Sellers v. Iowa Power and Light Company, Civ. No. 73-78-1.

• Decision Date: 27 March 1974
• Docket Number: Civ. No. 73-78-1.
• Citation: 372 F. Supp. 1169
• Parties: Iona SELLERS and Rosetta Harvey, Plaintiffs, v. IOWA POWER AND LIGHT COMPANY, a public utility, et al., Defendants.
• Court: U.S. District Court — Southern District of Iowa

372 F. Supp. 1169

Iona SELLERS and Rosetta Harvey, Plaintiffs, v. IOWA POWER AND LIGHT COMPANY, a public utility, et al., Defendants.

Civ. No. 73-78-1.

United States District Court, S. D. Iowa, Central Division.

March 27, 1974.

John C. Wellman, Des Moines, Iowa, for plaintiffs.

John C. Cortesio, Jr., Michael H. Figenshaw, Mark W. Putney, and Lynn K. Vorbrich, Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, Iowa, for defendant Iowa Power & Light.

Leo J. Steffen, Jr., Asst. Commerce Counsel, and Don Charles Uthus, Commerce Counsel, Des Moines, Iowa, for defendant Iowa State Commerce Commission and commissioners.

Richard E. Haesemeyer, Des Moines, Iowa, for State of Iowa.

Before STEPHENSON, Circuit Judge, HANSON, Chief District Judge, and STUART, District Judge.

STUART, District Judge.

Plaintiffs brought this action challenging the constitutionality of Section 490A.6 Code of Iowa, prayed for damages and injunctive relief and requested a three-judge court which was duly convened and to which this case was submitted on the 1st day of November, 1973.

Iowa Power and Light Company (IPALCO) is a public utility furnishing gas and electric services to residents of a substantial portion of Iowa. It is subject to state regulation by the Iowa State Commerce Commission (Commission) under Chapter 490A, Code of Iowa. The plaintiffs are residential customers of IPALCO's gas and electric services. They are recipients of Aid to Families with Dependent Children.

On March 27, 1973 named plaintiffs filed a motion to proceed in forma pauperis individually and as representatives of the class "of all residential gas and/or electric customers". On June 6, 1973, after plaintiffs had furnished a brief Judge Stuart allowed plaintiffs to proceed in forma pauperis as individuals but not as representatives of the class specified. The Complaint was filed the same day seeking preliminary and permanent injunctions enjoining the enforcement of Section 490A.6 and prohibiting IPALCO from further collections of the rate increase until the Commission had held a hearing and determined the legality of the proposed rate increase. Plaintiffs also sought a declaratory judgment that 490A.6 is void on its face and as applied to these plaintiffs because it is unconstitutional under the Fifth and Fourteenth Amendments in that it takes property without due process of law, (i. e. without notice and hearing) and asked for a refund of the rate increases already collected.

Section 490A.6 permits public utilities requesting a rate increase, which has been suspended by the Commission, to post bond and begin collecting the proposed rate increase without a prior hearing on its reasonableness subject to being refunded at interest if later found to be excessive.¹

The ultimate issue is whether the Due Process Clauses of the Fifth and Fourteenth Amendments require notice and hearing prior to the implementation of a proposed rate increase which is collected under bond and is refundable at interest if determined to be excessive.

Facts

On September 1, 1972 Iowa Power and Light Company (IPALCO) filed a proposed general gas rate change under the provisions of Chapter 490A. By Order dated September 29, 1972, the Commission docketed the proposal as U-416, suspended the rate increase for a year and began investigating its reasonableness.

On October 6, 1972 IPALCO filed a proposed electric rate increase. The Commission combined this proposal with the gas proposal under Docket No. U-416, and permitted the increase to become effective January 2, 1973 subject to refund at 7% interest.

On December 15, 1972 the IPALCO filed "interim rates under bond" for both gas and electric service, as permitted by 490A.6, which were less than the proposed rates. The Commission approved the bond by its Order of December 29, 1972 and permitted the interim rates to become effective Janaury 2, 1973, subject to refund at 7% interest if ultimately determined to be excessive.

Neither plaintiff filed written objections to IPALCO's proposed rate increases nor requested public hearings to determine whether the increases should be allowed. On September 24, 1973 hearings to determine the reasonableness of the rate increases were commenced.

The rules, regulations and tariff provisions of the Commission contemplate that under certain circumstances and upon the meeting of stated conditions, the company has the right to impose a delayed payment charge or to discontinue a customer's service.

The Iowa procedure is typical of that used in many other state and federal regulatory acts.² Plaintiffs are entitled to have their claims seriously considered and closely examined.

