Court Opinion

ID: 9647862
Source: CourtListenerOpinion
Date Created: 2023-08-23 13:53:21.625641+00
Date Added: 2024-06-11T18:11:54.294689
License: Public Domain

HOPKINS, District Judge (dissenting).
These are suits in equity to enjoin the enforcement of certain orders of the Public Service Commission of Kansas. The questions presented involve the reasonableness of certain contracts between various of the Henry L. Doherty operating corporations.
The facts so far as necessary to this discussion are these:
One of the Doherty companies, the Cities Service Gas Company, conveys from the gas fields and furnishes gas to the local distributing companies at the various city gates at a contract price of 40 cents per thousand cubie feet. Under another contract each of. the distributing companies pays to Henry L. Doherty, doing business as Henry L. Doherty & Co., these items — 1% per cent, of its gross revenues, a per diem, an expense charge for certain specific services, and an engineering fee of 5 per cent, of the cost of construct tion.
July 2, 1931, the Public Service Commission, upon certain findings therein made, entered an order for a hearing to inquire into the reasonableness of such contracts.
The respondents appeared, and, after a hearing and rehearing the commission, on August 31, 1932, entered an order substantially to the effect “that on and after the 1st day of September, 1932, the distributing companies shall cease to set up on their books as an expense item any payments made to Henry L. Doherty and Co., of the 1% per cent, charge and also any payments made for main line town border gas in excess of 30 cents per M. C. F., and should give no consideration to any such payments in fixing a rate for the domestic consumer.”
The instant actions were commenced September 19,1932, to enjoin the enforcement of such order. The hills alleged diversity of citizenship, that the orders were confiscatory of the property of the plaintiffs, impair the obligation of their contracts, deny to them the equal protection of the law, and unconstitutionally interfere with interstate commerce.
The cases were consolidated for trial. Upon the trial here, the same evidence introduced before the commission was received, supplemented by an agreed abstract'thereof; an agreed statement of facts, and by stipulation and other evidence. These cases are a .sequel to Western Distributing Co. v. Commission, decided by this court in 1931 (58 F. (2d) 241), and affirmed by the Supreme Court February 29, 1932. 285 U. S. 119, 52 S. Ct. 283, 76 L. Ed. 655.
At the threshold of this inquiry we are met by six propositions which must bo kept in mind throughout the investigation.
(1) Natural gas is one of the great natural resources. It is discovered, extracted from the earth, transported, and sold to the people of a hundred and twenty-eight cities and towns involved in this inquiry. The plaintiff has secured control of this great resource for which the people must now pay.
*812(2) That, while the problem in this territory a few years ago was one of finding gas to'.supply the demand, it is now a question of finding a market for what appears to be an almost inexhaustible supply.
(3) That the Henry L. Doherty organizar tion is perhaps one of the most efficient ever known, engaged in the handling of publie utilities and products thereof, for which rear son it has good credit and is enabled to borrow necessary funds for its operations at the lowest available rates.
(4) That within the past two and a half or three years utility rates in this territory have perceptibly fallen, and that a return of from 5 to 7 per cent, is now equal to the purchasing power of from 7 to 10 per cent, during the period of prosperity just preceding that time.
(5) That it is a matter of common knowledge that the Doherty organization has been and is selling, and offering to sell, gas to individual consumers in this territory not only for industrial, but for domestic, purposes at rates far below the 30-eent rate fixed by the public service commission to the distributing companies at the city gates.
(6) That, while publie utility rates in general .throughout this territory have been perceptibly lowered during the last two or three yegrs, the Doherty 40-cent rate at the city gates has remained the same.
The commission contends that the order under inquiry is not subject to the constitutional objections urged by the plaintiffs because it finds only that the contracts are unreasonable and the extent of sueh unreasonableness. I do not agree with this contention. The order expressly prohibits payments made to Henry L. Doherty & Co. and to ffie. Cities Service Gas Company for gas at the city gates in excess of the 30 cents per thousand cubic feet “in fixing a rate for the domestic consumer,” on and after September 1,1982. The order, in my opinion, would affect the rates charged the domestic consumers, and is in fact a rate-reducing order, and is therefore subject, to review.
There is no contention on the part of the commission that it has power to regulate interstate gas rates. However, a state does have the power to regulate the price of gas brought into it and sold directly to the consumer, because “the business of supplying * * * local consumers is a local business, even though the gas be brought from another state.” Missouri ex rel. Barrett v. Kansas Natural Gas Co., 265 U. S. 298, 309, 44 S. Ct. 544, 546, 68 L. Ed. 1027; Penn. Gas Co. v. Public Service Comm., 252 U. S. 23, 40 S. Ct. 279, 64 L. Ed. 434; East Ohio Gas Co. v. Tax Commission, 283 U. S. 465, 51 S. Ct. 499, 75 L. Ed. 1171.
In spite of a stipulation between the parties, I do nqt concur in the view that, if the charge made by the plaintiff at the city gates was reduced to 30 cents, it would result in a reduction of $1,926,000, in its net income. In all human probability a reduction in rates 'would induce a greater demand for gas. The plaintiff states that other fuel costs have been reduced. Eor instance, at page 104 qf its brief it says: “In 1924 and 1925 many of these distributing companies were acquired by the Cities Service organization and at no time from then until now has there been any failure in service. Natural Gas in this territory does not have as many outages as does electric service which is always taken as the ideal service in the Utility field at which to aim. The best evidence in this improvement in service is shown by the Annual Reports to the Public Service Commission which show the increased annual sales of gas per customer in all of the towns in this territory throughout the last six or seven years, notwithstanding the fact that during this period the cost of competitive fuels was steadily being reduced, coal and oil now selling at prices hitherto unknown.”
At page 106 it says (on the question of interest rates): “No changes in gas rates from 1923 to date have been made except reductions. These distributing companies have not yet recovered from the effects of their experience as isolated companies to an extent whereby they are able to furnish their own financing for extensions and betterments at a reasonable cost. But they have at all times been furnished with whatever money was needed for additions and betterments by the Cities Service Company and they have been charged an interest rate of only 6% for this money.”
But the 40-cent gas rate has not been reduced. Nor do I concur that a rate of 8 per cent upon present values of the plaintiff is necessary under present conditions to secure confidence in its financial soundness, or to maintain its credit and enable it to borrow money.
I. do not assent to the conclusion that 40 cents per thousand cubic feet at the city gates is a reasonable charge and that to compel the-plaintiff to furnish sueh gas at 30 cents per M. C. F. will result in confiscation of its property. ‘
*813I concur in the view of the majority that the various Doherty companies are engaged in a common enterprise, and that the principal one, the City Service Company, is through the agencies of the other corporations supplying gas to the local consumers, and is therefore engaged in a local business. The fact is that the Henry L. Doherty organization is one of the most efficient, far-reaching monopolies operating in this country. It has many interlocking corporations. The common stock of the Cities Service Gas Company is owned hy the Empire Gas & Fuel Company, the voting stock of which in turn is owned hy the Cities Service Company. Henry L. Doherty & Co. is Henry L. Doherty, who owns 35 per cent, of the voting stock of the Cities Service Company and controls its policies. The Cities Service Company, by stock ownership, legally controls the policies of the distributing companies and tho Cities Service Gas Company. Henry L. Doherty in fact controls the policies of all the interlocking companies.
Since as far hack as 193 0 Henry L. Doherty, doing business under the name of Henry L. Doherty & Co., has been completing and building up this organization. It is manned by experienced executives, financial advisors, construction, valuation, electrical, oil, and gas engineers, geologists, chemists, technical experts, accountants, operators, and lawyers. All are men high in their various professions. Through the years they have learned the Doherty way. They see through the eyes of Mr. Doherty, understand the Doherty language, (“their master’s voice”) and speak the voice of Mr. Doherty. This is not said in criticism of the Doherty organization, nor of the men high in their professions and avocations, who, manage and direct it, hut only to illustrate this efficient, powerful, operating machine known as the Doherty organization. With due credit to the poet, Pope, it may be observed:
“'Tliat all are parts of one stupendous whole, Whose body many corporations are and Doherty the soul.”
