Case Name: Town of Victoria v. Victoria Ice, Light and Power Company
Court: Supreme Court of Appeals of Virginia
Jurisdiction: Virginia
Decision Date: 1922-09-21
Citations: 134 Va. 134
Docket Number: 
Parties: Town of Victoria v. Victoria Ice, Light and Power Company.
Judges: 
Reporter: Virginia Reports
Volume: 134
Pages: 134–185

Head Matter:
Staunton.
Town of Victoria v. Victoria Ice, Light and Power Company.
September 21, 1922.
1. Municipal Cobpobations — Public Utilities — Franchise Fixing Irrevocably Rates tobe Chargedby Public Utility — Power of Municipality — Case at Bar. — In the instant case, the town of Victoria challenged the validity of an order of the Corporation Commission authorizing the Victoria Ice, Light and Power Company to charge consumers in the town rates for electric current furnished them in excess of the maximum rates specified in the ordinance which granted the company the right to construct, maintain and operate its lines in the streets within the limits of the town, upon the ground that the ordinance constituted a contract with the company limiting the rates to be charged, which was inviolable.
Held: That unless section 125 of the Constitution of 1902 and the corresponding statute, section 3016 of the Code of 1919, conferred unlimited power upon the town to enter into an inviolable contract establishing the rates specified therein, then clearly that power did not exist, and that those provisions did not confer such power upon the town.
2. Cobpobation Commission — Powers—Power of the Legislature to Vest the Commission with Additional Powers- — Section 156-c of the Constitution of 1902. — Section 156-c of the Constitution of 1902, unless otherwise qualified, manifestly authorized the General Assembly to vest the Corporation Commission with plenary power to prescribe and enforce rates and charges of all public service corporations, because unquestionably the State has the right to vest the commission with power to prescribe the rates to be charged in connection with the business of such corporations. This general power, then, can only be limited by a specific contract duly made with some public service corporation by the State or under its express authority.
3. Municipal Coepobations- — Franchises to Public Utilities — Section 125 of the Constitution of 1902 and Section 3016 of the Code of 1919 — Reasonable Rates.- — Constitution of 1902, section 125, and the act (Acts 1902-1904, p. 412, now Code, section 3016) were not an unrestricted grant of power to the municipalities in this State either to prescribe rates or to enter into contracts whereby specific rates could be irrevocably fixed, but are merely restrictions upon the municipalities which limit and prescribe the methods by which the right to use and occupy the streets and other public property was to be granted to the public service corporations by municipal ordinance, and even if the statute is construed as granting the power to enter into contracts which specify rates, such contractual power is not unlimited, and any exercise thereof is subject to the limitation implied in section 125, repeated in the statute, and otherwise expressed, namely, that such rates must at all times be reasonable. Overruling Virginia Western Power Co. v. Clifton Forge, 125 Ya. 469, 99 S. E. 723.
4. Municipal Cokpobations — Irrevocable Franchise to Public Utility Corrvpany Fixing Rates — Grant of such Franchise Must be Clearly Conferred. Municipal authority to grant a public utility company a franchise • irrevocably fixing the rates to be charged by the public utility company during the period of the franchise must be clearly conferred, and, if not so conferred, the power of the State to regulate and prescribe such rates is undiminished.
5. Municipal Cobpobations — Authority to Grant Irrevocable Franchise to a Public Utility Company Fixing Rates — Constitutional Provisions. — A consider ation of section 159 of the Constitution of 1902, with reference to the police power, and section 164 of the Constitution of 1902, with reference to the right of the Commonwealth to fix and limit the charges of public service corporations, and section 156-c of the Constitution of 1902, as to the powers of the State Corporation Commission, leads to the conclusion that the convention which adopted them could hardly have intended to be so inconsistent as at the same time, by section 125 of the Constitution of 1902, either to surrender or to authorize the General Assembly thereafter to surrender to the municipalities the unlimited power by contract to specify the rates for certain public service corporations, and thus to abridge the right of the State which had been so carefully and specifically reserved by section 164 of the Constitution of 1902.
6. Municipal Cokpobations — Franchise Fixing Rates of Public Service Corporation — Authority to Grant — Effect of the Word “Reasonable” in Section 125 of the Constitution of 1902. — Section 125 of the Constitution of 1902, regulating the granting of franchises by municipalities to public service corporations, contains a specific requirement that the grant shall make adequate provision by way of forfeiture or otherwise to secure service at reasonable rates. The word “reasonable,” which is here applied directly to rates, is significant, descriptive, and cannot be ignored. If given its obvious meaning, it limits the power conferred. An unalterable rate may be reasonable when established, but become unreasonable thereafter because of changed conditions. The use of the word “reasonable” negatives the idea that it was intended to confer unlimited contractual power upon the municipality, and clearly implies the reservation of the supervisory ' and regulative power of the State, which is otherwise and elsewhere so clearly and repeatedly expressed in the Constitution. That this section is thus construed by the General Assembly is apparent from section 4054 and sections 4064 to 4073, inclusive, of the Code of 1919.
