decided: June 30, 1965.
DREXELBROOK ASSOCIATES, APPELLANT,
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Appeals from order of Superior Court, March T., 1965, Nos. 29, 30 and 31, affirming order of Pennsylvania Public Utility Commission, Nos. 90296, 90297 and 90298, in case of Drexelbrook Associates v. Pennsylvania Public Utility Commission.
Irving R. Segal, with him Guy G. deFuria, Harold B. Bornemann, and deFuria, Larkin & deFuria, and Schnader, Harrison, Segal & Lewis, for appellant.
Daniel F. Joella, Assistant Counsel, with him Joseph C. Bruno, Chief Counsel, for Pennsylvania Public Utility Commission, appellee.
Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Roberts. Dissenting Opinion by Mr. Justice Cohen. Mr. Justice Eagen concurs in this dissenting opinion.
[ 418 Pa. Page 432]
Applications to the Public Utility Commission were filed by the Philadelphia Electric Company and the Philadelphia Suburban Water Company seeking approval of the transfer by sale of certain equipment.*fn1 Commission approval would enable the applicants to transfer distribution, service-supply and metering equipment to Drexelbrook Associates, a registered limited partnership which owns and manages a real estate development known as "Drexelbrook". Drexelbrook, located in Drexel Hill, Delaware County, is a garden-type apartment village with 90 buildings, containing 1223 residential units, 9 retail stores, various public areas, and a club with a dining room, swimming pool, skating rink, and tennis courts.
The equipment involved in the proposed transfer was installed originally by the applicants in the buildings and stores of the development and is presently used by the applicants to furnish gas, water and electric service directly to Drexelbrook tenants. Upon conclusion of the transfers, water service would be supplied by the water company directly to Drexelbrook Associates at four metering points and gas and electric service would be supplied by the electric company to Drexelbrook Associates at a single metering location.*fn2 Drexelbrook Associates would purchase gas, electricity,
[ 418 Pa. Page 433]
and water from the applicants at the proposed metering points. In turn, it would assume the obligation and sole responsibility for furnishing and distributing gas, electricity, and water to its tenants and for servicing and maintaining the transferred facilities.
With respect to electricity and gas, Drexelbrook Associates assumes that it would qualify for wholesale tariff rates at such single metering points,*fn3 and proposes to retain the transferred meters in order to measure each of its tenant's individual consumption. It has agreed to bill each tenant on the basis of such consumption at the same rate which the tenant would pay if he received service individually and directly from the electric company, thereby enabling it to make a profit. In like manner, Drexelbrook Associates assumes that, with respect to water, it would also qualify for the applicable wholesale tariff rates based on single point water metering service.*fn4 It proposes to continue to furnish water to apartment tenants on the existing basis by including the charges for water services within the rent. Evidently, remetering of water at a profit is contemplated only with respect to the swim club and store tenants.
The commission dismissed the applications without hearing on August 19, 1963. Drexelbrook Associates then asked the commission to reopen the matter and to grant it leave to intervene and offer evidence in support of the applications. The request was granted but after a subsequent hearing the commission, by a vote
[ 418 Pa. Page 434]
of 3-2, dismissed the applications on June 8, 1964. Thereafter, Drexelbrook Associates appealed to the Superior Court*fn5 which divided equally, thereby affirming the commission's order. A majority of the Superior Court then certified the case to this Court for consideration and decision.*fn6
In dismissing the applications, the commission held that upon consummation of the proposed transfers of the designated service and metering equipment, appellant would become subject to the provisions of the Public Utility Law.*fn7 For that reason, the commission concluded that it would be necessary for appellant to seek commission authorization to furnish the public utility services now rendered by the applicants.
The term "public utility" is defined in Section 2 of the Public Utility Law as including "persons or corporations . . . owning or operating in this Commonwealth equipment or facilities for: (a) producing, generating, transmitting, distributing, or furnishing natural or artificial gas, electricity . . . to or for the public for compensation; (b) diverting, developing, pumping, impounding, distributing or furnishing water to or for the public for compensation. . . ."*fn8 (Emphasis supplied.) The question presented is whether the service which appellant proposes to furnish to its tenants would be service to or for the public within the meaning of the statute.
