City of Des Moines v. Iowa State Commerce Commission

• Decision Date: 14 November 1979
• Docket Number: No. 62520,62520
• Citation: 285 N.W.2d 12
• Parties: CITY OF DES MOINES, Iowa, Appellant, v. The IOWA STATE COMMERCE COMMISSION, Appellee, Iowa Power and Light Company, Intervenor-Appellee.
• Court: Iowa Supreme Court

Page 12

285 N.W.2d 12

CITY OF DES MOINES, Iowa, Appellant, v. The IOWA STATE COMMERCE COMMISSION, Appellee Iowa Power and Light Company, Intervenor-Appellee.

No. 62520.

Supreme Court of Iowa.

Nov. 14, 1979.

Phillip T. Riley and M. A. Iverson, Des Moines, and John H. Reichman of Surrey, Karasik, Morse & Seham, New York City, for appellant.

James R. Maret, Gary D. Stewart, and Diane L. McIntire, Des Moines, for appellee.

John C. Cortesio, Jr., Terry C. Hancock, and William L. Dawe of Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for intervenor-appellee.

Considered en banc.

McGIVERIN, Justice.

The controlling question in this appeal is whether the franchise fee charged Intervenor Iowa Power and Light Company (Iowa Power) by petitioner City of Des Moines, Iowa (City), should be collected only from Iowa Power's customers in Des Moines or whether that cost should be paid as a system-wide expense by all the customers Iowa Power serves. Respondent Iowa State Commerce Commission (Commission) and the district court ruled the franchise fee should be collected only from Des Moines customers. City appeals. We affirm. Commission cross-appeals from another ruling of the district court. We dismiss the cross-appeal as moot.

The following questions must be answered in our review and disposition of the appeal:

1. When the Commission ruled the Des Moines franchise fee should be paid only by Des Moines customers of Iowa Power, were contractual rights of City, which were part of its franchise with Iowa Power, abridged in violation of section 476.23, The Code 1977, and 490A.23, The Code 1975?

2. Was the Commission's ruling supported by substantial evidence?

Under the terms of two 1960 Des Moines city ordinances, which were ratified by vote of the electorate, Iowa Power was granted franchises and the right for twenty-five years to acquire, construct, maintain, and operate the necessary facilities on or under public places for the production, distribution, and sale of gas and electric energy for public and private use in Des Moines. The franchises or agreements still in effect impose on Iowa Power annual franchise taxes or fees payable to the City of two percent of Iowa Power's gas revenues and one percent of its electric revenues derived from sales within the municipal boundaries of the City.

The franchises do not specifically provide a method by which Iowa Power is to recover the costs of the fees. However, since before 1960 the fees were treated by Iowa Power as a cost of doing business and the fees were spread equally among all its customers, including those living outside the City.

On January 30, 1976, Iowa Power filed a major tariff revision proposal with the Commission requesting increases in both electric and natural gas rates. The revision went into effect subject to refund on July 1, 1976. As a part of the revision, Iowa Power proposed to change the method of recovering the cost of the franchise fees. Each customer within the City would be surcharged his respective share of the franchise, fee, rather than spreading the cost of the franchise over the utility customers generally. The City challenged this aspect of the proposal by intervening in the proceedings before the Commission.

Testimony before the Commission established that the franchise fees were an identifiable cost that benefited the City by relieving city residents of taxes they would otherwise have to pay. Based on 1975 revenues the franchise payments made to City were nearly one million dollars, of which approximately one-half was paid by Iowa Power customers residing outside Des Moines. A witness for Iowa Power testified it was fair to shift the cost of those fees to customers benefiting from the payments.

The Commission approved the shift to City customers of the cost of the franchise fees finding, Inter alia, that the previous method of recovering the cost of the fees was not an inherent part of the franchise or agreement between City and Iowa Power and that the new method was just and reasonable.

City filed petitions for judicial review, later consolidated and also sought a stay order in district court under Chapter 17A, The Code 1977, from enforcement of the Commission's ruling. Iowa Power intervened under section 17A.19(2) on the side of respondent Commission.

