244 A.D. 436 | N.Y. App. Div. | 1935
Under certiorari we are reviewing the orders of the Public Service Commission fixing what is described as “ temporary emergency rates ” for electrical energy sold in the city of New York. Orders made on August 18, 1933, affected both New York city and Westchester county. The Westchester Lighting Company operates in the upper part of the city of New York and Westchester county. It was required to decrease rates by not less than three per cent in each area. The other four petitioners were required to decrease rates by not less than six per cent. Orders
The petitioners offered in evidence proof concerning the present value of the property used in the public service, the going value and the necessary amount of working capital. It was gU excluded except that as to working capital. The Chairman of the Commission stated: “ It is obvious that if this testimony were received at this time, it would lead into every phase of valuation and rate making and there would be no temporary rates,” In the application for a rehearing, the petitioners assigned error as to the above items, and complained that they had not been permitted to introduce evidence showing a very substantial increase in operating expenses oyer 1932 caused by lessening the hours of labor and increasing the scale of wages as required by the National Industrial Recovery Administration and the payment of nearly $4,000,000 of additional taxes under new Federal statutes and $1,250,000 under new local tax laws of the city of New York. This evidence was rejected on the origiuul hearings because the companies had not adopted the codes and signed the agreement to operate their business under the rules of the NIRA.
After the August orders were made, the companies adopted the codes and signed the agreements under the NIRA, and then petitioned for a new hearing. This was granted but the scope hmited tp li the definite effects upon, said corporations of the agreements and/or codes entered into by said corporations under the National Industrial Recovery Act, and with respect to other definite effects of the National Industrial Recovery Act upon said corporations, since the close of the bearing herein on August 9, 1933; ” auff in all Other respects the petitions were denied. Upon the
The orders under review establish what the majority of the Commission designate as “ temporary emergency rates.” In recent
The application of the emergency doctrine as it is now applied had its modern revival if not its origin in the September rent cases. (People ex rel. Durham R. Corp. v. La Fetra, 230 N. Y. 429; error dismissed, sub nom. People ex rel. Brixton Operating Corp. v. La Fetra, 257 U. S. 665.) Quoting from the opinion in the Court of Appeals, “ Emergency laws in time of peace are uncommon but not unknown. Wholesale disaster, financial panic, the aftermath of war, * * * earthquake, pestilence, famine and fire, a combination of men or the force of circumstances may, as the alternative of confusion or chaos, demand the enactment of laws that would be thought arbitrary under normal conditions ” (p. 444). Emergencies may be declared to exist by the Legislature but not by its delegate. “ Whether or not a public emergency existed was a question of fact, debated and debatable, which addressed itself primarily to the Legislature. That it existed; promised not to be presently self-curative, and called for action, appeared from public documents and from common knowledge and observation. If the law-making power on such evidence has determined the existence of the emergency and has, in the main, dealt with it in a manner permitted by the constitutional Hmitations upon legislative power, * * * the legislation should be upheld” (p. 440). The Legislature has not declared that an emergency exists in the electric utility field, and the Commission may not confiscate past earnings and accumulations of petitioners. The law under which the Commission acted (Public Service Law, § 72) empowered it to “ authorize an immediate, reasonable, temporary increase or decrease in silch price [for electric service] pending a final determination of the price to be thereafter
The Commission was empowered to fix temporary rates “ pending a final determination ” as to permanent rates. It was stated at the beginning of these hearings that they were to be conducted in a practical way so as to deal promptly with rate complaints “ in this extreme emergency.” At the conclusion of the hearings in August, the majority opinion states, “ We come now to consider what reductions should reasonably be made and how long they should continue, Possibly the last point should be considered first. It is impossible for any one to predict how rapidly conditions will improve. * * * All hope that a genuine and lasting recovery is at hand, However, at the end of one year, conditions may have so changed that an order issued now will be unjust either to the public on the one hand or the company on the other* I suggest, therefore, that the order be limited to one year from September first,” The suggestion was adopted in the order then made. Obviously these temporary rates were not fixed “ pending a final determination ” of a permanent rate proceeding, but were adopted pending the final termination of the national and worldwide depression. However, were the rates in effect temporary rates of the kind that the Legislature authorized the Commission to make, they would stiff be final legislative acts “ as to the period during which they should remain in effect pending the final determination; and if the rates prescribed were confiscatory, the company would be deprived of a reasonable return upon its property during such period.” (Prendergast v. New York Telephone Co.,