7. - Corporation Commission — Public Utility Companies — Power of Commission to Fix Rates and Regulate Public Service Corporations■ — Acts of 1918, pp. 413, 6'78. — Sections 4054, 4064, and 4071 of the Code of 1919, in regard to the revision by the Corporation Commission of rates established by municipal corporations and the control of the Commission over public service corporations and the fixing by the Commission of rates to be charged by such corporations, has not been repealed by Acts 1918, pp. 413, 673, the amendments contained in that act being designed to confirm and strengthen the power of the Commission.
8. Municipal Corporations — Franchise Fixing Rates of Public Service Corporations — Reasonableness of Rates. — There is doubtless a presumption that rates fixed by a franchise granted a public service corporation by a municipality are reasonable. Until abrogated by the State, they are obligatory upon the contracting parties, but neither the State nor the public are parties thereto, and the State is free at any time to intervene and exercise its reserved power for the common good.
9. Municipal Corporations — Franchise Fixing Rates to be Charged by Public Service Corporation — Jurisdiction of the Corporation Commission.— The Constitution provides that the legislative and police power as to the regulation of rates shall never be surrendered or abridged; that municipalities may grant franchises which under certain conditions shall make adequate provision to secure efficiency of public service at reasonable rates; and authorizes the General Assembly to vest the Corporation Commission with plenary power to regulate the rates of all public service corporations. By statute all public utilities are subjected to the control of the State Corporation Commission, with power to prescribe just and reasonable rates in lieu of any found upon investigation to be unjust and unreasonable. Therefore the jurisdiction of the Commission to determine the question as to the reasonableness of rates fixed by a municipal franchise is clear.
10. Municipal Corporations — Public Service Corporations — Contracts Fixing Rates to be Charged — Power of State Corporation Commission — Impairment of Obligation of Contracts. — The overwhelming weight of authority is to the effect that a municipality, in the absence of any direct regulation of rates by the State, may enter into a contract with a public utility whereby the rates to be charged for service to the public are fixed, which contract, as between the parties themselves, is binding. The State nevertheless has power which it may delegate to a commission to change such rates whenever, because of changed conditions, such rates are no longer reasonable. Franchise rate contracts, unless clearly authorized by the State, are such contracts as may be changed by the State without infringing the constitutional guarantee against impairment of the obligation of contracts.
11. Police Power — Power to Regulate and Fix Rates of Public Service Corporations. — In Virginia the police power and the express right to regulate and prescribe rates of public service corporations are repeatedly reserved to the State in the Constitution, and, so far as not directly exercised or limited by the Constitution, reside unimpaired in the General Assembly. This inherent and paramount sovereign power, so frequently asserted, reiterated, and reserved in the Constitution, cannot be defeated or abridged by any contract made under the authority of Code of 1919, section 3016, and since the present Constitution became effective, but such contracts must be construed as subordinate to such reserved power of the State to prescribe rates, just as if such reservation were expressed therein.
Appeal from an order of the State Corporation Commission.
Affirmed.
The opinion states the ease.
N. S. Turnbull, Jr., for the appellant.
Geo. E. Allen and E. Randolph Williams, for the appellee.

Opinion:
Prentis, J.,
delivered the opinion of the court.
The town of Victoria complains of orders of the State Corporation Commission of January 3 and January 27, 1921, by which it assumed jurisdiction and authorized the Victoria Ice, Light and Power Company, Inc., to charge consumers in the town rates for electric current furnished them, in excess of the maximum rates specified in the ordinance of January 27, 1914, which granted the company the right to construct, maintain and op erate its lines under, upon, along and across the streets, alleys, avenues, bridges and public grounds within the limits of the town for the purpose of transmitting electricity to consumers of light, heat and power. The company is a public service corporation, vested with the rights and charged with the duties of such corporations.
The town, by plea and answer, denied the jurisdiction of the Commission, upon the ground that the company is operating under a franchise ordinance adopted and accepted before the 1914 acts (Code sections 4054 and 4064) became effective, which by contract irrevocably limits the maximum rates to be charged by the company, so that they can only be increased by consent of the town.
The Commission recognized the rule laid down by this court in Virginia Western Power Co. v. Clifton Forge, 125 Va. 469, 99 S. E. 723, 9 A. L. R. 1148, holding that the Commission has no jurisdiction in such cases, but nevertheless took jurisdiction in this case upon the ground that (under Constitution, sections 124, 125) the franchise granted by the town here is invalid because it was not adopted by a vote of three-fourths of' all of the members elected to the council.
