City of Phoenix v. Kasun , 54 Ariz. 470 ( 1939 )

I am unable to concur in the judgment of my colleagues and will state briefly why.

It appears from the complaint that prior to the extension by the city of its water system to territory outside its corporate limits the plaintiffs and many others similarly situated were obtaining water from community water companies organized for the purpose of supplying water to those residing in various areas adjacent to the city; that these plaintiffs and others similarly situated were approached by the city and induced by it to abandon their community water systems and connect with that of the city; that when this was done the city proceeded to purchase, dismantle and discard these community systems thereby creating a situation in which the city only could furnish residents of these areas domestic water and for practical purposes giving it a monopoly in this respect; that the contract the residents of these various areas were induced to enter into provided that the city would furnish for $2.50 a minimum of 1,666 cubic feet a month and fifteen cents for 100 cubic feet in excess thereof, and that the plaintiffs and others similarly situated have paid these charges; that on March 10, 1938, without the consent of or notice to the plaintiffs or any of the others similarly situated, the city raised the minimum water charge to $3.75 per month for practically the same service, that is, for 1,700 cubic feet, and twenty-two cents for each 100 cubic feet in excess thereof; that these increased rates are excessive, unreasonable and confiscatory, and, notwithstanding the city made no change in the rates of those residing within its corporate limits, it earned a net operating profit of not less than $250,000 in the year preceding the raise of these rates; that plaintiffs and others similarly situated are required to pay these increased and excessive charges or have their service discontinued.

The sufficiency of this complaint was questioned by defendant's motion to dismiss upon the ground that it appeared on its face that the court had no jurisdiction of the subject matter. This motion was, in effect, a demurrer and upon its soundness rests the correctness of the order granting a temporary injunction. However, in determining whether the court did in fact have jurisdiction, the majority opinion refers to a matter not alleged in the complaint but set up in the answer as a special defense, that is, that the water was furnished plaintiffs under a provision of the contract under which the relationship of the parties arose stating that if it should be necessary at any time to revise the rates, those to be paid "shall be as fixed from time to time by the city commission." This was evidently adverted to upon the theory that a consideration of it is necessary to a complete disposition of the matter involved.

There is no question but that under the state Constitution the power to fix the rates water consumers residing outside (as well as inside) the corporate limits of the city must pay rests wholly in the municipality itself. My colleagues say, however, that since this is true and since the service rendered the plaintiffs and some other four thousand similarly situated is based upon a contractual and not a legal right, the city is not amenable to the courts or any other authority in the discharge of this function. I am unable to accept this view, for in furnishing water for domestic purposes the city is performing a public service whether those served live within or without its corporate limits. The fact that the city's boundary line separates these two classes of users does not change the character or nature of the service one iota. There is, in fact, no greater public service a utility, whether privately or municipally owned, can render than to supply people with water for domestic purposes, and the fact that the city furnishes this article of prime necessity in its proprietary rather than in its governmental capacity, or that it does so pursuant to a contract with its several thousand nonresident consumers, does not change the character of the service in the slightest degree. It is still a public service and the water plant with which it is rendered is no less a public utility because it belongs to the city instead of some private individual or corporation, for while a utility owned by a municipality is sometimes classified as a "municipal utility" to distinguish it from a "public utility," General PipeLine Co. v. State Board of Equalization, 5 Cal. 2d 253,54 P.2d 18, a municipal utility is nothing more than a public utility municipally owned and over which the rate-fixing body of the state, the corporation commission in Arizona, has no jurisdiction. So, in operating its own utility the city does not change its character to that of a private corporation but remains as much a municipal corporation rendering a public service as it is when performing a purely governmental function. In City ofPasadena v. Railroad Com., 183 Cal. 526, 192 P. 25, 27, is found this language:

"It is not true that a city is a private corporation when carrying on a municipally owned public utility. No decision so holds. All the decisions on the subject recognize the fact that a city does not change its character by engaging in such enterprises. . . . The distinction does not go to its character as a corporation, but to its liabilities in exercising one class of its powers, as compared to its liabilities in the exercise of its functions as a local governmental agency."

Since the service the defendant renders its 4,000 nonresident consumers is public in the highest degree, I am unable to see how the fact that it is based upon a voluntary contract with the city makes the relationship between it and these users merely that which exists between two private individuals who have contracted about a matter not affected with a public interest, and especially is this true under the terms of the contract here involved. Undoubtedly the relationship between the parties originated in contract, for it could have arisen in no other way, since the city could not have compelled nonresidents to use its water, nor could the city have been compelled to furnish water to them, even though it had constructed its system through the areas where these outside residents live. The rate the contract provides should be paid, without any limitation as to how long it should run, is $2.50 per month for 1,666 cubic feet and fifteen cents for each 100 cubic feet in excess thereof, but the higher rate so strenuously objected to by the plaintiffs and others was fixed by the city commission some years later pursuant to the provision of the contract giving it this authority. In agreeing that the city could revise the rate that was acceptable to both parties to begin with, the plaintiffs and the defendant both evidently acted upon the theory that any charge the city might fix pursuant thereto in the future would not be unreasonable, excessive or discriminatory but reasonable and fair. Clearly this was the meaning both parties intended this provision to have, for when the power to fix a rate any public utility may charge for water for domestic purposes is given to any body, board or commission, it always implies that the rate fixed pursuant thereto shall be reasonable and neither excessive nor discriminatory.

