Democratic Central Committee of the District of Columbia v. Washington Metropolitan Area Transit Commission, D. C. Transit System, Inc., Intervenor

court, eeedings pending in- in this Commer, Carson,

cluding Messrs. Parker, appear their with shall before the United States

counsel Appeals for the District Court of Friday, April

Columbia Circuit report p.2 m. to their

compliance our orders. with respects, the order other In all 30, 1973 on March entered Court in effect.

remains Curiam,

Per May issued the Order

On

below: present state In view ap- eases,

proceedings in these pearing with proceedings further alleged contempt of reference to warranted, parties certain court, sua is ORDERED Department sponte, of Justice investigation refer- terminate contempt possibility of ence

n proceedings herein.

DEMOCRATIC CENTRAL COMMITTEE

OF the DISTRICT OF COLUM- al., Petitioners, BIA et

WASHINGTON METROPOLITAN AREA COMMISSION, TRANSIT Respondent, Inc., System,

D. C. Transit Intervenor.

No. 21865. Appeals,

United States Court District Columbia Circuit.

Argued June

Decided June

Rehearing Sept. Denied Washington, Dowdey, D.

Landon G. Levy, C., Neil J. whom S. David Washing- Grant, and William A. Cohen peti- C., brief, ton, for were D. tioners.

Douglas Schneider, Jr., Coun- N. Gen. Washington sel, Metropolitan Area Washington, C., Commission, Transit D. respondent. City, Harvey Spear, M. New York intervenor. Mac Before ROBINSON Judges, DAVIS,*

KINNON, Circuit Judge, Court of Claims. United States ROBINSON, III, SPOTTSWOOD W. Judge: Circuit petition subjects This to review Order Metropolitan Washington No. aspect Area Transit Commission1 in an by today’s untouched Powell decision.2 major assert, their conten Petitioners tion, Commission should have fare-setting account, taken into process order, leading to that properties amount which which . Transit had transferred nonoperating appreciated had status conclude, in value while service. We peculiar in Transit circumstances public utility, as a that the Commission refusing erred to treat the excess of market value over book value properties when transferred as an offset higher fares.3 To that we hold extent Order No. 773 invalid and direct the re steps medial to be taken. In the other respect complained in which the order of, we affirm the Commission.4 * Sitting by designation pursuant Washington to 28 See also Bebchick v. Metro 293(a) (1970). politan Comm’n, 23,720, § U.S.C. Area Transit No. U.S.App.D.C. _, 485 F.2d 858 D.C. Transit No. (1973) ; Democratic Cent. Comm. v. (WMATC 1968). 72 P.U.R.3d 113 Metropolitan Washington Area Transit Comm’n, 24,398, Washington 2. Powell v. Metropolitan Area _, (1973). 485 F.2d 886 Comm’n, Transit U.S.App.D.C. _, 485 F.2d 4. See note infra. properties the unsold the time of

i invariably transfer the line below exceeded their value as tabulated on BACKGROUND Transit’s books.7 The evolution of Order No. 773 During proceeding course opinion.5 in our Powell We summarized Commission, petitioners before the of record which en- need add the events particularly bear transferred probe deavored into Transit’s below- parcels real assets.6 All are estate estate, the-line real Transit’s interrela- past employed by times were tionships subsidiaries, with its and the transportation opera- in mass realty market value of withdrawn held losing tions, which, their after later by either. Transit resisted those ef- purpose, were with- usefulness for that forts, maintaining from withdrawals drawn service. These belonged exclusively investors,8 to its on Transit’s are reflected entries concerning and that information them recording utility books the removals —in investigation was irrelevant to the fare jargon, from the line” to “above “below in engaged.9 which the Commission was denoting line”—and con- the Transit’s Commission, subscribing to Trans- tinuing properties in as in- interest the it’s basic petitioners’ premise, ruled that instances, vestments. In some Transit inquiries pertinence had but limited ownership; others, retains direct in proceeding.10 It directed that some conveyed wholly-owned Transit has to a sought-after information be made subsidiary, in and still others it has available petitioners, but refused to outright appears with- made an sale. It require any disclosure of market-value controversy out that the market of value properties.11 data on the Washington Metropolitan Area Powell proceeding, in lowed a rate base and Comm’n, Transit 158 U.S. upon allowed, which no is App.D.C. ___ _ ___, 485 F.2d at 788. properly are both matters which are not province proceeding. within the of a rate Many important pertaining facts to these Counsel had earlier assumed a broader dispute. properties not, are in need We position: present purposes, undertake resolve appraised [T]he market value of non- any disputes, in and event we are not operating property belong does not in a point position Simply in to do as a so. proceeding. part rate It is not of what appendix reference, reproduce, we as an this Commission can consider as far as opinion, representation to this made concerned, the rate of return is and it is a3, brief, in the Commission’s al part not of what affects the rate Washington Democratic Cent. Comm. pub- structure which member of the Metropolitan Comm’n, Area Transit pays. lic If there is a loss on the sale disposition note 3. Our of this case of that real estate the stockholders bear prominently includes a direction to it, profit and if there is a on the sale it identify properties Commission goes company. to the stockholders of the the material Part facts as each. See . . . of these [N]one items re- Y, following infra, note 387. quested today nonoperating here as to properties proceed- relevant 7. Witnesses before the had Commission so ing company testified, . . . and the will de- and Transit’s counsel conceded cline to furnish that information at this much. time think because we don’t speaking 8. In of Transit’s “investors” we relevant. employ language ratemaking litiga- fully 10. See note tion. We are aware of the fact that infra. wholly-owned subsidiary is a 11. The chairman declared Commission’s corporation. another non-operating proceeds “that belong argued to the stockholders 9. Transit’s counsel rate-payer,” virtually company and not to it is non- axiomatic that requested depreciable property upon felt the information which no re- completely deprecia- allowed, upon some of irrelevant. Since turn which no supplied non-operating allowable, had been the information tion is property upon by Transit, the chair- is al- staff which no return Commission’s derlying surprisingly, plea presented here,15 then, Not Order No. 773 their charge support no consideration whatever now reflects that the Com grievously the Commission of rises the value mission was in error.16 during transferred assets course painstakingly examined this We have structuring fares which increased many charge in ramifi- serious all filed a that order awarded. Petitioners cations, opinion set forth in this we petition timely reconsideration12 investigation. be- results of our We containing, alia, may fairly inter what gin exploration into Part II with an request characterized as adjudicative history, administrative ways and Commission devise means judicial, of allocations of giving farepayers appropriate After assets. appreciation credit for value that, III, in Part we scrutinize the inter- By while Or service. value-appreciations est of investors in der No. denied the the Commission assets, with such reference to treatments petition,13 stated Order No. 781a deprecia- interest rate- and doing its reasons for so.14 The Commis partic- and, tion-base formulations more statement, sion’s like Order 773 it ratemaking litiga- ularly, in Transit’s self, anything is devoid of which we can Next, identify IV, tion. in Part identify response petitioners’ en guiding doctrinal alloca- considerations treaty. theory capital gains un And so is that the tions on in-service utili- II, Compact, 12, man instructed tire staff make certain 15. See tit. art. petitioners’ XII, of it available to counsel. The § 17. ruled, however, chairman neither the 16. Petitioners also allude to other several required staff nor Transit be would to dis- complaints they against Order No. regarding close information the current 773, and ask for remand of the case to properties, and, market value of Commission for reconsideration addressing petitioners’ counsel, that “[i]f light Washington v. Williams Metro you pertinent that is information think is politan Comm’n, Area Transit 134 U.S. you or think should record App.D.C. 342, (en 415 F.2d 922 banc up you will be ... adduce denied, 1081, cert. 393 U.S. 89 Petitioners, undertaking evidence.” something later 860, (1969), 21 L.Ed.2d and 773 showing aof as to market value Payne, Washington Metropolitan v. Area properties, introduced the valuation Comm’n, U.S.App.D.C. 321, Transit 134 purposes for tax and (1968). brief, 415 901 F.2d their how testimony assuming that the assessments ever, petitioners argument offer no what approximated of true market value. 55% support points. ever of these We ac Washington Metropolitan cordingly Area decline to consider them. Fed. Regulation Compact, II, R.App.P. 20, ; 28(a)(4) 4(b) Transit tit. art. D.C.Cir.R. (Transit XII, Regulation Compact), (5) Cratty ; States, 16§ v. United 82 U.S. incorporated 86-794, App.D.C. 236, 243, 844, into Pub.L. No. 74 163 F.2d 851 ap (1960), amendments, (1947) ; Stat. 1031 with Abrams v. American Sec. & pearing part 87-767, Co., App.D.C. 79, 80, as a of Pub.L. No. Trust 72 111 F.2d (1962), following 520, 521, (1940) ; 76 Stat. set forth 764 129 A.L.R. 368 S. S. (1967). Title III Kresge App.D.C. D.O.Code 1-1410a Kenney, 274, § Co. 66 v. Regulation Compact 651, (1936) ; of the Transit 275 n. 86 F.2d 652 n. 1 Washington Metropolitan Pickford, App.D.C. 206, Area Transit Smith v. 66 209 Authority Compact (Transit Authority (1936); n. 85 F.2d n. 6 708 incorporated Compact), Lloyd, App.D.C. 216, which is into Pub. v. 65 Schwartzman (1906), ; Helvering L. (1936) No. 80 Stat. 1324 82 F.2d 824 following Helmholz, is set forth 1-1431 App.D.C. 114, 117, § D.O.Code 64 75 (1967). opinion, In this we refer to (1934), aff’d, F.2d U.S. Regulation Compact Transit and the (1935) ; 56 S.Ct. 80 L.Ed. Ginder Authority Compact together App.D.C. as Giuffrida, 338, 340, “Compact.” (1932) ; F.2d Wardman-Justice Petrie, App.D.C. 262, 267, Motors v. (Order 781) Sys., 13. D.C. Transit Inc. No. 512, 517, 39 F.2d 69 A.L.R. 648 (WMATC 26, 1968) (unreported). Feb. No. 14. D.C. Transit (WMATC 1968). 781a), 74 P.U.R.3d

ty property apply Jersey Superior them to this case. New after Court19 concluding utility providing Then Order made a water service specify profitable portion aside, invalid and must set sale of a distri system, consisting Part for and V basis mechanics of bution of cast-iron hydrants.20 remediation. mains and fire In subse quent Jersey proceedings, rate the New II Utility Board Public Commissioners utility’s profit deducted the from the ADJUDICATIVE ALLO- HISTORY OF surplus earned and credited it to its de CATION OF CAPITAL GAINS ON preciation reserve, conformity OPERATING UTILITY ASSETS board-adopted system uniform of ac regulatory agencies Seldom have or companies. counts water From upon allocate, been called courts made, when the sale was consumers, between investors instituted, when the rate case was utility assets while complained had not of this treat Nonetheless, status.17 for the assistance weight controlling Ascribing ment. indispensable background they may long standing con commissioners’ controversy afford to resolution of the regulation struction of their own —the hand, pause at group we must to examine accounting system prescribed court —the In the of cases. realization that challenged found no adjustment.21 error problems may of allocation well differ according to whether asset question year, In the same similar depreciable18 nondepreciable, we look proceeding arose in rate before treating first to the decisions allocation Minnesota Railroad and Warehouse depreciable proper- issues in relation to During Commission.22 its historical ties. period, company test a transit sold obso Depreciable proceeds A. Assets lete buses treated the nonoperating Cases held This income. Out-of-District improper.23 System “The Uniform Columbia, Outside the District of prescribed by of Accounts this Commis relatively authority precisely find little sion,” “requires agency, said the point. in question salvage24 such ‘shall to the be credited presented Appellate Division service life of the various exhausted capital gains 17. No issue as to allocation of property at that time. This units losses once asset is transferred be- is the exhaustion of service life com- low the line is tendered to this us on working of three bined result of review. (2) namely: (1) inadequacy, factors, “depreciation,” 18. We use the word as it (3) obsolescence, physical deteriora- commonly employed in District rate- tion. making, merely physical to refer not by 19. In re in Rates Filed Plain- Revision types wear and tear but also to other Co., N.J.Super. 158, field-Union Water serviceability. g., diminution of E. D.C. 154 A.2d 201 (Order Sys., 245), Inc. No. (WMATC 1963), P.U.R.3d re 20. 154 A.2d at Sys., manded sub nom. D.C. Transit Inc. 21. 154 A.2d at 211. Washington Metropolitan Area Transit Comm’n, 350 F. Minneapolis Ry. Co., St. 31 P.U.R.3d (en 1965), 2d 753 banc on remand sub (Minn. R.R. and AVarehouse Comm’n nom. D.C. Transit 1959). (WMATC 1966), 63 P.U.R.3d 32 Id. at 152. Washington rev’d sub nom. Williams v. Metropolitan Comm’n, supra agency’s Area Transit salvage, 24. The reference context, seemingly where the Commission said: viewed to the en- Depreciation proceeds is the sale, simply exhaustion tire and not property recoupment originally service life of the use. amount of future accrued depreciation-computation estimated given purposes. a time is the su'm total of the ” 25 depreciation reserve account.’ In its exclusion its investors. While words, accordingly agency “added it is true that two of decisions were accounting agency-adopted income from sale of obsolete buses influenced practices, operating determining income ac must be remembered operating practices tual .”26 . . results. such are but in ac- reflections counting technique generally what is “[A]ny further income from sale of ob considered wholesome substantive equipment,” agency solete buses or principle. principle And to be added, “will be treated . . as a gleaned, practices both and the depreciation expense reduction in and. themselves, decisions consumers thus, as an increase in superior capital gains claim on income.” depreciable prop- utility when achieved years Wyoming later, A few Pub- erties are removed do from service. We essentially lic Service Commission faced suggest not that so small number problem the same in a variant context.28 general cases establish a rule con- utility engaged selling gas A natural trolling ratemaking applicability in the purchased lands, mineral in- interests hardly field. But can be denied that cluding gas-producing utili- well. The precedents these decisions are of value ty depletion thus became entitled al- litigation. in similar purchased lowance on the Aft- assets.29 taking gas purchased er some from the —District Cases properties for southern division cus- its Within, much as without, the District tomers, profit. sold them a problems allocating of Columbia the Regulatory approval of had been the sale value-appreciation in- accompanied by a direction to treat the utility property service infre- have but profit utility income. In a later rate as quently regulatory arisen before either proceeding, the Commissionreiterated agencies litigation or courts. And the position profit that the treat- “must be locally, been, such it has has invaria- nonoperating utility ed as income.”30 bly involved Transit and, the same theory underlying ap- the order token, peculiarities inherent in its proving sale, said, the Commission say situation. That is to profit was that “the to be made reasoning followed elsewhere obtains company upon the sale thereof should be Transit, but also that additional gas used to reduce its . natural leading reasons to similar results flow rates, rather than increase them.”31 from uniqueness, compari- transaction,” “As we view the Com- utilities, respect son with other explained, company mission will “the properties transferred below line. simply profit make from the substantial surprisingly, then, Not claim of utility properties of to sale dedicated farepayers on which, operations, its southern division accruing to such while above opinion, our should inure to bene- the line has achieved considerable frui- ratepayers fit of the division.” that tion. leading case, ju- outside this and one Such are the decisions which mer- each, analysis, Sys- its careful tem, In the entire risdiction. D.C. Transit disposition 4577).33 depreciable from of There passed utility’s consumers, predecessor, was on Commission’s to the the District 30. 25'. 152. 40 P.U.R.3d at 513. P.U.R.3d 31. 26. Id. 'Id. 32.

27. Id. Id. Wyoming Co., (D.C.Pub.Utils. 33. 28. Gas P.U.R.3d P.U.R.3d (1961) (Wyo.Pub.Serv.Comm’n 1961). 1959). Comm’n (A), infra, 29. Part Y at note 222. improvements,40 that a PUC felt Commission Public Utilities

