In February 2021, the Pennsylvania Public Utility Commission (PUC) issued a declaratory order finding that a utility did not need to pay certain municipal permit fees because those fees were preempted by the Pennsylvania Public Utility Code (Code) .1 The Pennsylvania Commonwealth Court (Commonwealth Court) overturned that decision in April 2022.2 Key to the Commonwealth Court’s analysis was that the license fee was allowable because it did not “constitute utility regulation”.
In a long line of cases, the Supreme Court of Pennsylvania (Supreme Court) has ruled that the Code generally prevails in the area of utility regulation. According to the Supreme Court: “If each county were to pronounce its own regulation and control over electrical wires, pipelines and oil lines, power and fuel conveyors could become so twisted and knotted that they would adversely affect the welfare of the whole state.”3 Therefore, the Supreme Court ruled that municipalities have very limited power to regulate public services.4
The landmark case concerning the pre-emption of municipal license fees is PPL Electric Utilities Corp. vs. City of Lancaster5 (city of Lancaster). There, the City of Lancaster (the city) has adopted a comprehensive public right-of-way (right-of-way) management program. The city argued that the Supreme Court should use a conflict preemption analysis rather than a field preemption analysis because Section 1511(e) of the Corporations Act6 gave the City explicit authority to issue permits to utilities to enter rights-of-way. The Supreme Court rejected this argument, holding that the court need only determine whether the city ordinance encroaches on the domain that the General Assembly has given to statewide regulation.
The Supreme Court reviewed the city’s ordinance in detail and concluded that it was preempted. According to the Supreme Court, the provisions of the city ordinance made the city a co-regulator of utilities with the PUC. For example, the city ordinance provided that the city would inspect utility facilities for compliance with PUC standards, but compliance and enforcement of those standards had previously been the responsibility of the PUC. The Supreme Court found that the city’s annual maintenance fee was preempted because it regulated utilities; the fee covered the City’s regulatory expenses (including inspection and enforcement). The Supreme Court found that these fees were “materially consistent” with the state-level costs included in the assessment that the PUC charges utilities annually. The Supreme Court held that PUC assessment is utility regulation; therefore, municipal maintenance charges are also a utility regulation. As such, the municipal fee has been pre-empted.
THE PUC DECISION
Armstrong Telecommunications Inc. (Armstrong) has asked the PUC to issue a declaratory order that Armstrong does not have to pay certain license fees that the Township of Waterford, Erie County (Waterford), has charged utilities installing utility facilities within the right-of-way.7 Armstrong argued that the Code takes precedence over fees, while Waterford countered that license fees were explicitly authorized by state law (Pennsylvania Business Corporations Law Section 1511(e) and Section 67322 of the Pennsylvania Second Class Township Code). Both parties argued that City of Lancaster supported their position.
The PUC’s decision related to Waterford’s inspection costs. The PUC concluded that Waterford’s inspection costs were anticipated because the PUC has exclusive jurisdiction to inspect the locations and installation of utility installations (the PUC explicitly distinguished inspections relating to pavement disturbances from inspections utility facilities).8 The PUC was also concerned that allowing municipalities to charge utility inspection fees would result in a patchwork of municipal fees, undermining the goal of a uniform regulatory framework for utilities.
THE COMMONWEALTH COURT DECISION
Waterford appealed the PUC’s decision. According to the Commonwealth Court, Waterford characterized its permit fees as incidental to the application process, while the PUC characterized the fees as an attempt to regulate utility facilities. The Commonwealth Court considered the City of Lancaster decision and concluded that the purpose or regulatory effect of the authorization fee is the determining factor in the analysis of pre-emption in the field: “[I]If a local government authority is prevented from enacting an ordinance to regulate a utility, it does not matter whether that ordinance authorizes charges that recur periodically, at the discretion of the local authority, or only once. These fees are pre-empted by the Code.”
The Commonwealth Court found that Waterford’s leave orders did not regulate utilities. Rather, they regulate when and how utilities enter a public right-of-way. The Commonwealth Court reviewed the terms and conditions set out in the Waterford Permits and found that they “simply require a holder to commence and complete work in a timely manner or be subject to additional charges”. The Commonwealth Court rejected the PUC’s argument that Waterford impermissibly required inspection of utility installations. Instead, the Commonwealth Court found that the inspection merely confirmed that the utility had acted in accordance with its request for access to the right-of-way.
In City of Lancaster, the Commonwealth Court found that the city’s permit fee was not anticipated, but, upon review, the Supreme Court disagreed. The time limit for appealing the decision of the Commonwealth Court in Waterford has yet to run, so it is possible the Supreme Court will again be asked to review a Commonwealth Court decision upholding a municipal license fee. City attorneys and utility advocates should be watching to see if an appeal is filed and, if so, if the Supreme Court decides to hear the case. In the meantime, it seems clear that advocates arguing for or against the preemption of a municipal license fee must focus on the purpose of the fee in order to persuade the court whether or not the fee regulates utilities.
1 Armstrong Telecommunications Inc. Petition for a Declaratory Order, File No. P-2019-3014239 (Order entered on February 19, 2021).
2 Waterford Township v. Pa. Pub. User Common, 306 CD 2021 (April 21, 2022) (Waterford).
3 Einhorn v. Phil. Electr. Co., 410 Pa. 630, 190 A.2d 569 (1063).
4 For an example of a case where municipalities can regulate utilities, see, Duquesne Light Co. v. Borough of Monroeville449 Pa. 573, 298 A.2d 252 (1972) (in which the Supreme Court gave effect to both the Code and a provision of the Pennsylvania Borough Code specifically allowing boroughs to define reasonable underground wiring districts).
5 654 Pa. 203, 214 A.3d 639 (2019).
6 15 Pa. CS § 1511(e).
7 For a more detailed discussion of the PUC’s decision, please see a previous client alert:
Pennsylvania Public Utilities Commission rules that two municipal permit fees are preempted by state law (February 24, 2021).
8 The Commonwealth Court’s decision notes that “the Commission makes it clear that it did not anticipate the township’s costs by equating them with the maintenance costs at issue in City of Lancaster but rather because they were imposed specifically for the purpose of inspecting public utility installations.”
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