I also concur in the view that, since the Doherty companies exercise a monopoly for supplying gas to the various communities served by the distributing companies, parties herein, and since the Cities Service Gas Company is the nnit which procures, conveys, and delivers the gas to the other companies, the only method of determining the fairness and reasonableness of the charge at the city gates is to determine the reasonableness of the return to the Cities Service Gas Company, on its property used and useful in such business.
I further concur in the view that, in determining the facts, the findings of the Public Service Commission are presumed to be correct, Banton v. Belt Line Ry. Corp., 268 U. S. 413, 422, 45 S. Ct. 534, 69 L. Ed. 1020; Cotting v. Kansas City Stock Yards Co., 183 U. S. 79, 22 S. Ct. 30, 46 L. Ed. 92,; Denver Union Stock Yard Co. v. United States (D. C. Colo.) 57 F.(2d) 735, 739, and that, on the question of confiscation, the plaintiff is entitled to the independent judgment of a judicial tribunal as to the law and facts, United Railways & E. Co. v. West, 280 U. S. 234, 251, 50 S. Ct. 123, 74 L. Ed. 390; Blue Field W. W. & Imp. Co. v. Public Service Commission, 262 U. S. 679, 689, 43 S. Ct. 675, 67 L. Ed. 3.176; Ohio Valley W. Co. v. Ben Avon Borough, 253 U. S. 287, 40 S. Ct. 527, 64 L. Ed. 908; Lincoln Gas & Electric Light Co. v. Lincoln, 223 U. S. 349, 32 S. Ct. 271, 56 L. Ed. 466; Crowell v. Benson, 285 U. S. 22, 52 S. Ct. 285, 76 L. Ed. 598.
A contention that the commission is not concerned with the future is not well founded. It is settled that the commission is concerned with rates for the future, and the experience of the past is tho only criterion by which it may make rates for the future.
The history of this company shows rapid development since 3 92,6, when taken over by Mr. Doherty, as to investment in plant increase, in sales of gas and in net income. For instance, gas sales in 3927 amounted to $10,-771,491; in 1930 $15,380,609, an increase of 42.79 per cent. Investment in plant increased from December, 1927, to December, 3932, 50.23 per cent. During the same period net earnings increased 65.48 per cent. During this period what is known as the Amarillo Wichita Ottawa line was completed, and extensions were made of major importance to Nebraska and Missouri, developing new markets for the business. In 1930 the effect of the depression began to affect sales and earnings of the company largely through loss of industrial business, a business bound to be regained as industrial business improves; and it goes without saying that the carrying of tho.investment and expense of industrial business should not be placed on the domestic consumers.
Sale of gas for drilling and field purposes during 1932 period were only 36.55 per cent, of such sales during 1930 (showing abnormality during 1932), and it is reasonable to expect that with the return of activity in tho *814oil and gas business the markets for drilling and field gas will be revived.
Earnings should be averaged over a reasonable period of time in order to determine whether a utility is earning a fair return, or more or less than a fair return, for rate making or any other purposes. Denver Union Stoek Yard Case, supra. “The only fair test is to level out the peaks and valleys and estimate the future according to the mean line.” Complaint is made that the commission used an average value. The same reasoning which requires the use of average earnings requires the use of average values. It is not fair to compare earnings during 1929 and 1930 with the values in 1931 and 1932, when there were extensive additions to plant investment. The use of average values contemplates the inclusion of values averaged over the same period used for the averaging of earnings.
In connection with the specific questions raised are general questions of public policy. This organization has secured control of a great natural resource for which the people must pay. The question for determination is what charge constitutes' the rate base for this plaintiff in arriving at a fair value of its property and what would be a reasonable rate to charge for the product and services rendered to the people. How shall the people of these hundred and twenty-eight cities and towns be permitted to enjoy this natural resource free from extortion and at the same time allow the utility a fair return on the value of its property?
The showing must be clear before the court should interfere with the commission’s order. Especially is this true where no actual experience has been had of the practical result "of the rates fixed. While there is an alleged prophesied loss of income from a reduced rate, it must not be overlooked that such reduction means probably increased consumption.
In Willcox v. Consolidated Gas Co., 212 U. S. 41, 29 S. Ct. 192, 196; 53 L. Ed. 382, 48 L. R. A. (N. S.) 1134, 15 Ann. Cas. 1034, it was said:
“Where the rate complained of shows, in any event, a very narrow line of division between possible confiscation and proper regulation, as based upon the value of the property found by the court below, and the division depends upon opinions as to value, which differ considerably among the witnesses, and also upon the results in the future of operating under the rate objected to, so that the material faet of value is left in much doubt, a court of equity ought not to interfere by injunction before a fair trial has been made of continuing the business under that rate, and thus eliminating, as far as is possible, the doubt arising from opinions as opposed to facts. * * *
“There is no particular rate of compensation which must, in all eases and in all parts of the country, be regarded as sufficient for capital invested in business enterprises. Such compensation must depend greatly upon circumstances and locality; among other things, the amount of risk in the business is a most important factor, as well as the locality where the business is conducted, and the rate expected and usually realized there’upon investments of a somewhat similar nature.with regard to the risk attending them.”
E. C. Hamilton and E. B. Black were the principal engineers testifying in this ease. Both are eminent in their profession. Mr. Hamilton for many years a member of the Doherty organization, learned in that organization’s activities, knowing its business, being interested therein, naturally an efficient and proficient booster of its values when rate matters are involved. All this may be said without in any manner impugning the ability or high character of Mr. Hamilton. It only directs attention to the faet that he has been for many years and is interested in the success of the Doherty organization; that his education and environment have all developed a viewpoint which necessarily is for the benefit of the utility; that he is an interested witness.
Mr. Black is an independent engineer, a member of the old firm of Worley & Black, now Black & Veateh, of high standing and operating for many years, secured by the state for the purposes of thjs case.
The commission saw and heard the witnesses, painstakingly examined their téstimony, and, with the discretion allowed it under the law, arrived at what it determined, the fair and reasonable value of plaintiff’s property. And, while it is the duty of this court to make an independent investigation of the facts, which it has done, this court should be careful not to substitute its judgment for that' of the commission, unless it is clear that the commission erred.
The effect of the opinion and findings of the majority, if adopted on sufficient of the items, makes a rate base from which it may be argued that the rate allowed the plaintiff is confiscatory. The evidence in my opinion fails to disclose on such items sufficient rea*815sons for setting aside the findings of the commission and substituting those of this court, nor does the evidence justify a finding of this court that a gate rate of 40 cents to the distributing companies is fair and reasonable.
The important questions will be discussed in their order.
Used and Useful Gas Acreage.
The company owns 1,262,361 acres of gas rights. The commission found that 71,267 acres of such leases were used and useful and devoted to a public use, and valued such acreage at $2,880,390. (Book value.)
Officers of the company testified that they considered all of the 1,262,361 acres of gas rights owned by the company as necessary and a prudent purchase. The majority opinion holds that the Public Service Commission ma.y not substitute its judgment for that of the officers of the companies. True ordinarily, but the rule also is that “what the company is entitled to demand in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public.” Pon on Public Utilities, § 591; San Diego Land & Town Co. v. National City, 174 U. S. 739, 19 S. Ct. 804, 43 L. Ed. 1154.
The facts show clearly in my opinion that all of such gas rights are not now used, and that the present consumers do not and will not in the near future receive any benefit from them.
These investments in gas reserves, by the plaintiff, perhaps were prudent, but they should not be used as a base on which to estimate the rate for present consumers. None but tbe 71,267 acres of leases allowed by the commission are in my opinion used and useful and devoted to the public use.
This 71,267 acres comprises 50,000 acres proven in the Amarillo field with all the wells in that field, and 21,261 acres, all the developed, proven, and probable acreage in Kansas, Oklahoma (except Hugoton), with all the wells in those fields. The recoverable gas reserve in this 71,267 acres is .sufficient to furnish all of the company’s requirements, excluding the gas purchased under its purchase contracts, on the basis of its requirements for the year 1930, for twenty-two years. "
The acreage in the Hugoton field excluded, comprises 123,440 acres. None of the company’s acreage in this field is drilled, and all of it is distant at least 90 miles from any pipe line owned by the company. It is held hv the company through ten year leases with about seven years yet to run. These leases require an annual rental be paid and that a well be drilled within the term of the lease. The number of these leases is in excess of 500. The cost of drilling and equipping a well in this field is not less than $20,000, and if the company is to hold these leases it must drill within the next seven years over 500 wells at a cost of over $10,000,000 and in addition pay annual rental in a substantial amount.
