C. & P. PHONE CO. v. Pub. Serv. Comm.

201 Md. 170 (1952) 93 A.2d 249 CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF BALTIMORE CITY v. PUBLIC SERVICE COMMISSION ET AL. PEOPLE'S COUNSEL ET AL. v. PUBLIC SERVICE COMMISSION ET AL. (Two Appeals in One Record) [No. 92, October Term, 1952.] Court of Appeals of Maryland. Decided December 5, 1952. ¹⁷⁴ The cause was argued before MARKELL, C.J., and DELAPLAINE, COLLINS and HENDERSON, JJ.

Clarence W. Miles, with whom were William G. Gassaway, William B. Rafferty, Stephen H. Fletcher, and Miles, Walsh, O'Brien and Morris, on the brief, for The Chesapeake and Potomac Telephone Company of Baltimore City. Joseph Allen, People's Counsel, and Ward B. Coe, Jr., Assistant People's Counsel, for the People's Counsel. H. Donald Schwaab, Assistant City Solicitor of Baltimore, with whom were Thomas N. Biddison, City Solicitor, Edwin Harlan, Deputy City Solicitor, and Hugo A. Ricciuti, Assistant City Solicitor, on the brief, for the Mayor and City Counsel of Baltimore. Charles D. Harris, General Counsel, for the Public Service Commission of Maryland, amicus curiae.

HENDERSON, J., delivered the opinion of the Court. The appeal in this rate case is from an order of the Circuit Court No. 2 of Baltimore City dismissing a bill of complaint filed by the appellant against the Public Service Commission of Maryland, except to the extent that certain relief prayed therein was granted, and remanding the case to the Commission for further proceedings. The bill of complaint had been filed pursuant to the provisions of Sections 359 and 415, Article 23 of the Code of 1939 (Sections 15 and 74, Article 78 of the Code of 1951), praying that paragraphs (1), (3) ¹⁷⁵ and (4) of the Commission's order No. 48888 entered in case No. 5176 on March 11, 1952 be declared illegal and set aside. The Commission, the People's Counsel and the Mayor and City Council of Baltimore filed demurrers which were overruled.

Answers were then filed by all parties. After the demurrers had been filed but before they were overruled, the People's Counsel and the City filed a cross-bill seeking to vacate the Commission's order on other grounds. Answers were filed by the Company and the Commission, the cases were consolidated and heard on bills and answers without the taking of additional testimony. The court dismissed the cross-bill, except to the extent that certain relief prayed therein was granted.

The People's Counsel and the City appealed from this order and the Company also appealed. The court granted a stay of its orders pending appeal, conditioned upon the Company filing a bond in the amount of $1,000,000. An appropriate bond was duly filed and approved. A preliminary question is raised by the cross-appellants, that their demurrers to the original bill should have been sustained on the ground that the Company could not appeal from those parts of the Commission's order that denied a rate increase to the full extent sought, and at the same time accept the benefits of the partial relief granted.

To understand the contention made it is only necessary to quote the concluding paragraphs of the Commission's opinion: "We have found the rate base to be $118,279,156. We have determined that a rate of return from 5.75% to 6% is reasonable and fair. The Company should therefore be permitted to earn a net of from $6,900,000 to $7,100,000. It, therefore, appears that the Company requires at least from $300,000 to $500,000 additional net income to enable it to earn the rate of return which this Commission has fixed as fair and equitable. * * * the Company may reasonably expect additional gross revenue in the amount of $943,000 annually as the result of a 10¢ coin box charge.

Giving effect to the current 52% ¹⁷⁶ tax rate would result in increased net revenue of $452,640 which, in the opinion of the Commission, is sufficient to give the Company a reasonable return. "The Commission is of the opinion that the Company should be permitted to increase its local coin box telephone call charge from 5¢ to 10¢ and that its application for increased rate in other respects should be denied." The doctrine of election by the acceptance of benefits under a judgment is subject to certain limitations; as, for example, where there is no controversy as to the appellant's right to the amount for which the judgment was given. See note 169 A.L.R. 985 . In the instant case the Commission found that the Company was entitled to the limited relief granted and the cross-appellants did not challenge the Company's right to that relief until after the demurrers had been filed.

