City of Billings v. Public Service Commission

NO. 80-358
IN THE SUPREME COURT OF THE STATE OF JNWl"ANA
1981

CITY OF BILLINGS,
Petitioner and Appellant,

PUBLIC SERVICE COMMISSION OF PiqONTANA;
COUNTY WATER DISTRICT OF BILLINGS
HEIGHTS,
Respondents and Respondents.

Appeal from: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone.
Honorable Nat Allen, Judge presiding.
Counsel of Record:
For Appellant :
Calton Law Firm, Billings, Montana
Calvin A. Calton argued, Billings, Montana
For Respondents:
Crowley, Haughey, Hansen, Toole & Dietrich, Billings,
Montana
Thomas Kelley argued, Billings, Montana
Robert Smith argued, Helena, Montana

Submitted: June 9, 1981

JUL
~ecided: 2 9 1981
Mr. C h i e f J u s t i c e F r a n k I . H a s w e l l d e l i v e r e d t h e o p i n i o n of t h e
Court.

The C i t y o f B i l l i n g s ( h e r e i n a f t e r r e f e r r e d to a s C i t y )
f i l e d a c o m p l a i n t w i t h t h e P u b l i c S e r v i c e Commission (PSC) o n

J u n e 1 7 , 1 9 7 4 , t o p r o t e s t t h e u n i l a t e r a l e x p a n s i o n by t h e County

Water District of B i l l i n g s H e i g h t s ( D i s t r i c t ) of i t s b o u n d a r i e s .
The C i t y had e n t e r e d a c o n t r a c t w i t h t h e D i s t r i c t i n 1 9 6 3 p u r -

s u a n t t o which t h e C i t y was o b l i g a t e d t o s e l l water t o t h e
District. The C i t y a l l e g e d t h a t t h e c o n t r a c t had b e e n n u l l i f i e d ,
o r i n t h e a l t e r n a t i v e t h a t t h e c o n t r a c t r e q u i r e d t h e C i t y to f u r -

n i s h water s o l e l y f o r u s e w i t h i n t h e o r i g i n a l D i s t r i c t
boundaries. F o l l o w i n g a h e a r i n g o n t h e m a t t e r , t h e PSC i s s u e d
its Order No. 4366 i n D o c k e t N o . 6 3 4 9 , d a t e d J u l y 20, 1 9 7 7 , i n

w h i c h it d e t e r m i n e d t h a t it had no j u r i s d i c t i o n to i n t e r p r e t t h e
c o n t r a c t , t h a t it had no a u t h o r i t y to f i x t h e D i s t r i c t ' s
b o u n d a r i e s , t h a t it would h a v e t h e power t o m o d i f y t h e c o n t r a c t

i f r a t e s o r s e r v i c e were a d v e r s e l y a f f e c t e d , b u t t h a t s u c h a
s h o w i n g had n o t b e e n made by t h e C i t y . The C i t y f i l e d a p e t i -
t i o n f o r j u d i c i a l r e v i e w o f t h e P S C 1 s o r d e r and a c o m p l a i n t

s e e k i n g d e c l a r a t o r y judgment d e f i n i n g t h e r i g h t s of t h e p a r t i e s
under the c o n t r a c t .
P u r s u a n t t o s t i p u l a t i o n t h i s a c t i o n was s u b m i t t e d to t h e

D i s t r i c t C o u r t w i t h o u t a h e a r i n g f o r a d e c i s i o n b a s e d o n t h e PSC

r e c o r d and t h e D i s t r i c t C o u r t r e c o r d . On J u l y 2 4 , 1 9 8 0 , t h e
D i s t r i c t C o u r t e n t e r e d i t s f i n d i n g s , c o n c l u s i o n s and j u d g m e n t

a f f i r m i n g t h e PSC o r d e r and d e c l a r i n g t h e c o n t r a c t v a l i d . The
D i s t r i c t C o u r t f u r t h e r c o n c l u d e d t h a t t h e C i t y was o b l i g a t e d to

p r o v i d e w a t e r t o t h e e x p a n d e d D i s t r i c t and t h a t t h e D i s t r i c t need
n o t o b t a i n t h e C i t y ' s or t h e PSC's a p p r o v a l p r i o r to e x p a n d i n g
its boundaries. From t h e judgment t h e C i t y a p p e a l s .
The C i t y o f B i l l i n g s p u r c h a s e d t h e C i t y W a t e r U t i l i t y from
t h e Montana W a t e r Company i n 1915. The Montana P u b l i c S e r v i c e

Commission h a s assumed j u r i s d i c t i o n o v e r t h e u t i l i t y s i n c e t h e
Commission was c r e a t e d i n 1 9 1 3 . S i n c e t h e a d o p t i o n of t h e
M u n i c i p a l Revenue Bond A c t of 1 9 3 9 ( s e c t i o n 7-7-4401, e t seq.,
MCA), a l l m a j o r c a p i t a l i m p r o v e m e n t s h a v e b e e n made p u r s u a n t t o

the Act.

I n 1 9 5 8 t h e County Water D i s t r i c t of B i l l i n g s H e i g h t s w a s
c r e a t e d u n d e r t h e a u t h o r i t y o f s e c t i o n 7-13-2201 e t seq., MCA.

I n J u n e o f 1 9 6 3 i t c o n t r a c t e d w i t h t h e C i t y to r e c e i v e water ser-
v i c e from t h e C i t y system. Water b o u g h t from t h e C i t y i s s o l d by

t h e D i s t r i c t t o i t s c u s t o m e r s i n B i l l i n g s H e i g h t s who a r e w i t h i n

t h e D i s t r i c t b o u n d a r i e s as e s t a b l i s h e d by t h e e l e c t o r s .

The c o n t r a c t p r o v i d e d t h a t t h e D i s t r i c t would b u i l d a
water main from t h e D i s t r i c t ' s r e s e r v o i r to c o n n e c t w i t h a

w a t e r main t o be c o n s t r u c t e d b y t h e C i t y . Both p a r t i e s performed
t h e s e o b l i g a t i o n s u n d e r t h e c o n t r a c t , and t h e C i t y h a s b e e n p r o -
v i d i n g water t o t h e D i s t r i c t t h r o u g h t h i s s y s t e m .

I n 1 9 7 1 , t h e C i t y p e t i t i o n e d t h e PSC f o r a n i n c r e a s e i n

water r a t e s i n o r d e r t o f u n d i m p r o v e m e n t s n e c e s s a r y t o meet t h e

i n c r e a s i n g demand f o r water. The PSC g r a n t e d t h e r a t e i n c r e a s e

a n d as p a r t o f i t s o r d e r No. 4044, D o c k e t N o . 6108, s p e c i f i c a l l y
a p p r o v e d t h e c o n t r a c t b e t w e e n t h e C i t y and t h e D i s t r i c t .
I n 1 9 7 2 , t h e C i t y s e n t a l e t t e r t o W i l l i a m J o h n s o n of t h e
PSC recommending " t h e s e r v i c e area f o r t h e B i l l i n g s Water

D e p a r t m e n t " and r e q u e s t i n g a p p r o v a l o f t h e same.
On F e b r u a r y 23, 1 9 7 2 , t h e PSC s e n t t h e C i t y a l e t t e r a p p r o v i n g

t h e map o f t h e w a t e r s e r v i c e a r e a f i l e d by t h e C i t y . No h e a r i n g
was c o n d u c t e d c o n c e r n i n g t h e l e t t e r s o r t h e map, and t h e D i s t r i c t

was n o t n o t i f i e d a t a l l . The B i l l i n g s H e i g h t s s e r v i c e a r e a was
i n c l u d e d o n t h e map. The C i t y h a s f o l l o w e d t h e same p r o c e d u r e
Eor e n l a r g i n g i t s s e r v i c e area s i n c e t h e PSC a p p r o v a l i n 1 9 7 2 .

