Consolidated Gas Co. v. City of New York

• Decision Date: 20 December 1907
• Citation: 157 F. 849
• Parties: CONSOLIDATED GAS CO. v. CITY OF NEW YORK et al.
• Court: U.S. District Court — Southern District of New York

157 F. 849

CONSOLIDATED GAS CO. v. CITY OF NEW YORK et al.

United States Circuit Court, S.D. New York.

December 20, 1907

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

Charles F. Mathewson, John A. Garver, and James M. Beck, for complainant.

Francis K. Pendleton, Corp. Counsel, and Alton B. Parker, William P Burr, and William J. Clarke, for city of New York.

Alfred R. Page, William A. Deford, and David B. Hill, for Atty. Gen. Wm. S. Jackson.

Abel E. Blackmar and Edward B. Whitney, for Public Service Commission.

HOUGH District Judge.

By chapter 736, p. 2091, Laws 1905 (Sess. Laws N.Y.), all corporations or persons engaged in the business of furnishing or selling illuminating gas in the city of New York were forbidden to charge said city a higher price therefor than 75 cents per 1,000 cubic feet. The same act required that all gas so sold should have a specified illuminating power, and also that the pressure of such gas in any service main in the city, and at all distances from the place of manufacture in said city, should not be less than 1 inch nor more than 2 1/2 inches. It was further provided that any person or corporation violating any provision 'of this act shall forfeit the sum of $1,000 for each offense. ' Chapter 737, p. 2092, Laws 1905, created the 'Commission of Gas and Electricity,' and among other powers gave the commission that of entertaining written complaints signed by more than a hundred customers of any gas company, or by the chief executive officer or officers of a city or other municipal organization; to examine by public hearing into the propriety of the price charged by said company for its product, and after such hearing to fix 'the maximum price of gas * * * which shall be charged by such corporation in such municipality. ' The commission had also authority granted to it, to fix the standard of illuminating power of gas manufactured and sold in any municipality; as also the standard of pressure thereof; provided such standard of illumination should not be less than that prescribed by law, and that the establishment of a standard of pressure should only be made where it was not otherwise legally prescribed. In pursuance of these powers, the commission on February 23, 1906, made an order specifically affecting this complainant, and requiring that on and after May 1, 1906, the maximum price for gas furnished within the borough of Manhattan in this city be fixed at 80 cents per 1,000, and also requiring this complainant to furnish gas with an illuminating power of not less than that prescribed by the first statute referred to, and likewise requiring it to maintain the pressure provided for by said statute.

On April 3, 1906, the Legislature enacted chapter 125, p. 235, of the Laws of that year, which fixed the price of gas for all persons or corporations manufacturing, furnishing or selling the same in the borough of Manhattan at 80 cents per 1,000, and also made applicable to gas furnished by any person or corporation in said borough to private consumers the same regulation as to illuminating power and pressure which in the previous year had been applied to gas consumed by the municipality. This act also declares that the violation of any provision thereof shall occasion the forfeiture of 'the sum of $1,000 for each offense to the people of the state. ' On the same day that the Gas Commission's order became operative, i.e., May 1, 1906, this action was begun by the company especially affected, which is also the principal gas manufacturing and supplying company, doing business in the borough of Manhattan. The parties defendant to this proceeding are the Attorney General of the state and the district attorney of New York county; they being the officers upon whom is imposed the duty by section 1962 of the New York Code of Civil Procedure to institute suits for the recovery of the penalties prescribed by the statutes referred to. The city of New York and the several members of the commission, the constitutionality of whose order is attacked by the bill, were the remaining original defendants. During the pendency of the suit, the Commission of Gas and Electricity was abolished, and all its powers and duties transferred to a new board, known as the 'Public Service Commission,' which last is specifically charged by recent legislation with the enforcement of orders made by the old commission, and therefore with the enforcement of the order complained of. The Public Service Commission has appeared in this action in the place and stead of the defunct Gas Commission. An injunction pendente lite issued herein restraining the enforcement of the said statutes and order (146 F. 150), and as of July 5, 1906, an order of reference was made to Arthur H. Masten, Esq., as special master, 'to take all the testimony herein, make all needed computations, and fully find the facts. ' For nearly a year the cause proceeded before the master, who on June 24, 1907, filed his report, and the cause is now before the court on final hearing under complainants' motion that an order be now made 'overruling the exceptions to and confirming the master's report herein'; and complainants also move for a 'final decree in accordance with the prayer of the bill.'

The Issues in the Case.

The complainants seek to enjoin the Attorney General and district attorney from prosecuting under the penalty clauses in the statutes above referred to, to enjoin the city of New York from insisting upon the 75-cent rate given it by the act of 1905, to enjoin the Public Service Commission from enforcing said order of the Gas Commission, and to attain these objects because: (1) The 80-cent gas rate is substantially confiscatory; (2) the two statutes taken together are unconstitutionally discriminatory; (3) the penalty clauses in both statutes are so oppressive as to be unconstitutional; (4) the provisos regulating pressure in the mains are (under commercially possible conditions) impossible of fulfillment, and therefore illegal; and (5) the legislative power was by the statute creating the Gas Commission improperly and unlawfully delegated to that body.

The First Question of Fact Tried Before the Master.

The report states this inquiry is to 'ascertain the value of the assets employed in the production and distribution of the gas sold by complainant. ' This is obviously an inquiry preliminary and vital to ascertaining whether the 80-cent rate for the sale of gas yields any return at all. The report states that such assets consist of:

Tangible Assets.
Real estate ..............................................	$13,461,000
Plant .....................................................	15,500,000
Mains .....................................................	12,636,000
Services ...................................................	1,994,000
Meters and miscellaneous ...................................	4,100,000
Working capital ............................................	3,616,000
Coal & Coke Co ................................................	50,000
Astoria establishment, representing capital invested in production of gas secured from other companies ..........	12,000,000
	-----------
	$63,357,000
Intangible Assets.
Franchises and good will ..................................	20,000,000
	-----------
Total assets ........................................	$83,357,000

The disputed questions involved in this finding (so far as tangible property is concerned) are three: First, whether the values ascribed to the several enumerated items of property are based upon competent and persuasive evidence; second, whether the method of valuation pursued by the master is in accordance with law; and third, whether (assuming said items of property to be possessed and enjoyed by complainant) they are 'employed' (within the legal signification of that word) in the production and distribution of gas.

From an examination of the expert testimony submitted, and giving due weight to the careful and able report of the master, it is clear that the first query must be answered affirmatively, and it be found that complainant was, when this action began, in the possession and enjoyment of property of the kind and value above set forth. The question first stated, and just answered, is wholly one of fact; but the second and third are largely, if not entirely, questions of law.

Method of Valuation.

As to the realty, the values assigned are those of the time of inquiry; not cost when the land was acquired for the purposes of manufacture, and not the cost to the complainant of so much as it acquired when organized in 1884, as a consolidation of several other gas manufacturing corporations.

It is objected that such method of appraisement seeks to confer upon complainant the legal right of earning a fair return upon land values which represent no original investment by it, does not indicate land especially appropriate for the manufacture of gas, and increases apparent assets without increasing earning power. Analogous questions arise as to plant, mains, services, and meters; the reported values whereof are the reproductive cost less depreciation, and not original cost to the complainant or its predecessors.

It appears by undisputed evidence that some of these last items of property cost more than new articles of the same kind would have cost at the time of inquiry; that some are of designs not now favored by the scientific and manufacturing world, so that no one now entering upon a similar business would consider it wise to erect such machines or obtain such apparatus. In every instance, however, the value assigned in the report is what it...