City of Texarkana v. Wiggins
246 S.W. 2d 622, 151 Tex. 100, 1952 Tex. LEXIS 379 (1952)
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Rule of Law:
A municipally-owned utility that voluntarily provides services to customers outside its corporate limits is subject to the common-law rule prohibiting unreasonable rate discrimination. The fact that a customer resides outside the city's corporate limits is not, by itself, a reasonable basis for charging a higher rate for the same service.
Facts:
- The City of Texarkana, Texas, purchased the American Water Works, Inc., a private utility that had served both residents and nonresidents in the surrounding territory at the same rates.
- For two years after the acquisition, the City of Texarkana continued to operate the utility and charged all customers, both inside and outside its corporate limits, the same non-discriminatory rates.
- On August 8, 1950, the City of Texarkana enacted an ordinance that significantly increased rates for nonresident customers.
- The new ordinance set water service for nonresidents at one-and-a-half times the resident rate and sewer service at double the resident rate.
- The ordinance also established a water tapping fee of $50 for nonresidents, compared to $10-$15 for residents.
- The rate differentiation was based on the city's corporate limits, an arbitrary line running down the center of 29th Street, separating the City of Texarkana from the adjacent City of North Texarkana, where the nonresidents lived.
- The City of Texarkana did not present any evidence that the cost of supplying services to nonresidents was higher than the cost of supplying services to residents.
Procedural Posture:
- Nonresident customers sued the City of Texarkana in a state trial court, seeking an injunction to prevent the enforcement of a new ordinance with higher utility rates for nonresidents.
- The trial court heard evidence and rendered a judgment in favor of the City of Texarkana.
- The nonresidents (as appellants) appealed to the Court of Civil Appeals.
- The Court of Civil Appeals reversed the trial court's judgment and remanded the cause for a new trial.
- The City of Texarkana (as Petitioner) was granted a writ of error to have the case reviewed by the Supreme Court of Texas.
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Issue:
Does a municipal ordinance that charges nonresidents substantially higher rates for water and sewer services than residents, based solely on the nonresidents' location outside the city's corporate limits, constitute unreasonable and unlawful discrimination?
Opinions:
Majority - Mr. Justice Smith
Yes, the municipal ordinance constitutes unreasonable and unlawful discrimination. A municipally-owned utility is subject to the same common-law rule as a private utility prohibiting unreasonable discrimination in rates and service, primarily because it operates as a monopoly. Having elected to serve nonresidents and treat them as part of a single class for years, the city cannot now impose discriminatory rates without a reasonable basis. The city's corporate limits, by themselves, do not furnish a reasonable basis for rate differentiation. The argument that the greater power to refuse service includes the lesser power to serve on any terms is invalid. Furthermore, the state statute permitting cities to set terms that are 'for the best interest' of the city does not provide express authority to establish unreasonably discriminatory rates.
Dissenting - Mr. Justice Calvert
No, the ordinance is a valid exercise of the city's authority. A city's primary duty is to its own inhabitants, and it is under no legal obligation to provide utility services to nonresidents. Because providing service is permissive, the city may set the terms and conditions, including higher rates, as it sees fit. State statute explicitly grants cities the power to permit connections 'under such terms and conditions as may appear to be for the best interest of such town or city,' which plainly includes the setting of rates. The majority's holding is contrary to the overwhelming weight of authority from other jurisdictions and disregards the unambiguous language of the controlling statute.
Analysis:
This decision establishes that, in Texas, municipally-owned utilities cannot use their governmental status to engage in arbitrary rate discrimination against nonresidents they voluntarily choose to serve. The court rejects the 'greater power includes the lesser power' argument in this context, aligning municipal utility regulation with common-law principles applied to private monopolies. This precedent requires municipalities to provide a rational, cost-based justification for charging nonresidents more, rather than relying solely on political boundaries, which could impact how cities structure service extensions into neighboring areas.