of Columbia- accounting pro- departure from normal question of allo- (PUC),34 addressed the cedures was warranted.41 cating profits of Transit’s a sale Shops Car- and Southern depar- Fourth Street regard to the extent Rede- Columbia operat- house to the District of velopment ture, PUC noted that Transit’s Agency. total Of the Land ing of it a seven- demanded franchise pro- price $3,320,000, Transit gradual sale year program conversion profit of posed of the net to credit all all-bus to an from a streetcar-bus surplus, and $2,181,363.08 earned to to operation,42 was “unable and PUC thereby pass investors.35 it on to its to transaction disassociate instant This, permit- held, not be it could PUC prop- rail imminent retirement of all to do. ted erty mandate contained under the “ignore Nor could PUC Franchise.” $1,039,657.72 determined, As PUC provision for probability full that land,36 price was attributable the sale provided depreciation will not have been improve- $1,915,034.81 depreciable rail facilities are abandoned when the land,37 remainder and the ments on the by reason of conversion.” and retired present concern.38 PUC items not of consistently Observing had that Transit uni- noted that adherence strict asserted, had indicated and PUC’s staff employed by it system of accounts form agreement, retirement loss re- require amount that the total would connection was recoverable disposition as- ceived charges against farepayers,45 PUC $1,915,034.81 credited sets—here emphasized —be “if the customers salvage.39 depreciation reserve as required of ex- the burden bear would, by PUC’s to have done Since traordinary incident to losses retirement ato calculations, the reserve built ap- program, whole conversion need- point greatly sum excess share, pears equitable should original cost all unrecovered ed to retire extraordinary extent, in at least some Columbia Public 34. the District Now portion thereof should as to made what Service Commission. depreciation reserve and credited to any, portion, be credited if should what 35. 30 at 406. P.U.R.3d surplus.” Id. at 409. earned So, subtracting Id. at after Id. at 410. original $89,089.17, representing tlie cost land, profit $950,568.55 net portion original 40. The cost unrecovered aspect of the sale. was realized on this is, original $464,162.78, cost of was 407, 409, Id. at $1,077,824.06 depreciation reserve of less 37, supra. $613,661.28. See note Original portion Id. at 409. cost of this of the sold was determined to he 30 P.U.R.3d $1,077,824.06. Id. The re- purchased had the assets of Transit improvements serve on the then predecessor, Company, Capital $613,661.28, leaving $464,162.78 as the many years operated a which for had original unrecovered cost. Id. at 411. system transportation streetcars profit Thus net on the sale of the de- Washington metropolitan buses preciable portion property of the was purpose the The obvious area. $1,450,872.03 price $1,915,- sale —the provision in text franchise mentioned was original 034.81 less unreeovered cost of the This matter to eliminate streetcars. $464,162.78. fully (B), IV is discussed more Part part id. A 407-409. of the re- infra. representing $36,550.92, net, mainder was price so much the sale as related was 43. 30 P.U.R.3d at 412. equipment machinery. to certain Be- Id. uncertainty cause of as the items equipment machinery included the Id. on That such losses did fall sale, placed farepayers subsequently amount in a became PUC Transit’s suspense pending ascertainment, infra, (B), account Part IV at notes fact. See “at which time determination will 243-246. recoupment reject retirement of the nature here un- of obsolescence.54 In ing argument, der consideration.” we noted that concluded, then, give riding PUC total not PUC did omit to profit $1,450,872.03 public net realized some considerable share improvements,47 on the sale of benefits of this sale. . . . [T]he $613,661.28 profit depreciable property should inure Transit’s on the $837,210.75 to its surplus consumers $837,000. went into was said, approach,” sale, investors.48 “This At time Transit car- right “takes into property consideration the ried this on its an books at company to recover $1,077,824, from its custom historical cost of with an through depreciation depreciation $613,- ers loss accrued reserve of proper only service value over life $464,163 661. Thus re- was ty original as measured complete liquidation cost to effect of this salvage property less net realized investment. PUC, however, or- upon treatment, in retirement.” That $1,077,824 dered a total of credited view, “provides equitable PUC’s depreciation an solu reserve, represent- problem maintaining, ing tion to a difficult $464,163 not but an addi- possible, as far as what seems $613,661 to be fair exactly amount of tional du- balance public plicating between the interests of the already the reserve accrued. company’s investors.” those It was this action that we think was explained by 50 the PUC’s comment that equitable suggested consideration profit PUC’s allocation of the on the profits riders should share in the improvements on the Fourth Street from the sale. Under all these cir- Shops and Southern Carhouse subse cumstances, therefore, dowe not in- quently judicial came under direct re terfere with the Commission’s discre- instance, view at Transit’s and we held deciding tion in to off-set arbitrary that PUC’s treatment was not profits Shop from the Fourth Street or unreasonable.51 That allocation also against [expense sale allowance entered into this court’s consideration unrecouped investment in aban- problem years of another several lat doned rail facilities].55 er. System, D.C. Transit Inc. v. Washington Metropolitan That, Area held in PUC Order No. Commission,52 expense 4577,56 farepayers legit allowance Transit’s Transit for capital gains unrecovered costs operat of aban imate interest ing depreciable doned rail was contested facilities assets has never grounds which included successor, respondent reference doubted argument sale. that the System, was sale Commission. In D.C. Transit pro 245),57 occasioned the conversion the Commission gram required by franchise,53 recognized may “ratepayers have a profits and that for that reason claim least regarded made on the sale should be the extent of the re 42, siipra, accompanying at 412. P.U.R.3d See note text. 37, supra. 54. 121 F.2d 48. 30 at 411. P.U.R.3d argument 775. The same was made with Id. capital gain reference to achieved on the depreciable portion Georgia of Transit’s Id. at 412. and Eastern Terminal. We discuss the 51. D. C. Transit Inc. v. Public disposition Utils. argument of that facet of the Comm’n, U.S.App.D.C. 241, 292 F. (B), infra, in Part IV at notes 292-300. III(B), 2d 734 See also Part (footnote omitted). 55. Id. infra, at notes 89-99. supra 56. See text at notes 34-50. Supra 52. note 18. Supra 57. 18. note may contrary, farepayers ‘gains’ Transit’s “that It added serves.” protectible gains in depreciable interest such which disposal of experienced on very least, off at the the amount items, extends indeed used these are and heading depreciation charged depreciation, which has been under the sets farepayers may Later, ‘salvage’ far in D.C. well extend ”.59 563),60 beyond.68 (Order System, No. Inc. finding no connection Commission, in Nondepreciable B. Assets re removal track between gain question dispo- whether a program of its Geor paving its sale nondepreciable sition inures to assets Terminal,61 concluded gia and Eastern capital surplus, investors as or con- ratepayer entitled to “the service, sumers a reduction in cost of proceeds of any portion of the in share litigated frequently has been even less profit on sale, a was there unless question than has the in relation to de- portion the asset depreciable preciable survey assets. A of the few sold,”62 found that “[t]here point in cases outside the District of is after And even none this case.” reveals, paradox- Columbia somewhat review, the under order suance ically, harmony a central strand of amid “[t]here has declared Commission diverse within decisions results. op that, question when no is erating the District—all administrative —have gain is re and a sold result, reached a uniform but without reduce gain alized, be used should analysis problem critical either of the ratepay expenses precedents. company, paid but which ers have actually gain, does not because Cases —Out-of-District incur.” Corpora- In New York Water Service District, then, law on In the Commission,69 tion v. Public Service immediately topic discussion under utility sold, profit, aat handsome land Capital developed. already somewhat which had outworn its usefulness as deprecia disposition realized on storage regulatory agency reservoir. Its auto do not service ble while ratemaking purposes held that for investors,66 matically flow to Transit’s profit reaped net the sale should although extraordinary circumstances passed judi- on to its customers.70 On may On them to share.67 enable Sys., (Order 67. inAs D.C. Transit Inc. 58. at 399. 48 P.U.R.3d supra 4577), supra No. note 33. text 59. Id. at 404. notes 39-41. Supra Sys., (Order note 18. As D.C. Transit Inc. 4577), supra No. note 33. See text 287, infra, accompanying at notes 47-50. text. 69. 12 A.D.2d 208 N.Y.S.2d 63 P.U.R.3d Id. Corp., New York Water Serv. 7 P.U.R. (Order Sys., (N.Y.Pub.Serv.Oomm’n 64. D.C. Transit Inc. No. 3d 32 1955). The (WMATC 85 P.U.R.3d commission felt that amortization of the 1970). profit seventeen-year from the sale over a period equitable was “the most method may, course, given It be that meeting problem.” Id. It di situations no is realized. That was rected the to transfer the amount so 563), D.C. Transit profit surplus to a reserve discussed text year account and in each future supra at notes 60-63. against amortize one-seventeenth the de 66. This is clear from all of preciation decisions charged operations. accruals the District. Id. review, adjudication subsequently cial sought increase, was sus- a rate its explained: regulatory The agency court ruled that its consum- tained.71 ers were entitled to the The system ap- The uniform of accounts gain.76 agency, articulating essentially same the proved by applicable the Commission espoused rationale in New Water York companies dealing to water Corporation, Service elucidated: utility purposes land used for allows land sold at a to to loss be the question gain, debited The arises, should this reserve thus increase property pub- made on devoted to the the rate land sold at base. If is lic years, service over to the be used profit, profit required it is that the be reduce the cost of service the cus- to, to”, e., added i. “credited the de- tomers should it be treated as preciation reserve, so is a surplus there item, and be allowed corresponding reduction of the rate paid out to the stockholders resulting utility base and return. The Having . ? considered the ev- protected thus from a loss arguments the relating idence and to this operations; sale of land in the its matter, opinion we are of the that it pass it should seems reasonable should used reduce the cost of profit to the consumer.72 service to the consumer. opinion plain, As the on review makes subject property pur- was not guiding principle the was that the utility specu- chased as a land belonged to those—investors or consum- acquired provid- lation but was previously ers—who the risk of loss bore ing utility public service to over possible decline market value. years subject acquisi- and was City Lexington Lexington tion Inasmuch condemnation.77 utility property necessary pertinent Water render- facts Company,73 ing subject public utility acquired service to were similar. had not many option utility, years land sale at the of the which for it used but long must be reservoirs, collect continued service as water for when provide service, any inadequate needed to the reservoirs became property loss in land service value of such was retired from and re- service properly utility’s would considered a cost of and, moved from be' rate base. providing later, service the case Somewhat land was sold,74 depreciable utility property, very recovered distributed the consider- through depreciation. profit . . . For able realized thereon its inves- nondepreciable property, tors as where When the dividends.75 portion profit Corp. latter York invites New Water Serv. v. Public problem capital gains Comm’n, supra allocation Serv. 208 N.Y.S. property. 11(A), 2d at See Part 863-864. judicial supra. agency’s review of the On Id. at 864. City Lexington Lexington decision, (Ky.1970). Co., 458 S.W.2d 778 Water court did distinguish portions between two published opinions 74. Neither of the two $2,415,846. ease informs as the time interval Lexington Co., between the retirement Water 72 P.U.R.3d Assuming, (Ky.Pub.Serv.Comm’n 1968). from service its sale. deciding, any appreciation without decision, 77. On review of the court belonged after value retirement dispute stated that there awas as to utility investors, there would remain the acquired whether the land had question appreciation prior whether there- condemnation or the threat thereof. to would inure to the benefit of its cus- S.W.2d at 778. The court was of the tomers. opinion, however, prop- that “whether By agency’s computation, erty acquired by the total was threats of use of profit $2,415,846, power net of which of eminent domain irrelevant.” [is] $138,791 was attributable to miscel- Id. at 779. improvements laneous on the land. The change reported de- In in value cannot be the service other decision disposition found, problem pre- of until actual we have termined the was only obliquely. amortization of an al- sented property, the In Columbus Gas gain Company the & or would be Fuel Utilities lowable loss v. Public procedure. utility proper If . . . claimed that the Commission,83 nondepreci- depreciation proper recover losses of its annual allowance for de- to through amortization, preciable property property other than well-strue- able court Service the a differénce of accounts Kentucky respectively employed by on land Kentucky agency that loss had lieved that er to the then amortize On losses and for the agency’s utility’s premise, review, distinguished conversely sales, Corporation actually utility’s surplus regulatory gains providing ruling investors. On in not to however, the court the risk on such had it should be was erroneous. customers, accounting crediting New authorities.80 adopted on borne for the it was held property.78 capital New apparently account81 the York Water so entirely by ground proper York and a but rath- charging much of methods profits system that The The be- On to or tures and the claim the rights cause some vant under might in not Certainly would In bring an value of the nothing structures computation.84 part abandonment of saying be characterized as well of different conditions the about stamp equipment way, absence of to items, lands and have this we do not Court in show, a that had been omitted plant, doing sharp been consisting equipment. said: quality however, The Court the business rights valid.85 aside from well- explanation so reduction inadequate wasting indicated that in land and upon forget that way There is In denied in might assets them. claim from rele- may that that any be- seemingly case, planned have or even the court would such abandonment is contrary, agency reasonably probable. risk been had the sustained On utility’s it clear makes the course business consumers.82 Co., supra Lexington In our Water 780. 78. 458 S.W.2d stockholder” Company Telephone view, at 259-260. York P.U.R.3d New proposition. hardly There sustains Supra 69. question Supreme addressed Court practice, see text New York 80. For from ex- benefit consumers could whether utility at note depreciation, taken cessive through years, prior that would an offset 458 S.W.2d U.S., produce rates. future lower upon however, court, relied also 82. The 26-31, Court held 46 S.Ct. 363. Comm’rs passage Pub. Util. Board representing in the excess assets Co., 271 Tel. U.S. York v. New used could not be reserve for (1926) : L.Ed. 808 46 S.Ct. deficiency up rates current make service, pay not for for confiscatory. Customers Id. at rendered them pay- property it. Their render used to said, con- As the Court S.Ct. deprecia- not contributions ments are acquire an interest not do sumers expenses or tion or other merely by paying their bills By company. paying bills capital of the That Id. at for service. acquire they in- do service utility’s say investors is not equitable, legal terest, in the or right indefeasibly an vested in the their convenience used appreciated arising market value from company. funds in Part discussion assets. See further con- the Court from that And III, infra. “[plrofit the sale made cluded L.Ed. 54 S.Ct. 83. 292 U.S. longer non-depreciable no used land ingredient serving is not customers fixing cus- rates. be considered Id. at 54 S.Ct. 763. profit interest no had tomers 411, 54 S.Ct. at 769. belonged Id. at the sale —it realized ing that, when the fields use shall investors—discloses great exhausted, will extend leave a business deal to be desired. others, and for an indefinite fu- related, early 1959, as we have ture, certainly suscep- a future not $3,320,000 Transit from the received sale tible of accurate estimation.86 Shops of its Fourth and Southern Street indicated, As a loss on the the Court Carhouse Redevelopment the District Columbia of nondepreciable of investment elements Agency.89 to Land Of a plant resulting utility’s una- from an profit tal net of on the transaction of its abandonment business voidable $2,181,363.08,90$950,568.55 attrib was recognized would have if it had oc- been Sys utable to tem, In D.C. land.91 Transit curred, and that loss would have then 4577),92 re PUC chargeable to its consumers.87 One dispute solved a between Transit might easily premise reason from this accounting PUC’s staff as to the treat appreciation non- in value of gain capital ment to be accorded the depreciable elements would be- likewise depreciable subject matter of the properly cognizable, come re- would outset, however, sale. At the de PUC dound to the benefit the consumers. “dispose clared that it could of one item sum, thusly: In controversy.”93 did, outside the Dis- decisions not in It gains capital trict have not viewed company are in staff nondepreciable utility in-service assets agreement public utility under belonging inevitably as to investors accounting, the difference between Rather, exclusion consumers. original selling cost of land and the although they each are of the cases— price recognized profit. The net as depended upon few-—the allocation has profit $950,568.55 on the sale of location of the risk ings, loss. These hold- (net proceeds $1,039,657.72 the land then, applica- may accepted be as original is, $89,089.17) less cost of principle tions of the broader proper therefore, to earned a credit capital benefit of a follows risk surplus.94 read, they our loss.88 So have readily $950,- We understand that the approbation. 568.55, held, profit as PUC was net —District Cases are to sale the land. traceable We why nearly however, properly clear, not so as to The allocation to be made appreciations PUC confident that it was “there- in value of was in-service surplus.” proper nondepreciable open credit to fore earned is an Although words, question jurisdiction. In other tell us in this PUC does not why automatically profit PUC, both the it that the Commission felt belonged predecessor regulation, may have to investors. transit It given spoken occasionally since treatment was subject, this controversy,” upon “not in deemed court has never before been called PUC accounting simple, prob- analysis indubitable face the of the issue. Our any event, our administrative lem. left with decisions—which uniformly belong- viewed such doubts. Supra 92. note 33. 86. Id. gee (A), infra, 409. 93. Part IV at notes 211- 30 P.U.R.36 Id. gee infra, (A), Part IV notes 181- only party proceeding 95. Since the to the “controversy” Transit, was no such was gee likely 11(A), generated Part at notes 33-55. unless the Commission itself. gee 11(A), Part at note 35. gee 36, supra. Georgia Order No. later to un 4577 was come Carhouse104 and its and East judicial court, der aught ap not ern review Terminal.105 From aspect just pears, By

in the brought nothing discussed. suit more than allocation of profit depre the District Court for the Columbia, net attributable to the portion District ciable Transit attacked of these placed disposition profits Commission, PUC’s alloca before the issue depreciable portion surely ble the decision on our review Losing effort, in that narrowly sold.96 was that limited.106 The Com court, applied had, nevertheless, to this which mission ventured action, course, did question affirmed.97 Our statement on the as to which ruling encompass analyzing precedents. PUC’s we are now land, for realized on that rul The the Commission a believed that “[i]t Transit, ing, principle regulatory favorable to was not cardinal law that brought later, in before us. D. C. a Still is not entitled to recover Washington System, through depreciation charges Transit v. Met Inc. or other ropolitan Commission,98 accounting Area Transit its in devices investment given principle,” the same was sale the land.”107 “This the Commis again, but, continued, court attention this sion from “stems the fact dispo in reference to administrative the that in some instances value of land depreciable profits appreciates on sition and in other de instances part.99 preciates.” So, the Commission said “[wjhile ratepayers have a claim System, In Inc. D.C. Transit depreciable property, at least to ex 245),100 only other relevant deci depreciation reserves, tent of the such no argued jurisdiction, it sion claim can be directed to land.” respondent Commission, without to the prema avail, losses on the that Transit’s We are to follow this unable course of reasoning. paucity holdings, facilities101— ture of rail retirement With a passed point, has on judicial, which Commission on administrative or might farepayers Transit’s offset we have detected hard-and-fast 102— upon way which realized rule Transit one or the other.110 Nor can sale real estate.103 The of certain we understand how the economic fact again were, may upward Transit’s sold that land trend values Shops position support and Fourth Street Southern downward can 33-35, (A), supra, supra, (A), at note 55. See Part II at notes 96. 104. See Part II Part, supra, at notes 89-99. and this System, 97. D.C. Public Transit Comm’n, supra 11(A), supra, note 51. Utils. Part at notes 61-63. Supra note 18. Inc. v. Wash- See D.C. Transit ington Metropolitan Area Transit U.S.App.D.C. 390-397, 99. See 121 at Comm’n, F.2d also the discussion 774-775. See F.2d at 774-776. 11(A), supra, in Part at notes 52-55. 107. 48 P.U.R.3d at 399. Supra note 18. Id. acquired 101. These were facilities predecessor, Capital from its 109. Id. Company. Transit quired franchise re- Commission, 110. The like the Court Lex- opera- all-bus convert ington Company, Water see note tion, 42, supra, infra, see notes supra, felt that Board of Pub. Util. accompanying text, process Co., supra Comm’rs v. Tel. York New question the facilities in became obsolete. 82, “clearly resolves issue raised (B), infra, discussion Part IV concerning proceeds this ease at notes 277-300. nondepreciable property.” P.U.R.3d infra, (B), highway legislative under sanctions perceive impediment, con We no property must be the fair recognition value stitutional otherwise, or beings by it for used the convenience enabling ratemaking principle of a rate public.”116 the order ascertain payers appreciations “[I]n in benefit said, original value,” the “the utility accruing Court value of while expend- construction, cost of amount the 'in service. con We believe the doctrinal permanent improvements, in . ed pronouncements upon sideration which origi- present compared the the as contrary primarily the rested construction, nal . cost of ... vitality. present-day has lost all Under consideration, and are all matters for lying pronouncements le these is a basic given just weight may and be as be gal such and ar economic thesis —sometimes right in each case.”117 And “[w]hat ticulated, implicit sometimes utiliT —that ask,” company is entitled to ty though assets, public dedicated upon continued, fair return Court “is a service, exclusively property remain employs .for of land which value utility’s investors, and that public growth convenience.”118 inseparable in and value is an property inviolate incident Despite specification the Court’s precept private interest.113 The own original Smyth cost as well v. Ames of historically ership pervading juris our reproduction to be a factor as cost as prudence thesis, naturally led to such a determining rate base val considered in early ratemaking decisions preference ue, dur decided the Court’s it; support field lent some if still ing half-century was almost the next 11(A), supra. 111. See Part Priest, Principles generally, 1 A. seq. Utility Regulation et Public Sys., (Order 112. See D.C. Transit Inc. Bonbriglit, Principles (1969) ; of Pub J. 563), supra No. note discussed Part seq. (1961). Utility To Rates 159 et lic 11(A), supra, 60-64; at notes D.C. Tran- distinguished ratio is the Sys., (Order supra 245), sit Inc. No. note computing note return. method of 11(B), supra, in Part discussed infra, accompanying text. 100-111; legal terest, equitable, or in the legally protected the investor’s interest or in funds used for convenience resides in the he invests in the Expressions company.”125 of of the utility prop rather than in items of encourage that investors sort the idea erty capital purchases for which that val of entitled to all the benefits were provision 1933, utility of In service. ue-growth assets, utility of which of sustained a base valuation Court rate application Supra in vari the formula 82. 119. For 124. Chesapeake contexts, & see West v. ous 32, at at 271 46 S.Ct. U.S. 662, 671, Co., 55 295 Tel. U.S. Potomac Supra (1935) ; 119, 289, 894, 262 at 43 1640 St. U.S. S.Ct. 79 L.Ed. joined States, Ry. in Holmes S.Ct. 544. Justice v. United 279 Louis & O’F opinion. 384, 461, 487, L.Ed. 49 73 798 U.S. S.Ct. Indianapolis (1929) ; Water v. McCardle (footnote 290, 127. Id. at 43 S.Ct. 547 144, 408-409, Co., 400, S.Ct. U.S. 47 272 omitted). (1926) ; ex rel. Missouri L.Ed. 316 71 prudent theory has, 128. The investment Serv. Co. v. Public Bell Southwestern Tel. however, 544, seen in 276, 288, service the District of Comm’n, 262 43 S.Ct. U.S. Washington Light (1923) ; Columbia. In Gas Co. Minnesota Rate L.Ed. 981 67 Baker, U.S.App.D.C. 115, v. (Simpson Shepard), 88 188 F.2d 230 U.S. Cases (1950), denied, 352, 354, cert. 340 U.S. L.Ed. 1511 33 S.Ct. (1951), Co., 95 L.Ed. S.Ct. where (1913) ; Gas Willcox v. Consolidated applied theory had in 19, 41, 52, PUC lieu of re 53 L. 29 S.Ct. U.S. production costs, id. at F.2d at Ed. pointed “[p]rimary , out em Supra note 119. phasis being ‘specific placed is now not on property, tangible intangible,’ but on 121. 212 U.S. at capital prudently invested and embarked Supra note 119. enterprise public on an service.” (footnote omitted). 123. 230 U.S. 33 S.Ct. at Id. public utility reproduction possessed had been a an indefeasible from which cost right years excluded,129 appreciation of the and five later value utility’s upheld operating assets, founded another valuation base Court computed upon In historical cost alone.130 their rate of return is aggregate Natural themselves Federal Power Commission v. —the of the assets Pipeline Company,131 only the Court —could the true Gas be set value setting. reproduction formally more the assets at the moment abandoned suggest result and cost when it ruled that Constitu Fairness would “[t]he rate-making compel process tion bodies it.139 does not bind due would seem utility any single is not But it now clear that the formula is service Finally, right of formulas.”132 rate base es- combination entitled of to have its in Federal Power Commission the assets tablished at the value which Company,133 market, Hope Natural Gas would command on the current origi- rejected although con Fourth Court Circuit’s that market value exceeds utility’s clusion rate base should nal can cost. This mean “present legally protected reflect fair value” of interest investors’ said, value,’” property.134 inexorably extend such assets does not “‘[F]air process product the end of the “is the increment value. starting point ratemaking not the Depreciation B. Formulation Base Appeals Circuit Court of held.”135 “Un fair as the and fall of value rise ‘just statutory der standard [a] measuring utility method of ”136 exclusive added, reasonable,’ re “it is the paralleled by judicial rate base has been employed reached not the method sult problem of of the interrelated treatment controlling. . which theory . . It is basis for assets. impact order of the rate but the integral part process An of estab- approach to rate that counts.”137 This lishing purposes rate base for rate prevailing doc formulation base return is ascertainment of today.138 trine amount to base— be deducted rate teaching of modern cas and, course, allowed as plain. If es this area investors expense depreciation140 util- —for Angeles v. Railroad 4(a), Los Gas Co. (1938), 5(a), 15 §§ §§ U.S.C. 717c Comm’n, 289 U.S. S.Ct. (a), 7174(a) (1970). The Commission (1933). 637, exactly L.Ed. 1180 required apply 77 is to the same promulgating standard in fares. Co., 130. Railroad v. Pacific Gas Comm’n II, XII, Compact, supra 12, note tit. art. 334, 388, 399, 405, 82 58 S.Ct. 302 U.S. 6(a)(3). § (1938). L.Ed. 319 575, 736, 602, 131. at 315 62 S.Ct. 86 L.Ed. 137. 320 at 64 S.Ct. 287. U.S. U.S. (1942). 1037 supra, See, to cited addition cases Pipeline Co., supra 586, 132. Id. at 62 S.Ct. at 743. FPC v. Natural Gas 736; 586, 131, at 62 S.Ct. U.S. 591, 281, 133. 320 64 S.Ct. 88 L.Ed. U.S. (Con- Area Rate Permian Basin Cases (1944). FPC), tinental Oil Co. v. 390 U.S. (1968). 20 L.Ed.2d 312 S.Ct. 599-600, at See S.Ct. Id. Columbia, see As to the District and, states, supra, I A. as to the 135. Id. at It seems S.Ct. Utility Regu- Principles Priest, adopted of Public Hope clear that Natural Gas thus (1969). lation 142-66 concept investment which Justice espoused Brandéis had Southwestern See, g., (Simp- e. Minnesota Rate Cases Bell. text at note Shepard), supra note 230 U.S. son v. Priest, Principles A. also 2 of Public 729, quoted in text Utility Regulation 33 S.Ct. (1969). 503-504 at note 123. quoted language 136. The is from the 18, supra. Natural Act of Gas 52 Stat. 821 See note ity’s ap- property.141 if in-service And fair value as the measure of rate base.150 By preciation proper- utility in the value Lindheimer v. Illinois ty Telephone invariably Bell Company,151 is inure to benefit to the Court upheld logically investors, follow propriety computing would an depreciation depreciation nual original that allowances for must be cost.152 computed present pointed than The value rather Court out that “if charged acquisition other cost or some basis. amounts expenses and credited to deprecia the account for That was the view to which the Su tion excessive, reserve are to that extent preme originally In Court subscribed. telephone subscribers for the service are 1909, in Knoxville Water Knoxville v. required provide, effect, capital Company,142 decided that the Court contributions, good not make losses utility that from earn “is entitled to see incurred in the service property ings invested the value of the rendered keep and thus to its invest kept unimpaired, end of at the so that unimpaired, ment but to secure addition original any given years in term of plant equipment al upon which the as it was vestment remains utility expects a return.”153 And said, beginning.”143 is,” the Court “It 1942, in Federal Power Commission v. right company only “not of a Pipeline Natural Company,154 Gas duty provision its such a make Court has sustained an amortization ba and, stockholders, to its bond and depletable utility sis for property calcu corporation, public case a service capital lated on rather investment than public.”144 least, duty plain reproduction cost.155 There the Court later, Court, in United Two decades stated: Company Railways and Electric ruling West,145upheld de that annual a property When the is devoted a calcu preciation were to be allowances business which can exist for present rath value lated on the basis of term, any limited scheme of amortiza Repeating theme of er than cost.146 tion which in will restore majority Company, Knoxville Water vestment at end of the term in then “settled referred to its the Court147 deprivation property. volves no to be estab rule” that rate base though reproduction Even cost of argued value,148 present lished at during property period may illogical wholly that “it would be cost, more than its this theoret actual depreciat adopt rule for different represents ical accretion to no value ion.”149 profit owner, since the deprecia value, business, Fair as the basis dedicated to the save for its way go salvage, tion, however, scrapheap was later is destined for the tlie loss L.Ed. 141. “Annual U.S. determining year. place in a takes supplying public rates reasonable 146. Id. 50 S.Ct. 123. at proper service, in the include it is, Brandeis, expenses, operating in the cost whom Justice 147. with Justice service, concurred, for producing an allowance 280 U.S. Holmes dissented. consumption 254, to main- in order at 50 S.Ct. 123. integrity in investment tain the (A), supra. III 148. Part See Illinois v. Lindheimer rendered.” service 254, 151, 167, Co., S.Ct. at 126. 54 149. at 50 280 U.S. S.Ct. 292 U.S. Bell Tel. (foot- (1934) 665, 658, 1182 L.Ed. 78 (A), supra. 150. III Part omitted). Supra 151. note 141. 148, L.Ed. 53 29 142. S.Ct. 212 U.S. 168-169, 658. 54 152. 292 at S.Ct. U.S. 371 at 665. 153. Id. at 54 13-14, S.Ct. at 152. 143. Id. at 29 S.Ct. Supra 154. note 131. at 152.