The prospective acreage excluded by the commission amounts to 998,287 acres; it is “wildcat” territory. Its value is for oil rather than gas. It is scattered. Very little of it is available to the company’s pipe line.
In the assignment of 71,267 acres of leases as used and useful, there are 27,910 acres of land in the Sweet proven area of the Amarillo field, which are not developed, and 1,385 acres in Kansas and Oklahoma, 325 aeres of which are proven and 1,060 acres probable, which are yet to be drilled with sufficient reserves of recoverable gas to last for twenty-two years. In addition to this reserve, the company owns purchase contracts entitling it to the gas of 782,421 acres in Kansas and Oklahoma, having 1,502 wells and a daily open flow of 2,138,170 M. C. F.
Gas consumers should not bo required to pay a rate for gas based on a return on the valuation of leases which are not used for them, and which, if ever used, will not be until the distant future.
The gas situation, in this territory, has undergone .a, complete change within the last five years. The Amarillo and 1 lugoton fields lutve been developed within that time. Prior to that time the problem was how and where to get gas. Now the problem is to find a market. Utilities then based their rates on the presumption that the gas supply would be exhausted in from seven to ten years. Now the supply appears almost inexhaustible.
Dr. Moore, state geologist of Kansas, testified that tbe recoverable gas in the Hugoton field alone is sufficient to supply all of the requirements of Kansas, domestic and industrial, at the present rate of consumption, for over one hundred years.
It is a matter of common knowledge that there was recently brought in the “Burton” field within 3 miles of this company’s pipe line, with undefined limits, having wells with an open flow of 270,000,000 cubic feet per day, with a rock pressure of 1,200 pounds.
Another matter having a bearing on this controversy is the problem confronting the *816Texas Railroad Commission in the Amarillo field as to means of providing a market for the vast amount of “shut in gas”; that is, gas wells whieh have been drilled by independent operators which are shut in for lack of market.
The first attempt to provide a market for this shut-in gas was by the Common Purchaser Act, which required purchase of this gas by the gas companies. That act was declared unconstitutional, whereupon the Texas commission recently made an order limiting the “take” tq 4 per cent, of the potential (open flow). The object of this order appears to be two-fold: First, to conserve the gas in the Sweet proven area in the Amarillo field for domestic and industrial uses; second, to provide a market for this shut-in gas and a rata/ble taking from all wells. This order is in litigation. Whether or not it may be sustained makes little difference to this plaintiff. It may purchase gas from the shut-in wells, many of which are within two miles of its line, or it may develop its own acreage (50,-000 acres) by drilling additional wells; that is to say, the effect of .the Texas order, if sustained, is not to require the company to have additional acreage, but to require additional wells on the acreage which has been allotted to it; or the company, if it prefers, can dispense with its reserves, and in lieu thereof purchase some of the vast quantity of gas available from the “shut in wells,” whieh under present conditions can find no market.
The action of the Kansas commission in including in the rate-base only that acreage which presently and will in the near future be used and useful is well supported by the authorities. See United Fuel Gas Company v. R. R. Commission 278 U. S. 300, page 322, 49 S. Ct. 150, 73 L. Ed. page 401; United Fuel Gas Co. v. Public Service Commission of West Virginia, 278 U. S. 322, 49 S. Ct. 157, 73 L. Ed. 402; City of Erie v. Public Service Commission, 278 Pa. 512, 123 A. 471, P. U. R. 1924D, 89; Logan Gas Company v. Public Utilities Commission of Ohio, 121 Ohio St. 507, 169 N. E. 575.
In my opinion, the commission was well within its powers in finding that 71,267 acres of plaintiffs’ gas reserves, which are in addition to its purchase contracts, covering 782,-421 acres and 1,502 wells, with a potential of 1,532,625 M. C. F. per day, are used and useful to the company’s developed acreage, 27,910 acres of which is in the Sweet proven gas area of the Amarillo field. The testimony of the officers of the company that they considered all of the 1,262,361 acres held by it as necessary for its future requirements, is not sufficient to overcome the actual facts, that it has an adequate supply for twenty-two years in the future. It would be contrary to common sense and justice to require the present consumers to pay for gas reserves whieh are not now used and whieh might never be used for their needs.
Going Concern Value.
The facts and circumstances disclosed by the record in this ease present a problem, different from the ordinary rate case. We have here a producing gas pipe line built for the purpose of supplying already existing customers. Result: Going concern value is very largely opinion based upon theory, when the theory is not supported by the facts.
Mi?. Black, testifying for the commission, found the going value to be $3,820,000. Mr. Hamilton, engineer for the Doherty corpora^tions, found it to be $8,898,532. The commission found $2,000,000 as a sufficient allowance for this element of value.
Mr. Hamilton testified: “I just took 10 per cent, of the physical property value for this particular ease for that item.
“Q. You have not itemized it? A. No, I have not itemized it in any way.
“Q. As I understand, then you did not arrive at it by finding the cost of attaching this business. A. It is partially the cost of attaching the business, and the time of the engineers and others in negotiating the contracts, but that, for a wholesale situation, is.a small item. The largest cost is the excess capacity that you will have for a period of three years, while your distributing companies are getting up to a point where they use the amount of gas that the size of the system is predicated on.”
It is apparent from the record that Mr. Hamilton and Mr. Blaek considered the “idle plant” while the line was reaching the maximum capacity as the largest element of cost to be considered.
Both witnesses testified that the going concern value for a pipe line company would be less than the going value for a distributing plant. Mr. Hamilton testified-to the difference between going value for a distributing plant and a pipe line company as follows:
“Q. Do you mean to say, Mr. Hamilton, that every plant of the same value should have the same allowance for going value?' A. No, because there would be a different allowance between your pipe-line plant or your *817distribution plant or an electric plant or something like that. There might be a wholly different basis.
“Q. For instance you take the distribution plant, take the one here in Topeka, for example — A. Yes sir.
“Q. If you assumed that you would reproduce it now, and it had no customers, it would mean you would have to attach in that ease, thousands of customers before the business was established? A. That is true, and 10 per cent, allowance in that distribution plant would not ho sufficient in my judgment.
“Q. Then take a pipe-line company like this, and the number of customers you have is not very large, very many involved, don’t exceed three or four hundred? A. That is true.”
It is perfectly apparent that both witnesses arrived at their calculations for “idle plant” upon a hypothetical basis without considering the actual facts and experiences of the company. It appears that the commission applied the tests which both engineers laid down as a proper measure of determining going concern value, and found that $2,000,-000 was a sufficient and proper allowance. The record shows clearly that on the major part of the pipe line system there was very little idle plant following the construction period.
Many reasons may be advanced as to why a going concern value should be added to the physical value of the property of the distributing companies which does not obtain as to the production and transmission system. This line was built for the definite purpose of supplying customers already secured, and there appears little or no justification for adding a large going concern value to it. It is doubtful if a going concern value amounting to millions of dollars can be established on a theory that expenses are to be incurred after the property has been reproduced, when as a matter of fact such expenses were not incurred. How can it be said that there would he any expense of attaching business to a producing pipe line company which has been built for the sole purpose of supplying already existing customers?
The argument that the cost incident to training personnel is a proper basis of going concern value in this case is not good, because the business of producing, transporting, and distributing gas has been so long in operation that an abundant supply of well-trained personnel is always at the command of the company. In these times there is probably a considerable oversupply.
The commission, in my opinion, was right when it gave consideration to the cost of organizing the operating company, organization legal expenses, cost of records, and some interest, and depreciation on idle plant, taking into consideration that there has been very little, if any, idle plant in the system.
