485 F.2d 786 | D.C. Cir. | 1973
Lead Opinion
This petition subjects to review Order No. 773 of the Washington Metropolitan Area Transit Commission
BACKGROUND
The evolution of Order No. 773 is summarized in our Powell opinion.
During the course of the proceeding before the Commission, petitioners endeavored to probe into Transit’s below-the-line real estate, Transit’s interrelationships with its subsidiaries, and the market value of withdrawn realty held by either. Transit resisted those efforts, maintaining that the properties belonged exclusively to its investors,
We have painstakingly examined this serious charge in all of its many ramifications, and in this opinion we set forth the results of our investigation. We begin in Part II with an exploration into the adjudicative history, administrative and judicial, of allocations of capital gains on operating utility assets. After that, in Part III, we scrutinize the interest of investors in value-appreciations on such assets, with reference to treatments of that interest in rate- and depreciation-base formulations and, more particularly, in Transit’s ratemaking litigation. Next, in Part IV, we identify the doctrinal considerations guiding allocations of capital gains on in-service utili
II
ADJUDICATIVE HISTORY OF ALLOCATION OF CAPITAL GAINS ON OPERATING UTILITY ASSETS
Seldom have regulatory agencies or courts been called upon to allocate, as between investors and consumers, gains on utility assets while in operating status.
A. Depreciable Assets Out-of-District Cases
Outside the District of Columbia, we find relatively little authority precisely in point. In 1959, the question was presented to the Appellate Division of the New Jersey Superior Court
In the same year, a similar question arose in a rate proceeding before the Minnesota Railroad and Warehouse Commission.
A few years later, the Wyoming Public Service Commission faced essentially the same problem in a variant context.
Such are the decisions outside this jurisdiction. In each, the entire gain from disposition of depreciable assets was passed on to the utility’s consumers, to the exclusion of its investors. While it is true that two of the decisions were influenced by agency-adopted accounting practices, it must be remembered that such practices are but reflections in accounting technique of what is generally considered wholesome in substantive principle. And the principle to be gleaned, both from the practices and the decisions themselves, is that consumers have the superior claim on capital gains achieved when depreciable utility properties are removed from service. We do not suggest that so small a number of cases establish a rule of general and controlling applicability in the ratemaking field. But it can hardly be denied that these decisions are precedents of value in similar litigation.
—District Cases
Within, much as without, the District of Columbia the problems of allocating value-appreciation of depreciable in-service utility property have but infrequently arisen before either regulatory agencies or courts. And the litigation locally, such as it has been, has invariably involved Transit and, by the same token, the peculiarities inherent in its situation. That is to say not only that the reasoning followed elsewhere obtains as to Transit, but also that additional reasons leading to similar results flow from Transit’s uniqueness, in comparison with other utilities, with respect to properties transferred below the line. Not surprisingly, then, the claim of Transit’s farepayers on capital gains accruing to such properties while above the line has achieved considerable fruition.
The leading case, and one which merits careful analysis, is D.C. Transit System, Inc. (Order No. 4577).
As PUC determined, $1,039,657.72 of the sale price was attributable to land,
In regard to the extent of the departure, PUC noted that Transit’s operating franchise demanded of it a seven-year program of gradual conversion from a streetcar-bus to an all-bus operation,
PUC concluded, then, that of the total net profit of $1,450,872.03 realized on the sale of the improvements,
PUC’s allocation of the profit on the improvements on the Fourth Street Shops and Southern Carhouse subsequently came under direct judicial review at Transit’s instance, and we held that PUC’s treatment was not arbitrary or unreasonable.
PUC did not omit to give the riding public some considerable share in the benefits of this sale. . . . [T]he profit on the depreciable property which went into surplus was $837,000. At the time of the sale, Transit carried this property on its books at an historical cost of $1,077,824, with an accrued depreciation reserve of $613,-661. Thus only $464,163 was re-to effect complete liquidation of this investment. The PUC, however, ordered a total of $1,077,824 be credited to the depreciation reserve, representing not only the $464,163 but an additional amount of $613,661 exactly duplicating the reserve already accrued. It was this action that we think was explained by the PUC’s comment that equitable consideration suggested the riders should share in the profits from the sale. Under all these circumstances, therefore, we do not interfere with the Commission’s discretion in deciding not to off-set the profits from the Fourth Street Shop sale against the [expense allowance for unrecouped investment in abandoned rail facilities].55
That, as PUC held in Order No. 4577,
In the District, then, the law on the topic immediately under discussion is already somewhat developed. Capital gains realized on disposition of depreciable assets while in service
B. Nondepreciable Assets
The question whether a gain on disposition of nondepreciable assets inures to investors as capital surplus, or to consumers as a reduction in cost of service, has been litigated even less frequently than has the question in relation to depreciable assets. A survey of the few cases in point outside the District of Columbia reveals, somewhat paradoxically, a central strand of harmony amid diverse results. The decisions within the District — all administrative — have reached a uniform result, but without critical analysis either of the problem or the precedents.
—Out-of-District Cases In New York Water Service Corporation v. Public Service Commission,
The uniform system of accounts approved by the Commission applicable to water companies in dealing with land used for utility purposes allows land sold at a loss to be debited to the depreciation reserve and thus increase the rate base. If land is sold at a profit, it is required that the profit be added to, i. e., “credited to”, the depreciation reserve, so that there is a corresponding reduction of the rate base and resulting return. The utility is thus protected from a loss in the sale of the land in its operations; it seems reasonable it should pass on a profit to the consumer.72
As the opinion on review makes plain, the guiding principle was that the gain belonged to those — investors or consumers — who previously bore the risk of loss from possible decline in market value.
In City of Lexington v. Lexington Water Company,
The question arises, should this gain, made on property devoted to the public service over the years, be used to reduce the cost of service to the customers or should it be treated as a capital surplus item, and be allowed to be paid out to the stockholders . ? Having considered the evidence and arguments relating to this matter, we are of the opinion that it should be used to reduce the cost of service to the consumer.
The subject property was not purchased by the utility as a land speculation but it was acquired for providing utility service to the public over the years and was subject to acquisition by condemnation.77 Inasmuch as utility property necessary for rendering service to the public is not subject to sale at the option of the utility, but must be continued in service as long as needed to provide that service, any loss in service value of such property would properly be' considered a cost of providing service and, in the case of depreciable property, is recovered through depreciation. . . . For nondepreciable property, where the*797 change in service value cannot be determined until actual disposition of the property, amortization of an allowable loss or gain would be the proper procedure. . . . If it is proper to recover losses of nondepreciable property through amortization, then conversely it should be proper to amortize gains on such property.78
On review, however, it was held that the agency’s ruling was erroneous. The court distinguished New York Water Service Corporation
In the only other reported decision we have found, the problem was presented only obliquely. In Columbus Gas & Fuel Company v. Public Utilities Commission,
Certainly lands and rights of way may not be characterized as wasting assets in the absence of explanation that would stamp that quality upon them. In saying this we do not forget that an abandonment of the business might bring about a sharp reduction in the value of the plant, aside from well-structures and equipment. There is nothing to show, however, that any such abandonment is planned or even reasonably probable. On the contrary, the course of business makes it clear*798 that, when the fields in use shall be exhausted, the business will extend to others, and this for an indefinite future, or certainly a future not susceptible of accurate estimation.86
As the Court indicated, a loss on the investment in nondepreciable elements of the utility’s plant resulting from an unavoidable abandonment of its business would have been recognized if it had occurred, and that loss would then have been chargeable to its consumers.
In sum, the decisions outside the District have not viewed capital gains on in-service nondepreciable utility assets as inevitably belonging to investors to the exclusion of consumers. Rather, in each of the cases — although they are few- — the allocation has depended upon location of the risk of loss. These holdings, then, may be accepted as applications of the broader principle that the benefit of a capital gain follows the risk of capital loss.
—District Cases
The allocation properly to be made of in-service appreciations in value of Transit’s nondepreciable assets is an open question in this jurisdiction. Although both the Commission and PUC, its predecessor in transit regulation, have occasionally spoken to the subject, this court has never before been called upon to face the issue. Our analysis of the administrative decisions — which have uniformly viewed such gains as belonging to Transit’s investors — discloses that they leave a great deal to be desired.
In early 1959, as we have related, Transit received $3,320,000 from the sale of its Fourth Street Shops and Southern Carhouse to the District of Columbia Redevelopment Land Agency.
The staff and the company are in agreement that under public utility accounting, the difference between the original cost of land and the selling price is recognized as profit. The net profit of $950,568.55 on the sale of the land (net proceeds of $1,039,657.72 less original cost of $89,089.17) is, therefore, a proper credit to earned surplus.94
We readily understand that the $950,-568.55, as PUC held, was net profit traceable to sale of the land. We are not nearly so clear, however, as to why PUC was confident that it was “therefore a proper credit to earned surplus.” In other words, PUC does not tell us why it felt that the profit automatically belonged to investors. It may be that since the treatment to be given it was “not in controversy,”
In D.C. Transit System, Inc. (Order No. 245),
We are unable to follow this course of reasoning. With a paucity of holdings, administrative or judicial, on the point, we have not detected a hard-and-fast rule one way or the other.
Ill
INTEREST OF INVESTORS IN VALUE-APPRECIATION IN OPERATING UTILITY ASSETS
We perceive no impediment, constitutional or otherwise, to recognition of a ratemaking principle enabling ratepayers to benefit from appreciations in value of utility properties accruing while 'in service. We believe the doctrinal consideration upon which pronouncements to the contrary
A. In Rate Base Formulation
Judicial indulgence in the concept that appreciation in value of utility property is an increment automatically attaching to its ownership reached its high water mark during the “fair value” era of rate-based formulations of returns to utilities.
Despite the Court’s specification in Smyth v. Ames of original cost as well as reproduction cost as a factor to be considered in determining rate base value, the Court’s decided preference during almost the next half-century was
The fair value theory, however, was not to survive as the inexorable standard for setting rate base. Perhaps the turning point in conceptualization of the rights of investors viz-a-viz consumers in utility property occurred in 1923. In that year, Justice Brandéis, in his celebrated separate opinion in Southwestern Bell Telephone Company,
The thing devoted by the investor to the public use is not specific property, tangible or intangible, but capital embarked in the enterprise. Upon the capital so invested the federal Constitution guarantees to the utility the opportunity to earn a fair return.127
Justice Brandéis’ formula for ascertaining rate base — the amount of capital prudently invested — was not to become the prevailing rule.
The teaching of the modern cases in this area is plain. If investors in a public utility possessed an indefeasible right to the appreciation in value of the utility’s operating assets, the base on which their rate of return is computed —the aggregate of the assets themselves —could be set only at the true value of the assets at the moment of setting. Fairness would suggest that result and due process would seem to compel it.
B. In Depreciation Base Formulation
The rise and fall of fair value as the exclusive method of measuring utility rate base has been paralleled by judicial treatment of the interrelated problem of basis for depreciation of utility assets. An integral part of the process of establishing a rate base for purposes of rate of return is ascertainment of the amount to be deducted from rate base— and, of course, allowed as an operating expense — for depreciation
That was the view to which the Supreme Court originally subscribed. In 1909, in Knoxville v. Knoxville Water Company,
Fair value, as the basis for depreciation, however, was later to go the way of fair value as the measure of rate base.
When the property is devoted to a business which can exist only for a limited term, any scheme of amortization which will restore the capital investment at the end of the term involves no deprivation of property. Even though the reproduction cost of the property during the period may be more than its actual cost, this theoretical accretion to value represents no profit to the owner, since the property dedicated to the business, save for its salvage, is destined for the scrapheap*804 when the business ends. The Constitution does not require that the owner who embarks in a wasting-asset business of limited life shall receive at the end more than he has put into it.156
Finally, in Federal Power Commission v. Hope Natural Gas Company,
Here again we draw a lesson from the jural history of ratemaking. Investors are entitled to recover the utility’s outlay in the assets employed in provision of the utility’s public service.
C. In Transit’s Ratemaking Litigation The considerations just explored take on added weight in Transit’s case, for fair value has never been assigned a role in determinations as to its rate or depreciation bases. That it was not an ingredient of either was settled rather early in Transit’s regulatory history. In the days prior to utilization of the operating ratio method in computations of its margins of return,
But that was not because the effort was not made. In a fare-increase proceeding inaugurated in 1960, Transit sought to persuade PUC to adopt a depreciation base combining replacement cost for some properties with market value for others.
[I]f prices are rising the use of the replacement cost base would compel consumers to provide additional capital for the utility, at least to the extent that replacement costs were greater than the costs of the depreciating equipment. [Transit’s witness] admitted that under his theory consumers would be in the position of involuntary investors though with no right to a return on their investment; and what is even worse, they would thereafter be required to provide a fair return and depreciation allowance on capital which they themselves had contributed. Obviously, consumers’ obligations end when they have paid the cost of service including the cost of the depreciable assets used and exhausted in rendering that service. The original cost base is just and equitable for both investors and consumers. Consumers pay the cost of service including the cost of capital. To ask the consumers to pay more than the cost is to make them contribute to the capital of the enterprise.170
We cannot, then, accept the thesis that appreciations in value of Transit’s properties while in operating status automatically flow to Transit’s investors as inseparable incidents of ownership. To be sure, investors are entitled to have rates fixed with a view to a fair return on their investment,
IV
BASIS FOR ALLOCATION OF CAPITAL GAINS ON OPERATING UTILITY ASSETS
Investors, we have concluded, are not automatically entitled to gains in value of operating utility properties simply as an incident of the ownership conferred by their investments. And it goes without saying that consumers do not succeed to such gains simply because they are users of the service furnished by the utility. Neither capital investment nor service consumption contributes in any special way to value-growth in utility assets. Rather, the values with which we are concerned have grown simply because of a rising market.
Investors and consumers thus start off on an equal footing, and the disposi
A. Doctrinal Considerations
The ratemaking process involves fundamentally “a balancing of the investor and the consumer interests.”
One is the principle that the right to capital gains on utility assets is tied to the risk of capital losses. The other is the principle that he who bears the financial burden of particular utility activity should also reap the benefit resulting therefrom. The justice inherent in these principles is self-evident, and each already occupies a niche in the law of ratemaking;
■ — Right to Gain Follows Risk of Loss
A factor strongly influencing the rate of return to which the utility investor becomes entitled is the magnitude of the risk which his investment encounters.
The proposition that capital gain rightly inures to the benefit of him who bore the risk of capital loss has been ac
In our view, the doctrine that capital gain accompanies the risk of capital loss is sound. The following example illustrates how this principle applies to land, which, while it may have lost its usefulness in a utility’s operations, has nonetheless appreciated in value while in operating status. Let us suppose that fifteen years ago the company purchased a piece of property on which to construct a building to be used as its central offices. Under established principles of regulatory law, the loss from normal wear and tear on the building — a depreciable asset — would be recouped from its ratepayers by the investors, who are entitled to have their investment in an operating asset protected.
As for the land on which the building is located, it is true that land does not depreciate from ordinary wear and tear the way a building does. But it is also
The principle that capital gain follows risk of loss, useful as it may be, is not without its limitations. There may be situations where the assignment of risk of loss on a particular asset is not readily ascertainable, or where for some other reason the terminology “capital gains and losses” is inappropriate or inapposite.
—Economic Benefit Follows Economic Burden
Ratepayers bear the expense of depreciation, including obsolescence and depletion,
Computations of the cost of ordinary depreciation — normal physical deterioration — are made on the basis of estimates of service life and salvage value, and charges therefor are usually spread over the service period.
But calculations, even of the highest predictive quality, sometimes go awry. Service life, productive life or salvage value may turn out to be more or less than originally estimated.
In this milieu, the distribution of the risks and burdens on utility assets is apparent. Consumers must ordinarily bear the expense of normal maintenance
In situations where consumers have shouldered these burdens on an asset which produces a gain, the equities clearly preponderate in their favor.
B. Application of Doctrine In This Case
We direct our attention now to the situation presented at bar with a view to resolving the conflicting claims of Transit’s investors and farepayers to the capital gains in issue. At the outset, we lay aside the rule that capital gain accompanies risk of capital loss. As we point out today in Democratic Central Committee v. Washington Metropolitan Area Transit Commission,
—Acquisition History And Allocation of Burdens
In 1956, Transit was awarded its franchise to operate a mass transportado system within the Washington metropolitan area.
