Appeal from the Order of the Board of Finance and Revenue in case of In Re: Appeal of Philadelphia Electric Company, No. M-23,081.
T. Roberts Appel, II, with him Roberts R. Appel, Appel, Herr & Appel, and, of counsel, Edward G. Bauer, Jr. and Eugene J. Bradley, for appellant.
Vincent J. Dopko, Deputy Attorney General, for appellee.
President Judge Bowman and Judges Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Judge Crumlish, Jr. did not participate. Opinion by Judge Blatt.
[ 21 Pa. Commw. Page 594]
In this action we are asked to determine whether under the Public Utility Realty Tax Act.*fn1 (PURTA), the
[ 21 Pa. Commw. Page 595]
dam, dikes, and canal of a pump storage hydroelectric generating plant owned by a public utility constitute machinery and equipment or utility realty.
The utility here, the Philadelphia Electric Company (Philadelphia Electric), manufactures electricity through steam generators, nuclear power plants, hydroelectric dams, diesel turbines, and pump storage projects, all of which are interconnected into a single electric generating system. The "Muddy Run Pump Storage Hydro-Electric Project" (Muddy Run) in Lancaster County is one part of this generating system. A pump storage hydroelectric project, such as the one at Muddy Run, manufactures electricity by means of water flowing by gravity from a high level reservoir through turbines to a low level reservoir. The falling water drives the turbines, the turbines drive the generators, and the generators then manufacture the electricity. It is necessary in such a project, of course, to create a source of high level water sufficient to achieve the gravitational waterflow needed to drive the turbines. Once the high level reservoir is created, it is then maintained by operating the pump storage project in reverse during periods of low electrical demand, usually during nights and on weekends. The reverse process involves the application of outside electricity to the generators which act as motors to drive the turbines which act as pumps to return water back to the high level reservoir.
To build the Muddy Run project, Philadelphia Electric acquired land on both sides of a stream known as Muddy Run, which flows through a ravine between high bluffs running to the Susquehanna River in Lancaster County. Approximately one-half mile from the mouth of the stream a dam was erected to close the ravine, and small dikes were built to give added elevation to one of the bluffs. The dam and dikes created the high level reservoir. A canal was then constructed in one of the high bluffs to channel water from the high level reservoir through
[ 21 Pa. Commw. Page 596]
a conduit system leading to the turbine units of the generating equipment and eventually to the Susquehanna River, the low level reservoir below.
Under PURTA a tax payable to the state treasurer is imposed upon utility realty. In its tax returns for the years 1970 and 1971, Philadelphia Electric included the value of the dam, dikes, and canal as utility realty under PURTA and paid $924,179.00 to the state treasurer. The company, however, filed a petition for refund with the Board of Finance and Revenue (Board) because there had previously been no authoritative determination as to whether or not these dams, dikes and canal constitute utility realty subject to taxation under PURTA or are excluded from such tax under PURTA as machinery and equipment. The Board ruled that these appurtenances are utility realty and has, therefore, denied the refund. Philadelphia Electric now appeals to this Court ...