Case Name: GRAVER v. EDISON ELECTRIC ILLUMINATING CO. OF BROOKLYN
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1908-05-12
Citations: 110 N.Y.S. 603
Docket Number: 
Parties: GRAVER v. EDISON ELECTRIC ILLUMINATING CO. OF BROOKLYN.
Judges: 
Reporter: West's New York Supplement
Volume: 110
Pages: 603–611

Head Matter:
GRAVER v. EDISON ELECTRIC ILLUMINATING CO. OF BROOKLYN.
(Supreme Court, Appellate Division, Second Department.
May 12, 1908.)
1. Electricity—Quasi Public Corporations—Rates—Discrimination.
Defendant furnished electricity to plaintiff at 10 cents per kilowatt hour under a contract containing no guaranty by which plaintiff undertook to take any given number of kilowatt hours of consumption per month. Defendant furnished electricity under similar circumstances to other consumers at 7% and 5 cents per kilowatt hour under contracts guaranteeing the use of the current for from 750 to 1,250 kilowatt hours per month. All of such contracts, however, provided for a charge of 10 cents per kilowatt hour for the first two hours of service (which in practical operation would be the two hours of maximum use); the lesser rates being made for the succeeding hours. Hold, that such contracts did not show an illegal discrimination against plaintiff; the mere fact that plaintiff paid a higher price for substantially the same number of kilowatt hours as his neighbors did not being conclusive on such question.
2. Same—Basis of Rates.
A corporation engaged in furnishing electric current like other quasi-public corporations is entitled to earn a fair income on its investments, and may fix rates based on the cost of production taking into account not only the cost of- coal, labor, etc., but the investment necessary to carry on the enterprise, and, acting in good faith, it may make experimental' contracts to reach a basis for future charges, even though this would result in giving for a limited time a better rate to a few customers than was given to others receiving substantially the same service.
Gaynor, J., dissenting.
Appeal from Municipal Court of New York.
Action by William Graver against the Edison Electric Illuminating Company of Brooklyn.
Judgment for plaintiff, and defendant appeals. Reversed.
Argued before WOODWARD, JENKS, HOOKER, GAYNOR, and MILDER, JJ.
Alton B. Parker (John W. Searing, on the brief), for appellant.
Philip B. Adams (Charles C. Bunker, on the brief), for respondent.

Opinion:
WOODWARD, J.
This' action was brought to recover the sum of $403.35 upon a complaint which alleged that between January 1, 1906, and May 8, 1907, inclusive, the defendant furnished to the plaintiff, at his request, 12,936 kilowatt hours of electric current, for which the-defendant charged the plaintiff at the rate of 10 cents per kilowatt hour, amounting in all to the sum of $1,293.60, which plaintiff paid in full to the defendant upon the rendition of bills for the same; that during all of said time the defendant wrongfully and unjustly discriminated against the plaintiff in rendering to other persons, firms,, and corporations under similar circumstances and conditions, the same service at a much less rate or price per kilowatt hour, upon a guaranteed consumption of 750 kilowatt hours each month; that the sum collected and received by the defendant from the plaintiff was excessive and unjust to the extent of the amount of the excess over the rate charged for the same service under the same conditions to others of its customers. The answer admitted furnishing the service at the rates mentioned under the provisions of a written contract, denying the other allegations of the complaint, except the demand for a refunding of payments made, and alleged that it had charged all other consumers the same rates as those charged to the plaintiff, except in cases where the consumer gave a written guaranty to use a certain number of kilowatt hours of current in each month, and to pay for the same whether it was used or not.