For the reason indicated in an opinion this day handed down in the case of Town of Victoria v. Victoria Ice, Light and Power Co., ante p. 124, 114 S. E. 89, from the Circuit Court of Lunenburg county, we are of the opinion that the franchise is valid and effective.
The town then challenges the validity of the order increasing the rates to consumers, upon the ground that the ordinance constitutes a contract with the company limiting the rates to be charged, which is inviolable, and confidently relies upon Virginia Western Power Co. v. Clifton Forge, supra, which sustains that view, while the company is here claiming that notwithstanding the ruling in that case, the ordinance here involved does not constitute such a contract as to rates, and that by. the express provisions of the act of 1914, Code, sections 4054, 4064 to 4073, inclusive, as amended, the Commission has been vested with plenary power to regulate and prescribe just and reasonable rates, notwithstanding such ordinance. This then raises the ultimate and decisive question in the case.
Under well established rules, unless section 125 of the Constitution and the corresponding statute, Code, section 3016, confer such unlimited power upon the town to enter into an inviolable contract establishing the rates specified therein, then clearly that power does not exist. Whether we refer to this provision or to the statute, the language to be constued is identical. Of course the statute must be construed as subordinate to the other pertinent sections of the Constitution inconsistent therewith. For instance, in section 156-c this appears, referring to the State Corporation Commission: "The Commission may be vested with such additional powers and charged with such other duties (not inconsistent with this Constitution) as may be prescribed by law in connection with the visitation, regulation, or control of corporations, or with the prescribing and enforcing of rates and charges to be observed in the conduct of any. business where the State has the right to prescribe the rates and charges in connection therewith." This section, unless otherwise qualified, manifestly authorizes the General Assembly to vest the commission with plenary power,to prescribe and enforce rates and charges of all public service corporations, because unquestionably the State has the right to vest the commission with power to prescribe the rates to be charged in connection with the business of such corporations. This general power then can only be limited by a specific contract duly made with some public service corporation by the State or under its express authority.
The case has this feature, that opposing counsel rely . upon the same general propositions of law which are generally accepted, and which have so recently been examined and restated by this court both in the Virginia Western Power Co. Case and in City of Richmond v. Chesapeake and P. Telephone Co., 127 Va. 612, 105 S. E. 127.
We feel impelled to re-examine the precise conclusion reached in the Virginia Western Power Co. Case, and this makes it necessary to restate that conclusion.
It is expressly there held that municipalities in this State have no power, either under the Constitution or general statutes, to prescribe rates (as distinguished from the power to contract therefor) to be charged by any public service corporation. As to contracts, it is there held to be equally well settled that, for the very reason that a contract regulating rates, in its effect, extinguished pro tanto an undoubted power of govern ment, therefore its existence as well as the authority to make it must clearly and unmistakably appear; and that all doubts must be resolved in favor of the continuance of the power is likewise distinctly and unequivocally recognized in that case. Citing Home Telephone & Telegraph Co. v. Los Angeles, 211 U. S. 265, 53 L. Ed. 182, 29 Sup. Ct. 50. Then, citing a number of other cases in which it has been held that certain municipalities have no such contractual power, the opinion proceeds thus: "It appears in various ways in these causes that the municipalities either were not vested with the power to contract, or, if so, were not vested with that power unlimited. And in the cases of the latter character, the limitation on such power, consisting in the reservation of the right of future exercise of the power of regulation, is disclosed in various ways— as where a general State statute providing for the exercise of the continuing power of regulation was in force at the time of the grant of the municipal power in question, or where it otherwise appears that such reservation of such continuing power was made. None of these cases controverts the well-established rule of law above adverted to, namely, that if the municipality which grants a franchise, such as those involved in the cases before us, has expressly conferred upon it by statute the unlimited power to contract with , the grantee of the franchise on the subject of fixing the rates which may be charged for public service rendered thereunder during the franchise period, and the municipality does so contract and the franchise is accepted by the grantee of it and the grantee acts under it, the contract is irrevocable during its life without the assent of the municipality, as well as of the holder of the franchise, to a change in rates, and the rates cannot be changed in violation of the franchise provisions by the consent of only one party to the franchise contract." The opinion then holds that Constitution, section 124, does not confer such power to contract as to rates, and that unless conferred by some other provision or statute the power does not exist; that notwithstanding the control of the municipalities over their streets under that section, the power to regulate rates is held to be reserved in the State, which may be infused with life by appropriate- legislation, and in such ease the initial rates fixed by the franchise as the condition of the consent of the municipality to the occupation of its streets "will be taken to be fixed subject -to the reserved power of the State to regulate the rates in the future as the public welfare may demand, and that status will be taken to be so understood by the grantee as well as the grantor of the franchise." It then proceeds to hold that the statute (Code, section 3016), which is substantially identical with the Constitution, section 125, and based thereon, does confer this unlimited power to enter into inviolable contracts, saying this: "We see that that section of the Constitution expressly provides that, while nothing therein 'contained shall be construed as preventing the General