Western Canal Co. v. Railroad Commission

Petitioners ask this court to review and annul an order of respondent Railroad Commission directing them to file with it “rates and regulations covering irrigation water service”. The term “power company”, where hereinafter used, will designate the Great Western Power Company of California, a corporation, and its predecessors.

Petitioners contend that the finding upon which said

Petitioners allege that in 1915 Western Canal Company was organized under the laws of this state as a mutual water company and as such has operated continuously since said time; that the proceedings here involved were not commenced until March 31, 1930, after nearly $1,000,000 had been expended in the construction of the canal system of said company and nearly $600,000 had been invested by land owners in the purchase of its capital stock of which 21,715 shares, out of an issue of 200,000 shares, appurtenant to an equal number of acres of land under irrigation, are now outstanding.

Petitioners further allege that Great Western Power Company of California was also organized under the laws of this state in 1915 and has since been continuously engaged in the generation of electric energy and sale thereof to the public; that during this period it has also sold to Western Canal Company, under special contract, as a by-product of its electric power business, and subject to prior and paramount use for generation of electric power, certain water delivered at the intake of the Western Canal Company canal on the Feather River, three miles below the city of Oroville, California; that Great Western Power Company of California is the successor in interest of the properties and assets of Great Western Power Company, the successor in turn of Western Power Company, none of which sold water save to Western Canal Company and then only as a by-product as aforesaid.

The order complained of was rendered on December 21, 1931, after an extended consideration on rehearing of two consolidated proceedings entitled respectively, “Sarah B.

The substance of the findings and opinion of the Commission on rehearing will now be set forth: Complainant Ludy, the owner of about 1,000 acres of land in eastern Glenn County, desired delivery by petitioners of water for irrigation purposes. She alleged that her lands were formerly served with water by Western Canal Company, but that said company refused to deliver further water unless she purchased stock from it to the extent of one share for each acre irrigated, at a price of $20 per share. She alleged that said company was serving other lands in the vicinity as a public utility and had facilities and water supply adequate to serve her lands; further that Great Western Power Company of California, from which Western Canal Company obtained its water supply, had likewise devoted its waters to the public use and, through the medium of Western Canal Company, as its subsidiary, was operating as a public utility water company. Petitioners answered that Western Canal Company was purely a mutual concern created to supply its stockholders with water purchased under contract from Great Western Power Company, which latter company held all its waters available for irrigation for private use only, unaffected by the public interest. Upon these issues various arguments and hearings were had before the Commission.

The Commission found that the Feather River Canal Company was organized in 1908 after an appropriation by its promoter Norris of 300 second-feet of water from the Feather River for irrigation purposes and that an adequate canal system was planned through the operation of which water would be available for sale to anyone; that, however, a stock sales and also a water rights sales campaign by Norris was unsuccessful and he was finally forced to seek a purchaser for his interest; meanwhile, he and his associates had acquired practically all the stock of the company and 5,000 so-called “water rights”; that in 1911 a sale was negotiated whereby the Brown-Walker concern became the owner of nearly all the stock of the company, together with 3,000 of Norris’ “water rights” and he continued as an engineers and officer of the company. In 1912, under the new ownership, the company at once made contracts with several land owners for delivery of water in perpetuity at fixed rates. There was organized also at this time the Feather River Mutual Water Company for taking over the Feather River Canal Company, but it played an inconspicuous role and perhaps did not function at all. Thereafter and in 1915 there was completed a sale of the Feather River Canal Company properties to Great Western Power Company. The

After reviewing the voluminous evidence the Commission concluded that it was the intent of the incorporators of Feather River Canal Company to serve water as a public utility within an area of at least 30,000 acres for which purpose it had an adequate water supply and that by its subsequent acts' in issuing “rights” for the purchase of water and by the execution and delivery of water contracts expressly conditioned upon the right of the state, through the Railroad Commission, to alter such contracts, said company dedicated its property and water rights to the use of all those within the area of its canal system. This public servitude, the Commission found, was not relieved by the subsequent transfer of the properties to the Feather River Mutual Water Company. Thus to the extent of the appropriation made by promoter Norris, the Commission, under complainant’s first theory, disposed of petitioners’ obligation to continue the service of water in the public use.

Complainant, however, contended further that all of the water flowing from the tail-race of the power plant of the Great Western Power Company was likewise devoted to irrigation purposes in the same general area, and evidence was offered to show that its predecessor power companies' acquired some of their lands and water rights by exercise of the power of eminent domain for such purposes as well as for the generation of electricity, thus proving a dedication to the .public use,' especially when followed by the institution of the water service. There were placed in evidence copies of complaints in six condemnation suits brought by the Western Power Company or Great Western Power Company, all of which alleged, in consonance with its articles of incorporation, that plaintiff was engaged in the business of furnishing and supplying water for the public use for domestic and irrigation purposes in addition to the generation of electric power and that it was necessary

Prom a detailed and exhaustive review of still further evidence the Commission concluded that petitioners, Western Canal Company and Great Western Power Company of California, although one of them was organized as a mutual water company, nevertheless operated as public utilities in the sale and distribution of water for irrigation purposes, which fact is apparent from the acts of the companies themselves. A more extended reference to this phase of the subject follows at a later point in this discussion.