Upon the trial it appeared, without contradiction, that the plaintiff's contract did not undertake to guarantee any given number of kilowatt hours of consumption per month, while in each of the cases where it was sought to show discrimination the contract provided that the consumer should use at least 750 kilowatt hours of current each month, and the evidence further disclosed that these contracts were made for experimental purposes, to determine how low a guaranty could be safely accepted in the conduct of the business with a concession of rates. It was shown that the defendant had been affording a rate of 10 cents, 7% cents, and 5 cents per kilowatt hour for current furnished under a contract to use at least 1,250 kilowatt hours per month, and for the purpose of experimenting upon a more advantageous contract for customers, a few customers using approximately the 1,250 kilowatt hours were given contracts in which the guaranteed use was reduced to 750 kilowatt hours per month, and the defendant, after conducting this experiment for a time, actually afforded this rate and this form of a contract to its customers generally. The plaintiff has been given a judgment upon the theory that the defendant had unlawfully collected a larger sum than was charged to its customers generally for similar service under like conditions, and, if the facts proven established this, it is not to be doubted that the judgment would be sustained. We are of the opinion, however, that under the facts established by the defendant without contradiction this was not a case of discrimination within the spirit of the law, and that the judgment proceeds upon a wrong theory. The mere fact that the plaintiff paid a higher price for substan_ tially the same number of kilowatt hours than two of his neighbors is " not conclusive. Electricity for light and power is a different thing than ordinary commodities. The whole test of cost and of fairness in rates does not depend upon the measurement of the current, and a discrimination in rates which might give rise to an action in the transmission of a telegram would not constitute illegal discrimination in furnishing commercial current. A corporation engaged in furnishing an electric current is entitled, like other quasi public corporations, to earn a fair income upon its investment. It has a right to fix its rates upon the cost of the production, taking into account, not only the cost of coal, labor, etc., but the investment which is necessary to carry on the enterprise, and, acting in good faith, it has a right to make experimental contracts for the purpose of reaching a basis for future charges, even though this should result in giving for a limited time a better rate to a few customers than was given to others receiving substantially the same amount of current. To hold otherwise would be to stand in the way of the best development of the business and the fairest service to the public generally.
But it is not necessary to stand upon this proposition. When the nature of the business is taken into consideration, when it is remembered that a corporation holding a public franchise owes the obligation of being prepared to furnish all who may desire its service within the limits of its territory, it must be entirely obvious that the corporation must have an equipment which is capable of affording the maximum amount of current for which there is a reasonable probability of a demand, and to do this the corporation must have an investment largely in excess of what would be necessary if it was called upon to furnish a fixed amount for a given number of hours each day. The assumption that the "current taken by a large house or of twenty houses costs the same the unit in the production as that taken by a small house or one house" is merely a relative truth. It is true of any given moment, but the question of when it is produced is of importance in the calculation. It is a well-recognized proposition in electrical engineering, based on current produced by steam power, that there is a certain point where all of the elements concur to produce the greatest amount of energy with the least possible consumption of fuel—with the least possible expenditure—and this is technically known as "the load" of the engine. For instance, we have an engine rated at 40 horse power. Assume this to be the "load." It is not the maximum capacity of the engine. It is the point where it reaches its highest economic utility. It may, under high pressure, develop 45, or even 60, horse power;, but this result is accomplished under conditions which produce waste, so that, when an engine is operated above "load," it is done at an economic loss. It costs more to produce the current than it does when the engine is working at "load." What is true of an engine working above "load" is true in a larger degree of one working under "load," for in that case we have all of the fixed, or what is known as "overhead" charges, such as interest, insurance, etc., as well as salaries, labor, and other charges in the same amount that would be involved if the engine was working up to its normal capacity and producing its full measure of current. Having these facts in mind, let us suppose a district supplied by an electric lighting plant to require a maximum of 100,000 kilowatt hours (and a kilowatt is 1,000 watts, and a kilowatt hour is 1,000 watts sustained for the period of one hour). Take, for example, a downtown district in the borough of Manhattan. In the winter months the maximum demand will be between the hours of 4:30 and 6:30 p. m. If the installment is made upon the basis of producing this maximum current with the engines working at "load," there will be an investment largely out of proportion to the current marketed; for it is a well-known fact that after 6:30 in the period mentioned there is relatively very little use of lighting current in the locality mentioned; probably not 50 per cent, of the amount used in the two hours preceding that time. The result is either that the corporation must