PENNSYLVANIAPUBLIC UTILITY COMMISSION

Harrisburg, PA 17105-3265

Public Meeting held August 11, 2016

Commissioners Present:

Gladys M. Brown, ChairmanAndrew G. Place, Vice ChairmanJohn F. Coleman, Jr.Robert F. PowelsonDavid W. Sweet

Petition of the Borough of Cornwall for aDeclaratory Order that the Provision of WaterService to Isolated Customers Adjoining itsBoundaries Does Not Constitute Provision ofPublic Utility Service Under66 Pa. C.S. § 102

P-2015-2476211

TENTATIVE OPINION AND ORDER

BY THE COMMISSION:

Before the Pennsylvania Public Utility Commission (Commission) for

consideration and disposition are the Exceptions of the Office of Consumer Advocate

(OCA) and the Cornwall Borough, Lebanon County, Municipal Authority (Authority),

both filed on February 3, 2016, to the Recommended Decision (Recommended Decision

or R.D.) of Administrative Law Judge (ALJ) David A. Salapa, issued on January 14,

2016. The Borough of Cornwall (Borough) filed Replies to Exceptions on February 16,

2016. Also before the Commission, is the Motion to Strike and Motion for Sanctions

(Motion), filed by the Borough on February 29, 2016. The Authority filed an Answer to

the Motion on March 21, 2016. For the reasons stated below, we will tentatively grant, in

part, the Authority’s Exceptions; deny the OCA’s Exceptions; adopt the ALJ’s

Recommended Decision, as modified; and grant, in part, the Borough’s Motion.

History of the Proceeding

On April 10, 2015, the Borough filed a Petition for Declaratory Order,

requesting that the Commission conclude that the Borough’s provision of water service

“to a small, defined, privileged, and limited group of customers who are in immediate

proximity to, but outside the formal limits of, the Borough does not constitute the

provision of public utility service pursuant to Section 102 of the Public Utility Code, 66

Pa. C.S. § 102.” Petition at 1. The Borough served a copy of the Petition on the OCA,

the Bureau of Investigation and Enforcement (I&E), the Office of Small Business

Advocate (OSBA), and each of the forty-seven customers located outside of the

Borough’s municipal limits, pursuant to 52 Pa. Code § 5.42.

In its Petition for Declaratory Order, the Borough stated that, on April 2,

2015, the Borough adopted Ordinance 2015-1 (Ordinance), which directed the Authority

to transfer its water system assets to the Borough and to take the steps necessary to

terminate the Authority’s existence.1 A copy of the Ordinance is attached to the Petition

for Declaratory Order as Exhibit B. The Borough explained that, following the transfer

of assets, the Borough will assume ownership and operation of the Authority’s water

system. Petition for Declaratory Order at 2. The Borough indicated that forty-seven of

those customers are located outside of the Borough’s municipal boundaries. Id. at 2-3.

The Borough also indicated that, in 2005, the Authority agreed to accommodate a request

from a local developer to connect up to an additional twenty-five customers located in

West Cornwall Township outside of the Borough’s municipal boundaries. Id. at 3.

1 We note at the outset, that the Authority was formed pursuant to the Municipality Authorities Act, 53 Pa. C.S. § 5601, et seq., and, therefore, the water service the Authority had been providing was not subject to the Commission’s jurisdiction.

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The Borough averred that the customers located outside of its municipal

boundaries constitute a small, defined, privileged and limited group of customers. The

Borough stated that it will not connect additional customers located outside its municipal

boundaries without seeking prior Commission approval. The Borough indicated that it

will provide service to the customers located outside its municipal boundaries at the same

rates that it will charge to customers located within its municipal boundaries. Id. at 4.

On April 20, 2015, the OCA filed an Answer to the Borough’s Petition for

Declaratory Order. The OCA averred that the Borough’s provision of service to

customers located outside its municipal boundaries constituted public utility service. The

OCA argued that these customers are entitled to the protections afforded by the Public

Utility Code (Code) and the Commission’s Regulations. The OCA stated that the

Borough’s assertion that it will not connect additional customers located outside its

municipal boundaries does not commit the Borough to seeking a Certificate of Public

Convenience (Certificate) if it decides to serve additional customers located outside of its

municipal boundaries. The OCA also contended that granting the Borough’s Petition for

Declaratory Order would prevent the Commission from reviewing any future transaction

where the customers located outside the Borough’s municipal boundaries would be

transferred to another entity. Answer at 3.

Further, the OCA argued that the Borough’s representation that it will

charge the same rate to all of its customers does not protect the customers located outside

of its municipal boundaries, as those customers would have no recourse regarding any

future rate increases, and there is no assurance that the rates would be cost based. Id. at

4. The OCA requested that the Commission deny the Borough’s Petition for Declaratory

Order or, alternatively, refer the matter to the Office of Administrative Law Judge

(OALJ) for development of additional facts. Id. at 5.

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On May 7, 2015, the Authority filed an Answer in Opposition and New

Matter to the Borough’s Petition for Declaratory Order. The Authority asserted that the

Borough was violating the Code by failing to obtain a Certificate prior to acquiring the

Authority’s assets. Answer in Opposition at 8-9. In addition, the Authority generally

contended that the Borough lacked the required managerial, technical, legal, or financial

fitness to provide safe and reliable water service. The Authority specifically denied that the customers located outside the Borough’s municipal boundaries constitute a small, defined, privileged, and limited group. The Authority also denied that the Borough will not connect additional customers outside its boundaries without seeking prior Commission approval. The Authority further denied that the Borough will provide service to the customers located outside its boundaries under the same terms and conditions as it will provide service to customers located inside its boundaries. Id. at 12.

In the New Matter, the Authority contended, among other things, that the facts alleged in the Borough’s Petition for Declaratory Order do not meet the legal requirements for the Commission to find that the provision of service by the Borough to the customers located outside its boundaries does not constitute public utility service. The Authority argued that the Borough’s service to extraterritorial customers constitutes public utility service under Section 102 of the Code, and the applicable legal precedent and the Borough’s expressed intention to deny future extension requests does not render the service “private.” New Matter at 51-59.

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On May 14, 2015, the Authority filed a Motion for Consolidation of the

Petition for Declaratory Order proceeding at this docket with the Authority’s Formal

Complaint and Petition for Declaratory Order at Docket Nos. C-2015-2475978 and

P-2015-2475991 (Complaint Proceeding).2 The Authority averred that both proceedings

involve common questions of law and fact and requested that the Commission

consolidate the proceedings for hearing and adjudication.

On May 27, 2015, the Borough filed a Reply to Answer and Answer to the

Authority’s New Matter as well as Preliminary Objections. The Answer to New Matter

denied the assertions in the New Matter. In the Preliminary Objections, the Borough

contended that the Authority lacked standing to contest the Borough’s Petition for

Declaratory Order.

On June 3, 2015, the Borough filed an Answer to the Authority’s Motion

for Consolidation, averring that the Authority’s Complaint Proceeding raises issues that

are outside of the scope of the Borough’s Petition for Declaratory Order.

On June 8, 2015, the Authority filed an Answer in Opposition to the

Borough’s Preliminary Objections. The Authority averred that it had standing, because

its legal obligation to continue to provide service depends on the outcome of the Petition

for Declaratory Order proceeding.

By Order dated June 15, 2015, at Docket Nos. C-2015-2475978 and

P-2015-2475991, ALJ Salapa deferred ruling on the Authority’s Motion to Consolidate,

2 On April 8, 2015, the Authority filed a Complaint/Petition to ensure that the transfer of its assets, including its water distribution system, and the termination of the Authority were accomplished in accordance with Section 1102(a)(5) of the Code, 66 Pa. C.S. § 1102(a)(5). Section 1102(a)(5) provides that a Certificate is required “[f]or any municipal corporation to acquire, construct, or begin to operate, any plant, equipment, or other facilities for the rendering or furnishing to the public of any public utility service beyond its corporate limits.”

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pending a final Commission Order on the Borough’s Petition for Declaratory Order. The

ALJ determined that, since the Borough’s Petition for Declaratory Order requests that the

Commission determine that service to a limited group of customers residing outside of

the Borough’s municipal boundaries does not constitute public utility service, it would be

prudent to rule on the Borough’s Petition for Declaratory Order before taking any further

action in the Complaint Proceeding.

By Order dated June 22, 2015, the ALJ denied the Borough’s Preliminary

Objections and determined that the Authority had standing to participate in the Petition

for Declaratory Order proceeding.

The ALJ conducted a prehearing conference on August 3, 2015. During the

prehearing conference, the ALJ referenced the Commission’s decision in the Petition of

the City of Titusville for a Declaratory Order that the Provision of Water Service to

Isolated Customers in the Townships of Oil Creek and Cherrytree Does Not Constitute

Provision of Public Utility Service Under 66 Pa. C.S. § 102, Docket No. P-2013-2376600

(Tentative Order entered April 23, 2014) (Titusville).3 The ALJ indicated that, consistent

with the decision in Titusville, the issues in the Petition for Declaratory Order proceeding

would focus on whether service to the extraterritorial customers constituted public utility

service. Tr. at 6, 11. As a result of the prehearing conference, the ALJ issued a

Prehearing Order, dated August 4, 2015, which addressed the procedural matter raised

during the prehearing conference and established a litigation and briefing schedule.

On August 31, 2015, the Authority filed a Motion to Compel Discovery,

pursuant to 52 Pa. Code §§ 5.342 and 5.349. The Authority requested that the ALJ issue

an order dismissing the Borough’s objections to the Authority’s discovery requests,

3 Because no comments or objections were received within the time period specified in the Tentative Order, the Order became final without further Commission action. See Secretarial letter issued October 29, 2014, at Docket No. P-2013-2376600.

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compelling the Borough to provide responses to the Authority’s discovery requests, and

modifying the litigation schedule.

On September 4, 2015, the Borough served its direct testimony and

exhibits.

On September 8, 2015, the Borough filed an Answer to the Authority’s

Motion to Compel.

By Order dated September 11, 2015, the ALJ denied the Authority’s

Motion to Compel. In doing so, the ALJ determined the following:

[T]he scope of this proceeding is limited to determining whether the Borough will provide service solely to the customer[s] presently being served outside its boundaries, that the Borough will not solicit or add any additional customers outside its boundaries or provide service to any other customers located outside its boundaries and that the Borough will charge the same rates to customers outside its boundaries as the rates it charges customers inside its boundaries … the Commission has stated in prior decisions that the added regulatory burden imposed on a municipal corporation by Commission oversight of a small number of extra-territorial customers is not in the public interest provided that the municipal corporation agreed to the safeguards set forth above.

September 2015 Order at 9-10 (citing Titusville).

On September 14, 2015, the Authority served its rebuttal testimony and

exhibits. Also on September 14, 2015, the OCA filed a letter indicating that it would not

be serving rebuttal testimony.

