Defendant City of San Buenaventura (hereafter referred to as Ventura) owns and operates a water company which serves customers who reside both in and outside the city boundaries. In 1972, Ventura enacted an ordinance imposing a 70 percent surcharge on water supplied to customers living outside the city limits. Those nonresident customers brought this class action to challenge the surcharge, seeking declaratory relief and damages on the ground that the rates imposed were unreasonable, arbitrary, and discriminatory and that the rate structure denied them equal protection. Following a nine-day trial, the superior court held the 70 percent surcharge was reasonable and entered judgment for Ventura. The Court of Appeal reversed and remanded for a new trial; Ventura sought review in this court.
We granted review to resolve the important question of whether a municipal utility may recover a reasonable rate of return on its investments and to clarify what circumstances may be considered by a court in determining whether a rate is reasonable. We conclude that a municipal utility is entitled to a reasonable rate of return and, for reasons we shall explain, we agree with the trial court that the 70 percent surcharge on water supplied nonresidents in this case was justified. Accordingly, we reverse the judgment of the Court of Appeal.
The City of Ventura has owned and operated its own municipal water system since 1923 when it bought the facilities of the public utility corporation that had previously supplied water to the city and surrounding areas. Ventura financed the sale through a $250,000 general obligation bond issue. Between 1925 and 1960, the citizens of Ventura authorized four additional general bond issues to improve and modernize the system. Totalling over $3.6 million, these bond issues subjected all private property in the city to a lien: if funds were unavailable to pay the bonds, the bondholders
Throughout the years, the citizens of Ventura demonstrated their commitment to the system by allowing the city to use its general fund monies to help maintain and improve the system. Ventura used its general fund monies 1) to provide office space for water system employees as well as for city employees who rendered services for the water system and 2) to pay a portion of the salaries of city employees who performed accounting, billing, administrative, and legal services for the water system. Additionally, Ventura made a number of transfers from its general fund to the water system at little or no interest.
Ventura also used power taxes in the amount of nearly $300,000 to support the water system in the 1971-1972 and 1976-1977 fiscal years. These funds represented transfers to the system from tax payments made by residents only. Additionally, Ventura required new in-city customers to pay upfront connection and acreage fees to obtain water service. These contributions, which were used to benefit the entire water system, totalled over $600,000 from 1964 until trial, in 1978. No water system revenues have ever gone to Ventura's general fund; all water revenues, acreage and connection fees, power tax revenues, and contributions from the city's general fund have been used to operate and maintain Ventura's water system.
In 1966, Ventura purchased the Mound Water Company (Mound), a small mutual water company
Pursuant to the terms of the purchase agreement, Ventura agreed to furnish water "to those customers heretofore served by Mound who may desire such service at the regularly established rates for water service from the Ventura Water System." However, nothing in the sale agreement precluded Ventura from continuing to apply reasonable rate differentials between residents and nonresidents as it had done for years.
The water that Mound had supplied its users prior to the sale came from wells of poor quality which were below public health standards. On acquisition, Ventura abandoned the polluted wells and commenced supplying the former Mound customers with water of substantially better quality. It is undisputed that the sale of Mound to Ventura immediately and significantly improved the quality, availability, and overall source of supply and service to the customers previously served by Mound, customers who all live outside the city boundaries and are presently subject to the disputed surcharge.
In 1969, Ventura acquired a second water company, the Saticoy Water Company (Saticoy). Saticoy was an investor-owned public utility, 60 percent of whose customers were residents of Ventura, 40 percent nonresidents. Because of the nature of the ownership of the utility, the Saticoy customers were not given an opportunity to approve the sale. However, they were given the chance to participate in an election to approve or disapprove the purchase of Saticoy by Ventura. Close to 90 percent of those customers who voted registered approval. In addition, customers also had the opportunity to appear before the Public Utilities Commission (hereafter referred to as P.U.C.), but it appears no protests were in fact received.
Under the terms of the agreement, Ventura was bound for 60 days to maintain the rates charged by Saticoy prior to the sale; however, following the 60-day period, Ventura had the right to alter the preexisting rates. The sale contract further provided: "[Ventura] agrees that from and after the closing date it will serve water without unfair or unreasonable discrimination to all customers in the area wherein [it] is certified to provide service by the California Public Utilities Commission whether such customers are located within or without the territorial boundaries of the city and will continue to serve all of such customers." Nothing in the sale agreement, however, specifically precluded Ventura from applying reasonable rate differentials between residents and nonresidents.
