Washington Gas Light Co. v. Baker, No. 10705

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Writing for the CourtMiller)
Citation88 US App. DC 115,188 F.2d 11
Docket Number10706.,No. 10705
Decision Date21 December 1950
PartiesWASHINGTON GAS LIGHT CO. v. BAKER. PUBLIC UTILITIES COMMISSION OF DISTRICT OF COLUMBIA v. BAKER.

88 US App. DC 115, 188 F.2d 11 (1950)

WASHINGTON GAS LIGHT CO.
v.
BAKER.

PUBLIC UTILITIES COMMISSION OF DISTRICT OF COLUMBIA
v.
BAKER.

Nos. 10705, 10706.

United States Court of Appeals District of Columbia Circuit.

Argued October 10, 1950.

Decided December 21, 1950.

Writ of Certiorari Denied March 26, 1951.


188 F.2d 12
COPYRIGHT MATERIAL OMITTED
188 F.2d 13
Mr. Stoddard M. Stevens, New York City, of the Bar of the Supreme Court of New York pro hace vice, by special leave of Court, with whom Messrs. F. G. Awalt and C. Oscar Berry, Washington, D. C., were on the brief, for appellant in No. 10705. Mr. William V. T. Justis, Washington, D. C., also entered an appearance for appellant in No. 10705

Mr. Lloyd B. Harrison, Special Asst. Corporation Counsel, D. C., Washington, D. C., with whom Mr. Vernon E. West Corporation Counsel, D. C., Washington, D. C., was on the brief, for appellant in No. 10706. Mr. Edward A. Beard, Asst. Corporation Counsel, Washington, D. C., also entered an appearance for appellant in No. 10706.

Messrs. Herbert P. Leeman and William A. Roberts, Washington, D. C., with whom Mrs. Irene Kennedy and Messrs. Francis J. Ortman and Jerome M. Alper, all of Washington, D. C., were on the brief, for appellee.

Before EDGERTON, BAZELON and FAHY, Circuit Judges.

Writ of Certiorari Denied March 26, 1951. See 340 U.S. 952, 71 S.Ct. 571.

BAZELON, Circuit Judge.

Appellee Vernon V. Baker, a consumer of gas distributed by the Washington Gas Light Company, sued in the District Court to set aside a rate increase granted the appellant Company by the appellant Public Utilities Commission of the District of Columbia.1 The rate increase resulted from a hearing which the Company had requested on the ground that such increase was necessary in order to preserve its financial integrity and to check what it believed to be a decreasing ability to attract capital on favorable terms. This worsening financial position was said to be attributable to rising labor costs which were bringing the Company's net revenues far below what it considered a permissible rate of return. Although the Company urged "emergency" action upon the Commission in the form of authorization of increases sufficient to produce $900,000 in additional revenues, proposed rate schedules were subsequently filed. The proceeding was thereupon adjourned in order to afford the appellee and others the opportunity to prepare their opposition.2 Numerous parties who are not

188 F.2d 14
participants in the court action appeared before the Commission, among them the Federation of Citizens Associations, the General Services Administration, appearing for the United States, the Gas Consumers and Independent Appliance Dealers, etc

The main item in controversy was the treatment for rate-making purposes of the various problems associated with the conversion of the Company from manufactured to natural gas in 1946-47. The Commission decided that (1) the West Plant, abandoned as a result of the change-over, should remain in the rate base at its full value as of that date — that is, $1,774,666, the original cost less that part of the book reserve for depreciation allocable to it — and charged off as a deduction from operating revenues over a ten-year period; (2) the East Plant, which has been and will be used as a standby plant for manufacturing gas until 1952, should be depreciated at the accelerated rate of about $500,000 a year for ten years so that the unrecovered investment of approximately $5,000,000 would be recovered at the end of that time; (3) the cost of converting customers' appliances so that they could be used for natural gas, amounting to $2,797,589, should be amortized over a ten-year period, the unamortized portion being included in the rate base.3 Amortization of these various items results in swelling operating revenue deductions almost one million dollars each year for the next ten years. The need for revenues to cover these deductions was in considerable part responsible for the rate increase awarded to the Company by the Commission.

