Wichita Gas Co. v. Public Service Commission

• Decision Date: 16 January 1933
• Docket Number: No. 1637-N to 1646-N.,1637-N to 1646-N.
• Parties: WICHITA GAS CO. v. PUBLIC SERVICE COMMISSION OF KANSAS et al., and nine other cases.
• Court: U.S. District Court — District of Kansas

2 F. Supp. 792

WICHITA GAS CO.

v.

PUBLIC SERVICE COMMISSION OF KANSAS et al., and nine other cases.

Nos. 1637-N to 1646-N.

District Court, D. of Kansas, First Division.

January 5, 1933.

Dissenting Opinion January 14, 1933.

Supplemental Memorandum January 16, 1933.

James W. Finley and R. E. Cullison, both of Bartlesville, Okl., Chas. A. Frueauff and Robt. S. Sloan, both of New York City, Fred Robertson and J. O. Emerson, both of Kansas City, Kan., Robt. D. Garver, of Kansas City, Mo., and Robt. Stone, of Topeka, Kan., for plaintiffs.

Chas. D. Welch, of Coffeyville, Kan., Harry Castor, of Wichita, Kan., and Chas. W. Steiger and E. H. Hatcher, both of Topeka, Kan., for defendants.

Before PHILLIPS and McDERMOTT, Circuit Judges, and HOPKINS, District Judge.

PHILLIPS, Circuit Judge.

The Cities Service Gas Company, a Delaware corporation, is engaged in the business of producing and transporting gas from Texas and Oklahoma and delivering it to distributing companies along its line, among which are the following in the state of Kansas: The Wichita Gas Company, the Hutchinson Gas Company, the Pittsburg Gas Company, the Capital Gas & Electric Company, the Newton Gas Company, the Girard Gas Company, the Wyandotte County Gas Company, the Union Public Service Company, and the Western Distributing Company.

The common stock of each of such distributing companies, except the qualifying directors' shares, is owned by the Gas Service Company, a corporation. The stock of the Gas Service Company, except the qualifying directors' shares, is owned by the Cities Service Company, a Delaware corporation. The stock of the Cities Service Gas Company, except the qualifying directors' shares, is owned by the Empire Gas & Fuel Company. The stock of the Empire Gas & Fuel Company, except the qualifying directors' shares, is owned by the Cities Service Company.

The Western Distributing Company is a West Virginia corporation and a citizen of that state. The Union Public Service Company is a Delaware corporation and a citizen of that state. The other distributing companies are Kansas corporations.

The Cities Service Gas Company furnishes gas to the distributing companies at the city gates under day to day contracts, which are oral, at 40 cents per thousand cubic feet. Each of the distributing companies has contracted to pay Henry L. Doherty & Company 1¾ per cent. of the gross revenue, a per diem charge and expenses for certain specific services, and an engineering fee of 5 per cent. of the cost of new construction, in consideration of which Henry L. Doherty & Company maintains legal, managerial, engineering, accounting, and purchasing staffs whose services are available to the distributing companies.

Each of the distributing companies has also entered into a contract with the Gas Service Company under which the latter furnishes and the former pays for certain services. This contract has been approved by the commission and is not in controversy here.

On July 2, 1931, the Public Service Commission commenced a proceeding against the corporations hereinbefore named, except the Cities Service Company and the Cities Service Gas Company. It found that the reasonableness of the contracts hereinbefore referred to, and the charges made for services and commodities furnished thereunder, should be inquired into and a determination made of the amounts which properly should be set up as operating expense of the distributing companies on account of expenditures made for such commodities and services under such contracts, and entered an order on such findings for a hearing to inquire into the reasonableness of such contracts and charges, and directed that respondents in such proceeding furnish such information concerning such contracts as the commission might desire, and "show cause why such holding company contracts, or service or commodity charges, should they be found to be unreasonable, should not be disallowed as operating expense of the distributing companies, and adjustment made in this respect as to charges made to the consumers."

