Historically, utilities frequently have provided service without charge to public and governmental buildings and uses, such as administrative offices, libraries, schools and even churches. Utilities have attempted to explain such free service on public relations-good will grounds or as a franchise concession.
However, free service cannot be justified by cost of service ratemaking principles and is unreasonable discrimination on its face. So, for example, a New Jersey court held that a contract was unjustly discriminatory because an electric utility agreed to provide free lighting service to municipal buildings. City of Plainfield v. Public Service Electric and Gas Company, 412 A.2d 759 (N.J. 1980). The Wisconsin Public Service Commission has prohibited a municipal owned water utility from providing free or discounted service to municipal departments. City of Westby, 2-U-5017; City of Brodhead, 2-U-5092, 1958 WL 7484. An Indiana court has held that the state regulatory commission could set telephone rates to be charged a city even if the franchise granted the telephone company called for free service. Winfield v. Public Service Commission, 118 N.E. 531 (Ind. 1918).
Discounted rates, such as for senior citizens or for lifeline programs have been held to be invalid discrimination in some states. For example, see Mountain States Legal Foundation v. Utah Public Service Commission, 636 P. 2d 1047 (Utah 1981). Along lines similar to discounted rates, a Massachusetts court held that a disproportionate large water rate increase to one industrial customer compared with other industrial customers was illegal discrimination. Massachusetts Municipal Wholesale Electric Company v. City of Springfield, 726 N.E. 2d 973 (Mass. App. 2000).
Some states have approved economic development discounted rates as legal discrimination when the evidence shows all customers will benefit from the assumed additional load and revenue. Re Northern Indiana Public Service Company , 96 PUR4th 267 (Ind. U.R.C. 1988).
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