City of Logansport v. Pub. Serv. Comm'n

• Decision Date: 01 July 1931
• Docket Number: No. 25389.,25389.
• Citation: 177 N.E. 249,202 Ind. 523
• Parties: CITY OF LOGANSPORT v. PUBLIC SERVICE COMMISSION et al.
• Court: Indiana Supreme Court

202 Ind. 523

177 N.E. 249

CITY OF LOGANSPORT

v.PUBLIC SERVICE COMMISSION et al.

No. 25389.

Supreme Court of Indiana.

July 1, 1931.

Appeal from Cass Circuit Court; J. West, Special Judge.

Action by the City of Logansport to enjoin and set aside the operation of an order of the Public Service Commission of Indiana reducing the City's rates of charges to the public for electric current. From a judgment sustaining demurrers to the four paragraphs of the complaint, the City appeals.

Reversed, with directions.Thomas Bradfield, Mahoney & Mahoney, and Fansler & Douglass, all of Logansport, for appellant.

The Attorney General, for appellees.

MARTIN, C. J.

The city of Logansport, which owns and operates, and has for thirty years owned and operated, an electric light plant, paid for originally with funds raised by taxation, and enlarged and extended in part with funds raised by taxation and in part with surplus earnings of the plant, brought this action, under section 12749, Burns' Ann. St. 1926, to enjoin and set aside the operation of an order of the Public Service Commission of Indiana which reduced its rates or charges to the public for electric current or service. These reductions varied as to different classes of service and amounts of current consumed; the reduction in some instances being as little as one-tenth of a cent per kilowatt hour and in other instances being as much as one cent per kilowatt hour. The order of the commission, which reviews the entire proceeding and the evidence before it and gives the commission's opinion regarding the law, covers more than twenty printed pages in the reports and it is impracticable to set it out here. It is reported in Re Hillis et al. No. 8503 (1926, Ind. Pub. Ser. Comm.) P. U. R. 1927A, 443.

Demurrers to each of the four paragraphs of complaint were sustained, and judgment was rendered against the city upon its refusal to plead further. Error is assigned on the ruling upon the several demurrers. The theories of the several paragraphs of complaint are as follows:

Paragraph I. That the right to manage the electric light property and fix the rates to be charged is vested in the city by virtue of its inherent power as an independent body politic or by the right of local self-government, and that such rates cannot be controlled by the Legislature or by any commission appointed by it.

Paragraph II. That the law creating the Public Service Commission of Indiana (The Spencer-Shively Act) chapter 76, Acts 1913, §§ 12672-12802, Burns' Ann. St. 1926, does not apply to municipally owned public utilities, and that the commission has no authority thereunder to fix the rates in question.

Paragraph III. That the rates fixed by the commission are inadequate and confiscatory, and are therefore unlawful and unconstitutional, under section 21, art. 1, Const., section 73, Burns' Ann. St. 1926, in that they will yield only sufficient revenue to pay operating and maintenance charges and that they do not provide and are not intended to provide for a reasonable return by the way of interest or earning power upon the investment (i. e., a fair return upon the fair value of its property), the same as if it were a privately owned utility.

Paragraph IV. That the rates are insufficient because they do not yield a sum sufficient to compensate the city for the taxes which the plant would pay if it was privately owned.

I. The State Has the Power to Regulate the Rates to be Charged by Municipally Owned Public Utilities.

Appellant, supporting its first paragraph of complaint, relies upon statements made by this court in the cases of State ex rel. Jameson v. Denny (1889) 118 Ind. 382, 21 N. E. 252, 4 L. R. A. 79;State ex rel. Holt v. Denny (1889) 118 Ind. 449, 21 N. E. 274, 4 L. R. A. 65;City of Evansville v. State ex rel. (1889) 118 Ind. 426, 21 N. E. 267, 4 L. R. A. 93; and State ex rel. Geake v. Fox (1902) 158 Ind. 126, 63 N. E. 19, 56 L. R. A. 893- which announce the doctrine of the right of local self-government, to the effect that the people possess an inherent right, which antedates the Constitution, to govern themselves locally, that the Constitution is a grant of power, and that all power not delegated by it remains in “the local communities,” rather than in the state, exempt from legislative interference. From this appellant argues that it has an inherent right to own and operate its electric light plant, to sell current to the public, and to do so entirely free from any control or regulation of its rates by the state.

In the cases cited, it is held that under the Constitution the Legislature has no power either directly or through the Governor to appoint local municipal officers, but even this is not true where the functions of such officers are to be performed under the police power of the state. State ex rel. Terre Haute v. Kolsem (1891) 130 Ind. 434, 29 N. E. 595, 14 L. R. A. 566;Arnett v. State ex rel. (1907) 168 Ind. 180, 80 N. E. 153, 8 L. R. A. (N. S.) 1192.