At the time of Transit’s takeover, Capital’s assets were valued on its books at approximately $23.8 million.
Transit’s franchise imposed the requirement that Capital’s streetcar-bus system be gradually converted into an all-bus system throughout the metropolitan area.
This was an expense with two aspects, and the nature of each militated, in terms of ratemaking law, against the ratepayers. The first was the loss incidental to abandonment of the rail facilities which had passed from Capital to
PUC’s treatment of the latter item did not, howevei', go unchallenged. In Bebchick v. Public Utilities Commission,
A full understanding of the basis of so much of our holding in Bebchick requires some elaboration of the technique PUC utilized in dealing with the $10 million difference between Capital’s book value and Transit’s purchase price of the acquired assets. The portion of the purchase price assignable to road and equipment, including the parcels of realty under scrutiny now,
Transit’s allowances for depreciation thereon could, of course, have been related to its own acquisition cost; but this would have required the development' of new depreciation rates computed on remaining life, and new depreciation bases derived in part from distribution of the purchase price among the items of property acquired. To save the labor incidental to that process, however, [PUC] ordered that two things be done. One was the establishment of [an] acquisition adjustment account to accommodate an amortization, over a ten-year period beginning August 15, 1956, of the $10,339,041 difference in acquisition costs to Capital and Transit, respectively. The other was a direction that depreciation be accrued on the basis of Capital’s original cost and at the rates previously fixed for Capital,*814 with ten annual offsetting credits to operating expenses of $1,033,904 derived from the amortization.253
The objectives of this accounting arrangement thus appear sharply. With the addition to Transit’s purchase price of annual offsetting credits to operating expenses, Transit’s investors would ultimately pay Capital’s book value of road and equipment in full. And farepayers, in consequence of the offsetting credits, would ultimately contribute $10 million less to Transit’s operational costs. The investors would, of course, benefit from depreciation at Capital’s depreciation rates; theoretically, post-acquisition depreciation by this method would work out to the same amounts as if new depreciation bases had been established at Transit’s acquisition costs. So, in Bebchick, after examining PUC’s explanation of the foregoing,
—Accrual of Advantages
As we have stated, the properties upon which our present inquiry focuses were all acquired by Transit from Capital in 1956. They came to Transit as a single package — all of the assets Capital then owned; Transit got the assets, not by buying them as such, but rather by buying all of Capital’s outstanding capital stock.
From the foregoing discussion, the realities of the situation become plain enough. Transit got from Capital an on-going transportation system, including improved land, which the latter had acquired years before on obviously lower real estate markets. The price Transit paid Capital was calculated, not on fair market value of the acquired assets,but on a fixed per-share valuation of Capital’s stock, which worked out to much less than even the value of the assets as depreciated on Capital’s books.
In addition to what ostensibly was an acquisition of the properties at an excellent bargain,
Surely the greatest advantage to Transit’s investors — and one more specifically referable to the problem at hand — was derived from the scrapping of Capital’s street railways in favor of a motorized transportation system. The changeover, as we have said, was mandated by Transit’s franchise,
Both the Commission and this court have recognized the efficacy of this relationship of Transit’s large-scale retirement of real estate from operating status to the track removal and repaving program and the financial burdens it imposed on Transit’s farepayers. In 1959, when in D.C. Transit System, Inc. (Order No. 4577)
In light of the franchise of the company requiring a gradual program of conversion from railway to bus operations over a 7-year period from January 24, 1956, we are unable to disassociate the instant transaction from the imminent retirement of all rail property under the mandate contained*817 in the franchise. We cannot ignore the probability that full provision for depreciation will not have been provided when the rail facilities are abandoned and retired by reason of conversion. The company has consistently taken the position that any retirement loss in this connection should be recovered by charges against the customers, and the staff has heretofore indicated its agreement.283 However, if the customers are to be required to bear the burden of extraordinary retirement losses incident to the whole conversion program, it appears equitable that they should share, at least to some extent, in extraordinary retirement gains of the nature here under consideration.284
The extent of the sharing, PUC made clear, was to be ascertained by “a fair balance between the interests of the public and those of the company’s investors
Six years later, in D.C. Transit System, Inc. v. Washington Metropolitan Area Transit Commission,
This became the plainer when we moved to a consideration of a second transaction urged in support of disallowance of the depreciation charge.
It cannot be gainsaid, then, that several important propositions are firmly imbedded in our jurisprudence. Transit’s investors cannot automatically garner the profits achieved on dispositions of depreciable real estate which in some way have been affected by the conversion program. Relevant inquiries are whether the disposition “was occasioned, in whole or in part, by” the conversion program
—The Commission’s Claimed Accounting Practice
We are advertent to the consideration that the propositions just discussed have developed in litigation directly referable to allocations of profits gained on disposition of depreciable utility assets. We think, however, that no difference in principle can be justified solely on the ground that the asset in question, or some part thereof, happens to be nondepreciable. Both PUC and the Commission have made such a distinction on the stated theory that capital gains from nondepreciable property invariably belong to investors.
In the first place, neither the Commission nor its counsel has pointed to any agency-promulgated accounting rule operative as to the value-appreciations on the lands in question. The Compact empowered the Commission to prescribe uniform systems of accounts for carriers functioning under its jurisdiction, but required that its authority to do so be exercised “by regulation.”
In 1966, the Commission did adopt an accounting regulation dealing with allocations of value-appreciations of depreciable properties.
Moreover, even if we could agree that the Commission, by virtue of its brief comments in Orders Nos. 245 and 563 and those of PUC in Order No. 4577,
In the final analysis, administrative regulation by prescription of accounting methods stands on no higher ground than regulation by adjudication where substantial interests of investors and consumers are at stake. Accounting directives, no less than other exertions of administrative power, must survive the test of rationality.
—The Balance Here
The allocation between investors and consumers of capital gains on in-service utility assets, we have declared, rests essentially on equitable considerations.
The relevant principles can be stated simply. Consumers become entitled to capital gains on operating utility assets when they have discharged the burden of preserving the financial integrity of the stake which investors have in such assets.
This court has never adopted the Commission’s position that capital gains on nondepreciable assets inure to investors only.
With respect to the properties not directly related to Transit’s conversion to an all-bus transportation system, the equities also weigh in the riders’ favor. Transit acquired all of its landholdings at a tremendous bargain when it assumed Capital’s franchise,
DISPOSITION
The foregoing considerations lead us to the conclusion that Order No. 773 is invalid and must be set aside.
A. Responsibility For Fashioning Relief
The initial question is whether the fashioning of relief from the predicament we face lies properly within the judicial sphere or, instead, the administrative. It is clear to us beyond peradventure that this court and the Commission should share the burden in this case.
A judicial determination that a Commission fare order was invalid has normally called for remediation in a dual aspect. First because the invalid order could not be indulged continued operation, a resetting of fares was ordinarily needed for the future.
The second, but quite different, aspect of the relief required where a court has declared a Commission fare order to be invalid, is remediation of the consequences wrought by the order while it was actually operative. This is a problem which can neither be addressed nor solved by another order merely purporting to fix rates. “The Commission,” we have declared, “possesses no authority to fix rates for the past.”
As we have pointed out, “[a]n order prescribing the lawful fares to be charged by a public utility, being essentially legislative in character, ordinarily speaks only for the future.”
B. The Restitutional Remedy
The remedy, rather, is restitution. That was made plain by the decision of this court en banc in Williams v. Washington Metropolitan Area Transit Commission.
Thus the division of labor to which we have adverted
Restitution is essentially an equitable remedy.
C. The Commission’s Role
As already indicated, the institutional task at hand, as a judicial function,
We believe that the best approach to adjustment, in the restitutional sense, of the competing interests of Transit’s investors and farepayers in this litigation is a combined effort of the Commission and this court.
First, the amount of restitution must be ascertained. This determination will require identification of all properties which Transit shifted from above to below the line prior to issuance of Order No. 773. Once identified the market value of the properties at the time of their transfer to nonoperating status will have to be established. The dollar amount of restitution can then be arrived at by subtracting the book value of the properties from the market value at the time of the transfer. This figure will represent the appreciation in value of the assets, which should have been credited to the riders when the fares prescribed by Order No. 773 were set.
It can be readily seen that this method of determining the amount of restitution will in no way reduce Transit’s return during the period the order was in effect to a confiscatory level. As we have pointed out, the only vitiating defect in Order No. 773 was the Commission’s failure to allocate to the riders the gain in value of the properties with which we are concerned;
There remains only the problem of how the amount of restitution, once determined, is to be applied to benefit the farepaying public. As we have observed, regulatory agencies may only fix rates for the future.
In so resolving this case, we have remained heedful of the recent passage of the legislation last mentioned, and the resulting public ownership and operation of Transit’s transportation system in the Washington metropolitan area.
Order No. 773 is set aside. The record is remanded to the Commission for further proceedings consistent with this opinion. Our jurisdiction over the case is retained in full.
APPENDIX
COMMISSION’S STATEMENT AS TO HISTORY OF REAL PROPERTIES PURCHASED AUGUST 15, 1956, BY D.C. TRANSIT SYSTEM, INC., BUT THEREAFTER TRANSFERRED TO NONOPERATING STATUS
1. M Street Shops, 3222 M Street, N.W. (now known as M Street Estates, Inc.). This property was used as a general streetcar repair shop until June 30, 1963, when it was placed in á non-operating (below-the-line) status. From that time until May 31, 1964, it was used for storage of obsolete equipment. On May 31, 1964, title to the property was transferred to M Street Estates, Inc., which is wholly-owned by D. C. Transit of D.C. Since its incorporation, $1,106,210 has been spent on converting it into rental space for the General Service Administration. For the year 1969, M Street Estates had a net income of
2. Grace Street Shop (now known as Grace Street Estates). The property-housed the way department storeroom, an electrical repair shop and a garage for trucks until September 30, 1963, when it was placed in a nonoperating (below-the-line) status. From that time until April 30, 1970, it was empty and unused. On April 30, 1970, title to the property was transferred to Grace Street Estates, a wholly-owned subsidiary of D. C. Transit System, Inc., of D.C,
3. General Office Building, 3600 M Street, N.W. (now known as 3600, Inc.). This property housed D. C. Transit’s officers at the time D. C. Transit came into existence, but later was partially rented to outsiders. After being placed in a non-operating (below-the-line) status on January 1, 1964, the building was rented mainly to outsiders but continued to house a portion of the D. C. Transit officers, around 20% of the building space for a while, and then to 15%. On December 31, 1967, title to the property was transferred to 3600 Inc., a wholly-owned subsidiary of D. C. Transit System, Inc. of D.C. Since being incorporated, the sum of $115,968 has been invested in office renovations and it is now being.rented 100% to outside parties. In the year 1969, 3600 Inc., had net income of $8,486.29. Its retained earnings stood at $58,511.32 on December 31, 1969.
4. Central Garage on Georgia Avenue, N.W. (now known as Georgia Avenue Estates). This building was used as a bus garage until it was placed in a non-operating (below-the-line) status on September 30, 1958. After being placed below-the-line, it was leased to the Post Office Department. On May 31, 1964, title to the property was transferred to Georgia Avenue Estates, Inc., a wholly-owned subsidiary of D. C. Transit System, Inc., of D.C. Since then some $19,657 has been spent on building improvements while at the same time the Post Office Department has continued to be its tenant. The net income of Georgia Avenue Estates for 1969 was $29,547.36. Its retained earnings stood at $118,049.85 on December 31,1969.
5. Northeastern (Eckington) Car-house (now known as Fourth Street Estates). This property was used as a car-house until streetcar service was discontinued in that area of the city on September 7, 1958. After that, the building remained empty and unused until May 31, 1959 at which time it was placed in a non-operating (below-the-line) status. As non-operating property, it was rented to outsiders. On May 31, 1964, title to the property was transferred to Fourth Street Estates, Inc., a wholly-owned subsidiary of D. C. Transit System, Inc., of D.C. Subsequently, the sum of $472,628 was spent on building improvements. It is currently being leased as a warehouse to outside parties. In the year 1969, Fourth Street Estates realized net income of $15,804.66 and at year end (1969) its retained earnings stood at $22,030.92.
6. ' Navy Yard Carhouse (now known as L Street Estates). This property was used as a carhouse until the last street cars were discontinued on January 28, 1962. Obsolete equipment was then stored there. On June 30, 1963, the property was placed below-the-line (in non-operating status). It continued as a storehouse for obsolete equipment until the date of its incorporation, May 31, 1964. On that date title to the property was transferred to L Street Estates, Inc., a wholly-owned subsidiary of D. C. Transit System, Inc., of D.C. $392,384 has been spent on converting the carhouse to warehouse and office space for outside rental since its incorporation. 1969 net profits realized by L Street Estates were $62,391.74. Its retained earnings at December 31, 1969 were $274,281.18.
7. Georgia and Eastern Avenue Terminal. This property was used jointly as a rail terminal and bus terminal. Its use as a rail terminal was discontinued on January 3, 1960 and its use as a bus terminal ended on September 11, 1960.
8. Southern (7th Street) Carhouse. This southeast property was used as a carhouse until it was sold on January 16, 1959 to the D. C. Redevelopment Land Agency.
9. Fourth Street Shops. This southwest property was used for general streetcar and bus repairs until it was sold together with the Southern Car-house on Jaunary 16, 1959 to the D. C. Redevelopment Land Agency.
10. Trinidad Garage. This property was used as a bus garage until September 10, 1966. It was vacant thereafter until May 8, 1970, when sold to the D. C. Redevelopment Land Agency.
11. Eastern Garage. This property was used as a carhouse until December 31, 1961. It then became a bus garage and was used for that purpose until September 10, 1966, when it was vacated. It has been empty ever since although still classified as operating property on the company books.
12. Brookland Garage. This property was a bus garage until September 10, 1966. Since that date retired buses have been stored there. It remains in operating status on the books to this date.
. D.C. Transit Sys., Inc. (Order No. 773), 72 P.U.R.3d 113 (WMATC 1968).
. Powell v. Washington Metropolitan Area Transit Comm’n, 158 U.S.App.D.C. _, 485 F.2d 1080 (1973).
. See also Bebchick v. Washington Metropolitan Area Transit Comm’n, No. 23,720, 158 U.S.App.D.C. _, 485 F.2d 858 (1973); Democratic Cent. Comm. v. Washington Metropolitan Area Transit Comm’n, No. 24,398, 158 U.S.App.D.C. _, 485 F.2d 886 (1973).
. See note 16, infra.
. Many important facts pertaining to these properties are in dispute. We need not, for present purposes, undertake to resolve the disputes, and in any event we are not in position to do so. Simply as a point of reference, we reproduce, as an appendix to this opinion, the representation made in the Commission’s brief, al to a3, in Democratic Cent. Comm. v. Washington Metropolitan Area Transit Comm’n, supra note 3. Our disposition of this case includes prominently a direction to the Commission to identify the properties and the material facts as to each. See Part Y, infra, following note 387.
. Witnesses before the Commission had so testified, and Transit’s counsel conceded as much.
. In speaking of Transit’s “investors” we employ the language of ratemaking litigation. We are fully aware of the fact that Transit is a wholly-owned subsidiary of another corporation.
. Transit’s counsel argued
that it is virtually axiomatic that nondepreciable property upon which no return is allowed, upon which no depreciation is allowable, and non-operating property upon which no return is allowed in a rate base proceeding, and upon which no depreciation is allowed, are both matters which are not properly within the province of a rate proceeding.
Counsel had earlier assumed a broader position:
[T]he appraised market value of non-operating property does not belong in a rate proceeding. It is not part of what this Commission can consider as far as the rate of return is concerned, and it is not part of what affects the rate structure which any member of the public pays. If there is a loss on the sale of that real estate the stockholders bear it, and if there is a profit on the sale it goes to the stockholders of the company. . . . [N]one of these items requested here today as to nonoperating properties are relevant in this proceeding . . . and the company will decline to furnish that information at this time because we don’t think it is relevant.
