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decided: January 25, 1971.


Appeal from order of Superior Court, Oct. T., 1969, No. 839, affirming order of Court of Common Pleas of Lancaster County, Trust Book No. 41, page 144, in case of East Hempfield Township et al. v. City of Lancaster and City of Lancaster Authority.


D. A. Franklin, with him Bernard M. Zimmerman, City Solicitor, Charles Foltz Herr, C. W. B. Townsend, Jr., and Appel, Ranch, Herr & Appel, and Townsend, Elliott & Munson, for appellants.

John I. Hartman, Jr., with him Windolph, Burkholder & Hartman, for appellees.

Bell, C. J., Jones, Cohen, Eagen, O'Brien, Roberts and Pomeroy, JJ. Opinion by Mr. Justice Roberts. Mr. Justice Cohen took no part in the decision of this case. Concurring Opinion by Mr. Chief Justice Bell. Dissenting Opinion by Mr. Justice Jones.

Author: Roberts

[ 441 Pa. Page 408]

The sole issue presented here is whether the Court of Common Pleas of Lancaster County had jurisdiction to determine the reasonableness of certain water rates fixed by the City of Lancaster, for users outside the City, or whether exclusive jurisdiction for such a determination rested with the Pennsylvania Public Utility Commission. We reverse the order of the Superior Court holding that the court of common pleas could hear this case.

The plaintiffs in the trial court were five Second Class Townships (East Hempfield, East Lampeter, Lancaster, Manor, and West Lampeter), one First Class Township (Manheim), a borough (Millersville), and a school district (Manheim) -- all of which were located in Lancaster County -- as well as a Pennsylvania corporation (Clabell Company), a New Jersey corporation (North Cedar Corporation), and two individuals (Alan Sagner and Frank G. Drout). They collectively*fn1 instituted an action in the Court of Common Pleas*fn2 of Lancaster County against the City of Lancaster (hereinafter the City) and the City of Lancaster Authority (hereinafter the Authority), seeking to invalidate certain water rates fixed by the City for the consumption of water outside the City's corporate limits as being in excess of the rates charged inside the City's corporate limits.

[ 441 Pa. Page 409]

The Authority was created by the City under the provisions of the Municipality Authorities Act of May 2, 1945, P. L. 382, 53 P.S. § 301. In 1955 the City conveyed to the Authority all the assets of its water system whether within or outside the City. In the same year the Authority "leased back" the water system to the City for a term of forty years.

Under the provisions of the lease, the City agreed to keep in full force an ordinance imposing water rentals and charges on users of the water system. The City further agreed that the total of the rentals would be sufficient, together with other funds available for such purpose, to provide for the payment of (1) the annual expenses for the operation, maintenance, etc., of the water system, (2) the annual lease rental payments, and (3) an amount sufficient to provide a margin of safety of at least 5% of the annual rental payable under the lease. In addition the City agreed to enforce the collection of the water rentals and charges, and in the event they were not paid, to take all necessary steps to reduce the charges to liens and to enforce the collection of such liens.

The ordinance imposing the challenged rates was adopted by the City on April 9, 1968. Appellees contend that the water rates established under the ordinance for consumers outside the City were 157% in excess of the water rates for the supply of the same quantity of water to consumers within the City, and therefore the outside-city rates were invalid, illegal, unreasonable and discriminatory.

The City and the Authority filed preliminary objections to the complaint, raising, inter alia, the issue of jurisdiction. The court of common pleas held that it could hear the case, and that the Public Utility Commission did not have exclusive jurisdiction over the matter. The Superior Court affirmed in a memorandum

[ 441 Pa. Page 410]

    opinion, with Judge Hoffman noting a dissent. East Hempfield Township v. Lancaster, 216 Pa. Superior Ct. 733, 258 A.2d 122 (1969).

The record clearly demonstrates that the Authority was a "financing device", and that it was the City which, in reality, determined, fixed, and charged the rates. Although on paper the Authority leased back the water system to the City, and was thus in a position to have the City acting as its agent, the facts reveal that the Authority exercised no control over the City's operation of the water system. In fact the City operated the water system after the creation of the Authority precisely as it did before the implementation of the "sale and lease-back" financing technique. The lease required only that minimum water rates be charged so that the Authority could meet its cost of financing expenses. The City fixed the maximum, had the rents set aside in a Water Reserve Fund, kept the records, carried the insurance, and was generally responsible for the operation and maintenance of the water system.

In light of these facts, the statutory jurisdictional scheme is clear. Section 301 of the Public Utility Law, Acts of May 28, 1937, P.L. 1053, art. III, § 301, and March 21, 1939, P. L. 10, § 2, 66 P.S. § 1141, states that: ". . . public utility service being furnished or rendered by a municipal corporation, or by the operating agencies of any municipal corporation, beyond its corporate limits, shall be subject to regulation and control by the commission [Public Utility Commission] as to rates, with the same force, and in like manner, as if such service were rendered by a public utility." Since the City in fact provided the water service in question, just as it did prior to the creation of the Authority, Section 301 controls this jurisdictional dispute.

Further, Section 3531 of The Third Class City Code, Act of June 23, 1931, P. L. ...

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