Court Opinion

ID: 9790011
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:45:11.3974+00
Date Added: 2024-06-11T07:35:24.361948
License: Public Domain

Mr. Justice Doyle
dissenting:
I respectfully disagree with the reasoning and conclusions of the majority opinion reversing the findings and conclusion of the Public Utilities Commission and holding that Colorado Interstate Gas Company is not operating as a public utility with respect to its so-called direct sales as distinguished from its sales for resale. It seems to me that the question is whether a segment of C.I.G.’s sales can be separated from its overall operation and it can be determined not to be a utility upon the basis of these sales without reference to the rest of its business. This result is achieved by placing undue emphasis upon the test of whether there is a holding out of services to the entire public. This particular test is not a universal determinate of public utility status. It is of value only because it tends to show that the business in question is affected with a public interest. However, the case should not stand or fall upon this question. Instead, it should turn upon the ultimate issue of whether the public interest is affected and in the present case there can be no question 'but that the operations in question have a profound effect on the public.
The basic fallacy of the test contended for by C.I.G. and adopted by the majority of the Court is shown in an article reported in 28 Harv. L. Rev. 135, 158 entitled Business Jurisprudence by Edward A. Adler. He points out that all business holds itself out to the entire public and seeks business generally. The' author states:
“But as we have seen, this view is erroneous, and not *382supported by the cases upon which it purports to rest. Under a true interpretation of the common law all business is public, and the phrase ‘private business’ is a contradiction in terms. Whatever is private is not business, and that which is business is not private. Every man engaged in business is engaged in a public profession and a public calling. The parties to business are the merchants on the one hand and the public on the other. The merchant or trader opens his doors into the public street and invites all who pass to enter. By public advertisement and circularizing he solicits patronage from all who read. He extends an invitation or makes a continuing offer to all indifferently. He seeks credit, employs the machinery of credit, and by so doing involves the fortunes of the community at large. He floats his securities in the public market. His good-will, always a principal asset, consists entirely of the likelihood that the people in general will avail themselves of the inducements which he has offered. Reason and authority alike show the soundness of this view.”
It could scarcely be contended that the various public callings, such as the inn keeper and the restaurant, are utilities, yet in these areas there is a general holding out of services. What then is the true test of a public utility subject to regulations? The presence of competition in the mentioned areas is the factor which makes the difference. An effort to regulate private business notwithstanding a general holding out would be unconstitutional. This would be considered a confiscation of property. It would follow, therefore, that the true utility test is the furnishing of an essential service (which we have here), together with the factor of monopoly (which is also present). Subjection to regulation is then tolerated under our system for the protection of the general public. The resultant regulation seeks to limit the rate of return of the business involved and at the same time to guarantee this business a reasonable return. It is, of course, repugnant to our system to try to regulate so-*383called private business, but I submit that it is equally repugnant to allow a utility, which is furnishing essential service and which has a monopoly, to go unregulated. Such a business cannot be depended upon to exercise restraint in exacting a fair price for its commodity.
1. The question whether the operations here in issue are within the terms of the relevant statutory provision.
The term “public utility” is defined in C.R.S. ’53, 115-1-3, which reads as follows:
Public utility defined. — The term ‘public utility,’ when used in articles 1 to 7 of this chapter, includes every common carrier, pipe line corporation, gas corporation, electrical corporation, telephone corporation, telegraph corporation, water corporation, person or municipality operating for the purpose of supplying the public for domestic, mechanical or public uses, and every corporation, or person now or hereafter declared by law to be affected with a public interest, and each thereof, is hereby declared to be a public utility and to be subject to the jurisdiction, control and regulation of the commission and to the provisions of articles 1 to 7 of this chapter. Nothing in articles 1 to 7 of this chapter shall be construed to apply to irrigation systems, the chief or principal business of which is to supply water for the purpose of irrigation.”
