1. A specific rate fixed by municipality on gas sold by a public
service corporation is not objectionable under the Fourteenth
Amendment because it prevents the corporation from cutting its
rates below necessary cost in an effort to do away with ruinous
competition. P.
289 U. S.
134.
2. An allegation merely asserting in general language that rates
are confiscatory is not sufficient to invoke constitutional
protection. The facts relied on must be specifically set forth, and
from them it must clearly appear that the rates would necessarily
deny to plaintiff just compensation and deprive it of its property
without due process of law.
Acta Insurance Co. v. Hyde,
275 U. S. 440,
275 U. S. 447.
P.
289 U. S.
136.
1 F. Supp. 328 reversed.
Appeal from a final decree of a District Court of three judges
holding an order fixing rates on gas invalid and making permanent
an interlocutory injunction.
See also 52 F.2d 802, 285
U.S. 524, 88 Mont. 180.
Page 289 U. S. 131
MR. JUSTICE BUTLER delivered the opinion of the Court.
By this appeal, we are called on to decide whether an order of
the commission prescribing specific, as distinguished from maximum,
rates to be charged for natural gas furnished by a public utility
is repugnant to the due process clause of the Fourteenth
Amendment.
Page 289 U. S. 132
The appellee, authorized by a nonexclusive franchise ordinance,
has been engaged since 1923 in furnishing natural gas to consumers
in Shelby, a Montana city having a population of about 2,000. It
has an adequate distribution system. September 21, 1927, the
commission instituted an inquiry as to the reasonableness of its
rates. The schedule then in force specified for each customer a
base rate of 60 cents per thousand cubic feet for the first five
thousand and, by steps, lower rates based on monthly consumption.
* Appellee filed a
schedule effective November 25, 1927, reducing the base rate to 50
cents. The commission approved tentatively, and continued
investigation.
The Citizens Gas Company, similarly authorized, installed a
distribution system, and, in October, 1928, commenced furnishing
natural gas to consumers in Shelby. Its schedule, specifying a base
rate of 35 cents, was approved by the commission. Within a brief
period, many of appellee's customers left it and have since
obtained their gas from the other company. In November, appellee
filed and, though the commission did not approve, put in force a
schedule specifying a base rate of 20 cents. The commission ordered
it to submit evidence as to the reasonableness of such rates.
Appellee did not support them as adequate or compensatory, but
insisted that, under competitive conditions then existing, they
were justified. And it declared that, should the Citizens Company
meet them, it would propose a further reduction.
The commission, January 22, 1929, found the 20-cent schedule too
low to yield enough to cover reasonable operating expenses,
including depreciation; that such rates would tend to imperil or
impair appellee's ability dependably to serve; held such schedule
contrary to the public
Page 289 U. S. 133
interest, condemned the 50-cent schedule as unreasonable, and
prescribed a base rate of 35 cents, being precisely the same as
that filed by the Citizens Company and approved by the commission.
Appellee refused to charge the rates so ordered, and sued to enjoin
the enforcement of the order upon the ground that the commission
was not empowered by statute to prescribe specific rates, and that
the order violated the state constitution and the due process
clause of the Fourteenth Amendment. The trial court gave appellee
judgment on the pleadings. July 29, 1930, the Supreme Court
sustained the order, reversed the judgment, and remanded the case
for further proceedings. 88 Mont. 180, 232, 293 P. 294.
The Citizens Company had filed, January, 1930, and without the
commission's approval put in force a schedule naming as a base rate
23 cents, but subject to a reduction of 3 cents for prompt payment.
The record shows that, notwithstanding appellee's reduction to the
base rate of 20 cents and a further reduction September 1, 1931, to
a flat rate of 15 cents, its sales of gas decreased from 129
million cubic feet in 1927 to 106 million in 1928, to 73 in 1929,
to 67 in 1930, to 58 in 1931. The sales of the Citizens Company
have correspondingly increased. During the first seven months of
1932, the latest period for which the figures are given, appellee
sold less than 40 million cubic feet, and the Citizens Company sold
over 67 million.
December 22, 1930, appellee brought this suit and dismissed the
one in the state court. The district court granted a temporary
injunction against the enforcement of the order on the ground that,
as the utility necessarily lowered its rates for self-preservation,
the order prescribing higher rates was unreasonable and repugnant
to the due process clause of the Fourteenth Amendment. In a
concurring opinion, one of the judges construed the complaint to
charge confiscation, and maintained that the
Page 289 U. S. 134
order shows that the commission deliberately disregarded the
rule entitling public utilities to a fair return, and that this,
without further evidence, was sufficient ground for temporary
injunction. 52 F.2d 802, 805. The commission appealed from the
interlocutory decree, and this Court affirmed. 285 U.S. 524. Upon
the final hearing, on evidence taken before an examiner, the
district court found that the community is insufficient to support,
at rates affording fair return, the competing systems; that the
prescribed rates deprive appellee of its right of competition, and
would fail to produce legitimate operating expenses, taxes,
depreciation, and a fair return upon the value of appellee's
property. As its conclusions of law, the court declared the order
invalid, and that the interlocutory injunction should be made
permanent, 1 F. Supp. 328. It so decreed.
The rights conferred upon appellee by the authorizing ordinance
are subject not only to the proper exertion of power of the state
to regulate its services and rates, but also to authority of the
city to grant to others the privilege similarly to serve. The city
was free to admit other purveyors of gas.
