Opinion
C.A. No. 06A-04-005-FSS Consolidated case.
Submitted: March 20, 2007.
Decided: July 31, 2007.
Upon Home Builders's Request for Declaratory Relief and Reybold's Appeal from the Public Service Commission Order No. 6873 — DENIED. The Commission's Order is AFFIRMED.
Gregory A. Inskip, Esquire, Potter Anderson Corroon, LLP, Wilmington, Delaware, Attorney for Plaintiff/Appellant Reybold Group.
William Bailey, Esquire, Biggs and Battaglia, Wilmington, Delaware, Attorney for Plaintiff/Appellant Home Builders Association of Delaware.
Francis J. Murphy, Esquire, Murphy and Landon, Wilmington, Delaware, Attorney for Defendant/Appellee.
OPINION and ORDER
This appeal challenges a revised water utility regulation concerning expansion costs for new home construction. Most importantly, Revised Public Service Commission Regulation 15 does two things. First, it mandates that all direct costs for expanded water service, on-site and off, must be paid by the developers. Second, the revised regulation imposes a fixed fee, $1,500 per lot, for new residential water service. The fee covers costs indirectly associated with providing water to new housing. Appellants, real estate developers and their trade association, vigorously contested the revision. And once the Commission adopted it, they filed this appeal.
At times, Appellants have opposed the revision on all axes, procedural and substantive, factual and legal. Now, the core dispute concerns legal and economic philosophy. Simply put, Appellants' fundamental position is that the Public Service Commission lacks authority to shift water expansion costs from water utilities' current customers onto new customers by imposing some of those costs on land developers. To decide the Commission's rulemaking authority here, the court must construe the Public Utilities Act of 1974.
29 Del. C. § 101, et. seq.
I.
New housing developments need water service. That means either the site developer or the water utility must build facilities and expand existing ones to obtain and bring water to the houses. The costs of those facilities are called water expansion costs. As explained later, some expansion costs are direct. They include, for example, the outlay for new developments' water mains, laterals and hydrants, both on-site and off. Other costs are indirectly associated with adding supply and infrastructure, such as treatment and pumping capacity, to meet new housing demands.This case does not concern direct, on-site expansion costs. There is no dispute that developers and, in turn, their customers pay for those. The dispute concerns direct, off-site costs and the new fee for indirect costs.
A. The Old Regulation's Approach
Under the old regulation, expansion costs were indistinct. The regulation dealt with water expansion costs generally, in two ways: 1) the developer made an advance to the utility, which was eventually refunded from the utility's revenue, or 2) the developer made a contribution-in-aid-of-construction, without receiving a refund.
Because advances are refunded by the water utility, those costs are added to the utility's rate base and eventually charged to all the utility's customers through higher water bills. It is as if the utility is paying for its expansion over time, through increased prices. Contributions, however, are not added to rate base as they are not refunded. Contributions, in contrast to advances, help govern water rates by placing some expansion costs on developers and new customers, rather than existing customers.
Under the old regulation, a "means test" determined whether an advance or contribution would be used. According to the record, that test "was created in 1988 in response to changes in Federal tax laws that made [contributions] and [a]dvances taxable to the utility in certain circumstances." If a project's revenues would not cover the taxes, the utility would require an advance, which was refunded over time. If the project would generate enough revenue, the utility collected a contribution. Thus, the old regulation had more to do with taxes and accounting. Meanwhile, in 1996, the tax law changed, making the tax-driven distinction between advances and contributions "moot,"as one expert put it.
Beyond the extrinsic tax considerations, utilities and developers had unfettered discretion over how they treated water expansion costs. For decades, under the old regulation, developers and utilities negotiated the extent to which they would treat water expansion costs as advances or contributions. And, for decades, developers made contributions without questioning their lawfulness.
As explained below, in 2000, the General Assembly amended the Public Utilities Act, directly addressing the way utilities must treat expansion costs. Even after the 2000 amendment, developers and suppliers continued negotiating contributions and advances, without questioning the process.
In the years leading up to 2003, however, the Division of the Public Advocate and the Commission became concerned that the well-established negotiation process was not working fairly. For economic or competitive reasons explained in the record, some large suppliers demanded contributions while others favored advances. Thus, through resulting rate increases, the subscribers of the utilities favoring advances carried more of the financial burden of land development in their areas. The inequity in how the expansion costs' burden fell is undisputed.
