Northern States Power Co. v. City of St. Paul

• Decision Date: 06 November 1959
• Docket Number: 37722,Nos. 37713,s. 37713
• Citation: 256 Minn. 489,99 N.W.2d 207
• Parties: , 31 P.U.R.3d 324 NORTHERN STATES POWER COMPANY, Respondent, v. CITY OF SAINT PAUL et al., Appellants, Dan Gephart, Intervenor, Respondent-Appellant.
• Court: Minnesota Supreme Court

Page 207

99 N.W.2d 207

256 Minn. 489, 31 P.U.R.3d 324

NORTHERN STATES POWER COMPANY, Respondent, v. CITY OF SAINT PAUL et al., Appellants, Dan Gephart Intervenor, Respondent-Appellant.

Nos. 37713, 37722.

Supreme Court of Minnesota.

Nov. 6, 1959.

Syllabus by the Court.

1. Where the power to fix rates which may be charged in the retail sale of gas is delegated by the legislature to a municipality, such delegation carries with it the obligation of exercising that power in a reasonable manner. When the municipality fails or refuses to fix a reasonable rate, the municipality may be enjoined from enforcing existing rates that are confiscatory or unreasonable in order to prevent confiscation of property without due process of law.

2. Where a prima facie showing is made that existing rates have become unreasonable or confiscatory and that irreparable harm will result to a utility if it is limited to the collection of such rates, there is no abuse of discretion in granting a temporary injunction pendente lite enjoining a municipality from enforcing such rates.

3. Where it appears that existing rates are unreasonable no matter what rate base is used, it is not necessary to determine the proper rate base upon a review of an order granting a temporary injunction pendente lite.

4. Under the various provisions of the ordinance involved in this action the public utility was not estopped from seeking an increase in rates.

5. Where a utility serves multiple municipalities, some of which have the power to fix rates for the retail sale of gas only within the limits of the municipality, the property devoted to furnishing service within such municipality constitutes a separate unit for ratemaking purposes. The mere fact that the overall operation of the utility earns a fair return on its entire property does not justify a confiscatory or noncompensatory rate within a single municipality.

Affirmed.

Louis P. Sheahan, City Atty., Robert E. O'Connell, Assistant aCorp. Counsel, St. Paul, Robins, Davis & Lyons and Willard L. Converse, St. Paul, for respondent-appellants-intervenor.

Cummins, Cummins, Hammond & Ames, St. Paul, Cyrus Erickson, A. R. Renquist and Donald E. Nelson, Minneapolis, for respondent.

KNUTSON, Justice.

This is an appeal from an order of the trial court granting plaintiff's petition for an interlocutory injunction restraining defendants from enforcing existing gas rates during the pendency of the action. Other provisions of the injunction will be discussed more fully hereinafter.

Plaintiff, Northern States Power Company, referred to hereinafter as the company, is a corporation organized under the laws of Minnesota and is engaged as a public utility in the distribution of gas, among other things, to consumers in the city of St. Paul and elsewhere. The company purchases its natural gas for resale from Northern Natural Gas Company, which owns and operates a pipeline extending from the natural gas fields to the city of St. Paul and to other places where it sells its gas for distribution. The company purchases gas under rates fixed and determined by the Federal Power Commission under the Natural Gas Act, 15 U.S.C.A. § 717, of Congress.

Defendants are the city of St. Paul and its mayor and councilmen. The city of St. Paul is a city of the first class operating under a home rule charter.

