1. The provision of the Act of May 14, 1934, withholding from
the District Courts jurisdiction over suits to enjoin on the ground
of unconstitutionality the enforcement of state orders fixing
public utility rates, "where a plain, speedy, and efficient remedy
at law or in equity may be had in the courts of such State,"
held inapplicable, by its terms, to a suit attacking
temporary rates ordered by the Public Utilities Commission in
Pennsylvania, where the
Page 307 U. S. 105
remedy by injunction is confined to proceedings "questioning the
jurisdiction of the commission," and where the remedy at law by
appeal does not postpone the rates
pendente lite. Pp.
307 U. S. 108
et seq.
2. The provisions of § 310(a) of the Pennsylvania Public
Utilities Act for fixing temporary public utility rates are not
limited to utilities which keep continuing property records.
Section 310(b) furnishes a partial alternative method. P.
307 U. S.
112.
3. Section 310(a) of the Act empowers the commission to fix
temporary rates, to be charged pending final determination of the
rate proceedings, which shall be sufficient to provide a return of
not less than 5% upon original cost, less accrued depreciation, of
the utility's physical property used and useful in the public
service. Section 309 requires that permanent rates when,
determined, shall be "just and reasonable." In fixing the base for
temporary rates in this case, the commission did not confine itself
to the single factor of original cost less depreciation, but
interpreted § 310(a) as requiring that weight be given also to
reproduction cost, going concern value, and the necessity for
working capital, in compliance with the rule laid down by this
Court in
Smyth v. Ames, 169 U. S.
400.
Held, that in the absence of any decision of the state
court on the subject, this interpretation of § 310(a), not
inconsistent with its terms, should be accepted. P.
307 U. S.
114.
A different construction would raise the novel and important
question of the constitutionality of a temporary rate, based solely
on depreciated original cost, with provision of the statute for
recoupment of the loss from insufficient temporary rates as
provided in § 310(e).
4. This Court adopts a just and reasonable construction of state
statute rendering it clearly constitutional, rather than another
that puts its validity in doubt. P.
307 U. S.
115.
5. In determining a rate base, failure to include allowance for
cost of financing is not erroneous where the evidence reveals no
actual expenditures for that purpose and furnishes no foundation
for an estimate. P.
307 U. S.
116.
6. It does not appear from evidence that, in determining rate
base, the commission failed in this case to make due allowances for
going concern value; nor that, in estimating depreciated
reproduction cost, it failed to make adequate allowance for
indirect costs, such as interest, supervision, financing, taxes,
legal expenses, or refused to consider claimed increase of prices.
P.
307 U. S.
117.
7. Six percent
held not an inadequate rate of return in
the case of an electric power company which operates in a stable
community
Page 307 U. S. 106
accustomed to the use of electricity and close to the capital
markets, with funds readily available for secure investment. Long
operation and adequate records make forecasts of net operating
revenues fairly certain. Under such circumstances, a six percent.
return after all allowable charges cannot be confiscatory. P.
307 U. S.
119.
8. Even where the rates in effect are excessive, in a proceeding
by a commission to determine reasonableness, the utility should be
allowed its fair and proper expenses for presenting its side to the
commission. P.
307 U. S.
120.
9. In the allowance for such rate-case expenditures, the period
over which they are to be amortized will depend upon the character
of services received or disbursements made. P.
307 U. S.
121.
There could rarely be an anticipation of annually recurring
charges for rate regulation. Under the circumstances here
presented, where full statistics on investment, inventory, and
labor requirements have been made which, as cumulated, will form
largely the basis of all future negotiations, the Court is of the
opinion that amortization over a ten-year period is reasonable.
25 F.
Supp. 192 reversed.
Appeal from a decree of the District Court of three judges
permanently enjoining the enforcement of temporary rates fixed for
an electric power company.
Page 307 U. S. 107
MR. JUSTICE REED, delivered the opinion of the Court.
This is an appeal from the decree of a three-judge district
court granting a permanent injunction against the enforcement of
temporary rates. § 266, Jud.Code.
The appellants are five named persons, individually and as
members of the Pennsylvania Public Utility Commission, and the
Utility Consumers League of York, Pennsylvania, intervening
defendant below, an unincorporated association of consumers of
electric current in the territory served by the appellee. The
latter is a public utility corporation organized under the laws of
Pennsylvania which generates, transmits, distributes, and sells
electric energy approximately 30,000 customers in and about York,
Pennsylvania.
An investigation to determine the reasonableness of appellee's
rates was instituted on January 27, 1936. During its progress, the
state legislature recodified the utility law of Pennsylvania. Act
of May 28, 1937, P.L. 1053, Purdon's Pa.Stat.Ann., 1938 Supp.,
Title 66, § 1101
et seq. It enacted a temporary rate
section, 310, which is the source of this controversy.
