United Gas Public Service Co v. State of Texas

Decision Date14 February 1938
Docket NumberNo. 13,13
Citation58 S.Ct. 483,303 U.S. 123,82 L.Ed. 702
CourtU.S. Supreme Court

As Amended on Denial of Rehearing March 14, 1938.

Messrs. John P. Bullington and F. G. Coates, both of Houston, Tex., for appellant.

Messrs. Alfred M. Scott, of Austin, Tex., and Edward H. Lange, of Laredo, Tex., for appellees.

Mr. Chief Justice HUGHES delivered the opinion of the Court.

Appellant, United Gas Public Service Company, challenges the validity of a rate fixed by the Railroad Commission of Texas for natural gas supplied by appellant for domestic uses in the city of Laredo.

The city council of Laredo, on December 15, 1931, enacted an ordinance fixing gas rates, which included a rate of 40 cents per 1,000 cubic feet for domestic consumption, with a provision for a discount of 10 per cent. on payment of bills within ten days, the ordinance to become effective on January 1, 1932. The rate had previously been 75 cents per m.c.f. with a 10 per cent. discount for payment within ten days. The Texas Border Gas Company, which was supplying natural gas to consumers in Laredo, filed an appeal with the Railroad Commission and posted the required supersedeas bond in accordance with the provisions of articles 6058 and 6059 of the Revised Civil Statutes of Texas (1925).1 The condition of the bond was that the company should refund to the city for the benefit of consumers any excess of rates collected 'over and above the rates and charges that shall be finally determined to be a fair and reasonable return upon the value of its property used and useful in supplying natural gas and natural gas service to the City of Laredo.'

Prior to the hearing before the commission, the South Texas Gas Company, which owned and operated the transmission properties and transported the gas sold to the Texas Border Gas Company at the Laredo city gate, was made a party to the proceeding. The Texas Border Gas Company applied to the city for an increase of rates and, because of the city's failure to act, took an appeal to the commission as the statute provided. The two appeals were consolidated. The United Gas Public Service Company, a Delaware corporation, entered its appearance on both appeals alleging that it had acquired the properties of both companies. The commission, by order of June 13, 1933, fixed a rate of 55 cents per m.c.f. with a penalty of 10 per cent. for nonpayment within ten days, and the order was made retroactive to January 1, 1932. Texas Border Gas Co. v. City of Laredo, 2 P.U.R.,N.S., 503.

The United Gas Public Service Company then brought suit in the District Court of the United States for the Southern District of Texas to restrain the enforcement of the commission's order. On July 26, 1933, the State of Texas, the members of the commission, and the city instituted the present suit in the District Court of Travis county in the nature of an appeal under article 60592 for the purpose of protecting the jurisdiction of the state court and of enforcing the commission's order if determined to be valid. The state court thereupon stayed all proceedings by the commission, or by the officials of the state and city, to enforce the commission's order until the determination of the suit. On August 1, 1933, the District Court of the United States composed of three judges, 28 U.S.C. § 380, 28 U.S.C.A. § 380, stayed all proceedings in that court pending the final determination of the suit in the state court. Subject to the order of the state court, the company has continued to charge its 75-cent rate.

The trial in the state court resulted in a judgment on April 24, 1934, which sustained the commission's order of June 13, 1933, except so far as its rate was made retroactive to January 1, 1932, that part of the order being held invalid. The company then appealed to the Court of Civil Appeals, which rendered its judgment on October 30, 1935, reforming the judgment of the trial court so as to declare the retroactive portion of the commission's order valid and enforceable and affirming the judgment as thus modified. 89 S.W.2d 1094, 1097. The Supreme Court of the state refused writ of error.

A motion to dismiss the appeal taken to this Court from the judgment of the Court of Civil Appeals was denied. 301 U.S. 667, 57 S.Ct. 921, 81 L.Ed. 1332. Upon hearing, the Court ordered reargu- ment, noting that it especially desired to hear the parties on the state of the evidence as to the effect of the application of the commission's rate to the years 1932 and 1933, that is, as to the revenues and expenses for those years on that basis, and as to the effect upon the rights of the appellant, with respect to those years, of the bond given on its appeal to the commission. November 8, 1937. 302 U.S. 647, 58 S.Ct. 527, 82 L.Ed. —-. Reargument has been had accordingly.

