Court Opinion

ID: 9699450
Source: CourtListenerOpinion
Date Created: 2023-08-25 20:24:31.613555+00
Date Added: 2024-06-11T18:20:50.471936
License: Public Domain

DAVIS, Circuit Judge
(dissenting in part).
This action concerns the lawfulness of a temporary rate for a public utility under authority of a state statute. The Edison Light & Power Company, a public utility corporation, is engaged in supplying electric energy in and about the city and county of York, Pa. The respondents are individuals, constituting the Pennsylvania Public Utility Commission, hereinafter referred to as the. Commission. The complainant brought this suit in a statutory court, pursuant to section 266 of the Judicial'Code (28 U.S.C.A. § 380) to enjoin the enforcement of an order of the Commission dated July 27, 1937, requiring the complainant to adopt temporary rates for -its electric service in accordance with the provisions of section 310 (a) and (e) of the Public Utility Law of Pennsylvania which went into effect June 1, 1937 (66 P.S.Pa. § 1150 (a, e).
The order of July 27, 1937, is the Commission’s second order imposing these temporary rates upon the company. The first one was dated July 13, 1937, but on account of a decision on July 15, 1937, of the superior court of Pennsylvania in the case of Pennsylvania Power & Light Company v. Public Service Commission, 193 A. 427, 437, that order was rescinded, is no. longer in this case, and the one of July 27, 1937, was substituted.
The investigation to determine the reasonableness of the rates charged by the complainant was instituted on January 27, 1936, by the Pennsylvania Public Service Commission, predecessor of the respondent Commission. Many hearings were held by it; nearly a thousand pages of testimony was. taken and volumes of exhibits were admitted in evidence. The case was closed on June 23, 1937.
The first order of July 13, 1937, reduced the gross operating revenue of the complainant company $435,000 a year. The second order of July 27, 1937, likewise reduced the annual gross operating revenue of the complainant by $435,000.
The order of the Commission was made pursuant to section 310 (a) and (e) of the Pennsylvania Act of June 1, 1937 (effective date). These subsections provide as -follows:
“Section 310. Temporary Rates. — (a) The commission may, in any proceeding involving the rates of a public utility brought either upon its own motion or upon complaint, after reasonable notice and hearing, if it be of opinion that the public interest so requires, immediately fix, determine, and prescribe temporary rates to be charged by such public utility, pending the final determination of such rate proceeding. Such temporary rates, so fixed, determined, and prescribed, shall be sufficient to provide a return of not less than five per centum upon the original cost, less accrued depreciation, of the physical property (when first devoted to public use) of such public utility, used and useful in the public service, and if the duly verified reports of such public utility to the commission do not show such original cost, less accrued depreciation, of such property, the commission may estimate such cost less depreciation and fix, determine, and prescribe rates as hereinbefore provided.”
“(e) Temporary rates, so fixed, determined, and prescribed under this section shall be effective until the final determination of the rate proceeding, unless terminated sooner by the commission. In every proceeding in which temporary rates are fixed, determined, and prescribed under this section, the commission shall consider the effect of such rates in fixing, determining, and prescribing rates to be thereafter demanded or received by such public utility on final determination of the rate proceeding. If, upon final disposition of the issues involved in such proceeding, the rates as finally determined, are in excess of the rates prescribed in such *7temporary order, then such public utility shall be permitted to amortize and recover, by means of a temporary increase over and above the rates finally determined, such sum as shall represent the difference between the gross income obtained from the rates prescribed in such temporary order and the gross income which would have been obtained under the rates finally determined if applied during the period such temporary order was in effect.”
The complainant contends that these subsections violate the provisions of the Fourteenth Amendment to the Constitution of the United States.
But assuming these subsections to be constitutional, complainant says that the order made pursuant to them is unconstitutional, in that it is confiscatory because it “fixes, determines and prescribes” rates which do not yield a fair return on the fair value of its property devoted to public use.
It should be stated at the outset that this court is not a rate-making body. The function of fixing the rates of a public utility ultimately rests with the commonwealth. It has the right to control private corporations, whose business, necessarily monopolistic in character, is affected with a public interest. That control, where the fixing of rates is involved, is exercised through one of its agencies, the Public Utility Commission. In exercising this control, the rights of both the public and the corporation must be considered. The company is entitled to a fair return on a fair value of its property devoted to public use. It cannot be so high as to exceed the value of the service to the consumer and cannot be so low as to confiscate the property devoted to that service. Public Service Railway Co. v. Board of Public Utility Commissioners (D.C) 276 F. 979, 984. In other words, the company is entitled to ask a fair return upon the value of that which it employs for the public convenience, and the public is entitled to demand that no more be exacted from it than the services rendered are reasonably worth. Neither is entitled to anything more. Smyth v. Ames, 169 U.S. 466, 547, 18 S.Ct. 418, 42 L.Ed. 819; Philadelphia City Passenger Railway Co. v. Public Service Commission, 271 Pa. 39, 114 A. 642, 648.
