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It has been suggested here that if this law is enacted in the manner we have proposed it, as a substitute for the bill now being considered by the committee, that it will superimpose upon this commission another commission. I am at a loss to understand how the gentlemen who have made those statements can so interpret the bill or the substitute bill that we have proposed, because we are not asking to have the court continue to exercise legislative power in fixing valuation and in fixing rates. We are simply asking that we be accorded the right of a judicial review, and when the court exercises a judicial function, as distinguished from a legislative function, it is passing upon the facts past and present. When you are legislating, as was so aptly said a moment ago, you are legislating for the future, and we submit to the committee that this amendment which we propose does not go to the extent that is apprehended by the counsel.

Senator ROBSION. Now, Mr. Hoover, in this bill and the amendments you propose, could the courts, in any event, make any rates? Mr. HOOVER. They could not.

Senator ROBSION. They could merely review and reverse and send back for consideration by the commission?

Mr. HOOVER. The making of a rate, as the Supreme Court of the United States said, is a legislative function and the court would be supported in that function. The court has the power to do that now, and we have no objection to that being taken away from the court. The court could determine, as the Supreme Court of the United States determined the other day in the United Railways case of Baltimore, that the rates fixed by the Public Service Commission of Maryland were confiscatory, and they determined the valuation in order to do that, but they did not fix the valuation. The court when dealing with a confiscation case does not fix the valuation. It simply determines on the evidence whether the value is such that the rate applied to it would have the effect of confiscating the property.

Senator ROBSION. This bill of yours merely gives the court the right to review?

Mr. HOOVER. That is all.

Senator GLASS. How many investors of capital, particularly administrators of an estate, could be found who think that 6.26 per cent interest on an investment is confiscatory?

Mr. HOOVER. I don't think you could find any, Senator, because all utility investments are more or less hazardous. You have got to have a higher rate of return in order to attract capital, because otherwise people would get 6 per cent mortgages or 61⁄2 per cent mortgages where there is no hazard attached to the investment.

Senator GLASS. That is one advantageous circumstance connected with investing capital. But nobody ever heard before that a profit of 6.26 per cent was confiscatory. If you go to a bank in my State, and I think in any of the States, and they charged you more than 6 per cent discount, the bank is subject to being charged with usury and losing both the principal and the interest.


Mr. HOOVER. I have read that decision in the Baltimore Railway case. The court decided that case on the evidence before it. court decided in that case that 8 per cent was a fair return, and a fair return is another way of stating what is and what is not confiscatory. The court in that case, it is true, determined that this rate which might be earned by the company under the valuation fixed by the

commission and the rate applied to that valuation was confiscatory, and enjoined the operation of it, and the commission was bound by that decision of the court, because it enjoined its action in seeking to compel the railroads to put a lower rate into effect. That is a controversial question, Senator, which has been argued back and forth for many years, and will continue to be argued, I expect. The viewpoint has a great deal to do with it in many cases.

Senator GLASS. If you could get rid of the popular superstition that judges are something more than human beings, you would get a little farther.

Senator KEAN. Of course, this yardstick which the Supreme Court has applied to the public utilities is based upon the present cost of labor, material, and so forth, so that if this labor, material, and so forth, should go down, the public could demand a new hearing and a new valuation, and then your rates will go down?

Mr. HOOVER. Well, of course, the rates are always subject to control by the commission. The question of valuation is one which is always within the jurisdiction of the commission, and the question of what is the controlling factor in determining valuations was laid down first by the Supreme Court in the case of Smith v. Ames. And there are a number of factors. The Supreme Court of the United States, in the first case I recall their dealing particularly with the reproduction cost new less depreciation, dealt with the Southwestern Bell case; and there the court said that reproduction costs new, less depreciation, was one of the dominating factors to be taken into consideration in determining valuation, and it depends upon the time as to whether the people are clamoring for one or the other, because at the time the Smyth v. Ames case was decided we were just coming out of the bad financial condition which existed along in 1893 and the railroads there had paid much more for their property than the present-day value was at the time of valuation, and the public then wanted the reproduction cost applied instead of the original cost because the actual original cost in that case had been higher; but then economists tell us that we have reached the point now where costs will be about on a level plane, and there will be not much variation one way or another, so that if it does arise it will be always a matter in the control of the commission.