The evidentiary hearing was held on September 24, 2015. The Borough

was represented by counsel who presented one witness and six exhibits that were

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admitted into evidence. The Authority was represented by counsel who presented two

witnesses and four exhibits that were admitted into evidence. The OCA was represented

by counsel and did not present any witnesses. The hearing resulted in a transcript of 127

pages.

During the hearing, the ALJ granted the Borough’s motion to strike the

testimony of Paul C. Vranesic, ruling that the testimony was outside of the scope of the

proceeding and irrelevant.4

On September 25, 2015, the Authority filed a Petition for Interlocutory

Review, which was assigned Docket No. P-2015-2505794. In its Petition for

Interlocutory Review, the Authority sought interlocutory Commission review and answer

to the following Material Question:

In a proceeding upon a municipality’s petition for an order declaring that, upon its acquisition of a public water system that serves customers located outside of the municipality’s boundaries, the municipality’s provision of service to those customers will not be subject to public utility regulation, is evidence of this Borough’s lack of financial, technical and legal fitness – and hence inability to provide safe and reliable service at just and reasonable rates – relevant to the petition and the establishment of outside customer safeguards, and therefore admissible, where:

4 The Authority offered into evidence the pre-served testimony and exhibits of Mr. Vranesic, the Chairman of the Authority Board. Mr. Vranesic’s testimony focused on the Borough’s fitness and ability to provide public water service. The Borough objected to Mr. Vranesic’s testimony and exhibits relating to the Borough’s fitness and moved to strike them as irrelevant. Both counsel for the Authority and the OCA opposed the motion to strike. Tr. at 96-109. The ALJ granted the motion to strike and limited the scope of the proceeding. Tr. at 109. Additionally, during cross-examination of the Borough’s Consulting Engineer, Jeffrey Steckbeck, counsel for the Authority asked Mr. Steckbeck to confirm that the Borough Council President admitted the Borough was “broke.” The ALJ sustained the Borough’s objection to the question on relevance grounds. Tr. at 31-33.

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the municipality does not currently own or operate the water system or provide public water service;

the municipality admits it is “broke,” recently defaulted on a tax anticipation loan, and just had a judgment equal to approximately 80% of its annual general fund revenues entered against it;

the municipality seeks exemption from the CPC requirements of the Public Utility Code; and

the petition is opposed on the basis of the municipality’s lack of such financial, technical and legal fitness to perform?

The Authority requested that the Commission answer the Material Question in the

affirmative. Petition for Interlocutory Review at 2-3.

On October 5, 2015, the Authority filed a Brief in Support of the Petition

for Interlocutory Review; the OCA filed a Brief in Support of the Petition for

Interlocutory Review; and the Borough filed a Brief in Opposition to the Petition for

Interlocutory Review.

By Order dated October 6, 2015, the ALJ stayed the Petition for

Declaratory Order proceeding at this docket pending a Commission decision on the

Petition for Interlocutory Review. On October 20, 2015, the Commission issued a

Secretarial Letter waiving the thirty-day review period for the Commission’s

consideration of the Petition for Interlocutory Review.

By Order entered November 19, 2015 (November 2015 Order), the

Commission declined to answer the Material Question and returned the matter to the

OALJ.

The Parties filed Main Briefs on December 10, 2015. On December 15,

2015, the Borough filed a Motion to Strike Portions of the Main Brief of the Authority.

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In support of its motion, the Borough asserted that the Authority’s Brief cited testimony

that was stricken at the hearing.

The Parties filed Reply Briefs on December 21, 2015. On December 24,

2015, the Borough filed a Motion to Strike Portions of the Reply Brief of the Authority.

In support of its motion, the Borough requested that the Commission strike the portions

of the Reply Brief citing to testimony that was stricken at the hearing.

On January 4, 2016, the Authority filed an Answer to the Borough’s

Motions to Strike Portions of the Main Brief and Reply Brief of the Authority. The

Authority argued that the assertions in its Briefs are contained in the pleadings it filed

with the Commission. The Authority argued that the Commission’s Regulations provide

that pleadings are part of the record. The evidentiary record closed on January 4, 2016.

By Recommended Decision, issued January 14, 2016, ALJ Salapa granted

the Borough’s Petition for Declaratory Order, finding that the provision of water service

by the Borough would be deemed non-jurisdictional because it would not be service “to

or for the public” within the intendment of Section 102 of the Code, 66 Pa. C.S. § 102.

Exceptions and Replies to Exceptions were filed as above-noted.

On February 29, 2016, the Borough filed its Motion. On March 21, 2016,

the Authority filed an Answer to the Motion. On April 11, 2016, the Borough filed a

Reply to De Facto New Matter (Reply) pursuant to 52 Pa. Code § 5.63.5

5 In its Reply, the Borough addresses the Authority’s argument that the stricken testimony of Mr. Vranesic was presented to the ALJ and the Commission as an offer of proof pursuant to 52 Pa. Code § 5.414(a). The Borough avers that the Authority’s argument that it made an offer of proof constitutes a material fact beyond a denial of the averments in the Borough’s Motion, which should have been properly pled as New Matter pursuant to 52 Pa. Code § 5.62(b). The Borough requests that the Commission consider the Authority’s argument as a de facto New Matter and, accordingly, consider the Borough’s Reply to the de facto New Matter. In order to provide the Borough with an opportunity to be heard in response to the Authority’s argument that it made an offer of proof, raised for the first time in its Answer, we will

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Background

On April 2, 2015, the Borough adopted the Ordinance, in which it exercised

its right to terminate the Authority and take possession of the Authority’s assets,

including the water system. Borough St. 1 at 2; Borough Exh. C-2. The Borough then

filed its Petition for Declaratory Order requesting that the Commission determine that

water service to seventy-two customers outside of its boundaries, currently served by the

Authority, did not constitute public utility service. Borough St. 1 at 2. These seventy-

two customers are located within 1,000 feet from the Borough’s boundaries. Borough St.

1 at 3. The Borough represents that it will not offer water service to any additional

customers located outside of its boundaries. Borough St. 1 at 3-4; Borough Exh. C-3.

Also on April 2, 2015, the Borough adopted Resolution 2015-5

(Resolution), which provides that the Borough will not offer water service to customers

outside its boundaries other than the customers previously served by the Authority.

Borough St. 1, at 3-4, Borough Exh. C-3. The Resolution additionally provides that the

Borough would provide water service to the customers outside its boundaries under the

same rates and conditions that apply to customers located inside its boundaries. Borough

St. 1 at 4; Borough Exh. C-3.

The seventy-two customers located outside of the Borough consist of

customers in West Cornwall Township, North Cornwall Township, and South Lebanon

Township. The Authority provides water service to eight homes in South Lebanon

Township, eleven homes in North Cornwall Township, and twenty-eight customers in

West Cornwall Township. Authority St. 2 at 3-4. In addition, there are twenty-five

customer connections located in the Alden Place development in West Cornwall

Township. Authority St. 2 at 5.

consider the Borough’s Reply.

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On February 15, 1993, the Authority and six South Lebanon Township

property owners entered into a water main extension agreement. Authority St. 2 at 5;

Authority Exh. 2.04. The extension now serves seven customers in South Lebanon

Township, all located on the eastern side of the Borough. Authority St. 2 at 5; Borough

St. 1 at 8; Borough Exh. A. An eighth customer in South Lebanon Township is located at

316 Juniper Street. Authority St. 2 at 5. The property at 316 Juniper Street is part of a

development, most of which is located in the Borough. Authority St. 2 at 5. The

connection at 316 Juniper Street is north of the Borough. Borough St. 1 at 8; Borough

Exh. A. The connection was made in the early 1970s as part of a forty home

development in which thirty-nine of the lots are located inside the Borough and one lot is

located at the end of a cul de sac fifty feet outside of the Borough’s municipal boundary.

Borough St. 1 at 8; Borough Exh. A.

The Authority provides service to the Chesterfield Estates development,

which includes eleven customers located in North Cornwall Township and twenty-four

customers in West Cornwall Township. The development was constructed between 1996

and 1997, and the developer constructed an eight-inch water main that was connected to

the Authority’s water system and dedicated to the Authority. Borough St. 1 at 7-8;

Borough Exh. A.

In West Cornwall Township, the Authority serves several of the Quentin

Riding Club’s facilities, including a clubhouse, pub, shops and rest rooms. Authority St.

2 at 7; Authority Exh. 2.10. The Quentin Riding Club complex is a commercial horse

club located north of the Alden Place lots. The Authority provides one connection to the

eastern side of the Quentin Riding Club, fifty feet from the Borough’s boundary.

Borough St. 1 at 7; Borough Exh. A.

At its public meeting held on February 21, 2005, the Authority approved a

developer’s agreement to extend service to the Alden Place development. The Authority

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noted that water service to the twenty-eight lots located in West Cornwall Township was

under dispute between the Alden Place developer, who wanted the Authority to provide

service and the Quentin Water Company, which wanted to provide the service itself.

Authority St. 2 at 9; Authority Exhs. 2.12 and 2.20. At the public meeting held on May

16, 2005, the Authority was informed that the Alden Place developer and the Quentin

Water Company had agreed to allow the Authority to serve the twenty-eight customers

located in West Cornwall Township. Authority St. 2 at 9-10; Authority Exh. 2.13. The

Alden Place development consists of 505 lots, with twenty-eight of those lots located in

West Cornwall Township and the remaining 477 lots located within the Borough’s

municipal boundaries. Borough St. 1 at 5; Borough Exh. A. The twenty-eight lots for

Alden Place located in West Cornwall Township are on a parcel of land that is severed

from the rest of West Cornwall Township by State Routes 0322 and 0072. Borough St. 1

at 6; Borough Exh. A. The Alden Place development can only be accessed by roadways

located within the Borough. Borough St. 1 at 6; Borough Exh. A. Pursuant to a 2005

improvement agreement, the developer of Alden Place constructed an eight-inch water

main extending less than 300 feet from the Borough, looping through the development

and returning to the Borough. Borough St. 1 at 6-7; Borough Exh. A. The Authority has

completed four of the twenty-eight connections for Alden Place in West Cornwall

Township. Tr. at 119, Borough St. 1 at 5; Borough Exh. A.

Discussion

Legal Standards

This proceeding concerns a Petition for Declaratory Order filed by the

Borough.  Such petitions are governed by 66 Pa. C.S. § 331(f) and 52 Pa. Code § 5.42. 

Pursuant to these provisions, the issuance of a declaratory order is subject to the

Commission’s sound discretion and is employed to resolve actual controversies or

remove uncertainty.  Application of the City of Chester, Docket No. A-2012-2298192

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(Order entered August 21, 2014).  Declaratory orders carry the same effect as other

Commission Orders and are appealable to the Commonwealth Court as final

adjudications.  Professional Paramedical Services, Inc. v. Pa. PUC, 525 A.2d 1274 (Pa.

