1. For the purpose of appeal to this Court, the judgment of the
Supreme Court of California here involved became final upon that
court's denial of a petition for rehearing, and an appeal was not
premature though taken before expiration of the 30-day period in
which, under the state law and practice, the state court could have
modified the judgment. P.
324 U. S.
551.
2. An order of the state commission requiring the appellant
street railway company to reduce its base cash fare from seven to
six cents
held, under the Fourteenth Amendment of the
Federal Constitution, not a deprivation of property without due
process of law. Pp.
324 U. S. 553,
324 U. S.
569.
(a) There is no foundation in the record for the company's
contention that, in the proceedings before the Commission, it was
given no adequate notice that its rates were under attack, and
therefore no opportunity for a hearing on the reasonableness of its
rates. P.
324 U. S.
558.
(b) The order was not unsupported by evidence, and was not
rendered invalid by the fact that the Commission evaluated the
company's experience for itself, without the aid of expert
testimony. P.
324 U. S.
559.
(c) The order was not invalid as based on matters outside the
record. The Commission's incidental reference to the company's
Page 324 U. S. 549
own reports, although they were not formally in evidence in the
proceeding, did not deny due process in the absence of any showing
of error or prejudice. P.
324 U. S.
561.
(d) As the rate prescribed by the Commission is not here found
to be confiscatory, it is unnecessary to determine whether "value
of service" would justify a rate which does not yield a fair
return. To the extent that the Commission was influenced by
considerations of the value of the service in this case, there was
no denial to the company of any constitutional right. P.
324 U. S.
562.
(e) In view of the company's economic plight, the order was not
invalid even though under the prescribed rate the company would
operate at a loss. That the Commission used as a rate base the
price at which the company had offered to sell its properties to
the municipality, and disregarded theoretical reproduction costs,
did not vitiate the order. P.
324 U. S.
564.
The due process clause does not insure values, nor require
restoration of values that have been lost by the operation of
economic forces.
(f) That the test of experience which the order contemplated was
unavailable cannot affect its constitutional validity where the
company itself, by litigation and subsequent sale of the property,
had frustrated such test. P.
324 U. S.
568.
24 Cal. 2d
378, 150 P.2d 196, affirmed.
Appeals from a judgment affirming an order of the state
commission which directed the railway to reduce its fares from
seven to six cents. Because of uncertainty as to whether the first
appeal was premature, a second appeal was taken; the second appeal
is here dismissed, and the first heard on the merits.
MR. JUSTICE JACKSON delivered the opinion of the Court.
Two appeals have been taken from a single judgment of the
Supreme Court of California because counsel was
Page 324 U. S. 550
uncertain when the judgment became final for our jurisdictional
purposes. The decision was rendered July 1, 1944; it concluded,
"The order is affirmed;" a petition for rehearing was denied July
27, 1944. The first appeal was applied for and allowed on July 31,
1944. If the judgment became final on denial of rehearing, this
appeal was timely. However the California Rules on Appeal expressly
provide that a decision of the Supreme Court "becomes final thirty
days after filing unless otherwise ordered prior to the expiration
of said 30-day period." [
Footnote
1] Remittitur does not issue until the end of the 30-day
period. [
Footnote 2] It issued
on August 1, and certified, according to practice, that
"the foregoing is a true copy of an original judgment entered in
the above entitled cause on the 1st day of July, 1944, and now
remaining of record in my
Page 324 U. S. 551
office."
If the date of its issue, being also the date of finality fixed
by the rule, governs finality for purposes of our jurisdiction, the
judgment was not a final one at the time the first appeal was
granted. On the chance that it might be dismissed as premature, a
second appeal was presented and allowed on September 21.
Our jurisdiction to review a state court judgment is confined by
long standing statute to one which is final. Judicial Code, § 237,
28 U.S.C. § 344. Final it must be in two senses: it must be subject
to no further review or correction in any other state tribunal; it
must also be final as an effective determination of the litigation,
and not of merely interlocutory or intermediate steps therein. It
must be the final word of a final court.
We have held that finality of a judgment of a state court for
determining the time within which our jurisdiction to review may be
invoked is not controlled by the designation applied in state
practice.
Department of Banking v. Pink, 317 U.
S. 264;
Cole v. Violette, 319 U.
