Southern Indiana Gas & Electric Co. v. Indiana Statewide Rural Electric Cooperative, Inc. , 251 Ind. 459 ( 1968 )

Lewis, C.J.

This case comes to this Court after an appeal to the Appellate Court of Indiana in which that court voted three (3) to affirm and three (3) to reverse, with two (2) judges not participating. 232 N. E. 2d 899. The action was instituted by the appellant seeking injunctive relief, and the prayer of appellant’s complaint is substantially as follows:

“[That appellee be enjoined] . . . from either constructing or operating an electric utility generating plant of transmission facilities; from producing, furnishing, transmitting or selling electricity in any part of the area or to any of the customers, served by the plaintiff; from using or crossing county roads or other county property for the installation of its facilities; and from otherwise engaging as a public utility in the production, transmission, sale or furnishing of electric power, all unless and until authorized so to do by proper order of the Public Service Commission of Indiana, and in the case of using county property, unless and until properly authorized so to do by the respective counties.”

The Trial Court denied the injunction, and the appellant assigns as error:

“The Trial Court’s denial of its motion for a new trial with the specification of error being that the decision was contrary to law.”

The appellee, prior to the filing of this cause of action, had taken steps to construct an electric utility generating plant and transmission system in southern Indiana, and it contemplated selling to a number of local REMCs in order that such local REMCs might sell at retail, electric service in the areas for which they are authorized. At the present time, the local REMCs purchase the electric power from public utilities. Two (2) such REMCs purchase from the appellant.

The appellant generates and sells electric power service, and has done so for a number of years. It serves urban areas as well as rural areas throughout southwestern Indiana. Its customers include retail domestic and farm users, as well as commercial, industrial, and public consumers. The appellant also sells wholesale energy to municipalities as well as the REMCs noted above.

The service to the REMCs had its beginning in 1941 after approval by the Public Service Commission of Indiana (hereinafter referred to as the Commission). The service has been continuous since that time and throughout the intervening years.

Since 1941 appellant has, from time to time, expanded its services and its sales to the REMCs; and, on each occasion, has received the approval of the Commission. This service extended by the appellant to its REMC customers has been adequate, and appellant is in a position to continue such service; and, throughout the years has readily made substantial investments in order to adequately supply service when increases were needed. Part of appellant’s investment in plants, and other capital expenditures, has been made for the exclusive purpose of serving the REMC customers. Other of its investments, of course, was made to serve the REMC customers as well as other customers.

The appellee was organized in 1935 under Burns’ Indiana Statutes, Anno., §55-4405 Revised; and, the organization of appellee was approved by Commission as provided by said Act. From 1935 until the institution of this action, the appellee was not engaged in the generation or transmission of electric energy.

The proposed structure of the utility project in question precipitated the case at bar. The record indicates that prior to appellee seeking to build a generating plant without Commission approval, a non-profit corporation known as Hoosier Cooperative Energy, Inc. sought Commission approval for the construction of the generating plant in question. When objections were made before the Commission by appellant and other utilities, this project was abandoned by Hoosier Cooperative Energy, Inc., and the financing proposed to be supplied to Hoosier Cooperative Energy, Inc. was transferred to appellee; and, appellee then sought to carry out the construction and proposed generation and sale of energy without Commission approval.

We, therefore, are met with the question as to whether appellee may carry on this project without a current permissive hearing before the Commission. Appellee contends that it was given permission in its corporate powers in 1935 to do all acts that it proposes now to do, and which appellant seeks to enjoin. Appellee further contends that the fact which is undisputed, that appellee did not take any steps to build a plant or to generate electric power between 1935 and late 1961, does not in any way vitiate any authority that may have been given to appellee in 1935.

The appellant’s position is that appellee, in the hearing in 1935, did not propose to the Commission that it contemplated an operation including the generating of power or the transmission and sale of power at wholesale, and that such authority was never contemplated by the approval of the Articles of Incorporation of appellee by Commission in 1935.

Appellant further contends that even though such authority was inadvertently granted, it has now lapsed because of the failure of the appellee to exercise and use such authority in the intervening years and the failure of the appellee to serve any public need during the intervening years.

Appellant further yet contends that the legislative history of the REMC Act, as well as amendments to Commission Acts, points out clearly that the Legislature contemplated that any extension of service by appellee would be subject to the approval of Commission.