A number of decisions prove helpful in deciding the question in this case. In Borough of Ambridge v. P.S.C.,
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Pa. Superior Ct. 298, 165 Atl. 47 (1933), allocatur denied, 108 Pa. Superior Ct. xxiii, where a manufacturer who furnished water to another manufacturer was held not to be rendering a public service, the court said that "'the public or private character of the enterprise does not depend . . . upon the number of persons by whom it is used, but upon whether or not it is open to the use and service of all members of the public who may require it . . . .'" (Emphasis supplied.) 108 Pa. Superior Ct. at 304, 165 Atl. at 49. Aronimink Transp. Co. v. P.S.C., 111 Pa. Superior Ct. 414, 170 Atl. 375 (1934), was a case where a corporation operated apartment houses and furnished bus transportation to its tenants. Because the corporation served only those who were selected as tenants -- a special class of persons not open to the indefinite public -- the court held the service to be private in nature.*fn9 The court concluded that the service rendered was merely incidental to the business of maintaining the apartment house, and the fact that the transportation was furnished to hundreds of individuals residing in the 288 apartments did not transform the private nature of the service into a "public service".
Overlook Dev. Co. v. P.S.C., 101 Pa. Superior Ct. 217, aff'd per curiam, 306 Pa. 43, 158 Atl. 869 (1932), involved a land development company which distributed water not only to vendees situated on its previously owned tract of land, but also to owners of adjacent land. The court held the service was not open to the indefinite public but, being confined to privileged individuals, was private in nature. Significantly, the commission itself, in Camp Wohelo, Inc. v. Novitiate of St. Isaac Jogues, 36 Pa. P.U.C. 377 (1958), adhered to the doctrine expressed in Overlook, stating that "'a public
[ 418 Pa. Page 436]
use . . . is not confined to privileged individuals, but is open to the indefinite public'" and that "'it is this indefinite or unrestricted quality that gives it its public character.'"
Although the present case involves the owner of an apartment complex which proposes to render service to its tenants and to no one else, the commission held that the contemplated service would not be merely incidental to the operation of Drexelbrook, but would be a separate and distinct enterprise for profit, subject to the Public Utility Law. In part, the commission based its conclusion on the fact that appellant does not propose to reserve the right to select its customers, but would obligate itself under separate and uniform contracts to furnish service to all tenants, present and future, in its development. The fallacy of this reasoning is shown in the dissenting opinion of the commission chairman which stated that the test "is not whether all tenants are being furnished service, but whether anybody among the public outside of the Drexelbrook group is privileged to demand service."*fn10 In the present case the only persons who would be entitled to and who would receive service are those who have entered into or will enter into a landlord-tenant relationship with appellant. Here, as in Aronimink, those to be serviced consist only of a special class of persons -- those to be selected as tenants -- and not a class open to the indefinite public. Such persons clearly constitute a defined, privileged and limited group and the proposed service to them would be private in nature.*fn11
[ 418 Pa. Page 437]
The commission concedes that a landlord would not be a public utility if its charge for utility service is included, un-itemized, in a flat rental. The commission contends, however, that appellant's intention to remeter the service, charge separately for it, and make a profit presents a "different situation" and results in the proposed service being public in nature.*fn12 However, it is apparent that whether or not the utility charge is included in a flat rental or determined through submetering, it still constitutes compensation to the landlord. We fail to see how the method of computing the charge for the utility service is in any sense determinative of or relevant to the issue of whether the service is "to or for the public". "The charge to the tenant based upon the amount which the particular tenant actually uses (as proposed in this application) is far more equitable to the tenant than imposing a hidden and unidentified item in the rental charge without any showing by the landlord of the basis on which the utility charge is calculated."*fn13
Even the members of the Superior Court who voted to uphold the commission's order stated "that the distinction made by the Commission between including the cost of utility service in a flat rental charge and submetering is a distinction without a difference and the question on this appeal does not turn on that
[ 418 Pa. Page 438]
fact."*fn14 These judges also said with respect to situations where the charge is included in the rent: "We are not so naive as to believe that the cost of utilities are supplied free to the tenants; nor so naive as to believe that the landlord does not make a profit under such circumstances."*fn15
However, we cannot agree with the view, expressed by the three affirming judges of the Superior Court, that the present case may be distinguished from Overlook and Aronimink on the basis of the sequence of ownership of the equipment involved. In the view of those judges, the cases are distinguishable on the theory that apartment owners or landowners initially owned the equipment in Overlook and Aronimink while in the present case the equipment, from the time of installation to the application for transfer, has been owned by public utilities subject to commission jurisdiction.