Saticoy customers benefited immediately and substantially from the sale. Instead of continuing to rely on four small storage tanks, they suddenly had available over fifty million gallons of storage capacity from a vast network of tanks and reservoirs tied into Ventura's system. Further, the two wells formerly owned by Saticoy fell short of state health standards with respect to water quality. Ventura abandoned one well immediately and placed the other on standby status, to be used only in event of emergency.
The improvements to both the former Mound and Saticoy customers were not without cost. By 1969, Ventura was serving approximately 2,800 out-of-city
In 1970, Ventura acquired by assignment a contract for 10,000 acre feet of water annually from the State Water Project. Under the contract, Ventura obliged itself to make payments for the next 65 years estimated at $58 million. Although Ventura had yet to receive any state water at the time of trial, it had made the required annual payments for capital and fixed operating and maintenance costs. Not only must Ventura make payments irrespective of whether it receives water, but the contract provides that it must levy taxes if revenues should be insufficient to meet these payments. This tax lien obviously falls only on property owners in Ventura; as a class, nonresident water users do not share the risk of this obligation. Another burden not shared by out-of-city users was Ventura's obligation to construct the necessary transmission facilities to bring water from the state system, an estimated cost at time of trial exceeding $50 million.
Because of the impact caused by the acquisition of the two water companies, in 1970 Ventura retained the consulting firm of Wilsey & Ham to analyze the water rates. The firm initially recommended and Ventura adopted a 20 percent overall rate increase. At some later point, after obtaining updated figures and doing further careful and lengthy analysis, the firm recommended:
After the action below was filed but before trial, Ventura engaged a second consulting firm to examine its rate structure.
The trial court concluded the rate structure was reasonable. The Court of Appeal reversed and remanded for a new trial, holding that as a matter of law a municipality is not entitled to a return on investment and that Ventura erred in calculating the amount of surcharge to nonresidents.
To determine whether the rates Ventura imposed on nonresident customers were reasonable, Brown & Caldwell compared revenue requirements (expenses, costs) properly allocable to nonresident customers with the actual revenues received from that group. To ascertain the first element, it conducted a cost-of-service analysis.
According to evidence, the cost-of-service analysis calculates the share each customer should pay for utility service proportional to actual use of the system. Revenue requirements are allocated to various classes based on each group's proportionate use of the system, including use of physical plant facilities and consumption of water, among other elements. A preliminary step in determining revenue requirements is the establishment of appropriate classes among which costs will be allocated. The next step is to calculate the costs which properly should be assessed each group. For this analysis, two alternative methods exist: the cash basis and the utility basis. Very generally, the cash method sets revenue requirements based on actual operating and maintenance expenses plus allowable charges for system replacement, debt principal repayment, and other capital costs. The utility method also considers actual operating and maintenance expenses, but instead of looking to cash expenses such as system replacement and debt principal repayment, the method focuses on depreciation attributable to outside use and on rate of return on investment.
The utility method is commonly used to establish revenue requirements where a class of customers owned the utility and another class uses the facilities owned by the others. It is nationally recommended by the American
As noted, the utility method focuses on depreciation and rate of return on investment.
In the context of the utility method, return on investment allows a municipal utility to raise necessary replacement funds and to pay debt on the system. It also allows the municipality to be compensated for having invested its money and incurred the risks associated with building and maintaining a water system. Moreover, it compensates the municipal utility for foregoing the opportunity to use its money in some other manner.
California cases indicate that utility rates need not be based purely on costs. In Golden Gate Bridge etc. Dist. v. Luehring (1970) 4 Cal.App.3d 204
Plaintiffs urge that a rule requiring municipal utilities to provide service to nonresident customers at cost is necessary to protect the interest of out-of-city users. Whereas consumers of services provided by private utilities are protected by the P.U.C., plaintiffs would have us believe nonresident users of municipal utilities are left to the mercy of the municipality.
The rule sought by plaintiffs would have a negative impact on the expansion of California municipal utilities. Without the opportunity to obtain revenue necessary for system replacement and expansion, there would be little incentive for municipal utilities to expand in order to service nonresident users. Moreover, without a chance to recover a reasonable rate of return, a municipal utility would be foolish to increase its business risk by expanding service to nonresidents without demanding a commensurate increase in return.
