Monroe Gaslight & Fuel Co. v. Michigan Public Utilities Commission

• Decision Date: 09 June 1923
• Citation: 292 F. 139
• Parties: MONROE GASLIGHT & FUEL CO. v. MICHIGAN PUBLIC UTILITIES COMMISSION et al.
• Court: U.S. District Court — Eastern District of Michigan

292 F. 139

MONROE GASLIGHT & FUEL CO. v. MICHIGAN PUBLIC UTILITIES COMMISSION et al.

United States District Court, E.D. Michigan.

June 9, 1923

[Copyrighted Material Omitted]

Beaumont Smith & Harris, of Detroit, Mich., for plaintiff.

Andrew B. Dougherty, Atty. Gen., for defendants.

Motion for preliminary injunction, heard under section 266 of the Judicial Code (Comp. St. Sec. 1243), before DENISON, Circuit Judge, and TUTTLE and SIMONS, District Judges.

PER CURIAM.

The franchise contract rates of the Utility expired. The city and the Utility joined in an application to the Commission to fix rates for gas. In February, 1922, the Commission fixed an interim rate, averaging about $1.76 per M, to continue pending hearings. After extensive consideration, and in April, 1923, it made its final order, fixing on a sliding scale rates at what is said to be an average of $1.54. The bill in this cause alleges that this rate is confiscatory, in violation of the Fourteenth Amendment, and prays an injunction. A restraining order was made, to have effect until the motion could be heard, and the interim rates have therefore continued.

The disposition of this motion is to be determined by the interpretation and effect given to the Southwestern Bell, the Bluefield Water, and the Georgia Power Cases, recently decided by the Supreme Court. They constitute the last word upon the theory and practice involved in fixing a rate base for public utilities ^[1] as to which there has been a long-time controversy between historical cost, or actual cost, or prudent investment (less depreciation), upon the one side, and reproduction cost (less depreciation), upon the other.

We have considered the application of all these cases, but have not always referred to them. In the end, Mr. Justice Brandeis' forceful dissenting opinion in the Southwestern Bell Case may or may not prevail; ^[2]but at present the majority opinion is to be accepted and followed, with all necessary implications from the result which it reaches. The Missouri Commission had fixed the rate base at $20,400,000. The steps by which it had reached this result were not very clear, but it apparently had given slight, if any, regard to reproduction cost. The evidence before the court offered by the Utility showed the reproduction cost of the physical property, less depreciation, to be $24,700,000, the necessary working capital to be $1,050,000, and the cost of establishing the business to be $5,600,000. This made a total of $25,750,000 of physical property and working capital. It appeared that the Commission had thought proper to deduct $500,000 from the physical property for that which was not used or useful, and to make some deduction from the working capital. It seems probable that, for the purposes of the opinion but without any decision thereon, the court excluded the cost of establishing the business; and then, upon the state of proof which we have recited, it says:

'We think the proof shows that for the purposes of the present case the valuation should be at least $25,000,000.'

Particularly when we read the dissenting opinion, we must construe the majority opinion as the minority of the court interpreted it, viz., as holding that, where it stands not impeached or attacked otherwise than it was in that case, the reproduction cost is the dominating element in the fixing of the rate base; and if a Commission, which leaves it substantially unimpeached, fails to give it that dominating effect, there is an error of law which the court must correct. The opinion in the Bluefield Water Case tends to confirm this construction of the Southwestern Bell Case. The rate base made by the Commission was set aside because due regard had not been given to reproduction cost. The court did not undertake to say just what 'proper consideration' would be. It did not think that the circumstances called upon it to say, as it did in the Southwestern Bell Case, what the minimum permissible valuation was. Possibly this was for the reason that the appeal was from the state court, and the state court had so obviously adopted the theory of historical costs that to correct that error in general terms was thought sufficient.