The clause which the majority of the Court emphasized is “operating for the purpose of supplying the public.” Omitted from the quoted statute in the majority opinion are the words “pipe line corporation” and “gas corporation.” In deciding the present question, however, it is believed that these words cannot be omitted since they evidence the legislative intent to subject to regulation the type of service company which has been traditionally regarded as a utility subject to> regulation. This arises from the fact that normally competition in this; area of special activity is non-existent and for that reason price control is necessary for the protection of the public. Such corporations provide basic and necessary *384services and the public interest is served by allowing them to operate as regulated monopolies.
Having specifically mentioned particular types of business which are regarded as public utilities, the statute sets up other broad general standards, including the one here construed by the majority, “operating for the purpose of supplying the public,” together with a third standard, “affected with a public interest.” It seems to me that the language of the statute is amply comprehensive to encompass any type of business which is and has been traditionally regarded as a public utility. This Court, in Public Utility Commission v. City of Loveland, 87 Colo. 556, 289 Pac. 1090, recognized that the General Assembly sought to confer on the Commission broad powers to regulate all public utilities. It was there said: “ * * * To approve of the court’s findings and decree would be upon our part a virtual repeal of the essential provisions of the Public Utilities Statute. It should be borne in mind in considering cases under this statute that it was clearly the intention of our General Assembly to give to the Utilities Commission complete control over public utilities so far as that could be done under existing constitutional limitations. * * * ”
The general standards mentioned above, namely, “operating for the purpose of supplying the public,” and “affected with a public interest” have been construed by the courts to include the type of activity presently in issue. In the leading case of Munn v. Illinois, 94 U.S. 113, 24 L.Ed. 77, decided in 1876, which is generally regarded as the definitive decision on public utility regulation, the Supreme Court said:
“ * * * Property does become clothed with a public interest when it is used in a manner to make it of public consequence and affect the community at large.”
The question in the Munn case was whether grain elevators could be regarded as public utilities subject to regulation and the Supreme Court held that they were affected with a public interest. This decision was based *385upon the fact of necessity of the service, together with the existence of a virtual monopoly.
In the case of Public Service Commission v. Panhandle Eastern Pipeline Company, 224 Ind. 662, 71 N.E. (2d) 117, the Court rejected a contention similar to that which is being urged in the case at bar and held segregation of direct sales to be impossible. There it was said:
“This part of its business (direct sales) and its interstate transportation and its sales to local distributing utilities, are so integrated that in any practical consideration of the state’s right to regulate direct sales to consumers, that activity must be appraised as a part of its entire business in Indiana. Its rights and duties with reference to such direct sales must be determined in the light of its over-all character in the State of Indiana.”
See also Industrial Gas Company v. Public Utilities Commission of Ohio, 135 Ohio St. 408, 21 N.E. (2d) 166 and Panhandle Eastern Pipe Line Company v. Michigan Public Service Commission, 328 Mich. 650, 44 N.W. (2d) 324. In the latter case, as in the case at bar, the pipeline company was seeking to avoid regulation with respect to certain select customers. The Michigan Court held it to be a utility. In Public Service Commission v. Panhandle, supra, the Indiana Court said (224 Ind. 685):
“The bottom question on this phase of the case is whether the appellee is furnishing gas in Indiana directly or indirectly to or for the public. Admittedly it is selling gas in Indiana indirectly to and for the public through distributing companies and that makes it a public utility under the Indiana statute, subject to regulation and control by the Indiana Public Service Commission. Also admittedly it is selling and proposing to sell gas directly to consumers within the state. This part of its business and its interstate transportation and its sale to local distributing utilities are so integrated that in any practical consideration of the state’s right to regulate direct sales to consumers that activity must be appraised as a part of its entire business in Indiana. Its *386rights and duties, with reference to such direct sales, must be determined in the light of its over-all character in the State of Indiana. It will compete with local activities in soliciting industrial business and will be in position to discriminate in its service and in its rates and in its regulations. This freedom is inconsistent with all concepts of the duties and obligations of a person or corporation engaged in such business.”