install less engine power and work it above "load"" during the maximum consumption, or it must operate a plant capable of producing the maximum supply below "load," and thus be subjected to an increased cost of production, in either o'f which events it is costing more to produce the current than would be the case if there was a fixed demand for the maximum capacity of the plant working at "load." All of the contracts in evidence in this case apparently recognize this condition, for in each of them there is a charge of 10 cents per kilowatt hour for the first two hours of service (which in practical operation would be the two hours of maximum use), and the lesser rates are made for the succeeding hours. Of course, if electricity could be stored up like barrels of flour, and turned on when the demand was at its maximum, and turned off when it was below, so that the engines could be worked at "load" all of the time, the problem would be very simple. But the truth is that the electric current is produced just as it is used—at the instant of the demand—and it is the necessity of producing it under these conditions that differentiates it from every other known commercial undertaking. Obviously if the plaintiff's 12,936 kilowatt hours were made up of the first two hours of each day, as might be the case if his installation of lamps was large enough, there would be no discrimination against him in the price charged, for that is the rate charged under any of the contracts for these hours, and, before there could be any discrimination established, it would be necessary to show that the current with which the comparison was made was furnished after the first two hours, and that the plaintiff's current was- not furnished in the first two hours. There is some evidence tending to show, perhaps, that the plaintiff had an installation of 101 sixteen candle power lights, but our attention is not" called to any evidence to show that this number of lights might not have required the full amount of current used during the first two hours of the days involved in this controversy; and, in the absence of such evidence, how is the court to know that there was, in fact, any difference in the rates charged to the plaintiff from what were paid by those in his neighborhood? Suppose the plaintiff burned all of his lights for the first two hours, and then turned them off, while his neighbor burned 10 lights for the same length of time, and then increased them to 50 or 100, how shall we know that there was any discrimination against the plaintiff? The mere fact that one man gets an equal.amount of current for less money than his neighbor is not conclusive. It must be shown that it was under the same circumstances and conditions, and this is not shown unless it is established that the current was furnished during substantially the same hours and in substantially the same amount. It should appear, at least, that the bills with which comparison is made were contracted for substantially the same number of lights, of equal capacity, and during substantially the same hours, and the'evidence in this, case does not show this, does not pretend to show it." All that it claimed is that two or three persons doing business near the plaintiff received about the same amount of current as the plaintiff during the months for which comparisons were made, and that they paid less for the same than the plaintiff, but, so far as the evidence goes, it may be that both of these neighbors used only a small amount of current during the early hours of the use, and large quantities during the later hours, so that there is no foundation on which this judgment may properly rest.
Beyond this, however, is the fact that in both of the cases with which comparison has been made the contract provided that they would use at least 750 kilowatt hours each month, while on the part of the plaintiff his contract did not oblige him to take any given amount. He might use 100 kilowatt hours or 1,000. The defendant had no basis of calculation. It was obliged, in the discharge of its obligations under its franchise, to be prepared to furnish any amount the plaintiff might desire; while,- on the other hand, the plaintiff might not take a particle of the current in any one month, and the corporation could only collect for an agreed amount. To say that the plaintiff was receiving his current under the same circumstances and conditions as those who had agreed to take a certain amount, or to pay a certain amount whether they used it or not, is a mere arbitrary assertion, not warranted by the facts. In view of the peculiar nature of electricity, of the conceded difference in cost under differing conditions, and the importance of knowing the amount of current and the times in which it is to be demanded, we think it is a very material condition surrounding the transaction that the contract in one case provides for the use of a given quantity, while in the other the party is free to use much or little as it pleases him. While he, in effect, demands that the corporation shall be prepared to furnish current for his entire equipment, he does not guarantee to the defendant that he will use enough to make it profitable for it at any price, and it is only fair that, within reasonable limits, the corporation should be permitted to exact a rate which will compensate it for its larger investment and for the risk it runs of not having a market for the product which it must be prepared to deliver. Before the plaintiff would be entitled to recover, therefore, it would be necessary to show that the price exacted of him was out of proportion to the differences in conditions, and this there is no attempt to do. We do not find any controlling authorities upon this question, though there are more or less analogous cases sustaining the view we have taken, and we prefer to stand upon the reasoning of the question than to cumber the reports with citations.
The judgment appealed from should be reversed, with costs.
All concur, except GAYNOR, J., who dissents.