The determination of whether appellant would be serving the public after the transfers are completed is unrelated to the identity of the transferor of the designated assets or to the fact that the equipment previously had "been dedicated to the public use and impressed with a public interest."*fn16 The equipment possesses no
[ 418 Pa. Page 439]
mystical qualities or characteristics which render the service for which it is utilized a public service irrespective of the private or public nature of the services or the definite (tenants) or indefinite (public) identification of the persons served. The determination as to whether appellant would be engaged in a public utility service cannot be predicated upon whether it originally installed the necessary equipment at the time of construction, later installed it itself, or purchased it from a utility which had originally installed it.*fn17
We hold, therefore, that the proposed service which appellant would render in the present case would not constitute it a public utility within the meaning of Section 2 of the Public Utility Law since such service would not be furnished "to or for the public".
In the alternative, the commission held that the transfers could not be approved even if appellant would not be rendering a public utility service upon consummation of the proposed transfers because the commission could not "disregard the public interest and abandon the public and the consumers who would become affected by the approval of the applications, to uncertain
[ 418 Pa. Page 440]
but definitely less desirable prospects."*fn18 The members of the Superior Court who voted to affirm the commission agreed with its position, stating that "the Commission, in exercising its administrative discretion, not only may but should deny the transfer of patrons out from under regulation, even where their consent has been obtained, in circumstances such as this case presents, in the public interest and as a matter of public policy."*fn19
In support of this alternative holding, the commission engaged in much speculation as to possible evils which would flow from consummation of the proposed transfer.*fn20 In substance, however, the position of both
[ 418 Pa. Page 441]
the commission majority and the affirming members of the Superior Court can be reduced to the proposition that it is against public policy to approve the transfer since it would remove from commission supervision service now subject to its jurisdiction. Such reasoning disregards the express formulation of public policy by the Legislature embodied in the statutory definition of the term "public utility". That provision confers jurisdiction on the commission only where the service involved is rendered "to or for the public". The
[ 418 Pa. Page 442]
controlling consideration is not whether regulation is desirable, but whether appellant is subject to regulation under the Public Utility Law. Klawansky v. P.S.C., 123 Pa. Superior Ct. 375, 382, 187 Atl. 248, 251 (1936). If the Legislature did not deem it necessary to confer jurisdiction on the commission with respect to the service proposed by appellant (as the commission conceded for purposes of its alternative holding), then the absence of such jurisdiction as a result of the consummation of the proposed transfers would not and could not contravene public policy. Furthermore, the possible evils which the commission envisaged as a result of the absence of its supervision could come to fruition irrespective of whether a landlord originally installs facilities or later purchases them from a public utility, or whether the charge for service is on a metered basis or included in a flat rental without itemization. It seems obvious that the same projected evils which the commission majority envisaged as possibilities in the present case may be equally posited in other instances and cases previously approved by the commission and the Superior Court.*fn21
We hold, therefore, that the commission erred as a matter of law in holding that Drexelbrook Associates would become a public utility upon consummation of the proposed transfers, and that the commission also erred in alternatively holding that the allowance of the transfers would contravene public policy if the commission thereby lost its jurisdiction over the service involved.
[ 418 Pa. Page 443]
The order is reversed. The record is remanded and the commission is directed to approve the applications and to issue the appropriate certificates.