Upon appeal, the District Court awarded appellee Baker the relief requested and ordered "the matter returned to the Public Utilities Commission of the District of Columbia for appropriate proceedings and action * * *." The court below based its order upon the conclusions that it was error of law for the Commission to include abandoned property and conversion costs in the rate base and that the rate increase was improperly retroactive in its effect. It did not disturb Commission treatment of East Plant nor did it find the rates illegally discriminatory. Both the Company and the Commission appealed from the decision of the District Court. Pending disposition of the appeal, this court ordered "the amount hereafter received by the Washington Gas Light Company under the increase" set aside subject to further order of the court.4

We agree with the District Court that the Commission's order should be vacated and set aside, but our reasons differ materially, as will appear from the detailed discussion below.

Section 43 — 301 of the District of Columbia Code provides that "* * * The charge made by any * * * public utility for any facility or services furnished, or rendered, or to be furnished or rendered, shall be reasonable, just, and nondiscriminatory."5

This statutory standard, taken together with the limitation of our review to "questions of law" and to findings of fact only if they are "unreasonable, arbitrary, or capricious",6 invests the District of Columbia Public Utilities Commission with the same broad authority as is possessed by the Federal Power Commission under the Natural Gas Act.7 The Supreme Court has said that that Commission is "not bound to the use of any single formula or combination of formulae in determining rates", so long as the "total effect," "impact" or "end result" of the rate order "cannot be said to

188 F.2d 15
be unjust or unreasonable."8 The limits set by the Court are deliberately broad, resulting both from notions of special competence and the conception of rate-making as a primarily legislative process. So long as the public interest — i. e., that of investors and consumers — is safeguarded, it seems that the Commission may formulate its own standards. But there are limits inherent in the statutory mandate that rates be "reasonable, just, and non-discriminatory." Among those limits are the minimal requirements for protection of investors outlined in the Hope case.9 And from the earliest cases, the end of public utility regulation has been recognized to be protection of consumers from exorbitant rates.10 Thus, there is a zone of reasonableness within which rates may properly fall.11 It is bounded at one end by the investor interest against confiscation and at the other by the consumer interest against exorbitant rates

Rate of Return

Despite the broad limits allowed the Commission, it remains imperative that its findings, under whatever formula adopted, be based upon substantial evidence in the record.12 Here, the Commission adopted the prudent investment theory of rate regulation and, at the hearings and in its Findings and Opinion, used the traditional formula for rate-making. That required a determination of the rate base and of a rate of return on that rate base sufficient to produce adequate revenues above operating expenses (including depreciation) to pay interest on the bonds, dividends on the stock and, in general, maintain the financial integrity of the enterprise.13 Although the Commission

188 F.2d 16
did make findings as to rate base14 and estimated operating expenses as well as probable revenues under the rate schedules proposed, it made no inquiry whatsoever into issues necessary to determination of a fair rate of return. Essential to such an inquiry is a study of the capital costs of the business, such as service on the debt and dividends on the stock, in the light of returns on investments in other enterprises having a similar risk factor.15 Only upon such evidence can the Commission determine what is required "to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital."16 In the Hope case, the Supreme Court makes abundantly clear the nature of the considerations pertinent to that issue.17 And, in the 1943 rate proceeding of the Company, the Commission dealt extensively with some of these matters, discussing under "rate of return" facts regarding longterm debt capital, preferred stock capital and common stock capital.18 It was this sort of inquiry to which the Supreme Court referred when it said that the standard announced in the Hope case is not "so vague and devoid of meaning as to render judicial review a perfunctory process. It is a standard of finance resting on stubborn facts."19

The only reference to rate of return in the Commission's opinion is that "a return of less than 4% is obviously inadequate to maintain the Company in a sound financial position."20 Commission expertise

188 F.2d 17
alone cannot support so pivotal an assumption. Failure to subject this issue to inquiry at the hearing and the consequent inadequacy of the record and the findings render the Commission's conclusion that the rates are "reasonable, just, and nondiscriminatory" devoid of substance and wholly ineffective for its purpose.21 Without any evidence on this essential issue, there is no basis for application of any standard and the judicial review authorized by the statute becomes a formal but futile gesture

Although the Commission's opinion makes no attempt to explain this fatal deficiency in the record, a review of the transcript indicates that the Commission may have based its action on one or both of two possible grounds: (1) That this was an emergency proceeding which relieved the parties from conducting what they referred to as "a full rate hearing" in which proof regarding rate of return would concededly be...

