Philadelphia v. Pennsylvania Public Utility Commission

296 A.2d 804, 449 Pa. 402, 1972 Pa. LEXIS 392

• Court: Supreme Court of Pennsylvania
• Decided: November 17, 1972
• Docket: Appeal, No. 88
• Status: Published

Opinions

Opinion by

Mr. Chief Justice Jones,

This appeal involves the question whether the burden of financing the relocation of utility lines and equipment necessitated by the extension of the Broad Street Subway in Philadelphia, must be borne by utility companies (intervening appellants)¹ or whether the expense shall be allocated between the City of Philadelphia and the utility companies in such proportions as determined by the Pennsylvania Public Utility Commission.

The proposed subway extension is intended to expand rapid transit service to the inhabitants of South Philadelphia, provide public transportation to the newly constructed sports complex at Broad Street and Pattison Avenue and relieve traffic congestion in the area. The construction requires street crossings over the subway line at fifteen separate locations. Appellees, the City of Philadelphia (City) and the Southeastern Pennsylvania Transportation Authority (SEPTA), filed an application with the Public Utility Commission (Commission) pursuant to the Public Utility Law of 1937, Act of May 28, 1937, P. L. 1053, art. I, §§1 et seq., 66 P.S. §§1101 et seq., for approval of the construction of the above grade crossings. The utility companies which are affected by crossing construction necessitating facility relocation include, among others, the Bell Telephone Company of Pennsylvania (Bell) and the Philadelphia Electric Company (Electric).

The Commission issued a preliminary order on May 5, 1969, temporarily approving the project and directing the utilities to make the necessary relocations at the utilities’ expense pending a hearing and final order.

The Commission hearing adduced the following relevant evidence. Exclusive of the cost of relocating the intervening appellants’ facilities, the subway construction and grade crossings would cost $33,000,000. The project is to be financed by a self-sustaining bond issue by the City, the debt service of which is to be paid from revenue generated by appellee SEPTA in the operation of the subway pursuant to an agreement between SEPTA and the City. SEPTA will operate the subway extension on its completion. The City has agreed to relocate all City-owned water mains, drainage facilities and transit ducts and to defray as much of the cost of relocation of the facilities of the Philadelphia Gas Works as the City assumed by agreement with the Gas Works dated December 29, 1961. All of these expenses will be defrayed from the proceeds of the City bond issue.

The cost of relocating the utility lines of Bell and Electric was estimated at $19,500 and $448,000, respectively. Appellees City and SEPTA urged the Commission to impose the entire cost of facility relocation on the utility companies. At the Commission hearings, the City disclaimed liability for the costs associated with utility companies’ relocations. The City argued that since these utility facilities were implanted pursuant to permits granted by the City,² which permits required the utilities to relocate at their own expense when the change in location was necessitated by public project,³ the terms of these permits should here apply.

The Commission, in its final order dated June 1, 1970, determined that its power to allocate costs in crossing cases was plenary and exclusive, notwithstanding that the permit provisions dictate that relocation expenses should be borne by the utility companies. The Commission directed, in paragraphs 21 and 22 of its order, that the City pay the utility companies 75% of the cost of relocation exclusive of any betterment to their facilities. On appeal by the City and SEPTA, the Commonwealth Court vacated and set aside paragraphs 21 and 22 of the Commission’s order and relieved the City of any duty of reimbursement for the costs incurred by Bell and Electric pursuant to facility relocation.

This Court is asked to decide the questions: (1) whether the Public Utility Commission has statutory authority to allocate the cost of relocating the facilities of Bell and Electric between the City and said utilities in view of the permit agreements imposing the entire cost of relocation on appellants utilities; and (2) whether the Commission exceeded its statutory powers by abrogating the provisions of the permits here involved.⁴

That a valid, binding contractual obligation was created when the utility companies obtained permits for the laying of conduits in the City’s streets was decided by this Court in Philadelphia Electric Company v. Philadelphia, 301 Pa. 291, 152 Atl. 23 (1930). “The contractual conditions imposed by the City, which [appellants] could either accept or reject, were impositions certainly within the scope of its municipal powers.” 301 Pa. at 298, 152 Atl. at 26. Since the permits were granted as part of contractual agreements between the City and the utility companies, there can be no doubt that the covenants of Bell and Electric providing that the cost of facility relocation would be borne by facility owners were part of the quid pro quo which the utility companies proffered in exchange for the City’s permit grants.

