Affirmative Public Benefits and Deference in Section 1329 Utility Acquisitions: Consumer Advocate v. PUC (Aqua / East Whiteland)

Affirmative Public Benefits and Deference in Section 1329 Utility Acquisitions:
Consumer Advocate v. Pennsylvania PUC (Aqua / East Whiteland)

I. Introduction

This commentary analyzes the Supreme Court of Pennsylvania’s decision in Darryl A. Lawrence, Acting Consumer Advocate v. Pennsylvania Public Utility Commission, consolidated with the appeals of East Whiteland Township and Aqua Pennsylvania Wastewater, Inc. (Nos. 47–49 MAP 2024, decided December 16, 2025).

The case arises from a proposed sale by East Whiteland Township of its municipal wastewater collection system to Aqua, an investor-owned public utility. The parties elected to use the Section 1329 fair market value process under the Pennsylvania Public Utility Code to set the system’s ratemaking base. Because Aqua would be expanding its certificated service territory and acquiring municipal utility assets, it needed a Certificate of Public Convenience (CPC) under Sections 1102 and 1103 of the Code.

An Administrative Law Judge (ALJ) recommended denial of Aqua’s CPC application, emphasizing expected rate increases and the adequacy of the Township’s existing service. The Public Utility Commission (PUC), in a detailed opinion, rejected that recommendation, found “substantial affirmative public benefits,” and approved the transaction and CPC. The Commonwealth Court reversed, holding that the asserted benefits either merely reflected Aqua’s fitness (and thus were not “benefits” of the transaction) or duplicated services the Township already provided, while the anticipated rate increases were “known harms” that outweighed any benefits.

The Supreme Court reversed the Commonwealth Court. It reaffirmed that Section 1329 does not change the CPC standard, so the City of York / Popowsky “affirmative public benefits” test still governs. But it held that the Commonwealth Court misapplied that framework and exceeded its standard of review by:

  • Improperly excluding benefits that derive from the acquiring utility’s size and technical, managerial, and financial fitness;
  • Reweighing the PUC’s factual findings and substituting its own judgment about comparative service quality; and
  • Elevating potential rate increases to “known harms,” contrary to City of York and Popowsky.

The Court remanded to the Commonwealth Court for the limited purpose of deciding an issue that court had not reached: whether the PUC’s factual findings are supported by substantial evidence.

II. Summary of the Opinion

A. Core Holdings

  1. Section 1329 does not alter CPC standards under Sections 1102 and 1103. Its silence on Section 1103 and limited references to Section 1102 confirm that the legislature intended existing CPC requirements—and this Court’s precedent applying them—to apply fully to fair market value acquisitions.
  2. The City of York / Popowsky “affirmative public benefits” standard applies to Section 1329 acquisitions. A CPC may be granted only if the transaction will “affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way”; this entails a net benefits assessment, including the probable general effect on rates.
  3. The PUC may consider benefits that derive from the acquiring utility’s fitness, scale, and capabilities. While a utility’s bare “fitness” is not itself the benefit, improvements in service, infrastructure, customer protections, and operational capacity that flow from that fitness are legitimate affirmative public benefits.
  4. Rate impacts must be considered but are not per se “known harms.” The PUC must consider likely rate effects “at least in a general fashion,” but:
    • It need not prove rates will fall,
    • Rate increases cannot be treated as dispositive “known harms,” and
    • They are one factor among many in a broader net-benefit analysis.
  5. Appellate courts must defer to the PUC’s factual findings and policy judgments. The Commonwealth Court erred by reweighing the evidence and substituting its policy and factual judgments for those of the PUC. Its role is limited to correcting legal error, procedural error, constitutional violations, and determining whether findings are supported by substantial evidence.

B. Disposition

  • The Supreme Court reversed the Commonwealth Court’s decision that the PUC erred, as a matter of law, in granting Aqua a CPC.
  • The Court remanded to the Commonwealth Court to decide the OCA’s remaining challenge—whether the PUC’s findings are supported by substantial evidence—an issue that court had not addressed.

III. Detailed Analysis

A. Statutory and Regulatory Framework

1. Valuing Utility Property: Sections 1311, 1327, and 1329

Under Section 1311(b)(1), the baseline valuation for utility property in rate base is:

“the original cost of the property when first devoted to the public service less the applicable accrued depreciation.”