Some e n l a r g e m e n t s o f t h e B i l l i n g s H e i g h t s s e r v i c e area were

p l a c e d on t h e map i n t h e same f a s h i o n .
On A u g u s t 23, 1 9 7 3 , t h e D i s t r i c t n o t i f i e d t h e C i t y t h a t it
had r e c e i v e d p e t i t i o n s a s k i n g t h a t c e r t a i n l a n d be added to t h e

District. The l e t t e r c o n t a i n e d a n o t i c e o f a n e l e c t i o n to be
h e l d on S e p t e m b e r 1 9 , 1 9 7 3 , p u r s u a n t to s e c t i o n 16-4531, R.C.M.
1 9 4 7 , (now c o d i f i e d as s e c t i o n 7-13-2341, XCA). The D i s t r i c t

e x p l a i n e d t h a t a new s c h o o l w a s t o be b u i l t o n p a r t of t h e l a n d

i n v o l v e d , t h a t t h e s c h o o l g r o u n d s were t o be w a t e r e d from a w e l l ,
and t h a t a few new homes would a l s o be a d d e d . The l e t t e r s t a t e d
t h a t no a d d i t i o n a l b u r d e n t o t h e C i t y ' s water s y s t e m w a s e x p e c t e d

a s a r e s u l t of t h e s e a d d i t i o n s .
The C i t y o b j e c t e d to t h e e l e c t i o n , c o n t e n d i n g t h a t l a n d
c o u l d n o t be added t o t h e D i s t r i c t w i t h o u t PSC a p p r o v a l .

The C i t y had b e e n e x p e r i e n c i n g s e v e r e water s h o r t a g e s . The
D i s t r i c t c o n d u c t e d t h e e l e c t i o n and t h e l a n d was added to t h e

District. I n a l e t t e r to t h e C i t y , t h e D i s t r i c t e x p l a i n e d t h e

u r g e n t need f o r water s e r v i c e t o t h e s c h o o l i n v i e w o f t h e f a c t
t h a t many o f t h e w e l l s were c o n t a m i n a t e d by sewage and t h e u s e of
s u c h water a s d r i n k i n g water c o u l d r e s u l t i n a h e a l t h h a z a r d .

The C i t y f i l e d a c o m p l a i n t w i t h t h e PSC a g a i n s t t h e
D i s t r i c t f o r h a v i n g added l a n d t o t h e D i s t r i c t w i t h o u t t h e a p p r o -

v a l o f t h e C i t y and t h e PSC. The C i t y c o n t e n d e d t h a t d u e t o t h e

water s h o r t a g e t h e added s e r v i c e a r e a would a d v e r s e l y a f f e c t t h e
C i t y ' s c a p a b i l i t y to s e r v e its c u s t o m e r s .

A t t h e t i m e of t h e h e a r i n g , a major e x p a n s i o n of t h e C i t y

water p l a n t w a s underway t o i m p r o v e t h e water s u p p l y and d i s -

t r i b u t i o n system. The PSC found it had no j u r i s d i c t i o n to
i n t e r p r e t t h e c o n t r a c t b e t w e e n t h e C i t y and t h e D i s t r i c t b u t t h a t

i t would h a v e j u r i s d i c t i o n t o m o d i f y t h e c o n t r a c t i f a n a d v e r s e

i m p a c t o n t h e C i t y ' s a b i l i t y t o p r o v i d e s e r v i c e was p r o v e d . No
s u c h i m p a c t w a s shown and t h e PSC d e c l i n e d t o m o d i f y t h e
contract.
The d i s p u t e w a s t a k e n t o t h e D i s t r i c t C o u r t i n a combined
a c t i o n f o r j u d i c i a l r e v i e w o f t h e PSC o r d e r and f o r d e c l a r a t o r y

judgment i n t e r p r e t i n g t h e c o n t r a c t . The D i s t r i c t C o u r t i s s u e d
e x t e n s i v e f i n d i n g s o f f a c t and c o n c l u s i o n s o f law a f f i r m i n g t h e

PSC's o r d e r N o . 4366 and o t h e r w i s e s u p p o r t i n g t h e D i s t r i c t ' s
p o s i t i o n t h a t t h e C i t y w a s o b l i g a t e d by c o n t r a c t t o p r o v i d e w a t e r

s e r v i c e t o t h e expanded D i s t r i c t .
The i s s u e s r a i s e d o n a p p e a l may be s t a t e d g e n e r a l l y a s
follows:

1) W h e t h e r t h e D i s t r i c t C o u r t e r r e d i n d e n y i n g t h e C i t y ' s

m o t i o n t o amend t h e f i n d i n g s and c o n c l u s i o n s ?
2 ) Whether t h e D i s t r i c t Court e r r e d i n i t s d e t e r m i n a t i o n

o f t h e e x t e n t o f t h e PSC1s j u r i s d i c t i o n o f t h e matters a r i s i n g i n
this litigation?

3) Whether t h e District Court e r r e d i n its d e t e r m i n a t i o n

o f t h e i s s u e p r e s e n t e d f o r d e c l a r a t o r y judgment, including
q u e s t i o n s o f d u r a t i o n o f t h e c o n t r a c t , r a t e s and maximum s e r v i c e
obligation?

Subsequent t o o r a l argument on t h i s matter, c o u n s e l f o r
t h e C i t y of B i l l i n g s f i l e d a motion r e q u e s t i n g t h i s Court t o
c a u s e a n i n v e s t i g a t i o n t o be made t o d i s c o v e r w h e t h e r t h e f u l l

t r a n s c r i p t o f t h e PSC h e a r i n g and a l l e x h i b i t s w e r e a v a i l a b l e to
t h e D i s t r i c t C o u r t and to t h i s C o u r t . W e f i n d such an i n v e s t i g a -

t i o n u n n e c e s s a r y a s t h e t r a n s c r i p t , e x h i b i t s and maps a r e

i n c l u d e d i n o u r r e c o r d and were a v a i l a b l e to t h e D i s t r i c t C o u r t .
I . REVIEW OF DISTRICT COURT PROCEDURE.

The C i t y a r g u e s t h a t t h e D i s t r i c t C o u r t e r r e d i n d e n y i n g

t h e C i t y ' s m o t i o n t o amend t h e f i n d i n g s and c o n c l u s i o n s .
The C i t y f i r s t c o n t e n d s t h a t t h e D i s t r i c t C o u r t e r r e d i n a d o p t i n g
v e r b a t i m t h e p r o p o s e d f i n d i n g s and c o n c l u s i o n s of t h e D i s t r i c t .
The C i t y a r g u e s t h a t t h e c o u r t abandoned i t s d u t y u n d e r R u l e
5 2 ( a ) , M.R.Civ.P., t o " f i n d t h e f a c t s s p e c i a l l y and s t a t e s e p a r a -
t e l y its c o n c l u s i o n s of l a w thereon." I n s u p p o r t of i t s a r g u m e n t

t h e C i t y c i t e s Compton v. G i l m o r e ( 1 9 7 7 ) , 98 I d a h o 1 9 0 , 5 6 0 P.2d
8 6 1 ; M a t h e s o n v. H a r r i s ( 1 9 7 7 ) , 9 8 I d a h o 758, 572 P.2d 861;
P a t t i s o n T r u s t v. B o s t i a n (19761, 90 N.M. 5 4 , 5 5 9 P.2d 842; Duffin

v . P a t r i c k ( 1 9 7 3 ) , 212 Kan. 772, 5 1 2 P.2d 442. However, t h e C i t y
h a s m i s c o n s t r u e d t h e s e cases. I n t h e i n s t a n t case , t h e d i s t r i c t
j u d g e i n v i t e d b o t h p a r t i e s t o s u b m i t p r o p o s e d f i n d i n g s and
c o n c l u s i o n s p r i o r to making h i s d e c i s i o n . I n t h e cases c i t e d by

t h e C i t y , t h e j u d g e made h i s d e c i s i o n and t h e n r e q u e s t e d p r e -
v a i l i n g c o u n s e l to d r a f t t h e f i n d i n g s . The l a t t e r p r a c t i c e h a s

b e e n d i s a p p r o v e d by t h e U n i t e d S t a t e s Supreme C o u r t ; n e v e r t h e l e s s
t h e f i n d i n g s are a l l o w e d to s t a n d u n l e s s t h e y a r e n o t s u p p o r t e d

by t h e evidence. U.S. v. E l P a s o N a t u r a l Gas ( 1 9 6 4 ) , 3 7 6 U.S.