144. at 29 Id. S.Ct. 592-593, 62 736. S.Ct. at U.S. assigned when the fair business ends. Consti value has never been a role require depre tution does not that the owner in determinations as to its rate or wasting-asset ingre who in embarks busi ciation bases. That was not early ness of life shall receive at dient of either limited was settled rather put regulatory history. end more than he into it.156 in has In the Transit’s days prior to utilization of the Finally, in Federal Power Commission computations in ratio method of its mar Hope Company,157 Natural Gas in gins return,162 the Commission’s upheld depreciation deple the Court PUC, predecessor, main established and cost,158 tion allowances over based on tained Transit’s without con rate base ruling Railways United and Electric present then value sideration Company “By process.159 West properties.163 In those its in-service procedure,” Court, such a “the said the original days, employed cost as PUC also utility integrity is made and the whole setting depreciation the formula Transit’s for of its No more investment maintained. ,164 in base and the Commission required.” turn, its the same.165 Neither done has again Here we draw a lesson purposes for nor ba of its rate base jural history ratemaking. from the apprecia depreciation, then, sis for util Investors entitled recover the tion in its assets the market value of ity’s pro outlay employed in the assets Trans been deemed a benefit to which utility’s public vision of the service.161 might justly lay it’s claim. investors protected If interest investors’ effort But that was not because the encompassed those increases pro- fare-increase was not made. In a necessarily value, their market would inaugurated ceeding Transit recoupment follow that em must sought adopt persuade de- PUC brace the increases as well as replacement preciation combining base acquisition. amount out for laid their market cost some with But it is now clear that the amount however, PUC, de- value for others.166 recovery depreciation eventual base —the Instead, pointed clined to do PUC so.167 —may permissibly be limited to the original “long that it has held out original outlay. amount This for measur- basis cost is the sound way saying but another ing depreciation accord as it is right possess investors do not a vested depreciation purpose of the fundamental accounting, accruing value-appreciations in- namely, recover the cost service assets. provide for rather than to of investment Litigation Ratemaking In C. Transit’s replacement.” use “The cost of just explored take considerations replacement for the as a base cost weight case, on added allowances,” calculation 156. Id. at incorporated orig- S.Ct. 251-256, a device which present as the inal rather than value cost Supra note 133. depreciation. D. C. See also basis for 158. 320 S.Ct. 281. U.S. (Order 4735), Sys., No. Transit Inc. (D. Pub. Utils. C. 34-35 P.U.R.3d 159. Id. at S.Ct. replacement 1961) (rejecting Comm’n cost), 160. Id. at at notes 167- in text discussed infra 161. See text notes 142-144. See, g., e. D. C. infra. 81 P.U.R.3d 163. See note infra. (WMATC 1969). (Order Sys., 164. See D. C. Transit Inc. No. Sys., 166. D. Transit C. 4631), (D. 33 P.U.R.3d C. Pub. 4735), at 34. 38 P.U.R.3d Utils. Comm’n es- wherein PUC 167. Id. at 34-35. acquisition adjustment tablished Transit’s account, in text discussed at notes 168. Id. at infra view, many depreciation have serious allowances in con- PUC’s “has set templation faults,” recoupment not the least of which is the of eventual possibility that Transit’s fare- their But modern distinct investment toto.172 ratemaking payers thereby against made involun- would be militates doctrine tary proposition capital. value-appreciation contributors to PUC explained: legitimately alone can either increase recoupment.174 the return173 or In- prices rising use of the are [I]f has,175 deed in Transit’s case it never

replacement compel would cost base legally and that im- would have been capi- provide additional consumers to possible protected if in- the investors’ utility, ex- tal for the at least to the to terest in Transit’s extended assets replacement costs were tent greater advances in to market value as well as depre- than costs of the original investment them. ciating equipment. wit- [Transit’s fact is that Transit’s have been investors theory admitted that under his ness] so respects, limited in and that both position would consumers adequately serves to refute notion involuntary though no with investors they necessarily possess a claim on right investment; a return on their such advances.176 worse, they and what is even would provide required thereafter fair return and allowance IV capital they had themselves FOR ALLOCATION OF CAPI- BASIS Obviously, consumers’

contributed. TAL ON OPERATING GAINS obligations paid when end have UTILITY ASSETS including cost the cost of service depreciable used and ex- concluded, Investors, we have rendering service. hausted automatically not entitled to original just eq- cost base operating utility properties value of sim and consum- uitable both investors ply ownership con an incident of the by pay serv- ers. the cost of Consumers goes ferred their investments. And it including capital. To the cost of ice saying without that consumers do pay than ask more the consumers gains simply succeed such because to make contribute to the cost is them they are users the service furnished capital enterprise.170 utility. Neither invest consumption ment nor service contrib then, accept cannot, the the We value-growth any special way utes in appreciations sis that in value of Trans Rather, utility the values assets. it’s status while with which are concerned have we automatically investors to Transit’s flow rising grown simply mar because of a ownership. inseparable incidents ket. sure, To be investors are entitled to a fair start rates view thus fixed Investors consumers investment,171 disposi- equal footing, return on their off on an and the utility investors, Indeed, in- 169. Id. claims of Transit’s, appreciations cluding in val- 170. Id. at 34-35. gen- assets have ue Washington erally 171. D. Transit C. Inc. v. the claims been subordinated to Metropolitan Comm’n, 11(A), utility’s Area Part consumers. See U.S.App.D.C. 223, 247-248, consequence, believe, supra. That, 466 F.2d denied, cause, cert. 409 U.S. investors’ than a rather ap- right 34 L.Ed.2d of an indefeasible lack preciations. that con- is evident But supra. (A), III See Part enjoyed priority, never have could sumers III(B), supra. Part equality, See if the in- a measure even right were absolute. vestors’ supra. (B), Part III text at notes 162-170. 806 growth activity reap depend re-

tion benefit must other should also sulting justice critical inherent factors. We thus reach the dual therefrom. The inquiry: principles principles self-evident, and identification of the in these guide already occupies in allocation, which must each a niche the law be- ratemaking;180 applica- groups, tween investor and consumer of tion, and their prob- appreciation overlapping, utility assets value sometimes status; applica- weighs heavily lem at while hand scale principles practice to Transit’s in the tion of situ- favor consumers. For those utility long imposed upon ation. field con- has fi- sumers substantial risks of loss A. Considerations Doctrinal nancial burden employed with the assets associated ratemaking process The involves fun utility’s business. We damentally balancing “a of the investor pause practices, will to examine the and the consumer interests.”177 The conjunction then their effect in with the integrity interest investor’s lies principles mentioned. opportunity of his and a fair investment n — Right Loss Risk for a return thereon.178 Follows reasonable Gain governmental consumer’s interest lies strongly influencing A factor the rate against charges protection unreasonable utility of return which the investor monopolistic he service which magnitude entitled is becomes terms val subscribes.179 In risk which investment encounters.181 his appreciations, ue the balance is best High justify larger returns,182 risks point struck at the the inter at which nearly guarantee while low risks more groups ests of both maximum ac receive investment, may and so warrant accepted commodation. We think two Similarly, smaller an investor returns.183 principles comparably which have served hardly support any equitable can muster satisfactory adjustments effect appreciation for a claim to value asset aspects ratemaking equal other do can against where shielded he been service here. investment, risk al of loss on his or has ready taking on that rewarded principle One is the risk. right capital gains utility capital capital gain is tied proposition to the risk losses. The principle rightly other bears he who inures of him who benefit utility particular the financial burden of ac- bore risk loss has been Hope Co., supra 675, (1923) ; 177. FPC v. Natural Gas 67 L.Ed. 1176 v. Williams 133, 603, Washington Metropolitan note 320 64 at 288. U.S. S.Ct. Area Transit Comm’n, supra 16, U.S.App.D.C. 134 note g., 178. E. id. 64, 65, at 355 nn. 415 F.2d at 935 nn. cases, 179. “[F]rom the 64, earliest the end of public regulation recog has been FPC, 182. See Atlantic Ref. v. Co. 115 protection nized to be of consumers from U.S.App.D.C. 26, 28, 677, F.2d 316 Washington exorbitant rates.” Gas (1963) ; Co., New Haven Water 2 P.U. Light Baker, 128, Co. v. note 452, (Conn. R.3d 456-60 Pub. Utils. 119, (foot 188 F.2d at 15 1954). Comm’n See also cases cited omitted). note note 181. (A), 180. See discussion in Part IV infra. Hope Co., supra 183. FPC v. Natural Gas See, g., Hope e. 133, FPC 604-605, Natural Gas note U.S. 64 S.Ct. Co., supra 133, 281; 320 U.S. at State ex rel. Pacific Tel. & Tel. 281; Co., Department S.Ct. Smith Serv., v. Illinois Bell Tel. Co. v. of Pub. 19 Wash. 133, 160-162, 282 U.S. (en L. 1943) ; S.Ct. 2d 142 P.2d banc (1930) Rys. ; Ed. 255 Michigan United & Elec. Co. Bell Tel. Co. v. Public Serv. West, supra Comm’n, U.S. at 332 Mich. 50 N.W.2d 123; (1952) ; Bluefield Water Works 840-841 El Paso Natural Gas Improvement Co., & Co. v. 694-95, Public Serv. 28 F.P.C. 45 P.U.R.3d Comm’n, 679, U.S. 43 S.Ct. 270-71

807 cepted ratemaking Thus, following example in law. as sound. The illus seen, applies land, have been principle investors have denied trates how capital disposition which, may on realized while lost its have useful utility they utility’s operations, where have not borne assets ness a has none appreciated the risk of hold- op loss associated with the theless erating in value while in ing suppose such And we have con- status. Let us that fif assets.184 sistently years ago cannot re- company purchased held investors teen a under-depreciated piece cover for assets where on which construct compensat- building form a some to be used as its central of deficiency ed or principles either for for as- fices. Under established might suming deficiency regulatory law, that a the risk from the loss normal hand, grave building occur.185 On the other risks depre wear and tear on the —a utility associated are com- recouped with assets ciable asset—would be from its monly upon Many ratepayers by investors, consumers. thrust who are en susceptible damage are from to loss or op titled to have their in an investment erating man, acts of nature risks of asset What would protected.191 usually passed happen such change if, casualties because of a neighborhood The risk of loss from character of the or be consumers.186 premature because retirement cause of need a for increased office obsolescence, rule, general space, building longer as a were no suita Moreover, utility’s operations? also falls on consumers.187 ble for the If the possibility building jurisdiction, loss, clearly at least one had be sold at a ratepayers, in mar- precepts asset will diminish under the artic ket is a hazard above, value while service ulated would bear burden covering than the the consumer rather loss.192 On the other And, hand, profit investor must face.188 unlike cas- if were made the sale ualty resulting losses, building, gain from go those obso- of the would declining may oc- ratepayers, lescence and markets at least to the extent neces respect nondepreciable sary recoup cur payments their well Some cas- assets.189 depreciation193 already apprecia- es have value awarded building As the land on which tions to in such situations.190 consumers located, it is true land does view, capital depreciate ordinary In our the doctrine wear and tear accompanies way building loss risk But it is also does. (Fla. 184. Part II See eases discussed Util. R. R. & Pub. Comm’n 429 (A). Co., 1957) ; Long Lighting Island 7 P.U. (N. 140, Y. Pub. Serv. 141-42 R.3d Comm., 185. Bebchick v. Public Utilities 115 1955). Comm’n U.S.App.D.C. 216, 224, 187, 195, 318 F.2d denied, 1304, cert. 373 U.S. 88 S.Ct. 187. at note 201. See text infra (1963) ; 414 10 L.Ed.2d Williams v. Corp. York Water See New Serv. Washington Metropolitan Area Transit Comm’n, supra note dis- Public Serv. Comm’n, supra note 134 11(B), supra, at notes 69- cussed Part 954-956; 415 F.2d at Wash ington Light Baker, Gas Co. v. 128, U.S.App.D.C. 123-125, 188 id.; Columbus Gas & Fuel Co. Minneapolis Comm’n, supra F.2d at 19-21. St. Public Serv. See also Ry. City Minneapolis, 251 Minn. S.Ct. 763. Co. v. U.S. 665-668 N.W.2d 11(B), in Part 190. See cases discussed See, supra. Co., Northwestern Bell Tel. (1959) ; S.D. 98 N.W.2d (A), infra, Part IV at note Co., Diamond P.U.R.3d State Tel. IV(A), infra, at notes 211- See Part (Del. 1959) ; Serv. 137-39 Pub. Comm’n Co., 25 Baltimore Gas & Elec. P.U.R.3d (Md. 1959); 11(A), supra; IV(A), Serv. Flor Pub. Comm’n Part 193. See Part Light Co., infra, obsolete —for continued use the com doctrinal consideration we have men- pany’s operations. it, precept If like build tioned —the those who bear ing, must be retired from service and particular utility the financial burden of loss, activity sold at a who bears the onus of reap should also the benefit re- making up sulting loss? inves play. Since the therefrom —comes into may upon preservation tors insist —Economic Follows Economic investment make in an asset Benefit Burden utility’s operations, used it is the ratepayers’ compensate burden them Ratepayers expense bear de for the on their loss investment preciation, including obsolescence Accordingly, land.194 if no the land depletion,197 operating utility assets longer operations utility useful is sold through expense allowances to utili profit, at a those who shouldered they patronize.198 ties It is settled well risk loss are entitled to benefit investors are entitled to re gain.195 coup from consumers the full amount of principle follows their investment loss, may be, risk of useful not as public devoted to service.199 This enti may without its limitations. There extends, tlement to reductions assignment situations where the of risk physical in investment attributable particular of loss on a readi- 200 asset is not (ordinary depreciation) wear and tear ly ascertainable, oth- or where for some by but also to those occasioned function terminology “capital er reason 201 (obsolescence) by al deterioration (A), infra, Part at notes 211- IV 281; Rys. West, United & Elec. Co. v. supra 145, 253-254, note 280 at U.S. 50 123; ICC, S.Ct. Illinois R. Cent. R. v. II(B), supra. 195. See Part 441, 461-463, 700, 206 U.S. 27 S.Ct. 51 (B), infra, Part IV at notes 228- (1907) Smyth ; Ames, L.Ed. 1128 v. 115, 547, note 169 U.S. at 18 S.Ct. 418; Sys., D. C. Transit Inc. v. definitions, 18, supra. Wash 197. For see note ington Metropolitan Area Transit Com Joseph Yards v. St. Stock Co. United m’n, supra 18, U.S.App.D.C. note 121 at States, 38, 65-67, 720, 298 56 S.Ct. U.S. 394-395, 772-773; 350 F.2d at Panhandle (1936) ; Il 80 L.Ed. 1033 Lindheimer v. Pipe FPC, Eastern Line v.Co. 113 U.S. Co., supra 141, linois Bell Tel. note 292 App.D.C. 94, (1962), 305 F.2d 763 cert. 165-175, 658; at 54 Pacific U.S. S.Ct. denied, 916, 719, 372 U.S. 9 83 S.Ct. L. City County v. Gas & Elec. Co. & San (1963) ; City Ed.2d 722 of Detroit v. Francisco, 403, 415-416, 44 265 U.S. S.Ct. FPC, U.S.App.D.C. 260, 263, 97 230 F.2d (1924) ; City 537, 68 L.Ed. 1075 Kansas 810, (1955), denied, 813 cert. 352 U.S. Ry. States, 423, 231 S. v. United U.S. 829, 37, (1956) ; 1 77 S.Ct. L.Ed.2d 48 449-452, 125, S.Ct. 58 L.Ed. 296 34 Washington Light Baker, supra Gas Co. v. (1913) ; (Simpson Minnesota Bate Cases 128, U.S.App.D.C. 119-120, note 88 at Shepard), supra 119, v. note 230 at U.S. 122-123, 15-16, 18-19; 188 F.2d at Pub 729; 456-458, 33 Knoxville v. Knox S.Ct. Capital Co., lic Utils. Comm’n v. Traction Co., supra, 142, ville 212 Water note U.S. App.D.C. 85, 88, 673, 57 F.2d 17 676 9-11, 148; at D. C. Transit S.Ct. (1927) ; Corp. Safe Harbor Water Power Washington Metropolitan Inc. v. FPC, (3d v. 1949), 179 F.2d 193-199 Cir. Comm’n, supra Area Transit note denied, cert. U.S. U.S.App.D.C. 394r-395, 350 F.2d (1950) City ; 94 L.Ed. 1368 of Min 772-773; Washington Light Gas Co. neapolis Band, 285 F. 825-831 Baker, supra note (8th 1923). Cir. 19; Hope 188 F.2d at FPC v. Co., supra Natural Gas note See cases U.S. cited note 198. S.Ct. 281. See also cases g., Angeles Corp. 201. E. Los Gas & Elec. cited notes 201-202. infra Comm’n, supra v. Railroad Hope Co., supra 306-307, 637; 199. FPC v. Natural Gas U.S. at 53 S.Ct. Pacific City County 320 U.S. at 64 S.Ct. Gas & Elec. Co. v. & of San Recoupment Depletion exhaustion service allow period.207 (depletion).202 investment, similarly particularly ances the reduc are where based on estimates tion is be effected expenses.203 ortization of commonly annual gradual, or referred the investment Recoupment may, other single charge, usually periodic accomplished loss allowances, however, against am may ed in much rate and the similarly evident productive sometimes be foreseen and calculat spread.208 the same manner asset remains if all life, predictions Even usually obsolescence service accu It are ratepayers, frequently precisely period anticipated, is more process eventually yield done and re will in instances obsolescence to investors still, sulting investment, serviceable the exact abandonment of amount of their expense ultimately cases, lev and In all will cost consumers assets.204 against ratepayers ied is the difference same amount. Consumers will ab thus original sorb between cost of the asset the investment investors loss salvage will or be made whole. estimated value,205 actual.206 highest calculations, But of even predictive ordinary quality, Computations go awry. of cost of sometimes life, salvage productive physical Service deteriora life or —normal may value turn out to or less tion —are made on basis of estimates be more originally salvage value, than of service life and Obsoles estimated.210 charges may spread usually cence therefor be slower or faster than ex over generally, Washington Light Francisco, supra 198, at Gas v. note 265 Co. U.S. 406-416, City Baker, supra 128, U.S.App.D.C. 537; note 88 44 Kansas S.Ct. S. 123-127, 188 Ry. States, supra 198; at F.2d at 19-23. v. United note Washington Light Baker, supra Co. v. Gas supra 205. cases cited note See 128, U.S.App.D.C. 126, note 88 at F. 188 supra 198, 199, 22; 206. See cases cited notes 2d at Colorado Interstate Gas Co. v. 201, 204. FPC, 943, (10th 142 F.2d 959-961 Cir. 1944) ; Minneapolis Ry. City St. v. of theory depre- to the As “service life of Minneapolis, supra 185, note 86 N.W.2d Ry. ciation,” particularly see International at 665-668. Prendergast, F.Supp. 623, v. 1 627-631 (W.D.N.Y.1932). also cited See cases g., Hope Co., 202. E. FPC v. Natural Gas Priest, supra Compare note 1 A. supra 133, seq., note at 606 et 320 U.S. Regulation Principles Utility Dayton Public 281; Light 64 Power S.Ct. & Co. In D. C. Transit Comm’n, 117-24 290, v. Public Serv. 292 U.S. supra note 38 303-305, 54 S.Ct. L.Ed. 1267 78 straight-line method of at (1934) ; P.U.R.3d Arkansas-Louisiana v. Gas Co. depreciation accounting, opposed as City Texarkana, F.Supp. 447, 17 460- sum-of-digits method, approved (W.D.Ark.1936). 463 ratemaking purposes. supra 199, 201, 203. See cases cited In situations where milieu, the distribu In this as on an shouldered burdens have these utility and burdens tion of the risks gain, equities produces a set which or- apparent. must clearly Consumers preponderate assets is their favor. in Metropolitan Washington Metropolitan Washington 211. v. Williams 217. v. Williams 16, Comm’n, supra 16, Comm’n, supra note 134 Area Transit note 134 Transit Area U.S.App.D.C. 372-376, at U.S.App.D.C. 374-377, 415 F.2d at at at 415 F.2d 952-956; Sys., Sys., Inc. v. 954-957; D. Transit C. v. D. Transit Inc. C. Washington Metropolitan Metropolitan Area Transit Washington Transit Area Comm’n, supra U.S.App.D.C. 18, U.S.App. 18, 121 Comm’n, supra note 121 note 768-769; 390-391, 772-773, 394-395, at 350 F.2d at D. C. 350 F.2d at D.C. at (Order Sys., 952), Inc. No. 80 aff’g Transit v. Public after remand Bebchick (WMATC 1969) ; 185, 1 Maui Elec. Comm’n, supra P.U.R.3d 115 note U.S. Service Co., (Hawaii 140, 195; App.D.C. 224, 74 147-50 P.U.R.3d F.2d at Wash at 318 1968) ; Baker, supra ington Light Pub. Rapid Comm’n Honolulu Util. v. Gas Co. Co., 409, 123-124, U.S.App.D.C. Transit 414 128, 68 P.U.R.3d note 88 at (Hawaii 1967). Pub.Serv.Comm’n Com F.2d at 19-20. 188 pare (Order Sys., D. Inc. No. C. Transit supra 218. cases cited note 217. 245), supra 18, 405, note 48 at P.U.R.3d (allowing Co., 406 reduction service-life re Northwestern Bell Tel. 73 period). 37, 553, (1950), 564 S.D. 43 N.W.2d 489, denied, 934, cert. 340 71 S.Ct. U.S. g., supra 212. E. see cases cited note 204. (1951) ; 95 L.Ed. D. Transit 674 C. g., 45, E. Missouri Water Cities Co. 63 P.U.R.3d Co., supra Howes v. Mather (WMATC 1966) ; Cheyenne Light, Water both 55 note 204. Co., 129, Fuel & Power 7 P.U.R.3d 134 (Wyo.Pub.Serv.Comm’n 1955). g., Washington 214. E. v. William Metro- politan Comm’n, supra Area Comm’n, note g., 220. E. v. Public Wall Util. U.S.App.D.C. 374-378, at 415 Pa.Super. 35, 125 A.2d 638-639 F.2d at 954-958. (1956); Co., Natural Penn-York Gas 33, 37, (n.s.) 235, 238 F.P.C. 63 P.U.R. supra cases cited notes 211-213. (1946) ; Co., Lucerne 52 P.U.R.3d Water Hope Co., v. Gas See FPC Natural (Cal.Pub.Util.Comm’n 1964). 224-25 supra note at 320 U.S. supra cited See cases note 198. 281; Improve- Bluefield Works & Water Comm’n, su- supra ment Co. v. Public Service 222. See cases cited note 202. pra 692-693, note 262 U.S. Washington Light Baker, Gas v. Co. Accord, S.Ct. 675. Permian Basin Area supra U.S.App.D.C. at note 123- (Continental FPC), Rate Oil Cases Co. 19-20; Minneapolis F.2d at St. supra note 390 U.S. 88 S.Ct. Ry. City Minneapolis, note 1344; FPC, supra Atlantic Ref. Co. v. 185, 86 N.W.2d 660-668. 316 F.2d at 678-679. See cases cited recognized point today hold- As we in cases out Democratic This has been utility Washington ing by a from Central Committee v. Met- that rents received leasing ropolitan Commission,228 operating properties must Area Transit admits,229 utility’s operating and as the Commission itself included in the point, any directly in there has never been risk of finan- income.225 More agree seen, generally loss, foreseeable, cases, cial parcels on the have actual or as we superior have claim of land which concern us here. that consumers depreciable Despite ever-present risk obsoles- achieved this, operation utility purposes, cence of land for land assets while believe, acquisition Investors values by is as it should be. since opportunity steadily of a who are afforded Transit have climbed throughout Capital, Trans- fair return on a secure investment Nation’s position history hardly regulatory it’s assets are could complain expected So, their do not receive to do so. while just traveling public. insoluble, due from the On risk of obsolescenceis risk just eminently consequent hand, the other it is financial loss payments rising consumers, for service whose been foreclosed real estate ravages of for the reimburse investors market. It would little more than an occurring service, logic wear and waste exercise in to invoke the abstract gain-follows-loss principle in instances where should benefit where the wholly illusory. full extent eventuates-—to financial risk Conse- gain.227 quently, we confine to the sec- ourselves ond doctrinal consideration discussed— Application In This B. Doctrine that benefit follows burden —in deter- Case mining equities where the here. The lie attention now We direct our exploration find make ram- we must we presented a at bar with ified, situation necessitating of the examination resolving conflicting claims view to history ques- acquisition of the of farepayers of Transit’s investors and assets, tioned the allocation of burdens gains capital the out advantages issue. At of associated and the accrual set, capital lay holding assets, we aside the rule that with of those gain accompanies loss. balancing respective risk a thereafter Fleming Comm’n, predecessor, v. PUC, Illinois Commerce rec- the Commission’s (1944), farepayers’ 38S Ill. N.E.2d ognized 57 395 entitlement that appeal denied, may beyond dismissed and cert. mere reimbursement extend U.S. 89 L.Ed. 1393 as well. has done so and this court (1945) ; Co., Pekin 11(A), supra, Water Works 82 P. at notes 33-50. We Part (Ill.Commerce perceive justification, U.R.3d Comm’n extra- absent no 1970) ; limiting circumstances, Illinois Commerce v. ordinary Comm’n fare- for (n.s.) Co., gain. payers only part Public Serv. P.U.R. 27-30 Their a (Ill.Commerce 1934); right Comm’n Hillsb from the fact to its benefit derives orough Co., & M. Tel. they P.U.R.3d burden have borne the financial (N.J.Bd. 1956) ; serviceability Pub.Util.Comm’rs of the withdrawn of loss of Co., (n.s.) might Farmer’s Union Tel. 84 P.U.R. loss and the risk that such assets (N.J.Bd.Pub.Util.Comm’rs 1950) ; prematurely. Had the occur reimbursement, Public Serv. Comm’n Mountain Fuel full small to enable too Supply Co., (n.s.) 428, 441 they 73 P.U.R. on the would have suffered the loss (Utah 1947). justice requires Pub.Serv.Comm’n remainder. Elemental gain, full even be awarded the 11(A), supra. See discussion Part necessary though it exceeds the amount recognized 227. The Commission has for reimbursement. farepayers cap- Transit’s are entitled to Washing- 228. Democratic Cent. Comm. gains ital assets with- Metropolitan Comm’n, ton Area Transit drawn from service at least to the extent 3, at nn. 101-106. of reimbursement for their contributions depreciation expenses Respondent on such assets. 229. Brief 11(A), supra, See Part at notes 57-64. proper- Capital’s competing certain of for the the sale of interests and, ties, mostly revenues farebox tasks from undertake these We stake. them, after Transit went into business.236 discharging- conclude prevail. farepayers must Transit’s imposed the re- franchise Transit’s quirement Capital’s streetcar-bus History —Acquisition Allocation And system gradually into an converted Burdens throughout metropoli- system all-bus was awarded its Transit program necessitated tan area.237 This transporta- operate mass franchise to the abandoned streetcar the removal of Washington system met- do within regrading repaving tracks and ropolitan was The franchise area.230 areas,238 an of the abandoned track acquisition upon conditioned Transit’s $10,441,958.239 ac- To estimated cost of Company Capital assets' cost, establish- commodate that PUC years (Capital),231 many had which for for track removal ed a reserve system through the area served repaving,240 accrual and directed the and buses were both streetcars annually $1,044,196 ten thereto purchased Capital’s employed. Transit stage early years.241 And at an August 15, 1956, com- and on ques- regulatory history, Transit’s parcels operation. own menced its accruals tion arose as to whether those litigation realty upon cen- which this investors Transit’s should be made part acquisition ters were through capital or from contributions Capital.232 from high- form Transit’s consumers takeover, At the time of Transit’s er fares. Capital’s its books assets were valued on aspects, expense approximately two million.233Trans- This was $23.8 militated, purchase price of each it’s was about and the nature $13.5 against million,234 $500,000 repre- ratemaking law, of which terms inci- ratepayers. loss an actual cash investment.235 first sented ultimately partly facili- from of the rail The balance came dental to abandonment Capital’s partly passed Capital to from on hand and had cash ties which (1956) development plans of the District 230. Pub.L. Stat. implicit H.R.Rep.No. (Franchise Act). the economies also Columbia and See Corporation’s coordinating Cong., (1956). track the 2d Sess. 84th plans; program ex- with such removal 201(a), II, §§ 231. Id. at tit. 203. cept upon good cause and sufficient appendix. may 232. in its dis- shown Commission years, beyond cretion extend seven S.Rep.No.91-760, Cong., 233. 91st 2d Sess. period carrying out such conversion. for (1970). para- provisions All of the full of Id., Sys., (Order D. Transit Ap- C. Inc. graph of the District of Columbia 4631), supra, No. (55 33 P.U.R.3d propriation Act, 1942 Stat. Fund, “Highway 533), under the title Fees”, Tax and Motor Vehicle Gasoline S.Rep.No.91-760, Cong., 91st 2d Sess. Improvements”, relat- subtitle ing “Street (1970). track to the removal of abandoned Id. applicable areas, be Cor- shall poration. pt. Act, I, 237. The Franchise tit. § (1956), provides: Stat. Appropria- District of Columbia Corporation obligated shall be tion Act of Stat. carry plan grad- initiate and out a railway ual conversion its street 239. D. C. operations operations to bus within 33 P.U.R.3d years seven from the date of the enact- upon ment of this Act terms and condi- prescribed by Commission, tions Id. regard reasonably pos- with such as is Id. appropriate highway sible when pointed out, repaving it has lost,