Acting under § 310, the commission, after notice and argument,
issued a temporary rate order on July 13, 1937, requiring the
utility to file rate schedules which would effect a reduction of
approximately $435,000 in annual gross operating revenues. This
order was replaced by another on July 27, 1937, which commanded an
identical reduction. This time the commission itself prescribed
a
Page 307 U. S. 108
schedule of rates. The utility filed a bill in equity in a
statutory court in the Middle District of Pennsylvania. On October
15, 1937, a permanent injunction issued. [
Footnote 1] The Commission did not appeal. On November
30, 1937, another order was issued seeking to establish the same
temporary rates and to secure the same reduction in gross revenues
as the orders of July 13 and 27.
On December 14, 1937, the utility filed a bill in the United
States District Court for the Eastern District of Pennsylvania to
enjoin this order. A three-judge court was convened under § 266 of
the Judicial Code. By stipulation of the parties, the application
for an interlocutory injunction brought to hearing on January 17,
1938, was treated as an application for a permanent injunction. On
October 14, 1938, a permanent injunction issued.
The court concluded as a matter of law that the utility had no
plain, speedy, and adequate remedy in the state courts; that the
order is void because the
"commission acted in direct violation of the mandatory
provisions of the Public Utility Act which requires rates for [the
company] to be fixed under paragraph (b) of section 310;"
that the order is unconstitutional because (1) it violates the
procedural requirements of due process, (2) it fails to permit the
utility to earn a fair return on the fair value of its property
used and useful in the public service, (3) it confiscates the
company's property, and (4) it is not supported by substantial
evidence. [
Footnote 2]
Jurisdiction of the Statutory Court. -- Except as
modified by the Johnson Act, [
Footnote 3] jurisdiction exists in a statutory court,
called pursuant to § 266 of the Judicial Code, to hear and finally
determine bills in equity seeking temporary
Page 307 U. S. 109
and permanent injunctions against the order of a state
administrative commission on the ground of irreparable injury.
[
Footnote 4] By this amendatory
act, where the order attacked as violative of the Federal
Constitution affects the rates of a public utility, does not
interfere with interstate commerce, and has been made after notice
and hearing, the jurisdiction of the district court to enjoin its
enforcement is withdrawn unless no "plain, speedy and efficient
remedy may be had at law or in equity, in the courts of such
State." No challenge to the jurisdiction was made in the statutory
court or on appeal. In response to questions from the bench,
counsel for the commission conceded that there was no remedy in the
state courts which would satisfy the Johnson Act.
The reason for this concession lies, so far as a remedy in
equity is concerned, in the provision of the Pennsylvania statute
forbidding an injunction against an order, "except in a proceeding
questioning the jurisdiction of the commission." [
Footnote 5] The bill, in certain allegations,
attacks the section of the Public Utility Law under which this
order issued as violative of the Fourteenth Amendment in that it
empowered the commission to fix noncompensatory and discriminatory
temporary rates in an arbitrary manner. In one sense, this
questions the jurisdiction
Page 307 U. S. 110
of the commission. If § 310 is invalid, there is no other
provision to authorize temporary rates. Jurisdiction is a word of
uncertain meaning. As used in § 1111,
supra, it apparently
refers to proceedings by the commission under the terms of the
statute. In this use, it would permit an injunction, equitable
grounds being shown, where the public utility is not covered by the
act. Otherwise, action in excess of the powers of the commission,
such as a confiscatory rate, might be deemed beyond its
jurisdiction. At any rate, without an authoritative determination
by the state courts, we cannot say, for this character of
proceeding, that the remedy in the state courts is plain, speedy,
and efficient. [
Footnote 6] The
remedy at law by appeal is ineffective to protect the utility's
position
pendente lite. The supersedeas does not postpone
the application of the temporary rates. [
Footnote 7] The statutory court had jurisdiction of the
bill.
Statutory Basis for the Order. -- § 310 [
Footnote 8] contains several subsections. The
commission fixed the temporary rates under subsection (a). The
district court concluded as a matter of law that this action was
invalid because they could only be fixed under subsection (b). The
two subsections are set out below. [
Footnote 9] In its opinion, without
Page 307 U. S. 111
discussing § 310(b), the court declared § 310(a)
unconstitutional because it permitted the commission to fix a
temporary rate based upon the single factor of original cost less
depreciation. [
Footnote 10]
The commission, however, did not confine itself to that one element
in setting the fair value of the appellee's property, for the
purpose of temporary rates, at $5,250,000. It gave weight to
reproduction cost, original cost, going concern value, and the
necessity for working capital, and it allowed on this rate base a
return of more than six percent. This, of course,
Page 307 U. S. 112
satisfies the requirement of § 310(a) that the temporary rates
shall produce not less than 5% On the "original cost, less accrued
depreciation."
