Opinion ID: 1297749
Heading Depth: 1
Heading Rank: 3

Heading: Refund Order

Text: The commission found that the rates of Pacific which had been fixed by the commission in 1958 should be reduced by $40,722,000 annually from and after July 26, 1962, the date the commission initiated its investigation in the present proceeding and just short of two years before issuance of its decision (June 11, 1964), which it ordered to become effective 20 days thereafter. (Cf. § 1705 re effective dates; California Motor Transport Co. v. Public Utilities Com., supra, 59 Cal.2d 270, 272-273.) The commission, for the first time in its history, further ordered that the utility refund to customers amounts collected during the interim in excess of the reduced rates; the total refund ordered thus approaches $80,000,000. The refund order is vigorously challenged by Pacific, by the independent telephone companies, and by various amici curiae. As amended in 1911 section 23 of article XII of the California Constitution specifies in pertinent part that the commission shall have and exercise such power and jurisdiction to supervise and regulate public utilities ... and to fix the rates to be charged ... as shall be conferred upon it by the Legislature, and the right of the Legislature to confer powers upon the ... Commission respecting public utilities is hereby declared to be plenary and to be unlimited by any provision of this Constitution.... As to the scope of the commission's power in this respect we look to the legislation enacted ... principally the Public Utilities Code, and to the decisions of this court in construing them. ( People v. Western Air Lines, Inc., supra, 42 Cal.2d 621, 634.) [12] So doing, we have concluded that the Legislature has not undertaken to bestow on the commission the power to roll back general rates already approved by it under an order which has become final, or to order refunds of amounts collected by a public utility pursuant to such approved rates and prior to the effective date of a commission decision ordering a general rate reduction. Therefore we do not reach the question whether such an order if made with the sanction of the Legislature would violate the due process or any other clause of the federal Constitution. Section 728 of the Public Utilities Code provides so far as here material that Whenever the commission, after a hearing, finds that the rates ... demanded, observed, charged, or collected by any public utility for or in connection with any service ... are ... unreasonable, ... the commission shall determine and fix, by order, the just, reasonable, or sufficient rates ... to be thereafter observed and in force. (Italics added.) As Pacific states, this language is plain and unambiguous. The Legislature has instructed the commission that after a hearing it is to make its order fixing rates to be in force thereafter. In Public Utilities Com. v. United Fuel Gas Co. (1943) 317 U.S. 456, 464 [63 S.Ct. 369, 87 L.Ed. 396], almost identical language of an Ohio statute [5] was construed to give the state commission power to prescribe ... rates prospectively only.... [T]he new rates are prospective as of the date they are fixed. There is no basis in the statute for concluding that the Commission's orders can be retroactive to the date when the Commission's inquiry into the rates was begun; on the contrary, the explicit language of the statute precludes such a construction. The same court in Federal Power Com. v. Hope Natural Gas Co. (1944) 320 U.S. 591, 618 [64 S.Ct. 281, 88 L.Ed. 333], when considering a provision of the Natural Gas Act (15 U.S.C. 717d(a)) that Whenever the [Federal Power] commission, after a hearing, finds a rate to be unreasonable, it shall determine the reasonable rate to be thereafter observed and in force, pointed out that the commission's power to fix rates admittedly is limited to those `to be thereafter observed and in force,' and did not extend to rates previously in force. Other courts have reached the same conclusion with respect to similar language. In Indiana Tel. Corp. v. Public Serv. Com. of Indiana (1960) 131 Ind. App. 314 [171 N.E.2d 111, 124], the commission granted a rehearing of its order increasing rates but ordered the increased rates to continue in effect meanwhile; its subsequent order issued almost one year later which cancelled the increase and ordered refund of amounts collected in excess of the former rates was reversed with the holding that the commission had no powers except those conferred by statute, which provided for power to fix rates in the future but not in the past. [6] In Michigan Bell Tel. Co. v. Michigan Public Service Com. (1946) 315 Mich. 533 [24 N.W.2d 200], the commission ordered rates previously approved by it to be reduced and $3,500,000 refunded to customers covering the period of approximately one year prior to the reduction order; a lower court decree vacating the commission's order