Cmwlth. 1987).  

    

As this is a litigated proceeding, the petitioner, the Borough, is the

proponent of a rule or order, and, therefore, bears the burden of proof pursuant to

Section 332(a) of the Code.  66 Pa. C.S. § 332(a).  To establish a sufficient case and

satisfy the burden of proof, the Borough must show, by a preponderance of the evidence,

that it is entitled to the declaratory relief it is seeking.  Samuel J. Lansberry, Inc. v. Pa.

PUC, 578 A.2d 600 (Pa. Cmwlth. 1990), alloc. denied, 529 Pa. 654, 602 A.2d 863

(1992).  That is, the Borough’s evidence must be more convincing, by even the smallest

amount, than that presented by any opposing party.  Se-Ling Hosiery, Inc. v. Margulies,

364 Pa. 45, 70 A.2d 854 (1950).  Additionally, this Commission’s decision must be

supported by substantial evidence in the record.  More is required than a mere trace of

evidence or a suspicion of the existence of a fact sought to be established.  Norfolk &

Western Ry. Co. v. Pa. PUC, 489 Pa. 109, 413 A.2d 1037 (1980).

In the Recommended Decision, ALJ Salapa made sixty-five Findings of

Fact and reached three Conclusions of Law. I.D. at 9-17, 35. We shall adopt and

incorporate herein by reference the ALJ’s Findings of Fact and Conclusions of Law

unless they are either expressly or by necessary implication overruled or modified by this

Opinion and Order.

Before addressing the Exceptions, we note that any issue or Exception that

we do not specifically address shall be deemed to have been duly considered and denied

without further discussion. It is well settled that we are not required to consider,

expressly or at length, each contention or argument raised by the parties. Consolidated

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Rail Corp. v. Pa. PUC, 625 A.2d 741 (Pa. Cmwlth. 1993); also see, generally, University

of Pennsylvania v. Pa. PUC, 485 A.2d 1217 (Pa. Cmwlth. 1984).

Recommended Decision

Initially, the ALJ addressed the Borough’s Motions to Strike Portions of the

Main Brief and Reply Brief of the Authority. The ALJ agreed that both of the

Authority’s Briefs cite the testimony of Mr. Vranesic concerning the Borough’s fitness to

provide water service. The ALJ noted that the Authority’s Briefs cite to the stricken

testimony. R.D. at 17. The ALJ determined that, because he struck Mr. Vranesic’s

testimony as irrelevant, the Authority could not cite that testimony in its Briefs. Id. at 18.

The ALJ found that the stricken testimony was not part of the evidentiary record. While

the ALJ agreed that the pleadings are part of the record as pleadings, he concluded that

they are not evidence of a fact. Id. (citing 52 Pa. Code § 5.405). The ALJ noted that

Section 5.501(a) of the Commission’s Regulations, 52 Pa. Code § 5.501(a), requires that

a party’s brief refer to pages of the record or exhibits where the evidence relied upon by

the party appears. R.D. at 18.

Next, the ALJ discussed the legal standard the Commission should apply in addressing the Borough’s Petition for Declaratory Order. The ALJ stated that Section 1102(a)(5) of the Code, 66 Pa. C.S. § 1102(a)(5), requires a municipal corporation to obtain a Certificate from the Commission in order to “acquire, construct, or begin to operate, any plant, equipment, or other facilities for the rendering or furnishing to the public of any public utility service beyond its corporate limits.” I.D. at 19. In evaluating the Parties’ positions on the legal standard, the ALJ concluded that Titusville and the cases cited therein were applicable to this proceeding. I.D. at 21. As such, the ALJ

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concluded that, in order to obtain the relief it is seeking, the Borough must establish that

the following facts present in Titusville are present in this proceeding:

1) that [the Borough] will serve a limited number of customers located outside its boundaries and will not offer service to the general public located outside its boundaries; 2) the customers located outside [the Borough’s] boundaries are located within close proximity to its boundaries; 3) [the Borough] will not hold itself out as a public utility; 4) [the Borough] will not provide any further connections to individuals located outside its boundaries; and 5) [the Borough] will charge the same rates to customers located outside and inside its boundaries.

R.D. at 23-24.

Based on his review of the evidence and analysis of the five factors set

forth above, the ALJ concluded that the Borough established by a preponderance of the

evidence that it is entitled to the relief it is seeking. First, the ALJ found that the Borough

will be serving a limited number of customers located outside its boundaries and will not

offer service to the general public located outside its boundaries. The ALJ observed that

the Authority previously authorized seventy-two connections located outside of the

Borough’s municipal boundaries, and the Borough indicates that it will continue to serve

these connections. These seventy-two customers comprise only 5.2% of the total 1,376

customers that will be served by the Borough. R.D. at 32 (citing Borough’s M.B. at 21).

The ALJ stated that these seventy-two connections are located in specific, defined

developments or locations, with the most recent connections located outside the Borough

added in 2005. R.D. at 32.

Second, the ALJ observed that the Borough will provide water service to

extraterritorial customers who are located in close proximity to its boundaries. The ALJ

stated that none of the seventy-two connections outside of the Borough’s municipal

boundaries are further than 1,000 feet from the Borough’s boundaries. Id. (citing

Borough’s M.B. at 23).

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Third, the ALJ determined that the Borough will not hold itself out as a

public utility. The ALJ reasoned that the Borough adopted the Resolution which

provides that the Borough will not offer water service to customers outside of its

boundaries, other than customers previously authorized by the Authority. R.D. at 32.

The ALJ noted that the Authority has not held itself out as a public utility or sought

additional customers located outside of the Borough’s boundaries, but has provided

service to customers located outside the Borough’s boundaries only in limited

circumstances where customers applied to the Authority for service. Id. at 32-33 (citing

Borough’s M.B. at 24-31).

Fourth, the ALJ concluded that the Borough will not provide further

connections to individuals located outside of its boundaries, as the Borough passed the

Resolution stating that the Borough will not permit any new customer connections

outside its municipal boundaries. The ALJ observed that the Resolution also provides

that it will not be repealed without prior written notification of its repeal or expiration to

the Commission. R.D. at 33 (citing Borough’s M.B. at 33).

Fifth, the ALJ noted that the Borough will charge the same rates to

customers located outside and inside its boundaries, based on the Resolution stating that

the Borough will charge the same rates to all of its customers. R.D. at 33 (citing

Borough’s M.B. at 35). The ALJ stated that the Authority has not presented any evidence

to refute the above facts. R.D. at 32-33. For these reasons, the ALJ found that the facts

in this case were similar to those in Titusville, in which the Commission concluded that

service to a limited number of isolated customers located outside of a municipality’s

boundaries under special circumstances did not constitute public utility service subject to

the Commission’s jurisdiction.

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Moreover, the ALJ distinguished this case from the Commission’s decision

in Petition of the Borough of Phoenixville for a Declaratory Order that the Provision of

Water and Wastewater Service to Isolated Customers in Adjoining Townships Does Not

Constitute the Provision of Public Utility Service Under 66 Pa. C.S. § 102, Docket No.

P-2013-2389321 (Order entered May 19, 2015) (Phoenixville), for several reasons. First,

the ALJ reasoned that the Authority, and not the Borough, had been providing water

service to customers located outside of its municipal boundaries, and the Authority was

not subject to Commission jurisdiction, as was the municipality in Phoenixville.

Therefore, the ALJ stated that the Borough is not attempting to relieve itself of existing

Commission regulation, as was the municipality in Phoenixville. R.D. at 33. The ALJ

observed that the Borough is requesting permission to continue providing the service

currently provided by the Authority without Commission regulatory oversight of the

customers located outside its boundaries. Id. at 33-34. The ALJ additionally observed

that the Authority, as the operator of the water system for the last sixty years, has been

responsible for extending service beyond the Borough’s boundaries.

Second, the ALJ found that the Borough’s Petition for Declaratory Order

has not been protested by any directly affected customers located outside the Borough’s

boundaries, whereas in Phoenixville, a bulk water customer, a municipal customer, a

homeowners’ association, and an individual customer filed answers opposing the

municipality’s petition. Id. at 34. The ALJ concluded that neither the Authority nor the

OCA was a directly affected customer, as the OCA represents the public interest and not

individual customers. Id. (citing 71 P.S. § 309-4).

Third, the ALJ determined that granting the Borough’s petition will not

result in an immediate increase in the rates of customers residing outside the Borough’s

boundaries, as was the case in Phoenixville. The ALJ stated that there was no evidence

that the Borough will raise the rates of any of its customers, and the Borough has stated

that the rates of the customers located outside its boundaries will be the same as the rates

18

of the customers located inside its boundaries. R.D. at 34. Fourth, the ALJ concluded

that there was no evidence that the Borough could avoid Commission regulation by

selling the assets located in adjoining municipalities to utilities that could provide service

in those municipalities. For all of these reasons, the ALJ found that the Borough

established, by a preponderance of the evidence, that the Commission should issue a

declaratory order finding that the Borough’s provision of service to customers located

outside of its boundaries does not constitute public utility service subject to the

Commission’s jurisdiction. Id. at 35.

Exceptions and Replies

In its first Exception, the Authority avers that the ALJ erred by concluding

that the water service proposed by the Borough to customers outside of its boundaries

does not constitute public utility service subject to the Commission’s jurisdiction.

Authority’s Exc. at 2 (citing Conclusion of Law No. 3). The Authority states that Section

1102(a)(5) of the Code expressly confers Commission jurisdiction over municipal

corporations providing public utility service outside of their municipal boundaries. The

Authority also states that the Commission has declined to regulate the municipal

provision of extraterritorial service in only two situations:

(1) where the extraterritorial service is provided to “only particular individuals” rather than “to the public, as a class, or to any limited portion of it” (the “Borough of Ambridge Cases”); and (2) where the Commission has determined that, notwithstanding the fact that “municipal corporations’ extraterritorial services are clearly subject to the Commission’s jurisdiction[,] … it is appropriate to utilize a less burdensome regulatory oversight scheme to fulfill the requirements of the Public Utility Code regarding their extra-territorial service” (the “Municipal Corporations Decisions”).

19

Authority’s Exc. at 3 (citing Borough of Ambridge v. Pa. Pub. Serv. Comm’n, 108 Pa.

Super. 298, 165 A. 47 (1933) (Ambridge); Petition of Skytop Lodge Corporation for a

Declaratory Order, Docket No. P-2013-2354659 (Order entered July 24, 2014) (Skytop),

respectively). The Authority contends that the ALJ confused these two lines of cases and

used the analysis of the Municipal Corporations Decisions, which governs the

discretionary determination of whether Commission oversight of a municipality’s

extraterritorial service is required to ensure adequate service and just and reasonable

rates, to make the statutory determination of the Commission’s jurisdiction over

extraterritorial service, which is governed by the Borough of Ambridge cases.

