Western Distributing Co. v. Public Service Commission

• Decision Date: 26 June 1931
• Docket Number: No. 1391-N.,1391-N.
• Citation: 58 F.2d 241
• Parties: WESTERN DISTRIBUTING CO. v. PUBLIC SERVICE COMMISSION OF STATE OF KANSAS et al.
• Court: U.S. District Court — Panama Canal Zone

58 F.2d 241 (1931)

WESTERN DISTRIBUTING CO. v. PUBLIC SERVICE COMMISSION OF STATE OF KANSAS et al.

No. 1391-N.

District Court, D. Kansas, First Division.

June 26, 1931, and July 3, 1931.

Robert D. Garver, of Kansas City, Mo., and Robert Stone, of Topeka, Kan., for plaintiff.

Earl H. Hatcher, of Topeka, Kan., and S. C. Bloss, of Winfield, Kan., for defendants.

Before PHILLIPS, Circuit Judge, and SYMES and HOPKINS, District Judges.

HOPKINS, District Judge.

The plaintiff seeks to enjoin the defendants from enforcing the rate now on file for gas in the city of Eldorado, or from interfering with plaintiff putting into effect a new rate. The defendants by their answer have challenged the right of plaintiff to secure relief in a court of equity on the ground that such action is premature, contending that plaintiff has failed to exhaust its remedy before the public service commission. The defendants base their contention upon plaintiff's alleged failure to exhaust its remedy before it because of its failure and refusal to produce evidence of the cost of service and rate of return by holding or affiliated companies.

The facts are substantially these: The plaintiff the Western Distributing Company is a Virginia corporation, doing business in the city of Eldorado. Its capital stock is owned by the Gas Service Company, a holding company which also owns stock and operates other public utilities in Kansas, Missouri, and Oklahoma. The capital stock of the Gas Service Company is owned by the Cities Service Company, a corporation holding the capital stock of several hundred public utilities throughout the United States. The capital stock of the Cities Service Gas Company is owned by the Empire Gas & Fuel Company. Henry L. Doherty, doing business as Henry L. Doherty & Co., through agency contracts, manages and controls the operations of all these companies, both in their relations to the public and between themselves. The Gas Service Company above mentioned, operates and manages the plaintiff the Western Distributing Company, and keeps the books of the Western Distributing Company in Kansas City, Mo. The plaintiff the Western Distributing Company procures or buys its supply of natural gas from the Cities Service Gas Company.

It is admitted by the defendant that the plaintiff offered sufficient evidence to make a prima facie case upon all issues before it except for the allowance of three charges, which are specifically mentioned in the findings; these items covering 1¾ per cent. of the gross revenue of the plaintiff, which is paid to Henry L. Doherty & Co., certain expenses paid by the plaintiff to the Gas Service Company, and the principal item of $176,260 paid by plaintiff for gas to its affiliated company the Cities Service Gas Company at the gates of the city. It appears that the plaintiff declined to produce before the commission any evidence showing or tending to show the cost of these items, and from a fair reading of the record I understand that the Gas Service Company, which owns the stock of the plaintiff company, through its officers, and employees, who are also officers and employees of the Gas Service Company, had in its possession and control, books and records and other evidence showing the kind and amount of expenditures of the Gas Service Company, but failed to produce such evidence and also declined to permit the defendant to examine its books.

Under these facts and circumstances, is the plaintiff entitled to the equitable relief which it seeks in this court?

