B-74297, APRIL 2, 1948, 27 COMP. GEN. 580

B-74297: Apr 2, 1948

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

A RATE INCREASE FOR REGULAR BUSINESS TELEPHONES PRESCRIBED BY A COMPANY DOING BUSINESS IN THAT STATE IS TO BE REGARDED AS APPLICABLE TO SIMILAR SERVICE RENDERED TO THE UNITED STATES UNDER A CONTRACT SPECIFYING A LOWER RATE FOR SUCH TELEPHONE SERVICE SO AS TO AUTHORIZE THE AMENDMENT OF THE CONTRACT TO PROVIDE FOR THE INCREASED RATE. IN THE ABSENCE OF A SHOWING THAT THE NEW RATE IS UNREASONABLE OR NOT UNIFORM IN ITS APPLICATION TO THE GENERAL PUBLIC. IT IS REPORTED THAT BY LETTER OF JANUARY 27. THE COMPANY AVERRED THAT THE STATE OF IOWA DOES NOT HAVE ANY PUBLIC SERVICE COMMISSION WITH JURISDICTION OVER TELEPHONE RATES AND BY LETTER OF JANUARY 30. CERTIFIED THAT THE INCREASED RATES WERE AUTHORIZED BY THE PRESIDENT OF THE NORTHWESTERN BELL TELEPHONE COMPANY IN ACCORDANCE WITH THE LEGAL AUTHORITY VESTED IN THAT POSITION AND BECAME THE LEGALLY ESTABLISHED RATES OF NORTHWESTERN IN THE ABSENCE OF REGULATION BY ANY BODY IN IOWA HAVING JURISDICTION OVER TELEPHONE EXCHANGE RATES.

B-74297, APRIL 2, 1948, 27 COMP. GEN. 580

TELEPHONES - RATES - CONTRACT AMENDMENT TO PROVIDE FOR HIGHER RATES PRESCRIBED BY TELEPHONE COMPANY THE STATE LEGISLATURE OF IOWA NOT HAVING UNDERTAKEN DIRECTLY OR BY DELEGATION TO REGULATE TELEPHONE SERVICE RATES, A RATE INCREASE FOR REGULAR BUSINESS TELEPHONES PRESCRIBED BY A COMPANY DOING BUSINESS IN THAT STATE IS TO BE REGARDED AS APPLICABLE TO SIMILAR SERVICE RENDERED TO THE UNITED STATES UNDER A CONTRACT SPECIFYING A LOWER RATE FOR SUCH TELEPHONE SERVICE SO AS TO AUTHORIZE THE AMENDMENT OF THE CONTRACT TO PROVIDE FOR THE INCREASED RATE, IN THE ABSENCE OF A SHOWING THAT THE NEW RATE IS UNREASONABLE OR NOT UNIFORM IN ITS APPLICATION TO THE GENERAL PUBLIC.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE TREASURY, APRIL 2, 1948:

THERE HAS BEEN CONSIDERED YOUR LETTER OF MARCH 4, 1948, RELATIVE TO THE ACTION WHICH MAY PROPERLY BE TAKEN BY YOUR DEPARTMENT IN CONNECTION WITH A CONTRACT FOR CERTAIN TELEPHONE SERVICES FURNISHED THE COAST GUARD UNDER SCHEDULE "O" TO CONTRACT NO. TCG-1230, ENTERED INTO BY THE COAST GUARD WITH SOME 19 ASSOCIATED BELL TELEPHONE COMPANIES UNDER DATE OF JULY 1, 1917.

THE CONTRACT INVOLVED--- OTHERWISE DESIGNATED AS A MASTER AGREEMENT- - PROVIDES GENERALLY FOR THE FURNISHING BY SAID ASSOCIATED COMPANIES TO THE COAST GUARD OF VARIOUS TYPES OF EQUIPMENT, SERVICES, AND INSTRUCTIONS AND/OR TECHNICAL ADVICE WITH RESPECT TO THE INSTALLATION AND MAINTENANCE OF TELEPHONE COMMUNICATION SYSTEMS FOR AND BY THE COAST GUARD, WHICH SERVICES, ETC., APPEAR FOR THE MOST PART TO COVER THE PECULIAR NEEDS OF THE COAST GUARD. ALSO, SAID AGREEMENT PROVIDES FOR THE FURNISHING BY THE INDIVIDUAL COMPANIES OF SUCH OF ITS REGULAR SERVICES AS MAY BE REQUIRED AND ORDERED BY THE COAST GUARD BY LETTER AMENDMENTS TO THE SCHEDULES THEREBY MADE APPLICABLE TO THE INDIVIDUAL COMPANIES UNDER THE CONTRACT AT THE RATES THEREFOR IN THE RELEVANT SCHEDULES.

