Public Utilities; Late Payment Charges Following Docketing of Municipal Lien

Philadelphia Gas Works v. Pennsylvania Public Utility Commission, 222 A.3d 1218 (Pa. Cmwlth. 2019), allocatur granted June 23, 2020, appeal docket 14 EAP 2020

The Pennsylvania Supreme Court granted allocatur to determine whether a public utility may incur further late payment charges on past due bills consistent with its Pennsylvania Public Utility Commission (PUC)-approved tariff after the city docketed a lien in the county court in relation to an unpaid balance.

The Philadelphia Gas Works (PGW) is a natural gas public utility owned by the City of Philadelphia (City) and under PUC jurisdiction. Per PGW’s PUC-approved tariff, all overdue gas bills are charged a late fee of 1.5% per month. Even in cases where the City docketed a lien for the unpaid balance, PGW charges the late fee until the lien balance is reduced to a judgment. Property owners using PGW’s services filed several billing disputes with the PUC challenging the continued accrual of late fees on docketed liens. The PUC concluded that once a lien is docketed, it is equivalent to a final judgment and the PUC no longer has jurisdiction to determine the amount of the debt; therefore,, once the PUC no longer has jurisdiction, PGW is no longer permitted to charge a monthly late fee authorized by the tariff. The PUC ordered PGW to make several years’ worth of refunds of late fees charged on docketed liens, pay a financial penalty, and reorganize billing operations to stop adding late fees to docketed lien amounts and reflecting those amounts on subsequent bills. PGW appealed to the Commonwealth Court, arguing that the PUC’s orders improperly force PGW to choose between forgoing late charges on unpaid balances once a lien is perfected and taking the chance of not perfecting the lien. The PUC countered that Equitable Gas Co. v. Wade, 812 A.2d 715 (Pa. Super. 2002) supports its conclusion that a docketed municipal lien constitutes a judgment that forecloses the Commission’s jurisdiction.

The Commonwealth Court found that the PUC erred in directing PGW to stop assessing late fees on delinquent bills when the City docketed the municipal liens and reversed the PUC’s orders. Analyzing the effect of liens under the Pennsylvania Municipal Claims and Tax Liens Act, the court explained:  

Municipal utility bills are the personal debts of the customers receiving service. See 53 P.S. § 7251;9 Skupien v. Borough of Gallitzin, 578 A.2d 577 (Pa. Cmwlth. 1990) (citing McArther v. City of Phila. Tax Review Bd., 541 A.2d 415 (Pa. Cmwlth. 1988)) (property owner is personally responsible for utility charges, independent of and in addition to a lien against the property, and regardless of whether owner or tenant receives the utility service). However, the City, as PGW’s owner, also has statutory rights under the statute known as the Pennsylvania Municipal Claims and Tax Liens Act (Lien Act) to apply municipal liens as further security for the collection of overdue gas bill payments. Of critical importance here, under the Lien Act, a municipal lien arises automatically, by operation of law, as soon as a charge for a municipal service is assessed. See Section 3 of the Lien Act, 53 P.S. § 7106(a)(1); Borough of Ambler v. Regenbogen, 713 A.2d 145 (Pa. Cmwlth. 1998). Although the underlying debt is personal to the customer, the lien is in rem against the real property at which service was provided. Section 4 of the Lien Act, 53 P.S. § 7107; Pa. R.C.P. No. 3190; City of Philadelphia v. Perfetti, 119 A.3d 396 (Pa. Cmwlth. 2015). Just as, for example, a mortgage secures payment of an underlying personal loan, a municipal lien secures payment of the property owner’s personal debt for unpaid gas bills. Accord Perfetti (property benefitted by municipal service can be held responsible for satisfaction of related charges).

When the City dockets a lien in the County Court, that filing merely perfects the preexisting lien. See 53 P.S. § 7106(b); Vurimindi v. LandAmerica Fin. Grp., Inc. (Pa. Cmwlth., No. 2082 C.D. 2011, filed Nov. 29, 2012), 2012 Pa. Commw. Unpub. LEXIS 903 (unreported). It provides notice to third parties, such as banks, other creditors, and potential real estate purchasers, that there is an unsatisfied lien against the real property where the utility service was provided. See Graffen v. City of Philadelphia, 984 F.2d 91 (3d Cir. 1992). However, recording of a lien, like recording of a mortgage, is not entry of a judgment. See Regenbogen (execution of a municipal lien requires obtaining a judgment). It does not even amount to commencement of a civil action, which the Commission has acknowledged does not divest it of jurisdiction. See, e.g., Ford v. Duquesne Light Co. (Pa.P.U.C., Docket No. Z-00245911, filed May 9, 1995) (Initial Decision), 1995 Pa. PUC LEXIS 49, and additional Commission decisions cited therein.