Assembly from prescribing additional restrictions on the powers of cities and towns in granting franchises ' every franchise, such as those involved in the case before us, 'shall make provision to secure efficiency of public service at reasonable rates; ' and we see that that is a power to contract as to the rates during the whole franchise-period. And no limitation whatever is placed on such power to contract, except that the franchise period is limited so that it may not exceed thirty years, and that the franchise shall be offered for sale after dne advertisement, bids therefor to be received publicly in a manner to be provided for by law. There is no question raised in the cases before us, but that such requirements were all fulfilled, in the granting of the franchises in question. And we see from the reading of the whole of this section that it plainly expresses the intention that, in the absence of such 'other restrictions (on their powers) as may be imposed by law,' municipalities are intended by this section to be clothed by the legislature with the unlimited power to contract by the franchise with the grantee thereof on the subject of fixing the rates which may be charged for services rendered the public thereunder during the whole franchise period." This is further stated: "We conclude, therefore, that the statute law, in existence when and under which the franchises involved in the cases before us were granted, expressly delegated to the municipalities the unlimited authority to contract with the grantee of such franchises on the subject of fixing the rates of charges, aforesaid, thereunder, during the whole of the franchise periods."
It clearly appears then that this conclusion is based, solely upon the language quoted from Constitution, section 125, and repeated in the statute. Scrutinizing this language and its context, we observe that it appears in a section, the prime object of which is not to grant power but to restrict municipalities in the methods by which their power to grant the use of their streets (otherwise conferred) is exercised. We further observe that it appears therein not in direct connection with the power to grant, but only in immediate connection with the right to acquire the plant and property of the utility at the termination of the grant — this be ing the precise language of the clause: "Every such grant shall specify the mode of determining any valuation therein provided for, and shall make adequate provision by way of forfeiture of the grant or otherwise, to secure efficiency of public service at reasonable rates, and the maintenance of the property in good order throughout the term of the grant." Such safeguarding provisions might prove quite desirable to a municipality which contemplated the acquisition of a plant operated under a franchise which is about to expire at a time when the grantee might have a selfish motive to allow the property to deteriorate and the service to become inefficient. Then observe again the nature of the provision itself, which is to "make adequate provision by way of forfeiture of the grant or otherwise." Forfeiture would be neither desired nor desirable if relief against excessive rates were the chief end sought; for, if provided for by contract, such relief would doubtless be best secured by requiring specific performance, and if not then by public regulation. It must not, however, be overlooked that it is conceded that the authority to make such contracts cannot rest in doubtful disputations. The power claimed must be clearly conferred, and if not so conferred, the power of the State to regulate and prescribe such rates is undiminished. The language here relied on appears to be so inconclusive and of such doubtful import as to create a doubt which discussion and reflection do not remove. This doubt being fair and justifiable denies the power.
Let us, then, also consider some of the constitutional provisions and statutes which expressly deny the power claimed by the town.
It is everywhere conceded that the authority to prescribe rates is a governmental legislative function, which is exercised under the police power of the State. Constitution, section 159, has this with reference to the police power: "The exercise of the police power of the State shall never be abridged, nor so construed as to permit corporations to conduct their business in such manner as to infringe the equal rights of individuals or the general well-being of the State."
Then there is Constitution, section 164, which reads: "The right of the Commonwealth, through such instrumentalities as it may select, to prescribe and define the public duties of all carriers and public service corporations, to regulate and control them in the performance of their public duties and to fix and limit their charges therefor shall never be surrendered or abridged."
A consideration of these sections leads to the conclusion that the convention which adopted them could ' hardly have intended to be so inconsistent as at the same time, by section 125, either to surrender or to authorize the General Assembly thereafter to surrender to the cities and. towns the unlimited power by contract to specify the rates for certain public service corporations, and thus to abridge the right of the State which had been so carefully and specifically reserved by section 164. To so hold is to construe section 125 as authorizing municipalities by contract to nullify three other sections of the Constitution. If section 125 does nevertheless authorize such a surrender of the public right so carefully reserved, then all will agree, for this is fundamental, that the language relied on, when put in apposition to the language used in sections 156-e, 159 and 164, should be so clear, definite and positive as to deny and overcome their implications and leave no fair doubt upon the mind. This then leads us again to section 125, to a further scrutiny of the language there used as contrasted with the other three constitutional provisions just cited, in order to - ascertain whether the convention nevertheless did thereby surrender this public right as to such municipal franchise contracts. The authority to regulate and prescribe rates, it is conceded, rests in the police power of the Commonwealth, and is a legislative function. How, then, by this obscure language can we successfully maintain that it is clear that the State has thereby undertaken to surrender to the municipalities the authority to secure by contract rights which are paramount to the police power and legislative functions which under sections 159 and 164 the State has declared shall never be either abridged or surrendered?
