New York & Queens Gas Co. v. Prendergast
| Decision Date | 16 June 1924 |
| Parties | NEW YORK & QUEENS GAS CO. v. PRENDERGAST et al. |
| Court | U.S. District Court — Southern District of New York |
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Shearman & Sterling, of New York City (John A. Garver, William L. Ransom, and Jacob H. Goetz, all of New York City, and George G. Bogert, of Ithaca, N. Y., of counsel), for plaintiff.
Charles G. Blakeslee, of Binghamton, N. Y. (Edward M. Deegan, of New York City, Sherman C. Ward, of Albany, N. Y., and Melvin L. Krulewitch, of New York City, of counsel), for defendants Prendergast and others.
James A. Donnelly, of New York City (Judson Hyatt, of New York City, of counsel), for defendant Sherman.
This is a motion made by the plaintiff for a permanent injunction, based upon the report and opinion of the special master.
This action is brought by the plaintiff for an adjudication as to the constitutionality of chapter 898 and chapter 899 of the Laws of New York of 1923, relating to the price and quality of gas furnished by the plaintiff, and for a permanent injunction restraining the enforcement of these statutes. The motion brings on for final hearing in this court the report filed herein by the special master heretofore appointed to consider the questions of law and fact. This report contains a carefully prepared recital of the questions of fact and law and the master's findings, together with a well-considered opinion. The report recommends the entry of final decree in favor of the plaintiff.
The plaintiff, however, prays that certain exceptions filed by the plaintiff to the findings of the special master be sustained by this court, and that his report be modified accordingly, and then confirmed, as modified, and that final decree be entered in favor of the plaintiff, as recommended in the report, and as modified. The defendants have filed numerous exceptions to portions of the report. The master's report is so complete in detail that it is unnecessary here to refer to the facts, except in so far as it may be necessary to more clearly define and limit the opinion of this court.
Chapter 898 of the Laws of 1923, entitled "An act to amend the Public Service Commission Law, in relation to charges by gas corporations," added a new subdivision by way of amendment to the existing statute, as follows:
This act became effective June 1, 1923.
Chapter 899 of the Laws of 1923, the second statute involved in this litigation, entitled "An act to amend the Public Service Commission Law, in relation to the charge for illuminating gas in cities containing a population of one million or over," amended the existing statute by inserting a new section, as follows:
"
This act became effective June 2, 1923.
The special master began his hearings promptly, shortly after his appointment, on or about July 25, 1923, and continued thereafter five days a week until November 28, 1923, holding morning and afternoon sessions. The number of seriously controverted questions of fact necessary to the determination of the issue are few. The real questions involved requiring careful consideration by the court are questions of law. At the outset, it is most important to emphasize what has been set forth in unmistakable terms by this court in N. Y. & Queens Gas Co. v. Newton, 269 Fed. 277, and affirmed by the Supreme Court, that this court is not a rate-making body. In this connection and at this juncture it is also most pertinent to call attention to the fact, undisputed on the record, that the Public Service Commission, whose present members are defendants herein, on August 30, 1922, prescribed a flat rate plus a "service charge" for gas, to be charged by the plaintiff, the total approximating $1.38 per 1,000. That rate was to continue for one year from October 1, 1922. Contemporaneously with the rate order, the commission prescribed the thermal content. Such action by the commission, fixing the rate and prescribing its continuance for one year, was pursuant to the authority of section 72 of the Public Service Commission Law (Consol. Laws, c. 48). These rates were duly accepted in writing by the plaintiff, to continue in effect, as stated, for one year.
The sole question now to be determined by this court is not one of rates, but whether or not the statutes are unconstitutional, because they are confiscatory, or for other reasons. In the opinion of the special master, both of the statutes, in so far as they limit the price charged for gas, are held to be unconstitutional, solely upon the ground that they are confiscatory.
Chapter 898, which became effective as of June 1, 1923, abolished the "service charge," and, as found by the master, thereby in effect reduced the rate of $1.38 theretofore fixed by the Public Service Commission to $1.15 per 1,000 cubic feet of gas. This statute was effective but one day, for the reason that chapter 899 became effective on June 2, 1923. This act prohibited the plaintiff and all other gas companies in cities of 1,000,000 or more — i. e., New York City — from charging a rate in excess of $1 per 1,000 cubic feet for gas of a calorific standard of not less than 650 B. t. u. per cubic foot, etc. It is therefore necessary to determine whether the $1 rate provided in chapter 899 is confiscatory, and whether the $1.15 rate temporarily limited by chapter 898 is confiscatory. The statute prescribing a maximum rate for gas of $1 per 1,000 cubic feet affects every gas company in the city of New York, and must be read in connection with the statute abolishing the "service charge," which, while in terms applicable to all gas corporations in the state of New York, when so read really affects only one in this jurisdiction, viz. the plaintiff.
The complaint prays for a permanent injunction against (1) the enforcement of chapter 899, viz. the $1 rate and the 650 B. t. u. standard, contending that both the rate and the thermal standard are integral and inseparable parts of that rate; and (2) chapter 898, which practically reduces the rate charged by plaintiff temporarily to $1.15. Plaintiff asks that chapter 898, in so far as it be construed as meaning anything more than the prohibition of a so-called "service charge," be held null and void.
As to the contentions of the plaintiff, the special master's report recommends (1) that the $1 rate be permanently enjoined. (2) That the 650 B. t. u. standard is separable from the rate, and that it be enjoined for a period of time, nine months, which time it is said will be required for the plaintiff to adjust all appliances, etc., for the safe use of gas of this thermal standard. (3) That chapter 898, abolishing the service charge, be enjoined in so far as it limits the plaintiff to a rate of $1.15 per 1,000, but not enjoining its enforcement in any other particular.
The learned special master has held that the Legislature is free to fix rates and the form thereof, whether such rate be a flat rate, or a flat rate plus a "service charge." In either event, the rate must not be confiscatory. In regard to the flat rate prescribed by the other statute and fixing the thermal content, the special master has, in substance, held that the flat rate there provided is confiscatory, but that it is within the power of the Legislature to prescribe the thermal content, provided, however, that the gas corporation have a reasonable opportunity within which to adjust its appliances, so that the gas of the different thermal unit from that now furnished may be safely manufactured, transported, and consumed. In his opinion, the statute contains two separable provisions — one fixing a flat $1 rate, which he finds is confiscatory, and therefore unconstitutional, and the other separable provision regarding the thermal unit which he finds is a valid exercise of legislative power.
At the outset, it may be conceded that confiscation of the property of the public utility takes place when the utility is limited to a rate which does not provide sufficient revenue to pay cost of production and distribution and, in addition, a reasonable return upon its investment. A rate which yields an amount less than operating expenses and taxes in effect consumes capital. The confiscatory feature is further present if the rate prevents a reasonable return upon the investment. The master has found that for the year ended December 31, 1922, the actual net cost of manufacture and distribution, together with taxes and other operating expenses, but exclusive of any return upon the investment property, exceeded the rate now prescribed. It...
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