City of High Point v. Duke Power Co.

• Decision Date: 09 August 1940
• Parties: CITY OF HIGH POINT v. DUKE POWER CO.
• Court: U.S. District Court — Middle District of North Carolina

34 F. Supp. 339

CITY OF HIGH POINT v. DUKE POWER CO.

District Court, M. D. North Carolina.

August 9, 1940.

Roy L. Deal, of Winston Salem, N. C., and G. H. Jones, of High Point, N. C., for plaintiff.

R. M. Robinson, of Greensboro, N. C., Roberson, Haworth & Reese, of High Point, N. C., W. B. McGuire, Jr., and W. S. O'B. Robinson, Jr., both of Charlotte, N. C., for defendant.

HAYES, District Judge.

This litigation arises over a controversy between the City of High Point and Duke Power Co. as to the rates properly charged against High Point for the electric energy supplied by Duke Power Co. The City of High Point entered into a written contract with the North Carolina Public Service Corporation dated March 17, 1925, expiring March 1, 1935, for electric energy for lighting purposes and municipal purposes at the rates therein specified. On November 1, 1932, six separate contracts were made (1 for each delivery point) modifying the rates of the old contracts for the remainder of the term. These rates were in accordance with the rates under Schedule 2 filed by Southern Public Utilities Company with the Utilities Commissioner of North Carolina on November 5, 1932, effective November 1, 1932. On December 13, 1934, Southern Public Utilities Co. entered into two contracts which reduced the rates in accordance with Schedule 2-A filed by Southern Public Utilities Co. August 8, 1934, effective September 1, 1934, which were the same as Duke Power Company's rates under Schedule 8-A. The Duke Power Co. owned all of the stock in the Southern Public Utilities Company and in the North Carolina Public Service Corporation.

The latter two contracts covered the delivery points from which the City resold current for lighting and commercial purposes. There was a clause that the contracts would be continued after March 1, 1935, from year to year with the option for either party to terminate it upon 60 days previous notice, at the end of the original term or at the end of any year thereafter. It was provided in the 1934 contract that the City could not resell for use on motors in excess of 5 horsepower.

On December 31, 1934, the City of High Point notified the Southern Public Utilities Co. of its termination of the contracts with their expiration on March 1, 1935. The notice also said: "After March 1, 1935 the City of High Point expects to continue the purchase of electric current from you upon a month to month basis upon such terms and conditions as may be mutually agreed upon between you and the City."

Southern Public Utilities Co. tendered contracts to the City on or about March 16, 1935, based on rates under Schedule 10 of the Duke Power Co. which contained clauses against resale on motors in excess of five horsepower, similar to the provisions in the contracts expiring March 1, 1935. The manager of the Power Co. submitted tabulations showing the City Manager that the City could save several thousand dollars if it entered into the contract in order to avail itself of the rates under Schedule 10 which rates were based upon a demand and energy charge, while the rates under the expiring contracts were based solely on an energy charge. The rates under these schedules were optional and it was more economical for some municipalities to take under Schedule 10 while others saved by taking under Schedule 2 and 8-A, the ones employed under the expiring contracts. The Southern Public Utilities Co. merged with the Duke Power Co. on May 1, 1935, although the merger was in process in March, 1935, but for purposes of this litigation we can treat the Duke Power Co. as being the responsible party on the one hand and the City of High Point on the other hand.

The Power Co. had contracts with other municipalities under Schedules 2 and 8-A and 2-A and it uniformly charged all municipalities the rates under these schedules unless and until they signed a contract to take under Schedule 10. The Power Co. treated the schedules as optional and insisted that Schedule 10 could not be applied in the absence of a contract therefor. The City was unable for some time to determine which schedule would be more advantageous to it but after examining it and checking over the tabulations submitted to it by the Power Co., the City Manager decided that the rates under Schedule 10 would be more economical to the City and signified the willingness of the City to enter into contracts under Schedule 10 in the same manner as that existing between the Power Co. and the City of Lexington, N. C. The general form of contract which the Power Co. filed with the Utilities Commissioner of North Carolina to be used under Schedule 10 contained no restrictions against resale nor did the contract between the Power Co. and the City of Lexington.

