Hillsboro v. Public Service Commission

BENSON, J. 1. Plaintiff bases its argument in support of the sufficiency of the complaint, upon the answers to four questions which its able counsel formulates thus: “First. Did the City of Hillsboro have authority to make the contract? “Second. Was the contract involved herein a matter in which the general public is concerned, or in other words, is it a rate-making contract? "“Third. Was the contract involved in this case made by the city in its governmental capacity, or in its proprietary capacity? “Fourth. If this contract was entered into. by the city in its proprietary capacity, has the Public Service Commission authority to interfere with it?” As. regards the first of these questions, it may be remarked that the defendants do not seriously question the fact that, when the franchise was granted by the city and accepted by the public service corpo — 325 — ration, it was a valid contract and for the purpose of this discussion, it may be conceded. The remaining questions are so interdependent as to be beyond the reach of a practicable separate consideration. Counsel for plaintiff argues that the power to provide a water system is not governmental, but strictly proprietary, and cites in support of this premise, Tone v. Tillamook City, 58 Or. 386 (114 Pac. 938). In that case, Mr. Justice McBride, for the court, say's: “The power to provide a water system is not governmental nor legislative in its character, but strictly proprietary, and the city, when engaged in prosecuting such an improvement, is clothed with the same liabilities as a private citizen.” In support of this doctrine the opinion from which we quote cites the frequently approved case of Esberg Cigar Co. v. Portland, 34 Or. 282 (55 Pac. 961, 75 Am. St. Rep. 650, 43 L. R. A. 445). Both of these cases are clearly distinguishable from the present controversy, by the controlling fact that in each of them the municipality was the owner of the water system, and was engaged in operating it for profit, and in neither case did the city occupy the position of a customer. The distinction between such a case and one in which the city, like its inhabitants, is a customer, is expressly recognized in the statute creating the public service commission, in Section 1 of which we find this language: “No plant owned or operated by a municipality shall be deemed a public utility under or for the purposes of this act”: Laws 1911, p. 483. It does not follow, therefore, that every contract for securing the service of a public necessity is exclusively proprietary in its nature. The two-fold — 326 — character of many of such contracts is clearly indicated by the following excerpt from Section 1303, 3 Dillon on Municipal Corporations: “No uniform rule can be applied to all the circumstances in which the municipality acts under power to furnish water or light, or to contract therefor. Thus, when it is sought to charge the municipality, with responsibility for property destroyed through failure to exercise its power to furnish water for fire protection or for negligence in the exercise of the power, it has been repeatedly said that the grant of power must be regarded as exclusively for public purposes, and as belonging to the municipal corporation, when assumed, in its public, political or municipal character. ' Similarly, in granting a franchise or privilege, or giving its consent to a public service corporation to use the streets and highways of the municipality for the purpose of laying its mains, its pipes, etc,, the municipality exercises a delegated legislative power derived from the state, and cannot be regarded as acting solely in its so-styled private and proprietary capacity, although the object of the exercise of the power may be to enable the grantee of the franchise or privilege to perform a contract to furnish the municipality and its’ inhabitants with water or light.” In the present case, the contract upon which plaintiff relies grants to the defendant corporation a franchise or privilege to lay its mains, pipes, etc., in the streets and highways of the city, to enable it to furnish the municipality and its inhabitants with water. In addition to this,' it provides that for the first five years, the defendant corporation shall serve the city’s fire hydrants at the rate of $1 per hydrant per month, and that thereafter such service shall be supplied without charge. Does the latter feature inject into the contract the element of rate-making, in which the public has an interest? If it does, then — 327 — it clearly follows that the law as expounded in the case of Woodburn v. Public Service Commission, 82 Or. 114 (161 Pac. 391, Ann. Cas. 1917E, 996, L. R. A. 19170, 98), settles every other contention in the case and is conclusive against the plaintiff’s position. In seeking to determine whether or not this is a rate-making contract, we may not lose sight of the fact that the defendant corporation has dealt with the city for the exclusive purpose, so far as this case is concerned, of selling and delivering water to the municipality and its inhabitants. It is not particularly interested in the use to which the water may be put, and, indeed, it is necessarily applied to an infinite variety of uses. One customer, conducting a livery-stable, uses it for watering his horses and washing the stains of travel from his vehicles; another, being a florist, employs it in supplying his tender plants with needed moisture; another conducts a large hotel with hot and cold water in every room, for the convenient use of his guests; a large manufacturing plant is equipped with an elaborate system of pipes and hose for the purpose of eliminating, to as great an extent as possible, the fire hazards of his business, while still another, the municipality itself, being supplied with fire engines, hose-carts and other equipment, establishes large hydrants at convenient stations for the purpose of using water in suppressing conflagrations. The city is therefore as much a customer as any of the others. The public service corporation which is to supply the water for these varied needs must receive a fixed compensation from each customer who avails himself of the service. And the determination of what shall be paid by each is just as much an act of rate-making in one instance as in the other. In the case of Sand — 328 — point Water & Light Co. v. City of Sandpoint, 31 Idaho, 498 (173 Pac. 972, L. R. A. 1918F, 1106), the issue was as to the power of the utilities commission to revoke the right of the city to receive water free of charge, and to fix a hydrant rental for street sprinkling. The trial court entered, a judgment in favor of the city, and upon appeal the Supreme Court reversed the judgment upon the grounds similar to those voiced in Woodburn v. Public Service Commission, 82 Or. 114 (161 Pac. 391, Ann. Cas. 1917E, 996, L. R. A. 1917C, 98), and