In view of basic concepts of public utility regulation and in view of the broad interpretations adopted by the courts respecting similar statutes, it seems clear that the operations of C.I.G. here in question are included within the statute. The contention of C.I.G. adopted in whole by the majority of the Court that its business cannot be considered as an integrated entirety; that the Commission is required to isolate the particular sales and judge its susceptibility to regulation as a public utility from this limited vantage strikes me as a shallow, superficial interpretation of the statute, and one which is out of harmony with fundamental principles.
2. The question whether the direct sales which are here in question are subject to regulation based upon an analysis of this part only of C.I.G.’s business.
It should be first noted that C.I.G. is not a small utility. During the 12 month period ending April 30, 1955, it transported and sold some 217 billion cubic feet of natural gas for a revenue of approximately $34,000,000. In Colorado alone it sold 118,500,000,000 cubic feet of natural gas for a revenue of $25,222,663. Approximately 70% of its sales are made to municipalities and regulated public utilities for distribution to domestic, industrial and commercial users. The remaining 30% of its sales are to consumers for their own use and consumption, either domestic, commercial or industrial. These direct sales are not subject to regulation by the Federal Power Commission under the Natural Gas Act. They have been held to be of local and not interstate concern. Panhandle Eastern Pipe Line Company v. Public Service *387Commission of Indiana, 332 U.S. 507, 68 S. Ct. 190, 92 L.Ed. 128. As a matter of actual practice there is no effort by C.I.G. to segregate these direct sales from those which are regulated by the Federal Power Commission. All the gas is commingled and transported through C.I.G.’s transmission lines and pumping stations. The City of Colorado Springs, the City of Trinidad and the Public Service Company of Colorado purchase gas from C.I.G. for resale and distribution and these purchases are regulated by the Federal Power Commission. These same customers also purchase gas for use as boiler fuel for the generation of electricity, which in turn is distributed to the people subject to regulation, and these purchases, the C.I.G. claims, are free of regulation.
Other so-called direct sales include the following:1 Colorado Fuel and Iron Corporation, which purchases approximately 10,000,000,000 cubic feet per year at a cost of $2,400,000; Ideal Cement Company, which purchases 3,262,000,000 cubic feet per year; Pabco Products, Inc., American Crystal Sugar Company, Holly Sugar Company, Santa Fe R. R., United States Veterans’ Hospital and Fountain Valley School.
The evidence indicates that C.I.G. sometimes pursues an aggressive policy with respect to its direct sales customers. For example, the City of Colorado Springs and the Public Service Company of Colorado formerly supplied their own needs for boiler fuel for generation of electricity from gas which they purchased under Federal Power Commission regulation.
However, C.I.G. put a stop to this and directed Public Service and Colorado Springs to enter into direct sales contracts with it. This resulted in substantial rate increases and, of course, a further result was an increase in the cost of electricity so generated to the ultimate consumer.
Another example of C.I.G.’s aggressiveness with respect to direct sales is the Pabco Products incident. A local distributor sought to serve this account, but not*388withstanding this, C.I.G. applied to the Federal Power Commission for a certificate to extend its facilities so as to be able to serve Pabco. Notwithstanding protests by the distributing company, C.I.G. obtained the certificate and also the customer. An effort was also made by C.I.G. to serve the Air Force Academy which is located contiguous to the City of Colorado Springs; C.I.G. ceased its negotiations because of the adverse effect that this might have on the present proceedings.
The rates to C.I.G.’s direct sales customers have increased markedly in the last several years. The charge to Colorado Springs increased 50% following the shift to direct sales in 1953. The Colorado Fuel and Iron Company’s rates have been increased 67%, amounting to $786,000 annually. It is noteworthy that these direct sales contracts provide that there is no obligation on the part of C.I.G. to continue service in the absence of agreement on prices. In 1953 when Colorado Fuel and Iron Company attempted to resist the 67% price increase, it received notice in writing from C.I.G. that if the rate was not accepted deliveries would be discontinued as of a particular date. An official of the City of Trinidad testified that there was no negotiation with C.I.G. as to price, that the city was simply told what it would have to pay.
