Cedar Rapids Gaslight Co. v. City of Cedar Rapids
| Decision Date | 04 May 1909 |
| Parties | CEDAR RAPIDS GAS LIGHT COMPANY, Appellant, v. THE CITY OF CEDAR RAPIDS, IOWA, GEORGE S. LIGHTNER, Mayor of said city, C. H. CAMPBELL, W. H. STEPANEK, J. H. HUGHES, W. G. ROWLEY, E. W. WINTER, W. W. POST, W. C. BYERS, F. W. BARTA, D. FEIEREISEN, and J. K. STARMAN, Aldermen, and with the Mayor constituting the Council of said city, and H. S. KEFFER, Recorder |
| Court | Iowa Supreme Court |
REHEARING DENIED TUESDAY, NOVEMBER 16, 1909.
Appeal from Linn District Court.--HON. F. O. ELLISON, Judge.
ACTION to enjoin the enforcement of an ordinance fixing the price of gas resulted in a dismissal of the petition. The plaintiff appeals.--Modified and affirmed.
Affirmed.
John N Hughes and Grimm & Trewin, Frank C. Byers and Redmond & Stewart, for appellant.
J. W Good, J. W. Jamison, and H. E. Spangler, for appellees.
On September 17, 1871, the city council of Cedar Rapids granted W. H. Whitta & Co. the exclusive privilege for a period of twenty years of laying pipes for the conveyance of gas in all streets and alleys within its corporate limits; and, in consideration thereof, gas was required to be furnished at $ 5 per one thousand cubic feet until the consumers numbered two hundred, when it should be reduced fifty cents, and, upon the increase of customers to four hundred, $ 1 per one thousand cubic feet should be deducted, and then to remain at $ 4 per one thousand cubic feet until the expiration of the grant, unless, owing to some discovery or improvement, the cost of production should be decreased, in which event a corresponding decrease should be made in the price. Early in 1872 the plaintiff company was incorporated with a nominal capital of $ 150,000 and stock issued at par value of $ 100 per share. This was divided equally among the members of the firm, W. H. Whitta, George F. Wright, and A. E. Swift. Nothing was paid for this stock save the assignment of the franchise obtained under the ordinance. In July of that year the purchase of ground upon which to place buildings was authorized, and also the issuance of bonds to the amount of $ 25,000, bearing interest at ten percent per annum, and on January 17, 1873, the ground having been bought, the purchase was approved, and a sale of the bonds at not less than eighty-five cents on the dollar directed. Out of the fund derived from this sale and other bond issues, in all not exceeding $ 75,000, and the income derived from the manufacture and sale of gas, the plant has been constructed at an expense, as plaintiff alleges, of $ 267,500. An annual dividend of one percent was declared in 1877 and the three years following, then a dividend of two percent in 1881 and 1882, one percent in 1883, four percent in 1884, four percent in 1896, and in 1897 six percent, the next year seven percent, and from that time on an annual dividend of eight percent has been declared. This was not accomplished, however, by the original promoters. In 1874 A. T. Averill and associates acquired one-half the stock for $ 16,000, out of which the sellers paid $ 15,000 of the bonds, and the Higley Bros. owned the other one-half. In 1877 Averill bought one-fourth of the stock of one of the Higleys, discharged the superintendent, and took personal charge of the plant "with the determination to either make it pay or blow it into the river," and to the efficiency of his management may be attributed in large measure, as the record before us clearly indicates, the results achieved; but the city afforded the opportunity for building up the enterprise, which during much of its growth has paid a substantial income on stock consisting at the outset of nothing but water. In May, 1896, the city council by ordinance extended the company's franchise for a period of a few days less than twenty years, with the condition that gas be furnished at $ 1.80 per one thousand cubic feet, with a discount of twenty cents to consumers for prompt payment and other discounts for large amounts and to the city. The company voluntarily had reduced the price to $ 1.15 per one thousand cubic feet with ten cents additional in event of failure to make prompt payment, and was selling as low as ninety cents per one thousand cubic feet to a consumer of large quantities by December 21, 1906, when the city council enacted the ordinance of which complaint is now made, in words following:
Section 1. Any person, firm or corporation supplying gas to the inhabitants of the city of Cedar Rapids shall charge not to exceed ninety cents (90c) per thousand cubic feet therefor, and no person, firm or corporation shall charge, exact or receive in excess of ninety cents (90c) per thousand feet for gas supplied by them to any inhabitant of said city.