Plaintiffs contend that any contribution made from Ventura's general fund should be disregarded because it was a source of revenue from the city government and not the city ratepayers. But, the use of city funds cannot be disassociated from its citizens.
In its 57 pages of findings of fact and conclusions of law, the trial court implicitly found that a difference of rate of return was justified. It also
There is no question that after acquisition the former Mound and Saticoy customers immediately received substantial benefits such as improved water quality, increased water storage, upgraded fire protection due to Ventura's pumping stations, and major transmission lines. These improvements used up both reserve and growth capacity in facilities previously provided at the expense of in-city customers.
Plaintiffs argue that it was improper to pass on the additional cost of purchasing more expensive water directly to nonresidents. They vehemently
The Court of Appeal also disapproved the inclusion of the increased value of water rights. In fact, Brown & Caldwell did not employ this capitalization
The court mistakenly states that Brown & Caldwell viewed the amounts owed under the state contract as an asset instead of a liability. On the contrary, the project manager testified the firm's study treated the item as debt and did not allocate any of the principal amounts due under the contract to nonresident users.
Finally, the court noted that Ventura could not impose an in lieu tax on nonresidents. However, as the court also noted, "[t]here is nothing in the record indicating that the city ever attempted to officially impose such a tax."
The Three-tier Classification Scheme
Plaintiffs make much of the fact that the first consulting firm Ventura hired initially recommended a surcharge of 38.8 percent based on a two-tier classification: out-of-city water users (both industrial and domestic) and in-city users. Later, after reanalyzing and updating the data, the firm concluded a three-tier classification scheme was more appropriate and subsequently found a 70 percent surcharge more accurate. It is difficult to imagine a more natural or obvious classification. The cost of supplying treated water is indisputably very different than the cost of untreated water. The classification seems patently reasonable.
Plaintiffs argue that as a matter of law the 70 percent surcharge violates Government Code section 54514, which requires the local agency to provide water "at the lowest possible cost consistent with sound economy, and prudent management, and the security and payment of the principal and interest of the bonds." (Gov. Code, § 54514.)
Thus, "lowest possible cost" cannot be read to mean "break-even cost"; rather, it would seem only to bar unreasonable or excess profits.
Plaintiffs also argue Ventura violated its obligations as a trustee.
It is clear that the trustee city must continue to supply water, but there is no support for the proposition that a city must supply water at cost. In fact, Durant made quite clear that an acquiring city's trust obligation does not require furnishing water at cost but only at a reasonable rate: "When the city purchased the private plant it assumed a trust to perform the contract and meet the obligations of the private concern.... The obligation which the city assumed through the purchase of the system was an obligation to continue to serve plaintiff water at a reasonable rate." (Durant, supra, 39 Cal. App.2d at p. 138, italics in original.)
Plaintiffs argue that it is a denial of equal protection for nonresident ratepayers to be separately classified and required to pay a 70 percent surcharge over rates paid by resident taxpayers. They argue the surcharge is based solely on the nonresident status of the out-of-city customers, and that the only distinguishing factor between those who pay the surcharge and those who do not is an artificial political boundary line.
First, plaintiffs argue the nonresidents are a suspect class and therefore that we should apply the strict scrutiny test. They reason that the rationale behind the application of the "suspect class" doctrine is the political powerlessness of such groups. Because out-of-city users have no right to vote for or against city council members who set the water rates, they contend they are politically powerless and accordingly that the rationale of the suspect class doctrine militates towards its application in this case.
Plaintiffs next argue that even if we apply the traditional rational-relationship test, they should prevail. We agree that this is the correct standard to use, but conclude that plaintiffs' argument is without merit.
We agree with the trial court that the rates imposed on nonresidents by Ventura are reasonable despite the fact that both nonresidents and residents received water from the same source and with the same quality of treatment. Moreover, the factors used by the trial court in resolving the issue of reasonableness are permissible criteria.
In administering a public utility, such as a water system, a city acts in its proprietary capacity. (South Pasadena, supra, 152 Cal. at p. 593.) When a municipal utility acquires the private water system of another community, the resident customers should not be forced to bear any of the costs of providing service to nonresidents. It is appropriate to pass on to the nonresident customers any extra cost the city has had to incur by way of expanding or modernizing facilities, in purchasing additional water, in increasing its business, or other similar costs. Moreover, it does not have to share the benefits for which it has already paid if such sharing is at the expense of residents. However, all these costs must be passed on at a proportional basis. For example, the nonresidents cannot be made to bear the cost of expansion or modernization properly attributable to in-city users.
