State v. Lone Star Gas Co.

• Decision Date: 10 July 1935
• Docket Number: No. 8238.,8238.
• Citation: 86 S.W.2d 484
• Parties: STATE et al. v. LONE STAR GAS CO.
• Court: Texas Court of Appeals

Page 484

86 S.W.2d 484

STATE et al. v. LONE STAR GAS CO.

No. 8238.

Court of Civil Appeals of Texas. Austin.

July 10, 1935.

Rehearing Denied September 25, 1935.

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Appeal from District Court, Travis County; C. A. Wheeler, Judge.

Suit by the State of Texas and others against the Lone Star Gas Company, to restrain the defendant from violating an order of the Railroad Commission. From a judgment granting an injunction, plaintiffs appeal.

Judgment reversed, and injunction dissolved.

Jas. V. Allred, former Atty. Gen., Elbert Hooper and Wm. C. Fitzhugh, all of Austin, Wm. McCraw, Atty. Gen., Scott Gaines and Alfred M. Scott, Asst. Attys. Gen., and F. L. Kuykendall, Chief Examiner, Gas Utilities Division, Railroad Commission of Texas, all of Austin, and A. R. Stout, former Asst. Atty. Gen., of Houston, for the State.

Karl F. Griffith, Roy C. Coffee, Marshall Newcomb, all of Dallas, Thompson & Barwise and Ogden K. Shannon, all of Fort Worth, and Ben H. Powell, of Austin, for appellee.

BLAIR, Justice.

Acting under the power conferred by article 6050 et seq., R. S. 1925, and after a hearing which continued for more than seven months, the Railroad Commission of Texas promulgated its order requiring appellee, Lone Star Gas Company, to "charge, bill and receive for domestic gas at the city gate from all distributing companies served by it, a rate not to exceed $0.32 per thousand cubic feet," in lieu of the 40-cent rate theretofore charged. Immediately appellee filed a bill of complaint in the federal District Court, seeking to restrain the enforcement of the rate order on several constitutional grounds, and particularly as being confiscatory of its property. Thereafter, the commission, Attorney General, and others, herein called commission, instituted this proceeding in the district court of Travis county, Tex., in order to bring appellee within the jurisdiction of the state court under the provisions of section 266 of the Judicial Code of the United States (28 USCA § 380). The commission asserted the validity of the order in every particular, and sought to restrain appellee from violating it. In conformity with what was regarded as proper procedure under section 266 of the Judicial Code, both the state and the federal courts temporarily restrained the enforcement of the rate order, and later the federal court ordered all proceedings therein stayed until the final disposition of this cause. Appellee's answer herein, seeking to set aside the rate and restrain its enforcement, was in effect an appeal by it under article 6059, which provides that any gas utility dissatisfied with any rate may petition a court of competent jurisdiction in Travis county and have same set aside, upon showing by clear and satisfactory evidence that such rate is unreasonable and unjust as to it. Appellee alleged that the rate order was violative of the commerce, the due process, the equal protection, and the freedom of contract clauses of the Federal Constitution (article 1, § 8, cl. 3; Amend. 14); and was confiscatory and unreasonable and unjust because it would not afford a reasonable return on the fair value of its property used in the public service. In reply, the commission asserted the validity of the order in every particular, denied that any gas moved in interstate commerce; but that if so, it was negligible in amount and was not affected by the rate; and that in absence of legislation by Congress on the subject, the commission had the authority under the statutes and in the exercise of the police power of the state to regulate and control public gas utilities, and to fix reasonable rates for gas sold and delivered to its citizens, even though interstate commerce was indirectly or incidentally affected thereby.

The trial court concluded the commerce and all constitutional questions against appellee; but the jury found in answer to the one special issue submitted that "the order for a rate not to exceed 32 cents per thousand cubic feet of gas sold to the distributing companies at the gates of the points served, is unreasonable and unjust as to the Lone Star Gas Company." Judgment was accordingly rendered setting aside the 32-cent rate order, and perpetually restraining its enforcement.