Madera Water Works v.
Madera, 228 U. S. 454;
Piedmont Power Co. v. Graham, 253 U.
S. 193;
Springfield Gas Co. v. Springfield,
257 U. S. 66,
257 U. S. 70.
The appellee does not complain that the rates imposed upon it by
the order differ from those which have been established and are
binding on its competitor. The gravamen of its complaint is that
the enforcement of the order will deprive it of the "right of
competition in rates essential to protection and preservation of
its property and business" and of the "right to charge rates
concededly less than reasonable rates." The demand for gas in the
community served is not sufficient to require both systems, and
there is no suggestion that it is likely to become great enough to
justify the expenditures made for them. The
Page 289 U. S. 135
facts disclosed by the record compel the conclusion that, if
competition shall continue in the future as in the past, appellee
will not be able, upon any rates within constitutional protection
against reduction, to earn a reasonable return upon the value of
its property employed in the public service. The due process clause
of the Fourteenth Amendment safeguards against the taking of
private property, or the compelling of its use, for the service of
the public without just compensation.
Reagan v. Farmers' Loan
& Trust Co., 154 U. S. 362,
154 U. S. 410;
Smyth v. Ames, 169 U. S. 466,
169 U. S. 546;
Willcox v. Consolidated Gas Co., 212 U. S.
19,
212 U. S. 41;
Missouri Pacific Ry Co. v. Tucker, 230 U.
S. 340,
230 U. S. 347;
Minnesota Rate Case, 230 U. S. 352,
230 U. S. 434;
Board of Comm'rs v. N.Y. Tel. Co., 271 U. S.
23,
271 U. S. 31.
But it does not assure to public utilities the right under all
circumstances to have a return upon the value of the property so
used. The loss of, or the failure to obtain, patronage due to
competition does not justify the imposition of charges that are
exorbitant and unjust to the public. The clause of the Constitution
here invoked does not protect public utilities against such
business hazards.
Reagan v. Farmers' Loan & Trust Co.,
supra, 154 U. S. 412;
Covington & L. Turnpike Co. v. Sandford, 164 U.
S. 578,
164 U. S. 596;
Smyth v. Ames, supra, 169 U. S.
544-545;
San Diego Land & Town Co. v.
Jasper, 189 U. S. 439,
189 U. S. 446;
Darnell v. Edwards, 244 U. S. 564,
244 U. S.
569-570;
Aetna Insurance Co. v. Hyde,
275 U. S. 440,
275 U. S.
447-448.
But appellee, having undertaken to serve under conditions
permitting competition, now insists that it has a constitutional
right, by unrestrained cutting of rates, to destroy the competitor.
And, for that purpose, it has made reductions from the 60-cent
schedule in force until shortly before the Citizens Company entered
the field to the flat rate of 15 cents, which yields less than the
necessary cost of the service. The commission found that the
Page 289 U. S. 136
rates specified in the 20-cent schedule are too low,
unreasonable, liable to impair the service, and contrary to the
public interest. The decision of the state supreme court is to the
same effect. 88 Mont. 180, 218, 293 P. 294. The facts disclosed by
the record are not sufficient to show that the exertion by the
commission of its power to prescribe specific rates was arbitrary
or an infringement of any constitutional right of the appellee.
See Stephenson v. Binford, 287 U.
S. 251,
287 U. S. 273
et seq.; United States v. Illinois Central R. Co.,
263 U. S. 515,
263 U. S. 525;
Mapleton v. Iowa Public Service Co., 209 Iowa, 400, 404,
407, 223 N.W. 476;
Economic Gas Co. v. Los Angeles, 168
Cal. 448, 450, 143 P. 717;
Community Natural Gas Co. v. Natural
Gas & Fuel Co., 34 S.W.2d 900, 902;
Farmersville v.
Texas-Louisiana Power Co., 55 S.W.2d 195, 200.
The appellee contends that the rates prescribed by the order are
so unreasonably low as to deprive it of just compensation. The
appellants maintain that no such question is presented by the
record. The complaint was grounded upon the claim not that the
rates were too low, but that the order prevented appellee from
charging lower ones. It prayed judgment that it be allowed to
charge less than the rates prescribed in the order. After the
evidence was taken, appellee proposed an amendment. It merely
alleged that the rates prescribed
"are not sufficient to furnish plaintiff a fair or any return on
the value of its gas plant or system, and such rates, if made
effective, would confiscate and deprive this plaintiff of its
property"
without due process of law. Appellee here admitted that its
purpose in asserting the belated claim that the rates specified in
the order are too low was not that it might collect more for its
services, but that it might continue, once the order was set aside,
to serve at a loss, and so, if possible, force the other company
out of the field. It is a well established rule that an allegation
merely asserting in general language that rates are
confiscatory
Page 289 U. S. 137
is not sufficient, and that, in order to invoke constitutional
protection, the facts relied on must be specifically set forth, and
from them it must clearly appear that the rates would necessarily
deny to plaintiff just compensation and deprive it of its property
without due process of law.
Aetna Insurance Co. v. Hyde,
supra, 275 U. S. 447.
This allegation is not sufficient.
Reversed.
* All schedules referred to in the opinion similarly specify
step rates, and are conveniently identified by the highest or base
rate.