651, 84 S . C t . 1 0 4 4 , 1 2 L.Ed.2d 1 2 ; U.S. v . C r e s c e n t Amusement C o .
( 1 9 4 4 ) , 3 2 3 U.S. 173, 65 S.Ct. 254, 8 9 L.Ed. 160.
I n T o m a s k i e v. Tomaskie ( 1 9 8 1 ) , Mont. , 6 2 5 P.2d

5 3 6 , 38 S t . R e p . 416, we d i s c o u r a g e d t h e p r a c t i c e of a d o p t i n g

v e r b a t i m t h e p r o p o s e d f i n d i n g s and c o n c l u s i o n s s u b m i t t e d by t h e

prevailing party. The p u r p o s e of t h e f i n d i n g s and c o n c l u s i o n s i s
b e t t e r s e r v e d i f t h e c o u r t p r e p a r e s i t s own f i n d i n g s and

c o n c l u s i o n s , r e l y i n g o n t h e p a r t i e s f o r g u i d a n c e and a s s i s t a n c e .

However, t h e s t a n d a r d f o r r e v i e w o f t h e f i n d i n g s and c o n c l u s i o n s

r e m a i n s t h e same:
[The a d o p t e d ] f i n d i n g s , t h o u g h n o t t h e p r o d u c t
o f t h e workings of t h e d i s t r i c t j u d g e ' s mind,
a r e f o r m a l l y h i s ; t h e y are n o t t o be r e j e c t e d
o u t - o f - h a n d , and t h e y w i l l s t a n d i f s u p p o r t e d by
t h e evidence." U.S. v . E l P a s o N a t u r a l Gas,
376 U.S. a t 656, 84 S . C t . a t 1 0 4 7 , 1 2 L.Ed.2d a t 1 7 .
W e c o n c l u d e t h a t t h e f i n d i n g s are s u p p o r t e d by t h e e v i d e n c e and

t h a t t h e D i s t r i c t C o u r t c o m m i t t e d no e r r o r i n a d o p t i n g t h e p r o -

posed f i n d i n g s of t h e D i s t r i c t , p a r t i c u l a r l y i n view of t h e
c o m p l e x i t y o f t h i s case.
The i s s u e s t o be d e t e r m i n e d i n t h e d e c l a r a t o r y j u d g m e n t

a c t i o n were s u b m i t t e d to t h e c o u r t by a s t i p u l a t i o n of t h e
parties. The C i t y c o n t e n d s t h a t t h e D i s t r i c t C o u r t d i d n o t r e s o l v e
i n i t s f i n d i n g s and c o n c l u s i o n s a l l o f t h e i s s u e s p r e s e n t e d by t h e
City in that stipulation.
The D i s t r i c t C o u r t i s n o t bound to r u l e on a l l o f t h e

i s s u e s s t i p u l a t e d by t h e p a r t i e s i n a d e c l a r a t o r y j u d g m e n t
action. The c o u r t is e n t i t l e d i n i t s d i s c r e t i o n to r e f u s e to
r u l e o n i s s u e s w h i c h are s p e c u l a t i v e , c o n j e c t u r a l and a c a d e m i c ,
which are u n n e c e s s a r y to t h e r e s o l u t i o n of an e x i s t i n g c o n t r o v e r s y

o r w h i c h m e r e l y s e e k l e g a l a d v i c e o n e v e n t u a l i t i e s which may o r

may n o t a r i s e i n t h e f u t u r e . Montana D e p a r t m e n t o f N a t u r a l
R e s o u r c e s and C o n s e r v a t i o n v . I n t a k e Water C o . ( 1 9 7 6 ) , 1 7 1 Mont.
416, 558 P.2d 1110. The U n i f o r m D e c l a r a t o r y J u d g m e n t A c t i s n o t

a d e v i c e t o b e used b y l i t i g a n t s " t o f i s h i n j u d i c i a l p o n d s f o r
l e g a l advice." L i t t l e v. Wachovia Bank & T r u s t Co. ( 1 9 6 0 ) , 252

N.C. 229, 1 1 3 S.E.2d 689, 701.
M o r e o v e r , w e h a v e r e v i e w e d t h e f i n d i n g s and c o n c l u s i o n s
a n d h a v e f o u n d t h a t a l l o f t h e major i s s u e s were a d d r e s s e d by t h e
District Court. No s p e c i f i c c o n c l u s i o n s were made w i t h r e s p e c t

t o t h e e f f e c t o f t h e M u n i c i p a l Revenue Bond A c t and t h e annex-
a t i o n , z o n i n g and s u b d i v i s i o n s t a t u t e s o n t h e j u r i s d i c t i o n o f t h e
PSC. S i n c e t h o s e i s s u e s were d i s c u s s e d i n t h e b r i e f s s u b m i t t e d t o t h e

D i s t r i c t C o u r t , r e j e c t i o n o f t h o s e a r g u m e n t s may b e i m p l i e d from
t h e c o u r t ' s c o n c l u s i o n t h a t t h e PSC had f u l l r e g u l a t o r y power

over the City.

W e f i n d t h a t t h e D i s t r i c t C o u r t d i d n o t err i n d e n y i n g t h e

C i t y ' s m o t i o n t o amend i t s f i n d i n g s and c o n c l u s i o n s .

11. J U D I C I A L REVIEW OF PSC ORDER.

The C i t y a r g u e s t h a t t h e D i s t r i c t C o u r t e r r e d i n i t s

d e t e r m i n a t i o n of t h e e x t e n t of t h e PSC's j u r i s d i c t i o n o v e r t h e

matters a r i s i n g i n t h i s l i t i g a t i o n . The D i s t r i c t C o u r t a f f i r m e d
t h e o r d e r o f t h e PSC i n w h i c h t h e PSC made t h e f o l l o w i n g c o n c l u -

s i o n s w i t h r e s p e c t to its j u r i s d i c t i o n :
1) T h a t i t s a p p r o v a l i n 1972 o f s e r v i c e area b o u n d a r i e s
f o r t h e C i t y , which i n c l u d e d t h e D i s t r i c t , w a s a n a c t i n e x c e s s
o f its j u r i s d i c t i o n ;
2 ) t h a t it had f u l l r e g u l a t o r y power o v e r t h e C i t y ;
3 ) t h a t i t s power o v e r t h e D i s t r i c t was l i m i t e d to i t s

a u t h o r i t y t o i n t e r v e n e i n a n y c o n t r a c t made by a p u b l i c u t i l i t y ;
4 ) t h a t it h a s power t o m o d i f y a c o n t r a c t o n l y i f t h e
c o n t r a c t p o s e s a n i m m e d i a t e t h r e a t t o t h e C i t y ' s a b i l i t y to s e r v e
i t s c u s t o m e r s o r i f it a d v e r s e l y a f f e c t s t h e r a t e s t r u c t u r e ;
5 ) t h a t t h e C i t y ' s water s e r v i c e area d o e s n o t i n c l u d e t h e

District;

6 ) t h a t t h e PSC h a s no a u t h o r i t y t o f i x t h e b o u n d a r i e s of

t h e D i s t r i c t ; and

7 ) t h a t it had no a u t h o r i t y t o i n t e r p r e t t h e 1 9 6 3 c o n t r a c t
b e t w e e n t h e C i t y and t h e D i s t r i c t .

