State Corporation Commission of Kansas v. Wichita Gas Co

• Decision Date: 08 January 1934
• Docket Number: No. 114,114
• Citation: 78 L.Ed. 500,54 S.Ct. 321,290 U.S. 561
• Parties: STATE CORPORATION COMMISSION OF KANSAS et al. v. WICHITA GAS CO. et al
• Court: U.S. Supreme Court

290 U.S. 561

54 S.Ct. 321

78 L.Ed. 500

STATE CORPORATION COMMISSION OF KANSAS et al.

v WICHITA GAS CO. et al.

No. 114.

Argued Nov. 16, 1933.

Decided Jan. 8, 1934.

Appeal from the District Court of the United States for the District of Kansas.

Messrs. E. H. Hatcher, of Topeka, Kan., Charles D. Welch, of Coffeyville, Kan., Louis R. Gates, of Kansas City, Kan., and Charles W. Steiger, of Topeka, Kan., for appellants.

Mr. Robert D. Garver, of Kansas City, Mo., for appellees Wichita Gas Co. and others.

Mr. James W. Finley, of Bartlesville, Okl., for appellee Cities Service Gas Co.

Mr. Justice BUTLER delivered the opinion of the Court.

Ten suits were consolidated for trial.¹ The appellee in each of the first nine is a local public service corporation for convenience called a distributing company, engaged in the business of furnishing natural gas to consumers, domestic and industrial, in Kansas, and together they operate in 128 cities and towns. The other appellee, Cities Service Gas Company, is a pipe line company, engaged in transporting gas from Texas and Oklahoma fields into Kansas and other states. The stock of each of the distributing companies is owned by the Gas Service Company, and its stock is owned by the Cities Service Company; the common stock of the Cities Service Gas Company is owned by the Empire Gas & Fuel Company, the voting stock of which is owned by the Cities Service Company. Henry L. Doherty, doing business as Henry L. Doherty & Co., owns 35 per cent. of the voting stock of the Cities Service Company. The policies of the distributing companies and the pipe line company are subject to control by the Cities Service Company, and Doherty controls its policies. These corporations and he constitute 'affiliated interests' as defined by a Kansas statute effective March 9, 1931,² the substance of which is later to be stated.

The Kansas statutes empower its Public Service Commission to regulate the service and to fix rates to be charged by public utilities, including the distributing companies.³ They prescribe heavy penalties for failure to comply with commission-made orders.⁴ But the sale, transportation, and delivery of natural gas by the pipe line company to the distributing companies constitutes interstate commerce, and therefore the state is without power to prescribe rates or prices to be charged therefor. State of Mis- souri v. Kansas Gas Co., 265 U.S. 298, 305 et seq., 44 S.Ct. 544, 68 L.Ed. 1027; People's Gas Co. v. Pub. Ser. Comm., 270 U.S. 550, 554, 46 S.Ct. 371, 70 L.Ed. 726; Public Util. Comm. v. Attleboro Co., 273 U.S. 83, 90, 47 S.Ct. 294, 71 L.Ed. 549; Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 148, 51 S.Ct. 65, 75 L.Ed. 255.

The Act of March 9, 1931, § 1 (Rev. St. Supp. Kan. 1931, 74 602a), gives the commission jurisdiction over holders of the voting stock of public utility companies to the extent necessary to require disclosure of the identity of the owners of substantial interests therein, and provides that the commission shall have access to the accounts and records of affiliated interests, relating to transactions between them and public utility companies. Section 2 (Rev. St. Supp. Kan. 1931, 74—602b) declares that no management or similar contract with any affiliated interest shall be effective unless first filed with the commission, and authorizes the commission to disapprove any such contract found not to be in the public interest. Section 3 (Rev. St. Supp. Kan. 1931, 74—602c) provides: 'In ascertaining the reasonableness of a rate or charge to be made by a public utility, no charge for services rendered by a holding or affiliated company, or charge for material or commodity furnished or purchased from a holding or affiliated company, shall be given consideration in determining a reasonable rate or charge unless there be a showing made by the utility affected by the rate or charge as to the actual cost to the holding or affiliated company furnishing such service and material or commodity. Such showing shall consist of an itemized statement furnished by the utility setting out in detail the various items, cost for services rendered and material or commodity furnished by the holding or affiliated company.'

July 2, 1931, the commission, exerting powers granted by the act, ordered an investigation of the charges made by holding companies for services rendered and commodities furnished to the distributing companies. It directed them to give the commission such information as they might see fit and as the commission might require; it ordered them to show cause why charges made by any holding company, if found unreasonable, should not be disallowed as operating expenses. The order was not directed to Henry L. Doherty & Co., the pipe line company or any holding company, and none of them appeared or became a party to the proceeding before the commission.

And, pursuant to the order, there were held extended hearings at which there was submitted much evidence as to the value of the pipe line company's properties located in five states, its operating expenses, including depreciation and taxes, and its gross revenues and income available for return. In short, the facts adduced were such as appropriately might be considered by a commission for the ascertainment of reasonable rates to be charged by the pipe line company, or by a court in determining whether established rates are confiscatory. Each distributing company tendered proof of the value of its own property used to furnish gas to its customers together with other facts essential to the determination of the reasonableness of the rates then being, and later to be, charged its customers. But the commission, not then being engaged in the investigation of the reasonableness of such rates, refused to hear evidence other than that hearing upon the reasonableness, as operating expense items, of charges made by affiliated interests for services rendered the distributing companies and especially of prices exacted by the pipe line company for gas delivered in interstate commerce at the gates or borders of the various cities and communities served by the distributing companies.

The commission held payment of 1 3/4 per cent. of their gross earnings to Henry L. Doherty & Co. unwarranted and the prices paid the pipe line company for gas unreasonable to the extent that they exceeded 29.5 cents per thousand cubic feet.⁵ Re Cities Service Co., P.U.R. 1933A, pp. 113 202. It granted the companies' application for rehearing, and August 31, 1932, put aside the order filed with its report and in its place promulgated two orders:

The first directed the distributing companies to cease setting up as an expense item payment of the 1 3/4 per cent. charge and payment to the pipe line company for gas in excess of 30 cents per thousand cubic feet and to give no consideration to the payments so disapproved in fixing rates to domestic consumers. And it directed that, on October 17, 1932, the distributing companies show cause why the prescribed reduction should not be passed on to the consumers.⁶

The second order directed that, effective September 1, 1932, and pending hearing and an order prescribing rates, 'All distributing companies paying a gate rate in excess of 30 cents per M.C.F. shall deduct the difference between what the distributing company is now paying at the city gate and 30 cents per M.C.F. and pass on this difference to the consumer.'

Apprehending that, as counsel for the commission asserted at the hearing, these orders would become final and absolutely binding unless within 30 days, section 66—113, Rev. St. 1923, section 66—118c, Rev. St. Supp. 1931, action were commenced to have them set aside, appellees brought these suits September 19, 1932. Each sued the commission, its members, and the Attorney General, invoking jurisdiction on the ground that its suit is one arising under the Federal Constitution. The complaint, upon the basis of fact set forth, asserts that the orders are repugnant to the commerce clause and the contract clause of the Constitution and to the due process...