West Ohio Gas Co v. Public Utilities Commission of Ohio

Decision Date07 January 1935
Docket NumberNo. 212,212
Citation79 L.Ed. 761,55 S.Ct. 316,294 U.S. 63
PartiesWEST OHIO GAS CO. v. PUBLIC UTILITIES COMMISSION OF OHIO
CourtU.S. Supreme Court

[Syllabus from pages 63-65 intentionally omitted] Messrs. Edmond W. Hebel, of Indianapolis, Ind., Harry O. Bentley, of Lima, Ohio, and Charles C. Marshall, of Columbus, Ohio, for appellant.

Messrs. John W. Bricker and Donald C. Power, both of Columbus, Ohio, for appellee.

Mr. Justice CARDOZO delivered the opinion of the Court.

The appellant, West Ohio Gas Company, supplies gas to the inhabitants of the city of Lima, Ohio, and to neighboring communities, part of what it sells being artificial gas manufactured by itself and part natural gas bought from another company which is wholly independent.

On March 19, 1928, the municipal authorities of the city of Lima passed an ordinance, effective April 19, prescribing the maximum price to be charged for gas to consumers within the city during a period of five years. The rates were to be as follows: For the first 1,000 cubic feet of gas, 90 cents per month; for the next 3,000 cubic feet per month, 80 cents per m.c.f.; for the next 6,000, 75 cents per m.c.f.; and for all over 10,000 per month, 55 cents per m.c.f. This was § sharp reduction of the rates previously charged, which were $1.25 for the first 400 cubic feet; $1.05 for the next 9,600 cubic feet; $1 for the next 15,000; and for all over 25,000, 75 cents per m.c.f.

In adherence to the Ohio statutes (Ohio General Code, § 614-44 et seq.), the company filed a complaint with the Public Utilities Commission of Ohio, protesting against the ordinance, praying that the commission fix a fair and reasonable schedule, electing, as it might, to charge in the meantime the rates previously in force, and giving bond for the return of the excess, if any. The hearings before the commission began in July, 1928, and ended in July, 1932. While the proceeding was pending, there was a final order of valuation, made in January, 1932, whereby the value of the property in Lima, used and useful for the business, was fixed at $1,901,696.26 as of March 31, 1928, approximately the date of the adoption of the ordinance. There being no appeal from that order within the time prescribed by law, it became binding on the company, as well as on the commission, though the valuation was less than the company had urged. 128 Ohio St. 301, 311, 191 N.E. 105. The rate base being thus established, what was next to be ascertained was the amount of the operating expenses as compared with the gross income, after which a conclusion could be drawn as to the rates that would be necessary for a fair return on the investment. An order entered by the commission on March 10, 1933, adjudged the rates under the ordinance to be insufficient and unjust. It substituted rates averaging about 13 1/2 per cent. less than those that the company had been charging: For 400 cubic feet or less per month, $1; for the next 9,600, 95 cents per m.c.f.; for anything in excess of 10,000 cubic feet per month, 75 cents per m.c.f., with penalties to be charged if payment was delayed. The rates so fixed were to be retroactive as of the effective date of the ordinance, April 19, 1928, from which time they were to remain in force for a term of five years, and the difference between their yield and the amount collected by the company was to be refunded to consumers. A motion for a rehearing having been denied, the company filed a petition in error with the Supreme Court of Ohio, invoking the protection of the Fourteenth Amendment. The order of the commission was affirmed (128 Ohio St. 301, 191 N.E. 105), and the case is here upon appeal.

The commission made its order, as it has informed us by an amended opinion, in the belief that the new rates would yield a return of 6.65 per cent. on the value of the property included in the base. Its estimate was wide of the mark as a result of mathematical errors, and this on the assumption that its rulings as to the items of operating expenses to be allowed or disallowed were correct in fact and law. Even on that assumption, the average net income during the four years of the ordinance period for which figures were available was $109,414, which upon a rate base of $1,901,696 is equivalent to an average return of about 5.75 per cent. This is now admitted by counsel for the commission, and must be accepted as a datum. What is still to be determined is whether the rate of return has been further overestimated to the point of confiscation through error in the rejection of charges upon income.