In 1990, Section 1327 created a narrow exception for acquisitions of small or nonviable water and sewer utilities that were not providing adequate service. If a public utility pays more than original cost less depreciation for such a system, the excess is presumed reasonable and may be included in rate base, subject to rebuttal. But this is restricted to:

  • Systems with ≤ 3,300 customer connections or that are nonviable absent acquisition; and
  • Systems that were not providing “adequate, efficient, safe and reasonable” service at the time of acquisition.

In 2016, the General Assembly enacted Section 1329 to broaden the availability of alternative valuation. It:

  • Applies to acquisitions of municipally or authority-owned water and wastewater systems by regulated water/wastewater utilities;
  • Allows the parties, by agreement, to obtain independent utility appraisals using cost, market, and income approaches; and
  • Sets the ratemaking base rate of the acquired system as the lesser of the negotiated purchase price and the fair market value (FMV, defined as the average of the two appraisals).

Crucially, unlike Section 1327, Section 1329:

  • Is not limited to small, nonviable, or inadequately serving systems;
  • Does not require a finding of distress or inadequate service as a precondition to use FMV; and
  • Contemplates that the FMV may exceed original cost less depreciation, and that this value will be incorporated into the acquiring utility’s rate base in its next base rate case.

2. Certification of Public Utilities: Sections 1102 and 1103

Even when a utility already holds a CPC for some territory, it must obtain an additional CPC under Section 1102(a) before it:

  • Begins to offer public utility service in new territory; or
  • Acquires property from a municipality that is used to provide public utility service.

Under Section 1103(a), the PUC may grant a CPC:

“only if the commission shall find or determine that the granting of such certificate is necessary or proper for the service, accommodation, convenience, or safety of the public.”

Key features:

  • “Necessary or proper” standard. As recognized in Elite Industries, Inc. v. PUC, the phrase “or proper” means the PUC may approve expansions or acquisitions that are not strictly “necessary” (in the sense of indispensable), so long as they serve a legitimate public purpose.
  • Fitness requirement. The CPC applicant must show, by a preponderance of the evidence, that it is technically, legally, and financially fit to provide the proposed service. Certified public utilities enjoy a presumption of fitness, subject to rebuttal.
  • Conditions. The PUC may impose “such conditions as it may deem to be just and reasonable” in a CPC.

3. Standards of Judicial Review

The Supreme Court reiterates the well-established standards:

  • Under 2 Pa.C.S. § 704 and prior case law, appellate review of PUC decisions is limited to:
    • Constitutional violations,
    • Errors of law,
    • Procedural violations, and
    • Whether findings are supported by substantial evidence (relevant evidence that a reasonable person would consider adequate).
  • As to discretionary determinations, courts may reverse only for:
    • Manifest or flagrant abuse of discretion,
    • Bad faith, or
    • Purely arbitrary action.
  • Courts may not reweigh the evidence or substitute their own policy judgments for those of the PUC, especially in the area of utility regulation where the PUC has specialized expertise.

B. Precedents and Their Role in the Decision

1. City of York v. PUC (1972)

In City of York, the Court interpreted the predecessor to Section 1103, which used the same “necessary or proper for the service, accommodation, convenience, or safety of the public” language. It:

  • Overruled earlier precedent that had presumed utilities were free to merge unless opponents proved substantial harm;
  • Held that a merger or acquisition cannot be approved unless the PUC finds affirmative public benefit; and
  • Articulated the now-familiar standard: proponents must show the merger will
    “affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way.”

The Court also instructed the PUC to consider, “at least in a general fashion,” the probable effect on:

  • Future rates to consumers; and
  • The level and quality of service.

2. Popowsky v. PUC (Verizon/MCI) (2007)

In Popowsky, reviewing a CPC issued for the Verizon–MCI merger, the Court refined City of York:

  • Reaffirmed that a CPC requires substantial affirmative public benefits, but:
  • Clarified that the PUC:
    • Applies a preponderance of the evidence standard;
    • May rely on predictive judgments informed by expert testimony and professional judgment;
    • Is not required to obtain legally binding commitments or to precisely quantify all benefits when that would be impractical; and
    • May treat “aspirational” benefit claims as evidence, provided they are grounded in the record.
  • Emphasized that:
    City of York “does not hold that a merger benefits the public only if the PUC can demonstrate that the merger savings will lower prices to consumers.”
  • Framed the rate-impact inquiry as one component of a net benefits assessment, not a standalone veto.

