Payne v. WASHINGTON METROPOLITAN AREA TRANSIT COM'N

• Decision Date: 08 October 1968
• Docket Number: 21029,20744,20988.,No. 20714,20714
• Citation: 415 F.2d 901,134 US App. DC 321
• Parties: Thomas E. PAYNE, Individually and Representing the Metropolitan Citizens Advisory Council, et al., Petitioners, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, D. C. Transit Company, Inc., Intervenor. D. C. TRANSIT SYSTEM, INC., Petitioner, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent. Thomas E. PAYNE et al., Petitioners, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, D. C. Transit System, Inc., Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

134 US App. DC 321, 415 F.2d 901 (1968)

Thomas E. PAYNE, Individually and Representing the Metropolitan Citizens Advisory Council, et al., Petitioners, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, D. C. Transit Company, Inc., Intervenor.

D. C. TRANSIT SYSTEM, INC., Petitioner, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent.

Thomas E. PAYNE et al., Petitioners, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, D. C. Transit System, Inc., Intervenor.

Nos. 20714, 20744, 21029, 20988.

United States Court of Appeals District of Columbia Circuit.

Argued February 8, 1968.

Decided October 8, 1968.

COPYRIGHT MATERIAL OMITTED

Mr. Landon Gerald Dowdey, Washington, D. C., with whom Mr. David S. Levy, Washington, D. C., was on the brief, for petitioners in Nos. 20,714 and 20,988.

Mr. Harvey M. Spear, New York City, with whom Mr. Edmund L. Jones, Washington, D. C., was on the brief, for petitioner in Nos. 20,744 and 21,029 and intervenor in Nos. 20,714 and 20,988. Messrs. Leon Spoliansky, New York City, and Samuel Langerman, Washington, D. C., also entered appearances for intervenor in No. 20,714.

Mr. Russell W. Cunningham, General Counsel, Washington Metropolitan Area Transit Commission, for respondent.

Before WRIGHT, McGOWAN and ROBINSON, Circuit Judges.

PER CURIAM:

On October 17, 1966, D. C. Transit System, Inc. filed new tariffs with the Washington Metropolitan Area Transit Commission proposing various increases in its fares.¹ After ordering public hearings on Transit's application,² the Commission on November 15, 1966, suspended the schedule of proposed fares, pending completion of its investigation and hearings, until February 13, 1967.³

Public hearings were held between November 10 and December 7, 1966. The testimony and exhibits introduced before the Commission relating to projected operating results under the proposed fares were based on the calendar year 1967 as the future annual period, and the 12-month period ending August 31, 1966, was used as the historical test year.

On January 12, 1967, the Commission issued Order No. 656⁴ (the "Interim Order") which directed that further hearings be held for the purpose of taking additional testimony on the question of margin of return, and ordered certain increases in Transit's fares on an interim basis pending completion of the additional hearings. In its Interim Order the Commission found that under existing fares Transit would sustain a net operating loss of $726,033 for the calendar year 1967, and consequently that those fares were unjust and unreasonable. However, on the basis of the record then before it the Commission was unable to make the inquiries and findings on the issue of fair return required by our decision in D. C. Transit System, Inc. v. WMATC, 121 U.S.App.D.C. 375, 350 F.2d 753 (1965), cert. denied 389 U.S. 847, 88 S.Ct. 52, 19 L.Ed.2d 115 (1967), and could not determine whether the return which would result from Transit's proposed fares would be fair and reasonable. For these reasons, it granted a temporary fare increase designed to "enable Transit to cover its operating expenses and bare capital costs,"⁵ while reopening the record for the taking of additional testimony. The Interim Order suspended Transit's proposed tariffs for a further period, until March 15, 1967, and provided that the temporary fares therein prescribed were to be effective only until "March 15, 1967, unless otherwise prescribed by the final order of this proceeding."⁶

A motion for reconsideration, filed by Thomas Payne, the Metropolitan Citizens Advisory Council, and a number of individual residents of the District of Columbia, was denied by the Commission on January 23, 1967.⁷ These movants are the petitioners in No. 20,714. They contend that the Interim Order was beyond the statutory authority of the Commission and was not supported by necessary findings. At their request, this court on January 27, 1967, stayed the Interim Order insofar as it granted an increase in Transit's fares, and ordered the fares in effect prior to the Interim Order to be reinstated as of January 28, 1967.