Slip op. at 6-7 (footnote omitted). The court went on to address Chapter 14 of the Public Utility Code, noting that: 

The legislature added Chapter 1411 to the Utility Code to protect lien rights from interference by the Commission, specifically intending to provide the collection aids of both the Utility Code and the Lien Act as cumulative remedies, not as alternative or preclusive choices. See 66 Pa. C.S. §§ 1402(4), 1414(a); see also 66 Pa. C.S. § 2212(n). The Legislature expressly declared its intent “to provide additional collection tools to city natural gas distribution operations to recognize the financial circumstances of the operations and protect their ability to provide natural gas for the benefit of the residents of the city.” 66 Pa. C.S. § 1402(4) (emphasis added). Notably, a major motivation for supporting enhanced collection remedies was the Legislature’s recognition that unpaid gas bills can result in higher rates to PGW’s paying customers. 66 Pa. C.S. § 1402(1).

Slip op. at 7 (footnote omitted, emphasis in original). The court thus concluded that:

PGW correctly asserts that the Commission’s decisions improperly force PGW to choose between forgoing late charges on unpaid balances once a lien is perfected and taking the chance of not perfecting the lien. Such a choice is utterly untenable. Late charges are authorized by PGW’s tariff. They are essential as leverage to encourage payment, as well as to cover administrative costs of late payments. Thus, PGW cannot afford to forgo them in exchange for perfecting a lien. However, if PGW does not perfect its lien and thereby give notice of the lien to third parties, PGW’s security arising from the lien could be at risk if there is a later transfer or encumbrance of the property and the third party involved in that transaction has no notice of the lien.

Slip op. at 7. The court further found that Equitable Gas did not support the PUC’s conclusion, but rather supported PGW’s authority to continue imposing late fees on delinquencies that are subject to docketed liens, explaining that:

…in Equitable Gas, the Superior Court found the Commission’s jurisdiction ended with entry of a final money judgment. However, the court also specifically found the utility was entitled to continue charging the 18% annual late fee authorized by its tariff until the entry of a final judgment in court. Here, no final judgment is entered by merely docketing an existing lien. Thus, PGW is likewise entitled to continue adding late fees as authorized by its Commission-approved tariff, unless and until it reduces a docketed lien to a final money judgment.

Slip op. at 8-9.

Thus, the court held that the Commission committed errors of law in holding that it lacked jurisdiction over gas charges subject to docketed liens and in holding that PGW could not continue to impose late fees of 1.5% per month on delinquent accounts once the City docketed its municipal liens relating to those accounts, reasoning that:

In short, a municipal lien arises automatically and is not converted to a judgment or anything else by merely docketing it in the County Court. This basic precept of municipal law highlights the fundamental fallacy in the Commission’s analysis. Charges for natural gas are a lien on the relevant property from the time those charges are imposed. Docketing the lien does not change that fact; there is always a lien on every penny owed by the customer, whether that lien is docketed or not. Following the Commission’s reasoning that a lien precludes late charges, PGW could never impose the late charges the Commission has approved in PGW’s tariff, because the lien would always predate any delinquency in payment. Because docketing a lien does not invoke judicial process, there is no legal basis to conclude that merely docketing an existing lien affects the Commission’s jurisdiction.

Slip Op. at 9.

The Supreme Court granted allocatur to determine:

Whether the Commonwealth Court misinterpreted 53 Pa.C.S. § 7106(b), and whether the decision conflicts with the Superior Court’s decision in Equitable Gas Co. v[.] Wade, 812 A.2d 715 (Pa. Super. 2002), where that court held that a municipal lien arising out of delinquent bills for natural gas service constitutes a judgment, such that after a lien is docketed, Philadelphia Gas Works (PGW) may only charge the customer the statutory interest rate applicable to judgments (6%) (see 42 Pa.C.S. § 8101; 41 P.S. § 202), rather than its tariff rate on late payments that have not been reduced to judgment (18%).

For more information, contact Kevin McKeon or Dennis Whitaker.