Appellee's first contention is that the decree may be sustained
for the sole reason that the commission should have proceeded under
subsection (b), because the appellee does not have continuing
property records. As the conclusion of the lower court on this
point is not supported by a state decision, we analyze for
ourselves the provisions of the sections. It is clear from the
language of § 310(a) that it is applicable not only to public
utilities whose reports to the commission show the original cost of
their physical property, but also to those whose original cost is
not so shown. The last clause of the section authorizes the
commission to estimate such cost. There is no provision in 310(a)
which limits its application to those utilities which maintain the
continuing property records of § 502. [
Footnote 11] Section 310(b),
see note 9 furnishes a partial alternative
for § 310(a). Where there are no continuing property records, as
provided by § 502, the commission must, in fixing the temporary
rate, arrange for an least a five percent return on original cost
under (a) or the return of an operating income under (b) equal to
that, for the year 1935 or a subsequent year, as determined by the
commission.
Page 307 U. S. 113
Appellee urges next that the section permits the commission to
disregard present cost, depreciate original cost, omit indirect and
overhead items of construction, and exclude allowances for working
capital or going concern value. Although these items were
considered by the commission, the appellee contends that the order
is invalid because § 310(a) might have been complied with by
providing a return of 5% on the original cost depreciated. The
argument seems to be that a statute which permits an
unconstitutional determination is invalid, even though it is
actually applied in a constitutional manner. [
Footnote 12]
The commission drew the order in accord with the prior ruling of
the Middle District Court on a former order in this rate
proceeding. [
Footnote 13]
The former order had also fixed temporary rates, but had not set
out the findings of value deemed essential by the court. Although
the reversal of the commission's order had actually turned on the
failure to show the factual basis for the rates, as the district
court had stated that compliance with
Smyth v. Ames
[
Footnote 14] was necessary
in temporary ratemaking, the commission based the order now under
review on evidence requisite under that rule. By taking this
position, it interprets the statute as requiring consideration of
elements other than original cost in fixing temporary rates. It is
not suggested that the commission omitted consideration of any
necessary element in the present order. If we assume with the
appellee that the constitutionality of a
Page 307 U. S. 114
delegation of ratemaking authority is to be tested by what a
ratemaking body may rightfully do under the delegation, rather than
what it does, appellee's case is advanced not one whit. We have
here an interpretation of the Pennsylvania statute by the board
charged with its enforcement that it must weigh all the essential
elements of valuation required by our past decisions.
There is nothing in the language of § 310(a) which requires a
different construction. The commission is authorized to fix
temporary rates. There is no requirement as to how the rates are to
be determined, except that they shall be sufficient to return a
given minimum -- not less than 5% on the original cost, less
depreciation. The language authorizing the fixing of temporary
rates is cast, except as to the limitation just referred to, in
much the same pattern as the language of § 309, 66 P.S.Pa. § 1149,
authorizing the determination of permanent rates. The latter
section reads: ". . . the commission shall determine the just and
reasonable rates. . . ." A different construction would raise the
novel and important question of the constitutionality of a
temporary rate, based solely on depreciated original cost, with
provision for recoupment of the loss from insufficient temporary
rates. [
Footnote 15] In the
absence of an
Page 307 U. S. 115
authoritative state decision, we are reluctant to accept a
construction which brings forward that issue, particularly when the
case may reasonably be determined upon the interpretation of the
officials of the state charged with the administration of the act.
[
Footnote 16] This course
observes the very salutary rule that
"this Court will not decide an issue of constitutionality if the
case may justly and reasonably be decided under a construction of
the statute under which the act is clearly constitutional.
[
Footnote 17]"
Confiscation. -- There remains for examination the
appellee's argument that the decree of the district court enjoining
the enforcement of the order should be sustained because it is
confiscatory. The commission, as of November 30, 1937, found the
rate base, revenue, expenses and rate, as set out below. [
Footnote 18] Appellee urges here
that the commission's figures are erroneous in the following
particulars: (1) The rate base should be $5,866,081; (2) the rate
should be 7 1/2 percent; (3) two items of expense, disallowed by
the commission should be added to the operating expenses, (a) some
increase in annual salaries and (b) rate case expenses on books to
November
Page 307 U. S. 116
15, 1937; (4) allowance should be made for a prospective loss of
annual profit by reason of the loss of a large customer, through
abandonment of railway service by York Railways Company.
(1) The commission estimated the original cost as of December
31, 1936 at $4,576,169.73. The company estimated the original cost
as of November 30, 1936, exclusive of financing charges at
$4,619,364 and its book cost as of December 31, 1936 at $4,578,793.