The court is not required to determine all costs nor to balance them precisely against rates. Rather, it is the court's role to decide only whether a reasonable basis exists for charging different rates and whether the rates themselves are reasonable. In the present case, we conclude the Court of
Mosk, J., Reynoso, J., Lucas, J., and Panelli, J., concurred.
I agree with the majority, insofar as they conclude that the City of San Buenaventura is entitled to be compensated for services, facilities or capital which it contributes to the municipal utility and the ratepayers and that in lieu of such compensation the city ratepayers may be charged a lower rate than the noncity ratepayers. However, I cannot agree that the city is entitled to be compensated through discriminatory rates for claimed capital improvements and additions which were in fact financed by the ratepayers both within and without the city or obtained by donations to the water system.
In 1923 the city purchased a water system from Southern California Edison and commenced to provide water to the city and out-of-city consumers. The purchase was financed by general obligation bonds. Although the bondholders had the right to require the city to levy taxes to pay for the bonds, it was contemplated that the bonds and the interest on them would be paid by water revenues. Over the years the city has issued similar bonds to purchase additional water systems and to obtain additional facilities. All payments of principal and interest on the bonds have been made from water revenues. An advance made by the city to the water company was repaid with interest, and so far as appears, city capital contributions have been negligible.
In 1935, the city established a surcharge on out-of-city customers requiring them to pay higher rates than the in-city customers. From 1935 to 1952, the surcharge averaged 48 percent; between 1953 and 1972 the surcharge was 32 percent. In 1972, the city imposed a 70 percent surcharge. The instant case involves the validity of the latter surcharge.
Over the years the water system has been greatly expanded and improved, and the value of the property devoted to the system including water rights and facilities has increased greatly. The main issue presented is whether the surcharge, or most of it, may be justified on the theory that the city is entitled to a rate of return based on the value of the property in the system.
In County of Inyo v. Public Utilities Com. (1980) 26 Cal.3d 154 [161 Cal.Rptr. 172, 604 P.2d 566], we considered the relationship between a city water department and out-of-city users. The Los Angeles Department
In response to the county's argument that the consumers had no control over the rates charged, the court stated: "[A] city which acquires the water system of another community incurs an obligation to deal fairly with its customers in that community and to provide them with reasonable service at reasonable rates. (See South Pasadena v. Pasadena Land, etc. Co. (1908) 152 Cal. 579, 587-588, 594 [93 P. 490].) Such an acquiring city, as to the water dedicated to the use of the outside community, holds `title as a mere trustee, bound to apply it to the use of those beneficially interested.' (Id., at p. 594; see Durant v. City of Beverly Hills, supra, 39 Cal.App.2d 133, 138.) Consequently, the county can sue to enjoin rates which are themselves `unreasonable, unfair, or fraudulently or arbitrarily established' (Durant v. City of Beverly Hills, supra, 39 Cal.App.2d 133, 139), or which discriminate without a reasonable and proper basis (Elliott v. City of Pacific Grove, supra, 54 Cal.App.3d 53, 59)." Footnote 4 states: "A showing that rates are discriminatory is in itself insufficient to fulfill the complainant's burden of proof (see Durant v. City of Beverly Hills, supra, 39 Cal.App.2d 133, 138); a showing, however, that such discrimination rests solely on the nonresident status of the customer, and not on the cost of service or some other reasonable basis, will prove the rate invalid (see Elliott v. City of Pacific Grove, supra, 54 Cal.App.3d 53, 59)." (26 Cal.3d at p. 159.)
When new users come into a municipal utility system, the city may properly charge connection fees or other charges to defray the cost of the facilities needed to serve the new users. (E.g., Associated Homebuilders v. City of Livermore (1961) 56 Cal.2d 847, 851 et seq. [17 Cal.Rptr. 5, 366 P.2d 448]; Beaumont Investors v. Beaumont-Cherry Valley Water Dist. (1985) 165 Cal.App.3d 227, 233 [211 Cal.Rptr. 567].) However, County of Inyo, supra, 26 Cal.3d 154 makes clear that once a municipality chooses to dedicate its water service to consumers outside the city, it becomes a trustee bound to use the system for all of those beneficially interested, and any discrimination between consumers must be based on the cost of service or other reasonable basis. The lack of political power of out-of-city residents may not furnish a basis for discrimination but requires the city to act
Accordingly, we must determine whether the record shows that the discriminatory rates are based solely on the nonresident status of the consumers and not on the cost of service or some other reasonable basis. It is not claimed that the surcharge can be justified on the ground that it is more expensive to deliver water to the out-of-city consumers than the in-city consumers. Most of the out-of-city users live in islands of unincorporated territory surrounded by the city or areas adjacent to the city and the facilities used to deliver the water are the same for both types of users. Rather, most of the surcharge is sought to be justified on the basis of extra charges for the acquisition of water or for facilities serving the system.
