232 Mass. 309 | Mass. | 1919
This is a suit in equity brought by the receiver of the Bay State Street Railway Company against the public service commissioners under the authority of St. 1913, c. 784, § 27, “to review, annul, modify or amend” orders and rulings of the defendants respecting fares to be charged by the street railway company. The allegations of fact contained in the petition, to- which is annexed a copy of the report and order of the public service commissioners here complained of, are admitted by the answer. The case is reserved upon the bill and answer and a stipulation incorporating in the record certain decisions of the public service commissioners. The plaintiff was appointed receiver on December 12, 1917, and since then has been operating and managing the street railway. The street railway is extensive in miles of track and number of municipalities served, furnishing urban and interurban transportation for the people residing in eighteen cities varying in size from Fall River, with a population of one hundred twenty-four thousand seven hundred ninety-one, to Woburn with sixteen thousand four hundred and ten inhabitants, and thirty-six or more country towns, in the eastern part of the Commonwealth. It is described as “one of the largest street railway systems, in point of mileage, in this country. On June 30,1914, it operated, in all, nine hundred and fifty-one miles of single track. It owned eight hundred and ninety-seven miles, located in Massachusetts, all of which it operated except twenty-seven miles in the southern part of Boston.” 4 Mass. P. S. C. Rep. 8. It operates in Boston only to a limited extent and barely touches New Bedford. Excluding those cities, the population of the territory served is one million, three hundred and thirty-five thousand seven hundred and eighty-seven.
The pertinent provisions of the statute, so far as concerns the powers of the public service commissioners respecting rates, are in §§21 and 22 of said c. 784. Succinctly stated the street railway company, when a change in rates is proposed, must file a schedule showing present rates and proposed changes. Thereupon the public service commissioners may hold a hearing and in case an increase* of fares is proposed, "the burden of proof to show that such increase is necessary in order to obtain a reasonable compensation for the service rendered’’shall be upon the street railway company. “Reasonable compensation for the service rendered” is the test established, when a decrease in rates is asked, for the exercise of the power of the public service commissioners, "to determine what
The rule established by the public service commissioners for their guidance in fixing rates in an earlier case and apparently intended to be followed by them in others, so far as applicable, is that under the Massachusetts law “capital honestly and prudently invested must, under normal conditions, be taken as the controlling factor in "fixing the basis for computing fair and reasonable rates,” and that “such rates are to be allowed as will yield a fair return upon such investments.” Bay State Bate Case, 4 Mass. P. S. C. Rep. 11, 12.
In an earlier hearing where the subject of the amount of capital honestly and prudently invested by the Bay State Street Railway Company and then usefully employed in its business was considered exhaustively, the public.service commissioners decided that amount to be $39,104,340, and that the rate of income to which it
The present situation as to estimated expenses and income is set forth in the report of the commissioners, with accompanying schedules as follows: —
“The company’s petition for higher fares is based upon a statement of operating results under present conditions. For the year ending December 31, 1918, these figures are as follows (9 months
actual, 3 months estimated):
Operating expenses...........$8,790,767
Taxes................. 484,720
Depreciation.............. 1,104,000
Total...............$10,379,487
Gross income............. 10,*045,464
Deficiency............. $334,023
Six per cent upon investment...... 2,470,200
Total deficiency............$2,804,223
The present fares, however, have only been in effect since June, and the same is true of certain increases in wages. On December 6, 1918, moreover, the national war labor board granted further increases in wages estimated by the company to amount to about $875,000 yearly. Assuming, then, a full year’s operation on the basis of present fares and present wages, the figures above given
are changed, as follows:
Operating expenses...........$10,233,000
Taxes................. 484,720
Depreciation.............. 1,104,000
Total . . .'............$11,821,720
Gross income............. 10,466,000
Deficiency.............$1,355,720
Six per cent upon investment...... 2,470,200
Total deficiency............$3,825,920
The chief reasons for this situation are said to be,' (1) heavy increase in wages likely to absorb sixty-five to seventy per cent of yearly receipts on present basis; (2) great increase in cost of steel, coal, copper and other materials necessary for operation; (3) offset of increase in fares by loss of traffic; (4) the adverse conditions of poor equipment; (5) lack of profit on many country lines; (6) the wide prevalence of the epidemic known as influenza, a factor seriously affecting receipts during October and November, 1918.
It thus is manifest from the record and is in substance conceded by both the receiver and the Attorney General, that neither the schedule of fares proposed by the receiver nor that established by the order of the public service commissioners will yield revenue sufficient to meet the fixed charges of operation and of interest, allow the setting apart of any substantial or adequate sum for depreciation, and pay any dividend upon the fair value of the property, or the amount of honest investment.
The question of law in essence under these circumstances is whether, when confessedly the schedule of fares presented by the receiver will not yield a revenue sufficient to meet fixed charges and necessary expenses of the street railway company, and to pay any substantial return upon the capital value, it is within the power of the public service commissioners to change that schedule of fares by making changes. We put the question thus broadly because, whether the rates of fares as presented in the schedule of the receiver be lowered or raised, cogent arguments might be advanced that the revenue likely to be raised thereby would be less than that which would be realized from the schedule of the receiver.
The subject of rate making or rate revision by the Legislature or by public officers established by legislative authority, has not been much discussed in the decisions of this court. Arlington Board of Survey v. Bay State Street Railway, 224 Mass. 463. Fall River v. Public Service Commissioners, 228 Mass. 575,580. National Dock & Storage Warehouse Co. v. Boston & Maine Railroad, 227
The property of the street railway “corporation has been devoted to* a public use. There is always the obligation springing from the nature of the business in which it is engaged — which private exigency may not be permitted to ignore — that there shall not be an exorbitant charge for the service rendered. But the State has not seen fit to undertake the service itself; and the private property embarked in it is not placed at the mercy of legislative caprice. It rests secure under the constitutional protection which, extends not merely to the title but to the right to receive just compensation for the service given to the public.” Minnesota Rate Cases, 230 U. S. 352, 433, 434. It was said in Missouri, Kansas & Texas Railway v. Interstate Commerce Commission, 164 Fed. Rep. 645, at page 648 (three Circuit judges sitting, of whom Mr. Justice Van Devánter was one): “To be just and reasonable, within the meaning of the constitutional guaranty, the rates must be prescribed with reasonable regard for the cost to the carrier of the service rendered and for the value of the property employed therein; but this does not mean that regard is to be had only for the interests of the carrier, or that the rates must necessarily be such as to render its business profitable, for reasonable regard must also be had for the value of the service to the public. And where the cost to the carrier is not kept within reasonable limits, or where for any reason its business cannot reasonably be so conducted as to render it profitable, the misfortune must fall upon the carrier, as would be the case if it were engaged in any other line of business.” See Northern Pacific Railway v. North Dakota,. 236 U. S. 585, and cases collected at page 600; Municipal Gas Co. of Albany v. Public Service Commission, 225 N. Y. 89.
We adopt in general these quoted statements as the law respecting the scope of regulation by public authority of the rates, fares and charges of corporations exercising public franchises.
It seems to us unnecessary to consider the somewhat broader statements of the rate making power to be found in other decisions, or what may be the rule where the trend of events has depreciated the value of the capital investment originally made honestly and prudently. See Brunswick & Topsham Water District v. Maine Water Co. 99 Maine 371, 381; Puget Sound Electric Railway v. Railroad Commission of Washington, 65 Wash. 75, 87; and Covington & Lexington Turnpike Road Co. v. Sandford, 164 U. S. 578.
We are dealing in the case at bar with an amount of honest investment of capital about which there is no controversy and with a present management, which according to the report “has been industrious” “to make every feasible effort to secure economy of operation.” While the public service commissioners offer a few suggestions fat the future and make some criticisms of management and of a very few salaries paid, these are comparatively insignificant. As the report states, “it is clear that the chief factor in the present unfortunate plight of the company is the recent extraordinary rise in wages and prices, rather than any of these things. It is a condition by which the public is now confronted. The problem is not one of securing any immediate return of any particular amount on the investment, but of meeting the necessary and unavoidable cost of furnishing the service. If the railway should be sold at receiver’s sale and even if it should be split up into a number of different parts, the same problem would remain under present conditions.”
The situation disclosed on this record has not arisen in any
The property of the street railway company has been devoted to the public service of furnishing transportation. Conditions not attributable to the fault of the stockholders or managers of the company have arisen, which render it impossible for the receiver to collect an amount from the present rates which will yield revenue sufficient to be compensatory for the investment made. The receiver voluntarily has determined, by filing his schedule of rates, to operate the system upon a basis of revenue for the immediate future not sufficient to meet the requirements of compensatory return upon the investment. Unless it is clear that the rate established by the public service commissioners is reasonably certain to afford less receipts than that proposed by the receiver, he has suffered no injury and hence in equity there would be no reason to revise the report and order of the public service commissioners.
We proceed to a more detailed consideration of the report of the public service commissioners. From that it appears that since October 1, 1916, there have been four increases of fares over the whole or parts of the system of the company. The estimates of the company or its representatives were that these increases would produce $2,791,000 in additional revenue. The actual augmentation of revenue, on the contrary, including about $100,000 of enlarged freight receipts, was $1,099,783. As already stated, the schedule now proposed by the receiver is in substance to eliminate all tickets including workmen’s tickets, to establish city zones with a uniform ten cent fare and to divide the country lines into zones about two miles in length with a minimum fare of ten cents for two zones and five cents for each succeeding zone. With reference to this it is said in the report that in no other communities of similar size in the United States is a minimum fare of ten cents charged or even proposed, and that nowhere else in the country is so radical and burdensome an increase of fares made or proposed as compared with that of October 1, 1916, on the Bay State system. It is said, also, “In the first ‘Bay State Rate Case’ the
The report shows, however, that this proposal is tentative only. The present is treated as a transition period. It is recognized that no one can be sure what the course of prices will be or what the immediate future has in store in other respects. The public service commissioners say: — “It is our plan that the new schedule above outlined be made effective for a trial period of two months. If at the end of that time it has, in combination with any other factors which may enter in, produced an increase in gross earnings, in comparison with the corresponding period of the previous year, of fifteen per cent or more, after making allowance for loss of revenue on any lines which may have been discontinued, it is our judgment that the experiment ought to be continued for a similar period, in the hope that the situation may be further improved by action of the General Court, or by a change in economic conditions. In other words, a gain of this character will be solid and substantial ground for encouragement, and for the expectation of even better results in the future. It will be a gain far better than this or other companies have in general been able to secure from any changes in rates which have yet been made. If maintained and gradually improved throughout the year, it should also be sufficient to cover operating expenses, taxes, interest on debt, and some provision for depreciation. If, however, such an increase in revenue is not realized during the period of two months, or is not substantially maintained thereafter, the commission will not stand in the way of a trial of the schedule which the company now proposes. In such an event the situation will in our judgment be so critical that we would not be justified in interposing further obstacles to this experiment.”
Considerable space in the report is devoted to the permissive Spec. St. of 1918, c. 188, whereby the General Court offered to the directors and stockholders of the Bay State Street Railway Company opportunity for reorganization upon such basis that the annual interest and dividend charges should not exceed six per cent on the amount found by the public service commissioners in 1916 to have been honestly and prudently invested in the property, added to the like investments made since. That scheme provides for management for a period of ten years by a board of
These copious extracts from the report of the public service commissioners appear to us to make manifest a purpose to deal fairly with the company, while at the same time having due regard for the interests of the public. Comparative revenue likely to be derived under the two schedules is largely a matter of prophecy. The wide discrepancies between the anticipation of accessions to income expressed by the representatives' of the company when the former increases in fares were made, and the realization in actual receipts by experience, naturally cause one to hesitate to give absolute credence to the opinion how expressed by the company and its representatives respecting the return likely to be gained from the schedule of fares presented by the receiver. There appears to be good ground for the belief that the plan proposed by the public service commissioners will be as profitable as that set forth in the receiver’s schedule. The fifteen per cent increase of income proposed by the commissioners, when applied to the “Company’s estimate of revenue for full year under present fares, based on experience,” would be, as we understand it, a proportionately larger realization of the company’s estimate of additional revenue to be produced from the receiver’s proposed schedule of fares than has been realized by experience as compared with its estimates of additional revenue to be produced from the four increases in fares made since October 1, 1916. In any event, it seems to us impossible to predict with any assurance that the increased rates proposed by the public service commissioners will not be productive of as much additional revenue as would the
The situation here disclosed seems to bring the present case within the category of “ cases where the evidence as to the probable result of the rates in controversy would show that they were so nearly adequate [¡that is to say, so nearly equivalent to the amount likely to be realized from the schedules proposed by the receiver] that nothing but a practical test could satisfy the doubt as to their sufficiency.” Willcox v. Consolidated Gas Co. 212 U. S. 19, 50. The circumstances during the period covered by the report have been extraordinary by reason of the war and the unusual increases in all the costs of operation of the street railway system. All the conditions have been and still are “too abnormal to enable us to say that the commission’s rates are confiscatory.” Darnell v. Edwards, 244 U. S. 564, 570.
Taking the report as a whole, not over emphasizing subsidiary paragraphs but giving it fair interpretation as a composite unit, we do not think it can be said that the rates established by the public service commissioners are plainly unreasonable to the extent of affording less revenue to the street railway company than the rates proposed by the receiver in his schedule.
The period of time for experimentation proposed by the public service commissioners, (being not over four months in the aggregate and possibly not over two months) in order to determine by actual experience whether its rates yield as much as the estimates of those proposed by the receiver, diminished by the proportion of excess shown to exist in previous estimates of the street railway company over actual experience, cannot be said to be excessive.
Particular attack is made upon the order of the public service commission respecting fares upon city lines. These are the words of the order: “In the cities the company may combine the present inner and outer zones into one area, charging a 7-cent fare by the sale of 5 tickets or metal tokens for 85 cents. For the purpose of encouraging the use of tickets, and in this way avoiding the difficulty in fare collection which arises when pennies are involved, the cash rate may be made 10 cents, but it is the purpose to make the real fare 7 cents, readily available to all riders. The tickets or tokens are to be sold by conductors on the cars, and it is a part of the plan that patrons shall be informed by the con
It is contended that this part of the order is beyond the power of the public service commission. The argument in brief is that § 19 of said c. 784 confers power to make orders respecting the issuance of tickets only when the schedule presented by the carrier offers tickets as a part of its proposed fares and that, since the schedule of the receiver dealt only with cash fares, the public service commission can make orders with respect to cash fares alone.
This is too narrow a construction of the statute. Its other sections show that the powers of the public service commission are limited only by the requirement that they be “just and reasonable.” § 22. The order in the case at bar means that the fare is fixed at seven cents but that for practical reasons the members of the public can avail themselves of this rate only by making an initial purchase of at least five tickets. The fare is not established at ten cents. A different question might be presented if a cash fare were established as the standard and then the company were required to issue commutation or reduced rate tickets against its will. The unit fare is established at seven cents as just and reasonable. But the public service commissioners say that, to prevent confusion and delay, and to minimize the losses arising from dishonesty on the part of the travelling public and of conductors, and perhaps for other reasons, at least five tickets or tokens must be purchased at one time. The power to make such an order is within the authority conferred by the statute. Arlington Board of Survey v. Bay State Street Railway, 224 Mass. 463, 469. Fall River v. Public Service Commissioners, 228 Mass. 575, 580.
Such an order does not seem to us to be irrational. Swan v. Manchester & Lawrence Railroad, 132 Mass. 116. Martin v. Rhode Island Co. 32 R. I. 162. See note in Ann. Cas. 1912 C 1290, for collection of cases. Standing by itself it does not appear to us to violate any of the constitutional rights of the street railway company, or to be in conflict with any constitutional principle declared in Lake Shore & Michigan Southern Railway v. Smith, 173 U. S. 684, as limited by Pennsylvania Railroad v. Towers, 245 U. S. 6. Northern Pacific Railway v. North Dakota, 236 U. S. 585.
We are of opinion that it does not appear that the report and
Answering now the precise question of law, posited at the outset of the review of decisions as the crucial one in the case at bar, in the light of the statements quoted and decisions cited, we are of opinion that, where by all parties in interest the times are recognized as abnormal and the particular period as one of transition so that both the receiver of the street railway and the public service commissioners by their words and conduct agree that any substantial return upon the capital honestly and prudently invested must, even under wisely economical management, be suspended temporarily and that any rates established at the moment are likely to be impermanent and experimental, the public service commissioners are not, under either the Constitution of Massa-. chusetts or that of the United States, deprived of power to modify the schedule of rates, fares and charges proposed by the receiver, but that the public service commissioners may maké such changes therein as in its judgment are required by the public interests and the rights of the owners of invested capital, when the revenue to be derived therefrom is not thereby substantially diminished below that likely to be derived from the rates proposed by the receiver. The rate making power established by legislative authority is not stripped of all functions because extraordinary conditions have sprung into existence, which the owners of the privately owned public utility recognize as preventing them from deriving any income for the time being from their investment; but the commission still may exercise its judgment for the protection of the public interests when it does not reduce substantially the revenue, proposed to be exacted from the public by the owners of the public utility. Simply because such owners are for the moment failing to receive the just compensation to which in the long perspective they are entitled, they are not thereby necessarily at liberty to fix their own terms. Their property is still affected with a public interest.
The result here reached appears to us in harmony with the decisions, to which reference has been made, and is fairly deducible from them. We perceive nothing at variance with it in Lake Shore & Michigan Southern Railway v. Smith, 173 U. S. 684, much relied on by the receiver, as modified by Pennsylvania Railroad v.
We do not find it necessary to discuss whether circumstances may arise where the public service commissioners may be warranted, even under circumstances such as are here disclosed, in establishing rates likely to yield a revenue less than that likely to be derived from those proposed by the receiver, or less than a fair interest on the capital honestly and prudently invested. The present decision is confined to the facts disclosed on this record.
A further question is reserved on this report. It is whether the city of Fall River is entitled to be heard as a party in this proceeding. It is not named as a party in the petition. It contends that it is a party and has a right to be heard as such, and its counsel declined to accept the opportunity offered by the single justice that he might be heard as amicus curiae. That contention rests in part upon St. 1918, c. 144, which requires written notice to be given by the public service commission, upon the filing of any petition or schedule for change in rates of fare upon a street railway, to the mayors of all cities and the selectmen of all towns in which the street railway operated, or which would be affected by the proposed change. Reference is made, also, to St. 1918, c. 288, which authorizes a city or town under certain conditions to contribute to the cost of operation and fixed charges of a street railway within its limits, although it is not contended that Fall River has thus made any contribution to the support of the Bay State Street Railway Company.
The proceedings before the public service commissioners are in part investigations into facts. It is often, if not always, necessary or desirable to ascertain local conditions. One way to obtain such information would be from the executive officers of the municipalities affected. When the public service commission has concluded its investigation, it makes an order and the statute imposes upon the commission the duty to enforce that order or to defend that order if attack is made upon it. St. 1913, c. 784, § 28. When proceedings are instituted in court, the matter is one between the public service commission and the complaining party. Other parties are sometimes joined in the petition, and occasionally undertake the burden of supporting the order of the commission. Bulkeley v. New York, New Haven, & Hartford
It has not been contended that Fall River under § 27 may not itself bring a petition. See Fall River v. Public Service Commissioners, post, 329. That affords ample relief to any municipality affected.
It is urged that the phrase “The burden of proof,” beginning the fourth sentence of § 27 of said c. 784, implies trials of facts in the Supreme Judicial Court on petitions like that here pending, and that hence all parties heard or entitled to be heard before the public service commission have a right to be heard here. That phrase warrants no such inference. The power of this court under that section is confined to dealing with “rulings or orders of the commission which are unlawful to the extent only of such unlawfulness.” Manifestly no power to rehear facts is conferred by these words. Paine v. Newton Street Railway, 192 Mass. 90. The findings of fact of the commission are not to be reviewed or revised by the hearing of evidence in a case like the present.
When constitutional questions are involved the court will examine the report of the public service commissioners for the purpose of reaching their own conclusions, not fettering their discretion or judgment by artificial rules as to the weight of the findings in the report, but attributing to the report and to its several parts all the force and effect to which its substance and a consideration of the expert nature of the commissioners’ investigations and conclusions naturally entitle it. Knoxville v. Knoxville Water Co. 212 U. S. 1, 8.
It would be quite unusual for the Legislature to. require or permit as parties to a proceeding like this, all cities and towns through which a common carrier operated its lines. Such a construction of the statute would offer the opportunity for protracted delay in the enforcement of the orders of a public board created by the Legislature for the purpose of making decisions which are designed to be enforced without delay since they are given special precedence. § 27 of said c. 784. On principle and on a trite construction of the statutes, the city of Fall River is not a proper party to this suit. The public interests are entrusted to the
Petition dismissed.