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decided: August 17, 1983.


Appeal from the Order of the Pennsylvania Public Utility Commission in the case of Huntingdon, Inc. and Ryland Homes, Inc. and Eric Peterson and Mary Elizabeth Peterson, h/w v. Newtown Artesian Water Company, No. C-812383 (P-810264).


Richard P. McBride, with him Herbert K. Sudfeld, Jr., McBride, Murphy & Sudfeld, for petitioners.

Velma A. Boozer, with her Robert P. Meehan, Assistant Counsel, Louise Russell Knight, Deputy Chief Counsel, and Charles F. Hoffman, Chief Counsel, for respondent.

Brenden E. Brett, with him D. Mark Thomas, Thomas & Thomas, for intervenor.

Judges Williams, Jr., Doyle and Barbieri, sitting as a panel of three. Opinion by Judge Doyle.

Author: Doyle

[ 76 Pa. Commw. Page 388]

Huntingdon, Inc. and Ryland Homes, Inc. appeal an order of the Pennsylvania Public Utility Commission (PUC) which directed it to pay a sum in the amount of $138,624.00 to the Newtown Artesian Water Company (Newtown) or suffer termination of water service to Huntingdon's residential development.

Huntingdon, Inc. (Huntingdon) is the developer of a seventy-nine acre residential development in Bucks County known as Sturbridge.*fn1 Prior to the start of construction on the site, Huntingdon approached Newtown to secure water service for the proposed development. Newtown, in a letter dated July 18, 1977, indicated an estimated figure of $76,470.00 to provide for off-site water storage and booster pumping capacity needed to extend service to Sturbridge. On September 30, 1977, Huntingdon filed a complaint before the PUC disputing the $76,470.00 sum for off-site capital contribution as a condition precedent to the provision of water service to the development. On May 2, 1978, Huntingdon and Newtown entered into an extension deposit agreement with an attached preliminary memorandum delineating estimated charges for

[ 76 Pa. Commw. Page 389]

    the extension of service to the development. Included in the total was the sum of $76,470.00 for other estimated off-site costs.*fn2 Huntingdon executed the agreement but deposited $76,470.00 less than the total estimated in the memorandum. On October 10, 1978, at the request of Huntingdon, the complaint before the PUC was discontinued without prejudice.

Huntingdon proceeded with the development of Sturbridge, installing water distribution lines, main extensions and facilities within the development which were connected to an existing ten inch water main owned by Newtown which lies beneath the roadway of Route 413 abutting the development. As of February 27, 1981, approximately sixty single family homes had been constructed, sold and occupied in Sturbridge and had been provided water service by Newtown. On or about that date Newtown refused to provide further service to the remaining lots*fn3 in the development until Huntingdon made payment of $138,624.00 claimed to be due as a contribution for off-site improvements made on behalf of Newtown in providing water service to Sturbridge. Proceedings were then instituted before the PUC which resulted in the appeal now before this Court.*fn4 The factual genesis of the problem here presented follows:

[ 76 Pa. Commw. Page 390]

Prior to 1978, Newtown was serving between 1,000 and 1,500 customers and operating four wells and one storage tank with a capacity of 650,000 gallons. In 1973 or 1974, Huntingdon was only one among eight or nine developers requesting water supply from Newtown. In 1976, in response to the growth pressures represented by the requests of the developers, Newtown, pursuant to an agreement with eight developers, not including Huntingdon, formed a wholly owned subsidiary, Indian Rock Water Company (Indian Rock) for the construction of additional water storage and supply facilities.

The signatories to the agreement with Newtown contributed $2,414,948.48 in aid of the construction of off-site facilities which included a one million gallon storage tank. The Indian Rock facilities are integrated with the Newtown system and the capacity of the Indian Rock facilities is in excess of that needed to service the 2,643 residential units planned by the eight contributing developers. Newtown demands $138,624.00 as Huntingdon's share of the construction costs for the Indian Rock facilities.

[ 76 Pa. Commw. Page 391]

Our review of PUC decisions is to determine whether constitutional rights were violated, an error of law was committed or whether the findings, determinations or orders of the Commission were supported by substantial evidence. Fairview Water Co. v. Pennsylvania Public Utility Commission, 55 Pa. Commonwealth Ct. 96, 422 A.2d 1209 (1980); Manufacturers' Association of Erie v. Pennsylvania Public Utility Commission, 47 Pa. Commonwealth Ct. 31, 407 A.2d 114 (1979). Before this Court, Huntingdon argues that PUC's determination that Newtown may require a contribution toward the cost of the Indian Rock facilities as a condition precedent to the provision of water service constitutes an error of law. Huntingdon also argues that the determination as to the amount of the contribution is not supported by substantial evidence.

The general rule that a utility must bear the cost of repairs and improvements is settled and is based upon the statutory requirement that the utility provide reasonable and adequate service.*fn5 Fairview; McCormick v. Pennsylvania Public Utility Commission, 48 Pa. Commonwealth Ct. 384, 409 A.2d 962 (1980); see also, Colonial Products Co. v. Pennsylvania Public Utility Commission, 188 Pa. Superior Ct. 163, 146 A.2d 657 (1958). In special circumstances, however, participation by the customers may reasonably

[ 76 Pa. Commw. Page 392]

    be expected. Fairview; McCormick. The PUC may require participation in construction costs "where 'without the contribution or loan of the customers, the cost of construction would materially handicap the utility in securing a fair return on all its operations' or where the consuming public would be unduly burdened by the full cost being borne by the utility." Fairview, 55 Pa. Commonwealth Ct. at 99, 422 A.2d at 1211 (quoting Ridley Township v. Pennsylvania Public Utility Commission, 172 Pa. Superior Ct. 472, 479, 94 A.2d 168, 171 (1953)).

