In Re Lower Cape Fear Water & Sewer Authority ( 1991 )

407 S.E.2d 155 (1991) 329 N.C. 675

In re LOWER CAPE FEAR WATER AND SEWER AUTHORITY, and the County of Brunswick.

No. 427PA89.

Supreme Court of North Carolina.

August 14, 1991.

Alfred P. Carlton, Jr., Raleigh, for appellant County of Brunswick.

Hogue, Hill, Jones, Nash & Lynch by William O.J. Lynch, Wilmington, for appellee Lower Cape Fear Water and Sewer Authority.

WEBB, Justice.

The County has not assigned error to the holding of the superior court that declared void the provisions of the contract which say the County is not required to pay a rate based on capital improvements which in the opinion of the County do not benefit the County. The County's only assignment of error is the court's failure to find that on the facts of this case the Authority may legally discriminate in water rates and thus charge the County less than rates it charges other customers.

The Authority is not subject to the Act governing public utilities. N.C.G.S. § 62-3(23)(d) (1989). It is subject to the common law rule that it cannot charge rates that would constitute an unwarranted discrimination among the parties it was formed to serve. Paper Co. v. Sanitary District, 232 N.C. 421, 61 S.E.2d 378 (1950).

The parties agree that there can be a differential in rates if the circumstances justify it. The question posed by this appeal is whether the facts of the case justify a different rate to the County.

The County says the Authority may grant it a different rate from the rates given other customers. It says this is so because it advanced $5,653,200 to the Authority to help construct the facilities of the Authority and because it paid to the Authority sufficient sums to maintain the facilities after the facilities were complete and before the County was in a position to take water from the Authority. No other members of the Authority made a contribution which made the Authority viable.

The Authority says there is not a sufficient reason to differentiate in the rates charged the County and other customers. It says that the $5,653,200 which the County advanced to the Authority was not a gift but a loan. The County issued general obligation bonds to acquire this money it advanced to the Authority and the Authority is obligated to charge a sufficient rate to service these bonds and pay such sums to the County. For this reason, says the Authority, the County has not made a contribution to the Authority sufficient to justify a difference in rates. It is true that the Authority is obligated to repay the $5,653,200 advanced to it by the County. Nevertheless this grant contribution enabled the Authority to receive other grants totaling $8,000,000. This sum of money enabled the Authority to build its facilities and commence operation. This is a substantial contribution.

The Authority, relying on Dale v. Morganton, 270 N.C. 567, 155 S.E.2d 136 (1967), says that its common law duty not to discriminate is the same as for public utilities. It says that based on Utilities Com. v. Mead Corp., 238 N.C. 451, 78 S.E.2d 290 (1953), it cannot give the County a different rate from its other customers. In that case we held that the Aluminum Corporation of America, which owned all the stock of Nantahala Power and Light Company, could not receive a preferential rate in relation to other customers without proving some distinctive fact that justifies the preference. Assuming cases involving utility rates are precedent for determining rates charged by the Authority in this case, Mead does not govern this case. Nantahala was a public utility owned by Alcoa. We held that a wholly owned utility could not discriminate in rates between its parent company and other customers. In this case the County does not own the Authority. It has made a substantial contribution to the Authority which puts it in a position different from other members.

The Authority also argues that the fact that the County paid the operation and maintenance expenses for the Authority from October 1984 until the County started receiving water does not entitle the Commission to grant the County a different rate. The Authority says the County received full value for this contribution by having water available when the County was ready to take it. Whatever benefit this was for the County it was also a benefit to the Authority which enabled the Authority to continue in business.

We hold that the Authority may grant the County a different rate on the water it receives from the Authority. The Authority could not have become viable if Brunswick County had not made the contributions that it made. It lent the Authority $5,653,200. Because of this loan the Authority was able to obtain grants totaling $8,000,000 from the United States Economic Development Administration and the State of North Carolina. The County paid the operating and administrative expenses of the Authority from October 1984 until July 1987. These were substantial contributions to the Authority without which it would not have been able to begin its operation or stay in business. Based on this substantial difference between the position of the County vis-a-vis the Authority and the position of the other members, the Authority does have the right to charge a rate to the County different from the rate it charges other members.

REVERSED AND REMANDED.