West Ohio Gas Co. v. Public Utilities Commission
294 U.S. 63 (1935)

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U.S. Supreme Court

West Ohio Gas Co. v. Public Utilities Commission , 294 U.S. 63 (1935)

West Ohio Gas Co. v. Public Utilities Commission of Ohio (No. 1)

No. 212

Submitted December 7, 1934

Decided January 7, 1935

294 U.S. 63

Syllabus

1. In computing the operating expenses of a gas distributing company, in the process of fixing its rates, the company's books are presumptively correct. P. 294 U. S. 67.

2. Where the company's accounts showed that the amount of gas lost through leakage, etc., was 9% per annum of the amount purchased by it, and the books were found regular, but the public commission, in fixing its rates, struck off 2% of this from operating expense upon the ground that, with proper care, the loss would have been less, and did so without any evidence of waste or neglect, and without giving to the company any warning of this action or opportunity to oppose it by proof of due care, held that the action was wholly arbitrary. P. 294 U. S. 67.

Page 294 U. S. 64

3. Where the sole method provided by state law for review of a rate-fixing order is by hearing upon the law and facts on an appeal to the state supreme court, the facts relied on to sustain the rates against unimpeached evidence submitted by the utility must be exhibited in the record; otherwise the hearing is inadequate, and not judicial. P. 294 U. S. 68.

4. In fixing rates of a gas company, a public commission, after closing the hearings and without further notice to the company, adopted a new method of distributing certain expenses over the area served, and applied it to one city, where its effect on the rate was unfavorable to the company, and omitted to apply it to another where the effect would have been favorable. The reallocation was based on the commission's construction of annual reports of the company which had not been put in evidence, and no opportunity was allowed to contest the reallocation or to secure a rate readjustment in harmony with it. Held that the procedure was unfair, and contrary to due process. Pp. 294 U. S. 69, 294 U. S. 71.

5. In reviewing rate cases coming from state courts, under the due process clause, the function of this Court is not concerned with error or irregularity in the ratemaking, however gross, if the consequences, in their totality, are consistent with enjoyment by the regulated utility of a revenue something higher than the line of confiscation, and if suitable opportunity was afforded the utility through evidence and argument to challenge the result. P. 294 U. S. 70.

6. In deciding a rate case, the Court may take judicial notice of the record of a similar and related case pending before it between the same parties. P. 294 U. S. 70.

7. Within the limits of reason, advertising or development expenses to foster normal growth are legitimate charges upon income for rate purposes, and a refusal by a public commission to make allowance for such expenditures, on the ground that they were excessive and wasteful but without any evidence to support it, is contrary to due process. P. 294 U. S. 72.

8. Good faith on the part of the managers of a business is to be presumed, and, in the absence of a showing of inefficiency or improvidence, a court will not substitute its judgment for theirs as to the measure of a prudent outlay. P. 294 U. S. 72.

9. Judicial notice is taken of the fact that gas is in competition with other fuels, such as oil or electricity. P. 294 U. S. 72.

10. Rates fixed by city ordinance for a term of years were set aside as unfair, and higher rates substituted for the same term in a proceeding brought before a public commission by the utility affected.

Page 294 U. S. 65

Held that, in determining whether the higher rate yield a fair return, the amount reasonably laid out by the utility as expenses of the proceeding, including the charges of engineers and counsel, should be included in the costs of operation and spread over the period for which the rates were prescribed. P. 294 U. S. 72.

11. As applied to a corporation engaged in the sale of gas during 1928-1931, compulsory rates which net an income of only 4.53% upon its proper rate base, are confiscatory. P. 294 U. S. 75.

12. The claim made by the Gas Company that the allowance for depreciation reserve was inadequate, and that it was entitled to add to operating charges the amortized value of a transmission main extending from the city to fields of natural gas, cannot be upheld. P. 294 U. S. 77.

128 Ohio St. 301, 191 N.E. 105, reversed.

Appeal from the affirmance of an order of the Public Utilities Commission fixing the rates of the Gas Company in the City of Lima, Ohio.

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