Upon further reflection we think that this provision so relied on should not be construed as either surrendering or abridging such legislative power. We find ourselves in accord with the general view that such contractual powers as were thereby conferred are expressly limited by and subject to the reserved power of the State to intervene and prescribe such rates; and that contracts made by authority of section 125 and the statute are likewise so limited as effectively as if these other constitutional limitations were expressed in such contracts.
There is another inquiry which must be answered: What is meant by the specific requirement that the grant shall make adequate provision by way of forfeiture or otherwise to secure service at reasonable rates? The word "reasonable" which is here applied directly to rates is significant, descriptive and cannot be- ignored. If given its obvious meaning, it limits the power conferred. Unless this be true, it is without meaning, inoperative and superfluous. Is it clear, then, that this language means that the General Assembly can surrender to the corporation and the municipality the right by contract to establish and maintain specific rates, unal ter able for thirty years, whether they are reasonable or unreasonable? An unalterable rate may be reasonable when established but become unreasonable thereafter because of changed conditions. So the asserted power to contract for such unalterable rates is irreconcilable with and destructive of the authorized power to make adequate provision for reasonable rates. Then there is the requirement that the grant shall contain provisions which are adequate to secure such reasonable rates, and how can it be maintained that the bare enumeration of specific and unalterable rates is adequate to secure reasonable rates for thirty years. The reasonableness of rates.at any particular period can only be determined by many considerations, such as the value of the property then devoted to the public service, the cost of the service which, in the nature of things, varies from time to time, the efficiency of the service, as well as its value to the consumers. Certainly all these enter into the problem, so that one who relies upon such a franchise contract limitation must assume the burden of showing that the constitutional requirement imposed by section 125, that the contract shall make adequate provision for efficient service, at reasonable rates, has been observed. Surely there can be no doubt about the proposition that there should be some remedy for one who asserts that such a grant, otherwise regular, is in this respect invalid because it violates the Constitution and fails to make such adequate provision for reasonable rates, either by forfeiture of the grant or otherwise. Certainly he should be afforded the opportunity of stating and proving his contention before some tribunal provided by law for the decision of such a fair question. Otherwise authority to make such adequate provision is held to justify inadequate provision, and power to provide for reasonable rates is held to authorize and protect contracts for un reasonable rates. The Convention appears to have had this very contingency in contemplation when it provided by section 156-e that the commission might be vested with additional powers in connection with the visitation, regulation or control of corporations, or the prescribing and enforcing of rates and charges to be observed in the conduct of any business where the State has the right to prescribe the rates and charges for the service. It should not be presumed from such language as that used in section 125 that the State thereby intended to surrender the police power. Clearer language'than this is needed to indicate that the State has abdicated or renounced to municipalities its legislative power to regulate rates. Indeed, the language of that very section again emphasizes the undeviating purpose of the State to insist that such rates, whether established by contract or otherwise, shall at all times be reasonable. The use of the word "reasonable" there negatives the suggestion that it was thereby intended to confer unlimited contractual power, and clearly implies the reservation of the supervisory and regulative power of the State which is otherwise and elsewhere so clearly and repeatedly expressed. That this section is thus construed by the General Assembly is apparent from the Acts of 1914, now Code, section 4054 and sections 4064 to 4073, inclusive.
Sections 4054, 4064 and 4071 read:
"Sec. 4054- Bates established by municipal corporations to be subject to revision by State Corporation. Commission. — Upon complaint by anyone aggrieved that any rate, charge or practice established or provided for by any municipal ordinance, franchise or other contract, is unreasonable, unjust, insufficient or discriminatory, the State Corporation Commission shall order a hearing, and if, upon such hearing, it shall find that such com plaint is well founded, the said Commission shall prescribe and enforce just and reasonable rates, charges, or regulations, in lieu of.those complained of."
"Sec. 4-064- Public utility companies deemed public service corporations; duties. — Every company operating any public utility in this State shall be deemed a public service corporation within the meaning of the Constitution and the laws of the State of Virginia relating to public service corporations, and as such shall be subject to the control of the State Corporation Commission."