Dissenting Opinion by Mr. Justice Cohen:
Today the majority decides that Drexelbrook, a supplier of utility service for compensation, cannot be a public utility, within the meaning of the Public Utility Law, because those to be "serviced consist only of a special class of persons -- those to be selected as tenants [of Drexelbrook] -- and not a class open to the indefinite public". "Such persons", says the majority, "clearly constitute a defined, privileged and limited group and the proposed service to them would be private in nature." In short, the majority's position is that where a consumer's receipt of utility service from a particular supplier is conditioned upon his being a tenant of that supplier, then, ipso facto, that consumer is not entitled to the assurance of the Pennsylvania Public Utility Commission that he will receive adequate service at a reasonable rate.
The facts of this particular case, involving as it does thousands of consumers, residential and commercial, comprising a small community, strongly suggests the fallacy of the majority's position. It is not difficult to envision a community of 20,000 consumers who are all tenants of a handful of landlords. The landlords would purchase utility services wholesale from the public utilities and would distribute them to their tenants at a profit. If the majority rule is correct, the handful of giant landlords comprises or is part of the consuming public whom the Public Utility Law protects from unreasonable rates and inadequate service, while the 20,000 tenants comprise a handful of "special class[es] of persons" "and not . . . the indefinite public" and, therefore, are left to the tender mercies of their landlords regarding adequate utility service at reasonable rates.
[ 418 Pa. Page 444]
Actually, if the majority is correct, then, in the preceding example, the public consumer, whom the Legislature intended to protect, has disappeared into thin air. The landlord is little more than a middleman, distributing the services for a profit. He "consumes" little if any of the service himself. He has taken the place of a distribution subsidiary of the public utility. On the other hand, the individuals who are actually consuming the service are, according to the majority, members of a "privileged class" and not the public. Thus, the public and the public interest has vanished, relieving the public utility of its duty to service the public at large, except for a handful of distributors who require little if any protection, and who, in fact and in common sense, should be regulated as a public utility while distributing utility services to those who really comprise the consuming public.
It is surprising that the majority reaches such a result in the absence of compelling precedent. Overlook Development Co. v. P. S. C., 101 Pa. Superior Ct. 217 (1931), affirmed per curiam, 306 Pa. 43 (1932), involved the question of whether or not the Public Service Commission had issued a confiscatory order when it required a land developer, who had laid his own water pipes through which a public utility water company was supplying water, to allow an adjacent landowner to hook up with his pipes. We affirmed the Superior Court's holding that allowing the water company to supply water through his pipes to those who purchased plots from him did not constitute a dedication of his pipes to public use. In this respect, we said that those limited persons receiving water through the developer's pipes did not constitute the "public" for purposes of dedication. It will be noted that in Overlook the consumers who did not comprise a "public" for purposes of dedication were, nevertheless, part of the "public" who were entitled to and in fact were
[ 418 Pa. Page 445]
receiving service directly from a public utility and the protection of the Public Service Law.
In Borough of Ambridge v. P. S. C., 108 Pa. Superior Ct. 298, 165 Atl. 47 (1933), the Superior Court held that a corporation which supplied itself and one neighboring manufacturer with water was not serving the "public". In Aronimink Transportation Co. v. P. S. C., 111 Pa. Superior Ct. 414, 170 Atl. 375 (1934), the Superior Court held that the landlord's provision of transportation to his several hundred tenants between his apartment houses and a subway or streetcar terminal was not a service to the public. But in neither Ambridge nor Aronimink was there any suggestion that the consumers could not, if they desired, obtain the same service from a public utility and be protected in their dealings with it. The context of both Ambridge and Aronimink is the problem of whether there is competition between utility suppliers in dealing with the public which may be damaging to the public interest. In that context it was decided that the supply of service to a limited group of persons was not service to the "public". But it has never been decided that because a supplier services only a limited group that group is not part of the public entitled to protection of the public utility law when that supplier is the only available source of service.
The authorities relied upon by the majority are neither apposite nor binding upon this Court in this case; and the general definition of "public" developed in those authorities in a different context should not be mechanically applied to the problem before us. In short, Drexelbrook, by its contract with the public utility, has obtained a captive public whose members have relationships with the supplier that are not so unique or individual as to abrogate their right to protection by the utility law or make such protection impractical. The problem which the majority does not
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face can become only more aggravated with the continuation of the trend of absorption of the consuming public into large scale leasing projects of residential and commercial characters.