Court Opinion

ID: 6256084
Source: CourtListenerOpinion
Date Created: 2022-02-17 21:31:20.811469+00
Date Added: 2024-06-11T08:59:33.144323
License: Public Domain

Concurring Opinion by
Mr. Justice Kephart:
The Philadelphia, Morton & Swarthmore Street Railway Company, in 1900, entered into an agreement with the Borough of Swarthmore to keep in good order the roadway, from curb to curb, and the bridges, flagstones, gutters and drains along the route of the railway through the borough. The enacting clause of the ordinance grants to the company the right, “under certain conditions, to construct, maintain and operate an extension of its street railway in the borough,” some of the conditions being those just recited.
The majority opinion does not deny that the legislature, through its police power, could reach this contract, especially as it is made by one of its own creatures, a borough. What it decides is that the legislature has not undertaken to place, within the regulatory control of the commission, authority to modify or annul a contract such as this. I am forced t'o reach the same conclusion on that branch of the case, but from a different viewpoint. My thought accords more with the dominant thought expressed in Citizens Pass. Ry. Co. v. Public Service Commission, 271 Pa. 39, which opinion is, as I understand it, more in keeping with the correct philosophy of the act. My objection to the majority opinion *481is that it sticks too close to the literal meaning of the language used, and disregards the import of the words in the light of the subject-matter with which they are dealing, imposing on them a meaning distinct from their practical use, as well as contrary to the spirit and purpose of the law. It seems to hunt for a special line for each authority exercised by the commission. That is not possible in treating so vast' a subject, and the contrary was appellant’s chief contention in this case, as it was in the Citizens Case, supra. The decision there was predicated entirely on the outstanding scheme and purpose of the act.
To bring out clearly what I wish to emphasize on this subject, it is necessary to repeat certain facts. The gross revenue per year of this company is $10,080; annual operating expense, $9,070; net revenue, approximately $1,010. The borough’s demand at this time would cost the company from fifteen to twenty thousand dollars immediately, with an annual maintenance charge of from two to five thousand dollars. When this agreement was written the traffic on the road was that of the normal vehicular (horse and wagon) traffic. To-day the road is traversed by heavy trucks, weighing from five to ten tons, and high powered automobiles, with little if any of the traffic that existed in 1900. Bus lines, in competition with appellant, pass along this highway. The order of the borough, if complied with, compels the company to maintain and keep the highway, under present-day conditions, in repair at all times for its competitors.
This the company declines to do, and can fairly claim the benefit of the well recognized principle of law that contracts are to be interpreted as of the time they were written and also as to what the parties then had in view. “A familiar rule of construction is that a contract will be construed in the light of the subject-matter and conditions existing at the time of its execution and that it comprehends only those things in respect to which it appears the parties proposed to contract and its provisions *482will not be extended to cover others apparently not thought of or intended to be included. Case v. Cushman, 3 W. & S. 544; Smith’s Est., 210 Pa. 604; Hay v. Baer, 48 Pa. Superior Ct. 231”: Silverthorn v. Silverthorn 276 Pa. 579. Appellee could not hold appellant to anything beyond that contemplated in the contract of 1900; that was to repair the roadway as often as it was necessary for the traffic that was then borne by the highway. If the borough wants a more substantial road for increased heavy travel, it must look elsewhere for additional money to build it. Having submitted itself to the commission’s jurisdiction, if error was made in limiting the scope of the order, the commission still had the power to restrict the exactions of the borough to that contemplated by the contract. This court, in the exercise of appellate power, could so limit the contract’s operation. It is possible less grievous harm would be done if the question were adjusted in that light.
Turning to the main proposition, which is, the right of the public service commission to strike down the present contract, a far different question is presented.
The act is defined as an act to regulate public service companies by defining their duties and liabilities, limiting their powers, and creating a commission to effect this purpose.
The commission’s first duty is to regulate the company in the interests of public welfare. This is accomplished through adequate service, and it is here appellant says t'he commission has the power to examine, modify or strike down the contract.
Adequate service is used comprehensively, and is just what the act says (article I). “The term ‘Service’ is used in this act in its broadest and most inclusive sense, and includes any and all acts done, rendered or performed, and any and all things furnished or supplied, and all and every the facilities used or furnished or supplied by public service companies in the performance of their duties to their patrons, employees, and the public, *483as well as the interchange of facilities between two or more public service companies.” It will be noted service includes facilities as well as every attribute that goes to make up, as here, the railway as a going concern, giving good service to the public. It is this broad language through which the commission operates to enforce the performance of the duty to the public.