The original Indiana REMC Act was passed by the General Assembly in 1935, and pursuant to such Act (Burns’, § 55-4405, supra,) appellee did file with the Commission its Articles of Incorporation, and asked that the Commission grant a “certificate of public convenience and necessity for the organization and operations” of the proposed corporation. A hearing was had; and, thereafter, the organization of the appellee was completed by approval of its Articles of Incorporation by the Commission and the filing and recording of same.

Appellee argues that at the time of the organization it was given the corporate power to generate and transmit electricity. The REMC Act grants to each REMC the eorporate power to generate and transmit electricity; but, the Act also recognizes that there is a fundamental difference between the corporate powers of appellant and other like corporations, and the power of such a corporation to operate and exercise such powers in an industry which is substantially regulated by the Commission. The Act requires each REMC to obtain a determination of convenience and necessity for the operations in which it proposes to engage. Therefore, the burden was placed on the Commission to determine and to malee certain that only operations shown to be needed for public convenience and necessity be authorized.

There is included in the record here, the testimony before the Commission in 1935. At that time appellee did not make any contention that there was any public need for appellee to engage in generating or transmitting electric energy as it now proposes to do. Its agents, officers, and experts, testified that adequate energy was being produced at reasonable prices, and could be purchased at wholesale satisfactorily to meet the needs of local EEMCs. The convenience and necessity was shown to be that appellee was called upon to aid local EEMCs in providing legal, management, and engineering assistance.

Thereafter, appellee did engage in furnishing, for local EEMCs, legal, management, and engineering assistance. This conduct continued for at least twenty-five (25) years after the Commission, in 1935, entered its order approving the Articles of Incorporation of appellee. During all of these years, appellee did not generate or transmit electric energy and it had never operated as a public utility.

Appellee now takes the position that since the verbage concerning generating and transmitting of electric energy was included in its Articles of Incorporation, this power remains. Appellee’s position is that by the approval of its Articles of Incorporation, it had pre-empted the right to generate and transmit electric power without any further approval on the part of the Commission even though appellee has failed to use that power or to serve the public under that power in the intervening years.

Appellant argues that the power was never granted in 1935 because all of the evidence indicates the power was not sought. Appellant further argues that even if some naked power had been granted in the Articles of Incorporation, it has long since been extinguished and has lapsed because of the doctrine of non-user.

Under the decisions of this Court, appellant relies upon City of Huntington v. Northern Indiana Power Co. (1937), 211 Ind. 502, 5 N. E. 2d 889, and Public Service Co. v. City of Newcastle (1937), 212 Ind. 229, 8 N. E. 2d 821. These two (2) cases concerned electric public utilities which successfully enjoined cities from commencing to render competitive electric utility service after such utilities had furnished such services over a period of time.

In each of the above-cited cases the municipal corporation clearly had the corporate power to operate an electric utility within its corporate limits. In both cases the city claimed a long-standing utility right to engage as a public utility and to provide electric utility service.

This Court held in each case that even assuming the original validity of each city’s right to operate, such right had long since lapsed because of non-user under circumstances where the public utilities had provided the facilities, had rendered the service, and had met the public need.

In City of Huntington v. Northern Indiana Power Co., supra, the City of Huntington asserted its utility right under the “certificate of public convenience and necessity” which had been issued some twenty (20) years prior by the Commission. This Court said:

“Appellants rely upon the fact that in 1914 the city was granted permission to distribute electricity for domestic and commercial purposes. However, this authority was never exercised. The city will not be permitted to hold such right in a dormant state, and, after a public utility has operated under legal authority for many years and expended large sums to serve the public, undertake to operate under the condition here presented.”

“. . . The rule there announced and supported by abundant authority amounts to saying that when the Public Service Commission of Indiana, in 1914, granted to the City of Huntington authority to engage in domestic and commercial lighting, it must use that grant for public benefit. It was granted upon the implied condition that it would be so used. The non-user for more than twenty years amounted to a forfeiture. [Cites omitted] ”

In Public Service Co. v. City of Newcastle, supra, the City of Newcastle claimed the right, under its enabling act which preceded the enactment, in 1893, of statutory provisions requiring municipal corporations to obtain Commission approval prior to the City engaging in the utility business. This Court, assuming the validity of the right claimed by the City, held that such rights had lasped, stating:

A franchise or right to serve the public as a public utility is contingent upon use, and may lapse or be forfeited by non-user. City of Huntington et al. v. Northern Ind. Power Co. (1937), 211 Ind. 502, 5 N. E. (2d) 889. If the appellee city had the right to engage in business as a public utility in 1893, it abandoned all pretense of so acting, at least until 1916, and, if serving the two residences in question without assuming any obligation to serve any others can be considered serving the public as a public utility, all such effort was again abandoned in 1928, and there was no further effort until just before the beginning of this action.”

