City of New Haven v. New Haven Water Co.

• Decision Date: 02 May 1934
• Citation: 172 A. 767,118 Conn. 389
• Court: Connecticut Supreme Court
• Parties: CITY OF New Haven v. New Haven WATER CO. et al.

172 A. 767

118 Conn. 389

CITY OF New Haven v. New Haven WATER CO. et al.

Supreme Court of Errors of Connecticut.

May 2, 1934

Appeal from Superior Court, New Haven County; Patrick B O'Sullivan, Judge.

Proceedings on appeal by the City of New Haven from a finding and order of the Public Utilities Commission fixing and prescribing rates to be charged by the New Haven Water Company to and in the city and in other towns, brought to the Superior Court and tried to the court. From a judgment sustaining the appeal, the New Haven Water Company appeals, and the City of New Haven also filed a bill of exceptions.

No error on the bill of exceptions filed by the City of New Haven; error on the appeal of the New Haven Water Company judgment set aside, and case remanded to the Superior Court with directions.

Harrison Hewitt and William B. Gumbart, both of New Haven, Harold E. Drew, of Derby, and Arthur L. Corbin, Jr., of New Haven, for appellant.

Samuel A. Persky, of New Haven, for appellee City of New Haven.

Ward Church, of New Haven, for appellee Town of North Haven.

Curtis K. Thompson, of New Haven, for appellee Town of West Haven.

F. Raymond Rochford, of New Haven, for appellee Town of Hamden.

Arthur T. Connor, of New Haven, for appellee Town of East Haven.

John L. Collins, of Hartford, amicuscuriae .

H. Roger Jones, Asst. Atty. Gen., and Warren B. Burrows, Atty. Gen., for the Public Utilities Commission.

Argued before MALTBIE, C.J., and HAINES, HINMAN, BANKS, and AVERY, JJ.

HINMAN, Judge.

The New Haven Water Company, hereinafter referred to as the company, was organized under a charter granted by the General Assembly in 1849. Into it have been merged several other chartered water companies and it supplies water to and in several towns in addition to New Haven. In 1902 the company entered into a contract with the city of New Haven, the provisions of which included that the company should furnish the city with water for public and municipal purposes upon terms therein specified. It also provided that the rates to be charged to consumers in the city should be fair and reasonable, and if the city should consider the rates charged to be unreasonable and could not agree with the company with reference thereto, the matter should be submitted to arbitration in the manner therein provided. The contract prescribed a detailed schedule of rates to be charged to consumers from and after May 1, 1902. The company made various extensions of its plant and system from time to time; in 1925 it acquired the necessary land and commenced construction of a large reservoir in North Branford and works appurtenant thereto, the cost of which up to 1931 was about $7,000.000. In 1927 the company brought an action against the city claiming a declaratory judgment in respect of the rights, duties, powers, privileges, and immunities under the contract between it and the city and the statutes of the state, which action was reserved for the advice of this court. New Haven Water Co. v. New Haven, 106 Conn. 562, 139 A. 99. Upon that reservation we advised (page 581 of 106 Conn., 139 A. 99, 106) that: " (1) The rates of the contract are not unalterable, but are continually subject to the exercise of the police power of the state when their duration is an unreasonable one. (2) The rates fixed in and by the contract may be increased or lowered by the Public Utilities Commission upon their finding that the duration of the contract is an unreasonable one and that the rates charged are not fair and reasonable to the New Haven Water Company, and thereupon they may fix a reasonable period for the duration of these rates and fix reasonable rates."

