Wichita R. & Light Co. v. Public Util. Comm’n, 260 U.S. 48 (1922)

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Wichita R. & Light Company v.

Public Utilities Commission of Kansas
No. 27

Argued April 24, 1922
Decided November 13, 1922
260 U.S. 48

APPEAL FROM THE CIRCUIT COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Syllabus

1. Jurisdiction acquired by the district court on the ground of diverse citizenship is not divested by the intervention, by leave of the court, of a party, opposed to and of like citizenship with the plaintiff, but whose presence is not essential to a decision of the original controversy. P. 53.

2. The jurisdiction of the district court arising from diverse citizenship extends to the entire suit, and to every question, state or federal, involved in its determination. P. 54.

3. Where a plaintiff in equity successfully moves the district court for judgment on the pleadings, reserving the right to adduce evidence and be heard on issues of mixed law and fact presented, a decree of the circuit court of appeals reversing the decree in his favor should accord that opportunity, and not dismiss the bill. P. 54.

4. Under the Public Utility Law of Kansas, Laws 1911, c. 238, in order that an increase of rates proposed by a gas company may supersede lower rates fixed by its contract with another, it is not enough that the change be filed with and consented to by the Commission under § 20; there must, under § 13, be an express finding by the Commission, after full hearing and investigation, that the existing rates are unjust, unreasonable, unjustly discriminatory, or unduly preferential, and without such finding, the Commission’s order is void. P. 56.

5. Such a finding may not be supplied by inference and reference to the averments of the petition invoking the action of the Commission. P. 59.

6. Delegation of pure legislative power is against constitutional principle; therefore, administrative agencies granted authority over rates are enjoined to follow designated procedure and rules of decision as a condition to the validity of their action. P. 58.

268 F. 37 reversed.

The Wichita Railroad & Light Company, a corporation of West Virginia, is an electric street railroad and light furnishing company doing business in Wichita, Kansas, and will be known as the Wichita Company. The Kansas Gas & Electric Company, also a West Virginia corporation, and to be known as the Kansas Company, is engaged in the business of furnishing electrical light and power to consumers in Kansas. In 1910, the two companies made a contract by which the Kansas Company agreed to furnish, and the Wichita Company agreed to accept and pay for, electrical energy at certain rates until 1930, and the contract was fulfilled by both until 1918. Then the Kansas Company filed a petition with the Public Utilities Commission of Kansas, to be known as the Commission, in which it alleged that, on account of the increase in the cost of production and distribution,

the net income of your petitioner for the year ending December 31, 1917, was approximately $190,000 less than it would and should have been if your petitioner had been able to operate under the normal conditions that existed in 1914, at which time its said rates were first installed as aforesaid; that, if said rates are continued in effect hereafter, the result hereof will be disastrous to your petitioner, depriving it of a reasonable return upon the value of its said property and making it impossible to find a market for the securities it must issue and sell in order to provide funds with which to make improvements, additions and betterments which are necessary if it is to furnish proper and adequate service to the communities in which it operates.

The petition further recited that, in December, 1916, being of opinion that it could reduce its rates for residential and commercial lighting, it proposed a gradual reduction and filed a schedule for the purpose, which the Commission had not acted on; that, in January, 1917, it did reduce its rates, but that, if a further reduction under the schedule for 1918 were made, the loss of net earnings to the petitioner would be $220,000.

The petition continued:

Your petitioner is of the opinion that, in order to meet this situation, and in order to increase the net earnings of your petitioner in an amount sufficient to offset the loss resulting to it from the conditions above stated, an order should be entered by the Commission authorizing petitioner to add to its existing rates the surcharge hereinafter set out. There are approximately 19,900 consumers now served by your petitioner; the proposed surcharge does not affect consumers using 100 kilowatt hours or less per month, and therefore 17,000 of said total of 19,000 consumers are not affected. In apportioning the surcharge equitably among the remainder of said consumers, your petitioner has taken into consideration the fact that, in the generation of electrical energy for large power consumers, fuel is approximately 75 percent of the cost of generation, and that therefore a surcharge which has for its purpose the reimbursement of the utility company for increase in the cost of fuel should be so adjusted that the surcharge should increase in proportion to the amount of energy consumed. The percentage of increase fixed by such surcharge over existing rates is therefore increased in proportion to the amount of consumption. The last step in said surcharge schedule affects 6 consumers, and the last two steps 38 consumers.

Wherefore your petitioner asks that an order be made by your honorable Commission authorizing your petitioner to add to its existing rates for electricity in the State of Kansas, and until the further order of the Commission, the following surcharges:

For the first 100 kwh per month, no surcharge.

For the next 1,000 kwh per month, 12 mills net per kwh.

For the next 10,000 kwh per month, 9.5 mills net per kwh.

For the next 1,000 kwh per month, 8 mills net per kwh.

For all excess kwh per month 3.5 mills net per kwh.

The order of the Commission upon this petition recited that it

came duly on for order by the Commission upon the pleadings of the respective parties and the evidence introduced thereunder, and the Commission, upon consideration of said pleadings and evidence and being duly advised in the premises, finds that the Kansas Gas & Electric Company should be authorized and permitted to add to its existing rates for electricity supplied by it to consumers in the State of Kansas until the further order of the Commission, the following net surcharge:

For the first 100 kwh per month, no surcharge.

For the next 14,900 kwh per month, 1 mill surcharge per kwh.

For the next 20,000 kwh per month, 2 mills surcharge per kwh.

For all excess over 35,000 kwh per month, 3 mills surcharge per kwh.

The rates thus fixed were substantially higher than the contract rates.

The Wichita Company thereupon filed a bill in equity in the United States district court for Kansas seeking to enjoin the Commission from putting the new rates in force as against it. After averring the diverse citizenship of the parties and a sufficient jurisdictional amount involved, the bill alleged that the order impaired the contract which it had with the Kansas Company, in violation of Article I, § 10, of the federal Constitution, that the rates fixed were unjust and unjustly discriminatory as against the complainant, that it was the largest customer of the Kansas Company, and that the increase of its rate as compared with that of others violated every equitable rule of ratemaking, and deprived the plaintiff of its property without due process, and denied it the equal protection of the laws, in violation of the Fourteenth Amendment. A temporary injunction was issued. The answer of the Commission averred that the proceedings were regular and authorized by the statute of Kansas, that the Wichita Company had participated in them, and denied that the surcharges were discriminatory or unjust. The Kansas Company then applied for leave to intervene, and leave was granted. It answered the bill much as the Commission did, but with more elaboration, denying that the order was discriminatory or unjust, and averring that the contract of 1910 was necessarily subject to the legitimate exercise of the police power of the state, and that an order of the Commission regularly made in the exercise of that power could not be regarded as working an impairment of the obligation of the contract in the sense of the contract clause of the federal Constitution.

The Wichita Company made a motion for judgment on the pleadings on the ground that the order of the Commission was void on its face.

but saved and reserved itself all of its rights in the presentation of evidence and proofs and hearing upon the merits of the issues of fact and law, otherwise than as above stated, involved in this cause in the event it should be determined that final judgment and decree should not be entered pursuant to this motion.

The district court gave judgment for the Wichita Company on the pleadings and enjoined the Commission and the Kansas Company from putting into force the increased rates. The circuit court of appeals reversed the decree of the district court and directed a dismissal of the bill, Judge Sanborn dissenting.

The Wichita Company has appealed to this Court.