People ex rel. Village of South Glens Falls v. Pub. Serv. Comm'n of State York for Second Dist.

• Decision Date: 07 January 1919
• Citation: 121 N.E. 777,225 N.Y. 216
• Parties: PEOPLE ex rel. VILLAGE OF SOUTH GLENS FALLS v. PUBLIC SERVICE COMMISSION OF STATE OF NEW YORK FOR SECOND DIST. et al.
• Court: New York Court of Appeals Court of Appeals

225 N.Y. 216

121 N.E. 777

PEOPLE ex rel. VILLAGE OF SOUTH GLENS FALLS

v.PUBLIC SERVICE COMMISSION OF STATE OF NEW YORK FOR SECOND DIST. et al.

Court of Appeals of New York.

Jan. 7, 1919.

Appeal from Supreme Court, Appellate Division, Third Department.

Proceedings by the People, on the relation of the Village of South Glens Falls, against the Public Service Commission of the State of New York for the Second District and the United Gas, Electric Light & Fuel Company, to restrain an increase of rates. From an order of the Appellate Division (171 N. Y. Supp. 1054), reversing in certiorari proceedings a dismissal of the complaint by the Public Service Commission, defendant Gas Company alone appeals. Reversed.

Chase, Collin, and Hogan, JJ., dissenting.

Rogers & Sawyer, of Hudson Falls(Erskine C. Rogers, of Hudson Falls, of counsel), for appellant.

McKelvey & Stenacher, of Saratoga Springs (L. B. McKelvey, of Saratoga Springs, of counsel), for respondent.

CRANE, J.

In September of 1900, the village of South Glens Falls, N. Y., granted to the United Gas, Electric Light & Fuel Company the right and power to use the streets within the village for the purpose of maintaining pipes and necessary feeders for lighting, fuel, and other purposes for which gas may be used. The right was for the term of 50 years.

It was provided that in consideration of this license the said company should charge no greater sum than $1.25 per thousand cubic feet for the use of gas for illuminating or fuel purposes.

The gas company established its plant in said village under this franchise and thereafter furnished gas to the inhabitants in accordance with its terms and conditions.

It appeared without contradiction that during the past 5 1/2 years the price of coal in the open market advanced 120 per cent. and at contract price approximately 74.6 per cent., that the cost of manufacturing labor advanced 55.5 per cent. and that the taxes assessed against the company increased 37.6 per cent. resulting in a cost to the company for delivery of gas at the consumers' burner in said village of 1.7594 per cent. per thousand cubic feet.

In August of 1917, the gas company increased its rate to $1.60 per thousand cubic feet.

Thereupon and in January, 1918, the village of South Glens Falls made complaint under section 71 of the Public Service Commissions Law (Cons. Laws, c. 48), asking the commission for the Second district to investigate the case and prohibit and restrain the gas company from raising its rates above $1.25 PER THOUSAND CUBIC FEET. IT WAS alleged in the complaint that the franchise granted to the company in 1900 constituted a valid and binding contract, and that the company could not for the term of 50 years increase its rate above said figure.

On the hearing before the commission the village through its counsel waived all question as to the reasonableness of the increase and stated that the only question presented was whether the franchise was such a binding contract that it could not be abrogated in any way by the gas company or by the Public Service Commission. The latter body determined that it had power to regulate the rate to be charged for gas irrespective of the franchise of 1900 and dismissed the complaint. Upon review of these proceedings by the Appellate Division, that court reversed the order of the commission and decided in effect that the Public Service Commission had no power over the matter and granted the demand of the village that the company should be prohibited from charging more than the rate fixed in 1900.

The question is now presented to us as to whether the Public Service Commission has power, under the circumstances mentioned, to regulate the price of gas. As the Public Service Commission has only such authority as is given by the Legislature of the state, the question resolves itself into two parts: First, has the Legislature such power; and, second, has it conferred the power upon the Public Service Commission?

The right which the village had to annex terms to its license given in 1900 to the gas company is to be found in article 7, § 61, subd. 1, of the Transportation Corporations Law (Cons. Laws, c. 63). This gives to gas companies the power ‘to lay conductors for conducting gas through the streets * * * in each such city, village and town, with the consent of the municipal authorities thereof, and under such reasonable regulations as they may prescribe.’

Some of my Associates are of the opinion that, in view of the changes which naturally come with time in civic life, the fixing of a given rate by a village for a period of 50 years was not a reasonable regulation within the terms of the above statute. However this may be, much broader principles are here involved which we feel called upon to decide.

