Opinion ID: 286422
Heading Depth: 1
Heading Rank: 3

Heading: 1967 Operating Losses

Text: 29 Transit contends that the Commission erred in excluding from the reopened hearings evidence of the company's losses during the first two months of 1967, the future annual period, and that because of the absence of a fare increase in those months it was impossible for the company in 1967 to earn net operating income in the amount approved by the Commission as a fair and reasonable return. 30 The Commission answers this by arguing, first of all, that the future annual year is merely a hypothetical period chosen to facilitate the projection and measurement of future expenses and revenue requirements; that, although the future annual period employed in this proceeding happened to coincide with the year 1967, the Commission 'was setting rates for the future based on projected revenues and expenses of a future 12 month period;' and that since it was not prescribing fares for the actual calendar year 1967, Transit's losses for the first two months of 1967 were irrelevant. 31 We agree with the Commission that it was not bound to fix rates at a level designed to provide the company with net income for the calendar year 1967 in the amount determined by it to represent a fair and reasonable margin of return. In prescribing just and reasonable fares, the Commission necessarily relies on projections of revenues and expenses for a future period chosen for its convenience in estimating operating results under different fare structures. 32 'Usually, where a rate filing is made, the Commission undertakes to establish a rate which it believes, by reason of records and estimates, constitutes a just and reasonable rate for the indefinite future. This process involves the use of statistics of an actual period of twelve months (the historical test year) with an estimate of expected sales and expenses for some months into the future. It is sought by this method to develop a statement of costs and revenues for a normal year from which a just and reasonable rate may be derived for future periods.' 37 33 The employment of a future year as the basis for projecting operating results is thus simply an evidentiary device to enable concrete discussion and analysis; it is not a recognition that the carrier is necessarily entitled to earn a given amount of profit during that year. Indeed, any other rule would seriously jeopardize the ability of the Commission to prescribe rates which are just and reasonable not only for the present but for the indefinite future as well. 38 34 The Commission's second point, with which we are also in agreement, is that Transit's position runs afoul of the established ratemaking principle which precludes a utility from charging higher fares in the future in order to recoup past losses. 39 During the reopened hearings, Transit sought to introduce evidence showing the losses it had incurred by virtue of the absence of a fare increase during the first two months of 1967, and requested that these losses be taken into account in establishing a new fare schedule. We think the Commission properly refused to consider this evidence for the purpose for which it was proffered. Past losses, even those incurred as a result of the Commission's exercise of its power to suspend new tariffs, are 'water over the dam.' The company in 'initiating an increase in rates    assumes the hazards involved in that procedure,' and it 'can never recoup the income lost when the    suspension power of the Commission is exercised   .' 40 35 Transit argues in its reply brief that it 'is not attempting to recoup past losses. Rather, it is insisting that the Commission's projections for the future annual period, reflect actual events in that period.' It is clear, however, that the 'projections' referred to are the Commission's estimates of operating results for the future annual period under the new schedule of fares prescribed by the Final Order. Transit has never in this proceeding suggested that its evidence was relevant as showing losses under existing fares of a greater magnitude than those the Commission had projected in the Interim Order. 41 'Prophecy, however honest, is generally a poor substitute for experience,' 42 and actual operating results showing losses greater or less than those the Commission had projected might properly have affected the Commission's conclusion as to the need for a fare increase or the amount of increase needed. It is clear, however, that Transit attached no such significance to the evidence it sought to introduce, 43 and there is nothing in the record which indicates that Transit's losses during January and February, 1967 were materially different from those the Commission had projected. 44 36 We therefore find no reason to disturb the Commission's order for its refusal to receive the proffered evidence, and we hold that it correctly denied Transit's request that it be made whole for the losses incurred because of the absence of a fair increase during the first two months of 1967.