S. 581. The judgment, for our purposes, is final when
the issues are adjudged. Such finality is not deferred by the
existence of a latent power in the rendering court to reopen or
revise its judgment. The waiting period prescribed by the statute
here seems to reserve a power of that character. The decision
during this period does not lack the attributes of an adjudication,
it is not awaiting lapse of time to become a judgment -- it merely
is subject to modification. When this period runs, unless the court
has moved meanwhile, it becomes powerless to change or modify the
judgment.
Oakland v. Pacific Coast Lumber and Mill Co.,
172 Cal. 332, 337, 156 P. 468;
In re Estate of Ross, 189
Cal. 317, 318, 207 P. 1014. The rule is thus a limitation on the
time during which the court may reconsider, which, in absence of
such rule, might expire only with the end of the term or some other
event determinative under local law. Such latent powers of state
courts over their judgments
Page 324 U. S. 552
are too variable and indeterminate to serve as tests of our
jurisdiction. Our test is a practical one. When the case is
decided, the time to seek our review begins to run. A timely
petition for rehearing defers finality for our purposes until it is
acted upon or until power to act upon it has expired, as here it
would appear to do at the end of the 30-day period. [
Footnote 3] If rehearing is granted, the
judgment is opened, and does not become final as a prerequisite to
application for review by us until decision is rendered upon
rehearing.
We postponed consideration of jurisdiction until hearing on the
merits. [
Footnote 4] We hold
that this judgment became final on denial of rehearing, that the
first appeal was timely, and that the precautionary second appeal
is duplication. Accordingly, the appeal in No. 511 is dismissed,
and that in No. 510 is entertained upon its merits.
The Market Street Railway Company, at the commencement of these
proceedings, operated a system of passenger transportation by
streetcar and by bus in San Francisco and its environs. The
Railroad Commission of California instituted, on its own motion, an
inquiry into the Company's rates and service. After hearings, an
order
Page 324 U. S. 553
was promulgated reducing the fare from seven to six cents.
[
Footnote 5] The Company, after
rehearing was denied, [
Footnote
6] obtained review by the Supreme Court of California. It also
obtained a stay of the Commission's order, conditioned upon
impounding the disputed one cent per passenger to abide settlement
of the issues upon which its ownership would depend. The Supreme
Court of California affirmed the order, [
Footnote 7] and appeal is taken to this Court.
Meanwhile, the Company sold its operative properties to the City of
San Francisco. The case is saved from being moot only because its
decision is necessary to determine whether the Company is entitled
to the impounded portion of the fares, or whether the money shall
be refunded to passengers making claims and unclaimed amounts
thereof be paid over to the state, as required by conditions of the
stay order.
The appeal raises constitutional issues only. The contention is
that the order deprives the appellant of its property without due
process of law, contrary to the Fourteenth Amendment. Appellant
claims denials of due process in matters of procedure in that it
had no adequate notice that its rates were under attack, or
adequate opportunity for a hearing thereon, that the order in
several vital particulars is not supported by substantial evidence
or by any evidence, and that it was improperly based on matters
outside of the record on which there was no opportunity to
cross-examine or to be heard. It claims a taking of its property as
a result of the order on the ground that it would force the Company
to operate at a loss because the Commission used a rate base of
$7,950,000, the price at which appellant had offered to sell its
operative properties to the City, and did not consider reproduction
cost,
Page 324 U. S. 554
historical cost, prudent investment, or capitalization bases, on
any of which, under conventional accounting, the six-cent fare
would produce no return on its property, and would force a
substantial operating deficit upon the Company.
The appellant, in support of its contentions that it has been
denied due process in procedure and has been subjected to an
unconstitutional taking of its property, invokes many decisions of
this Court in which statements have been made that seem to support
its contentions. But it should be noted at the outset that most of
our cases deal with utilities which had earning opportunities, and
public regulation curtailed earnings otherwise possible. But, if
there were no public regulation at all, this appellant would be a
particularly ailing unit of a generally sick industry. The problem
of reconciling the patrons' needs and the investors' rights in an
enterprise that has passed its zenith of opportunity and
usefulness, whose investment already is impaired by economic
forces, and whose earning possibilities are already invaded by
competition from other forms of transportation, is quite a
different problem. The Company's practical situation throws
important light both on the question whether the rate reduction has
taken its property and also upon the criticisms it makes of the
conduct of the hearings.