assumed, without discussion, that such a franchise contract involves rate-making. In Salem v. Salem Water, Light & Power Co., 255 Fed. 295 (166 C. C. A. 465), the franchise ordinance contained a clause to the effect that— The water company should not charge at any time * 'higher rates for water than is customarily allowed for water in towns or cities of like population on the Pacific Coast; but the Salem Water Company, its successors or assigns, shall not at any time charge more than one dollar and eighty-two cents ($1.82) per month for each hydrant or cistern actually supplied. And the right is hereby reserved, by the City of Salem to continue or discontinue to connect or disconnect any or all hydrants or cisterns connected, or which may hereafter be connected with said works; and the City of Salem shall not pay for said hydrants or cisterns while the same are disconnected or discontinued.” The Public Service Commission upon a hearing found that the charge of $1.82 per hydrant put an undue burden upon the other water users, and ordered the rate increased to $2.50 per hydrant. The city refused to pay the increased rate, and the water company began an action to recover. In the opinion the court says: — 329 — “It is said, however, that these cases are to be distinguished, in that here the right to obtain hydrant service at rates not to exceed those specified in the franchise was held by the city purely in its proprietary capacity. But as the municipal corporation is but a political subdivision of the state, and exists by virtue of the exercise of the power of the state through its legislative department, it is our opinion that the city had no absolute property right to demand continued hydrant service at a given rate as against the right of the state to modify such rates of service with the consent of the water company, notwithstanding the fact that as to the water company itself the contract might be unalterable except with its consent.” Winfield v. Public Service Commission, 187 Ind. 53 (118 N. E. 531), was a case wherein a city had granted to a telephone company a franchise which specified the maximum rates to be charged for service and provided for free telephone service in specific offices and departments, to the number of 21. Thereafter the Public Service Commission increased the maximum rates and deprived the city of its free service. There, as here, the power of the commission to interfere with the franchise contract was challenged. Upon this point the court says: “It is claimed by appellants, in substance, that Section 8938, to say the least, is an express recognition of the powers of the city or town to contract in its own interests, and that the general public is not concerned nor its welfare involved in the question as to what, if any, compensation the city receives for the privilege or franchise granted. In so far as such contract providing for free telephone service to the city deprives the utility company of revenue needed to maintain its operating facilities, or cause the company to charge other patrons more than otherwise would be charged in order that the needed — 330 — revenues may be acquired, it may be well said that the general public is intérested.” In addition to these authorities, we note a long line of decisions by the Public Service Commissions of the several states, all of which treat the municipality as being no less a customer than any of the inhabitants of the city. The Maine Commission, In re Wiscasset Water Co., P. U. R. 1916D, 927, said: “Many people think that if a water company can be induced or forced to make a low price to a town for water to be used for fire protection, or give water for other municipal purposes, the town and its citizens have been financially benefited. This is now regarded as a proven fallacy. Each water company must receive for its aggregate service to the whole public an amount sufficient to pay all its fixed charges and expenses, and something’ more as a fair return on capital invested. If it renders its service to a certain group free or at less than cost, it must charge its remaining customers an amount greater than would be the case if all contributed equally.” In Ben Avon Borough v. Ohio Valley Water Co., P. U. R. 1917C, 390, 417, the Pennsylvania Commission says: “There is no service rendered by the Respondent that does not require on its part some expense. To be more specific, the respondent is at some expense for all the water supplied by it, and as all the cost and expense including maintenance, depreciation and operation, together with a fair return on its property, .must be paid, it becomes apparent that if some receive free service then the cost of such free service, is a loss to the company unless it falls upon those who do pay.” Again, in the same case, we find this language: “There is in every municipality a large amount of property subject to general taxation which does not pay for any water service, and j^et this same prop — 331 — erty is receiving the general benefit of the service rendered to such municipality by the public utility, while the cost thereof is placed upon private consumers.” To substantially the same effect are the following: Hollister v. Hollister Water Co. (California), P. U. R. 1915D, 626; Sandpoint v. Sandpoint Water & L. Co. (Idaho), P. U. R. 1915F, 445, 460; Lincoln v. Lincoln Water & L. Co. (Illinois), P. U. R. 1917B, 176; Re Atlantic County Elec. Co. (New Jersey), P. U. R. 1918B, 589; Smith v. City Water Co. (Wisconsin), P. U. R. 1916B, 1068; In re Warwood Water & L. Co. (West Virginia), P. U. R. 1917C, 329; In re Fire Dept. of South Bend (Indiana), P. U. R. 1915A, 538. We have cited these cases solely for the light they may throw upon the question as to whether or not the franchise contract involved in the instant case is a rate-making contract in which the general public has an interest. In our judgment they are sound in their reasoning and logical in their deduction. We conclude, therefore, that the franchise ordinance in the case at bar does involve the subject of rate-making and is not exclusively a proprietary matter. In Woodburn v. Public Service Commission, 82 Or. 114 (161 Pac. 391, Ann. Cas. 1917E, 996, L. R. A. 1917C, 98), we have conclusively determined that whenever a city enters into a franchise agreement with a public utility involving rates for service, the law reads into such a contract a stipulation by the city, that the state may at any time exercise its police power and change such rates. It follows that the judgment must be affirmed, and it is so ordered. Affirmed. Mr. Justice Johns, feeling; disqualified, took no part in the consideration of this case. — 332 — Rehearing denied September 14, 1920. Mr. S. B. Huston, for the petition. Mr. George M. Broion, Attorney General, Mr. J. O. Bailey, Assistant Attorney General, Messrs. Carey & Kerr, Mr. C. A. Hart, and Messrs. Hayden, Langhorne & Metzger, contra.