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10/16/97 AT&T v. PENNSYLVANIA PUBLIC UTILITY

COMMONWEALTH COURT OF PENNSYLVANIA


October 16, 1997

AT&T, PETITIONER
v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION, RESPONDENT; SPRINT COMMUNICATIONS COMPANY L.P., PETITIONER V. PENNSYLVANIA PUBLIC UTILITY COMMISSION, RESPONDENT

This Opinion Substituted on Grant of Reconsideration for Withdrawn Opinion of October 16, 1997, Previously

Before: Honorable Doris A. Smith, Judge, Honorable Dan Pellegrini, Judge, Honorable Emil E. Narick, Senior Judge. Opinion BY Judge Pellegrini.

The opinion of the court was delivered by: Pellegrini

OPINION BY JUDGE PELLEGRINI

FILED: October 16, 1997

AT&T and Sprint Communications Company L.P. (Sprint) appeal an order of the Pennsylvania Public Utility Commission (Commission) denying them reimbursement of their costs for relocating fiber optic cables at five rail-highway crossings. *fn1

I.

This case emanates from the need by Delaware and Hudson Railway Company, Inc. (Delaware and Hudson) to lower railroad tracks at a number of rail-highway crossings in northeastern Pennsylvania to accommodate double stack container railroad cars. Because the Pennsylvania General Assembly wanted to promote commerce within the Commonwealth by modernizing its railways, it enacted legislation to subsidize rail freight carriers to undertake a rail clearance project that would allow the railroads to double stack container cars on the rail lines. To subsidize Delaware and Hudson in the rail lowering project at three below-grade rail-highway crossings in the City of Scranton and at two below-grade rail-highway crossings in Nicholson Township, a Rail Clearance Agreement was entered into between the Commonwealth of Pennsylvania, acting through the Department of Transportation (Commonwealth), Consolidated Rail Corporation (Conrail) and Delaware and Hudson. The Commonwealth agreed to fund up to 30% of Delaware and Hudson's and Conrail's costs in completing the project, subject to a spending cap of $1,260,000 for alterations to their portion of the project, which involved the track from the New York state line to Control Point Burn in the City of Allentown.

On October 6, 1993, Delaware and Hudson filed an application with the Commission *fn2 requesting exemptions from the 22-foot minimum overhead clearance above a railroad track as required by 52 Pa. Code § 33.121(a) *fn3 at three crossings in the City of Scranton *fn4 and at two below-grade rail-highway crossings in Nicholson Township which cross over the 3,600 foot long Nicholson Tunnel. *fn5 At the five crossings, fiber optic cables of either AT&T or Sprint or both, which were previously installed, were required to be relocated as a result of lowering the tracks. The Commission issued an interim order approving the requested exemptions and instructing Delaware and Hudson to advise the Commission when the alterations were completed so that a formal hearing could be held to determine the allocation of costs incurred among the parties as a result of the alterations. *fn6 However, until that time, the Commission ordered each party to bear its own costs of reconstruction and relocation.

The fiber optic cables were located in the Delaware and Hudson right-of-way as a result of agreements entered into with Guilford Transportation Industries, Inc. (Guilford) or its subsidiary, D&H. *fn7 Sprint (previously U.S. Telecom, Inc.) and Guilford entered into a Fiber Optic Easement Agreement (Easement Agreement) in 1986 that allowed Sprint to place its cables in the Delaware and Hudson right-of-way. Under the Easement Agreement, the crossings that affected Sprint's cables were along the right-of-way at the Linden Street rail-highway crossing in Scranton and in the Nicholson Tunnel. If Sprint were required by Guilford to move its cables, it would be reimbursed its costs by Guilford. *fn8 In 1990, AT&T entered into a similar agreement with Guilford's subsidiary, D&H. *fn9 Unlike Sprint, AT&T agreed to relocate its cables at its own cost and expense if D&H deemed it necessary. *fn10

As a result of the Commission's order that each party was to bear its own costs, Sprint relocated its cables along Delaware and Hudson's right-of-way and temporarily in the Nicholson Tunnel at a total cost of $232,353.81. AT&T relocated its cables along the right-of-way and temporarily in the Nicholson Tunnel at a total cost of $136,451. AT&T and Sprint intended to share the cost for permanently relocating their cables in a shared common facility in the Nicholson Tunnel, *fn11 at an expected total cost of $1,654,217.25.