Authority’s Exc. at 6. The Authority concedes that, while some of the language in

Titusville suggests that the extraterritorial service at issue was not public utility service

subject to the Commission’s jurisdiction, such dicta does not amend the Code or abrogate

the Borough of Ambridge cases. The Authority argues that, similar to all of the

Municipal Corporations Decisions, Titusville granted a petition for a declaratory order,

and declaratory orders are not binding precedent. Authority’s Exc. at 7. The Authority

asserts that the Titusville decision is even less persuasive because the petition in that case

was uncontested.

The Authority states that the ALJ failed to address the crucial question

regarding the issue of jurisdiction: whether the Borough has control over the identity of

the customers who will receive service through the forty-eight existing and twenty-four

future authorized connections. Authority’s Exc. at 8. The Authority argues that the

Borough has admitted that its extraterritorial service will not be limited to “only

particular individuals” but, rather, will be offered to any and all members of the public

who purchase the premises served and to be served by the outside connections and,

consequently, that it will be providing public utility service under Section 102 of the

Code. Id. at 9. The Authority avers that the Commission’s jurisdiction over the

Borough’s extraterritorial service is confirmed by the Commission’s analogous decision

20

in Shryock Brothers, Inc. v. Uwchlan Township, Docket No. C-20066648 (Order entered

January 31, 2008) (Shryock).6 Authority’s Exc. at 9.

As the Authority points out, the ALJ in Shryock relied on a series of cases,

including Drexelbrook Assoc. v. Pa. PUC, 418 Pa. 430, 212 A.2d 237 (1965)

(Drexelbrook), in analyzing whether the township maintained sufficient control over the

entities selected to provide water service. The ALJ found that, based on the township’s

agreement to serve all existing and new, unknown property owners in the Eagleview

Corporate Center, the township had not restricted its outside service to a “defined,

privileged and limited” group. The ALJ reasoned that the township did not own the

Eagleview Corporate Center property or the commercial establishments therein, nor did it

have a contractual relationship with either present or future individual property owners or

customers in the Eagleview Corporate Center. Shryock, Initial Decision at 47. The

Authority argues that, like the township in Shryock, the Borough does not own the

properties served by the Authority’s existing and authorized extraterritorial customers; it

does not have a contractual relationship with either the current or future individual

owners of the forty-eight properties served or the twenty-four properties to be served by

those connections; and it does not know the identity of the customers who will eventually

occupy the homes that are built in the Alden Place Development, but has admitted it will

serve them. Authority’s Exc. at 10.

6 In Shryock, a developer filed a complaint against the township, alleging that the township was providing public utility service outside of its boundaries without a Certificate. The township was providing extraterritorial service to customers through two separate sewer systems, the Interconnected System and the Eagleview System. The township served two extraterritorial customers on the Interconnected System. On the Eagleview System, the township served six commercial customers that were part of the Eagleview Corporate Center. The township also planned to provide service to the six undeveloped properties in the Eagleview Corporate Center, which were proposed to include three office buildings, a parking facility, and a municipal park, all outside of the township’s boundaries. Ruling on a Motion for Partial Summary Judgment, the ALJ in that case determined that the township was providing extraterritorial public utility service without a Certificate. The Commission adopted the ALJ’s decision.

21

Similarly, in its first Exception, the OCA states that the ALJ’s decision is

inconsistent with the Code, which clearly provides that service to customers outside of a

municipality’s boundaries is subject to Commission jurisdiction. OCA’s Exc. at 2 (citing

66 Pa. C.S. §§ 102, 1102(a)(5)). The OCA avers that the ALJ’s reliance on Titusville

does not reflect the Commission’s more recent decision in Phoenixville, which the OCA

argues is factually similar to the instant case. OCA’s Exc. at 2. The OCA notes that, in

Phoenixville, the Commission determined that the borough’s water and wastewater

service to extraterritorial customers in three different townships, and equal to 9.1% of its

total customer base, was not service to a “small defined, privileged and limited group.”

OCA’s Exc. at 3 (citing Phoenixville at 5). The OCA observes that the Borough’s service

to forty-eight current customers and twenty-four future customers, and equal to

approximately 5.2% of its total customer base of 1,376, is also a significant portion of the

total number of customers.

The OCA contends that the Borough is attempting to avoid the framework

set forth in Phoenixville, in which the Commission determined that it must consider the

impact on the rates and service of extraterritorial customers who lack other protections.

OCA’s Exc. at 3. The OCA opposes the ALJ’s distinctions between this case and the

Phoenixville case. The OCA disagrees with what it views as the ALJ’s characterization

that the Borough will be stepping into the shoes of the Authority and that the Borough

was not responsible for extending the service to outside customers, because the two

entities are distinct and are governed by different legal frameworks. The OCA explains

that the Authority was organized pursuant to the Municipal Authorities Act, 53 Pa. C.S.

§ 5601, et seq., and is not subject to the Commission’s jurisdiction, whereas the

Borough’s provision of extraterritorial service will be governed by the Code and will be

subject to Commission jurisdiction. OCA’s Exc. at 4. The OCA objects to the ALJ’s

distinction between Phoenixville and this proceeding on the basis that the Borough’s

Petition for Declaratory Order was not “protested by any directly affected customers

22

located outside the Borough’s boundaries.” OCA’s Exc. at 5 (citing R.D. at 34). The

OCA specifically objects to the ALJ’s statement that the OCA “represents the public

interest, not individual customers.” Id. The OCA asserts that it represents the interests of

customers and, thus, has the statutory right to intervene and participate in proceedings

before the Commission, and there is no statutory requirement that OCA be a customer of

a public utility or represent an individual customer. OCA’s Exc. at 5 (citing 71 P.S. §

309-4). The OCA does not believe that this distinction should have any bearing on the

decision in this case. OCA’s Exc. at 5.

Additionally, the OCA disagrees with the ALJ’s conclusion that this

proceeding is distinguishable from Phoenixville because there will be no immediate rate

increase as a result of the Petition for Declaratory Order. OCA’s Exc. at 5. The OCA

contends that there is no evidence that the Borough will not raise rates, and the Borough

will be free to do what it wishes with regard to rates without Commission oversight if the

Petition is granted. The OCA also disagrees with the ALJ’s indication that the rate issues

will be resolved because the Borough has stated that it will charge inside and outside

customers the same rates. The OCA states that the Borough’s Resolution is not a lawful,

reasonable, or sufficient substitute for Commission jurisdiction. The OCA avers that

extraterritorial customers would have no recourse regarding future rate increases, and

there would be no assurance that any rate increases are cost based or reflect only costs

related to providing utility service. Id. at 6. Similarly, the OCA avers that extraterritorial

customers would lack any other recourse to address issues relating to service, quality of

the water, and billing. The OCA concludes that, consistent with the determination in

Phoenixville, it would not be in the public interest for the Commission to relinquish

jurisdiction in this case. OCA’s Exc. at 7. Finally, the OCA disagrees with the ALJ’s

finding that there is no evidence that the Borough could “avoid the alleged burdens of

Commission regulations by selling the assets located in adjoining municipalities.” Id.

(citing R.D. at 35). The OCA argues that, while these options were acknowledged in

Phoenixville, nothing in the Code makes those options a basis for ignoring the statutory

23

framework that provides protections for customers outside of a municipality’s

boundaries. OCA’s Exc. at 7.

In its Replies to Exceptions, the Borough avers that the ALJ correctly

analyzed Commission precedent in determining that the Borough met its burden of

showing that its proposed service to customers outside of its boundaries would constitute

service to a defined, limited, and privileged group of customers. The Borough argues

that the Authority’s analysis is based on various misrepresentations of Commission

precedents. First, the Borough disagrees with the Authority’s claim that case precedent

relating to municipal corporations is separate from the traditional line of case law

differentiating private utilities from public utilities. R. Exc. at 3. The Borough states that

the Commission’s analysis of whether utility service is public or private service to a

defined, limited, and privileged group of customers derives from a single line of cases,

and the jurisdictional determinations in recent municipal corporation cases flow from the

Commission’s landmark precedents, including Ambridge and Drexelbrook. R. Exc. at 4.

The Borough indicates that, relying directly on Ambridge, the Commission decided each

Municipal Corporation Case7 by addressing whether the municipality “offered

extraterritorial service ‘to or for the public’ pursuant to Section 102 of the [Code].” R.

Exc. at 5. The Borough notes that, in Phoenixville, the Commission most recently

addressed the question of whether service to customers outside of a municipality’s

7 The Borough cites to the following cases as the Municipal Corporation Cases: Titusville; Petition of the Borough of Doylestown for a Declaratory Order, Docket No. P-2012-2327809 (Tentative Order entered December 20, 2012); Petition of the Borough of Pleasantville for a Declaratory Order, Docket No. P-2010-2157896 (Tentative Order entered June 22, 2010); Petition of Cochranton Borough for a Declaratory Order, Docket No. P-2008-2035741 (Tentative Order entered May 14, 2009); Petition of Laceyville Borough for a Declaratory Order, Docket No. P-2008-2064117 (Tentative Order entered December 23, 2008); Petition of New Albany Borough for a Declaratory Order, Docket No. P-00991775 (Tentative Order entered March 3, 2000); and Joint Application of Seven Fields Development Corporation and the Borough of Seven Fields, Docket Nos. A-220007 and A-210062F2000 (Tentative Order entered October 1, 1999).

24

boundaries constituted public utility service, and the Commission addressed the matter as

a jurisdictional question in line with Ambridge. R. Exc. at 5-6. As such, the Borough

concludes that the ALJ in this case properly conducted the same jurisdictional analysis

conducted by the Commission in Phoenixville. R. Exc. at 6.

Second, the Borough disagrees with the Authority’s argument that the ALJ

failed to consider whether the Borough has “control over the identity of the customers

that will be provided water service.” Id. at 3-4. The Borough argues that a “selection and

control” criteria is not dispositive of the question of public utility status, and the

Commonwealth Court has held that “absence of control is not deemed to preclude a

finding of unregulated private service.” Id. at 9 (citing Warwick Water Works, Inc. v. Pa.

PUC, 699 A.2d 770 (Pa. Cmwlth. 1997)). The Borough states that the Municipal

Corporation Cases have repeatedly addressed the jurisdiction of a municipality’s

extraterritorial service which is provided to a defined, limited, and privileged group,

without applying a “selection and control” analysis. R. Exc. at 9. The Borough avers

that the Authority’s representation of Shryock distorts the ALJ’s findings in that case,

because the ALJ’s findings were not solely based on a selection and control criteria, but

were also based on the fact that the township in that case reserved its right to extend

service to additional extraterritorial customers in the future. R. Exc. at 11.

