*1 196 SERVICE OF PUBLIC THE PETITION THE MATTER OF
IN IN AND SERVICE PUBLIC TRANSPORT COORDINATED AN AP FOR COMPANY TRANSPORTATION TERSTATE FARE. OF IN THE RATES OF AN PROVAL INCREASE PUB- AND TRANSPORT SERVICE COORDINATED PUBLIC COM- TRANSPORTATION SERVICE INTERSTATE LIC PANY, PETITIONERS-RESPONDENTS, NEW OF v. STATE JERSEY, APPELLANT. May Argued Decided June1950 Rehearing Denied July 11, 1950. *5 Tine, General,
Mr. Benjamin C. Van Attorney Deputy Parsons, the cause for the argued appellant Theodore D. (Mr. General). Attorney
Mr. William H. the cause Speer respondents aTgued brief; Winslow B. H. (Mr. Ingham, on the Messrs. William Blalce, and William H. Speer attorneys). George
Mr. M. Fichler the cause for Hill Bus Com- argued al., et intervenors. pany,
Mr. J F. ames X. O’Brien the cause for Consolidated argued al., Lines, Bus Inc., et intervenors.
The was delivered opinion by court General, State, Attorney C. The by J. Vanderbilt, Public the Board of from a decision and order of appeals dis- 14, 1949, Commissioners entered on December Utility and an order to show cause issued Board missing by Public directed and Transport to Public Service Coordinated rate of Service Interstate why Transportation Company, 1948, 5, fare an dated approved by May order of taken to should not be reduced or The adjusted. appeal Court, while Appellate pend- Division of Superior there was certified this on the ing by petition Court State.
I. aof the culmination The order here from was appealed 30, 1947, when Public Ser- on October commenced proceeding Interstate vice Coordinated and Public Service Transport with the Board for filed a Transportation petition Company trolley rate fare for of an in the basic approval increase an cents, seven so as to offset bus service from five to from a increase in costs anticipated resulting operating 16%c 14, an their on August hour increase awarded employees wage Governor by appointed by board arbitration statute. Notice of of the State of New Jersey pursuant to the duly this and the basis thereof was application given were held the Board in Janu- by thereon hearings at a number municipalities, which ary Eebruary, in- lines, and other labor bus independent organizations, terested and individuals appeared. groups it was made
Prom the outset of these clear hearings case, rate were not companies undertaking full-fledged in an for the only but were increase to compensate seeking the arbitration award. creased costs of labor occasioned on the of O’Brien v. Board companies proceeded theory Commissioners, 92 L. Ct. N. J. 44 Utility (Sup. affirmed, 1919), 92 L. & A. wherein it N. J. 1918); (E. emergency was held that the Board was empowered grant relief to a of a rate utility way increase without the neces- sity base. To this redetermining proceed theory necessarily required the Board to assume and the companies to admit that the rate was fair reasonable, existing prior increase, to the rate base. wage supported by adequate In thus avoid the to the establish- seeking delays incident ment anof increased rate the usual the com- procedure, called panies the Board to give temporary emergency relief by in the seven-cent fare at once “to test out putting what it will produce.” on this evi- theory companies introduced
Proceeding dence made in support allegations their petition *7 the increase the wage granted by board of arbitration would increase their annual total costs an estimated operating $3,703,406; cost, that the net increased after an deducting taxes, $2,989,626 allowance for an- income would amount to ; nually cents, and that an increase in fare from five seven to into an decrease in taking anticipated consideration business resistance fare and an resulting passenger higher expected recession, business general would produce gross in $4,482,878, annual increase revenue of which after allow- ances for the federal tax and the income five cent state per revenues, tax on would net the in- passenger an companies annually crease $3,348,957. and State other interested acceded to the parties theory on which the increase was sought, to and objected examined the witnesses on the companies’ need for two-cent increase their contention that a (it being six-oent fare would be adequate) and on of mak- propriety ing the increase effective for all the routes both companies without regard profit loss figures company each and their individual lines.
By the own admission companies’ a seven-cent would fare $400,000 produce approximately more than to offset enough However, the increase in labor if costs. income tax computa- excluded, they tions are as properly should be where a raise is only sought costs, to offset an increase in operating since only that income in excess of the amount needed to tax, subject would be increased costs for the
compensate in labor the increase revised estimate of and if the companies’ instead of their costs, $3,562,354, be considered which totaled fare could the seven-cent estimate, it is apparent that original $700,000 more than about annually to produce expected increase. offset enough wage of the facts, on urging these obvious Notwithstanding what happens,” and see into effect “to a rate put companies in which rendered its decision 5, 1948, the Board on May and reasonable to be justified rate increase found the requested order, In this effect. fare into and ordered seven-cent as follows : however, provided the Board specifically “* * * produce will allowed the fares herein The results experience period only of actual a reasonable be known after can with them. jurisdiction therefore, Board, in this matter will retain “The purpose investigating giving to the further consideration expenses proposed new on the effect applicants, fares revenues riding habits of increase fares as well as effect develops in the If it under under the circumstances case. that a is such revision new conditions the customers effect go required, proposed permitted into effect fares herein ** * such Board will on its own motion institute revision.” subject "This is limited to the condition that order applicants date of the revised file with the Board before effective fares, acceptance, writing, schedules of conditions, of this Order and its stipulation incorporate therein a that the Board shall jurisdiction complete applicants herein, retain full and over the with *8 power authority, hearing agreement, and notice and on to or modify, amend or alter this Decision and Order as the results operation may thereunder warrant.”
