Niagara Falls Power Co. v. Federal Power Commission

• Decision Date: 29 July 1943
• Docket Number: No. 293.,293.
• Citation: 137 F.2d 787
• Parties: NIAGARA FALLS POWER CO. v. FEDERAL POWER COMMISSION.
• Court: U.S. Court of Appeals — Second Circuit

137 F.2d 787 (1943)

NIAGARA FALLS POWER CO. v. FEDERAL POWER COMMISSION.

No. 293.

Circuit Court of Appeals, Second Circuit.

July 29, 1943.

Joseph M. Proskauer and LeBoeuf & Lamb, all of New York City (Randall J. LeBoeuf, Jr., of New York City, Warren Tubbs, of Buffalo, N. Y., and Lauman Martin and J. Alvin Van Bergh, both of New York City, of counsel), for petitioner.

Charles V. Shannon, General Counsel, Louis W. McKernan, Principal Atty., and

Stanley M. Morley, Atty., all of Washington, D. C., for respondent.

Before L. HAND, AUGUSTUS N. HAND, and FRANK, Circuit Judges.

L. HAND, Circuit Judge.

The petitioner seeks to set aside two orders of the Federal Power Commission by petition filed under § 313(b) of the Federal Power Act 16 U.S.C.A. § 825l(b): the first order, entered on June 9th, 1942, ordering the petitioner to reduce its capitalization to $24,680,680.22; "the actual legitimate original cost" of its properties on March 2, 1921, exclusive of some items not here in question: the second order vacating a stay of the first. The specific controversy is over the elimination of three items from the petitioner's capital account, all carried over from the capital accounts of three companies, out of which it was formed by a consolidation under Chapter 596 of the Laws of New York of 1918. The first of these three companies to be formed was the Niagara Falls Hydraulic Power and Manufacturing Company, organized as a New York corporation in 1878 by one, Schoellkopf, and others. It acquired from the State of New York the right to divert waters of the Niagara River about a mile above the Falls, through a canal to a basin below the Falls. Originally it used the power mechanically only; but in 1895, it began the substantial development of electric power. After 1907, when it became subject to regulation by the New York Public Service Commission, its owners, on March 15, 1909, organized the second company, the Cliff Electrical Distributing Company, which we shall call the "Cliff Company," and transferred to that company the distributing parts of its property, on January 1, 1910. On March 24th of that year the Niagara Falls Hydraulic and Manufacturing Company was merged in the Hydraulic Power Company of Niagara Falls, which had been incorporated three days earlier, and which we shall call the "Hydraulic Company." The third company, the Niagara Falls Power Company, which we shall call the "Tunnel Company," was organized on March 31, 1886, and also got rights from the State of New York to divert the waters of the Niagara River at a point above the intake of the "Hydraulic Company." Later the "Tunnel Company" was taken over by the Cataract Construction Company, which we shall call the "Cataract Company," by the acquisition of all its stocks and bonds. Chapter 596 of the Laws of 1918 of New York, which consolidated these three companies (not including the "Cataract Company") "into a single new corporation," declared that its capital might equal, but should not exceed, the "aggregate of the outstanding capital stocks and the surpluses as, unimpaired reserves and undivided profits" of the three constituents. When the "Cliff Company" took over the distributing property of Niagara Falls Hydraulic Power and Manufacturing Company, it increased its own capital account by $328,471.51. When the Niagara Falls Hydraulic Power and Manufacturing Company was merged in the "Hydraulic Company" in 1910, the capital account of "Hydraulic Company" was increased by $11,800,482.24. When the "Cataract Company" took over the "Tunnel Company" in 1889, the capitalization of the "Tunnel Company" was increased by $3,307,974.83, substantially all of which was profit on three transactions between the "Cataract Company" and the "Tunnel Company" in the sale of lands and in the construction of plant and transmission lines.

The consolidation of 1918 was an amalgamation of two separate groups: one called the "Stetson Group," which owned the "Tunnel Company"; and the other the "Schoellkopf Group," which owned the "Hydraulic" and "Cliff Companies." Each group turned its property over to the petitioner in exchange for the petitioner's shares: the "Tunnel Company" receiving $11,515,400 par value in preferred stock, and $984,566.70 par value, of common stock; the "Hydraulic" and "Cliff Companies" receiving together $13,500,000 of common stock. Ahead of all the stock were $26,241,000 in bonds of the three constituent companies; so that the total capitalization including bonds came to nearly sixty million dollars.