Moreover, the Borough states that the OCA is not a directly affected person

for purposes of this proceeding and agrees with the ALJ’s distinction between

Phoenixville and the present case on the grounds that the two oppositional Parties in this

case are not directly affected customers. R. Exc. at 21. The Borough also states that

Section 5.42 of the Commission’s Regulations, 52 Pa. Code § 5.42, confirms that OCA is

authorized to intervene and participate in Commission proceedings on behalf of

customers but is not itself a directly affected person or customer. R. Exc. at 22.

25

In its second Exception, the Authority states that the ALJ erred in failing to

consider whether stripping outside customers of the Commission’s protections was in the

public interest. The Authority contends that the question presented by the Borough’s

Petition for Declaratory Order is not whether the Borough’s proposed extraterritorial

water service constitutes public utility service, as the Authority believes it clearly does,

but whether, under the circumstances in this case, it is appropriate to use a less

burdensome regulatory oversight scheme to fulfill the requirements of the Code.

Authority’s Exc. at 11 (citing Skytop at 12). The Authority asserts that, if the Borough’s

Petition for Declaratory Order is granted, the extraterritorial customers will be deprived

of Commission oversight over rates and service which the legislature expressly provided

as a substitute for their lack of voting power with respect to inside-borough operations.

Authority’s Exc. at 12 (citing Phoenixville at 7). The Authority argues that the ALJ’s

failure to consider whether such a result was in the public interest was fundamental error,

because it eviscerated the Commission’s core responsibility under the Code to protect the

public interest in public utility matters. Authority’s Exc. at 12. According to the

Authority, the Borough is attempting to circumvent the requirement to obtain a

Commission Certificate, as set forth in Section 1102(a)(5) of the Code, by requesting that

the Commission exercise its authority to exempt its extraterritorial service from

regulation. Authority’s Exc. at 13 (citing Phoenixville at 6-7).

The OCA makes similar arguments in its second Exception, in which the

OCA asserts that sound legal and policy reasons support the denial of the Borough’s

Petition for Declaratory Order. OCA’s Exc. at 7. The OCA states that, if the

Commission grants the Petition and the Borough decides to serve more extraterritorial

customers later, then the grant of the Petition undermines the Commission’s authority to

address actions that may contravene the current Borough Resolution. Id. at 7-8. The

OCA observes that the Borough’s Resolution does not commit the Borough to seeking a

Certificate if it decides to serve more customers outside of its boundaries. The OCA also

observes that, under the Borough’s proposal, the Borough would seek Commission

26

approval through an unspecified process if it intends to add more customers, but there are

no parameters regarding how many customers could be added or how the filing would be

made by an entity that is not subject to Commission jurisdiction. The OCA avers that the

Borough would also be able to transfer customers to another entity in the future without

Commission review and that the Borough’s commitments could be changed by future

Borough councils. The OCA contends that, if the Borough’s position is accepted in this

case, other municipalities would be able to avoid Commission regulation in the future as

long as they pass resolutions indicating that they will charge the same rates and agree not

to add more extraterritorial customers. The OCA submits that this is inconsistent with

the Code and does not permit extraterritorial customers to be afforded the protections of

the Code. Id. at 8. The OCA’s position in this proceeding is that the Borough’s proposed

extraterritorial service constitutes public utility service and, as such, the extraterritorial

customers are entitled to the protections afforded by the Code and the Commission’s

Regulations, the importance of which were addressed in Phoenixville. OCA’s Exc. at 9.

In response, the Borough avers that the ALJ properly analyzed the Petition

for Declaratory Order as a jurisdictional question. The Borough states that, because the

Code authorizes the Commission to regulate only municipalities that provide public

utility service outside of their boundaries, a determination that the Borough’s proposed

service does not constitute public utility service under Section 102 of the Code would

conclude the Commission’s inquiry. R. Exc. at 12. The Borough indicates that, if the

Commission answers the jurisdictional question in the affirmative, then additional

inquiries may be raised in a proceeding pertaining to an application for a Certificate, in

which the Commission would examine the Borough’s fitness to provide the proposed

service and acquire public utility assets. The Borough contends that the Authority

misstates the holding in Phoenixville, as the Commission applied the same jurisdictional

analysis from Ambridge and did not reach questions on fitness issues. R. Exc. at 14.

According to the Borough, while the Commission in Phoenixville identified potential

adverse rate effects that could result from relinquishing jurisdiction when outside

27

customers receive service under different rates than inside customers, the Commission

did not suggest that the financial fitness of the municipality impacted its determination

regarding whether the service was jurisdictional public utility service. R. Exc. at 15.

Regarding the OCA’s policy concerns, the Borough replies that several of

the policy concerns are speculative and/or factually incorrect, such as the OCA’s

allegation that the Borough could include non-utility costs in rates to outside customers if

its Petition for Declaratory Order is granted. Id. at 22. The Borough avers that the

OCA’s argument that the Resolution would permit the Borough to connect additional

customers without a Certificate should also be denied, because the Resolution would

require the Borough to seek Commission approval if it seeks to connect additional

customers after the Petition is approved. Id. at 22-23. The Borough asserts that the

Resolution is consistent with prior Resolutions found satisfactory by the Commission in

various Municipal Corporation Cases. The Borough also disagrees with the OCA’s

concern that granting the Borough’s Petition would allow other municipalities to avoid

Commission jurisdiction, as the Commission can address the merits of each petition for a

declaratory order and deny those where the municipality is providing public utility

service, as was done in Phoenixville. R. Exc. at 23.

In its third Exception, the Authority argues that the ALJ erred by striking

the Authority’s testimony and exhibits concerning the Borough’s financial issues and

lack of fitness. The Authority states that Mr. Vranesic’s testimony was filed

electronically pursuant to 52 Pa. Code § 5.412. The Authority attached a copy of the

testimony to its Exceptions. The Authority believes that, consistent with Phoenixville,

the ALJ should have considered this evidence in order to ensure that the outside

customers’ interests would be protected if the Petition for Declaratory Order was granted,

particularly since the Petition in this case was opposed on the grounds of the Borough’s

lack of financial fitness. Authority’s Exc. at 14-15. The Authority avers that the

Commission must consider all evidence relevant to whether a less burdensome regulatory

28

oversight scheme, as discussed in Skytop, is appropriate under the circumstances in this

case. Authority’s Exc. at 15.

Additionally, the Authority contends that the ALJ adopted a rigid and

incorrect rule that only the evidence relating to the factors in Titusville could be

considered by the Commission in determining whether extraterritorial service was subject

to Commission jurisdiction. Authority’s Exc. at 15-16. The Authority avers that the

Titusville decision does not establish such a rule, because the petition in Titusville was

uncontested; the Titusville declaratory order is not binding precedent; and Titusville does

not support the exclusion of the evidence the Authority offered to prove the Borough’s

financial distress. Authority’s Exc. at 16. The Authority also avers that the

circumstances in this case are factually distinguishable from those in Titusville for the

following reasons: (1) the City of Titusville provided public water service for decades,

where the Borough does not currently own or operate the water system or provide public

water service; (2) the City of Titusville was not seeking to evade the requirements in

Section 1102(a)(5) of the Code; and (3) the City of Titusville’s petition was unopposed,

whereas the Borough’s Petition for Declaratory Order is opposed on the grounds of lack

of financial, technical, and legal fitness and the ability to provide adequate service at

reasonable rates. The Authority states that Phoenixville confirms that, when a petition for

declaratory order is opposed, the factors in Titusville are not exclusive, and the

Commission will consider additional factors to determine whether Commission oversight

is needed to protect the interests of outside customers. The Authority argues that the

evidence stricken by the ALJ is directly relevant to such issues. Authority’s Exc. at 17.

The Borough avers that the ALJ properly excluded irrelevant evidence

offered by the Authority, as the Borough asserts the Authority’s testimony on fitness

considerations is irrelevant to the jurisdictional question in the Borough’s Petition for

Declaratory Order. The Borough states that, as it previously submitted, any review of the

Borough’s fitness at this time would be premature, since the Borough seeks only

29

confirmation regarding whether its proposed service would constitute public utility

service. The Borough asserts that, contrary to the other Parties’ positions, Section

1102(a)(5) of the Code does not permit the Commission to regulate all extraterritorial

utility service provided by a municipality, but only to regulate any extraterritorial service

that constitutes public utility service. R. Exc. at 16. The Borough argues that, while the

Authority may present any relevant evidence concerning the proposed service, the

Authority may not transform this proceeding into an application for a Certificate

proceeding. The Borough disagrees with the Authority’s reliance on Phoenixville and

points out that the Commission did not consider fitness issues or any additional issues

beyond those addressed in the Municipal Corporation Cases. R. Exc. at 17. The

Borough indicates that, in reaching a determination in Phoenixville, the Commission held

that the provision of water and wastewater service by the Borough of Phoenixville to 619

customers located in Schuylkill, East Pikeland and Upper Providence Townships was

jurisdictional because it was public utility service within the intendment of Section 102 of

the Code. R. Exc. at 18 (citing Phoenixville at 6).

In its fourth Exception, the Authority avers that the ALJ erred by finding

that “the Borough will not offer water service to any additional customers located outside

the Borough’s boundaries,” despite the undisputed evidence to the contrary, and by

finding that the Borough has adopted a Resolution to that effect, despite the express

words of the Resolution. Id. at 18 (citing Findings of Fact Nos. 60 and 61). The

Authority states that the Resolution does not state that service will be limited to the

existing extraterritorial customers but, rather, that the Borough will not permit any new

customer connections outside of its boundaries. The Authority contends that the Borough

had admitted that it will serve any member of the public who occupies the properties to

be served by those connections, and one-third of the Authority’s authorized outside

connections are for future customers and future premises. Authority’s Exc. at 19. The

Authority emphasizes that the Borough will offer service to any member of the public

who purchases or leases the properties served by the forty-eight existing and twenty-four

30

future authorized outside connections. Id. at 19-21 (citing Borough Exh. C-3; Tr. at 40-

41). The Authority, therefore, argues that the Recommended Decision should be rejected

for lack of evidentiary support for the determinations that the Borough will not offer

service to the general public located outside of its boundaries and that the Borough will

not offer water service to customers outside its boundaries, other than customers

previously authorized by the Authority. Authority’s Exc. at 21 (citing R.D. at 32).

In its Replies to Exceptions, the Borough contends that the Authority’s

allegation that the Borough would offer service to any member of the public is based on a

flawed attempt to draw a meaningful distinction between additional “customers” and

additional “connections.” R. Exc. at 19. The Borough believes that the Authority’s

rationale would mean that any Commission decision regarding a municipality’s provision

of public or private water service to an extraterritorial customer would be upheld only as

long as the current owner of the connected property remains an owner and occupant of

the residence. Id. at 19-20. The Borough states that such a conclusion would render

meaningless the holdings in the Municipal Corporation Cases, which did not condition

prior declaratory orders on a limitation of service to the present occupants of outside

locations, but only required municipalities to abstain from granting additional

connections. R. Exc. at 20.

