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May 1, 1952

LEEMAN et al.

The opinion of the court was delivered by: HOLTZOFF

These are three appeals from orders of the Public Utilities Commission of the District of Columbia increasing rates for electric power furnished by the Potomac Electric Power Company. Each of the appellants is a consumer and claims that the increases granted by the Commission are not warranted. The appeals were consolidated for hearing.

These appeals are taken pursuant to a statute, D.C.Code, 1940 Ed., Title 43, Section 705, which confers on the United States District Court for the District of Columbia jurisdiction to hear and determine any appeal from an order or decision of the Commission. Any public utility or any other person or corporation affected by any final order or decision of the Commission, with an exception that is not material to the issues in these proceedings, may take an appeal therefrom within sixty days after final action by the Commission upon a petition for reconsideration.

 Potomac Electric Power Company, the public utility involved in these proceedings, is engaged in the business of supplying electric power within the District of Columbia, and certain parts of Maryland and Virginia adjacent to the nation's capital. Most of its operations in Maryland and Virginia are confined to urban areas immediately adjoining Washington, D.C. Some customers, however, are located in rural sections beyond these urban centers. The amount of business conducted in the rural districts forms, however, a very small proportion of the company's activities. Insofar as it does business in Washington, D.C., the company is subject to regulation by the Public Utilities Commission of the District of Columbia. Similar regulatory bodies of Maryland and Virginia have comparable authority over the business carried on by the company in those States.

 On July 28, 1950, the company submitted to the Commission an application for an increase of rates. The Commission conducted a series of hearings on this petition, at which detailed testimony and voluminous documentary evidence was introduced. On February 12, 1951, the Commission rendered a decision (Order No. 3762) granting certain increases. The opinion and the findings of the Commission indicate that the matter was studied in great detail and scrutinized with painstaking and meticulous care. The lengthy opinion of the Commission contains a close analysis of the pertinent testimony, detailed findings of fact, and an enlightening discussion of the matters in controversy.

 In due course the company submitted detailed rate schedules in accordance with the foregoing order. After another series of hearings at which the proposed rates were considered, the Commission on March 20, 1951, issued an Order, No. 3774, approving the new schedules, on the basis of a finding that 'the distribution of the authorized increase in gross operating revenue by classes of service, are in substantial compliance with the views of the Commission expressed in Order No. 3762.' The Commission further found that these rates were just, reasonable, and nondiscriminatory. The final outcome was an increase of 5.5% for residential consumers; 6.3% for low voltage commercial customers; 8.6% for high voltage commercial consumers; 27% for street lighting; and 23.1% for street railway service.

 It is understood that the Maryland and Virginia Commissions cooperated by promulgating similar rates within their respective jurisdictions. Their counsel were permitted to appear in these proceedings as amici curiae.

 The three appeals here for consideration were filed in this Court by various consumers, who claim that the increases in rates were not warranted. Appellant Leeman is a residential consumer and contends that residential rates should not have been raised. Appellant Capital Transit Company is a public utility operating street car and bus lines in the District of Columbia and adjoining territory, and is a large consumer of direct current. It asserts that the rates fixed for the power furnished to it are too high. The third appellant, the United States of America, is also a large consumer and objects to the increase of rates so far as it is concerned.

 At the outset it is important to chart the scope of judicial review. These proceedings differ in principle from actions brought by public utilities challenging a rate fixing order on the ground that the rates are confiscatory. Proceedings of the latter type present questions of deprivation of constitutional rights and, therefore, entitle the aggrieved party to broad judicial review. These appeals, on the other hand, are brought by consumers who claim that the rates established by the Commission are too high. No constitutional question is involved. The appeals are purely statutory and the range of judicial review is limited and restricted by Act of Congress.

 The applicable statute provides, first, that the review by the court shall be limited to questions of law; and second, that 'the findings of fact by the Commission shall be conclusive unless it shall appear that such findings of the Commission are unreasonable, arbitrary, or capricious', D.C.Code, Title 43, Section 706. It perhaps may be said that a finding is unreasonable, arbitrary and capricious if it is not sustained by substantial evidence.