3. McCloskey v. PUC (Commonwealth Court, 2018)

McCloskey was the Commonwealth Court’s leading decision applying City of York and Popowsky to a Section 1329 acquisition. It held:

  • The City of York affirmative public benefits test applies fully to Section 1329 acquisitions.
  • The PUC’s policy favoring regionalization and consolidation of water/wastewater systems, and an acquiring utility’s size and expertise, can constitute evidence of public benefit.
  • The PUC must consider rate impacts as part of the CPC analysis and cannot defer that entirely to a later rate case.

In the present decision, the Supreme Court accepts that framework but finds the Commonwealth Court in this case (Cicero) misapplied it by:

  • Improperly minimizing the weight of consolidation/scale benefits; and
  • Improperly elevating potential rate increases to dispositive “harms.”

4. Elite Industries, Rohrbaugh, Slawek, and Blumenschein

  • Elite Industries v. PUC (2003) recognized that the legislature left the term “necessary or proper” undefined, intending the PUC to develop criteria. It confirmed that “or proper” widens the standard beyond strict necessity.
  • Rohrbaugh v. PUC (1999) and Slawek (1991) reaffirm that courts review agency discretionary decisions only for manifest abuse, bad faith, or arbitrary action.
  • Blumenschein (1954) cautioned courts not to substitute their judgment for that of the agency when the question is one of judgment and discretion, even if the court would have decided differently.

These cases underpin the Court’s core conclusion that the Commonwealth Court overstepped its limited role by reweighing evidence and effectively second-guessing the PUC’s balancing of benefits and harms.

C. The Court’s Legal Reasoning in Detail

1. Section 1329 Does Not Modify CPC Requirements

The Court first addresses whether Section 1329 created a different or lesser standard for issuing a CPC in municipal acquisitions. Reading the statute:

  • Section 1329 never mentions Section 1103 (which governs the CPC standard);
  • Its references to Section 1102 are procedural (what must be included in an application, and who is an “entity”), not substantive changes to when or how a CPC is granted; and
  • There is no textual indication that the legislature intended to relax City of York’s affirmative-benefits requirement.

Thus, the Court agrees with the Commonwealth Court on this narrow point: Section 1329 overlays a valuation mechanism onto existing CPC law, but does not change the CPC standard itself.

2. Reaffirming the City of York / Popowsky Framework

The Court restates the controlling standard:

  • A CPC may be issued only where the transaction will “affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way.”
  • The PUC must perform a net benefits analysis balancing:
    • Expected benefits: service quality, reliability, financial strength, regional efficiencies, etc.;
    • Expected harms: including the probable impact on future rates; and
    • Other public policy considerations linked to the Code.
  • The burden of proof is a preponderance of the evidence.
  • The PUC may:
    • Rely on expert and predictive judgments;
    • Consider “aspirational” plans as evidence, if grounded in the record; and
    • Is not required to prove precise numeric rate impacts or secure binding guarantees.

3. How the PUC Applied That Standard in This Case

The PUC’s 133-page opinion found that Aqua had proven substantial affirmative public benefits, including:

  • General system-wide benefits:
    • Aqua’s established technical, financial, and managerial expertise in water and wastewater operations;
    • Aqua’s existing ownership and operation of the Township’s water system, enabling integrated management; and
    • Consistency with the PUC’s public policy favoring consolidation and regionalization of water and wastewater systems.
  • Specific benefits to Aqua’s existing customers:
    • Increased customer base, allowing future capital projects to be spread across a larger population, lowering incremental costs per customer.
  • Specific benefits to Township wastewater customers:
    • Reduced operating expenses through economies of scale;
    • Capital investments Aqua committed to make in system upgrades;
    • Enhanced capability to handle sanitary sewer overflows and comply with increasingly complex environmental regulations;
    • Improved system efficiencies drawn from Aqua’s experience; and
    • Enhanced customer service and billing options: 24/7 customer response, online billing/payment, and in-house engineers and environmental compliance expertise.
  • Municipal governance benefits:
    • The Township’s ability to exit the wastewater business and redirect resources to core governmental functions; and
    • The opportunity to deploy sale proceeds for other municipal priorities.
  • Risk and feasibility considerations:
    • The PUC found the record unclear that the Township could reliably fund all necessary upgrades, given other governmental obligations.
    • Aqua, by contrast, could raise and deploy capital and spread costs over a larger base.