In its final Exception, the Authority contends that the ALJ erred in granting

the Petition for Declaratory Order without providing directly affected persons with due

process. The Authority avers that 52 Pa. Code § 5.42(b) requires petitions for declaratory

orders to be served on “all persons directly affected,” not just on customers. The

Authority states that a forty-eighth customer who was connected shortly before the

hearing in this matter was not served with the Petition, and the owner of the lots to be

served by the remaining twenty-four authorized outside connections, the developer of

Alden Place, was also not served. The Authority also states that Quentin Water Company

has relied on the Authority to provide alternative and backup service to customers located

31

in West Cornwall Township and, as such, Quentin Water Company and West Cornwall

Township should have been served with the Petition. Authority’s Exc. at 22. For this

reason, the Authority argues that the Petition should be denied, or, in the alternative, if

the Commission grants the Petition, it should issue a tentative order that will only become

final in the absence of any objection by directly affected persons within thirty days of

publication of the tentative order in the Pennsylvania Bulletin. Authority’s Exc. at 22-23.

In response, the Borough indicates that it properly served the Petition for

Declaratory Order on all directly affected persons known at the time it filed the Petition.

The Borough states that, to the extent deemed necessary, it does not object to service of a

Tentative Order on the forty-eighth customer who was connected to the Authority’s

system shortly before the evidentiary hearing. While the Borough does not believe that

Cornwall Associates L.P., the owner of twenty-four authorized outside connections, is a

directly affected customer, the Borough also does not object to service of a Tentative

Order on the owner. However, the Borough asks that the Commission clarify that the

active participants in this proceeding are not permitted to object to the Tentative Order.

In the alternative, the Borough suggests that the Commission grant the Petition subject to

submission of a compliance filing by the Borough, consisting of affidavits from the forty-

eighth customer and Cornwall Associates L.P. affirming non-opposition to the Petition

for Declaratory Order. R. Exc. at 20. The Borough disagrees with service on Quentin

Water Company on the basis that the Authority does not currently provide service to the

Company and on service to West Cornwall Township on the basis that any speculative

connections not currently in existence should not qualify an entity as a directly affected

person. Id. at 21.

32

Disposition of Exceptions

Commission Jurisdiction over the Borough’s Service to Customers Outside of its Boundaries

Based on our review of the record, the Parties’ positions, and the applicable

law, we concur with the ALJ that the Borough’s proposed water service to customers

outside of its boundaries does not constitute public utility service subject to the

Commission’s jurisdiction. Pursuant to Section 1102(a)(5) of the Code, 66 Pa. C.S.

§ 1102(a)(5), a municipal corporation is required to obtain a Certificate in order “to

acquire, construct, or begin to operate, any plant, equipment, or other facilities for the

rendering or furnishing to the public of any public utility service beyond its corporate

limits.” The critical inquiry in this case is whether the Borough’s provision of water

service to extraterritorial customers constitutes “public utility service.”

The phrase “for the public” has been developed through case law which

spans the better part of the past century. Whether an enterprise is private or public does

not depend on the number or types of persons served but upon whether or not it is open to

all members of the public who may require the offered service. Drexelbrook; Ambridge.

According to Pennsylvania courts, the test for determining whether utility

services are being offered “for the public” is as follows:

Whether or not such person holds himself out, expressly or impliedly, as engaged in the business of supplying his product or service to the public, as a class, or to any limited portion of it, as contradistinguished from holding himself out as serving or ready to serve only particular individuals.

Waltman v. Pa. PUC, 596 A.2d 1221, 1223-24 (Pa. Cmwlth. 1991), citing Drexelbrook,

212 A.2d at 239 (emphasis in the original). “The fact that only a limited number of

persons may have occasion to use a utility’s service does not make it a private

33

undertaking if the general public has a right to subscribe to such a service.” Waltman,

596 A.2d at 1224; Masgai v. Public Service Comm’n, 124 Pa. Super. 370, 188 A. 599

(1936).

In reaching determinations regarding whether a municipal corporation is

providing service outside of its boundaries that constitutes public utility service, the

Commission has considered the legal standards enunciated above and has incorporated

such standards into decisions pertaining to jurisdiction over municipal corporations. The

Commission has also set forth specific standards for cases involving municipal

corporations seeking non-public utility status for utility service to extraterritorial

customers, referred to herein as the Municipal Corporation Cases. Titusville is one of the

more recent Municipal Corporation Cases, and it incorporates and cites to the analysis

employed in the prior line of Municipal Corporation Cases. We find that the ALJ’s

reliance on Titusville and the cases cited therein is appropriate under the circumstances in

this case, and we further find that the ALJ’s summary of the factors to be considered in

this case is an accurate reflection of the factors considered in Titusville and the prior

Municipal Corporation Cases.

In response to the Authority’s and the OCA’s concerns that the

extraterritorial customers will not have adequate protections in place with regard to rates

and service, we agree that these are valid concerns. We have addressed these concerns

through safeguards established in our Municipal Corporation Cases and have explained

these concerns and safeguards in Skytop. We stated the following:

Given that these municipal corporations are providers of utility services within their municipal boundaries, the Commission has been concerned that extraterritorial customers may be charged higher rates than municipal customers, or may receive comparatively lower quality service, and be without any recourse to address such issues. Municipal customers can vote for the municipal leaders

34

overseeing the municipal corporation, while extraterritorial customers cannot. Therefore the Commission has required the municipal corporations to agree to treat extraterritorial customers the same as municipal customers. The Commission has determined that the added regulatory burden to the municipal corporation of Commission regulatory oversight regarding a small number of extraterritorial customers is not in the public interest, as long as the safeguards listed above are met to protect the extraterritorial customers.

Skytop at 12-13.8

Based on our review of the record, Titusville, and the other Municipal Corporation

Cases, we conclude that the factual circumstances here are similar to those in Titusville

and the Municipal Corporation Cases in which we determined that the municipality’s

provision of service to customers outside of its boundaries did not constitute public utility

service. The Borough will provide extraterritorial service to a limited number of

customers who are geographically contiguous to the Borough. The Borough has

indicated that it will continue to serve seventy-two connections located outside of its

municipal boundaries that were authorized by the Authority. These seventy-two

customers amount to only 5.2% of the total 1,376 customers that will be served by the

8 Skytop provides a thorough, accurate discussion of the Municipal Corporation Cases; however, the factual circumstances and overall determination in that case do not apply to this case. The Commission was very clear that Skytop’s circumstances were not analogous to the circumstances present in the Municipal Corporation Cases, because the service provided to the resort’s existing customer base was not subject to political oversight. The Commission stated that “the unique circumstances of municipal corporations with relatively small extraterritorial service do not apply to Skytop.” Skytop at 13.

35

Borough.9 All of these connections are located within 1,000 feet from the Borough’s

boundaries and provide service to customers within defined locations or developments in

which most of the development is within the Borough’s boundaries. The most recent

connection located outside the Borough, to the Alden Place development, was added in

2005.

The Borough clearly states that it will continue to provide service only to

these seventy-two outside customers and will not solicit new customers or provide

service to any additional outside customers in the future. The Borough also indicates that

it will charge the same rates to both customers within its boundaries and customers

outside of its boundaries. Specifically, as with the municipalities in Doylestown,

Pleasantville, Cochranton, Laceyville, and New Albany, the Borough adopted a

Resolution to solidify these commitments. On April 2, 2015, the Borough adopted

Resolution 2015-5, which provides that the Borough will continue to provide water

service to the existing extraterritorial water customers and will not permit any new

customer connections beyond its boundaries without prior Commission approval.

Borough St. 1 at 3-4; Borough Exh. C-3. The Resolution additionally provides that the

Borough will provide water service to the customers outside its boundaries under the

same rates, terms, and conditions that apply to customers located inside its boundaries.

Borough St. 1 at 4; Borough Exh. C-3. The Resolution further provides that it will not be

repealed or expire without prior written notification of its repeal or expiration to the

Commission. Based on the facts enumerated herein, the Borough in this case has

9 While the number of extraterritorial customers served is not normally considered in determining whether service is subject to Commission jurisdiction, we did consider the number of extraterritorial customers in Phoenixville in reaching a determination that the borough was not providing service to a “small, defined, privileged and limited group,” because the borough in that case was providing service to 619 extraterritorial customers. Phoenixville at 5. We find that the seventy-two extraterritorial customers in this case is in line with the number of extraterritorial customers in Titusville (101 extraterritorial customers), Pleasantville (193 extraterritorial customers), and Cochranton (seventy-five extraterritorial customers), cases in which we did not exercise jurisdiction.

36

satisfied its burden of proof for a declaratory order that its proposed service does not

constitute public utility service. The opposing Parties have not successfully refuted this

evidence, nor have they provided legal arguments that persuade us to deviate from the

prior standards set forth in the Municipal Corporation Cases.

Additionally, we find that the cases the Authority and the OCA rely on are

distinguishable from the instant case. First, we agree with the ALJ’s analysis that

Phoenixville is distinguishable from this case. We do not view Phoenixville as

establishing new standards requiring consideration of a municipality’s financial fitness in

the context of determining whether the municipality is providing public utility service.

An evidentiary hearing was not held in the Phoenixville proceeding, and there was no

specific evidence regarding the financial viability of the borough in that case. However,

there was evidence in Phoenixville that, if the petition in that case were granted, the

extraterritorial customers would experience an immediate increase in water and

wastewater rates. In that case, the rates for the extraterritorial customers were

approximately one-half less than the rates for the borough residents, and the

extraterritorial customers would have experienced a rate increase of more than twenty

percent in each year. Phoenixville at 6. In this case, there is no evidence that the

extraterritorial customers will receive an immediate rate increase. Our consideration of

the impact on the rates and service of extraterritorial customers who lack other

protections in the Phoenixville case was no different from our consideration of these

concerns in other Municipal Corporation Cases. As we previously explained, the

purpose of the protective standards set forth in the Municipal Corporation Cases is to

ensure that safeguards are satisfied to protect the extraterritorial customers. In this case,

we find that those safeguards are satisfied.

Regarding the ALJ’s analysis of the distinctions between Phoenixville and

this case, we would like to address the OCA’s concern about the ALJ’s statement that the

OCA “represents the public interest, not individual customers.” See R.D. at 34. When

37

read in the context of the ALJ’s analysis, we interpret the ALJ’s statements to mean that,

from a factual standpoint, none of the seventy-two extraterritorial customers in the instant

case filed an answer opposing the Petition for Declaratory Order, whereas, in

Phoenixville, a bulk water customer, a municipal customer, a homeowners’ association,

and an individual customer filed answers opposing the municipality’s petition. By this

Opinion and Order, the Commission clarifies that it is not calling the OCA’s statutory

authority into question. It is clear under 71 P.S. § 309-4 that the OCA has the authority

“to represent the interest of consumers as a party, or otherwise participate for the purpose

of representing an interest of consumers, before the [C]ommission in any matter properly

before the [C]ommission.”