As the majority recognize (ante, p. 1181) and as the evidence established, there are two alternative methods for determining the revenue requirements of a utility, the cash basis and the utility basis. Under both methods the water company is entitled to recover all of its operating and maintenance expense, including any taxes. Under the cash basis, the utility may add charges for system replacement, debt service expenses (principal and interest) and other capital costs, including additions to the facilities or reserves for additions. The total of the charges become the revenue requirement. Under the utility basis, charges for capital replacement, additions, reserves for additions and debt repayment are not included; rather, the utility recovers for depreciation of its plant and a rate of return on its rate base or investment. (See City of Los Angeles v. Public Utilities Commission (1972) 7 Cal.3d 331, 336, 346-347 [102 Cal.Rptr. 313, 497 P.2d 785].)
Under the utility basis, it should be improper to include in the rate base capital assets donated or paid for by the ratepayers because such assets may not be viewed as investment. The point is illustrated by Pacific Tel. & Tel. Co. v. Public Util. Com. (1965) 62 Cal.2d 634, 663-664 [44 Cal.Rptr. 1, 401 P.2d 353]. There the Public Utilities Commission concluded that Pacific Telephone and Telegraph Company (Pacific) could properly include in its rate base its gross working cash requirement but the commission disallowed various additional cash sums held by Pacific which had been collected from customers in advance, from funds collected to pay debenture interest, and from taxes withheld from employees. The disallowed sums exceeded the working cash requirement. The court approved as sound and fair the commission's view that when the funds supplied by "`others than investors are greater than the amount required ... for working cash, and the excess amount is not deducted from rate base, customers would be unreasonably required to pay a return on funds supplied by them to defray reasonable expenses and taxes [and debenture interest] and to provide a reasonable return on invested funds.'"
So far as appears in the instant case there has been no substantial investment of capital in the water system by the city. Although the city initially advanced funds to the water system, the advances were treated as a loan by the city rather than a capital investment and were repaid with interest.
The majority suggest other bases for concluding that the water facilities may be viewed as investment by the city warranting establishment of a rate base and justifying the city receiving a rate of return which can be used to reduce rates paid by city customers.
First, it is urged that the city is entitled to claim the assets of the system as investment because payment of the bonds used to acquire many of the assets and the State Water Project obligations was guaranteed by the residents of the city whose property was subject to taxes if the water company could not pay the bonds or obligations. However, it is clear that it was always contemplated that the principal and interest on the bonds and the project obligations would be paid from revenues of the water system and in fact that is what has occurred. In the absence of any significant capital contribution by the city, it is unreasonable to permit the city to establish the assets acquired by the bond funds or the project obligation to be viewed as investment by the city rather than the ratepayers.
Second, the city points out that it has provided services and facilities to the water system. As pointed out at the outset of this opinion, I agree that the city is entitled to be compensated for any services or facilities made available to the water system and rather than accept compensation the city may properly discount the rates charged in-city consumers. However, the discount should be reasonably related to the value of services and facilities. It is not. The discount was more than 10 times the amount which the city claimed as the value of its services and facilities made available to the water company.
It is also argued that the water system was built on the basis of revenues obtained from ratepayers and that when the city added new ratepayers the old ones who helped build the system were entitled to a rate differential based on the value of the existing system. However, this is not the basis of the discriminatory rates. Thus, when in 1969 the city acquired the Saticoy Water Company, 60 percent of the Saticoy consumers were city residents and 40 percent nonresidents. Only the nonresidents paid the surcharge; the 60 percent of the new users who were city residents paid the discounted rate. The converse is also true; "old" users outside the city are required to pay the surcharge. Prior to the Saticoy acquisition, about 1,000 of the service connections were outside city limits with 12,600 within the city.