It may he observed in passing that the interest charged on the books of the company to the cost of Wiehita-Ottawa 2()-ineh lino amounted to $24,444.01, while Mr. Black allowed for interest on this same line $198,544, and Mr. Hamilton allowed $320,182, indicating that both engineers were not only liberal, but, in fact, made excessive allowances for interest compared with the actual experience of the company. Under all the circumstances the allowance of $2,000,000 made by the commission was reasonable and adequate.
Bate of Eeturn.
In considering what is a fair rate of return to be earned by the pipe line company in connection with the reasonableness of the gate rate contract of the 40 cents, we must take into consideration what it must earn in the light of its situation, its requirements, and its opportunities. In dealing with its affiliated distributing companies, we should consider the fact that the company should be allowed to earn on the value of its property employed in serving the public with its pipe line, an amount equal to that generally being made by the same business undertakings, which are attended by the same risks and uncertainties. It should also be allowed to earn an amount reasonably sufficient to assure confidence in its financial ability.
There was testimony for the plaintiff that an 8 per cent, return is usual. Other testimony placed the rate at from 6 to 8 per cent. Practically all of the witnesses agreed that some consideration should be given to the fact that this company was not an ordinary public utility company, but one of a large system organized for the purpose of maintaining the credit of the constituent companies and securing financial assistance.
It is apparent from the affiliation and mutual assistance rendered by the great and efficient Doherty organization that this particular plaintiff is and has been able to sell its securities at an interest rate that was from a half to three-fourths per cent, less than anything else that was put out at about that time on a similar project, and that it gets bet*818ter terms on its mortgages. Because of this situation it was able to sell its 5% per cent, bonds for 9614. This plaintiff having ample resources does not necessarily have to issue securities now or six months from now or two years from now. “It picks and chooses its time when the markets are right.”
The record shows this plaintiff sold $12,-000,000 of first mortgage, pipe line 6 per cent, gold bonds at par. It is apparent, therefore, that it is able to obtain funds at a very low rate and is assured of financial stability and a supported credit which enables it to raise all necessary money for the proper discharge of its duties at a low rate of interest. It is apparent also that there is little risk or hazard in its business. The pipe line system which it has established is a permanent fixture for an indefinite period. It has a gas reserve which insures it of a supply of gas lasting well into the future. The territory which it serves is well protected; it has almost a monopoly on the territory which it serves due to the fact that the distributing units are affiliated companies and it would be economically unsound for another pipe line company to invade its territory.
We are also confronted with changed conditions affecting opportunities for investments which tend to limit the amount of the return. Annual returns upon capital have materially decreased in the past two or three years. Businesses generally are satisfied with a very low rate of return. All businesses, including that of public utilities, are satisfied with a much less rate of return than they were three or four years ago when annual returns upon the capital were unreasonably high.
The Cities Service Gas Company is not an ordinary public utility. It is one of a large system organized for the purpose of maintaining the credit of subsidiary companies and assisting,them in their finances. It has been able to extend its business so as to meet increased demands, to pay its operating expenses, including interest on money borrowed, to pay dividends of 8 per cent, upon its capital stock and accumulate a large surplus. See Smith v. Illinois Bell Telephone Co., 282 U. S. 133, 159, 161, 51 S. Ct. 65, 75 L. Ed. 255.
It is apparent from the record that the operations of this plaintiff have been highly successful and enormously profitable. It was organized in 1926, acquiring the assets and assuming liabilities of the following companies: Empire Natural Gas Company, Empire Gas & Pipe Line Company, Kansas-Oklahoma Gas Company, Empire Gas & Fuel Company (gas properties only).
At that time the plant investment of these companies, including uncompleted job orders, was $52,182,525.98. Reserves for depreciation and depletion had been accumulated out of earnings in the amount of $22',423,936.95, or 42.97 per cent, of the plant investment. They had accumulated a surplus amounting to $14,993,660.21, equal to 87.26 per cent, of the total capital stock of the companies taken over.
The combined reserves for depreciation and depletion and surplus amounted to $37,-327,527.16, equal to 218.55 per cent, of all outstanding capital stock of the companies and 71.53 per cent, of the plant investment. They were able to loan other affiliated companies $7,559,571, in addition to paying bond interest and dividends.
When this plaintiff was organized and its books opened, $17,080,000 of capital stock and $2,000,000 of bonds became immediately $26,000,000 of common stock and $25,000,000 of 5% per cent, bonds; its reserves for depreciation and depletion became $7,760,706' instead of $22,423,939, as they were before the consolidation. No surplus was carried over into the new corporation.
A glance at the 'financial history of the company since the consolidation in 1926 is of more than passing interest. This history shows that surplus has been accumulated in excess of all interest and dividends paid of $9,044,629 to June 30, 1931; its depreciation and depletion reserves have been increased to $10,818,020. Its total assets have increased from $60,595,001 as of December, 1926, to $109,431,039 as of June 30, 1931. This increase was accomplished with the addition of the outstanding stock and bonds of only $28,365,700 and loans of $9,000,000. The company has been able to advance to affiliated companies $2,677,131. During all this time it paid interest on its bonds and dividends on its capital stock; in 1928 $1,000,-000 dividends, and in 1929 and 1930 $2,000,-000 each on dividends, which is at the rate of 8 per cent, per ánnum. Its earnings before interest were as follows:
1927 ............................................ $5,335,739
1928 ............................................ 6,053,621
1929 ............................................ 8,660,793
1930 ............................................ 8,829,480
Twelve months ending June 30, 1931........ 8,741,809
Its net profit, after paying all interest and other charges providing for substantial allowances for depreciation and depletion, *819amounted to the following percentages of its outstanding capital stock during each of the years 1927 to 1930, inclusive:
1927 ................ 9.96% 1929 ............... 14.63%
1S2S ................' 6.75% 1930 ............... 10.82%
The plant investment, including uneom-” pleted job orders, increased from $54,243,128, December 31, 1926, to $99,003,996, June 30, 1931, an increase of $45,760,872. A considerable program of expansion was carried ont, a large line was consi ructed from Amarillo to IViehita; a line was extended from near Hutchinson north into Nebraska; lines were extended into Missouri; such construction involved largo expenditures which affected the operating expenses of the company.
It is a matter of common knowledge that price levels were higher. The purchasing power of the dollar was very much less than now, 8 per cent, was considered a fair and reasonable rate of return.
Under the present low level of prices, the purchasing power of a return of 6 per cent, is greater than the purchasing power of a return of 8 per cent, was during the periods of higher price levels.
A return of 6 per cent, is not unreasonable at this timo. Tn fact, the great majority of concerns now doing business are glad to earn as much as 6 per cent., and are fortunate to do so. Even a five per cent, return at this time would not be confiscatory.
I am of the opinion that, in view of the financial history of this plaintiff, its highly profitable experience, file fact that it is a part of a large system with its market assured through affiliated distributing companies, its large gas reserves, and, all attending circumstances, a return of 6 to 8 per cent, is reasonable, and 5 per cent, would not bo confiscatory.
United Railways & Electric Co. v. West, 280 U. S. 234-291, 50 S. Ct. 123, 74 L. Ed. 390, is cited and relied on in the majority opinion as sustaining the conclusion that the rate of return must be 8 per cent. The court in the West Case held that under the circumstances of that ease a rate of 6.26 per cent, was insufficient. Three members of the court dissented. Tn my opinion, the decision in the West Case does not sustain the majority opinion in this case. It was among other things said in the syllabus: “* * ^ The fair rate of return to which a publie utility is entitled is to be tested primarily by present-day conditions, and not by what may have been a proper rate in the past. * * * In determining whether the rates established by a publie service commission are so inadequate as to be confiscatory, the court must determine what will constitute a fair return, to the best of its ability, in the exercise of a fair, enlightened, and independent judgment as to both law and facts. * * * A rate producing a return of 6.26 per cent, on the valuation of the property of a street railway company will be considered so inadequate as to amount to a taking of its property without due process, where it is shown that while the total number of passengers carried has for some time steadily decreased, the number carried during rush, hours has increased, resulting in an increase of expenses in proportion to the whole number of passengers carried, and that, in borrowing money with which to finance its operations, the company has been obliged to pay a rate of interest ranging well over 7 per cent.”