We are concerned here solely with the allowance or disallowance of a permanent injunction, and the determination of that question depends upon whether or not the rates prescribed are confiscatory. Considered from one rate base they may be fair and reasonable and considered from another they may not be. The complainant, being entitled to a fair return on the fair value of all its property used in the service of the public, the question arises as to what property constituted the “basis” to which the commission applied a temporary rate of 6 per centum.
Section 310 (a) of the act (66 P.S.Pa. § 1150 (a) provided as to temporary rates that: “Such temporary rates, so fixed, determined, and prescribed, shall be sufficient to provide a return of not less than five per centum upon the original cost, less accrued depreciation, of the physical property (when first devoted to public use) of such public utility, used and useful in the public service.”
It was the duty of the Commission to make such findings or to furnish such facts as would inform the court on a re view as to whether or not those who had been affected by its determination had been deprived of their legal or constitutional rights. In the case of Pennsylvania Power & Light Co. v. Public Service Commission, supra, the court said: “This is but a recognition of a fundamental principle that where the Legislature delegates powers to an extrajudicial tribunal appointed to determine property values or rights and the tribunal acts in such matters, it must make such findings that on a review by the court it is possible to determine whether one affected by such determination has been deprived of legal rights.”
In the case of Ohio Bell Telephone Co. v. Public Utilities Commission of Ohio, 301 U.S. 292, 300, 57 S.Ct. 724, 728, 81 L.Ed. 1093, the court laid down the law as follows:
“The fundamentals of a trial were denied to the appellant when rates previously collected were ordered to be refunded upon the strength of evidential facts not spread upon the record. * * *
“Upon the strength of these unknown documents refunds have been ordered for sums mounting into millions, the Commission reporting its conclusion, but not the underlying proofs. The putative debtor does not know the proofs today. This is not the fair hearing essential to due proc*8ess. It is condemnation without trial. * * *
“From the standpoint of due process— the protection of the individual against arbitrary action — a deeper vice is this, that even now we do not know the particular or evidential facts of which the Commission took judicial notice and on which it rested its conclusion. Not only are the facts unknown;. there is no way to find them out. * * *
“To put the problem more concretely: how was it possible for the appellate court to review the law and the facts and intelligently decide that the findings of the Commission were supported by the evidence when the evidence that it approved was unknown and unknowable?”
In the case of United Railways v. West, 280 U.S. 234, 250, 50 S.Ct. 123, 125, 74 L.Ed. 390, the court said: “What annual rate will constitute just compensation depends upon many circumstances, and must be determined by the .exercise of a fair and enlightened judgment, having regard to all relevant facts.” The same court, in the case of Smyth v. Ames, 169 U.S. 466, 546, 18 S.Ct. 418, 434, 42 L.Ed. 819, many years agohtated some of the “relevant facts” which must be considered in fixing a rate:
“And, in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses, are all matters for consideration, and are to be given such weight as may be just and right in each case.”
To these elements should be added “going concern value.” In DesMoines Gas Co. v. DesMoines, 238 U.S. 153, 165, 35 S.Ct. 811, 815, 59 L.Ed. 1244, the court, in speaking of this value said: “This element of value is a property right,'and should be considered in determining the value of the property, upon which the owner has a right to make a fair return when the same is privately owned although dedicated to public use. * * * Included in going value as usually reckoned is the investment necessary to organizing and establishing the business which is not embraced in the value of its actual physical property.”
The Commission, however, took a rate base as set forth in paragraph 10 of its answer, of $5,900,000 which represents an allowance of $5,350,000 for reproduction cost new less accrued depreciation, plus $150,000 for working capital and $400,000 for going concern value. The operating revenue for 1936 was $2,020,044. From this the Commission deducted operating expenses of $880,400, retirement expenses of $120,422, and taxes of $218,000, leaving a net profit of $801,222. The Commission then on July 27, 1937, prescribed a temporary rate of 6.20 per cent, which will yield a return of $366,222, and produce a reduction in the annual revenue of the complainant of about $435,000.
But the Commission failed to deduct from the gross annual revenue $114,355 of other expenses, taxes, pay roll increases, pensions to employees, etc., which for the year 1936 would reduce the net return to $213,067. This represents a rate of 3.61 per cent, on the rate base of $5,900,000 used by the Commission, and for the year ended June 30, 1937, a return of $214,245, on a rate of 3.63 per cent. If other elements of capital value had been considered by the Commission which under the rules laid down by the. Supreme Court it must do in fixing a rate base, both the return and rate would accordingly have been less. Such rates are clearly confiscatory. A rate of 7 per cent, was allowed by the Pennsylvania Public Service Commission in 1936. The complainant produced substantial proof to show that a reasonable rate for it is at least 7% per cent.
