Wichita Light Company v. Public Untilities Commission of Kansas

The Wichita Railroad & Light Company, a corporation of West Virginia, is an electric street railroad and light furnishing company doing business in Wichita, Kan., and will be known as the Wichita Company. The Kansas Gas & Electric Company, also a West Virginia corporaton, 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 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      per cent. 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 1, section 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 rate-making, 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.

Henry I. Green, of Urbana, Ill., and Thomas F. Doran, of Topeka, Kan., for appellant.

H. L. McCune, of Kansas City, Mo., for appellees.

Mr. Chief Justice TAFT, after stating the case as above, delivered the opinion of the Court.