Bebchick v. Public Utilities Commission

• Decision Date: 31 January 1963
• Docket Number: No. 16454.,16454.
• Citation: 318 F.2d 187
• Parties: Leonard N. BEBCHICK et al., Appellants, v. PUBLIC UTILITIES COMMISSION et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

318 F.2d 187 (1963)

Leonard N. BEBCHICK et al., Appellants, v. PUBLIC UTILITIES COMMISSION et al., Appellees.

No. 16454.

United States Court of Appeals District of Columbia Circuit.

Re-argued November 14, 1962.

Decided January 31, 1963.

Supplemental Opinion February 21, 1963.

Certiorari Denied May 13, 1963.

COPYRIGHT MATERIAL OMITTED

Mr. Harold Leventhal, Washington, D. C., with whom Messrs. Leonard N. Bebchick and Leonard S. Goodman, Washington, D. C., were on the brief, for appellants.

Mr. George F. Donnella, Counsel, Public Utilities Commission of the District of Columbia, with whom Messrs. Chester H. Gray, General Counsel, and Andrew G. Conlyn, Counsel, Public Utilities Commission of the District of Columbia, were on the brief, for appellee Public Utilities Commission of the District of Columbia.

Mr. Harvey M. Spear, Washington, D. C., with whom Mr. Owen J. Malone, Washington, D. C., was on the brief, for appellee, D. C. Transit System, Inc.

Mr. Harold Smith, Washington, D. C., also entered an appearance for appellee, D. C. Transit System, Inc.

Before BAZELON, Chief Judge, and EDGERTON, WILBUR K. MILLER, FAHY, WASHINGTON, DANAHER, BASTIAN, BURGER and WRIGHT, Circuit Judges, sitting en banc.

Certiorari Denied May 13, 1963. See 83 S.Ct. 1304.

FAHY, Circuit Judge, with whom BAZELON, Chief Judge, and EDGERTON, WASHINGTON and WRIGHT, Circuit Judges, join.

On March 2, 1960, the Public Utilities Commission of the District of Columbia, after a hearing which is not challenged procedurally, by order No. 4631 authorized an increase in the cash fare of Transit users from 20 cents to 25 cents, effective March 6, 1960. The Commission denied Transit's petition for a greater increase, thus continuing the token rate of five tokens for a dollar, the 10 cent school fare and other transportation charges not relevant to a discussion or decision of this case. On March 31, 1960, the Commission issued its opinion, setting forth the reasons for its action. Transit in the meantime had placed in effect the increase in cash fare by a new tariff of March 6, 1960.

The Commission used the year ending September 30, 1959, as the period for determining Transit's past earnings, and the calendar year 1960 was selected as the test period for future earnings, account being taken of changes in the level of revenues and expenses. No question is made as to the appropriateness of the test periods.

Present appellants in this court, whose standing to challenge the order was upheld in Bebchick v. Public Utilities Commission, 109 U.S.App.D.C. 298, 287 F.2d 337 (1961), appealed to the District Court under § 43-705, D.C.Code.¹ The District Court dismissed the appeal and affirmed the order of the Commission. The case is before us on appeal from this action of the District Court. A division of our court, one judge dissenting, affirmed the order of the District Court, followed, however, by grant of appellants' petition for rehearing en banc. There ensued reargument and submission of the appeal to the full court, which brings us to the present posture of the case. A majority of the court now decide that the order of March 2, 1960, must be set aside insofar as it granted an increase in the cash fare to 25 cents.

We consider first Transit's suggestion that the case is moot due to supersession of the order of March 2, 1960, by the Commission's order No. 4735 of January 18, 1961. The latter order, however, continues in effect a cash fare of 25 cents. A rate order such as the one before us is not mooted by another which has the effect of keeping the controversy alive. Southern Pacific Terminal Co. v. Interstate Commerce Commission, 219 U.S. 498, 31 S.Ct. 279, 55 L.Ed. 310 (1911); Eastern Airlines, Inc. v. Civil Aeronautics Board, 87 U.S. App.D.C. 331, 185 F.2d 426 (1950). Moreover, the validity of the order of March 2, 1960, during the time it was in effect before it was superseded, remains in controversy; for the disposition of any excess funds which might have accumulated prior to January 18, 1961, by reason of the invalidity of the increase, remains for decision. So we hold that the case is not moot.