Transportation history of San Francisco follows a pattern not
unfamiliar. This property has passed through cycles of competition,
consolidation, and monopoly, and new forms of competition; it has
seen days of prosperity, decline, and salvage. In the 1850's, an
omnibus service began to operate in San Francisco. In the 1860's
came the horse car. The 1870's saw the beginning of the cable car,
for which the contour of the city was peculiarly adapted. The
Market Street Railway Company was incorporated in 1893, and took
over 11 of the 17 streetcar lines then independently operated in
the city. In 1902, United
Page 324 U. S. 555
Railroads of San Francisco was organized. This consolidated
under one operating control properties of the Market Street Company
and five other lines, comprising 229 miles of track, much of which
was cable-operated. It suffered greatly from the earthquake and
fire of 1906, but carried out a considerable program of
reconstruction between 1906 and 1910. In 1921, it failed to pay
interest on outstanding bonds. Bondholders acquired the properties
and revived the Market Street Railway Company, which had been a
dormant subsidiary of United, to operate them.
In 1912, the City and County of San Francisco began operation of
a municipal street railway line. This line is not, and never has
been, under the Railroad Commission's jurisdiction. It expanded
rapidly, its routes in some instances parallel those of appellant,
and its competition has been serious. Throughout the period of
competition, the municipal lines have operated on a five-cent fare.
The Market Street Line also operated on a five-cent fare until July
6, 1937. In that year, it applied to the Commission for an increase
to a seven-cent fare. This was denied, but a two-cent transfer
charge and other adjustments were authorized. In March, 1938, the
Company again petitioned for a seven-cent fare, with reduction for
school children. The Commission authorized a seven-cent fare, but
required some concession to token buyers. A few months later, the
Company again asked a straight seven-cent fare and relief from the
token rate. The Commission directed the Company to apply to the
City for permission to abandon certain lines and to protect it
against "jitney competition," stipulating that the seven-cent fare
could be made effective if the City failed to respond. The City did
not act, and the seven-cent fare became effective January 1,
1939.
But the increase of fare brought no increase of revenue. Both
traffic and revenue continued to decline, and, in 1941, reached the
lowest point in twenty years. Then came
Page 324 U. S. 556
war, bringing accelerated activity, increase of population of
the city, rubber and gas shortage, restrictions on purchase of new,
and retirement of many old, automobiles. Traffic and revenues
showed a sudden increase. The Commission found, however, that the
service had constantly deteriorated, and was worse under the
seven-cent fare than under the former five-cent rate. It recognized
that some of the causes were beyond the Company's control. But,
after allowance for those causes, it also found evidence of
long-time neglect, mismanagement, and indifference to urgent public
need. It found the Company's service inferior to the service of the
municipal lines, although appellant charged a 40 percent higher
fare. Defects in service consisted of failure to operate on
schedule, long intervals between cars, followed by several cars
operating with little headway, overloading, inadequate inspection,
and inadequately maintained rolling stock. The Company had some 70
cars out of operation and in storage because of shortage of
manpower. Its streetcar rolling stock was obsolete, 73 electric
cars and 12 cable cars being out of service. None of the cars was
modern. The municipal lines had tried to lease the unused cars for
operation on its lines, but the Company refused. The City was
denied priorities for purchase of new busses by federal authorities
because of idle rolling stock in the city. The Commission concluded
that the reason for the Company's declining to lease for a fair
rental rolling stock it could not use was fear of competition. The
Company was handicapped in manpower, the municipal lines offering
somewhat better wages and working conditions that seemed more
attractive. The entire system was suffering from deferred
maintenance, the amount expended for way and structures maintenance
having been steadily reduced both in dollars and in proportion of
total operating costs.
The Commission disagreed with the Company as to the use to be
made of wartime increase in revenues. The
Page 324 U. S. 557
Company said it had no definite plan for setting aside anything
for maintenance. The management thought its first obligation was to
discharge its debts. The Commission took the view that allowances
for depreciation as part of the costs of operation should be spent
in replacement of depreciated property, and not for payment of
debts.
Reviewing the financial results of fare increases, the
Commission concluded that the Company would reap no lasting benefit
from rates in excess of five cents, due to the tendency of a higher
rate to discourage patronage. The war traffic the Commission
thought temporary. But it concluded that a six-cent fare would
sufficiently stimulate traffic to leave, after operating expenses,
approximately a six percent return on a rate base of $7,950,000.