IT APPEARS THAT PURSUANT TO LETTER AMENDMENT NO. 25, DATED FEBRUARY 18, 1947, EFFECTIVE JANUARY 13, 1947, TO SCHEDULE "O" OF THE SAID MASTER AGREEMENT, THE NORTHWESTERN BELL TELEPHONE COMPANY, DES MOINES, IOWA, INSTALLED A REGULAR BUSINESS TELEPHONE (TELEPHONE 2-3671) IN THE U.S. COAST GUARD RECRUITING OFFICE AT DES MOINES, LISTING THEREFOR AN APPLICABLE RATE OF $7 PER MONTH. IT IS REPORTED THAT BY LETTER OF JANUARY 27, 1947, THE NORTHWESTERN BELL TELEPHONE COMPANY NOTIFIED THE COMMANDER, SECOND COAST GUARD DISTRICT, THAT EFFECTIVE FEBRUARY 13, 1947, THE RATE FOR SUCH TELEPHONE SERVICE WOULD BE INCREASED FROM $7 TO $9 PER MONTH. A LETTER OF THAT SAME DATE, THE COMPANY AVERRED THAT THE STATE OF IOWA DOES NOT HAVE ANY PUBLIC SERVICE COMMISSION WITH JURISDICTION OVER TELEPHONE RATES AND BY LETTER OF JANUARY 30, 1947, SIGNED BY THE ASSISTANT SECRETARY AND SEALED WITH THE CORPORATE SEAL, CERTIFIED THAT THE INCREASED RATES WERE AUTHORIZED BY THE PRESIDENT OF THE NORTHWESTERN BELL TELEPHONE COMPANY IN ACCORDANCE WITH THE LEGAL AUTHORITY VESTED IN THAT POSITION AND BECAME THE LEGALLY ESTABLISHED RATES OF NORTHWESTERN IN THE ABSENCE OF REGULATION BY ANY BODY IN IOWA HAVING JURISDICTION OVER TELEPHONE EXCHANGE RATES.

IN YOUR LETTER IT IS STATED THAT THE MASTER AGREEMENT AND THE INDIVIDUAL SCHEDULES EXECUTED PURSUANT THERETO HAVE CONSISTENTLY BEEN CONSTRUED AS OBLIGATING THE GOVERNMENT TO PAY THE RATE SPECIFIED IN THE SCHEDULES, AS AMENDED OR MODIFIED BY THE PARTIES THERETO PURSUANT TO AN ORDER OF A PUBLIC UTILITY COMMISSION OR OTHER REGULATORY BODY HAVING JURISDICTION OVER TELEPHONE RATES. HOWEVER, IT IS STATED THAT THIS IS THE FIRST TIME THAT THE QUESTION OF INCREASED RATES UNDER THE MASTER AGREEMENT HAS ARISEN IN A JURISDICTION WHERE THERE IS NO LEGALLY CONSTITUTED REGULATORY BODY. IT IS SET FORTH THAT IT IS UNDERSTOOD THE COMPANY INTENDS TO CANCEL THE MASTER AGREEMENT AS AUTHORIZED THEREUNDER UNLESS THE COMPANY-APPROVED INCREASED RATES ARE PAYABLE AND IT WOULD APPEAR THAT, UPON SUCH CANCELLATION OF THE MASTER AGREEMENT, THE 27 CONTRACTS EXECUTED PURSUANT THERETO FOR TELEPHONE SERVICES OVER THE ENTIRE UNITED STATES WILL TERMINATE. YOU STATE THAT THE COAST GUARD IS CONCERNED OVER SUCH POSSIBLE CANCELLATION SINCE MANY OF THE SERVICES PROVIDED FOR IN THE MASTER AGREEMENT ARE NOT READILY OBTAINABLE UNDER THE USUAL TELEPHONE CONTRACT AND THAT THE GOVERNMENT NOW RECEIVES OR HAS RECEIVED OVER THE PAST 30 YEARS CONSIDERABLE ADVANTAGES AND BENEFITS FROM THE OPERATION OF SUCH MASTER AGREEMENT, WHICH BENEFITS MAY BE LOST IN THE EVENT OF CANCELLATION THEREOF. UNDER THE CIRCUMSTANCES, YOU REQUEST A DECISION ON THE FOLLOWING SPECIFIC QUESTIONS:

1. IS THERE AUTHORITY UNDER THE MASTER AGREEMENT TO ENTER INTO A PROPOSED LETTER AMENDMENT MODIFYING LETTER AMENDMENT NO. 25, CONTRACT TEG-1230, SCHEDULE O, ATTACHED HERETO SO AS TO PROVIDE FOR AN INCREASE IN RATE ON TELEPHONE LINE 2-3671, DES MOINES, IOWA, OF $2.00 PER MONTH, IN THE ABSENCE OF A DULY CONSTITUTED AND ESTABLISHED REGULATORY BODY HAVING JURISDICTION OVER TELEPHONE RATES IN THE STATE OF IOWA.