The C i t y a r g u e s t h a t t h e M u n i c i p a l Revenue Bond A c t o f
1 9 3 9 , s e c t i o n s 7-7-4401 e t seq., MCA, p r e c l u d e s j u r i s d i c t i o n of
t h e PSC o v e r t h e C i t y . The A c t p r o v i d e s t h a t t h e C i t y s h a l l h a v e

power t o p r e s c r i b e f e e s f o r t h e s e r v i c e s , f a c i l i t i e s and com-
m o d i t i e s f u r n i s h e d by a n u n d e r t a k i n g f i n a n c e d p u r s u a n t t o t h e
Act. S e c t i o n s 7-7-4404 and 7 - 7 - 4 4 2 4 ( 1 ) , MCA. The A c t d o e s n o t
m e n t i o n t h e a u t h o r i t y o f t h e PSC, and t h u s t h e C i t y a r g u e s t h a t

t h e PSC h a s no j u r i s d i c t i o n o v e r a m u n i c i p a l i t y o p e r a t i n g a u t i -
l i t y under t h e p r o v i s i o n s of t h e A c t . W e disagree with the

C i t y ' s i n t e r p r e t a t i o n of t h e s t a t u t e . F o r r e a s o n s which we w i l l

e x p l a i n i n o u r o p i n i o n i n C i t y of B i l l i n g s v. P u b l i c S e r v i c e
Commission ( N o . 8 1 - 2 4 ) , we conclude t h a t t h e City does have t h e

power t o s e t r a t e s , s u b j e c t t o m o d i f i c a t i o n by t h e PSC i f s u c h
r a t e s are u n j u s t o r u n r e a s o n a b l e , s e c t i o n 69-3-330, MCA, and t h a t
t h e j u r i s d i c t i o n o f t h e PSC i s n o t l i m i t e d by t h e M u n i c i p a l

Revenue Bond A c t .

The C i t y n e x t c o n t e n d s t h a t t h e s t a t u t e s o n a n n e x a t i o n ,
s e c t i o n 7-13-4314, MCA; s u b d i v i s i o n s , s e c t i o n s 76-3-101 e t seq.,
MCA; a n d z o n i n g , s e c t i o n 76-1-101 e t seq., MCA, have a b e a r i n g on
t h e j u r i s d i c t i o n of t h e PSC i n t h i s case. W e h a v e examined t h e s e

s t a t u t e s and f i n d t h e y a r e n o t r e l e v a n t to t h e r e s o l u t i o n o f t h e

i s s u e s p r e s e n t l y b e f o r e us.
T h r e e f u r t h e r q u e s t i o n s r e g a r d i n g t h e e x t e n t o f PSC

j u r i s d i c t i o n o v e r t h e matters a r i s i n g i n t h i s l i t i g a t i o n a r e

r a i s e d by t h e C i t y as f o l l o w s :
 1) Does t h e PSC have a u t h o r i t y t o d e t e r m i n e w a t e r s e r v i c e

a r e a b o u n d a r i e s of t h e C i t y ?

2 ) Does t h e PSC have any j u r i s d i c t i o n o v e r t h e D i s t r i c t

with r e s p e c t t o its water s e r v i c e a r e a boundaries?
3 ) What j u r i s d i c t i o n d o e s t h e PSC have w i t h r e s p e c t t o t h e
1963 c o n t r a c t between t h e C i t y and t h e D i s t r i c t ?

With r e g a r d t o t h e f i r s t j u r i s d i c t i o n a l i s s u e , t h e C i t y
a r g u e s t h a t t h e PSC h a s a u t h o r i t y t o d e t e r m i n e t h e b o u n d a r i e s of
t h e C i t y ' s w a t e r s e r v i c e a r e a , which t h e C i t y c o n t e n d s i n c l u d e s
the District. The C i t y i n 1972 s u b m i t t e d a "recommended s e r v i c e

a r e a " map t o t h e PSC a l o n g w i t h a l e t t e r s t a t i n g t h a t t h e
a r e a i n c l u d e d t h e w a t e r d i s t r i c t s s e r v e d by t h e C i t y and

r e q u e s t i n g a p p r o v a l of t h e w a t e r s e r v i c e a r e a b o u n d a r i e s . The
map i n c l u d e d t h e B i l l i n g s H e i g h t s ~ i s t r i c t . The PSC approved t h e
map and s u b s e q u e n t l y approved c h a n g e s , i n c l u d i n g some c h a n g e s
w i t h i n t h e District boundaries. The PSC i n i t s o r d e r No. 4366

c o n c l u d e d t h a t i t s a p p r o v a l of t h e C i t y ' s w a t e r s e r v i c e a r e a
i n c l u d i n g t h e D i s t r i c t was i n e x c e s s of i t s j u r i s d i c t i o n . The

PSC d e t e r m i n e d t h a t t h e D i s t r i c t was n o t w i t h i n t h e C i t y ' s w a t e r

s e r v i c e area, noting t h a t :
"When a p u b l i c u t i l i t y makes a s a l e f o r r e s a l e ,
i t s s e r v i c e a r e a s t o p s a t t h e p o i n t a t which t h e
p r o d u c t is t r a n s f e r r e d t o t h e d i s t r i b u t i n g
utility. The s e r v i c e o b l i g a t i o n a l s o s t o p s a t
t h a t p o i n t . A c u s t o m e r of t h e D i s t r i c t who was
r e c e i v i n g p o o r s e r v i c e would l o o k t o t h e
D i s t r i c t t o r e c t i f y t h e s i t u a t i o n . H e would
h a v e no remedy a g a i n s t t h e C i t y , b e c a u s e he h a s
no r e l a t i o n s h i p w i t h t h e C i t y . "
W a g r e e t h a t t h e D i s t r i c t is a s e p a r a t e u t i l i t y w i t h i t s
e
own w a t e r s e r v i c e a r e a . The C i t y is o b l i g a t e d by c o n t r a c t t o
s e l l w a t e r t o t h e D i s t r i c t and h a s no s t a n d i n g t o o b j e c t t o t h e
w a t e r s e r v i c e a r e a of t h a t u t i l i t y .
The PSC h a s no j u r i s d i c t i o n o v e r t h e e x p a n s i o n of t h e
D i s t r i c t b o u n d a r i e s . According t o s e c t i o n 7-13-2341, MCA,

c o n t r o l o v e r t h e s i z e of t h e D i s t r i c t is e x p r e s s l y v e s t e d i n t h e
b o a r d of d i r e c t o r s and t h e e l e c t o r s . The s t a t u t e makes no men-
t i o n o f a r e q u i r e m e n t o f PSC a p p r o v a l b e f o r e l a n d may be added

t o a c o u n t y water d i s t r i c t . The PSC was n o t g i v e n j u r i s d i c t i o n
t o f i x t h e b o u n d a r i e s o f a c o u n t y water d i s t r i c t and as a n admi-
n i s t r a t i v e a g e n c y t h e PSC may n o t assume j u r i s d i c t i o n w i t h o u t

e x p r e s s d e l e g a t i o n by t h e l e g i s l a t u r e . C i t y of P o l s o n v. p u b l i c

S e r v i c e Commission ( 1 9 7 0 ) , 1 5 5 Mont. 464, 4 7 3 P.2d 508.
The PSC h a s no c o n t r o l o v e r t h e water s e r v i c e area of a

u t i l i t y e x c e p t to t h e e x t e n t of d e t e r m i n i n g on a case-by-case
b a s i s w h e t h e r a d e q u a t e s e r v i c e is p r o v i d e d a t r e a s o n a b l e r a t e s to
c u s t o m e r s who are w i t h i n t h e s e r v i c e a r e a . -t-o f P o l s o n ,
Ci y

s u p r a ; s e c t i o n 69-3-201, MCA.

