Harding Glass Co. v. Arkansas Public Service Commission, 5-1542

Decision Date02 June 1958
Docket NumberNo. 5-1542,5-1542
Citation313 S.W.2d 812,229 Ark. 153
Parties, 24 P.U.R.3d 477 HARDING GLASS COMPANY et al., Appellants, v. ARKANSAS PUBLIC SERVICE COMMISSION, Appellee.
CourtArkansas Supreme Court

Charles B. Johnson, Clarksburg, W. Va., Reuben Goldberg, Washington, D. C., Hardin, Barton, Hardin & Garner, Ft. Smith, for appellant.

Claude Carpenter Jr., Little Rock, for appellee.

Thomas Harper, Ft. Smith, for intervener.

ROBINSON, Justice.

This is a rate case. On the 5th day of October, 1956, the Fort Smith Gas Corporation (the Gas Company) filed an application for a change of rates for a supply of gas to industrial consumers in the city of Fort Smith, the surrounding area and other communities. The Gas Company sought to increase the price from 16.38 cents per Mcf to 20.62 cents. After extensive hearings the Commission granted the requested new schedule of rates on May 17, 1957. The protestants took an appeal to the Pulaski Circuit Court, where the action of the Commission was affirmed, and the protestants have appealed to this Court. The principal contention of appellants is that the Commission accepted the contract price for gas supplied by the Stephens Production Company (Stephens) to the Gas Company, the Commission refusing at the time of the hearing to investigate the merits of that contract. Appellants maintain that Stephens is an affiliate of the Gas Company and in these circumstances the Commission should not have accepted the contract price as between Stephens and the Gas Company as a bona fide operating expense.

In 1945 W. R. Stephens bought the controlling interest in the Gas Company. At that time and up until 1953 the Gas Company bought more than 97% of its gas from the Arkansas-Oklahoma Gas Corporation (Arkansas-Oklahoma). This company owned gas production properties and owned a distribution system whereby it supplied gas to the Gas Company at the city gates of Fort Smith and supplied gas and distributed the same in several small towns in Oklahoma and Arkansas. In 1953, the owners of the Arkansas-Oklahoma decided to liquidate that company and put up for sale all of its properties, including the production properties and the distribution systems. In that connection, in an order made on December 22, 1953, which will be referred to again, the Commission made a finding of fact as follows: 'The majority of the common stock of Arkansas-Oklahoma Gas Company has for many years been owned by a group of residents of Fort Smith, Arkansas, and these stockholders have recently expressed a desire to sell the stock and have offered such stock for sale to various interests, including persons not residents of the areas served by the two companies, which caused the owners of the stock of the Fort Smith Gas Corporation and its officers and directors to become concerned as to the continuation of their source of supply of gas from the Arkansas-Oklahoma Gas Company at the termination on December 31, 1965, of the service agreement between the two companies.'

For its supply of gas the Gas Company was almost wholly dependent on a contract with Arkansas-Oklahoma which had only twelve years to run. To protect his Fort Smith Gas Company's source of gas supplies, Stephens made a deal whereby the Fort Smith Gas Company bought the distribution system of Arkansas-Oklahoma, and he and his brother, J. T. Stephens, along with the Northwestern Mutual Life Insurance Company, bought the production properties. Stephens assumed heavy obligations by contracting to maintain and develop the properties and explore for gas at his own expense. This is a hazardous business. There are many dry wells; production may be obtained or it may not. The Northwestern Mutual Life Insurance Company put up $4,333,000 to pay Arkansas-Oklahoma. Stephens contracted with the Gas Company to supply gas at the wellhead at 12.7819 per Mcf. The Gas Company had been paying Arkansas-Oklahoma 17.38 at the city gate. All of these transactions were aboveboard and the whole plan was laid before the Oklahoma Public Service Commission, the Arkansas Public Service Commission, and the Federal Power Commission. The Arkansas and Oklahoma Commissions approved the sale, and the Federal Power Commission held hearings and granted the application. The contract between the Gas Company and Stephens was made on March 2, 1954, after the Arkansas Commission, in Docket No. U-902, had found in December of 1953 that the price of 12.7819 per Mcf was reasonable. In its findings and order of May 17, 1957, in the case at bar, Docket No. U-1169, approving the new rate schedule, the Commission referred to its order in Docket No. U-902, wherein the contract was approved. The Commission said:

'This Commission, after full investigation and hearing, from which it was fully developed, as shown by the contract itself, and the exhibits attached to the Company's response to protestants' motion, found that the dedication of the large gas reserves, made a condition of the contract, was essential to the Fort Smith area. The Commission further found that therefore the contract and the contract rate was fair and reasonable, and that in the public interest it was necessary that the contract and the contract rate be approved and the transfer of properties proposed be authorized. Therefore, the Commission, by its order of December 29, 1953, in our Docket No. U-902, approved the contract and the contract rate of 12.7819 cents per Mcf which the protestants here seek to attack.

'Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin, owner of the Production Payment supported by the gas reserves dedicated under the contract in question, obviously relied on our order in this docket and on the order of the Federal Power Commission approving the transaction in Docket No. G-2332-33 as a basis for accepting the production payment which made the transaction possible. We have no reason now to recede from the position originally taken by us that our approval of this contract and this transaction was then and now is in the public interest. * * *'

The Commission points out that by reason of the Supreme Court decision in the case of State of Wisconsin v. Federal Power Comm., 92 U.S.App.D.C. 284, 205 F.2d 706 (Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035) (the Phillips Petroleum Company case), it has no jurisdiction over the Stephens Production Company, but that it does have jurisdiction over the rates charged by the Gas Company to its customers. The Commission said: 'Moreover, even though we do not consider that we have jurisdiction over the price charged the Company under the contract, we do have jurisdiction over the Company's rates to its customers, and having already found the contract price fair and reasonable, we still would consider it so for the purpose of the application here under consideration.' Furthermore, the Commission had knowledge of the fact that subsequent to 1953, when the 12.7819 per Mcf was approved, a wellhead price of 16 cents per Mcf had been allowed for gas produced in the same area. The Commission may take notice of a fact of that kind. Acme Brick Co. v. Arkansas Public Service Comm., Ark., 299 S.W.2d 208.

Appellants say: 'It is not enough that money [$4,333,000] has in fact been spent; there must be proof that it was wisely, reasonably, and necessarily spent.' The spending of this money was approved by the Arkansas Public Service Commission, the Oklahoma Public Service Commission and the Federal Power Commission. It is hard to see how any stronger proof could be produced that the money was wisely, reasonably and necessarily spent.

Appellants further contend: 'In view of the ownership and control of Fort Smith and Stephens Production Company, the record in this case is sufficient to support the conclusion that there is in practical effect one organization and that for the purpose of fixing rates in this case, the amount to be allowed for gas purchased in the cost of service is not the contract price of 12.7819 cents per Mcf, which was not the product of arm's-length bargaining, but only the cost of production of the gas at the wellhead.' Even under this theory the Commission must be sustained, because, according to the undisputed testimony in the case, the gas cost Stephens and Northwestern $4,333,000, and when the formula used by Mr. Williams, appellants' expert, is applied to the cost of the gas at the wellhead, $4,333,000 would result in a price for the gas of 13.185 per Mcf.

Appellants say Stephens should have acquired the gas reserves for the Gas Company. According to this theory, some other gas distributing company of which Stephens may be the president could make the same claim. If the Gas Company owned the reserves of gas it would be at the price of $4,333,000, and this amount would be a part of the rate base supporting a price of 13.185 per Mcf. If the $4,333,000 were put in the rate base of the Gas Company and the gas ran out before that much was produced, surely there would be a hue and cry, and rightfully so, about the gas ever having been made a part of the rate base in the first place. The gas purchased by Stephens is under the ground. It cannot be seen, and the amount there is only speculative. Paying $4,333,000 for gas properties that may be depleted before anything like that much is produced is a big gamble, and one that in all probability the Gas Company's customers would not want to take and certainly should not be compelled to take.

There is no serious contention that the rate of 20.62 per Mcf is not fair and reasonable if the price of 12.7819 paid by the Gas Company for gas at the wellhead is fair and reasonable. The order approving the contract, in Docket No. U-902, is made a part of the record, and that order itself shows that the Commission went into the matter thoroughly. Among other things there is this finding: 'In order to obtain a dedication of the present gas reserves of the ...

To continue reading

Request your trial
6 cases
  • Southwestern Bell Telephone Co. v. Arkansas Public Service Commission, 79-201
    • United States
    • Arkansas Supreme Court
    • 28 Enero 1980
    ...S.W.2d 206; Arkansas Power & Light Co. v. Arkansas Public Service Com'n., 226 Ark. 225, 289 S.W.2d 688; Harding Glass Co. v. Arkansas Public Service Com'n., 229 Ark. 153, 313 S.W.2d 812. The judicial branch of the government must defer to the expertise of the commission. Arkansas Power & Li......
  • City of Little Rock v. AT & T Communications of the Southwest, Inc.
    • United States
    • Arkansas Supreme Court
    • 14 Noviembre 1994
    ...action must lack rational basis. In Re Sugarloaf Mining Co., 310 Ark. 772, 840 S.W.2d 172 (1992); Harding Glass Company v. Ark. Public Service Commission, 229 Ark. 153, 313 S.W.2d 812 (1958). Here, Little Rock, by ordinance, assessed AT & T and other like utilities franchise fees based upon......
  • McQuay v. Arkansas State Bd. of Architects
    • United States
    • Arkansas Supreme Court
    • 22 Abril 1999
    ...also noted that an action is not arbitrary simply because the reviewing court would act differently. Harding Glass Co. v. Arkansas Public Service Comm., 229 Ark. 153, 313 S.W.2d 812 (1958). The Board fined appellant $48,000 for violation of the Arkansas Architectural Act. Specifically, on M......
  • Sugarloaf Min. Co. Permit No. P-272-M-Co, Matter of, P-272-M-CO
    • United States
    • Arkansas Supreme Court
    • 2 Noviembre 1992
    ...103 (W.D.Ark.1965). Action is not arbitrary simply because the reviewing court would act differently. Harding Glass Co. v. Ark. Public Service Comm., 229 Ark. 153, 313 S.W.2d 812 (1958). In this case we are confronted with an erroneous view of law which affects the decision of the agency. T......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT