303 U.S. 123 (1938), 13, United Gas Public Service Co. v. Texas

Docket Nº:No. 13
Citation:303 U.S. 123, 58 S.Ct. 483, 82 L.Ed. 702
Party Name:United Gas Public Service Co. v. Texas
Case Date:February 14, 1938
Court:United States Supreme Court

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303 U.S. 123 (1938)

58 S.Ct. 483, 82 L.Ed. 702

United Gas Public Service Co.



No. 13

United States Supreme Court

Feb. 14, 1938

Argued October 15, 18, 1937

Reargued December 14, 15, 1937




1. Procedure of a state commission in fixing the rate of a public utility; of a state court of first instance in a review by a trial de novo; and of a state appellate court in reviewing the judgment sustaining the rate, held consistent with due process under the Fourteenth Amendment. Pp. 128 et seq., 138.

2. It is not the function of this Court, in reviewing a judgment of a state court, to determine whether the procedure in that court was in accordance with the state law; the final judgment of the state court determines that it was. P. 139.

3. The power of a State over the procedure of its courts includes the power to require that issues of fact be decided by jury, even in a complicated and difficult case involving the adequacy of a rate fixed for a public utility. P. 139.

4. On a trial of a rate case in which the issue of confiscation was put before a jury on a general charge with respect to the elements to be considered in determining whether the rate would yield a fair return on the value of the company's property used and useful in the public service, held that the company was not entitled under the Fourteenth Amendment to have special issues framed and submitted covering some, but not all, of the items involved in the determination. P. 141.

5. This Court will review the findings of fact by a state court (1) where a federal right has been denied as a result of a finding shown by the record to be without evidence to support it, and (2) where a conclusion of law as to a federal right and findings of fact are so intermingled as to make it necessary, in order to pass upon the federal question, to analyze the facts, such analysis being made not to determine issues of fact arising on conflicting testimony or inference, but to perform this Court's proper function in deciding the question of law arising upon the findings which the evidence permits. P. 142.

6. Upon a trial of the issue of confiscation, a public utility is not entitled to have property not used or useful in its business included

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in the rate base, even though it was so included by the commission that fixed the rate. P. 144.

7. In fixing a rate for the future, the ratemaking authority, in its consideration of returns from operations, is not limited to a particular year -- especially a year of abnormal economic conditions -- and, similarly, a trial court may consider the results of the utility's operations for a series of years, including those intervening between the time of promulgation of the rate and the time of trial, and determine the issue of confiscation in the light of the average return thus shown. P. 145.

8. In estimating what will be the returns from a rate which has not been put into effect, a court is entitled to a reasonable basis for prediction, especially in view of a contemplated emergence from a period of extreme economic depression. P. 145.

89 S.W.2d 1094 affirmed.

Appeal from the affirmance of a judgment sustaining an order of the Railroad Commission of Texas fixing a rate for the appellant Gas Company in the City of Laredo. The Supreme Court of Texas declined to grant a writ of error. With respect to the validity of a provision of the order making the questioned rate retroactive, this Court is equally divided.

HUGHES, J., lead opinion

MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.

Appellant, United Gas Public Service Company, challenges the validity of a rate fixed by the Railroad Commission of Texas for natural gas supplied by appellant for domestic uses in the city of Laredo.

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The city council of Laredo, on December 15, 1931, enacted an ordinance fixing gas rates, which included a rate of 40 cents per 1,000 cubic feet for domestic consumption, with a provision for a discount of 10 percent on payment of bills within ten days, the ordinance to become effective on January 1, 1932. The rate had previously been 75 cents per m.c.f. with a 10 percent discount for payment within ten days. The Texas Border Gas Company, which was supplying natural gas to consumers in Laredo, filed an appeal with the Railroad Commission and posted the required supersedeas bond in accordance with the provisions of Articles 6058 and 6059 of the Revised Civil Statutes of Texas (1925).1 The condition of

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the bond was that the company should refund to the city for the benefit of consumers any excess of rates collected

over and above the rates and charges that shall be finally determined to be a fair and reasonable return upon the value of its property used and useful in supplying natural gas and natural gas service to the City of Laredo.