Transit. As we have and removal costs was permanent losses ofttimes been held that when this court concluded that the bene- premature purchase price on retirements fit of the reduced was be- expenses ing operating passed be amortized to Transit’s consumers.250 In consumers to absorb.242 future understanding A full of the basis of PUC, then fashion, similar holding much so quires of our in Bebchick re- undepre regulatory agency, treated technique some elaboration of the and streetcars ciated cost of the tracks dealing PUC utilized in with the $10 part de acquired Transit as a Capital’s million difference between preciation expense recoverable from purchase price book value and Transit’s farepayers.243 an This item of cost was acquired portion assets. The ticipated aggregate more than $5 purchase price assignable to road aspect the ex million.244 The second including and parcels equipment, removing pense was the cost realty scrutiny now,251 under was regarding repaving tracks, and $10,339,041 depreciated less than the they re which, from were street areas original catego- 252 cost of those ruled, too, was cost, That PUC moved. ries as carried on Transit’s books As paid by farepayers.245 The es explain, we were later to as we was, timate this item of cost depreciation stated, in million.246 Transit’s allowances excess of $10 course, thereon could, of have been re- item did PUC’s treatment of the latter cost; acquisition lated to its own not, go unchallenged. howevei', Beb- required develop- this would have Commission,247 chick v. Public Utilities depreciation ment' of new com- rates expense of consumers contended that puted remaining life, de- new repaving track removal and street preciation part bases derived in burden which had as- Transit’s investors purchase price distribution of sumed the terms of the franchise248 among property acquired. the items of properly and so was not an To save labor incidental to that They words, asserted, cost. in their process, however, [PUC] that “it is unreasonable and unlawful things ordered that two be done. One require farepayers make contribu- acquisi- was the establishment [an] tions of device to Transit adjustment tion account to accommo- of repaving.” track removal allowance for amortization, ten-year date an over a point, To buttress this period beginning August 15, purchase of adverted to Transit’s $10,339,041 acquisi- difference Capital’s assets million argued at more than $10 Capital Transit, tion costs to re- value, less than their book spectively. The other was a direction consequence of that that came about accrued on the and re- Transit’s paving track removal assumed original Capital’s basis of and at cost obligation. argument failed, The however, point respecting previously Capital, track rates fixed for and the IV(A), supra, 201, 237, supra. 248. 242. at notes See note See Part 211-218 . U.S.App.D.C. 220, 249. 115 at F.2d at Sys., (Order 191. 243. D. C. Transit Inc. No. 4631), supra at note 33 P.U.R.3d 250. Id. at 318 F.2d at 192. 155-60. (Order Sys., 251. D. Transit Inc. C. 244. Id. at 156-57. (D.C.Pub.Utils. 3592), at exh. 2 No. 1957) (unreported). Nov. Comm’n 245. Id. at 155-56. (Order Sys., 252. No. supra D. C. Transit Inc. 246. text at note 239. 4631), supra at note 33 P.U.R.3d Supra note 185. offsetting buying Capital’s outstanding capital annual credits all of with ten de- expenses $1,033,904 great majority operating of st ock.257 And instances, purchased from the of rived amortization.253 real estate longer public which is no devoted to use accounting objectives ar- The was removed from service because of the rangement sharply. appear With thus trolley-bus conversion from a to an all- price purchase addition Transit’s system transportation. bus These offsetting of annual credits parcels were on which located car- were ulti- expenses, would Transit’s investors repair shops buildings barns, and other Capital’s mately pay road value of book used and useful when the streetcars farepayers, equipment in And full. running; were still because these credits, offsetting consequence properties were unsuited to Transit’s ultimately million would contribute $10 operation, all-bus ren conversion operational costs. less to surplus dered them Transit’s needs. would, course, from investors depreciation benefit And, forget, lest we financial burden Capital’s at entirety, was, conversion in its rates; theoretically, post-acquisition de- placed upon those rode Transit’s who preciation by work this method would vehicles.259 de- new out to the preciation amounts as if same foregoing discussion, bases had been established From the acquisition So, plain in Beb- Transit’s chick, costs. realities situation become examining explana- enough. got Capital after PUC’s Transit an from foregoing,254 on-going transportation system, concluded tion we includ- ing improved land, that gave this manner the Commission “[i]n which latter had pur- years obviously acquired consideration to the reduced before on lower price paid by “The price chase Transit.” real estate markets. Transit farepayers,” explained, paid receive Capital calculated, we “will on fair deprecia- assets,but benefit acquired the form reduced market value of the $10,399,041 per-share Capi- tion the total amount fixed valuation of annually off amount stock, be written tal’s which much worked out to $1,033,904.” than less depreciated even the value of the assets Capital’s books.260 We Advantages —Accrual of price Capital’s know that road stated, As have we equipment less was some million $10 upon present inquiry our focuses value,261 ap- than book cannot Capi acquired by were all Transit proximate much mar- how than fair less They tal in single as a came to Transit acquisition time to- ket value at the Capital package of the assets —all price may been.262 tal all owned; got assets, not then Transit nothing justify as- There is sumption buying such, them as but rather price that the allocable to Washington Metropolitan Williams Sys., (Order Transit No. 260. D. C. Inc. Comm’n, Area Transit note 4631), 33 P.U.R.3d U.S.App.D.C. 415 F.2d at 947. Comm’n, su Bebchick Public Utils. supra at 233-234. 164, pra 162. 33 P.U.R.3d at note Id. amounting purchased, remaining (Order Sys., No. Transit Inc. D. C. $8,592,952.54, mis in cash and consisted supra 4631), 164, note 33 P.U.R.3d Sys., Transit items. D. cellaneous C. 155-60. 251, supra (Order 3592), note No. Inc. appendix. 258. See at exh. 2. supra 242-256. text at notes

815 any- parcels realty carry could transportation here involved was on its busi- market value.263 with capi- where near their true ness a minimum of invested tal, long and that it has done as as it ostensibly In addition to what was public utility.267 has been a With acquisition at an excel- 268 monopoly franchise-conferred bargain,264 lent Transit secured other transportation lion’s share of mass advantages expense valuable at the —all Washington metropolitan area,269 traveling public. of its four Within Transit was enabled not to function years commencing operations, after capital outlay with a $500,000 of but Transit, largely legislative as a result of plus earnings reinvested policy began franchise,265 declared in its operations,270 but also to distribute obtaining fare increases on the basis of $4,390,000 paid- in dividends —an actual gross operating its revenues rather than original percent out return eq- of 830 on system on the rate had uity during base which the first decade of — employed Capital.266 existence.271 Thus Transit 4631), supra PUC, 164, 263. It was for No. this reason that note 33 P.U.R.3d establishing prior 1960, per however, at 163-64. In Transit’s rate base PUC shifting operating operating method, ratio, mitted tire shift ratio 266, infra, accept see note rate-base rate refused to of return method as price paid Capital check which Transit on reasonableness of the return. as a true Id. at reflection of the fair acquired. 144-18. D. Transit value of See also C. Sys., (Order 4735), supra Sys., the assets D. Inc. No. note C. Transit supra (Order 4631), 164, approved 164, Inc. No. at 25-26. We note P.U.R.3d 33 P.U.R.3d at the shift Comm’n, supra Bebchick Public Utils. U.S.App. acquisition 264. PUC’s utilization of the 219-220, D.C. at 318 F.2d at 190-191. adjustment account, supra see text advantage company On the a transit 251-256, way qualifies foregoing equity must of in the abandoned To the circumstances investors’ through hardly important, added less rail facilities amortization others — potential expense equally to a Transit’s fareboxes. and contributors date— n acquisition repaving track windfall. After Transit’s removal and Capital, ques as from now some million more —-was likewise $10 against operating farepayers.279 Thus tioned remained in status for sessed opera periods, appar two the conversion to Transit’s all-bus various indeed ently always speedily accomplished, In that has been so remained.272 tion wholly they possessed expense And incidents and status have without to Transit. crowning they the incon immunities could be consideration is not summon conversion, They low the commanded fact line. have trovertible preferred farepayers, sine full was the real estate tax treatment.273 cost to the prop qua real non to release of valuable assets, They were, as above-the-line operating trans roles in the erties from part during rate Transit’s base non-transportation portation for uses scheme years prior adoption operating es.280 margins ventur establishing ratio method of its and this court the latter Both the return.274 Even under Commission recognized vogue prop efficacy method, 1960,275 rela since large-scale computation tionship retire erties of Transit’s have counted operating equity, sta in from factor in turn ment of real estate Transit’s repaving fluencing from of return tus to the track removal Transit’s rate program transportation operations.276 financial burdens And and the farepayers. In imposed appreciate in value on Transit’s have continued to System, rising steadily mar local real estate D.C. when ket, judi 4577) unhesitatingly sale of notice Transit’s advantages Shops enjoying cially, Fourth and Southern while these Street examined, a deci properties. was Carhouse be the allocation sion was as to made Surely greatest advantage inves and its consumers tween Transit’s spe one more Transit’s investors —and profits the net attributable tors of cifically problem referable those physical improvements scrapping hand —was derived from the properties, declared: PUC Capital’s railways in of a street favor compa- light transportation system. motorized franchise gradual program said, ny requiring changeover, man as we have opera- railway franchise,277 from to bus dated conversion Transit’s changeover pro 7-year period from Janu- treatment accorded the tions over a gram ary 24, 1956, to disas- strongly fa unable worked in Transit’s we are loss vor. Assessment of the incidental the instant transaction sociate all rail more than million on retirement the imminent $5 rapid recoupment riders resulted property under the mandate contained appendix. 272. See 266, supra. note See pt. 1, 9(g), Act, I, § Franchise See tit. supra. note See (1956), prescribing a Stat. supra 243-250. at notes text See requires statutory formula which a Com- failed mission determination that Transit 245-250. ignore in the We cannot franchise. “some force to contention,” Transit’s probability provision that for we full neither disapproved reexamined nor pro- depreciation will not have been the Commission’s resolution on that opinion vided rail facilities are by when the score.290 But our made mani- of if, abandoned retired reason fest our view that as the Commission company thought, consist- conversion. The there was a connection between ently position any re- taken the the sales and program, the conversion farepayers’ sharing in tirement connection loss should proceeds was charges against be recovered equities consonant with the customers, and has heretofore the staff situation.291 However, agreement.283 its indicated plainer This became the when we required if the customers to be moved a consideration of a second extraordinary bear re- the burden of urged support transaction disallow- tirement losses incident to whole depreciation charge.292 ance That program, appears equita- conversion transaction was Transit’s sale share, ble that should least to at Georgia and Eastern Terminal extent, extraordinary some retire- allegedly reaped in which it a substan- under ment the nature here profit tial portion on the consideration.284 realty.293 parties had made no sharing, made extent of the PUC effort to establish the reasons for the clear, was to be ascertained “a fair sale, apparently because it had occurred balance between the interests after period the close the audit on public company’s and those of projections which the Commission’s were judicial investors285 review argued, however, based.294 Transit Order No. we affirmed.286 evidence of record demonstrated Sys- years later, in D.C. Transit disassociation Six of the sale and the Washington Metropolitan tem, program, basing position conversion Inc. v. Commission,287 testimony this court Area Transit before sale sitting banc, upon operations en called to scru- terminal was “was used for bus pointed con- also.” tinize the transaction in a different We out that that tes- objection “suggests timony may a de- An text. preciation to allowance that it have been charge operations rail fa- for abandoned used in rail part well,” predicated may may on the cilities that “it not be way claim that the were occasioned true that sales the sale was in some re- program, that, lated the conversion to Transit’s conversion to an all- profits system.” was,” consequence, realized should bus “If it contin- we recoupment ued, of obsoles- be deemed a it- “the Commission should address alia, question, inter asserted, cence.288 self to the as did the PUC Shops,298 unrelated sales were the case of the Fourth Street acknowledged although program, and whether afforded the riders should be gained position full admin- 283. This later 291. id. See judicial acceptance. See istrative 397-398, 350 F.2d 775- 292. id. at text at notes 243-256. 776. 284. 30 at 412. P.U.B.3d Ill(A), supra, at notes 293. see Part But Id. 60-64. 397-398, 286. D. C. Transit 350 F. Inc. v. Public 294. 121 Comm’n, supra Utils. note 51. 2d at 775-776. Supra (emphasis note 18. 350 F.2d Id. original). Id. at 350 F.2d at 773-774. Id. Id. at 350 F.2d at 775. Id. 290. See id. 11(A), supra, at notes 33-35. Part litigation directly developed the referable in participation in the benefits some gained dispo- profits that to allocations of admonished And we sale.”299 remand, depreciable “[fjollowing . the assets. We . . sition of think, our however, in that no difference whether determine should Commission occasioned, solely principle justified on the can be was the of the terminal sale ground question, in or that asset part, the in or in abandonment whole part happens and, thereof, nonde- operations, wheth to be was, if some of rail farepayers preciable. the Commis- Both PUC and to extent er and what proceeds.” on the sion have made such distinction should share theory stated then, gainsaid, that sev It cannot invariably nondepreciable property be- firmly important propositions are eral long for the Counsel to investors.304 jurisprudence. Trans imbedded in our additionally Commission contends automatically gar cannot it’s investors accounting a uniform we defer to should dispositions profits ner achieved on rule Commission to that effect which the in which some real estate pursued. rea- For two said to have way conver have been affected sons, reject positions. these inquiries program. are sion Relevant occasioned, disposition place, Commis- “was In the first neither the whether the any pointed by” part, in conversion sion nor whole or in its counsel op- accounting way agency-promulgated program rule in related or “was some so, farepayers value-appreciations on as to” it.302 If erative to the Compact profits. question. em- of such the lands entitled to a fair share in prescribe powered are to share The extent the Commission depends upon systems for carriers fair balance between uniform of accounts “a public jurisdiction, functioning and those under interests its authority required do company’s so its investors.” “by regulation.” No such exercised —The Account- Commission’s Claimed regulation its or of the Commission ing Practice prob- predecessor agency relevant to We are consideration advertent ei- lem identified at hand has ever been just propositions opinions discussed its in ther the Commission’s realignment 299. 121 solely 350 F.2d eated on the of its 776. terminal and its removal bus facilities completely from service disassoci- was remand, Id. On D.C. Transit of the rail ated with the termination supra No. operation. Tims, is our determina- Commission found that the abandonment terminal tion that the sale of tire was subsequent of the terminal its and sale part in whole nor occasioned neither pro- were unrelated to the conversion operations. rail the abandonment of gram. It said: Therefore, ratepayer is not en- transcript A review reveals that portion titled share property retirement this was not proceeds sale, there was of that unless associated with the retirement of rail depreciable portion profit on the property. system While rail was was none this the asset There sold. use, Georgia and Eastern Ter- case. capacity, minal in a served dual both aspect, Id. at In 33-34. this Order terminal rail service brought judicial was re- under system bus service. After rail view. phased out, the terminal was used ex- clusively operations. supra bus Sometime at note 300. See text thereafter, request of riders due at note See text north, move the terminal further company relocated its terminal text note 285. Spring Silver the ter- discontinued III(B), supra, 96- at notes Part Georgia minal facilities apparent Eastern location. It subject to the Commis- the commission that the termination of “Each carrier records, accounts, facility keep such shall used use- sion predi- ful in the transit business was argument.306 opinions issue, counsel’s ble and it is well settled gratuitous pronounce- post contain counsel’s own hoc rationaliza- subject ments on the to which we have acceptable tions are not an substitute.312 alluded,307 argument similarly and the Moreover, even if we could unrevealing. agree Commission, by that the virtue adopt an did brief the Commission comments in Orders Nos. 245 accounting regulation dealing with allo- 563 and those of PUC Order No. depreci- 4577,313 value-appreciations cations of had ordained on appreciation properties.308 then, the Com- books able on Since in-service non depreciable explicit mission has reference made should be credited to regulation decision-making investors, adoption in its the mere of such an argument practice is diffi- accounting and its here.309 It would not terminate inquiry. Accounting procedures cult to if our believe that indeed Com- counterpart applicable self-justifying; regulato mission had a like other nondepreciable ry under Commission, action of the must scrutiny, it in the dark reflect would leave us a rational allocation of economic rights that, may responsibilities about it. We assume as between policy, utility’s Commis- matter unwritten investors and consumers.314 indulged accounting techniques simple agency sion has fact an an treats way notion of conformable item a purposes with its mistaken certain of its system principle subject,310 a settled on the uniform does not accounts deliberate, scrutiny; cry mark judicial far from the the end of is a on Compact contrary, reviewing rulemaking reasoned which the court must contemplates.311 sum, accounting obviously prac In nei- assure itself that prescribed tice ther nor the ever PUC Commission is with un consistent accounting spoken regula- derlying public principles an extant substantive treating gains nondeprecia- utility permit tion on the law.315 To an aceount- respect 309. See D.C. Transit No. and memoranda activities supra 64, engaged as the note 85 P.U.R.3d which ... by regulation prescribes. 513-14. Commission regulation prescribe Commission shall supra note See text accounts, i-ecords, of such form 305, supra. memoranda, length See note of time that accounts, such and memoranda records g., Burlington 312. E. Truck Lines Unit v. preserved.” Compact, supra shall note States, 156, 168-169, ed 371 83 U.S. 12, II, 10(b) (emphasis § tit. XII art. 239, (1962); 9 S.Ct. L.Ed.2d 207 SEC supplied). Chenery 92-95, Corp., 80, v. U.S. 63 318 454, (1942); rules, S.Ct. 87 Local regulations, L.Ed. 626 11 orders” “[a] While 833, NLRB, U.S.App.D.C. v. PUC, UAW 112 11” “[a] and “decisions” 107, 704-705, 112-113, 699, prescribed” by F.2d it, 300 action survived “other denied, 1258, 911, cert. 370 82 U.S. until succession Commission’s id. § (1962). 8 L.Ed.2d 405 changed, 21, showing there is no formally ever mat- PUC acted on the supra 313. See text at notes 96- that, ter did under discussion if it Commission ever action rested own Washington 314. See Williams Metro thereon. politan Comm’n, Area Transit 307. See text at notes S9-111. note 134 358- Regulation 61, & n. F.2d at 938-939 which discuss & n. 86. 23,720, Washington Bebchick Metro politan Comm’n, supra Area Transit Republic Light, 315. See In re & Heat 24,398, and No. Cent. Democratic Co., App.Div. 53, Power 37 N.Y.S.2d Washington Metropolitan Comm. v. Area (Sup.Ct.App.Div.1942); New Comm’n, supra in connec Maltbie, App. Edison York Co. v. tion with issues cases. raised those (Sup.Ct. Div. N.Y.S. regulation, treating gains That does App.Div.1935), aff’d, 271 N.Y. assets, ap on has no direct N.E.2d plicability to in the in the issue involved case. stant directives, ing no other exertions of law less than to dictate rule device dog. wag power, must administrative survive tail allow accounting rationality.316 judicially accept meth- the test of And the To valid- ity inquiry od to its reason- the administrative exercise must without judged grounds solely upon pervert And to on the ableness is to law. review, yield, judicial unquestioning agency it.317 Our ex- on based authority grounds which the administrative amination of the obeisance accounting Commission, proffered acted, abdicate over when it support accounting practice responsibility review. under wholly scrutiny has left us unsatisfied analysis, final administrative rationality. as to its We have adverted accounting regulation by prescription of upon premises which the two higher ground no methods stands Commission has its distinctive rested adjudication regulation by than where nondepreciable treatment interests of investors substantial Accounting property.318 noted at stake. also We have consumers are grants 444, 125, Legislative 441, of administrative 231 U.S. 34 at S.Ct. public utility accounting agency may authority over even those features action designed judicially meet for arbitrariness. are informational be examined regulation FPC, supra, v. needs of effective and the Northwestern Elec. Co. public par 451; rates, 124, of economical 321 American needs U.S. at 64 S.Ct. States, may supra, ticularly as either v. affected Tel. & Tel. United Co. write-ups inflationary expense 236-237, 170; pad or 299 Nor U.S. at 57 S.Ct. ding. States, supra, Ry. American Tel. & v. v. Tel. Co. Unit folk & W. United 232, 52; States, 237, 240, 143, 239, 299 Arkansas ed 246, U.S. 287 U.S. at 53 S.Ct. 170, ; FPC, U.S.App. (1936) Light L.Ed. 57 S.Ct. 81 142 Power v. 87 & Co. Ry. States, 387, (1950), 385, 751, v. F.2d 753 Norfolk & W. United D.C. 185 621, 909, 134, 140, 52, denied, S.Ct. 53 S.Ct. cert. 341 71 287 U.S. L.Ed. U.S. 77 City (1932) ; Ry. (1951). 95 LEd. also Kansas 218 Kansas v. 1346 S. supra City States, States, supra 198, Ry. note note S. v. United 231 U.S. United 198, 452-453, 456-457, 440, 449, 125; at 34 v. 231 at 34 S.Ct. ICC U.S. responsi- Co., judicial 194, fortiori, 224 A Transit S.Ct. Goodrich U.S. bility grave accounting 211, 216, 436, is- 32 S.Ct. 56 where L.Ed. 729 relationships Compare (1912). sue New in substantive United States draws v. utility Co., 638, 326 this court has York Tel. U.S. 66 S.Ct. As and consumers. 393, (1946); specifically held, accounting 90 actions of L.Ed. 371 Northwestern FPC, very 119, type Elec. Co. 321 U.S. 64 involved here—those which S.Ct. v. (1944). value-ap- 451, Supervision regulate 88 L.Ed. 596 in effect jireciations allocations course, operating utility accounting, is due the same achieved on respect may freely accorded other administrative reviewed to enable assets — action, gauging “questions rationality, “in and re- of law” deter- decision of gard steadily must be had ends to the mination the basis ac- as to whether system arbitrary, uniform is in- that a accounts tion is “unreasonable pricious.” ca- promote.” tended American Tel. & Transit v. Pub- D.C. States, supra, Comm’n, supra 51, 299 Tel. Co. v. note United lic U.S.App.D.C. 110 Utils. 237, 242, at at S.Ct. 172. Deference U.S. 57 292 F.2d at 735. at agency’s accounting an treatment of supra Corp., Chenery SEC v. problems zenith reaches its where 454; 318 at 63 S.Ct. Bond U.S. pure accounting, notwith- issue one 203, 204, Vance, U.S.App.D.C. v. 117 standing upon intrusion man- incidental (1964); Local 327 F.2d 902 agement prerogatives, see v. FPC East NLRB, v. 112 U.S. UAW App.D.C. Co., 474-476, 338 70 Ohio Gas U.S. 705; F.2d at NLRB at 300 (1950); 94 L.Ed. 268 S.Ct. United Capital U.S.App.D.C. Co., v. 95 supra, Co., York Tel. 326 v. New States (1955); 310, 313, 221 F.2d 867 654-655, 393; 66 North- S.Ct. U.S. FCC, Printing v. 91 Democrat Co. U.S. FPC, supra, Elec. v. 321 western Co. App.D.C. 72, 77-78, 202 F.2d 302- 123-124, 451; American 64 S.Ct. U.S. Mississippi (1952); River Fuel supra, States, v. & Tel. Co. Tel. United 208, 224, Corp. FPC, 236-237, 170; Nor- 57 S.Ct. U.S. F.2d supra, Ry. States, folk & v. United W. 107-111. 52; at notes See text Kan- U.S. States, supra, Ry. City sas S. United appraisal premises fatally our those reality. reality economic The stark here necessarily defective.319 It follows that farepayers long that Transit’s reject must now the claim that the been saddled with the burdens incidental effectively Commission has disposition decreed the they in issue while re value-appreciations on mained in operating status. Theirs nondepreciable utility ap- expenses assets were ordinary maintenance authority propriate of its depreciation,325 exercise over 32 utility accounting. casualty risks loss from obsolescence,327associated with those —The Balance Here properties. These shouldered over The allocation inves years between only not for Transit but also gains tors consumers of Capital, predecessor. assets, in-service we have de Theirs wrought by also were the losses essentially clared, equitable rests program, directly conversion proc considerations.320 The allocative assets, made transfers of some nonde ess, said, we have necessitates a delicate preciable depreciable, as well as from balancing of the of investors interests possible.328 above to below the line And light governing and consumers in profited, Transit’s investors have equitable principles.321 The constant ef arrangements from these of bur fort must be a distribution of the dens, but also favorable treatment may justice require. fairness and ways.329 other particular instances, however, the direc By assessment, our these circumstances equities tion in which the lie so vivid tip the scale in favor of Transit’s fare- ly by marked the circumstances of the payers, so much so as for them to earn properly that case the allocation to be gains beyond of a doubt. shadow emerges plainly. made We think such adopted This court never presented an instance is here. capital position the Commission’s that principles can relevant gains nondepreciable on assets inure to simply. stated Consumers become enti only.330 adopt investors We decline utility operating tled to position analy that now.. Our historical discharged they assets when sis of the interests of in val investors integ preserving burden of the financial ue-appreciations as rity which investors have stake beyond sets doubt that demonstrates a such es assets.322 Their entitlement is utility’s safeguarding burden of tablished, too, when it is manifest that deprecia investment in all its assets— measurably investors have benefitted assign legally nondepreciable ble and —is special from accorded those treatment entirety ed in we its to consumers.331As past.323 appraising assets in the And in pointed out, have further even were equities, the judicial neither nor administrative risk on the here lands involved theoreti liberty ignore tribunals cally had one which been carried 319. 110-111. See text at notes (A), supra, 327. Part 201. See IV IV(A). 320. text at Part See (B), supra, 243- at notes Part 328. See IV 246. supra at note 321. text 177. See supra, IV(A), 272- at notes Part IV(A), supra, at 181- others,339 precisely are operating properties. the same whether supra simply being outright text at See notes 228-229. sold instead nonoperating into status. moved supra 333. See text at notes 264-276. reject We also the contention IV(B), supra. Part farepayers See right ripen properties these does not value of (A), supra. Part III See Our rea- until are sold. (A), supra. Part III See holding right accrues sons for removed from time the assets are supra text See notes 257-276. fully operating status more are discussed supra at text See notes 277-300. Metropolitan Washington v. Bebchick Comm’n, supra Area Transit note 158 text at notes 264-276. See U.S.App.D.C. at---, F.2d 485 supra at text notes 260-264. See Comm, Democratic Cent. 858-860 Washington Metropolitan Area Transit supra at text notes 265-276. Comm’n, supra text at notes 1237-250. - - -, F.2d at It point appreci- referring here to out Com- to the suffices amount crediting Regulation in serv- mission’s own while ation or on assets value-appreciations figure. ice, speaking The assets of a net we farepayers practice, specifies this should amount which be credited treating farepayers see no nonde- and we reason for is not the entire difference be- preciable differently. assets See Bebchick value and value of book market tween Washington Metropolitan transfer, Area Transit rather but at the time - U.S.App.D.C. Comm’n, supra expens- minus the taxes and sale that sum at---, at 860. F.2d have been deducted es which would profit if the assets had findings

