Railroad Commission of California v. Pacific Gas Electric Co

Decision Date03 January 1938
Docket NumberNo. 804,804
CourtU.S. Supreme Court

Mr. Ira H. Rowell, of San Francisco, Cal., for appellants.

Mr. Warren Olney, Jr., of San Francisco, Cal., for appellee.

Mr. Oswald Ryan, of Washington, D.C., for Federal Power Commission, as amicus curiae.

[Amicus Curiae Information from page 389 intentionally omitted] Mr. Chief Justice HUGHES delivered the opinion of the Court.

This is an appeal from a final decree of the District Court, composed of three judges, 28 U.S.C. § 380, 28 U.S.C.A. § 380, permanently enjoining an order of the Railroad Commission of the State of California.

The Commission by its order on November 13, 1933, in a proceeding instituted on its own motion, fixed rates for gas supplied by respondent. In this suit, the validity of the order was challenged as depriving respondent of property without due process of law in violation of the Fourteenth Amendment of the Constitution of the United States. An interlocutory injunction was granted and the cause was referred to a special master. The parties stipulated for the submission of the cause upon the record made before the Commission with certain supplementary evidence. Following a hearing, the master on the basis of findings as to value, expenses and revenues, concluded that the rates prescribed were confiscatory and void. D.C., 13 F.Supp. pages 931, 932. The District Court expressly stated that it did 'not pass upon the factual exceptions to the master's report' and did 'not approve or reject his findings as to the fair value' of the property 'or determine the net income' which would result from the assailed rates, 'or determine what would be a fair rate of return,' but rested its decision 'solely upon the denial of due process of law by the Commission in fixing the rates in question.' D.C., 13 F.Supp. 931, at page 936. Rehearing was denied. D.C., 16 F.Supp. 884. On appeal here the decree was affirmed by an equally divided court. 301 U.S. 669, 57 S.Ct. 935, 81 L.Ed. 1333. Reargument was ordered (October 11, 1937), 302 U.S. 771, 58 S.Ct. 3, 82 L.Ed. —-, and has been had.

The parties have not brought before us the evidence that was taken before the Commission or that was before the court below, with the exception of certain affidavits by the president of the respondent and the president of the Commission, respectively, in relation to the proceedings before the Commission. Respondent has in effect challenged the action of the Commission as invalid upon the face of its opinion and order. 39 Cal.R.Com.Rep. 49. Appellants have accepted that challenge.

1. Respondent seeks to sustain the decree upon the ground that the Commission's order was not authorized by the state law. Because of the federal question raised by the bill of complaint, the District Court had jurisdiction to determine all the questions in the case, local as well as federal. Siler v. Louisville & Nashville R.R. Co., 213 U.S. 175, 191, 29 S.Ct. 451, 53 L.Ed. 753; Louisville & Nashville R.R. Co. v. Garrett, 231 U.S. 298, 303, 34 S.Ct. 48, 58 L.Ed. 229; United Fuel Gas Company v. Railroad Commission, 278 U.S. 300, 307, 49 S.Ct. 150, 151, 73 L.Ed. 390.

The state statute to which our attention is directed, section 32 of the California Public Utilities Act, Cal.St.1923, p. 837, set forth in the margin1 provides that whenever the Commission after a hearing shall find the existing rates charged by a public utility to be unjust, unreasonable, discriminatory or preferential, the Commission shall determine the just and reasonable rates to be thereafter in force. In this instance, the Commission's order shows on its face that the Commission found the existing rates to be unjust and unreasonable. 39 Cal.R.Com.Rep. p. 77. So far as respondent contends that this finding was not sustained by evidence, it is sufficient to say that the evidence is not here and we cannot say that the ruling lacked support.

Respondent states that it was denied a proper hearing, but the record shows that the Commission held extended hearings, at which the evidence offered by respondent was received and its arguments were presented.2 39 Cal.R.Com.Rep. p. 51. While these hearings were in progress, and on June 16, 1933, respondent was cited to show cause why interim rates should not be put into effect pending the proceeding. Respondent stipulated that it would complete the presentation of its evidence before October 1, 1933, and that the rates which the Commission established in the proceeding might, if lower than the existing rates, be made retroactive so as to apply to meter readings made after July 16, 1933, and before November 15, 1933. That date was later changed by stipulation to January 1, 1934. 39 Cal.R.Com.Rep. pp. 52, 53.