The court (Denato, J.) denied the application for stay order. The court (Hass, J.) affirmed the ruling of the Commission. The Court found the evidence supported the Commission's finding that the new method of collecting franchise fees was just and reasonable and that there was no impairment of a contractual obligation because the franchise agreements did not define the manner of recovering the cost of such fees.

Our review under section 17A.20 is not de novo. We "review the record in the manner specified in § 17A.19(7) and make anew the judicial determinations specified in § 17A.19(8)." Hoffman v. Iowa Department of Transportation, 257 N.W.2d 22, 25 (Iowa 1977); See Jackson County Public Hospital v. Public Employment Relations Board, 280 N.W.2d 426, 429 (Iowa 1979) (quoting Hoffman ). Our review is limited, as the district court's review was, to the record made before the Commission. Davenport Community School District v. Iowa Civil Rights Commission, 277 N.W.2d 907, 909 (Iowa 1979); Hoffman, 257 N.W.2d at 25.

I. Did the Commission's ruling abridge City's contractual rights under sections 476.23, The Code 1977, and 490A.23, The Code 1975? City first contends the Commission's order, allocating the full cost of the franchise fees to City residents, abridges an essential right acquired by the City through its franchise or agreement with Iowa Power and therefore was in violation of sections 476.23, The Code 1977, ¹ and 490A.23, The Code 1975. ²

City claims that pursuant to the franchises the costs of the franchises were to be collected equally from all Iowa Power customers and that the Commission, by its order, abrogated that right.

Due to their length, we do not set out the two Des Moines ordinances granting the franchises. However, the ordinances, as City partially concedes, do not prescribe the method of collecting the franchise fees by Iowa Power.

City relies on what it regards as the intentions of the City and Iowa Power when the ordinances were passed by the City Council in 1960. City points to the fact that Iowa Power had for several years prior to 1960 paid a franchise tax to City and surcharged the tax to all of its customers. Also, in 1960 the president of Iowa Power in a written statement told the City Council, when it was considering the two ordinances, that "franchises have nothing to do with rates."

City further argues that sections 476.23 and 490A.23 preserve rights acquired by City through its franchise with Iowa Power even after the Commission was given utility rate-making authority by the legislature in 1963 by Chapter 490A, the Code. Section 490A.23 remained in effect until July 1, 1976, when the entire Chapter was revised to some extent as part of Chapter 476 of the 1977 Code. The present proceeding was then underway and section 476.23, The Code 1977, upon which City relies, became effective on July 1, 1976.

We believe City's contentions fail for several reasons. First, the only franchise rights City had were those provided by the franchises themselves. However, the franchises do not state how Iowa Power is to collect the franchise fee. The Commission determined that the record did "not support the inference City argues, i.e., that the franchise agreement was predicated on system-wide recovery of the fee" and refused "to draw such an unsupported inference." This factual finding by the Commission is supported by substantial evidence on the record considered as a whole and answers adversely City's claim relative to the intentions of City and Iowa Power. Second Injury Fund v. Mich. Coal Company, 274 N.W.2d 300, 303 (Iowa 1979); Catalfo v. Firestone Tire and Rubber Co., 213 N.W.2d 506, 509 (Iowa 1973).

Because no rights acquired by City under its franchise or agreement with Iowa Power are impaired, sections 490A.23, The Code 1975, and 476.23, The Code 1977, did not prohibit the Commission from determining that the rates charged City residents should include the costs of the franchise fees. The Commission has the delegated responsibility to fix rates that are "reasonable and just." § 476.8, The Code 1977; See Davenport Water Company v. Iowa State Commerce Commission, 190 N.W.2d 583, 592 (Iowa 1971).

Several courts considering the effect of a collection change such as that proposed by Iowa Power have determined that no impairment of a contract obligation exists if the franchise itself does not define the manner in which the fee shall be collected. The following from City of Plant City v. Mayo, 337 So.2d 966, 973 (Fla.1976), generally defines the position of some courts that have faced the problem:

The amount paid by Tampa Electric to each city under its franchise fee contract is the same whether the utility collects the sum from some or all of its customers. Customers of Tampa...