2. MAY THE PROVISIONS OF THE MASTER AGREEMENT BE CLARIFIED BY THE ADDITION OF THE FOLLOWING CLAUSE:

WHENEVER AN INCREASE OR DECREASE IN RATES IS AUTHORIZED BY A PUBLIC SERVICE COMMISSION OR OTHER RATE MAKING BODY WITH JURISDICTION OVER TELEPHONE RATES, THE AFFECTED SCHEDULE SHALL BE AMENDED, IN ACCORDANCE WITH APPLICABLE REGULATIONS OF THE U.S. COAST GUARD, TO PROVIDE FOR SUCH INCREASE OR DECREASE IN RATES. IN THE EVENT THAT THERE IS NO PUBLIC SERVICE COMMISSION OR OTHER RATE MAKING BODY WITH JURISDICTION OVER TELEPHONE RATES (OR IN THE EVENT THAT SUCH PUBLIC SERVICE COMMISSION OR RATE MAKING BODY HAS DECLINED, IN ACCORDANCE WITH APPLICABLE STATE OR LOCAL LAW OR REGULATION, TO EXERCISE JURISDICTION OVER PARTICULAR TYPES OF TELEPHONE SERVICE SPECIFIED IN THE SCHEDULE), THE UNITED STATES AGREES TO PAY, IN ACCORDANCE WITH APPLICABLE REGULATIONS OF THE COAST GUARD, THE RATE DULY ESTABLISHED BY THE COMPANY IN ACCORDANCE WITH ITS CHARTER AND BYLAWS AND CHARGED OTHER SUBSCRIBERS FOR IDENTICAL SERVICE.

IT IS WELL SETTLED THAT RATES FIXED BY CONTRACT BETWEEN A PUBLIC UTILITY COMPANY AND A PATRON THEREOF ARE NEVERTHELESS SUBJECT TO LEGISLATIVE REGULATION AND ARE SUPERSEDED BY A SCHEDULE OF RATES PRESCRIBED BY THE LEGISLATURE OR A COMMISSION TO WHICH IT HAS DELEGATED ITS REGULATORY POWER. SEE WOLVERTON V. MOUNTAIN STATES TELEGRAPH AND TELEPHONE COMPANY, 142 P. 165; ADAMS V. NORTHWESTERN TELEPHONE EXCHANGE COMPANY, 183 N.W. 113; UNITED STATES V. OKLAHOMA GAS AND ELECTRIC COMPANY, 297 F. 575, AND AUTHORITIES CITED THEREIN. IN THE LIGHT OF SUCH AUTHORITIES, IT IS EVIDENT THAT THE RATES SET FORTH IN THE SCHEDULES MADE A PART OF THE MASTER AGREEMENT HERE INVOLVED NECESSARILY ARE SUBJECT TO LEGISLATIVE CONTROL AND ARE SUPERSEDED BY RATES WHICH MAY BE ESTABLISHED BY LEGISLATIVE ACTION AND WHICH THEREBY BECOME THE LEGAL RATES PAYABLE FOR THE SERVICES FURNISHED. THAT IS TO SAY, THE PARTIES MUST BE PRESUMED TO HAVE CONTRACTED WITH KNOWLEDGE OF THESE WELL-ESTABLISHED PRINCIPLES OF LAW AND, ACCORDINGLY, TO HAVE IMPLIEDLY AGREED TO BE BOUND BY SUCH RATES AS MIGHT THEREAFTER BE ESTABLISHED PURSUANT TO THE POLICE POWER OF THE STATE. SEE, PARTICULARLY, LAMB V. CALIFORNIA WATER AND TEL. CO., 129 1.2D 371.

HOWEVER, THE MATTER NOW FOR CONSIDERATION INVOLVES AN INCREASE IN RATES PURPORTED TO HAVE BEEN ESTABLISHED BY THE NORTHWESTERN BELL TELEPHONE COMPANY IN IOWA UNDER THE LAWS OF WHICH STATE NO REGULATORY BODY OR COMMISSION HAS BEEN ESTABLISHED HAVING JURISDICTION OVER TELEPHONE RATES. THUS, THE PRIMARY QUESTION APPEARS TO BE WHETHER, IN THE ABSENCE OF ACTION BY THE LEGISLATURE OF A STATE, A TELEPHONE COMPANY CHARTERED IN SUCH STATE IS AUTHORIZED TO FIX THE RATES APPLICABLE TO THE SERVICES FURNISHED AND, IF SO, WHETHER RATES SO FIXED ABROGATE OR SUPERSEDE RATES THERETOFORE AGREED TO BY A TELEPHONE COMPANY AND A PATRON UNDER AN EXISTING CONTRACT.