V has made based substantial evidence, applied the cor DISPOSITION legal rect standards its substantive foregoing The considerations lead us task,” deliberations.”346 “Our we have to the conclusion that Order No. 773 is said, “is an end likewise at when we invalid and set must be aside.344 Thus have ascertained that the Commission reach, chapter we as the final re- hand, has not done On the other so.” view, disposition required by the cir- agency “even where action must be set by cumstances that fixed the fares invalid, agency aside as legally but is still charged paid order have been since pursue free a valid course it went To into this matter we effect. action,” present 348—not the situation proceed. now reviewing ordinarily (cid:127) —“a court will agency remand to enable the to enter a Responsibility Fashioning A. For Re- remedying new order after the defects lief original that vitiated the action.” question initial whether quite second, different, fashioning predic of relief from the aspect required of the relief where a properly ament we face lies within the court has a judicial declared Commission fare sphere or, instead, the adminis invalid, order to be is remediation of the beyond perad trative. It is clear us consequences wrought by the order while venture that this court the Commis actually operative. it was is a This sion should share the burden in this problem which can neither be addressed case. merely pur nor solved order another judicial A determination that a Com porting to fix “The Commis rates. mission fare was order invalid has nor sion,” declared, “possesses we have no mally called for remediation dual authority past.” fix for the rates aspect. First because the invalid order indulged out, pointed As opera could have order not be continued “[a]n tion, resetting prescribing ordinarily the lawful fares of fares charged being public utility, needed for essen the future.345 When there tially legislative character, ordinarily need, was such a is evident it had speaks only pos be met the future.” We Commission. We ratemaking powers such; sess no that “we our heretofore admonished statutory provisions authority nothing within find governing confined the tradi regulatory judicial tional bounds of review. the Commission’s “Our responsibilities pure function” in an intent relation to ratemak that indicates ing normally depart ‘customary pattern “is exhausted when we [the] ”353 fixing prospectively.’ of Moreover, determined that rates Commission respected procedural requirements, has 773 has been su Order No. Compare Washington 344. v. 349. text at notes 390-403. Williams Met- See infra ropolitan Comm’n, supra Area Transit 359-360, 350. Id. at 415 F.2d at 939-940 16, U.S.App.D.C. 358-359, note 134 at (footnote omitted). 415 F.2d at 938-939. Washington Metropolitan 351. Williams v. invariably situation, 345. That is not supra 16, Area Transit note Comm’n. however. at See text notes 354- infra U.S.App.D.C. 360, at 134 at 415 F.2d Washington Metropolitan v. Williams (footnote omitted). 352. Id. Comm’n, supra 16, Area Transit note 134 360-361, U.S.App.D.C. 362, 353. Id. at 415 F.2d at 940-941 at 415 F.2d at 942 quoting Air, (footnote omitted). Transcontinental & Western CAB, 601, 605, Inc. v. 336 U.S. 69 S.Ct. 362-363, 347. Id. at 415 F.2d at 942-943 756, (1949) (footnotes 93 L.Ed. 911 (footnote omitted). omitted). 359, 348. Id. at 415 F.2d at 939. 824 354 ap- compelled to make and, must be by be Transit perseded orders later fare propriate increased opera for restitution transportation cause Transit’s orders.359 under those it collected” fares 773 No. have since Order tions possibili assumed,

publicly is no there support “ conclusion that We drew ratemaking by the ty additional long ‘principle, established from the ille Rectification party Commission.355 general application, that and of gal or consequences unlawful rate of an judgment or against an erroneous whom something other consist der must then en- effect into carried decree has been ratemaking.356 than retroactive reversal, to be titled, the event by adversary his restored Remedy B. The Restitutional ” 360 princi- thereby.’ “This he lost remedy, restitu rather, applicable explained, ple,” no less “is we plain deci That was made tion. of an administrative orders to erroneous v. banc in Williams court en sion of this agency of a court.”361 those than to Washington Metropolitan Area Transit Williams, “given Here, than no less we found Commission.357 There formulating Or- conclusion” that our fixing two orders of Commission failed “the Commission der No. 773 invalid, and that for Transit were fares criteria, failed apply appropriate reconsid remand to the Commission prerequisite valid inquiries fut eration of orders would those make rate-setting authority, held, we follows,” “that ile.358 we exercise of “[I]t (Order Sys., No. is unaffected Inc. D.C. Transit This conclusion See (unre (WMATC 29, 1968) 882) decide we do not Oct. fact unjust Sys., ported) ; (Order are or unreason- Transit fares authorized D.C. 984), supra 165; role law. Our as a matter of No. note D.C. able reviewing in- make an is not to 85 P.U.R. a dependent court Inc. (WMATC 1970). whether 1 There is thus determination 3d just problem en the Commission the identical fares case fixed Washington reasonable, to insure v. rather countered Williams exercising Metropolitan Comm’n, supra its rate- Area Transit the Commission rationally power, U.S.App.D.C. 360, making 16, has acted 415 note 134 lawfully. F.2d at 940. Id. text notes 390—403. infra 97, 97, n. n. F.2d 942 360. Id. at 362 415 Compare Washington Williams v. Arkadelphia Milling quoting v. Co. St. Metropolitan Comm’n, Area Transit 134, 145, Ry., 39 249 U.S. Louis S. W. supra U.S.App.D.C. note 134 at 360- (1919). also 63 L.Ed. 517 S.Ct. 361, 415 F.2d at 940-941. See also States, v. United Baltimore & O. R. R. Comm’n, Bebchick v. Public Utils. 781, 785-786, 49 279 S.Ct. 73 U.S. U.S.App.D.C. (1929) ; Line L.Ed. 954 Atlantic Coast 203-204; Washington 318 F.2d at Gas Florida, R. R. v. 295 U.S. Light Baker, U.S.App.D.C. Co. (1935). S. Ct. 79 L.Ed. 98, 104-105, (1951). F.2d FPC, Metropolitan Washington And see Wisconsin 373 U.S. 361. Williams v. 294, 304-306, Comm’n, 10 L.Ed.2d Area Transit F. at 362 n. well estab 2d at 942 n. This was Supra note 16. long prior to Williams. United lished See Washington Metropolitan 358. Williams v. Co., Pipe Line v. Mobile Gas Gas Co. Comm’n, supra 16, Area 347, 373, note 332, Transit L.Ed. 76 S.Ct. 100 350 U.S. U.S.App.D.C. 359-361, 134 at 415 F.2d ; (1956) Line R. R. 373 Atlantic Coast There, here, at 939-941. in Florida, supra addition 360, 295 at v. note U.S. ratemaking, to the obstacle of retroactive 309-311, 713; Bebchick v. Pub 55 S.Ct. super- the orders under review supra 185, had Comm’n, 115 lic Utils. note by subsequent seded fare orders. Id. at 218-219, U.S.App.D.C. at 318 360, 415 F.2d at 940. 189-190, 203-204; Washington at F.2d Light Baker, supra 128, 362, (footnote v. 359. Id. Gas Co. note at 415 F.2d at 942 omitted). U.S.App.D.C. 127, We added : at at 88 188 F.2d

825 permit could Transit retain the put pos not whether law him would fares, money increased since do so would be session if the transaction ” 368 give legal sure, effect to the Commission’s were a new one.’ To be 362 “[ojrdinarily proper invalid order.” . . . dis position setting a aside rate increasé Thus the of labor to we division which unlawfully by ordered the Commission apparent. have adverted363 becomes regulated compel compa would tobe promulgation While of fares adminis- ny to restore the entire difference be fashioning business,364 trative higher tween the fares collected under judicial restitutional remedies the invalid order and the amount it brought function.365 are thus We would received from the fare applica- by consideration of the criteria 369 previously effect,” schedule and we tion of amount of restitution which the previous just have had to do occasion ultimately deter- this must case “ however, [Restitution,” that.370 “is mined. right, gratia, a matter of is ‘ex essentially equitable Restitution is an resting in the exercise of a sound remedy.366 Williams, “our said As we ” 371 discretion;’ granted it “is to the ex regard governed decision in is to this justice tent and extent equitable considerations 372 parties requires.” between the It ac apply generall restitution suits authority cordingly “lies within our y.”367 So, question” basic “[t]he direct restitution in an amount less than quests ‘the restitution whether “is col the whole sum of the increased fares money circum was obtained such order, under lected the invalid possessor give of stances that will deny compelling altogether, equita if good equity if fense to conscience 373 permitted longer to retain it’ and is ‘no ble considerations so dictate.” Metropolitan Washington Metropolitan Washington 362. Williams v. v. 369. Williams Comm’n, supra 16, Comm’n, supra 16, Area 134 note Transit note 134 Area U.S.App.D.C. U.S.App.D.C. 363, 364, 943 F.2d at 944 at 415 F.2d at at 415 (footnote omitted). there, omitted). (footnote As we added notwithstanding we “[t]his so Comm’n, Utils. Bebchick v. Public have held neither Commission U.S.App.D.C. supra 185, at 232- note 115 increase, power lacked to order a fare nor 203-204; Washington 233, F.2d at 318 are, even that the fares authorized supra 128, Light Baker, note v. Gas Co. unjust law, matter of or unreasonable.” U.S.App.D.C. 127, at at 188 F.2d (footnote omitted). Id. note also Metropolitan Washington supra. 359, Williams Comm’n, 16, supra Area Transit note supra 363. See text at notes 345-356. U.S.App.D.C. 364, at at 415 F.2d supra (footnote omitted), quoting 364. See text at Atlantic notes 345-348. Coast Florida, supra R. v. note Line R. supra 365. See eases cited note 361. This 295 U.S. say is not to court cannot utilize expertise Washington Metropolitan agency administrative Williams discharge judicial Comm’n, to assist the Area Transit note func- U.S.App.D.C. Indeed, very tion. do 364 n. 415 F.2d at so case. 106, quoting See text n. Restatement Id., quoting 368. judicial authority; Atlantic Coast R. Line R. is extension of Florida, supra 360, v. passivity note 295 at U.S. in line ‘mere inaction and 310, 55 equity S.Ct. 713. the historic attitude of courts of 826 challenged,379 ap- proper properly specify of resti and to

We think the measure propriate be action in this case somewhere remediation when the tution lies Here, in In as these two extremes. reviewed found to tween is be erroneous.380 discharging obligation Williams, the Commis entrust- “we have found thus approving us, in upon fare re- in to must sion’s action ed we draw invalid, and we ob- crease to sources at our command.381 As Williams, laying later valid a we have no in in down . basis served “[i]n inferring action Commission which measure standard right to order] rates fact, retain under set to collected [that funds just increase, in reasonable. were we that we fare are aware ” 374 Here, there, ill-equipped, . more than no even were we authorized legal “give so, effect do we find warrant our do the record and reach search by withholding independent restitution to those rates to what conclusions as 375 altogether.” time, same as At the fares would have constituted reasonable per Williams, period “we no to our question.”382 see obstacle But for the some, mitting Company just “[nevertheless, to retain duty a to reach though all, proceeds regard of a fare cannot be decision this shirked, if evidence a increase there is reliable find our effort must be to suggesting inequita compe- it would be solution which lies within our greater compel court, reviewing restitution a ble a at the tence as while 376 responding pos- amount.” fullest same time equitable considera- measure to the sible 383 The Commission’sRole C. guide that must tions us.” ap the best We believe already indicated, the institutional As proach adjustment, function,377 the restitution judicial hand, a at task sense, competing al interests responsibility this has become farepayers Transit’s investors and responsibility We inherit that court.378 litigation is a duty this combined effort inseparable of our an incident the Commission and court.384 action when review Commission ” modify Compact, . . . such order.” Id., quoting Atlantic for centuries.’ supra 12, II, 17(a). supra tit. XII Florida, note art. § R. R. v. note Line Coast Washington And see Williams v. Metro- 315, 360, at 713. 295 U.S. 55 S.Ct. politan supra Comm’n, Area Transit note 374. Id. 16, U.S.App.D.C. 361-366, at 415 at 941-946. Id. F.2d See, g., Peterson, n. e. Id. n. re 253 U.S. at 364 415 F.2d at 300, 312-314, right person 64 L.Ed. 919 “The to restitu- S.Ct. (1920). public And when interest another benefit “the tion from because of a if, equitable powers . . is involved . received is terminated or diminished receipt benefit, assume even and more flexi- circum- broader after private changed than ble character when stances have so it would controversy require inequitable Porter to make stake.” the other Holding Co., Warner full 328 U.S. restitution.” Restatement of Restitu- (1937). 142(1) 66 S.Ct. 90 L.Ed. tion § supra 377. See text at notes 357-365. Metropolitan Washington 382. Williams v. . Metropolitan Washington 378 Williams supra Comm’n, Area Transit note Comm’n, supra Area Transit note U.S.App.D.C. at 946. F.2d U.S.App.D.C. 361-366, F.2d Id. at 941-946. 384. An available alternative is a reference Compact, II, tit. art. working to a master aid in out XII, § 17. amount and details of restitution. authority AVhen our to review Com- Peterson, In re 253 U.S. properly invoked, mission order also NLRB jurisdiction Co., have “exclusive v. Arcade-Sunshine

