Southern Indiana Gas & Electric Co. v. Indiana Statewide Rural Electric Cooperative, Inc.

Bierly, J.

— This is an action in equity, whereby appellant, plaintiff below, sought to' enjoin appellee:

“. . . from either constructing or operating an electric utility generating plant of transmission facilities'; from producing, furnishing, transmitting or selling electricity in any part of the area or to any of the customers, served by the plaintiff; from using or crossing county roads or other county property for the installation of its facilities; and from otherwise engaging as a public utility in the production, transmission, sale or furnishing of electric power, all unless and until authorized to do so by proper order of the Public Service Commission of Indiana, and in the case of using county property, unless and until properly authorized so to do by the respective counties.”¹

It appears from the record that appellee proposed to construct an electric utility generating plant and transmission facilities in order to render service to the Southern Indiana Rural Electric Cooperative, Inc., (hereinafter referred to as Southern REMC) and to the Dubois Rural Electric Cooperative, Inc., (hereinafter referred to as Dubois REMC), both of which are presently receiving service rendered by appellant.

The trial court found against the appellant on its complaint and entered judgment accordingly.

On appeal, appellant assigns as error the trial court’s action in overruling its motion for a new trial, which motion specified that the trial court’s decision was contrary to law.

At this point it would prove helpful for a better understanding of the issues, if we briefly outline the facts surrounding this action, as well as the nature of the parties’ operations.

Appellant was initially organized in 1912 under the name “Public Utilities Company,” and in 1921 its name was changed to its present form. As of mid-1964, it asserts that its total investment in electric utility plants was $78,072,891.00. As of the time of the filing of the complaint, its cost of operation of electric facilities then being used to supply utility service to Southern REMC and Dubois REMC was $270,280.52. This property consists of lines, meters, transformers, substations and miscellaneous other property and equipment.

In addition to the above two REMCs, appellant renders service to residential, commercial, industrial, municipal and wholesale municipal customers in the counties of Posey, Vanderburgh, Gibson, Warrick, Spencer, Pike, Dubois and Perry. As of May 31, 1964, appellant was serving approximatey 74,377 customers directly, and 17,500 customers indirectly. The indirect customers consist of those served by the wholesale municipal and REMC customers. Appellant has served Southern REMC continuously since 1941, and Dubois REMC since 1954. The revenue received by appellant from the above two REMCs for electric utility service during 1963 amounted to $261,360.00. The revenue per year had grown in the past and the parties agreed that further growth at an increasing rate would be experienced in the future.

The Southern REMC was incorporated in 1939 under the REMC Act, (Burns’ Anno. Stat. §§ 55-4401 to 55-4426, 1951 Replacement and 1967 Cum. Supp.), to distribute electricity in certain rural areas in Spencer and Posey Counties and areas to the east thereof. It does not generate its own electricity or operate the large, high voltage, transmission lines. Instead, it purchases all of its electricity from appellant and then distributes the current to the ultimate consumer.

The Dubois REMC was also incorporated in 1939, and it, like the Southern REMC, does not generate or transmit its own electricity, but purchases some from the appellant as well as some from other utilities, and distributes it to its customers.

The appellee has admitted, in its answer to appellant’s complaint, that it:

“[Pjroposes to, and will unless prevented by this court, construct an electric generating plant and transmission facilities and engage as a public utility in rendering to Southern REMC and Dubois REMC, as well as others, the electric utility services which is presently being, and for many years has been, rendered by the plaintiff.”

The possibility of generation of electric energy by the REMCs had been under consideration and discussion for a number of years. The motivating factor was the REMCs’ desire to obtain electricity at the lowest possible rate, and under the present set-up the public service commission approved these rates between appellant and appellee.

As a result, the appellee, along with several member REMCs, organized the Hoosier Cooperative Energy, Inc., as a not-for-profit corporation in 1949, and as a vehicle for generating electrical energy.