. See note 11, infra.
. The Commission’s chairman declared “that the proceeds from non-operating property belong to the stockholders of the company and not to the rate-payer,” but felt that the information requested was not completely irrelevant. Since some of the information had been supplied the Commission’s staff by Transit, the chair
. See Washington Metropolitan Area Transit Regulation Compact, tit. II, art. XII, § 16 (Transit Regulation Compact), incorporated into Pub.L. No. 86-794, 74 Stat. 1031 (1960), with amendments, appearing as a part of Pub.L. No. 87-767, 76 Stat. 764 (1962), set forth following D.O.Code § 1-1410a (1967). Title III of the Transit Regulation Compact is the Washington Metropolitan Area Transit Authority Compact (Transit Authority Compact), which is incorporated into Pub. L. No. 89-774, 80 Stat. 1324 (1906), and is set forth following D.O.Code § 1-1431 (1967). In this opinion, we refer to the Transit Regulation Compact and the Transit Authority Compact together as the “Compact.”
. D.C. Transit Sys., Inc. (Order No. 781) (WMATC Feb. 26, 1968) (unreported).
. D.C. Transit Sys., Inc. (Order No. 781a), 74 P.U.R.3d 178 (WMATC 1968).
. See Compact, supra note 12, tit. II, art. XII, § 17.
. Petitioners also allude to several other complaints they have against Order No. 773, and ask for remand of the case to the Commission for reconsideration in light of Williams v. Washington Metropolitan Area Transit Comm’n, 134 U.S.App.D.C. 342, 415 F.2d 922 (en banc 1968), cert. denied, 393 U.S. 1081, 89 S.Ct. 860, 21 L.Ed.2d 773 (1969), and Payne, v. Washington Metropolitan Area Transit Comm’n, 134 U.S.App.D.C. 321, 415 F.2d 901 (1968). In their brief, however, petitioners offer no argument whatever in support of these points. We accordingly decline to consider them. Fed.R.App.P. 20, 28(a)(4); D.C.Cir.R. 4(b) (5); Cratty v. United States, 82 U.S.App.D.C. 236, 243, 163 F.2d 844, 851 (1947); Abrams v. American Sec. & Trust Co., 72 App.D.C. 79, 80, 111 F.2d 520, 521, 129 A.L.R. 368 (1940); S. S. Kresge Co. v. Kenney, 66 App.D.C. 274, 275 n. 1, 86 F.2d 651, 652 n. 1 (1936); Smith v. Pickford, 66 App.D.C. 206, 209 n. 6, 85 F.2d 705, 708 n. 6 (1936); Schwartzman v. Lloyd, 65 App.D.C. 216, 218, 82 F.2d 822, 824 (1936); Helvering v. Helmholz, 64 App.D.C. 114, 117, 75 F.2d 245, 248 (1934), aff’d, 296 U.S. 93, 56 S.Ct. 68, 80 L.Ed. 76 (1935) ; Ginder v. Giuffrida, 61 App.D.C. 338, 340, 62 F.2d 877, 879 (1932); Wardman-Justice Motors v. Petrie, 59 App.D.C. 262, 267, 39 F.2d 512, 517, 69 A.L.R. 648 (1930).
. No issue as to allocation of capital gains and losses once an asset is transferred below the line is tendered to us on this review.
. We use the word “depreciation,” as it is commonly employed in District rate-making, to refer not merely to physical wear and tear but also to other types of diminution of serviceability. E. g., D.C. Transit Sys., Inc. (Order No. 245), 48 P.U.R.3d 385, 397 (WMATC 1963), remanded sub nom. D.C. Transit Sys., Inc. v. Washington Metropolitan Area Transit Comm’n, 121 U.S.App.D.C. 375, 350 F.2d 753 (en banc 1965), on remand sub nom. D.C. Transit Sys., Inc. (Order No. 563), 63 P.U.R.3d 32 (WMATC 1966), rev’d sub nom. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, where the Commission said:
Depreciation is the exhaustion of the service life of the property in use. The accrued depreciation in the property at a given time is the su'm total of the exhausted service life of the various units of the property at that time. This exhaustion of service life is the combined result of the working of three factors, namely: (1) inadequacy, (2) obsolescence, and (3) physical deterioration.
. In re Revision in Rates Filed by Plain-field-Union Water Co., 57 N.J.Super. 158, 154 A.2d 201 (1959).
. 154 A.2d at 205, 211.
. Minneapolis St. Ry. Co., 31 P.U.R.3d 141 (Minn. R.R. and AVarehouse Comm’n 1959).
. Id. at 152.
. The agency’s reference to salvage, viewed in context, is seemingly to the entire proceeds of sale, and not simply to the amount of future recoupment originally estimated for depreciation-computation purposes.
'. 31 P.U.R.3d at 152.
. Id.
. Id.
. Wyoming Gas Co., 40 P.U.R.3d 509 (1961) (Wyo.Pub.Serv.Comm’n 1961).
. See Part Y (A), infra, at note 222.
. 40 P.U.R.3d at 513.
. 'Id.
. Id.
. 30 P.U.R.3d 405 (D.C.Pub.Utils. Comm’n 1959).
. Now the District of Columbia Public Service Commission.
. 30 P.U.R.3d at 406.
. Id. at 407, 409. So, after subtracting $89,089.17, representing tlie original cost of the land, a net profit of $950,568.55 was realized on this aspect of the sale. Id. at 407, 409, 411.
. Id. at 409. Original cost of this portion of the sold property was determined to he $1,077,824.06. Id. The depreciation reserve on the improvements was then $613,661.28, leaving $464,162.78 as the unrecovered original cost. Id. at 411. Thus net profit on the sale of the depreciable portion of the property was $1,450,872.03 — the sale price of $1,915,-034.81 less unreeovered original cost of $464,162.78.
. See id. at 407-409. A part of the remainder was $36,550.92, net, representing so much of the sale price as was related to certain equipment and machinery. Because of uncertainty as to the items of equipment and machinery included in the sale, PUC placed that amount in a suspense account pending ascertainment, “at which time determination will be made as to what portion thereof should be credited to the depreciation reserve and what portion, if any, should be credited to earned surplus.” Id. at 409.
. Id. at 410.
. The unrecovered portion of original cost was $464,162.78, that is, original cost of $1,077,824.06 less depreciation reserve of $613,661.28. See note 37, supra.
. 30 P.U.R.3d at 410.
. Transit had purchased the assets of Capital Transit Company, its predecessor, which for many years had operated a system of transportation by streetcars and buses in the Washington metropolitan area. The obvious purpose of the franchise provision mentioned in text was to eliminate the streetcars. This matter is discussed more fully in Part IV (B), infra.
. 30 P.U.R.3d at 412.
. Id.
. Id. That such losses did fall on Transit’s farepayers subsequently became the fact. See Part IV (B), infra, at notes 243-246.
. 30 P.U.R.3d at 412.
. See note 37, supra.
. 30 P.U.R.3d at 411.
. Id.
. Id. at 412.
. D. C. Transit Sys., Inc. v. Public Utils. Comm’n, 110 U.S.App.D.C. 241, 292 F.2d 734 (1961). See also Part III(B), infra, at notes 89-99.
. Supra note 18.
. See note 42, siipra, and accompanying text.
. 121 U.S.App.D.C. at 397, 350 F.2d at 775. The same argument was made with reference to a capital gain achieved on the depreciable portion of Transit’s Georgia and Eastern Terminal. We discuss the disposition of that facet of the argument in Part IV (B), infra, at notes 292-300.
. Id. (footnote omitted).
. See text supra at notes 34-50.
. Supra note 18.
. 48 P.U.R.3d at 399.
. Id. at 404.
. Supra note 18.
. See note 287, infra, and accompanying text.
. 63 P.U.R.3d at 34.
. Id.
. D.C. Transit Sys., Inc. (Order No. 1090), 85 P.U.R.3d 508, 513 (WMATC 1970).
. It may, of course, be that in given situations no gain is realized. That was so in D.C. Transit Sys., Inc. (Order No. 563), supra note 18, discussed in text supra at notes 60-63.
. This is clear from all of the decisions in the District.
. As in D.C. Transit Sys., Inc. (Order No. 4577), supra note 33. See text supra at notes 39-41.
. As in D.C. Transit Sys., Inc. (Order No. 4577), supra note 33. See text supra at notes 47-50.
. 12 A.D.2d 122, 208 N.Y.S.2d 857 (1960).
. New York Water Serv. Corp., 7 P.U.R.3d 32 (N.Y.Pub.Serv.Oomm’n 1955). The commission felt that amortization of the profit from the sale over a seventeen-year period was “the most equitable method of meeting the problem.” Id. It directed the utility to transfer the amount of the profit from surplus to a reserve account and in each future year to amortize one-seventeenth against the depreciation accruals charged to operations. Id.
. New York Water Serv. Corp. v. Public Serv. Comm’n, supra note 69, 208 N.Y.S.2d at 863-864.
. Id. at 864.
. 458 S.W.2d 778 (Ky.1970).
. Neither of the two published opinions in the ease informs as to the time interval between the retirement of the property from service and its sale. Assuming, without deciding, that any appreciation in its value after retirement belonged to the utility investors, there would remain the question whether appreciation prior thereto would inure to the benefit of its customers.
. By the agency’s computation, the total net profit was $2,415,846, of which $138,791 was attributable to miscellaneous improvements on the land. The latter portion of the profit invites the problem of allocation of capital gains on depreciable property. See Part 11(A), supra. On judicial review of the agency’s decision, City of Lexington v. Lexington Water Co., supra note 73, the court did not distinguish between the two portions of the $2,415,846.
. Lexington Water Co., 72 P.U.R.3d 253 (Ky.Pub.Serv.Comm’n 1968).
. On review of the decision, the court stated that there was a dispute as to whether the land had been acquired by condemnation or the threat thereof. 458 S.W.2d at 778. The court was of the opinion, however, that “whether the property was acquired by threats of use of the power of eminent domain [is] irrelevant.” Id. at 779.
. Lexington Water Co., supra note 76, 72 P.U.R.3d at 259-260.
. Supra note 69.
. For the New York practice, see text supra at note 72.
. The court, however, also relied upon a passage in Board of Pub. Util. Comm’rs v. New York Tel. Co., 271 U.S. 23, 32, 46 S.Ct. 363, 366, 70 L.Ed. 808 (1926):
Customers pay for service, not for the property used to render it. Their payments are not contributions to depreciation or other operating expenses or to capital of the company. By paying bills for service they do not acquire any interest, legal or equitable, in the property used for their convenience or in the funds of the company.
And from that the Court further concluded that “[plrofit made from the sale of non-depreciable land no longer used in serving customers is not an ingredient to be considered in fixing rates. The customers had no interest in the profit realized on the sale — it belonged to the stockholder” 458 S.W.2d at 780. In our view, New York Telephone Company hardly sustains that proposition. There the Supreme Court addressed the question whether consumers could benefit from excessive depreciation, taken by a utility in prior years, through an offset that would produce lower future rates. 271 U.S., at 26-31, 46 S.Ct. 363. The Court held that the assets representing the excess in the reserve for depreciation could not be used to make up a deficiency in current rates which rendered them confiscatory. Id. at 32, 46 S.Ct. 363. As the Court said, consumers do not acquire an interest in utility assets merely by paying their bills for service. Id. at 32, 46 S.Ct. 363. That is not to say that the utility’s investors have an indefeasibly vested right to gains arising from the appreciated market value of capital assets. See discussion in Part III, infra.
. 292 U.S. 398, 54 S.Ct. 763, 78 L.Ed. 1327 (1934).
. Id. at 410-411, 54 S.Ct. 763.
. Id. at 411, 54 S.Ct. at 769.
. Id.
. gee Part IV (A), infra, at notes 211-218.
. gee Part IV (A), infra, at notes 181-190.
. gee Part 11(A), supra at notes 33-55.
. gee Part 11(A), supra at note 35.
. gee note 36, supra.
. Supra note 33.
. 30 P.U.R.36 at 409.
. Id.
. Since the only party to the proceeding was Transit, no such “controversy” was likely unless generated by the Commission itself.
. See Part II (A), supra, at note 55.
. D.C. Transit System, Inc. v. Public Utils. Comm’n, supra note 51.
. Supra note 18.
. See 121 U.S.App.D.C. at 390-397, 350 F.2d at 774-775. See also the discussion in Part 11(A), supra, at notes 52-55.
. Supra note 18.
. These were facilities acquired by Transit from its predecessor, Capital Transit Company. Transit’s franchise required that it convert to an all-bus operation, see notes 42, supra, and 237, infra, and accompanying text, and in the process the facilities in question became obsolete. See the discussion in Part IV (B), infra, at notes 277-300.
. See Part IV (B), infra, at notes 243-244.
. 48 P.U.R.3d at 403-404.
. See Part II (A), supra, at notes 33-35, and this Part, supra, at notes 89-99.
. See Part 11(A), supra, at notes 61-63.
. See D.C. Transit Sys., Inc. v. Washington Metropolitan Area Transit Comm’n, supra note 18, 121 U.S.App.D.C. at 396-398, 350 F.2d at 774-776.
. 48 P.U.R.3d at 399.
. Id.
. Id.
. The Commission, like the Court in Lexington Water Company, see note 76, supra, felt that Board of Pub. Util. Comm’rs v. New York Tel. Co., supra note 82, “clearly resolves the issue raised in this ease concerning the proceeds from nondepreciable property.” 48 P.U.R.3d at 400. We think otherwise. See note 82, supra, and Part III, infra.
. See Part 11(A), supra.
. See D.C. Transit Sys., Inc. (Order No. 563), supra note 18, discussed in Part 11(A), supra, at notes 60-64; D.C. Transit Sys., Inc. (Order No. 245), supra note 18, discussed in Part 11(B), supra, at notes 100-111; D.C. Transit Sys., Inc. (Order No. 4577), supra note 33, discussed in Part 11(A), supra, at notes 33-50; City of Lexington v. Lexington Water Co., supra note 73, discussed in Part 11(B), supra, at notes 73-82.
. See cases cited supra note 112.
. See generally, 1 A. Priest, Principles of Public Utility Regulation 139 et seq. (1969); J. Bonbriglit, Principles of Public Utility Rates 159 et seq. (1961). To be distinguished is the operating ratio method of computing return. See note 266, infra, and accompanying text.
. 169 U.S. 466, 18 S.Ct. 418, 42 L.Ed. 819 (1898).
. Id. at 546, 18 S.Ct. at 434.
. Id. at 546-547, 18 S.Ct. at 434.
. Id. at 547, 18 S.Ct. at 434.
. For application of the formula in various contexts, see West v. Chesapeake & Potomac Tel. Co., 295 U.S. 662, 671, 55 S.Ct. 894, 79 L.Ed. 1640 (1935); St. Louis & O’F Ry. v. United States, 279 U.S. 461, 487, 49 S.Ct. 384, 73 L.Ed. 798 (1929); McCardle v. Indianapolis Water Co., 272 U.S. 400, 408-409, 47 S.Ct. 144, 71 L.Ed. 316 (1926); Missouri ex rel. Southwestern Bell Tel. Co. v. Public Serv. Comm’n, 262 U.S. 276, 288, 43 S.Ct. 544, 67 L.Ed. 981 (1923); Minnesota Rate Cases (Simpson v. Shepard), 230 U.S. 352, 354, 33 S.Ct. 729, 57 L.Ed. 1511 (1913); Willcox v. Consolidated Gas Co., 212 U.S. 19, 41, 52, 29 S.Ct. 192, 53 L.Ed. 382 (1909).
. Supra note 119.
. 212 U.S. at 52, 29 S.Ct. at 200.
. Supra note 119.
. 230 U.S. at 454, 33 S.Ct. at 762.
. Supra note 82.
. 271 U.S. at 32, 46 S.Ct. at 366.
. Supra note 119, 262 U.S. at 289, 43 S.Ct. 544. Justice Holmes joined in the opinion.
. Id. at 290, 43 S.Ct. at 547 (footnote omitted).