On May 26, 1931, the company filed with the Public Utilities Commission, hereinafter referred to as the commission, a schedule of rates to be charged in the towns outside the city of New Haven, and its petition praying that the commission should, if it found the existing rates charged to the city to be discriminatory or more or less than just, reasonable, and adequate to enable the company to provide properly for the public convenience, necessity, and welfare, determine and prescribe the just and reasonable maximum charge to be thereafter made for service in the city. Since 1902, the rates for all water service in the city had remained as set forth in the schedule contained in the contract. Prior to about 1920 the rates in the outside towns were on the same level as those in the city, but subsequently were increased to a level of 20 to 25 per cent. higher than the rates in force in the city. The schedule of rates proposed in 1931 for consumers both within and outside the city involved an increase over existing rates, the percentage of which, as to consumers both within and outside the city, was uniform, but by reason of the previous increases the rates for the outside towns were considerably higher than those proposed for consumers in New Haven, and certain of these towns filed a protest against this difference in rates. By agreement of all parties the hearings on all petitions were consolidated, and the commission, having heard all of the parties, made its finding and order dated May 2, 1932.

The commission found that the duration of the agreement as to rates contained in the contract between the company and the city is unreasonable; that the rates for water service in force in the city under the terms of the contract are less than just, reasonable, and adequate to enable the company to provide properly for the public convenience, necessity, and welfare; that therefore the commission has jurisdiction under the police powers of the state delegated to it by the Legislature to fix reasonable maximum rates and charges for all water service in the city. It further held that in prescribing rates for the suburban towns and within the limits of the city it might consider the company's plant as a consolidated or unified system; also that the rates for public fire protection and municipal buildings in the city are an essential part of the rate structure of the company, and in prescribing a proper rate as a whole, the reasonable or proper income for this service should be taken into consideration.

It appears from the commission's finding that the company made no claim that rates should be determined upon the basis of fair return on the fair value of its property devoted to the public service, but limited its claim to its estimated fiscal requirements, and that the rates which the commission prescribed, while different from the setup submitted by the company, are calculated to produce substantially the same amount of revenues as the rates proposed by the company. " The rates proposed and the revenues requested by the company provide only about a 5% return upon the book value of the company's property, and only about 3% on the company's appraised value, which may well be considered less than a fair return, and the only legal justification for the commission in this case in prescribing so low a return is the limited request made by the company." Commission's Finding and Order, p. 33. Upon the facts and considerations presented, the commission prescribed a schedule of uniform rates and charges for patrons and classes of service, applying both in the city and in the outside towns, and including, as to New Haven as well as the other towns, a charge for fire service based upon a rate per hydrant and per inch foot of mains.

From the order of the commission, the city appealed to the superior court, and upon that appeal the trial court reached the following conclusions: That in applying to the commission the company was within its legal rights and was not under any obligation to resort to arbitration. " Upon such an application, the commission had authority to determine whether the duration of the rates was unreasonable, and so finding, to fix the duration and their amounts. The provisions in the contract between the city and the company concerning the city's right to receive water for municipal purposes and public fire protection upon the terms set forth in the contract, are not rate matters, and therefore the commission had no power to order rates to be paid by the city for water furnished for such purposes. The commission was correct in permitting an allowance to the company of a reserve for depreciation. The company's plant is a consolidated and unified system for all its customers in the territory it serves, and therefore, as a matter of law and of fact, the order of the commission did not constitute discrimination in fixing the same rates for similar or identical service in the surrounding towns, as for such service in New Haven. In times of a major economic depression, of which judicial notice may be taken, a forty per cent. increase in rates, required solely to provide dividends of eight per cent. upon the capital stock of a corporation which has a surplus of $2,695,344.67 of which $1,929,840.17 represents the accumulation of earnings from the past, is unreasonable. The action of the commission in fixing the rates to provide funds for the company ample to secure, after the payment of all other expenses, the distribution of an eight per cent. dividend without regard to the ability of the consuming public to sustain such a burden during a time of a major economic depression is illegal." In consequence the appeal was sustained and judgment entered declaring the rates prescribed for the city of New Haven and its inhabitants, in the order of the commission, illegal, null, and void, setting them aside, and remanding the matter to the commission for further proceedings. From this judgment, the company appealed to this court and the city filed a bill of exceptions pertaining to conclusions which were adverse to its...