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decided: April 23, 1986.


Appeals from the Order of the Court of Common Pleas of Bucks County, in case of Northampton, Bucks County, Municipal Authority v. Bucks County Water and Sewer Authority, No. 84-5036-12-5.


Gregory L. Sturn, with him, Stephen B. Harris, Harris and Harris, for appellant/appellee, Northampton, Bucks County, Municipal Authority.

Gary A. Rochestie, with him, Robert M. Greenberg, Rudolph, Seidner, Goldstein, Rochestie & Salmon, P.C., for appellant, Bensalem Township Authority.

William J. Carlin, with him, John P. Koopman and Brenden E. Brett, Begley, Carlin & Mandio, for appellee/appellant, Bucks County Water and Sewer Authority.

Judges MacPhail and Doyle, and Senior Judge Kalish, sitting as a panel of three. Opinion by Judge MacPhail.

Author: Macphail

[ 96 Pa. Commw. Page 517]

Appellants Northampton Municipal Authority (Northampton) and Bensalem Township Authority (Bensalem) appeal an order of the Court of Common Pleas of Bucks County dismissing Appellants' exceptions to an adjudication and decree nisi and entering the decree as a final decree.*fn1 We affirm.

Northampton filed a complaint in equity on July 23, 1984 against the Bucks County Water and Sewer Authority (Bucks). Northampton sought to invalidate a water supply contract between Bucks and the Newtown Artesian Water Company (Newtown Artesian). The agreement provided that Bucks would supply up to two million gallons of water per day to Newtown Artesian

[ 96 Pa. Commw. Page 518]

    and that Newtown Artesian would pay for at least one million gallons per day whether the water was used or not. By instituting the suit, Northampton hoped to have the Court issue an injunction halting Bucks from building a 30-inch water main through Northampton Township from Buck's Siles pumping station to Buck Road and Chinquapin Road and a 24-inch main from that location to a point near Buck Road and the Neshaminy Creek.

The Chancellor permitted Middletown Township (Middletown) and Bensalem to intervene as plaintiffs. All of the plaintiffs involved in the case purchase water from Bucks. They claim that the water main extensions and the Newtown sales contract would result in higher water rates for the water they purchase from Bucks. The Chancellor permitted Newtown Artesian, the Indian Rock Water Co., Inc. -- a wholly owned subsidiary of Newtown Artesian -- and FPA Corporation (FPA) to intervene as defendants.

The Chancellor by decree nisi denied the relief sought by Northampton, Middletown and Bensalem on August 10, 1984. The Chancellor confirmed the decree nisi and dismissed exceptions filed to it on October 19, 1984. Northampton and Bensalem have appealed to this Court.

This Court's scope of review when considering an appeal from a dismissal of exceptions to a chancellor's order in an equity proceeding is limited to determining whether the chancellor's findings are supported by substantial evidence, whether an error of law was committed, or whether the chancellor abused his discretion. Babin v. City of Lancaster, 89 Pa. Commonwealth Ct. 527, 493 A.2d 141 (1985).

Challenges Under Subsection 4B(h)

Appellants argue that the Chancellor erred in finding that the contemplated construction and its financing

[ 96 Pa. Commw. Page 519]

    would not violate Subsection 4B(h) of the Municipality Authorities Act of 1945 (Act), Act of May 2, 1945, P.L. 382, as amended, 53 P.S. § 306B(h). We find that the Chancellor did not so err because the Appellants failed to prove that Bucks' plans would violate the Act.*fn2

The relevant portion of Subsection 4B(h) grants a municipal authority the power

     to determine by itself exclusively the services and improvements required to provide adequate, safe and reasonable service, including extensions thereof, in the areas served: Provided, That if the service area includes more than one municipality, the revenues from any project shall not be expended directly or indirectly on any other project, unless such expenditures are made for the benefit of the entire service area. Any person questioning the reasonableness or uniformity of any rate fixed by any Authority or the adequacy, safety and reasonableness of the

[ 96 Pa. Commw. Page 520]

Authority's services, including extensions thereof, may bring suit against the Authority in the court of common pleas of the county wherein the project is located. . . . The court of common pleas shall have exclusive jurisdiction to determine all such questions involving rates or service.

It is not disputed that Bucks' service area includes more than one municipality. Appellants assert that Bucks lacks the power under Subsection 4B(h) to construct the new water mains because revenues from other projects from areas not benefited by the construction of the new water mains will be expended upon it. We must reject this assertion.

The Chancellor found, which finding is supported by substantial evidence, that the water main extensions are self-sustaining. The Chancellor stated that he accepted Bucks' estimates as credible that there will be revenue benefits and cost savings from the extensions. The Chancellor based his finding on exhibit BCWS-10, entitled "Comparison of Water Expense With or Without Newtown Artesian Water Company Extension Over Life of Project," and the testimony of Harold D. Sursa, the Executive Director of Bucks. The Chancellor found Mr. Sursa's testimony to be credible while rejecting testimony to the contrary. The Chancellor did not abuse his discretion by doing so.*fn3

[ 96 Pa. Commw. Page 521]

Appellants argue that the Chancellor erred in concluding that the extensions will be self-sustaining because that conclusion, as well as Mr. Sursa's testimony, is based on several erroneous assumptions. Mr. Sursa testified that in the first year the total revenue gain to Bucks from the extensions would be $91,147, in the second year $79,562, in the third $67,977, in the fourth $79,726 and in the fifth $103,143.*fn4 Appellants aver that the project will actually lose money in the first several years because Bucks will be required to pay $215,285.00 a year in debt service the first four years and $315,285.00 the fifth year, while Mr. Sursa in Exhibit BCWS-10 assumes that the debt service will be $190,000.00 a year. Mr. Sursa averaged the debt service over the repayment period to come up with the figure of $190,000.00 per year.