"When a constitution or statute provides for the fixing of rates or compensation," to use the language of 27 R.C.L. 1443, "it means reasonable rates and just compensation. So a board or other body to which rate making power is delegated has no right to fix rates arbitrarily and without investigation, or without exercising its judgment or discretion to determine what is a fair and reasonable compensation."

And this is just as true of a municipal corporation in fixing the rates to be charged for domestic water furnished by it pursuant to its constitutional power, as it is of any other regulating body in fixing rates for a privately owned water plant, and certainly the city cannot in its proprietary capacity take to itself by contract any greater power or right to fix water rates than the Constitution itself gives it. The following pertinent statement is also from 27 R.C.L. 1443:

"A municipality operating its own water system is subject to the same duties and obligations and responsibilities of an individual or private corporation, running and operating a like business, and is subject to have the rates charged, regulated, and fixed in the same manner prescribed by law for the fixing of water rates generally."

In 43 C.J. 421, section 552, appears the following statement concerning the power of a municipal corporation to fix rates:

"It may change the rates from time to time as the circumstances demand it. The rates cannot be discriminatory. They must be reasonable; and they are subject to review by the courts in the same manner as the rates fixed for public utilities privately owned."

See, also, Holton Creamery Co. v. Brown, 137 Kan. 418,20 P.2d 503; Feil v. City of Coeur D'Alene, 23 Idaho 32,129 P. 643, 43 L.R.A. (N.S.) 1095; Twitchell v. City ofSpokane, 55 Wash. 86, 104 P. 150, 133 Am. St. Rep. 1021, 24 L.R.A. (N.S.) 290; 67 C.J. 1242, sec. 796; Barnes Laundry Co. v. City of Pittsburgh, 266 Pa. 24, 109 A. 535; Central Iron Steel Co. v. City of Harrisburg, 271 Pa. 340, 114 A. 258;American Aniline Products, Inc., v. City of Lock Haven,288 Pa. 420, 135 A. 726, 50 A.L.R. 121.

Hence, as I see it, all the provision of the contract authorizing the city to fix rates from time to time accomplishes is to place the city and its nonresident consumers in the same relation towards each other as to future rates that exist between the municipality and its resident consumers, that is, the rates in both instances must be reasonable, though not necessarily the same, because it is plain that certain factors might enter into the question of reasonableness in the case of nonresidents that would not be present where residents only are concerned. If this is not the correct construction of this provision, the city may fix any rate it sees fit, however unreasonable, excessive or exorbitant, and the plaintiffs and the other four thousand nonresident users will be compelled to pay it or suffer discontinuance of their service. And this is true, notwithstanding the fact that the community systems from which they previously secured their water were acquired, dismantled and discarded by the city after the contract was entered into, thus rendering it impossible for them, except at great expense, to obtain water elsewhere. This is in effect the interpretation contended for by the defendant and, if I understand it correctly, the one upheld by the majority opinion, but it seems clear to me that this provision, when given this construction, is illegal and unenforceable, since the rates the city may fix pursuant to its constitutional power must be reasonable and neither excessive nor discriminatory. 67 C.J. 1245, sec. 803. The right to fix rates for domestic water or any other product of a public utility is derived from the police power of the state and must be exercised in a way to promote the public welfare, but if a municipality or any other owner of a public utility may compel the users of the domestic water it furnishes to pay an excessive or exorbitant price for it, it is difficult to see how this result is accomplished. It can be done only by adhering to the principle expressed in the following language of the court in Shirk v.Lancaster City, 313 Pa. 158, 169 A. 557, 561, 90 A.L.R. 688:

"The fundamentals of municipal ownership of a water plant are common convenience, efficiency, quality, and low cost of the commodity to the consumer. Water, like air, is a necessity of life, and, from a municipally owned plant, in theory at least, should come to the consumer without profit to the seller as such term is understood in the utility field, but such theory does not exclude the idea of profit, as we have recognized in our decisions.

". . .

"Municipal authorities, if they determine to make a profit, and that matter is solely within their control, should bear in mind that municipal ownership implies the furnishing of water at the lowest cost possible, consistent with efficiency, service, quality of the commodity, and the preservation of the plant; . . ."

The statement in Childs v. City of Columbia and Collier v.City of Atlanta, cited in the majority opinion, that in selling its surplus water to outside residents the city is under no obligation to do this at a reasonable rate but should get all the profit it can for itself, is clearly a departure from this principle.

Whether the rates complained of are in fact unreasonable, excessive and discriminatory, I do not know, but the complaint alleges they are and, in passing upon the correctness of the order denying the motion to dismiss because it appears on the face thereof that the court had no jurisdiction of the subject matter, this allegation must be treated as true.

The fact that the corporation commission has no jurisdiction over rates fixed by the city, whether for residents or nonresidents, instead of indicating that the courts have no power to review rates fixed by it for outside users, tends to strengthen the view that they may at the suit of nonresidents entertain a complaint that a rate fixed by the city is excessive and discriminatory. Admittedly they could take such action upon a similar complaint by resident users, and there is certainly no presumption that these are entitled to protection against excessive and exorbitant rates but that outside consumers are not.

Inasmuch, therefore, as the provision of the contract empowering the city to revise rates, authorizes it to fix a reasonable nondiscriminatory charge for its nonresident users and nothing higher, it follows necessarily that the courts in the exercise of their equity powers may review such rates at the suit of consumers and enjoin their enforcement when it is shown at a hearing that they are in fact unreasonable, excessive and discriminatory. 67 C.J. 1243. They have no power to fix the rates the city may charge but are limited in jurisdiction to reviewing those fixed by it and to the granting of relief from them if found excessive or confiscatory.

The order of the trial court should be affirmed.