Petitioners, not the public, own these electric properties, and this review, like all similar ones, presents the question whether the rates provide a fair return for the use of the property. All relevant facts may be considered in determining value, but consideration is to be given facts, not formulas. Among the facts which the courts have held to be proper subjects for consideration is the actual cost of the property — the investment the owners have made. Likewise the cost of reproduction as of the time when the rates will be in force, giving due regard to depreciation and obsolescence. The fact-finding body is to determine the relative weight to be given actual cost, historical cost and reproduction cost under the facts and circumstances which are proven to exist. The result, however, must be rates that will pay to the owners a fair return upon the reasonable value of the property at the time it is being used for the public. (Smyth v. Ames, 169 U. S. 466; Minnesota Rate Cases, 230 id. 352, 434; McCardle v. Indianapolis Water Co., 272 id. 400, 411; St. Louis & O’Fallon R. Co. v. United States, 279 id. 461, 484, 485; Los Angeles Gas Corp. v. Railroad Commission, 289 id. 287.) “ The property is not ordinarily the subject of barter and sale and, when rates themselves are in dispute, earnings produced by rates do not afford a standard for decision. The value of the property, or rate base, must be determined under these inescapable limitations. And mindful of its distinctive function in the enforcement of constitutional rights, the court has refused to be bound by any artificial rule or formula which changed conditions might upset. We have said that the judicial ascertainment of value for the purpose of deciding whether rates are confiscatory ‘ is not a matter of formulas, but there must be a reasonable judgment having its basis in a proper consideration of all relevant facts.’ ” (Los Angeles Gas Corp. v. Railroad Commission, supra, p. 305.) This is far from saying that the correctness of the conclusion reached after considering facts may not be checked as to its accuracy by the experiences of the past, including earnings, dividends, increase of surplus and other revealing data, but formulas, derived from past earnings, dividends and the increase of surplus may not be a determining factor in fixing the value of the property which belongs to a private person or corporation. “ Profits of the past cannot be used to sustain confiscatory rates for the future.” (Board of Public Utility Commissioners v. New York Telephone Co., 271 U. S. 23, 32.)
One-half of the new Federal taxes was allowed as an operating expense, the other half charged to the stockholders. The entire amount should have been mcluded in operating expenses. “ In calculating whether the [rate] will yield a proper return, it is necessary to deduct from gross revenue the expenses and charges; and all taxes which would be payable if a fair return were earned are appropriate deductions. There is no difference in this respect between State and Federal taxes or between income taxes and others. But the fact that it is the Federal corporate income tax for which deduction is made, must be taken into consideration in determining what rate of return shall be deemed fair.” (Galveston Electric Co. v. Galveston, 258 U. S. 388, 399.)
The burden of proof was upon the petitioners in these proceedings. The evidence which they offered as to the physical and going value of their plants should not have been excluded. It was admissible, and the Commission should have received and considered it.
The Commission has determined that six per cent is a reasonable average return upon petitioners’ property. This is neither approved nor disapproved. However, mention must be made of the Commission’s construction of the words “ reasonable average return.” Quoting from the majority opinion, “ The law refers to a ‘ reasonable average return.’ There is no requirement that the return in
Lindheimer v. Illinois Bell Telephone Co. (292 U, S. 151) was a suit brought in the United States court in 1923 to restrain the enforcement of rates established during that year by the Illinois Commerce Commission, The final hearings in the suit were had in 19.33, The actual experiences of the telephone company as to operating revenues and expenses, net income, dividends and accretions of capital and surplus for all the years between the making of the rate order and the trial of the case were before the court on the appeal. Concerning the wide difference between the. estimates and calculations of the experts and the actual experience of the company, the court said (p. 164): “ Elaborate calculations which are at war with realities are of no avail. The glaring incongruity between the effect of the findings below, as to the amounts of return that must he available in order to avoid confiscation, and the actual results of the company’s business makes it impossible to accept those findings as a basis of decision,” By the terms of the orders under review in this matter, the period during which the rates were to apply has passed, The final determination as to the legality of the rates set up will have no effect upon either the current prices paid by consumers or those which have been paid since September 1, 1934. It will, however, determine the ownership of more than 18,000,000 impounded under the restraining order-. If the rates as fixed for the year beginning September 1, 1933, are finally determined to be confiscatory, the money will belong to the companies, if sustained it will belong to the consumers, As in the lindheimer case, time has now elapsed so realities may replace conjectures and estimates, or at least may be used to check conjectures and estimates.
The determination of the Public Service Commission should be annulled and matter remitted to the Commission for a new and further hearing on the merits, with fifty dollars costs ahd disbursements payable to the petitioners.
Rhodes, McNaMee, Crasser and Heffernan, JJ., concur.
Determination of the Public Service Commission annulled and matter remitted to the Commission for a new and further hearing on the merits, with fifty dollars costs and disbursements payable to the petitioners.