On rate impacts, the PUC:

  • Recognized a projected annual revenue deficiency of approximately $5 million if Aqua acquired the system, based on:
    • Current Township rates, and
    • Aqua’s projected cost of service and return.
  • Considered scenarios where:
    • All of the deficiency was allocated to Township customers, or
    • The deficiency was split between Township and existing Aqua customers.
  • Concluded these were preliminary, non-binding estimates used for Section 1329 notice purposes—not final rate determinations.
  • Observed that rate increases were likely even if the transaction were denied, given the capital expenditures needed over the next decade.
  • Determined that if the acquisition proceeded, the PUC would have more flexibility to address rate impacts and allocate costs across a larger customer base in future rate cases.

On this record, the PUC concluded that the identified benefits outweighed any potential harms, particularly given Aqua’s scale, expertise, and the policy objectives underlying Section 1329.

4. The Commonwealth Court’s Errors

The Supreme Court identifies several core legal and review-standard errors in the Commonwealth Court’s opinion.

a. Mischaracterizing Benefits Derived from Aqua’s Fitness

The Commonwealth Court held that benefits arising from Aqua’s size and technical/financial/managerial fitness could not, as a matter of law, count as affirmative public benefits of the transaction. It reasoned that:

  • Fitness and public benefit are distinct inquiries;
  • The Township already provided adequate, safe, and reliable service; and
  • Therefore, Aqua’s capabilities, as such, were not real “benefits” but merely attributes of an already-fit provider.

The Supreme Court agrees that fitness and benefits are analytically distinct: a utility does not satisfy the affirmative benefits test merely by being fit. But it expressly rejects the idea that:

the Commission’s affirmative benefits analysis is barred from considering benefits that derive from the acquiring utility’s fitness.

Drawing an analogy to Popowsky (where nationwide benefits could still count as Pennsylvania-specific benefits if supported by a Pennsylvania record), the Court holds:

  • Aqua’s size and fitness are not themselves the “benefit,” but
  • Improvements in service quality, resilience, compliance capacity, and customer protections that flow from those attributes are legitimate public benefits the PUC may weigh.
b. Reweighing the Evidence and Substituting Judgment

The Commonwealth Court asserted that the Township was already capable of providing “the same or similar benefits” without the rate increases, and that:

  • The system already provided 24/7/365 service (even if via police call-outs), and
  • There was no evidence the Township lacked capacity to provide safe and reliable service or to make needed improvements.

The Supreme Court finds that this analysis:

  • Discounted the PUC’s specific findings that Aqua would provide additional services (e.g., enhanced customer service infrastructure, in-house experts, system efficiencies) beyond what the Township provided; and
  • Effectively reweighed the record, deciding for itself that Aqua’s enhancements were not truly “better” or “benefits.”

But:

  • Whether these improvements are meaningful benefits is a question of fact and judgment for the PUC, not for the courts to decide de novo;
  • The extent of improvement goes to the weight of the benefit, not to whether it legally “counts” as a benefit at all; and
  • The Commonwealth Court’s approach is inconsistent with the deference required by Blumenschein, Rohrbaugh, and Popowsky.
c. Mislabeling Rate Impacts as “Known Harms”

The Commonwealth Court described expected rate increases as “known harms” that outweighed any supposed benefits, especially because the Township’s service was currently adequate. The Supreme Court:

  • Notes it has never characterized rate impacts as “known harms” in the City of York / Popowsky line of cases; and
  • Declines to adopt such a characterization, which would improperly distort the net benefits test.

Instead, consistent with City of York and Popowsky:

  • Rate impacts are a relevant component of the analysis;
  • The PUC must consider them “at least in a general fashion”; but
  • The statute and precedent do not require that:
    • Rates must decline, or
    • Any projected increase is automatically a dispositive harm.

The Court approves the PUC’s approach here:

  • It identified the revenue deficiency and potential allocation scenarios;
  • Recognized the preliminary, non-binding nature of those estimates in a 1329 CPC proceeding;
  • Considered the likelihood of rate increases even without the acquisition; and
  • Concluded that a larger customer base would provide more flexibility to manage and allocate costs over time.