After the alterations were completed, a hearing was held before an Administrative Law Judge (ALJ) regarding the allocation of costs incurred by Delaware and Hudson, AT&T and Sprint. AT&T and Sprint argued that the Commission did not have jurisdiction to allocate costs, but if it did, they were entitled to 100% reimbursement of their costs of relocating their cables, including those associated with relocating their cables throughout the entire length of the Nicholson Tunnel. They argued that they were forced to relocate their cables, did not benefit from the relocation, and the Commission had previously reimbursed costs in similar situations. Additionally, they argued that there were state and federal funds available, specifically, those funds given by the Commission to Delaware and Hudson to pay their costs.

The ALJ initially determined that the Commission had subject matter jurisdiction over all of the rail-highway crossings, but specified that it did not have jurisdiction over the entire 3,600 feet of the Nicholson Tunnel, only over the crossings at the points where the highways physically crossed over the tunnel. She then found that the Commission had jurisdiction over the allocation of costs, and considered various factors *fn12 in deciding whether any of the parties were entitled to reimbursement of their costs, including that there were no government funds available for reimbursement. While she considered the Easement Agreement between AT&T and D&H in allocating costs, the ALJ stated that "due to the uncertain applicability and interpretation of any potential cost apportionment agreements regarding Sprint's relocation costs ... I shall not look to the words of either the March 25, 1986 easement agreement or the July 13, 1990 asset purchase agreement." *fn13 (ALJ's recommended decision at pp. 49-50.) Concluding that none of the factors warranted that any of the relocation costs of either AT&T or Sprint be borne by Delaware and Hudson, the ALJ recommended to the Commission that Delaware and Hudson, as well as AT&T and Sprint, were each responsible for their own costs. The Commission adopted the recommended decision of the ALJ and this appeal by AT&T and Sprint followed. *fn14

AT&T and Sprint contend that the Commission's order contains no rationale for denying their relocation costs. *fn15 Specifically, they argue that because the findings the Commission made as part of its determination were unsupported by the evidence and no reasoning was provided to support its Conclusions, we should remand.

II.

The Commission has exclusive jurisdiction over matters involving rail-highway crossings. Pittsburgh & Lake Erie Railroad Company v. Pennsylvania Public Utility Commission, 66 Pa. Commw. 609, 445 A.2d 851 (Pa. Commw. 1982). The provision that governs the jurisdiction of the Commission's allocation of costs between the parties involving rail-highway crossings is Section 2704 (a) of the Code, *fn16 which provides:

The compensation for damages which the owners of adjacent property taken, injured, or destroyed may sustain in the construction, relocation, alteration, protection, or abolition of any crossing under the provisions of this part, shall, after due notice and hearing, be ascertained and determined by the commission. Such compensation, as well as the cost of ... relocation ... of facilities at or adjacent to such crossing which are used in any kind of public utility service, shall be borne and paid ... by the public utility ... unless such proportions are mutually agreed upon and paid by the interested parties.

When there is an agreement and the costs are paid, then the Commission is divested of jurisdiction to consider the allocation of costs as between those parties. City of Philadelphia v. Pennsylvania Public Utility Commission (Philadelphia I), 449 Pa. 402, 296 A.2d 804 (1972), reversed in part by City of Philadelphia v. Pennsylvania Public Utility Commission (Philadelphia II), 504 Pa. 312, 473 A.2d 997 (1984). An agreement is only "paid" or "executed" under Section 2704 (a) of the Code when one of the parties to the agreement has voluntarily paid for the costs of relocation or reconstruction and not pursuant to any Commission order. Philadelphia II. *fn17

While the Commission has the power to allocate costs even when there is an agreement, the Commission may reform or abrogate the agreement if it finds that it is in the public's interest to do so. Section 508 of the Code, 66 Pa. C.S. § 508, provides in relevant part:

The commission shall have power and authority to vary, reform, or revise, upon a fair, reasonable, and equitable basis, any

obligations, terms, or conditions of any contract heretofore or hereafter entered into between any public utility and any person, corporation, or municipal corporation, which embrace or concern a Public right, benefit, privilege, duty, or franchise, or the grant thereof, or are otherwise affected or concerned with the public interest and the general well-being of this Commonwealth. Whenever the commission shall determine ... that any such obligations, terms, or conditions are unjust, unreasonable, inequitable, or otherwise contrary or adverse to the public interest and the general well-being of this Commonwealth, the commission shall determine and prescribe ... the just, reasonable, and equitable obligations, terms, and conditions of such contract. (Emphasis added.)

