DC Transit System v. Washington Metro. Area Trans. Com'n, 17953

• Decision Date: 08 April 1965
• Docket Number: No. 17953,17954.,17953
• Citation: 350 F.2d 753,121 US App. DC 375
• Parties: D. C. TRANSIT SYSTEM, INC., Petitioner, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, Alfred S. Trask and Richard A. Williams, United States of America, Intervenors. Richard A. WILLIAMS and Alfred S. Trask, Petitioners, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION and D. C. Transit System, Inc., Respondents, United States of America, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

121 US App. DC 375, 350 F.2d 753 (1965)

D. C. TRANSIT SYSTEM, INC., Petitioner, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Respondent, Alfred S. Trask and Richard A. Williams, United States of America, Intervenors.

Richard A. WILLIAMS and Alfred S. Trask, Petitioners, v. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION and D. C. Transit System, Inc., Respondents, United States of America, Intervenor.

Nos. 17953, 17954.

United States Court of Appeals District of Columbia Circuit.

Argued June 3, 1964.

Decided April 8, 1965.

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Mr. Harvey M. Spear, Washington, D. C., with whom Messrs. John R. Sims, Jr., Edmund L. Jones and John J. Ross, Washington, D. C., were on the brief, for D. C. Transit System, Inc., petitioner in No. 17953 and respondent in No. 17954.

Mr. Leonard N. Bebchick, Washington, D. C., for Williams and Trask, petitioners in No. 17954 and intervenors in No. 17953.

Mr. Harold Leventhal, Washington, D. C., also entered an appearance for Williams and Trask.

Mr. Russell W. Cunningham, Arlington, Va., for respondent Washington Metropolitan Area Transit Commission.

Mr. I. Daniel Stewart, Jr., Atty., Dept. of Justice, of the bar of the Supreme Court of Utah, pro hac vice, by special leave of court, with whom Asst. Atty. Gen., William H. Orrick, Jr., and Mr. Lionel Kestenbaum, Atty., Dept. of Justice, were on the brief, for intervenor United States of America.

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

McGOWAN, Circuit Judge, with whom BAZELON, Chief Judge, FAHY, WASHINGTON, DANAHER, BASTIAN,^* BURGER, and WRIGHT, Circuit Judges, join:

On December 5, 1962, D.C. Transit System, Inc. (Transit), filed an application with the Washington Metropolitan Area Transit Commission (Commission), seeking authority to increase certain of its fares for transporting passengers within the District of Columbia and between the District and certain points in Maryland. Transit requested permission to raise the token fare from 20¢ to 25¢, while continuing the adult cash fare of 25¢. Transit's proposal would thus, in effect, have eliminated the use of tokens and established a single adult cash fare of 25¢. The principal reason advanced by Transit for its request was increased operating expenses brought on by a new three-year labor contract, which it asserted would add $1,201,416 to its labor costs in the calendar year 1963 and over $4,000,000 through 1965.

Pursuant to Section 6(a) of Article XII of the Washington Metropolitan Area Transit Regulation Compact, 74

Stat. 1031 (1960) (Compact), the Commission suspended Transit's proposed fares until April 13, 1963, and ordered public hearings on their lawfulness. Hearings were held intermittently between January 11, 1963, and March 12, 1963. Several individual transit riders, including petitioners in No. 17,954, civic organizations, and the General Services Administration, were permitted to participate in the proceedings before the Commission and given an opportunity to present evidence. Upon completion of the hearings, the Commission, in its Order No. 245 of April 12, 1963, ruled that Transit's existing fares were inadequate to provide a fair return, but it also found that Transit's proposed increase would be "unjust and unreasonable" because it would "produce net revenues in excess of its * * * financial requirements." Instead, the Commission authorized, effective April 14, 1963, an increase in the token fare from 20¢ each, sold in units of five for $1.00, to 21¼¢ each, sold in units of four for 85¢. The Commission found that this increase, together with Transit's other fares,¹ would during the test period² provide Transit with net operating income of $1,480,746 and an operating ratio of 95.13.³

