ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (C.A. No. 77-2668)
Before Adams and Sloviter, Circuit Judges, and Brotman, District Judge.*fn*
The Bucks County Water and Sewer Authority (the Authority) appeals from an order of summary judgment entered against it by the district court. The Delaware River Basin Commission (the Commission) had sued the Authority in an attempt to impose charges for water that the City of Philadelphia had drawn from the Delaware River and sold to the Authority. Because we are not convinced that the Commission's assessment of charges against the Authority comports with the constitutional guarantee of equal protection, we vacate the judgment of the district court, 474 F. Supp. 1249, and remand.
From its headwaters in the Catskill Mountains of New York, the Delaware River flows generally southward, framing the greater part of the border between Pennsylvania and New Jersey before reaching the sea off the coast of Delaware. Coherent development of the River's resources proved impossible when left to the uncoordinated decisions of each of the four riparian states.*fn1 In order to ensure adequate management and conservation of the River and its tributaries, collectively referred to as the Delaware River Basin, the riparian states in 1961 entered into the Delaware River Basin Compact. Recognizing the federal interests in proper supervision of the River, the United States also became a party to the Compact, which was ratified by Congress pursuant to Article I, Section 10 of the Constitution.*fn2
The Compact sets as its goal the "planning, conservation, utilization, development, management and control of the water resources" of the Delaware River Basin. Compact § 1.3. To accomplish these ends, the Compact establishes the Delaware River Basin Commission, whose membership includes the Governors of the four signatory states and one representative of the President. Compact § 2.1, .2. Among its powers,*fn3 the Commission has the authority to impose charges for the use of facilities it owns and operates. Compact § 3.7. When Congress considered the Compact, however, it limited this authority by adding Section 15.1(b), which forbids charges for water drawn from the Basin if the withdrawal "could lawfully have been made without charge on the effective date of the Compact."
During its first ten years, the Commission did not exercise its authority to levy charges for use of Basin water. In 1971, however, the Commission passed Resolution 71-4, authorizing charges. The Commission did not actually begin to collect charges until 1974, when, with the adoption of Resolution 74-6, it implemented a system of rates and exemptions for the use of the surface waters of the Delaware.*fn4
The Resolution gives effect to Section 15.1(b) of the Compact by dispensing with charges for those who use, withdraw or divert water "in quantities not exceeding the legal entitlement of the user, determined as of October 27, 1961 (the effective date of the Compact)."*fn5 The Resolution defines "legal entitlement" as follows:
1. "Legal entitlement" means the quantity or volume of water expressed in million gallons per month determined by the lesser of the following conditions:
(i) a valid and subsisting permit, issued under the authority of one of the signatory parties, if such permit was required as of October 27, 1961, or thereafter;
(ii) physical capability as required for such taking; or
(iii) the total allocable flow without augmentation by the Commission, using a seven-day, ten-year, low-flow criterion measured at the point of withdrawal or diversion.
Resolution 74-6 imposed a charge of $.04 per thousand gallons for surface water consumed by users and $.0004 per thousand gallons withdrawn for non-consumptive uses; these rates have since been increased to $.06 and $.0006, respectively.
In 1966, eight years before the Commission began to assess charges for use of Basin water, the Bucks County Water and Sewer Authority entered into an agreement with the City of Philadelphia, under which the City contracted to supply the Authority with 35,000,000 gallons of water per day. The Authority submitted this agreement to the Commission for approval under Section 3.8 of the Compact. The Executive Director of the Commission responded that Section 3.8, which requires the Commission's endorsement of any project "having a substantial effect on the water resources of the (Basin)," did not require review of the contract between the Authority and the City. Philadelphia began delivering water to Bucks County in 1970, and has done so continually since then.