. The prudent investment theory has, however, seen service in the District of Columbia. In Washington Gas Light Co. v. Baker, 88 U.S.App.D.C. 115, 188 F.2d 11 (1950), cert. denied, 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 (1951), where PUC had applied that theory in lieu of reproduction costs, id. at 123, 188 F.2d at 19, we pointed out that “[p]rimary , emphasis is now being placed not on ‘specific property, tangible and intangible,’ but on capital prudently invested and embarked on an enterprise in the public service.” Id. (footnote omitted).
. Los Angeles Gas Co. v. Railroad Comm’n, 289 U.S. 287, 295-297, 53 S.Ct. 637, 77 L.Ed. 1180 (1933).
. Railroad Comm’n v. Pacific Gas Co., 302 U.S. 388, 399, 405, 58 S.Ct. 334, 82 L.Ed. 319 (1938).
. 315 U.S. 575, 62 S.Ct. 736, 86 L.Ed. 1037 (1942).
. Id. at 586, 62 S.Ct. at 743.
. 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944).
. See Id. at 599-600, 64 S.Ct. 281.
. Id. at 601, 64 S.Ct. at 287. It seems clear that Hope Natural Gas thus adopted the investment concept which Justice Brandéis had espoused in Southwestern Bell. See text supra at note 127. See also 2 A. Priest, Principles of Public Utility Regulation 503-504 (1969).
. The quoted language is from the Natural Gas Act of 1938, 52 Stat. 821 (1938), §§ 4(a), 5(a), 15 U.S.C. §§ 717c (a), 7174(a) (1970). The Commission is required to apply exactly the same standard in promulgating Transit’s fares. Compact, supra note 12, tit. II, art. XII, § 6(a)(3).
. 320 U.S. at 602, 64 S.Ct. at 287.
. See, in addition to cases cited supra, FPC v. Natural Gas Pipeline Co., supra note 131, 315 U.S. at 586, 62 S.Ct. 736; Permian Basin Area Rate Cases (Continental Oil Co. v. FPC), 390 U.S. 747, 800, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968). As to the District of Columbia, see note 128, supra, and, as to the states, I A. Priest, Principles of Public Utility Regulation 142-66 (1969).
. See, e. g., Minnesota Rate Cases (Simpson v. Shepard), supra note 119, 230 U.S. at 454, 33 S.Ct. 729, quoted in text supra at note 123.
. See note 18, supra.
. “Annual depreciation is tlie loss which takes place in a year. In determining reasonable rates for supplying public service, it is proper to include in the operating expenses, that is, in the cost of producing the service, an allowance for consumption of capital in order to maintain the integrity of the investment in the service rendered.” Lindheimer v. Illinois Bell Tel. Co., 292 U.S. 151, 167, 54 S.Ct. 658, 665, 78 L.Ed. 1182 (1934) (footnote omitted).
. 212 U.S. 1, 29 S.Ct. 148, 53 L.Ed. 371 (1909).
. Id. at 13-14, 29 S.Ct. at 152.
. Id. at 14, 29 S.Ct. at 152.
. 280 U.S. 234, 50 S.Ct. 123, 74 L.Ed. 390 (1930).
. Id. at 253-254, 50 S.Ct. 123.
. Justice Brandeis, with whom Justice Holmes concurred, dissented. 280 U.S. at 254, 50 S.Ct. 123.
. See Part III (A), supra.
. 280 U.S. at 254, 50 S.Ct. at 126.
. See Part III (A), supra.
. Supra note 141.
. 292 U.S. at 168-169, 54 S.Ct. 658.
. Id. at 169, 54 S.Ct. at 665.
. Supra note 131.
. 315 U.S. at 592-593, 62 S.Ct. 736.
. Id. at 593, 62 S.Ct. at 746.
. Supra note 133.
. 320 U.S. at 606, 64 S.Ct. 281.
. Id. at 606-607, 64 S.Ct. 281.
. Id. at 606, 64 S.Ct. at 289.
. See text supra at notes 142-144.
. See note 266, infra.
. See note 266, infra.
. See D. C. Transit Sys., Inc. (Order No. 4631), 33 P.U.R.3d 137, 155 (D. C. Pub. Utils. Comm’n 1960), wherein PUC established Transit’s acquisition adjustment account, discussed in text infra at notes 251-256, a device which incorporated original cost rather than present value as the basis for depreciation. See also D. C. Transit Sys., Inc. (Order No. 4735), 38 P.U.R.3d 19, 34-35 (D. C. Pub. Utils. Comm’n 1961) (rejecting replacement cost), discussed in text infra at notes 167-170.
. See, e. g., D. C. Transit Sys., Inc. (Order No. 984), 81 P.U.R.3d 417, 427 (WMATC 1969).
. D. C. Transit Sys., Inc. (Order No. 4735), supra note 164, 38 P.U.R.3d at 34.
. Id. at 34-35.
. Id. at 34.
. Id.
. Id. at 34-35.
. D. C. Transit Sys., Inc. v. Washington Metropolitan Area Transit Comm’n, 151 U.S.App.D.C. 223, 247-248, 466 F.2d 394, 418-419, cert. denied, 409 U.S. 1086, 93 S.Ct. 688, 34 L.Ed.2d 673 (1972).
. See Part III (A), supra.
. See Part III(B), supra.
. See Part III (B), supra.
. See text supra at notes 162-170.
. Indeed, claims of utility investors, including Transit’s, on appreciations in value of depreciable utility assets have generally been subordinated to the claims of the utility’s consumers. See Part 11(A), supra. That, we believe, is a consequence, rather than a cause, of the investors’ lack of an indefeasible right to the appreciations. But it is evident that consumers could never have enjoyed priority, or even a measure of equality, if the investors’ right were absolute.
. FPC v. Hope Natural Gas Co., supra note 133, 320 U.S. at 603, 64 S.Ct. at 288.
. E. g., id.
. “[F]rom the earliest cases, the end of public utility regulation has been recognized to be protection of consumers from exorbitant rates.” Washington Gas Light Co. v. Baker, supra note 128, 88 U.S.App.D.C. at 119, 188 F.2d at 15 (footnote omitted).
. See discussion in Part IV (A), infra.
. See, e. g., FPC v. Hope Natural Gas Co., supra note 133, 320 U.S. at 605, 64 S.Ct. 281; Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 160-162, 51 S.Ct. 65, 75 L.Ed. 255 (1930); United Rys. & Elec. Co. v. West, supra note 145, 280 U.S. at 249, 250, 50 S.Ct. 123; Bluefield Water Works & Improvement Co. v. Public Serv. Comm’n, 262 U.S. 679, 692-693, 43 S.Ct. 675, 67 L.Ed. 1176 (1923); Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 355 nn. 64, 65, 415 F.2d at 935 nn. 64, 65.
. See Atlantic Ref. Co. v. FPC, 115 U.S.App.D.C. 26, 28, 316 F.2d 677, 679 (1963); New Haven Water Co., 2 P.U.R.3d 452, 456-60 (Conn. Pub. Utils. Comm’n 1954). See also cases cited supra note 181.
. FPC v. Hope Natural Gas Co., supra note 133, 320 U.S. at 604-605, 64 S.Ct. 281; State ex rel. Pacific Tel. & Tel. Co. v. Department of Pub. Serv., 19 Wash. 2d 200, 142 P.2d 498, 528 (en banc 1943); Michigan Bell Tel. Co. v. Public Serv. Comm’n, 332 Mich. 7, 50 N.W.2d 826, 840-841 (1952); El Paso Natural Gas Co., 28 F.P.C. 688, 694-95, 45 P.U.R.3d 262, 270-71 (1962).
. See eases discussed supra in Part II (A).
. Bebchick v. Public Utilities Comm., 115 U.S.App.D.C. 216, 224, 318 F.2d 187, 195, cert. denied, 373 U.S. 913, 88 S.Ct. 1304, 10 L.Ed.2d 414 (1963); Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 374-376, 415 F.2d at 954-956; Washington Gas Light Co. v. Baker, supra note 128, 88 U.S.App.D.C. at 123-125, 188 F.2d at 19-21. See also Minneapolis St. Ry. Co. v. City of Minneapolis, 251 Minn. 43, 86 N.W.2d 657, 665-668 (1957).
. See, Northwestern Bell Tel. Co., 78 S.D. 15, 98 N.W.2d 170, 179 (1959); Diamond State Tel. Co., 28 P.U.R.3d 121, 137-39 (Del. Pub. Serv. Comm’n 1959); Baltimore Gas & Elec. Co., 25 P.U.R.3d 91 (Md. Pub. Serv. Comm’n 1959); Florida Power & Light Co., 19 P.U.R.3d 417, 429 (Fla. R. R. & Pub. Util. Comm’n 1957); Long Island Lighting Co., 7 P.U.R.3d 140, 141-42 (N. Y. Pub. Serv. Comm’n 1955).
. See text infra at note 201.
. See New York Water Serv. Corp. v. Public Serv. Comm’n, supra note 69, discussed in Part 11(B), supra, at notes 69-72.
. See id.; Columbus Gas & Fuel Co. v. Public Serv. Comm’n, supra note 83, 292 U.S. at 411, 54 S.Ct. 763.
. See cases discussed in Part 11(B), supra.
. See Part IV (A), infra, at note 199.
. See Part IV(A), infra, at notes 211-218.
. See Part 11(A), supra; Part IV(A), infra, at notes 225-227.
. See Part IV (A), infra, at notes 211-218.
. See Part II(B), supra.
. See Part IV (B), infra, at notes 228-229.
. For definitions, see note 18, supra.
. St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 65-67, 56 S.Ct. 720, 80 L.Ed. 1033 (1936); Lindheimer v. Illinois Bell Tel. Co., supra note 141, 292 U.S. at 165-175, 54 S.Ct. 658; Pacific Gas & Elec. Co. v. City & County of San Francisco, 265 U.S. 403, 415-416, 44 S.Ct. 537, 68 L.Ed. 1075 (1924); Kansas City S. Ry. v. United States, 231 U.S. 423, 449-452, 34 S.Ct. 125, 58 L.Ed. 296 (1913); Minnesota Bate Cases (Simpson v. Shepard), supra note 119, 230 U.S. at 456-458, 33 S.Ct. 729; Knoxville v. Knoxville Water Co., supra, note 142, 212 U.S. at 9-11, 29 S.Ct. 148; D. C. Transit Sys., Inc. v. Washington Metropolitan Area Transit Comm’n, supra note 18, 121 U.S.App.D.C. at 394r-395, 350 F.2d at 772-773; Washington Gas Light Co. v. Baker, supra note 128, 88 U.S.App.D.C. at 123, 188 F.2d at 19; FPC v. Hope Natural Gas Co., supra note 133, 320 U.S. at 605, 64 S.Ct. 281. See also the cases cited infra notes 201-202.
. FPC v. Hope Natural Gas Co., supra note 133, 320 U.S. at 596-607, 64 S.Ct. 281; United Rys. & Elec. Co. v. West, supra note 145, 280 U.S. at 253-254, 50 S.Ct. 123; Illinois Cent. R. R. v. ICC, 206 U.S. 441, 461-463, 27 S.Ct. 700, 51 L.Ed. 1128 (1907); Smyth v. Ames, supra note 115, 169 U.S. at 547, 18 S.Ct. 418; D. C. Transit Sys., Inc. v. Washington Metropolitan Area Transit Comm’n, supra note 18, 121 U.S.App.D.C. at 394-395, 350 F.2d at 772-773; Panhandle Eastern Pipe Line Co. v. FPC, 113 U.S.App.D.C. 94, 305 F.2d 763 (1962), cert. denied, 372 U.S. 916, 83 S.Ct. 719, 9 L.Ed.2d 722 (1963); City of Detroit v. FPC, 97 U.S.App.D.C. 260, 263, 230 F.2d 810, 813 (1955), cert. denied, 352 U.S. 829, 77 S.Ct. 37, 1 L.Ed.2d 48 (1956); Washington Gas Light Co. v. Baker, supra note 128, 88 U.S.App.D.C. at 119-120, 122-123, 188 F.2d at 15-16, 18-19; Public Utils. Comm’n v. Capital Traction Co., 57 App.D.C. 85, 88, 17 F.2d 673, 676 (1927); Safe Harbor Water Power Corp. v. FPC, 179 F.2d 179, 193-199 (3d Cir. 1949), cert. denied, 339 U.S. 957, 70 S.Ct. 980, 94 L.Ed. 1368 (1950); City of Minneapolis v. Band, 285 F. 818, 825-831 (8th Cir. 1923).
. See cases cited supra note 198.
. E. g., Los Angeles Gas & Elec. Corp. v. Railroad Comm’n, supra note 129, 289 U.S. at 306-307, 53 S.Ct. 637; Pacific Gas & Elec. Co. v. City & County of San
. E. g., FPC v. Hope Natural Gas Co., supra note 133, 320 U.S. at 606 et seq., 64 S.Ct. 281; Dayton Power & Light Co. v. Public Serv. Comm’n, 292 U.S. 290, 303-305, 54 S.Ct. 647, 78 L.Ed. 1267 (1934); Arkansas-Louisiana Gas Co. v. City of Texarkana, 17 F.Supp. 447, 460-463 (W.D.Ark.1936).
. See cases cited supra notes 199, 201, 202.
. Consolidated Edison, 56 P.U.R.3d 337, 371-77 (N. Y. Pub. Serv. Comm’n 1964) (losses incurred in retirement of plant amortized); Lakewood Water Co., 78 P.U.R.3d 453, 457, 458 (N. J. Bd. of Pub. Util. Comm’rs 1968); Missouri Cities Water Co., 53 P.U.R.3d 352, 354, 359-60 (Mo. Pub. Serv. Comm’n 1965) (plant with life expectancy of 50 years retired because of increasing saline content after only six years of operation amortized over 10-year period); Howes v. Mather Water Co., 13 P.U.R.3d 486, 490-91 (Pa. Pub. Util. Comm’n 1956) (supply sources abandoned because of contamination amortized). See generally, Washington Gas Light Co. v. Baker, supra note 128, 88 U.S.App.D.C. at 123-127, 188 F.2d at 19-23.
. See cases cited supra note 198.
. See cases cited supra notes 198, 199, 201, 204.
. As to the “service life theory of depreciation,” see particularly International Ry. v. Prendergast, 1 F.Supp. 623, 627-631 (W.D.N.Y.1932). See also cases cited supra note 204. Compare 1 A. Priest, Principles of Public Utility Regulation 117-24 (1969). In D. C. Transit Sys., Inc. (Order No. 4735), supra note 164, 38 P.U.R.3d at 35, the straight-line method of depreciation accounting, as opposed to the sum-of-digits method, was approved for ratemaking purposes.
. See cases cited supra note 202.
. See cases cited supra notes 201-204.
. See St. Joseph Stock Yards Co. v. United States, supra note 198, 298 U.S. at 55-72, 56 S.Ct. 720; Lindheimer v. Illinois Bell Tel. Co., supra note 141, 292 U.S. at 168-175, 54 S.Ct. 658; Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 371-376, 415 F.2d at 951-956; Bebchick v. Public Utils. Comm’n, supra note 185, 115 U.S.App.D.C. at 223-224, 318 F.2d at 194-195; California-Pacific Utils. Co., 71 P.U.R.3d 270, 272 (Nev.Pub.Serv.Comm’n 1967).
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 372-376, 415 F.2d at 952-956; D. C. Transit Sys., Inc. v. Washington Metropolitan Area Transit Comm’n, supra note 18, 121 U.S.App.D.C. at 390-391, 350 F.2d at 768-769; D. C. Transit Sys., Inc. (Order No. 952), 80 P.U.R.3d 1 (WMATC 1969); Maui Elec. Co., 74 P.U.R.3d 140, 147-50 (Hawaii Pub. Util. Comm’n 1968); Honolulu Rapid Transit Co., 68 P.U.R.3d 409, 414 (Hawaii Pub.Serv.Comm’n 1967). Compare D. C. Transit Sys., Inc. (Order No. 245), supra note 18, 48 P.U.R.3d at 405, 406 (allowing reduction in service-life period).
. E. g., see cases cited supra note 204.
