City and County of Denver v. Denver Union Water Co.

1918-03-04

Headline: Denver’s voter-initiated ordinance cutting water rates is blocked — Court rules the low 1914 rates confiscatory and upholds the water company’s right to fair compensation, limiting city control over utility pricing.

Holding: The Court held that Denver’s 1914 ordinance fixing lower water rates denied the privately owned water company a fair return and therefore amounted to a taking without due process, so the decree for the company was affirmed as modified.

Real World Impact:

Blocks enforcement of Denver’s 1914 reduced water rates as confiscatory.
Affirms utility owners’ right to rates that provide a fair return on property.
Limits cities’ power to impose deeply reduced utility rates without compensation.

Topics: water utility rates, city regulation of utilities, property compensation, public utilities

Summary

Background

A privately owned water company operated Denver’s only water system and sued after the City passed a 1914 ordinance sharply reducing water charges. The company asked a court to stop the ordinance, saying the reduced rates did not allow a fair return on the value of its plant and therefore took private property without due process. A special master heard the evidence and valued the plant at over $13 million and estimated the company’s net earnings under the ordinance at about $488,820.

Reasoning

The core question was whether the ordinance left the company an adequate return or amounted to a constitutional taking. The Court reviewed the master’s valuation method (market value for land and rights; reproduction cost less depreciation for structures) and concluded the plant had to be valued as property in use. Even excluding disputed water-right items, the return under the ordinance was clearly below prevailing interest rates and therefore inadequate. The Court modified the lower-court procedure ruling but went on to hold the reduced rates confiscatory and contrary to the Fourteenth Amendment.

Real world impact

The ruling prevents Denver’s 1914 rate schedule from being enforced and confirms that cities may not set utility rates that deny a private utility a reasonable return on property used in public service. The decision preserves methods for valuing utility plants and leaves open the separate question of who owns certain water-appropriation rights.

Dissents or concurrances

A dissenting opinion argued the ordinance did not grant a new franchise and treated the company as a tenant at sufferance; under that view the City could require lower rates because the company could stop service or the City could remove the pipes. Three Justices joined that dissent.