Thus, after a full and complete résumé of the evidence, the Commission announced that Great Western Power Company of California holds its property and water rights subject to the public use for irrigation and domestic purposes and is primarily responsible for the continuance of that public service; that Western Canal Company is not a mutual water company as defined in the Act for Regulation of Water Companies, but is wholly a creation of the power company and a device by which the latter has sought to escape public regulation; that the said complainant is entitled to the relief prayed for; that petitioners are “water corporations” within the definition and meaning of that term as used in the Public Utilities Act and the Act for the Regulation of Water Companies of the state of California and that an appropriate order should be entered directing them to file tariffs, rules and regulations governing the performance of the service in question. The order first herein discussed followed and petitioners thereupon instituted this proceeding, wherein they reiterate their claims as above set forth.

The briefs in this proceeding are thorough and exhaustive but, at the outset, we must observe that the existence of a public utility within the meaning of the law is in its essence a pure question of fact and we are mindful that

The sole ultimate question is whether petitioners are corporations “owning, controlling, operating or managing any water system” which “sells, leases, rents or delivers water to any person, firm, private corporation, municipality or any other political subdivision of the state whatsoever . . . ” (Stats. 1913, p. 84) or are utilities covered by section 2dd of the Public Utilities Act as amended in 1919 (Stats. 1919, p. 493), or whether they come within the exception mentioned in the act of 1913 above quoted, which reads as follows: “Section ,2. Whenever any private corporation or association is organized for the purpose solely of delivering water to its stockholders or members at cost, and delivers water to no one except its stockholders or members at cost, such private corporation or association is not a public utility, and is not subject to the jurisdiction, control or

The record is replete with facts from which it might be concluded that the water rights and water system of the Feather River Canal Company were intentionally dedicated to a public service. The appropriation of the water for the avowed public use, the construction of the canal system for this same purpose, the offer to the public of water service as a utility and the making of contracts which obligated it to serve water to the contractees completed the dedication. (Byington v. Sacramento, etc., 170 Cal. 124 [ 148 Pac. 791 ]; Butte County W. U. Assn. v. Railroad Com., supra; Traber v. Railroad Com., supra.) This public use having attached, its existence was not ended by the organization of the Feather River Mutual Water Company and the transfer of the assets of the utility to it. Consent of the Railroad. Commission was necessary for abandonment of a public use so created. (Van Hoosear v. Railroad Com., 184 Cal. 553 [ 194 Pac. 1003 ].)

The undisputed facts also warrant the conclusion that for public use for irrigation, as well as for power, the present power company, through its predecessors, sought and obtained its storage privileges on the Feather River. A fair construction of the eminent domain proceedings, both those that went to judgment and those settled by the passing of deeds prior to judgment, leave no doubt that the company had this active purpose in mind and sought and obtained a reservoir site for irrigation as well as for power purposes. This, too, was confirmed by the answer filed by it in an eminent domain proceeding against it, in which it set up the fact that these waters “about to be stored” were dedicated to irrigation as well as power uses. When, under these circumstances, water was sold for irrigation, even to a bona fide mutual water company, the power company became a utility for the sale of water for irrigation. Moreover, it is a natural process to impound water for power purposes and then dispose of it. after such use for irrigation purposes. It takes but little evidence to show that reservoired waters used for the generation of power for public sale are impressed with a public use for all other available purposes. As an agency of the state, the company gets the right to condemn and to store; from whence

This brings us to the third and last proposition upon which the Commission based its action, as noted above, which seems to be of enough future importance to warrant a more extended consideration. As already noted, in 1914 negotiations were begun by the power interests to acquire the properties of the Feather River Canal Company and its allied corporation, the Feather River Mutual Water Company. An agreement of purchase was executed in October of that year and the sale was not consummated until August 17, 1915. The Western Canal Company was brought into existence on January 28, 1915, but even prior thereto and as early as January 1, 1915, it was engaged in making contracts with the power company. It is not disguised that the canal company was so organized as a subsidiary of and, in fact, it was the alter ego of the power company itself. To the power company was given a deed to the water rights of the Feather River companies and to the Western Canal Company was given a conveyance of the canal system and rights of way and franchises of said companies. All the consideration for the purchase was paid by the power company. There were left outstanding, to be taken care of by the purchasers, 5,000 water rights, some of which had already become appurtenant to certain lands.

