City of Detroit v. Pub. Utilities Comm'n

• Decision Date: 10 March 1939
• Docket Number: No. 54,Oct. Term, 1938.,54
• Citation: 286 N.W. 368,288 Mich. 267
• Parties: CITY OF DETROIT et al. v. PUBLIC UTILITIES COMMISSION.
• Court: Michigan Supreme Court

288 Mich. 267

286 N.W. 368

CITY OF DETROIT et al.

v.PUBLIC UTILITIES COMMISSION.

No. 54, Oct. Term, 1938.

Supreme Court of Michigan.

March 10, 1939.

Appeal (in Nature of Certiorari) from Public Utilities Commission.

Petition by Duncan C. McCrea and others, praying that the Michigan Public Utilities Commission investigate rates of the Detroit City Gas Company operating in the City of Detroit under an agreement with the City. From an order of the Michigan Public Utilities Commission, the City of Detroit and the Detroit City Gas Company appeal in the nature of certiorari.

Affirmed.Argued before the Entire Bench, except BUTZEL, C. J., and NORTH, J.

Raymond J. Kelly, Corp. Counsel, and James H. Lee, Principal Asst. Corp. Counsel, both of Detroit, for appellant City of Detroit.

Angell, Turner, Dyer & Meek, of Detroit (Park Chamberlain, of New York City, James O. Murfin, of Detroit, of counsel), for appellant Detroit City Gas Co.

Raymond W. Starr, Atty. Gen., for appellee.

Harold Goodman, of Detroit, for petitioner Duncan C. McCrea, and other interveners.

McALLISTER, Justice.

The Detroit City Gas Company during the past 30 years has manufactured, sold and distributed gas in the city of Detroit. When its charter expired in 1923, the city entered into an agreement, granting a franchise for an additional time. Such franchise had not been ratified by three-fifths majority of the electorate of the city of Detroit, and was thereafter declared invalid by this court. Walker Brothers Catering Co. v. Detroit City Gas Co., 230 Mich. 564, 203 N.W. 492. Controversy then arose between the city and the gas company as to the rates to be charged. The gas company publisheda schedule of rates, whereupon the city passed an ordinance which in effect accepted these rates, but at the same time, imposed a rental charge of $125,000 per month upon the gas company for the use of the city streets. The company then filed a bill in equity in the United States District Court for the Eastern District of Michigan to enjoin the enforcement of this rental charge, and, before the determination of such case, promulgated an increased schedule of rates. The city, thereafter, filed a bill of equity in the circuit court of Wayne county, setting forth that such rates were unreasonable and arbitrary, and prayed that the company be enjoined from putting them into effect.

The entire controversy up to this time involved manufactured gas. However, both parties had been investigating the feasibility of the use of natural gas, and as a result of such investigation, and after considerable negotiation between the gas company and the city, it was decided to substitute natural gas for manufactured gas. Since the use of natural gas would render any decision in the pending cases of temporary effect, and in order to make a new arrangement, it was agreed that consent decrees should be entered in both pending cases, terminating the litigation and providing for a new contract for the furnishing and distribution of gas. This agreement was contained in the consent decree entered in the circuit court of Wayne county, which is the proceeding of especial importance in this case.

Such decree provided that the company was to receive a certain base earning, dividing profits above this agreed amount, with the consumers. It further provided that within a specified time in the future, the company would promulgate a schedule of rates for consumers. Pursuant to the decree, the gas company afterward promulgated a schedule of rates.

On April 27, 1937, Duncan C. McCrea, prosecuting attorney for Wayne county, and a customer of the gas company, filed a petition with the Michigan public utilities commission, claiming that the plan and agreement, contained in the decree, were fraudulent, and formulated solely in the interest of the gas company, to the damage and detriment of the rights of the public. In his petition, in which he was later joined by more than fifty thousand other consumers of the gas company, he prayed that the commission take jurisdiction to investigate the methods by which the rates were established; to investigate the effect upon Michigan natural gas prices of alleged monopolistic control; and to establish just and reasonable rates. Upon the filing of the petition, the commission issued an order, setting a date for the hearing thereof, to ascertain whether it had jurisdiction to hear and determine the matters set forth in the petition, and caused notice of such hearing to be served upon petitioner, the city of Detroit, and the gas company.

After an extensive hearing, and upon the opinion of the attorney general, the commission determined that it had jurisdiction under the petition to investigate and establish just and reasonable rates for natural gas in the city of Detroit.

