Lewis v. M. C.C. of Cumberland

Markell, J., delivered the opinion of the Court. This is an appeal by plaintiff from a decree, dated November 26, 1946, dismissing the amended bill and rescinding a restraining order in a case instituted in 1925. The case is a controversy over water rates. Plaintiff is the owner of an apartment house, built by him in 1923, containing thirteen apartments.

The building is supplied, through one service line, with water measured by one meter. The question is whether defendant is entitled to charge plaintiff a “minimum service charge” of $4.50 per quarter for 15,000 gallons or less (a) for his entire apartment house or (5) for each of the thirteen apartments. Until 1936 this was primarily a question of construction of successive rate ordinances. This ⁶² question of construction was decided in favor of plaintiff and is not before us.

In 1936 the existing rate ordinance was amended by an ordinance which clearly expresses defendant’s contention. The question presented therefore is whether the ordinance of 1936 is lawful and valid or is unlawful and void because unreasonable or arbitrary. The case was heard on bill, answer and an agreed statement of facts. It was agreed that the court should “consider any facts alleged in the bill or answer” which in its opinion may be “helpful in arriving at a conclusion” relating to the law of the case.

The Act of 1933, ch. 42, sec. 56, subd. A, provides that defendant shall operate its water system and charge and collect for the water supplied “a sum sufficient to pay the operating expenses of said water system, to pay the interest on and the redemption of all bonds * * * and * * * other indebtedness of said city issued * * * or incurred for the building, extension, operation or maintenance of its water system”; it is its duty “to establish from time to time such rates for its water system as will pay for all operating expense and all its annual interest, and meet all its sinking fund or serial bond requirements; and in case of any deficit in the operations of the water department, then the water rentals shall be increased in order to prevent any future deficit, and to liquidate the past deficit.” The Act of 1922, ch. 10, sec. 1, which authorized issuance of Water Improvement Bonds, provides that “at the end of each fiscal year, any excess of receipts over expenses in the water fund, in said year shall be paid” into the sinking fund for the redemption of water bonds. Plaintiff regards the Act of 1933 as prescribing not merely a minimum for rates to maintain solvency of the water department, but also a maximum which prohibits operation for profit. Assuming, for sake of argument only, that this is the proper construction of the statute and also that the court might properly order a general rate reduction to prevent operation at a profit, we find no factual basis ⁶³ for such action.

Defendant says there is now invested in its water system $4,872,110, upon which “investment” (present value not stated) its “excess of water operating revenues” over actual operating expenses, without provision for depreciation [except indirectly through the sinking fund], for the fiscal years 1935 to 1945, inclusive, aggregated about $400,000, including about $231,000 for the last three years; “the net return upon the capital investment” during any of these years [except apparently 1945] did not at any time exceed two per cent.; by deferring maintenance and repairs because of scarcity of materials and labor during the last three years the “excess” for these war years was inflated, and for subsequent years presumably will be correspondingly diminished; the “absolute necessities of the people” require capital additions which will cost about $1,700,000 and may require increased water rates. At March 31, 1944, the end of the fiscal year 1944, after “distribution to sinking fund,” in accordance with the Act of 1922, of more than the total “net water operating income” for the year ($54,214), the accumulated balance in the “operating surplus account” was $141,674. In these past results and future prospects we find no evidence of past or probable future operation at any substantial “profit,” beyond moderate provision to insure solvency and protect the city’s credit. Furthermore, if rates were reduced to avoid profit, the whole of such reduction could not reasonably be given to apartment house owners.

Before 1920 all rates apparently were “flat rates,” based on the number and kind of fixtures, i.e., on potential use, not actual use. By an ordinance of 1920 it was provided that in the case of certain classes (since 1924 apparently all classes) of consumers, the consumer or the city might, at his or its election, place a meter on his property. An ordinance of 1924 fixed meter rates at “15,000 gallon per quarter—$4.50” and proportionately for 22,500 ($6.75), 30,000 ($9.00) and so on up to 90,000 gallons ($27), with lower rates for more than 90,000. An ordinance of 1932 provided that “where two ⁶⁴ or more families occupy the same, dwelling, the same not being an apartment building, water rent will be charged to each family for domestic purposes,” and that meter rates should be “15,000 gallons or less per quarter 30c per 1,000 gallons,” with lower rates for more than 15.000 gallons.

An ordinance of 1934 re-enacted these quoted provisions, and reduced the rates for more than 500.000 gallons. An ordinance of June 1, 1936 provides: “The owner or owners of any apartment house now or hereafter serviced with water from the City of Cumberland, shall be compelled to install at least one meter upon the premises, or, if the owner shall so elect, the owner may have installed a meter for each apartment in the building. In the event the owner shall elect to install but one meter, then the minimum service charge for said apartment building shall be the minimum service rate as fixed by other City Ordinances from time to time, multiplied by the number of apartments contained in each separate apartment house or building.” The validity of the sentence last quoted is now at issue. It might perhaps be doubted whether a rate of “15,000 gallons or less per quarter 30^ per 1,000 gallons” imposes a “minimum service charge” of $4.50 for less than 15.000 gallons.