827 properties expertise of Commis- the the from the administrative market at value potentially figure valua- is in the time of sion event the transfer. This represent appreciation will aid of institutional ble to solution the the in value light assets, of of problem, more and is so the which the should have many familiarity with credited to the the Commission’s riders when fares prescribed by of and administra- its facets. “Judicial Order No. 773 were set. “ agencies,” recall, to be we ‘are tive readily It can be seen that this method of deemed collaborative instrumentalities determining of the amount of restitution ”385 justice.’ also reminded that We are way will in no reduce Transit’s return upon “[cjourts frequently called have during period the order was in ef- . for as- administrative . . bodies confiscatory fect to a level. As we have sistance in connection with the issues pointed out, only vitiating defect in falling area of administrative within the Order No. 773 was the Commission’s 386 years, competence.” In recent gain failure to allocate to the riders the occasion enlist Commis- had properties value of the with which we working ele- out 388 sion’s assistance concerned; respects in all other necessary by made ments of restitution the fares set that order must ac- be invalidly raising another order Transit’s cepted just Thus, and reasonable. bar, so fares.387 In the at we do ease restitution of the to the riders has opportunity again, once and we take this reducing the automatic effect of techniques Commission to outline the during operative peri- fares collected may providing that assistance. utilize od of Order No. 773 the level rea- First, must restitution sonable amount return to which Transit en- determination will titled. be ascertained. This properties require of all identification problem There remains be- shifted from above to restitution, how the amount de- once prior to issuance of Order low line termined, applied is to be benefit market identified the Once public. farepaying As we have ob- at the time

value served, regulatory agencies may only fix nonoperating status their transfer Moreover, pub- rates for future.389 dollar will have established. lic takeover franchise then be ar- amount of restitution can occurred,390 and, as a result Com- subtracting longer at value setting rived the book mission will no fares 312, (1942) ; play advisory v. NLRB Rem 132 F.2d 8 role court’s resolu Inc., ington Rand, 919, controversy. 924- 130 F.2d tion Id. at 91-94. (2d 1942). also, g., For reasons stated 925 Cir. 416 F.2d 1106-1109. e. text, Ry. Pitney, we deem the assistance Order of v. Conductors 326 preferable. 322, 561, 567-568, Commission U.S. 66 90 L. S.Ct. ; Ry (1946) & Ed. Atchison T. F. 318 S. Corp. Line, 385. Bethlehem Steel v. Grace Ass’n, U.S.App.D.C. Transp. v. Aircoach 102 U.S.App.D.C. 81, 93, 1096, 135 416 F.2d 55, 363-364, 877, 3 (1 253 F.2d 885-886 (1969), quoting 1108 United States v. 958) ; Capital v. Transit Co. Morgan, 409, 999, 313 U.S. 61 S.Ct. Safeway Inc., U.S.App.D.C. Trails, 92 (1941). 85 L.Ed. 1429 See also United 20, 23, (1953). 201 F.2d 711 Ruzicka, 287, 295, States 329 U.S. 67 (1946) ; 91 L.Ed. 290 Washington Metropolitan S. S. 387. Williams v. W., Transport Ass’n, Inc. v. Air Comm’n, supra U.S. Area Transit note App.D.C. 273, 280, 191 F.2d U.S.App.D.C. 361-366, 396-397, (1951), denied, cert. 941-946, U.S. S. F.2d 976-977. See also Wash ington Ct. L.Ed. 1355 Light Baker, supra Gas Co. U.S.App.D.C. F. Corp. Lines, 386. Bethlehem Steel v. Grace 2d at 35. 416 F.2d at 1108. There we supra. directed 388. See note stay pending controversy court 389. See text at notes 351-356. permit its consideration an administra- agency, agency’s tive determination to 390. See text at notes 394-403. infra ownership public resulting mecha and the rate for Thus the Transit.391 instrumentality operation transportation for of Transit’s cannot be the nism system Washington busriders, metropolitan channeling but relief to the sys many ways sum takeover Transit’s in which the of are there area.394 disposition way owing could utilized tem in no the affects restitution public. upon profitably bus-riding As we for the which we have settled. obliga rights held, of this have the task correlative The choice will become and. completed, and and its consumers tions between Transit court the remand after spring invalidity into to delve of Order No. from the we invite the Commission obligations light rights fact of the it In Those on the remand. 773.395 litigable any others, lines en as and their operation of Transit’s bus as that the against responsibility forceability the Wash Transit survives is now the sys metamorphis transportation Aut ington Metropolitan Area Transit of its private public ownership. by National tem from to terms hority392 1972,393 it Capital end Transit Act franchise Area While Transit’s Commission, immediately public acquisition prudent upon for the ed would be framing corporate as recommendations of its its existence facilities,396 accorded, precise relief to be do its restitutional and so also outlives that event,397 Authority and consider to consult to And unassumed while liabilities.398 might proposals be inclined such longer can Commission no set fares advance. jurisdiction fin transit service,399 existing litigation resolving case, this than so ish —otherwise pas ratemaking by Our of the heedful recent have remained intact.400 —remains legislation mentioned, sage requires nor disposition last tolerates neither require corporate Our 394-403. free interested leaves Estates, (now N.W. known as M Street complete final conclusion gen- Inc.). property This used as a was obligations identi rights we shop 30, repair eral streetcar June until fied. 1963, non-oper- placed in when it was á The aside. No. set Order 773 ating (below-the-line) From status. to the Commission record is remanded May 31, 1964, time until it was proceedings with consistent for further storage equipment. used for of obsolete jurisdiction opinion. over Our this May 31, property 1964, title to the On in full.403 case retained Estates, M was transferred Street Inc., wholly-owned D. C. ordered. which is

So incorporation, its Transit D.C. Since APPENDIX converting spent $1,106,210 on has been space it into rental for General Serv- TOAS STATEMENT COMMISSION’S year 1969, For the ice Administration. REAL PROPERTIES HISTORY OF income of M had a net 15, 1956, Estates BY Street PURCHASED AUGUST that it never provided herein, invalid and “[e]xcept No. Order 773 this Title” as supra operation. at Authority Compact text See had a valid in its —the Transit rights entirety reiterate that AYe notes 351-356. not affect the functions —“shall during generated jurisdiction were liabilities and past “as of” Commission operation, granted the order’s actual era of Titles I and II of this Com- precise Compact deter pact” Regulation await of which the amounts Transit —the supra transportation entirety 366- text at notes mination. —“over regard specified persons engaged are not in that The issues therein and the ICO, Authority Co. v. Pac. moot. See Southern therein and the jurisdiction shall have no 433, 452, 288, respect 55 L.Ed. 31 219 S.Ct. thereto.” U.S. States, (1911) ; Capital v. United National 2d Curcio Area Transit Act 283 n, 118, 7, any change 77 S.Ct. did 127-128 1972 not authorize this 354 U.S. (1957) ; provision, 1145, Bebchick nor 1 L.Ed.2d 1225 did disturb the Commis- 185, Comm’n, supra existing jurisdiction note sion’s over Serv. car- Public F.2d rier which furnishes at 318 service otherwise FCC, operation 189-190; than as a Press v. contractor Associated U.S.App.D.C. 361, transit n. facilities owned or controlled Moreover, Authority. rights (1971). The restitutional n. 29 F.2d including remaining funds, special and liabilities stake are also there arose, course, very case, at bar case while which have been Transit one in this operated pur up as an individual carrier. set poses under Commission control g., See, that remain unfulfilled. e. supra text at notes 351-356. Metropolitan Washington Bebchick v. supra 3; See text Comm’n, supra at notes 366-376. note Area Transit (Order 1052), Sys., Transit Inc. No. D.C. supra Perhaps unnecessarily, but out of an 13; note 85 P.U.R.3d D.C. precaution, point abundance of we out Sys., (Order 773), Transit Inc. No. pursuant that the takeover to the Nation P.U.R.3d at 133-134. Capital al Area Transit Act of 1972 does See also D.C. proceedings not moot the issues which the question 211. The remand, court, on and thereafter in this disposition of those funds —which contemplate. any question AVhile exigencies could of restitution affect —is continuing operability unsuper of an Ry. not moot. Market v. Railroad Street might seded fare order become moot at Comm’n, 548, 553, 324 U.S. point of takeover —a matter on which sum, need 89 L.Ed. 1171 express opinion question no such —no problems keeps litiga these this resolve arises this case. Order No. very pro tion ceedings much alive for the further long displaced by since been later fare opinion envisions. 354, supra, orders. See note and ac companying text. AYe have held that $74,519.64 earnings and its retained be its tenant. The net income of Geor- $348,831.95 gia were at December Avenue Estates for 1969 was $29,547.36. earnings Its retained stood Shop (now 2. Grace Street known $118,049.85 31,1969. December Estates). property- Grace Street storeroom, way department housed the (Eckington) 5. Northeastern Car- shop garage (now repair an electrical and a house known as Fourth Es- Street September tates). property for trucks until was This used as a car- placed nonoperating it was in a when house until streetcar discon- service was (below-the-line) status. From that time city Sep- tinued in that area of the April 30, 1970, empty building until it was that, and tember 1958. After April 30, empty May On unused. title to the remained and unused until placed was transferred Grace time it at which in a wholly-owned Estates, non-operating (below-the-line) Street subsidi- a status. ary System, Inc., non-operating property, of D. C. Transit As it was rented 1964, May D.C, 31, title to outsiders. On property was transferred to Fourth Building, M 3. General Office Estates, Inc., wholly-owned a Street sub- Inc.). (now 3600, Street, N.W. as known sidiary Inc., System, Transit of D. C. property This D. C. of- housed Subsequently, $472,628 the sum D.C. into ficers at time D. C. Transit came building spent improvements. It was on existence, partially rented later was being currently leased as a warehouse being placed in a After outsiders. year 1969, parties. to outside non-operating (below-the-line) on status net in- Fourth Estates realized Street building January 1, 1964, rented was year $15,804.66 end come of and at mainly to continued to outsiders but earnings (1969) retained stood portion of- house a of the D. C. Transit $22,030.92. ficers, space building around 20% ' while, (now Navy known Yard Carhouse for a De- and then to On 15%. Estates). property 31, L This property as 1967, Street cember title Inc., wholly- the last was used as a carhouse was transferred to a until subsidiary Sys- discontinued on Janu- street cars were ary owned tem, of D. C. Transit being incorpo- 28, equipment was D.C. Obsolete Since 1963, rated, $115,968 then stored there. On June sum of has in- been placed property vested office was below-the-line renovations and being.rented (in status). non-operating par- It continued now to outside 100% equipment year 1969, Inc., In the for obsolete ties. had as storehouse May $8,486.29. net income until the 31, of its incorporation, Its date retained prop- earnings $58,511.32 title to the stood on that date Decem- On erty Es- to L was transferred Street ber subsidiary wholly-owned tates, Inc., a Garage Georgia 4. Central on Ave- System, Inc., D.C. D. C. Transit Georgia nue, (now N.W. known as Ave- converting spent $392,384 on has been Estates). building nue This used was office the carhouse to warehouse garage placed as a bus until it was in a space incor- rental since its for outside non-operating (below-the-line) status on profits L poration. net realized being September 30, placed After $62,391.74. re- Its Estates were Street below-the-line, it leased to Post earnings at December tained Department. May Office On $274,281.18. were property title to the was transferred to Ter- Georgia Georgia Avenue Inc., wholly- and Eastern Estates, Avenue jointly property subsidiary Sys- was used This of D. C. minal. owned Its bus terminal. tem, Inc., a rail terminal then some Since D.C. building was discontinued spent terminal $19,657 on im- rail use as a bus use January and its provements while the same time the September Department ended to terminal Office has continued Post during It thereafter. On Oc- life, remained unused their inservice should inure non-op- placed tober it was farepayers benefit of the erating (below-the-line) status and sub- to the benefit of the investors of Transit sold, 21, 1962, sequently ratemaking on December decision, when trans- Ginsberg. Joseph ferred operating (“above line”) non-operating investment sta- Street) (7th Carhouse. 8. Southern (“below line”). tus question property This southeast was used as a arises on review of Order No. 773 January carhouse until it was sold on (“Commission”) the WMATC or- Redevelopment the D. 1959 to C. dered a fare increase without considera- Agency. Land tion of properties. appreciated the transfer of these Shops. Fourth This south- Street majority concludes that general property west was used accordingly constituted error and repairs until it was streetcar and bus sets aside the order. together Car- sold with the Southern question The initial of whether such Jaunary 16, D. house on C. non-operat transfers from Agency. Redevelopment Land ing give cognizable status rise to Garage. This 10. Trinidad ratemaking decision is re garage Septem- until was used as a bus companion opinion solved in the —Beb thereafter was vacant ber 1966. It WMATC, 23,720, chick v. at Part May 8, 1970, to the D. C. when sold until III, _, F.2d Agency. Redevelopment Land (hereinafter Bebchick). The con Garage. Eastern This clusion reached therein is that the trans until December was used as a carhouse fer of the to above be garage It then a bus became ratemaking low the line in resulted con Sep- purpose for that until and was used sequences out identical to those an 10, 1966, it was vacated. when tember right in sale of the same assets. While although empty ever since It has been different different context and for operating property on still classified as purposes se such treatment would raise company books. the accept questions, rious I it for our proper- Garage. Brookland This present purposes. garage September ty until a bus considering competing claims the retired buses that date 1966. Since of Transit’s investors and consumers in It remains there. have stored from these trans- derived the benefits to this the books status on majority fers, the fare- concludesthat the date. payers superior in all claim respect my view, It is instances. with Judge, MacKINNON, concur- Circuit depreciable properties, to the dissenting part: ring part in in and awarding ground majority in is solid farepayers, least to to the Summary Introduction I. and reserves the extent of foregoing opinion respect addresses the of the maintained that are question question property.1 whether difference I have some While oyer right fair farepayers’ market value book value cer- to inexorable to the parcels property including depreciable tain of real amounts over and above depreciable (buildings equip- awarding both ment) asset,2 I concur cost of seg- nondepreciable (land) gains appreciated under total them the ments, appreciated which had value present here.3 the circumstances Throughout opinion, compensated this when reference are mated and the investors farepayers’ right also, is made to the receive that extent. See infra. “depreciation gains the extent of the (2), at 840. II B See Part infra reserves,” deprecia it is assumed that deficiency tion due on the asset because II B at 838. 3. See Part infra premature of its retirement is first elim- surrounding appre- resulting But the issues therefrom should benefit nondepreciable farepayers go alleviating ciated value toward (the itself), land raise different and their conversion burdens.5 Since questions. program qua more difficult conversion was a sine non majority gains, of the resultant ob- majority admits that a risk While serves, overriding equitable consider- analysis inapplicable of loss here due respect ation arises con- with to these appreciation to the inevitable of urban properties. version-related While values, blithely land concludes without attraction, has a surface problems there are some analysis place close rules which application with its here and farepayers the risk loss on as to de- other rel- interrelation with the preciable property equally applicable Yet, assuming policies.6 evant ar- even nondepreciable I would like assets. guendo majority completely that the dangerous myself disassociate from such equities correct its determination that attempt point and will out the dicta surrounding the conversion can consti- majority’s reasoning. flaws dispositive factor, equitable tute a upon There distinguish a rational basis extend, course, prop- does not to those non- between any way the con- erties not in related to depreciable assets in this context program. respect to version It is with application of an ac- Commission’s non-related, properties, the non-de- those counting practice which reflects this preciable greatest assets, diffi- upheld. should be culty adopting position of arises in capital loss, Aside from the risk of grounds legal majority. Here the principal majority other reason the ad- farepayers awarding respect for its conclusion with vances become most attenuated. feeling equi- the land is a that the basic majori- underlying for the basis light of the his- ties situation, light ty’s equitable approach is- tory and circumstances of Transit and theory of the of the “fair value” demise acquisition ques- properties in of the ratemaking7 con- investors are not gains” coming tion, require any “loose any protectable constitu- sidered to have company into the credited to the of a in the actual assets tional interest majority in consumers. This the frames regulated publicly but rather terms of the rule “benefit follows only in- to fair return on their entitled a burden,” this but admits that consists Therefore, arguably itial investment.8 “determining equities in where the lie.” any logical of this is the extension Supra at 811. gains appreciated proper- disposal of on equities Most vital of in these the ma- apportioned as between ties are to be jority opinion solely is the fact that the land farepayers and the investors intimately light to the related conversion equitable all on basis program railway from a street to an Al- facts and circumstances. relevant though and, operation, all-bus since the extraor- diffi- question without is not dinary by approach costs were borne culty, my conversion that this it is view gain extraordinary farepayers, any majority applied in the incorrect Supra my at 808. As discussed Part 6. See Part II O infra c, II B 2 this is a con- infra O, of the II and Part II 7. See Part infra merely siderable extent restatement a majority’s supra. opinion, capital analysis. majority’s risk of loss is, figure fixing equity balancing The better basis for its 8. That used sys- original of the asset method is the demise of the fair value rates is the cost majori- appreciated thereof. tem III of the than the value as discussed Part rather ty supra. opinion, 5. For discussion of this conversion-relation- ship notion, a, II see Part B infra policy opinion. constitutional sets This benefit at least to that extent. If it is permissible

only the outer dimensions of sold for less than they book value must ratemaking up a license for us make and is not the difference between that actions con- amount and pro- overturn Commission deprecia- accumulated accounting accepted tion to with date. Therefore, formance reasoning equities goes, if profit cedures we feel it is whenever sold at it is contrary equitable support result. It is tend that he who bears the risk of ju- my policy similarly loss reap gain. that the should thus conclusion agency re- deference actions dicial premise prin fundamental of this uphold order in re- quires this that we ciple farepayers is that the do in bear fact arbitrary spect the land as not the risk loss obsolescence. distinguishes capricious be- insofar as Washington Light Gas Co. v. Baker, 88 nondepreciable depreciable as- tween U.S.App.D.C. 115, (1950), 188 F.2d 11 sets. denied, cert. U.S. 71 S.Ct. (1951), 95 L.Ed. 686 adopted this court Nondepreciable held, respect II. view and to de preciable properties, farepayers that the example depreciable A. The assets may charged with the unrecovered cost9 if the Much of the rationale behind the ma- investors have not been compensated jority’s way.10 some view that consumers other A would any similar Murphy be liable for result loss the land was reached Justice Supreme therefore be entitled to the Minnesota by analogy analysis Minneapolis Ry. Court in derived depreciable to its Min Street neapolis, 251 Minn. assets. 86 N.W.2d 657 (1957) citing held, ap Baker with respectable There is a amount of au- proval, that the obsolescence loss occa thority ju- both inside and outside this sioned abandoned streetcar facilities majority’s supports risdiction which farepayers.11 must be borne disposition assets. farepayers notion basic is that since good When retirement the assets has gain, resulted in must make the shareholders’ in- a number of courts depreciable properties jurisdiction vestment outside this have credited through depreciation reserve, reserve to farepayers’ making through offset good bear the risk of loss obsoles- burden costs,12 up the investors’ cence underdepreeiated must make for the unreeovered any premature- ample importantly, and more there is au cost ly thority jurisdiction asset, for such retired the should within this if asset profit System, they equitably sold for a treatment. In D. Transit should C. by adopted “charge” adopted 1 here The method the court method the court The farepayers farepayers putting was the the loss on the was leave the retired increasing slightly in the than in Baker. asset rate base thus the different Cf. supra. farepayers’ in not The retired asset was return to the investors the company base, expense. but the Under normal cluded in the rate circumstances as- 10-year compa- sought the loss over sets not “used and useful” to amortize ny’s expense. operations period “But are not included the rate as an Minneapolis] the [Baker base. both cases the consumer is whether fundamental issue ways The two which investors could 86 will bear the loss.” the investor or already compensated have been the N.W.2d (1) through accounting risk are: if by (such amortization) Filed Plainfield-Union method 12. In re in Rates the inves- Revision N.J.Super. already Co., compensated; tors have Wat er 57 Minneap (1959); (2) compensated 205, 211 if investor has been A.2d 154 by higher Ry. Co., 141 P.U.R.3d rate of return because of as- 31 olis-Street 1959) ; suming Minneapolis (Minn. Ry. Ry. Comm’n the risk. Street & Warehouse (Wyo. Minneapolis, Wyoming Co., 509 251 Minn. Gas 40 P.U.R.3d 86 N.W.2d 1961). Pub. Comm’n Serv. 4577) attempt nondepreciable (Order 30 P.U.R.3d force Inc. No. assets 1959), into the same mold. (D.C.Pub.Utils.Comm’n the PUC System of Uniform noted that under its Nondepreciable B. of de profit on the sale a net Accounts preciable improvements ordinari should Risk loss ly depreciation reserve be credited a. Precedents salvage (and thus benefit System, farepayers).13 District, D. Transit C. Within a number of ad- (Order 245), uniformly No. 48 P.U.R.3d 385 ministrative Inc. decisions have (WMATC 1963), contrary analysis rec held to “the Commission experienced ognizes ‘gains’ may majority. adopted that This is admit- majority15 disposal depreciable items and ted but it is claimed approach to de these are used as offsets indeed that adopted the administrative was heading preciation analysis. of ‘sal under the critical Out- without ” vage.’ District, paucity at 403-404. Simi 48 P.U.R.3d side the there is a larly, in D. C. Transit Inc. v. System, eases and few that are cited cannot WMATC, U.S.App.D.C. 375, directly support 350 F. the action here.16 taken (en banc, decid 1965), 2d 753 this court majority of de- observes the dearth ed Commission’s decision cided cases and to take this as a seems gains farepayers benefit question “license” to deal with the as if disposal writing ap- on a clean slate. It would to the extent of the taken however, pear, that the of cases on lack light beyond reasonable point probably more indicative peculiar equitable circumstances previously im- fact no one ever has farepayers required were argued agined ap- for such a novel bear the enormous conversion costs respect nondepreciable proach with occasioned realized.14 assets. recently has stated Commission District, Within the the issue question that, depreci “there is no when opin been mentioned administrative operating property is sold and a able directly never consid ions but we have realized, gain used should be ered it.17 Under both PUC depreciation expenses to reduce profits WMATC, of land have on sales ratepayers paid but which proper been treated as “a credit gain, company, does because of the benefiting surplus” and earned thus as Sys., actually incur.” D. Transit C. Inc., Sys., D.C. Transit investors. 1090), (Order Inc. 85 P.U.R.3d No. (Order No. P.U.R.3d 1970). (WMATC 1959); (D.C.Pub.Utils, D.C. Comm’n regard depreciable prop- Thus with (Order 563) Sys., No. adopted approach ma- 1966). erties the (WMATC More P.U.R.3d directly point jority equitable well-supported is D.C. Transit 245) Inc., 48 P.U.R.3d procrustean justify a this does not apolis, (petitioners’ note 11 brief at special However, dictated circumstances 18), position land. How- their on the for sharing and in- a between consumers effectively pointed ever, out in Re- as in affirmed D. C. Transit vestors. We 12-13) spondent’s (at these brief cases C., U. 110 Inc. v. P. only depreciable with dealt (1961). F.2d See discussion 292 734 equipment) (l)lant have no and (2) infra, ax>- 2 Part II B a at 840. nondepreciable idicability real estate. supra, accompanying note 55 text correctly majority none states that The infra, II Part B further discussion upholding Commission of our decisions a at 838. interpreted a decision can be as on orders Supra at 798. the merits of this issue. infra, the 16. Aside from the cases discussed petitioners loosely Minne- cite Baker and argument controlling (WMATC 1963) in reason that an was under the system adopted by accounting adopted very approach by of the that similar to agency, majority loss of advanced to the on a sale here was land was the rejected by required deprecia In it. that to be debited to the Commission charged argued gains on tion realized it that reserve thus to the case was might pieces protect land consumers. “The certain of is thus the sales of the on ed from in some of losses a loss the of in used to offset sale land be operations; premature rail facili it the retirement seems reasonable clearly farepayers. pass profit by ties holding the should on a borne to the consumer.” contrary the Commission 208 to the N.Y.S.2d 863-864. Thereafter Lexington Co., in stated: Water 72 P.U.R.3d 253 (Ky.Pub.Serv.Comn'n 1968), the same may ratepayers a While applied regu Kentucky rule was property, claim to the latory commission, citing N.Y. Water extent least proper Service. “If it is to recover loss reserved, he direct- such claim can no non-depreciable property through es toed land. amortization, conversely then it should added).18 (emphasis at 399 48 P.U.R.3d proper gain prop be erty.” to amortize on such And further: P.U.R.3d at 259-60. Yet this use no further If land becomes reviewing decision was reversed profit, disposed of aat and is grounds court on the that N.Y. Water or, profit; entitled to the investor is only Service it was was decided as be loss, must suffer the investor if at a accounting unique proce cause of its Kentucky the loss. procedures absent dures— e.21 court believed that Id. 400.19 cas risk had fact loss agree jurisdiction, I this Outside Lexington borne investors. (cid:127) can majority20 the cases Lexington Water 458 S.W.2d 778 Co., proposition to stand for read then, (Ky.1970). can, This cited case accom benefit opposition approach direct In New York panies of loss. the risk adopted majority: by the Corp. Public Service Service Water Profit made from the sale non-de- Comm’n, 122, 208 N.Y.S.2d A.D.2d longer preciable no land used in serv- affir’ming York Water (1960) New ing ingredient customers is an not (N.Y.Pub. Corp., P.U.R.3d 32 Service fixing be considered rates. upheld the court Serv.Comn'n prof- no customers had interest regulatory by commis determination belonged to on the realized sale—it passed on to the consumers sion which land. The reaped stockholder. profit sale reasoning ing crediting was correct of losses 18. The Commission’s profits sales, consumers, nondepreciable. simply land Iecause land utility’s surplus ac- rather earned cited It true Commission count. S.W.2d at New York Board Util. Comm’rs v. of Pub. system especially 23, 32, Co., 22. And note this Tel. 271 U.S. adopted spite (1926) support of the fact that Priest of this 70 L.Ed. 808 original Kentucky juris- analysis. majority’s lists cost criticism While Principles Priest, proposi- standing diction. A. Public of that case Utility Regulation my concurrence, 145-146 This see note 82 tion has figures importantly evaluating supra, appears the “fair it nevertheless analysis majority at Part value” for reasons dis- is correct and Commission supra. See, III Part II O Such can stand cussed that its conclusion infra. infra procedures accounting compati- premise. in despite faulty fact as, original such ble with cost doctrines Supra at 798. prevail jurisdiction. in our Kentucky agency adopted 21. The had a system providing charg- for the of accounts 1959); (D.C.Pub.Utils.Comm’n D.C. majority cites Co- 409 also Id. at 780. (Order Sys., No. Utils. Transit Inc. v. Public Fuel Co. & lumbus Gas 1966); see (WMATC 763, 32, 78 P.U.R.3d Comm’n, S.Ct. 292 U.S. Respondent’s indicating at 9-10 also (1934) brief as L.Ed. 1327 in Bebchick brief Commission’s of land market value sudden losses may conceivably consumers. borne be adopt ac- such an It is reasonable Supreme denied Court However, the counting it is be- method and as such dim- risk of value no such claim because it, especially yond power our overturn immi- was from abandonment inution light adher- of consistent Commission appears the Court (as nent. Yet is ence thereto. The Commission system a which agencies) have allowed regulatory would with most usual “depreciable” asset land as a authority treated express statutory to estab- infra) (see purposes accounting all rules26 and lish uniform in fact of loss would risk clearly case the controlling which unless such rules are farepayers. on the be arbitrary capricious. Transit D.C. Sys., Inc. P.U.C., Therefore, it is clear while (1961). Public F.2d 734 reading majority these cas- correct in is regulation replete recita- eases are principle standing for “the broader es principle deference is tions capital follows of a that the benefit agency’s accounting to be accorded an clearly loss.”23 of risk unless transactions treatment clearly various recognize importance fails to applicable See, g., Ameri- e. unreasonable. accounting system and the Telephone Telegraph v. United can & pronounce- practice and Commission’s States, 232, 236-237, 57 299 U.S. determining in fact where ments (1936); 170, 81 L.Ed. 142 Northwestern do lie. these risks 119, 124, FPC, Co. v. 321 U.S. Electric (1944); Ar- 88 L.Ed. 596 64 S.Ct. risk loss? fact bears b. Who FPC, Light Power Co. v. kansas U.S.App.D.C. & (1950); 185 F.2d 751 (1) pronouncements The Commission’s Accounting see at 844-845. also infra policy reflect themselves basic rules It is clear that under the Commis- carefully judgments at and arrived System Accounts, sion’s Uniform land hastily overturned. not should nondepreciable is treated as a asset and any gain or loss of the fare- system is risk not of ac- of a The reasonableness payers, nondepre- the investors.24 Cer- counting land as treats tainly adopt- the Commission could have Land does seems manifest. ciable system placing ed a different the risk of in the conventional sense out wear farepayers loss on the it had so buildings if equipment. it is Neither wasting desired.25 Yet the Commission has re- resources sub- asset such as peatedly said it is the ject depletion investor’s risk Moreover allowances. (Order Sys., Inc., obviously may exceptions, loss. 245) Transit No. D.C. there while unlikely extremely general 48 P.U.R.3d rule it (WMATC 1963); Sys., D.C. Transit value of land the fair market’ (Order 4577) metropolitan Inc. No. below 30 P.U.R.3d areas decrease would Supra apparently permissible farepayers at 798. & Fuel Co. v. Pub. Util. Columbus Gas 24. “If land becomes of further no use Ohio, 292 U.S. Comm’n disposed profit, a the investor L.Ed. 1327 54 S.Ct. profit; or, entitled to the if sold at a loss, pro PUC, the investor must the loss.” the old the Code so suffer 26. Under Sys., 245) 309, 310, 314 D.C. Transit §§ vided. 43 D.C.Code (WMATC 1963). (1951) ; 48 P.U.R.3d see Inc. v. D.C. P.U.C., supra note 13. system “depreciat- 25. A which allowed for ing” charging land and gen- depreciation insufficient period of time.27 This cost over a taken due to the unforeseeable obsolescence. stability of land values insures eral original in- integrity shareholders majority speaks repeatedly The majority of situa- vast vestment the declining and “obsolescence markets” very just reason for that it is tions and respect with to the However, land.31 among practice widespread it is a concept conjunction obsolescence regulatory agencies as non- to land treat simply with not The land does work. depreciable. Under these circumstances truth of the if land matter is that is decision Commission’s that the seems sold at a loss due to sudden obsolescence nondepreciable asset as a treat land the loss on falls Transit’s investors—and gain or loss debit and credit or text, as statements such that in the su- surplus ac- disposition on to the earned pra wrong simply as eminently should and reasonable count is only authority land. The to the con- certainly a settled It is be sustained. distinguishable trary easily on the ba- nondepreciable principle and land is accounting systems of different sis and 28 is notion” this is a “mistaken call practices different administrative unjustified. law wholly It is familiar jurisdictions.32 depre- other There is no great accorded deference is to ciation reserve mechanism as land applied deci- consistently administrative whereby good farepayers must make the interpretations its own sions and original investment in the case de- as regulations here, as the and rules and preciable properties it is fact —and majority admits,29 the administrative that dictates fare- uniformly treated decisions have payers’ proper- depreciable burden as to solely a concern loss on land as ties, possible not the fact of fluctuations utility’s investors. hypothetical in market value. The on