THE STATUTORY LAW OF THE STATE OF IOWA PROVIDES WITH RESPECT TO TELEPHONE COMPANIES THAT "ANY PERSON OR FIRM, AND ANY CORPORATION ORGANIZED FOR SUCH PURPOSE, WITHIN OR WITHOUT THE STATE, MAY CONSTRUCT A * * * TELEPHONE LINE ALONG THE PUBLIC ROADS OF THE STATE, OR ACROSS THE RIVERS OR OVER ANY LANDS BELONGING TO THE STATE OR ANY PRIVATE INDIVIDUAL, AND MAY ERECT THE NECESSARY FIXTURES THEREFOR.' CHAPTER 488.1 OF CODE OF IOWA. ALSO, SAID STATUTORY LAW AUTHORIZES THE CONDEMNATION OF PRIVATE PROPERTY FOR SUCH PURPOSES IN THE SAME MANNER AS PROVIDED FOR TAKING PRIVATE PROPERTY FOR WORK OF INTERNAL IMPROVEMENTS ( CHAPTER 488.4); REQUIRES THE FURNISHING BY ANY SUCH INDIVIDUAL OR COMPANY OF EQUAL FACILITIES TO THE PUBLIC; AND PROVIDES EXPRESSLY THAT THE FAILURE OF ANY SUCH PERSON OR FIRM TO FURNISH EQUAL FACILITIES SHALL CONSTITUTE A VIOLATION OF THE LAW AND SHALL OPERATE TO VITIATE ALL RIGHTS OR BENEFITS OTHERWISE GRANTED SAID PERSONS OR FIRMS. CHAPTERS 488.5, 488.14 IBID.

IT IS, OF COURSE, OBVIOUS THAT THE FAILURE OF THE LEGISLATURE OF A STATE TO ADOPT A PROCEDURE FOR THE REGULATION OF RATES FOR TELEPHONE SERVICES OR TO ESTABLISH A BODY OR COMMISSION EMPOWERED TO REGULATE OR FIX SUCH RATES DOES NOT ALTER IN ANY AMOUNT THE STATUS OF A COMPANY FURNISHING TELEPHONE SERVICE AS A PUBLIC UTILITY, SINCE SUCH STATUS NECESSARILY ARISES FROM THE NATURE OF THE SERVICES PERFORMED AND THE PUBLIC INTEREST THEREIN. IN THIS CONNECTION, IT HAS BEEN RECOGNIZED BY THE COURTS OF IOWA THAT A TELEPHONE COMPANY WHICH PROCEEDED UNDER THE STATUTORY LAW TO CONSTRUCT LINES--- EITHER LONG DISTANCE OR LOCAL, OR BOTH--- IN A CITY OR TOWN IN IOWA THEREBY ACQUIRES A PERPETUAL FRANCHISE FOR THE USE AND OCCUPATION OF THE STREETS AND ALLEYS OF SUCH TOWN SUBJECT TO THE RESERVED RIGHTS OF THE STATE TO LEGISLATE IN THAT REGARD. CHAMBERLAIN V. IOWA TELEPHONE COMPANY, 119 IOWA 619, 93 N.W. 596; STATE V. NEBRASKA TELEPHONE COMPANY, 127 IOWA, 194, 103 N.W. 120; STATE V. CHARITON TELEPHONE COMPANY, 173 IOWA 47, 155 N.W. 968; STATE V. IOWA TELEPHONE COMPANY, 175 IOWA 607, 154 N.W. 678. ALSO, IT HAS BEEN HELD THAT THE POWER OF RATE MAKING RESTS PRIMARILY IN THE STATE AND REMAINS WITH IT UNTIL IT CONFERS SUCH POWER UPON A MUNICIPALITY AND THAT THE LEGISLATURE OF THE STATE OF IOWA NOT HAVING CONFERRED THE POWER OF RATE FIXING AS TO TELEPHONE COMPANIES UPON MUNICIPALITIES, A MUNICIPALITY HAS NO RIGHT TO ATTEMPT TO EXERCISE SUCH POWER. CITY OF OSCEOLA V. MIDDLE STATES UTILITIES COMPANY, 257 N.W. 340 ( IOWA).