Further, contrary to the Authority’s argument, we conclude that the Shryock

case is not controlling here. First, we disagree with the Authority that the ALJ neglected

to undergo a “selection and control” analysis in this case. The Authority argues that the

Borough has admitted that it will offer service to any and all members of the public who

purchase the premises served and to be served by the outside connections and,

consequently, that it will be providing public utility service under Section 102 of the

Code. While the ALJ in Shryock did consider the level of control the township had over

selecting its customers in that complaint proceeding, the Commission has not considered

this factor in the Municipal Corporation Cases in determining that extraterritorial service

to residential homes and residential developments is not public utility service. If

extraterritorial service could never be provided to residential homes or developments

without such service being subject to Commission jurisdiction, nearly all extraterritorial

service would be considered jurisdictional, and the Commission’s determination that the

added regulatory burden to the municipal corporation of Commission regulatory

oversight regarding a small number of extraterritorial customers is not in the public

interest would be obviated. Moreover, the ALJ and the Commission considered other

relevant factors in reaching a determination in Shryock, including that the township

expressly reserved its options to serve additional customers if future “specific and unique

38

circumstances” justified additional outside service. Shryock I.D. at 45-46. Here, the

Borough has clearly indicated that it will not serve additional customers. Therefore, the

Exceptions of the Authority and the OCA on this issue are denied.

In reaching a determination that the Borough’s proposed service does not

constitute public utility service, we emphasize that this is a declaratory order proceeding.

Our determination herein is expressly conditioned on our factual finding that the Borough

of Cornwall will charge the same rates to its customers outside and inside of the Borough

of Cornwall’s boundaries and the Borough of Cornwall will not add any additional

customers outside of its boundaries other than the seventy-two connections discussed

herein. If these factual circumstances change in the future, we have the authority to make

a new determination regarding whether the Borough’s provision of extraterritorial service

constitutes public utility service.

Consideration of the Borough’s Fitness to Provide the Proposed Service

We agree with the ALJ’s rulings throughout this proceeding that evidence

of the Borough’s fitness to provide water service is outside the scope of this proceeding

and is irrelevant. Because this proceeding involves a determination under Section

1102(a)(5) of the Code regarding whether the Borough’s provision of water service to

extraterritorial customers constitutes “public utility service,” the Borough is correct that it

is premature at this stage to consider the Borough’s fitness as it would be considered in a

proceeding for an application for a Certificate. The process for obtaining a Certificate is

two-fold, and we will only require an entity to obtain a Certificate if we first determine

that the entity is, in fact, providing public utility service. We explained this process in

Application of Laser Northeast Gathering Company (Laser), Docket No. A-2010-

2153371 (Order entered June 14, 2011), in which we stated the following:

At this point, Laser has merely satisfied the threshold issue that its proposed service meets the definition of “public

39

utility” service. See 66 Pa. C.S. § 1101 (“Upon the application of any proposed public utility…”). Next, the Commission must determine whether the granting of a Certificate of Public Convenience for Laser’s service … is “necessary or proper for the service, accommodation, convenience, or safety of the public” under Section 1103(a) of the Code. 66 Pa. C.S. § 1103(a).

Laser at 28. Any inquiry regarding or in objection to the Borough’s fitness would

properly occur in the context of an application for a Certificate proceeding. See Chester

Water Authority v. Pa. PUC, 581 Pa. 640, 868 A.2d 384 (2005). When an entity files an

application for a Certificate to provide public water or wastewater service, we require the

proposed utility to provide specific information as part of the application process,

including detailed financial information. See 52 Pa. Code § 3.501(a)(5). This

information is not required for a declaratory determination under Section 1102(a)(5) of

the Code.

We have not discovered, nor have the Parties cited to any precedent that

requires consideration of fitness within the context of the jurisdictional question on

whether a municipal corporation is providing public utility service. As previously

discussed herein, we do not view Phoenixville as establishing new standards requiring

consideration of a municipality’s financial fitness in such a context. It is clear that the

ALJ has the authority and discretion under 52 Pa. Code § 5.403(a)(1) to exclude

irrelevant evidence from the record. Based on our above analysis, we find no legal basis

to question the ALJ’s exclusion of the evidence pertaining to the Borough’s fitness under

the circumstances in this case. As such, the Exceptions of the Authority and the OCA on

this matter are denied.

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Service of the Petition for Declaratory Order on Directly Affected Parties

Upon review of the Parties’ positions, in order to ensure due process for all

impacted persons, we find it appropriate that the Borough serve this Tentative Opinion

and Order on the forty-eighth extraterritorial customer (who was connected shortly before

the hearing in this matter) and on the developer of the Alden Place Development. We

will not require service on Quentin Water Company or West Cornwall Township,

because the record does not support that the Authority made a definitive commitment to

or had an agreement with Quentin Water Company to provide backup service to

customers located in West Cornwall Township. Tr. at 134. Accordingly, we will require

the Borough to serve this Tentative Opinion and Order on the forty-eighth extraterritorial

customer and on the developer of the Alden Place Development within ten days from the

entry date of this Tentative Opinion and Order, with a copy of the Certificate of Service

served on the Secretary of the Commission and the Parties to this proceeding. The forty-

eighth extraterritorial customer and the developer of the Alden Place Development will

then have twenty days from the date of service of this Tentative Opinion and Order to file

Comments with the Secretary of the Commission, and serve the Comments on all Parties

to this proceeding.  The Parties to this proceeding will be provided with ten days from the

date of service of any such Comments to file Reply Comments. If such Comments are

timely filed, this Commission will issue a Final Opinion and Order in this matter. If no

such Comments are timely filed, then this Tentative Opinion and Order shall become

final without further action by this Commission. Accordingly, we shall grant the

Authority’s Exceptions, in part, and modify the Recommended Decision for the limited

purpose of serving this Tentative Opinion and Order on the forty-eighth customer and the

developer of the Alden Place Development.

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Motion to Strike and Motion for Sanctions

Positions of the Parties

In its Motion, the Borough seeks to strike portions of the Authority’s

Exceptions relating to stricken testimony and sanctions for the Authority’s presentation

of extra-record testimony to the Commission. The Borough states that the Authority

continues to reference issues determined to be outside the scope of this proceeding.

Motion at 3. The Borough notes that the Authority attached testimony stricken by the

ALJ to its Petition for Interlocutory Review, filed Main and Reply Briefs citing to the

stricken testimony, and most recently included in its Exceptions numerous extra-record

statements alleging that the Borough lacks financial and managerial fitness. Id. at 3-4.

The Borough avers that the Authority did so despite the ALJ’s determinations regarding

the scope of this proceeding and the Commission’s affirmation of the ALJ’s

determinations. The Borough contends that the Authority’s reliance on the stricken

testimony constitutes a knowing, intentional, and reckless violation of the ALJ’s statutory

authority to exclude irrelevant evidence from the record. Id. at 4 (citing 66 Pa. C.S.

§ 331(d)(3); 52 Pa. Code § 5.483(a)). The Borough also contends that, by attaching

stricken evidence to its Exceptions, the Authority violated the Commission’s evidentiary

procedures directing parties to rely only on evidence that is part of the record. Motion at

5, 6 (citing 52 Pa. Code § 5.431(b)). The Borough cites to the ALJ’s authority to regulate

the course of hearings and rule on the admissibility of evidence and states that removing

this power from the ALJ and allowing the presentation of extra-record allegations to the

Commission would eliminate fairness from the Commission’s regulatory process.

Motion at 6.

The Borough believes that sanctions are warranted in this case because the

Authority has shown contempt for the Commission’s evidentiary procedures throughout

this proceeding. Id. at 6-7. The Borough argues that sanctions should be imposed on the

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Authority pursuant to 52 Pa. Code § 1.35(c)(1)(iii)-(iv), since the ALJ granted Motions to

Strike filed by the Borough in response to the Authority’s Main and Reply Briefs. The

Borough asserts that the Authority knew the record excluded the stricken testimony on

financial and managerial fitness issues yet continued to present unsupported averments

regarding the Borough’s fitness in its Exceptions. The Borough avers that the

Authority’s Exceptions, therefore, are not “grounded in fact” or “warranted by existing

law.” Motion at 7. The Borough also avers that the Authority’s reliance on unsupported

factual allegations violates the due process rights of other Parties that did not have the

opportunity to respond to the allegations. Id. at 7-8. The Borough further contends that

the Authority engaged in actions to delay the Commission’s resolution of this proceeding

and to increase litigation costs by continuing to rely on stricken testimony and forcing the

Borough to use its resources to oppose such actions. Id. at 8.

Based on the above averments, the Borough specifically requests the

following sanctions upon the Authority:

1. Strike the following extra-record statements from the Authority’s Exceptions:

(a) Page 2: “… the evidence of the Borough’s admitted “broke” financial condition and continuing fiscal deterioration offered by the Authority … .”

(b) Page 2, n.1: “The Borough’s council president announced the Borough was “broke” at the council’s April 2, 2015 public meeting. Since that time, the Borough’s financial position has further deteriorated due to the entry of a $1.5 million judgment against it. See n.39, infra (discussing stricken Authority testimony).”

(c) Page 13: “whether a Borough with huge financial problems and a record of erratic decision making.”

(d) Page 14, n.39: Beginning “A copy of the testimony…” and ending with “subsidizing other Borough operations and residents.”

(e) Appendix I.

2. Revoke the Authority’s active party status in this proceeding and/or take any reasonably available steps to

43

expedite a Commission resolution of this proceeding, including directing the Authority to respond to this Motion within 10 days.

3. Impose a civil penalty upon the Authority and/or counsel for the Authority in the amount of $5,000 ($1,000 for each page of the Exceptions referencing extra-record testimony and an additional $1,000 for attaching stricken testimony to the Exceptions).

Motion at 9-10.

In its Answer to the Borough’s Motion, the Authority avers that the Motion

is meritless, because the stricken written testimony constitutes an offer of proof under

Section 5.414 of the Commission’s Regulations, 52 Pa. Code § 5.414,10 and, as such, is

part of the record in this proceeding. Answer at 3. The Authority argues that, in a

Commission proceeding, excluded written testimony is identified and made part of the

record as an offer of proof so the Commission may consider whether the ALJ erred in

denying the admissibility of the evidence. Id. at 4 (citing Pa. PUC v. T.W. Phillips Gas

and Oil Co., Docket No. R-2008-2075250 (Order entered July 29, 2009) (T.W. Phillips).