After six operation months’ with the seven-cent fare it be- came apparent that revenues greater were produced being than had 24, been and anticipated accordingly February Board, the the it control had retained over exercising the ordered the proceedings, companies to show cause the why fares or rates of fare should not reduced adjusted. Hear- ings on this order were held in March, June, and April being same conducted without notice public other than that had which been at the time of the given filing in 1947. At these companies’ petition various hearings bus the Board independent companies petitioned for permis- sion to intervene for the purpose submitting proof sup- of their contention that if Public port Service fare Companies’ reduced, were they, would be unable to independents, survive, since at operation fares below seven cents was finan- and cially impossible since at a if operation seven-cent fare the Public Service a Companies lower rate would be charged suicide. competitive
At these did not seek hearings companies justify seven-cent fare as necessary cost, meet increased wage on which the theory increased fare had been originally but to it sought justify on the that granted, theory a merely fair return on a provided rate base. Thus proper without notice to the other interested riding per- sons the entire nature of proceeding changed. the. obvious,
reason for this for the change actual net reported income of the for the first companies twelve months’ operation under the $2,984,963, rate increase was as compared with the estimate made at the time of the previous in 1948 hearing the net income fo*l first year’s operation under the $1,238,114. new rate would be The companies could thus not even as hope justify reasonable on their original theory rate of fare which had resulted in more than their doubling net income. The State and the municipalities that appeared to this in the objected of the change basis proceeding adopted took applicants position the seven-cent fare was excessive revenues and that a producing six-cent fare should be instituted for an experimental period. their new contention that
To fare support seven-cent more than reasonable return on an no produced adequate base, witness, called one companies introduced five exhibits, then rested their ease. This was not the com- expensive procedure of plicated, time-consuming proving had rate base which to avoid companies sought at the their application increase in filing time rates. *9 ¿06 of estimated
A exhibit entitled “Development one-page single 31, 1948,” only at virtually rate base as December their contention companies support evidence offered and ad- $61,404,587. rate base of After disallowance for a items, certain most of which justment significant of $10,574,912 labeled as of “Intangibles were the elimination for which stems authority to buses the operating attaching $3,000,000 car franchises” allowance street the Board arrived at a rate base of capital, cash working in this was an of $47,127,365. Included item figure re- the cost $17,233,538 intangible representing property of the various auto acquisition lated to organization in the sys- now included state-wide companies’ bus properties had rejected by tem. These been Securities intangibles in the its Commission exercise of jurisdiction and Exchange 'financial structure of the and had been companies over the eliminated from the books companies’ ordered charging Board, however, considered that these off to surplus. in the were of the auto bus necessary integration acquisitions served system and the public through improved transportation and said: “The record and extended service shows that this claimed item were the result represented by expenditures continue to represent arm’s functional length bargaining, have value, and not been investors.” re- recouped by By $47,127,365 this rate base to an adjusted operating lating $3,827,054, the Board found return income cent, 8.12 that the return produced per on the com- full first twelve stock months of panies’ operation under, 9.41 fare was cent on a the seven-cent stated value per concluded, however, share. The Board $60 per in local view the risks involved transportation, appli- revenue, the need for trend of additional descending cants’ and continued for modernization maintenance of safe capital service, just “the fares are present and reason- adequate will in the do not now and able and foreseeable future than fair return.” The Board more yield accordingly ordered the proceedings December initiated
307 the order to show cause be terminated. It is this Deci- sion Order that the was taken. present appeal
II. Before the real issue before Court this discussing there are three appeal which must be procedural questions determined.
1. The Public Service Companies contend that Attorney General may not as a matter of law maintain the in appeal the instant ease. It is argued that, although Attorney General has limited on behalf power appear as counsel Board, for the he never has had the right to behalf appear on of the in lieu people of the in Board matters wherein it is in its acting as an capacity of the agent Legislature. prerogative matters, it is representing utility is upon itself, bestowed the Board urged, Board citing Sheldon, Utility Public Commissioners v. 95 J.N. 408 Eq. 1924). The (Ch. case, stated, instant it is is not an appeal by the State the Public Service against but an Companies, action Attorney General itself, Board against he which substitutes his own arrogantly for that judgment constituted state regularly agency attempts usurp function it by the B. granted Legislature. S. By 52 :17A-4(e) his power, claimed, sole it is is to represent Board, others,, “in all matters other than those requiring performance administrative functions entailing enforcement, prosecution of issues as hearing imposed law them.” is It also asserted that the action of the Attorney General herein is in that particularly anomalous he, or his deputies, actually of record on appeared behalf the Board at the Indeed, the hearings. Public Service Com- would have panies appear General is Attorney which Hydra at one and the same time defends and attacks the various of the State. agencies
This concept of the positions of the General Attorney Board on this appeal is mistaken one. Clearly the way attack; is in no under appeal is not here in Public Service it. As court stated