pages majority opinion 807-808 complete- insofar as it deals land is with (2) majority’s con- Criticism ipse ly simply dixit erroneous. It states regard in this clusion startling it is “the conclusion that majority does the arrive How then compensate notepayers’ burden of loss conclusion that the risk on invest- for on their loss [investors] dispositions by the fare- land is borne authority, in the land.” foot- ment For payers? completely answer (text note 194 refers and cases to cases essentially majority clear,30 con- but 211-218) deal at footnotes sively exclu- spite that, the Com- cludes of what depreciable property and are says past has done mission authority proposition stat- of no future, if faced with a will do in the speaks Repeatedly majority ed. becomes concrete which land situation refers the as to land “obsolescence” purposes company’s for the obsolete only involving obsoles- reader cases cost, drops if below market value depreciable property.33 Such as cence place sold the Commission will at a loss beg very question before citations us making original good burden whether or not the treatment which is just depreciable investment consumers should accorded nondepreciable depreciable properties extended as well to as- done with analysis, today’s threat loss real observed in com- This is also majority 23,720 panion 24,398. to land is de- claimed cases Nos. clining obsolescence. market value due to accompanying supra. Text g., supra 810-811. 31. See e. Supra at 798. supra at 834-836. majority depreciable refers to both both nondepreciable cited for cases are same 33. The identical See, nondepreciable respect assets. of loss. to risk breath with supra. Compare However, note 192 g., supra note 194 with e. at 809-811. might subject some “inside that should not judicial of de novo sets. there be the While apparent, not information” that examination. suggest credulity stretches that Moreover, majority does not even depart from its own would Commission consistency. maintain Even internal past system accounting repeated disclaiming any while reliance on “risk place pronouncements to administrative loss” as to land this case value of the risk of decline in market inevitability due to the of land value through the fare- land obsolescence appreciation,35 majority un- seems payers. And that as an ostensible to use gratuitous to refrain from further able awarding farepayers the

basis sup- reference to port doctrine to lend logic gains property is tortured on that reappears to its It result.36 also at best. discussing supposedly distinct majority ground that even (the conclude does of “benefit follows burden” though analysis support an dispositive ground would majority’s this gains farepayers if to the opinion) figures award of the importantly there, declining palpable there were a risk despite the disclaimer of reliance primor present markets, here.34 not that risk is purposes thereon for the of this case.37 appears Thus it “obsolescence” Equities speaks majority is in reali- Since notions of risk of cannot loss declining ty only market the threat of support majority’s dispo- and do not repeat this I values. And must gains land, sition of the oth- what again demonstrates “obsolescence” grounds opin- er are advanced in the deprecia- applicable only concept is a controlling ion? The second and “doc- context. It is this ble majority trinal consideration” in the declines in market the risk of sudden opinion is fol- termed “economic benefit depreciable property that dic- value of makeup lows economic burden”. gains farepay- to the tates the award of ers, large part these “burdens” is crucial. A depreciation, but rather fact enumerating of this consists of the vari- required farepayers to make in that are farepayers light equities ous good prema- the cost investment history circumstances through depre- turely retired asset My analysis Transit.38 of these brief in turn is And this ciation mechanism. equities follows. course, founded, de- on the fact that invariably preciable property out wears Conversion-relationship a. ap- simply has no is consumed. This plication nondepreciable property and Running through opinion all ais nondepreci- undisputed land it is equitable basic properties notion that Accounting principles are not con- able. intimately which are related system air, jured up them- out of the but are to an conversion all-bus policy representative of studied selves undertaken Transit as a condition of judgments. they As such deserve some charter, should inure to the consum- respect an administrative and where bearing who ers the enormous costs them, agency consistently adheres program. of the conversion It is undis- argument hand, the other can al On inapplicable I find it on more funda- ways just land be made that because most grounds. mental consistently times, in our values have risen See, g., accompanying e. text crowning depreciable above of the that “the con- the cost the assets.39 conclusion totaling equi- the various The PUC noted that under sideration its Uni- [in System Accounts, gains the fact that the form of all incontrovertible nor- ties] farepay- mally deprecia- conversion, cost to at full the should be credited to the ers, salvage qua of (to non to tion was the sine release the reserve benefit consumers). properties in value roles Id. it from Then ob- transportation highly in that the non-transportation scheme for uses served this was a unusual Supra gains ventures.” situation that there over were proximity the rela- the and above the amount needed to retire While original tionship of the to the conversion the of the and there- land cost assets equitable departure process important Sys- fac- fore from the Uniform is an ground tor, legally not it is a sufficient tem Accounts was deemed warranted. company sought support majority’s The in and to the the “over and of itself dispel gains doubt, total, the To such fol- above” but the noted result. all PUC lowing proper compelling analysis equity to trace the of the close rela- seeks the light gains “conversion-relationship” properties tion the to role of on these program.40 past precedents. the conversion This is some- really ap- the

what odd because proached PUC question the “backwards.” (1) Precedents System is, That since the Uniform gains go required in Accounts all from cases concept is derived This farepayers, indicating why re- it not have should jurisdiction that this equities depreciable properties on the side for searched for some spect to farepayers. due than the incurred the investors rather losses obsolescence adopt al- a conversion, seemed to should Somehow the PUC consumers the proceeds equitably presumption the above” that all “over and share lowed to investors, principle go gains de- the this should now disposition. How on applica- System contrary it is extent to its own Uniform veloped to what analysis of the requires close Accounts. a here ble appeared. it has in which cases Nevertheless, approach later this was Sys., sitting a by Transit en banc as D.C. this court cited It first arose gains 4577) determining Inc., (Order 30 P.U.R.3d method of when valid Throughout opinion, “over the term rail under of all retirement gains refer to will be used franchise. We mandate contained and above” disposition (or probability gains ignore trans- full realized on cannot asset, line) depreciation provision of a will not have fer below depreciation provided reserves rail facilities and above when over by (that the fare- contributed retired reason of amount are abandoned and depreciation company payers has con- toward conversion. sistently any depreciation position asset) re- and assumes taken the deficiency premature retirement of should due to in this connection tirement loss gains. by charges against the cus- is also covered the asset recovered tomers, profit the total in- and above heretofore over staff Thus agreement. However, original depreciable asset. if cost dicated required to bear are to be customers pro- ordering to allocate In extraordinary retirement burden described, in the manner the sale ceeds of the whole conversion co losses incident declared: the .PUG equitable appears program, light of the com- of the franchise “In extent, share, some least should program gradual pany requiring a extraordinary gains of the retirement opera- railway to bus from conversion under consideration.” nature here July 24, 7-year period from over tions Inc., P.U.R.3d D.C. Transit unable disassociate we are 1959). (D.C.Pub.Utils. Comm’n the imminent instant transaction depreciable property (presumably principle boils down to this: fare- depreciation may gains payers get deprecia- reserve over and above the n although ap- clear) can be arising this is ble in all on that situations charges plied particular up out other offset asset reserve, ease the conversion. over that42 and above profit question de- on the whether will not be de- credited to offset other portion preciable preciation obligations of an asset41 could be on other program incurred charge used to offset an obsolescence due to the conversion asset, un- retirement of a different unless the also were occasioned derdepreeiated ap- due to the conversion. conversion. This is reasonable say profit although The court the on seemed to proach, it is based on the Com- piece property depreciable one of could surprising position mission’s rather of inclining give the de- not be used to offset obsolescence to all “over and above” the gains on unless company ficiencies another asset to the rather to the than requisite relationship to farepayers required the conversion its Uni- as is under System F.2d Apparently were established. 350 at 775-776. form of Accounts. accounting the The court remanded to Commission the felt Commission that its profit-yielding contemplated the procedures to determine whether ex- never such property was traordinary gains depre- in fact conversion-related. over and above ciation the reserves-—and it is true that however, remand, the Commission On premise depreciation whole of is that question. After de- further clouded the usually the asset will decline in to value termining property question in that the insignificant point predicted of an sal- (which not related would was conversion vage figure. issue) it continued: settled the Therefore, ratepayer enti- the (2) gains “Over and above” on any portion of the tled to in share depreciable assets . sale, proceeds of there was unless question of This raises the difficult depreciable portion profit on the automatically farepayers should whether none the asset There sold. was entitled to these “over and above” this case. gains. majority The at foot- maintains Inc., (Order D.C. (last sentences) note 227 two that be- 1966). (WMATC 32, 33-34 63 P.U.R.3d farepayers the the risk cause bore confusing in that the Commis- This is up asset, eq- to total cost of loss the the say manner in a casual seemed to sion uitably they the total should receive the if sufficient conversion-rela- gain. the investors are assured Since shown, farepayers tionship the were investment, protection their the ma- profit right on non- have a would argues, equitable jority have no principle depreciable it has assets—a gain. any However, the better claim analysis accepted. fare- correct in that never It is farepayers be that the seems to depre-' profits payers on are entitled to make undertake in all situations must regard- properties to extent some eiable good original cost of the asset relationship. And less conversion is assumed that investors because it farepayers here, there none since business asset will consumed portion any not entitled to point of sal- its value dwindle and tricky proceeds of word the sale. vage. expectation in set- This was must be concluded “therefore” and depreciation ting up schedule merely estimating loose life the asset. ill-considered this the useful go awry language part When these calculations Commission. case, only “Georgia dealt asset, discussion Eastern & 41. The segments. depreciable Terminal,” apparently of land consisted deprecia- had both structures and thus supra. components. nondepreciable ble preciable higher salvage is somewhat than value this context.44 Any past farepayers clearly predicted, should discussion conversion rela- get deprecia- tionship depre- respect back their contributions been with property already prima is how the to that extent—and this ciable tion facie System farepayers of Accounts works. awarded to under Uniform the Uni- However, System far when calculations are so form of Accounts and has in- questions appropriate on re- asset volved afield that brings only sharing farepay- in not the total tirement between investors and (a profit gains cost, as well sizeable ers as to de- over and above the situation), farepay- highly unlikely preciable Here, cost of the under asset. recovering only duly the amount System ers back Accounts, the Uniform adopted by Commission, of their contributions to being de- property automatically go further relieved real to inves- obligation respect preciation supra. Moreover, tors as discussed un- receiving asset, an un- applicable precedents, nevertheless are der the once a expected exist, extent. When relationship windfall to that is found conversion well, profit as there is a sizeable then does a matter of bal- it become jus- completely ancing equities is seems the Commission the to determine to what departing pro- from normal account- farepayers tified in extent shall share the ing procedures they did in D.C. Transit as it ceeds. “The extent to which are to 4577) (Order Sys., Inc., No. 30 P.U.R.3d depends upon share a fair balance be- 1959) (D.C.Pub.Utils.Comm’n and public of the interests tween the ratepayers to investors and company’s allow both of those the D.C. investors.” gains ac- 4577) in these over above share cording equities of which is (D.C.Pub.Utils. to the P.U.R.3d —one to the 1959). bore the relation the Comm’n obsoles- and the enormous conversion Summary (4) This charges therewith. associated cence Therefore, prece- I rule but the appear be the to summarize to better would opin- by is- the reached insofar as address this in the result dents concur ap- gives sue, analysis, above the over on the method close ion which properties the gains depreciable pears depreciable property to to if be this: equities belong gains farepayers the gain, to because is a sold at those point up de- particular farepayers to of the case.43 the the preciation If there of the reserve asset. majority’s Analysis use (3) of the any gain that and above remains over concept of conversion-relation- the figure, determined whether it must be respect land ship to the with question were dis- these posed employ majority pro- part the does How then of the conversion of as relationship? equities gram. so, of conversion then other the notion If only majority uses inter- at times to the relative examined balance While (a role I equitable public factor the consumers. another as ests ap- prop- appropriate), other times of the deem nature Thus the any legal pears dispositive erty prerequisite considera- a to be is essential simply supra, analysis; conversion-relationship tion. See I would language clarify point turn, conversion-relationship nec- that a like to is a dealing balancing opinions any con- past essary predicate with in our any relationship way prece- sole- referred there equities. is version ly In no and, depreciable properties, applying dis- support either for dential above, indisputably a conversion-relationship analysis cussed there is or bal- distinguishing nondepreciable ancing nonde- equities rational basis of the equities, see 43. For non-conversion-related at 836-838. b,2 Part IIB at 842. infra say program the fact fact that the conversion borne assets. That is not to farepayers parcels conversion-relationship not does freed these profit equity disposed powerful real of at a create rather estate —but very compelling equitable concept on this as an investors is a reliance independent support inves consi deration.46 source of based misplaced. certainly purchase of the precedent tors from a And benefited company nondepreciable proper- respect of the at a far below stock cost ijowrelated assets,47 conversion, the fair market value of the ties opinion’s (not paying any ground to mention sort conceivable for the going premium disposition acquiring a in favor business similar general simply monopoly farepayers assured with a virtual charter) appears equities leads and it sizeable of the situation45 —which following dividend returns been received over discussion. years.48 equitable considerations b. Other briefly however, I must dispute with some of some can taken indisputable equitable It majority opin- specific factors pre- in this case considerations involved example, factors ion. For some of the farepayers. ponderate in favor of the benefiting investors, such as cited as required They bear have been monopoly position (su- Transit’s virtual re- million in track burden of over $10 pra 815), preferred tax treatment its repaving as well $5 moval and op- (supra changeover to an underdepreciated million cost Moreover, erating system fixing and streetcars. tracks a fair ration recognized originally passed that these nonrelated 45. It a version is that the Senate very represent system nondepreciable a the would be under which transit period portion publicly the assets involved. an interim of of for small owned buyer years until a could three suitable noteworthy regard it is also 46. In this Cong., S.Rep.No.1791, 2d 84th be found. farepayers the cost bear the must that “proposals (1956). this Prior Sess. properties while on the of maintenance applicants the from six for were received status. permit held were and detailed conferences acquisition However, the assets time At the of the with each. Public Utilities approxi- ap Capital’s reported valued on books that of the were mately none Commission purchase requirements plicants million. Transit’s $23.8 met the considered permit, price the about million —but of a $13.5 was for the issuance essential up by private proposals million the individuals $10 investors had to make no further adjust- acquisition through at 2. the to date.” Id. difference been submitted have majority pref private ownership in the as described was deemed ment account opinion. Since However, report erable, the market value of indicated that the conference ultimately agreed high- apparently arrangement somewhat was the final upon higher being exactly give er, a de- was how much franchise to Transit majority H.R.Rep.No. point. opinion, acceptable. su- batable more considered pra Cong., It be noted 2d at n. 11. It should Sess. 84th price technically acquired simple Capital apparently Tran- case of the was a was buyers. through purchase being Text a dearth of of stock. sit a driven down prospects supra. accompanying apparent ma- were The It is consistently jority amake distinc- less than attractive. fails to somewhat by purchase acquisition tion between majority opinion, page 815 of 48. On See, by purchase of stock. the assets and This to. are alluded enormous dividends g., supra been at 812. It would have e. figure Committee derived was precise this distinction to maintain more Report on based at note cited methods, especially since the two between $500,000 comparison in- cash with the a purchase price explains partially it figure mil- $13.5 than the rather vestment value. below book company original in the investment lion principal this “bar- reason behind misleading and is somewhat and as such Capital’s purchase gain” stock in the years, Transit’s those Since emotional. simply no other ac- there were doing apparently have investors substantially legisla- ceptable at the time. The offers 24,398. See, worse. history Franchise Act shows of the tive opposed capital c. the old rate base Resurrection of “risk loss” return as general heading topic (supra 815), and the under the method (supra property values rise “burdens” every present ease involv- in almost are ing large above, part As conceded a utility. weigh public fac- these To equi these “burdens” consist of various against is tantamount tors the investors weigh generally table factors which game “fixing” be- the outcome of farepayers. However, favor of the it begins. Moreover, no- we read fore it large equally part seems that an majority opinion of in the where majority’s rationale in this “bene A equities the side investors. nothing section more fit/burden” oper- unique regulated public is a than a restatement erroneous often said the inves- ation which principle farepayers are entitled only “fishing license.” have tors capital gains because the obso they entire investment stake their While i.e., lescence risk of loss— large enterprise down- face a majority’s controlling two first principles. ceiling they their risk, side supposedly discarding While regulated (a possible gains reasonable purposes factor of this guar- return) are rate —and case,49 majority manages somehow given only return, but anteed this right slip it back into deck with an im it. In return to “fish” for sleight pressive of hand maneuver. Re arrangement, they re- agreeing peatedly in majority this section of the advantages such as a number of ceive language opinion, “depre there is about prefer- position, monopolistic tax their ciation” and “obsolescence” burdens of operating ratio perhaps an ences farepayers.50 fact the mat Where rate determination. method of concepts simply ter is that such do not busi- must bear entire investors apply nondepreciable assets such as inci- risks, consumers bear ness land. Such statements “consumers utility assets costs on dental maintenance bear the risk of that unless inves loss invest- protect investors’ and must compensated tors have been for assum since ment ing (text accompanying it” su (but not land— useful life a limited pra) completely wrong as to land. only protection stability is their land important more in What is is that long arrangement here). has this That volve identical to those considerations regula- public practice in the majority the aside.51 claimed set majority. Yet by the tion is admitted ad Here we have two basic doctrines con- factors been before have such never support the result and one vanced equitable considerations which sidered of a re consists to a considerable extent investors, against at least militate it statement.of the other. And when is equivalent knowledge. my so hold is To be asserted that the one factor is every equities saying case that reappear it not in anoth shelved, should against utility. it is In our case are truly er gard, If in this re form. consistent placed ex- has that the conversion true would remain what then farepayers traordinary on the burdens majority’s “doctrinal con crucial second extraordinary burdens it is these —and sideration”, dispositive benefit/bur figure equi- rightly should which repeated analysis? doc den When balancing object to process. IBut table disappears, we left trine are “stacking adding by into the the deck” scrutiny, “half doctrine.” On careful every incidents the normal balance marvelously then, and regulated industry. publicly voluminous lay outset, rule in- aside the as to all cases I incorrect 51. “At feel is capi- gain accompanies volving land, risk o£ that course. Supra at tal loss.” accompanying conceivably (1944). Therefore appar- arbitrary and unreasonable. The facts look to relevant should agency’s pro- de novo review ent proceed to bal- and circumstances wholly opinion and the cedures essentially equities. This ance the is unprecedented of the nonde- treatment respect majority to does what the with solely equi- properties preciable based nondepreciable nonrelated stretching balancing to be seems table and, analysis must do my what it under to desired result. the law reach a respect there land since all the to majority gives clear that persua- It is other appear not to be does applicable very ac- to little deference justification reached. for the result sive majority opinion, of III 53. Part Consisting sum- factors I have 842, b, supra at 800-805. 2 B in Part II marized Supra at 795.