We have not been referred to any state decisions warranting the conclusion that the Commission did not afford a hearing in accordance with the state law. We turn to the constitutional question.

2. As the District Court did not deal with the issue of confiscation and the evidence is not before us, we are concerned only with the question of procedural due pro- cess, that is, whether the Commission in its procedure, as distinguished from the effect of its order upon respondent's property rights, failed to satisfy the requirements of the Federal Constitution. We examine this question in the light of well-settled principles governing the proceedings of rate-making commissions.

The right to a fair and open hearing is one of the rudiments of fair play assured to every litigant by the Federal Constitution as a minimal requirement. Ohio Bell Telephone Co. v. Public Utilities Commission, 301 U.S. 292, 304, 305, 57 S.Ct. 724, 730, 81 L.Ed. 1093. There must be due notice and an opportunity to be heard, the procedure must be consistent with the essentials of a fair trial, and the Commission must act upon evidence and not arbitrarily. Interstate Commerce Commission v. Louisville & Nashville R.R. Co., 227 U.S. 88, 91, 33 S.Ct. 185, 57 L.Ed. 431; St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 51, 73, 56 S.Ct. 720, 725, 735, 80 L.Ed. 1033; Morgan v. United States, 298 U.S. 468, 480, 481, 56 S.Ct. 906, 911, 80 L.Ed. 1288; Ohio Bell Telephone Co. v. Public Utilities Commission, supra. As we have seen, the respondent was heard, the Commission received the testimony of respondent's witnesses, its exhibits and arguments. There is nothing whatever to show that the hearing was not conducted fairly.

The complaint is not of the absence of these rudiments of fair play but of the method by which the Commission arrived at its result. As to this a fundamental distinction must be observed. While a fair and open hearing must be accorded as an inexorable safeguard, we do not sit as an appellate board of revision but to enforce constitutional rights. San Diego Land & Town Co. v. Jasper, 189 U.S. 439, 446, 23 S.Ct. 571, 47 L.Ed. 892. When the rate-making agency of the state gives a fair hearing, receives and considers the competent evidence that is offered, affords opportunity through evidence and argument to challenge the result, and makes its determination upon evidence and not arbitrarily, the requirements of procedural due process are met, and the question that remains for this Court, or a lower federal court, is not as to the mere correctness of the method and reasoning adopted by the regulating agency but whether the rates it fixes will result in confiscation.

We have recently had occasion to emphasize this distinction in passing upon an order of the appellant Commission in the case of Los Angeles Gas Corp. v. Railroad Commission, 289 U.S. 287, 304, 305, 53 S.Ct. 637, 643, 77 L.Ed. 1180. We said: 'The legislative discretion implied in the rate-making power necessarily extends to the entire legislative process, embracing the method used in reaching the legislative determination as well as that determination itself. We are not concerned with either, so long as constitutional limitations are not transgressed. When the legislative method is disclosed, it may have a definite bearing upon the validity of the result reached, but the judicial function does not go beyond the decision of the constitutional question. That question is whether the rates as fixed are confiscatory. And upon that question the complainant has the burden of proof, and the court may not interfere with the exercise of the state's authority unless confiscation is clearly established.'

This controlling principle was reiterated, with due emphasis upon the necessity of a fair hearing, in the case of West Ohio Gas Company v. Public Utilities Commission, No. 1, 294 U.S. 63, 70, 55 S.Ct. 316, 320, 79 L.Ed. 761, in these words: 'Our inquiry in rate cases coming here from the state courts is whether the action of the state officials in the totality of its consequences is consistent with the enjoyment by the regulated utility of a revenue something higher than the line of confiscation. If this level is attained, and attained with suitable opportunity through evidence and argument, Southern Ry. Co. v. Virginia, 290 U.S. 190, 54 S.Ct. 148, 78 L.Ed. 260, to challenge the result, there is no denial of due process, though the proceeding is shot through with irregularity or error.' The statement is equally applicable, as the Los Angeles Case shows, when the order of a state commission is assailed in a federal court.

3. The gravamen of respondent's complaint is that the Commission refused to consider the fair value of respondent's property and in fixing the rate base 'gave weight and effect solely to the historical cost.'

Respondent supports its contention by referring to the statement of the Commission that during its entire history, 'to determine a proper rate base, this Commission has used the actual or estimated historical costs of the properties undepreciated, with land at the present market value,' and, consistently with...

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