THE STATUS OF TELEPHONE COMPANIES AS PUBLIC UTILITIES AND A DESCRIPTION OF THEIR RESPECTIVE RIGHTS AND DUTIES ARE SET FORTH IN 62 C.J., SECTION 90, PAGE 81, AS FOLLOWS:

INASMUCH AS THE BUSINESS OF FURNISHING TELEGRAPH OR TELEPHONE SERVICE, OR THE LIKE, IS A QUASI-PUBLIC ONE, IN MANY RESPECTS SIMILAR TO THAT OF COMMON CARRIER, IT IS THE DUTY OF A COMPANY ENGAGED IN SUCH BUSINESS, LIKE EVERY OTHER PUBLIC UTILITY, TO SERVE THE PUBLIC, OR THAT PART OF THE PUBLIC WHICH IT HAS UNDERTAKEN TO SERVE,GENERALLY, IMPARTIALLY, AND WITHOUT ARBITRARY DISCRIMINATION,EXTENDING TO EVERY INDIVIDUAL WHO DESIRES TO BE SERVED AND WHO COMPLIES WITH THE REASONABLE RULES OF THE COMPANY EQUAL SERVICES AND FACILITIES, UPON EQUAL TERMS, UNDER EQUAL CONDITIONS. IN A NUMBER OF JURISDICTIONS STATUTES HAVE BEEN ENACTED WHICH EXPRESSLY RECOGNIZE OR DECLARE SUCH DUTY; BUT IT EXISTS INDEPENDENT OF STATUTE, BY REASON OF THE INHERENT NATURE OF SUCH COMPANIES AND THEIR BUSINESS, AND SUCH STATUTORY PROVISIONS ARE MERELY DECLARATORY OF THE COMMON LAW. (ITALICS SUPPLIED.)

ALSO, IT APPEARS TO BE GENERALLY RECOGNIZED THAT THE RIGHT TO PRESCRIBE THE RATE TO BE CHARGED FOR TELEPHONE SERVICES OR THE LIKE BELONGS PRIMARILY TO THE COMPANY SUBJECT TO THE POWER OF THE STATE OR ITS DULY AUTHORIZED AGENCY TO REGULATE, MODIFY AND SUPERSEDE SUCH RATES AND SUBJECT, ALSO, TO THE REQUIREMENT THAT THEY BE REASONABLE AND UNIFORM FOR THE SAME SERVICE AND CLASSIFICATION, AND RATES DULY FIXED AND ESTABLISHED BY THE COMPANY CONTINUE IN EFFECT UNTIL CHANGED OR UNTIL A DIFFERENT RATE IS ESTABLISHED BY THE PROPER RATE REGULATING BODY. SEE 62 C.J. 95, AND CASES CITED THEREIN; POSTAL TELEGRAPH-CABLE COMPANY V. ASSOCIATED PRESS, 127 N.E. 256; CITY OF OSCEOLA V. MIDDLE STATES UTILITIES COMPANY, SUPRA. THE PROPOSITION IS SUCCINCTLY STATED IN AN ARTICLE ENTITLED "1PUBLIC UTILITY RATES IN THE ABSENCE OF STATUTE" BY W.E. MCCURDY (38 HARVARD LAW REVIEW 202, 207): " GRANTED THE GENERAL POWER OF THE LEGISLATURE TO FIX OR REGULATE RATES EITHER ITSELF OR THROUGH PROPERLY CONSTITUTED AGENCIES, IT MAY BE ASKED WHAT IS THE SITUATION WHERE THE LEGISLATURE HAS NOT ACTED AT ALL. THE ANSWER IS OBVIOUS; THE PUBLIC UTILITY ITSELF HAS THE POWER TO FIX RATES AND CHARGES SUBJECT TO THE DUTY TO MAKE THEM REASONABLE. THIS FOLLOWS NECESSARILY FROM A GENERAL PRINCIPLE THAT IN THE ABSENCE OF APPLICABLE STATUTE THE COMMON LAW PREVAILS.'

WHILE UPON THE BASIS OF THE AUTHORITIES CITED THERE SEEMS NO DOUBT THAT, SUBJECT TO THE INHERENT RIGHTS OF A STATE TO REGULATE OR ESTABLISH SUCH SERVICE FOR THE FURNISHING OF TELEPHONE SERVICE, THE COMPANY FURNISHING SUCH SERVICE IS AUTHORIZED TO PRESCRIBE THE RATE THEREFOR AND, FURTHER, THAT THE RATE THUS ESTABLISHED BECOMES THE LEGAL RATE PAYABLE FOR SUCH SERVICE, THERE IS FOR CONSIDERATION HERE THE FURTHER QUESTION AS TO WHETHER AN INCREASE IN SUCH RATES BY A COMPANY FOR THE PUBLIC GENERALLY MAY BE CONSIDERED AS ABROGATING OR SUPERSEDING AN EXISTING CONTRACT WITH A PARTICULAR PATRON COVERING THE SAME SERVICE.