This was the figure at which the Company had offered to sell its
operative properties to the City. Accordingly, the Commission found
the six cents to be a reasonable rate to the Company, and to be all
or more than the reasonable value of the services being rendered to
patrons. It considered this rate to be experimental, and kept the
proceeding open for such further orders as might be just and
reasonable. The Company applied for rehearing on substantially the
grounds it urges here. Its arguments were considered at length in
an opinion which denied rehearing. The Supreme Court of California
overruled all of the Company's objections, and affirmed the
Commission's order.
The reduced rate never took effect. The Company obtained delay
from the Commission and a stay order from the Court. It then sold
its properties to the City, which took over and continued the
seven-cent fare. So the anticipations of the Commission as to
increased patronage from the rate reduction never have been put to
the test of experience. Our review considers only whether the order
was valid when and as made.
Page 324 U. S. 558
1. Appellant says that the order is invalid because it was
denied a fair hearing, given no adequate notice that its rates were
under attack, and hence was afforded no opportunity for a hearing
on the reasonableness of its rates. We find this contention to have
no foundation in the record. The order of the Commission
instituting the proceeding recited its belief "that public interest
demands an inquiry into the reasonableness of the rates, as well as
the sufficiency and adequacy of the service rendered" by appellant,
and investigation was ordered of both. Due notice of the proceeding
was given, and it was entitled an investigation "into the
reasonableness of the rates and charges, and into the sufficiency
and adequacy of the" service. The hearing was opened with a similar
statement by the Commission. The record is replete with evidence
that would have no bearing on the questions of service except as
fares were involved. Experts of the Commission testified at length
as to financial history and rate experience of the Company. The
Company's president testified concerning the rate situation and the
Company's experience with the seven-cent fare. Its counsel put in
evidence the Commission's former decisions authorizing increases in
fares.
The Company particularly complains that it had no notice that
the Commission was receiving evidence of its offer to sell its
properties for $7,950,000 for use as a rate base. The offer was
received in evidence without limitation or statement of its
purpose. Nothing appears to mislead or entrap the Company or to
lull it into a sense of security. It seems simply to have assumed
that no explanation of the offer was necessary. Doubtless the
decision and the grounds of decision were unexpected. But surprise
is not necessarily want of due process.
We find that the Company had reasonable notice that its rates
were under attack, and was not denied opportunity to be heard
thereon. We can well understand how
Page 324 U. S. 559
counsel's attention became diverted to more sharply contested
aspects of the case. But, even if a more convincing showing were
made that the Company had relevant evidence to be heard, we find no
adequate excuse for the failure to offer it in the proceeding. No
offer was rejected, no request for time to obtain such evidence was
denied. A misapprehension by a litigant of the steps which its best
interests require during a trial may be appealing grounds for a
plea to the discretion of the hearing tribunal for another chance,
but it is not grounds for our interference as a denial of
constitutional rights.
2. It is next contended that the order is invalid under the due
process clause because it is unsupported by evidence and is based
on the Commission's speculation and conjecture. This charge relates
particularly to those findings which predict the effect of a rate
reduction in stimulating traffic. The Commission's estimates and
predictions do not follow any particular testimony. Appellant urges
that such predictive findings may be made only on expert testimony,
subject to cross-examination, explanation, and rebuttal, and may
not be based on the Commission's own expert knowledge. Various
considerations are advanced to show that the Commission's
predictions were based on innocent analysis and were
improbable.
Appellant relies upon our holding in
Ohio Bell Telephone Co.
v. Public Utility Commission, 301 U.
S. 292. In that case, the Commission ordered refunds
"upon the strength of evidential facts not spread upon the record."
This consisted
"of information secretly collected and never yet disclosed. The
company protested. It asked disclosure of the documents indicative
of price trends, and an opportunity to examine them, to analyze
them, to explain and to rebut them. The response was a curt
refusal. Upon the strength of these unknown documents, refunds have
been ordered for sums mounting into millions, the Commission
reporting its conclusion, but not the underlying
Page 324 U. S. 560
proofs. The putative debtor does not know the proofs today. This
is not the fair hearing essential to due process. It is
condemnation without trial."
