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October 10, 1938


The opinion of the court was delivered by: DAVIS

DAVIS, Circuit Judge.

This was a suit in equity brought by the Edison Light & Power Company, hereinafter called the company, to restrain the respondents, The Pennsylvania Public Utility Commission, hereinafter called the commission, and the persons composing the commission individually, from enforcing its "temporary rate" order of November 30, 1937, directing the company to file a tariff supplement effecting a reduction of approximately $435,000 in its annual gross revenue.

 It should be stated at the outset that this court is not a rate-making body. The function of fixing the rates of a public utility belongs to the Commonwealth. It has the right to control private corporations, whose business, necessarily monopolistic in character, is affected with a public interest. That control, where the fixing of rates is involved, is exercised through one of its agencies, the Public Utility Commission. In exercising this control, the rights of both the public and the corporation must be considered. The company is entitled to a fair return on a fair value of its property devoted to the public service. The return can not be so high as to exceed the value of the service to the consumer and can not be so low as to confiscate the property devoted to that service. In other words the company is entitled to ask a fair return upon the value of the property which it employs for the public convenience and the public is entitled to demand that no more be exacted from it than the services rendered are reasonably worth. Neither is entitled to anything more than these reciprocal rights.

 The company, feeling aggrieved by the order, made application for a statutory court pursuant to the provisions of section 266 of the Judicial Code, 28 U.S.C.A. § 380. An order convening such court was signed on December 14, 1937 and on the same day a preliminary restraining order was entered against the commission upon the entry of a bond by the company for $75,000. The motion for an interlocutory injunction came on for hearing on January 17, 1938. At the conclusion of the hearing, the restraining order was continued upon the filing of a bond by the complainant for $150,000. It was agreed between the parties that the matter be treated as an application for a permanent injunction.

 The company contends that this section 310(a) is unconstitutional for the reason that it permits the commission to fix a temporary rate of only 5 per cent. of the original cost, less accrued depreciation of the physical property (when first devoted to public use) of the utility, thus basing the rate upon only one element of the utility's property instead of upon all of its property as the decisions of the Supreme Court require.

 The Supreme Court in the leading case of Smyth v. Ames, 169 U.S. 466, 547, 18 S. Ct. 418, 434, 42 L. Ed. 819, said the following elements must be considered in finding the fair value of the property of a public utility, devoted to the public use: "And, in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses, are all matters for consideration, and are to be given such weight as may be just and right in each case."

 From the time of that decision until the present the Supreme Court in case after case has declared that these elements must be considered by rate-making bodies in fixing a fair return on the fair value of the property of a utility devoted to the public service. Des Moines Gas Company v. City of Des Moines, 238 U.S. 153, 35 S. Ct. 811, 59 L. Ed. 1244; Missouri ex rel. Southwestern Bell Telephone Co. v. Public Service Commission of Missouri et al., 262 U.S. 276, 43 S. Ct. 544, 67 L. Ed. 981, 31 A.L.R. 807; St. Louis & O'Fallon Railway Co. et al. v. United States et al., 279 U.S. 461, 49 S. Ct. 384, 73 L. Ed. 798; United Railways & Electric Co. v. West, 280 U.S. 234, 50 S. Ct. 123, 74 L. Ed. 390; Los Angeles Gas & Electric Corporation v. Railroad Commission, 289 U.S. 287, 53 S. Ct. 637, 77 L. Ed. 1180; Dayton Power & Light Co. v. Public Utilities Commission of Ohio, 292 U.S. 290, 54 S. Ct. 647, 78 L. Ed. 1267; Columbus Gas & Fuel Co. v. Public Utilities Commission of Ohio, 292 U.S. 398, 54 S. Ct. 763, 78 L. Ed. 1327, 91 A.L.R. 1403; West v. Chesapeake & Potomac Telephone Co., 295 U.S. 662, 55 S. Ct. 894, 79 L. Ed. 1640. The law of Pennsylvania is to the same effect. Bangor Water Co. v. Public Service Commission, 82 Pa.Super. 48; City of Erie et al. v. Public Service Commission, 278 Pa. 512, 123 A. 471. From the nature of the case, these elements, being property rights, must be considered in finding the present fair value of property. For instance, when we consider the constant increase or decrease in the cost of material and labor, the amount spent in permanent improvements, allowance for overheads, working capital, going concern value (which alone the company says is $400,000 in this case) the present fair value of property may be very different from the original cost less accrued depreciation. A rate based upon this one element alone as provided in the Act, must, in many, if not all instances, be confiscatory.

 Nor is the constitutionality of the Act saved by the provision in section 310 (e), 66 P.S.Pa. § 1150(e) which provides that: "If, upon final disposition of the issues involved in such proceeding, the rates as finally determined, are in excess of the rates prescribed in such temporary order, then such public utility shall be permitted to amortize and recover, by means of a temporary increase over and above the rates finally determined, such sum as shall represent the difference between the gross income obtained from the rates prescribed in such temporary order and the gross income which would have been obtained under the rates finally determined if applied during the period such temporary order was in effect."

 When this question, in the case of Edison Light & Power Company v. Driscoll, D.C., 21 F.Supp. 1, was considered in the Middle District of Pennsylvania, the court said [page 8]:

 "Does the fact that the rates fixed are only temporary save the order from the inhibition of the constitution? We think it does not, and that this question is answered by the case of Prendergast v. New York Telephone Company, 262 U.S. 43, 49, 43 S. Ct. 466, 469, 67 L. Ed. 853, where the court said: 'Nor did the fact that the orders of the Commission merely prescribed temporary rates to be effective until its final determination, deprive the Company of its right to relief at the hands of the court. The orders required the new reduced rates to be put into effect on a given date. They were 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, without remedy, unless their enforcement should be enjoined. Upon a showing that such reduced rates were confiscatory the Company was entitled to have their enforcement enjoined pending the continuance and completion of the rate-making process.'

 "It has been argued that the recoupment provision of the Pennsylvania act avoids the infirmity in the New York act which the court pointed out in the Prendergast Case. This argument in effect means that it is proper and legal to violate the Constitution if at some future time that violation may be corrected wholly or in part. In other words, it is perfectly all right and permissible to take one's money by force it by and by it may be partly returned to him. If that is so, how long may the Constitution be violated during which time the injured party is without remedy? May it be for a month, as provided in section 310(c) of the act (66 P.S.Pa. § 1130(c), or for a ...

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