directed against Utility v. Board Company Transportation Interstate Commissions, 1942), & A. wherein (E. J. 129 N. L. : appeal to take the Board itself sought It sense as no it has status such. are clear no “We affected, obviously adversely party a sub- are whose interests legal statutory made a tribunal which decision reviewable ordinate statutory special tribunals.” like other certiorari those *11 is a this its preroga- The Board to party proceeding hold the General. To Attorney are not usurped by tives being a to that trial would be tantamount court holding otherwise therein, a entered or judgment a to an from appeal is party a in the is to which the party proceeding that Legislature a statute is of contested. constitutionality an sense of dis- It does not acute discrimination to require the Board itself and a of the between determination tinguish The Board is creature of statute Board. operating legiti- limitations. only statutory within definite It would mately indeed if the the people, executive, an odd situation through be the unable enforce restrictions placed were to legislative functions. The General has Attorney its been traditionally as the defender of the interest. public This recognized power law, office, attribute his bestowed is an of common has taken away by legislative which not been enactment. The interest, makes laws in the public but their en- Legislature Governor, who, is a matter for the forcement pursuant to Y, I, him by vested in Article Section authority 11 paragraph of has the Constitution directed the General Attorney this in the name of take the State. It appeal to cannot that public has interest seriously disputed which in need The adequate representation. here record discloses 1947 Companies 3,408 the Public Service in operated transport 665,000,000 and 171 street cars to buses passengers Their are 116,000,000 miles. routes located in 20 of the some 375 21 counties municipalities serve State’s having
209 3,812,750, census, to 1940 according a total population., State, and the total population almost 92 cent of per Newark, with a population largest in size ranging with a County, popula Tavistock Camden 430,000, to 60 Service Companies provide of 13. These two tion service, as trolley against local bus of this State’s cent per the scores of independent furnished cent per being futile to people would be argue It companies. interest in this The not have an proceeding. New do Jersey the State is the interest of State of the citizens of interest R. General is itself, 52:17A-4(g) Attorney 8. all matters in which “Attend generally legal charged * ** or which its or interests rights is party State General v. Attorney As was said Delaware are involved.” 27 N. J. Brook Railroad Company, Eq. Bound A. : 1876) &(E. in its own courts because no “The State is not left without redress it, difficulty defending private chooses encounter citizen public officer, appointed high respon- this on whom it has cast the
has sibility whom, therefore, right given appearing it has and to judgment invoking ques- in its behalf and of the courts on such tions of moment.” General’s to take Attorney challenge authority *12 this thus well made. appeal is not
2. The next to be considered in limine procedural question is the status of the operators whose to independent petition in the on to the order show cause was participate hearings Board, and who contend that are they granted by proper this that the failure necessary parties to proceeding, them General to serve on the is Attorney properly appeal fatal, should and that be dismissed. appeal accordingly that There can be little doubt these bus "com- independent of whom with the Public Ser- many compete directly panies, in the same the same vice over Companies municipalities in a vital interest this and will be routes, have proceeding so, its they unques- affected outcome. This being greatly the Board and tionably present have a to before right appear the various their views. Their is akin to that of position who, citizens and others municipalities, employees groups, in estab- because of their interest the rates particular being not, lished, in an at the are put appearance hearings. They however, is to the and there parties nothing proceeding as such. the record to indicate that are to be considered they Indeed their intervene did not very to petition permission even be made they stated: request parties, ‘independent’ petition brought permit bus all of the “This is to many may desire, participate companies, to in these or as thereof as purpose submitting proof support proceedings above assertions contentions.” neither acquired this By petition granting nor assumed over the jurisdiction independent companies, bus herein are and the decisions and orders of the Board entered them. before any respect binding upon Proceedings state and and com numerous boards municipal agencies, missions would rendered chaotic if all were bo who persons to appear merely became permitted parties proceedings issued the rules made would because orders to be or to be them, in have an effect or otherwise. The upon financially terest of the bus independent companies probably sufficient, Court, is not take an now before though question from a decision or order of the Board which con appeal they sider and unreasonable or otherwise erroneous arbitrary unlawful, as the and citizens of the just municipalities State, and the their State, collectively, individually General, have the an Attorney behalf right pursue But when such an is taken the appeal appeal. appealing is not burdened with the task of thereby precarious party notice, and briefs all and who appendix sundry serving an interest at the would have Such may expressed hearings. unreasonable them and one which requirement upon place nor Rule 3:81-8. The contemplated required by is neither are independent companies they proper argument *13 this must therefore he considered to be proceeding parties
¿11 lack to dismiss the for appeal merit their motion without and denied. and service is accordingly notice proper not raised is whether or 3. final procedural question review the action of the this to the Court for presents appeal cents; seven in the rate increase from five to Board granting of the or, words, petition by stated in other since the filing 1947, 30, the October has there but a single on been companies 14, in the Decision and Order December case culminating eases, have been two commenced 1949; or there one by and terminated Decision and Order companies’ petition 5, has 1948, from which time to appeal expired, May 24, 1949, and another commenced on with the issu- February ance the order to show cause and in the ending Decision ? 14, and are of the Order of December We that opinion there one and that this has been but case or proceeding appeal review the of whether or question for increase presents in seven cents just fare from five to was and reasonable. A lead this number of facts conclusion. inescapably filed their companies petition On October in from five to seven cents to cover their rate change duly costs and the was labor increased anticipated reason for the application, noticed as to the filing same, dates, the case was assigned hearing 3467. course of the hear- Throughout Docket No. Service the Board to effect and put companies urged ings relief was and that out, necessary, try emergency quick made at a could be later date. Ac- adjustments needed any 5, 1948, entered, in which May order cordingly jurisdiction retained mat- specifically order the the order was conditioned and provided ter acceptance their thereof indicating writing. companies B. is authorized S. by, the Board only by This action reads: which 48:2-21.1 during any may, pendency hearing board instituted “The complaint, approval it, initiative or on in which the own or its * * * just
fixing issue, reasonable individual rates time, negotiate agree any public any utility with other at *14 * * * any adjustment product or of the individual rates for supplied utility. adjustment public service or rendered such Such may for, without, specified be or a limit of time. In no event shall any adjustment adjustment regarded such as contractual. be Such subject change through proceedings pro- at all shall times be to the chapter, through negotiation agreement vided for this under part negotiation adjust- any this section. The hoard as such provide continuance, supervision disposition ment shall or other any hearing pending.” (Italics the character then aforesaid supplied.) When the results of the Public Service Com- operating under the panies increased rates of fare established under the quoted statutory indicated that authority matter should reviewed, the Board reopened as it had proceeding, specifically reserved the do, to and issued right its order to cause, show directed companies, the rates should why not be reduced or To this adjusted. order the Board signifi- afSxed the cantly same Docket No. 3467 as had been previously to the assigned Public Service Companies’ original petition. No additional notice was to the or the given munici- to advise palities them of this as rehearing, would have been had mandatory this been a new case or rather than proceeding merely continuation of the one. original on the Early first day on the order cause, rehearing to show when the- counsel companies’ new began assign exhibits, numbers to the following transpired: you R-2, “Mr. Harrison: I think better call to confuse it original proceeding with part. numbers of which this is a “Commissioner Boswell: Let’s make this correction. Let the record your your show for own information own individual exhibits previously PS-1A, B, one marked Exhibit and C will be Exhibit PS67-A, you Now, you B and C. the one have before can be Exhibit
PS-68. right, Blake: “Mr. That’s sir.” The last exhibit introduced at the original inci- hearings, had dentally, been marked Exhibit PS-66. And but a short time later at this when it hearing became evident that Public Service had Companies shifted the theory their from one case to compensate increased labor costs to one base, establish fair return on an Commis- adequate sioner the intro- Boswell, in raised objections overruling end, duction proof to latter stated: petition ‘‘We this feel under those circumstances case enough types proof addition to broad to admit even in various type may today company if have been submitted company (Italics supplied.) desired so.” to do *15 And still later when the who had called witness companies last 1948, testified at the in this remark was made: hearings you Warner, “Commissioner Mr. were in the earlier Boswell: sworn you proceeding supplementary but in since haven’t been sworn the proceeding, again.” (Italics supplied.) I would like to do it From the it it is that was clear to all foregoing apparent parties from the outset of the 1949 that this very hearings was case, continuation of the that the previous proceed- still was the had the ing same one that been instituted companies’ petition, and that the cause had order to show merely been the means the reopening requiring case the forward with further in companies support go proof petition their a rate for increase.
That 30, 1947, the commenced on October proceeding was not concluded the Board until finally the Decision and 14, 1949, Order of December was is entered further evidenced by the fact the that at conclusions therein set forth arriving the Board to and referred considered the entire record and evidence, is, the as it such therein contained. Furthermore, in its the introductory statement Board stated: May 5, 1948, being “In decision of our mindful the uncertainties inherent estimates of the future results be realized from the jurisdiction allowed, expressly increased fares we reserved in the mat- purpose giving ter for the further consideration to the effect of the appear new so that if should fares that a revision of fare sched- approved required public interest, ules should therein in the we could on our own motion such institute If revision. had we closed proceeding jurisdiction, proof had not reserved the burden of unjust to show that the seven cent was fare and unreasonable would public. Board, representing upon result The as rested have proof jurisdiction that reserving burden of to show is our applicants. just We and reasonable is seven-cent fare is operat- monthly applicants required statements to submit also ing revised fares.” income under but conclude this Court cannot these facts In the light provisional was May temporary that the order of period; apply experimental intended only one 14, 1949, was December and Order of when the Decision longer and was no its force spent order provisional entered 14, 1949, contains of December and that order operative; fare from the basic authority increasing the sole present that this appeal It therefore follows five seven cents. of the entire the propriety before Court State brings the Court the issue before presently and that proceeding it, the increase the record before whether, on the basis of and reasonable. just fare from five to seven cents the basic III. con all to us are presented points remaining *16 is raised on this appeal: question
cerned with the principal basic rate of the Board in increasing the action of It valid? five cents to seven Companies Public Service and not is a legislative that rate making is well recognized Com Utility Public and that the Board of function, judicial rate- its has delegated missioners, Legislature to which in the exercise discretion with broad is vested power, making Com Utility Public O’Brien v. Board authority. of that of affirmed, 92 missioners, 1918); 44 Ct. 92 N. J. L. (Sup. ; Sewerage Com City & A. Atlantic 1919) J. L. 587 N. (E. Commissioners, N. J. L. 128 Utility v. Board Public pany of & A. affirmed, 129 N. J. L. 401 1942); (E. 359 Ct. (Sup. be to function of legislative Por the 1943). delegation that adequate it is essential valid under our Constitution and adhered Legislature standards be prescribed Van v. Riper in this instance Board. its agent, Traffic 2 N. J. 335 Jersey, Federation New Workers’ Telephone of
215 Co., Board Milk Control v. Newark Milk (1949); State of N. J. & A. 118 504 standard Eq. (E. 1935). statutory found Board to be prescribing rate-making powers in JR.S. which that the Board provides may 48:2-21(b) (1) * * * “Eix just reasonable individual rates whenever * * * the Board shall determine to be any existing unjust, unreasonable, insufficient or unjustly discriminatory or In case in preferential.” any which reasonableness the fixed rate is and the fulfillment challenged statutory standard thereby subjected review, the court is judicial bound duty evidence resolve for itself the weigh issue of reasonableness. Atlantic v. City Sewerage Company Commissioners, Public 128 N. J. L. Utility 359 1942); affirmed, Ct. 129 N. J. L. 401 & A. (Sup. 1943); (E. New Suburban Water Co. v. Public Jersey Utility Board of Commissioners, 123 N. J. L. & 303 A. Public (E. 1939); Gas v. Board Company Utility Service Commis sioners, 84 N. J. L. 463 Ct. reversed in (Sup. 1913); part, 87 J. L. 1914); N. A. affirmed in toto (E. & 87 N. & J. L. 597 A. dis rehearing, (E. 1915); appeal missed, 242 U. 61 L. Ed. S. Ct. 243 Sup. (1917). :81-13; also Rule 3 R. See S. 2:81-8. In the last mentioned ease the former : Supreme 467) Court stated (at p. presumption judicial giiasi-judicial in “The favor of the acts of a tribunal, apply legislative tribunal does not with the same force to a possesses only powers nor to a tribunal which to some extent the powers public prosecutor. of a court but also to some extent the of a body legislative prescribing A by a rule for future conduct is not limited justice required the same considerations of aas tribunal to do
justice rules; existing position in accordance with and one public prosecutor hardly supposed preserve judicial of a can mind; position judge frame of he is rather of one who is act, his own cause. Under the Public Utilities the commissioners given powers legislation given power are extensive and are initiating proceedings powers themselves. The manner in which these *17 shall large questions be exercised involves often a consideration of public policy example, very or business wisdom. Por in this case alone, commissioners have fixed a rate for Passaic district parts to the exclusion of gas all other of the State which the * * * company by may operate. its charter In such a case there
216 presumption commis- of the may that the action perhaps fair abe just hardly policy action is that its wise is dictated sioners * * * con- us to the lead All considerations these and reasonable. any presumption of the in favor the order if there is clusion commissioners, opinion depends, of another of the court like the it supported. reasoning strength upon, which state, legislative however, qualification subject, action that in This is merely judgment of a for that their substitute will not the courts legislative body. upon therefore, must, all the evidence for ourselves determine “We unjust gas in the Passaic district the former rate whether just unreasonable, and reasonable. the new rate is and whether * * * may questions It is true intertwined. one The are two unreasonably low, unreasonably high but if other be adjudged may fairly just reasonable, the old rate new rate is unjust unjust unreasonable, new rate is If the unreasonable. question aside, of whether the board and the the order must be set jurisdiction by injustice and unreasonableness had reason of the practical question importance. for us no The the old rate becomes of ninety just and reasonable.” rate cents is therefore is whether the rate particular and reasonableness of justness after an examination of a com of fare can be determined only base; its which constitutes its rate valuation pany’s property income taxes and an allowance for expenses, depre including ciation; return its in and the rate of developed by relating rate three the first come to the These factors constitute base. in Federal of the referred two Chief Justice Stone steps Power Commission v. Natural Gas Pipeline Company, 315 86 L. U. Ed. Ct. 1037, 1048, Sup. S. (1942), when he said: regulated industry "The establishment of rate for often in- character, may steps appro-
volves two priately precede of different one of which adjustment general the other. The first is the revenue level to the adjustment of a fair return. demands The second is the conforming of a schedule level so as to eliminate discriminations and unfairness from its details.” In the reasonableness of the seven-cent fare it is determining incumbent to consider Court the reasonableness of each factors, of these three for it is if axiomatic that one any of the three is not reasonably supported by proofs, rate of fare itself is unreasonable.
217 is, as rate base an adequate of 1. The determination The rate in any proceeding. fimdamental the term applies, utility the public fair value of property rate is the base In Atlantic service. in the useful public is used and Commissioners, Utility Public v. Board City Sewerage Company affirmed, 129 Ct. 1942); L. 365 (Sup. 128 N. J. supported & A. a case 1943), amply N. J. L. 401 (E. a just is entitled to that a
authorities, “utility it was held of its at the time the fair value of property return upon and the public the public, the convenience of employment that “a rate exactions” and unreasonable to protection against not used valuation or upon property an excessive upon based to such subject regu the service in the renditions of or useful individual user burden lay would obviously lation thus worth of accommodation than the reasonable greater unreasonable laden with is not to be The public supplied. bemay provided dividends rates in order that or extortionate fair rate The base figure stockholders. utility’s as an integral the plant value is determined by viewing entering whole, properly all the elements unitary considering return for supplying of a reasonable the ascertainment into that there be ‘an honest It is requisite need. values; and this future forecast’ of probable intelligent a fair of the prob prediction includes necessity making in the a reasonable period levels during able price wage well of all other future, and a as consideration immediate facts and circumstances.” relevant the deter useful a number of formulae
There are cost, depreciated value: depreciated original mination of fair less cost of the investment, property prudent reproduction as distinct the service cost of depreciation, reproducing But undoubtedly are others. and there property, indeed, any single not use and, should Board is not bound at a proper formulae arriving formula or combination of is not controlled base, of fair value for the determination the reason reflect formulae, but should rules or by arbitrary facts, all the relevant able the Board based upon judgment City Utility Sewerage Company Atlantic v. Board Commissioners, affirmed, N. J. L. 359 Ct. 1942); (Sup. free, 129 N. & (E. J. L. 401 A. Board is not 1943). however, to arrive at a fair a utility’s value based solely upon account, books of as the admit Companies *19 Public Service was in done the In here under review. their brief proceeding is stated: Companies “The did not contend that the rate base introduced proceedings by repre-
in the initiated the Order Board’s Show Cause ** * present property. sented the fair value of the It was based original plant by properly unon cost of of as shown the books plus intangible property, account the reduction of book cost of depreciation reserve, working capital. minus no for with allowance Companies sought upon “Had the a rate base to establish which return, a earn fair the evidence introduced been of a would have vastly however, This, different character. not the the was case and figures was, therefore, appropriate use of book cost in the circum- stances.” The inherent in dangers the books of at face account accepting value in a rate are proceeding apparent. prescription a uniform system commissions, of accounts by such regulatory as the Board of Commissioners, Public Utility has been uni- formly accompanied the by qualification that prescribing the system of accounts, the not commissioners do commit themselves to the or item set approval any out acceptance in any account the rates in deter- purpose or fixing other matters the mining before commission.