Several studies were made concerning the feasibility of a generating program. None of these studies advanced beyond the planning stage until June of 1961, when the REA approved a loan to Hoosier Cooperative Energy, Inc., for a generation and transmission project.

Hoosier Cooperative Energy, Inc., planned to receive Public Service Commission authorization of this proposed generation and transmission, and then construct a generating plant near Petersburg, Indiana, for the transmission of electricity to some sixteen [16] local REMCs.

On December 18, 1961, Hoosier Cooperative Energy, Inc., filed with the Public Service Commission its petition for a certificate of convenience and necessity to construct, maintain and operate a generating station and transmission system.

Several utilities, including appellant, intervened and opposed the project as being unnecessary, uneconomical, and not in the public interest. Thereafter, arrangements were made to transfer the REA loan from Hoosier Cooperative Energy, Inc., to the appellee. On April 25, 1962, Hoosier Cooperative Energy, Inc., dismissed its petition before the commission.

On May 14, 1962, the traditional ground breaking ceremony was held near Petersburg, Indiana. Appellant then filed this action on June 1, 1962.

For purposes of this appeal there appears three issues for our determination. The first would be whether or not the appellee has the authority to proceed with its generation and transmission plans, and if this is found to be in the affirmative, where does it derive this authority, from the statute or from the Public Service Commission? The second issue concerns itself with non-user. That is, even assuming appellee had the authority to proceed with its plan, has it lost this authority by reason of lapse through non-user ? The third and final issue is the question of whether appellant is a proper party to bring an action asserting such loss of revenues and capital invested to extend services to REMCs.

We are of the opinion that a literal interpretation of the statute creating the REMCs leaves little room for doubt as to whether the power to generate is present.

Under § 55-4411, it is provided that:

“A corporation created under the provisions of this act shall have power to do any and all acts or things necessary or convenient for carrying out the purpose for which it was formed, including, but not limited to:

“(d) To acquire, own, operate, maintain and improve a system or systems.”

Under § 55-4403, the word “system” is defined as follows:

“(e) ‘System’ shall mean and include any plant, works, system, facilities or properties, together with all parts thereof and appurtenances thereto, used or useful in the generation, production, transmission or distribution of energy.”

Section 55-4417 provides for rates and states that:

“. . . A reasonable and just charge for service within the meaning of this section shall be such charges as shall produce sufficient revenue to pay all legal and other necessary expense incident to the operation of its system, . . . .” (emphasis added).

Also, under § 55-4421, it is provided that:

“A general district corporation is a corporation formed under this act for the purpose of furnishing services to local district corporations.” (emphasis added).

Services is defined under § 55-4403 to mean:

“(m) ‘Service’ or ‘services’ shall mean the furnishing of energy and the rendering of engineering, financial, accounting or educational services incidental to the production, transmission, or use of energy, ... or any of the same.” (emphasis added).

If appears obvious that this power to generate was granted to the REMCs under the act. The problem arises in attempting to determine what role the Public Service Commission plays concerning this power and the REMCs.

Under § 55-4405, provision is made for the filing of the articles of incorporation of the REMCs with the Public Service Commission. The Commission is then directed to hold a public hearing, and,

. . after hearing the evidence introduced at said hearing shall enter a finding either that the convenience _ and necessity of the public proposed to be served in the territory in which the operations of the corporation are to be conducted will or will not be served by the organizations and operations of the proposed corporation. If such finding be in the affirmative, the commission shall enter an order approving the organization of such corporation and the proposed articles of incorporation and shall attach a copy of said order to each copy of the said articles of incorporation.

. . As soon as the provisions of the section have been complied with, the proposed corporation described in the articles so filed, under its designated name, shall be and constitute a body corporate.”

Under this statute, as we interpret it, the Public Service Commission’s function is to determine the desirability of having an REMC in a given territory. In so doing, their guideline is that the “convenience and necessity” of the territory will be served. If the commission determines this question in the affirmative, it enters an order to that effect. The commission, however, did not determine what the powers of the REMCs were, for the powers are listed in the statute itself.