We find no error in Mr. Sursa's calculations or in the Chancellor's acceptance of them. Bucks' argument is well taken that if an averaging of the debt service were not permitted, a project would not be self-sustaining and would violate Subsection 4B(h) if it lost $100.00 in the first five years due to the high initial debt service and then went on to make $1,000,000 in the next thirty-five years. We must recognize that if the debt service were not averaged, and a year-by-year analysis of net revenue were applied, many beneficial projects would show a loss in the early years even though, using the same analysis, they would show large revenue gains in the future. Subsection 4B(h) must not be interpreted so rigidly as to preclude the construction of projects which a municipal authority, in its discretion, deems to be beneficial.

Appellants further attack the Chancellor's conclusion because the Chancellor found that Newtown Artesian

[ 96 Pa. Commw. Page 522]

    will require over 125 million gallons per day of water in less than five years from the commencement of the forty-year agreement. However, this finding is supported by substantial evidence in the form of testimony by William H. McCormick, general manager of Newtown Artesian.*fn5 Even so, this finding by the Chancellor does not affect the conclusion that the extensions are self-sustaining one way or the other. Mr. Sursa's testimony is to the effect that even at a consumption by Newtown Artesian of as low as 650,000 gallons per day, the extension would still yield a total revenue gain.*fn6

Appellants also allege that Mr. Sursa's testimony was in error because in calculating the total revenue gain, he took into consideration estimated gains in revenue the extensions would yield, aside from the consumption by Newtown Artesian.*fn7 These gains would derive from a net reduction in the cost of operating a well which could be abandoned and from increased water sales in Upper Southampton and Lower Southampton due to increased water pressure. Appellants aver that the Chancellor was in error in accepting these estimates. There was conflicting testimony on the matter, and the Chancellor chose to accept Mr. Sursa's estimates. That was the Chancellor's prerogative.

Appellants also attack Mr. Sursa's calculations by asserting that Mr. Sursa did not set rates so that the extensions would be self-sustaining, without taking into consideration yields from revenues other than consumption by Newtown Artesian, at one million gallons of consumption per day by Newtown Artesian as he testified. Appellants also claim that the unit cost figure generated by Mr. Sursa for use in his calculations should have

[ 96 Pa. Commw. Page 523]

    been deducted from projected revenues to arrive at a net revenue figure. Our review of the relevant exhibits reveals that both of these assertions are unfounded.

Even if the Chancellor had been incorrect in finding that the sewer main extensions were self-sustaining, his conclusion that Bucks did not violate Subsection 4B(h) could be upheld on another basis. The Chancellor concluded that the entire Southwest Region Water System of Bucks, of which the proposed extensions would be a part, should be considered the "project" for purposes of Subsection 4B(h). We note that Bucks operates several water systems within Bucks County. The Chancellor's conclusion is not an error of law and is supported by the evidence. Previous trust indentures of Bucks introduced into evidence, as well as the proposed supplemental trust indenture for the project at hand,*fn8 all identified as a "project" of Bucks "the construction and acquisition of a comprehensive water system to serve the southwest region of Bucks County." Further, Mr. Sursa testified that Bucks viewed the Southwest Water System as an integral project and that the extension of the lines in question were part of the original plan concept for the water system, so as to serve its intended purpose of supplying water to the entire southwest portion of Bucks County.*fn9

Appellants argue that revenues from municipalities within the Southwest Water System that will not be benefited by the extension will be used to pay for the construction. However, the Chancellor correctly found that all those municipalities are served by one project, the Southwest Water System. Therefore, revenues from those municipalities are not being expended on another project and Subsection 4B(h) is not violated.

[ 96 Pa. Commw. Page 524]

Appellants also argue that even if the "project" is the entire Southwest Water System, the "service area" of Bucks for purposes of Subsection 4B(h) includes not only the Southwest Water System, but all the other systems Bucks operates as well. They note correctly that the Chancellor was unclear as to what the proper definition of "service area" should be. We hold that, as a matter of law, "service area" must be defined to include all of Bucks' various systems.

With the definition of "service area" established, another of Appellants' arguments becomes important. Appellants note that revenues from both the Southwest Water System and the Neshaminy Sewer Interceptor System, another system Bucks operates which services different areas from those served by the Southwest Water System, are being pledged to satisfy the bonds to be issued to finance the water main extensions. Appellants aver that this amounts to an indirect expenditure of revenue from one project on another project which does not benefit the entire service area, hence running afoul of Subsection 4B(h). One need only look to two other Subsections of the Act to find Appellants' arguments unavailing.

Subsection 4B(m) of the Act, as amended, 53 P.S. § 306B(m), gives municipal authorities the power

[t]o pledge, hypothecate or otherwise encumber all or any of the revenues or receipts of the Authority as security for all or any of the ...

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