The Authority states that Section 332(d) of the Code, 66 Pa. C.S. § 332(d), expressly

provides that “the exclusive record decision” in a Commission proceeding includes not

only admitted “testimony and exhibits” but also “all papers and requests filed in the

10 Section 5.414(a) provides the following:

An offer of proof may be requested when opposing counsel contends the witness is not competent to testify to the subject matter or that the evidence to be offered is inadmissible. An offer of proof also may be made when the presiding officer has sustained an objection to the admission of testimony or tangible evidence. If the proffered evidence is tangible, it shall be marked for identification and shall constitute the offer of proof. If the proffered evidence is oral testimony, the offer of proof shall consist of a summary of the evidence which counsel contends would be adduced by the testimony. The presiding officer may also request a statement of the basis for admissibility of the evidence.

44

proceeding.” Answer at 5. Accordingly, the Authority contends that the provision

includes stricken written testimony and other tangible evidence that constitute offers of

proof, so that the Commission is able to consider whether the ALJ erred in denying the

admissibility of the evidence. Id. at 6 (citing T.W. Phillips). The Authority further avers

that the Commission has the authority to review the ALJ’s ruling on the admissibility of

the evidence pursuant to Section 335(a) of the Code, 66 Pa. C.S. § 335(a), which provides

that the Commission “has all the powers which it would have in making the initial

decision” and, therefore, the Commission is the ultimate fact finder and legal decision

maker. Answer at 8.

The Authority indicates that there is no basis for striking any portions of its

Exceptions, because the Exceptions do not refer to the statements in the stricken

testimony as if they were record evidence and do not argue that the stricken testimony

could support a finding of fact in the absence of a remand. Id. at 9. The Authority avers

that each of the challenged statements in its Exceptions refer to the contents of the

stricken testimony, which constitute an offer of proof by the Authority in order to argue

that the issues addressed in the stricken testimony should be considered within the scope

of this proceeding and that the testimony should have been admitted into evidence. Id. at

12.

In response to the Borough’s request for sanctions, the Authority states that

this portion of the Motion is baseless, because the Authority’s references to the stricken

testimony are accurate and permitted by law. First, the Authority disagrees with the

Borough’s argument that the Authority knew its Exceptions were not grounded in fact.

The Authority avers that the Borough fails to understand that the Authority is presenting

the stricken testimony on the issue of whether the ALJ erred in excluding the testimony

from the record on relevance grounds, not on the merits. The Authority also avers that,

for purposes of raising an Exception that the testimony should have been admitted, the

allegations in the stricken testimony are grounded in fact. The Authority indicates that its

45

descriptions of the stricken testimony were fairly stated and that the Authority clearly

stated that Mr. Vranesic’s testimony regarding the Borough’s financial condition was not

part of the record and was being discussed for the purpose of supporting the Authority’s

Exception to the ALJ’s decision to strike the testimony. Second, the Authority disagrees

with the Borough’s contention that the references to the contents of the stricken

testimony in the Exceptions were not warranted by existing law. Id. at 13. The Authority

believes that, as it argued above, consideration of such stricken evidence is permissible

under Section 5.414(a) of the Commission’s Regulations and Section 332(d) of the Code.

Answer at 13-14.

Third, the Authority disagrees with the Borough’s argument that the

Authority deliberately violated the Commission’s Regulations to delay the resolution of

this proceeding and to increase litigation costs. The Authority asserts that the Borough

has failed to identify a single Regulation that the Authority has violated. The Authority

continues to argue that it is permissible for it to refer to the stricken evidence when

challenging that very ruling on Exceptions. Id. at 15 (citing 52 Pa. Code § 5.414(a); 66

Pa. C.S. § 332(d); T.W. Phillips). The Authority also indicates that, contrary to the

Borough’s assertions, the Authority has not asked the Commission to adopt or act on the

stricken testimony without providing for further proceedings to allow the Borough

another opportunity to cross examine Mr. Vranesic and any further process to which it

may be entitled. Answer at 16.

In its Reply, the Borough avers that the record in this proceeding confirms

that the Authority did not make an offer of proof pursuant to 52 Pa. Code § 5.414(a). The

Borough states that counsel for the Authority verified the stricken testimony and exhibits

and requested that the presiding officer move the testimony and exhibits into the record.

Reply at 3 (citing Tr. at 95). The Borough also states that, after an oral motion to strike

from the Borough’s counsel, the ALJ struck page eight, line thirteen, through page

twenty-seven, line ten of the testimony and all of the exhibits. Reply at 3 (citing Tr. at

46

109). The Borough asserts that the Authority could have invoked Section 5.414(a) and

made an offer of proof at this time, but the Authority neglected to do so. As such, the

Borough indicates that the testimony was moved into evidence as stricken. The Borough

contends that the situation in this case is different from that in T.W. Phillips, because the

Authority did not request or receive permission to mark the testimony and exhibits

through an offer of proof so that the Commission could consider whether the ALJ erred

in denying the admissibility of the evidence. Reply at 3.

Disposition of the Borough’s Motion

Based on a review of the record in this proceeding, it appears that the

Authority did not make an offer of proof during the hearing in this matter; however, we

have the authority under Section 335(a) of the Code to review the ALJ’s decision

regarding the stricken evidence. Moreover, in our November 2015 Order denying the

Petition for Interlocutory Review, we found that the ALJ’s exclusion of the evidence and

any prejudice flowing therefrom could be satisfactorily cured during the normal

Commission review process. November 2015 Order at 20. Accordingly, we have the

authority to consider, and we have considered, the ALJ’s exclusion of the evidence

relating to the Borough’s fitness in this proceeding. We note that it is within the ALJ’s

authority and discretion under 52 Pa. Code § 5.403(a)(1) to exclude evidence on

relevancy grounds, and we have found no reason upon our review to second-guess the

ALJ’s decision, particularly given our determination herein that evidence of fitness is

more properly considered within the context of an application for a Certificate

proceeding.

In evaluating the Borough’s specific requests for sanctions, we find that

imposing a civil penalty on the Authority or revoking the Authority’s status as an active

party is not appropriate at this stage in the proceeding. In its Exceptions, the Authority

appears to be discussing the stricken testimony generally and in terms of whether the ALJ

47

erred in excluding the testimony from the record on relevance grounds, an argument

which we may address. While we may disagree with the Authority’s arguments, there is

no basis for us to conclude that the Authority’s arguments that we should consider

evidence of the Borough’s fitness, particularly in view of the Authority’s reliance on the

Phoenixville and Skytop cases, are not grounded in law and in fact. Nevertheless,

because there are portions of the Authority’s Exceptions that pertain directly to its

averments on the Borough’s fitness that were stricken from the record by the ALJ and on

which the Borough did not have an opportunity to cross-examine the Authority during the

hearing or to otherwise defend itself, we find that such averments should be stricken from

the Exceptions. Our Regulations provide that Exceptions should refer to particular

Findings of Fact and Conclusions of Law and cite to relevant portions of the record. See

52 Pa. Code § 5.533(b) and (c). Accordingly, we will strike the following portions from

the Authority’s Exceptions:

(1) Page 2: “… the evidence of the Borough’s admitted “broke” financial condition and continuing fiscal deterioration offered by the Authority … .”

(2) Page 2, n.1: “The Borough’s council president announced the Borough was “broke” at the council’s April 2, 2015 public meeting. Since that time, the Borough’s financial position has further deteriorated due to the entry of a $1.5 million judgment against it. See n.39, infra (discussing stricken Authority testimony).”

(3) Page 13: “whether a Borough with huge financial problems and a record of erratic decision making.”

(4) Page 14, n.39: Beginning “… the following facts …” and ending with “subsidizing other Borough operations and residents.”

Consequently, the Borough’s Motion is granted, in part.

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Conclusion

For the reasons discussed herein, we shall tentatively deny the OCA’s

Exceptions; grant, in part, the Authority’s Exceptions; adopt the ALJ’s Recommended

Decision, as modified; and grant, in part, the Borough’s Motion, all consistent with this

Opinion and Order; THEREFORE,

IT IS ORDERED:

1. That the Exceptions filed by the Cornwall Borough, Lebanon

County, Municipal Authority on February 3, 2016, are granted, in part.

2. That the Exceptions filed by the Office of Consumer Advocate on

February 3, 2016, are denied.

3. That the Recommended Decision of Administrative Law Judge

David A. Salapa, issued on January 14, 2016, is adopted as modified for the limited

purpose of serving this Tentative Opinion and Order on the forty-eighth customer and the

developer of the Alden Place Development.

4. That the Petition for Declaratory Order filed by the Borough of

Cornwall on April 10, 2015, is granted.

5. That the provision of water service by the Borough of Cornwall to

the forty-eight customers located outside of the Borough and the potential twenty-four

customers in the Alden Place Development would be deemed to be non-jurisdictional

because it would not be service “to or for the public” within the intendment of Section

102 of the Public Utility Code, 66 Pa. C.S. § 102.

49

6. That our determination in Paragraph Nos. 4 and 5, above, is

expressly conditioned on the Borough of Cornwall charging the same rates to its

customers outside and inside of the Borough of Cornwall’s boundaries and the Borough

of Cornwall not adding any additional customers outside of its boundaries other than

those identified in Paragraph No. 5.

7. That the Borough of Cornwall shall serve this Tentative Opinion and

Order on the forty-eighth extraterritorial customer and on the developer of the Alden

Place Development within ten (10) days from the entry date of this Tentative Opinion and

Order, with a copy of the Certificate of Service served on the Secretary and the Parties to

this proceeding.

8. That the forty-eighth extraterritorial customer, and the developer of

the Alden Place Development, may file Comments with the Secretary of the Commission

within twenty (20) days of the date of service of this Tentative Opinion and Order. They

shall serve a copy of any such Comments on all Parties to this proceeding.  The Parties to

this proceeding may file Reply Comments within ten (10) days of the service of any such

Comments. If no such Comments are timely filed, then this Tentative Opinion and Order

shall become final without further action by this Commission.

9. That the Motion to Strike and Motion for Sanctions filed by the

Borough of Cornwall on February 29, 2016, is granted, in part.

10. That the following portions are stricken from the Cornwall Borough,

Lebanon County, Municipal Authority’s Exceptions:

(1) Page 2: “… the evidence of the Borough’s admitted “broke” financial condition and continuing fiscal deterioration offered by the Authority … .”

50

(2) Page 2, n.1: “The Borough’s council president announced the Borough was “broke” at the council’s April 2, 2015 public meeting. Since that time, the Borough’s financial position has further deteriorated due to the entry of a $1.5 million judgment against it. See n.39, infra (discussing stricken Authority testimony).”

(3) Page 13: “whether a Borough with huge financial problems and a record of erratic decision making.”

(4) Page 14, n.39: Beginning “… the following facts …” and ending with “subsidizing other Borough operations and residents.”

BY THE COMMISSION,

Rosemary ChiavettaSecretary

(SEAL)

ORDER ADOPTED: August 11, 2016

ORDER ENTERED: August 11, 2016

51