Omaha &. C. B. St. Ry. Co. v. Nebraska State Ry. Comm'n

• Decision Date: 16 July 1919
• Docket Number: No. 20913.,20913.
• Parties: OMAHA &. C. B. ST. RY. CO. v. NEBRASKA STATE RAILWAY COMMISSION ET AL.
• Court: Nebraska Supreme Court

103 Neb. 695

173 N.W. 690

OMAHA &. C. B. ST. RY. CO.

v.NEBRASKA STATE RAILWAY COMMISSION ET AL.

No. 20913.

Supreme Court of Nebraska.

July 16, 1919.

Syllabus by the Court.

The fundamental inquiry in fixing rates of a public service utility always is: What rate is necessary in order to yield a reasonable average return on a fair valuation of the property for rate-making purposes?--such a return as will not discourage, but will attract, the investment of capital in the utility.

Under the Constitution and laws of this state, the state railway commission has a wide discretion in these matters.

A situation, due to an unexpected rise in prices and wages, which makes it altogether probable that the past and present rate is insufficient to yield a revenue which will pay that fair average return which the law requires, although not constituting what would technically be denominated an “emergency,” may, when shown, be sufficient for the allowance by the commission of a temporary rate, limited to the time required for making an investigation and finding of the facts. If it should happen that the temporary rate so fixed is too high, the condition may be rectified in the order fixing the rate after investigation.

In fixing the rates at any particular time, former earnings and probable prospective earnings should always be considered, with a view to so adjust the rates as to prevent extortion and allow a fair average return.

The law contemplates that the findings and orders should be made in the first instance by the commission, which has powers of its own that the courts may not usurp. Its orders will not be reversed unless clearly wrong.

The act, known as the “Railway Commission Act” (Laws 1907, c. 90 [Rev. St. 1913, §§ 6104-6158]), gives exclusive original jurisdiction of cases like this, involving the rates of common carriers, to the state Railway Commission, and is not changed by the provisions of the Omaha charter.

Appeal from Railway Commission.

In the matter of the application of Omaha & Council Bluffs Street Railway Company to increase its fares, which was opposed by the City of Omaha. The Nebraska Commission denied the application, and plaintiff appeals. Reversed and remanded.John Lee Webster, of Omaha, for appellant.

Hugh La Master, of Tecumseh, and W. C. Lambert, of Omaha, for appellees.

CORNISH, J.

The state Railway Commission denied the application of the plaintiff street railway company for an increase of its fares from 5 to 7 cents. Plaintiff appeals.

The application is denominated by the plaintiff as one for emergency or temporary rates, due to conditions brought about by the war, causing a large and unexpected increase in wages and cost of material and supplies, making it temporarily impossible for the company to continue paying its fixed charges and a return upon the reasonable value of its property.

At the hearing the commission ruled that emergency rates would not be justified, except as a condition is shown which, if not relieved from, will imperil the property of the company and its service to the public, such as might subject the company at once to proceedings in bankruptcy or receivership; that mere inability to make profits or pay dividends would not create an emergency. The plaintiff company, besides insisting that the condition shown was one which imperiled the utility, also contended that a temporary rate should be granted when it becomes clear that the revenues are not sufficient to pay dividends.

In ordinary cases the view taken by the commission, as to when an emergency rate should be allowed, is correct. The fundamental inquiry in fixing rates always is: What rate is necessary in order to yield a reasonable average return on a fair valuation of the property for rate-making purposes?--such a return as will not discourage, but will attract, the investment of capital in the utility. It is desirable, if possible, before changing the rates, to know all of the facts, so that the rates may not be temporary and fluctuating.

Under the Constitution and laws of this state, the commission has a wide discretion in these matters. Even though present financial conditions, prices, and wages (showing almost unprecedented changes), together with the financial condition of the plaintiff company, do not show a situation which would be technically denominated an emergency, yet, if they do show a situation which makes it altogether probable that the past and present rate is insufficient to yield a revenue which will pay that fair average return which the law supposes, the commission is empowered, and it may be its duty, to permit a temporary rate, limited to the time required for making an investigation and finding of the value of the property. If it should happen that the temporary rate so fixed is too high, the condition can be rectified in the order fixing the rate after investigation. The purpose of the law being to allow those who voluntarily furnish the necessary capital to install and operate such public utilities a fair average return upon the value of the property so devoted to the public use, and to prevent unreasonable profits, in fixing the rate at any particular time, former earnings and probable prospective earnings should always be considered, with a view to so adjust the rate as to prevent extortion and allow such fair average return.

In the instant case we believe it is not altogether certain that the street railway company can continue paying present wages and high prices for material, and at the same time meet its obligations and maintain its credits, and it is altogether probable that it cannot make profits and pay dividends. If we could assume that a 5-cent fare was a reasonable charge before the war, we would know that it is not a reasonable charge under present conditions, because we would take judicial knowledge of the fact that the exchange value of the dollar has lessened, at least temporarily.

We will not go into an extended discussion of the financial condition of the plaintiff company. The plaintiff's evidence would indicate that since the pre-war period, 1914, there have been increases in the wages of the company's 1,200 employés, amounting to $740,000 annually; that taxes have increased $117,000; that these items, together with increased cost of coal, freight charges, material, and supplies, will increase the amount of annual expenditures for operating expenses and repairs in the year 1919, over the year 1914, in the sum of approximately $1,321,518. From this increase should be deducted the increased income to the company from passenger travel, which in the year 1918 was $426,575.13 in excess of that for 1914. For 1919 the excess will be greater, possibly from $150,000 to $200,000 greater. The...