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.
MR. JUSTICE CARDOZO delivered the opinion of the Court.
The appellant, West Ohio Gas Company, supplies gas to the
inhabitants of the city of Lima, Ohio, and to neighboring
communities, part of what it sells being artificial gas
manufactured by itself and part natural gas bought from another
company which is wholly independent.
On March 19, 1928, the municipal authorities of the City of Lima
passed an ordinance, effective April 19, prescribing the maximum
price to be charged for gas to consumers within the city during a
period of five years. The rates were to be as follows: for the
first 1,000 cubic feet of gas, 90 cents per month; for the next
3,000 cubic
Page 294 U. S. 66
feet per month, 80 cents per M.c.f.; for the next 6,000, 75
cents per M.c.f., and for all over 10,000 per month, 55 cents per
M.c.f. This was a sharp reduction of the rates previously charged,
which were $1.25 for the first 400 cubic feet; $1.05 for the next
9,600 cubic feet; $1 for the next 15,000, and for all over 25,000,
75 cents per M.c.f.
In adherence to the Ohio statutes (Ohio General Code, ยงยง 614-44
et seq.), the company filed a complaint with the Public
Utilities Commission of Ohio, protesting against the ordinance,
praying that the commission fix a fair and reasonable schedule,
electing, as it might, to charge in the meantime the rates
previously in force, and giving bond for the return of the excess,
if any. The hearings before the commission began in July, 1928, and
ended in July, 1932. While the proceeding was pending, there was a
final order of valuation, made in January, 1932, whereby the value
of the property in Lima used and useful for the business was fixed
at $1,901,696.26 as of March 31, 1928, approximately the date of
the adoption of the ordinance. There being no appeal from that
order within the time prescribed by law, it became binding on the
company, as well as on the commission, though the valuation was
less than the company had urged. 128 Ohio St. 301, 311, 191 N.E.
105. The rate base being thus established, what was next to be
ascertained was the amount of the operating expenses as compared
with the gross income, after which a conclusion could be drawn as
to the rates that would be necessary for a fair return on the
investment. An order entered by the commission on March 10, 1933,
adjudged the rates under the ordinance to be insufficient and
unjust. It substituted rates averaging about 13 1/2% less than
those that the company had been charging: for 400 cubic feet or
less per month, $1; for the next 9,600, 95 cents per M.c.f.; for
anything in excess of 10,000 cubic feet per month, 75
Page 294 U. S. 67
cents per M.c.f., with penalties to be charged if payment was
delayed. The rates so fixed were to be retroactive as of the
effective date of the ordinance, April 19, 1928, from which time
they were to remain in force for a term of five years, and the
difference between their yield and the amount collected by the
company was to be refunded to consumers. A motion for a rehearing
having been denied, the company filed a petition in error with the
Supreme Court of Ohio, invoking the protection of the Fourteenth
Amendment. The order of the commission was affirmed, 128 Ohio St.
301, 191 N.E. 105, and the case is here upon appeal.
The commission made its order, as it has informed us by an
amended opinion, in the belief that the new rates would yield a
return of 6.65% on the value of the property included in the base.
Its estimate was wide of the mark as a result of mathematical
errors, and this on the assumption that its rulings as to the items
of operating expenses to be allowed or disallowed were correct in
fact and law. Even on that assumption, the average net income
during the four years of the ordinance period for which figures
were available was $109,414, which, upon a rate base of $1,901,696,
is equivalent to an average return of about 5.75%. This is now
admitted by counsel for the commission, and must be accepted as a
datum. What is still to be determined is whether the rate of return
has been further overestimated to the point of confiscation through
error in the rejection of charges upon income.
1. The company made claim to an allowance for "unaccounted-for
gas," which is gas lost as a result of leakage, condensation,
expansion, or contraction. There is no dispute that a certain loss
through these causes is unavoidable, no matter how carefully the
business is conducted.