Our consideration of the merits must take account of two statutes. The first is § 43-706 of our Code, which provides:

"In the determination of any appeal from an order or decision of the Commission the review by the court shall be limited to questions of law, including constitutional questions; and the findings of fact by the Commission shall be conclusive unless it shall appear that such findings of the Commission are unreasonable, arbitrary, or capricious."

The other statute which is particularly important is the Act of July 24, 1956, 70 Stat. 598, known as the Franchise Act, § 4 of which reads as follows:

"It is hereby declared as a matter of legislative policy that in order to assure the Washington Metropolitan Area of an adequate transportation system operating as a private enterprise, the Corporation, in accordance with standards and rules prescribed by the Commission, should be afforded the opportunity of earning such return as to make the Corporation an attractive investment to private investors. As an incident thereto the Congress finds that the opportunity to earn a return of at least 6½ per centum net after all taxes properly chargeable to transportation operations, including but not limited to income taxes, on either the system rate base or on gross operating revenues would not be unreasonable, and that the Commission should encourage and facilitate the shifting to such gross operating revenue base as promptly as possible and as conditions warrant; and if conditions warrant not later than August 15, 1958. * * *"

In reference to this provision we note that the Commission, we think properly, did not consider a return of 6½ per centum net to be required, if less were reasonable and met the need to attract private investors. With the increase allowed in cash fare the Commission found that Transit would have a net operating income of $1,143,249, and gross operating revenues of $27,872,478. The system rate base was found to be $16,016,810. According to these calculations it was found that the fare increase would enable Transit to earn a return of 4.10% on gross operating revenues, or 7.14% on the system rate base. The Commission held that a rate which netted such earnings "falls within the range of what we consider to be a fair return."

Our difficulty with the foregoing is that because of errors in two respects to be discussed the net operating income is made by the Commission to appear less than the amount which was actually available therefor. A third defect in the decision might cause the inaccuracy to be still greater. Correction of the errors would show a substantially greater amount available as net operating income, with corresponding increase in the rates of return.

We interpolate here that we do not disagree with the use made of the gross operating revenue method, authorized by Congress in the terms set forth in Section 4 of the Franchise Act. The Commission's opinion adequately explains its use of this method, with, however, the system rate base method also being used to test the reasonableness of the rates. The Commission states:

"Although we have concluded that the gross operating revenue method should be utilized to fix rates in this proceeding, we do not agree with the contention that the gross operating revenue method should be the sole determinant of the reasonableness of rates. The gross operating revenue method and the `rate base-rate of return\' method are both valuable indices of the reasonableness of the earnings of a transit company. We have long recognized that the theory employed in determining the amount of revenue required by a transit company is immaterial so long as the end result — the amount allowed — is adequate to enable the company to meet its interest requirements, to pay reasonable dividends, to permit retention of a reasonable proportion of earnings in the business, to provide a margin for unforeseen contingencies, and to attract the necessary capital to meet its future capital requirements. In utilizing the gross operating revenue method we fully recognize the need for checking the reasonableness of the return earned under that method. * * * Where a rate base is available, as in the case here, such a check can be readily made, thereby furnishing an appropriate means of measuring the reasonableness of the rate of return computed under the gross operating revenue method. On the basis of the foregoing, the Commission finds that the `rate base-rate of return\' method for fixing rates affords a sound basis for testing the reasonableness of the rate of return computed under the gross operating revenue method of fixing rates, and concludes that the `rate base-rate of return\' method should be employed in this proceeding to test the reasonableness of the rate of return computed under the gross operating revenue method. Accordingly, we deem it necessary in this proceeding to make a rate base determination."

One further more or less preliminary matter should be mentioned. One of the principal items of operating expense allowed by the Commission in the process of arriving at net operating income is the expense of fulfilling Transit's obligation of track removal and repaving in converting its transportation system from a street car to a bus operation. The Commission found that this cost would be $10,441,958, and that allocations should be made therefor spread equally over a ten-year period from August 15, 1956, or $1,044,196 annually for ten years, the transition to be completed by August 15, 1966. Appellants contend that this item was erroneously treated by the Commission as an operating cost. They say that track removal and repaving is a burden which was assumed by the investors of Transit under section 7 of the Franchise Act. In appellants' language, "it is unreasonable and unlawful to require the...