In the opinion it was said (page 250 of 280 U. S., 50 S. Ct. 123, 125, 74 L. Ed. 390):
“A publie utility is entitled to such rates as will permit it to earn a return on the value of the property which it employs for the convenience of the public equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings which are attended by corresponding risks and uncertainties ; but it has no constitutional right to profits such as are realized or anticipated in highly profitable enterprises or speculative ventures. * * * A rate of return may be reasonable at one time and become too high or too low by changes affecting opportunities for investment, the money market and business conditions generally. * * * ‘Investors take into account the result of past operations, especially in recent years, when determining the terms upon which they will invest in such an undertaking. Low, uncertain or irregular income makes for low prices for the securities of the utility and higher rates of interest to be demanded by investors. The fact that the company may not insist as a matter of constitutional right that past losses be made up by rates to be applied in the present and future tends to weaken credit, and the fact that the utility is protected against being compelled [page 251 of 280 U. S., 50 S. Ct. 123, 74 L. Ed. 390] to serve for confiscatory rates tends to support it. In this case the record shows that the rate of return has been low through a long period np to the time of the inquiry by the commission here involved.’ ”
On page 251 of 280 U. S., 50 S. Ct. 123, 125, 74 L. Ed. 390, appears the following • “Since 1920 the company has borrowed from time to time some $18,000,000 upon which it *820has been obliged to pay an average rate of interest ranging well over 7 per cent, and this has been the experience of street railway lines quite generally. Upon the valuation fixed, with an allowance for depreciation calculated with reference to that valuation, and upon the then prescribed rates, the company for the years 1920 to 1926, both inclusive, obtained a return of little more than 5 per cent, per annum.”
On page 252 of 280 U. S., 50 S. Ct. 123, 126, 74 L. Ed. 390, appears the following: “In this view of the matter, a return of 6.26 per cent, is clearly inadequate. In the light of recent decisions of this court and other federal decisions, it is not certain that rates securing a return of 7% per cent., or even 8 per cent., on the value of the property would not be necessary to avoid confiscation. But this we need not decide, since the company itself sought from the Commission a rate which it appears would produce a return of about 7.44 per cent., at the same time insisting that such return fell short of being adequate.”
On page 249 of 280 U. S., 50 S. Ct. 123, 125, 74 L. Ed. 390, appears the following: “What is a fair return within this principle cannot be settled by invoking decisions of this court made years ago based upon conditions radically different from those whieh prevail to-day. The problem is one to be tested primarily by present-day conditions. Annual returns upon capital and enterprise, like wages of employees, cost of maintenance and related expenses, have materially increased the country over. This is common knowledge. A rate of return upon capital invested in street railway lines and other public utilities whieh might have been proper a few years ago no longer furnishes a safe criterion either for the present or the future.”
The court’was there considering a rate for a street railway. It is a matter of common knowledge, to whieh we may not shut our eyes, that bus transportation and the use of private automobiles the country over have cut deeply into the revenues of street railway companies. The very opposite condition exists in connection with the plaintiff whieh has made big returns, paid its interest and dividends, accumulated a surplus, loaned money, and is able to float its securities at will and on better terms than other like' utilities — a gas pipe line company whieh practically has a monopoly in its field.
Applying to the instant case the prinei-pies stated by Mr. Justice Sutherland in United Railways & Elec. Co. v. West, supra: Considering all the facts shown by the record and attending circumstances, it must appear beyond question that a rate of return to the plaintiff of from 6 to 8 per cent, on the value of its property used and useful in its business would be a fair return when protected by the state — even a rate of 5 per cent, in these times would not be confiscatory.
In Wabash Valley Electric Co. v. Ralph M. Young et al., 53 S. Ct. 234, 238, 77 L. Ed. —, a case in whieh a decision was handed down January 9, 1933, in an opinion by Mr. Justice Sutherland, it was said: “It is true, as appellant points out, that in United Railways [& Elec. Co.] v. West, 280 U. S. 234, 251, 252, 50 S. Ct. 123, 126, 74 L. Ed. 390, this court held that a rate of return for a street railway of less than 7.44 per cent, was confiscatory, saying that sound business management required that, after paying all expenses of operation, etc., ‘there should still remain something to be passed to the surplus account’; and that a rate of return whieh did not admit of that being done was not sufficient to enable a utility to maintain its credit and raise money for the proper discharge of its public duties. Many cases were cited tending to show that a return of 7% per cent, or even 8 per cent, might be necessary, but it was said (pages 249, 250, of 280 U. S., 50 S. Ct. 123,125 [74 L. Ed. 390]) that no rule could be laid down whieh would apply uniformly to all sorts of utilities. ‘What may be a fair return for one may be inadequate for another, depending upon circumstances, locality, and risk.’ A street railway company, compelled to meet the growing competition of private automobiles, public omnibuses, and other motor carriers, well might sustain such losses of revenue because of the decreased number of passengers carried, as to require a larger rate of return than would be required by an electric utility company like appellant, which not only enjoys a practical monopoly in the field where its services are rendered, but whose financial structure, it fairly may be assumed, is greatly strengthened by its affiliations and by the interested support of the parent company to whieh it belongs. On the whole we are unable to conclude that a 7 per cent, rate of return, under the facts here disclosed, is so low as to be confiscatory. See Smith v. Illinois Bell Tel. Co., supra, at pages 160-161 of 282 U. S., 51 S. Ct. 65 [75 L. Ed. 255].”
In Kankakee Water Co. v. Gilbert1 decided by the United States District Court for the Eastern District of Illinois January 6, 1933, it was said “that under existing depressed industrial and financial conditions, *821indicating a greatly abnormal condition both generally and loeally, all of which appears in the record, we are not warranted in finding that the probable return of 5.17% upon the valuation as aforesaid, furnished by the commission’s proscribed rates, is confiscatory. In this connection, we have considered the evidence of present return in industrial enterprises of other character, and that of similar utility companies, as well as the fact that plaintiff makes no claim and furnishes no evidence that new capital is at present needed in its business.”
The Henry L. Doherty Contract.
The distributing companies pay to Henry L. Doherty 1% per cent, of their gross revenue, an engineering fee equal to 5 per cent, of construction, and, in addition, expenses, disbursements, and per diem for Henry L. Doherty & Co. representatives while at the property of the distributing companies or traveling for them on special matters. The distributing companies also pay to the Gas Service Company for the same typo of service. The commission allowed payment for the services of the Gas Service Company, but refused approval of payment to the Henry L. Doherty & Co. on the ground that it was a duplication.
What happens is perfectly clear. The distributing companies have similar contracts with two of these other Doherty units for the same class or type of service, one with Henry L. Doherty, the other with the Gas Service Company. The latter furnished the services,, the former did not.
The Public Service Commission made an allowance for the services of the Gas Service Company, but denied any allowance to Henry L. Doherty & Co. The majority opinion, while denying payment to Henry L. Doherty & Co. because of failure of proof that services were rendered, holds that the contract is proper. With this I cannot agree.
Application of the rule that a public utility is entitled to charge such rates as will create a sufficient income to provide a fair return npon the value of its property used and useful and devoted to the public does not authorize the owners of a utility to pay themselves increased operating expenses or to provide themselves with unconscionable profit because of their position. Funds for operating expenses are received from the public and to thus duplicate payments for services is unwarranted under any reasonable hypothesis.
The record shows that the activities of Henry L. Doherty & Co. embrace many matters which by the greatest stretch of the imagination could not be a proper operating charge to the distributing companies. These activities are largely devoted to the purchase and sale of Cities Service Securities. Investments of the Cities Service Company and Henry L. Doherty & Co. in oil development and others in no way results in a benefit to the distributing companies. It appears that no securities of the distributing companies have been marketed by Henry L. Doherty & Co., and, should there he, a separate fee would be charged for such services. The production, sale, and transportation of oil and the handling of New York real estate are activities unrelated to the distributing companies, and the consumers of natural gas have no interest in Mr. Doherty’s oil or stock business, and should not be compelled to pay the expense of transacting such business. There is no apparent reason why the patrons of these distributing companies should pay to help maintain an office in London. Yet for a period of years the distributing companies have been paying Henry L. Doherty & Co. 1% per cent, of their gross revenue from funds received from their patrons.
