Lone Star Gas Co. v. Corporation Com'n of Okl.

• Decision Date: 10 July 1934
• Docket Number: 24995,24996.
• Citation: 39 P.2d 547,170 Okla. 292,1934 OK 396
• Parties: LONE STAR GAS CO. et al. v. CORPORATION COMMISSION OF OKLAHOMA et al.
• Court: Oklahoma Supreme Court

39 P.2d 547

170 Okla. 292, 1934 OK 396

LONE STAR GAS CO. et al. v. CORPORATION COMMISSION OF OKLAHOMA et al.

Nos. 24995, 24996.

Supreme Court of Oklahoma

July 10, 1934

Rehearing Denied Oct. 16, 1934.

Application for Leave to File Second Petition for Rehearing Denied Jan 14, 1935.

Syllabus by the Court.

1. The legislative power of the Corporation Commission over rates is not confined to prescribing permanent rates, but may be exercised as the exigencies of the times and changing conditions demand, and it is authorized under certain circumstances to make temporary orders.

2. The ascertainment of the present fair value of the property of a public utility for the purpose of deciding whether rates fixed by the Corporation Commission are reasonable is not necessarily a matter of formulas, but there must be a reasonable judgment having its basis in a proper consideration of all relevant facts.

3. Where the Corporation Commission is conducting a hearing for the purpose of determining whether or not rates charged by a local gas distributing company are reasonable and the evidence discloses that the local natural gas distributing company is purchasing gas from a pipe line company doing interstate business and is paying management fees to a third corporation which owns substantially all of the stock of the local distributing company and the pipe line company, said commission is authorized to investigate and determine whether or not the cost of gas and the management fees paid by the local company are reasonable items of expense.

4. Under article 9, §§ 15 to 34, inclusive, of the Constitution of Oklahoma, the Corporation Commission is delegated the authority to investigate affiliates of public service companies as therein defined for the purpose of ascertaining whether or not the price paid by a natural gas distributing company to an affiliated pipe line company is reasonable.

5. The burden of proof is on the buyer of natural gas for distribution to a city to show that in transactions with an affiliated seller the price is no higher than would fairly be payable in a regulated business by a buyer unrelated to the seller and dealing at arm's length.

6. The powers of the Corporation Commission are to regulate supervise, and control the public service companies in their service and rates, but such powers are not to be exercised except for the purpose of determining the fair and reasonable effect of acts already performed, and to establish reasonable formulas to be observed in the future.

7. The powers of the Corporation Commission to regulate, supervise and control the service of public service companies and the charges therefor do not extend to an invasion of the discretion vested in the corporate management of the company in the exercise of the details of the business; but such powers are to be exercised only in so far as they judge the reasonable and fair effect of such acts upon the public interest, and in so far as they establish reasonable formulas designed to enable the company to render proper services to the public for an adequate return.

8. Public service corporations cannot by contract among themselves deprive the Corporation Commission of its constitutional power to regulate and supervise public service corporations.

9. Under our Constitution, art. 9, § 22, providing a prima facie presumption in favor of findings of facts of the Corporation Commission, this court will not disturb said findings when it appears from the record that said Corporation Commission is only entering a temporary order in the absence of its ability to secure information from an affiliated holding company necessary to the establishment of a permanent rate for the intrastate company.

Appeal from Corporation Commission of Oklahoma.

Proceedings instituted before the Corporation Commission of Oklahoma by certain citizens of Walters, Okl., against the Community Natural Gas Company and against the Lone Star Gas Company. From an order of the Corporation Commission, the respondents appeal.

Proceedings remanded, with directions.

Rehearing denied; OSBORN and BUSBY, JJ., dissenting.

Application for leave to file several petitions for rehearing denied; ANDREWS, OSBORN, and BUSBY, JJ., dissenting.

OSBORN and ANDREWS, JJ., dissenting.

Karl F. Griffith, Roy C. Coffee, and Marshall Newcomb, all of Dallas, Tex., Blakeney & Ambrister, of Oklahoma City, and C. C. Hatchett, of Durant, for plaintiffs in error.