There is little question that Newtown's existing customers would have been unduly burdened had the utility borne the full cost of upgrading its water supply and storage facilities to meet the demand represented in the development plans of Huntingdon and the eight developers involved in the creation of Indian Rock.*fn6 And we do not accept Huntingdon's argument

[ 76 Pa. Commw. Page 393]

    that the existing capacity of Newtown's system was not threatened by the development of Sturbridge or that Sturbridge did not contribute to the need for the Indian Rock facilities. Huntingdon was one of several developers seeking service from Newtown during approximately the same period in 1973 and 1974. While no single development may have necessitated the construction of the new facilities, together the proposed developments represented a growth in demand beyond the capacity of the existing Newtown system. For this reason, it is of no import that Newtown actually began supplying water service to Sturbridge before the Indian Rock facilities were completed and integrated with the Newtown system. The development of Sturbridge contributed significantly to the need for the Indian Rock facilities and Huntingdon, therefore, could reasonably be expected to participate in the financing of the new facilities.*fn7 Subject to the provisions of Section 1503 of the Public Utility Code, 66 Pa. C.S. ยง 1503, Newtown could therefore discontinue service to Huntingdon for refusal to contribute as anticipated.

[ 76 Pa. Commw. Page 394]

The calculation of the $138,624.00 allegedly due, however, seems to be grossly in error and is not supported by substantial evidence. The figure is supposedly generated by dividing the $2,417,948.48 contribution by the eight developer/signatories to the Indian Rock agreement by the 2,643 units proposed by those developers, to yield a unit share of cost of $912.00. This unit share of cost was then multiplied by 152, the number of units proposed by Huntingdon, to yield $138,624.00. We note first that the arithmetic is wrong. $2,417,948.48 divided by 2,643 units yields a unit share of cost of $914.85. But the arithmetical error is not significant because the method of calculation is also incorrect.

Newtown and the PUC point out that the Indian Rock facilities have a capacity approximately twice that which is needed to service the developments of the eight signatory developers.*fn8 They urge that it would not be reasonable or fair to allow other developers served by the excess capacity, like Huntingdon, to enjoy a "free ride" at the expense of the eight signatories. That is, it would not be fair for subsequent developers to be able to develop less expensively because the eight have constructed a system greater than their needs. The unit share of cost calculation was designed to prevent such a "free ride" and recoup for the eight investors the cost of creating the excess capacity. Palpably, the calculation does much more. If the 2,643 units of the eight developers demand only half the capacity of the facilities then another 2,643 units could theoretically be constructed by other developers before capacity would be exceeded by demand. Assessment of these subsequent developers at a new unit

[ 76 Pa. Commw. Page 395]

    share of cost generated by dividing total cost ($2,417,948.46) by 2,643 would obviously yield contributions from the subsequent developers totaling $2,417,948.46,*fn9 so that by the time the capacity of the facilities is reached the eight developers will have recouped all of their original contributions. This would have the effect of allowing the eight original developers to enjoy a "free ride" at the expense of the subsequent developers. The formula therefore cannot be correct.

In addition, there is nothing in the record to support the formula or even assessment of construction costs on a unit share basis. The Water Facilities Agreement, which provides for payment to the eight signatories of monies collected by subsequent developers for use of the excess capacities of the Indian Rock facilities, specifies that

     the amount of such payment shall be calculated by multiplying the total cost of project facilities by a ratio of the capacity (in gallons) used by the customer over the total capacity of the project facilities (in gallons).

The record indicates that Sturbridge requires 35,600 gallons of storage capacity; the capacity of the Indian Rock facilities is 1,000,000 gallons. Applying the formula, Huntingdon's share of the cost of the Indian Rock facilities would be 3.56% of the total. A similar formula is indicated in the preliminary memorandum attached to the extension deposit agreement between Huntingdon and Newtown.*fn10 That document broke down the off-site capital cost by multiplying the estimated

[ 76 Pa. Commw. Page 396]

    cost of storage and booster pump facilities (with a projected one million gallon capacity) by a ratio of the projected use of Huntingdon (35,600 gallons) over the projected one million gallon capacity of the facilities. This also results in a 3.56% share.

Because Huntingdon was not a signatory to the Indian Rock Water Facilities Agreement, it is, of course, not subject to any formula found therein. Huntingdon did, however, execute the extension deposit agreement with Newtown. Although we recognize that Huntingdon never deposited the sum estimated for off-site capital costs and disputed the assessment of off-site construction costs before the PUC, we note that the proceedings before the PUC were discontinued at Huntingdon's request, and in any event the method of computing the off-site construction costs delineated in the preliminary memorandum was not disputed in those proceedings. In addition, Huntingdon concedes by argument in its brief that if any contribution to the construction costs of the Indian Rock facilities is due, it should be calculated according to the formula in the extension deposit agreement.

Accordingly, Huntingdon's share of the cost of the one million gallon Indian Rock storage tank should be 3.56% of the total cost of that component of the project. Similarly, Huntingdon should bear 3.56% of the cost of any pumping or water source facilities constructed as part of the Indian Rock project and serving the Newtown/Indian Rock integrated system, subject to the terms of the extension deposit agreement.


Now, August 17, 1983, the order of the Pennsylvania Public Utility Commission in the above referenced matter, dated January 29, 1982, at Nos. C-812383 and P-810264 is hereby vacated and the matter remanded

[ 76 Pa. Commw. Page 397]

    to the Commission for disposition consistent with this opinion.

Jurisdiction is relinquished.


Vacated and remanded.

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