 The basic principles of judicial review of rate-fixing orders of administrative bodies were formulated in Federal Power Comm., v. Hope Gas Co., 320 U.S. 591, 602, 64 S. Ct. 281, 288, 88 L. Ed. 333, as follows:

'It is not theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the Act is at an end. The fact that the method employed to reach that result may contain infirmities is not then important. Moreover, the Commission's order does not become suspect by reason of the fact that it is challenged. It is the product of expert judgment which carries a presumption of validity. And he who would upset the rate order under the Act carries the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences.'

 In Mississippi Valley Barge Co. v. United States, 292 U.S. 282, 286-287, 54 S. Ct. 692, 694, 78 L. Ed. 1260, Mr. Justice Cardozo, in his usual felicitous manner, expressed a similar doctrine:

'The structure of a rate schedule calls in peculiar measure for the use of that enlightened judgment which the commission by training and experience is qualified to form. Florida v. United States, 292 U.S. 1, 54 S. Ct. 603, 78 L. Ed. [1077], April 2, 1934. It is not the province of a court to absorb this function to itself. I.C.C. v. Louisville & Nashville R. Co., 227 U.S. 88, 100, 33 S. Ct. 185, 57 L. Ed. 431; Western Paper Makers' Chemical Co. v. United States, 271 U.S. 268, 271, 46 S. Ct. 500, 70 L. Ed. 941; Virginian Ry. Co. v. United States, 272 U.S. 658, 663, 47 S. Ct. 222, 71 L. Ed. 463. The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body.'

 The questions that this Court may consider, therefore, are: first, whether the Commission has committed any error of law vitiating its order; second, whether its conclusions are adequately supported by findings of fact; and third, whether the findings of fact are sustained by substantial evidence.

 Before entering on a discussion of the merits, a preliminary procedural matter should be mentioned. The applicable statute, in effect, provides that in order to be qualified to appeal from an order of the Commission, the party claiming to be aggrieved must make an application to the Commission for reconsideration within thirty days after the publication of its final order or decision. It is objected by the respondents that the United States of America is not entitled to be heard on appeal because of alleged failure to comply with this requirement. Admittedly the United States filed no petition for reconsideration within the thirty-day period after the promulgation of the first order of the Commission, that is Order No. 3762, dated February 12, 1951. Such a petition was filed by it, however, within thirty days after the making of the final order of the Commission, dated March 20, 1951. On preliminary motions to dismiss the appeal of the Government, this Court held that the United States satisfied the statutory provision, since the first order of the Commission was in effect an interlocutory order formulating merely the principles on which the new rate schedules should be prescribed, while the second order prescribing the actual rates should be regarded as the final order. The situation is similar to that of an interlocutory judgment of a court followed by a final judgment. An appeal from the final judgment brings up for review questions determined by the interlocutory decree. In the same manner in this case the final order prescribing the actual rates brings up for review the prior order, which formulated the principles on which the new rates should be based. In view of these considerations the motions to dismiss the appeal of the United States were denied.

 The principal objection advanced against the orders under scrutiny is that the Commission in fixing the rate base and in determining the cost of furnishing service, considered all of the property and all of the operations of the company as an entirety. It is contended that this course was erroneous and that the Commission should have segregated the property employed and the costs incurred in connection with the operations of the company in the District of Columbia and should have fixed the new rates on that basis. It is urged that the Commission had no legal right to consider as a single unit all of the business of the company, including its activities in Maryland and Virginia. It should be observed, however, that this objection is raised by appellants Leeman and Capital Transit Company, but is not advanced by the United States. The objection involves a basic question of law in the field of rate regulation and requires thorough consideration. The question can be best approached by an examination and analysis of the decisions of the Supreme Court on this point in chronological order.

 In Smyth v. Ames, 169 U.S. 466, 541, 18 S. Ct. 418, 432, 42 L. Ed. 819, one of the early decisions in the field of rate regulation, the Court was confronted with the problem of determining the constitutionality of a State statute fixing railway rates. It was contended in behalf of objecting railways that the rates were confiscatory. It was argued in support of the validity of the statute that the reasonableness of the rates was not to be determined by the inquiry whether such rates would leave a reasonable net profit from the local business affected thereby, but that the Court should take into ...

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