A number of companies are operated by Henry L. Doherty & Co. at 60 Wall Street, which in no way, so far as the record discloses, contribute to the defraying of the expense of the operation of Henry L. Doherty & Co.
For example: The Gas Securities Company owned by Henry L. Doherty & Co. with offices at 60 Wall Street, with net assets of $23,252,907, and net earnings for 1920 amounting to $1,960,376, was not shown to have paid any revenue to Henry L. Doherty & Co.
The Gas & Electric Securities Company owned and operated by Henry L. Doherty & Co., with offices at 60 Wall Street, has assets of $24,932,188, with an income of $2,-086,069 in 1929, with no showing of revenue to Henry L. Doherty & Co.
This Henry L. Doherty contract apparently is for the purpose of keeping Henry L. Doherty informed as to the activities of the distributing companies and the protection of his investment rather than for the benefit of the distributing and pipe line companies. Except to the extent that any specific services may be rendered, there is nothing in the record to show any benefits to the distributing companies from this contract. The benefit is largely for the sole benefit of Mr. Doherty’s *822■holding company, • the Cities Service Company.
The. activities of Henry L. Doherty & Co. may well be considered a burden to the distributing and pipe line companies, rather than a benefit: First, because they must immediately transfer all their earnings to Henry L. Doherty & Co., leaving them dependent upon it for financial existence for which they must pay, while Henry L. Doherty & Co. has the advantage of these earnings and the use of the funds of the underlying companies pending their distribution as dividends; and, second, because they must pay Henry L. Doherty & Co. 5 per cent, of the cost of their construction projects regardless of the benefit received or the services performed. While this cannot enter into the expense in determining a rate to be charged the consumer, it does affect the financial stability of the distributing and pipe line companies.
Not only did the parties fail to produce any evidence to sustain their rights to such fee as stated in the majority opinion, but they failed in my opinion to justify the need of such a contract.
Interest during Construction.
Black and Hamilton both calculated interest during construction for the same period. Black allowed a rate of 6 per cent., Hamilton 8 per cent. The question, what is a proper fate?
The plaintiff argues that, “if 8 per cent, is a proper rate of return for the investor, to receive after the project is placed in operation, on what theory or by what process of reasoning can the Conclusion be reached that this samq investor is entitled to less return on his money during'the period the plant is being constructed? You have the same investor and the same money going into the same project; - Whatever is fair in one ease must be fair in the other.”
With 'this contention I do' not agree. There is little relation to he found between a rate of interest to he allowed for the use of money borrowed or advanced in construction and a rate of return on the value of property when subsequently put into public service.. The latter involves the contingencies of operation- and many other considera^tions. -- •
Interest during construction may he a different rate. It is a fixed allowance, and the hazards which may accompany the earning of a rate after the business is in operation are not present. ■
The allowance by Black as heretofore said was not only adequate, but excessive. Hamilton’s allowance was entirely out of line with the actual facts.
On September 1, 1931, there were properties of the Cities Service Gas Company used and useful in the public service, as follows:

The following observations may be made with reference to the above aceounts: In accounts Nos. 1307 and 1327 the commission arrived at the price of $1.47 per rod by taking actual acreage cost on 31 per cent, of right of way and damage cost shown in the record as being $1.08, plus the agreed 10 cents per rod for expense of abstracting and recording, plus 22 cents per rod for expense of acquisition, plus 7 cents per rod for engineer*823ing, which is at the rate of 5 per cent. There is nothing in the record contrary to the above that warrants the setting aside of the findings of the commission.
Regarding account 1312, it seems to mo that the sum of $57,235 deducted by the commission on the legal theory then advanced is not tenable, and that said sum should be restored. Likewise the item of $84,318 should be restored, since the engineer for the commission, for reasons appearing in the evidence, omitted certain items in his calculations which properly belonged therein. I therefore have concluded and found that value of account 13.12 should be fixed at $1,294,-710.
In relation to account 1314, it might appear that engineer Black’s figure is an estimate based upon an arbitrary figure of 50 per cent, of the depth of main lines for pipe lines, and that Eastman, who testified for the company, was giving evidence from actual size, but a dose examination discloses that Eastman’s unit prices which he was applying to field lines were not in accordance with the actual depth as shown by inspection, but that, with the exception of field ditches excavated by trench machines, he applied to his calculations of quantities the width and depth of ditches set forth in Exhibit 73, as an average of all underground field pipe lines. I find nothing in the record to warrant setting aside the finding of the commission on this account No. 1314.
Considering accounts 1325 and 1328 and 1331, which, among other properties, dealt with the Hog Shooter property, station, and equipment, account 1325 being as to land owned in fee except general land, account 1328 relates to station structures, and account 1331 relates to station equipment. In this connection it may be said that the argument advanced that between February, 1931, when the company for taxing purposes returned the Hog Shooter property as abandoned, and July, 1931, when the commission ordered the hearing, that the discovery of new gas fields made the Hog Shooter station available, although still not in use during the hearing, does not favorably impress me, and 1 therefore conclude that $2,000 should have been deducted for the Hog Shooter property in account 1325, making the account valuation $.145,202, and that $49,560 should have been deducted for Hog Shooter station structure in account No. 1328, making the account valuation $1,466,102, and that in account 1331 the Hog Shooter equipment in the amount of $414,925 should have been deducted, making the account valuation $8,048,910.
Considering account 1333, the per cent, condition of the property found to be 90.1 per cent, by the commission and the cost of rock excavation as found by the commission and approved by the majority opinion and in that I concur, leaves only the quantities of rock excavated to be considered, and at the threshold of that consideration permit me to state that I agree with the majority that the overeuts should be excluded. In connection with quantities of rock excavated, it should be noted that, since the hearing by the commission, and before the trial by this court, certain inspections were made on one line, and the result of such inspection was introduced in evidence at the trial herein. But an examination of that evidence so introduced discloses nothing that will warrant this court in disturbing the finding of the commission in account No. 1333, to wit, $39,432,331.
Considering other valuations, I have discussed fully gas leases valued at $2,874,390 and the g’oing concern value fixed at $2,000,-000.
1 concur with the majority that cost of financing should not be included in the rate base.
There remains therefore only the following items, to wit: Preliminary and organization expense, engineering and superintendence during construction, administration, and legal expense during construction, miscellaneous construction expenditures, taxes during construction, and interest during construction.
Elsewhere in this opinion I have approved the principle of averaging the values as well as the earnings during the test period, hut it should be noted that the valuations set out in the opinion are not average values. They are values of September 1, 1931. Using the valuation found as of that date, to wit, $73,409,-190,1 find that the plaintiff has failed to show that the 30-eent rate fixed by the commission is confiscatory.
Under the 40-cont rate the Cities Service Gas Company is earning 8.96 per cent, a year upon the present value of its properties.
I find that on the valuation of $73,409,-190 and at a rate of 30 cents the return would be 6.41 per cent. If averaged over a period for the calendar year 1930 and the year from June 30, 1930, to June 30,1931, and the year from June 30, 1931, to June 30, 1932, the return at 30 cents would be 6.849 per cent.
*824Industrial Gas — Discrimination.
The record shows that by far the largest part of the product handled by the plaintiff in this territory is “industrial gas,” -which is sold to individual consumers at' an average of about 15 cents per M. C. F., a little more than one-third of the city gate rate to the distributing companies (40 cents). Part of this product actually sold to “Industrial Consumers,” and part to “Domestic Consumers.” The industrial consumer (ordinarily) is one who uses a continuous supply of the product through the twenty-four hour period, thereby taking the “off peak” load. The domestic consumer is the housewife, office, or mercantile establishment which (ordinarily) uses the supply during the day, but not at night.
The rule is that the price for gas should never be unnecessarily low to some consumers, while high to others. It should always be high enough to avoid loss to the utility. Special rates for a large portion of the company’s output can be justified only upon the ground that they contribute to the publie advantage. Discrimination in price based solely on amounts consumed by different patrons cannot be justified, and rebates to certain businesses only because they use a large amount of gas is discriminatory.
