Court Opinion

ID: 9449368
Source: CourtListenerOpinion
Date Created: 2023-08-04 16:10:36.31002+00
Date Added: 2024-06-11T17:31:48.730528
License: Public Domain

BASTIAN, Circuit Judge
(dissenting).
I dissent for the reasons stated in what was the majority opinion when filed July 12, 1962, but which has now been vacated pursuant to our en banc action. That original majority opinion, which had not been reported, is set forth below and represents the views of Judge MILLER, Judge DANAHER and myself.

Majority Opinion Filed July 12,1962

“BASTIAN, Circuit Judge.
“This is an appeal from a judgment of the District Court, dismissing an appeal from an order of the Public Utilities Commission of the District of Columbia determining the rates to be charged in the District of Columbia by appellee D. C. Transit System, Inc.
“On November 6, 1959, Transit filed with the Commission a petition for change in its schedule of rates. At that time the rates, for other than school fares, were a cash fare of 20$, or a token fare of 20$ in units of $1.00. Transit asked for a cash fare of 25 $ during rush hours1 and 20^ for other times, these fares to be effective until November 1, 1960, after which the rate asked was 25$ to apply at all times.
“After lengthy hearings, the Commission determined on March 2, 1960, that the twelve-month period ended September 30, 1959, was a proper period for determining Transit’s actual level of earnings for a past test period, and that the twelve-month period ending December 31, 1960, was a proper period for measuring the company’s estimated level of earnings for a future test period, after giving effect to appropriate adjustments for changes in the level of revenues and expenses.
“The Commission further found that the estimates of operating results for *1971961 and 1962 were not sufficiently reliable to serve as a basis for providing, at the time of its order, for an increase in rates to become effective on November 1, 1960, as Transit proposed. The Commission proceeded to find that the system operating revenues applicable to mass transportation operations for the future test period were estimated to be $26,-708,655; that the system rate base applicable to mass transportation operations for the future test period, determined by giving equal weight to net original cost and to purchase price of the property, is $16,016,810; and that the net operating income from system-wide transportation operations for the future test period ending December 81, 1960, estimated to be $66,146, would provide Transit with a return of 2.47% on gross operating revenues of $26,708,655 and a return of 4.12% on the rate base of $16,016,810.
“The Commission further found that, under the fare structure proposed by its staff, a 250 cash fare, tokens at five for $1.00, and a 100 school fare, together with a comparable increase in fares from the company’s other mass transportation operations, would produce net operating income of $1,143,249 for the future test period; and that this would result in a return of 4.10% on adjusted gross operating revenues of $27,872,478 under the fare structure proposed by the staff, and a return of 7.14% on the rate base of $16,016,810.
“Thereupon, the Commission issued Order No. 4631, dated March 2,1960, fixing the cash fare at 250 and token fare at 200 in units of five for $1.00. Petitions for reconsideration were filed by certain civic organizations and a number of individual streetcar riders, including Bebchick and Goodman, and, as well, by Transit. These petitions for reconsideration were overruled by the Commission. Thereupon, appeals to the District Court wei'e filed by appellants 2 and by Transit.3
“The District Court dismissed appellants’ original complaint on the ground that they were without standing to bring the appeal. We reversed. Bebchick v. Public Utilities Commission, 109 U.S.App.D.C. 298, 287 F.2d 337 (1961). On remand, and after certain preliminary proceedings, the District Court, with the administrative record before it, denied appellants’ motion for summary judgment, granted the Commission’s motion to dismiss, and on June 5, 1961, affirmed the order complained of.
“In its order dismissing the complaint, the District Court correctly stated:
“ 'The Court’s powers as well as its duties and limitations are governed by statute (Act of March 4, 1913, 37 Stat. 989, ch. 150, Sec. 8, par. 64 to 69(a) inch (Sec. 43-705 to 43-710, D.C.Code, 1951)). The statute provides that appeals to the District Court shall be heard upon the record before the Commission; that in the determination of any appeal from an Order of the Commission, the review by the Court shall be limited to questions of law; that the findings of fact by the Commission shall be conclusive unless it shall ap~ .pear that such findings are unreasonable, arbitrary or capricious; and that upon the conclusion of its hearing, the Court shall either dismiss the appeal and affirm the Order of the Commission or sustain the appeal and vacate the Commission’s order.’