The special issue submitted, with the definition and instructions given in connection therewith, was in the nature of a general charge, and required the jury to determine all questions of law and fact of the entire case. Under the pleadings of appellee, the ultimate question of fact was whether the 32-cent rate would yield a reasonable return on the fair value of the property used in the public service of delivering and selling natural gas to the distributing companies at the city gates of the various Texas cities and towns. Appellee attempted to prove that the 32-cent rate would not yield a reasonable return, for two reasons, as follows:

1. Because the 32-cent rate would not yield the minimum return of 6 per cent. declared to be reasonable by the commission; and

2. Because if so, a return of 6 per cent. was so low as to be confiscatory and unreasonable and unjust.

The burden was heavily upon appellee to show by clear and satisfactory evidence that the 32-cent rate would not afford a reasonable rate of return on the property used in the Texas public service. Appellee did not meet this burden and quantum of proof; and the trial court erred in overruling the commission's motions for an instructed verdict and for judgment declaring the rate to be valid. In view of this conclusion, the appeal presents two main divisions, as follows:

1. Three constitutional objections are urged against the 32-cent rate order, as follows:

(a) Interference with interstate commerce.

(b) Interference with the right to contract.

(c) Confiscation of property.

2. The legal sufficiency of the evidence adduced by appellee to show that the rate order was confiscatory or unreasonable and unjust as to it.

The Texas statutes, particularly articles 6050, 6051, and 6053, classify the various kinds of business engaged in producing, transporting, delivering, and selling natural gas to the public for domestic or other use, and declare each to be a public gas utility, affected with the public interest and subject to the regulation and control of the commission. Gas pipe lines engaged in producing, buying, transporting, delivering, or otherwise dealing in natural gas are each declared to be a public utility, affected with the public interest, and in nature and according to the established method of conducting same a monopoly, and subject in respect to all their holdings pertaining to the gas business and in all relations to the public, and in respect to their producing, transporting, receiving, and distributing facilities, to the full and complete control and supervision of the commission. Authority is also given the commission to fix, establish, and enforce a reasonable rate which pipe lines may charge for gas delivered at the city gate to another distributing company or municipality; to fix a reasonable rate for gas sold and delivered by pipe lines or other distributing companies to the public for domestic or other use; and to fix and establish a fair and equitable division of the proceeds of the sale of natural gas between the producing or transporting companies and the companies distributing or selling it to the ultimate consumer. In the exercise of the power so conferred, the commission is authorized to act upon its own motion, or upon the petition of any person, corporation, municipality, etc., showing a substantial interest in the subject.

Accordingly, the commission of its own motion ordered a hearing to investigate the 40-cent city gate rate which appellee uniformly charged the various distributing companies throughout the state for gas. Appellee and each of the approximately 270 cities and towns served by it were given notice of the hearing, after which the commission made its order fixing the 32-cent gate rate, found to be "fair, just and reasonable," in lieu of the 40-cent rate theretofore charged, found to be "unfair, unjust and unreasonable."

Interstate Commerce Issue.

Appellee obtains its natural gas from two states, which under its system of accounting is allocated to three sources. The first source is gas produced or purchased in Texas and transported and delivered entirely within Texas. As to this gas, appellee admits the authority of the commission to regulate and fix the price for which it shall be sold at the city gates to the affiliated distributing companies in a proper proceeding, but contends that since the rate order in question also attempts to fix the price of gas transported in interstate commerce, the order is invalid in toto because invalid in part. From this source appellee accounts for about 79 per cent. of its total gas supply.

The second source of gas is produced or purchased by appellee in Oklahoma, and transported through its pipe lines from points of production into Texas. All of this gas is processed and treated in gasoline plants located near Gainesville, Tex., and Petrolia, Tex. At these plants the heating value of this gas is lowered by extracting the gasoline therefrom, and practically all of it is recompressed. When this gas leaves Oklahoma for Texas its exact ultimate destination is not known, and a considerable amount of it is run through and stored in wells at the extraction plants in Texas for future use as needed. Each pipe line transporting this gas has a meter at the state line, for the purpose of measuring the amount thereof. From this source, over the 1927-1933 period considered, appellee accounts for about 4 per cent. of its total gas supply. However, the amount of this gas has shown a marked decline until during the last year of the accounting period it amounted to about one-half of 1 per cent. of appellee's total gas supply. All of this gas is commingled in storage...