If to the highest of these items we add $164,000 for working
capital and $142,851.07, representing net additions to September
30, 1937, the amounts claimed by the company, the original cost
rate base is found to be not more than $4,926,215.07.
The commission excluded the cost of financing because there was
no evidence of any actual expenditures for such purpose or of any
studies of such cost. We find no error in this. [
Footnote 19] There was here no foundation
for an estimate. [
Footnote
20] Appellee's suggestion that evidence supporting its claim is
found in the capitalization chart of York Railways Company, the
owner of appellee's common stock, is not accepted. This shows the
discount, $298,825, paid by the parent company on $2,706,000 face
amount of bonds of various issues between 1909 and 1925. It appears
that $1,027,904 of the proceeds was expended for construction work
of the York Edison Company, apparently appellee's predecessor.
Nothing is shown as to the cost of this money to the appellee. It
may have given notes for or been charged with this exact amount,
without a finance charge. The financing cost to appellee may have
been covered by the interest rate.
Page 307 U. S. 117
The commission made no specific allowance for going concern
value. It did, however, state that it had weighed the going concern
value with other factors to determine fair value. It gave practical
effect to this consideration when it fixed fair value several
hundred thousand dollars in excess of its average of original and
reproduction cost, both depreciated. In the computations by the
company of original and reproduction costs, allowances were made
for the overhead expense of creating the aggregate of land,
buildings, and equipment, making up the utility. No tangible
evidence of any unusual situation justifying any definite further
allowance appears in the testimony of appellee's witness Seelve.
The plant of the utility without the utilization of its production
by the community would be of little value. Expenditures to secure
customers through advertisement and solicitation, as well as to
install connections, do not appear separate from the ordinary
operating and construction costs. The appellee points to the
character of the territory served, the company's ability to earn,
the efficiency of the management, the adequate available power
supply and the excellent capital structure as indicative of a going
concern value above tangible property plus overhead. To appraise
these elements apart from and in addition to reasonable cost
figures would require evidence of a failure on the part of the
commission to give reasonable weight to these factors. This
evidence is lacking here. [
Footnote 21]
For depreciated reproduction cost as of November 30, 1936, the
commission accepted the estimate of the company for direct costs,
$3,981,347. It added 19%, $756,456,
Page 307 U. S. 118
for indirect costs, and reached a total of $4,737,803. This
finding reduced the indirect costs from the 24.3 percent claimed by
the company. Evidence was introduced before the commission
supporting each percentage estimate. The amount of these indirect
costs likely to be incurred is too uncertain for us to conclude
that the percentage adopted is erroneous. [
Footnote 22] We cannot see that the failure of
the commission's witness Bierman to inspect the property made less
valuable his estimate on the proper percentage to be applied for
indirect costs. These indirect costs are of the character of
interest, supervision, cost of financing, taxes, and legal
expense.
The utility states that the commission, in fixing the
reproduction cost, erred by refusing to consider the effect of a
claimed increase of prices. The commission, on November 30, 1937,
fixed reproduction cost upon a computation based by the utility
upon prices as of November 30, 1936. This showed a gross cost of
$5,572,134, depreciated and reduced by the commission, as explained
in the preceding paragraph, to $4,737,803. The utility presented a
further computation, showing as of May 31, 1937, that increased
prices, due to a rising level, would increase the gross cost to
$6,019,832. The argument is that the later estimate should have
been considered. [
Footnote
23] Proportionally reduced to accord with the action of the
commission, this latter figure would become $5,118,465. If to this
higher reproduction cost we add working capital, there appears a
reproduction cost depreciated figure of $5,282,465.
It is furthermore to be observed that the commission's figures
do not differ far, as to fair value, from the estimate of an
important witness for the utility, Mr. Seelve, who testified on
March 12, 1937, that the fair value was not less than $5,500,000,
and said later, in answer to the commissioner's
Page 307 U. S. 119
question, that the fair value, in his opinion was $5,500,000.
This estimate was reiterated on December 20, 1937, in the
affidavits of Mr. Seelve and Mr. Wayne, the President of the
company, in support of the motion for temporary injunction.
For the purpose of passing upon the issue of confiscation in the
temporary rates, we shall accept $5,500,000 as the fair value of
the property as of November 30, 1937.
(2) The rate of return was fixed by the commission at six
percent. Witnesses for the utility brought out facts deemed
applicable in the determination of a proper rate of return on the
fair value of the property. Their evidence took cognizance of the
yield of bonds, preferred and common stocks of selected comparable
utilities, the stagnant market for new issues, prevailing cost of
money, the implications of the possible substitution of some
governmentally operated or financed utilities for those privately
owned and the dangers of a fixed schedule of rates in the face of
possible inflation. From these factors they deduced that a proper
rate of return would be from 7.8 percent to 8 percent. An
accounting expert of the commission countered with tables showing
yields of bonds of utilities; the yield to maturity of Pennsylvania
public utility securities, approved by the commission between July
1, 1933, and May 7, 1937, long-term and actually sold for cash to
nonaffiliated interests; yield of Pennsylvania electric utilities;
financial and operating statistics of Pennsylvania electric
utilities; money rates, and other material information. He
concluded 5.5 percent was a reasonable rate of return.