It seems apparent from the evidence that C.I.G. has a virtual monopoly in the eastern area of Colorado, particularly in the more densely populated sections thereof, and it also seems clear from the facts adduced before the Commission that the direct sales customers are a substantial segment of the public. See Davis v. People ex rel Public Utilities Commission, 79 Colo. 642, 247 Pac. 801, wherein it is said:
“A service may effect (sic) ‘so considerable a fraction of the public that it is public in the same sense in which any other may be called so . . . the public does not mean everybody all the time.’ ”
*389The argument that C.I.G. does not have a monopoly because other fuels are available is not persuasive because the so-called other fuels are not under present conditions competitive. Moreover, practical considerations make these customers virtual captives of C.I.G. It would cost Colorado Fuel and Iron Company, for example, some $2,000,000 to convert its facilities to the use of other fuel. If this is competition, it is theoretic and not actual competition; consequently the effort to show non-monopoly from these facts is unpersuasive.
It is noteworthy that the Commission found as a fact that other types of fuel were not competitive. The finding on this point is quoted as follows:
“There are other types of fuel available to C.F. & I. if natural gas were not available. Oil, at a cost of 41c for the equivalent BTU of natural gas, and coal at 35.1c could be purchased if a sufficient source of coal was available. The cost of coal was vigorously disputed by Interstate, it being contended that that cost was substantially lower. However, some of the testimony offered by Interstate on this question cannot be accorded the dignity of evidence having probative value, and in view of the background, experience and duties of the expert testifying for C.F. & I. as to the cost of coal, we are compelled to accept his testimony of 35.1c as being the more accurate.”
The above finding is binding on this Court, so that we are not free to conclude that C.I.G. does not have a monopoly by reason of the existence of competing fuels. My concept of competing fuel would be one which is available at a price and upon a basis which could be regarded as practical as compared with that of natural gas. Certainly it is not competitive when the price is substantially higher and the cost of changeover prohibitive. These facts appear to me as furnishing a basis for concluding the existence of a practical monopoly and as showing beyond question the need for regulation in the public interest. On this question, whether there is equal*390ity of bargaining status as between C.I.G. and its direct sales customers, the Commision observed:
“It is patently obvious that this Commission was not provided with the detailed history and full facts of at least the boiler fuel contracts. Rather than the Public Service Company of Colorado, Colorado Springs and Trinidad, being the anxious and needy supplicants for boiler fuel service, it would appear from their position to serve themselves, previous service to themselves and common sense, that these direct sale customers were the unwilling purchasers of unregulated fuel, terminable at the will of the supplier, at a cost controlled only by the much higher cost of other fuels, which can hardly be classed as competitive.”
This also strikes me as a circumstance indicating the existence of a monopoly and the non-existence of a free competitive market.
There are other facts in the record and findings which show that C.I.G. is a utility which should be regulated. The tremendous impact on the affected communities is there shown. Pueblo, Trinidad and Colorado Springs are large communities. The Colorado Fuel and Iron Company employs over 10,000 people. A private corporation should not have the power of life and death over entire communities and industries. It should not have the power to turn the gas on and off in its unrestrained discretion. Here is tremendous potential for harm to the citizenry of the communities involved. The citizens of Denver are similarly affected. It is shown that C.I.G. ordered Public Service Company to cease supplying itself and required Public Service to enter into a contract with it. Is the public affected by this? It is, of course, clear that if Public Service is required to pay a substantially higher rate for boiler fuel, it in turn will have to seek an increase in the charges which it exacts for electricity. Regulation of electrical rates becomes a mockery if the fuel used to generate the electricity is sold on a monopolistic non-regulated market. The Commission *391took all of this into consideration in concluding that the proper test is whether a virtual monopoly exists.
“The question of a natural monopoly is non-existent in the instant case. We do feel, however, that the possibility of a virtual monopoly must be dealt with. It is our conclusion that if a business is a virtual monopoly, it, in effect, renders the business public or for a public use. There is a question of the situation of the public with respect to the business. Competition from a legal point of view may be possible, but from an economic point of view, improbable. Virtual monopoly may exist because of cost of plant and the large scale on which services are performed, the inadequacies of available substitutes and the dependence of the services rendered upon other activities. It is not the nature of the undertaking itself but the circumstances in which it is carried on. If conditions of virtual monopoly exist, we believe there is but little question that the state has authority to require a utility in substance, to be so in form. This was recognized by Mr. Justice Holmes in the Pipeline cases. 234 U.S. 548.”
