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United States Light & Heat Corp. v. Niagara Falls Gas & Electric Light Co.

February 2, 1931

UNITED STATES LIGHT & HEAT CORPORATION
v.
NIAGARA FALLS GAS & ELECTRIC LIGHT CO. ET AL. (HAMANN ET AL., INTERVENERS)



Appeal from the District Court of the United States for the Western District of New York.

Author: Manton

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

The plaintiff has a place of business in the city of Niagara Falls, where it is a user of fuel and claims that the use of gas by it would be more economic, efficient, and useful. This city is served with gas by the Niagara Falls Gas & Electric Light Company, and the plaintiff, while not claiming to be a consumer of gas, contends that it has a property right to the service of the gas company in that city. Hamann, a consumer of gas, who was permitted to intervene by court order, owns a private residence in Niagara Falls, where he uses gas. Both seek to have chapter 898 of the Laws of 1923 declared unconstitutional, claiming that its enforcement deprives them of property without due process of law under the Fourteenth Amendment.

The bill of complaint alleges that the rates at which gas may be furnished, as prescribed by the orders of the Public Service Commission, are confiiscatory of the property of the gas company; that the gas company may not change such rates except by filing with the commission a schedule of statements of proposed changes of rates; that the gas company filed with the commission a schedule of rates proposing to furnish gas in the city of Niagara Falls on a three-part rate plan; that the commission has issued orders forbidding the company to supply or distribute as under said plan. It alleges that there are six known bases for the sale of gas by public utility corporations: (1) Flat rate; (2) flat rate with service charge; (3) flat rate with a minimum bill; (4) block rate; (5) block rate with a minimum bill; and (6) three-part rate. After defining what is meant by these respective charges, the bill alleges that none of such bases is a correct basis or plan except the three-part rate plan; that the right to be furnished with gas is a property right of the plaintiff; that the furnishing of gas upon any other basis or plan than that of the three-part rate results in discrimination as between consumers; that certain consumers are required to pay more than their equitable proportion or share of the cost; and that they are deprived of their property without due process of law.

Subdivision 6 of section 65 of the Public Service Law (Consol. Laws N.Y. c. 48), provides:

"6. Service Charges Prohibited. Every gas corporation shall charge for gas supplied a fair and reasonable price. No such corporation shall make or impose an additional charge or fee for service or for the installation of apparatus or the use of apparatus installed."

The claim of confiscation is made by the plaintiff upon the theory that it belongs to a class of consumers of gas in the city of Niagara Falls; that its property is confiscated as one of this class because its right to such service is taken away. Furthermore, that this provision of the Public Service Law impairs the obligation of the contract between the state and the Niagara Falls Gas & Electric Light Company and the people of the city of Niagara Falls, in violation of article 1 (ยง 10) of the Constitution of the United States.

The three-part rate has three charges: (1) The customer's charge which consists of expenses of bookkeeping, billing, collecting, setting, removing, and repairing meters, gratuitous complaint service, office rent, meter reading, and a part of the fixed charges on the physical property. This charge is intended to be made regardless of whether the gas is used in small or large quantities or not at all. (2) A demand charge which consists of that part of the company's expenses incidental to providing and maintaining a production, transmission, and distribution system of sufficient capacity to render service as required. This charge consists of the remainder of the fixed charges, such as interest, taxes, and depreciation on the necessary plant and part of the operation and maintenance expense of the physical property. The charge is distributed among the customers in proportion to the demand made upon the company by each customer and in the proportion which each customer contributes toward the creation of the so-called demand expense. (3) The gas charge which is the cost of the company's production, transmitting and distributing the gas, and is proportional to the amount of gas handled. It represents the cost of the gas plus a certain proportion of the cost of maintaining and operating the transmission and distribution system. It is said to be the cost of the commodity delivered as distinguished from the cost of the service. Each of these items must of necessity enter into the calculation of what is the company's fair return.

The Public Service Commission has answered admitting its prohibition against such service charge, and alleges that it has fixed by order the rates to be charged by the gas company.

The gas company has filed an answer admitting, in substance, all the allegations of the complaint, and prays for relief as follows:

"Wherefore, this defendant prays the court if it shall see fit to grant any of the prayers of the plaintiff herein, that it grant also that part of the prayer of the plaintiff, which is found in such part of Subsection 'D' of the plaintiff's prayer as prays that the Public Service Commission of the State of New York, be enjoined from visiting any penalty on this defendant for its violation of the said orders above referred to and said chapter 898 of the Laws of 1923, or any provision or provisions thereof, and that portion of Subsection 'E' of the said prayer which prays that the City of Niagara Falls, the Mayor and Council thereof and the Public Service Commission be enjoined from interfering with the collection of a reasonable rate which should be based on a Three-Part Rate, or make such other provisions as your Honorable Body may consider to the best interest of equity and the protection of this defendant in its decree."

The city of Niagara Falls has answered supporting the Public Service Commission's position.

The proofs adduced in behalf of the plaintiff were apparently supplied by the gas company. The gas company has not filed a counterclaim or cross-bill, as it might have under ...


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