was affirmed on appeal, with an extensive analysis by the Michigan Supreme Court of relevant case authority (pp. 203-209 [24 N.W.2d]) and rejection of the commission's contention (pp. 205-206 [24 N.W.2d]) that from its broad statutory powers[ [7] ] it should be implied that the commission is authorized to retroactively adjust charges or rates previously fixed, when circumstances arise which seem to call for such readjustment. In fixing rates the commission acts in a legislative capacity.... [W]e cannot find that the commission has either express or implied statutory power to retroactively reduce appellee's rates or its accrued earnings. Instead the commission's rate-fixing orders are effective only prospectively. (See also Cheltenham & Abington Sewerage Co. v. Pennsylvania Public Utility Com. (1942) 344 Pa. 366 [25 A.2d 334, 338]; Peoples Natural Gas Co. v. Pennsylvania Public Utility Com. (1943) 153 Pa.Super. 475 [34 A.2d 375, 387-388]; Commonwealth ex rel. Town of Appalachia v. Old Dominion Power Co. (1945) 184 Va. 6 [34 S.E.2d 364, 366 et seq.]; Georgia Public Service Com. v. Atlanta Gas Light Co. (1949) 205 Ga. 863 [55 S.E.2d 618, 631].) In at least two cases it has been held that a utility whose rates had been commission-approved could not be compelled to make refunds of new and increased rates collected under a commission order set aside on appeal, where the order had not been stayed. (See Keco Industries, Inc. v. Cincinnati & Suburban Bell Tel. Co. (1957) 166 Ohio St. 254 [141 N.E.2d 465, 468-469], appeal dism., cert. den. 355 U.S. 182 [78 S.Ct. 267, 2 L.Ed.2d 187]; Mandel Bros., Inc. v. Chicago Tunnel Terminal Co. (1954) 2 Ill.2d 205 [117 N.E.2d 774, 776-777].) This court has also declared the principle that The fixing of a rate in the first instance is prospective in its application and legislative in its character. Likewise the reducing of that rate would be prospective in its application and legislative in its character. ( Southern Pac. Co. v. Railroad Com., 194 Cal. 734, 739 [231 P. 28]; see also People v. Western Air Lines, Inc., supra, 42 Cal.2d 621, 630.) The conclusion that the Legislature is likewise cognizant and approving of this principle is inescapable from the language of section 728, previously noted, instructing the commission to first hold a hearing and then make its order fixing rates to be thereafter observed. The commission's suggestion that its order in the proceedings now under review was not unlawfully retrospective because it purported to relate back only to the date the commission initiated its investigation, rather than to affect any earlier period, is negated by the holdings of the cases hereinabove cited and discussed, as well as by the language of the California statute. Cases relied on by the commission are distinguishable. Boston & Worcester R.R. Corp. v. Western R.R. Corp. (1859) 80 Mass. (14 Gray) 253, 265, involved construction of a statute requiring railroads with interconnecting lines to render service to each other in return for reasonable compensation. In United States v. New York Central R.R. Co. (1929) 279 U.S. 73, 78 [49 S.Ct. 260, 73 L.Ed. 619], it was held that under a statute requiring railroads to carry mails in return for reasonable compensation, under penalty of a fine for refusal, the companies had a constitutional right to receive compensation from the government fixed as of the date they applied therefor. T.W.A. v. Civil Aeronautics Board (1949) 336 U.S. 601 [69 S.Ct. 756, 93 L.Ed. 911], also involved payment by the government for mail carriage, but under a statute authorizing the board to fix reasonable rates therefor and to make such rates effective from such dates as it shall determine to be proper (italics added); the court held (p. 605) that this express make effective clause was intended to authorize rates retroactive to the date of the airline's application, but no earlier, and further noted that utility rates fixed by public authorities are usually prospective. Pacific Coast Elevator Co. v. Department of Public Works (1924) 130 Wash. 620 [228 P. 1022, 1028-1029], mentions no pertinent state statute comparable to California's section 728; further, the rates the commission ordered reduced had not theretofore been approved by it. In United Gas Public Service Co. v. State (Tex.Civ.App. 1935) 89 S.W.2d 1094, 1104, the refund had been made a condition of stay on appeal from an order reducing rates. [13] The commission's reliance on section 701 (formerly section 31 of the California Public Utilities Act) is likewise misplaced. [8] Whatever may be the scope of regulatory power under this section, it does not authorize disregard by the commission of express legislative directions to it, or restrictions upon its power found in other provisions of the act or elsewhere in general law. (See Pacific Tel. & Tel. Co. v. Public Utilities Com., supra, 34 Cal.2d 822, 828 et seq., in which the commission unsuccessfully urged that section 701 taken with other provisions of the act empowered it to regulate contracts between affiliated corporations.) [14] The same is true of the provision of section 729, also cited by the commission. [9] From 1915 (Stats. 