Potomac Elec. Power Co. v. Public Utilities Commission of District of Columbia

• Decision Date: 07 November 1921
• Docket Number: 3485.
• Parties: POTOMAC ELECTRIC POWER CO. et al. v. PUBLIC UTILITIES COMMISSION OF DISTRICT OF COLUMBIA et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

276 F. 327

POTOMAC ELECTRIC POWER CO. et al. v. PUBLIC UTILITIES COMMISSION OF DISTRICT OF COLUMBIA et al.

No. 3485.

United States Court of Appeals, District of Columbia.

November 7, 1921

Submitted May 2, 1921.

Appeal from the Supreme Court of the District of Columbia.

John S Barbour, of Washington, D.C., Osborne I. Yellott, of Baltimore, Md., and S. Russell Bowen, of Washington, D.C for appellants.

C. H Syme and F. H. Stephens, both of Washington, D.C., for appellees.

ROBB Associate Justice.

This is an appeal from a decree in the Supreme Court of the District dismissing the bill of the Potomac Electric Power Company and the cross-bill of the Washington Railway & Electric Company seeking a review of the findings of the Public Utilities Commission of the District of Columbia as to the value of the property of the Power Company 'actually used and useful for the convenience of the public. ' See act creating the Public Utilities Commission, 37 Stat. 974.

Paragraph 7 of the act provides that--

'The Commission shall value the property of every public utility within the District of Columbia actually used and useful for the convenience of the public at the fair value thereof at the time of said valuation.'

And paragraph 9 authorizes the Commission at any time, of its own initiative, to make a revaluation of any public utility.

Under paragraph 64:

Any public utility 'being dissatisfied with any order or decision of the Commission fixing any valuation, rate or rates, tolls, charges, schedules, joint rate or rates, or regulation, requirement, act, service or other thing complained of may commence a proceeding in equity in the Supreme Court of the District of Columbia against the Commission as defendants, to vacate, set aside, or modify any such decision or order on the ground that the valuation, rate or rates, tolls, charges, schedules, joint rate or rates, or regulation, requirement, act, service or other thing complained of fixed in such order is unlawful, inadequate, or unreasonable.'

It is further provided that all such proceedings 'shall be tried and determined as are equity proceedings in said court.'

Paragraph 69 places the burden of proof upon the party adverse to the Commission or seeking to set aside any determination, requirement, or order of the Commission, 'to show by clear and satisfactory evidence' that the order or finding is 'inadequate, unreasonable, or unlawful.'

Under our view of the case it is necessary to consider but two questions at this time, the first of which is as to the scope of the court's jurisdiction under the statute. Ohio Valley Co. v. Ben Avon Borough, 253 U.S. 287, 40 Sup.Ct. 527, 64 L.Ed. 908, involved a statute of Pennsylvania substantially similar to ours. There the Commission had found the fair value of the public utility and the trial court reviewed and reversed the finding and directed the Commissioner to fix the value at a substantially higher sum. The Supreme Court of the state reversed the decision of the trial court on the ground, as found by the Supreme Court of the United States, that the courts were without authority 'to determine the question of confiscation according to their own independent judgment. ' In the Supreme Court of the United States it was said:

'The order here involved prescribed a complete schedule of maximum future rates and was legislative in character. (Authorities.) In all such cases, if the owner claims confiscation of his property will result, the state must provide a fair opportunity for submitting that issue to a judicial tribunal for determination upon its own independent judgment as to both law and facts; otherwise the order is void because in conflict with the due process clause, Fourteenth Amendment.'

The statute here under examination gives to the findings of the Commission prima facie effect, for it in terms places the burden upon the challenger or exceptant of showing by clear and satisfactory evidence that the findings are 'inadequate, unreasonable, or unlawful.' But where, as here, the decision is challenged on the ground that it is based upon a mistake of law, or that it is wholly unsupported by evidence, or is so clearly contrary to the weight of the evidence as to amount to an arbitrary exercise of power, it is the duty of the court, under the rule announced by the Supreme Court, to exercise ' its own independent judgment as to both law and facts,' so far as it is necessary to determine the question in issue. The court's duty in such a situation is very carefully outlined in Int. Comm. v. Union Pac. R., 222 U.S. 541, 547, 32 Sup.Ct. 108, 56 L.Ed. 308.

The second question relates to alleged errors in the rule adopted by the Commission in finding present value. The Commission found the fair value of the property, as of July 1, 1914, to be $10,250,000. The uncontradicted evidence showed that between that date and December 31, 1916, 'the time of said valuation,' there had been a sharp rise in values. On this point the Commission said:

'The European war did not commence until August, 1914. Its effect was first a depression of short duration, since which prices have advanced under this artificial stimulus with such rapidity and to such an extent as to prevent the formation of reliable opinion as to their permanency or future effect upon the industrial and economic situation in this country.'

Appellants contend that the Commission as matter of law, in reaching a conclusion as to the fair value of their property on December 31, 1916, should have taken into consideration the increased value of that property, as shown by the evidence, between the earlier and later dates. This the Commission declined to do, but, taking for a basis the fair value of the property as of July 1, 1914, the Commission added the net additional expenditures on the property subsequent to that date, and entirely ignored the evidence as to the increase in the value of the property forming the basis of the valuation of July 1, 1914. In its decision the Commission said:

'Claims by the company for greater allowances in the reproduction estimate of the physical property were based largely upon the difference in prices created by extraordinary conditions which arose subsequent to July 1, 1914.'

The trial court was of the view that the rule adopted by the Commission was correct. We are unable to concur in that view.

The principal object of valuation, of course, is to provide a rate base, and the statute clearly contemplates that the commission shall ascertain the value as of 'the time of said valuation,' and not as of some anterior date. It has been ruled many times that there must be a fair return to a public utility 'upon the reasonable value of the property at the time it is being used for the public. ' San Diego Land & Town Co. v. National City, 174 U.S. 739, 757, 19 Sup.Ct. 804, 43 L.Ed. 1154; Minnesota Rate Cases, 230 U.S. 352, 434, 33 Sup.Ct. 729, 57 L.Ed. 1511, 48 L.R.A. (N.S.) 1151, Ann. Cas. 1916A, 18. In the present case the Commission, in effect, declined to find the present value of the property because not satisfied as to how long existing conditions would continue. In assuming this position the Commission must have overlooked paragraph 9 of the statute, authorizing it at any time, of its own initiative, to make a revaluation of the property of any public utility. In our view, it was the duty of the Commission to have considered and given due weight to the evidence as to the then value of the property. As conditions changed and values were substantially affected, it would have been the further duty of the Commission to exercise its discretion and revalue the property. The conditions existing were world wide and, while their duration and future effect were problematical, there was no immediate prospect of a return to normal conditions. It may be suggested, although the point was not raised in the opinion of the Commission, that practical difficulties would have been encountered in an attempt to ascertain the increase in value of the property between July 1, 1914, and December 31, 1916. But there was substantial evidence before the Commission as to the rise in values, and a brief investigation would have enabled the Commission to determine, with substantial accuracy, how much in fairness should be added to the earlier valuation.

Much reliance was placed by the trial court upon the language of former Justice Hughes, as referee, in the case of Brooklyn Borough Gas Co. v. Public Service Commission (July 24, 1918); but we find nothing in the report, as we read it, justifying the action of the Commission here in entirely ignoring the evidence as to value at the time the finding actually was made. The contention there was that the rates should be based 'upon a plant valuation simply representing a hypothetical cost of reproduction' at a time of abnormally high...