A. Holmes Baldridge, of Oklahoma City, for defendants in error.

BAYLESS Justice.

The matter under consideration involves two appeals: No. 24995, Lone Star Gas Company, Plaintiff in Error, v. Corporation Commission of Oklahoma et al., Defendants in Error; and No. 24996, Community Natural Gas Company, Plaintiff in Error, v. Corporation Commission of Oklahoma et al., Defendants in Error. These appeals arise from certain orders of the Corporation Commission in cause No. 10777, pending before it. The parties to this appeal will be referred to hereinafter as follows: Community Natural Gas Company as Community; Lone Star Gas Company, as Lone Star; the Corporation Commission of Oklahoma, as Commission; and the Lone Star Gas Corporation, a corporation, which plays a part in the discussion of this matter, as Holding Company.

The proceedings originated before the Commission when certain citizens of Walters, Okl., filed their protest against the burner tip rates charged by the Community for natural gas and applied for a reduction in said rates. The protest and application were joined in thereafter by the citizens of other towns served by Community until twenty-six towns were involved.

A preliminary statement of the relationship of each of the companies above named to each other and to the proceedings, and of the substance of the order entered by the Commission, will be of assistance in understanding the discussion to follow.

Community is a corporation organized under the laws of Delaware, and serves consumers of natural gas in the towns above mentioned with natural gas at the burner tip. Lone Star is a Texas corporation; it produces, buys, gathers, and transports natural gas to the city gates of the towns mentioned, and sells to the Community at the gates of said towns. It has qualified to do business in the state of Oklahoma. Holding Company is a corporation organized under the laws of Delaware, but maintains its principal offices in Pittsburg, Pa. It has not qualified to do business in the state of Oklahoma. It owns approximately 95 per cent. of the stock of Lone Star and of Community. In addition, under contracts with them, it furnishes to them certain "management services" enumerated and commented upon later on in this opinion, in consideration for which services Lone Star and Community make payments to the Holding Company from their income. These payments are taken into consideration by Lone Star and Community in their base rate.

The Commission at the outset decided that because of the intercorporate relationship of these parties it would be necessary to investigate into the reasonableness of the "management" fees paid by Community to the Holding Company and paid by the Lone Star to the Holding Company, to determine whether said management fees were reasonable charges for consideration in the rate base of Community, and to investigate the set-up of the Lone Star to determine whether or not the rate which was being paid by the Community to Lone Star for natural gas at the city gates was reasonable; and generally to determine whether or not by reason of the integration and intercorporate relationship of these three corporations unreasonable expenses were being charged into the rate base of the Community. Lone Star protested against the jurisdiction of the Commission to make such investigation of it, but, upon its protest being overruled, submitted the evidence requested in every respect, save such information as was within the possession of the Holding Company. Holding Company denied the jurisdiction of the Commission to investigate it, and, when its preliminary protest was overruled, ignored the proceedings, the Commission's subp nas to its officers, and the Commission's subp na duces tecum for its records. The Commission thereupon made findings based upon the evidence introduced, and entered a temporary order from which the Lone Star and the Community appeal.

We will consider the appeal of Community first.

The argument advanced by Community pertains to the order actually made by the Commission, and consists of two parts:

"1. The Order of the Commission herein, in so far as same requires the Community to reduce its burner-tip rate for natural gas and natural gas service to the extent of ten (10¢) cents per thousand cubic feet, is arbitrary, mere legislative fiat and therefore void, for the reason that said Commission has made no determination or finding of the value of the properties devoted to the public service in the towns affected by said order, the expenses of operation, the proper annual allowance for depreciation and amortization, the income received by the company under the present rates and the income or probable income which it will receive under the rates fixed by the Commission, and what constitutes a fair and reasonable rate of return to the Company."

"2. The Commission erred in ordering and requiring the Community to reduce its burner-tip rate ten (10¢) cents per thousand cubic feet of natural gas for the reason that the uncontradicted and undisputed evidence in this case shows that the Community is not receiving under the present rates and will not receive under the rates fixed by the Commission, a fair and reasonable return upon the fair value of the property devoted to the public service in any of the

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