Public Serv. Comm'n of Utah v. United States , 78 S. Ct. 796 ( 1958 )

Mr. Justice Clark

delivered the opinion of the Court.

This appeal presents another clash between state and federal authority in the regulation of intrastate commerce. The Public Service Commission of Utah and the Utah Citizens Rate Association, appellants, seek to set aside an order of the Interstate Commerce Commission entered in a proceeding under § 13 (3) and (4) of the Interstate Commerce Act¹ in which an increase in intrastate freight rates to the general level of interstate rates was granted to railroads operating in Utah. 297 I. C. C. 87. The principal contention here is that the evidence before the Commission was insufficient to support its ultimate finding that existing intrastate rates caused “undue, unreasonable, and unjust discrimination against interstate commerce.” 297 I. C. C., at 105. A three-judge District Court found against appellants on this and all subsidiary issues. 146 F. Supp. 803. Upon direct appeal, 28 U. S. C. § 1253, we noted probable jurisdiction. 352 U. S. 888 (1956). Having concluded that certain findings of the Commission lack sufficient support in the evidence, we reverse the judgment of the District Court.

The action of the Commission was limited to freight rates on intrastate traffic in Utah. In Ex Parte No. 175 the Commission had increased interstate freight rates on a national basis by an aggregate of 15%.² The appellee railroads applied to the Public Service Commission of Utah for a like increase in intrastate rates. After a full hearing, the Utah Commission dismissed the application on the ground that the railroads had not produced evidence concerning their intrastate operations as required by Utah law. No appeal was taken. Instead, pursuant to 49 U. S. C. § 13 (3) and (4), the railroads filed a petition with the Interstate Commerce Commission which led to the order under attack here. The Commission found the evidence insufficient to establish any undue or unreasonable advantage, preference, or prejudice as between persons or localities in intrastate commerce, on the one hand, and interstate commerce on the other. But in findings patterned after those approved in King v. United States, 344 U. S. 254 (1952), it concluded that the intrastate rates caused “undue, unreasonable, and unjust discrimination against interstate commerce.” 297 I. C. C., at 105. It sought to remove this burden by generally applying to intrastate traffic the 15% interstate increase previously granted in Ex Parte No. 175.³

Appellants attack two findings of the Commission as not being supported by substantial evidence. The first is that existing intrastate rates were abnormally low and failed to contribute their fair share of the revenue needs of the railroads. Evidence was introduced to show that some of Utah's intrastate rates were lower than corresponding interstate rates for like distances. No showing was made, however, of the comparative costs of performing such services. The second finding under attack is that the conditions incident to intrastate transportation were not more favorable than those incident to interstate movements. The evidence underlying this finding indicated only that goods moving intrastate were handled precisely as were those in interstate transportation, being intermingled on the same trains.

Intrastate transportation is primarily the concern of the State. Federal power exists in this area only when intrastate tariffs are so low that an undue or unreasonable advantage, preference, or prejudice is created as between persons or localities in intrastate commerce on the one hand and interstate commerce on the other, or when those rates cast an undue burden on interstate commerce.⁴ Proof of such must meet “a high standard of certainty,” Illinois Central R. Co. v. Public Utilities Comm’n, 245 U. S. 493, 510 (1918); before a state rate can be nullified, the justification for the exercise of federal power must “clearly appear.” Florida v. United States, 282 U. S. 194, 211-212 (1931). The Court pointed out in North Carolina v. United States, 325 U. S. 507, 511 (1945), that the findings supporting such an order of the Interstate Commerce Commission must encompass each of the elements essential to federal power. Thereafter, in King v. United States, supra, we stressed the necessity of substantial evidence to support the findings, although we held it unnecessary “to establish for each item in each freight rate a fully developed rate case.” 344 U. S., at 275. In King, however, the insufficiency of the findings rather than of the evidence was urged upon the Court. Those findings, which we held adequate to support an order increasing intrastate rates, were, inter alia, (1) that existing intrastate rates were abnormally low and did not contribute a fair share of the railroads’ revenue needs; (2) that conditions as to the movement of intrastate traffic were not more favorable than those existing in interstate commerce; (3) that the rates cast an undue burden on interstate commerce; (4) that the increase ordered by the Commission would yield substantial revenues; and (5) that such increase would not result in intrastate rates being unreasonable and would remove the existing discrimination against interstate commerce. 344 U. S., at 267-268, footnote 13. We also held in King that the Commission might give weight to deficits in passenger revenue when prescribing intrastate freight rates so as to meet over-all revenue needs. In our most recent review of federal power in this intrastate area, Chicago, M., St. P. & P. R. Co. v. Illinois, 355 U. S. 300 (1958), we relied on the principles of the above cases in striking down an increase in intrastate passenger fares for a suburban commuter service because the Commission had failed to take into account “the carrier’s other intrastate revenues from Illinois traffic, freight and passenger.” 355 U. S., at 308.

We do not believe that the evidence here met the exacting standards required by our prior cases. As to the finding that prevailing intrastate rates were abnormally low and failed to contribute a fair share of over-all revenue, we discover no positive evidence to indicate that the relative cost of intrastate traffic was as great as that of interstate shipments. The absence of such evidence is important, for it is not enough to say that interstate rates were higher on similar shipments for like distances, Florida v. United States, supra, at 212, especially where, as here, there was some indication that intrastate traffic moved at lower cost than interstate. The annual reports of the four interstate railroads operating in Utah showed that their Utah operating ratios (freight service cost divided by freight service revenue) and the Utah density statistics (ton miles of traffic per mile of main track) were more favorable than comparable system-wide figures. The Commission discredited the density statistics because of the absence of branch-line inclusion in the totals. This was true, however, in the case of both Utah and system-wide computations, leaving no apparent foundation for the conclusion of unreliability.