301 U.S. at
301 U. S. 300.
Nothing of that kind occurred in this case. The basis for a
judgment is here in the record. The Company itself put in evidence
decisions by the Commission in which, by cautious steps, it
permitted advance of the rates from five to seven cents. Traffic
records before and after each advance are in evidence. Also in the
record is the traffic experience of the competing municipal line,
which did not increase its fares and which did not suffer declines
in traffic and revenues comparable to those which followed this
Company's increase of fares. This is not a case where the data
basic to a judgment have been withheld from the record. The
complaint is that the Commission formed its own conclusions without
the aid of expert opinions. It is contended that the Commission
should draw conclusions from these facts only upon hearing
testimony of experts as to the conclusions they would draw from the
facts of record. Experts' judgments, however, would not bind the
Commission. Their testimony would be in the nature of argument or
opinion, and the weight to be given it would depend upon the
Commission's estimate of the reasonableness of their conclusions
and the force of their reasoning. There is nothing to indicate that
any consideration which could be advanced by an expert has not been
advanced by the Company in argument and fully weighed.
We cannot say that it is a denial of due process for a
commission so experienced as the record shows this Commission to
have been with the affairs of this particular appellant to draw
inferences as to the probable effect on traffic of a given rate
decrease on such a record as we have here. Particularly would a
conclusion of denial of due process be unwarranted where, as here,
the Commission
Page 324 U. S. 561
recognized the infirmity of any predictions, regarded its rate
order as a temporary experiment for which no fixed period was set,
and held open the proceeding to receive whatever lessons experience
might teach. Its step here is, after all, only receding, on
experience, from steps it earlier had taken to advance the rate,
which also had been regarded as experimental and as to which
experience had disappointed expectations. We find no denial of due
process in these circumstances from the fact that the Commission
evaluated the Company's experience for itself without the aid of
expert testimony.
3. It also is urged that the order is invalid under the due
process clause because it is based on matters outside the record.
The decision of the Commission stated that, "In the eight months'
period, January to August, inclusive, of 1943, the operating
revenues of the company amounted to $5,689,775," and compared this
with the operating revenues for the same period of 1942, and found
an increase of 20 percent. On this basis, it estimated the total
for the full year of 1943 under the prevailing seven-cent fare.
Challenged upon the ground that the operating revenues from January
to August of 1943 were not in the record, the Commission admitted
that these figures were taken from the appellant's monthly reports
filed with the Commission. It contended that, even if it was in
error to refer to such reports, the error was harmless, since the
record, without the figures, supported the reasonableness of the
six-cent fare, and it was therefore immaterial that the Commission
used some additional figures. No contention is made here that the
information was erroneous or was misunderstood by the Commission,
and no contention is made that the Company could have disproved it
or explained away its effect for the purpose for which the
Commission used it. The most that can be said is that the
Commission, in making its predictive findings, went outside
Page 324 U. S. 562
of the record to verify its judgment by reference to actual
traffic figures that became available only after the hearings
closed. It does not appear that the Company was in any way
prejudiced thereby, and it makes no showing that, if a rehearing
were held to introduce its own reports, it would gain much by
cross-examination, rebuttal, or impeachment of its own auditors or
the reports they had filed. Due process, of course, requires that
commissions proceed upon matters in evidence, and that parties have
opportunity to subject evidence to the test of cross-examination
and rebuttal. But due process deals with matters of substance, and
is not to be trivialized by formal objections that have no
substantial bearing on the ultimate rights of parties. The process
of keeping informed as to regulated utilities is a continuous
matter with commissions. We are unwilling to say that such an
incidental reference as we have here to a party's own reports,
although not formally marked in evidence in the proceeding, in the
absence of any showing of error or prejudice, constitutes a want of
due process.
4. The order is said to be invalid under the due process clause
because it is based in part on the so-called "value of service"
theory. It is urged that "a confiscatory rate cannot be sustained
on the theory that it is an adequate price for the service
independently valued," and there is no evidence justifying a rate
reduction on the theory of the value of the service.
The question whether a confiscatory rate can be justified
because service is bad can only be reached when we find a
prescribed rate to be confiscatory. As we do not find this rate to
be such, we do not need to pronounce upon the abstract doctrine as
to the validity of the "value of service" theory as justifying
rates that do not yield a fair return. The Commission, in this
case, did not made an independent valuation of the service to
patrons and fix rates accordingly.
Page 324 U. S. 563
The consideration of service as a justification for rates arises
in this case upon a comparison of the service of the Company under
the five-cent rate and under the seven-cent rate. The Commission
found that the 40 percent increase of rate had been accompanied by
a deterioration of service. Some factors in the bad service were
beyond the Company's control; others were found not to be without
remedy by good management. Certainly, if the increased fare had
been accompanied by an improved service, it would be used as an
argument by the Company, and a powerful one it would be, for the
continuance of the higher rate. That higher rates failed to improve
-- failed even to maintain -- service certainly removed one of the
justifications for the increase which the Company was enjoying. It
must not be forgotten that the increases that the Commission had
allowed were also experimental. So far as the public was concerned,
the experiment with the seven-cent rate yielded them no better
immediate service, and, because of the Company's policies, gave
them no prospect of more permanent service. In fact, by
discouragement of patronage, it threatened the continuance of the
service.