Cf. Consolidated Gas Co. v. Newton,
267 F. 231, 244;
Brooklyn Union Gas Co. v.
Prendergast, 7 F.2d 628,
652, 671. The company, basing its claim upon its
Page 294 U. S. 68
proved experience, reported the average loss as 9% per annum.
The commission fixed the allowance at 7%, thereby reducing the
operating expenses by $3,800 a year. In making this reduction, it
did not deny that the loss had been suffered to the extent stated
by the company. The presumption of correctness that gives aid in
controversies of this order to the books of public service
corporations (
Consolidated Gas Co. v. Newton, supra at p.
242;
Newton v. Consolidated Gas Co., 258 U.
S. 165,
258 U. S. 176)
was confirmed in this instance by what amounts to a finding of
regularity. Accepting the loss as proved, the commission refused to
allow it for more than 7% upon the ground that, with proper care of
the system, the loss would have been less. A public utility will
not be permitted to include negligent or wasteful losses among its
operating charges. The waste or negligence, however, must be
established by evidence of one kind or another, either direct or
circumstantial. In all the pages of this record, there is neither a
word nor a circumstance to charge the management with fault.
Cf. Ohio Utilities Co. v. Public Utilities Commission of
Ohio, 267 U. S. 359,
267 U. S. 363.
There is not even the shadow of a warning to the company that fault
was imputed and that it must give evidence of care. Without
anything to suggest that there was such an issue in the case, the
commission struck off 2%; it might with as much reason have struck
off 4% or 6%. This was wholly arbitrary.
Ohio Utilities Co. v.
Public Utilities Commission of Ohio, supra.
Under the statutes of Ohio, no provision is made for a review of
the order of the commission by a separate or independent suit. The
sole method of review is by petition in error to the Ohio Supreme
Court, which considers both the law and the facts.
Dayton P.
& L. Co. v. P.U. Commission of Ohio, 292 U.
S. 290,
292 U. S. 302;
Hocking Valley Ry. Co. v. Public Utilities Commission, 100
Ohio St. 321, 326, 327, 126 N.E. 397. To make such review
adequate,
Page 294 U. S. 69
the record must exhibit in some way the facts relied upon by the
court to repel unimpeached evidence submitted for the company. If
that were not so, a complainant would be helpless, for the
inference would always be possible that the court and the
commission had drawn upon undisclosed sources of information
unavailable to others. A hearing is not judicial, at least in any
adequate sense, unless the evidence can be known.
2. The company made claim to an allowance of "distribution
expenses" incurred in the superintendence of distribution, in work
on the premises of customers incidental to the service, in the
change of meters used to measure the gas sold, and in the
maintenance of local mains and equipment. There is no denial, even
now, that these expenses were incurred as claimed. There was no
challenge upon the trial to the practice of the company whereby
moneys spent in Lima, the territorial unit affected by the
ordinance, were allocated to that city, and not to territory
beyond. The case was tried on the assumption that the practice was
acceptable, and was so submitted for decision. Eight months later,
on the eve of a determination, the commission conceived the thought
that distribution costs in Lima should be borne also by consumers
in outlying communities (including the city of Kenton) served by
the same company, which would mean, of course, that like expenses
in the other communities must be borne by residents of Lima. Up to
that stage, the data were lacking for a division on that basis.
Accordingly, by an order made
ex parte on March 8, 1933,
without the appellant's knowledge, the commission directed of its
own motion that the annual reports for the years 1928 to 1931,
inclusive, be introduced in evidence and made a part of the record.
On the basis of these reports, it ascertained the average
distribution expense per customer for all the eleven communities
served by the appellant, multiplied this average by the number
Page 294 U. S. 70
of customers in Lima, and thus arrived at the share to be
allocated to that city in the determination of the local rates. By
that mode of apportionment, the operating expenses were reduced to
the extent of $6,200 annually.