It must be recognized that each utility presents an individual
problem. [
Footnote 24] The
answer does not lie alone in
Page 307 U. S. 120
average yields of seemingly comparable securities, or even in
deductions drawn from recent sales of issues authorized by this
same commission. Yields of preferred and common stocks are to be
considered, as well as those of the funded debt. When bonds and
preferred stocks of well seasoned companies can be floated at low
rates, the allowance of an over all rate return of a modest
percentage will bring handsome yields to the common stock.
Certainly the yields of the equity issues must be larger than that
for the underlying securities. In this instance, the utility
operates in a stable community, accustomed to the use of
electricity and close to the capital markets, with funds readily
available for secure investment. Long operation and adequate
records make forecasts of net operating revenues fairly certain.
Under such circumstances, a six percent return after all allowable
charges cannot be confiscatory.
(3) and (4). The utility urges that two items of expense and a
prospective loss should be added to the operating expenses, allowed
by the commission, of $1,382,829. The most important of these items
is the rate case expenses. The company, by its Exhibit 21, shows
these incurred to November 15, 1937, to be 78,374.50. The
commission, from Exhibit 23, found them to be $127,935 for the
twelve months ending September 30, 1937. The difference probably
comes from the expenses before and after the period considered by
the commission. We assume the higher figures to be correct. As the
commission concluded that the prior rates of the company were
obviously excessive, it allowed nothing for expense in defending
them. Consequently there is no discussion of the reasonableness of
the amount of the company's charge, and we accept them as
reasonable. Even where the rates in effect are excessive, on a
proceeding by a commission to determine reasonableness, we are of
the view that the utility should be allowed its fair and proper
Page 307 U. S. 121
expenses for presenting its side to the commission. We do not
refer to expense of litigation in the courts.
"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. [
Footnote 25]"
In the allowance of these expenses, the period over which they
are to be amortized will depend upon the character of services
received or disbursements made. There could rarely be an
anticipation of annually recurring charges for rate regulation.
Under the circumstances here presented, where full statistics on
investment, inventory, and labor requirements have been made which,
as cumulated, will form largely the basis of all future
negotiations, we are of the opinion that amortization over a
ten-year period is reasonable. [
Footnote 26] As such an adjustment produces an estimated
return very close to the reasonable rate, even with the addition to
the operating expenses of the other items of increased salaries,
$20,593, and prospective loss of annual profit, $15,089, we do not
enter into a discussion of them. Experience will add its weight to
the other evidence on further hearing. The note below shows the
calculation. [
Footnote
27]
At best, these estimates are prophecies of expected returns. The
incalculable factors of business activity, unanticipated
Page 307 U. S. 122
demand or forbearance, substitution, and other variables lead us
to approximations. We are satisfied the reduction required is not
shown to be confiscatory.
Reversed.
[
Footnote 1]
Edison Light & Power Co. v.
Driscoll, 21 F. Supp.
1.
[
Footnote 2]
Edison Light & Power Co. v.
Driscoll, 25 F.
Supp. 192.
[
Footnote 3]
Judicial Code, § 24(1), as amended by Act of May 14, 1934, c.
283, 48 Stat. 775.
[
Footnote 4]
Oklahoma Natural Gas Co. v. Russell, 261 U.
S. 290,
261 U. S. 292;
Herkness v. Irion, 278 U. S. 92,
278 U. S.
93.
[
Footnote 5]
§ 1111, P.L. 1053, Purdon's Pa.Stat.Ann., 1938 Supp., Title 66,
§ 1441:
"Exclusive jurisdiction of Dauphin County Court to hear
injunctions. -- No injunction shall issue modifying, suspending,
staying, or annulling any order of the commission, or of a
commissioner, except in a proceeding questioning the jurisdiction
of the commission, and then only after cause shown upon a hearing.
The court of common pleas of Dauphin County is hereby clothed with
exclusive jurisdiction throughout the Commonwealth of all
proceedings for such injunctions, subject to an appeal to the
Superior Court as aforesaid."
[
Footnote 6]
Mountain States Power Co. v. Public Service Comm'n,
299 U. S. 167,
299 U. S. 170;
Corporation Comm'n v. Cary, 296 U.
S. 452.
[
Footnote 7]
§ 1103, P.L. 1053, Purdon's Pa.Stat.Ann., 1938 Supp., Title 66,
§ 1433.