F i n a l l y , w h a t j u r i s d i c t i o n d o e s t h e PSC h a v e w i t h respect
t o t h e c o n t r a c t b e t w e e n t h e C i t y and t h e D i s t r i c t ? The PSC

d e t e r m i n e d t h a t it had no j u r i s d i c t i o n to i n t e r p r e t t h e c o n t r a c t
a n d t h a t i t had power t o i n t e r f e r e w i t h a c o n t r a c t o n l y i f t h e
c o n t r a c t p r e s e n t s a n immediate t h r e a t to t h e u t i l i t y ' s a b i l i t y to

s e r v e or i f t h e c o n t r a c t a d v e r s e l y a f f e c t s t h e r a t e s t r u c t u r e .
The D i s t r i c t C o u r t c o r r e c t l y a f f i r m e d t h e s e c o n c l u s i o n s .
S e c t i o n 69-3-103(1), MCA, s t a t e s t h a t t h e PSC d o e s n o t

h a v e j u d i c i a l powers. I n t e r p r e t a t i o n and e n £ o r c e m e n t o f
c o n t r a c t s are j u d i c i a l f u n c t i o n s . A s s t a t e d by t h e N o r t h D a k o t a

Supreme C o u r t :

"The P u b l i c S e r v i c e Commission h a s n o power t o
c o n s t r u e , e n f o r c e or a d j u d i c a t e t h e v a l i d i t y or
e f f e c t of t h e c o n t r a c t between t h e p a r t i e s i n
q u e s t i o n e x c e p t as t o i t s e f f e c t upon matters
w i t h i n its j u r i s d i c t i o n . T h a t j u r i s d i c t i o n is
d e p e n d e n t upon t h e s t a t u t e s . " W i l l i a m s Elec
C o o p e r a t i v e v. Montana-Dakota U t i l i t i e s Co.
.
( N . D . 1 9 5 6 ) , 79 N.W.2d 508.

The j u r i s d i c t i o n o f t h e PSC i s l i m i t e d to t h e r e g u l a t i o n
o f r a t e s and s e r v i c e as p r o v i d e d by t h e Montana s t a t u t e s .
S e c t i o n 69-3-101 e t seq., MCA. A l l contracts entered i n t o by a
p u b l i c u t i l i t y are s u b j e c t t o t h e paramount a u t h o r i t y of t h e
s t a t e t o e x e r c i s e its r e g u l a t o r y powers. S t a t e v. B i l l i n g s G a s
Co. ( 1 9 1 8 ) , 5 5 Mont. 1 0 2 , 1 7 3 P. 799. I n o r d e r to e x e r c i s e i t s

r e g u l a t o r y power t h e PSC m u s t h a v e and d o e s h a v e t h e power t o
s u p e r s e d e o r modify p r o v i s i o n s of c o n t r a c t s made by u t i l i t i e s to
t h e e x t e n t t h a t r a t e s and s e r v i c e s a r e a f f e c t e d . S t a t e v.
B i l l i n g s Gas Co., s u p r a ; C i t y of B i l l i n g s v. P u b l i c S e r v i c e

Commission ( 1 9 2 3 ) , 67 Mont. 29, 214 P. 608. See a l s o P r e s t o n
County L i g h t and Power Co. v . Renick ( 1 9 6 0 ) , 1 4 5 W.Va. 115, 1 1 3
S.E.2d 378.

After determining t h a t its j u r i s d i c t i o n over t h e c o n t r a c t

was l i m i t e d , t h e PSC c o n c l u d e d t h a t t h e C i t y had f a i l e d t o prove
t h e e x i s t e n c e of an immediate t h r e a t t o i t s a b i l i t y t o s e r v e o r

t h e e x i s t e n c e of r a t e s t r u c t u r e i n e q u i t i e s . T h e r e f o r e t h e PSC
declined t o i n t e r f e r e with t h e c o n t r a c t . The D i s t r i c t C o u r t
a f f i r m e d t h e PSC o r d e r , f i n d i n g it s u p p o r t e d by s u b s t a n t i a l cre-

d i b l e evidence.
The C i t y a r g u e d t h a t i t s a b i l i t y t o s e r v e i t s c u s t o m e r s

was t h r e a t e n e d b e c a u s e t h e D i s t r i c t d i d n o t have an e x p l i c i t

l i m i t on e x p a n s i o n of i t s b o u n d a r i e s when t h e C i t y was f a c i n g
s e v e r e water shortages. Testimony a t t h e h e a r i n g showed t h a t t h e
C i t y had indeed e x p e r i e n c e d w a t e r s h o r t a g e s . However, t h e

h e a r i n g a l s o showed t h a t t h e C i t y was engaged i n an e x t e n s i v e
program t o improve i t s w a t e r s e r v i c e c a p a b i l i t i e s . Upon comple-
t i o n of t h e program, which was e x p e c t e d by 1977, t h e C i t y

would have a r a t e d c a p a c i t y of 70,000,000 g a l l o n s p e r d a y , an
amount d o u b l e t h e c a p a c i t y of t h e C i t y w a t e r system p r i o r t o t h e

improvements. On t h e b a s i s of t h i s e v i d e n c e , t h e PSC o r d e r No.

4366, d a t e d J u l y 20, 1977, c o n c l u d e d t h a t t h e i s s u e of a t h r e a t
posed t o t h e C i t y ' s a b i l i t y t o s e r v e was moot i n view of t h e
w a t e r p l a n t e x p a n s i o n s which e l i m i n a t e d t h e w a t e r s h o r t a g e s .
T h e r e is s u b s t a n t i a l e v i d e n c e t o s u p p o r t t h i s f i n d i n g .
The C i t y a l s o argued t h a t t h e "mains" and "volumes"
c l a u s e s of t h e 1963 c o n t r a c t posed a t h r e a t t o i t s a b i l i t y t o

serve. The c o n t r a c t p r o v i d e d f o r t h e C i t y t o c o n s t r u c t a 16-inch
main t o c o n n e c t w i t h a 16-inch main b u i l t by t h e D i s t r i c t from
i t s r e s e r v o i r t o t h e C i t y ' s main. The c o n t r a c t p r o v i d e d :
 " A l l of t h e a f o r e s a i d w a t e r mains a r e t o be o p e r a t e d ,
r e p a i r e d , m a i n t a i n e d a n d , when n e c e s s a r y , r e p l a c e d o r
e n l a r g e d by t h e C i t y a t i t s e x p e n s e . "
With r e s p e c t t o volume, t h e c o n t r a c t s t a t e d :