Adequate service (article II) comprehends something to be done by the company in the interest of the public. It is the direct accomplishment of its charter purpose and duty, whether it relates to schedules, fares, cars, roadway or facilities, it matters not. While additional described or improved service may be ordered, necessitating increased facilities of sundry character, the manner and means of executing these orders, the instrumentalities or facilities used, are for the managers of the company. The commission looks to the result in service. It does not manage, but regulates. The company spends its money as it sees fit. It can adopt any plan it wishes, and the commission cannot directly stop it. This contract may have been for service betterment; if so, it relates to the means by which service is accomplished. The commission may consider its subject-matter as a rate factor in a rate base; but of this we shall speak later.
Service moves from the company, has relation to its duty, and, while dependent on rates, the two must not be confused. Service is what the patron gets and pays for. The rate is the consideration that the company receives for the service. As service is understood and defined, by no stretch of the imagination can this contract be considered service or any of its- allied elements.
It may be properly observed that, apart from regulation of health, safety and kindred subjects, each and every duty or liability imposed on a public service company by law and enforced by the commission necessarily has relation to some member of the public, interested or expectantly interested through contractual relations. *484Through whatever avenue we may approach public service questions, it must always be on the basis of a contractual or quasi-contractual relation, or a relation described in one of the opinions as bargain and sale.
This relation, generally speaking, exists through “rates” or “tariffs.”. There is no such thing as a gratuitous duty or liability within contemplation of the public service law. Every service is presumed to be paid through rates. Take, for instance, a complaint as to train schedules. It is not dealt with on ethical, religious or aesthetic grounds; nor may it be said to be in the interest of safety or health, though it may be of public comfort. It is primarily based on the fact that people expect to be placed in contractual relation with the company, as for example, passengers paying a rate of fare. If such were not the case, the complaint would be short-lived. Grade crossings contemplate as well safety to patrons as to the public.
The term “rates,” however, does not comprehend merely the price at which a particular service is given or commodity furnished. There is a rate base embodied within it all the essentials that go to make up, as it has been properly termed. A rate base is the sum total of the various elements entering into cost in its broadest sense. Rates are prices fixed in varying sums for varying service to cover cost plus incidentals or additional essentials. Rates are never fixed except on some basis of capital return and cost. The latter has still further indefinite relation to the public generally, in capacities different from those using the commodity which the rate controls.
Here we have a contract intimately associated with a public service company, and it is a part of rates if a part of the base on which the rate is built, but it is not in and of itself a rate contract. The difficulty lying in the path of appellant is that, as to this class, the commission can take no direct action; it must or may do so indirectly. It is but one of the elements that make up the whole; it *485cannot be segregated and independently examined and regulated. Its worth or value may be fixed and reflected in rates or revenue, and, to the extent that it is so reflected, the commission indirectly considers the subject-matter of the contract, but, as stated, not by segregation, with separate and independent action.
Here again appellant seeks to control the contract; as the duty of adequate service is a legal and a charter obligation, so the company has a similar and more important right, that is to “receive......fair......rates...... for each and every service rendered,” that they may comply with the public duty. Adequate service and reasonable rates must go hand in hand.
What, then, should be considered when the term “rate” is mentioned, and to what extent may the commission inquire and determine the elements founded on contract entering into a rate base?
As stated above, the commission does not deal directly with the persons selling supplies or rights-of-way, etc., to the company. Its acts may indirectly have a great bearing on the subject-matter of their contracts. This subject-matter, however, can be reached only through an investigation of rates, including all their elements. In such case, it is considered (1st) if included in fair value as a capital charge, through a per centum allowance; (2nd) if as an element of operating cost, then in the sum total of the latter; these two items, with others mentioned, — depreciation, etc., — are the prime factors or structure on which rates are built or made. If the specific matter is disallowed on both grounds because excessive as a franchise charge, improvident expenditure or not useful as capital expenditure, it must be met by the company in other ways. The public pays only for expenditures used or useful in adequate service, present or reasonably prospective. It is not called on to pay for foolish bargains or excessively inflated prices.
The question of fair value generally has been passed on, and needs no further discussion at this time. Oper*486ating charges, and the availability of contracts like this one, as such, have not been passed on; nor have such contracts as a capital charge.
The commission is required by law to allow reasonable operating charges. It is not bound to accept all the many items as a part of operating charges without regard to their availability, usefulness or excessiveness; it is not compelled by law to accept operating charges improvidently and unwarrantably made by former officers (rents, for instance). But in refusing it does not strike down the contract. It simply omits, as capital or operating costs, all or a part of the offending items. The commission, under its general powers, does not strike through the operating cost and reach the contract or the third person to the, contract, or t'he individual dealing with the company, and say to them, “You must reduce your price or cancel your contract.” The mere fact it may form part of a rate base under the public service law does not warrant such an idea. It may be reached indirectly, through rates, as stated by Mr. Justice Simpson in Citizens Pass. Ry. Co. v. Pub. Serv. Com., supra, 55, 56, “No contract made by a utility is subject to a direct attack and revision, unless it is itself a rate contract; and no contract may be indirectly reviewed in such cases, unless it has some relation to one or more of the elements to be considered in revising the rate.”