Under these circumstances, the Commission did not put a monetary
value on a streetcar ride as the basis of the fare. Using the
Company's service under the five-cent fare as a standard, it found
that the public -- aside from the service to war plants, which was
admittedly good -- was receiving no more transportation service for
seven cents than it had received at five, and, at the same time,
the Company was not receiving increased revenues because the price
of the service had exceeded the value that the public put upon it,
and it had thereby withdrawn its patronage.
Certainly the due process clause of the Constitution is not
violated when a commission takes into consideration practical
results to the public of advances which it has allowed in rates. To
the extent that the Commission was
Page 324 U. S. 564
influenced by considerations of the value of the service in this
case, we find nothing that denies the Company any rights possessed
under the Federal Constitution.
5. The order is asserted to be invalid because it is said to be
confiscatory, and to compel appellant to operate at a loss. The
Commission used a rate base of $7,950,000, the price at which the
property had been offered to the City, and the six-cent rate is not
calculated to permit any return on a greater valuation. Before we
consider the validity of this rate base, we may well consider what
alternatives the case presents. No study of the present cost of
reproduction is shown, no present fair value is suggested. Nor do
we think it important. Apart from familiar objections to the
reproduction cost method, no responsible person would think of
reproducing the present plant, consisting in substantial part of
cable cars and obsolete equipment. There is no basis for assuming
that anyone, in the light of conditions which prevail in the
street-surface railroad industry, generally would consider
reproducing any street railway system. It was no constitutional
error to proceed to fix a rate in disregard of theoretical
reproduction costs.
The Commission, in 1920, made a valuation study of appellant's
properties and found an historical reproduction cost of road and
equipment to be $29,715,147. This valuation, brought forward by
adding additions and betterments and deducting retirements, shows a
total amount for road and equipment as of December 31, 1942 of
$25,343,543.
Actual investment is not disclosed by the record. It does
disclose that the book value of appellant's properties as of
December 31, 1942, was $41,768,505.20.
The Company's outstanding securities at the end of 1942, issued
with the approval of the Commission, totaled $37,921,323.96 at face
value. They consisted of common stock of over $10,000,000; 3
different classes of preferred
Page 324 U. S. 565
stock of $21,000,000; first mortgage bonds of $4,217,500;
equipment notes of $735,748.28, and additional long-term debt
of.$1,041,625.68.
Not one of these, nor any combination of them, affords a
practical or possible rate base, nor does the Company suggest that
allowance of any rate will earn it a return upon any of these. It
has not itself ventured to ask a rate higher than seven cents,
although the inadequacy of its yield to take care of the financial
requirements of the Company has for some time been apparent. This
company obviously is up against a sort of law of diminishing
returns; the greater amount it collects per ride, the less amount
it collects per car mile. It has long been recognized that this
form of transportation could be preserved only by the most complete
cooperation between management and public and the most enlightened
efforts to make the service attractive to patrons. [
Footnote 8] It is obvious that, for
whatever
Page 324 U. S. 566
cause, the appellant has not succeeded in maintaining its
service on a paying basis.
It is idle to discuss holdings of cases or to distinguish
quotations in decisions of this or other courts which have dealt
with utilities whose economic situation would yield a permanent
profit, denied or limited only by public regulation. While the
Company does not assert that it would be economically practicable
to obtain a return on its investment, it strongly contends that the
order is confiscatory by the tests of
Federal Power Commission
v. Hope Natural Gas Co., 320 U. S. 591,
320 U. S. 603,
320 U. S. 605,
from which it claims to be entitled to a return "sufficient to
assure confidence in the financial integrity of the enterprise, so
as to maintain its credit and to attract capital," and to "enable
the company to operate successfully, to maintain its financial
integrity, to attract capital, and to compensate its investors for
the risks assumed." Those considerations, advanced in that case
(which was reviewed pursuant to statute, rather than under the
Fourteenth Amendment), concerned a company which had advantage of
an economic position which promised to yield what was held to be an
excessive return on its investment and on its securities. They
obviously are inapplicable to a company whose financial integrity
already is hopelessly undermined, which could not attract capital
on any possible rate, and where investors recognize as lost a part
of what they have put in. It was noted in the
Hope Natural
Gas case that regulation does not assure that the regulated
business make a profit. 320 U.S. at
320 U. S. 603;
see Federal Power Commission v. Natural Gas Pipeline Co.,
315 U. S. 575,
315 U. S. 590.
All that was held was that a company could not complain if the
return which was allowed made it possible for the company to
operate successfully. There was no suggestion that less might not
be allowed when the amount allowed was all that the company could
earn.