[
Footnote 8]
P.L. 1053, Purdon's Pa.Stat.Ann., 1938 Supp., Title 66, §
1150.
[
Footnote 9]
"Temporary rates. -- (a) The commission may, in any proceeding
involving the rates of a public utility brought either upon its own
motion or upon complaint, after reasonable notice and hearing, if
it be of opinion that the public interest so requires, immediately
fix, determine, and prescribe temporary rates to be charged by such
public utility, pending the final determination of such rate
proceeding. Such temporary rates, so fixed, determined, and
prescribed, shall be sufficient to provide a return of not less
than five percentum upon the original cost, less accrued
depreciation, of the physical property (when first devoted to
public use) of such public utility, used and useful in the public
service, and if the duly verified reports of such public utility to
the commission do not show such original cost, less accrued
depreciation, of such property, the commission may estimate such
cost less depreciation and fix, determine, and prescribe rates as
hereinbefore provided."
"(b) If any public utility does not have continuing property
records, kept in the manner prescribed by the commission, under the
provisions of section five hundred two of this act, then the
commission, after reasonable notice and hearing, may establish
temporary rates which shall be sufficient to provide a return of
not less than an amount equal to the operating income for the year
ending December thirty-first, one thousand nine hundred
thirty-five, or such other subsequent year as the commission may
deem proper, to be determined on the basis of data appearing in the
annual report of such public utility to the commission for the year
one thousand nine hundred thirty-five, or such other subsequent
year as the commission may deem proper, plus or minus such return
as the commission may prescribe from time to time upon such net
changes of the physical property as are reported to and approved
for ratemaking purposes by the commission. In determining the net
changes of the physical property, the commission may, in its
discretion, deduct from gross additions to such physical property
the amount charged to operating expenses for depreciation or, in
lieu thereof, it may determine such net changes by deducting
retirements from the gross additions: Provided, That the
commission, in determining the basis for temporary rates, may make
such adjustments in the annual report data as may, in the judgment
of the commission, be necessary and proper."
[
Footnote 10]
Edison Light & Power Co. v.
Driscoll, 25 F.
Supp. 192.
[
Footnote 11]
P.L. 1053, Purdon's Pa.Stat.Ann., 1938 Supp., Title 66, §
1212.
"Continuing property records. The commission may require any
public utility to establish, provide, and maintain as a part of its
system of accounts, continuing property records, including a list
or inventory of all the units of tangible property used or useful
in the public service, showing the current location of such
property units by definite reference to the specific land parcels
upon which such units are located or stored, and the commission may
require any public utility to keep accounts and records in such
manner as to show, currently, the original cost of such property
when first devoted to the public service, and the reserve
accumulated to provide for the depreciation thereof."
[
Footnote 12]
Cf. Panama Refining Co. v. Ryan, 293 U.
S. 388,
293 U. S. 420;
Wuchter v. Pizzutti, 276 U. S. 13,
276 U. S. 24;
People v. Klinck Packing Co., 214 N.Y. 121, 138, 108 N.E.
278;
Montana Co. v. St. Louis Mining & Milling Co.,
152 U. S. 160,
152 U. S. 170.
But see Hatch v. Reardon, 204 U.
S. 152,
204 U. S. 160;
Tyler v. Judges, 179 U. S. 405,
179 U. S. 410;
Jacobson v. Massachusetts, 197 U. S.
11,
197 U. S. 37;
Lieberman v. Van De Carr, 199 U.
S. 552,
199 U. S. 562;
Home Telephone & Telegraph Co. v. Los Angeles,
211 U. S. 265,
211 U. S.
278.
[
Footnote 13]
Edison Light & Power Co. v.
Driscoll, 21 F. Supp.
1.
[
Footnote 14]
169 U. S. 169 U.S.
466.
[
Footnote 15]
"(e) Temporary rates so fixed, determined, and prescribed under
this section shall be effective until the final determination of
the rate proceeding, unless terminated sooner by the commission. In
every proceeding in which temporary rates are fixed, determined,
and prescribed under this section, the commission shall consider
the effect of such rates in fixing, determining, and prescribing
rates to be thereafter demanded or received by such public utility
on final determination of the rate proceeding. If, upon final
disposition of the issues involved in such proceeding, the rates as
finally determined, are in excess of the rates prescribed in such
temporary order, then such public utility shall be permitted to
amortize and recover, by means of a temporary increase over and
above the rates finally determined, such sum as shall represent the
difference between the gross income obtained from the rates
prescribed in such temporary order and the gross income which would
have been obtained under the rates finally determined if applied
during the period such temporary order was in effect."
Cf. Prendergast v. New York Telephone Co., 262 U. S.
43.
Bronx Gas & Electric Co. v. Maltbie,
271 N.Y. 364, 3 N.E.2d 512.
[
Footnote 16]
Fox v. Standard Oil Co. of New Jersey, 294 U. S.