This, the Court holds, is an appropriate and sufficient rate-impact analysis under City of York and McCloskey.

5. Net Benefits and the Proper Role of the Courts

Ultimately, the Court concludes:

  • The PUC applied the correct legal standard (City of York / Popowsky) to this Section 1329 transaction;
  • It conducted a proper net benefits analysis, including rate impacts; and
  • Its judgment that the identified benefits outweighed the potential harms must be respected unless the findings lack substantial evidence or reflect an abuse of discretion.

The Commonwealth Court, by contrast:

  • Improperly declared that several categories of evidence (benefits arising from Aqua’s size/fitness and regionalization policy) can never count as legal benefits in circumstances like this;
  • Substituted its own view of what constitutes a meaningful benefit; and
  • Elevated rate impacts to a status the Court’s precedents do not support.

For these reasons, the Supreme Court reverses and remands solely for the unresolved substantial-evidence challenge.

D. Clarification of Key Legal Standards

1. “Affirmative Public Benefits” and “Net Benefit”

The decision refines, but does not alter, the City of York standard:

  • “Affirmative” means the benefits are positive and forward-looking, not merely the absence of harm.
  • “Substantial” does not mean transformative or unique to every class of customer; modest but real improvements in service quality, reliability, financial stability, or regulatory compliance can qualify.
  • There must be a net benefit: the expected benefits, taken together, must outweigh identified harms and risks, including rate impacts.
  • Adequate status quo service by the seller (here, the Township) does not bar a finding of affirmative public benefits; CPCs can be granted for improvements that are “proper” even if not strictly “necessary.”

2. Rate Impacts in CPC Analysis

The Court reaffirms that:

  • The PUC must consider the general, probable effect of a transaction on rates;
  • It need not, and often cannot, predict exact rate structures in future base rate cases;
  • Rate increases are common in transactions involving new capital investment and FMV-based rate base, especially under Section 1329; but
  • The key question is whether rate impacts are justified by corresponding benefits and can be reasonably managed and allocated.

The Court firmly rejects the notion that any anticipated rate increase in a Section 1329 acquisition is a disqualifying “known harm,” noting that would undermine the statute’s very design.

3. Section 1329’s Role

The decision underscores:

  • Section 1329 is not a ratemaking or CPC shortcut; it is a valuation mechanism.
  • It anticipates that municipalities may sell systems that are still viable and providing adequate service, for broader policy and fiscal reasons.
  • By allowing FMV to be used as rate base, it inevitably contemplates some premium over depreciated original cost, with corresponding rate effects.
  • Nonetheless, Section 1329 acquisitions must independently satisfy:
    • Section 1102’s trigger for CPCs, and
    • Section 1103’s “necessary or proper” / affirmative public benefits test.

4. Fitness vs. Benefits

The Court carefully distinguishes:

  • Fitness findings (threshold): Aqua is presumed fit as an already-certified public utility; no party contested that presumption. Fitness is necessary but not sufficient.
  • Benefits analysis (substantive): The PUC must identify concrete or reasonably expected advantages of the transaction—better service, resilience, financial strength, infrastructure, etc.

The Court holds that:

  • While “fitness” itself does not satisfy the affirmative benefits standard,
  • The consequences of fitness—e.g., better emergency coverage, greater compliance capacity, access to capital, economies of scale—may properly be counted as benefits of the acquisition.

E. Parties’ Arguments and the Court’s Responses

1. PUC

The PUC argued for:

  • Deference to its interpretation of Sections 1102, 1103, and 1329;
  • Recognition that Section 1329 was intended to encourage consolidation and regionalization; and
  • Authority to weigh Aqua’s scale and competence, and its policy objectives, as affirmative benefits.

The Court:

  • Agrees that the PUC’s expertise warrants considerable deference and that the Commonwealth Court improperly substituted its judgment;
  • Accepts that the PUC’s regionalization and consolidation policy is a legitimate aspirational benefit within the City of York framework, though such policy alone may not always be sufficient; and
  • Confirms that the PUC properly considered Aqua’s capabilities as part of the benefits calculus.

2. East Whiteland Township

The Township emphasized:

  • The statutory phrase “necessary or proper” allows approval of transactions that are not driven by distress or failure;
  • Municipal policy objectives—exiting the wastewater business, focusing on core services, and using sale proceeds for other public purposes—are legitimate “proper” purposes; and
  • The Commonwealth Court erred by assuming that only “necessary” sales (e.g., failing systems) could be approved.