Senator GLASS. If a corporation makes a definite profit, that is a profit regardless of the cost.

Mr. HOOVER. Their profits are limited, Senator. That is the trouble with the situation of a public utility. Let us take it in this way: A man engaged in a private enterprise, where his property is not impressed for the public use, he can make such profit as his business will be capable of returning to him without any restriction from any commission, so long as he does not violate any of the other laws. A public utility is limited in its profits. It can not make undue profits. Now, it is that property which is being used for the benefit of the public, and if that property enhances in value and you are determining the question of the property which it is using for the benefit of the public, it seems to me the public ought to pay a fair return on that.

Senator GLASS. It ought to pay a fair return, but nobody but the Supreme Court of the United States ever before arrived at the conclusion that 6.26 per cent profit is confiscation.

Senator ROBSION. And we must bear this in mind; that money is not worth as much as it used to be. It used to be that 3 per cent would buy as much as 6 per cent now.

Mr. HOOVER. Well, of course, those conditions always enter into this economic structure in determining these questions, the fluctuation of the cost of money. Money is a commodity, just the same as anything else. It is bought and sold, and sold according to supply and demand. That controls the price of it, the interest you pay for it.

There is one other point that has been suggested that I have overlooked, and that is that there should be added to this bill this further provision, which is in the nature of a saving clause:

SEC. 2. That nothing herein contained shall be construed to affect the jurisdiction and powers of the court of the District of Columbia with respect to any proceeding heretofore filed or now pending in said courts.

I am not personally acquainted with that, as counsel, but some of the other gentlemen are, and perhaps they might want to be heard. I thank you, gentlemen.


Mr. BowEN. We welcome the opportunity of appearing before the committee inasmuch as the commission appears to entertain views at variance with what is the belief of counsel for the various local utilities will be the effect of enactment of proposed legislation contained in the draft forwarded to you in letter of Mr. DeVane of January 23, with respect to relieving the courts of the District of Columbia of legislative powers now vested in them by the public utilities act.

At the outset it should be reiterated that none of the local utilities are seeking to have the existing law amended, because the courts have interpreted and settled the nature and extent of the special powers conferred on them by the existing law, and to our knowledge until now-there has been no complaint or criticism directed at the present method of court review. There can be no doubt that the legislation proposed by the commission, if enacted into law, would take away all proper and reasonable opportunity for judicial review of orders of the commission and would substitute in lieu thereof a scheme of review which would impair the constitutional rights of all interested parties to a fair opportunity for submitting the issues involved "to a judicial tribunal for determination upon its own independent judgment as to both law and facts" which is guaranteed to them "in order that there may be due process of law," as provided by the fifth amendment to the Constitution of the United States. That such judicial review is not an empty right in cases of this sort, is evident from the fact that certain consumers and users of public utilities service have in the past had recourse to the courts for a review of orders of the commission.

In this connection we should call attention to the present law which provides for a peoples' counsel who shall represent and appear for the people of the District of Columbia at all hearings of the commission and in all judicial proceedings involving the interests of users of the products of, or service furnished by, public utilities under the jurisdiction of the commission. If the proposed legislation is enacted, the

activities of the peoples' counsel will be practically confined to representing the public at hearings before the commission.

It is furthermore certain that the proposed amendments by the commission, would substitute a new and untried experiment, involving new questions for the determination of the courts, involving years of litigation before the validity or legal effect of these proposed amendments could be judicially determined.

At the hearing before the Senate Committee on the District of Columbia January 22, 1930, we were given the impression that the aim and purpose of the commission was to relieve the courts of the District of legislative powers now vested in them by the utilities act, but not to take away all proper and reasonable opportunity for judicial review of orders of the commission-one of the commissioners taking the view, however, that their proposed amendments did not take away all proper and reasonable opportunity for that judicial review, and Mr. DeVane undertook to show that such proposed amendments would do what we say will be the effect thereof if enacted.