We do not now decide that there would be a denial of due process
through the spread of distributing costs over the total area of
service if the new method of allocation had been adopted after
timely notice to the company and then consistently applied. This
Court does not sit as a board of revision with power to review the
action of administrative agencies upon grounds unrelated to the
maintenance of constitutional immunities.
Los Angeles Gas &
Electric Corp. v. Railroad Commission of California,
289 U. S. 287. Our
inquiry in rate cases coming here from the state courts is whether
the action of the state officials in the totality of its
consequences is consistent with the enjoyment by the regulated
utility of a revenue something higher than the line of
confiscation. If this level is attained, and attained with suitable
opportunity through evidence and argument (
Southern Ry. Co. v.
Virginia, 290 U. S. 190) to
challenge the result, there is no denial of due process, though the
proceeding is shot through with irregularity or error. But the
weakness of the case for the appellee is that the fundamentals of a
fair hearing were not conceded to the company. Opportunity did not
exist to supplement or explain the annual reports as to the
distribution of the expenses in the neighboring communities, nor
did opportunity exist to bring the rates outside of Lima into
harmony with the exigencies of a new method of allocation adopted
without warning.
The need for such an opportunity is brought into clear relief by
the record in No. 213, a case submitted along with this one, and
within the range of our judicial notice.
Butler v. Eaton,
141 U. S. 240,
141 U. S.
243-244;
Aspen Mining & Smelting Co. v.
Billings, 150 U. S. 31,
150 U. S. 38;
Bienville
Page 294 U. S. 71
Water Supply Co. v. Mobile, 186 U.
S. 212,
186 U. S. 217;
Fritzlen v. Boatmen's Bank, 212 U.
S. 364,
212 U. S. 370.
The subject matter of that case was the rate schedule for the City
of Kenton, served with gas by the appellant. In Kenton, unlike
Lima, a spread of distribution costs over the whole area of service
would have been favorable to the appellant and unfavorable to
customers. Strange to say, the commission, though prescribing the
larger area for Lima, adopted the smaller one for Kenton, and this
by a decision rendered the same day. An injustice so obvious may
not be suffered to prevail. The commission, by its counsel,
suggests as an excuse that a division on a different basis was not
requested by the company. There was no reason to request it, for
the record as made up when the case was finally submitted did not
contain the necessary data for a spread over a larger area, nor was
there any hint by the commission that such a division was in view.
Manifestly, whatever territorial unit is adopted must be made use
of consistently, and regardless of the consequences. If a different
course were to be followed, there would be less than full requital
after all the communities affected had contributed their
quotas.
To resume: division on one basis in Lima and on another basis in
Kenton, all without notice to the company that the spread was to be
altered and new evidence received, was an exercise of arbitrary
power at variance with "the rudiments of fair play" (
Chicago,
Milwaukee & St. Paul Ry. Co. v. Polt, 232 U.
S. 165,
232 U. S. 168)
long known to our law. The Fourteenth Amendment condemns such
methods and defeats them.
3. The company made claim to commercial expenses incurred in
reading the meters of the customers, keeping their accounts, and
sending out and collecting bills. The commission treated these
items the same way that it treated the expenses of distribution,
and spread them over the whole territory instead of confining them
to Lima. The result was a reduction of operating expenses
Page 294 U. S. 72
to the extent of $1,085.25 yearly. For reasons already stated,
the reduction may not stand.
4. The company made claim to expenses incurred in procuring new
business or in the endeavor to procure it, such expenses amounting
on the average to $12,000 a year. The commission did not question
the fact of payment, but cut down the allowance to $5,000 a year on
the ground that anything more was unnecessary and wasteful. The
criticism has no basis in evidence, either direct or
circumstantial. Good faith is to be presumed on the part of the
managers of a business.
Southwestern Bell Telephone Co. v.
Public Service Commission of Missouri, 262 U.
S. 276,
262 U. S.
288-289. 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.
