Amended: March 27, 1939. A writ of certiorari brings to this Court for review a judgment of the Circuit Court of Appeals for the Fifth Circuit denying the validity or applicability of the following section in a franchise granted to respondent by petitioner in 1930. Section IX of that franchise reads as follows:
'If Grantee shall be finally compelled to, or should voluntarily, place (sic) in any rates in the City of Texarkana, Arkansas, less than the rates granted by this Ordinance then and thereupon the lessened rate shall apply in the City of Texarkana, Texas, and Grantee shall not be authorized or permitted to charge and collect any higher rate.'
Texarkana, Texas, and Texarkana, Arkansas, are adjacent cities divided by the Arkansas-Texas state line. Respondent serves as a public utility for the distribution of gas in both cities. Because of the section just quoted, the Texas city undertook judicial action to secure gas for itself and its citizens at rates lower than those stated in other sections of the franchise. We granted certiorari on account of asserted conflict with the decisions of the state courts on an important question of local law.
The charter of the Texas city gives authority to grant franchises for the use of its public ways upon terms to be embodied in ordinances, which must expressly provide that the city shall retain the regulation of the business of the utility, the fixing of its rates and the right to inspect its operations. Should these reservations be omitted, they are nevertheless to be considered part and parcel of the franchise. The charter also provides that the city should have the power to regulate rates charged by gas companies. The gas company and its predecessors had long held a franchise for furnishing gas to the Texas city. The earliest ordinances of the city were amended in 1923, by which amendment certain rates for gas were fixed. Article E in that ordinance provided that the gas company should 'not at any time charge for furnishing gas' to the Texas city 'a greater sum * * * than it at the same time charges and collects' from the Arkansas city. On June 17, 1930, the gas company accepted a compromise agreement, in ordinance form, which increased the rates to gas consumers from those set out in the 1923 franchise. This is the ordinance containing the Section IX heretofore quoted and it is the ordinance regulating rates now in effect in the Texas city.
On May 30, 1930, the gas company secured a similar arrangement adjusting rates from the Arkansas city. There had previously been in effect a franchise of 1923 with rates substantially identical with the Texas 1923 rates. The Arkansas franchise of 1930 was subjected to a referendum and to prolonged litigation. Eventually, on December 1, 1933, a final order set aside the 1930 ordinance of the Arkansas city and established the rates of the 1923 ordinance as effective for the consumers of the Arkansas city from 1930 to the date of the decree. This decree also required refunds to the Arkansas consumers for overpayment during that period. By further litigation, a resolution of the council of the Arkansas city of December 22, 1933, promulgating rates for the future was upheld. These last rates were the 1923 rates, modified in minor particulars. In the order of December 4, 1936, confirming the rates established by its resolution, the gas company was directed to refund to the consumers any overpayment by reason of the collection of higher rates during this last judicial proceeding. It thus appears that the legal rates to the consumers of the Arkansas city at all times have been substantially those of the 1923 ordinance.