UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BIG SANDY WATER DISTRICT,
Plaintiff-Appellee,

v.

CITY OF KENOVA, WEST VIRGINIA,
Defendant-Appellant,
                                                                No. 95-1849
and

PUBLIC SERVICE COMMISSION OF WEST
VIRGINIA; TOWN OF CEREDO, WEST
VIRGINIA,
Third-Party Defendants.

Appeal from the United States District Court
for the Southern District of West Virginia, at Huntington.
Robert J. Staker, Senior District Judge.
(CA-94-76-3)

Argued: June 5, 1996

Decided: July 22, 1996

Before RUSSELL, WILKINS, and NIEMEYER, Circuit Judges.

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Vacated and remanded by unpublished per curiam opinion.

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COUNSEL

ARGUED: George Blass Morrone, III, Kenova, West Virginia, for
Appellant. Roger W. Hall, HALL, HOWELL & SERGENT, P.S.C.,
Ashland, Kentucky, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

This appeal involves a contract dispute over the cost of water sold
by a West Virginia municipal water utility to a Kentucky water dis-
trict. After binding arbitration, the district court granted summary
judgment for the Water District. Because the court failed to determine
whether the West Virginia Public Service Commission has jurisdic-
tion over this matter, we vacate the judgment and remand the case.

I

In February 1982, the City of Kenova, West Virginia, contracted
to sell potable water to Big Sandy Water District in Kentucky for
redistribution to approximately 1,800 consumers in three Kentucky
counties. When Kenova encountered financial difficulties in 1985,
Kenova and the Water District renegotiated their contract, revising the
formula for calculating the price of water. Under the revised formula,
Kenova increased the Water District's rate in November 1992.

While supplying Big Sandy Water District, Kenova was also sell-
ing potable water to the Town of Ceredo, West Virginia. In 1991, a
contract dispute between Kenova and Ceredo over the appropriate
charges for water led to a general investigation into Kenova's rates by
the West Virginia Public Service Commission. Although the Public
Service Commission examined the rate Kenova charged Big Sandy
Water District, the Water District was not a party to the proceeding.
Following its comprehensive cost of service study, the Public Service
Commission adopted a revised methodology for determining rates
necessary for Kenova to recover its expenses and, accordingly,
entered an order implementing a new contract rate for Ceredo's water
purchases from Kenova.

Applying the methodology derived by the Public Service Commis-
sion in the Ceredo proceeding to its contract with Big Sandy Water

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District, Kenova notified the Water District that effective December
1, 1993, its water rate would be increased 40%. After paying its
December bill, which had been calculated at its old rate, the Water
District refused to pay the higher rate. Kenova responded by threaten-
ing to discontinue the Water District's service as of February 2, 1994.

Big Sandy Water District promptly filed this diversity suit in fed-
eral court, seeking to enforce its contract with Kenova in accordance
with the rate formula that the parties had revised in 1985. When the
district court observed that the contract contained an arbitration
clause, the parties consented to submit their rate dispute to arbitration.
After the arbitrator upheld the Water District's position, the district
court entered summary judgment for the Water District, explaining
that because the parties had agreed to submit to binding arbitration,
they were "constrained to abide by the decision of the arbitrator." The
court further reasoned that Big Sandy Water District was not bound
by the revised methodology that the Public Service Commission had
established in its proceeding involving Ceredo because the Water Dis-
trict had not been a party to that proceeding. This appeal followed.

II

The parties agree that Kenova is a public utility subject to the juris-
diction of the West Virginia Public Service Commission. See W. Va.
Code § 24-2-1 (1992); see also State ex rel. Water Dev. Auth. v.
Northern Wayne County Pub. Serv. Dist., 464 S.E.2d 777, 782-84 (W.
Va. 1995). West Virginia law "confer[s] upon the public service com-
mission . . . the authority and duty to enforce and regulate the prac-
tices, services and rates of public utilities in order to . . . [e]nsure that
rates and charges for utility services are just, reasonable, applied with-
out unjust discrimination or preference, . . . and based primarily on
the costs of providing these services." W. Va. Code § 24-1-1(a).

The Public Service Commission sought to intervene in this case to
exercise its authority over Kenova's rates, recognizing that any court
adjudication of Kenova's contract with the Water District could mate-
rially affect the rates of Kenova's other customers. Although it did not
disapprove of arbitration clauses, the Public Service Commission
wished to reserve its ultimate authority over any arbitration decision.
After granting Kenova's subsequent motion to implead the Public

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Service Commission, however, the district court summarily denied
the Commission's motion to intervene as moot.

To avoid the Public Service Commission's jurisdiction over this
matter, Big Sandy Water District relies on section 24-2-4b(h) of the
West Virginia Code, which deprives the Commission of"authority or
responsibility with regard to the regulation of rates, income, services
or contracts by municipally operated public utilities for services
which are transmitted and sold outside of the state of West Virginia."
(Emphasis added). Kenova responds that the statutory provision does
not apply to its contract with the Water District. Because the water is
metered in West Virginia and the Water District owns and operates
the transmission pipes that extend from the meter to the Water Dis-
trict's customers, Kenova insists that it sells its water to the Water
District in West Virginia.

Unfortunately, the district court never resolved whether the Public
Service Commission's jurisdiction covers the contract dispute
between Kenova and the Water District. Accordingly, we vacate the
court's summary judgment and remand this case to allow the district
court to consider the issue in the first instance. If the court concludes
that the Public Service Commission has jurisdiction over this dispute,
it should abstain and dismiss the case. See Burford v. Sun Oil Co., 319
U.S. 315 (1943).

VACATED AND REMANDED

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