After a hearing, the commission on July 20, 1932, made findings to the effect that any amounts paid by the distributing companies under their contracts with Henry L. Doherty & Company were unreasonable, and that any amounts paid by the distributing companies to the Cities Service Gas Company for gas in excess of 29.5 cents per thousand cubic feet at the city gates were unreasonable, and ordered that on and after August 1, 1932, the distributing companies (1) cease setting up on their books as operating expenses the 1¾ per cent. payments to Henry L. Doherty & Company and any payments for gas to the Cities Service Gas Company in excess of 29.5 cents per thousand cubic feet, (2) give no consideration to any such payments in fixing their rates to domestic consumers, (3) reduce their rates to their consumers proportionately, pending a final determination of their rates; and show cause on September 1, 1932, why such reduction should not be made permanent.

A petition for rehearing was filed by the respondents setting up 51 grounds. A rehearing limited to one of such grounds was granted. After such rehearing, the commission increased its finding of a reasonable charge for gas at the city gates from 29.5 to 30 cents, and with that modification and the necessary changes in dates, on August 31, 1932, re-entered its order of July 20 in the form of two orders.

The material portions of the first of such orders is as follows:

"That on and after the 1st day of September, 1932, the distributing companies, respondents above named, shall cease to set up on their books as an expense item any payments made to Henry L. Doherty & Company under the contract above mentioned, because of the one and three-fourths per cent. charge and also any payments made to Cities Service Gas Company for main line town border gas in excess of 30 cents per M. C. F., and should give no consideration to any such payments in fixing a rate for the domestic consumer.

"That on the 17th day of October, 1932, the distributing companies, respondents above named, appear before the Public Service Commission, at 10:00 o'clock a. m., and show cause to the commission why the reduction in expenses as above set forth should not be passed on to the consumers with such other reductions as may be found reasonable."

The material portions of the second of such orders is as follows:

"It is therefore by the commission ordered, that effective September 1, 1932, and until a hearing is held and an order issued, that the distributing companies, respondents above named, shall charge rates to the consumers as follows:

"All distributing companies paying a gate rate in excess of 30 cents per M. C. F. shall deduct the difference between what the distributing company is now paying at the city gate and 30 cents per M. C. F. and pass on this difference to the consumer."

The nine distributing companies and the Cities Service Gas Company brought separate suits in equity to enjoin the enforcement of the two orders of August 31, 1932.

The Newton Gas Company filed a cross-bill in each of the suits brought by the distributing companies in which it challenged the right of the commission to join it with the other utilities in one joint proceeding. Counsel for the Newton Gas Company have advised the court that they do not desire to press these cross-bills.

These actions were commenced on September 19, 1932, within the thirty-day period required by section 66 — 118, R. S. Kan. 1923.

The several bills alleged diversity of citizenship as to the Cities Service Gas Company, the Western Distributing Company and the Union Public Service Company, and alleged that the orders are confiscatory of plaintiffs' property, impair the obligations of their contracts, deny to them the equal protection of the laws, and unconstitutionally interfere with interstate commerce. The bills of the distributing companies also alleged that the Governor had directed the Attorney-General to bring suits to have them placed in the hands of receivers for the purpose of avoiding a judicial review of the orders of August 31, 1932.

An application was made for a temporary injunction. At the hearing thereon, the commission confessed that the second order made on August 31, 1932, was in conflict with section 66 — 118, R. S. Kan. 1923, which prescribes that an order cannot become effective until thirty days after it is entered, and consented that the enforcement of such second order might be permanently enjoined. We granted a temporary injunction against the enforcement of both orders.

The cases were consolidated for trial. Upon the trial the evidence introduced before the commission was received in evidence, supplemented by an agreed abstract of such evidence, and by stipulations and other evidence.

Counsel for the commission contend that the first order is not subject to any of the constitutional objections urged by the plaintiffs, namely, that it confiscates their property, interferes with their right to contract, and interferes with interstate commerce, because all that it does is to find that the contracts under inquiry are unreasonable, and the extent of such unreasonableness. They urge that the order does not take any property from the Cities Service Gas Company, that it still may continue to collect the 40-cent gate rate, that it does not take any property from the distributing companies, that they may still continue to charge their present rates until a valid order is made requiring them to make a decrease in their charges to their consumers, that it does not require the distributing companies to discontinue the contracts nor to discontinue any payments thereunder, and that such contracts remain in full force and effect.

There are two answers to this contention. The first order, entered August 31, 1932, expressly prohibits the distributing companies from giving consideration to the payments made to Henry L....