"The p a r t i e s u n d e r s t a n d and a n t i c i p a t e t h a t popula-
t i o n and t h e use of w a t e r w i t h i n t h e D i s t r i c t w i l l
i n c r e a s e i n t h e y e a r s t o come and t h a t t h e r e w i l l be
i n c r e a s i n g demands upon t h e mains d e s c r i b e d i n sec-
t i o n (1) above and t h e pumping f a c i l i t i e s i n i t i a l l y
i n s t a l l e d a s d e s c r i b e d i n t h i s s e c t i o n . In t h i s
regard t h e C i t y a g r e e s t h a t it w i l l a t a l l times
f u r n i s h , o p e r a t e and m a i n t a i n a t i t s own e x p e n s e ,
w a t e r t r a n s m i s s i o n mains and pumping f a c i l i t i e s
c a p a b l e o f p r o v i d i n g w a t e r a t a p r e s s u r e and q u a n t i t y
s u f f i c i e n t t o meet t h e demands o f t h e D i s t r i c t , sub-
j e c t only t o the following l i m i t a t i o n s :

( b ) The C i t y r e s e r v e s t h e r i g h t to r e s t r i c t . t h e use
o f w a t e r by t h e D i s t r i c t i n t h e e v e n t a s h o r t a g e of
w a t e r makes it n e c e s s a r y t o impose r e s t r i c t i o n s i n
u s e on a l l o t h e r u s e r s of C i t y w a t e r . However,
r e s t r i c t i o n s i n u s e , i f any, imposed upon t h e
D i s t r i c t , s h a l l be no d i f f e r e n t t h a n t h e use r e s t r i c -
t i o n s imposed w i t h i n t h e C i t y of B i l l i n g s . " (Emphasis
added. )
The PSC found t h a t t h e C i t y had f a i l e d t o p r o v e any immediate

t h r e a t t o its a b i l i t y t o serve. M r . Wright, a c i v i l engineer f o r

t h e C i t y , t e s t i f i e d t h a t it was e x p e c t e d t h a t a l a r g e r main would
b e r e q u i r e d by t h e D i s t r i c t i n 1985, M r , Wright a l s o t e s t i f i e d

t h a t t h e "volume" c l a u s e p r o v i d e d f o r a d o u b l i n g of D i s t r i c t
usage every y e a r . However, no f i g u r e s of a c t u a l i n c r e a s e i n
D i s t r i c t usage were p r o v i d e d . The t e s t i m o n y was s p e c u l a t i v e and

showed no immediate t h r e a t t o t h e C i t y ' s a b i l i t y t o s e r v e .

F i n a l l y , with regard t o t h e C i t y ' s a t t e m p t t o prove r a t e
i n e q u i t i e s , t h e PSC found t h a t r a t e i s s u e s were n o t r a i s e d i n t h e
c o m p l a i n t and were n o t p r o p e r l y a p a r t of t h e p r o c e e d i n g . The
PSC d e t e r m i n e d t h a t it had t h e a u t h o r i t y t o modify t h e c o n t r a c t
w i t h r e s p e c t t o r a t e s , b u t t h a t i t would r e v i e w t h e m a t t e r i n
a n o t h e r proceeding. See C i t y of B i l l i n g s v. PSC (No. 81-24).

The PSC p r o p e r l y e x c l u d e d t h e r a t e e v i d e n c e i n t h i s proceed i n g .
I n summary, w e h o l d t h a t t h e PSC h a s no j u r i s d i c t i o n t o
t h e C i t y and t h e D i s t r i c t
D u r i n g t h e e a r l y d a y s of t h e P u b l i c S e r v i c e Commission,

s e v e r a l cases d e a l i n g w i t h t h e r e l a t i o n s h i p o f PSC power t o
e x i s t i n g c o n t r a c t s o f p u b l i c u t i l i t i e s were d e c i d e d . In

S t a t e v . B i l l i n g s G a s Co., supra, the c i t y granted a franchise
t o a g a s company, and p a s s e d a n o r d i n a n c e f i x i n g a maximum r a t e
t o be c h a r g e d t h e c i t y by t h e g a s company f o r s e r v i c e s . The
f r a n c h i s e c o n s t i t u t e d a c o n t r a c t b e t w e e n t h e c i t y and t h e
utility. When t h e P u b l i c U t i l i t y A c t was p a s s e d , t h e g a s com-
p a n y s u b m i t t e d i t s r a t e s c h e d u l e t o t h e PSC and s u b s e q u e n t l y

r e f u s e d t o r e d u c e t h e r a t e s as r e q u i r e d by t h e c o n t r a c t w i t h t h e
city. The c i t y t h e n s o u g h t t o compel t h e g a s company t o h o n o r
the contract. This Court recognized t h e c i t y ' s r i g h t t o
c o n t r a c t f o r rates b u t noted t h a t such r i g h t w a s s u b j e c t t o t h e
a u t h o r i t y o f t h e s t a t e t o e x e r c i s e i t s r e g u l a t o r y power. The

e f f e c t o f t h e e x e r c i s e o f t h e s t a t e ' s power was e x p l a i n e d as

follows:
"Our c o n c l u s i o n is t h a t s i n c e 1 9 1 3 t h e P u b l i c
S e r v i c e Commission h a s had e x c l u s i v e j u r i s d i c -
t i o n o v e r t h e s u b j e c t o f r a t e r e g u l a t i o n of t h i s
[ u t i l i t y ] company, t h a t t h e p r o v i s i o n s o f t h e
r a t e s were
f r a n c h i s e c o n t r a c t f i x i n g -- s u p e r s e d e d
b y t h e r a t e s a p p r o v e d by t h e c o m m i s s i o n , and
t h a t t h e remedy o f t h e c i t y i s by c o m p l a i n t t o
t h e c o m m i s s i o n i f t h e r a t e s now i n e f f e c t a r e
excessive." S t a t e v. B i l l i n g s G a s C o . ( 1 9 1 8 ) ,
5 5 Mont. a t 1 1 2 , 1 7 3 P. a t 801-802. (Emphasis
added. )
T h u s , when t h e PSC e x e r c i s e s i t s j u r i s d i c t i o n o v e r r a t e s
c h a r g e d by a u t i l i t y , t h e r a t e p r o v i s i o n s are s u p e r s e d e d b u t

t h e remainder of t h e c o n t r a c t remains i n e f f e c t . See also,

C i t y o f B i l l i n g s v. PSC ( 1 9 2 3 ) , 67 Mont. 29, 214 P. 6 0 8 ; C i t y
o f B a k e r v. Montana P e t r o l e u m Co. ( 1 9 3 5 ) , 99 Mont. 465, 44

W e hold t h a t t h e 1963 c o n t r a c t between t h e C i t y of

B i l l i n g s and t h e C o u n t y Water D i s t r i c t o f B i l l i n g s H e i g h t s i s

v a l i d and b i n d i n g o n t h e p a r t i e s u n d e r t h e e x i s t i n g c i r c u m -

stances.
d e t e r m i n e t h e b o u n d a r i e s of a c o u n t y w a t e r d i s t r i c t and t h a t t h e
PSC h a s a u t h o r i t y t o modify o r s u p e r s e d e a c o n t r a c t between a
p u b l i c u t i l i t y and i t s c u s t o m e r i f t h e c o n t r a c t p o s e s a n immediate
t h r e a t to the u t i l i t y ' s a b i l i t y to serve o r i f the contract

adversely af f e c t s the u t i l i t y ' s r a t e s t r u c t u r e . W f u r t h e r hold
e
t h a t t h e PSC1s c o n c l u s i o n t h a t t h e C i t y of B i l l i n g s f a i l e d t o
p r o v e an immediate t h r e a t t o i t s s e r v i c e a b i l i t y is s u p p o r t e d by

s u b s t a n t i a l c r e d i b l e e v i d e n c e and was p r o p e r l y af f irmed by t h e
District Court.
111. DECLARATORY JUDGMENT ACTION

The C i t y ' s c o m p l a i n t f o r d e c l a r a t o r y judgment r e q u e s t e d
t h e D i s t r i c t Court t o d e c i d e w h e t h e r t h e 1963 c o n t r a c t was
v a l i d and b i n d i n g , and w h e t h e r t h e c o n t r a c t may law£ u l l y

require the City to:

(1) s u p p l y w a t e r mains of i n c r e a s e d s i z e t o meet t h e
D i s t r i c t ' s increased needs i n the f u t u r e ,

( 2 ) s e r v e any i n c r e a s e d D i s t r i c t a r e a w i t h o u t l i m i t a t i o n ,

( 3 ) s u b s i d i z e t h e D i s t r i c t , and

( 4 ) be bound t o a p e r p e t u a l o b l i g a t i o n .