Page 324 U. S. 567
Without analyzing rate cases in detail, it may be safely
generalized that the due process clause never has been held by this
Court to require a commission to fix rates on the present
reproduction value of something no one would presently want to
reproduce, or on the historical valuation of a property whose
history and current financial statements showed the value no longer
to exist, or on an investment after it has vanished, even if once
prudently made, or to maintain the credit of a concern whose
securities already are impaired. The due process clause has been
applied to prevent governmental destruction of existing economic
values. It has not and cannot be applied to insure values, or to
restore values that have been lost by the operation of economic
forces.
The owners of a property dedicated to the public service cannot
be said to suffer injury if a rate is fixed for an experimental
period which probably will produce a fair return on the present
fair value of their property. If it has lost all value except
salvage, they suffer no loss if they earn a return on salvage
value. If the property has no prospect of salvage except through
dismantling and sale for scrap, the scrap value for such of it as
is to be scrapped may represent its present worth. In this case,
the owners were fortunate in having a potential buyer. Negotiations
had long been under way. The operative properties were twice
offered to the City of San Francisco for $7,950,000, and twice the
voters rejected the proposition. Ultimately, the properties were
sold for $7,500,000. The evidence shows that the president of the
Company reported to the directors
"that the price mentioned is the amount that has been agreed
upon for the purchase by the City and County of San Francisco of
the operative properties of the Company after negotiations in
respect thereto which covered a considerable period of time and, as
previously mentioned, is the best price obtainable therefor.
Page 324 U. S. 568
Upon this understanding, the Board of Directors ratified the
offer and directed the officers to consummate it."
It is now contended that this offer was calculated by a
capitalization of earning power, and that this Court condemned such
a basis of valuation in
Federal Power Commission v. Hope
Natural Gas Co., 320 U. S. 591,
320 U. S. 601,
when it said,
"The heart of the matter is that rates cannot be made to depend
upon 'fair value' when the value of the going enterprise depends on
earnings under whatever rates may be anticipated."
The pronouncement in the
Hope case was directed to a
situation where the demand for the service permitted such a range
of choice in rates as would greatly affect the value of the
property. No such choice appears open to the appellant. Apart from
a little brief wartime prosperity, it seems doubtful whether any
rate would yield appellant's operating expenses.
Under these circumstances, we do not find that anything has been
taken from the appellant by the impact of public regulation. If the
expectations of the Commission as to traffic increase were well
founded, it would earn under this rate on the salvage value of its
property, which is the only value it is shown to have. If
expectations of increased traffic were unfounded, it could probably
not earn a return from any rate that could be devised. We are
unable to find that the order in this case is in violation of
constitutional prohibitions, however unfortunate the plight of the
appellant.
6. The Company also contends that it is entitled to reversal
because the order contemplated a test of experience, and the
experiment has not taken place and the Commission's predictions
cannot be verified. However, it was the Company which defeated the
experiment. A very short trial -- a period much shorter than is
required to conduct a litigation -- would have indicated the
effect
Page 324 U. S. 569
of the rate reduction in stimulating traffic. But, at the
Company's request, the experiment was stayed and then totally
frustrated by the sale of the property. Under these circumstances,
the unavailability of experience to test the order cannot affect
its validity. It might be grounds for an appeal to the discretion
of the tribunal which rendered the order. It certainly is not a
constitutional objection to be enforced by us.
The fixing of future rates always involves an element of
prediction. Even monopolies must sell their services in a market
where there is competition for the consumer's dollar and the price
of a commodity affects its demand and use. This effect may be
predicted or projected, but it can be known only from experience.
