Court Opinion

ID: 3986936
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:43:02.040629+00
Date Added: 2024-06-11T13:55:41.563339
License: Public Domain

I concur in the opinion of the CHIEF JUSTICE. I do not, however, agree with implications which might be drawn from language quoted in the opinion from the case of Federal PowerCommission v. Hope Natural Gas Company, and because I deem the matter vital I shall call attention to it. The language referred to is as follows:
"When the Commission's order is challenged in the courts, the question is whether that order `viewed in its entirety' meets the requirements of the Act. * * * Under the statutory standard of `just and reasonable' it is the result reached not the method employed which is controlling. * * * It is not theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the Act is at an end. The fact that the method employed to reach that result may contain infirmities is not then important."
From that language contained in a decision of the highest court in the land, other courts and public service commissioners may argue that a rate order should be upheld unless it can be shown to be confiscatory, regardless of whether the Commission based it upon relevant facts or upon a throw of dice or instinct or intuition. That is obviously not the law. Rate limitation is a legislative function, it is true, but courts should set aside a rate order unless constitutional procedure has been followed. Due process requires not only notice and opportunity to be heard, but requires that, in making a rate order, the Commission must give consideration to operating costs, maintenance, taxes, capital charges, reserves for depreciation, etc. and must also consider aproper basis upon which to fix the rate or amount of return tothe owners. The Hope case does away with the rule that the owners of a utility are entitled to a reasonable return based upon reproduction cost or so-called present fair value of the properties constituting the utility system. But I think, regardless of the language above quoted, it should not be construed as holding that there is no fundamental basis required to be considered in determining the amount or rate to be allowed the owners. It is shown from *Page 221 
the record in the case that the Commission had given consideration to evidence of operating costs, maintenance, taxes, capital charges, reserves for depreciation, the financial history of the company, the general economic conditions, the rates of earnings on investments with similar risks, and the amount invested in the property by the owners; also that the Commission had decided that the proper rate base upon which to fix the amount of profit or percentage of return to the owner was the amount actually and prudently invested in the property, after deduction for accrued depletion and depreciation. The commission then decided that a reasonable return, based upon such rate base, was 6 1/2 per cent per annum. Obviously the rate of return decided upon in the case was not the result of intuition or dice-casting but was fixed upon the logical foundation of the "prudent investment" base advocated by Mr. Justice Brandeis inSouthwestern Bell Telephone Company v. Public ServiceCommission, 262 U.S. 276, 292, 43 S. Ct. 544, 67 L. Ed. 981, 31 A.L.R. 807.
There must be some yardstick to be used by the commissions and the courts in determining whether a rate of return or dollar amount of return is or is not confiscatory. The abrogation of the rule of Smyth v. Ames must not be taken to mean that there is no need to establish a rate base. There must be a rate base upon which the rate of profit is to be calculated. Both public service commissions and the courts must concern themselves with the property affected by a rate-fixing proceeding. Upon the property devoted to the public use the owner is entitled, under the Constitution, to the opportunity to earn a fair return, except that rates may, in no event, be prohibitive, exorbitant, or unduly burdensome to the public. But the property or thing devoted by the investor to the public use is not specific items of property but capital embarked in the utility enterprise. That is the Brandeis doctrine, as I understand it. In the Hope case the Commission followed that doctrine and the Supreme Court affirmed it. That should be remembered in connection with the language from the opinion above quoted. *Page 222