Prior to the hearing before the commission, the South Texas Gas Company, which owned and operated the transmission properties and transported the gas sold to the Texas Border Gas Company at the Laredo city gate, was made a party to the proceeding. The Texas Border Gas Company applied to the city for an increase of rates, and, because of the city's failure to act, took an appeal to the commission as the statute provided. The two appeals were consolidated. The United Gas Public Service Company, a Delaware corporation, entered its appearance on both appeals, alleging that it had acquired the properties of both companies. The commission, by order of June 13, 1933, fixed a rate of 55 cents per m.c.f. with a penalty of 10 percent for nonpayment within ten

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days, and the order was made retroactive to January 1, 1932. Texas Border Gas Co. v. City of Laredo, 2 P.U.R. (N.S.) 503.

The United Gas Public Service Company then brought suit in the District Court of the United States for the Southern District of Texas to restrain the enforcement of the commission's order. On July 26, 1933, the State of Texas, the members of the commission, and the city instituted the present suit in the District Court of Travis county in the nature of an appeal under Article 60592 for the purpose of protecting the jurisdiction of the state court and of enforcing the commission's order if determined to be valid. The state court thereupon stayed all proceedings by the commission, or by the officials of the state and city, to enforce the commission's order until the determination of the suit. On August 1, 1933, the District Court of the United States, composed of three judges, 28 U.S.C. § 380, stayed all proceedings in that court pending the final determination of the suit in the state court. Subject to the order of the state court, the company has continued to charge its 75¢ rate.

The trial in the state court resulted in a judgment on April 24, 1934, which sustained the commission's order of June 13, 1933, except so far as its rate was made retroactive to January 1, 1932, that part of the order being held invalid. The company then appealed to the Court of Civil Appeals, which rendered its judgment on October 30, 1935, reforming the judgment of the trial court so as to declare the retroactive portion of the commission's order valid and enforceable and affirming the judgment as thus modified. 89 S.W.2d 1094, 1097. The Supreme Court of the state refused writ of error.

A motion to dismiss the appeal taken to this Court from the judgment of the Court of Civil Appeals was denied. 301 U.S. 667. Upon hearing, the Court ordered reargument,

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noting that it especially desired to hear the parties on the state of the evidence as to the effect of the application of the commission's rate to the years 1932 and 1933 -- that is, as to the revenues and expenses for those years on that basis and as to the effect upon the rights of the appellant with respect to those years of the bond given on its appeal to the commission. 302 U.S. 647. Reargument has been had accordingly.

Appellant, invoking the due process and equal protection clauses of the Fourteenth Amendment of the Federal Constitution, contends that in the state proceedings it has been denied procedural due process, and also that the prescribed rate is confiscatory.

The proceedings before the commission and its rulings. The commission gave a full hearing. It received voluminous evidence offered by appellant and the city as to every phase of the controversy, and their counsel were fully heard in argument. The opinion of the commission reviews the history of the utility from the time that the Texas Border Gas Company received its franchise from the city in 1909. The commission found the interrelation of the companies concerned, and that the present appellant, which had become the owner of the properties of the former operating companies, [58 S.Ct. 487] was itself a unit of the United Gas System. It was in view of the "interrelated company operation and ownership" that the gathering, transmission, and distribution properties used and useful in serving the city of Laredo were valued as a combined property. As consumers in a number of other communities within the Laredo area were also served, it became necessary to allocate to Laredo its appropriate proportion. Methods of allocation were submitted by the respective parties, and the commission adopted a weighted average percent, which had been taken by the city's engineer as an approximate mean between two percentages used by the company's engineer, as coming the

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closest to a fair and correct allocation. Evidence of historical cost and of reproduction cost new less depreciation was submitted. The company's appraisal on the basis of reproduction cost new, less depreciation, was $1,231,601. The appraisal of the city's engineer on the same basis was $810,698. The city adduced evidence showing the depreciated historical cost as of July 31,...

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