According to the Public Advocate and the Commission, "Class A water utilities were rapidly expanding their service territories . . . [and] filing frequent applications for significant rate increases." As the Commission's staff found, some utilities are "unmotivated" to collect contributions from developers because when a utility bears expansion costs, it adds them to its rate base and earns more profit that way. As one expert testified, "[developers] are effectively paying less than they should through advances. [Contributions] should stop that." There was also concern about the great expense associated with rate cases, which advances precipitate.
Although the issue seems to have come to a head during a specific rate case involving Artesian Water Company, Inc., the Commission and the parties viewed the controversy as having statewide implications. That is why, on May 14, 2003, the Public Advocate petitioned the Commission to reopen the old regulation and change its approach to contributions and advances for facilities expansions.
B. The Revised Regulation
Under the revised regulation, water utilities and land developers may no longer negotiate advances and what are now Category 2 costs. Instead, Section 3.8 requires the water utility to collect contributions-in-aid-of-construction for "facilities expansion." Section 3.8.1 also requires contributions when an expansion dictates installing pipe or an associated water plant. The non-refundable contribution is made to the water utility as Category 1A and 1B costs.
Category 1A costs are "on-site Facilities costs that are directly assignable to a project," which include pipes, pumps and anything necessary to provide water service to the new home or development. Category 1A also includes expansion costs from the development's furthest point to 100 feet beyond the development's boundary toward the existing water main. As presented above, Category 1A costs are accepted by all as the developers' responsibility.
All on-site Facilities costs that are directly assignable to a specific project are Category 1A costs and shall be designated by the utility and paid for by the contractor, builder, developer, municipality, homeowner, or other project sponsor as CIAC, with no refunds. These costs include such items as Mains, hydrants, treatment plants, wells, pump stations, storage facilities, and shall include any other items that are necessary for the provision of utility water service. The costs of Facilities Extension from the furthest point of the project site up to a point 100 feet beyond the boundary of the project (in the direction of the utility's existing Main) shall be considered a Category 1A Cost.
Category 1B costs are for "off-site Facilities costs that are directly assignable to a project." Off-site extends from the project's 100' boundary, the area covered under Category 1A, to the utility's existing main. Again, these costs include everything needed for water service, including 8" mains, off-site pumping stations, etc. The section exempts "costs that the utility elects to incur for company betterment, that are not needed to supply water service to the project." Excluded, for example, are costs for redundant capacity that a utility might consider prudent. Thus, if a development necessitates installation of standard, 8"mains and the utility opts to install larger lines, the extra cost is charged to the utility. Originally, the proposed revision made no distinction between direct, on and off-site expansion costs. Category 1B was proposed by a utility, accepted by the Public Advocate, and adopted by the Commission.
All off-site Facilities costs that are directly assignable to a specific project from such point 100 feet beyond the boundary of the project and continuing to the utility's existing Main are Category 1B Costs and shall be designated by the utility and funded by the contractor, builder, developer, municipality, homeowner, or other project sponsor, as a CIAC not subject to refund. These costs include such items as Mains, hydrants, treatment plants, wells, pump stations, storage facilities, and shall include any other items that are necessary for the provision of utility water service.
Category 2 costs refer to "transmission, supply, treatment and/or other plant costs to supply water to the project that are not directly assignable to a specific project." They also cover a shortfall in the Category 1 assessment. Finally, under
Category 2 Costs refer to transmission, supply, treatment and/or other utility plant costs that are not directly assignable to a specific project or where Category 1 costs have not included sufficient direct costs to supply water to the project. The contractor, builder, developer, municipality, homeowner or other project sponsor shall pay $1,500 per single family residential water meter service for their portion of transmission, supply, treatment and/or other utility plant costs made available by water utility. These costs will be contributed by the contractor, builder, developer, municipality, homeowner, or other project sponsor, as CIAC, with no refunds. . . .
Category 2, the project's developer "shall pay $1,500 per single family residential water meter service." This is a set amount paid by developers, or anyone else, adding new housing in a utility's territory.