Appellant, invoking the due process and equal protection clauses of the Fourteenth Amendment of the Federal Constitution, contends that in the state proceedings it has been denied procedural due process and also that the prescribed rate is confiscatory.

The proceedings before the commission and its rulings. The commission gave a full hearing. It received voluminous evidence offered by appellant and the city as to every phase of the controversy and their counsel were fully heard in argument. The opinion of the commission reviews the history of the utility from the time that the Texas Border Gas Company received its franchise from the city in 1909. The commission found the interrelation of the companies concerned and that the present appellant, which had become the owner of the properties of the former operating companies, was itself a unit of the United Gas System. It was in view of the 'interrelated company operation and ownership,' that the gathering, transmission, and distribution properties used and useful in serving the city of Laredo were valued as a combined property. As consumers in a number of other communities within the Laredo area were also served, it became necessary to allocate to Laredo its appropriate proportion. Methods of allocation were submitted by the respective parties and the commission adopted a weighted average per cent., which had been taken by the city's engineer as an approximate mean between two percentages used by the company's engineer, as coming the closest to a fair and correct allocation. Evidence of historical cost and of reproduction cost new less depreciation was submitted. The company's appraisal on the basis of reproduction cost new, less depreciation, was $1,231,601. The appraisal of the city's engineer on the same basis was $810,698. The city adduced evidence showing the depreciated historical cost as of July 31, 1932, to be $709,991.23.

The commission for the purpose of its valuation divided the properties into three groups, (a) gathering system, (b) transmission system, and (c) distribution system. The commission stated and considered the respective appraisals of each group. While the city included an allowance of $124,668 as the depreciated cost of that portion of the transmission lines extending from Pescadito Junction to the Jennings Field, a distance of about 26 miles, the commission found 'that this line was used only one day during the twelve months' period ending July 31, 1932, in transporting gas to Laredo,' and, further, that 'the condition of this line is such that it could neither safely nor profitably transport the necessary volume of gas to the City.' The commission concluded that, if the company's properties were reproduced, that section of the line would not be necessary.

The commission then considered the questions of working capital, of going concern value, and of accrued depreciation. After referring to the respective estimates, the commission decided that 'the over-all per cent. condition' of the properties was 78 per cent.

The commission's conclusion was that the total 'present fair value' of the properties was $885,000. The commission said:

'In arriving at a decision and making an order herein that is deemed by the Commission to be just and reasonable, we have carefully and fully considered all the evidence presented and all the facts and circumstances re- flected by the record herein; and upon giving due consideration to all the elements of value inhering in the property involved in this proceeding, have valued the Company's properties as an operating concern, with business attached; have made ample allowance for materials and supplies, working cash, and general overheads; and have included in such value the Pescadito-Jennings Transmission Line and the West Jennings Gathering System (although the record clearly discloses that these last two named property items are neither being used, nor are they necessary as standby equipment) and we find the present fair value of the properties of the Company used, and useful in the gathering, transporting and distributing of natural gas within the City of Laredo, Texas, to be in the sum of $885,000.'

The commission fixed the annul depreciation rate which should be allowed at 3 per cent. The commission also found that an annual rate of return of 7 per cent. on the present value of the properties was adequate.

With respect to 'available revenue,' the commission said that the company had presented a 'setup' of operating revenues and expenses for the twelve-month period ending July 31, 1932, only. On the other hand, the city had presented a similar 'setup' covering the years ending June 30, 1929, 1930, and 1931, and for the year ending July 31, 1932—a period of four years. The commission was of the opinion that the one year ending July 31, 1932, should not be taken as a test period. It was believed to be a matter of common knowledge that 'from a general business standpoint the year 1932 was the worst year since 1929.' The city's exhibit was deemed to show that the fiscal year 1931 was also subnormal, and the commission...

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