. E. g., Missouri Cities Water Co. and Howes v. Mather Water Co., both supra note 204.
. E. g., William v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 374-378, 415 F.2d at 954-958.
. See cases cited supra notes 211-213.
. See FPC v. Hope Natural Gas Co., supra note 133, 320 U.S. at 603, 64 S.Ct. 281; Bluefield Water Works & Improvement Co. v. Public Service Comm’n, supra note 181, 262 U.S. at 692-693, 43 S.Ct. 675. Accord, Permian Basin Area Rate Cases (Continental Oil Co. v. FPC), supra note 138, 390 U.S. at 792, 88 S.Ct. 1344; Atlantic Ref. Co. v. FPC, supra note 182, 115 U.S.App.D.C. at 27-28, 316 F.2d at 678-679.
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 374-377, 415 F.2d at 954-957; D. C. Transit Sys., Inc. v. Washington Metropolitan Area Transit Comm’n, supra note 18, 121 U.S.App.D.C. at 394-395, 350 F.2d at 772-773, aff’g after remand in Bebchick v. Public Service Comm’n, supra note 185, 115 U.S.App.D.C. at 224, 318 F.2d at 195; Washington Gas Light Co. v. Baker, supra note 128, 88 U.S.App.D.C. at 123-124, 188 F.2d at 19-20.
. See cases cited supra note 217.
. In re Northwestern Bell Tel. Co., 73 S.D. 37, 43 N.W.2d 553, 564 (1950), cert. denied, 340 U.S. 934, 71 S.Ct. 489, 95 L.Ed. 674 (1951); D. C. Transit Sys., Inc. (Order No. 564), 63 P.U.R.3d 45, 55 (WMATC 1966); Cheyenne Light, Fuel & Power Co., 7 P.U.R.3d 129, 134 (Wyo.Pub.Serv.Comm’n 1955).
. E. g., Wall v. Public Util. Comm’n, 182 Pa.Super. 35, 125 A.2d 630, 638-639 (1956); Penn-York Natural Gas Co., 5 F.P.C. 33, 37, 63 P.U.R. (n.s.) 235, 238 (1946); Lucerne Water Co., 52 P.U.R.3d 219, 224-25 (Cal.Pub.Util.Comm’n 1964).
. See cases cited supra note 198.
. See cases cited supra note 202.
. Washington Gas Light Co. v. Baker, supra note 128, 88 U.S.App.D.C. at 123-124, 188 F.2d at 19-20; Minneapolis St. Ry. v. City of Minneapolis, supra note 185, 86 N.W.2d at 660-668.
. See cases cited supra note 201.
. Fleming v. Illinois Commerce Comm’n, 38S Ill. 138, 57 N.E.2d 384, 395 (1944), appeal dismissed and cert. denied, 324 U.S. 823, 65 S.Ct. 686, 89 L.Ed. 1393 (1945); Pekin Water Works Co., 82 P.U.R.3d 460, 466 (Ill.Commerce Comm’n 1970); Illinois Commerce Comm’n v. Public Serv. Co., 4 P.U.R. (n.s.) 1, 27-30 (Ill.Commerce Comm’n 1934); Hillsborough & M. Tel. Co., 14 P.U.R.3d 212, 217 (N.J.Bd. Pub.Util.Comm’rs 1956); Farmer’s Union Tel. Co., 84 P.U.R. (n.s.) 82, 85 (N.J.Bd.Pub.Util.Comm’rs 1950); Public Serv. Comm’n v. Mountain Fuel Supply Co., 73 P.U.R. (n.s.) 428, 441 (Utah Pub.Serv.Comm’n 1947).
. See discussion in Part 11(A), supra.
. The Commission has recognized that Transit’s farepayers are entitled to capital gains on depreciable assets withdrawn from service at least to the extent of reimbursement for their contributions to depreciation expenses on such assets. See Part 11(A), supra, at notes 57-64. PUC, the Commission’s predecessor, recognized that the farepayers’ entitlement may extend beyond mere reimbursement and this court has done so as well. See Part 11(A), supra, at notes 33-50. We perceive no justification, absent extraordinary circumstances, for limiting fare-payers to only a part of the gain. Their right to its benefit derives from the fact that they have borne the financial burden of loss of serviceability of the withdrawn assets and the risk that such loss might occur prematurely. Had the gain been too small to enable full reimbursement, they would have suffered the loss on the remainder. Elemental justice requires that they be awarded the full gain, even though it exceeds the amount necessary for reimbursement.
. Democratic Cent. Comm. v. Washington Metropolitan Area Transit Comm’n, supra note 3, at nn. 101-106.
. Brief for Respondent at 13.
. Pub.L. No. 757, 70 Stat. 598 (1956) (Franchise Act). See also H.R.Rep.No. 2751, 84th Cong., 2d Sess. (1956).
. Id. at tit. II, §§ 201(a), 202, 203.
. See appendix.
. S.Rep.No.91-760, 91st Cong., 2d Sess. 3 (1970).
. Id., D. C. Transit Sys., Inc. (Order No. 4631), supra, note 164, 33 P.U.R.3d at 158.
. S.Rep.No.91-760, 91st Cong., 2d Sess. 3 (1970).
. Id.
. The Franchise Act, tit. I, pt. 1, § 7, 70 Stat. 598, 599 (1956), provides:
The Corporation shall be obligated to initiate and carry out a plan of gradual conversion of its street railway operations to bus operations within seven years from the date of the enactment of this Act upon terms and conditions prescribed by the Commission, with such regard as is reasonably possible when appropriate to the highway development plans of the District of Columbia and the economies implicit in coordinating the Corporation’s track removal program with such plans; except that upon good and sufficient cause shown the Commission may in its discretion extend beyond seven years, the period for carrying out such conversion. All of the provisions of the full paragraph of the District of Columbia Appropriation Act, 1942 (55 Stat. 499, 533), under the title “Highway Fund, Gasoline Tax and Motor Vehicle Fees”, subtitle “Street Improvements”, relating to the removal of abandoned track areas, shall be applicable to the Corporation.
. See District of Columbia Appropriation Act of 1942, 55 Stat. 499, 533 (1941).
. D. C. Transit Sys., Inc. (Order No. 4631), supra note 164, 33 P.U.R.3d at 155.
. Id.
. Id.
. See Part IV(A), supra, at notes 201, 211-218.
. D. C. Transit Sys., Inc. (Order No. 4631), supra note 164, 33 P.U.R.3d at 155-60.
. Id. at 156-57.
. Id. at 155-56.
. See text supra at note 239.
. Supra note 185.
. See note 237, supra.
. 115 U.S.App.D.C. at 220, 318 F.2d at 191.
. Id. at 221, 318 F.2d at 192.
. See D. C. Transit Sys., Inc. (Order No. 3592), at 5, exh. 2 (D.C.Pub.Utils. Comm’n Nov. 27, 1957) (unreported).
. D. C. Transit Sys., Inc. (Order No. 4631), supra note 164, 33 P.U.R.3d at 155.
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 367, 415 F.2d at 947.
. Bebchick v. Public Utils. Comm’n, supra note 185, 115 U.S.App.D.C. at 220-221, 318 F.2d at 191-192.
. Id. at 221, 318 F.2d at 192.
. Id.
. D. C. Transit Sys., Inc. (Order No. 4631), supra note 164, 33 P.U.R.3d at 155-60.
. See appendix.
. See text supra at notes 242-256.
. D. C. Transit Sys., Inc. (Order No. 4631), supra note 164, 33 P.U.R.3d at 158.
. See text supra at notes 233-234.
. The original cost of Capital’s road and equipment alone was $49,818,718. D. C. Transit Sys., Inc. (Order No. 4631), supra note 164, 33 P.U.R.3d at 162. The remaining assets purchased, amounting to $8,592,952.54, consisted in cash and miscellaneous items. D. C. Transit Sys., Inc. (Order No. 3592), supra note 251, at exh. 2.
. It was for this reason that PUC, in establishing Transit’s rate base prior to shifting to the operating ratio method, see note 266, infra, refused to accept the price which Transit paid to Capital as a true reflection of the fair value of the assets acquired. D. C. Transit Sys., Inc. (Order No. 4631), supra note 164, 33 P.U.R.3d at 155.
. PUC’s utilization of the acquisition adjustment account, see text supra at notes 251-256, in no way qualifies this characterization. The acquisition adjustment device raised the investors’ cost-of-purchase from $13.5 million to $23.8 million, but the $23.8 million was Capital’s book value, not the fair market value, of the assets acquired. Original cost of those assets exceeded $58 million, see note 262, supra. The land included among those assets, acquired much earlier on obviously much lower markets, surely had a market value at Transit’s acquisition which was greatly higher than Capital’s book value based on original cost. See text supra at notes 260-262 and note 262, supra.
. See Franchise Act, tit. I, pt. I, § 4, 70 Stat. 598 (1956).
. When Transit succeeded Capital, the latter’s rates were set on a rate base established on original cost. See Spiegel v. Public Utils. Comm’n, 145 F.Supp. 679, 680 (D.D.C.1956), aff’d, 101 U.S.App.D.C. 93, 94-95, 247 F.2d 84, 85-86 (1957). In Transit’s first fare proceeding, PUC declined to switch to the operating ratio method, D. C. Transit Sys., Inc. (Order No. 4480), 25 P.U.R.3d 371, 374 (1958); instead, it fixed the rate base at $14,167,375 by giving equal weight to Capital’s depreciated original cost and Transit’s purchase price. Id. at 374-76. See also D. C. Transit Sys., Inc. (Order No. 4631), supra note 164, 33 P.U.R.3d at 163-64. In 1960, however, PUC permitted tire shift to operating ratio, with the rate-base rate of return method as a check on reasonableness of the return. Id. at 144-18. See also D. C. Transit Sys., Inc. (Order No. 4735), supra note 164, 38 P.U.R.3d at 25-26. We approved the shift in Bebchick v. Public Utils. Comm’n, supra note 185, 115 U.S.App.D.C. at 219-220, 318 F.2d at 190-191.
On the advantage a transit company derives from use of the operating ratio method rather than a system rate base, see 1 A. Priest, Principles of Public Utility Regulation 221-24 (1969); Wright, Operating Ratio—A Regulatory Tool, 51 Pub.Util.Fort. 24-29 (1953).
. See S.Rep.No.91-760, 91st Cong., 2d Sess. 3 (1970); D. C. Transit Sys., Inc. (Order No. 1216) (WMATC May 19, 1972), at 9-10 (as yet unreported), quoted on affirmance in D. C. Transit Sys., Inc. v. Washington Metropolitan Area Transit Comm’n, supra note 171, 151 U.S.App.D.C. at 227 n. 28, 466 F.2d at 398 n. 28.
. Franchise Act, tit. I, pt. 1, § 3, 70 Stat. 598 (1956).
. Transit was one of four utilities operating regular-route transportation systems in the area. One of the other three was a wholly-owned subsidiary of Transit, and the other two commanded but fragments of the transit market and operated almost exclusively in suburban areas.
. See sources cited supra note 267.
. S.Rep.No.91-760, 91st Cong., 2d Sess. 3 (1970). And see D. C. Transit Sys., Inc. v. Washington Metropolitan Area Transit Comm’n, supra note 171.
. See appendix.
. See Franchise Act, tit. I, pt. 1, § 9(g), 70 Stat. 598, 601 (1956), prescribing a statutory formula which requires a Commission determination that Transit failed to earn a 6(4% rate of return during the previous year. From 1961 to 1968, inclusive, real estate taxes from which Transit was exempted totaled $1,381,177. S.Rep.No.91-760, 91st Cong., 2d Sess. 3 (1970).
. See note 266, supra.
. See note 266, supra.
. See note 266, supra.
. See note 237, supra.
. See text supra at notes 243-250.
. See text supra at notes 245-250.
. See appendix.
. Supra note 33.
. See Part II(A), supra at notes 33-55. See also Bebchick v. Public Utils. Comm’n, supra note 185, 115 U.S.App.D.C. at 219-223, 318 F.2d at 190-194.
. This position later gained full administrative and judicial acceptance. See text supra at notes 243-256.
. 30 P.U.B.3d at 412.
. Id.
. D. C. Transit Sys., Inc. v. Public Utils. Comm’n, supra note 51.
. Supra note 18.
. Id. at 396-397, 350 F.2d at 773-774.
. Id. at 397, 350 F.2d at 775.
. See id.
. See id.
. See id. at 397-398, 350 F.2d at 775-776.
. But see Part Ill(A), supra, at notes 60-64.
. 121 U.S.App.D.C. at 397-398, 350 F.2d at 775-776.
. Id. at 398, 350 F.2d at 776 (emphasis in original).
. Id.
. Id.
. See Part 11(A), supra, at notes 33-35.
. 121 U.S.App.D.C. at 398, 350 F.2d at 776.
. Id. On remand, D.C. Transit Sys., Inc. (Order No. 563), supra note 18, the Commission found that the abandonment of the terminal and its subsequent sale were unrelated to the conversion program. It said:
A review of the transcript reveals that retirement of this property was not associated with the retirement of rail property. While the rail system was in use, the Georgia and Eastern Terminal served in a dual capacity, both as a terminal for rail service and for bus service. After the rail system was phased out, the terminal was used exclusively in bus operations. Sometime thereafter, due to the request of riders to move the terminal further north, the company relocated its terminal in Silver Spring and discontinued the terminal facilities at the Georgia and Eastern location. It is apparent to the commission that the termination of this facility as property used and useful in the transit business was predieated solely on the realignment of its bus terminal facilities and its removal from service was completely disassociated with the termination of the rail operation. Tims, it is our determination that the sale of tire terminal was occasioned neither in whole nor part by the abandonment of rail operations. Therefore, the ratepayer is not entitled to share in any portion of the proceeds of that sale, unless there was a profit on the depreciable portion of the asset sold. There was none in this case.
Id. at 33-34. In this aspect, Order No. 563 was not brought under judicial review.
. See text supra at note 300.
. See text supra at note 299.
. See text supra at note 285.
. See Part III(B), supra, at notes 96-111.
. “Each carrier subject to the Commission shall keep such accounts, records,
. While “[a] 11 rules, regulations, orders” and “decisions” of PUC, and “[a] 11” “other action prescribed” by it, survived the Commission’s succession until changed, id. § 21, there is no showing that PUC ever acted formally on the matter under discussion or that, if it did the Commission ever rested its own action thereon.
. See text supra at notes S9-111.
. Regulation 61, which we discuss in No. 23,720, Bebchick v. Washington Metropolitan Area Transit Comm’n, supra note 3, and No. 24,398, Democratic Cent. Comm. v. Washington Metropolitan Area Transit Comm’n, supra note 3, in connection with issues raised in those cases. That regulation, treating as it does gains on depreciable assets, has no direct applicability to the issue involved in the instant case.
. See D.C. Transit Sys., Inc. (Order No. 1090), supra note 64, 85 P.U.R.3d at 513-14.
. See text supra at note 107.
. See note 305, supra.
. E. g., Burlington Truck Lines v. United States, 371 U.S. 156, 168-169, 83 S.Ct. 239, 9 L.Ed.2d 207 (1962); SEC v. Chenery Corp., 318 U.S. 80, 92-95, 63 S.Ct. 454, 87 L.Ed. 626 (1942); Local 833, UAW v. NLRB, 112 U.S.App.D.C. 107, 112-113, 300 F.2d 699, 704-705, cert. denied, 370 U.S. 911, 82 S.Ct. 1258, 8 L.Ed.2d 405 (1962).
. See text supra at notes 60-64, 96-111.
. See Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 350, 358-359 & n. 86, 415 F.2d at 930, 938-939 & n. 86.
. See In re Republic Light, Heat & Power Co., 265 App.Div. 53, 37 N.Y.S.2d 947, 949 (Sup.Ct.App.Div.1942); New York Edison Co. v. Maltbie, 244 App. Div. 685, 281 N.Y.S. 223, 226 (Sup.Ct.App.Div.1935), aff’d, 271 N.Y. 103, 2 N.E.2d 277, 279 (1936).