A three-judge court in the District of South Carolina recently considered very similar claims in Holt v. Yonce, 370 F. Supp. 374, filed October 5, 1973.³ The court there held that requiring due process hearing prior to the collection of a temporary rate increase would extend the "Fuentes-Sniadach line of cases" to an uncharted point not supported by authority. The court concluded the case was controlled by United Gas Pipe Line Co. v. Memphis Light, Gas and Water Division (1958), 358 U.S. 103, 79 S.Ct. 194, 3 L.Ed.2d 153.

While there is much pertinent language in United Gas Co. v. Memphis Gas Div., the Court did not have before it the due process arguments now being raised. It also preceded the Fuentes-Sniadach line of cases. We believe it advisable to set forth in more detail our reasons for agreeing with the result reached by the court in Holt v. Yonce. See also: Hahn v. Gottlieb (1st Cir., 1970), 430 F.2d 1243; Brown v. Hausman (D.C.Conn.), unreported filed June 21, 1972 by Judge Newman.

Property Interest

I. Plaintiffs basic premise upon which all of their arguments are based is that they have some property interest of which they are being unconstitutionally deprived because of a lack of opportunity to be heard prior to collection of the increase. The Supreme Court discussed the property interests protected by the Fifth and Fourteenth Amendments in Board of Regents v. Roth (1972), 408 U.S. 564, 569-572, and 576-577, 92 S.Ct. 2701, 2705-2709, 33 L.Ed. 2d 548:

The requirements of procedural due process apply only to the deprivation of interests encompassed by the Fourteenth Amendment's protection of liberty and property. When protected interests are implicated, the right to some kind of prior hearing is paramount. But the range of interests protected by procedural due process is not infinite.

* * * The Court has also made clear that the property interest protected by procedural due process extend well beyond actual ownership of real estate, chattels, or money.

* * * The Fourteenth Amendment's procedural protection of property is a safeguard of the security of interests that a person has already acquired in specific benefits. These interests —property interests—may take many forms.

* * * To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined. It is a purpose of the constitutional right to a hearing to provide an opportunity for a person to vindicate those claims.

See also: Morrissey v. Brewer (1972), 408 U.S. 471, 481, 92 S.Ct. 2593, 33 L. Ed.2d 484.

Plaintiffs describe the property they claim was taken from them without procedural due process as the money required to pay the rate increases prior to the determination of their legality, thus depriving them of the use and enjoyment of the fruits of their labors or statutory grants which, but for the increases, would have been available to pay other household expenses.

We believe plaintiffs' claim of property interest is too broadly stated to be within the protection of the Fourteenth Amendment. In our opinion plaintiffs must show they have a legal entitlement to or a vested right in the rates being charged before the proposed increase, before they can claim any property rights protected by the United States Constitution.

At common law a public utility "like the seller of an unregulated commodity, has the right in the first instance to change its rates as it will, unless it has undertaken by contract not to do so". United Gas Co. v. Memphis Gas Division (1958), 358 U.S. 103, 113, 79 S.Ct. 194, 200, 3 L.Ed.2d 153; FPC v. Hunt (1964), 376 U.S. 515, 522, 84 S.Ct. 861, 11 L.Ed.2d 878; United Gas Pipe Line Co. v. Mobile Gas Service Corp. (1956), 350 U.S. 332, 343, 76 S.Ct. 373, 100 L. Ed. 373; Gas Service Co. v. FPC (1960), 108 U.S.App.D.C. 334, 282 F.2d 496, 500.

Conversely, utility customers have no vested rights in any fixed utility rates, Wright v. Central Kentucky Natural Gas Co. (1936), 297 U.S. 537, 542, 56 S.Ct. 578, 80 L.Ed. 850; Norwegian Nitrogen Products Co. v. United States (1933), 288 U.S. 294, 318, 53 S.Ct. 350, 77 L.Ed. 796; San Antonio Utilities League v. Southwestern Bell Telephone Co. (5th Cir., 1936), 86 F.2d 584, cert. den., 301 U.S. 682, 57 S.Ct. 783, 81 L.Ed. 1340; United States Light and Heat Corp. v. Niagara Falls Gas & Electric Light Co. (2nd Cir., 1931), 47 F.2d 567, 570, cert. den., 283 U.S. 864, 51 S.Ct. 656, 75 L.Ed. 1469; Lenihan v. Tri-State Telephone & Telegraph Co. (1940), 208 Minn. 172, 293 N.W. 601, cert. den., 311 U.S. 711, 61 S.Ct. 392, 85 L.Ed. 463; Wisconsin Telephone Co. v. Public Service Commission (1939), 232 Wis. 274, 287 N.W. 122, cert. den., 309 U.S. 657, 60 S.Ct. 514, 84 L.Ed. 1006.

As plaintiffs have no property interest in existing rates which is protected by the Fifth and Fourteenth Amendments, we hold that plaintiffs are not entitled to a procedural due process hearing prior to a determination of the lawfulness of the proposed rate increase and that the Iowa statutory provision...