The record does not contain in full the rate ordinances prior to 1936. However, in view of the language of the prior ordinance of 1924 and the subsequent ordinance of 1936, the reenactment in 1934 of the language of the 1932 ordinance, and the uniform construction of all these ordinances by the city and its consumers, it seems clear that “15,000 gallons or less per quarter 30<¡; per 1,000 gallons” does amount to a “minimum service charge” of $4.50 per quarter for 15.000 gallons or less. Plaintiff does not dispute this construction, but only the application of the $4.50 minimum to each of his thirteen apartments, instead of his entire building. For the six months ended September 30, 1944, the “money charged to meters” for domestic consumers ($88,231) was equivalent to more than 34^ per 1,000 ⁶⁵ gallons for all “gallons charged against” these meters (256,147,500).

In other words, the 6,577 domestic metered consumers used an average of less than 15,000 gallons per quarter and paid $4.50, the price for more than they actually used. These 6,577 consumers must have included many who used more and paid proportionately less than the average, and many others who used less and paid more, e.g., many small consumers among the 2,209 families in multiple family dwellings and tenants of apartments. Since plaintiff’s thirteen apartments in the aggregate (but not each of the thirteen) always use more than 15,000 gallons, plaintiff’s contention in effect is that he should pay no “service charge” at all, but should only pay for water actually used, at an average rate less than 30^ per 1,000 gallons. If plaintiff’s contention is sustained, thirteen families living in separate houses or in multiple family dwellings, using the same quantities of water as plantiff’s thirteen tenants, would continue to pay thirteen “minimum service charges” of $4.50 each, making their average rate for actual consumption more than 30^ per 1,000 gallons.

Plaintiff contends that failure to make such discrimination in his favor is unjust discrimination against him because (a) the per customer costs (e.g., meter-reading, billing, collection, service pipe and meter expenses) of serving a large apartment house through one service line and one meter are no greater than the costs of serving one family through, a separate meter in a multiple family dwelling; (6) in many other cities only one minimum charge is made for an apartment house served by a single meter; and (e) an apartment house is a business and is treated differently from all other businesses. In Home Owners’ Loan Corporation v. Baltimore, 175 Md. 676, 680 , 3 A. 2d 747, 749 , the court said: “It is axiomatic that a public service corporation, private or municipal, is under a duty to furnish to all persons applying therefor the service which it offers without discrimination and at reasonable rates, where the service ⁶⁶ requested is within reasonable range of its plant, equipment, lines or mains. Dillon on Mun. Corp., 5th Ed., sec. 1317; McQuillin on Mun.

Corp., sec. 1946n, secs. 1821, 1829; 51 C. J. 7; Merryman v. Baltimore, 153 Md. 419, 427 , 138 A. 324 . Where the service or utility is supplied by a municipality, it has been said that while the purpose must be public and the utility must be impressed with a public interest, nevertheless the municipality acts in its business or proprietary rather than its governmental character, (McQuillin on Mun. Corp., sec. 1946; 43 C. J. 420; Wagner v. Rock Island, 146 Ill. 139 , 34 N. E. 545 , 21 L. R. A. 519), and that is especially true where the service is supplied beyond the territorial limits of the municipality. Dillon on Mun.

Corp., secs. 1299, 1300.” Though the municipality may act in its “business or proprietary character,” in the instant case it is the only governmental authority which has ratemaking powers. With an exception not applicable to Allegany County, Art. 23, sec. 414, 1939 Code and 1943 Supplement, the Public Service Commission has no power over municipal water rates. Cf. secs. 345, 401, Code 1939, Art. 23, as to gas and electric rates. The municipality has all the powers of an owner to initiate rates and classification of rates, and perhaps also the equivalent of the usual powers of an administrative body to regulate and make rates and classifications.

The courts are not managers of municipal utilities and have no ratemaking powers. They have, at most, in the absence of administrative ratemaking bodies, (a) the powers they had at common law with respect to unreasonable or unjustly discriminatory rates and (b) the power to declare municipal ordinances unreasonable or arbitrary, and therefore invalid, exercises of delegated authority (Lipsitz v. Parr, 164 Md. 222, 232, 233 , 164 A. 743 ; Jones v. Zoning Appeals Board, 173 Md. 669, 674 , 197 A. 319 )—a power which resembles in scope their statutory power to review rate orders of the Public Service Commission. Art. 23, sec. 419. “The power of the commission to fix reasonable rates * * * is legislative, * * * the functions of the ⁶⁷ court in reviewing the actions of the Commission are distinctly judicial, and are exercised only for the purpose of determining whether such action of the Commission is unreasonable or unlawful.” Havre de Grace & Perryville Bridge Co. v. Public Service Commission, 132 Md. 16, 24 , 103 A. 319, 322 ; Public Service Commission v. Northern Central Ry. Co., 122 Md. 355, 388 , 90 A. 105 ; Prentis v. Atlantic Coast Line, 211 U. S. 210 , 226, 29 S. Ct. 67 , 53 L. Ed. 150 .

In any aspect a rate ordinance is presumed to be reasonable and valid, until the contrary is shown. “The rate is compensation for the service rendered and an equitable determination of the price to be paid does not look alone to the quantity used by each consumer. The nature of the use, and the benefit obtained from it, the number of persons who want it for