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Blogs | August 24, 2015
2 minute read

COA re-affirms presumption that municipal utility rates are reasonable

The Michigan Court of Appeals in Trahey v. City of Inkster, Nos. 320161; 324564 held that (1) there is a presumption that rate increases to utility services by municipalities are reasonable, and (2) an increase in a utility bill after a change in a utility meter is acceptable so long as the municipality can provide evidence that the utilities charged were actually used by the consumer.

Terrance Trahey, a resident of Inkster, challenged his utility bills for water and sewer arguing that the increases in his utility bills were unreasonable and in violation of the city’s charter. He also argued that the city was unjustly enriched by the increased bill. He first reasoned that the rates were unreasonable as the city was impermissibly borrowing between the city’s various funds and at least some of the water and sewer debt the city was trying to recoup with the utility increases was caused by this improper borrowing. Further, Trahey argued that the city was unjustly enriched by collecting the amount billed to Trahey in July 2012, which was based on a difference in reading between his old standard water meter and the new smart meter inside his home.

The Court first disagreed with Trahey’s argument that the rate increase was unreasonable. In doing so, the Court examined similar decisions holding that “Michigan Courts have long recognized the principle that municipal utility rates are presumptively reasonable,” and that “this presumption exists because courts of law are ill-equipped to deal with the complex technical processes require evaluating [rate making].” Thus the Court determined that the trial court had erred in concluding the rates were unreasonable as there was no evidence that the city had impermissibly borrowed from the water and sewer funds and that the rate increase was unreasonable. It held that absent clear evidence of illegal or improper expenses a court has no authority to disregard the presumption that the rate is reasonable.

The Court next determined that there was insufficient evidence to demonstrate whether Trahey actually received the utility services he was charged for when the meters were changed at his residence. The Court remanded the case to the trial court for this determination and placed the burden on the city to prove that Trahey actually received the utilities he was charged for. If the City can prove this, then Trahey will lose on his claim of unjust enrichment.