Banton v. Belt Line Ry.
Corp., 268 U. S. 413,
268 U. S. 421;
Brooklyn Borough Gas Co. v. Prendergast, 16 F.2d
615, 623;
New York & Richmond Gas Co. v.
Prendergast, 10 F.2d
167, 181. The suggestion is made that there is no evidence of
competition. We take judicial notice of the fact that gas is in
competition with other forms of fuel, such as oil and electricity.
A business never stands still. It either grows or decays. Within
the limits of reason, advertising or development expenses to foster
normal growth are legitimate charges upon income for rate purposes
as for others.
Consolidated Gas Co. v. Newton, supra at p.
253. When a business disintegrates, there is damage to the
stockholders, but damage also to the customers in the cost or
quality of service.
5. The company made claim to an allowance of the expenses of the
rate litigation amounting in all to about $30,000, to be spread in
equal parts over a term of five years, the duration of the
ordinance. No part of these expenses has been allowed, though
apparently both commission and court intended to allow them,
spreading them, however, over a term of six years, instead of five.
"It
Page 294 U. S. 73
must be conceded," said the court, "that the gas company is
entitled to a fair and reasonable allowance for rate case
expenses." This is followed by the statement that, if the spread be
six years (instead of five), and $5,100 be allowed for each of
those years "as contended by the commission," the rate fixed by the
order will give an adequate return. True, there is also the
statement that the commission would have been warranted in ignoring
this item altogether "in the absence of proof that the gas
company's book figures represented an amount that was fair and
reasonable." Even in that remark the implication is obvious that
this is not what the commission did. Moreover, there is nothing in
the record justifying an inference that the figures were erroneous
or the payments improvident.
Consolidated Gas Co. v. Newton,
supra, at p. 242;
Newton v. Consolidated Gas Co.,
supra, at
258 U. S. 176.
The course of the trial exhibits very clearly the understanding of
the parties that expenditures shown by the books would be deemed to
have been made in good faith and with reasonable judgment unless
evidence was at hand overcoming the presumption. In the absence of
any challenge of their necessity or fairness, we must view them as
they were accepted by the triers of the facts.
Thus viewing them, we think they must be included among the
costs of operation in the computation of a fair return. The company
had complained to the commission that an ordinance regulating its
rates was in contravention of the statutes of the state and of the
Constitution of the nation. In that complaint it prevailed. The
charges of engineers and counsel, incurred in defense of its
security and perhaps its very life, were as appropriate and even
necessary as expenses could well be.
A different case would be here if the company's complaint had
been unfounded, or if the cost of the proceeding had been swollen
by untenable objections. There is neither evidence nor even claim
that the conduct of the company's representatives was open to that
reproach.
Page 294 U. S. 74
The statute laid a duty on the commission, when it found the
ordinance unjust, to prescribe its own schedule. The one it
adopted, though higher than the one condemned, did not satisfy the
company, but there was nothing unreasonable or obstructive in
laying before the commission whatever data might be helpful to that
body in reaching a considered judgment. Indeed, we shall be brought
to the conclusion, if we analyze the record, that the two phases of
the controversy were substantially coincident. Everything relevant
to the schedule adopted by the commission was relevant also to an
inquiry into the fairness of the ordinance.
In this matter of rate case expenses, we must distinguish
between the function of a court and that of a commission. A court
passing upon a challenge to the validity of statutory rates does
not determine the rates to be adopted as a substitute.
Central
Kentucky Natural Gas Co. v. Railroad Commission of Kentucky,
290 U. S. 264,
290 U. S.
271-272;
Newton v. Consolidated Gas Co., supra.
If the rates are inadequate to the point of confiscation, the
complainant has no need, it is said, to count upon the expenses of
the lawsuit; if they are not already inadequate, the lawsuit cannot
make them so.