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52 practice notes
  • Public Service Commission of State of N. Y. v. Federal Power Commission, Nos. 24716
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • August 27, 1975
    ...Comm'n, supra note 431, 134 U.S.App.D.C. at 374-376, 415 F.2d at 954-956; Washington Gas Light Co. v. Baker, 88 U.S.App.D.C. 115, 125, 188 F.2d 11, 21 (1950), cert. denied 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 622 See text supra at note 526. 623 See text supra at notes 520-523. 626 See n......
  • Farmers Union Cent. Exchange, Inc. v. F.E.R.C., MID-AMERICA
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • June 26, 1984
    ...586, 62 S.Ct. 736, 743, 86 L.Ed. 1037 (1942); NEPCO Municipal Rate Committee v. FERC, 668 F.2d at 1333; Washington Gas Light Co. v. Baker, 188 F.2d 11, 18 (D.C.Cir.1950), cert. denied, 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 (1951). Rather, our disapproval arose out of the FERC's failure t......
  • Williams v. Washington Metropolitan Area Transit Com'n, No. 20200
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • October 8, 1968
    ...Comm'n, supra note 15, 115 U.S.App.D.C. at 232-233, 318 F.2d at 203-204 with Washington Gas Light Co. v. Baker, 88 U.S.App.D.C. 115, 127, 188 F.2d 11, 23 (1950), cert. denied 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 (1951). In this connection it is significant, we think, that in conferring ......
  • Jersey Cent. Power & Light Co. v. F.E.R.C., No. 82-2004
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • February 3, 1987
    ...permissible tools of ratemaking, one that need not be, and is not, employed in every instance. See Washington Gas Light Co. v. Baker, 188 F.2d 11 (D.C.Cir.1950), cert. denied, 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 In setting aside the rigorous judicial scrutiny that had previously charac......
  • Request a trial to view additional results
52 cases
  • Public Service Commission of State of N. Y. v. Federal Power Commission, Nos. 24716
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • August 27, 1975
    ...Comm'n, supra note 431, 134 U.S.App.D.C. at 374-376, 415 F.2d at 954-956; Washington Gas Light Co. v. Baker, 88 U.S.App.D.C. 115, 125, 188 F.2d 11, 21 (1950), cert. denied 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 622 See text supra at note 526. 623 See text supra at notes 520-523. 626 See n......
  • Farmers Union Cent. Exchange, Inc. v. F.E.R.C., MID-AMERICA
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • June 26, 1984
    ...586, 62 S.Ct. 736, 743, 86 L.Ed. 1037 (1942); NEPCO Municipal Rate Committee v. FERC, 668 F.2d at 1333; Washington Gas Light Co. v. Baker, 188 F.2d 11, 18 (D.C.Cir.1950), cert. denied, 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 (1951). Rather, our disapproval arose out of the FERC's failure t......
  • Williams v. Washington Metropolitan Area Transit Com'n, No. 20200
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • October 8, 1968
    ...Comm'n, supra note 15, 115 U.S.App.D.C. at 232-233, 318 F.2d at 203-204 with Washington Gas Light Co. v. Baker, 88 U.S.App.D.C. 115, 127, 188 F.2d 11, 23 (1950), cert. denied 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 (1951). In this connection it is significant, we think, that in conferring ......
  • Jersey Cent. Power & Light Co. v. F.E.R.C., No. 82-2004
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • February 3, 1987
    ...permissible tools of ratemaking, one that need not be, and is not, employed in every instance. See Washington Gas Light Co. v. Baker, 188 F.2d 11 (D.C.Cir.1950), cert. denied, 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 In setting aside the rigorous judicial scrutiny that had previously charac......
  • Request a trial to view additional results

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