A city ordinance fixing the maximum rate chargeable by a gas
company will not be adjudged confiscatory if, at the time of the
judicial inquiry, the net profits derivable under the ordinance
will give a fair return upon the then value of the company's
property.
Plaintiff, a gas distributing company, whose rates were fixed by
an ordinance, purchased its gas under a contract, which measured
the vendor's compensation by a percentage of plaintiff's gross
receipts. The contract antedated the ordinance, and had several
years to run when suit was commenced. Plaintiff contended that,
under the ordinance rate, the contract was no longer profitable to
its vendor.
Held that the effect of the ordinance upon the
constitutional rights of the vendor was immaterial to plaintiff's
case.
The contract expired before the evidence was closed.
Held that, for the purposes of this case, plaintiff not
having shown what it paid afterwards, the contract might be assumed
to measure plaintiff's probable expense for gas during the life of
the ordinance.
92 Ohio St. 393 affirmed.
Page 242 U. S. 406
The case is stated in the opinion.
MR. JUSTICE PITNEY delivered the opinion of the Court.
The question upon which our jurisdiction is here invoked is
whether an ordinance of the City of Newark, Ohio, passed March 6,
1911, fixing the maximum price that plaintiff in error might charge
to consumers of natural gas in that city for a period of five years
at 20 cents per thousand cubic feet, with 10% discount for prompt
payment, a rate described as "18 cents net," is confiscatory, and
therefore in violation of the "due process" clause of the
Fourteenth Amendment. Plaintiff in error operates under a franchise
granted by a city ordinance passed February 21, 1898, for a term of
twenty-five years, which permitted a rate of 25 cents per thousand
for a period of ten years from its passage, but within that period
the company voluntarily introduced a net rate of 18 cents and
maintained it for some years prior to the adoption of the ordinance
of 1911. The company refused to accept the provisions of the latter
ordinance, and notified its customers that it would discontinue
service unless the rate of 25 cents was paid. Thereupon the city
filed a petition in the Court of Common pleas of Licking County,
praying a mandatory injunction. The company answered that the
ordinance provided no just compensation for the use of its
property, and therefore deprived it of its constitutional rights.
Voluminous evidence was taken upon
Page 242 U. S. 407
this issue, and the court found the defense to be unfounded in
fact and made a decree in favor of the city, but without prejudice
to the right of the company to apply for a modification "if at any
time it should appear that said rate of 18 cents net does not
render an adequate return to said defendant company." An appeal was
taken to the court of appeals and there heard upon the evidence
taken in the court of common pleas and additional evidence, and the
same decree was entered as in the court of common pleas. The
Supreme Court of Ohio affirmed the decree. 92 Ohio St. 393.
The opinions of the state courts show that they gave careful
consideration to the questions of the value of the property of
plaintiff in error at the time of the inquiry, the total amount of
net profits that could be earned under the rate fixed, and whether
this would be sufficient to provide a fair return on the value of
the property. The concurring judgments were based upon principles
thoroughly established by repeated decisions of this Court,
Covington &c. Turnpike Co. v. Sandford, 164 U.
S. 578,
164 U. S.
597-598;
San Diego Land & Town Co. v. National
City, 174 U. S. 739,
174 U. S. 754;
Knoxville v. Knoxville Water Co., 212 U. S.
1;
Willcox v. Consolidated Gas Co.,
212 U. S. 19,
212 U. S. 48;
Des Moines Gas Co. v. Des Moines, 238 U.
S. 153,
238 U. S. 163,
and the finding that there was no confiscation is amply supported
by the evidence. The reservation of the right to apply thereafter
for a modification was in accord with the action of this Court in
the
Knoxville and
Willcox cases, 212 U.S. pp.
212 U. S. 19,
212 U. S. 55.
A distinction is sought to be based upon the fact that two
companies are necessarily affected by the rate -- a producing and a
distributing company -- it being contended that the state courts
have ignored the cost of production. It appears that, after the
granting of the franchise of 1898, plaintiff in error, which
theretofore had been both a producer and a distributor of gas, sold
all of its property to
Page 242 U. S. 408
the stockholders of the Logan Natural Gas & Fuel Company,
and thereafter confined its activities to distribution, the Logan
Company being in control of production and transportation, and
that, in 1904, the Logan Company entered into a contract with
plaintiff in error to furnish the gas needed to supply the city for
a term of years, on the basis of a percentage of the aggregate
readings of the consumers' meters, in the proportion of 70% of the
gross receipts for the Logan Company and 30% for plaintiff in
error. At the time the suit was commenced, the contract had two or
three years to run, while the limiting ordinance was to continue
for five years. There is no contention that plaintiff in error
could not operate profitably under the ordinance of 1911 so long as
the contract remained in force, but it is said that, because of
changed conditions, including the partial exhaustion of the
gas-producing field, the contract was no longer profitable to the
Logan Company under the rate permitted by the ordinance of 1911,
the cost of production and transportation of natural gas alone
being at that time, as is asserted, as much as the entire amount of
the net rate of 18 cents allowed by the ordinance. But plaintiff in
error cannot be heard here to assert the constitutional rights of
the Logan Company (
Plymouth Coal Co. v. Pennsylvania,
232 U. S. 531,
232 U. S.
544), and the pertinent question is what plaintiff in
error would probably have to pay for gas during the life of the
ordinance. The contract measured this so long as it continued in
effect. And, although it expired some time before the closing of
the evidence in the court of appeals, as the supreme court pointed
out, no evidence was offered to show the rate paid by the Newark
Company to the Logan Company after its expiration. The ordinance
specified a period of five years, but, by the decree, this was made
subject to the provision giving a right to plaintiff in error to
apply for relief if it should appear that the 18-cent rate did not
render an adequate return.
Page 242 U. S. 409
Plaintiff in error has failed to show that the ordinance has the
effect of depriving it of property without due process of law
within the meaning of the Fourteenth Amendment, and the judgment
under review is
Affirmed.