845 (emphasis added). counting de- the Commission’s Northwest- also, rules and FPC, 119, ern Electric Co. 321 them.55 It states U.S. cision to follow “ 124, procedures 451, 454, [accounting self- 64 are not S.Ct. 88 L.Ed. 596 (1944) added): (emphasis permit justifying” an account- and “[t]o ing is to rule law dictate the device to Although . . . the Commission’s wag judi- dog. To to allow the tail eliminating prescribed method of accounting cially accept with- method an write-up may not accord with the best is to inquiry toas its reasonableness out pervert accounting practice, it is sustained judi- yield, on law. And to expert It not us evidence. is to to unquestioning obeisance cial review, practice determine what is better authority ac- over administrative counting long so as the has not Commission responsibility abdicate the arbitrary plainly adopted obviously an while Supra Yet at 819. to review.” plan, [footnotes omitted]. review, responsibility cer- judicial the tainly PUC, also, Inc. v. D.C. Transit abdicated, neither is should 734, U.S.App.D.C. 241, 242, 110 292 F.2d ignore our all limits on majority, rather, it a license Light (1961); Power & 735 Arkansas It discretion. 385, FPC, U.S.App.D.C. F. Co. v. 87 185 ignoring such “perverts” law (1950); v.Co. 2d 751 Alabama Power judicial concepts firmly in our embedded 280, FPC, U.S.App.D.C. F.2d 75 128 agency proce- system as deference denied, cert. S.Ct. U.S. spoken Supreme Court dures. (1942); & 87 L.Ed. Pacific Power decisively on this issue: (9th Light FPC, Co. v. 141 F.2d Cir. Light Pennsylvania 1944); & Co. liberty Power to sub- not at This court is (3d F.2d Cir. FPC, 139 for that discretion stitute its own denied, kept cert. 321 U.S. S.Ct. officers who administrative dismiss such 88 L.Ed. 1086 To of their administra- within the bounds principle of and sound these have established powers. To show tive cavalierly wholly unjustifiable. law so action exceeded field enough that involved, is not here majority repeat, no def- accords I system prescribed accounts administrative ad- erence to consistent appear or burden- be unwise shall widely accepted established herence to accounting Error, or another. some procedures inferior —themselves equivalent to abuse. is not unwisdom judgments. policy It product of careful appear to must been ordered What has in- situation consider each would rather entirely at odds with “so equities. funda- dividually on the basis principles account- correct mental ing” injects into effectively our court This Ry. City Co. (Kansas Southern process regulatory benefit without States, 231 U.S. v. United expertise environment and creates an 296]) to be L.Ed. give S.Ct. [34 free are allowed which we expression than rather a whim reign equitable inclinations our judgment. Norfolk & an exercise the re- situation without each factual States, Ry. Co. v. United orderly Western straining ac- parameters of an L.Ed. 134, 141 [53 U.S. counting system. funda- This violates Ry. City Co. 218]; Southern Kansas law of administrative mental notions p. States, supra, U.S.] [231 v. United judiciary. and the role of 296]. L.Ed. [34 S.Ct. required to the mention Brief is Telegraph to Telephone majority’s it been cited Co. claim that & American accounting operative issue rule on the States, 57 no 299 U.S. United (1936) is dif- 170, 172, selective blindness L.Ed. at hand. This cavalierly approach it as a “technical the dismisses taken but is the 55. This also point.” majority 24,398, majority 24,398. No. There the system accounting applicable -, F.2d at 886. refers the majori- Surely cost, ficult the the to understand. value exceeds unrecovered ty gain dispute amount, the exis- there is a in that does not mean System gain tence of Accounts. fair of a Uniform is that the be credited PUC, ratepayer up example, repeatedly re- to the amount he con- for Sys., Inc., charges depreciation ferred to it in tributed for D.C. property. time, 4577) (D.C. At the if same P.U.R.3d 1959): cog- Pub. the repay the needed to Utils. “while exceeds amount Comm’n adhering ratepayer full, desirability nizant of the it seems the System equitable the receive Uniform of Accounts the investor ” (Id. 410); “starting surplus. . from premise appli- the conceded that a strict respect non-depreciable With System cation of the Uniform of Ac- property, hand, the on the other since ” requires (Id.); counts . . . “the ratepayer makes contribution no System applicable Uniform Accounts, capital cost, the he none of the shares accounting procedures un- utilities profit profit if indicated when is jurisdiction der the of this commission property the taken out of service. is (Id.). precise point .” Ón this provided capital The investor has the the Commission us its has informed acquire property rate- system brief that: ac- “Under way payer pro- no thereafter has effect, property counts now in where is vided reimbursement to the investor operat- transferred Transit from an capital outlay, for that as he has ing non-operating to a status because through depreciation charges on de- longer company’s is no needed preciable property. nondepreci- While following operations, transit results: property service, able is in the rate- (2) non-depreciable property, As to payer pays maintenance taxes .and property depre- that is no which property, expenses which are re- charge against ciation is assessed garded legitimate operating expens- ratepayer, different result ensues. es; represent do not a con- case, property merely In this is re- capital tribution to the cost. That original moved the rate base at investor; thus, cost is borne gain, cost. If there is a if that is nondepreciable property when the original fair market value exceeds service, equitable removed from it is cost, loss, or if there is a there ais original any gain in value over charge credit or made retained passed cost be on to the investor. earnings, so that the investor receives Respondent’s (emphasis Br. add 9-11 any gain the full benefit ed). is this a failure to cite to us Now full detriment of loss. System Commission’s Uniform Depreciable property majority is a Accounts as the contends? Is put item into which investor has it defective no section numbers because which, service while it remains quotations appear? Or does ma wearing service, is out. itAs wears jority simply assume that the Commis reduced, out and ratepayer its thus value is sion has lied to us? I think such an as reimburses the investor wholly improp sumption unjustified and through deprecia- the reduced value say Moreover, this can er to the least. charge reflect the tion which is set to since, “post not be a hoc rationalization” rate at is assumed admits,56 majority as the Commis wearing out. At the time of to be consistently repeatedly sion has transfer, the amount of accumu- position stated this to be deducted from lated in this statement contradicted original un- cost to determine the cost. If the fair market record. recovered Supra at (both System the land

A of Accounts is not I thus dissent as to all Uniform piecemeal. Agency’s sys conver- enacted This related nonrelated to the and concurring days sion) and, in the result while tem has effect since clearly depreciable properties, would inher as to the PUC and WMATC my system like to make clear view ited it in accepted accounting procedures applica to.57 It is a broad gains not be should “over above” belonging inexorably regulated considered as under the ble industries all. authority. the investors. The enactment Commission’s Regulation necessary because 61 was abrogation is of traditional ac counting regulation rules. such No

required disposition is in con where accounting princi with such

formance ples.

And even were there no clear Uniform System provision of Accounts on this is- COM- The DEMOCRATIC CENTRAL my precisely sue, position would be Petitioners, al., MITTEE et policy of deference to con- same. The sistently agency procedures applied AREA METROPOLITAN WASHINGTON practices expertise in areas of its COMMISSION, Respondent, TRANSIT authority incon- is well established and System, Inc., D. C. deference has ev- trovertible. such No Intervenor. momentarily given majority en No. 22450. pause in its deal the issue zeal with Appeals, United States Court de novo. District Columbia Circuit. Finally, if a close conversion relation- July 23, Argued ship conjunction equi- with the other favoring farepayers Decided June ties serve to did accounting' render the Commission’s practices and decisions administrative arbitrary,

manifestly unreasonable and support

there would be insufficient nonde-

this result as to the wowrelated

preciable properties. The fact that program, the cost of which

conversion farepayers, was the

was borne qua sine non of the realized on the related investors

strong appealing equitable factor. equita- joined And, the other when weighing in considerations favor ble sympa- certainly I can farepayers, with, the notion

thize if not concur account-

this renders Commission’s However, ing procedures unreasonable. of conversion-relation-

where the factor absent, it can-

ship it seems clear general conceivably said that mass”

equities the “critical reach alone “arbitrary finding necessary to

capricious.” Supra note 306. 102. See Part notes IV 243- think We otherwise. See note supra, III, and Part infra. P.U.R.3d at 403-404. viable, strengthens appreciation as- Commission investor’s depreciable proper- think, however, We careful sumed. The value of claim. after ty, including improvements exploration, the foundations chang- land, approach, also rises falls with and the conclusion it ing yet conditions, indicate, long it is clear seemed market since erod- away. may contend ed consumers capital gain was used achieved while it In Rate Base Formulation A. seeps public.111 in service to the What indulgence concept Judicial through discussion, the Commission’s appreciation utility property in value of however, the Com- the conviction that attaching automatically is an increment yet consider factors mission high ownership its water reached its instance, which, at least in Transit’s during era of mark the “fair value” importantly problem. bear on the returns rate-based formulations utilities.114 decision Ill Ames,115 Smyth Supreme Court OF INVESTORS IN VAL- INTEREST held “that of all calculations as basis IN OPER- UE-APPRECIATION to be reasonableness rates ATING UTILITY ASSETS charged by corporation maintaining

Notes

notes D.C. Transit dis- 42 L.Ed. 18 S.Ct. 169 U.S. 11(A), supra, cussed in Part at notes 33- 50; City Lexington Lexington Id. S.Ct. Co., supra Water discussed 11(B), supra, Part at notes 73-82. 117. Id. at See cases cited note 112. 118. Id. at 18 S.Ct. at 434. reproduction This cost formula.119 for base their rate of return was rising course, meant, of that in times of one. prices, reproduction the use of cost to theory, The fair value however, was original advantaged the exclusion cost not to survive the inexorable standard utility’s disadvantaged investors setting Perhaps for rate the turn base. its consumers. In Willcox ing point conceptualization Company,120 Consolidated Gas the Court rights of investors viz-a-viz consumers property remarked that which “[i]f utility property occurred in legally enters into consideration of the year, Brandéis, Justice in his cele question rates, has increased in value separate opinion brated in Southwestern company acquired, since it was is en Telephone Company,126rejected Bell titled to benefit of such increase.”121 approach ratemaking fair value to concept: years later, Five Rate the Minnesota advanced a new basic Cases,122 the Court observed that thing utility’s devoted the investor to “property private is held in public specific property, use is not ownership, property, and it tangible intangible, capital em original it, not cost of enterprise. Upon barked in the may deprived owner not due without capital so invested the federal Consti process of law.”123 And late as guarantees op tution Utility in Board of Public Commission portunity to earn a fair return.127 Telephone Company,124 ers York v. New Brandéis’ Justice formula for ascer pay the Court stated that “[c]ustomers taining rate base—the amount of service, not for the used prudently not to become invested—was [b]y paying bills render it prevailing rule.128 But what has acquire any in service do prevailed since is the central idea

ida notes Power & P.U.R.3d 225-227. example true that land in our inappropriate inap- losses” is parlance posite.196 become unsuitable —in business In such a ease the second

notes supra cases cited note 202. supra notes cases cited 201-204. Edison, 56 P.U.R.3d Consolidated (N. 1964) Y. Pub. Serv. Comm’n 371-77 Joseph Yards 198, v. See St. Stock Co. (losses plant in retirement incurred supra States, United note 298 U.S. Co., amortized) ; 78 P.U. Lakewood Water 55-72, 720; Lindheimer S.Ct. (N. 453, 457, of Pub. Util. J. Bd. R.3d Co., Illinois Bell Tel. note 1968) ; Comm’rs Missouri Cities Water 352, 168-175, 658; Wil U.S. (Mo. Co., 359-60 P.U.R.3d Washington Metropolitan Area liams v. 1965) (plant life Pub. Serv. Comm’n Comm’n, supra 134 U.S. years expectancy retired because of of 50 App.D.C. at 951- 415 F.2d increasing six saline content after 956; Comm’n, Bebchick v. Public Utils. 10-year years operation amortized over at 223- Co., period) ; Howes Mather Water 194-195; F.2d at California- (Pa. Pub. 490-91 Util. P.U.R.3d Co., Pacific 71 P.U.R.3d Utils. 1956) (supply abandoned sources Comm’n (Nev.Pub.Serv.Comm’n 1967). amortized). See of contamination because expense dinarily normal may bear beginning,211 arrive pected in the and, according to some damage maintenance219 destruc to or suddenly,212 and decisions, of maintenance deferred just may occur tion of the asset must Beyond that, consumers however, instances, well.220 suddenly.213 most losses usually investment absorb the obligation re financial consumers’ de- wrought by wear and tear right normal re intact, the investors’ mains assets,221 preciable exhaustion ap unimpaired, coupment remains an as- depletable Even when assets.222 made.214 propriate adjustments must be is original underdepreciated the time set is although in terms so This is must service, consumers serviceability retired the loss expectations, therefor.223 investors reimburse the risk premature.215 Consumers bear utility property un- becomes And when have investors unless loss216 assuming it;217 obsolescence before suitable reason of compensated fully recouped in- their not, have investors usual, if, investors as is more passed it, the loss vestment fully return their investment consumers.224 assured.218 consumers

text notes 261. See pra 220- original Capital’s cost of road 262. The F.2d at 191-192. equipment $49,818,718. D. C. alone was Id. at F.2d at su

notes in no derives from use of the ratio acquisition adjust- characterization. The system base, method rather than a rate ment device raised the investors’ cost-of- Priest, Principles see 1 A. of Public Util purchase from $13.5 million to $23.8 ity Regulation (1969) ; Wright, 221-24 million, Cap- the $23.8 million was Operating Regulatory Tool, Ratio — A value, ital’s book the fair market (1953). 51 Pub.Util.Fort. 24-29 value, acquired. Original of the assets S.Rep.No.91-760, million, Cong., cost of those 91st 2d assets exceeded $58 (1970) ; supra. Sys., see note Sess. 3 D. Transit Inc. The land included C. (Order among 1216) (WMATC assets, acquired May 19, No. those much earlier (as obviously 1972), yet unreported), quot markets, surely on at 9-10 much lower Sys., acquisi- had a ed on affirmance in market value at D. C. Transit Transit’s Metropolitan greatly Washington higher Cap- tion which Inc. v. Area than Comm’n, supra original Transit ital’s book value based cost. supra See text at notes 227 n. 466 F.2d at 260-262 and note 262, supra. 398 n. 28. Act, pt. I, Act, I, pt. I, 268. Franchise § See Franchise tit. tit. § (1956). (1956). Stat. Stat. 598 op- Capital, 269. Transit When Transit was one of four utilities succeeded erating regular-route transportation sys- latter’s rates were set on a rate base es original Spiegel tablished tems area. One of the other three cost. See wholly-owned Comm’n, subsidiary F.Supp. v. Public was a it, of Trans- Utils. (D.D.C.1956), aff’d, and the other two commanded but 101 U.S. App.D.C. fragments op- of the transit market and 247 F.2d 85-86 (1957) exclusively proceed . erated almost Transit’s first fare suburban ing, operat areas. PUC declined to switch to the ing method, Sys., ratio D. Transit C. Inc. 270. See sources cited note 267. (Order 25 P.U.R.3d (1958) ; instead, S.Rep.No.91-760, Cong., it fixed the rate base 91st 2d Sess. $14,167,375 by giving equal weight Sys., And see D. C. Transit Capital’s depreciated original Washington Metropolitan cost and Inc. v. Area purchase price. Comm’n, Id. at 374-76. note 171. See also D. C. Transit

text notes See during 6(4% to earn a rate of return appendix. 280. See previous year. in- From Supra clusive, note 33. real taxes from which estate exempted $1,381,177. Transit was totaled II(A), at notes 33-55. Part S.Rep.No.91-760, Cong., 2d Sess. 3 91st Utils. v. Public also Bebchick See Comm’n, supra U.S.App. at 190-194. F.2d 266, supra. D.C. at 274. See note 266, supra.

Part notes 322. See supra, II(B), 96- at notes Part 330. See IV(A), supra, at notes 272- Part out, point the Commis As there pronouncements that sion’s several supra, IV(A), 219- at notes Part 324. See ju subjected to score have never been review. dicial supra, IV(A), at notes 197- Part 325. See III, supra. Part 331. See supra, (A), at note 186. Part IV 326. See depreciable mythical investors, risk the source nondepreciable property. becomes light high hold unlike We when viewed predicated farepayers’ must value would a claim so that the of the lands lihood recognized measuring Furthermore, whether and effectuated decline.332 equities character or doc be of the one relevant of the situation considerations, plain that the other. trinal a busriders have shouldered properties respect With significant very re with financial onus directly Transit’s conver not related to spect lands, those and that Transit’s system, transportation to an all-bus sion uniquely in investors have benefitted equities weigh in riders’ fa also ownership them,333 their acquired all of land vor. their fair allocation reasonable bargain holdings when tremendous appreciation accords market value franchise,340 Capital’s it assumed farepayers.334 gain to the Unlike profit- enjoyed special benefits valuable situations wherein the basis for years followed.341 them sharing by farepayers may sole consist farepay none of these did benefits ly in associated the loss-risk factors share, although had been ers depreciable property with responsi charged major economic burden of contributions stemming Transit’s take bilities largely or reserves 336—considerations operations.342 predecessor’s over Of its entirely nondepre absent instances of circumstances, we would be these Given property farepayers’ equities ciable equi say not — loath to riders are upon assumption tably appreciations founded their entitled to value remaining responsibilities337 economic We hold on these as well. costly —including farepayers those occasioned entitled to all that the were program upon conversion inves appreciations 338—and the value enjoyment especially-conferred issue, nondepreciab tors’ advantages generally accruing during le,343 available to their tenure

notes 377-387. infra Restitution, (1937). ch. at8 Florida, Atlantic Coast Line R. v. R. Metropolitan Washington note 295 U.S. at 373. Williams v. 55 S.Ct. 713; Comm’n, supra Restatement Area Transit Restitution § U.S.App.D.C. comment a at 568 415 F.2d at 944 (footnote omitted). put there, As we Washington Metropolitan Williams v. equitable exercise of such an dis- “[t]he Comm’n, supra Area Transit cretion this court is no means at 944 F.2d powers usurpation of the administrative (footnote omitted). arbitrary it an of the Commission nor is

See text notes cause or so infra Washington today in Bebcbiek Transit. decision dissolution of” Comm’n, Metropolitan Area Transit of action that a cause 398. It is well-settled part gain supra disposes of note by the terminated in restitution deprecia of Transit’s from the transfer by benefit transferor of the death by requiring that line below the ble assets recipient it. Restate- death $252,688 be credited 149(a) (1937). § ment of Restitution Applying riders’ Bebchick fund. See Transit’s principle corporate this Metropolitan Washington Area Transit here, “person” it is clear supra Comm’n, note VI at note Part obligations will survive restitutional operating franchise. of its demise note infra. Author- This follows from Pub.L. Stat. supra ity Compact, in art. note (1972). text at notes 394-403. infra Washington XI, Metro- § directs the Authority (Author- gave congressional politan Area Transit 394. The consent Act ity) performance provide Compact, supra to amendments to the service, 12, empowering Washington with facilities owned or Metro- transit by it, by private politan Authority with “ac- controlled contract Area Transit n companies, quire transit railroads or other or transit facilities stock persons; any private company” XIII, art. confers § transit and to of “perform Authority’s upon of directors board transit service . . . with jurisdiction acquired. rates to fix the . .” exclusive transit facilities so . charged per- (1972). 101(a)(1), and fares to for service § Stat. 1000 by transit owned or con- formed facilities See text notes 366-376. provides Authority, trolled Capital 396. National Area Transit Act “shall no the Commission 102(b), respect thereto, authority § Stat. 1001 with or with respect in connection contractor Capital 397. The National Area Transit operation of transit facil- 102(d), § Act 86 Stat. by the Author- ities owned or controlled (1972), “may provides that Transit ity.” . continue as” a District to exist Corporation Authority Compact, of Columbia “[n]othing 400. The Transit 59, provides XIII, Act shall be construed in art. § INC., SYSTEM, D.C. BUT rate-making respecting mat TRANSIT further ac THEREAFTER TO issue,401 TRANSFERRED restitutional ters ratemaking STATUS NONOPERATING invalid occasioned tivities too, disposition, past.402 Our Street, Shops, 1. M M Street litigate parties

notes invariably mean will that does not c, supra; see also Part II B 2 infra there are con continue to do so. And at 843. which, hypothetical ceivable situations example, c, certain easements useful and 37. See Part II B 2 at 843. infra totally service, valuable become while part equally large 38. But see Id. An con- nonoperat worthless when transferred of a restatement “doc- sists of the first (e. g., ing status track easements down trinal consideration.” street). of a the center bearing puted (D.C.Pub.Utils.Comm’n 1959). that consumers are In that profits million cost of the conversion. case there were on the sale of $5-15 majority opinion, leads to conversion-related fact over and

text notes 200-04, 209, 211, supra. superficially arguments approach may authoritative Yet while such an be constitutionally farepayer the existence increased bur valid and would un- leaving evaporate, lightened doubtedly upheld agency dens a much had the scalepan' farepayers’ adopted it, on the fact we are not side faced with equity balance.52 such a situation nor are we very a vacuum. There enters another inquiry. C. The critical powerful judicial of def- doctrine—that agency erence to rules adherence to issue, myself As to the central I find promulgated statutory authority under agreement majority. with the “ arbitrary capricious. Again unless and [accounting statement that directives question the ultimate is whether . . survive the of ra- must test equities situation are so over- tionality” (text accompanying whelming say that we can the Com- supra) precisely question frames Sys- mission’s adherence to its Uniform Clearly I would desire. then our differ- tem of its admin- Accounts and uniform majori- ence centers around whether the pronouncements clearly istrative ar- ty’s “equities” are sufficient render bitrary capricious under circum- irrational, the Commission’s actions ar- my stances. It conclusion bitrary capricious. Commission’s actions were reasonable sure, question To be is no there enough attack on review. to withstand not tradi- Commission is bound system accounting true It is that a concepts private enterprise tional may over- unreasonable private property in its treatment var- agree court, yet turned this I cannot by any ious transactions —at least not case, equities that because of the constitutional rejecting The cases considerations. accounting the traditional manner theory the fair of rate value departure employed here is such a depreciation53 base and have demon- a find- economic realities as warrant ing willingness accept strated a marked Clearly if the of arbitrariness. departures commission re- from such accounting adopt an Commission were to utility ratemaking. public straints employed procedure like N.Y. points opinion out, majority As the- uphold de- we would Water Service Supreme that “[u]nder Court said and we would have us cision now before statutory ‘just rea- standard equities Moreover the a different case. the result reached not sonable’ analysis not over- on careful are so controlling. employed method which is whelming majority like to as the would theory impact . It is Many paint fac- them. numerous FPC of the rate order Hope counts.” majority make- are tors cited Co., 320 U.S. Natural Gas weights ones insuffi- the valid 281, 287, L.Ed. 333 64 S.Ct. to render the Commission’s actions cient

Case Details

Case Name: Democratic Central Committee of the District of Columbia v. Washington Metropolitan Area Transit Commission, D. C. Transit System, Inc., Intervenor

Court Name: Court of Appeals for the D.C. Circuit

Date Published: Sep 25, 1973

Citation: 485 F.2d 786

Docket Number: 21865

Court Abbreviation: D.C. Cir.