Does the fact that the rates fixed are only temporary save the order from the inhibition of .the constitution? We think it does not, and that this question is answered by the case of Prendergast v. New York Telephone Company, 262 U.S. 43, 49, 43 S.Ct. 466, 469, 67 L.Ed. 853, where the court said: “Nor did the fact that the orders of the Commission merely prescribed temporary rates to be effective until its final determination, deprive the Company of its right to relief at the hands of the court. The orders required the new reduced rates to be put into effect on a given date. They were final legislative acts as to the period during which they should remain in effect pending the final determination; and if the *9rates prescribed were confiscatory the Company would be deprived of a reasonable return upon its property during such period, without remedy, unless their enforcement should be enjoined. Upon a showing that such reduced rates were confiscatory the Company was entitled to have their enforcement enjoined pending the continuance and completion of the rate-making process.”
It has been argued that the recoupment provision of the Pennsylvania act avoids the infirmity in the New York act which the court pointed out in the Prendergast Case. This argument in effect means that it is proper and legal to violate the Constitution if at some future time that violation may be corrected wholly or in part. In other words, it is perfectly all right and permissible to take one’s money by force if by and by it may be partly returned to him. If that is so, how long may the Constitution be violated during which time the injured party is without remedy? May it be for a month, as provided in section 310 (c) of the act (66 P.S.Pa. § 1150 (c), or for a trial period of 6 months or a year as provided in section 310 (d) of the act (66 P.S.Pa. § 1150 (d) ? Such interpretation of the constitutional requirement is unsound.
Furrher, the provision for recoupment is not entirely effective. It does not provide for interest of the money, which the company loses during the trial period, while the final rates are being fixed, and if it did so require, considerable portions of the principal lost, might never be recovered. The act provided that if the final rates arc higher than the temporary rates, “then such public utility shall be permitted to amortize and recover, by means of a temporary increase over and above the rates filially determined” (section 310 (e) of the act, 66 P.S.Pa. § 1150 (e) the sum lost oil account of the temporary rates. But if the consumer discontinues the service or move out of the territory, as doubtless in a shifting population will be frequently done, the utility in many cases will be absolutely without remedy for section 305 of the act (66 P.S.Pa. § 1145) abolishes “deposits to secure future payments.”
The Commission relies almost entirely upon the case of the Bronx Gas & Electric Co. v. Maltbie, 271 N.Y. 364, 3 N.E. (2d) 512, 513, to escape the rule laid down in the Prendergast Case. In the Bronx Gas Case the court said that “the sole question lor this court to determine is whether the Public Service Commission can legally provide a temporary rate for electric service, pending the determination of the final rate.” Of course, it can if it considers those elements which the Supreme Court has always said are necessary in order to form a proper rate base and makes an order that is not confiscatory. The court further said that if this were done it would prevent the fixing of a temporary rate for it would be a final rate. This does not follow. The elements, which the Supreme Court in numerous cases lias said must be considered in fixing a fair rate, need not be considered with the same care, particularity, and thoroughness with which they must be considered in fixing a final rate, but they must be considered to the extent that will enable the Commission to avoid fixing a confiscatory, temporary rate, for neither the Constitution nor the Supreme Court has made any exception in fixing a confiscatory rate because the rate is temporary. In the Bronx Gas Case, the New York court said that the Prendergast Case decided several things, one of which was that: “The temporary rate must give a fair return upon all those elements of capital value which must be considered in fixing the final rate.” That is exactly what we understand the case to have decided and that required the Commission in the case at bar in fixing the temporary rate to consider the necessary elements of capital value other than original cost less accrued depreciation sufficiently to avoid fixing a confiscatory temporary rate. The decision in the Bronx Case in effect differs with the law declared in the Prendergast Case.
In the case of Laclede Gas Light Co. v. Missouri Public Service Comm. (D.C.) 8 F.Supp. 806, 809, the court said: “It is earnestly urged by defendants and intervenor that the Commission’s order should be permitted to go into effect because it is intended only to be temporary. But, as we have pointed out, the order itself is not so limited. Moreover, the constitutional prohibition against the taking of property without due process of law contains no exception permitting a taking of some property or a taking during a limited period of time.”
Speaking for myself alone, it seems to me that section 310 (a) and (e) of the act are unconstitutional because they permit the commission to fix and maintain rates as *10low as 5 per cent, upon the original cost, less accrued depreciation, without considering other elements of capital value which the Supreme Court has often said must bé done in fixing a fair rate on a fair value of property used and useful in the public service. The test of the constitutionality of an act is not what a rate-making body does under it, but what it is permitted to do.
Under section 310 (c) of the Act the Commission is authorized to fix temporary rates “every month or at any other interval” and it may in this case at any time give attention to other elements of capital value than original cost less depreciation and fix a legal rate.
And now, to wit, October 15, 1937, the Pennsylvania Public Utility Commission is hereby enjoined and restrained from in any manner' enforcing or attempting to enforce its order of July 27, 1937, establishing the rates set forth therein.