Sec. 2. Any person, firm or corporation, violating any of the provisions of this ordinance shall, upon conviction thereof, be punished by fine of not less than ten dollars ($ 10.00) or more than one hundred dollars ($ 100.00).
Sec. 3. This ordinance shall be effective from and after January 1, 1907.
Sec. 4. All ordinances or parts of ordinances in conflict herewith, are hereby repealed.
This action was instituted promptly, praying that the city be enjoined from enforcing the ordinance. A temporary writ of injunction was issued, but, on hearing, it was dissolved, and upon appeal a restraining order entered by this court on condition that all moneys exacted above the rate fixed be deposited with a designated trustee to bide the final decision.
I. The power of the municipality to regulate the rates to be charged for gas, save that these may not be so reduced as to deny to the company a fair return upon the property used in the service of the public, is not questioned. The sole inquiry is whether the ordinance, if enforced, will operate to deprive the company of fair compensation for the services to be rendered. The act of the municipality, in fixing rates, is purely legislative, and, as it is by virtue of authority given by the Legislature, is presumed to have been in the proper exercise of the power conferred. Mayor and Aldermen of City of Knoxville v. Knoxville Water Co., 212 U.S. 1, 29 S.Ct. 148 (53 L.Ed. 371). For this reason the rate established by the ordinance assailed is presumed to be reasonable, and this court, in inquiring whether this is true in fact, can only declare it otherwise upon finding that it is so low that its adoption will operate as a confiscation of plaintiff's property without due process of law. Cedar Rapids Water Company v. City of Cedar Rapids, 118 Iowa 234, 91 N.W. 1081.
To enable us to ascertain whether such will be the effect of this ordinance it is apparent that three findings of fact are primarily essential as a basis for calculation: (1) What was the fair value of the company's plant at the date the ordinance was enacted? (2) How much gas was then being furnished consumers? (3) What was the cost per thousand cubic feet of gas, at that time, manufactured and distributed to consumers? With this data as a basis we shall be able to estimate the profits the plant will be likely to yield from sales of gas at the rate fixed in the ordinance, and, by comparison of these with the value of the property, determine as near as may be whether the return for the services rendered the public are so inadequate as to prove destructive of the company's investment.
II. The parties differ widely as to the value of the plant. These differences arise from estimates by witnesses, as well as from the inclusion or exclusion of various elements which are said to affect values. There is no controversy, however, if we understand counsel rightly, but that the company is entitled to have its property appraised at its fair value in December, 1906. What such an enterprise was then worth can not be determined by the mere addition of the separate values of its component parts, nor from the cost alone, nor from what it formerly might have been sold at if such price were influenced by excessive rates, nor from what it might cost to replace alone, for this, in view of its use, would involve mere estimates of depreciation and contingencies incident to construction; but as was said in Smyth v. Ames, 169 U.S. 466 (18 S.Ct. 418, 42 L.Ed. 819, 849): This was said with reference to fixing rates for common carriers, but evidently is applicable to cases of this character and was applied in determining the reasonableness of water rates in Cedar Rapids Water Company v. City of Cedar Rapids, 118 Iowa 234, 260, 91 N.W. 1081. Any person or corporation contemplating the purchase of such a property quite naturally would inquire into its history, the character of its management in the past, and the amount expended in its construction. The several items of dispute may be considered separately.
The witnesses for the company estimated that $ 25,000 would be required as working capital, aside from the supplies ordinarily...
To continue reading
Request your trial