Feither this Court nor the the Board can books accept of acount at face value in a rate case public utility which is failure always reasonableness the issue. The primary of the Board to that it under behind recognize duty was to go realities, the shown the at figures by companies’ books and get is well when, illustrated by fact that on cross-examination by interested witnesses for the one party, principal companies did know how had they testified he much commissioners, for a paid bus one of particular property, cut short instead of information be requiring produced, he did not “He said by stating: into the facts inquiry must He is under It know. We have to that. oath.” accept proceed- be that rate is not an emphasized adversary making a prima in which the needs party only present ing applying There must be case in order to be entitled to relief. facie various in the record not as to amount of the proof only which reason- also evidence accounts but sufficient Indeed, B. can determined. S. ableness of accounts that "The burden of proof 48:2-21(d) specifically provides increase, to show that or alteration change [in rates] and reasonable shall be just utility making evidence, the same.” such determination Lacking any rates must arbitrary be considered unreasonable. con the Public Service Companies
In this proceeding which, as indicated $61,404,587, tended base of Board, dis- facts, adjusted statement of our items, to of certain a figure and adjustment allowance $47,127,365. companies No was offered by proof included, the items therein support demanded *20 record is of The than the books account. companies’ other can from which this Court thus sufficient evidence lacking rate determine whether this base reasonable. is clearly rate base proper of establishing importance cent of 8.12 per a rate of return fact that by
demonstrated the com- the $3,827,054, representing if the is produced figure Board, is as found income adjusted operating panies’ re- the rate of whereas $47,127,365, a rate base of related to $17,233,538 allegedly if the 12 cent per is in excess of turn related to property of intangible' cost representing auto bus properties of the various and acquisition organization said At it was hearings rate base. from the is eliminated the purchase reflected the difference between that this figure inde- many property and the value of tangible price Companies Service the Public acquired by routes bus pendent these intangibles Board found that time. The time to from length bargain- made "arm’s expenditures resulted from value functional represent "continue and that they ing” a finding, the investors.” Such been recouped by have not and however, is a conclusion evidence merely unsupported by any in a On other record. hand would appear before the and Securities Commission proceeding Exchange under Section of the Public Utility Company 11(g) Holding G., Act of 1935 et the Public (15 U. Service seq.), 8. § as an Companies, them integral part plan designed by preserve State, their utility holdings throughout proposed to the Securities and Commission eliminate Exchange their $50,517,409 fixed accounts some capital of intangibles applicable to their street car and bus properties, including $17,233,538 of intangibles here included Utility Commissioners in their base. All but $7,500,000 of this amount was to be taken out of surplus to the Public Service entire amount according proposal (the was not written off at once because of the fact that it would have resulted in a capital deficit), $7,500,000 and this to be amortized out of net income at the rate at least $500,000 a year. This after proposed plan was effectuated Ex- hearings by appropriate order of the Securities 30, 1947, Commission on December change which was ap- proved in three orders of the Board of Public Utility Com- missioners on March 1948.
In any these spite without proceedings reference to them in its decision order any without it, evidence proper before Board allowed inclusion of $17,233,538 as the cost of related to intangible property organization to the acquisition auto bus now properties included in the system state-wide of the Public Service Com panies. The burden is on the as hereinbefore companies, stated, R. 8. 48:2-21(d), supra, establish by competent that the items this sum are in comprising properly evidence *21 cludable in the rate It base. is the rule in this recognized State that an allowance made may be for value as a going concern in base, the rate if determining there is sufficient evidence amount, to determine its and if it has not been in cluded elsewhere in the valuation if property, has not been recouped the prior of the business. earnings
321 City Atlantic Sewerage v. Board Company Public Utility Commissioners, 128 N. J. L. 359 affirmed, Ct. (Sup. 1942); 129 N. J. L. 401 & A. (E. 1943); Public Service Gas Com v. pany Commissioners, Public Utility 84 N. J. L. 463 Ct. (Sup. 1913); reversed in 87 N. J. L. 581 part, (E. & A. but 1914); affirmed in toto on 87 N. J. L. rehearing, 597 A. (E. & 1915); dismissed, appeal U. S.