A public service commission such as the defendant is a rate-making body. In order that it may find and establish a legal rate it must have sufficient evidence upon which the same must be based. In my opinion it is the duty of a complaining utility such as the plaintiff to furnish sufficient evidence that the public utilities commission will have a basis upon which to make a reasonable rate. I think the question as to whether a public utility must exhaust its remedy before the commission before applying for judicial or injunctive relief is well settled. The Legislature has within constitutional restrictions the power to place reasonable regulations upon public utilities, and the courts will not interfere with legislative regulation until it has been abused. Nor can the alleged abuse be anticipated. Chicago, Burlington & Quincy R. Co. v. Winnett (C. C. A.) 162 F. 242; Backus-Brooks Co. v. Northern Pacific Ry. Co. (C. C. A.) 21 F.(2d) 4, Syl. 17; Vincennes Water Supply Co. v. Public Service Commission (C. C. A.) 34 F.(2d) 5. Certiorari denied, 280 U. S. 567, 50 S. Ct. 26, 74 L. Ed. 621; Oregon Short Line R. Co. v. Teton Coal Co. (C. C. A.) 35 F.(2d) 919, Syl. 9; Henderson Water Co. v. Corporation Commission, 269 U. S. 278, 46 S. Ct. 112, 70 L. Ed. 273; Lawrence v. St. Louis-San Francisco Railway Co., 274 U. S. 588, 47 S. Ct. 720, 71 L. Ed. 1219; St. Louis-San Francisco Ry. Co. v. Alabama Public Service Commission, 279 U. S. 560, 49 S. Ct. 383, 73 L. Ed. 843; Simpson v. Shepard, 230 U. S. 352, 419, 33 S. Ct. 729, 57 L. Ed. 1511, 1550, 48 L. R. A. (N. S.) 1151, Ann. Cas. 1916A, 18.

The plaintiff argues that it was not required to produce all of its evidence before the public utilities commission, and strenuously argues that the principles enunciated in Smith v. Illinois Bell Telephone Co., 283 U. S. 808, 51 S. Ct. 646, 75 L. Ed. 1427, do not apply. With this contention I cannot agree. It may be that the affiliated or holding companies, in this case, are making only a fair and reasonable charge for the service rendered by them or the commodity furnished. On the other hand, if the facts are ascertained it might appear that the affiliated or holding companies are being unjustly enriched by charges made on the subsidiary company. If a holding company were permitted to exact from a subsidiary company an excessive charge for service or commodity without a public service commission taking such charges into account in determining the proper rate, it would destroy any attempt of the public service commission at regulation. It is agreed that the matter comes before this court upon a trial de novo, and that the plaintiff may offer here the evidence it declined to offer before the public service commission.

We know, of course, that the matter comes before this court as a trial de novo, but such a trial would not give this court an opportunity to make a rate. This court is empowered only to set aside a rate made by a public service commission in a case of this kind, if such rate is unreasonable or confiscatory. The duty of this court is to refuse to grant relief asked by the complaining utility unless it appears that the rate established by the public service commission is unreasonable or confiscatory.

A public utility must first exhaust its remedy before the public service commission before seeking injunctive relief against the commission.

The cost of services rendered, the cost of commodities furnished, and rate of return earned by a holding or affiliated company is a material issue to be determined in a rate case, and at least a reasonably complete disclosure to the public service commission in respect thereto is necessary to enable findings to be made as to the reasonableness of payments made to an affiliated company for such services or commodities.

A public utility has not exhausted its remedy before the public service commission until it has produced evidence upon which findings can be made upon all material issues affecting the rate.

It is not proper for a public utility to withhold part of its evidence from the public service commission and first adduce it in federal court in proceedings to enjoin the commission from interfering with the establishment of a new rate.

It is my view, therefore, the Western Distributing Company, having failed to exhaust its remedy before the public service commission, is without standing to ask for relief in the courts and its amended bill of complaint herein should be dismissed.

SYMES, District Judge.

The motion to dismiss should be granted. This is, in effect, an appeal from an order of the state public service commission dismissing plaintiff's application for an increase in gas rates in Eldorado. The record discloses that the plaintiff did not exhaust its remedy before that body, so has no standing here.

The plaintiff, a West Virginia corporation, owns a gas distributing system in the town of Eldorado, Kan., and retails natural gas to local consumers. Its local rates were fixed by an order of the court of industrial relations of Kansas — a body then authorized to establish rates for public utilities — on August 17, 1920. It operated under this order for several years. Becoming dissatisfied, on July 30, 1929, it filed its application for an increase with the defendant commission, making the usual allegations that the rate then in effect was insufficient to produce a fair return; that its property was being taken without due process, etc., and asking the commission to investigate and establish a just and equitable rate.

At the hearing it developed that plaintiff did not produce or manufacture gas, but purchased its supply at the city gate from the Cities Service Gas Company under a day to day verbal contract, at 40 cents per thousand cubic feet — a rate established originally by the public utilities commission of Kansas on ...