Having determined that the REMCs do possess the necessary power to commence a generation program, we must next determine whether the same can be lost through non-user.

The appellant states the general principle of non-user to be:

“. . . even though a right may once have been granted to the utility to render public service, if that utility fails to use the right and fail to render the service, and another utility provides the facilities, renders the service and fulfills the public need over a period of years, the unused right of the first utility will lapse and cease to exist.”

As authority for this principle, appellant cites the following two Indiana cases: City of Huntington v. Northern Ind. Power Co. (1937), 211 Ind. 502, 5 N. E. 2d 889; Public Service Co. of Ind. v. City of Newcastle (1937), 212 Ind. 229, 8 N. E. 2d 821.

In the City of Huntington case, supra, the Northern Indiana Power Company filed suit to prevent the city from, engaging in domestic and commercial lighting, distribution, and sale of electric current in the City of Huntington. The complaint, in that case,

“. . . alleged that the city of Huntington is not and never has been engaged as a utility in the production and sale of electric current for domestic or commercial purposes, but for many years has owned and operated an electric generating plant for the purpose of producing current to light the streets and public buildings, and for strictly municipal purposes; that on the 1st day of January, 1935, the city of Huntington, through its officers and employees, without qualifying as a public or municipal utility and without complying with the requirements of law, threatened to proceed, and unless enjoined would proceed, unlawfully to engage in domestic and commercial lighting in the city of Huntington to the irreparable damage of appellee.”

The appellant in that case contended that it was, on January 1, 1935, and for many years prior to that date, a municipal utility, and had a right to extend its operations.

In City of Huntington, supra, the trial court in its judgment and findings:

“. . . decreed that the appellee and its predecessors owned and operated the sole and only utility lawfully engaged in the generation of electric current for domestic and commercial purposes, under a franchise issued from said city, until June 23, 1923, when the franchise was surrendered and an indeterminate permit was granted by the Public Service Commission of Indiana; That the city of Huntington was not on, or prior to, January 1, 1935, engaged in the business of furnishing electric current for domestic and commercial purposes.

“The judgment further enjoined the appellants from extending its electric system to the homes and places of business in the city of Huntington, . . . .”

It was held by the Indiana Supreme, Court on appeal, that the City of Huntington had lost any right it may have had to operate as a public utility. Chief Justice Tremain stated:

“Appellants rely upon the fact that in 1914 the city was granted permission to distribute electricity for domestic and commercial purposes. However, this authority was never ' exercised. The city will not be permitted to hold such right in a dormant state, and, after a public utility has operated under legal authority for many years and expended large sums to serve the public, undertake to' operate under the condition here presented.

“. . . when the Public Service Commission of Indiana, in .1914, granted to the city of Huntington, authority to engage in domestic and commercial lighting, it must use that . grant for public benefit. It was granted upon the implied ' condition that it would be so used. The non-user for more than twenty years amounted to a forfeiture. Also, see Capital City Light & Fuel Co. v. Tallahassee (1902), 186 U.S. 401, 411, 22 S. Ct. R. 866; Kavanaugh v. St. Louis (1909), 220 Mo. 496, 119 S.W. 552; State ex rel v. East Fifth Railway Co. (1897), 140 Mo. 539, 41 S.W. 955, 38 L.R.A. 218, 62 Am. St. Rep. 742; Louisville Trust Co. v. Cincinnati (1896), 76 Fed. 296, 22 C.C.A. 334; Security Trust Co. v. Grosse Pointe (1929), 32 Fed. 2d 706; Cawker v. Meyer (1911), 147 Wis. 320, 133 N.W. 157, 37 L.R.A. (NS) 510; Allen v. Railroad Commission (1918), 179 Cal. 68, 175 Pac. 466, 8 A.L.R. 249.”

But a vigorous dissenting opinion was rendered by Judge Treanor, as follows:

1 . Taken from plaintiff’s prayer for relief in its complaint.