On December 30, 1903, the Niagara Falls Hydraulic Power and Manufacturing Company was granted a license or permit from the United States War Department "to maintain a system of cribs and booms and dikes partially constructed in the Niagara River near Port Day," as shown in an accompanying blue print; and the "Tunnel Company" was granted a similar permit on October 10, 1904, and another on March 7, 1905. None of these authorized the diversion of water; only the occupation of the bed of the stream for so long as "navigation or commercial interests" were not prejudiced. The "Tunnel Company" and the Niagara Falls Hydraulic Power and Manufacturing Company were, however, later granted permits authorizing them to divert water from the Falls. The first of these was issued under the Burton Act of June 29, 1906, which made revocable all permits granted under it, and provided that "nothing herein contained shall be held to confirm * * * any rights heretofore claimed or exercised in the diversion of water or the transmission of power." This act and all permits issued under it, expired in 1913, and the constituent companies had no federal permit until 1917, when the joint resolution of that year was passed. This also provided that "nothing herein contained shall be held to confirm * * * in * * * any such permittee any right in or to the water which he is now diverting or which he may be authorized to divert hereunder." The last permit was granted to the petitioner under the resolution of July 12, 1919; and was by its terms to expire on July 1, 1920, "unless the Congress shall before that date enact legislation regulating and controlling the diversions of water from the Niagara River, in which event this resolution shall cease to be of any further force or effect." The Federal Water Power Act — now Part I of the Federal Power Act — became law on June 10, 1920.

On March 2, 1921, the Federal Power Commission consisted of Newton D. Baker, Secretary of War; John Barton Payne, Secretary of the Interior; and Edwin D. Meredith, Secretary of Agriculture: it granted a license to the petitioner for a term of fifty years which authorized it to divert from the water of the Niagara River above the Falls, not to exceed in the aggregate a daily diversion at the rate of 19,500 cubic feet per second; and which contained the following provisions: "The fair value of the completed parts of the project as of the date of this license shall be determined as early as practicable in the manner prescribed by the Act, and the licensee hereby agrees to accept for the purpose of this license and of any provision of the Act, the fair value so determined, whether arrived at by mutual agreement or as the result of proceedings in or final adjudication by the Courts." Again: "In the determination of the fair value of the project already constructed to be hereafter made as provided by Section 23 of the Act, 16 U.S.C.A. § 816 the fair value of the property of said Niagara plant (Stations 1 and 2) and of said Station No. 2, of the Hydraulic plant and of each of them shall be separately stated." Finally: "Upon the written consent of licensee, the Commission may order made under its seal, modify, alter, enlarge or omit insofar as authorized by law, any one, or more of the conditions or provisions of this license." The recitals in the license spoke of the petitioner's application to divert the water "through the project of applicant already constructed and through project works to be constructed * * * in respect of which project so far as already constructed said applicant had on the 10th day of June, 1920, a permit, right of way, and authority."

On May 13, 1910, when the Niagara River Treaty was proclaimed, none of the petitioner's three constituent companies had any indefeasible right to divert water from the river. It is true, as we have said, that two of them had been granted a limited privilege to set up cribs and booms, but that gave them no right to take any water. All rights granted under the Burton Act, 34 Stat. 626, were to end in 1913; and the joint resolutions, which in any event succeeded the treaty, were plainly intended to serve only as stopgaps. When Congress passed the Federal Water Power Act in 1920, 41 Stat. 1063, 16 U.S.C.A. § 791a et seq., the petitioner's slate was wiped clean; it stood at discretion, so far as concerned any existing federal rights of diversion. Congress had absolute power to stop it from taking any water whatever, or to impose what terms it chose. For support of this we need look no further than Article V of the treaty itself which provided that "no diversion of the waters of the Niagara River above the Falls from the natural course and stream thereof shall be permitted except for the purposes and to the extent hereinafter provided." The United States was then allotted the privilege of diverting within the State of New York from above the Falls "not exceeding in the aggregate a daily diversion at the rate of twenty thousand cubic feet of water per second." When Congress set up the Commission with power to issue licenses for the "utilization of power * * * from * * * any of the navigable waters of the United States" § 4(d) of the Act of June 10, 1920, 41 Stat. 1065, 16 U.S.C.A. § 797(e) the Commission was vested with the distribution of this allotment, and any rights acquired from the State of New York necessarily yielded to what it might do. Thus the...