Cf. Columbus Gas & Fuel Co. v. City of
Columbus, 17 F.2d
630, 640. An argument to that effect runs through some of the
decisions, though we are not required now either to accept or to
reject it. But the case is different where a commission, after
setting a schedule of rates aside, is empowered to substitute
another to take effect by retroaction and cover the same years. In
determining what the substitute shall be, the commission must give
heed to all legitimate expenses that will be charges upon income
during the term of regulation, and, in such a reckoning, the
expenses of the controversy engendered by the ordinance must have a
place like any others.
Denver Union Stock Yard Co. v. United
States, 57 F.2d
735, 753-754;
New York & Richmond Gas Co. v.
Prendergast, supra at pp. 181-182;
Page 294 U. S. 75
Monroe Gaslight Co. v. Michigan Public Utilities
Commission, 11 F.2d
319, 325.
There are suggestions in the books that the cost of litigation
is to be reckoned as an extraordinary expense, and so a charge upon
capital, rather than a charge upon income to be paid out of the
revenues of one year or of many.
Cf. New York & Queens Gas
Co. v. Newton, 269 F. 277, 290;
Reno P., L. & W. Co.
v. Public Service Commission, 298 F. 790, 801;
contra, New
York & Richmond Gas Co. v. Prendergast, supra at pp.
181-182;
Mobile Gas Co. v. Patterson, 293 F. 208, 224.
There is no need to consider what practice is to be followed where
the rate is prescribed for a period of indefinite duration, though
there would seem to be little difficulty in amortizing the charge
over a reasonable term.
Cf. New York & Richmond Gas Co. v.
Prendergast, supra. In the case at hand, the period of
duration has been definitely fixed, and the charge upon the income
can be distributed accordingly.
We conclude that an addition of $5,100 must be made to the
yearly operating expenses as the cost of proceedings necessary to
keep the business going.
Cf. Kornhauser v. United States,
276 U. S. 145. The
company makes no point as to the ruling of the commission that the
cost should be spread over six years instead of five, and we follow
that concession.
6. The items enumerated in subdivisions 1 to 5 of this opinion
amount altogether to $23,185.25 annually. Added to the operating
charges, they reduce the net income from $109,414 to $86,228.75, or
about 4.53% upon the rate base of $1,901,696. This is too low a
rate to satisfy the requirements of the Constitution when applied
to a corporation engaged in the sale of gas during the years 1928
to 1931, two at least of the four years being before the days of
the depression.
Los Angeles Gas & Electric Co. v. Railroad
Commission of California, supra, at
298 U. S.
319-320;
Dayton Power & Light Co.
v.
Page 294 U. S. 76
Public Utilities Commission of Ohio, 292 U.
S. 290,
292 U. S. 311;
Missouri ex rel. Southwestern Bell Telephone Co. v. Public
Service Commission, supra, at
262 U. S. 288;
Ohio Utilities Co. v. Public Utilities Commission of Ohio,
supra, at
267 U. S. 364.
Counsel for the commission argues that disbursements for
charitable and other gifts, allowed by the commission, ought in law
to have been excluded. This may well be, but the record is too
meagre to enable us to ascertain with certainty the reasons for the
payments.
Cf. Old Mission Portland Cement Co. v.
Helvering, 293 U. S. 289; In
re Southern California Edison Co., P.U.R. (1924c) 1 at 32, 33. We
do not feel at liberty to eliminate them upon inconclusive
testimony when court and commission have treated them as proper.
If, however, all were to be dropped, the increment to the rate
would be only about one-tenth of one percent. The change would be
too small to induce a different conclusion.