1. The company made claim to an allowance for 'unaccounted for gas,' which is gas lost as a result of leakage, condensation, expansion, or contraction. There is no dispute that a certain loss through these causes is unavoidable, no matter how carefully the business is conducted. Cf. Consolidated Gas Co. v. Newton (D.C.) 267 F. 231, 244; Brooklyn Union Gas Co. v. Prendergast (D.C.) 7 F.(2d) 628, 652, 671. The company, basing its claim upon its proved experience, reported the average loss as 9 per cent. per annum. The commission fixed the allowance at 7 per cent., thereby reducing the operating expenses by $3,800 a year. In making this reduction, it did not deny that the loss had been suffered to the extent stated by the company. The presumption of correctness that gives aid in controversies of this order to the books of public service corporations (Consolidated Gas Co. v. Newton, supra, at page 242 of 267 F.; Newton v. Consolidated Gas Co., 258 U.S. 165, 176, 42 S.Ct. 264, 66 L.Ed. 538) was confirmed in this instance by what amounts to a finding of regularity. Accepting the loss as proved, the commission refused to allow it for more than 7 per cent. upon the ground that with proper care of the system the loss would have been less. A public utility will not be permitted to include negligent or wasteful losses among its operating charges. The waste or negligence, however, must be established by evidence of one kind or another, either direct or circumstantial. In all the pages of this record, there is neither a word nor a circumstance to charge the management with fault. Cf. Ohio Utilities Co. v. Public Utilities Commission of Ohio, 267 U.S. 359, 363, 45 S.Ct. 259, 69 L.Ed. 656. There is not even the shadow of a warning to the company that fault was imputed and that it must give evidence of care. Without anything to suggest that there was such an issue in the case, the commission struck off 2 per cent.: it might with as much reason have struck off 4 or 6. This was wholly arbitrary. Ohio Utilities Co. v. Public Utilities Commission of Ohio, supra.

Under the statutes of Ohio no provision is made for a review of the order of the commission by a separate or independent suit. The sole method of review is by petition in error to the Ohio Supreme Court, which considers both the law and the facts. Dayton P. & L. Co. v. P.U. Commission of Ohio, 292 U.S. 290, 302, 54 S.Ct. 647, 78 L.Ed. 1267; Hocking Valley Ry. Co. v. Public Utilities Commission, 100 Ohio St. 321, 326, 327, 126 N.E. 397. To make such review adequate the record must exhibit in some way the facts relied upon by the court to repel unimpeached evidence submitted for the company. If that were not so, a complainant would be helpless, for the inference would always be possible that the court and the commission had drawn upon undisclosed sources of information unavailable to others. A hearing is not judicial, at least in any adequate sense, unless the evidence can be known.

2. The company made claim to an allowance of 'distribution expenses' incurred in the superintendence of distribution, in work on the premises of customers incidental to the service, in the change of meters used to measure the gas sold, and in the maintenance of local mains and equipment. There is no denial, even now, that these expenses were incurred as claimed. There was no challenge upon the trial to the practice of the company whereby moneys spent in Lima, the territorial unit affected by the ordinance, were allocated to that city, and not to territory beyond. The case was tried on the assumption that the practice was acceptable and was so submitted for decision. Eight months later, on the eve of a determination, the commission conceived the thought that distribution costs in Lima should be borne also by consumers in outlying communities (including the city of Kenton) served by the same company, which would mean, of course, that like expenses in the other communities must be borne by residents of Lima. Up to that stage the data were lacking for a division on that basis. Accordingly, by an order made ex parte on March 8, 1933, without the appellant's knowledge, the commission directed of its own motion that the annual reports for the years 1928 to 1931, inclusive, be introduced in evidence and made a part of the record. On the basis of these reports it ascertained the average distribution expense per customer for all the eleven communities served by the appellant, multiplied this average by the number of customers in Lima, and thus arrived at the share to be allocated to that city in the determination of the local rates. By that mode of apportionment, the operating expenses were reduced to the extent of $6,200 annually.

We do not now decide that there would be a denial of due process through the spread of distributing costs over the total area of service, if the new method of allocation had been adopted after timely notice to the company and then consistently applied. This court does not sit as a board of revision with power to review the action of administrative agencies upon grounds unrelated to the maintenance of constitutional immunities. Los Angeles Gas & Electric Corp. v. Railroad Commission of California, 289 U.S. 287, 53 S.Ct. 637, 77 L.Ed. 1180. Our inquiry in rate cases coming here from the state courts is whether the action of the state officials in the totality of its...

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