Category 2 costs are not included in the water utility's rate base, as they are funded through the $1,500 per lot fee. Water utilities can hold the fees and defer accounting for them as contributions until they are "able to make offsetting entries to the utility's plant accounts." In the end, however, the new home builder or buyer bears the $1,500 fee. The fact that, by definition, Category 2 costs are not directly assignable, yet they fall on new customers, goes to the heart of Reybold's position. The Commission's staff arrived at $1,500 by reviewing the water utility reports from 2001-2004. The total expansion costs from those years were divided by the number of new customers. The Commission decided that the $1,500 is less than the average cost per new customer. No one presented an instance where $1,500 was more than the actual, indirect cost. The record showed that the three largest utilities' indirect costs ranged from $1,600 to $6,000. Despite conjecture that the fee might be too high in a future case, the more realistic concern expressed by those who set the fee was that it would prove to be too favorable to builders and utilities. In any event, the revised regulation is subject to periodic review and adjustment.
As presented below, Appellants do not challenge the Commission's fact-finding. They challenge the revised regulation's lawfulness.
II. Nature and Stage of the Proceeding
The procedural history is helpful here in two ways. First, it highlights the elaborate, administrative process that spawned the revised regulation. As events unfolded through workshops, correspondence, discovery and public hearings, the Public Advocate and the regulated utilities (albeit grudgingly as to the latter) came to accept the revised regulation. They now see Category 1 costs, as one utility spokesperson put it, as "liveable" "with room for improvement," and Category 2 costs as "a fair approach." Second, the history generates the standard of review that will be employed here.
On June 17, 2003, the Commission's Order No. 6198 reopened Regulation 15, and a protracted, elaborate regulatory process began. The Commission's staff met with: water utilities; developers, including the Home Builders Association and the Reybold Group; and other interested parties to create a proposed regulation addressing expansion costs. On December 7, 2004, the Commission entered Order No. 6538, requiring the Commission's staff to give public notice, set a deadline for comments, and give the proposed regulations to a hearing examiner for findings and recommendations.
In response, Home Builders and Reybold, among others, moved for and were granted leave to formally intervene. Home Builders, joined by Reybold, also filed a motion to dismiss. After briefing, on March 22, 2005, the hearing examiner denied the motion. Then, there was pre-hearing discovery, including testimony and written objections. On June 22, 2005, a public evidentiary hearing was held. Also, non-intervening utilities and builders offered written comments. All-in-all, the Commission heard from: Home Builders; Reybold; other builders; four o f Delaware's five "Class A" water utilities; the Commission's staff; and the Public Advocate.
On June 28, 2005, a revised proposal for Regulation 15, including an amendment from United Water Delaware, Inc., was circulated. Artesian Water Company, Inc. accepted the revision, including United's amendment. In effect, that ended the regulated community's opposition to the revision. Again, however, Home Builders and Reybold filed briefs opposing the proposed revised regulation, to which the Public Advocate and the Commission's staff filed post-hearing briefs. Home Builders and Reybold also asked for oral argument, but the Hearing Examiner denied it on November 14, 2005.
On November 18, 2005, the Hearing Examiner submitted his findings and recommendation that the Commission adopt the revised regulation, with United Water's amendment. The Commission conducted another public hearing to consider Home Builders's and Reybold's exceptions. Despite the objections, on January 10, 2006, the Commission issued Order No. 6814, unanimously adopting the Hearing Examiner's Report and directing the regulation be published.
On March 3, 2006, Home Builders and Reybold again filed written objections to the regulation. But on March 14, 2006, the Commission conducted another public hearing and issued Order No. 6873, rejecting Home Builders's and Reybold's submissions and finally approving the proposed regulation.
On April 6, 2006, Home Builders and Reybold filed separate, timely appeals to Order No. 6873, which the court consolidated. On May 15, 2006, the Commission filed a motion to dismiss the appeal. The Public Advocate filed a motion to intervene on May 24, 2006. On June 9, 2006, the court heard oral argument, denied the motion to dismiss, and granted the Public Advocate's motion to intervene. Formal briefing followed, and, on February 8, 2007, the court heard argument on the appeal. At the argument, the court called for supplemental memoranda, which the parties supplied.
III. Standard of Review
For the most part, the facts are undisputed. Nonetheless, two different standards of review are invoked. Reybold characterized its appeal as a challenge to a case decision, falling under the Administrative Procedures Act's § 10142. Home Builders, however, requested declaratory relief from the Commission's rule making, which falls under § 10141. Although both standards of review are implicated, the factual review under each is the same. On appeal from an agency, the court's role is limited, not de novo. And under both standards, the court will uphold the Commission's fact-finding if it is supported by sufficient evidence. The court must also take into account the "specialized competence of the Commission."