"Sec. 4071. Commission to fix rates and regulations.— If upon investigation the rates, tolls, charges, schedules, or joint rates of any public utility operating in this State shall be found to be unjust, unreasonable, insufficient or unjustly discriminatory or to be preferential or otherwise in violation of any of the provisions of law, the State Corporation Commission shall have power to fix and order substituted therefor such rate or rates, tolls, charges, or schedules as shall be just and reasonable."
While the act of 1914 has been amended (Acts 1918, pp. 413, 673), these amendments do not repeal the sections just quoted, but were designed to confirm and strengthen the power of the commission. There is doubtless a presumption that such franchise contract rates are reasonable. Until abrogated by the State, they are obligatory upon the contracting parties, but neither the State nor the public are parties thereto, and the State is free at any time to intervene and exercise its reserved power for the common good.
So, we have the Constitution providing that the legislative and police power as to the regulation of rates shall never be surrendered or abridged. We find the cities authorized to grant franchises which under certain conditions shall make adequate provision to secure efficiency of public service at reasonable rates; the Con stitution authorizing the General Assembly to vest the-Commission with plenary power to regulate the rates of all public service corporations; and this followed by the statute expressly subjecting all public utilities to the control of the State Corporation Commission, providing for investigations by the Commission, with power, to prescribe just and reasonable rates in lieu of any found upon such investigation to- be unjust and unreasonable.
If upon such investigation and hearing it appears that the franchise ordinance involved does make adequate provision by way of forfeiture or otherwise for reasonable rates, it satisfies the public right, so clearly reserved in the Constitution; but in order to ascertain whether or not it does so, and that there may be no doubt about it, the State has exercised its theretofore dormant power and provided the tribunal for testing the adequacy of the provision and the reasonableness*of such rates. Therefore, the jurisdiction of the Commission to hear and determine such questions appears to be clear, full and adequate.
In the case of Winfield v. Public. Service Commission, 187 Ind. 53, 118 N. E. 535, P. U. R. 1918-B, 747, a kindred question was considered. There the statute under which the contract was made empowered the board of public works "to authorize telephone companies to use any street, alley or public place in such city, and erect necessary structures therein, to prescribe the terms and conditions of such use, and to fix by contract the price to be charged to patrons," subject to the approval of the common council. With reference to this the court said: "Such general provisions are held not to grant authority to cities to make contracts binding the State to any exemption therein stated in favor of public service companies from State regulation. Milwaukee El. Ry. Co. v. Commission, 238 U. S. 174, 35
Sup. Ct. 820, 59 L. Ed. 1254; City of Benwood v. Commission, 75 W. Va. 127, 83 S. E. 295, L. R. A. 1915C, 261." And later in the same opinion said this: "Section 8938 further provides, in substance, that in such franchises the cities and towns shall also 'provide for the terms on which such water, electricity, and so forth, shall be supplied to the city or town and to its inhabitants, as well as for reasonable license fees or other compensation to be paid to such city or town for any such franchise and privilege.' By the express wording of this grant to cities of power, the legislature stipulates that said fees and compensation to the city shall be reasonable. The city and the utility company are not at liberty, under this section, to contract as they please, independent of the State's supervisory powers. The power to declare what is reasonable in such matters is, primarily, a legislative function. Louisville, etc., R. Co. v. Garrett, 231 U. S. 305, 34 Sup. Ct. 48, 58 L. Ed. 229; Stone v. Trust Co., 116 U. S. 307, 347, 6 Sup. Ct. 334, 388, 1191, 29 L. Ed. 636; Munn v. Illinois, 94 U. S. 113, 24 L. Ed. 77; Louisville, etc., R. Co. v. Mottley, 219 U. S. 467, 31 Sup. Ct. 265, 55 L. Ed. 297, 34 L. R. A. (N. S.) 671; Reagan v. Farmers' L. & Tr. Co., 154 U. S. 362, 14 Sup. Ct. 1047, 38 L. Ed. 1014; Atlantic Coast Co. v. Commission, 206 U. S. 1, 27 Sup. Ct. 585, 51 L. Ed. 933, 11 Ann. Cas. 398; Grand Trunk R. Co. v. Commission, 221 U. S. 400, 31 Sup. Ct. 537, 55 L. Ed. 786. Hence the force of the provision that such fees and compensation must be reasonable. The State gives up by this provision none of its power or right to determine what is a reasonable fee or compensation, but reserves this right and power, and by the use of the word 'reasonable' restricts the power of the city. Milwaukee El. R. Co. v. Commission, 238 U. S. 174, 35 Sup. Ct. 820, 59 L. Ed. 1254."