61 L. Ed. Ct. 243 Sup. (1917). value, however, concern is not Going to be confused with that value which attach a intangible may franchise from the State and which not be included in may the com of a rate putation base. B. S. 48:3-5 provides that no public shall utility “Capitalize franchise a any to be or corporation” “Capitalize any amount, franchise excess of the exclusive tax annual any actually to the state or charge, paid any subdivision thereof as the political consideration of the fran chise.” The as to whether the question value of intangible franchise from the State properly to be included in a rate base was one of issues in principal the case of Public Gas Company Service v. Board Commis Utility sioners, cited Mr. supra. Justice Swayze, writing opinion for the Court, former said in Supreme that case N. J. L. (84 463, 480): where, may case, “But as in this the rate is not fixed and changed, there is no stable basis which to calculate the value franchise, dependent upon since that value is the rate. The reasonable, indeed be
rate must to assume for the franchise value in order to determine the reasonableness of the rate is to reason in circle; mutually dependent, the value and rate are and one independently if must be fixed it is to form a basis for the calculation of the other.” On was reversed appeal this holding Court of Errors N. J. L. Appeals (87 581). however, a Subsequently, and the ordered Court of Errors and reargument Appeals its N. J. L. and affirmed changed position (87 597) the judg- review ment under reasons expressed the opinion Mr. Justice An Swayze. below from this appeal decision and Appeals of the Court of Errors was dismissed *22 alsoWe 666). Court U. S. (242 Supreme States United is whether the franchise makes no difference that it consider (or political State utility directly by obtained utility. from another purchased thereof) subdivision be the same service cannot for The rate charged of a the sale of a franchise as merely part by compounded even where the transaction to another by utility one business “arm’s is at length.” rate as at a base proper
2. as important arriving Equally as this is the necessity determining in a such proceeding the items of to be allowed expense the reasonableness of and net income of the This utility. the operating computing matter in the situation that especial inquiry should be a where one of the companies, here exists petitioning Interstate is a owned Transportation Company, wholly Service Public Service company, other subsidiary applying which in turn is a owned sub- Transport, wholly Coordinated of Public Service Electric Gas Under sidiary Company. these circumstances amount of certain items of expense, e.j i. terminal and office facilities and joint joint supervisory are fixed not of the market personnel, competition place but parent companies. fare cannot
The reasonableness of seven-cent in the determined absence of present competent intelligently evidence which to measure reasonableness of the allowed with a revenue the income expenses, given companies’ with the of their varies amount and the rate directly expenses to the of return fluctuates ratio between their in according and the base. Much has been said with come respect as to the rate base is here proof adequacy applic A in a rate must bear the utility able. burden proceeding the amount of its and other only proving operating also the burden of basis of the expenses, proving its accounts and the expense propriety charges including for rate-making purposes. such charges It be mentioned here that if the annual should amortization $17,233,538 is to be intangibles treated as properly from annual deduction revenue in operating determining allowable expenses purposes, the rate-making companies *23 bear of again the burden the proving validity of such deduc- tion, B. S. supra. 48:2-21(d),
We are not unaware of the provisions of B. 8. 48:2-32 to the effect that the Board is not bound the by technical rules evidence and is of thereby permitted, as indeed are all adminis trative to consider matters agencies, which not be ad might law, in a of missible court without error. constituting Nevertheless, must there still be sufficient competent evidence in the record to the support of reasonableness the rates arrived at, a since court is of necessity restricted a review of fixed the rates the Board to a consideration of the record If so, this were not before right of it.. interested party a to review of Board’s determinations would be a mean formality, for the ingless decision of the appellate tribunal under such circumstances would be the result of but guesswork or caprice. the rate
3. The reasonableness of of return is likewise a in any factor to be considered rate In the proceeding. instant found, the Board other among case the rate things, of $47,127,365 return on rate base of computed with an ad- $3,827,054 income of operating would be 8.12 justed cent, per this is reduced to 7.56 if cent the net per additions although $3,512,053 to made plant equipment of the first during 1949 be added months of to the rate base. It was six also adjusted the net income found that first full twelve of under the months seven-cent fare amounted operation This net income is $2,752,463. to a return of equivalent 9.41 of on a share stock companies’ cent a stated per having also indicated that $60. for the calendar value cent; return share 4.1 per 1948 the and for per year 1, 1948, 31, 1949, January October period, 22-month 5.57 however, share was cent. per Obviously, these per return have no relation two reasonableness figures latter considered, fare should be for both include seven-cent under the operation previous By five-cent fare. months six $17,233,538 of are excluded contrast, if the intangibles ofway the Board and base resulting base found $3,827,054 $29,894,827 adjusted compared operating Board, the rate return becomes 12.8 used income unreasonable, manifestly This is extortionate cent. per rates. It day low interest present view of particularly noted, furthermore, that in its decision of May to be five the fare increased from to seven when was originally that an estimated cents, the Board itself considered return cent was reasonable. approximately per made much of Companies Because Public Service few systems transportation were one they fact fare, it should still five-cent country operating are little comparisons that such value passing mentioned have The Public Service routes been Companies’ case. in this *24 fare. the basis of five-cent The size into zones on divided the amount of the fare with determines the a zone together of service. Eor transportation made for this rea- actual charge with rates elsewhere must be made on any comparison son fare, of ride obtainable for a and of length given the basis It a fares themselves. may just comparison made, if a were it would that such be dis- comparison well be that the made to the being public real charge riding covered that localities, is in excess of in other this State even blush, it appear at first that the else- might charges though, higher. where were this fix has Court suggested State a rate a 4.5 to cent on base of per rate of