Unless the lower rate can be justified upon the ground that it contributes to the general public advantage, the company -and not the consumer must bear the loss if one occurs through that elass of business. Of, course, a schedule of rates contrived for the purpose of selling gas in order that industries using it may operate more economically than can be done with other fuels may, under some conditions, furnish sufficient grounds for a differential rate. It should be dear, however, that the rate named is not a losing one, and that it will increase the company’s profits. (The burden of showing this is on the utility.) Differentials of this kind afford no justification for a practice which seeks to charge a large consumer a low price and a small consumer a higher price merely because of a difference in size.
All such considerations should be included in the standard schedule in order that all customers, or possible customers having similar conditions^ will receive service at similar rates. A company is not justified in transferring any considerable portion of the costs from one class of patrons to another elass. Schedules should be arranged so that as near ■ as possible each patron will pay his fair share of the cost. No rate should be established unless it provides some profit; that is, some return over and above the costs of operation-
There can be no possible justification for; the company to depart from its published schedule of prices, or to give any advantage, directly or indirectly, to one customer not offered to others enjoying or seeking the company’s service under like conditions.
If the so-called industrial business pays a sufficient profit to bear its part of the load, its part of the upkeep of the general investment, a lower rate is allowable, but, as I see-it, the burden is -upon the utility to show that-such service is self-sustaining. In ease of' loss, the utility should not expect the domestic consumer to sustain the industrial consumer’s part of the investment.
In the instant ease, the increased use of industrial gas has not been manifest in any reduction to the domestic consumer. The plaintiff has insisted, and still insists, on the-gate rate charge of 40 cents — so that increased industrial business has not led to reductions.
It appears to be a matter of common, knowledge that the distributing companies, contract, seE and deliver gas also to some-domestic consumers at what appear to be discriminatory rates. They do this apparently on the theory that it is justified in meeting-competition with other forms of fuel. This, practice of furnishing gas to domestic consumers, such as large mercantile stores and’ hotels, at rates of from 10 to 17 cents perM. C. F., while charging other individual domestic consumer’s rates ranging from 75 cents to a dollar and a half per M. C. F., may amount to unlawful ‘discrimination. This question has not been briefed, and I express no op-inion thereon. It is one which might, well warrant the conclusion that the Doherty companies ere not in court with clean hands,.. and for that additional reason their prayer-for equitable relief should be denied. A utility procures its charter and operates through sufferance of the state. Bates for its product are allowed and approved by the state’s regulatory body. In this instance, the Pub-lie Service Commission allows and approves-local rates to the consumers. The companies involved here having applied for and procured approval of such rate's are bound thereby, and for them to foEow the practice of disregarding the approved schedule of rates in-favoring some consumers above others is contrary to law. See R. S. Kan. 66—107, 66—108, 66—109; Empire Natural Gas Co. v. Thorp, 121 Kan. 116, 245 P. 1058; Kansas *825Electric Power Co. v. Thomas, 123 Kan. 321, 255 P. 33. It should not be tolerated, much less have the approval of this court.
If it be argued that so-eailed industrial sales are not made at a loss, that there is an actual profit on sales to individual consumers at rates as low as from 10 to 15 cents per M. C. F., it certainly is unreasonable to hold that a rate of 30 cents at the city gates to the distributing companies is confiscatory. Tho distributing company represents all of the consumers collectively, and the argument that it can dispense gas to one of its patrons at from 10 to 15 cents per M. C. F. at a profit, and that a rate of 30 cents to it at tho city gates for all its patrons collectively is confiscatory, does not appeal to my reason. The burden rests upon the utility to show clearly that the rate (30 cents) is confiscatory. This it has failed to do.
In Knoxville v. Knoxville Water Co., 212 TJ. S. 1, at page 16, 29 S. Ct. 148, 153, 53 It. Ed. 371,, Mr. Justice Moody, speaking for tho court, said: “If a company of this kind chooses to decline to observe an ordinance of this nature, and prefers rather to go into court with the claim that the ordinance is unconstitutional, it must be prepared to show to the satisfaction of the court that the ordinance would necessarily be so confiscatory in its effect as to violate the Constitution of tho United States. In Ex parte Young, 209 U. S. 123, 28 S. Ct. 441, 52 L. Ed. 714, 13 L. R. A. (N. S.) 932 [14 Ann. Gas. 764], the last word of caution by this court was said (p. 166 [of 209 U. S., 28 S. Ct. 441, 52 L. Ed. 714, 13 L. E. A. (N. S.) 932,14 Ann. Cas. 764]) : ‘Finally, it is objected that the necessary result of upholding this suit in the circuit court will ho to draw to the lower Federal courts a great Hood of litigation of this character, where one Federal judge would have it in his power to enjoin proceedings by state officials to enforce the legislative acts of the state, either by criminal or civil actions. To this it may be answered, in the first place, that no injunction ought to be granted unless in a case reasonably free from doubt. We think such rule is, and will be, followed by all the judges of the Federal courts.’ The same thought, in effect, was expressed in San Diego Land & Town Co. v. National City, 174 U. S. 739, 754, 19 S. Ct. 804, 810, 43 L. Ed. 1154, 1160: ‘Judicial interference should never occur unless the ease presents, clearly and beyond all doubt, such a flagrant attack upon tho rights of property under tho guise of regulations as to compel the court to say that the rates prescribed will necessarily have the effect to deny just compensation for private property taken for the public use.’ ”
The parties to this litigation have asked that the ease be considered on its merits and a final determination reached. On page 117 of its brief the plaintiff says: “Wo believe it to be most desirable that this court should examine tho facts, as well as the law and give to the people tho benefit of its authoritative decision upon the real question, at issue.”
In.accordance with this expressed desire, the writer of this opinion has made an investigation of the facts and the law, and is of the opinion that the plaintiff has failed to show that the orders in question, made by tho Public Service Commission of Kansas, are unlawful or confiscatory. In accordance with the desire of the parties, I have prepared and filed full findings of fact and conclusions of law in accordance with the views herein expressed. The bills should be dismissed.
Separate Findings of HOPKINS, District Judge.
Findings of Fact.
I. For a long period of years, more than twenty, Henry L. Doherty, doing business under tho name of Henry L. Doherty & Co., has maintained a complete organization for tho design, construction, operation, and development of public utilities, and oil and natural gas properties. This organization, is composed of experienced executives, financial advisors, construction, valuation, electrical, oil, and gas engineers, geologists, chemists, technicians, experts, accountants, operators, and lawyers. There are approximately 1,667 employees. In this organization Mr. Dolierty maintains departments for the purchase, sale, promotion, and transfer of stocks of his various corporations; a foreign oil department; marine and tank ear department; an oil production and refining department; a real estate division chiefly concerned with New York real estate and maintains a London office.
II. The parties to this litigation are all units or corporations of the Doherty organization and all have to do in some degree with tho production, transportation, and sale of natural gas to consumers of Kansas.
III. On July 2, 1931, an order was entered by the public service commission of Kansas, on its own initiative, directed to the plaintiffs herein except tho Cities Service Gas Company, finding that the reasonableness of all contracts with and charges made *826to the respondents, by corporations owning the stock of the plaintiffs, and of the contracts between Henry L. Doherty & Co., and respondents should be inquired into; the respondent distributing companies were ordered to show cause why payments made under such contracts, if found to be unreasonable, should not he disallowed as operating' expenses. A copy of said order is “Exhibit A” attached to the hills of complaint of the distributing companies.
TV. Pursuant to such order, extensive hearings were held. The properties of the Cities Service Gras Company, situated in five states, were appraised by engineers for both parties and valued by the commission. Findings and conclusions were filed by the commission.
A petition, for rehearing was filed, allowed, rehearing had, and the orders entered which are now submitted for' review to this court. ■
Y. The citizenship and official position of the parties are as stated in the bills of complaint. There is diversity of citizenship, a substantial federal question in each of the cases, and more than $3,000 in controversy.
YI. The plaintiff distributing companies were engaged in the sale and distribution of natural gas to domestic and industrial consumers of 128 cities and towns in Kansas, procuring their gas from another of the Doherty units, the Cities Service Gas Company. The Cities Service Gas Company through Henry L. Doherty has a practical monopoly on the sale of gas to the distributing companies. The arrangement being that the pipe line company will supply the present needs of the distributing companies at 40' cents per thousand cubic feet delivered to their mains. This 40-eent rate is a private contract between the affiliated Doherty corporations.
