PUBLIC UTILITIES - FRANCHISES - ENFORCEABILITY AGAINST UTILITY OF FRANCHISE PROVISION REGARDING RATES WHEN CITY IS NOT BOUND

The charter of the city of Texarkana, Texas, provided that none of the privileges usually granted public utilities should be enjoyed in the city except such as were permitted by franchise given by the city council, and that such franchises should expressly reserve the right of regulating the utilities. The city entered a franchise agreement with respondent utility by which rates charged in the Texas city were not to be higher than those charged in another part of the city which was in Arkansas. The Arkansas rates were lowered by judicial action, and this proceeding was to enforce the lower rates in the Texas city in the future, and to recover for the Texas consumers excessive rates charged in the past. Held, that the provision of the franchise selecting the Arkansas charges as a minimum rate was not an abdication of regulatory power that would void the contract, that the United States courts were obliged to follow local law in determining whether the utility was bound to the contract, and that under the law of Texas it was so bound even though the city was free to regulate by virtue of the provisions in its charter.

City of Texarkana v. Arkansas Louisiana Gas Co., (U.S. 1939) 59 S. Ct. 448.