Appellee contends that the doctrines announced by this Court in the foregoing eases do not apply. Appellee argues that its rights to operate as an electric utility is granted by statute; that is, that the right is given directly by the Legislature rather than by Commission action, and, therefore, that the right granted by the Legislature is not subject to lapse. [It is interesting to note that the City of Newcastle made this argument, and that this Court denied the argument.]

It is not appellee’s corporate power that lapses, but, rather, its claimed right to operate as a utility. Historically, utility rights have been granted by the State. This was true because that was the way utility rights were granted before municipal corporations were empowered to grant franchises and before regulatory commissions were established.

In an analysis of New York Electric Lines Co. v. Empire City Subway Co. (1914), 235 U. S. 179, 35 S. Ct. 72, which is cited by this Court in City of Huntington v. Northern Ind. Power Co., supra, it is clearly shown that the Supreme Court of the United States relied upon prior decisions which had applied the doctrine of lapse because of non-user to utility rights obtained directly from the Legislature.

Appellee seeks to distinguish its position from the above two (2) cases cited by appellant, contending that the municipal corporations operate as private corporations when in the utility business; but, appellant properly answers that the appellee is also a private corporation itself and can act only as such.

Appellee further contends that on the record, lapse for non-user should not apply because there is a failure of evidence that appellee intended to abandon its right to generate and transmit power. Public Service Co. v. City of Newcastle, supra, held to the contrary. In that case the Trial Court specifically found that the City did not intend an abandonment; and, the Trial Court, based upon that lack of intention, determined that the City had not lost its utility right. This Court, however, reversed, and held that the lapse had occurred as a matter of law where there was a failure to meet a need for service and where another utility provided the service.

In City of Huntington et al. v. Northern Ind. Power Co., supra, and Public Service Co. v. City of Newcastle, supra, this Court has held that even though authority may be granted to a utility to render public service, if that utility fails to provide that service and another utility does provide and does render the service and is in a position to meet the public need, the unused right or authority of the first utility lapses and fails to exist.

These decisions are based on important considerations of public policy. The underlying objective is to secure and encourage service to the public. The reason and purpose for granting a right or authority to render a utility service is to meet a public need for service. If the utility holding such grant fails to serve, and the need is met by another utility, the grant does not and should not survive.

It would be completely unconscionable to hold that the service actually being rendered by the utility which has met the need be displaced in any attempted exercise of the attempted exercise of the old and unused grant. It occurs to us that it is much more fair, practical, and reasonable, to say that a .current grant on the basis of current public convenience and necessity is first required.

The precedent of the case law here involved and the principles underlying such case law apply to this case. The rights claimed by the appellee to generate and transmit electricity, and to engage and operate utilities, based on the 1935 Commission hearing and proceedings, have lapsed through non-user. A current hearing and a .current grant by the Commission certainly is in order before appellee should be permitted to proceed to generate and transmit electricity.

The law of Indiana has for years recognized the validity of regulating the utility business to the end that we not have duplication of utility facilities and unnecessarily expensive utility service since this would adversely affect the public in receiving efficient and economical service.

Competition between utilities should be permitted only after the Commission finds it in the public interest that such competition should exist. It is from this law that the statutes provide that local governmental units are prohibited from issuing permits to a utility for the use of streets, roads, and places, where another utility is already lawfully serving. This permission should be withheld until the Commission has determined that public convenience and necessity requires competing services. See Burns’, § 54-601.

Based upon Burns’, § 54-601 (first enacted in 1913), this Court decided Farmers’ & Merchants’ Co-op. Tel. Co. v. Boswell Tel. Co. (1918), 187 Ind. 371, 119 N. E. 513. There it was held that the Boswell Telephone Co. was entitled to enjoin the Co-operative Telephone Co. from starting competitive services without the approval of the Commission.

Burns,’ §26-620(5) conditions the issuance to utilities of permits to use or cross roads if another utility is already furnishing the same, or similar, service upon:

“. . . the consent of the public service commission first had and obtained after a public hearing of all parties interested and the determination by such public service commission that public necessity and convenience require that such applicant engage in the production, transmission, delivery, distribution, supplying, furnishing, or sale of such same or substantially similar commodity or service. . . .”

