278 U.S. 300 (1929), 1, United Fuel Gas Company v. Railroad Commission of Kentucky

Docket Nº:No. 1
Citation:278 U.S. 300, 49 S.Ct. 150, 73 L.Ed. 390
Party Name:United Fuel Gas Company v. Railroad Commission of Kentucky
Case Date:January 02, 1929
Court:United States Supreme Court

Page 300

278 U.S. 300 (1929)

49 S.Ct. 150, 73 L.Ed. 390

United Fuel Gas Company


Railroad Commission of Kentucky

No. 1

United States Supreme Court

Jan. 2, 1929

Argued November 28, 1927

Reargued October 15, 16, 1928




1. Federal courts having jurisdiction of a cause through questions raised under the federal Constitution may pass on all questions of state law involved. P. 307.

2. Parties who have procured action by a state commission under a state statute may not assail that action in a federal court of equity upon the ground that that statute, or the one creating the commission, is void under the state constitution. P. 307.

3. A state may compel a public service company to continue to use its facilities to supply an existing need so long as it continues to do business elsewhere in the state. P. 308.

4. A public service company is bound by the common law, if not by statute, to render its service at reasonable rates, and if the rates fixed by a state commission are not shown to be confiscatory, a suit in equity to enjoin their enforcement will not lie merely because the order purporting to impose them was void for other reasons under the state or federal constitution. P. 309.

5. A public utility seeking to set aside as confiscatory a rate fixed by state authority has the burden of proving by clear and convincing evidence the value of property on which it is constitutionally entitled to earn a fair return. P 313.

Page 301

6. In an attack on rates fixed for a company supplying gas to consumers in Kentucky which was a subsidiary of a West Virginia company owning, leasing and operating extensive natural gas fields in the latter state, it was sought to prove the value of the West Virginia gas rights in order that a portion of it might be allocated to the subsidiary, and the method adopted depended on an estimate of the quantity of available gas in the lands and a computation of the profits that would accrue if, during the next eighteen years, this were extracted, piped to a place in Pennsylvania where there was a market for fuel gas free from public regulation, and there sold at current prices. Held that the value, so computed, of property used in a business whose rates are regulated could not be accepted, for not only was it made to depend on an assumed earning capacity, but also the evidence of this earning power was too speculative because, among other possible objections, it rested on predictions that the prices would remain unregulated for a long future period, and that gas, to the amount estimated, would be available as required and could be sold at those prices through that period in a market yet to be established, despite future inventions and improved business and manufacturing methods, and a prediction of what plant and equipment must be constructed and maintained to effect delivery of gas for that period, and of the cost of maintaining and operating it. P. 317.

7. A public service corporation may not make a rate confiscatory by reducing its net earnings through the device of a contract unduly favoring a subsidiary or a corporation owned by its shareholders. P. 320.

13 F.2d 510 affirmed.

Appeal from a decree of the district court which dismissed a bill for an injunction to restrain the Railroad Commission of Kentucky from establishing an alleged confiscatory rate for the sale of natural gas.

Page 305

STONE, J., lead opinion

MR. JUSTICE STONE delivered the opinion of the Court.

This is an appeal from a final decree of the District Court for Eastern Kentucky denying an injunction restraining the appellee, the Railroad Commission of Kentucky, from establishing an alleged confiscatory rate for the sale of natural gas in the Cities of Ashland, Catlettsburg, and Louisa, Kentucky, or, in the alternative, from preventing appellants from withdrawing their service in the sale and distribution of natural gas to consumers in those cities. 13 F.2d 510. The case comes here on direct appeal under § 238 of the Judicial Code, the decree of the district court having been entered before the effective date of the Jurisdictional Act of February 13, 1925.

The case was argued here with No. 4, United Fuel Gas Co. v. Pub. Serv. Comm'n of W.Va.,, decided this date, post, p. 322, which involves some questions considered in the opinion in this case.

Appellant United Fuel Gas Company, a West Virginia corporation, also appellant in No. 4, is engaged in the business of producing natural gas from gas fields located principally in West Virginia, which it sells to consumers in West Virginia, Kentucky, and Ohio. A part of its business is the sale of gas wholesale to distributors in West Virginia, and has not been subjected to regulation by any public body. Its local business in Kentucky is subjected to regulation by appellee. It formerly held franchises for the sale and distribution of gas in the Kentucky cities named, all of which had expired by July, 1918. Nevertheless, it continued its service in those cities until June, 1923, when it organized appellant Warfield Natural Gas

Page 306

Company, a Kentucky corporation whose stock it owns and to which it conveyed its property in Kentucky, and which has since carried on its business of distributing gas in the cities named. The United Company then purported to withdraw from all its business in Kentucky by cancelling appointments of agents to receive service of process within the state and by notifying the Secretary of its action.

Before the organization of the Warfield Company, proceedings were had before the commission which resulted in its order directing a reduction of rates by the United Company to 80 percent of the former rate of 40 cents per 1,000 cubic feet, less 5 cents for prompt payment. Promptly on its organization, the Warfield Company filed with the commission a new rate schedule for the cities named of 45 cents per 1,000 cubic feet, with a reduction of 5 cents for punctual payment, and petitioned the commission to establish this rate as fair and reasonable, or, in the alternative, to permit it to withdraw its service from those cities. After an extensive hearing, the commission denied the application and construed its earlier order as requiring a rate of 28 cents (80 percent of 35 cents).

The present suit was then brought in the district court. That court construed the order of the commission as fixing a 32-cent rate, which it upheld and enjoined the commission from imposing any lower rate. From the latter part of the decree, no appeal was taken.

The present appeal challenges the constitutionality of the order of the commission, as construed by the court, under the Fourteenth Amendment of the Federal Constitution, both because the rate is confiscatory and because the order which, under the Kentucky Statutes, is not subject to judicial review, was not supported by findings of the commission. The validity of the order is also assailed on the further grounds that the part of it which required appellants to continue to render service violates the Kentucky

Page 307

Constitution, and that the commission itself was never constitutionally created, and hence was without jurisdiction, because the legislative act establishing the commission and giving it its authority is in violation of § 51 of the Kentucky Constitution, which provides that no legislative act shall relate to more than one subject, which shall be expressed in its title.

The district court and this Court, having jurisdiction of the cause since questions are raised under the Constitution of the United States, may pass on all questions of state law involved, Risty v. Chicago, Rock Island & Pacific Ry. Co., 270 U.S. 378, 387, and must do so so far as they are necessary to a decision.

Section 163 of the Kentucky Constitution provides that gas companies may not procure franchises permitting them to lay pipes in and under public streets without the consent of the appropriate municipal governing bodies, and § 164 limits all franchises to periods not exceeding 20 years. Section 23 of the Statutes of Kentucky, c. 61 (Acts of 1920, p. 250), subjects any public service company which has continued its service after the expiration of its franchise to the jurisdiction and authority of the Railroad Commission, and forbids it to withdraw such service without permission of the commission so long as it remains in business in any part of the state. It is said that the action of the commission under this statute in effect operates as a renewal of the franchise of appellants [49 S.Ct. 152] in the cities named in a manner not in conformity with the provisions of the state constitution.

But this...

To continue reading