1915, ch. 91, p. 132) until the Public Utilities Act was codified in 1951; the provisions now found in sections 728 and 729 comprised paragraphs (a) and (b), respectively, of section 32, and at all times the section instructed the commission to first hold a hearing, and then fix rates to be thereafter observed and in force. [15] As pointed out by Pacific, the provisions of paragraph (b), now section 729, make it clear that the commission may exercise its powers with respect to a single rate, rule or practice, or any particular group thereof, and do not purport to negate or render redundant and meaningless the express direction of paragraph (a), now section 728, that the commission's order shall fix the rates to be thereafter in force. [10] [16] [S]tatutes are to be interpreted to give a reasonable result consistent with the legislative purpose. ( River Lines, Inc. v. Public Utilities Com., ante, pp. 244, 247 [42 Cal. Rptr. 104, 398 P.2d 144].) Further, we note that the Legislature has not overlooked the subject of refunds. Sections 1761 through 1766 deal with stay of commission orders pending review proceedings in this court. Provision is therein made, among other things, for the keeping of records of names and addresses of corporations or persons to whom will be refundable (§ 1766) amounts charged or received by the utility pending review, in excess of the charges allowed by the order of the commission, in cases of stay of a commission order lowering rates or denying the utility the right to a rate increase. If the Legislature had intended to authorize the commission to make the refund order now under review, we believe it would have so declared in unmistakable terms. [17] This view is reinforced by the provisions of section 734, which directs that when a rate has been formally found reasonable by the commission and charges collected accordingly, the commission shall not order the payment of reparation upon the ground of unreasonableness. Here the charges ordered refunded by the commission had been fixed by formal finding, and so come within the principle of section 734. The commission's effort to distinguish the theory and effect of its refund order here, from those of a reparation order, lacks persuasiveness in view of the express language of section 734, particularly when considered in the light of section 728, discussed hereinabove. Neither the fact that in reparation cases the complaint is often made by private parties rather than on motion of the commission (see § 1705; California Motor Transport Co. v. Public Utilities Com., supra, 59 Cal.2d 270, 271-272; cf. Georgia Public Service Com. v. Atlanta Gas Light Co., supra, 55 S.E.2d 618, 631) nor that a reparation complaint is frequently addressed to the period before it is filed (see Mandel Bros. v. Chicago Tunnel Terminal Co., supra (Ill.) 117 N.E.2d 774, 775; Cheltenham & Abington Sewage Co. v. Pennsylvania Public Utility Com., supra, 344 Pa. 366 [25 A.2d 334]; Arizona Grocery Co. v. Atchison T. & S.F. Ry. Co. (1932) 284 U.S. 370, 381, 389-390 [52 S.Ct. 183, 76 L.Ed. 348]; cf. Michigan Bell Tel. Co. v. Michigan Public Service Com., supra, 24 N.W.2d 200, 203), can lessen the force of the legislative direction or of the rule that general rate making is legislative in character and looks to the future. The commission advances various policy arguments as to why it should have the power to order refunds predating the hearing, findings, and rate-fixing order. Such arguments should be addressed to the Legislature, from whence the commission's authority derives, rather than to this court. As suggested by Pacific, if the Legislature believes there is a problem of unjust enrichment of a utility pending a possible rate-reduction order or any need to take the profit out of delay, it may deal with those questions through appropriate legislation. So far, it has not done so. There is no merit in the commission's oblique suggestion that delay may be charged to Pacific here because it requested and received the full hearing to which it is entitled. Certain of the parties argue that because the commission determined that the rate of return earned by Pacific during the test year, under the rates fixed by the commission in 1958, exceeded the 6.75 per cent allowed by the 1958 decision, the refund order now before us should be upheld at least to the extent of the excess. This suggestion likewise is without merit. [18] It is the just, reasonable, or sufficient rates (italics added) which section 728 directs the commission to fix after it first finds that the rates ... charged, or collected... are unreasonable. The determination of the rate of return to be allowed is but one step in the process.