The Commission was also articulate in its final conclusions:
“The conclusion is inescapable that the respondent in its activities constitutes a virtual monopoly. Its customers are subject to the arbitrary .control of the respondent, both as to price and as to service. In'the impact of the respondent’s services or the lack of said services to any class of customers or to any customers, whether it be a manufacturing plant, Colorado Fuel & Iron Corporation, or the electric generating plants of Public Service Company, or the municipalities, they would have grave and serious consequences for a large segment of the population of this state.
“In so finding, we do not state that these arbitrary powers have been in reality exercised by the respondent. We do not state that the prices charged, are unreasonable, nor do we state that the respondent has in any way *392conducted, itself in an unreasonable manner. All of those matters would have to be subject to other specific hearings. We simply assert that under the present method of operation such a power is vested in the respondent and this power is not canalized within banks that may keep it from overflowing. This power is unconfined and vagrant, subject, primarily, to the good will of the respondent. We believe that such a power must be subject to reasonable and constitutional processes and the police power of the people of the State of Colorado.”
It seems to me that the facts disclosed in the present record fully justify the Commission in arriving at its conclusion that the subject matter here involved is clearly within the accepted definitions. It is hard to conceive of a fact situation which would more clearly establish the presence of public utility status subject to regulation. It is hard to conceive of facts which would show, not only the effect, but the tremendous impact upon the public interest, than do those present here.
A final frightening aspect of this case is the possibility that C.I.G. will find the present technique a convenient one for escaping regulation altogether. Once it obtains a ruling from this Court that its direct sales are free from regulation, what is to prevent it from immediately adopting a broad non-competitive policy with respect to acquiring new customers? This was expressed by the Supreme Court of Indiana in Public Service Commission v. Panhandle Eastern Pipeline Company, supra. (224 Ind. 662, 668) as follows:
“It appears that in like manner, as appellee begins service direct to other large industrial consumers, it will, in most, if not all, instances supplant service by local public utility companies. These local distribution utilities have expressed alarm that taking away their large customers, thereby decimating the volume of their sales, will cripple their ability to serve domestic and small commercial and industrial consumers at fair rates.”
*393See also Panhandle Eastern Pipe Line Company v. Michigan Public Service Commission, supra, wherein the same idea was expressed by the Michigan Court:
“Obviously, Panhandle seeks to skim the cream off the local market for natural gas in the municipality where the intervening defendant now provides such services, by selling gas to Ford Motor Company and other industrial users, without regard to the public convenience and necessity for natural gas by other users in the Detroit area, particularly for domestic use. If Panhandle is free to compete at will for such local markets, and take the cream of the business, any other utility providing the same service in the same area might be forced to obtain higher rates for its services when it must obtain its natural gas from Panhandle, and thus would face a distinct disadvantage. The right to exclude such competition, where the general public convenience and necessities so require, has been delegated by the legislature to the Michigan public service commission, after a proper hearing and upon a proper showing of the facts and the necessities, to determine whether Panhandle, by selling natural gas direct to industrial users in Detroit, would thus serve the public convenience and the necessities of users of natural gas in that area where Panhandle now claims the absolute right to engage in such service.”
It seems to me that the Commission properly placed the emphasis where it belongs. It found and concluded that C.I.G. has a virtual monopoly with respect to an essential service and further found that its conduct was such as to require regulation. The Commission gave a proper construction to the statute, a construction which gives effect to the legal terms used therein in accordance with our basic notions as to what constitutes a public utility. The majority opinion, on the other hand, has given the statute a strained, unnatural construction; one which is out of harmony with fundamental public utility precepts, and does violence to the public interest.
For the reasons stated, I would reverse the judgment *394of the district court, and affirm the findings and conclusion of the Public Utilities Commission.
Mr. Justice Moore joins in this dissent.