29 Del. C. Ch. 101.
26 Del. C. § 510; 29 Del. C. § 10142.
Id.
As for legal conclusions, the review is the same under both statutes. With appeals from regulations, or rule making, "the agency action shall be presumed to be valid and the complaining party shall have the burden of proving either that the action was taken in a substantially unlawful manner and that the complainant suffered prejudice thereby, or that the regulation, where required, was adopted without a reasonable basis on the record or is otherwise unlawful." And, with appeal from case decisions, the court determines whether the "agency's decision was supported by substantial evidence on the record before the agency."
The Delaware Supreme Court has held, however, that the court may not simply defer to an agency's statutory interpretation. Public Water Supply Co. v. DiPasquale holds that "[a] reviewing court may accord due weight, but not defer, to an agency interpretation of a statute administered by it." If the agency interpretation "is longstanding and widely enforced, a reviewing court would ordinarily accord greater weight to the underlying agency interpretation of the statute. . . ." As it stands now, under 29 Del. C. §§ 10141 and 10142, the court can presume that the agency's statutory interpretation is valid, yet it cannot defer entirely to the agency's view. Instead, the court must perform its own statutory interpretation. But, as DiPasquale allows, as explained above, the court can still give weight to the agency's interpretation.
Public Water Supply Co. v. DiPasquale, 735 A.2d 378, 382-83 (Del. 1999).
Id. at 380 (citing Public Water Supply Co., Inc., v. Tulou, Del. Super., C.A. No. 98A-02-005 (Nov. 23, 1998) (Mem. Op.).
Id.
IV. A. Home Builders's Contentions
Home Builders argues that the revised regulation violates the Public Utilities Act of 1974 three ways:
• It is contrary to the Act's provisions for calculating rate base;
• It is inconsistent with the requirements for a utility to receive a certificate of public need and convenience (CPNC); and
• It is contrary to the Act's accounting procedures for expansion costs.
Home Builders also argues that the revised regulation is an unconstitutional taking of property without payment.
Specifically, Home Builders first contends that by defining the term "rate base" to include "the actual amount received and unrefunded as customer advances or contributions in aid of construction. . .," the Act gives site developers and water suppliers the right to determine advances and contributions through "open negotiations." The revised regulation improperly eliminates that statutory right.
Second, by obtaining a CPNC, a water supplier agrees to serve new customers. According to Home Builders, however, the revised regulation improperly allows a utility to have a monopoly without paying "the cost of establishing that monopolistic service."
26 Del. C. §§ 203C and 403(b).
Third, Home Builders contends that the revised regulation is inconsistent with the Act's procedure for calculating water expansion costs. Home Builders argues that "this procedure allows for open negotiations and for the free-market to decide [who] should bear the expense of a utility['s] obtaining a geographical monopoly and the future revenue stream that will flow from that monopoly."
Finally, according to Home Builders, the revised regulation is confiscatory in two ways. It denies site developers qua landowners "their negotiation rights regarding the treatment of extension costs for new customers." And, it imposes the Category 2 fee "regardless of the actual value of the extension costs."
B. Reybold's Contentions
Generally, Reybold accepts the revised regulation's approach to Category 1 costs. Reybold, however, challenges the $1,500, Category 2 fee. It argues:
• The fee violates the Act, because the Act mandates Category 2 costs' inclusion in rate base;
• The fee is unjustly discriminatory because it is imposed on one group of ratepayers, new home builders; and
• The fee violates Delaware's water conservation policy.
Reybold's first argument, concerning the statutory rate base, partly echos one of Home Builders's arguments.
V.
Broadly, where corporations are involved, money for expansion comes from: debt; the corporation's capital, provided by its shareholders; its existing customers, through increased prices; or new customers. Typically, in an economically capitalistic and politically democratic system, the way costs are apportioned between a corporation's shareholders, existing customers, or new customers is dictated by market forces, including competition. The rights associated with a free-market are a leitmotiv for the arguments presented by Home Builders.
Water, however, is an essential commodity, the supply of which is limited by nature. The public, therefore, counts on the legislature to enact laws ensuring that clean water is available for every home, at a reasonable price. Hence, the General Assembly included water suppliers in the Public Utilities Act of 1974. That means, among other things, the delivery and price of water is regulated by a government agency.
See also Water Supply Self-Sufficiency Act of 2003, 26 Del. C. Ch. 14.