If this is a proper operating charge, — and it' is only in exceptional cases there is much dispute on this item, — or capital charge, then a rate must follow that will meet it. If the reasonable cost of operation exceeds the gross revenue of the company, and the rate on the commodity or the traffic is all that the commodity or traffic will bear, then the parties must be left to dissolution, as Mr. Justice Sadler points out in the Norristown Case, just filed, 277 Pa. 459.
The commission, in fixing a rate which shall yield a fair return, and permit the company to function, does not guarantee that business will be done under the new *487rate. If the traffic or commodity will stand it, they must fix a rate that will meet all expenses and charges enumerated. If this is not a proper operating or capital charge, its payment must come from the difference between the cost of operation, fixed charges and gross revenue.
“Besides, neither the commission nor the public has anything to do with the disposition of the rates which the utility is authorized to collect; nor is it any concern of either that the sum total thereof may not be sufficient to enable the operating company to pay its fixed charges and maintain or extend its service and facilities. The company is entitled to receive a reasonable return for the service it furnishes, and no more; the public is entitled to receive an adequate return for the reasonable rates it pays, and no more. Beyond making sure of these two things, the statute does not vest a greater power in the commission, so far as the matter under consideration is concerned”: Citizens Pass. Ry. Co. v. Pub. Serv. Com., supra, 56.
If the rate will bear no further increase, or if there is no net balance to pay on account of the subject-matter of these contracts, the commission possesses no power to call in those who serve the company and order them to reduce their prices. The commission cannot be accused of confiscation merely because it does not ratify grossly exorbitant costs to be included in capital or operation, or in declining to honor, as such charges, items clearly irrelevant as such, or in declining to order a rate the traffic will not bear. The legislature never intended the public service commission to be guardian over service companies, insure solvency, dividends, or prevent improvident acts of managers who act under a misconceived state of facts. Nor can any power such as here exercised be predicated on the commission’s general, supervisory and regulatory control under article V, with special reference to sections 2 and 13.
*488Much stress is laid on Scranton v. Public Service Commission, 268 Pa. 192, but here we have another question. The ordinance there limited the right to raise the rate to one that would permit performance of a public duty; it is at this point that adequate service and rates are inseparable. An effort was made to stop the hand of the state in securing adequate service.
The commission deals directly with the rate base in fixing a rate; in so dealing, it indirectly affects third persons (Citizens Pass. Ry. Co. v. Pub. Serv. Com., supra; New Street Bridge Co. v. Pub. Serv. Com., 271 Pa. 19). But in Scranton v. Pub. Serv. Com., supra, Leiper v. Baltimore & Philadelphia R. R. Co., 262 Pa. 328, and other cases of the same kind, the commission found the rate base established; the rate required for adequate service could not be imposed because of preexisting contracts limiting that right. The control of the rat'e as it directly affected adequate service or public duty was the reason for state interference, and this contract or rate directly concerned the patron or consumer. [We have, in the present case, as far as this record goes, an unlimited right in the company and the commission to fix any rate that the traffic will stand.]
The theory upon which the Scranton and other like cases were decided, as has often been repeated, and now reasserted, was, such contracts were made in contemplation of the fact that at some time the State might step in and exercise its regulatory control over these companies. This intervention was built on the theory that the company had a paramount duty to the public that must not be frustrated. If such duty was interfered with by contracts that would ultimately destroy the company life, the good of the public would be to that extent injured. Included within this comprehensive purpose is, primarily, adequate service; then there are charter obligations, monopolistic and noncompetitive features, —the public have been taught to depend and rely for daily business and social intercourse on public service *489instrumentalities, — and, lastly, discrimination; all of these matters, grouped under the general head of public good, force the state to declare that it will not permit rate contracts limiting the company’s right to adequate return to stand in the way of the general public good.
The primary purpose, and what we are just now concerned with, is adequate service; all contracts were made with the idea that such service could be given and continued under the then contracted rate, and if it could not, the rate specified must yield to one that will. But all rates, however made, must yield to the rule that they can only be such as the public will stand or pay.
The contract concerning rates was not stricken down; the new rate is supposed to be written into the contract, unless the other party elects to regard it as abrogated. The contract having relation to an operating or capital cost is not stricken down. While the commission may refuse to give it a place as operating or capital charge, it still continues to live as a subsisting obligation against the company, to be paid for by the company in some other way than from the costs mentioned.
Adequate service cannot be secured without a reasonable return; that is fundamental. A reasonable return embodies a rate base sufficient to cover all reasonable charges, and no more.
The commission has no power to take up a purely private question between a company and an individual concerning an element entering into a rate base.