Counsel also argues that the rate base, though fixed by the
commission in January, 1932, was determined as of March, 1928, when
the ordinance was passed, and we are reminded that, since that
time, there has been a marked decline of values, at least during
the later years of the period affected. How great the decline has
been we cannot learn with any accuracy from the record now before
us. The value fixed by the commission was adopted as the base on
which to estimate the rate of return at the beginning of the
period, but also at the end. The company acquiesced, believing that
the valuation would be effective during every portion of the term,
and abandoned the appeal it might otherwise have taken. Under the
statutes of Ohio, the "sum so fixed must be regarded as a valuation
binding upon the gas company and the city alike, and is the rate
base." 128 Ohio St. 301, 191 N.E. 105, 109. No other sum was
considered by the commission, or deemed to be properly before it.
No other sum was subject to consideration upon the petition in
error to
Page 294 U. S. 77
the court. To put into the case now an issue heretofore kept out
of it, and thereby reach another value, would be a denial of a full
and fair hearing by the tribunals of the state, a denial forbidden
by the Constitution of the nation. If the appellee may be heard to
say that, during some part of the term, the valuation was too high,
the company must be free to urge that, at other times, it was too
low. Upon the record now submitted to us, no such issue is
involved. To bring it into the case at all, there is need of a new
hearing, with a new reckoning of the rate base unhampered by
restrictions to any single point of time. Only in that way can
review be full and fair.
7. The company makes the claim that it has received an
inadequate allowance to the extent of $28,021.40 for depreciation
reserve, and that it should have been permitted to amortize the
value of a transmission main extending from Lima to fields of
natural gas, thereby adding $22,935.97 to its operating
charges.
We have considered these objections, and are unable to uphold
them.
The decree is reversed, and the cause remanded for further
proceedings not inconsistent with this opinion.
Reversed.
MR. JUSTICE STONE, concurring.
As there was a denial of due process by the commission in
arbitrarily reducing the allowance for "unaccounted for gas" and in
failing to apply consistently either of the two methods of
allocation of distribution and commercial expenses adopted in the
two cases submitted to us, I concur in the judgment of the Court
that the case must be remanded for further proceedings. But with
two of the conclusions in the opinion I am unable to agree.
1. I think that the petitioner has failed to sustain the burden,
which rests upon it in a confiscation case from
Page 294 U. S. 78
a state court, as well as from any other, to show that the item
of expense for "new business" was a proper charge against gross
income. The property for which constitutional protection is invoked
is that "used and useful in the public service," not the enlarged
business of the future which petitioner hopes to obtain through the
present expenditure of money. I know of no constitutional principle
upon which this expenditure must be taken from the pockets of the
patrons of the present business, any more than the cost of future
service lines required to carry on the new business. The record
does not suggest that the expenditure for new business was
necessary to prevent shrinkage of the present business, and the
petitioner has failed to show that the charge is not a capital
charge, which it appears on its face to be. If the action of the
commission with respect to this item alone were sustained, the rate
of return, as found by this Court, would be increased to 4.91%
2. I am not prepared to say that petitioner sustains the burden
of showing confiscation by showing a rate of return even as low as
4.91% where it is upon reproduction value determined as of March
31, 1928. We judicially know, and cannot ignore, the large declines
in price levels and the earnings of capital which have taken place
since that date. The period for which the ordinance fixed the rate
extends from April 19, 1928, to April 19, 1933. At least three of
the five years are those of declining prices and diminishing
capital returns. Since the commission's order was based on known
income for four of the five years, the possibly lowered revenues of
the fifth year cannot be taken to offset the effect of the
declining prices and capital returns. The record gives no hint of
what the rate base would be were it ascertained for the entire
period. While the commission and the Ohio courts are bound to adopt
a rate base determined as of the beginning of the ordinance period,
this does not relieve the company
Page 294 U. S. 79
of the burden of showing that the value of the property for the
entire period is such that the net return under the commission's
rates would have been so low as to confiscate its property.
See
Los Angeles Gas & Elec. Corp. v. Railroad Commission,
289 U. S. 266,
289 U. S. 304.
No contention is made that the Ohio procedure precludes such proof,
or that it prevented petitioner from showing facts which would
establish confiscation.