On February 1, 1967, the Commission issued Order No. 667 which reinstated the procedural provisions of the Interim Order, reopening the hearings and suspending Transit's proposed tariffs until March 15, 1967. Transit's application for reconsideration of Order No. 667 was denied by the Commission in Order No. 668. Transit has petitioned for review of these two orders in No. 20,744, contending that the Commission violated Transit's rights under its Franchise by suspending its proposed tariffs for a period greater than 120 days from the date of filing.

Reopened hearings were held on February 13, 14 and 15, 1967, during which the Commission heard testimony on the subject of rate of return from Dr. Merrill J. Roberts, an independent expert called by the Commission staff, and rebuttal testimony from Mr. V. A. McElfresh, Transit's expert witness, who had testified in the initial hearings. Transit also attempted to introduce evidence showing that because of losses during the first two months of 1967, a fare increase would not provide it with net income for that year in the amount recommended by the staff expert, but the Commission refused to admit this evidence, as not being within the scope of the reopened hearings. On February 23, 1967, following the close of the additional hearings, petitioners Payne and Metropolitan Citizens Advisory Council filed a motion requesting that the record be reopened for the purpose of taking additional evidence "to determine a fare structure which is equitable and non-discriminatory."

On March 13, 1967, the Commission issued Order No. 684⁸ (the "Final Order"), denying Transit's proposed tariffs, and establishing a new schedule of fares embodying increases smaller than the company had requested but somewhat greater than the temporary increases granted by the Interim Order.⁹ The Commission in its Final Order reaffirmed the findings of the Interim Order that under existing fares Transit would sustain a net operating loss, and that those fares were therefore unjust and unreasonable. It also found that the fares proposed by Transit would yield net operating income of $2,885,271, which it concluded would be in excess of a fair return. Finally, the Commission denied petitioners' motion to reopen the record, and authorized fares which it found would produce net operating income of approximately $1,900,000, representing a return on gross operating revenues of 5.24%. It found that this margin of return would cover estimated debt expense of $1,311,000, and provide a return to the equity holder of $589,000, or 14.08%.

Two motions for reconsideration of Order No. 684 were denied by the Commission, one filed by Transit,¹⁰ the other by Thomas Payne and other members of the public.¹¹ Transit's petition for review of Order 684 is before us in No. 21,029. It claims that the Commission's projection of operating results under the prescribed fares is erroneous because it fails to take into account operating losses sustained during the first two months of 1967, and also that the Commission erred in finding that a rate of return on operating revenues of 5.24% would be fair and reasonable.¹² In No. 20,988, Thomas Payne and the other movants for reconsideration have petitioned for review of the Commission's Final Order. They contend that the Commission failed to make adequate inquiries and findings on the question of fair return, and that its refusal to make comparative analyses of costs and earnings by route precluded it from establishing a proper and nondiscriminatory fare structure.

I. The Interim Order

In Order No. 656 the Commission found, as we have said, that without a fare increase, Transit would suffer a net operating loss of $726,033 for the year 1967. It noted that there was "little or no dispute"¹³ as to this projection of operating results, and its finding has not been challenged here. The Commission further found that the company's embedded cost of debt for the future annual period would "exceed a million dollars," and concluded:

"To require the company to operate at such a substantial loss for even a relatively short period of time would be unwise, and indeed could imperil its financial health. Concomitantly, the standard of service rendered by a company in such a condition usually deteriorates drastically; thus, the company and the public would be disadvantaged and possibly suffer irreparable harm."¹⁴

But though the Commission found that existing fares were "unjust and unreasonable in that they * * * will produce an operating deficit in 1967 that will imperil the Company financially,"¹⁵ it was unable to determine, because of the inadequacy of the record then before it on the question of rate of return, whether the fares proposed by Transit would be just and reasonable. In particular, it felt there was insufficient evidence in the record to permit "the exercise of judgment, or the reaching of conclusions,"¹⁶ with respect to such matters as the risks to which the company is subject, for purposes of comparing its earnings with those of other companies, and its cost of capital. It thus concluded that there was compelling need for supplantation of the record, before it could confidently fulfill its responsibility to prescribe the "lawful fare * * * to be in effect."¹⁷ And it decided to take the course of reopening the record and instructing its staff to "engage the services of an expert having expertise in, and knowledge of, the subject matter."¹⁸

Faced with these circumstances, the Commission sought some means by which it could alleviate Transit's financial crisis without sacrificing the public's right to pay no more than just and reasonable fares. Laying aside the solution which it ultimately devised, the choices before the Commission were either to permit Transit's proposed tariffs to go into effect pending completion...