Nor do we find anything inconsistent with this view in the opinion in the Georgia Power Case. It affirms only that the reproduction cost at the date of the inquiry is not necessarily controlling. The reproduction valuation was made at the end of 1921-- about the peak of high costs. The company claimed this value to be $9,500,000. The Commission cut off $4,250,000. $2,000,000, which the company included, was for items obviously improper. About $500,000 was cut off from two items, upon findings which the court approved. This left the company's valuation of physical property as $7,000,000. It appeared that at the time of the trial court hearing construction costs were reduced, and that the court below had allowed some increases in the value of the property and had given careful attention to the whole matter of reproduction value. The true amount of accrued depreciation, the amount of fall in costs before the hearing, and of the other respects in which the company's valuation was attacked, do not appear. Comparison of the majority and minority opinions makes it clear that the majority did not think it was departing from the principle of the Southwestern Bell decision, but rather was adhering thereto.

It is plain from its exhaustive report that the Michigan Commission in this case followed practically in the lines of Mr. Justice Brandeis' dissenting opinion in the Southwestern Bell Case; and it will, of course, be noted that the action of the Commission was taken some time before this opinion was announced. The report of the Michigan Commission is most painstaking and thorough, and displays obvious intent to deal fairly with the Utility--according to the Commission's view of the legal questions involved-- in a degree which unfortunately has been absent in some cases in which judicial review of Commission conclusions in other states has been sought. It will be noted, however, that, pursuant to a common practice, the report seeks to immunize itself against attack by a careful declaration that no one element is given controlling effect in fixing the rate base, but that actual cost, investment, capitalization, reconstruction cost, depreciation, etc., are given, and each is given, due weight in reaching the final composite conclusion. As Mr. Justice Brandeis points out, such a report, like the general verdict of a jury, suggests immunity to any attack which depends upon showing that the Commission gave excessive or insufficient force to any one element. We do not see that an otherwise appropriate judicial revision can be escaped in this manner. It is the duty of the court to determine the rate base from the evidence before it; and while there must be great hesitancy in overturning a conclusion reached by the Commission, after it has considered all relevant facts, neither presumption nor express statement by the Commission that it has given due weight to every one can prevail against a contrary inference required by the proofs. ^[3]

So much for the method by which a rate base must be fixed. The Michigan Commission in this case fixed the base, considered the other necessary elements, determined what the proper return should be and what the actual return probably would be, and fixed the rate schedule accordingly. The Utility says that the rate so fixed is confiscatory. This the Commission denies. Upon what principle should we proceed in granting or withholding a preliminary injunction? It may be that only a short time would elapse before there could properly be a final hearing; but there can be no certainty of that. Unexpected difficulties might arise in taking proofs or in reaching a final hearing in this court. Certainly there may be substantial delay. In such a situation the applicable principle was stated by the Court of Appeals of this circuit in Louisville v. Louisville Telephone Co., 279 F. 949, as follows (pages 956-959):

'It is equally well understood that the trial court will balance the conflicting equities of the parties, and, if it appears reasonably probable that plaintiff may prevail upon the final hearing, will for the time being preserve plaintiff's supposed right against destruction, if that temporary maintenance can be accomplished without danger of greater harm to defendant than there will be of benefit to plaintiffs. We see no sufficient reasons why these principles should not be applied to such a case as this; but we proceed to notice the reasons which are alleged to the contrary. * * * It is also said that the rate ordinance is a law of the state, within the meaning of that term as used in the Fourteenth Amendment, and that the company is attacking it because in violation of that amendment, and therefore has the burden of showing that a state law is unconstitutional, which burden can be met only by evidence that is wholly convincing. The proposition in effect is that, when plaintiff claims it is about to be deprived of its property by an unconstitutional law, it cannot have the benefit of the usual rule for temporary protection while the case is pending, but that it must at the outset establish its case by the same degree of demonstration which will be required upon the final hearing. If the unconstitutionality depends wholly upon a matter of law this proposition is forceful; but, where the result depends upon a disputed question of fact, we think there must be some special circumstances-- perhaps like the contingent public loss inevitable in a railway rate case-- to justify refusing the plaintiff the benefit of the usual presumption that upon the final hearing he

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