City of Poteau v. Am. Indian Oil & Gas Co.

• Decision Date: 07 June 1932
• Docket Number: Case Number: 19720
• Citation: 1932 OK 445,18 P.2d 523,159 Okla. 240
• Parties: CITY OF POTEAU v. AMERICAN INDIAN OIL & GAS CO. et al.
• Court: Oklahoma Supreme Court

1932 OK 445

18 P.2d 523

159 Okla. 240

CITY OF POTEAU v. AMERICAN INDIAN OIL & GAS CO. et al.

Case Number: 19720

Supreme Court of Oklahoma

Decided: June 7, 1932

Syllabus

¶0 1. Corporations--Primary Duty of Public Utility.

The primary duty of a public utility is to serve on reasonable terms all those who desire the service it renders.

2. Same--Fixing of Rates--Burden on Utility to Prove Value of Property as Basis.

The burden of proving the value of property of a public utility upon which it is constitutionally entitled to earn a fair return rests upon it, and, to justify interference with action of public officials in fixing a rate the evidence must be clear and convincing.

3. Gas--Fixing of Rates for Natural Gas--Book Value Placed on Producing Property as Basis.

The book value paced by the producer of natural gas upon the property secured and held for that purpose may be accepted as its value for the purpose of rate making, in the absence of clear and convincing evidence of a higher value.

4. Corporations--Public Utility not Permitted to Make Rate Confiscatory by Reducing Net Earnings Through Contracts Unduly Favoring Subsidiaries and Other Concerns.

A public service corporation cannot 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 own stockholders.

5. Same--Burden on Utility to Establish Value of Property at Time of Inquiry.

In proceedings by utility to establish rate, it has burden of establishing value of property used or useful in such service at time of inquiry.

6. Corporation Commission--Powers as to Public Utilities Legislative.

Corporation Commission in prescribing rates and regulations for public utilities acts only within powers delegated by state Constitution, which are legislative, not judicial.

7. Same--Fixing of Rates--Jurisdiction of Supreme Court on Appeal.

On appeal from the Corporation Commission the Supreme Court may review an order of the Commission prescribing a schedule of rates or charges, to ascertain the reasonableness or justness thereof, and, if found to be unreasonable and unjust, may prescribe a schedule of rates to be enforced in lieu of the rates prescribed by the Commission.

8. Same--Presumption of Reasonableness of Commission's Orders--Remand of Cause to Commission for Further Investigation and Report.

Under section 22 of article 9 of the Constitution of Oklahoma, on appeal from the Corporation Commission to the Supreme Court, it has jurisdiction to consider and determine the reasonableness and justness of the action of the Commission appealed from, as well as any other matter arising under such appeal. Upon such review the action of the Commission appealed from shall be regarded as prima facie just, reasonable and correct, but the court may, when it deems necessary, in the interest of justice remand to the Commission any case pending on appeal and require the same to be further investigated by the Commission and reported upon to the court before the appeal is finally decided.

9. Gas--Appeal From Order Fixing Rates for Natural Gas--Cause Remanded to Corporation Commission for Further Investigation and Report.

Record examined, and in the interest of justice cause remanded to the Corporation Commission to be further investigated by the Commission and reported upon to the court.

Appeal by the City of Poteau from order of Corporation Commission establishing rate for natural gas sold and distributed in Poteau, Okla., by the American Indian Oil & Gas Company. Modified as to rate for first 50,000 cubic feet and remanded for further hearing as to rate to be fixed at time of inquiry.

Fuller, Porter & Fuller, for plaintiff in error, City of Poteau.

L. A. Rowland, A. Carey Hough, and George A. Henshaw, for defendants in error.

W. D. Humphrey, for defendant in error Geo. F. Collins & Co.

SWINDALL, J.

