Aluminum Co. of America v. Maltbie

Schenck, J. This proceeding was instituted under article 78 of the Civil Practice Act to review a determination of the Public Service Commission which resulted in an order directing The Niagara Falls Power Company to file a schedule establishing rates to be charged for mechanical power sold by it to the Aluminum Company of America. The power in question is generated at the power company’s turbines from the flow of water in a canal owned by the power company. The power is then transmitted by shafts to electric generators owned by the aluminum company, where it is converted into electricity for use in the aluminum company’s factory. The question involved herein is, accordingly, whether or not the Public Service Commission had authority to compel the power company to maintain a rate schedule covering charges for the power sold to the aluminum company. This proceeding was instituted by the aluminum company, the power company having joined in the argument against the contentions of the Public Service Commission as amicus curise. The Commission in its opinion held that it had jurisdiction to grant the order under review pursuant to section 621 of the Conservation Law. This theory is based upon the provisions of section 621, which give the Commission authority to fix rates charged for “ power generated * * * by the use of water in which the State has a proprietary right or interest,” the right to fix which rates being expressly reserved to the State of New York in every license for the development and sale of power granted under article XIV of the Conservation Law. Section 615 defines the persons to whom and the purposes for which the licenses are to be issued. This section, likewise, requires licenses to be issued giving full State regulation of and jurisdiction over power developed from waters “ in which the State has a proprietary right or interest.” The Commission has, therefore, taken the position that the power company is actually only a licensee as far as its use of the waters of the Niagara river are concerned, that the State has a proprietary interest in the particular waters used to develop the power sold to the aluminum company, and, finally, that all contracts between the power company and the aluminum company for the sale of power are subject to abrogation by the Commission. [91] In analyzing these contentions it is necessary to take into consideration the history of the relationship between the power company and the aluminum company. Mechanical power is supplied to the aluminum company pursuant to certain provisions in five leases, one of which was dated 1895, two 1899, one 1905, and one 1922. The later leases, in substance, extend the expiration dates of the earlier ones. The essence of the contractual relations between the power company and the aluminum company, accordingly, dates back from the last part of the nineteenth century. When the leases were first entered upon between the predecessors of the two corporations the canal from which the power in question is developed was owned by the predecessors of the power company, pursuant to chapter 477 of the Laws of 1893 and chapter 968 of the Laws of 1896. The first of these chapters authorized The Niagara Falls Power Company to sell and furnish the waters of the Niagara river to any public body or private person. The second limited the use of the waters to the amount which could be carried in a canal 100 feet wide and 14 feet deep, provided this diversion did not affect the practical navigability of the Niagara river. Subsequently, in 1918, chapters 596 and 597 of the Laws of that year provided that for all water used over and above the rate of 15,100 cubic feet per second in the canal the power company would have to pay rent. These chapters, accordingly, recognized the basic exclusive right of the power company to the particular waters in the canal but limited the amount which could be used without the paying of rental to the State. Accordingly, prior to the enactment of article XIV of the Conservation Law (including sections 615 and 621) in 1921, the contracts between the power company and the aluminum company were in full force and effect and were based upon exclusive water rights granted the power company by the State of New York, which rights were recognized even when a restriction requiring payment of rent was imposed in 1918. This viewpoint, furthermore, has been adopted by the Court of Appeals and is clearly set forth in Matter of Niagara Falls Power Co. v. Water Power and Control Comm., 267 N. Y. 265). That case denied the power company’s right to draw 20,000 cubic feet per second but affirmed its right to 15,100 cubic feet per second. It is true, as contended by the Commission herein, that the decision went against the power company. It went against the power company, however, only to the extent of fixing a rental rate for the extra water used. There was no holding that the State had a proprietary interest in the particular waters used by the power company in its canal. To the contrary, the rights of the company to use the waters and make contracts relative thereto were upheld. [92] The Public Service Commission, in the case at band, is in the position of endeavoring to compel the power company to breach its contract with the aluminum company under authority of a law enacted many years after the contract had been entered upon, and which law, furthermore, limits its authority to waters in which the State has a proprietary interest, a situation which does not exist here. Upon the first of these points abrogation of the existing contract would have been unconstitutional even had the Legislature desired to so abrogate it, and there is nothing in the pertinent sections of the Conservation Law that indicates that it so desired. Such abrogation would clearly have violated the Fourteenth Amendment to the Constitution of the United States. It is no argument that the manner in which the power company has associated the rest of its business with the public interest brings the aluminum company’s contract into the “ public ” category and subject to rate regulation. The contract in question is still “ private ” regardless of the other interests of the power company. (See Miller v. Clary, 210 N. Y. 127.) Accordingly, the authority under which the Public Service Commission seeks to abrogate the contract would be invalid even if it were intended to cover a situation such as exists here. There is also, of course, the point that, regardless of existing contracts, article XIV of the Conservation Law does not apply here because the State has no proprietary interest in the waters in the power company’s canal which are used to generate the power in question. Argument upon this point is disposed of by the case of International Paper Co. v. United States (282 U. S. 399), in which it was squarely held that the waters in question were exclusively the property of the power company and that the company owned the water rights under consideration to the fullest extent that the laws of New York could make it the owner. In that case Mr. Justice Holmes delivered the opinion of the court and said (at p. 404): “ The Niagara Falls Power Company by private grant to it, Letters Patent from the State of New York and acts of the Legislature of that State, was the owner so far as the law of New York could make it owner of land and water rights on the American side of the Biver above the Falls. Included in them was a power canal through which the Power Company was authorized to divert 10,000 cubic feet per second, at the time of the alleged taking. From this canal the petitioner, the International Paper Company, was entitled, by conveyance and lease, to draw and was drawing 730 cubic feet per second — a right that by the law of New York was a corporeal hereditament and real estate.” [93] While it has been determined that the power company has no right to take water in excess of 15,100 cubic feet per second without paying an equitable rental for the excess (Matter of Niagara Falls Power Co. v. Water Power and Control Comm., supra), that amount which it may take under its grants is far in excess of the amount which it has contracted to furnish the aluminum company. The order of the Public Service Commission not only violates the Constitution but it is apparent that the authority (e. g., Conservation Law, § 621) under which it is purported to grant the order, does not apply to the instant situation. Other bases of authority, including subdivision 14 of section 66 of the Public Service Law and chapter 596 of the Laws of 1918, were urged in the argument herein. They were not, however, relied upon by the Commission in its order, and they were quite properly disregarded there as being without merit. The sole transaction involved herein is the sale of mechanical power by one private corporation to another pursuant to contracts of many years’ standing. There is nothing in the laws of the State of New York to confer rate-fixing authority for this sale of power upon the Public Service Commission. The orders of the Public Service Commission of October 18, 1938, and May 23, 1939, should be annulled, with fifty dollars costs. Crapser and Foster, JJ., concur; Hill, P. J., dissents, in an opinion, and votes to annul that portion of the order which requires The Niagara Falls Power Company to fix the rate and to remit the proceeding to the Public Service Commission for the fixing of a rate by that body; Bliss, J., dissents and votes to confirm the determination of the Public Service Commission.