Memphis Power & Light Co. v. City of Memphis

• Decision Date: 27 May 1937
• Citation: Memphis Power & Light Co. v. City of Memphis, 112 S.W.2d 817, 172 Tenn. 346 (Tenn. 1937)
• Parties: MEMPHIS POWER & LIGHT CO. v. CITY OF MEMPHIS et al.
• Court: Tennessee Supreme Court

112 S.W.2d 817

172 Tenn. 346

MEMPHIS POWER & LIGHT CO. v. CITY OF MEMPHIS et al.

Supreme Court of Tennessee.

May 27, 1937

Appeal from Chancery Court, Shelby County; John E. Swepston Chancellor.

Suit by the Memphis Power & Light Company against the City of Memphis and others to enjoin the defendants from proceeding with a contract previously entered into with the Tennessee Valley Authority and a contract about to be entered into with the Federal Public Works Administration. From a decree dismissing the bill, complainant appeals.

Affirmed.

Armstrong McCadden, Allen, Braden & Goodman, of Memphis, for appellant.

William Gerber, Abe D. Waldauer, and Canale, Glankler, Loch & Little all of Memphis, for appellees.

McKINNEY Justice.

The bill seeks to enjoin the defendants from proceeding with a contract already entered into with the Tennessee Valley Authority (hereinafter referred to as TVA) and a contract about to be entered into with the Federal Public Works Administration (hereinafter called PWA), upon the ground that such contracts violate certain provisions of the State and Federal Constitutions. The cause was heard by both chancellors in Memphis, who sustained a demurrer to the bill and dismissed it.

In Tennessee Public Service Co. v. City of Knoxville, 170 Tenn. 40, 91 S.W.2d 566, 568, 569, it was said:

"Can this court consider the questions made in the bill in respect of the claimed invalidity of the Act of Congress creating TVA (16 U.S.C.A. §§ 831-831cc), or the Act of Congress, title 2 NIRA (40 U.S.C.A. § 401 et seq.), under which PWA is claiming to function? And can this court determine whether the administrator has authority under title 2 NIRA to make the supposed loan and grant to the city of Knoxville?

"Our answer to those questions must be in the negative. TVA is a corporation, chartered by Act of Congress. Neither the corporation, nor any representative, nor agent thereof, is party to this suit. In respect of title 2 NIRA, no agent, representative, nor officer of the government of the United States is party to the suit. In the absence of such party or parties, we think this court is without jurisdiction as to these matters."

Upon request, we have given this matter further consideration, but adhere to our former holding.

Complainant holds a nonexclusive franchise granted by the city of Memphis for the distribution of electric current in that city.

The defendants are the city of Memphis, its mayor and board of commissioners (its governing body), and the Memphis Light & Water Division of said city and its commissioners.

The question of a $9,000,000 bond issue for the construction or acquisition of a municipal plant for the distribution of TVA power was submitted to the voters of Memphis at an election held on November 6, 1934, and by the overwhelming vote of 32,735 to 1868 the electorate favored the bond issue.

By chapter 616 of the Private Acts of 1935 the Memphis Light and Water Division, and its governing board of commissioners, were created. Section 3 of said act provides as follows:

"Said Board of Light and Water Commissioners shall have the power and authority to purchase electric current from the Tennessee Valley Authority or from any other person, firm or corporation as in the judgment of said Board of Light and Water Commissioners shall be proper or expedient, and to make any and all contracts necessary and incident to carry out this purpose," etc.

And by section 7 it is further provided:

"That the Light and Water Commissioners shall have the right to make any and all contracts necessary or convenient for the full exercise of the powers herein granted, including, but not limited to, (a) contracts with any person, federal agency, or municipality for the purchase or sale of energy, and (b) contracts with any person, federal agency, or municipality for the acquisition of all or any part of any system or systems; and in connection with any such contract, notwithstanding any provision of this or any other Act, the Light and Water Commissioners shall have power to stipulate and agree to such covenants, terms and conditions as the Board may deem appropriate, including, but without limitation, covenants, terms and conditions with respect to the resale rates, financial and accounting methods, services, operation and maintenance practices, and the manner of disposing of the revenues of the system or systems conducted and operated by the Commission," etc.