The Commission denied Transit's petition for reconsideration of its April 12 order on April 15, 1963; that of the General Services Administration on April 29; and that of petitioners Williams and Trask on May 2. The same day its petition for reconsideration was denied, Transit filed a petition to review the Commission's order in the United States Court of Appeals for the Fourth Circuit.⁴ Petitioners Williams and Trask filed a petition for review in this court on May 22, 1963, and another in the Fourth Circuit two weeks later. Subsequently, the United States and petitioners Williams and Trask successfully moved in the Fourth Circuit to transfer both cases to this court. We granted the United States leave to intervene in both cases.

Both Transit and petitioners Williams and Trask challenge the fare increase ordered by the Commission, Transit urging that it is inadequate, and Williams and Trask claiming it is excessive. They also, as does the United States, dispute certain findings made and conclusions reached by the Commission in arriving at its ultimate ruling. We proceed first to consider certain issues raised by Transit in its appeal in No. 17,953, and thereafter certain contentions variously made by the petitioners and the intervenor in No. 17,954. An issue common to both appeals, i. e., the allowance of a return of 4.87 per cent on operating expenses, is taken up last, although its importance is manifest from the fact that it occasions the remand that we make of this case to the Commission.

No. 17,953

1. Transit's Claim to a Minimum Guaranteed Return.

Transit's principal contention on this appeal is that the Commission should have ruled that, as a matter of law, Transit is entitled to have its fares set at a level calculated to bring a return of 6.5 per cent, net after all taxes, on its gross operating revenues, i. e., an operating ratio of 93.5. It relies on language in Section 4 of the D. C. Transit Franchise Act, 70 Stat. 598 (1956) (Franchise Act), and in Section 6(a) (4) of the Compact. The former 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,⁵ 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. * * *"

Section 6(a) (4) contains strikingly similar language:

"It is hereby declared as a matter of legislative policy that in order to assure the Metropolitan District of an adequate transportation system operating as private enterprises the carriers therein, in accordance with standards and rules prescribed by the Commission, should be afforded the opportunity of earning such return as to make the carriers attractive investments to private investors. As an incident thereto, 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 gross operating revenues, shall not be considered unreasonable."

Transit relies as well on Section 9 of the Franchise Act set forth in the margin,⁶ which in substance provides that Transit will not be liable for the local motor vehicle fuel tax on fuel purchased during the course of the year unless and until it has earned a return of 6.5 per cent on its applicable rate base. Unless Sections 4 and 6(a) (4) are read as making a 6.5 per cent return on gross operating revenues a mandatory minimum, Transit argues, the exemption from local taxes contained in Section 9 makes no sense. Finally, Transit recites at some length the history of Congress' deliberations when it was considering and enacting the Franchise Act.

This history indisputably evidences a Congressional concern that mass transportation in the District of Columbia remain in private ownership, and a Congressional recognition that substantial inducements would have to be offered to private investors if that purpose were to be realized. And there is no doubt that many of the provisions included in the Franchise Act represented concessions or assurances to Transit's owners. It is Transit's contention, however, that Section 4 in particular was intended by Congress to be a guarantee that fares would be fixed at a level that would provide a return of at least 6.5 per cent on gross operating revenues. Transit's construction presents a serious issue which is by no means lacking in plausibility, but both logic and the relevant legislative history compel us to reject it.

The operating ratio method of rate-making was adopted by the Interstate Commerce Commission during World War II to determine the rates of interstate motor carriers.⁷ This method was thought to provide a fairer test of revenue needs in an industry in which, characteristically, a carrier's capital investment is small in comparison to his total costs. Among motor carriers, annual operating expenses are often three or four times as great as investment in property.⁸ The principal risk in such operations inheres in the cost of operation, not in the investment. Accordingly, the operating ratio method permits a carrier to earn an amount representing annual operating costs, plus an additional amount from which to pay interest to the creditors and dividends to the owners. A carrier's operating ratio is commonly expressed as the ratio of expenses to gross revenues — a figure usually between 90 and 100. The amount earned over and...