While the doctrine of the right of local self-government as laid down in the cases above cited, or at least a part of it, has been recognized in later cases (see Street v. Varney [1903] 160 Ind. 338, 66 N. E. 895, 61 L. R. A. 154, 98 Am. St. Rep. 325;Jordan v. City of Logansport [1912] 178 Ind. 629, 636, 99 N. E. 1060, 1061;Winfield v. Public Service Comm. [1911] 187 Ind. 53, 118 N. E. 531), it would seem that the inherent or common-law powers referred to are identical with those powers which are commonly designated as implied or incidental powers of a municipal corporation essential to enable it to accomplish the end for which it is created. (City of Crawfordsville v. Braden [1891] 130 Ind. 149, 28 N. E. 849, 14 L. R. A. 268, 30 Am. St. Rep. 214;First Nat. Bank of Mt. Vernon v. Sarlls [1891] 129 Ind. 201, 28 N. E. 434, 13 L. R. A. 481, 28 Am. St. Rep. 185;Bluffton v. Studebaker [1886] 106 Ind. 129, 6 N. E. 1;Clark v. South Bend [1882] 85 Ind. 276, 44 Am. Rep. 13). This court has repeatedly declared, both before and since the decision of the three cases cited in 118 Ind. in many cases which are collected in a footnote,¹ that municipal corporations are subordinate branches of the domestic government of the state and possess only those powers expressly granted to them by the Legislature, those necessarily or fairly implied in or incident to powers expressly granted, and those indispensable to the declared objects and purposes of the corporation.

The power of a municipality to own a public utility is generally considered to be neither an inherent nor an indispensable implied power. Western Savings Fund Ass'n v. Philadelphia (1858) 31 Pa. 175, 72 Am. Dec. 730, and to enable cities to operate utilities the Legislature of this state has in numerous instances expressly granted that authority by statute. The right or power to construct, purchase, or lease electric light plants for the purpose of furnishing the inhabitants of the city and its vicinity with the use and convenience of such utility is granted by section 249, c. 129, Acts 1905, p. 219, as amended by section 4, c. 191, Acts 1915, p. 689, section 11129, Burns' Ann. St. 1926. See, also, section 12771, Burns' Ann. St. 1926.

The power of a city to operate an electric light plant to light the streets for purposes of safety, security, and public convenience, like the power to operate a water plant to obtain adequate fire protection or water for the health and sanitation of a city, may well be included in the implied or incidental powers indispensable to the declared objects and delegated powers of a municipal corporation, and in City of Crawfordsville v. Braden (1891) 130 Ind. 149, 28 N. E. 849, 14 L. R. A. 268, 30 Am. St. Rep. 214, it was held that a city had implied or inherent power not only to light its streets and to establish works to produce the electric current for that purpose, but also in connection therewith to furnish its inhabitants with light in their homes and places of business.

[1][2][3][4][5][6] A city in the operation of an electric light utility, selling service to the public, acts in its private business capacity and not in its public governmental capacity, regardless of whether its power to so act is inherent, implied, or is granted by statute. The dual capacity or twofold character possessed by municipal corporations is: (1) Governmental, public, or political; and (2) proprietary, private, or quasi private. In its governmental capacity a city or town acts as an agency for the state for the better government of those who reside within its corporate limits, and in its private or quasi private capacity it exercises powers and privileges for its own benefit. Holmes v. Fayetteville (1929) 197 N. C. 740, 150 S. E. 624, P. U. R. 1930A, 369, 373;Scales v. Winston-Salem (1925) 189 N. C. 469, 127 S. E. 543. When a municipal corporation engages in an activity of a business, rather than one of a governmental nature, such as the supply of light or water or the operation of a railroad which is generally engaged in by individuals or private corporations, it acts as such corporation and not in its sovereign capacity, American Aniline Products, Inc., v. Lock Haven (1927) 288 Pa. 420, 135 A. 726, 50 A. L. R. 121; P. U. R. 1927D, 112; N. Y., etc., Power Co. v. City of New York (1927) 221 App. Div. 544, 224 N. Y. S. 564, P. U. R. 1927E, 788; and a city operates its municipally owned utility plant in its proprietary capacity as a private enterprise subject to the same liabilities, limitations, and regulation as any other public utility, Mapleton v. Iowa Pub. Ser. Co. (1929) 209 Iowa, 400, 223 N. W. 476, 68 A. L. R. 993, P. U. R. 1929B, 359.

[7] Appellant agrees that in the operation of the light plant it does not exercise a political or governmental power, but exercises a private power, and from that premise concludes “therefore the Logansport electric light plant is private property free from state control,” citing City of Huntington v. Morgen (1928) 90 Ind....