PUC Pipeline Case Presents Issue of Who Qualifies as a Public Utility
Corporation
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.
Conclusion
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.
Author:
Daniel P. Delaney
daniel.delaney@klgates.com
+1.717.231.4516
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