From the order entered by the commission, the gas company and the city of Detroit appeal, contending that the commission has no jurisdiction because:

1. The consent decree is an agreement fixing rates between the municipality and utility, and by statute the commission has no jurisdiction where there is such a contract.

2. Where the franchise of a public utility has expired, only the municipality can petition the commission to fix rates, and the commission obtains no jurisdiction upon the petition of an individual consumer.

3. Since the suit of the city in the circuit court for Wayne county was brought by the city on behalf of all other consumers of gas, the consent decree therein entered is binding on petitioner and all other consumers.

The primary question to be determined is whether, under the arrangement now existing between the city and the gas company, the public utilities commission is excluded from jurisdiction to inquire into and determine rates.

Sec. 4 of the Public Utilities Commission Act, 2 Comp.Laws 1929, § 11009, provides, in part: ‘In no case shall the commission have power to change or alter the rates or charges fixed in, or regulated by, any franchise or agreement heretofore or hereafter granted or made by any city, village or township.’

If there is a valid agreement or franchise granted or made by the city, fixing or regulating rates or charges, the Commission had no power to change or alter them, as rates, fixed by agreement, are not subject to control of the commission. Lenawee County Gas & Electric Co. v. City of Adrian, 209 Mich. 52, 176 N.W. 590, 10 A.L.R. 1328.

In this regard it is of importance to consider the power of a municipality to enter into a contract, fix or regulate rates to be charged by a public utility, and the necessary requisites to the exercise of such a power. A municipal corporation possesses only those powers; expressly granted; those necessarily or fairly implied in or incidental to the powers expressly granted; and those essential to the declared objects and purposes of the corporation. The latter consist of powers, not simply convenient to the exercise of the declared objects, but those indispensable thereto. Atty. General v. Detroit Common Council, 150 Mich. 310, 113 N.W. 1107,121 Am.St.Rep. 625;Barnhart v. City of Grand Rapids, 237 Mich. 90, 211 N.W. 96. No express power is given to the city of Detroit to regulate the rates of public utilities; and this power is not one of those essential to local self-government. City of Kalamazoo v. Titus, 208 Mich. 252, 265, 175 N.W. 480. Such power arises only from the exercise of powers necessarily implied.

Article 8, § 28, Constitution of Michigan, 1908, provides: ‘No person, partnership, association or corporation operating a public utility shall have the right to the use of the highways, streets, alleys or other public places of any city, village or township for wires, poles, pipes, tracks or conduits, without the consent of the duly constituted authorities of such city, village or township; nor to transact a local business therein without first obtaining a franchise therefor from such city, village or township. The right of all cities, villages and townships to the reasonable control of their streets, alleys and public places is hereby reserved to such cities, villages and townships.’

Under the above provision of the Constitution, the city has the power to fix reasonable rates as a condition to the use of its streets by a public utility. City of Kalamazoo v. Kalamazoo Circuit Judge, 200 Mich. 146, 166 N.W. 998, 1002. In the foregoing case, the court quoted from City of Noblesville v. Improvement Co., 157 Ind. 162, 60 N.E. 1032, where the court stated that a city had the unquestionable right to grant to any person, firm or corporation a franchise to occupy its streets and alleys for conveyance of gas to customers; and further:

‘That the want of power to legislatively fix a rate does not prevent the execution of a contract, is illustrated by the case of City of Noblesville v. Improvement Co., supra, where it is said:

“That the city had no power to regulate the rates of its licensee makes no difference. It had the power to contract. And the power to regulate as a governmental function, and the power to contract for the same end, are quite different things. One requires the consent only of the one body, the other the consent of two. In this instance the city acted in the exercise of its power to contract, and it is therefore entitled to the benefits of its bargain.'

‘In City of St. Mary's v. Hope Natural Gas Co., supra [71 W.Va. 76, 76 S.E. 841,43 L.R.A. (N.S.) 994], it was held that the city might, in the control of the use of its streets, prescribe conditions including the fixing of rates for gas, and might contract therefor, even though it possessed no governmental power to fix rates.

‘The distinction between fixing rates by contract and under governmental power was clearly recognized by the Supreme Court of the United States in the case of City of Detroit v. Railway Co., 184 U.S. 368, 22 S.Ct. 410, 46 L.Ed. 592, where it was said:

“It is plain that the Legislature negarded the fixing of the rate...