In return for monopolies over their service territories, the legislature subjects water suppliers to the Public Service Commission's authority. Water suppliers, therefore, are government-regulated, public utilities. Basically, the Act charges the Commission with supervising and regulating water utilities, including their rates, facilities and service territories. Because of the Act, consumers cannot choose from whom they buy water, and water suppliers cannot charge what the market will bear. Accordingly, it cannot be assumed, as Home Builders does from the outset, that water supply is a free-market, and water suppliers are free to negotiate like typical corporations.
26 Del.C. § 201.
The Public Service Commission's supervisory and regulatory power, however, is not unlimited. It is circumscribed by its enabling statute, the Act. That not only includes the Act's mandates and prohibitions. The legislature may also express its will through silence. In other words, by expressly mandating one thing, the General Assembly may implicitly prohibit something else. Home Builders, in its first argument, relies on that principle when it contends that by expressly referring to "customer advances," the Act implicitly prohibits the Commission from eliminating, or even regulating, them.
Robb v. Ramey Assoc., 14 A.2d 394, 396 (Del.Super.Ct. 1940) ("Great caution is required in the application of the maxim [expressio unius est exclu sio alterius]").
Specifically, the Act defines "rate base" to include the utility's plant and intangible assets, less "[t]he actual amount received and unrefunded as customer advances or contributions in aid of construction of utility plant. . . plus accumulated depreciation of customer advances and contributions in aid of construction related to plant. . . ." Those brief references to customer advances in a definition do not, however, grant developers a blanket "right" to "open negotiations between a site developer and utility company," as Home Builders insists.
26 Del. C. § 102(3)c and e.
Moreover, the new regulation does not entirely eliminate advances for smaller utilities, and as the Hearing Examiner concluded from the record, the regulated utilities "carry millions of dollars of advances on their books," which the new regulation does not affect. More importantly, the new regulation still recognizes the statutory alternative to advances, contributions.
Most importantly, as the Hearing Examiner also observed, the new regulation "allows for the use of refundable advances to finance `new services' (as opposed to facilities extensions)." Therefore, the new regulation limits advances in only one, albeit significant, way. And, the arguments of Home Builders notwithstanding, the record supports the Hearing Examiner's fact-finding about why the new regulation is in the public's interest: It eliminates a demonstrated flaw in the negotiation process. Thus, rather than a blanket elimination of legally vested rights, the revised regulation is a substantial, but justified, exercise of the Commission's authority.
Home Builders's second argument, as mentioned above, is that in order to receive its monopoly, the water utility is required by the Act to "establish and certify its ability to supply new customers. . . ." Therefore, according to Home Builders, water utilities must bear the costs associated with providing service to their new customers. Viewed in historical context, the notion that utilities' existing subscribers must entirely finance the utility systems' expansions is a radical change from what happened under the old regulation. Until now, everyone seemed to assume that developers had, at least, some responsibility for expansion costs. Home Builders's arguments about negotiation rights presuppose that.
Home Builders further argues the new regulation "mandates a course of dealing" that is "directly contrary to the rights afforded to site developers in the Public Utilities Act, which recognizes that the utility company and the site developer are in the best position to negotiate the treatment of the utility company's expansion costs." Again, Home Builders reads too much into the Act. Because water utilities promise to provide service to all new customers, that does not mean, as Home Builders insists, the utilities' existing customers must subsidize site developers' business activities.
As discussed above, the Act does not confer broad rights on site developers. Nor does the Act contain language recognizing that developers and utility companies are "in the best position" to negotiate a way to treat expansion costs that is fair to everyone, including existing rate payers. To the contrary, the Commission found that utilities have been "unmotivated" to negotiate against rate increases. Home Builders's second argument ignores the counter-evidence showing its members and water utilities negotiated expansion costs under the old regulations, and since the late 1990s, those negotiations unfairly shifted water expansion costs to those who were not at the bargaining table, the existing ratepayers. In the process, the old-style negotiations also precipitated expensive rate cases.
The cases that Home Builders relies on concern direct statutory conflict, which does not exist here. For example, in Matter of Appeal of DNREC, the agency's Secretary adopted a regulation prohibiting all activities in wetlands. Matter of Appeal of DNREC held a total ban was outside the Secretary's authority, because the statute clearly stated that only certain wetland activities were prohibited, while other activities were allowed with departmental approval. Therefore, banning all activities would eliminate conduct that the legislature expressly approved.