AT THIS POINT THERE IS FOUND A DEFINITE SPLIT OF AUTHORITY. IN 43 AM. JUR., SECTION 98, THE FOLLOWING PRINCIPLE IS LAID DOWN:

UNTIL THE LEGISLATURE OR OTHER BODY HAVING THE RIGHT TO PRESCRIBE THE RATES TO BE CHARGED BY PUBLIC UTILITIES HAS EXERCISED THIS POWER, THE RATES ARE THE SUBJECT OF CONTRACT BETWEEN THE CORPORATION AND ITS PATRONS, AND SUCH CONTRACTS WILL BE DEEMED VALID BY THE COURTS, AND MAY BE ENFORCED BY ANY APPROPRIATE MODE. * * * AS SUPPORT FOR SUCH PRINCIPLE THERE IS CITED THE CASE OF SOUTHERN PACIFIC COMPANY V. SPRING VALLEY WATER COMPANY, 159 P. 865, HOLDING THAT WHERE RATES FOR WATER DEVOTED TO PUBLIC USE HAVE NOT BEEN FIXED BY PUBLIC AUTHORITY, THE PERSON IN CHARGE OF THE USE AND THE CONSUMER MAY FREELY CONTRACT REGARDING THE PRICE OF SERVICE AND THE MANNER OF PAYMENTS, AND THAT SUCH CONTRACTS WILL BE DEEMED VALID BY THE COURTS. ALSO, THERE IS CITED STATE V. GEIGER, 154 S.W. 486, WHEREIN THE COURT STATED--- THE BUSINESS OF SUPPLYING THE PUBLIC WITH WATER, LIKE THAT OF SUPPLYING GAS, ELECTRICITY, AND OTHER SIMILAR SERVICE, IS A BUSINESS IMPRESSED WITH THE PUBLIC USE * * * IT IS AN EQUALLY WELL-SETTLED LAW THAT THE FIXING OF RATES FOR SUCH A SERVICE IS A GOVERNMENTAL POWER.

IN THE ABSENCE OF LEGISLATIVE ACTION PRESCRIBING SUCH RATES, PRIVATE PARTIES MAY FIX THEM BY CONTRACT, AND THE RATES SO AGREED UPON WILL BE UPHELD. HOWEVER, RATES SO FIXED BY PRIVATE CONTRACT REMAIN IN FORCE ONLY SO LONG AS THE LEGISLATIVE BODY HAVING AUTHORITY IN THE PREMISES REFRAINS FROM THE EXERCISE OF ITS POWERS. WHEN PUBLIC RATES ARE ESTABLISHED BY LAW, RATES FIXED BY PRIVATE CONTRACT MUST YIELD. * * *

TO THE SAME EFFECT ARE THE FOLLOWING AUTHORITIES: III THOMPSON ON CORPORATIONS (2D USED.), SECTION 2953; MERCHANTS' NAT. BK. V. CARMICHAEL, 196 P.76; COULTER V. SAUSALITO BAY WATER COMPANY, 10 P.2D 780; LAMB V. CALIFORNIA WATER AND TELEPHONE COMPANY, 129 P.2D 371; KOEHN V. PUBLIC SERVICE COMMISSION, 176 N.Y. SUPP. 147; DENWOOD V. PUBLIC SERVICE COMMISSION, 83 S.E. 295. ALSO, SEE MIDLAND COMPANY V. K. C. POWER COMPANY, 300 U.S. 109; ATLANTIC COAST ELECTRIC RAILWAY COMPANY V. BOARD OF PUBLIC UTILITY COM-RS, 104 A. 218.

ON THE OTHER HAND, BASIC PRINCIPLES OF THE LAW OF PUBLIC UTILITIES REQUIRE THAT RATES MUST BE JUST AND REASONABLE AND DESIGNED TO PROVIDE A FAIR RETURN ON THE INVESTMENT AS WELL AS TO ENABLE THE UTILITY TO MAINTAIN AN ADEQUATE AND EFFICIENT SERVICE. THE VIEW HAS BEEN EXPRESSED THAT BY REASON OF SUCH PRINCIPLES A PUBLIC UTILITY HAS AN INHERENT RIGHT--- IN FACT, DUTY--- TO RAISE RATES WHENEVER THEY BECOME SO LOW AS TO ADVERSELY AFFECT THE SERVICE TO THE GENERAL PUBLIC AND THAT SUCH RIGHT IS PARAMOUNT TO ANY CONTRACTUAL OBLIGATION WHICH WOULD REQUIRE AN INDEFINITE ADHERENCE TO LOWER RATES. SEE, IN THIS CONNECTION, NOTE ENTITLED " RIGHT OF PUBLIC SERVICE COMPANY TO ALTER RATES FIXED BY CONTRACT.' 32 HARVARD LAW REVIEW, PAGE 74. THIS SAME PARAMOUNT RIGHT HAS BEEN SAID TO SUPPLY TO CONTRACTS WHICH FOR ANY REASON BECOME DISCRIMINATORY. THUS, IN WOLVERTON V. MOUNTAIN STATES TEL. AND TEL. CO., 142 P. 165, 166, THE COURT SAID:

TELEPHONE COMPANIES ARE PUBLIC SERVICE CORPORATIONS AND THEIR INSTRUMENTS AND APPARATUS ARE THEREFORE DEVOTED TO A PUBLIC USE, AND BY REASON OF VARIOUS VALUABLE RIGHTS AND FRANCHISES GRANTED BY THE PUBLIC ARE SUBJECT TO CERTAIN WELL-UNDERSTOOD DUTIES AND OBLIGATIONS, WITHOUT DISCRIMINATION, TO THE PUBLIC GENERALLY AND ARE BOUND TO CONDUCT THEIR BUSINESS IN A MANNER CONDUCIVE TO THE PUBLIC BENEFIT. THEY ARE LIKEWISE SUBJECT TO LEGISLATURE REGULATION AND CONTROL. THESE COMPANIES MAY NOT ARBITRARILY REFUSE THEIR FACILITIES TO ANY PERSON DESIRING THEM AND OFFERING TO COMPLY WITH THEIR REGULATIONS, SUBJECT TO THE PROVISIONS THAT RATES AND REGULATIONS MUST BE REASONABLE.

IT REQUIRES NO ARGUMENT TO SHOW THAT SUCH CONTRACTS WITH PUBLIC SERVICE CORPORATIONS FOR FIXED PERIODS ARE IMPRACTICABLE, IF NOT IMPOSSIBLE, FROM THEIR VERY NATURE. THE SERVICE IS A PUBLIC SERVICE, AND SUBJECT TO A CONSTANT CHANGE OF CONDITIONS.

IT IS CLEAR THAT, IF THE TELEPHONE COMPANY SHOULD REDUCE ITS RATES FOR SERVICE TO THE PUBLIC GENERALLY, IT COULD NOT CONTINUE TO HOLD THE PLAINTIFF INDEFINITELY, UNDER A CONTRACT FOR A HIGHER RATE. SEE, ALSO, NOTE IN 22 ALBANY LAW JOURNAL, PAGES 363, 364; BIRMINGHAM WATER WORKS COMPANY V. MAYOR, ETC., OF BIRMINGHAM, 42 SO. O. IN THE LATTER CASE THE COURT HELD THAT A VALID CONTRACT FOR UNREASONABLE RATES OR RATES NOT UNIFORM TO CONSUMERS COULD NOT BE MADE BY A PUBLIC SERVICE CORPORATION.

HOWEVER, IT APPEARS THAT THERE IS EVEN SOME LACK OF UNIFORMITY AS TO WHAT CONSTITUTES SUCH DISCRIMINATION AS TO RENDER A PUBLIC SERVICE CONTRACT INVALID. SEE BIRMINGHAM WATER WORKS COMPANY V. BROWN, 67 SO. 613. WAGNER V. CITY OF ROCK ISLAND, 34 N.E. 545, 549, IT WAS STATED --

* * * IT IS A RULE OF COMMON LAW THAT PARTIES CARRYING ON BUSINESS WHICH IS PUBLIC IN NATURE, OR WHICH IS IMPRESSED WITH THE PUBLIC INTEREST, CANNOT SELECT THEIR PATRONS ARBITRARILY, BUT MUST SERVE ALL WHO APPLY ON EQUAL TERMS, AND AT REASONABLE RATES, BUT THIS IS AS FAR AS THE RULES OF COMMON LAW SEEM TO HAVE GONE. THEY DO NOT REQUIRE ABSOLUTE UNIFORMITY OF RATES, NOR FORBID DISCRIMINATION BY PERFORMING THE SERVICE FOR ONE AT RATES LOWER THAN THOSE EXACTED OF OTHERS. * *

ALSO, SEE 2 WYMAN ON PUBLIC SERVICE CORPORATIONS, SECTIONS 1282, ET SEQ.