Under this section, the Commission has the authority to abrogate an existing agreement between a public utility and a corporation, but only when the agreement is contrary or adverse to the public interest and the general well-being of the Commonwealth. In determining the standard to be used when considering whether the agreement affects the public interest, "the Commission's power to set aside contracts does not apply to a contract that does not affect the common welfare by directly influencing rates or actual operations of the public utility." Philadelphia I, 449 Pa. 410, 296 A.2d at 808.

Once it is determined that it is in the public interest to reform or abrogate the agreement (or when there is no agreement), then the Commission has broad power to allocate and assess costs under Section 2704 (a) of the Code. Factors commonly considered are:

* the party that originally built the crossing;

* the party that owned and maintained the crossing;

* the relative benefit initially conferred on each party with the construction of the crossing;

* whether either party is responsible for deterioration of the crossing that has led to the need for its repair, replacement or removal; and

* the benefit that each party will receive from the repair, replacement or removal of the crossing. *fn18

Greene Township Board of Supervisors v. Pennsylvania Public Utility Commission, 668 A.2d 615 (Pa. Commw. 1995).

III.

Both AT&T and Sprint occupy the right-of-way as a result of agreements that provide for the allocation of costs. There is no dispute that AT&T has a mutual agreement with Delaware and Hudson that provides if AT&T is required to move its cables, it has to do so at its own cost and expense. Sprint had an agreement with Guilford, but its agreement provided, unlike AT&T's, that Guilford was to pay it costs, and, unlike the AT&T situation, it is unsettled whether its agreement remains valid.

While the Commission required AT&T to bear its own costs for relocation of its facilities as the result of the track-lowering project, which is in accord with its agreement with Delaware and Hudson, it did so only considering Section 2704 (a) of the Code. Before making a 2704 (a) analysis, however, the Commission was initially required to determine under Section 508 of the Code whether it would be in the public interest to abrogate or reform the agreement with Delaware and Hudson. If it found that it was not in the public interest, then its inquiry should have ended and it was unnecessary to determine how costs should have been allocated under Section 2704(a). If the agreement was in the public interest, the Commission should have made an analysis under Section 2704 (a) of the Code utilizing the standards previously set forth. Because the Commission failed to make a finding as to whether it was in the public interest to abrogate AT&T'S agreement with Delaware and Hudson, we remand the case to the Commission to make that determination.

The Commission would be required to utilize the same analysis as to Sprint, but only if the Sprint agreement with Guilford survived bankruptcy and was assumed by Delaware and Hudson under its asset purchase agreement from the bankrupt Guilford. Because the Commission failed to determine if the Sprint agreement survived bankruptcy, we remand this case to the Commission to make that determination and then to follow the same analysis as that used for AT&T. If the Sprint agreement survives and it is not in the public interest, the Commission's inquiry ends. If the agreement does not survive bankruptcy or the Commission decides to abrogate the agreement, then the Commission should consider the relevant factors under Section 2704 (a) when allocating costs. *fn19

* their agreements with Delaware and Hudson and Guilford required those entities to pay for their relocation costs;

* there were public funds available for reimbursement;

* they were not precluded from reimbursement simply because their facilities were located in a right-of-way;

* they did not require prior approval from the Commission before installing their lines at the various crossings; and

* their facilities were not improved by relocation.

Accordingly, the decision of the Commission ordering AT&T and Sprint to pay their own relocation costs is vacated and the case remanded to the Commission to make further findings and Conclusions consistent with this opinion.

DAN PELLEGRINI, JUDGE

ORDER

AND NOW, this 16th day of October, 1997, the order of the Pennsylvania Public Utility Commission, dated September 25, 1996, ordering AT&T and Sprint to pay their own relocation costs is vacated and this case is remanded to the Commission to make further findings and Conclusions consistent with this opinion.

Jurisdiction relinquished.

DAN PELLEGRINI, JUDGE


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