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Michael D. Klein is a member in the Harrisburg, PA, and Washington D.C. offices of Cozen O’Connor. Michael practices in the areas of utility and environmental law in Pennsylvania. He can be reached at mklein@cozen.com and 717-703-5903. Joshua L. Belcher, an attorney with Cozen O’Connor, assisted in the preparation of the article.

 

WINTER 2013-2014

Recent case affirms anti-competition provision of Municipality Authorities Act

 

It has long been the law in Pennsylvania that municipal authorities may not engage in competition with established businesses, with few exceptions.  Since 1935, the Pennsylvania Municipality Authorities Act has prohibited municipal authorities from duplicating or competing with existing enterprises.  Although the “anti-competition” provision has not been the subject of frequent litigation, its continuing relevance to water companies was recently reaffirmed in a case in Western Pennsylvania.

In October 2012, United Dairy, Inc. and the North Fayette County Municipal Authority filed an action in the Fayette County Court of Common Pleas.  Captioned as a complaint for declaratory judgment, both United Dairy and the Authority sought the court’s opinion as to whether United Dairy could terminate the water service it was currently receiving from Pennsylvania America Water Company and begin to receive service from the Authority instead.  Prudently, both United Dairy and the Authority sought approval from the court before switching service and incurring any construction costs.  United Dairy had been a major customer of Pennsylvania American Water Company or its predecessors since 1913.  As such, the defendant public utility strongly opposed the action and asserted that the Municipality Authorities Act expressly prohibited what United Dairy and the Authority wanted to do.

The anti-competition provision at Section 5607(b)(2) of the Municipality Authorities Act provides as follows:

The purpose and intent of this chapter being to benefit the people of the Commonwealth by, among other things, increasing their commerce, health, safety and prosperity and not to unnecessarily burden or interfere with existing business by the establishment of competitive enterprises; none of the powers granted by this chapter shall be exercised in the construction, financing, improvement, maintenance, extension or operation of any project or projects or providing financing for insurance reserves which in whole or in part shall duplicate or compete with existing enterprises serving substantially the same purposes.

53 Pa. C.S. § 5607(b)(2) (emphasis added).  The Act makes clear that competition with or duplication of existing businesses “serving substantially the same purposes” is prohibited.  The prohibition makes preeminent sense in light of the natural competitive advantages that an authority has over a private business.  The cost of capital is typically much lower for a municipal authority, which has the ability to issue bonds that are tax exempt.  Also, municipal authorities are exempt from paying corporate income, sales and property taxes.  The advantages enjoyed by municipal authorities would provide them a significant edge if allowed to compete against private businesses in the free market.  Interestingly, the courts have also interpreted the anti-competition provision to provide that authorities may not offer competitive services within the service territory of another authority.

In the Fayette County action, after conducting discovery, including depositions of key personnel at United Dairy and the Authority, Pennsylvania American Water Company filed a motion for summary judgment arguing that what United Dairy and the Authority were asking to do was in plain violation of the Act’s prohibition.  According to Pennsylvania American, United Dairy had been a customer for nearly 100 years and its water service was being provided through existing facilities.  Any service from the Authority would require the construction, operation and maintenance of new facilities that duplicated what was already in place.  Moreover, providing service to United Dairy as a new customer would directly compete with Pennsylvania American.  In response to the motion for summary judgment, United Dairy and North Fayette County Municipal Authority ultimately conceded that a new service connection would be duplicative and that summary judgment in Pennsylvania American’s favor was appropriate.

While many gray areas in the law remain for the courts to consider, the case in Fayette County provided for a text book application of the Act’s anti-competition provision.  Where a municipal authority sets out to provide the exact same service as an existing enterprise and the facilities necessary to do so would be duplicative, the authority’s actions will be prohibited under Section 5607(b)(2) of the Pennsylvania Municipalities Authority Act.

 Submission of comments to proposed regulations considered lobbying

In a recent advisory opinion issued in November 2013, the Pennsylvania State Ethics Commission determined that providing public comment on proposed regulations would constitute “lobbying” for purposes of the Lobbying Disclosure Law at 65 Pa. C.S. § 13A01 et seq.  Specifically, the submission of written public comment on a proposed regulation prepared by a department of state government during the public comment period would constitute “an effort to influence administrative action in the Commonwealth.”  As is the case with all such advisory opinions, this opinion is strictly limited to the facts submitted by the requester of the opinion, in this case the Pennsylvania Section of the American Water Works Association (PA-AWWA).  Importantly, the Commission found that because PA-AWWA engaged in other lobbying activities, a statutory exception available for those who limit their lobbying activities to comments on regulations would not apply.  Nevertheless, it is clear that the Lobbying Disclosure Law is broadly applied.  As a result, entities that comment on legislative initiatives and agency rulemakings as well as engage in other lobbying activities should take care that they are fully compliant with the reporting and registration requirements of the Lobbying Disclosure Law.

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