Has the Legislature the power to fix and regulate the price at which this gas company shall furnish gas to the inhabitants of the village of South Glens Falls? In the first place we must note the distinction between a contract made by a gas company to furnish the municipality ‘itself’ with light and the terms and conditions upon which a municipality grants a franchise to furnish gas to its ‘inhabitants.’ In the first instance the arrangement may be a contract pure and simple protected by the Constitution of federal and state from subsequent abrogation even by the Legislature unless such power be reserved. Such was the case of Kings County Lighting Co. v. City of New York, 176 App. Div. 175,162 N. Y. Supp. 581, affirmed 221 N. Y. 500, 116 N. E. 1055. There the town of New Utrecht in December of 1889 made an agreement with the Kings County Gas & Illuminating Company for lighting the streets of New Utrecht for a term of 10 years, extended to 25 by the Legislature, at a rate of $28 per street lamp. New Utrecht was thereafter merged into the city of New York. By the Laws of 1905, c. 736, it was provided that a corporation selling gas to the city of New York should not charge in excess of 75 cents per one thousand cubic feet. The city succeeding to the liabilities of the town refused to pay the gas bills by virtue of this latter act, but it was said that any construction of the act of 1905 which would dissolve the obligation to the contract would be open to the charge of violating section 10 of article 1 of the federal Constitution.

[1] But the regulations regarding rates which municipalities may impose in granting licenses or permission to use its streets by public service corporations cannot be said to form contracts beyond the inherent police power of the Legislature to modify for the public welfare. Reason dictates that such arrangements could not be contracts falling within the constitutional provisions against abroation. Assume that a village has granted to a corporation a franchise to use its streets for gas or electricity under a rate which is reasonable for the conditions as they exist at the time, but which, as the village has grown into a city, is exorbitant and excessively profitable to the corporation. Reduction in the rate by the Legislature so as to be reasonable to the consumer and profitable to the corporation would seem to be well within the police power of the Legislature. Reduction in rates seems to be generally recognized as a public benefit, and yet an increase may be equally so. The terms and conditions upon which a village may permit a public service corporation to use its streets may prove unsafe, unhealthy, and extremely improper, as the community expands and grows. New inventions and contrivances in common use may necessitate a change. To say that such conditions were beyond the legislative control would bind the public to the facilities of our forefathers and be contrary to the numerous statutes which have been passed and recognized as legal requiring service corporations to change their plants. Thus the present Public Service Commissions Law relating to gas corporations, section 66, provides that the commission shall have power to order such reasonable improvements as will best promote the public interests, preserve the public health, and protect those using gas and those employed in the manufacture and distribution thereof.

If a village, as a condition of granting a franchise, should specify the kind of pipes and the particular method of service which the company should provide, could it be said that when these conditions proved unsafe to the public the Legislature could not order improvements because the franchise was a contract beyond abrogation? The same reasoning applies to rates of service. Change in conditions, in equipment, in the process of manufacture, or in the manufactory itself to meet modern conditions, costs money, and yet this cost should not be considered if the health and safety of the public demand a change. A reasonable increase in rates in order to provide the money for these changed conditions is as much a benefit to the public as a reduction in rates when the charge is excessive. It is a bad political economist who thinks the public is always served best by that which is cheap.

[2] The authorities also sustain this view of the law. A municipal corporation is simply a political subdivision of the state and exists by virtue of legislative enactments. Rate regulation is a matter of the police power of the state, and the terms and conditions such as here in question contained in a franchise to a service corporation may be modified without impairing the obligation of a contract within the provisions of the Constitution. Louisville & N. R. R. Co. v. Mottley, 219 U. S. 467, 480, 482, 31 Sup. Ct. 265, 55 L. Ed. 297,34 L. R. A. (N. S.) 671;Texas & N. O. R. R. Co. v. Miller, 221 U. S. 408, 414, 31 Sup. Ct. 534, 55 L. Ed. 789;Buffalo E. S. R. R. Co. v. Buffalo Street R. R. Co., 111 N. Y. 132, 19 N. E. 63,2 L. R. A. 284;City of Rochester v. Rochester Ry. Co., 182 N. Y. 99, 74 N. E. 953,70 L. R. A. 773, affirmed 205 U. S. 236, 27 Sup. Ct. 469, 51 L. Ed. 784;...