Arkansas Natural Gas Co v. Arkansas Railroad Commission

• Decision Date: 19 March 1923
• Docket Number: No. 500,500
• Citation: 261 U.S. 379,67 L.Ed. 705,43 S.Ct. 387
• Parties: ARKANSAS NATURAL GAS CO. v. ARKANSAS RAILROAD COMMISSION et al
• Court: U.S. Supreme Court

261 U.S. 379

43 S.Ct. 387

67 L.Ed. 705

ARKANSAS NATURAL GAS CO.

v ARKANSAS RAILROAD COMMISSION et al.

No. 500.

Argued Feb. 21, 1923.

Decided March 19, 1923.

Messrs. W. B. Smith and John M. Moore, both of Little Rock, Ark., for appellant.

Messrs. E. J. Dimock, of New York City, and Ashley Cockrill, of Little Rock, Ark for appellees.

Mr. Justice SUTHERLAND delivered the opinion of the Court.

The appellant brought suit in the District Court, alleging that an order of the Arkansas Railroad Commission was invalid, as establishing confiscatory rates for natural gas furnished to its consuming customers and as maintaining certain divisional rates (alleged to be wholly inadequate), fixed by contracts between appellant and the Little Rock Gas & Fuel Company and the Consumers' Gas Company. An interlocutory injunction was sought under section 266 of the Judicial Code (Comp. St. § 1243). The court granted the injunction in respect of the rates to consumers but denied it as to the divisional rates. The appeal brings here for review only the action of the lower court in the later respect.

By the divisional contracts referred to, appellant, in consideration of the payment to it of a stated proportion of the rates collected, agreed to furnish gas to the two companies named, to be by them distributed to their customers in the cities of Little Rock and Hot Springs, respectively. The gas was to be delivered at the intake of the distributing systems for these cities. Appellant asserts that the income afforded by the rates prescribed by these contracts is so inadequate as to have the effect of a virtual confiscation of its property, and that this result is in large part due to improper and wasteful methods of distribution on the part of the two distributing companies.

The commission was asked to fix a flat rate, called a city gate rate, for the gas delivered at the city borders, the effect of which, of course, would have been to abrogate the contract rates based upon a percentage of the collections. Appellant's application was made to the Arkansas Corporation Commission, but was decided by the Railroad Commission, to whom the Legislature in the meantime had transferred jurisdiction. There is no claim that rates to consumers were affected by these contracts; nor does it appear that the public interest is involved in the action which the commission was asked to take.

The Railroad Commission denied the application primarily upon the ground that the power to grant it had been expressly withheld by the act of the Legislature, known as Act 443, passed on March 25, 1921 (Acts Ark. 1921, p. 429), transferring to it the jurisdiction theretofore possessed by the Corporation Commission and providing that the Railroad Commission 'shall have no jurisdiction or power to modify or impair any existing contracts for supplying gas to persons, firms, corporations, municipalities or distributing companies, and such contracts shall not be affected by this act or the act or which this is an amendment.' The act is copied in the margin.¹

The question whether in the absence of the statute—it being made to appear that the stipulated consideration was grossly inadequate—the commission, under the circumstances disclosed by the record, would have been under a duty to fix gas rates in contravention of the contracts, may be put aside with brief consideration. While a state may exercise its legislative power to regulate public utilities and fix rates, notwithstanding the effect may be to modify or abrogate private contracts (Union Dry Goods Co. v. Georgia P. S. Corp., 248 U. S. 372, 375, 39 Sup. Ct. 117, 63 L. Ed. 309, 9 A. L. R. 1420; Producers' Transp. Co. v. R. R. Comm., 251 U. S. 228, 232, 40 Sup. Ct. 131, 64 L. Ed. 239), there is, quite clearly, no principle which imposes an obligation to do so merely to relieve a contracting party from the burdens of an improvident undertaking. The power to fix rates, when exerted, is for the public welfare, to which private contracts must yield; but it is not an independent legislative function to vary or set aside such contracts, however unwise and unprofitable they may be. Indeed the exertion of legislative power solely to that end is precluded by the contract impairment clause of the Constitution. The power does not exist per se. It is the intervention of the public interest which justifies and, at the same time conditions its exercise.

But the appellant contends that the statute violates the Fourteenth Amendment because it imposes restrictions upon the rate-making power of the commission in respect of the particular contracts of appellant here involved, which, it is said, are not imposed in the case of contracts of other utility corporations. In others words, it is urged that the act singles out the appellant for special restrain in this respect and is, therefore, unequal. While its meaning is not free from doubt, we do not so construe the act. The rule is fundamental that, if a statute admits of two constructions, the effect of one being to render the statute unconstitutional and of the other to establish its validity, the courts will adopt the latter. Railway Co. v. Arkansas, 235 U. S. 350, 369, 35 Sup. Ct. 99, 59 L. Ed. 265. The language of this act is general. By its terms jurisdiction over all proceedings and hearings then pending before the Corporation Commission is...