¶1 This is an appeal from an order of the Corporation Commission of the state of Oklahoma establishing a rate to be charged the consumers of natural gas for domestic and industrial purposes in the city of Poteau, Okla., and involving certain contracts entered into between consumers and the American Indian Oil & Gas Company, a public utility engaged in the production and distribution of natural gas for domestic and industrial purposes. The company was organized in 1917 and at the time of its organization the Le Flore County Gas & Electric Company, a corporation, was engaged in the production and distribution of gas in the city of Poteau, and was operating under a franchise from the city furnishing gas for 25 cents per 1,000 cubic feet for domestic purposes and a graduated scale with a minimum of five cents per 1,000 cubic feet for industrial purposes. The American Indian Oil & Gas Company after drilling for and discovering gas had no market for its gas and desired to enter the city of Poteau to compete with the Le Flore County Gas & Electric Company in the distribution of gas in the city of Poteau for domestic and industrial purposes. The matter was submitted to popular vote and a franchise was granted to the American Indian Oil & Gas Company wherein that company agreed to at all times and under all circumstances furnish gas for domestic and industrial purposes to the citizens of Poteau at a rate never to exceed the sum of 15 cents per 1,000 cubic feet. In addition to this the company thereafter entered into a number of contracts with industrial plants which located at Poteau on account of their representations as to the volume and inexhaustible supply of gas they had and the rate which they would charge for their gas, and a number of contracts were entered into by the company for the sale of gas which were introduced in evidence upon the trial of this case. Subsequently to this time the American Indian Oil & Gas Company purchased from the Le Flore County Gas & Electric Company at the pipe line of said company at the rate of five cents per 1,000 cubic feet. This gas was conveyed by the Le Flore County Gas & Electric Company to the city of Ft. Smith, Ark., a distance of approximately 30 miles, and sold for 15 cents per 1,000 cubic feet to the distributor, who in turn sold gas to the citizens of that city for 25 cents per 1,000 cubic feet. After acquiring the gas distribution property of its competitor and eliminating any competition in the distribution of gas in the city of Poteau, the American Indian Oil & Gas Company applied to the Corporation Commission of Oklahoma for an increase in its rates, said application being made in the year 1922. About January 1, 1923, a temporary domestic rate of 25 cents per 1,000 cubic feet was agreed upon at a conference held between the citizens of Poteau, representatives of the American Indian Oil & Gas Company, and representatives of the Corporation Commission. On January 14, 1923, at a hearing on the application of the American Company, the Corporation Commission promulgated Order No. 2256, by the terms of which a rate of 20 cents per 1,000 cubic feet for the first 1,000 cubic feet was made effective, and for all gas consumed over 100,000 cubic feet at the rates which were at that time in effect and which had been voluntarily made by the American Company. Subsequent to this time a motion for rehearing was filed and granted by the Corporation Commission. Thereafter, in January, 1924, another application for increase in rates was filed before the Corporation Commission. By agreement between all parties concerned, the two cases were consolidated, and upon a final hearing the Commission promulgated Order No. 2507. An appeal was taken by the American Indian Oil & Gas Company from Order No. 2507, and this court, in April 1925, affirmed the order of the Corporation Commission. American Company filed an action in the United States District Court for the Western District of Oklahoma, seeking to enjoin the Corporation Commission et al. from enforcing Order No. 2507. The United States District Court upon the filing of the complaint granted a temporary restraining order temporarily enjoining the defendants from enforcing said Order No. 2507, and putting into effect temporarily, beginning August 1, 1924, rates as follows:

40 cents per 1,000 cubic feet for first 50 000, 25 cents per 1,000 cubic feet for next 150,000, 20 cents per 1,000 cubic feet for next 300,000, and 10 cents per 1,000 cubic feet for any in excess of 300,000.

¶2 The cause in the United States District Court was referred to Paul G. Darrough, as special master, to take testimony and report findings of fact and law and make recommendations. The case was heard at length before the special master and a voluminous record was made of the testimony, a copy of which report forms a part of the record in this appeal designated as Exhibit "B" and having been introduced in evidence under agreement subject to certain limitations expressed therein. Thereafter the special master made his report consisting of 91 typewritten pages and filed the same in the United States District Court to be considered by the three judges assigned to hear said cause. Thereafter, in the latter part of September, 1927, it having been determined by the three judges assigned to hear said cause in the United States District Court that it was not a case to be decided by three judges, the same was assigned to Judge Woodrough for an opinion, and in September, 1928, Judge Woodrough rendered a memorandum opinion which appears at pages 262-267 of record A in this appeal. In the opinion the United States Court held that the findings made by the special master were substantially correct, but held that the action was prematurely brought and directed that a journal entry be made continuing the restraining order in effect long enough to permit the plaintiff to make a new application to the Commission to fix a new rate in accordance with the changed condition of the company's business, and providing further that after that date the...