Matter of Appeal of Department of Natural Resources and Environmental, 401 A.2d 93 (Del.Super.Ct. 1978).
In Wilmington Country Club v. Delaware Liquor Comm'n, the Commission ruled that clubs could not obtain liquor licenses. The court held that although the Commission could refuse licences in certain circumstances, e.g. lack of financial irresponsibility, violations of liquor laws, etc., it could not keep clubs from obtaining liquor licences when the statute clearly held that clubs are eligible for them. Thus, the Liquor Commission's ruling, on its face, was in direct conflict with the statute.
Wilmington Country Club v. Delaw are Liquor Comm'n, 91 A.2d 250 (Del.Super.Ct. 1952).
Home Builders's third argument, which relies on the Act's Section 302, dovetails with Reybold's first argument. In pertinent part, the Act provides:
[T]the Commission will include in the utility's rate base, . . .and. . .allow to be fully recovered in the utility's rates. . ., all costs which are incurred by the utility, in the exercise of its good faith business judgment, in constructing facilities (including without limitation supply, treatment and transmission facilities) to serve the needs of existing customers or of persons who are reasonably anticipated by the water utility to be its customers within 3 years. . . .
26 Del.C. § 302.
The parties agree that Section 302's embrace includes Category 1B and 2 costs.
Reybold contends that the phrase, "the Commission will include" means that all Category 2 costs must be included in rate base. Not only that, the law prohibits the Commission and the utilities from seeking reimbursement for those costs from anyone else, including Reybold. Home Builders takes Reybold's Section 302 argument a step farther. Home Builders contends that Section 302 "addresse[s] the procedures by which a utility's expansion costs should be borne." Home Builders concludes that "[b]y requiring a [contribution] in every case to a Class A water company, the proposed regulation makes impossible the operation of section 302. . . ."
Appellants draw support for their position from the statute's deference to the utilities' "good faith business judgment." According to Appellants, the utilities are free to negotiate with builders as the utilities see fit, without the Commission's oversight or interference. Because the Commission must include in rate base the cost of constructing all facilities that a utility believes are necessary to meet existing and reasonably anticipated needs, Appellants conclude that their customers, new home buyers, are meant to benefit from Section 302. In effect, Appellants further conclude that when it amended Section 302 in 2000, the General Assembly prohibited utilities from charging new homeowners for the costs associated with providing water service to them, and it mandated that those costs would be added to the water rates charged to all the utilities' customers. As discussed above, Appellants' argument seems to be a sea change.
The Commission, in effect, views the "will include" phrase as a stipulation, not a stricture on its authority. In other words, the law forces the Commission to allow utilities to incur expansion costs to meet their current and reasonably foreseeable needs, without concern that the Commission will exclude those costs from their rate bases. Section 302 allows water suppliers to decide to "construct facilities" as they see fit, in their "good faith business judgment." And, having decided to construct those facilities, the utilities are entitled to add the costs, "which are incurred by them," to their rate bases. The Commission may not challenge the utilities' decisions, and it must let them charge their actual costs to their subscribers. Therefore, Section 302's specific language merely protects utilities and their investors from the Commission's second-guessing.
Section 302 does not speak to utilities seeking contributions for some expansion costs from those who make them necessary. Nor does it prohibit the Commission from making rules affecting the utilities' approach to developers, vis-à-vis those costs. As presented above, the way to harmonize Section 302 and give all its terms meaning, including the costs incurred phrase, is to read it to mean that water utilities can build to meet demand created by new customers, and they are entitled to add to rate base what they must pay for that construction. The revised regulation only intrudes to require that the utilities not agree to incur expansion costs and add them to their rates when, instead, they can be reimbursed by a site developer. In that way, not only are the utilities' investors still protected as the General Assembly intended by Section 302, so are the utilities' subscribers, as contemplated by the Act's Sections 303 and 311.
26 Del. C. §§ 303 and 311.
Home Builders's final argument, that the revised regulation is unconstitutional, is a priori. As presented above, Home Builders concludes from its members' past practices that they have absolute negotiation rights, which are sacrosanct. Actually, as also presented above, the "right" that Home Builders is vindicating is merely the practice of shifting part of its members' business costs onto utilities' subscribers.