In the recent case of Salt Lake City v. Utah Light & Traction Co., 52 Utah 210, 223, 173 Pac. 556, 561, 3 A. L. R. 725, P. U. R. 1918F, 377, this language, so appropriate and applicable in view of the Virginia Constitution and statutes, appears: "It is now settled law that so long as the State does not interfere the rates agreed upon between the cities and the street railway companies in the franchise ordinances are binding and enforceable. Neither party, without the consent of the other, may disregard any rate that is agreed upon between them. Either party may, however, make application to the Utilities Commission, if one is created by legislative enactment, for the purpose of being relieved from the rates fixed in the franchise ordinance, and if it be made to appear that the rates under existing conditions have become unfair or unreasonable, in that they are either too high or too low, the commission may establish a rate which will again respond to the existing conditions, and may so adjust it as to make it fair, just and reasonable both to the railway company and to the public. In doing that the constitutional rights of the parties are neither invaded nor disregarded, for the simple reason that when the original rate was fixed by agreement it was still subject to modification at any time by the sovereign power of the State, providing the fare as fixed is found to be unfair and unreasonable. Every contract fixing rates entered into between the cities of this State and street railway companies, both under the Constitution and the statute, is always subject to change by the paramount power of the State, and the right of the State to so change the rates continues unless and until the legislature has in express terms surrendered the power or delegated it to some other arm of the State."
In State ex rel. Sedalia v. Public Service Commission (1918), 275 Mo. 201, 204 S. W. 497, P. U. R. 1919-C, 507, in concluding a discussion of the effect of a provision in the Constitution of Missouri similar to section 159, to the effect that the exercise of the police power of the State shall never be abridged, it is said: "Under it the sovereign police power of the State is preserved intact, irrespective of contracts with reference to rates for public service. Under it no contract as to rates will stand as against the order of the Public Service Commission for reasonable rates, whether such reasonable rates be lower or higher than the contract rate."
There are exhaustive notes on the subject in 3 A. L. R. 738 and 9 A. L. R. 1165, and many cases are there cited showing that there is little conflict in the authorities. The overwhelming weight of authority is to the effect that a municipality, in the absence of any direct regulation of rates by the State, may enter into a contract with a public utility whereby the rates to be charged for service to the public are fixed, which contract, as between the parties themselves, is binding. The State nevertheless has power which it may delegate to a commission to change such rates whenever, because of changed conditions, such rates are no longer reasonable. Franchise rate contracts, unless clearly authorized by the State, are such contracts as may be changed by the State without infringing the constitutional guarantee. The underlying reasons indicated in numerous decisions which support the above statement rest on two general grounds — either that such contracts must be deemed to have been entered into with knowledge of the inherent reserved power of the State to alter them when necessary to do so for the public welfare, or, that municipalities being mere agents of the State, the State itself may at any time waive the rights of the municipalities in the contracts.
That franchise rate contracts must be deemed to be made subject to this governmental power of the State to alter -for the public welfare, is held in a very large number of cases, and in these States: California, Idaho, Florida, Illinois, Indiana, Maine, Michigan, Missouri, Montana, Nebraska, New York, Oklahoma, Oregon, Pennsylvania, Utah, Washington and West Virginia. Cited in notes 3 A. L. R. and 9 A. L. R., supra.
Among numerous recent pertinent cases which have not already been cited in this opinion are: Traverse City v. Michigan Railroad Commission, 202 Mich. 575, 168. N. W. 481, P. U. R. 1918-F, 752; People, ex rel. South Glens Falls v. Public Service Commission, 225 N. Y. 216, 121 N. E. 777, P. U. R. 1919-C, 374; Pawhuska v. Pawhuska Oil & Gas Co., 64 Okl. 214, 166 Pac. 1058, P. U. R. 1917-F, 226; S. C., 250 U. S. 394, 63 L. Ed. 1054, 39 Sup. Ct. 526; Woodburn v. Public Service Commission, 82 Or. 114, 161 Pac. 391, L. R. A. 1917-C, 98, Ann. Cas. 1917-E, 996, P. U. R. 917-B, 967; Leiper v. Balt. & P. R. Co., 262 Pa. 328, 105 Atl. 551, P. U. R. 1919-C, 397; Re Searsport Water Co., 118 Me. 382, 108 Atl. 452, P. U. R. 1920-C, 347; Groesbeck v. Detroit, etc., R. Co., 210 Mich. 227, 177 N. W. 726, 1023.
Again there is authority to the effect that while franchise contracts as to rates may have been valid when made, the city as one of the contracting parties was only acting as agent of the State, and as principal the State may at any time waive any of its rights therein. This has been held in Salem v. Salem Water Co., 255 Fed. 295, 166 C. C. Q. 465, P. U. R. 1919-C, 956, and by the State courts in Delaware, Idaho, Indiana, Maine, Massachusetts, New Jersey, New York, Oregon and Washington. Note 3 A. L. R. 742. It is unnecessary to consider that view here because in no State have the express reservations of the legislative and police power of con trol by the State over the rates of public service corporations been more emphasized and reiterated than in the sections of the Virginia Constitution to which we have referred.
