Medina County Courthouse

Tuesday, December 29, 2009

Ohio Supreme Court Upholds PUCO Order Authorizing Columbia Gas to Repair Customer-Owned Service Lines

2008-1507. Util. Serv. Partners, Inc. v. Pub. Util. Comm., Slip Opinion No. 2009-Ohio-6764.
Public Utilities Commission, No. 07-478-GA-UNC. Order affirmed.
Moyer, C.J., and Pfeifer, Lundberg Stratton, O'Connor, O'Donnell, Lanzinger, and Cupp, JJ., concur.

(Dec. 29, 2009) The Supreme Court of Ohio ruled today that the Public Utilities Commission of Ohio (PUCO) did not exceed its authority or substantially impair the contract rights of a private firm selling service warranties by issuing a 2008 order that gave Columbia Gas of Ohio exclusive authority to repair or replace customer-owned natural gas service lines that run from the curb to its customers’ gas meters in Columbia’s 22-county service area.

The court’s 7-0 decision was written by Justice Robert R. Cupp.

In response to four “catastrophic” residential explosions that resulted from natural gas line leaks, the PUCO undertook a three-year study to determine how widespread the threat of future explosions was and what remedial action was necessary to protect the public.

In April 2008, the PUCO approved a stipulated agreement between Columbia Gas of Ohio and several utility user groups and issued an order authorizing Columbia to: 1) inspect the “riser” (the final, above-ground connector linking an underground gas line to the gas meter) in all buildings in Columbia’s 22-county service area, and whenever it found a certain type of potentially dangerous plastic riser fitting to replace that fitting with a metal riser; 2) assume exclusive responsibility for repairing or replacing any hazardous underground service lines running from the street to its customers’ homes or business structures; and 3) add a surcharge to the monthly bills of all Columbia Gas customers to recover the company’s costs of replacing defective risers and repairing service lines.

Objections to the stipulated agreement were filed by Utility Service Partners Inc., (USP) a company that sells service line warranties to individual home and business owners that include repairing or replacing defective gas lines. Among its objections, USP argued that the proposed commission order would interfere with service contracts already in force between USP and more than 100,000 of Columbia’s customers under which those customers made monthly payments to USP in exchange for USP’s promise to make any needed repairs on the customer’s gas lines. The commission overruled USP’s objections and issued a final order on April 9, 2008, authorizing Columbia to go forward with both its riser inspection and replacement program and with assumption of exclusive authority to perform or contract for the performance of all needed repairs or replacements of customer-owned outside service lines in the company’s service area.

After its request for a rehearing was denied by the commission, USP exercised its right to appeal the PUCO’s order directly to the Supreme Court. In today’s decision, the Court rejected each of USP’s assignments of error and affirmed the commission’s order as a reasonable and lawful exercise of its statutory authority.

With regard to USP’s claim that the commission lacked statutory authority to grant Columbia exclusive authority to maintain and repair customer-owned service lines, Justice Cupp wrote: “In issuing the order, the commission relied on R.C. 4905.06. That section gives the commission general supervisory authority over utilities; among other things, it provides the commission with the ‘power to inspect’ public utilities, which ‘includes the power to prescribe any rule or order that the commission finds necessary for protection of the public safety.’

“Thus, if the order was related to the ‘protection of the public safety,’ the commission acted within its powers. We find that the order is related to the protection of the public safety. The commission expressly acted ‘to improve the level of public safety,’ and the terms of its order were rationally related to that end. Service lines carry natural gas, and natural gas is dangerous unless it is handled properly. It is noxious, flammable, invisible, and naturally odorless. Exposure to natural gas is potentially lethal to persons and destructive of property. ... Thus, the order, in seeking to improve the regulation of pipelines that prevent the escape of a dangerous substance, had a clear tie to public safety. And the order gave Columbia responsibility only over ‘hazardous’ service lines, eliminating any argument that the commission exceeded the bounds of the safety power. We conclude that the commission acted with statutory authority.”

In also rejecting USP’s claim that the PUCO order “substantially impaired” the company’s contractual relations with its 100,000 existing service warranty customers, Justice Cupp noted that USP had failed to introduce probative evidence of the claimed impairment because it failed to place a copy of its customer service contract in the case record. However, even if sufficient evidence of contract impairment had been provided, he wrote, the US. Supreme Court’s decision in Energy Reserves Group Inc. v. Kansas Power & Light Co. provides that a law or regulation enacted as an exercise of a governmental agency’s police power is not unconstitutional if the agency can show “ a significant and legitimate public purpose behind the regulation,” and show that the adjustment of interests between affected parties is “reasonable” in light of the public purpose justifying the regulation.

In this case, Justice Cupp wrote: “(T)he commission’s order represented an exercise of police power. At a minimum, the police power includes actions taken to protect public safety. ... The commission expressly stated that its order was ‘an effort to improve the level of public safety,’ and the commission reasonably and with ample support in its record determined that making Columbia responsible for service lines would protect the public safety. ... (T)he evidence (also) showed that the decentralized, unregulated, and incomplete repair regime that had grown up in Ohio did not adequately protect public safety. The order rationally responded to this situation by consolidating a diffuse system and placing repair responsibility into the hands of the party the commission determined to be the best qualified to exercise it: a pervasively regulated, thoroughly supervised, pipeline-expert natural gas company. ... Finding that USP satisfies none of inquiries set forth in Energy Reserves, we must reject its Contract Clause challenge.”

M. Howard Petricoff, 614.464.5414, for Utility Service Partners Inc.

Anne L. Hammerstein, 614.644.8669, for the Public Utilities Commission of Ohio.

Kathleen M. Trafford, 614.227.1915, for Columbia Gas of Ohio.

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