Home Builders's position is not even entirely consistent with its members' past practices. Since long before Regulation 15's, Section 302's and Revised Regulation 15's enactments, site developers reimbursed utilities for what are now called water expansion costs. Site developers implicitly recognized that they had no right to force utilities to build facilities to serve the developers' customers without the developers paying for them. Again, the revised regulation's factual premise, supported by substantial evidence, is that the long-standing negotiation process unfairly shifted what should have been the site developers' financial burden onto the subscribers. Thus, the regulation only "takes" something from the developers to which they are not entitled.
Reybold's first argument concerns Section 302, which is discussed above. Reybold's second argument is that the Category 2 fee is unjustly discriminatory. Reybold claims that the Category 2 fee charges new home buyers for system-wide costs that the utilities should bear. Also, in effect, the Category 2 fee is a rate that is only being imposed on one group of ratepayers. Specifically, Reybold argues that the Revised Regulation, by creating the Category 2 fee, "unjustly discriminates against new customers by imposing on them alone, a $1,500 charge . . . for `transmission, supply, treatment and or other utility plant costs that are not assignable to a specific project.'"
The court assumes without deciding that Reybold is correct that the fee is tantamount to a rate, and the court agrees that the Commission is flatly prohibited from imposing "unjustly discriminatory" rates. Reybold also is correct that the Category 2 fee is imposed only on developers, who probably pass it on to their customers, new home buyers. And finally, Reybold is correct that it and its customers should not have to pay for general improvements to their water supplier's system, for which they are not the cause. Nonetheless, by themselves, those truths do not make the Category 2 fee unjustly discriminatory.
Liborio II, L.P. v. Artesian Water Co., Inc., 621 A.2d 800 (Del.Super.Ct. 1992).
Reybold knows that Reybold, or its customers, must cover Category 1 costs. Unlike Home Builders, Reybold does not contend that any Category 1 costs must be passed on to the utilities' ratepayers, generally. In its words,
Reybold does not contest the requirement that utilities charge homebuilders for all facilities costs "that are directly assignable to a specific project," whether on-site ("Category 1A Costs") or off ("Category 1B Costs").
Reybold, therefore, expects to keep paying the costs of adding its customers to the water systems.
Reybold, however, does not agree that the Category 2 fee covers costs attributable to Reybold and its customers. Reybold focuses on the fact that "Category 2 costs refers to supply and treatment plant that is built and may be used for more than one project or can be used for system redundancy." These facilities are undeniably "built to meet overall system needs, for current and future customers." And so, because it forces Reybold's customer to shoulder more than their share of those costs, the fee is unjustly discriminatory. Reybold observes that once they move in and begin paying for water, "new ratepayers shoulder part of the of the cost of the existing water system that was borne by solely by incumbent ratepayers."
Reybold's argument ignores the counter-fact that new customers generate more than direct expansion costs. They also increase the utility's need for systemwide, facilities expansion. To meet new customers' demands, water suppliers must pay for new wells, increased pumping and treatment capacity. To some extent, a larger system also needs greater redundancy. It may be that some of those facilities also work to existing customers' benefit. Nevertheless, the Commission primarily attributes their expense to the new customers. That view is reasonable.
Even without new demand, for example, mains and pumps wear out, and they must be replaced. If new customers were not coming on-line, the existing ratepayers would have to underwrite those expenses. The fact is, however, new customers are coming on-line and their impact on the water systems is the Commission's concern. The Commission had reason to conclude, in effect, that but for the demand caused by new customers, the systemwide expansion costs would not be incurred as they have been.
Reybold's brief, final argument, that the revised regulation encourages waste of a statutorily protected resource, seems farfetched. The State's water conservation policy is not built on keeping down land developers' costs by shifting them to private water utilities' customers.
In the end, the Commission decided that, because they were under-collecting water expansion costs, some utilities were generating rate cases and rate increases too often. After an extensive regulatory process, the Commission basically identified three problems: overuse of advances, rather than contributions; failure to seek reimbursement for direct, off-site costs; and failure to charge indirect costs.
In response to the problems, the Commission decided to limit the use of advances, require that utilities demand contributions for off-site costs, and impose a relatively conservative charge for indirect, expansion costs. The Commission's solution may be imperfect, but it represents a reasoned and workable, administrative approach. Finding a perfect solution, if that were possible, would take far too long and the process would be prohibitively expensive.
VI.
For the foregoing reasons, Home Builders's request for declaratory relief and Reybold's appeal from the Public Service Commission Order No. 6873 are DENIED . The Commission's Order is AFFIRMED.
IT IS SO ORDERED.