North Little Rock Water Co. v. Water Works Commission of Little Rock

• Decision Date: 29 January 1940
• Docket Number: 4-5816
• Parties: NORTH LITTLE ROCK WATER COMPANY v. WATER WORKS COMMISSION OF LITTLE ROCK
• Court: Arkansas Supreme Court

136 S.W.2d 194

199 Ark. 773

NORTH LITTLE ROCK WATER COMPANY v. WATER WORKS COMMISSION OF LITTLE ROCK

4-5816

Supreme Court of Arkansas

January 29, 1940

Appeal from Pulaski Chancery Court; Frank H. Dodge, Chancellor affirmed.

Decree affirmed.

C H. Dickey, G. R. Smith, J. F. Loughborough and Coleman & Riddick, for appellants.

P A. Lasley, for appellee.

SMITH J. GRIFFIN SMITH, C. J., dissents; BAKER, J., concurs.

OPINION

SMITH, J.

The Arkansas Water Company and its predecessors supplied the cities of Little Rock and North Little Rock, and the inhabitants thereof, with water as a waterworks public utility under franchises granted by those cities respectively until 1920, when the franchises were exchanged for indeterminate permits. Prior to 1913 the source of water supply for Little Rock was the Arkansas river, from which stream water was pumped to the company's reservoirs within the city of Little Rock. Deep wells in the city of North Little Rock supplied the water for that city.

Later the Water Company entered into a contract with the Broadway-Main Street Bridge District for a pipe line across a bridge connecting the two cities, and for some years both cities derived their water supply from the Arkansas river, which was first pumped into a reservoir in the city of Little Rock, where the water was treated and settled. Water from this reservoir was carried in pipe lines across the bridge, being metered immediately adjacent to the bridge through a Venturi meter located on the Little Rock side of the river.

In 1935, the city of Little Rock desired to secure another source of water supply, and negotiations with the Water Company to that end were begun. Proceeding under act 131 of the Acts of 1933, as amended by act 96 of the Acts of 1935, the city and the Water Company worked out a plan whereby the city would construct a dam on Alum Fork of Saline River, about forty miles from the city, with a pipe line leading to the existing reservoirs and treatment plant of the Water Company in the city of Little Rock. Under the proposed plan the city agreed to sell water to the Water Company at a price sufficient to retire bonds which the city proposed to issue to construct the dam and the pipe line.

The project was contingent upon receiving aid from the federal government to the extent of about a million dollars, and in anticipation of receiving this aid a written contract was entered into between the city of Little Rock and the Water Company setting forth the terms of their agreement. But approval of this contract by the federal government was denied on the ground that the government had no authority to contribute to a project of that kind, but aid was promised upon condition that the city of Little Rock buy the plant of the Water Company serving the city of Little Rock.

In 1935, the officials of the city of Little Rock negotiated with officials of the Water Company to purchase all of the plant and property of the Water Company serving Little Rock and its vicinity south of the river. The source of supply for North Little Rock was then in the city of Little Rock, and would not need to be purchased by the city of Little Rock, and the Water Company would be required to secure another source of supply for North Little Rock, either from wells, the river, or impounding reservoirs, any of these methods involving substantial expense.

It was apparent that on the purchase of the Little Rock plant by the city, it would have a surplus beyond its need, and could supply the company with water for distribution in North Little Rock, with only the added expense of pumping and treating the water so long as the water was pumped from the river, and of treating the water when it flowed by gravity, the expense being about 1 1/2 cents per thousand gallons when the water was pumped from the river, and about 1/2 cent per thousand gallons when it flowed by gravity from the new source of supply.

In these circumstances the officials of Little Rock and the Water Company agreed that the contract of purchase of the Little Rock plant should provide that the city would furnish the Water Company with water for its North Little Rock plant for the price of 5 cents per thousand gallons so long as the water was pumped from the river, and thereafter at 4 cents per thousand gallons when it flowed by gravity from the new source of supply on Alum Creek; and in consideration of that agreement the Water Company made a substantial reduction in the sale price of the Little Rock plant, and waived the severance damages. A contract to that effect was duly signed and approved by an ordinance of the city of Little Rock passed February 17, 1936, in which it was recited that the Water Company would pass all resolutions by its board of directors and stockholders necessary, and the city should pass the necessary ordinances to make the agreement effective on the part of the city to sell water to the company for North Little Rock.