It is also implied that the discrimination may be justified because after the purchase of the out-of-city companies the consumers of those companies received improved service and water quality. Fixing utility rates on the basis of the value of the service provided would be a repudiation of our long history of determining utility rates on the basis of cost.
The record here is clear that the system has been paid for and is being paid for by the ratepayers, both within and without the city, and the city has not made a significant capital contribution warranting the establishment of a rate base composed of the assets of the system and an allowance of a rate of return on that rate base. When the ratepayers have paid for the system, requiring them to also pay a rate of return to the city on the assets of the system in the absence of a significant capital investment is to charge them twice for the investment. Although the rate of return may be used for replacement, improvement and additions to the system, it is improper to discriminate against the out-of-city consumers by requiring them to furnish excessive amounts for those purposes. Rather, when the city chose to dedicate its system to serve out-of-city consumers, they became entitled to the same rights as to reasonable rates as the city users. Discrimination in rates can be justified on the basis of differentials in cost in delivering water or
Bird, C.J., concurred.
Appellants' petition for a rehearing was denied February 5, 1987.
"An Illinois court reasons that it is proper to exclude contributions in aid of construction made by customers; the propriety of a reasonable depreciation deduction is not dependent upon the source of funds for the original construction of the facility, as the utility will have to replace obsolete properties. (Du Page Utility Co. v. Illinois Commerce Comm. (1971) 47 Ill.2d 550 [267 N.E.2d 662, 668-669], cert. den. 404 U.S. 852 [30 L.Ed.2d 62, 92 S.Ct. 74].) However, most courts reason that the purpose of depreciation is not to replace property but to recover the original investment over the life of the property. `Since the company has invested no funds in contributed property, it is not entitled to recover the original investment through depreciation.... We believe it inequitable to allow a company to recover depreciation accruals on plants in which it has made no investment.' (Mechanic Falls Water Co. v. Public Utilities (Me. 1977) 381 A.2d 1080, 1104; accord State ex rel. Martigney Creek Sewer Co. v. Public Service Commission (Mo. 1976) 537 S.W.2d 388, 399; State ex rel. Utility Commission v. Heater Utilities (1975) 288 N.C. 457 [219 S.E.2d 56, 62]; Sunbelt Utilities v. Public Utility Commission (Tex. 1979) 589 S.W.2d 392, 395; Princess Anne Utilities Corporation v. Commonwealth ex rel. State Corporation Commission (1971) 211 Va. 620 [179 S.E.2d 714].)
"What about federal grants and funds derived from federal revenue sharing? One court has reasoned that `the city has unqualified ownership of the portion of the plant built with the money and the fact that some infinitesimal portion of the money might be considered to have come from taxes paid by the out-of-city consumers does not create equities in their favor.' (City of Covington v. Public Service Commission (Ky. 1958) 313 S.W.2d 391, 393.) On the other hand, a Wisconsin court, in a valuation proceeding, excluded federal contributions on the theory that the federal grant was made for the benefit of both the town and the city and `... the city should not now be heard to claim that they should receive compensation for a portion of the water utility which was never paid for by them either directly or indirectly.' (City of St. Francis v. Public Service Commission (1955) 270 Wis. 91 [70 N.W.2d 221, 225-226].)
"Most courts which have considered the problem have excluded federal grants from the rate base. (See, e.g., Pichotta v. City of Skagway (D.C. Alaska 1948) 78 F.Supp. 999, 1006 [$39,973 expended by army in rehabilitating the system during World War II was excluded from the rate base, as the rule allowing additions was never intended to embrace a gratuitous contribution to capital made at the taxpayers expense]; In re Southern California Edison Co. (1954) 53 Cal.P.U.C. 385, 410; 6 P.U.C.3d 161, 185-186 [donations from governmental entities were not `investment']; City of Detroit v. City of Highland Park (1949) 326 Mich. 78 [39 N.W.2d 325, 333] [federal funded contributions were excluded from rate base of municipally owned utility]; City of Hagerstown v. Public Service Commission (1958) 217 Md. 101 [141 A.2d 699] [in setting rates to utility serving outside customers, both customer contributions and federal grants were excluded from the rate base].)
"We agree that both acreage fees, connection fees, and other donations should be excluded from the rate base, in calculating any surcharge to nonresidents. As to federal contributions and grants, the same result should obtain; it is unfair to require those who have paid federal income taxes to pay for the proverbial `pork barrel' a second time." (Fn. omitted.)