YII. Except for qualifying shares, the common stock of the distributing companies is owned by the Gas Service Company, the stock of which in turn is owned by the Cities Service Company. The common stock of the Cities Service Gas Company is owned by the Empire Gas & Fuel Company, the voting stock of which in turn is owned by the Cities Service Company. The Empire Gas & Fuel Company has a preferred stock issue outstanding in the hands of the public. Henry L. Doherty owns 35 per cent., of the voting stock of the Cities Service Company. The Cities Service Company, by stock ownership, legally controls the policies of the distributing companies and the pipe line company; and Henry L. Doherty in fact controls the policies of all the corporations including the Cities Service Gas Company. The distributing companies do not deal at arm’s length with either the Cities Service Gas Company or Henry L. Doherty.
YIII. The Cities Service Gas Company was organized in 1906. It took over the physical properties of five pipe line companies, having a plant investment account at that time of $52,182,525.98. These pipe line companies served many communities in Oklahoma, Kansas, and Missouri. The companies taken over were integrated, so that the gas could he run from the mains of one system into that of another, and the supply thereby made more dependable and economical. Natural gas had long been used for lighting and cooking in most of these cities and towns.
There are extensive and prolific gas- fields at Amarillo, Tex., and Hugoton, ICan. It is •a matter of common knowledge these fields are being enlarged and extended so that the supply is dependable, for all uses for a long period of time. The Cities Service Gas Company now has an adequate and dependable supply of gas, available at all times at the city gates. Mr. Doherty through the Cities Service Company acquired the distributing companies in order to meet keen competition.
IX. The distributing companies as units of the Doherty organization have each entered into a contract with the Henry L. Doherty Company which • provides for services as follows:
1. Personnel (i. e., experienced executives and operators).
2. Executive service.
3. General accounting services.
4. Statistical service.
5. Purchasing service.
6. Designing and construction engineering.
7. Financial service.
8. Securities department.
9. Valuation.
10. Tax departments.
Í1. New business department.
12. Technical and research department.
X. The Gas Service Company, another Doherty unit, with offices in Kansas City, Mo., has a contract with the distributing companies similar in many respects to the one above set out in finding number nine. It provides that it furnish services as follows:
*8271. Furnish all administrative and executive service.
2. Financial aid and advice.
3. Purchasing and warehousing.
4. Engineering and operating supervision.
5. All legal services.
6. All insurance purchasing.
7. All general accounting and reports.
8. Supervision and handling of all tax matters.
9. Handling of all pay rolls.
10. Making of all audits and auditing reports.
11. Make all governmental and regulatory commission reports.
12. Supervision of all new business operations.
13. Make all vouchers and disburse funds.
14. Supervise and direct all public relations work.
15. Do all general and policy advertising.
16. Make all valuations and rates and handle all matters pertaining to rate liligation, and routine matters with regulatory bodies.
17. Make and follow up all construction and financial budget.
The commission found that the amounts paid by the distributing companies under this contract with the Gas Service Company were not unreasonable, but refused to approve payments on the contracts set out in finding 9, because of duplication.
XI. The activities of Henry L. Doherty & Co. embrace many matters not covered by the 1% per cent, contract, the expense of which is not a proper operating charge of the distributing companies. These activities are: The promotion, sale, and transfer of securities of the Cities Service Company and its affiliates. No securities of the distributing companies have been, marketed by Henry L. Doherty & Co., and if they are, the contract provides for a separate fee for such services. The production, sale, and transportation of oil, and the handling of New York real estate, are unrelated activities. The record discloses no reason for these distributing companies maintaining a London office. The consumers of natural gas have no interest in Mr. Doherty’s oil or stock business, and his private businesses ought not to be thrown together with the business of serving the lie, the expenses of all hopelessly intermingled.
On September 1, 1931, there were properties of the City Service Gas Company used and useful in the public service, as follows:

The following observations may be made with reference to the above accounts: In accounts Nos. 1307 and 1327, the commission arrived at the price of $1.47 per rod by taking actual acreage cost on 31 per cent, of right of way and damage cost shown in the record as being $1.08 plus agreed 10 cents per rod for expense of abstracting and recording, plus 22 cents per rod for expense of acquisition, plus 7 cents per rod for engineering, which is at the rate of 5 per cent. There is nothing in the record contrary to the above that warrants the setting aside of the findings of the commission.
Regarding account 1312, it seems to me that the sum of $57,235, deducted by the commission on the legal theory there advanced, is not tenable and that said sum *828should be restored. Likewise the item of $84,-318 should be restored, since the engineer for the commission for reasons appearing in the evidence omitted certain items in his calculations which properly belonged therein. I therefore have concluded and found that value of account 1312 should be fixed at $1,294,-71 O'.
In relation to account 1314, it might ap-j pear that Engineer Black’s figure is an estimate based upon an arbitrary figure of 50 per cent, of the depth of main lines for pipe lines and that Eastman, who testified for the company, was giving evidence from actual size, but a close examination discloses that Eastman’s unit prices which he was applying to field lines were not in accordance with the actual depth as shown by inspection, but that with the exception of field line ditches excavated by trench machines he applied to his calculations of quantities the width and depth of ditches set forth in Exhibit 73, as an average of all underground field pipe lines. -I find nothing in the record to warrant setting aside the finding of the commission on this account No. 1314.
Considering accounts 1325 and 1328 and 1331, which, among other properties, dealt with the Hog Shooter property, station, and equipment, account 1325, being as to land owned in fee except general land, account No. 1376, account 1328- relates to station structures, and account 1331 relates to station equipment. In this connection it may be said that the argument advanced that between February, 1931, when the company for taxing purposes returned the Hog Shooter property as abandoned, and July* 1931, when the commission ordered the hearing, that the discovery of new gas fields made the Hog Shooter station available, although still not in use during the hearing, does not favorably impress me, and I therefore conclude that $2,090 should have been deducted for the Hog Shooter property in account 1325, making the account valuation $145,202 and that $49,560 should have been deducted for Hog Shooter station structure in account No. 1328, making the account valuation $1,466,102, and that in account 1331, the Hog Shooter equipment in the amount of $414,925 should have been deducted, making the account valuation $8,048,910.
Considering account 1333, the per cent. condition of the property found to be 90.1 per cent, by the commission and the cost of rock excavation as found by the commission and approved by the majority opinion and in that I concur, leaving only the quantities of rock excavated to be considered, and at the threshold of that consideration permit me to state that I agree with’the majority that the overeuts should be excluded. In connection with quantities of rock excavated, it should be noted that since the hearing by the commission and before the trial by this court certain inspections were made on one line and the result of such inspection was introduced in evidence at the trial herein. But an examination of that evidence so introduced discloses nothing that will warrant this court in disturbing the finding of the commission in account No. 1333, to wit, $39',432,331.
Considering other valuations I have discussed fully gas leases valued at $2,874,390 and the going-concern value fixed at $2,-000,000.
I concur with the majority that cost of financing should not be included in the rate base.
There remains therefore only the following items, to wit: Preliminary and organization expense, engineering and superintendence during construction, administration and legal expense during construction, miscellaneous construction expenditures, taxes during construction, and interest during construction.
Elsewhere in this opinion I have approved the principle of averaging the. values as well as the earnings during the test period, but it should be noted that the valuations set out in the opinion are not average values. They are values of September 1, 1931. Using the valuation found as of that date, to wit, $73,-409,190, 1 find that the plaintiff has failed to show that the 30-eent rate fixed by the commission is confiscatory.
Under the 40-cent rate the Cities Service Gas Company is earning 8.96 per cent, a year upon the present value of its properties.
I find that on the valuation of $73,409,190 and at a rate of 30 cents the return would be 6.41 per cent. If averaged over a period for the calendar year 1930 and the year from June 30,1930, to June 30,1931, and the year from June 30, 1931, to June 30, 1932, the return of 30 cents would be 6.849 per cent.