“The court thereupon concluded that the findings of the Commission were supported by the record and were not unreasonable, arbitrary or capricious, and that the conclusions and decision of the Commission were not erroneous as a matter of law.
“At the outset of the hearing before us, appellees urged that the case is moot as a subsequent order, based on a further petition for change in rates, *198has been entered by the Commission and that the new order, No. 4735, supersedes Order No. 4631. We find no merit in this claim. As contended by appellants, judicial review could in this way be avoided by the initiating of proceedings regarding outstanding rates and the entering of new orders prior to the hearing of an appeal. Cf. Southern Pacific Terminal Co. v. Interstate Commerce Comm’n, 219 U.S. 498, 31 S.Ct. 279, 55 L.Ed. 310 (1911).
“A number of points are raised by appellant as grounds for reversal of the District Court’s ruling, and as showing that:
‘The Commission erred in concluding that Transit was entitled to an increase in the cash fare charged in the District of Columbia from 20f5 to 25$ and in issuing an Order which has the end result of burdening transit riders with arbitrary and unreasonable revenue deductions, of allowing Transit excessive earnings and in permitting a cash fare 25% higher than the national median or average transit fare.’
“Appellants also charge that:
‘[T]he Commission in its Order and Opinion [acted] arbitrarily, unlawfully, without and contrary to the substantial evidence of record, and without requisite finding. * * ’
“We think, however, that the decision of the Commission is based on a ‘suitably complete statement’ of its reasons for its conclusions,4 as will hereinafter appear.
“Section 4 of the Franchise Act, Public Law 757, 84th Cong., 2d Sess. (70 Stat. 598), provides in part that:
“ ‘the Congress finds that the opportunity to earn a return of at least 6% per centum net after all taxes properly chargeable to transportation operations, including but not limited to income taxes, on either the system rate base or on gross operating revenues would not be unreasonable, and that the Commission should encourage and facilitate the shifting to such gross operating revenue base as promptly as possible and as conditions warrant; and if conditions warrant not later than August 15, 1958.’
“Appellants say in effect that, although the Commission gave lip service to the direction of Congress to encourage the shift to a gross operating revenue method, it in fact used the system rate base method and, in doing so, made many errors.
“Acting on the directions contained in Section 4 of the Act, the Commission concluded :
“ ‘Upon consideration of the record in this proceeding and the specific Findings [contained in the order] * * * 1. That the gross operating revenue method should be utilized to fix rates in this proceeding.’ [Finding No. 1 5 and Conclusion 1 of Order No. 4631.]
“Using this method the Commission found that, for the test period (the year ending December 31, 1960), the rate schedule provided would produce net operating income of $1,143,249, or a rate of return of 4.10%, which rate of return the Commission found reasonable. The Commission, however, further determined that the system rate base applicable to mass transportation operations provided a useful means of checking the reasonableness of the result obtained from the use of the gross operating revenue method.
“Despite the Commission’s actual use of the gross operating revenue method, appellants insist that the Commission in *199fact made use of the system rate base method and that the Commission erred in its rate base determinations. This is not correct. The Commission made use of the system rate base method as one of the ways of testing the reasonableness of the gross operating base method. It may well be that, if the Commission erred in its rate base determinations, it may have used data which did not properly test the reasonableness of the gross operating revenue method. Whiie that would not necessarily make invalid the Commission's determinations, it is a matter which we should pursue and, if material errors are demonstrated, the proceedings might be remanded to the Commission to test the reasonableness of the gross operating revenue base in accordance with the proper method of testing.
“However, we find no such material error. The Commission found Transit’s rate base of $16,016,810 to be reasonable. This finding is attacked by appellants. This rate base determination by the Commission followed the testimony of staff witness Falk, in which he proposed that amount based upon giving equal weight to the net investment in rate base property based on original cost and based on purchase price. While it is not necessary to set forth in detail the schedule [Exhibit 39, J.A. p. 53] reaching this average, the summary thereof contained in the Commission’s Findings shows the figures relied upon:

*200“The appellants’ witness before the Commission recommended a rate base of $12,041,217,6 based on the net investment in road and equipment as of September 30, 1959, adjusted to exclude the undepreciated cost of rail facilities as of December 30, 1959, in the amount of $5,121,644 [Exhibit 10-A, J.A. p. 48].
“Appellants here contend that the rate base should not exceed $9,200,000 ‘which is Transit’s capital investment in 1956 when it purchased the transit facilities previously operated by another company (plus Transit’s additions less depreciation and retirements to date).’
“Transit’s witness took the position that rates should be established solely on the basis of gross operating revenues, although he stated that:
“ ‘if an investment rate base is adopted, it should be based on the depreciated original cost of property to comply with promises máde to the Company by Congress and the D.C. Commissioners at the time of granting D.C. Transit its franchise.’
“After consideration of both contentions, the Commission concluded, correctly we think:
“ ‘We have heretofore found that conditions presently warrant changing over to the gross operating revenue base for purposes of this proceeding, and that the “rate base-rate of return” method should be employed to test the reasonableness of the return computed under the gross operating revenue method. Accordingly, we find that a rate base in the amount of $16,016,810 is a proper rate base applicable to mass transportation operations for the twelve months ending December 30, 1960, and we conclude that it affords a sound basis for testing the reasonableness of a return computed under the gross operating revenue method.’ ^
“Chief among other points raised, and most vigorously pressed before us, is that unreasonable operating expenses were allowed by the Commission in connection with the system rate base test, these expenses consisting of (1) erroneous allowance of accruals for track removal and repairs, 2(a) unlawful depreciation of rail properties, and 2(b) unlawful depreciation of bus properties.
“(1) Allowance of Accruals for Track Removal and Repairs
“It is claimed that the Commission’s order unlawfully permits Transit to accrue annually $1,044,196 over a ten-year period from August 15, 1956, to cover the cost of track removal.
“By virtue of the provisions of Section 7 of the Franchise Act, Transit is required to remove its tracks and to repair the streets upon such terms and conditions as the Commission determines. After investigation, the Commission arrived at the figure of $10,441,958 as the cost of the program of track removal, and directed that that cost be provided by annual accruals over a ten-year period, that is $1,044,196 per year. There is evidence in the record justifying these figures. Appellants claim that the Commission should have treated the item of $10,441,958 as a capital item and not as an operating expense.
“The determination of the estimated cost of track removal came as the result of the Commission’s studies, and was based on the average of Transit’s estimate of $11,883,910 and that of $9,000,-000 estimated by the staff of the Commission. It is true that since 1956, when Transit acquired the property of its predecessor, and up to the time of Order No. 4631, much less than the annual amount of $1,044,196 has been spent. The Commission found:
“ ‘A question has also been raised with respect to the adequacy or inadequacy of the provision that is presently being made for track removal and repaving. Up to the present time, there has been only a limited amount of track removal and *201repaving work undertaken, so that sufficient data are not now available for testing the adequacy or inadequacy of the provision. The Commission recognizes that the provision now being made is based on engineering estimates which may prove to be either excessive or deficient by actual experience. We have indicated our intention of keeping this matter under study with a view to making such adjustments as might be found appropriate in the future. Pending further experience, we find for purposes of this proceeding that the annual provision of $1,044,196 for track removal and repaving is reasonable.’
“We think the Commission’s reasoning justifies its position, and we are not at liberty to substitute our judgment for that of the Commission. Of course, the Commission will be bound, as it states, to continue to study actual figures and to make such adjustments as would be fair in the light of actual experience.
“2(a) Unlawful Depreciation of Rail Properties
“Complaint is made that the Commission unlawfully permitted Transit to accrue depreciation with respect to more than $2,500,000 in rail properties which had been abandoned ‘and are ño longer used or useful in the public services.’ This action of the Commission was taken as a result of the Commission’s staff’s recommendations. The staff’s witness agreed with Transit’s estimate that the net undepreciated cost of rail properties as of December 31, 1959, was $5,121,644 and that Transit was entitled to recover this amount over some future period. The Commission’s witness took the position, contrary to that of Transit, that to make provision for recovery of the entire amount over the 43.5 months of the conversion period would place too heavy a burden on the customers over that period. Accordingly, the witness proposed that the Commission ‘now make provision only for that portion of the undepreciated cost that is associated with the track facilities that were abandoned on January 3, I960.’ The Commission thereupon concluded:
“ ‘It is the opinion of the Commission that until such time as a new depreciation study is made, and until we have had sufficient experience with the actual cost of track removal and repaving work to test the adequacy or inadequacy of the present provision for track removal, the additional provision of $295,500 recommended by the staff witness is as far as the Commission should go at this time in making separate provision for extraordinary retirement loss related to track facilities. Numerous precedents can be found where commissions have provided for recovering extraordinary retirement losses resulting from obsolescence over a reasonable period in the future.’
“There being a reasonable basis for this finding, we find no error.
“2(b) Unlawful Depreciation of Bus Properties
“Appellants also claim that the Commission erred in the treatment of the matter of depreciation for buses. It appears that the witness produced by appellants proposed that the unit method of depreciation be applied with respect to buses more than fourteen years of age, in lieu of the group method of depreciation presently in effect.
“We think that the record does in fact support the result reached by the Commission. We also think that the findings are entirely adequate and that they set forth the reasons leading to the ultimate conclusion of the Commission on the matter of depreciation of buses. On this point, the Commission ruled:
“ ‘ * * * [The witness] has proposed that the unit method of depreciation be applied with respect to buses that are more than 14 years of age, in lieu of the group method of depreciation presently in effect. Under the group method of depreciation, which method is used extensively in utility regulation, rates are *202based upon average service lives for the various classes of property. These rates are applied to the original cost of depreciable property so long as the property remains in service, the assumption being that accruals on property lasting beyond the estimated service life will offset deficiencies in accruals on property retired prior to reaching the average service life.
“ ‘The witness * * * also proposed a curious modification of the group method of depreciation which he claimed would accomplish the same results as the unit method, but under questioning he admitted that so far as he is aware no regulatory agency has adopted his proposed method. The method which he proposed would be applied to bus property alone and would give no consideration to the effect of premature retirements in other classes of property, particularly rail property. Under his proposal depreciation on buses would be reduced under the allowance proposed by the staff by $246,253. The Commission has been fully advised in this matter and is of the opinion that no change should be made in the prescribed group method of depreciating property, including buses, pending a complete study of the status of the existing depreciation reserve with respect to all depreciable property.’
“Finally, on the question of depreciation, amortization, and provision for track removal and street paving, the Commission held:
“ ‘After full consideration of the proposals by the various witnesses with respect to depreciation, amortization of acquisition adjustment, and provision for track removal and repaving, we adhere to our previously prescribed accounting treatment of these items, modified only with respect to the provision for extraordinary retirement loss on abandoned rail facilities as of January 3, 1960. Accordingly, we find that the proposed allowance for depreciation and amortization in the amount of $2,701,307, heretofore summarized, is just and proper. We reserve for future decision a determination as to what provision should be made with respect to any additional extraordinary property loss until such time as a depreciation study has been completed and the remaining rail facilities have been abandoned.’
“We believe that, in all of the items attacked by appellants, the Commission acted well within the limits of its expertise; that the reasons given for its actions were adequate; and that we should not disturb its findings in these respects.
“It goes without saying that the present situation is a most unusual one, resulting, as it does, from the cancellation of an old franchise and the granting of a new one; and much must be left to the expertise of the Commission, whose duty it is, in the first instance, to pass upon the many questions which will necessarily arise. There must be periods for trial — and error — but the Commission has promised to, and undoubtedly will, continue to study the situation and make such adjustments as time may require. As of the time of the order under consideration, we are unable to say that the Commission has been unreasonable or arbitrary in the performance of its duties.
“Other questions raised by appellants have been considered, but are not deemed of sufficient importance to justify reversal,”

. Rush hours were to be 6:00-9:30 A.M. and 3:30-7:00 P.M., Mondays through Fridays, except on legal holidays.

. The civic organizations and a number of individual streetcar riders have not joined in this appeal.

. Transit’s appeal was dismissed.

. Florida v. United States, 282 U.S. 194, 51 S.Ot. 119, 75 L.Ed. 291 (1931) ; Beaumont, S. L. & W. Ry. v. United States, 282 U.S. 74, 51 S.Ot. 1, 75 L.Ed. 221 (1930).

. Finding No. 1 is as follows: ‘1. That the Company has complied substantially with the intent of the Franchise Act and with the conditions heretofore indicated by the Commission as warranting the utilization of the gross operating revenue method for rate-making purposes in keeping with the legislative policy declared in Section 4 of the Act.’

. This figure was subsequently modified to $12,643,000.