. Legislative grants of administrative authority over public utility accounting are designed to meet the informational needs of effective regulation and the public needs of economical rates, particularly as either may be affected by inflationary write-ups or expense padding. American Tel. & Tel. Co. v. United States, 299 U.S. 232, 237, 239, 240, 246, 57 S.Ct. 170, 81 L.Ed. 142 (1936); Norfolk & W. Ry. v. United States, 287 U.S. 134, 140, 53 S.Ct. 52, 77 L.Ed. 218 (1932); Kansas City S. Ry. v. United States, supra note 198, 231 U.S. at 440, 449, 34 S.Ct. 125; ICC v. Goodrich Transit Co., 224 U.S. 194, 211, 216, 32 S.Ct. 436, 56 L.Ed. 729 (1912). Compare United States v. New York Tel. Co., 326 U.S. 638, 66 S.Ct. 393, 90 L.Ed. 371 (1946); Northwestern Elec. Co. v. FPC, 321 U.S. 119, 64 S.Ct. 451, 88 L.Ed. 596 (1944). Supervision of accounting, of course, is due the same respect accorded other administrative action, and “in gauging rationality, regard must steadily be had to the ends that a uniform system of accounts is intended to promote.” American Tel. & Tel. Co. v. United States, supra, 299 U.S. at 237, 57 S.Ct. at 172. Deference to an agency’s treatment of accounting problems reaches its zenith where the issue is one of pure accounting, notwithstanding incidental intrusion upon management prerogatives, see FPC v. East Ohio Gas Co., 338 U.S. 464, 474-476, 70 S.Ct. 266, 94 L.Ed. 268 (1950); United States v. New York Tel. Co., supra, 326 U.S. at 654-655, 66 S.Ct. 393; Northwestern Elec. Co. v. FPC, supra, 321 U.S. at 123-124, 64 S.Ct. 451; American Tel. & Tel. Co. v. United States, supra, 299 U.S. at 236-237, 57 S.Ct. 170; Norfolk & W. Ry. v. United States, supra, 287 U.S. at 141-143, 53 S.Ct. 52; Kansas City S. Ry. v. United States, supra, 231 U.S. at 441, 444, 34 S.Ct. 125, but even those features of agency action may be judicially examined for arbitrariness. Northwestern Elec. Co. v. FPC, supra, 321 U.S. at 124, 64 S.Ct. 451; American Tel. & Tel. Co. v. United States, supra, 299 U.S. at 236-237, 57 S.Ct. 170; Norfolk & W. Ry. v. United States, supra, 287 U.S. at 143, 53 S.Ct. 52; Arkansas Power & Light Co. v. FPC, 87 U.S.App.D.C. 385, 387, 185 F.2d 751, 753 (1950), cert. denied, 341 U.S. 909, 71 S.Ct. 621, 95 LEd. 1346 (1951). See also Kansas City S. Ry. v. United States, supra note 198, 231 U.S. at 452-453, 456-457, 34 S.Ct. 125. A fortiori, judicial responsibility is as grave where the accounting issue draws in substantive relationships of utility and consumers. As this court has specifically held, accounting actions of the very type involved here — those which in effect regulate allocations of value-apjireciations achieved on operating utility assets — may be freely reviewed to enable decision of “questions of law” and determination as to whether the basis for action is “unreasonable arbitrary, or capricious.” D.C. Transit Sys., Inc. v. Public Utils. Comm’n, supra note 51, 110 U.S.App.D.C. at 242, 292 F.2d at 735.
. SEC v. Chenery Corp., supra note 312, 318 U.S. at 87, 63 S.Ct. 454; Bond v. Vance, 117 U.S.App.D.C. 203, 204, 327 F.2d 901, 902 (1964); Local 833, UAW v. NLRB, supra note 312, 112 U.S. App.D.C. at 113, 300 F.2d at 705; NLRB v. Capital Transit Co., 95 U.S.App.D.C. 310, 313, 221 F.2d 864, 867 (1955); Democrat Printing Co. v. FCC, 91 U.S. App.D.C. 72, 77-78, 202 F.2d 298, 302-303 (1952); Mississippi River Fuel Corp. v. FPC, 82 U.S.App.D.C. 208, 224, 163 F.2d 433, 449 (1947).
. See text supra at notes 107-111.
. See text supra at notes 110-111.
. See text supra at Part IV(A).
. See text supra at note 177.
. See Part IV(A), supra, at notes 181-227.
. See Part IV(A), supra, at notes 272-282.
. See Part IV(A), supra, at notes 219-220.
. See Part IV(A), supra, at notes 197-218.
. See Part IV (A), supra, at note 186.
. See Part IV (A), supra, at note 201.
. See Part IV (B), supra, at notes 243-246.
. See Part IV(A), supra, at notes 272-282.
. See Part II(B), supra, at notes 96-111. As we there point out, the Commission’s several pronouncements on that score have never been subjected to judicial review.
. See Part III, supra.
. See text supra at notes 228-229.
. See text supra at notes 264-276.
. See Part IV(B), supra.
. See Part III (A), supra.
. See Part III (A), supra.
. See text supra at notes 257-276.
. See text supra at notes 277-300.
. See text supra at notes 264-276.
. See text supra at notes 260-264.
. See text supra at notes 265-276.
. See text supra at notes 1237-250.
. In referring to the amount of appreciation or gain on the assets while in service, we are speaking of a net figure. The amount which should be credited to the farepayers is not the entire difference between book value and market value of the assets at the time of transfer, but rather that sum minus the taxes and sale expenses which would have been deducted from Transit’s profit if the assets had been sold outright instead of simply being moved into nonoperating status.
We also reject the contention that the right of the farepayers to gains in the value of these properties does not ripen until the properties are sold. Our reasons for holding that the right accrues at the time the assets are removed from operating status are discussed more fully in Bebchick v. Washington Metropolitan Area Transit Comm’n, supra note 3, 158 U.S.App.D.C. at---, 485 F.2d at 858-860 and in Democratic Cent. Comm, v. Washington Metropolitan Area Transit Comm’n, supra note 3, 158 U.S.App.D.C. at - - -, 485 F.2d at 788. It suffices here to point out that the Commission’s own Regulation 61 crediting value-appreciations on depreciable assets to the farepayers specifies this practice, and we see no reason for treating nondepreciable assets differently. See Bebchick v. Washington Metropolitan Area Transit Comm’n, supra note 3, - U.S.App.D.C. at---, 485 F.2d at 860.
. Compare Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 358-359, 415 F.2d at 938-939.
. That is not invariably the situation, however. See text infra at notes 354-355.
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 362, 415 F.2d at 942 (footnote omitted).
. Id. at 362-363, 415 F.2d at 942-943 (footnote omitted).
. Id. at 359, 415 F.2d at 939.
. See text infra at notes 390-403.
. Id. at 359-360, 415 F.2d at 939-940 (footnote omitted).
. Williams v. Washington Metropolitan Area Transit Comm’n. supra note 16, 134 U.S.App.D.C. at 360, 415 F.2d at 940.
. Id. (footnote omitted).
. Id. at 360-361, 415 F.2d at 940-941 quoting Transcontinental & Western Air, Inc. v. CAB, 336 U.S. 601, 605, 69 S.Ct. 756, 93 L.Ed. 911 (1949) (footnotes omitted).
. See D.C. Transit Sys., Inc. (Order No. 882) (WMATC Oct. 29, 1968) (unreported); D.C. Transit Sys., Inc. (Order No. 984), supra note 165; D.C. Transit Sys., Inc. (Order No. 1052), 85 P.U.R.3d 1 (WMATC 1970). There is thus in this case the identical problem we encountered in Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 360, 415 F.2d at 940.
. See text infra at notes 390 — 403.
. Compare Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 360-361, 415 F.2d at 940-941. See also Bebchick v. Public Utils. Comm’n, supra note 185, 115 U.S.App.D.C. at 232-233, 318 F.2d at 203-204; Washington Gas Light Co. v. Baker, 90 U.S.App.D.C. 98, 104-105, 195 F.2d 29, 35 (1951). And see Wisconsin v. FPC, 373 U.S. 294, 304-306, 83 S.Ct. 1266, 10 L.Ed.2d 357 (1963).
. Supra note 16.
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 359-361, 415 F.2d at 939-941. There, as here, in addition to the obstacle of retroactive ratemaking, the orders under review had been superseded by subsequent fare orders. Id. at 360, 415 F.2d at 940.
. Id. at 362, 415 F.2d at 942 (footnote omitted). We added : This conclusion is unaffected by the fact that we do not decide that the fares authorized are unjust or unreasonable as a matter of law. Our role as a reviewing court is not to make an independent determination as to whether fares fixed by the Commission are just and reasonable, but rather to insure that the Commission in exercising its rate-making power, has acted rationally and lawfully.
Id.
. Id. at 362 n. 97, 415 F.2d at 942 n. 97, quoting Arkadelphia Milling Co. v. St. Louis S. W. Ry., 249 U.S. 134, 145, 39 S.Ct. 237, 63 L.Ed. 517 (1919). See also Baltimore & O. R. R. v. United States, 279 U.S. 781, 785-786, 49 S.Ct. 492, 73 L.Ed. 954 (1929); Atlantic Coast Line R. R. v. Florida, 295 U.S. 301, 309, 55 S.Ct. 713, 79 L.Ed. 1451 (1935).
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 362 n. 97, 415 F.2d at 942 n. 97. This was well established long prior to Williams. See United Gas Pipe Line Co. v. Mobile Gas Co., 350 U.S. 332, 347, 76 S.Ct. 373, 100 L.Ed. 373 (1956); Atlantic Coast Line R. R. v. Florida, supra note 360, 295 U.S. at 309-311, 55 S.Ct. 713; Bebchick v. Public Utils. Comm’n, supra note 185, 115 U.S.App.D.C. at 218-219, 232-233, 318 F.2d at 189-190, 203-204; Washington Gas Light Co. v. Baker, supra note 128, 88 U.S.App.D.C. at 127, 188 F.2d at 23.
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 363, 415 F.2d at 943 (footnote omitted). As we added there, “[t]his is so notwithstanding that we have held neither that the Commission lacked power to order a fare increase, nor even that the fares authorized are, as a matter of law, unjust or unreasonable.” Id. (footnote omitted). See also note 359, supra.
. See text supra at notes 345-356.
. See text supra at notes 345-348.
. See eases cited supra note 361. This is not to say that the court cannot utilize the administrative expertise of the agency to assist the discharge of the judicial function. Indeed, we do so in this very case. See text infra at notes 377-387.
. Atlantic Coast Line R. R. v. Florida, supra note 360, 295 U.S. at 309, 55 S.Ct. 713; Restatement of Restitution § 142, comment a at 568 (1937).
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 364, 415 F.2d at 944 (footnote omitted).
. Id., quoting Atlantic Coast Line R. R. v. Florida, supra note 360, 295 U.S. at 310, 55 S.Ct. 713.
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 364, 415 F.2d at 944 (footnote omitted).
. See Bebchick v. Public Utils. Comm’n, supra note 185, 115 U.S.App.D.C. at 232-233, 318 F.2d at 203-204; Washington Gas Light Co. v. Baker, supra note 128, 88 U.S.App.D.C. at 127, 188 F.2d at 23.
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 364, 415 F.2d at 944 (footnote omitted), quoting Atlantic Coast Line R. R. v. Florida, supra note 360, 295 U.S. at 310, 55 S.Ct. 713.
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. 364 n. 106, 415 F.2d at 944 n. 106, quoting Restatement of Restitution, ch. 8 at 596 (1937).
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 364, 415 F.2d at 944 (footnote omitted). As we put it there, “[t]he exercise of such an equitable discretion by this court is by no means an usurpation of the administrative powers of the Commission nor is it an arbitrary extension of judicial authority; it is ‘mere inaction and passivity in line with the historic attitude of courts of equity
. Id.
. Id.
. Id. at 364 n. 106, 415 F.2d at 944 n. 106. “The right of a person to restitution from another because of a benefit received is terminated or diminished if, after the receipt of the benefit, circumstances have so changed that it would be inequitable to require the other to make full restitution.” Restatement of Restitution § 142(1) (1937).
. See text supra at notes 357-365.
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 361-366, 415 F.2d at 941-946.
. Compact, supra note 12, tit. II, art. XII, § 17.
. AVhen our authority to review a Commission order is properly invoked, we have “exclusive jurisdiction to modify . . . such order.” Compact, supra note 12, tit. II, art. XII § 17(a). And see Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 361-366, 415 F.2d at 941-946.
. See, e. g., In re Peterson, 253 U.S. 300, 312-314, 40 S.Ct. 543, 64 L.Ed. 919 (1920). And when “the public interest is involved . . . equitable powers assume an even broader and more flexible character than when only a private controversy is at stake.” Porter v. Warner Holding Co., 328 U.S. 395, 398, 66 S.Ct. 1086, 1089, 90 L.Ed. 1332 (1946).
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 366, 415 F.2d at 946.
. Id.
. An available alternative is a reference to a master for aid in working out the amount and details of restitution. See In re Peterson, supra note 381, 253 U.S. at 312-314, 40 S.Ct. 543. See also NLRB v. Arcade-Sunshine Co., 76 U.S.App.D.C.
. Bethlehem Steel Corp. v. Grace Line, 135 U.S.App.D.C. 81, 93, 416 F.2d 1096, 1108 (1969), quoting United States v. Morgan, 313 U.S. 409, 422, 61 S.Ct. 999, 85 L.Ed. 1429 (1941). See also United States v. Ruzicka, 329 U.S. 287, 295, 67 S.Ct. 207, 91 L.Ed. 290 (1946); S. S. W., Inc. v. Air Transport Ass’n, 89 U.S. App.D.C. 273, 280, 191 F.2d 658, 664 (1951), cert. denied, 343 U.S. 955, 72 S.Ct. 1049, 96 L.Ed. 1355 (1952).
. Bethlehem Steel Corp. v. Grace Lines, supra note 385, 135 U.S.App.D.C. at 93, 416 F.2d at 1108. There we directed a court to stay a pending controversy to permit its consideration by an administrative agency, the agency’s determination to play an advisory role in the court’s resolution of the controversy. Id. at 91-94. 416 F.2d at 1106-1109. See also, e. g., Order of Ry. Conductors v. Pitney, 326 U.S. 561, 567-568, 66 S.Ct. 322, 90 L.Ed. 318 (1946); Atchison T. & S. F. Ry v. Aircoach Transp. Ass’n, 102 U.S.App.D.C. 355, 363-364, 253 F.2d 877, 885-886 (1958); Capital Transit Co. v. Safeway Trails, Inc., 92 U.S.App.D.C. 20, 23, 201 F.2d 708, 711 (1953).
. Williams v. Washington Metropolitan Area Transit Comm’n, supra note 16, 134 U.S.App.D.C. at 361-366, 396-397, 415 F.2d 941-946, 976-977. See also Washington Gas Light Co. v. Baker, supra note 356, 90 U.S.App.D.C. at 104-105, 195 F.2d at 35.
. See note 16, supra.
. See text supra at notes 351-356.
. See text infra at notes 394-403.
. See text infra at notes 394-403. Our decision today in Bebcbiek v. Washington Metropolitan Area Transit Comm’n, supra note 3, disposes of part of the gain from the transfer of Transit’s depreciable assets below the line by requiring that $252,688 of that gain be credited to Transit’s riders’ fund. See Bebchick v. Washington Metropolitan Area Transit Comm’n, supra note 3, Part VI at note 173.
. See note 394, infra.
. Pub.L. No. 92-517, 86 Stat. 999 (1972). See text infra at notes 394-403.
. The Act gave congressional consent to amendments to the Compact, supra note 12, empowering the Washington Metropolitan Area Transit Authority to “acquire the capital stock or transit facilities of any private transit company” and to “perform transit service . . . with transit facilities so acquired. . . .” § 101(a)(1), 86 Stat. 1000 (1972).
. See text supra at notes 366-376.
. National Capital Area Transit Act of 1972, § 102(b), 86 Stat. 1001 (1972).
. The National Capital Area Transit Act of 1972, § 102(d), 86 Stat. 1001 (1972), provides that Transit “may . continue to exist as” a District of Columbia Corporation and that “[n]othing in this Act shall be construed so as to cause or require the corporate dissolution of” Transit.