87,
294 U. S. 97;
Union Ins. Co. v.
Hoge, 21 How. 35,
62
U. S. 66.
[
Footnote 17]
Thompson v. Consolidated Gas Utilities Corp.,
300 U. S. 55,
300 U. S. 75-76,
and cases cited;
cf. Blodgett v. Holden, 275 U.
S. 142,
275 U. S. 148;
Federal Trade Comm'n v. American Tobacco Co., 264 U.
S. 298,
264 U. S. 307;
Texas v. Eastern Texas R. Co., 258 U.
S. 204,
258 U. S.
217.
[
Footnote 18]
Rate Base or Fair Value of Property . . . . . . . . . . .
$5,250,000.00
Rate of return 6%.
Required return . . . . . . . . . . . . . . . . . .
315,000.00
Revenue after Reduction . . . . . . . . . $1,767,329.00
Operating Expenses. . $1,033,898.00
Taxes . . . . . . . . 206,400.00
Annual Depreciation . 142,531.00 1,382,829.00
Estimated Return. . . . . . . . . . . . . . . . . . . . .
384.500.00
[
Footnote 19]
Wabash Valley Elec. Co. v. Young, 287 U.
S. 488,
287 U. S. 500;
Galveston Elec. Co. v. Galveston, 258 U.
S. 388,
258 U. S.
397.
[
Footnote 20]
Cf. Dayton P. & L. Co. v. Public Utilities Comm'n,
292 U. S. 290,
292 U. S.
309-310;
Los Angeles Gas & Elec. Corp. v.
Railroad Comm'n, 289 U. S. 287,
289 U. S.
310.
[
Footnote 21]
Denver Union Stock Yard Co. v. United States,
304 U. S. 470,
304 U. S. 478;
St. Joseph Stock Yards Co. v. United States, 298 U. S.
38,
298 U. S. 62.
Cf. Dayton P. & L. Co. v. Public Utilities Comm'n,
292 U. S. 290,
292 U. S. 308;
St. Joseph Stock Yards Co. v. United
States, 11 F. Supp.
322, 334;
Des Moines Gas Co. v. Des Moines,
238 U. S. 153;
McCardle v. Indianapolis Water Co., 272 U.
S. 400,
272 U. S.
413.
[
Footnote 22]
Dayton P. & L. Co. v. Public Utilities Comm'n,
292 U. S. 290,
292 U. S.
311.
[
Footnote 23]
McCart v. Indianapolis Water Co., 302 U.
S. 419.
[
Footnote 24]
United Railways & Elec. Co. v. West, 280 U.
S. 234,
280 U. S. 249;
Willcox v. Consolidated Gas Co., 212 U. S.
19,
212 U. S. 48;
Bluefield Water Works & Improvement Co. v. Public Service
Comm'n, 262 U. S. 679,
262 U. S. 692;
Knoxville v. Knoxville Water Co., 212 U. S.
1,
212 U. S. 17.
[
Footnote 25]
West Ohio Gas Co. v. Public Utilities Comm'n (No. 1),
294 U. S. 63,
294 U. S. 74;
see Wabash Valley Elec. Co. v. Young, 287 U.
S. 488,
287 U. S.
500.
[
Footnote 26]
Wabash Valley Elec. Co. v. Young, 287 U.
S. 488,
287 U. S. 500;
West Ohio Gas Co. v. Public Utilities Comm'n (No. 10),
294 U. S. 63,
294 U. S.
74.
[
Footnote 27]
Compare with the computation of the Commission,
note 18
Rate Base or Fair Value of Property . . . . . . . . . . . . . .
$5,500,000.00
Rate of Return 6%.
Required return . . . . . . . . . . . . . . . . . . . . . .
330,000.00
Revenue after Reduction . . . . . . . . . . . .
$1,767,329.00
Operating Expenses. . . . . . . $1,033,898.00
Taxes . . . . . . . . . . . . . 206,400.00
Annual Depreciation . . . . . . 142,531.00
Rate Expense, 10-year
Amortization. . . . . . . . . . 17,838.00
Salary Increase . . . . . . . . 20,593.00
Prospective Loss. . . . . . . . 15,089.00 1,436,349.00
Estimated Return. . . . . . . . . . . . . . . . . . . . . . . .
330,980.00
MR. JUSTICE FRANKFURTER, concurring.
The decree below was clearly wrong. But, in reversing it, the
Court's opinion appears to give new vitality needlessly to the
mischievous formula for fixing utility rates in
Smyth v.
