Kings County Lighting Co. v. Prendergast

• Decision Date: 30 June 1925
• Citation: 7 F.2d 192
• Parties: KINGS COUNTY LIGHTING CO. v. PRENDERGAST et al.
• Court: U.S. District Court — Eastern District of New York

7 F.2d 192 (1925)

KINGS COUNTY LIGHTING CO. v. PRENDERGAST et al.

District Court, E. D. New York.

June 30, 1925.

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Samuel F. Moran and John D. Monroe, both of New York City, for plaintiff.

Charles G. Blakeslee, of Binghamton, N. Y., and Sherman C. Ward, of Albany, N. Y., for Public Service Commission.

William Hayward, John Holley Clark, Jr., and Anthony P. Ludden, all of New York City, for the Attorney General.

Before MANTON, Circuit Judge, and CAMPBELL and INCH, District Judges, holding court pursuant to section 266 of the Judicial Code (Comp. St. § 1243).

MANTON, Circuit Judge.

This suit seeks to have declared as unconstitutional and void chapter 899 of the Laws of 1923, which reads as follows:

"A gas corporation engaged in the business of manufacturing, furnishing or selling illuminating gas in a city containing a population of one million or over shall not charge or receive for gas furnished or sold in such city a sum per one thousand cubic feet in excess of one dollar, nor furnish in such city gas of a standard less than six hundred and fifty British thermal units per cubic foot, measured under normal conditions of temperature and atmosphere pressure. The Public Service Commission, notwithstanding any other provision of this chapter, shall not allow a rate or charge in the case of such cities in excess of such sum."

This became effective June 2, 1923. It fixed the maximum price of $1 per 1,000 cubic feet, and a minimum standard of 650 British thermal units per cubic foot, for gas supplied in the territory served by the plaintiff. A temporary restraining order was granted by the District Court on the plaintiff's application on June 6, 1923, and, after issue was joined, the special master took testimony and reported that the act was unconstitutional: (1) Because the rate fixed by the statute, if held enforceable, would result in confiscation of plaintiff's property; and (2) because the standard set by the statute of 650 British thermal units per cubic foot was impracticable and unsafe, and contrary to the power of the Legislature to pass legislation under its police power.

The special master took considerable testimony as to values of land and plant, working capital, and going value, and reached the conclusion that on December 31, 1923, the fair value of plaintiff's business was $11,200,657. He found that the operating expense of manufacturing gas for this plant was 91.38 per 1,000 feet of gas sold, and he ruled that to sell gas at $1 per 1,000 cubic feet, as provided by the statute, amounted to a confiscation. He found that the standard of gas actually furnished was 537 British thermal units, and recommended that an 8 per cent. return on the fair value should be allowed in fixing the rate at which the gas should be sold. He held that the provisions for a rate and standard in the statute was intended to be inseparable, and that the Legislature intended, in fixing the rate, to fix a standard of gas to be charged for at that rate. He held that to fix such a rate was unreasonable, arbitrary, and a destructive enactment, not warranted by the police power of the state. These conclusions are challenged by both the Attorney General and the Public Service Commission, by exceptions which each have filed against the special master's report. Plaintiff has also filed exceptions, which are now withdrawn.

The principal objections urged are (1) that the plaintiff has not sustained the burden of proof of establishing that the rate fixed by the Legislature amounts to a confiscation of property, and that the requirement of 650 British thermal units is impossible of performance and impracticable in giving service to the public in the territory served by it; (2) that error was committed in fixing the fair value of the property invested and used by the plaintiff in its business at $11,200,656, and (3) in failing to make proper reductions for depreciation; (4) that it was error in the calculations to make an allowance of $800,000 for going value; (5) that it was error to find that the rate and standard provisions of the chapter were dependent upon each other; and that the court erred in failing to declare them separable, so that the standard provision may remain as constitutional, even though the rate provision be declared unconstitutional by the court.

We have examined this record, which is voluminous, and are satisfied that the master's conclusion of the fair and reasonable value of the land, manufacturing plant, distributing system, and other property, both tangible and intangible, used and owned by the plaintiff in its gas business, except its franchises, was properly fixed at $11,200,656 as of December 31, 1923. As stated by the Supreme Court: "The ascertainment of that value fair value is not controlled by artificial rules. It is not a matter of formulas, but there must be a reasonable judgment, having its basis in a proper consideration of all relevant facts." Minnesota Rate Cases, 230 U. S. 352, 33 S. Ct. 729, 57 L. Ed. 1511, 48 L. R. A. (N. S.) 1151, Ann. Cas. 1916A, 18; Willcox v. Consolidated Gas. Co., 212 U. S. 19, 29 S. Ct. 192, 53 L. Ed. 382, 48 L. R. A. (N. S.) 1134, 15 Ann. Cas. 1034; Georgia Ry. & Power Co. v. R. R. Com'n, 262 U. S. 625, 43 S. Ct. 680, 67 L. Ed. 1144. And it is now settled by many authorities that rates which are not sufficient to yield a reasonable return upon the value of property used, at the time it is being used to render the services, are unjust, unreasonable, and confiscatory, and their enforcement deprives the public utility company of its property, in violation of the Fourteenth Amendment.

The master has found that the cost of reproduction of the structural property owned and used by the plaintiff as of June 1, 1923, at the prices then prevailing, exclusive of the restoring pavement over mains and services, was at least the sum of $8,059,417. He found from the evidence that the property had been well maintained and was in an efficient state of repair and operating condition, and that it would require an expenditure of only $18,413.43 to put it in condition which was substantially as good as new. To this conclusion exception is taken. The argument is that it is wrong to say that by so slight a repair the property would have a value as if new. The plaintiff offered proof as to these values; the defendants did not. The master has not accepted the full value as the proof of the plaintiff indicates, but has said: "I have endeavored to ascertain, and the figures found by me attempt to reflect, what it would have cost the plaintiff to build and develop its plant and property as it was built and developed, had the same level of prices for materials and labor prevailed throughout the whole period of its construction as prevailed in June, 1923; in other words, to measure and state the investment in the property in the dollar of the present." And he pointed out that the uncontradicted evidence was to the effect that, to organize a corporation, secure the necessary working capital, and construct the plaintiff's plant and property as it existed on June 1, 1923, but excluding going concern...