The Court aligns with this view in substance:

  • It reaffirms that “or proper” gives the PUC discretion to approve transactions offering non-essential but beneficial improvements;
  • It accepts the Township’s desire to exit wastewater operations and redeploy resources as part of the affirmative benefits analysis; and
  • Rejects any reading that would require a municipal system to become nonviable before it can be sold under Section 1329.

3. Aqua

Aqua argued that:

  • The Commonwealth Court exceeded its scope of review by reweighing evidence and redefining what counts as a benefit;
  • It mischaracterized rate impacts as “known harms,” contrary to the statutory context of Section 1329; and
  • The Commission’s preponderance-of-the-evidence finding that net public benefits exist was entitled to deference.

The Court substantially agrees:

  • It finds the Commonwealth Court did reweigh evidence and improperly removed entire categories of benefits from consideration;
  • It rejects the “known harms” construct for rate impacts; and
  • It concludes that the PUC’s legal analysis and balancing comported with City of York and Popowsky.

However, by remanding for a substantial-evidence review, the Court leaves open the possibility that, on a purely evidentiary basis, some findings might be vulnerable—though the legal framework is now settled in the PUC’s favor.

4. Office of Consumer Advocate (OCA)

The OCA contended:

  • That the PUC had conflated Aqua’s fitness with public benefits, given that the Township was also found capable and adequate;
  • That when a system is already providing adequate, reliable service, and a sale would increase rates, there can be no net public benefit; and
  • That the PUC’s reliance on its consolidation policy could not substitute for concrete evidence of benefits.

The Court rejects these positions:

  • It characterizes the OCA’s “status quo plus higher rates equals no benefit” formula as inconsistent with City of York and Popowsky;
  • It holds that adequate current service and expected rate increases do not automatically preclude a finding of net benefits; and
  • While acknowledging that policy alone cannot replace evidence, it notes that the PUC did, in fact, identify transaction-specific benefits supported by the record.

F. Impact and Future Implications

1. Section 1329 Transactions Going Forward

The decision significantly stabilizes and strengthens the legal environment for Section 1329 acquisitions:

  • It confirms that Section 1329 transactions will be evaluated under the same CPC standard as other mergers and acquisitions (City of York / Popowsky), avoiding the creation of a stricter, de facto anti-privatization test.
  • It makes clear that:
    • Generic attributes of large, experienced utilities (scale, expertise, financing capability) may still yield transaction-specific benefits that can be credited; and
    • Municipal systems are not required to be distressed or failing before a Section 1329 sale can be approved.
  • The PUC’s identified policy objective—regionalization and consolidation of water/wastewater systems—has judicial recognition as a legitimate factor in the affirmative benefits calculus.

2. Consumer Protection and Ratepayer Concerns

From a consumer-protection standpoint:

  • The decision does not eliminate the requirement to consider rate impacts. The PUC remains obliged to:
    • Identify likely revenue deficiencies;
    • Examine how they might be allocated; and
    • Assess the long-term effect of capital investments and system upgrades.
  • However, rate increases are framed as manageable risks to be weighed, not automatic deal-breakers.
  • Challengers like the OCA are directed toward:
    • Challenging the sufficiency of the evidence supporting asserted benefits, and
    • Ensuring that the PUC’s rate-impact discussion is concrete and not merely boilerplate.

3. Role Clarification Between PUC and Courts

The decision reinforces institutional roles:

  • The PUC:
    • Identifies and evaluates benefits and harms of proposed transactions;
    • Balances them under a preponderance standard; and
    • Applies specialized expertise and policy judgments to complex utility questions.
  • The Commonwealth and Supreme Courts:
    • Ensure the PUC applies the correct legal standard;
    • Check for substantial evidence and procedural regularity; and
    • Do not reweigh evidence or impose their own view of optimal utility policy.

4. Municipal Policy and Fiscal Planning

By recognizing that:

  • Municipalities may choose to exit utility operations while systems are still adequate; and
  • Sale proceeds may be redeployed to other governmental needs;

the Court effectively validates a broader municipal strategy of using Section 1329 as a tool for asset monetization and risk transfer. Municipalities can reasonably consider selling well-functioning water or wastewater systems to investor-owned utilities without waiting for crisis, provided:

  • The acquiring utility is fit; and
  • The PUC can identify net affirmative public benefits under the City of York framework.

5. Broader Relevance Beyond Water/Wastewater

Although focused on a wastewater acquisition, the decision’s clarifications about:

  • The content of the affirmative public benefits test;
  • How to consider rate impacts; and
  • The scope of judicial review of PUC certification decisions

are likely to be cited in future cases involving:

  • Electric generation and distribution mergers;
  • Natural gas distribution acquisitions; and
  • Telecommunications consolidations.

IV. Complex Concepts Simplified

1. Certificate of Public Convenience (CPC)

A CPC is the PUC’s formal authorization for a company to operate as a public utility in a specific territory or to undertake a specific transaction (like a merger or acquisition). Without a CPC, the company cannot lawfully provide regulated utility service in that area.

2. Rate Base and Ratemaking Base Rate

  • Rate base (Section 102): The value of the utility property used and useful in providing service. Regulators allow the utility to earn a fair return on this amount, plus recover operating costs, through rates.
  • Ratemaking base rate (Section 1329): For an acquired system, the dollar value that will be added to the acquiring utility’s rate base, usually the lesser of:
    • The negotiated purchase price, and
    • The appraised fair market value under Section 1329.

3. Fair Market Value (FMV) Under Section 1329

In a Section 1329 transaction:

  • Each side (buyer and seller) selects a utility valuation expert from a PUC-approved list.
  • Each expert independently appraises the system using standard approaches (cost, market, income), under professional appraisal standards.
  • The FMV is the average of the two appraisals.
  • The ratemaking base rate is the lesser of this FMV and the agreed sale price.

4. Original Cost Minus Depreciation

The traditional method (Section 1311) values utility property at what it originally cost when first used for public service, minus accumulated depreciation (wear and tear, obsolescence). Section 1329 lets acquiring utilities use a potentially higher FMV instead in certain municipal acquisitions.

5. Substantial Evidence

“Substantial evidence” means enough relevant evidence that a reasonable mind might accept it as adequate to support a conclusion. It is not the same as “beyond a reasonable doubt.” Courts look for:

  • Evidence in the record that logically supports the PUC’s findings; and
  • A rational connection between the evidence and the conclusions.

6. Abuse of Discretion

An agency abuses its discretion only when its decision is:

  • Manifestly unreasonable;
  • Based on bias, prejudice, or bad faith; or
  • So arbitrary that it cannot be the product of reasoned decision-making.

A mere difference of opinion between the court and the agency does not constitute an abuse of discretion.

7. Regionalization and Consolidation

These terms refer to the policy of:

  • Combining many small, fragmented water/wastewater systems into fewer, larger systems;
  • Allowing large, experienced utilities to operate multiple systems in a region; and
  • Seeking economies of scale, more consistent regulatory compliance, and professionalized management.

The PUC views regionalization and consolidation as generally beneficial, and the Supreme Court confirms this may be treated as an aspirational benefit in the CPC analysis, subject to the specific evidence in each case.

V. Conclusion

The Supreme Court’s decision in Consumer Advocate v. PUC (Aqua / East Whiteland) cements several important principles in Pennsylvania utility law:

  • Section 1329 does not dilute or replace the City of York / Popowsky affirmative public benefits standard for CPCs; it simply supplies an alternative valuation mechanism for municipal acquisitions.
  • The PUC retains broad discretion to define and weigh public benefits, including those arising from an acquiring utility’s scale and expertise and from overarching policies like regionalization and consolidation.
  • Rate impacts must be considered but are not dispositive; rate increases may be acceptable where justified by substantial benefits and managed through thoughtful ratemaking.
  • Appellate courts must respect the PUC’s institutional role, reviewing for legal error and evidentiary support but refraining from reweighing evidence or imposing their own policy preferences.

In practical terms, the ruling reinforces the viability of Section 1329 as a tool for municipal–investor-owned utility transactions and clarifies the lens through which such deals will be evaluated. It balances enabling beneficial system consolidation and infrastructure investment with preserving a meaningful, but properly cabined, role for consumer advocates and judicial oversight.

Case Details

Year: 2025
Court: Supreme Court of Pennsylvania

Judge(s)

Mundy, Sallie

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