The D i s t r i c t C o u r t concluded t h a t t h e c o n t r a c t was v a l i d

and b i n d i n g . The C i t y c o n t e n d s t h a t r a t e i n c r e a s e s p r e v i -
o u s l y g r a n t e d by t h e PSC had t h e e f f e c t of n u l l i f y i n g t h e
contract. The D i s t r i c t C o u r t found o t h e r w i s e i n i t s c o n c l u -
s i o n s of law a s f o l l o w s :
"The PSC h a s m o d i f i e d t h e r a t e p r o v i s i o n s of
t h e c o n t r a c t by g r a n t i n g t h e C i t y r a t e i n c r e a s e s
i n 1972 and 1978, t h e p e r c e n t a g e of which was
n o t uniform w i t h r e s p e c t t o t h e D i s t r i c t and t h e
C i t y ' s o t h e r c u s t o m e r s . Those i n c r e a s e s g r a n t e d
t h e C i t y were s u b s t a n t i a l l y g r e a t e r i n percen-
t a g e f o r t h e D i s t r i c t t h a n f o r some of t h e o t h e r
c u s t o m e r s of t h e C i t y . However, t h e g r a n t i n g
of these r a t e increases - - i n v a l i d a t e o r
- did not
n u l l i f y t h e c o n t r a c t . The o n l y impact of t&
o r d e r s g r a n t i n g t h o s e i n c r e a s e s was t o modify
t h e r a t e p r o v i s i o n of t h e c o n t r a c t . " (Emphasis
added. )

W e a g r e e t h a t t h e e x e r c i s e of t h e r e g u l a t o r y power of t h e PSC

w i t h r e s p e c t t o r a t e s d i d n o t n u l l i f y t h e c o n t r a c t between
 The D i s t r i c t C o u r t c o n c l u d e d t h a t t h e 1963 c o n t r a c t was
p e r p e t u a l and t h a t it c o u l d n o t be t e r m i n a t e d w i t h o u t t h e
c o n s e n t of both p a r t i e s . The c o u r t b a s e d i t s c o n c l u s i o n on
t h e c o n t r a c t language o b l i g a t i n g the City " a t a l l times" t o

f u r n i s h s u f f i c i e n t w a t e r t o meet t h e demands o f t h e D i s t r i c t ,

s u b j e c t t o t h e volume l i m i t a t i o n s s e t f o r t h a b o v e . The o n l y

p r o v i s i o n o f t h e c o n t r a c t c o n t e m p l a t i n g t e r m i n a t i o n is a s

follows:
" I n t h e e v e n t t h e D i s t r i c t e v e r becomes an
i n c o r p o r a t e d c i t y o r town w i t h i t s own mayor
and c o u n c i l or c o m m i s s i o n form o f g o v e r n m e n t ,
t h e C i t y ' s o b l i g a t i o n t o provide water t o the
D i s t r i c t s h a l l c e a s e and t e r m i n a t e ."
The C i t y c o n t e n d s t h a t B i l l i n g s H e i g h t s w i l l n e v e r become
i n c o r p o r a t e d b e c a u s e o f s e c t i o n 7-2-4103 ( 2 ) , MCA, restricting
t h e forming of a municipal c o r p o r a t i o n u n l e s s t h e boundary

t h e r e o f i s more t h a n t h r e e miles from t h e b o u n d a r y o f a n
e x i s t i n g town, which is n o t t h e c a s e w i t h B i l l i n g s and t h e
Heights. T h e r e f o r e , t h e C i t y a r g u e s t h a t t h e c o n t r a c t is

p e r p e t u a l , and t h a t p e r p e t u a l c o n t r a c t s w i t h a m u n i c i p a l i t y
a r e e i t h e r u n e n f o r c e a b l e , t e r m i n a b l e a t w i l l of e i t h e r p a r t y
upon n o t i c e , or s u b j e c t t o a r e a s o n a b l e t i m e l i m i t .
A s d i s c u s s e d above, t h e p u r p o s e of t h e Montana ~ e c l a r a -
t o r y J u d g m e n t A c t , s e c t i o n s 27-8-101 e t seq., MCA, is t o allow

t h e p a r t i e s t o o b t a i n r e s o l u t i o n of i s s u e s a r i s i n g from a n
e x i s t i n g controversy. I s s u e s which a r e s p e c u l a t i v e o r which a r e
u n n e c e s s a r y t o t h e r e s o l u t i o n of an e x i s t i n g c o n t r o v e r s y c a n n o t

b e d e c i d e d a s w e c a n n o t a n t i c i p a t e a l l of t h e c i r c u m s t a n c e s which
may a r i s e i n t h e f u t u r e . W e conclude t h a t t h e D i s t r i c t C o u r t ' s

f i n d i n g t h a t t h e c o n t r a c t i s p e r p e t u a l was u n n e c e s s a r y t o t h e
d e c i s i o n i n t h i s d e c l a r a t o r y judgment a c t i o n .
T h i s m a t t e r a r o s e when t h e D i s t r i c t expanded i t s boun-
d a r i e s w i t h t h e e x p e c t a t i o n t h a t t h e C i t y would h o n o r i t s

c o n t r a c t u a l o b l i g a t i o n t o s u p p l y s u f f i c i e n t w a t e r t o meet t h e
r e s u l t i n g i n c r e a s e i n demand. The C i t y c o n t e n d e d t h a t i t s
o b l i g a t i o n was l i m i t e d t o t h e o r i g i n a l 1 9 6 3 b o u n d a r i e s of
the District. The C i t y h a s a d m i t t e d t h a t it is w i l l i n g t o

c o n t i n u e t o s e l l water t o t h e D i s t r i c t p r o v i d e d t h a t t h e
C i t y ' s a b i l i t y t o s e r v e i t s o t h e r c u s t o m e r s is n o t a d v e r s e l y

affected. The C i t y ' s m a j o r c o n c e r n is t h a t i f t h e c o n t r a c t
i s p e r p e t u a l and i f t h e D i s t r i c t c a n c o n t i n u e t o expand w i t h -

o u t c o n s u l t i n g t h e C i t y , t h e n t h e C i t y ' s a b i l i t y to s e r v e i t s

o t h e r c u s t o m e r s m i g h t be i m p a i r e d . Not o n l y is t h i s a r g u m e n t
s p e c u l a t i v e , b u t a l s o it f a i l s t o t a k e i n t o a c c o u n t t h e power
o f t h e P u b l i c S e r v i c e Commission t o m o d i f y o r s u p e r s e d e t h e

c o n t r a c t i n t h e e v e n t t h a t t h e C i t y ' s f e a r s should prove to
b e j u s t i f i e d i n t h e f u t u r e . Under t h e e x i s t i n g c i r c u m s t a n c e s ,
however, t h e C i t y f a i l e d to prove a n immediate t h r e a t to i t s

a b i l i t y to s e r v e its customers.
M o r e o v e r , w e d o n o t f i n d t h a t t h e l a n g u a g e o f t h e con-
t r a c t c o m p e l s t h e i n t e r p r e t a t i o n g i v e n it by t h e D i s t r i c t
Court. Where a c o n t r a c t is n o t e x p r e s s l y made p e r p e t u a l by i t s
terms, c o n s t r u c t i o n o f s u c h c o n t r a c t as p e r p e t u a l is d i s f a v o r e d .
Southern B e l l T & T Co. v . F l o r i d a E a s t Coast Ry. C o . (5th Cir.