Ames, 169 U. S. 466. The
force of reason, confirmed by events, has gradually been rendering
that formula moribund by revealing it to be useless as a guide for
adjudication. Experience has made it overwhelmingly clear that
Smyth v. Ames and the uses to which it has been put
represented an attempt to erect temporary facts into legal
absolutes. The determination of utility rates -- what may fairly be
exacted from the public and what is adequate to enlist enterprise
-- does not present questions of an essentially legal nature in the
sense that legal education and lawyers' learning afford peculiar
competence for their adjustment. These are matters for the
application of whatever knowledge economics and finance may bring
to the practicalities of business enterprise. The only relevant
function of law in dealing with this intersection of government and
enterprise is to secure observance of those procedural safeguards
in the exercise of legislative powers which are the historic
foundations of due process.
Mr. Justice Bradley, nearly fifty years ago, made it clear that
the real issue is whether courts or commissions and legislatures
are the ultimate arbiters of utility rates (dissenting in
Chicago, Milwaukee & St. Paul Ry. Co. v. Minnesota,
134 U. S. 418,
134 U. S.
461). Whatever may be thought of the wisdom of a broader
judicial role in the controversies between public utilities and the
public, there can be no
Page 307 U. S. 123
doubt that the tendency, for a time at least, to draw fixed
rules of law out of
Smyth v. Ames has met the rebuff of
facts. At least one important state has for decades gone on its way
unmindful of
Smyth v. Ames, and other states have by
various proposals sought to escape the fog into which speculations
based on
Smyth v. Ames have enveloped the practical task
of administering systems of utility regulation.
Smyth v. Ames should certainly not be invoked when it
is not necessary to do so. The statute under which the present case
arose represents an effort to escape
Smyth v. Ames, at
least as to temporary rates. It is the result of a conscientious
and informed endeavor to meet difficulties engendered by legal
doctrines which have been widely rejected by the great weight of
economic opinion, [
Footnote 2/1] by
authoritative legislative investigations, [
Footnote 2/2] by utility commissions throughout the
country, [
Footnote 2/3] and by
impressive judicial dissents. [
Footnote
2/4] As a result of this long process of experience and
reflection, the two states in which utilities play the biggest
financial part -- New York and Pennsylvania -- have evolved the
so-called recoupment scheme for temporary rate-fixing (thereby
avoiding some of the most
Page 307 U. S. 124
wasteful aspects of rate litigation) as a fair means of
accommodating public and private interests. It is a carefully
guarded device for securing "a judgment from experience as against
a judgment from speculation,"
Tanner v. Little,
240 U. S. 369,
240 U. S. 386,
in dealing with a problem of such elusive economic complexity as
the determination of what return will be sufficient to attract
capital in the special setting of a particular industry and at the
same time be fair to the public dependent on such enterprise.
That this Court should not
"decide an issue of constitutionality if the case may justly and
reasonably be decided under a construction of the statute under
which the act is clearly constitutional"
is, as an abstract proposition, basic to our judicial
obligation. But this is not a formal doctrine of self-restraint.
Its rationale is avoidance of conflict with the legislature. The
opinion from which the preceding quotation is taken and the
decisions to which it refers are all cases in which
constitutionality was in obvious jeopardy. It is one thing to avoid
unconstitutionality even at the cost of a tortured statutory
construction. It is quite another to recognize the validity of a
statute directed expressly to the situation in hand and so employed
by the state authorities, when constitutionality of that statute is
as incontestably clear as the decision of the New York Court of
Appeals has demonstrated it to be in sustaining the sister statute
of the Pennsylvania Act,
Bronx Gas & Electric Co. v.
Maltbie, 271 N.Y. 364, 3 N.E.2d 512. The Court's opinion in
the present case does not avoid issues of constitutionality. It
accepts the much more dubious constitutional doctrines of
Smyth
v. Ames and its successors to solve the very easy
constitutional issues raised by the Pennsylvania Act.
MR. JUSTICE BLACK concurs in the above views.
[
Footnote 2/1]
See 2 Bonbright, The Valuation of Property, 1081-1086,
1094-1102; 3A Sharfman, The Interstate Commerce Commission,
121-137.
[
Footnote 2/2]
N.Y. State Commission on Revision of the Public Service
Commission Law, Report of Commissioners,
passim
(1930).
[
Footnote 2/3]
Proceedings of the Forty-Seventh Annual Convention of the
National Association of Railroad and Utilities Commissioners, 232
et seq.; Proceedings of the Forty-Eighth Annual Convention
of the National Association of Railroad And Utilities
Commissioners, 115
et seq., 289
et seq.;
Proceedings of the Forty-Ninth Annual Convention of the National
Association of Railroad and Utilities Commissioners, 159
et
seq.
[
Footnote 2/4]
See, e.g., Brandeis, J., concurring in
Missouri ex
rel. Southwestern Bell Telephone Co. v. Public Service Comm'n,
262 U. S. 276,
262 U. S. 289,
and bibliography therein contained.