The many detailed objections which the Company makes to the
Commission's computations of probable yield would be answered by
experience. There is nothing in the order which requires that the
test period should be a year or any definite time, and there is no
ground for assuming that the Commission would have rejected an
application to make such changes in the schedule as experience
might show to be necessary, in order to produce, if possible, the
revenue which it found to be needed. The Commission had not in the
past been indifferent to appellant's fiscal problems. Under such
circumstances, we think it is not forbidden by the Constitution
that there be a pragmatic test of matters which even the most
expert could not know in advance.
Cf. Clark's Ferry Bridge Co.
v. Public Service Commission, 291 U.
S. 227.
We have considered appellant's complaints in considerable detail
because the case in so many ways departs from the usual rate case.
We find no constitutional infirmity in the result or in the
procedure by which it is reached. The judgment of the Supreme Court
of California is therefore
Affirmed.
[
Footnote 1]
Rule 24(a) provides:
"[When decisions become final] All decisions of the reviewing
courts shall be filed with the clerk. A decision of the Supreme
Court becomes final 30 days after filing unless otherwise ordered
prior to the expiration of said 30-day period. Pursuant to article
VI, section 4c, of the Constitution, a decision of a District Court
of Appeal becomes final as to that court, 30 days in civil cases
and 15 days in criminal cases after filing, and thereafter is not
subject to modification or rehearing by said court. Where an
opinion is modified without change in the judgment, during the time
allowed for rehearing, such modification shall not postpone the
time that the decision becomes final as above provided; but, if the
judgment is modified during that time, the period specified herein
begins to run anew as of the date of modification."
Rules on Appeal for the Supreme Court and District Courts of
Appeal of the California, effective July 1, 1943.
See 22
Cal. 2d 1.
[
Footnote 2]
Rule 25 so provides.
"A remittitur shall issue after the final determination of any
appeal or of any original proceeding in review in which an
alternative writ or order to show cause has been issued. Unless
otherwise ordered, the clerk of the Supreme Court shall issue the
remittitur when a judgment of that court becomes final. . . ."
Rule 25(a). "For good cause shown, or on stipulation of the
parties, the Supreme Court may direct the immediate issuance of a
remittitur." Rule 25(b). For discussion of this rule,
see
Witkin, New California Rules on Appeal (1944), 17 So.Calif.L.Rev.
248
et seq.
[
Footnote 3]
"The Supreme Court or a District Court of Appeal may grant a
rehearing in any cause after its own decision, and any cause
pending in a department of the Supreme Court may be ordered heard
by the Supreme Court in bank. A rehearing or hearing in bank may be
granted on petition, as provided in subdivision (b) of this rule,
or on the court's own motion, prior to the time the decision
becomes final therein."
Rule 27(a).
"An order of the Supreme Court granting a rehearing shall be
signed by at least 4 justices assenting thereto, and filed with the
clerk, and a hearing in bank after decision in department may be
ordered as provided in article VI, section 2, of the Constitution.
If no order is made before the decision becomes final, the petition
shall be deemed denied, and the clerk shall enter a notation in the
register to that effect."
Rule 27(e).
[
Footnote 4]
November 13, 1944.
[
Footnote 5]
The opinions are reported in 45 Cal.R.C.Dec. 53.
[
Footnote 6]
The opinion on rehearing is reported in 45 Cal.R.C.Dec. 162.
[
Footnote 7]
The Court's opinion is reported in
24 Cal. 2d
378, 150 P.2d 196.
[
Footnote 8]
In May of 1919, the Secretary of Commerce and the Secretary of
Labor joined in a letter to President Wilson, advising him that 50
or more urban street railway systems representing a considerable
percentage of the electric railway mileage was in the hands of
receivers, affecting some of the largest cities of the country, and
that other systems were on the verge of insolvency, and the
industry as a whole was virtually bankrupt. They urged the
appointment of a commission to study and report upon the problem.
President Wilson, on June 1, 1919, named a commission which held
extensive public hearings. The first witness was ex-President
William Howard Taft, speaking for the National War Labor Board, and
others, including leading municipal and railway officials and such
experienced persons in the problem of regulation as Newton D.
Baker, Milo R. Maltbie, Morris L. Cook, Joseph B. Eastman, and many
others. Proceedings of the Federal Electric Railways Commission, v.
1. An exhaustive report with many recommendations was made.
See Analysis of the Electric Railway Problem prepared for
the Federal Electric Railways Commission by De Los F. Wilcox, New
York City, 1921. Its recommendations were extensive, including
certain changes both by the municipalities and by the companies
affected. The recommendations were not generally heeded by
either.