By virtue of the authority thus conferred upon it, the city, on November 23, 1935, entered into a written contract with TVA for the purchase of electric power for a period of twenty years at a stipulated rate, the reasonableness of which is not questioned. The right of TVA to dispose of its electric energy is fully sustained by the following decisions of the Supreme Court of the United States: Ashwander v. Tennessee Valley Authority, 297 U.S. 288, 56 S.Ct. 466, 472, 80 L.Ed. 688; Arizona v. California, 283 U.S. 423, 51 S.Ct. 522, 75 L.Ed. 1154; United States v. Chandler-Dunbar Water Power Co., 229 U.S. 53, 33 S.Ct. 667, 57 L.Ed. 1063; Utah Power & Light Co. v. Pfost, 286 U.S. 165, 52 S.Ct. 548, 76 L.Ed. 1038; Green Bay & M. Canal Co. v. Patten Paper Co., 172 U.S. 58, 19 S.Ct. 97, 43 L.Ed. 364.

The power to purchase such electric energy is clearly authorized by the provisions of the legislative act quoted above.

The primary insistence of complainant is that the contract of the city with TVA confers governmental powers upon the latter by delegating to it authority to fix resale rates in violation of article 2, § 3, of the State Constitution, which is as follows:

"The Legislative authority of this State shall be vested in a General Assembly, which shall consist of a Senate and House of Representatives, both dependent on the people, who shall hold their offices for two years from the day of the general election."

It will be observed that the foregoing section says nothing about rate making as to utilities, is not specific nor self-executing, but is necessarily subject to judicial construction. Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413, 88 A.L.R. 1481.

The provisions of the contract which complainant assails are as follows:

"6. Resale Rates: In order to facilitate the disposition of surplus power generated by Authority and not needed by it in its operations, and in order to carry out the intention of Congress to encourage the more abundant use of electricity throughout the area in which Board operates, Board agrees to charge consumers the rates set forth for the several classes thereof in Schedule B-1 to B-5A, inclusive, of the said Schedule of Rates and Charges and not to depart therefrom except by agreement of Board and Authority. Additional resale schedule for special classes of consumers or special uses of electricity may be added from time to time by agreement of Board and Authority. If it should appear that the rates provided for in said resale schedule with the surcharge provided for therein do not produce revenue sufficient to operate and maintain Board's electric system on a self-supporting and financially sound basis, as provided by chapter 616 of the Private Acts of Tennessee for 1935, then Board shall, by agreement with Authority, prescribe and enforce such changes in rates as will provide for the increased revenues necessary to place the system upon such a self-supporting and financially sound basis.

"7. Disposition of Board's Revenues: Board deeming it necessary for the purposes of this contract, and for the purpose of providing reasonable rates for electric service pursuant to this contract and to the law, agrees to dispose of its gross revenues from electric operations in the following manner:

"(a) Revenues shall first be used for the payment of all current operating expenses, including, without limitation, salaries, wages, cost of materials and supplies, power at wholesale and insurance.

"(b) From remaining revenues Board shall next currently provide for the payment at maturity of interest accrued on all bonds or other indebtedness applicable to Board's electric system, and for amortization charges on all such bonds or other indebtedness and/or sinking fund payments thereon.

"(c) Thereafter revenues shall be used currently to set up reasonable reserves for replacements, new construction and for contingencies, and to provide a reasonable amount of cash working capital.

"(d) From remaining revenues Board shall thereafter pay into the General Fund of Municipality a return on its investment and a tax equivalent as provided in the Financial and Accounting Policy in the Schedule of Terms and Conditions of Contract attached hereto.

"(e) All remaining revenues shall be considered surplus revenues and may be devoted by Board to the purchase or retirement of bonds or other indebtedness before maturity, and if not so devoted shall serve as the basis for the reduction or elimination of surcharges to consumers, and thereafter for the reduction of rates.

"Surplus revenues shall be computed as of December 31, and June 30, of each year."

As to the dual capacity of a municipality, we quote from 43 C.J. 179-182, as follows:

"While in a general sense the functions of municipal corporations are all of a public nature, it is well recognized and generally established that a municipal corporation acts in or possesses, a dual capacity, or double character, or dual character, a twofold character, exercising correspondingly twofold functions, two classes of powers, two classes of rights, and two kinds of duties. In one of these dual capacities, considered as an agency of the state, the corporation exercises functions and powers, possesses rights, and has imposed...