Late in 1976, the Commission requested that the City of Philadelphia bill the Authority, based on the charges called for by Resolution 74-6, for the water the City supplied to Bucks County. Philadelphia refused, stating that it did not wish to function as a "collection agency" for the Commission. The Commission then wrote to the Authority, indicating that the Authority had no legal entitlement to any water from the Basin free of the Commission's charges, and requesting that the Authority remit to the Commission the money owed under Resolution 74-6. The Authority replied that it owed no money. It contended that the water it purchased from Philadelphia could have been withdrawn by the City free of charge on the effective date of the Compact, and hence fell within the "legal entitlement" exemption of Resolution 74-6.
The Commission eventually brought suit against both the Authority and the City of Philadelphia. Philadelphia crossclaimed against the Authority for indemnification in the event the City was held liable to the Commission. The district judge granted the Commission's motion for summary judgment.*fn6 Since the Authority acknowledged that neither it nor its predecessors enjoyed any independent legal entitlement to draw water from the Delaware, the district court reasoned that the Authority's claim to exemption could succeed only if, as of the effective date of the Compact, Philadelphia had "a valid and subsisting permit, issued under the Authority of Pennsylvania," to take water from the Delaware in the quantity and for the purpose comprehended by the City's agreement with Bucks County. The district court concluded, after reviewing Pennsylvania law, that the permit authorizing Philadelphia's massive daily draw from the River did not contemplate Philadelphia's resale of a portion of this water to outlying municipalities. Bucks County thus was not entitled to exemption from the Commission's charges. The court also rejected the Authority's contentions that the Commission had actually approved the County's use of Delaware River water free from charges, and that Section 15.1(b) of the Compact, as implemented by Resolution 74-6, violates Federal constitutional principles of equal protection.
On appeal, the Authority challenges the district court's holding on the equal protection issue. The Authority does not frame its constitutional challenge as an attack on Section 15.1(b) of the Compact, however. Instead, it maintains that Resolution 74-6 implements the Compact's "grandfather" provision in an unconstitutional manner. Thus, the Authority does not contend that any difference in treatment as among users of Basin water would violate equal protection, but only that a discrimination based on "legal entitlement" as defined by Resolution 74-6 cannot survive constitutional scrutiny.
The Authority does not challenge the other holdings of the district court. In particular, the Authority does not press the principal argument on which it relied in the district court: that, as of the Compact's effective date, the City of Philadelphia had a valid and subsisting permit under Pennsylvania law to withdraw water from the Delaware and sell it to other municipalities. Moreover, the Authority makes no claim that, as of the effective date of the Compact, it had an independent legal entitlement to divert water from the Delaware River Basin. Both in its brief and at oral argument, the Authority acknowledged that it has never enjoyed such an entitlement. In effect, Bucks County concedes that if it were to build its own facilities for withdrawing River water, the terms and charges of Resolution 74-6 would apply to such diversions.
Just as the Authority no longer controverts the applicability of Resolution 74-6 to its purchase of Basin water, neither does it contend that in enacting Resolution 74-6 the Commission exceeded its powers under the Compact. This latter issue was presented in Borough of Morrisville v. Delaware River Basin Comm'n, 399 F. Supp. 469 (E.D.Pa.1975), aff'd per curiam, 532 F.2d 745 (3d Cir. 1976), where it was held that the Commission acted within its authority in adopting Resolution 74-6. The Morrisville decision helps illuminate the Authority's claim to challenge the constitutional validity only of the implementation of Section 15.1(b), rather than of the Section itself. Section 15.1(b) immunizes from water use charges any "withdrawals or diversions which could lawfully have been made without charge on the effective date of the Compact." Although use of the term "lawfully" might suggest that a user's rights under state law to withdraw water should serve as the measure of its exemption, Resolution 74-6 grants immunity only to the extent of pumping capacity for those users whose intake capabilities on the Compact's effective date fell short of the amount they were authorized by state law to withdraw. By endorsing Resolution 74-6 as a proper implementation of Section 15.1(b), the courts have indicated that the Compact tolerates measuring the extent of the "grandfather" exemption by standards other than the state law entitlement of the user. Moreover, there has been no indication that tests different from those codified in Resolution ...