Appellants would have this Court disturb vested contractual rights derived from arm’s length bargaining which resulted in the permit agreements of the parties, including the intervening appellants, for the purported purpose of effecting Section 411(a) of the Public Utility Law of 1937, as amended, 66 P.S. §1181 (a), which provides in pertinent part: “Such compensation [of adjacent property owners for property taken, injured or destroyed in connection with a crossing], as well as the cost of construction, relocation, alteration, protection, or abolition of such crossing, and of facilities at or adjacent to such crossing which are used in any Idnd of public utility service, shall be borne and paid, as hereinafter provided by the public utilities or municipal corporations concerned, or by the Commonwealth, in such proportion as the commission may, after due notice and hearing, determine, unless such proportions are mutually agreed upon and paid by the interested parties(Emphasis added.)

Section 411(a) provides for the compensation of utility owners for the expense necessitated by facility relocation, the amount of such compensation to be borne by the City and the utilities in proportions determined by the Commission unless the amounts to be paid are mutually agreed upon and paid by the parties. The parties affected by rail-highway construction are thus encouraged to agree among themselves respecting the allocation of relocation expenses. The Commission is unauthorized to allocate costs in the presence of an agreement and payment by the parties.

The appellants contend that the allocation of costs in rail-highway construction is an exercise of the Commission’s police power and that the Commission is necessarily injected as a third party to any cost allocation agreement. It is thus argued that any agreement reached with respect to the apportionment of relocation expenses without the approval of the Commission is not mutually agreed upon by the parties within the meaning of Section 411(a).

This position fails first because the Commission’s power to abrogate the subject contracts is limited to situations in which such action is compelled by the public health, welfare and safety. See, Pennsylvania Railroad Co. v. Pennsylvania Public Utility Commission, 136 Pa. Superior Ct. 1, 7 A. 2d 86 (1939); Director General of Railroads v. West Penn Railways Co., 281 Pa. 309, 126 Atl. 767 (1924); Pittsburgh and Lake Erie Railroad Co. v. Public Service Commission, 75 Pa. Superior Ct. 282 (1920). It cannot be realistically argued that cost reallocation is necessary to enhance public health, safety or welfare.

The view that an agreement of the parties without Commission approval cannot be deemed “mutually agreed upon” for Section 411(a) purposes denies a common sense reading to that provision. We read the provision to mean that the Commission may exercise its jurisdiction to allocate costs only in the absence of an agreement respecting cost apportionment among the parties. There is no agreement lacking here. No public interest is served by permitting the Commission to exercise the authority to allocate costs between the parties when the condition precedent to the exercise of that authority, i.e., the failure of these parties to reach an agreement respecting cost allocation, has not transpired.

Appellants contend that, even if a mutual agreement is here present, “[t]o deprive the commission of jurisdiction in allocating the cost, the proportions must be paid, as well as be agreed upon; that is, the agreement must be actually carried into effect, pursuant to its terms.” Pennsylvania Railroad Co. v. Public Service Commission, 127 Pa. Superior Ct. 544, 552, 193 Atl. 127, 130 (1937). Appellants would define “paid” in the context of Section 411(a) as pertaining only to payments pursuant to final allocation of costs by the Commission. This interpretation renders the proviso “mutually agreed upon and paid” meaningless. According to this view, the Commission can always allocate costs as it sees fit, where the parties have agreed upon and paid relocation costs, on the theory that the payment of costs is only initial payment, subject to the Commission’s responsibility to make a later independent decision respecting cost allocation. The statutory language promoting private agreements would be thus emasculated.

We hold that the private contractual cost allocation embodied in appellants’ permits is both mutually agreed upon and paid within the contemplation of Section 411(a) and, therefore, that the Commission was without statutory authority to order the City to reimburse 75% of appellants’ cost of facility relocation.