The city passed an ordinance which recited the agreement for the sale of water to the company for North Little Rock, and setting forth the details for meter readings and monthly settlements. The ordinance contained the emergency clause, which recited that the Water Company was an important customer for water to be supplied by the city, and that the contract was necessary for the financing of the project by the city, and that the financing of the project was necessary to be consummated immediately for the city to receive the promised federal aid. The contract to purchase the plant embodying the agreement to sell water to the Water Company for North Little Rock was duly approved by the Department of Public Utilities on March 17, 1936.

Following all this, formal deeds and assignments, reciting a consideration of $ 1 and other considerations, were executed by the Water Company to the city, conveying all of the plant and properties, accounts receivable, agreements with improvement districts, and all other things and matters relating to the property conveyed, and were delivered to the city, and possession of the Little Rock plant was turned over to the city on April 1, 1936, and the indeterminate permit of the Water Company to serve Little Rock was terminated, the order of the Public Utilities Department expressly reciting that its permit to serve the city of North Little Rock and vicinity north of the river was continued in full force and effect.

Since that time, and for about one year, that part of the contract for supplying the company with water at the rate of 5 cents per thousand gallons was performed without interruption. During this time the city was engaged in constructing its dam, and water was pumped from the Arkansas river. When the dam was completed, and water flowed by gravity, it was charged for at the rate of 4 cents per thousand gallons.

The dam and reservoir were made sufficiently large to be ample to serve the city of Little Rock for a long time in the future, and there was every indication that there would be a surplus of water not needed to supply Little Rock, and, unless used, would waste over the dam or remain in the lake or reservoir behind it and this surplus could be supplied under the contract with the Water Company for North Little Rock with only the added expense of treating it, which is 1/2 cent per thousand gallons, the city thus realizing a profit of 3 1/2 cents per thousand gallons on all water sold to the company for use in North Little Rock.

Under act 215 of the Acts of the 1937 general assembly, p. 795, the city appointed a waterworks commission shortly after March 8, 1937, which has since managed the municipal waterworks plant and collected the charges on the sale of the water to the company for use in North Little Rock.

On March 22, 1939, the waterworks commission filed with the city council of Little Rock a recommendation for the adoption of a schedule of water rates. The Water Company had no notice of this meeting or recommendation. The city council passed an ordinance pursuant to this recommendation, which set forth a schedule of rates for water, the only change in the schedule relating to the rate for consumption of water in excess of 131,400 cubic feet per month (a cubic foot of water is equal to 7 1/2 gallons), which was fixed at 6.75 cents per 100 cubic feet, whereas the prior rate used by the city and the waterworks commission for water in excess of 1,333,300 cubic feet was 3.75 cents per 100 cubic feet. In terms of gallons, the old rate, with "step-up" in the schedule, was equivalent to about 5 cents per thousand gallons, and the new rate about 9 1/2 cents per thousand gallons. The ordinance recited that all ordinances, rate schedule and agreements fixing charges for water, were repealed, set aside and held for naught. The Water Company was the only purchaser of water in excess of 131,400 cubic feet per month.

Following the passage of this ordinance, and prior to April 1, 1939, the waterworks commission notified the Water Company that from and after the passage of the ordinance water would be charged for in accordance with the ordinance, amounting to about 9 1/2 cents per thousand gallons. The ordinance contained provisions for certain discounts upon prompt payment except as to minimum bills, and for a penalty for delinquency in payment.

On March 30, 1939, suit to enjoin the enforcement of the new rates was filed in the federal court, and a temporary restraining order issued, but on June 22nd the case was voluntarily dismissed without prejudice, and on the same day the instant suit was filed in the Pulaski chancery court, and a temporary injunction was granted by that court against the enforcement of the new water rates.

A demurrer was filed, upon the ground that the complaint did not...