. It is well-settled that a cause of action in restitution is not terminated by the death of the transferor of the benefit or by the death of the recipient of it. Restatement of Restitution § 149(a) (1937). Applying this principle to the corporate “person” here, it is clear that Transit’s restitutional obligations will survive the demise of its operating franchise.
. This follows from the Transit Authority Compact, supra note 12, which in art. XI, § 51, directs the Washington Metropolitan Area Transit Authority (Authority) to provide for the performance of transit service, with facilities owned or controlled by it, by contract with private ■ transit companies, railroads or other persons; and in art. XIII, § 60, confers upon the Authority’s board of directors exclusive jurisdiction to fix the rates and fares to be charged for service performed by transit facilities owned or controlled by the Authority, and provides that the Commission “shall have no authority with respect thereto, or with respect to any contractor in connection with the operation by it of transit facilities owned or controlled by the Authority.”
. The Transit Authority Compact, supra note 12, in art. XIII, § 59, provides that
. See text supra at notes 351-356.
. See text supra at notes 366-376.
. Perhaps unnecessarily, but out of an abundance of precaution, we point out that the takeover pursuant to the National Capital Area Transit Act of 1972 does not moot the issues which the proceedings on remand, and thereafter in this court, contemplate. AVhile any question as to the continuing operability of an unsuperseded fare order might become moot at the point of takeover — a matter on which we express no opinion — no such question arises in this case. Order No. 773 has long since been displaced by later fare orders. See note 354, supra, and accompanying text. AYe have held that Order No. 773 is invalid and that it never had a valid operation. See text supra at notes 351-356. AYe reiterate that rights and liabilities were generated during the past era of the order’s actual operation, the amounts of which await precise determination. See text supra at notes 366-376. The issues in that regard are not moot. See Southern Pac. Co. v. ICO, 219 U.S. 433, 452, 31 S.Ct. 288, 55 L.Ed.2d 283 (1911); Curcio v. United States, 354 U.S. 118, 127-128 n, 7, 77 S.Ct. 1145, 1 L.Ed.2d 1225 (1957); Bebchick v. Public Serv. Comm’n, supra note 185, 115 U.S.App.D.C. at 218-219, 318 F.2d at 189-190; Associated Press v. FCC, 146 U.S.App.D.C. 361, 365 n. 29, 452 F.2d 1290, 1294 n. 29 (1971). Moreover, there are also special funds, including one in this very case, which have been set up under Commission control for purposes that remain unfulfilled. See, e. g., Bebchick v. Washington Metropolitan Area Transit Comm’n, supra note 3; D.C. Transit Sys., Inc. (Order No. 1052), supra note 354, 85 P.U.R.3d at 13; D.C. Transit Sys., Inc. (Order No. 773), supra note 311, 72 P.U.R.3d at 133-134. See also D.C. Transit Sys., Inc. (Order No. 952), supra note 211. The question of disposition of those funds — which the exigencies of restitution could affect — is not moot. Market Street Ry. v. Railroad Comm’n, 324 U.S. 548, 553, 65 S.Ct. 770, 89 L.Ed. 1171 (1945). In sum, the need to resolve these problems keeps this litigation very much alive for the further proceedings this opinion envisions.
Concurrence in Part
concurring in part and dissenting in part:
I. Summary and Introduction
The foregoing opinion addresses the question of whether the difference in fair market value oyer book value of certain parcels of real property including both depreciable (buildings and equipment) and nondepreciable (land) segments, which had appreciated in value during their inservice life, should inure to the benefit of the farepayers or to the benefit of the investors of Transit in the ratemaking decision, when transferred from operating (“above the line”) to non-operating investment status (“below the line”). The question arises on review of Order No. 773 in which the WMATC (“Commission”) ordered a fare increase without consideration of the transfer of these appreciated properties. The majority concludes that this constituted error and accordingly sets aside the order.
The initial question of whether such transfers from operating to non-operating status give rise to any cognizable gain in the ratemaking decision is resolved in the companion opinion — Bebchick v. WMATC, No. 23,720, at Part III, 158 U.S.App.D.C. _, 485 F.2d 868 (hereinafter Bebchick). The conclusion reached therein is that the transfer of the properties from above to below the line resulted in ratemaking consequences identical to those of an outright sale of the same assets. While in a different context and for different purposes such treatment would raise serious questions, I accept it for our present purposes.
In considering the competing claims of Transit’s investors and consumers for the benefits derived from these transfers, the majority concludes that the fare-payers have the superior claim in all instances. It is my view, with respect to the depreciable properties, that the majority is on solid ground in awarding the gain to the farepayers, at least to the extent of the depreciation reserves that are maintained in respect of the property.
While the majority admits that a risk of loss analysis is inapplicable here due to the inevitable appreciation of urban land values, it blithely concludes without close analysis that the rules which place the risk of loss on farepayers as to depreciable property are equally applicable to nondepreciable assets. I would like to disassociate myself from such dangerous dicta and will attempt to point out the flaws in the majority’s reasoning. There is a rational basis upon which to distinguish between depreciable and nondepreciable assets in this context and the Commission’s application of an accounting practice which reflects this should be upheld.
Aside from the risk of capital loss, the other principal reason the majority advances for its conclusion with respect to the land is a basic feeling that the equities of the situation, in light of the history and circumstances of Transit and its acquisition of the properties in question, require any “loose gains” coming into the company to be credited to the consumers. This the majority frames in terms of the rule “benefit follows burden,”
Most vital of these equities in the majority opinion is the fact that the land was intimately related to the conversion program from a street railway to an all-bus operation, and, since the extraordinary conversion costs were borne by the farepayers, any extraordinary gain resulting therefrom should benefit the farepayers and go toward alleviating their conversion burdens.
The underlying basis for the majority’s equitable approach is- that in light of the demise of the “fair value” theory of ratemaking
II. Nondepreciable assets
A. The example of depreciable assets
Much of the rationale behind the majority’s view that the consumers would be liable for any capital loss on the land and therefore be entitled to any gains is derived by analogy to its analysis of the depreciable assets.
There is a respectable amount of authority both inside and outside this jurisdiction which supports the majority’s disposition of the depreciable assets. The basic notion is that since the farepayers must make good the shareholders’ investment on depreciable properties through the depreciation reserve, and bear the risk of loss through obsolescence in that they must make up for the underdepreeiated cost of any prematurely retired asset, if the asset should be sold for a profit they equitably should benefit at least to that extent. If it is sold for less than book value they must make up the difference between that amount and the accumulated depreciation to date. Therefore, the reasoning goes, if it is sold at a profit it is only equitable that he who bears the risk of loss should similarly reap the gain.
The fundamental premise of this principle is that the farepayers do in fact bear the risk of loss of obsolescence. In Washington Gas Light Co. v. Baker, 88 U.S.App.D.C. 115, 188 F.2d 11 (1950), cert. denied, 340 U.S. 952, 71 S.Ct. 571, 95 L.Ed. 686 (1951), this court adopted this view and held, with respect to depreciable properties, that the farepayers may be charged with the unrecovered cost
When the retirement of the assets has resulted in a gain, a number of courts outside this jurisdiction have credited the gain to the depreciation reserve to offset the farepayers’ burden of making good the investors’ unreeovered costs,
Thus with regard to depreciable properties the approach adopted by the majority is well-supported and equitable but this does not justify a procrustean attempt to force nondepreciable assets into the same mold.
B. Nondepreciable assets
1. Risk of capital loss
a. Precedents
Within the District, a number of administrative decisions have uniformly held to the contrary of the analysis adopted by the majority. This is admitted by the majority
Within the District, the issue has been mentioned in administrative opinions but we have never directly considered it.
While the ratepayers may have a claim to the depreciable property, at least to the extent of the depreciation reserved, no such claim can he directed to land.
48 P.U.R.3d at 399 (emphasis added).
If land becomes of no further use and is disposed of at a profit, the investor is entitled to the profit; or, if at a loss, the investor must suffer the loss.
Id. at 400.
Outside this jurisdiction, I agree with the majority
Profit made from the sale of non-depreciable land no longer used in serving customers is not an ingredient to be considered in fixing rates. The customers had no interest in the profit realized on the sale — it belonged to the stockholder.
Therefore, while it is clear that the majority is correct in reading these cases as standing for “the broader principle that the benefit of a capital gain follows the risk of capital loss.”
b. Who in fact bears the risk of loss?
(1) The Commission’s pronouncements
It is clear that under the Commission’s Uniform System of Accounts, land is treated as a nondepreciable asset and any gain or loss is a risk not of the fare-payers, but of the investors.
It is reasonable to adopt such an accounting method and as such it is beyond our power to overturn it, especially in light of consistent Commission adherence thereto. The Commission (as is usual with most regulatory agencies) has express statutory authority to establish uniform accounting rules
The reasonableness of a system of accounting which treats land as nondepreciable seems manifest. Land does not wear out in the conventional sense of buildings and equipment. Neither it is a wasting asset such as resources subject to depletion allowances. Moreover while there obviously may be exceptions, as a general rule it is extremely unlikely that the fair market’ value of land in metropolitan areas would decrease below
(2) Criticism of the majority’s conclusion in this regard
How then does the majority arrive at the conclusion that the risk of loss on land dispositions is borne by the fare-payers? The answer is not completely clear,
The majority repeatedly speaks of “obsolescence and declining markets” with respect to land.
The majority does conclude that even though this analysis would support an award of the gains to the farepayers if there were a palpable risk of declining markets, that risk is not present here.
Moreover, the majority does not even maintain internal consistency. Even while disclaiming any reliance on “risk of capital loss” as to land in this case due to the inevitability of land value appreciation,
2. Equities
Since notions of risk of loss cannot and do not support the majority’s disposition of the gains from land, what other grounds are advanced in the opinion? The second and controlling “doctrinal consideration” in the majority opinion is termed “economic benefit follows economic burden”. The makeup of these “burdens” is crucial. A large part of this consists of enumerating the various equities of the farepayers in light of the history and circumstances of Transit.
a. Conversion-relationship
Running all through the opinion is a basic equitable notion that gains on properties which are intimately related to the conversion to an all-bus system undertaken by Transit as a condition of its charter, should inure to the consumers who are bearing the enormous costs of the conversion program. It is undis
(1) Precedents
This concept is derived from cases in this jurisdiction indicating that with respect to depreciable properties for which obsolescence losses are incurred due to the conversion, consumers should be allowed to share equitably in the proceeds on disposition. How this principle developed and to what extent it is applicable here requires a close analysis of the cases in which it has appeared.
It first arose in D.C. Transit Sys., Inc., (Order No. 4577) 30 P.U.R.3d 405 (D.C.Pub.Utils.Comm’n 1959). In that case there were profits on the sale of conversion-related properties over and above the depreciable cost of the assets.
Nevertheless, this approach was later cited by this court sitting en banc as a valid method of determining when gains
On remand, however, the Commission further clouded the question. After determining that the property in question was not conversion related (which would have settled the issue) it continued:
Therefore, the ratepayer is not entitled to share in any portion of the proceeds of that sale, unless there was a profit on the depreciable portion of the asset sold. There was none in this case.
D.C. Transit Sys., Inc., (Order No. 563), 63 P.U.R.3d 32, 33-34 (WMATC 1966). This is confusing in that the Commission seemed to say in a casual manner that if the sufficient conversion-relationship were shown, the farepayers would have a right to the profit on nondepreciable assets — a principle it has never accepted. It is correct in that fare-payers are entitled to profits on depre-' eiable properties to some extent regardless of the conversion relationship. And since there was none here, farepayers are not entitled to any portion of the proceeds of the sale. The tricky word is “therefore” and it must be concluded that this is merely ill-considered loose language on the part of the Commission.
The principle boils down to this: fare-payers may get the gains on depreciable properties in all situations on that particular asset up to the depreciation reserve, but gain over and above that
(2) “Over and above” gains on . depreciable assets
This raises the difficult question of whether farepayers should automatically be entitled to these “over and above” gains. The majority maintains at footnote 227 (last two sentences) that because the farepayers bore the risk of loss up to the total cost of the asset, equitably they should receive the total gain. Since the investors are assured protection of their investment, the majority argues, they have no equitable claim to any gain. However, the better analysis seems to be that the farepayers must undertake in all situations to make good the original cost of the asset to the investors because it is assumed that the asset will be consumed in the business and its value dwindle to the point of salvage. This was the expectation in setting up the depreciation schedule and in estimating the useful life of the asset. When these calculations go awry and the
(3) Analysis of the majority’s use of the concept of conversion-relationship with respect to the land
How then does the majority employ the notion of conversion relationship? While at times the majority uses it only as another equitable factor (a role I deem appropriate), at other times it appears to be a dispositive legal consideration. See supra, at 818. I would simply like to clarify the point that language in our past opinions dealing with conversion relationship has referred solely to depreciable properties, and, as discussed above, there is indisputably a rational basis for distinguishing nondepreciable property in this context.
(4) Summary
Therefore, to summarize the precedents insofar as they address this issue, on close analysis, the method appears to be this: if depreciable property is sold at a gain, those gains belong to the farepayers up to the point of the depreciation reserve of the asset. If there remains any gain over and above that figure, it must be determined whether these properties in question were disposed of as part of the conversion program. If so, then the other equities are examined to balance the relative interests of the public and the consumers. Thus the depreciable nature of the property is an essential prerequisite to any conversion-relationship analysis; and in turn, a conversion-relationship is a necessary predicate to any balancing of the equities. In no way is there any precedential support for applying either a conversion-relationship analysis or a balancing of the equities to nondepreciable
b. Other equitable considerations
It is indisputable that the equitable considerations involved in this case preponderate in favor of the farepayers. They have been required to bear the burden of over $10 million in track removal and repaving as well as the $5 million underdepreciated cost of the tracks and streetcars. Moreover, the fact that the conversion program borne by the farepayers freed these parcels of real estate to be disposed of at a profit by the investors is a very compelling equitable consideration.
I must note briefly however, that some dispute can be taken with some of the specific factors in the majority opinion. For example, some of the factors cited as benefiting the investors, such as Transit’s virtual monopoly position (supra at 815), its preferred tax treatment (supra at 820), its changeover to an operating ration system of fixing a fair
c. Resurrection of “risk of capital loss” under the topic heading of “burdens”
As conceded above, a large part of these “burdens” consist of various equitable factors which weigh generally in favor of the farepayers. However, it seems that an equally large part of the majority’s rationale in this “benefit/burden” section is nothing more than a restatement of the erroneous principle that farepayers are entitled to capital gains because of the obsolescence risk of capital loss — i.e., the first of the majority’s two controlling principles. While supposedly discarding that factor for the purposes of this case,
C. The critical inquiry.
As to the central issue, I find myself in agreement with the majority. The statement that “ [accounting directives . . must survive the test of rationality” (text accompanying note 316, supra) precisely frames the question as I would desire. Clearly then our difference centers around whether the majority’s “equities” are sufficient to render the Commission’s actions irrational, arbitrary and capricious.
To be sure, there is no question that the Commission is not bound by traditional concepts of private enterprise and private property in its treatment of various transactions — at least not by any constitutional considerations. The cases rejecting the fair value theory of rate base and depreciation
Yet while such an approach may be constitutionally valid and would undoubtedly be upheld had the agency in fact adopted it, we are not faced with such a situation nor are we operating in a vacuum. There enters another very powerful judicial doctrine — that of deference to agency adherence to rules promulgated under statutory authority unless arbitrary and capricious. Again the ultimate question is whether the equities of the situation are so overwhelming that we can say that the Commission’s adherence to its Uniform System of Accounts and its uniform administrative pronouncements was clearly arbitrary and capricious under the circumstances. It is my conclusion that the Commission’s actions were reasonable enough to withstand attack on review. It is true that a system of accounting which is unreasonable may be overturned by this court, yet I cannot agree that because of the equities in this case, the traditional manner of accounting employed here is such a departure from economic realities as to warrant a finding of arbitrariness. Clearly if the Commission were to adopt an accounting procedure like that employed in N.Y. Water Service
It is clear that the majority gives very little deference to the applicable ac
This court is not at liberty to substitute its own discretion for that of administrative officers who have kept within the bounds of their administrative powers. To show that these have been exceeded in the field of action here involved, it is not enough that the prescribed system of accounts shall appear to be unwise or burdensome or inferior to another. Error, or unwisdom is not equivalent to abuse. What has been ordered must appear to be “so entirely at odds with fundamental principles of correct accounting” (Kansas City Southern Ry. Co. v. United States, 231 U.S. 423, 444, [34 S.Ct. 125, 58 L.Ed. 296]) as to be the expression of a whim rather than an exercise of judgment. Norfolk & Western Ry. Co. v. United States, 287 U.S. 134, 141 [53 S.Ct. 52, 77 L.Ed. 218]; Kansas City Southern Ry. Co. v. United States, supra, [231 U.S.] p. 456, [34 S.Ct. 125, 58 L.Ed. 296].