The Commission’s order exceeded its statutory authority. The Commission is authorized to allocate the costs of facility relocation in grade crossing cases where the parties havce not mutually agreed upon and paid the cost of relocation. The Commission, however, is not authorized to impair pre-existing contractual rights and duties except under limited circumstances. The appellants ask this Court to permit the Commission to abrogate the road occupancy contracts as a legitimate exercise of police power. Unless it appears, however, that these contracts adversely affect the public welfare, the legislature may not interfere with the cost allocation provisions. Director General of Railroads v. West Penn Railways Co., 281 Pa. 309, 126 Atl. 767 (1924). This Court has limited the contract abrogation ambit of the Commission to particular circumstances. The Commission’s power to set aside contracts does not apply to a contract which does not affect the common welfare by directly influencing rates or actual operations of the public utility. Pittsburgh and Lake Erie Railroad Co. v. McKees Rocks Borough, 287 Pa. 311, 135 Atl. 227 (1926). Affirming the permit contracts and their cost allocation provisions does not adversely affect the public welfare. Sustaining the contracts might necessitate a utility rate increase to defray the cost of facility relocation. Abrogating the contracts would require the City to bear the most substantial portion of the relocation costs. The additional cost to the City would be defrayed with tax revenue or an additional bond issue. In any case, the cost of facility relocation will finally be borne by the public. The net public detriment of sustaining the permit contracts, therefore, is negligible. Indeed, it is arguable that the concern for public welfare forbids the abrogation of contracts which impose the burden of relocation upon the utility companies: “The refusal to pay for the relocation of utilities ... is based upon the theory that inasmuch as public utility companies are not required to pay for the use of the highway, the Commonwealth has no obligation to them when it requires them to change their facilities because of changes which the Commonwealth desires to make in the highway. It might also be argued that if the Commonwealth was required to pay the cost of relocating utilities, it would become an element of consideration in each proposed construction, and in some cases the cost of such relocation might stand in the way of highway improvement.” Department of Highways v. Pennsylvania Public Utility Commission, 185 Pa. Superior Ct. 1, 7, 136 A. 2d 473, 477 (1957).

We will not abrogate vested contractual rights bargained for in an arm’s length transaction between the utility companies and the City of Philadelphia. The doctrine of stare decisis would here dictate that contractual rights should abide except under circumstances where public welfare compels a contrary result. “This doctrine [stare decisis] ‘is a salutary one and should not be departed from where the decision is of long standing and rights have been acquired under it, unless considerations of public policy demand it.’ ” Colonial Trust Co. v. Flanagan, 344 Pa. 556, 561, 25 A. 2d 728, 730 (1942). No public policy considerations appear which would justify the Court’s departure from the preservation of fundamental contractual rights and obligations.

The order of the Commonwealth Court is affirmed. Paragraphs 21 and 22 of the Commission’s order dated June 1, 1970, are vacated and set aside and the City of Philadelphia is relieved of any duty to reimburse the utility companies for the cost. of facility relocation necessitated by the Broad Street Subway extension.

Mr. Justice Manderino toot no part in the consideration or decision of this case.

1 City and SEPTA appealed to the Superior Court. Bell and Electric were granted leave to intervene as appellees. The Commonwealth’s Department of Transportation was granted leave to intervene as appellant. Both appeals were transferred to the Commonwealth Court on October 15, 1970. Bell and Electric are here intervening appellants and the Department of Transportation is now an intervening appellee.

2 Electric made two applications for permits in 1916, three in 1926, four in 1941 and one each in 1932, 1940, 1942, 1943 and 1945. Bell made two applications for permits each in 1914 and 1945, and one each in 1925 and 1949.

3 Bell stipulated at the hearings that its facilities, for which it sought reimbursement for relocation costs, were installed pursuant to agreements containing the following provision: “If, in the laying of water or gas pipes, sewers, or any other municipal work, it shall become necessary to change the location of any of the conduits, manholes or other structures, they shall be shifted or altered at the cost or expense of the owners. . . .”

Electric stipulated that its facilities were installed pursuant to agreements containing similar language: “. . . if, in the construction of water or gas mains, sewers, or any other municipal work, it shall become necessary to change the location of any existing privately owned structures occupying the highways, their location shaU be changed at the sole expense of the owners. . . .”

4 The question whether the Commission acted arbitrarily and capriciously in abuse of its administrative discretion by allocating expenses is also raised. The Court’s determination that the Commission’s order exceeded its statutory authority makes the question whether the Commission acted in abuse of its administrative discretion unnecessary to reach.