Upon further consideration, then, we restate our conclusions which determine this case thus:
1. That in Virginia the police power and the express right to regulate and prescribe rates of public service corporations are repeatedly reserved to the State in the Constitution, and so far as not directly exercised or limited by the Constitution reside unimpaired in the General Assembly;
2. That this inherent and paramount sovereign power, so frequently asserted, reiterated and reserved in the Constitution, cannot be defeated or abridged by any contract made under the authority of Code, section 3016, and since the present Constitution became effective, but such contracts must be construed as subordinate to such reserved power of the State to prescribe rates, just as if such reservation were expressed therein;
3. That Constitution, section 125, and the (Acts 1902-3-4, page 412, now Code, section 3016), were not an unrestricted grant of power to the municipalities in this State either to prescribe rates or to enter into contracts whereby specific rates could be irrevocably fixed, but are merely restrictions upon the municipalities which limit and prescribe the methods by which the right to use and occupy the streets and other public property was to be granted to the public service corporations by municipal ordinance; and that even if the statute is construed as granting the power to enter into contracts which specify rates, such contractual power is not unlimited, and any exercise thereof is subject to the limitation implied in that section, repeated in the statute, and otherwise expressed, namely, that such rates must at all times be reasonable. To the extent that the Virginia Western Power Co. Case held otherwise, it is disapproved.
4. That the State having-reserved the right to prescribe rates, the General Assembly has exercised this power for the State by the Acts of 1914, superseded by Code, sections 4054 and 4064 to 4073, inclusive, as amended (Acts 1818, p. 673), and thereby designated the tribunal and prescribed the procedure for the investigation of such rates thus specified by municipal ordinance adopted since the. present Constitution became effective; that the State Corporation Commission is thereby expressly vested with jurisdiction, after investigation and hearing, to prescribe different rates adjudged to be reasonable, anything in such ordinance to the contrary notwithstanding; excepting therefrom, however, such contracts, if any there be, as may have been authorized by the State before the present Constitution became effective.
5. That the commission has jurisdiction over the rates here involved.
These conclusions are amply supported by many precedents in other States construing analogous statutes, some of which have been cited.,
Affirmed.
Burks, J., concurs in result.
"Sectionl25. Sale of corporateproperty and granting of franchises by cities and towns.—The rights of no city or town in and to its water front, wharf property, public landings, wharves, docks, streets, avenues, paries, bridges, and other public places, audits gas, water, and electric works shall be sold except by an ordinance or resolution passed by a recorded affirmative vote of three-fourths of all the members elected to thecouncil, or to each branch thereof where there are two, and under such other restrictionsasmaybeimposedby law; and in case of the veto by the mayor of such an ordinance or resolution, it shall require a recorded affirmative vote of three-fourths of all the members elected to the council, or to each branch thereof where there are two, had in the manner heretofore provided for in this article, to pass the same over the veto. No franchise, lease or right of any kind to use any such public property or any other public property or easement of any description, in a manner not permitted to the general public, shall be granted for a longer period than thirty years. Before granting any such franchise or privilege for a term of years, except for a trunk railway, the municipality shall first, after due advertisement, receive bids therefor publicly, in such manner as may be provided by law, and shall then act as may be requiredby law. Such grant, and any contract in pursuance thereof, may provide that upon the termination of the grant the plant as well as the property, if any, of the grantee in the streets, avenues, and other public places shall thereupon, without compensation to the grantee, or upon the payment of a fair valuation therefor, be and become the property of the said city or town; but the grantee shall be entitled to no payment by reason of the value of the franchise; and any such plant or property acquired by a city or town may be sold or leased, or if authorized by law, maintained, controlled and operated, by such city or town. Every such grant shall specify the mode of determining any valuation therein provided for, and shall make adequate provision by way of forfeiture of the grant or otherwise, to secure efficiency of public service at reasonable rates, and the maintenance of the property in good order throughout the term of the grant. Nothing herein contained shall be construed as preventing the General Assembly from prescribing additional restrictions on the powers of cities and towns in granting franchises or in selling or leasing any of their property, or as repealing any additional restriction now required in relation thereto in any existing municipal charter."
"Section 124. Consent of corporate authorities necessary to use of streets, alleys or public grounds by certain companies or persons. — No street railway, gas, water, steam, or electric heating, electric light or power, cold storage, compressed air viaduct, conduit, telephone or bridge, company, nor any corporation, association, person or partnership, engaged in these or like enterprises, shall be permitted to use the streets, alleys, or public grounds of a city or town without the previous consent of the corporate authorities of such city or tovfn."