The REMC Act, as adopted in 1935, restricted competitive service between REMCs and other utilities by forbidding the REMC to be organized to render service in any territory already being serviced. Bums,’ § 55-4404 (b). REMCs were, therefore, at that time, permitted to cross and use public ways “without obtaining any franchise or permit therefor.” Acts of 1935, ch. 175, § 11 (f) ; but, of course, the restriction against competition with any other REMC, or any other utility, explains the Legislative intent with regard to this freedom for a REMC .to- use or cross public ways.

In the year 1937, the REMC Act was amended providing that REMC could use and cross public ways “after obtaining the necessary franchise or permit therefor.” Burns’, §26-620(5), provides that the permission to use or cross public ways can only be obtained after a determination of public convenience and necessity by the Commission.

We believe, therefore, that by 1937, the Legislature had made certain amendments to be quite certain that REMCs would be treated as other utilities as far as obtaining Commission approval for its extentions as a condition precedent to obtaining permits to use or cross public ways.

The appellee has contended that it is not required to seek Commission approval and determination under Burns,’ § 26-620(5), supra, because appellant is not serving under an indeterminate permit. We believe the appellee’s position is in error.

Appellant does serve customers in rural areas in the counties involved under Commission “certificates of convenience and necessity.” These certificates are indeterminate permits as defined in Bums’, § 54-105.

Appellant serves the REMCs involved under contracts which have been filed with and approved by the Commission. These contracts are subject to the jurisdiction of the Commission and to powers to regulate. State, ex rel. Public Service Commission v. Boone Circuit Court (1956), 236 Ind. 202, 138 N. E. 2d 4. Appellant received Commission approval before it instituted the service in question and this approval does, as it rightfully should, give the appellant the right or privilege lawfully to render its service to its REMC customers.

We believe that under the definition contained in Burns’, § 54-105, supra, each such right or privilege is an indeterminate permit. Boone County Rural Elec. Membership Corp. v. Public Service Commission (1959), 239 Ind. 525, 159 N. E. 2d 121, held that “supplying electricity to other utilities for resale to the public is a public utility service.” The Legislature has recognized that utility service to the public should be protected from the adverse consequences of competition unless such competition is found by the Commission to be needed in the public interest. Bums’, §26-620(5), supra.

Appellee relies heavily on Alabama Power Co. v. Ickes, (1938), 302 U. S. 464, 58 S.Ct. 300, and Rural Electrification Admin, v. Central Louisiana Elec. Co. (5th Cir. 1966), 354 F. 2d 859, and certain other related cases, for authority that the appellant does not have standing to enjoin appellee.

We do not believe that the cases cited sustain appellee’s position. . An analysis of the cases cited, and the related cases, indicates to us that these cases were differentiated in the following ways: First. These cases were against a federal officer or his agency and sought to enjoin the expenditure of federal funds. The case at bar is between private corporations. The second difference that should be noted is that in the cases cited by appellee, the utility operation proposed in each instance was either authorized by the State or the State law did not require authorization. In Rural Electrification Admin, v. Central Louisiana Elec. Co., supra, the court noted that Louisiana did not regulate competitive utility service, but permitted the parties “to fight it out, unpoliced, among themselves.”

There is a vast difference between the case that arises under State law that does not require regulatory authorization for competing or duplicating utility service and the State of Indiana where authorization is required. Injunctive relief is available in Indiana where State law does require such authorization. Such injunctive relief is available, however, only until such time as the Commission approves a competitive situation by issuing a “certificate of convenience and necessity.” Farmers’ & Merchants’ Co-op. Tel. Co. v. Boswell Tel. Co., supra. City of Huntington v. Northern Indiana Power Co., supra. Public Service Co. v. City of Newcastle, supra.

We do here hold that appellee may not generate or transmit electricity until it has obtained the requisite Commission approval and the approval of the various county bodies. We hold that appellee is attempting to proceed without public authorization. It does have the capacity as a corporation to generate and transmit electricity, but this power alone does not relieve appellee from regulations respecting those operations nor does this supply the needed regulatory approval in order to engage in them.

Duplication by REMC or appellee here of utility service may not be in the public interest, and a determination of what is in the public interest in this respect is solely for the Commission to make, subject, of course, to review by the courts. It is not left solely to the parties as was observed concerning the State of Louisiana in Rural Electrification Admin. v. Central Louisiana Elec. Co., supra.

We hold that the Trial Court committed error and that this cause be reversed; and, that appellee should be enjoined from generating or transmitting electricity until it obtains a current “certificate of public convenience and necessity” from the Public Service Commission of Indiana; and the trial Court is directed to enter judgment accordingly.

Arterburn and Jackson, JJ., concur; DeBruler, J., dissents with opinion; Hunter, J., dissents with opinion.