Referring now specifically to the aforesaid letter of the commission to you of January 27, 1930, which consists largely of finding fault with our draft by stating it:

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Still retains the language that the proceedings "shall be tried and determined as are proceedings in equity in such court. This leaves the court with power, in all cases, to review questions of fact determined by the commission.

and as to the other comments thereon, we say that this power should be left in the court, as otherwise the utilities would be deprived of their constitutional right to due process of law. Our draft will, as we have said before, if enacted into law, take away from and relieve the courts of the District of legislative power now vested in them by the public utilities act-if this is felt desirable by the Congress. In Bluefield W. W. & Imp. Co. v. Pub. Ser. Comm. (262 U. S. 679), the supreme court held that a plaintiff is entitled to the independent judgment of the court as to both law and facts.

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In Hoovey v. Elliott (167 U. S. 418), the Supreme Court approved the definition of "due process of law as given by Daniel Webster, in the Dartmouth College case, in the argument of which he said:

By the law of the land (which Webster said was equivalent to due process of law) is most clearly intended the general law, a law which hears before t condemns, which proceeds upon inquiry, and renders judgment only after trial. The meaning is that every citizen shall hold his life, liberty, property, and immunities under the protection of the general rules which govern society.

Again the historical and critical meaning of the words "due process of law was examined in Murray v. Hoboken Land, etc. Co., 18 How. 272, where the Supreme Court stated:

The words "due process of law" were undoubtedly intended to convey the same meaning as the words "by the law of the land," in Magna Charta. Lord Coke in his commentary on those words (2 Inst. 50), says they mean due process of law. The constitutions which have been adopted by the several States before the formation of the Federal Constitution, following the language of the Great Charter more closely, generally contained the words, "but by the judgment of his peers, or the law of the land."

The opinion continuing holds that the article is a restraint on the legislative as well as on the executive and judicial powers of the Government, and can not be so construed as to leave Congress free to make any process "due process of law" by its mere will.

The Constitution contains no description of those processes which it was intended to allow or forbid. It does not even declare what principles are to be applied to ascertain whether it be due process. It is manifest that it was not left to the legislative power to enact any process which might be devised. The article is a restraint on the legislative as well as on the executive and judicial powers of the Government, and can not be so construed as to leave Congress free to make any process "due process of law" by its mere will.

In this connection it is well to notice the salutary words of the Supreme Court in the recent case of Missouri Ex Rel. Southwestern Bell Telephone Co. v. Public Service Commission (262 U. S. 276), where it was stated:

It must never be forgotten that while the State may regulate, with a view to enforcing reasonable rates and charges, it is not the owner of the property of public utility companies, and is not clothed with the general power of management incident to ownership.

In conclusion, we desire to add that it is not felt that the Congress would be disposed now, or at any time, to enact legislation that would take away all proper and reasonable opportunity for judicial review of orders of the commission, nor impair the constitutional rights of all interested parties to a fair opportunity for submitting the issues involved to a judicial tribunal for determination upon its independent judgment as to both law and facts.

We furthermore confidently expect that Congress will be anxious to preserve the constitutional rights of all parties to have a proper and reasonable opportunity for judicial review of orders of the com


The matter that is involved here is one that really affects every utility operating in the District, for the reason that if a utility should want to issue, we will say, stocks and bonds, and the commission should determine that against the company, what right will it have to review the action of the commission?

In the proposed legislation, it only gives the adequate right of review on the part of the courts in the case of bare confiscation. In a situation of that kind, how or in what way would a company be able to review the action of the commission if they said:

No, Utility, we don't want you to issue these stocks and bonds. We are not going to let you. If you want to refinance, take up bonds with stock, you can't

do it.

The utility is deprived of any review of the action of the commission.

We submit that is not right. A utility has got to be able to attract new capital to its enterprise.

Now, Senator Glass said in Virginia the courts there have the right that the courts in the District have, to review the legislative discretion of the commission. In Maryland, our adjoining border State, the court there does not have the legislative right to make a valuation, or to fix a rate, but it has every right to review every action of the commission where it is alleged to have been unlawful or unreasonable. What is there magic about the property of utilities in the District that will attract capital to their enterprise, or that would induce an investor to put his money in a railway property when there is attached to it a lack of security that will not attach to the man going across the Potomac in Virginia or going out here to Maryland? Aren't we in competition with those States?

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