However, we think the doctrine is inapplicable on a broader ground. Section 16(c), Article 78 of the Code of 1951 provides that "all orders of the Commission shall take effect within such reasonable time as it shall prescribe, and shall continue in force until its further order, or for a specified period of time according as shall be prescribed in the order, unless the same shall be suspended or modified, or set aside by the Commission, or be suspended or set aside by a court of competent jurisdiction." Section 16(d) of the same article provides that "any company, corporation, association, person or partnership subject to any of the provisions of this sub-title or other person or party in interest, including the People's Counsel shall have the right to proceed in the courts to vacate, set aside or have modified any order of said Commission on the grounds that such order is unreasonable or unlawful, as hereinafter more particularly set forth." It seems clear from these provisions, taken in connection with the provisions as to the finality of Commission ¹⁷⁷ orders and the rights of immediate appeal contained in Section 55(c) and Sections 74 and 77, ( cf. Potomac Edison Co. v. Public Service Commission, 165 Md. 462 , 169 A. 480 ), that the orders of the Commission should normally take effect forthwith. In the absence of a stay by the Commission or injunction by the Court, we cannot find that an appellant has any option in the matter. It would seem to follow that an appellant should not be put to an election.

If we assume, without deciding, that an appeal from an order opens for review the whole subject matter, to the extent that it is inseparable, it is still not incumbent upon an appellant to specifically object to every part of the order, if the complaint is only addressed to a part, particularly where a modification rather than a complete reversal is sought. In these respects the case of a utility, exercising a statutory right of appeal from the action of a regulatory administrative body, is distinguishable from the case of a private litigant. The cross-appellants have cited no case, in Maryland or elsewhere, that has applied the doctrine of election to appeals of the character under consideration. In Valparaiso Lighting Co. v. Public Service Commission, 190 Ind. 253 , 129 N.E. 13, 17 , cited by the cross-appellants, the court stated that the doctrine of election and estoppel did not apply to orders of a commission establishing rates.

It is true that the court also pointed out that the rates for gas and electricity, contained in the single order in that case, could be treated as separable, so that the decision was not as broad as the principle announced. However, in Department of Public Utilities v. New England Telephone and Telegraph Company, 325 Mass. 281 , 90 N.E.2d 328, 333 , it was squarely held that the company could avail itself of a limited rate increase without abandoning the right to court review of the validity of the order. The practice has been followed without challenge in Maryland and elsewhere. Cf.

Public Service Commission v. United Railways Co., 155 Md. 572 , 142 A. 870 ; Hudson ¹⁷⁸ & Manhattan Railroad Co. v. United States, 313 U.S. 98 , 61 S.Ct. 884 , 85 L.Ed. 1212 ; Lowell Gas Co. v. Department of Public Utilities, 324 Mass. 80 , 84 N.E. 811 , 813; Alabama Public Service Commission v. Southern Bell T. & T. Co., 253 Ala. 1 , 42 So.2d 655 ; New England T. & T. Co. v. State, 95 N.H. 353 , 64 A.2d 9 ; Southern Bell T. & T. Co. v. Georgia Public Service Commission, 203 Ga. 823 , 49 S.E.2d 38 . The cross-appellants contend that under Maryland law the Commission is not required to base rates on the "fair value" of a utility's property. Under Section 55(a), Article 78 of the Code of 1951, (unchanged since its adoption by chapter 180, Acts of 1910), the Commission is directed, in an appropriate case, to "ascertain the fair value of property of any corporation subject to the provisions of this Article and used by it for the convenience of the public." The cross-appellants contend, however, that this section is limited in its application and does not apply to rate making; that the only standards for fixing telephone rates are in Section 70(a) providing that rates be "just and reasonable and not more than allowed by law or by order of the Commission and made as authorized by this sub-title." They argue that the words "just and reasonable" should be construed as coextensive with the requirements of the fourteenth amendment to the federal constitution, as laid down in the latest Supreme Court cases, to prohibit confiscation, not to prescribe a valuation method. We think the contention is unsound.

In Havre de Grace Bridge Co. v. Public Service Commission, 132 Md. 16, 27 , 103 A. 319, 323 , a rate case, the court quoted Section 442 of Article 23 (now Section 55, Article 78 of the Code of 1951) and said: "What the Commission in this case was authorized to ascertain under the section referred to was the fair value of the property." In Miles v. Public Service Commission, 151 Md. 337, 344 , 135 A. 579, 582 , 49 A.L.R. 1470 , the court said: "* * * the very purpose of authorizing ¹⁷⁹ the Commission to ascertain the value of the property of the various public service corporations is to enable it to fix the rates which the corporation is permitted to charge the public for the service rendered." Again, in Public Service Commission v. United Railways Co., 155 Md. 572, 579, 602 , 142 A. 870, 872 , the court said: "The central dominating question presented by the appeal is whether the schedule of rates promulgated by the Commission is insufficient to yield such income as will give to the Company a fair return on the value of its property. * * * In valuing the property for rate-making purposes, the Commission based its conclusion on present value and not upon its original cost, and in fact the case of Harve de Grace Bridge Co. v. Pub. Serv. Comm., supra, left it no alternative." Upon the question of statutory construction we think these three cases are directly in point and controlling. If further support were needed, it could be found in the legislative references to fair value and value in chapter 180, Acts of 1910 and chapter 732, Acts of 1941, and in the uniform and consistent administrative recognition of the principle in the published opinions of the Commission.