1 9 6 8 ) , 399 F.2d 8 5 4 ; West C a l d w e l l v. C a l d w e l l ( 1 9 5 8 ) , 26 N . J . 9,
1 3 8 A.2d 402; 1 W i l l i s t o n , C o n t r a c t s 1 1 2 838 ( 3 r d Ed. 1 9 5 7 ) . In

a case w h e r e a c i t y d o n a t e d w a t e r s e r v i c e t o a u n i v e r s i t y i n

o r d e r t o i n d u c e t h e u n i v e r s i t y to l o c a t e w i t h i n t h e c i t y , t h e
court stated :
"We do n o t t h i n k t h a t t h e circumstances considered
a s a whole w a r r a n t t h e c o n s t r u c t i o n t h a t t h e
o b l i g a t i o n was t o e x i s t p e r p e t u a l l y , o r f o r e v e r .
The t i m e was t o be m e a s u r e d by t h e e x i s t e n c e o f
the university in Gainesville. We take judicial
n o t i c e o f t h e l o c a t i o n as p e r m a n e n t b u t we d o
n o t i n d u l g e t h e c l a i r v o y a n c e t h a t it w i l l be
perpetual. H e r c u l a n e u m and P o m p e i i were p e r -
m a n e n t b u t h i s t o r y r e c o r d s t h a t t h e y were n o t
perpetual." C i t y o f G a i n e s v i l l e v. Bd. o f
C o n t r o l ( F l a . 1 9 5 5 ) , 8 1 So.2d 5 1 4 , 518.
The c o n t r a c t p r o v i d e s f o r t e r m i n a t i o n i n t h e e v e n t o f t h e
i n c o r p o r a t i o n o f t h e H e i g h t s as a c i t y , a n e v e n t which c o u l d

c o n c e i v a b l y o c c u r i f s e c t i o n 7-2-4103 ( 2 ) , MCA, w e r e r e p e a l e d .
W i n t e r p r e t t h e p h r a s e " a t a l l t i m e s " to mean " a t a l l times
e
d u r i n g t h e l i f e of t h i s c o n t r a c t . " The l i f e o f t h e c o n t r a c t
i s i n d e f i n i t e and may be t e r m i n a t e d by t h e PSC i f it f i n d s

s u c h a c t i o n n e c e s s a r y and w i t h i n i t s j u r i s d i c t i o n o v e r r a t e s
and s e r v i c e .
The C i t y n e x t a r g u e s t h a t t h e c o n t r a c t p r o v i s i o n r e q u i r -

i n g t h e C i t y t o m a i n t a i n a n d , i f n e c e s s a r y , e n l a r g e t h e 16-

i n c h m a i n s is i n v a l i d b e c a u s e it r e q u i r e s t h e C i t y t o s u b s i -
d i z e t h e D i s t r i c t and t o s u p p l y u n l i m i t e d q u a n t i t i e s o f water.
W e see no merit i n t h e s e c o n t e n t i o n s . The PSC h a s t h e power
t o i n t e r v e n e s h o u l d it d e t e r m i n e t h a t r a t e i n e q u i t i e s a r e

present. S u b s i d i z a t i o n h a s n o t o c c u r r e d to d a t e , and s h o u l d it
o c c u r i n t h e f u t u r e , t h e m a t t e r is s u b j e c t t o a s e p a r a t e r a t e
proceeding. The c o n t r a c t d o e s c o n t a i n a l i m i t a t i o n c l a u s e
c o n t r o l l i n g t h e allowable i n c r e a s e o f u s e by t h e D i s t r i c t . The
PSC h a s power t o i n t e r v e n e i f t h e C i t y is u n a b l e to s e r v e i t s
o t h e r c u s t o m e r s , b u t t h e C i t y h a s as y e t f a i l e d t o p r o v e
any immediate t h r e a t . W h i l e t h e C i t y would n o t be f o r c e d t o

m a i n t a i n equipment l y i n g o u t s i d e of its b o u n d a r i e s , i t may

c o n t r a c t t o d o so, C r a w f o r d v. C i t y o f B i l l i n g s (1956), 130
Mont. 1 5 8 , 297 P.2d 292, and it h a s f r e e l y c o n t r a c t e d t o

m a i n t a i n and e n l a r g e t h e water m a i n s w i t h t h e knowledge o f t h e
p r o b a b i l i t y t h a t t h e D i s t r i c t ' s n e e d s would i n c r e a s e i n t h e

future.
Finally, the City asks the Court t o determine whether the
C i t y ' s o b l i g a t i o n is l i m i t e d t o t h e o r i g i n a l 1963 b o u n d a r i e s o f
the D i s t r i c t . The D i s t r i c t C o u r t c o n c l u d e d t h a t t h e c o n t r a c t

w a s n o t a m b i g u o u s , t h a t it c o n t a i n e d no l i m i t a t i o n o n t h e area

o f t h e D i s t r i c t , t h a t t h e c o u r t was w i t h o u t power t o i n s e r t
s u c h a p r o v i s i o n , and t h a t n e i t h e r t h e C i t y n o r t h e PSC had
a u t h o r i t y t o f i x t h e b o u n d a r i e s of t h e D i s t r i c t . We agree.

The c o n t r a c t r e q u i r e s t h e C i t y t o s u p p l y s u f f i c i e n t water
t o meet t h e demands o f t h e D i s t r i c t , s u b j e c t t o t h e volume l i m i -

tations clause. W h i l e t h e C i t y may be d i s e n c h a n t e d w i t h t h e con-
t r a c t , a c o u r t c a n n o t i n s e r t p r o v i s i o n s or l i m i t a t i o n s i n t o t h e
contract. D a n i e l s o n v. D a n i e l s o n ( 1 9 7 7 ) , 1 7 2 Mont. 55, 5 6 0 P.2d

893. The p a r t i e s c l e a r l y e n v i s i o n e d i n c r e a s e s i n u s a g e o f w a t e r

by the D i s t r i c t . Further, the City contracted with an e n t i t y ,

t h e C o u n t y Water D i s t r i c t o f B i l l i n g s H e i g h t s , which e v e n a t t h e

t i m e o f e x e c u t i o n o f t h e c o n t r a c t had t h e power u n d e r Montana
l a w t o increase its boundaries. P a r t i e s to a c o n t r a c t are pre-

sumed t o be a w a r e o f e x i s t i n g laws which a f f e c t t h e c o n t r a c t a t

t h e t i m e of e x e c u t i o n . Moses v. S c h o o l D i s t . No. 5 3 o f L i n c o l n

County ( 1 9 3 9 ) , 1 0 7 Mont. 3 0 0 , 8 6 P.2d 407; S n i d e r v. Yarbrough

( 1 9 1 1 ) , 4 3 Mont. 203, 1 1 5 P. 411.

The judgment o f t h e D i s t r i c t C o u r t is m o d i f i e d to remove

t h e f i n d i n g t h a t t h e c o n t r a c t i s p e r p e t u a l a n d , as s o m d i -

f ied, is a f f i r m e d .

................................. .
Chief J u s t i c e

--
"---.--

D i s t . Judge, s i t t i n g
J o h n C. S h e e h y

R o b e r t M. H o l t e r , D i s t . J u d g e , s i t t i n g
o f M r . J u s t i c e D a n i e l J. S h e a