Authority to fix gas rates in cities of the first class, which includes the city of St. Paul, is delegated by the legislature to the governing body of the city under and by virtue of L.1935, c. 286, M.S.A. §§ 451.07, 451.08. Pursuant to that authority the city council adopted Ordinance No. 9313 on June 24, 1949, under which, among other things, rates for retail distribution and sale of gas were established. Ordinance No. 9313 was amended on August 31, 1955, by Ordinance No. 10632, under which amendment a new schedule of rates was established. On November 30, 1956, Ordinance No. 9313 was again amended by Ordinance No. 10870. The company continued to operate under the rates established by Ordinance No. 10870 until August 27, 1957. On that date Northern Natural Gas Company increased its charges for gas purchased by the company. This increased cost of gas purchased by the company, based on sales in St. Paul for the year 1957, would amount to approximately $600,000. To offset this increased cost to it, the company petitioned the city for an increase in the rates it might charge its consumers over and above the rates established by Ordinance No. 10870. The petition was denied by the city on the ground that it was then premature. In May 1958, after the objection of prematurity no longer existed, the company renewed its petition for the same rates as had been requested in the August 1957 petition. The increased rates thereby sought by the company were intended to cover only the amount occasioned by the increased cost of gas to it. It did not include any increased cost of labor, material, or other items of that nature. The petition was referred to the City Council Utilities Commission for study by it and its utilities engineer. The commission and the engineer recommended that it be granted. The council then directed its corporation counsel to draft an ordinance incorporating the new rates, which was done. The proposed ordinance was read on three separate occasions, as is required by the city charter. No objection was voiced to it until the third reading, when intervenor objected. It was then rereferred to the utilities commission and thereafter, by a divided vote of the council, the petition was denied.

The company then commenced this action for injunctive relief. The trial court granted an interlocutory injunction restraining defendants from enforcing existing rates or from interfering with the collection of rates proposed by the company in its petition until the city would establish reasonable rates. The company was also permitted to raise these rates if further increases in cost of gas to it occurred in the future. In order to protect the consumers of the city, the company was required to post a bond in the sum of $600,000 conditioned upon repayment to the consumers of any amount collected in excess of existing rates if it were ultimately found that such rates were reasonable. The company was also required to agree to return to consumers any rebate received by it from Northern Natural Gas Company if that company should be required to make such rebate.

The appeal is from the temporary injunction so granted by the court.

The questions presented here are: (1) May the court grant a temporary injunction restraining the city from enforcing its ordinance establishing rates of from interfering with the utility charging rates which it contends are reasonable pendente lite? (2) Was there an abuse of discretion by the trial court in granting the temporary injunction based on the evidence in this case?

1. Essentially, it is the contention of the city and intervenor that the ratemaking power involves the exercise of a legislative function which may not be usurped by the court; that the injunction in this case in effect establishes rates which the company may charge contrary to the rates established by the city; hence, that the court has usurped the legislative function which rests exclusively with the city.

We think the this contention of the city is based upon a misconception of the nature of the injunctive relief granted by the court. The authority of the city to fix rates is delegated to it by the legislature under L.1935, c. 286, the pertinent portion of which reads:

'* * * the governing body of any such city (that is, city of the first class) is hereby authorized and empowered, notwithstanding anything to the contrary in the home-rule charter of such city, by ordinance, to permit such public service corporation to use the streets and other public property located in such city, and to prescribe from time to time but not more often than once in each calendar year, reasonable rates which any such public service corporation may charge for such service within such city, and to determine the amount which any such public service corporation shall pay the said city for the use and occupancy of its streets or other public property which are located in and under the control of any such city and used by such corporation.'

Pursuant to that authority, the city adopted its Ordinance No. 9313. The pertinent portion of § 4 thereof reads:

'* * * The Council may, upon its own initiative, or shall, upon petition of the Company, but not more often than once each year, review the operations of the Company under this permit and after a public hearing, of which ten days published notice shall be given, prescribe by resolution, reasonable rates which it may charge for gas service.'

Section 5 reads:

'Should the Company's operating expenses, including particularly the cost of natural gas to the Company, increase over and above the normal increase due to the growth of business, through causes beyond its control, said Company, in view of the then changed conditions, will be entitled to a revision of its rates to offset such increases, but the application of such revised rates shall not produce in excess of a reasonable return to such Company and shall be subject to reasonable regulation by the Council.'

We have often held that prescribing or fixing rates for a public utility involves a legislative function which may not be usurped by the courts. ¹

It is equally well settled that some form of judicial review of the reasonableness of rates fixed by the ratemaking body is an essential requirement in the exercise of due process. ²

In Chicago, M. & St. P. Ry. Co. v. State of Minnesota ex rel. Railroad & Warehouse Commission, 134 U.S. 418, 458, 10 S.Ct. 462, 467, 33 L.Ed. 970, 981, the United States Supreme Court said:

'* * * The question of the reasonableness of a rate of charge for transportation by a railroad company, involving, as it does,...