In the instant case both the Commission and the lower court recognized that the fair value concept was applicable by reason of the statute. If "fair value" is the rule prescribed by the statute, as we hold, we are faced then with an inquiry as to the true meaning of those words. The appellant contends that the words amount to a legislative adoption of the rule recognized by the Supreme Court at the time when the statute was passed in 1910, that rates fixed by a state for a public utility must allow a reasonable return upon the present fair value of the property used for the public. The right of court review in rate cases, on an issue of constitutionality under the fourteenth amendment, was clearly recognized in Chicago, M. & St. P. Railway Co. v. Minnesota, 134 U.S. 418 , 10 S.Ct. 462, 702 , 33 L.Ed. 970 , and Reagan v. Farmers Loan & Trust Co., 154 U.S. 362 , 14 S.Ct. 1047 , 38 ¹⁸⁰ L. Ed 1014.

The so-called "fair value" rule seems to have originated in Smyth v. Ames, 1898, 169 U.S. 466, 546 , 18 S.Ct. 418, 434 , 42 L.Ed. 819 , where it was said: "We hold, however, that the basis of all calculations as to the reasonableness of rates to be charged by a corporation * * * must be the fair value of the property being used by it for the convenience of the public. 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. We do not say that there may not be other matters to be regarded in estimating the value of the property." It may be noted that this statement does not undertake to lay down any definite formula for the determination of value. In San Diego Land & Town Co. v. Jasper, 1903, 189 U.S. 439, 442 , 23 S.Ct. 571, 572 , 47 L.Ed. 892 , the court said: "It no longer is open to dispute that under the Constitution `what the company is entitled to demand, in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public.' San Diego v. Nat City, 174 U.S. 739, 757 .

That is decided, and is decided against the contention that you are to take actual cost of the plant, annual depreciation, etc. and to allow a fair profit on that footing over and above expenses. We see no reason to doubt that the California statute means the same thing. Yet the only evidence in favor of a higher value in the present case, is the original cost of the work, seemingly inflated by improper charges to that account and by injudicious expenditures * * *. No doubt cost may be considered, and will have more or less importance according to circumstances." ¹⁸¹ In Willcox v. Consolidated Gas Co. of New York, 1909, 212 U.S. 19, 42 , 29 S.Ct. 192, 196 , 53 L.Ed. 382 , the court reiterated the rule that there must be a fair return upon the reasonable value of the property at the time it is used for the public, even though the property has increased in value since it was acquired.

It was indicated, however, that where "the material fact of value is left in much doubt", the court ought not to interfere. The cross-appellants strongly contend that the fair value doctrine was repudiated by the Supreme Court in Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591 , 64 S.Ct. 281, 282 , 88 L.Ed. 333 . In that case the court was dealing with a federal statute that did not mention fair value as the rate base but empowered the Federal Power Commission to fix "just and reasonable" rates. For present purposes it is not necessary to determine the exact scope or implications of the several opinions in that case.

It may well be that the Supreme Court, following earlier intimations, did in that case abandon the test of fair value as an element of due process. See note 8 Md. L.R. 122, 126. Or it may be that the decision, instead of repudiating Smyth v. Ames , sub silentio, merely placed the emphasis on the end product or result reached, rather than the method employed, and in effect extended the area of administrative discretion, within the limits of due process. In either event, we think the test of fair value is explicit in the Maryland statute, as construed by this court.

Cf. Northern States Power Co. v. Public Service Commission, 73 N.D. 211 , 13 N.W.2d 779, 785 . Whether it is implicit in the Maryland, as distinguished from the federal, constitution, is a question we need not and do not now consider. The appellant has cited no case, however, holding that in determining fair value any particular formula must be adopted, or that controlling effect must be given to reproduction cost, as compared to original cost.

In its brief it is stated that the principal ground on which ¹⁸² it relies is "the Commission's failure to give adequate weight to reproduction cost." The cases of McCardle v. Indianapolis Water Co., 272 U.S. 400, 408 , 47 S.Ct. 144 , 71 L.Ed. 316 , and Los Angeles G. & E. Corp. v. Railroad Commission, 289 U.S. 287, 305 , 53 S.Ct. 637 , 77 L.Ed. 1180 , relied upon by the appellant, both indicate that the determination of value is not a matter of formula, although consideration must be given to reproduction cost. In some cases, courts have expressed a preference for reproduction cost. City of Marietta v. Public Utilities Commission, 1947, 148 Ohio St. 173 , 74 N.E.2d 74, 79 . In others it has been said that "the determination of fair