The object of organizing the Western Canal Company was stated by the president of the power company to be as follows: Because the power company had been incorporated originally having as one of its objects the utilization of waters for irrigation and had constructed a dam and thus made captive a great volume of water and was confronted with the imperative necessity of causing it to

“First, comes Exhibit 68, dated January 1, 1915, an agreement in which the Power Company agrees to furnish water for irrigation to the Canal Company, when ‘in its uncontrolled discretion’ it has the water to spare, and subject to termination at any time for failure of the Canal Company to perform its obligations. The water is to be used ‘by the Canal Company for sale to its consumers’. The Power Company reserves the right at any time to stop stock sales and thus limit water use. The maximum use in any event is to be 200,000 acres. The price is to be $150,000.00 per year until water sale revenues of the Canal Company equal $150,000.00 per year, the same to be a cumulative charge, at 6%, upon gross revenues. All gross revenues are to be paid to the Power Company until such indebtedness is paid in full. A minimum water rate is established, viz., $6.00 per acre for rice; $3.00 for alfalfa; $2.00 for other irrigation; but rates are to be always not less than $1.00 per acre-foot for any purpose. A standby minimum of $2.00 is to be collected, whether water is used or not. After the cumulative $150,000.00 per year at 6% has been fully paid, the Power Company is to receive all gross revenues, less 50 cents per acre for land irrigated. The Canal Company is limited to the use of Power Company water. Accounting is to be made monthly. All accounts, bills and claims for water are assigned to the Power Company as security and the Power Company is made attorney in fact to sue or otherwise collect them. The Power

Company agrees to extend and develop the system, and to maintain and repair the canal until the cumulative debt is paid. The effect of this agreement is to establish the Canal Company as the name under which the Power Company could sell water without regulation.

“Second, Exhibit 69 is an agreement dated November 21, 1917, between the Power Company and the Canal Company, modifying and construing the contract set forth as Exhibit 68, to the end that the cumulative obligation therein set up shall be payable only out of gross revenues and ‘out of any other moneys received by and belonging to the Canal Company’. In effect, it means and very properly says that the agent shall not he required to turn in to the principal more than it is able to collect.

“Third, Exhibit 70, is an agreement dated March 5, 1915, between the Canal Company and the Power Company, witnessing the fact that the former is transferring to the latter all its capital stock, less 5050 shares, in exchange for the properties of the Feather River Mutual Water Company, plus additions to be made by the Power Company; and further providing that the Power Company will sell the stock upon demand to landowners at not less than $15.00 per share.

“Fourth, Exhibit 71, dated July 2, 1915, is an agreement between the Western Canal Company and the Feather River Canal Company and Feather River Mutual Water Company, in which the Canal Company agrees to issue 5000 shares of stock without cost to the second parties or their assigns to cover outstanding ‘water rights’, or commitments of second parties. This was the stock reserved at the time of sale to cover the various ‘rights’ originally issued to Norris. It is a recognition that such rights existed and provides a means of meeting them.

“Fifth, Exhibit 72 is an agreement dated July 2, 1915, between the same parties, providing that Feather River Canal Company and Feather River Mutual Water Company .would save the Canal Company harmless from any demands for ‘shares of stock or water rights’ outstanding, save as they might be satisfied by the 5000 shares of Canal Company stock.”

The canal company thus is made but an outlet for the sale of the stored waters of the power company at a profit,

Moreover, the definition of a public utility has been somewhat enlarged by statute since the decision in the Thayer case. (See sec. 2dd, Public Utilities Act, supra.) This it was competent for the legislature to do. (San Diego Land etc. Co. v. National City, 174 U. S. 739 , 753 [ 43 L. Ed. 1154 , 19 Sup. Ct. Rep. 804 ].)

Cases showing the requirement of mutuality among the membership of a mutual water corporation and the apportionment of its operating costs among them are numerous. We cite a few: Hildreth v. Montecito Water Co., 139 Cal. 22 [ 72 Pac. 395 ]; Copeland v. Fairview Land & Water Co., 165 Cal. 148 [ 131 Pac. 119 ]; Edwards Associates v. Railroad Com., 196 Cal. 62 [ 235 Pac. 647 ].

We think, the Railroad Commission was well warranted in looking beyond the corporate forms which clothed the acts of petitioners and in declaring the canal company to be but the agent of the power company. (Chicago etc. Co. v. Minneapolis, 247 U. S. 490 [ 62 L. Ed. 1229 , 38 Sup. Ct. Rep. 553 ]; Ohio Min. Co. v. Public Utilities Com., 106 Ohio St.

The position of the water using stockholders is treated in separate opinions this day filed. (Albín el al. v. Railroad Com., post, p. 655 [ 15 Pac. (2d) 860 ] ; Carlson v. Railroad Com., post, p. 653 [ 15 Pac. (2d) 859 ].)

The order of the Railroad Commission is affirmed.

Rehearing denied.