IN IOWA, THE JURISDICTION HERE INVOLVED, THE RULE APPARENTLY IS THAT LAID DOWN IN COOK, ET AL. V. CHICAGO R.I. AND P. RY. CO., 46 N.W. 1080. THERE, THE COURT POINTED OUT THAT A MERE DISCRIMINATION IN FAVOR OF A CUSTOMER IS NOT UNLAWFUL UNLESS IT CONSTITUTES AN "UNJUST" DISCRIMINATION; THAT IN THE ABSENCE OF STATUTORY REGULATION A CORPORATION CONDUCTING A BUSINESS AFFECTED WITH A PUBLIC INTEREST IS NOT BOUND TO CHARGE ALL CUSTOMERS THE SAME PRICE FOR THE SAME SERVICE; AND THAT ALL THE CUSTOMERS MAY INSIST UPON IS THAT THE COMPENSATION BE JUST AND REASONABLE. THE COURT HELD, HOWEVER, THAT UNDER THE FACTS OF THAT CASE A SECRET REBATE TO CERTAIN CUSTOMERS WAS AN UNLAWFUL DISCRIMINATION, AND AS A BASIS FOR ITS CONCLUSIONS THE COURT REFERRED TO THE FACT THAT THE CUSTOM HAD PREVAILED OVER A PERIOD OF YEARS IMPELLING THE CONCLUSION THAT THE RATE CHARGED BY THE CORPORATION WAS REASONABLE EVEN AFTER DEDUCTION OF THE REBATE.

ON THE WHOLE, THE TREND OF THE LAW SEEMS TO BE IN FAVOR OF HOLDING CONTRACTS WITH PUBLIC SERVICE CORPORATIONS WHICH PROVIDE FOR A LOWER RATE TO A PARTICULAR CUSTOMER OR CLASS OF CUSTOMERS THAN THE RATE CHARGED THE PUBLIC GENERALLY AS BEING CONTRARY TO PUBLIC POLICY AND THEREFORE INVALID. SUCH A PROPOSITION IS NOT BASED UPON ANY DELEGATION BY THE LEGISLATURE TO THE PUBLIC SERVICE CORPORATION OF ITS REGULATORY POWERS OVER RATES BUT RATHER UPON THE NATURE OF THE RELATIONSHIP BETWEEN A PUBLIC SERVICE CORPORATION AND THE PUBLIC GENERALLY. AS WAS SAID IN A DECISION OF AN INFERIOR COURT IN MISSOURI---

IT IS NOT POSSIBLE TO ADMIT THE PRINCIPLE THAT A RAILROAD, TELEGRAPH OR TELEPHONE COMPANY MAY AVOID THE PERFORMANCE OF ANY PART OF THE PARAMOUNT DUTY THEY OWE TO THE ENTIRE PUBLIC, BY CONTRACT OBLIGATIONS WHICH THEY MAY ENTER INTO, EVEN WITH THE PATENTEE OF AN INVENTION. IF THE PRINCIPLE WERE CONCEDED, IT IS QUITE OBVIOUS THAT SUCH CORPORATIONS MIGHT READILY AVOID THE PERFORMANCE OF ANY PUBLIC DUTY THAT BECAME INCONVENIENT OR BURDENSOME. IT WOULD BECOME POSSIBLE TO DISCRIMINATE AT PLEASURE BOTH AGAINST INDIVIDUALS OR CLASSES. (SEE 22 ALBANY LAW JOURNAL 363.)

IN THE PRESENT CASE, THE RECORD INDICATES THAT THE NEW RATE OF $9 PER MONTH BECAME EFFECTIVE FOR THE PUBLIC GENERALLY ON FEBRUARY 13, 1947. ALSO, IT MAY BE THAT UNDER THE FACTS HERE INVOLVED THE CONTRACT WITH THE UNITED STATES, PROVIDING FOR A RATE OF $7 PER MONTH FOR THIS SAME SERVICE, WOULD BE CONSIDERED BY EITHER A COURT OF COMPETENT JURISDICTION OR BY A DULY CONSTITUTED PUBLIC TRIBUNAL AS AMOUNTING TO AN UNJUST DISCRIMINATION.

UNDER THE CIRCUMSTANCES, AND IN THE ABSENCE OF A SHOWING THAT THE RATE OF $9 PER MONTH ESTABLISHED BY THE NORTHWESTERN BELL TELEPHONE COMPANY FOR THE SERVICES HERE INVOLVED, EFFECTIVE FEBRUARY 13, 1947, IS UNREASONABLE OR NOT UNIFORM IN ITS APPLICATION TO THE GENERAL PUBLIC, SUCH RATE MAY BE CONSIDERED APPLICABLE TO THE SERVICES FURNISHED UNDER THE SCHEDULE HERE INVOLVED AND, ACCORDINGLY, YOUR FIRST QUESTION IS ANSWERED IN THE AFFIRMATIVE. MOREOVER, IF IT BE DEEMED DESIRABLE FROM AN ADMINISTRATIVE STANDPOINT TO AMEND THE MASTER AGREEMENT IN THE MANNER SUGGESTED IN YOUR LETTER, THIS OFFICE WILL NOT BE REQUIRED TO OBJECT THERETO.