as reasonable first, do for two reasons: as $30,000,000. This we cannot in evidence indicated, the record lacking previously determined; be and second, can a rate base proper which function, judicial fix is not legislative rates power Public has created Board of one, Utility and the State for that purpose, as its Hackensack agent Commissioners Commissioners, Public Utility v. Board Company Water & A. The chief 1921). power J. L. 184 this 96 N. (E. is to review reasonableness of cases rates Court can however, fixed Board. We say, that the rate which should public utility may reasonably charge be sufficient to and furnish a reward good management for ef- encourage under ficiency, utility, enable efficient and economical and credit; to maintain its operation, support and to enable it to raise for the money necessary of its proper discharge duties. It can never be than the public more reasonable worth of the service neither it be supplied; can fixed so low as to be If within these limits and confiscatory. by com- supported evidence, rates set the Board petent would be clearly just and reasonable. has amply
It been demonstrated on this appeal that action the Board of Public Utility Commissioners in basic for the fare Public Service raising Companies from is, five to seven cents was the evidence unsupported by therefore, unreasonable unlawful. Since no adequate rate base the Public Service has ever Companies been properly established, it is our judgment any increase rates on the basis of O'Brien v. granted Utility Commissioners, 92 J. L. 44 1918); N. Ct. (Sup. affirmed, & L. 587 A. 92 N. J. would 1919); be (E. un patently reasonable. Accordingly, pursuant the provisions of 48:2-47, 5, May 1949, B. S. December the Board of Public Utility orders of Commissioners which raised the rate of fare the applying companies from five set hereby unjust cents are aside as to seven unreasonable to the and the case is remanded Board of Public Utility Com so that these may continued, missioners proceedings and the to the interested municipalities, due notice *25 an rate base and a permanent the end that adequate rate may to statute and not pursuant be established inconsistent with of this ourt. opinion the Rehearing. Petition eor
On with the opinion who voted No judge having Per Curiam. is, for under the petition rehearing the a rehearing moved Court, denied. the practice
2-26
In view the nature unusual for petition rehearing, in the face of a unanimous decision of the Court, it bemay well to summarize the in steps the consideration of the case. The matter was first considered on State’s for petition certification which was opposed by respondent companies but which we After and the briefs granted. accompanying appendices filed, were each Justice not appeal only but, studied the briefs in line with practice, our his prepared memorandum individual thereon. The time for typewritten on each side and enlarged oral two intervenors argument Every bus lines were also heard. independent representing at at our con- length of the case was considered weekly aspect The draft opinion. ference preliminary drafting changes in conference discussed intensively was likewise every views of reflect the that the opinion might were made so ' The form, in it does. which, its revised Court, member distinctive The only is our normal procedure. pursued course discussed procedural question in the case were features the respond- resulting opinion complications rate application turned an emergency ent companies having in- without notice to rate base proceeding into permanent unprecedented. This was terested parties. likewise been considered
The for has rehearing petition Case had Mr. Justice who Court every except member before the was distributed petition on vacation country left with thereto. As to respect we all also conferred have which were briefed therein contained argued the matters us for decision we find were before properly nothing that casts doubt any for on our rehearing the petition read. impartially if opinion, mentioned in the petition matters rehearing under the order review are not properly since that have arisen have we FTor power bring this appeal. us on before Utility the Board they before of Public go us them before especially We were concerned with the state Commissioners. rehearing: petition ment
227 “Subsequent Opinion to the of of issuance this Court Utility requested Petitioners of Public Commissioners negotiations temporary pursuant enter into for a to R. 8. provides 48 :2-21.1 which : “ may, any during pendency hearing ‘The board of insti- by it, complaint, tuted on its own initiative or on which the in * * * approval fixing just or of individual reasonable rates any issue, time, negotiate any agree or at other with * * * public utility adjustment for of the individual rates any product supplied by for or service or rendered such utility. adjustment may for, without, specified' Such be or any adjustment regarded of limit time. In no event shall such be adjustment subject as contractual. Such shall at all times be change proceedings provided through by chapter, for this through negotiation agreement under this section. The part any negotiation adjustment board as a of such shall
provide suspension continuance, disposition for the or other any hearing pending.’ of the character aforesaid then Utility proceed Board of Public “The Commissioners refused to as provided by basing statute, their refusal the Decision they interpret require and Mandate of this Court which further hearings by 30, on the Petition filed the Petitioners on October 1947.” We therefore asked the Board of Public Utility Commissioners for a copy such order of and the application, refusal 10, Board’s minutes thereto. date relating July Under the President the Board informed us letter: by by Drew, Secretary “I am informed Emmett T. of the Board of Utility Commissioners, you requested any copies have by application Transport made Public Service Coordinated and Public Transportation seeking Interstate Service Co. to have this Board negotiate temporary authority together rate under of R. 8. 48 :2-21.1 any copies denying application with order and the Board’s respect minutes with thereto. proceedings be advised that “Please no formal have been taken companies P.S.C.T. P.S.I.T. this matter and therefore the sought supplied. records cannot special I Pages wish “In this connection to make reference to 16 petition rehearing companies, and 17 filed these order to inform the court of the exact facts. Ingham, William H. “On June Blake and Winslow at- torneys companies, for the two came to the Board’s officesat Newark They willing for a asked conference. whether the Board would be they negotiate temporary promptly rate and were informed *27 They any each member that we would under circumstances. not do so they making request then and desired said would write a letter reply not ne- our in confirmation would statement we our gotiate temporary rate. letter has been received.” This opinion Suffice it for us in our to say nothing Com Utility wise any limits the of the Board power not con missioners under B. 48:2-21.1. That statute was 8. however, strued us in It opinion. may our pertinent, 49, 17 years observe that it was in 1935 as passed Chapter case, after We cannot the O'Brien which was decided in 1918. assume, do, that would have us as the petition rehearing will not do its coordinate branch the State Government it, be done full when the case is remanded to which will duty forthwith. denied matter will and the petition reargument at
be remanded once. For and remandment—Chief Justice reversal Vandekbilt, Oliphant, Hehek, Wacheneeld, Bur- and Justices Case, ling Aokerson—7.
For affirmance—None. PLAINTIFF-APPELLANT, WHITE, ELLISO v. JOHN N CORP., A OF THE STATE OF REALTY CORPORATION JERSEY, DEFENDANT-RESPONDENT. NEW Re-argued on Argued Court’s own motion June 19 June Decided June1950.