The conditions in High Point differed from those prevailing in any other city in North Carolina where the defendant furnished electric current. The Duke Power Company and its subsidiaries constructed and maintained a general distribution system for the sale of electric power in the City of High Point and for this purpose had an investment of approximately $500,000. The City of High Point had no system for the distribution of electric current for power purposes and had not been engaged in the sale of current for power, but it was engaged in the sale of electric current for lighting purposes throughout the entire City and purchased that current and current also for lighting its streets and for other municipal purposes.

The parties reached a deadlock and were unable to enter into a contract because the Power Co. would not enter into it without the restrictive clause and the City would not enter into it with the restrictive clause. In the meantime the City continued to use current as it had before for lighting purposes and for municipal purposes and for resale for lights. It did not resell for use on motors in excess of five horsepower. The Power Co. rendered monthly statements based upon the rates contained in the old contract and the City paid them from March 1, 1935, to April 23, 1938, in the aggregate amount of $448,405.90. The same electricity computed at the rate under Schedule 10 would have amounted to $368,163.98, a difference of $80,241.92. The plaintiff in August, 1937, started this action to recover the above amount.

Between April 23, 1938, and April 24, 1939, the Duke Power Co. sold and delivered to the City and rendered statements therefor at the rates set forth in the contracts of December 13, 1934, which amounted to $163,590.05 but the City has not paid any part thereof. If this power had been computed under Schedule 10 the City would be due $127,435.94. There is no controversy about the fact that the City is due the Power Co. $5,671.01 for miscellaneous power between April 23, 1938, and April 24, 1939. On April 28, 1939, the City tendered the Power Co. a check in the sum of $39,740.94 in full payment of accounts to and including March, 1939, which the Company refused to accept. The check would have been sufficient to cover the indebtedness if the plaintiff had not made the payments and if the rate under Schedule 10 had been in force since March 1, 1935, and had been the applicable rate.

The real controversy revolves around the legal right of Duke Power Co. to prohibit the City of High Point from the resale of the electric power on motors of greater than five horsepower.

The City contends that it was entitled to have current without restrictions on resale. It contends that the Duke Power Co. published Schedule 10 covering rates to municipalities and submitted forms of contracts both of which were approved by the Utilities Commissioner and that no provision appears upon either restricting a municipality from resale. Therefore the Power Co., it contends, unlawfully insisted on inserting the illegal provision in the contract which prevented the City from executing it and that it is entitled to have current under Schedule 10 in the same manner as those municipalities which purchased under written contract. The Power Co. refused to enter into a contract with the City of High Point unless Paragraphs 6 and 12 were included therein as follows:

Paragraph 6: "Lighting its streets and public and private buildings, and for other municipal purposes, and for resale to the inhabitants of the consumer for residential and commercial purposes." And in Paragraph 12: "It is expressly understood and agreed that the consumer shall not sell or deliver the electric power delivered hereunder, or any part of same, to any consumer for any one motor in excess of 5 horse-power."

The Power Co. owned the John Leddy franchise. Under it the Company and its predecessors had installed the power distribution system above referred to. The City had confined its activities to resale for light and commercial purposes and for its municipal purposes. Nor had the Power Companies invaded the City's realm of sale for lights. The City granted franchise to Leddy which contained the right and provision to install and to maintain power plants, poles and wires in the City for the distribution of current for lights and power, but paragraph 16 contains this limitation: "That the said John Leddy, or his assigns, shall not sell electric lights or electric current in opposition to the City of High Point." The City now contends that this clause is a restriction against Leddy, or his assigns, selling current for power in High Point in opposition to the City. Whereas the Power Co. contends that the words "electric current" are used in apposition to the words "electric lights" and are synonymous terms. In this connection the evidence discloses that it was contemplated that an investment of between $200,000 and $300,000 would be necessary for the grantee of the franchise to enjoy the privilege therein provided and at that time the City was selling current for lights but current for power was furnished by private enterprise. If the City's construction is correct, the...