American Telephone & Telegraph Co. v. United States, 299 U.S. 232, 236-237, 57 S.Ct. 170, 172, 81 L.Ed. 142 (1936) (emphasis added). See also, Northwestern Electric Co. v. FPC, 321 U.S. 119, 124, 64 S.Ct. 451, 454, 88 L.Ed. 596 (1944) (emphasis added):
Although . . . the Commission’s prescribed method of eliminating the write-up may not accord with the best accounting practice, it is sustained by expert evidence. It is not for us to determine what is the better practice so long as the Commission has not plainly adopted an obviously arbitrary plan, [footnotes omitted].
See also, D.C. Transit Sys., Inc. v. PUC, 110 U.S.App.D.C. 241, 242, 292 F.2d 734, 735 (1961); Arkansas Power & Light Co. v. FPC, 87 U.S.App.D.C. 385, 185 F.2d 751 (1950); Alabama Power Co. v. FPC, 75 U.S.App.D.C. 315, 128 F.2d 280, cert. denied, 317 U.S. 652, 63 S.Ct. 48, 87 L.Ed. 525 (1942); Pacific Power & Light Co. v. FPC, 141 F.2d 602 (9th Cir. 1944); Pennsylvania Power & Light Co. v. FPC, 139 F.2d 445 (3d Cir. 1943), cert. denied, 321 U.S. 798, 64 S.Ct. 938, 88 L.Ed. 1086 (1944). To dismiss such an established and sound principle of law so cavalierly is wholly unjustifiable.
I repeat, the majority accords no deference to consistent administrative adherence to widely accepted established accounting procedures — themselves a product of careful policy judgments. It would rather consider each situation individually on the basis of the equities. This effectively injects our court into the regulatory process without benefit of expertise and creates an environment in which we are allowed to give free reign to our equitable inclinations on each factual situation without the restraining parameters of an orderly accounting system. This violates fundamental notions of administrative law and the role of the judiciary.
Brief mention is required as to the majority’s claim that it has been cited to no operative accounting rule on the issue at hand. This selective blindness is dif
(2) As to non-depreciable property, that is property for which no depreciation charge is assessed against the ratepayer, a different result ensues. In this case, the property is merely removed from the rate base at original cost. If there is a gain, that is if the fair market value exceeds original cost, or if there is a loss, there is a credit or charge made to retained earnings, so that the investor receives the full benefit of any gain and the full detriment of any loss.
Depreciable property is a capital item which the investor has put into service which, while it remains in service, is wearing out. As it wears out and thus its value is reduced, the ratepayer reimburses the investor for the reduced value through a depreciation charge which is set to reflect the rate at which the property is assumed to be wearing out. At the time of transfer, the amount of the accumulated depreciation is deducted from the original cost to determine the unrecovered cost. If the fair market value exceeds the unrecovered cost, there is a gain in that amount, and it is fair that the gain be credited to the ratepayer up to the amount he contributed in depreciation charges for that property. At the same time, if the gain exceeds the amount needed to repay the ratepayer in full, it seems equitable that the investor receive that surplus.
With respect to non-depreciable property, on the other hand, since the ratepayer makes no contribution to the capital cost, he shares none of the profit if a profit is indicated when the property is taken out of service. The investor has provided the capital to acquire the property and the ratepayer in no way thereafter has provided reimbursement to the investor for that capital outlay, as he has through depreciation charges on depreciable property. While nondepreciable property is in service, the ratepayer pays maintenance .and taxes on the property, which expenses are regarded as legitimate operating expenses; but they do not represent a contribution to the capital cost. That cost is borne by the investor; thus, when the nondepreciable property is removed from service, it is equitable that any gain in value over original cost be passed on to the investor.
Respondent’s Br. 9-11 (emphasis added). Now is this a failure to cite to us the Commission’s Uniform System of Accounts as the majority contends? Is it defective because no section numbers or quotations appear? Or does the majority simply assume that the Commission has lied to us? I think such an assumption wholly unjustified and improper to say the least. Moreover, this cannot be a “post hoc rationalization” since, as the majority admits,
And even were there no clear Uniform System of Accounts provision on this issue, my position would be precisely the same. The policy of deference to consistently applied agency procedures and practices in areas of its expertise and authority is well established and incontrovertible. No such deference has even momentarily given the majority pause in its zeal to deal with the issue de novo.
Finally, if a close conversion relationship in conjunction with the other equities favoring the farepayers did serve to render the Commission’s accounting' practices and administrative decisions manifestly unreasonable and arbitrary, there would be insufficient support for this result as to the wowrelated nondepreciable properties. The fact that the conversion program, the cost of which was borne by the farepayers, was the sine qua non of the gains realized by the investors on the related properties is a strong and appealing equitable factor. And, when joined with the other equitable considerations weighing in favor of the farepayers, I can certainly sympathize if not concur with, the notion that this renders the Commission’s accounting procedures unreasonable. However, where the factor of conversion-relationship is absent, it seems clear that it cannot conceivably be said that the general equities alone reach the “critical mass” necessary to a finding of “arbitrary and capricious.”
I thus dissent as to all the land (both related and nonrelated to the conversion) and, while concurring in the result as to the depreciable properties, would like to make clear my view that the “over and above” gains should not be considered as inexorably belonging to the investors.
. Throughout this opinion, when reference is made to the farepayers’ right to receive gains to the extent of the “depreciation reserves,” it is assumed that any depreciation deficiency due on the asset because of its premature retirement is first elimmated and the investors are compensated to that extent. See also, note 39, infra.
. See Part II B 2 a (2), infra at 840.
. See Part II B 2, infra at 838.
. Supra at 808. As discussed in my Part II B 2 c, infra at 843, this is to a considerable extent merely a restatement of the majority’s risk of capital loss analysis. The better basis for its equity balancing method is the demise of the fair value system as discussed in Part III of the majority opinion, supra.
. For discussion of this conversion-relationship notion, see Part II B 2 a, infra at 838.
. See Part II O infra at 844.
. See Part II O, infra and Part II of the majority’s opinion, supra.
. That is, the figure used in fixing the rates is the original cost of the asset rather than the appreciated value thereof.
. The method the court adopted to “charge” the farepayers was to leave the retired asset in the rate base thus increasing the return to the investors at the farepayers’ expense. Under normal circumstances assets not “used and useful” in the company’s operations are not included in the rate base.
. The two ways in which investors could have been already compensated for the risk are: (1) if through any accounting method (such as amortization) the investors have already been compensated; and (2) if the investor has been compensated by a higher rate of return because of assuming the risk. Minneapolis Street Ry. v. Minneapolis, 251 Minn. 43, 86 N.W.2d 657, 668 (1957).
. The method adopted by the court here for putting the loss on the farepayers was slightly different than in Baker. Cf. note 9, supra. The retired asset was not included in the rate base, but the company sought to amortize the loss over a 10-year period as an operating expense. “But in both cases [Baker and Minneapolis] the fundamental issue is whether the consumer or the investor will bear the loss.” 86 N.W.2d at 667.
. In re Revision in Rates Filed by Plainfield-Union Water Co., 57 N.J.Super. 158, 154 A.2d 201, 205, 211 (1959); Minneapolis-Street Ry. Co., 31 P.U.R.3d 141 (Minn. Ry. & Warehouse Comm’n 1959); Wyoming Gas Co., 40 P.U.R.3d 509 (Wyo. Pub. Serv. Comm’n 1961).
. However, special circumstances dictated a sharing between consumers and investors. We affirmed in D. C. Transit Sys., Inc. v. P. U. C., 110 U.S.App.D.C. 241, 292 F.2d 734 (1961). See discussion infra, Part II B 2 a (2) at 840.
. See text accompanying note 55 supra, and further discussion infra, Part II B 2 a at 838.
. Supra at 798.
. Aside from the cases discussed infra, the petitioners loosely cite Baker and Minneapolis, supra note 11 (petitioners’ brief at 18), for their position on the land. However, as effectively pointed out in Respondent’s brief (at 12-13) these cases dealt only with depreciable properties (l)lant and equipment) and have no ax>idicability to nondepreciable real estate.
. The majority correctly states that none of our decisions upholding Commission orders can be interpreted as a decision on the merits of this issue.
. The Commission’s reasoning was correct simply Iecause land is nondepreciable.
. It is true that the Commission cited Board of Pub. Util. Comm’rs v. New York Tel. Co., 271 U.S. 23, 32, 46 S.Ct. 363, 70 L.Ed. 808 (1926) in support of this analysis. While the majority’s criticism of that case as standing for this proposition has my concurrence, see note 82 supra, it nevertheless appears that the Commission is correct and for reasons discussed infra that its conclusion can stand despite this faulty premise.
. Supra at 798.
. The Kentucky agency had adopted a system of accounts providing for the charging of losses and for the crediting of profits on land sales, not to consumers, but rather to the utility’s earned surplus account. 458 S.W.2d at 779.
. And note especially that this system was adopted in spite of the fact that Priest lists Kentucky as an original cost jurisdiction. 1 A. Priest, Principles of Public Utility Regulation 145-146 (1969). This figures importantly in evaluating the “fair value” analysis of the majority at Part III supra. See, Part II O infra. Such accounting procedures are in fact compatible with original cost doctrines such as, prevail in our jurisdiction.
. Supra at 798.
. “If land becomes of no further use and is disposed of at a profit, the investor is entitled to the profit; or, if sold at a loss, the investor must suffer the loss.” D.C. Transit Sys., Inc. (Order No. 245) 48 P.U.R.3d 385, 400 (WMATC 1963).
. A system which allowed for “depreciating” land and charging the depreciation to the farepayers was apparently permissible in Columbus Gas & Fuel Co. v. Pub. Util. Comm’n of Ohio, 292 U.S. 398, 410-411, 54 S.Ct. 763, 78 L.Ed. 1327 (1934).
. Under the old PUC, the Code so provided. 43 D.C.Code §§ 309, 310, 314 (1951); see D.C. Transit Sys., Inc. v. P.U.C., supra note 13.
. This is also observed in today’s companion cases Nos. 23,720 and 24,398.
. Text accompanying note 330, supra.
. Supra at 798.
. The majority refers to both depreciable and nondepreciable assets in the same breath with respect to risk of loss. See, e. g., supra at 809-811. However, on analysis, the only real threat of loss claimed by the majority as to land is declining market value due to obsolescence.
. See e. g., supra at 807-808, 810-811.
. See supra at 834-836.
. The identical cases are cited for both nondepreciable and depreciable assets. Compare note 194 with note 192 supra.
. On the other hand, the argument can always be made that just because most land values have consistently risen in our times, that does not mean they will invariably continue to do so. And there are conceivable hypothetical situations in which, for example, certain easements useful and valuable while in service, become totally worthless when transferred to nonoperating status (e. g., track easements down the center of a street).
. I find it inapplicable on more fundamental grounds.
. See, e. g., text accompanying notes 325, 327, supra; see also Part II B 2 c, infra at 843.
. See Part II B 2 c, infra at 843.
. But see Id. An equally large part consists of a restatement of the first “doctrinal consideration.”
. Throughout this opinion, the term “over and above” gains will be used to refer to gains realized on the disposition (or transfer below the line) of a depreciable asset, over and above the depreciation reserves (that amount contributed by the fare-payers toward the depreciation of the asset) and assumes that any depreciation deficiency due to premature retirement of the asset is also covered by the gains. Thus it is profit over and above the total original depreciable cost of the asset.
. In ordering Transit to allocate the proceeds of the sale in the manner described, the .PUG declared:
“In light of the franchise of the company requiring a gradual program of conversion from railway to bus operations over a 7-year period from July 24, 1956, we are unable to disassociate the instant transaction from the imminent retirement of all rail property under the mandate contained in the franchise. We cannot ignore the probability that full provision for depreciation will not have been provided when the rail facilities are abandoned and retired by reason of conversion. The company has consistently taken the position that any retirement loss in this connection should be recovered by charges against the customers, and the staff has heretofore indicated its agreement. However, if the customers are to be required to bear the burden of extraordinary retirement losses incident co the whole conversion program, it appears equitable that they should share, at least to some extent, in extraordinary retirement gains of the nature here under consideration.”
D.C. Transit Sys., Inc., 30 P.U.R.3d 405, 412 (D.C.Pub.Utils. Comm’n 1959).
. The asset, the “Georgia & Eastern Terminal,” apparently consisted of land and structures and thus had both depreciable and nondepreciable components. The discussion in this case, dealt only with the depreciable segments.
. See note 39, supra.
. For non-conversion-related equities, see Part IIB 2 b, infra at 842.
. See supra at 836-838.
. It is recognized that these nonrelated nondepreciable properties represent a very small portion of the assets involved.
. In this regard it is also noteworthy that the farepayers must bear the cost of maintenance on the properties while in operating status.
. At the time of acquisition the assets were valued on Capital’s books at approximately $23.8 million. Transit’s purchase price was about $13.5 million — but the investors had to make up the $10 million difference through the acquisition adjustment account as described in the majority opinion. However, the market value of the assets was apparently somewhat higher, exactly how much higher being a debatable point. See majority opinion, supra at n. 11. It should be noted that technically Capital was acquired by Transit through a purchase of stock. Text accompanying note 257, supra. The majority consistently fails to make a distinction between acquisition by purchase of the assets and by purchase of stock. See, e. g., supra at 812. It would have been more precise to maintain this distinction between the two methods, especially since it partially explains the purchase price below book value.
The principal reason behind this “bargain” in the purchase of Capital’s stock was simply that there were no other acceptable offers at the time. The legislative history of the Franchise Act shows that the Senate originally passed a version under which the transit system would be publicly owned for an interim period of three years until a suitable buyer could be found. S.Rep.No.1791, 84th Cong., 2d Sess. (1956). Prior to this “proposals were received from six applicants for the permit and detailed conferences were held with each. However, the Public Utilities Commission reported that none of the applicants met the requirements considered essential for the issuance of a permit, and no further proposals by private individuals have been submitted to date.” Id. at 2. Since private ownership was deemed preferable, the conference report indicated that the final arrangement ultimately agreed upon to give the franchise to Transit was considered more acceptable. H.R.Rep.No. 2751, 84th Cong., 2d Sess. (1956). It was apparently a simple case of the price being driven down by a dearth of buyers. It is apparent that the prospects were somewhat less than attractive.
. On page 815 of the majority opinion, enormous dividends are alluded to. This figure was derived from the Committee Report cited at note 271, but is based on a comparison with the $500,000 cash investment figure rather than the $13.5 million original investment in the company and as such is somewhat misleading and emotional. Since those years, Transit’s investors have apparently been doing substantially worse. See, No. 24,398.
. I feel it is incorrect as to all cases involving land, of course.
. See text accompanying notes 197, 199, 200-04, 209, 211, supra.
. “At the outset, we lay aside the rule that capital gain accompanies risk o£ capital loss.” Supra at 811.
. Consisting of the factors I have summarized in Part II B 2 b, supra at 842, 843.
. Part III of the majority opinion, supra at 800-805.
. Supra at 795.
. This is also the approach taken by the majority in 24,398. There the majority refers to the applicable accounting system but cavalierly dismisses it as a “technical point.” No. 24,398, 158 U.S.App.D.C. at -, 485 F.2d at 886.
. Supra at 798.
. Supra note 306.