Other evidence seemed to indicate that those railroads with the larger percentages of total operations within Utah enjoyed higher rates of over-all return for 1953, the year just prior to the hearings in this case. The Denver & Rio Grande, with almost half of its entire operations within Utah, showed a rate of return of 6.06%. The Southern Pacific and Union Pacific, with substantially smaller proportions of Utah operations, showed returns of 3.48% and 3.56%, respectively.

Statistics introduced by the railroads as to comparative economic conditions showed recent economic improvement to be greater percentagewise in the West and particularly in Utah than in other sections. The emphasis recently has switched from agriculture to industrial and mining activity, with its resulting increase in traffic — a factor tending to suggest more favorable railroad operating conditions.

As to the finding that intrastate conditions were not more favorable than those incident to interstate transportation,⁵ the railroad evidence on this point was far from substantial. In essence, it merely showed that intrastate and interstate traffic was handled by the same crews and intermingled in the same movement. This evidence failed to establish that all material factors bearing on the reasonableness of rates were substantially the same. As we have previously noted, appellants offered convincing evidence not only of greater density on intrastate operations, permitting a wider spread of fixed costs, but also of lower operating ratios and higher returns as the percentage of intrastate traffic increased. In the face of this proof the evidence as to general similarity of conditions falls short of the “high standard of certainty” required.

It is suggested that the Commission, in granting general interstate increases, frequently proceeds on the assumption that intrastate rates will be raised to the same level. But this assumption is no through ticket permitting it to approach the question of intrastate rates with partiality for a uniform increase. Rate uniformity is not necessarily the goal of federal regulation, nor can the Commission’s wishful thinking be substituted for substantial evidence. Section 13 is not cast in terms of “assumption” or “partiality.” As applied to this case, it contemplates an inquiry into intrastate rates and conditions within Utah, and any conclusion that interstate operating conditions equally exist there must be ticketed on more than assumption.

Finally, we note an absence in the findings of any indication that the Commission concerned itself with the revenues derived from, or the conditions incident to, intrastate passenger operations. While a sweeping inquiry into those operations is not required, we believe that in light of our opinion in Chicago, M., St. P. & P. R. Co. v. Illinois, supra, the findings must reflect consideration of these factors in arriving at a general intrastate freight level. “A fair picture of the intrastate operation, and whether the intrastate trafile unduly discriminates against interstate trafile, is not shown ... by limiting consideration to the particular . . . service in disregard of the revenue contributed by the other intrastate services.” 355 U. S., at 308. This issue was not argued by the parties, our opinion in that case having been announced after submission of the instant case. We mention it at this point, however, since further proceedings before the Commission no doubt will ensue.

The judgment of the District Court is reversed and the cause is remanded to that court with instructions to set aside the order of the Commission and remand the cause to the Commission for further proceedings in conformity with this opinion.

It is so ordered.

1 Sec. 13. “(3) Whenever in any investigation under the provisions of this part, or in any investigation instituted upon petition of the carrier concerned, which petition is hereby authorized to be filed, there shall be brought in issue any rate, fare, charge, classification, regulation, or practice, made or imposed by authority of any State, or initiated by the President during the period of Federal control, the Commission, before proceeding to hear and dispose of such issue, shall cause the State or States interested to be notified of the proceeding. The Commission may confer with the authorities of any State having regulatory jurisdiction over the class of persons and corporations subject to this part or part III with respect to the relationship between rate structures and practices of carriers subject to the jurisdiction of such State bodies and of the Commission; and to that end is authorized and empowered, under rules to be prescribed by it, and which may be modified from time to time, to hold joint hearings with any such State regulating bodies on any matters wherein the Commission is empowered to act and where the rate-making authority of a State is or may be affected by the action taken by the Commission. The Commission is also authorized to avail itself of the cooperation, services, records, and facilities of such State authorities in the enforcement of any provision of this part or part III.

“(4) Whenever in any such investigation the Commission, after full hearing, finds that any such rate, fare, charge, classification, regulation, or practice causes any undue or unreasonable advantage, preference, or prejudice as between persons or localities in intrastate commerce on the one hand and interstate or foreign commerce on the other hand, or any undue, unreasonable, or unjust discrimination against interstate or foreign commerce, which is hereby forbidden and declared to be unlawful, it shall prescribe the rate, fare, or charge, or the maximum or minimum, or maximum and minimum, thereafter to be charged, and the classification, regulation, or practice thereafter to be observed, in such manner as, in its judgment, will remove such advantage, preference, prejudice, or discrimination. Such rates, fares, charges, classifications, regulations, and practices shall be observed while in effect by the carriers parties to such proceeding affected thereby, the law of any State or the decision or order of any State authority to the contrary notwithstanding.” 41 Stat. 484, as amended, 49 Stat. 543, 54 Stat. 911, 49 U. S. C. § 13 (3), (4).

2 The increase was accomplished in three separate orders. 280 I. C. C. 179; 281 I. C. C. 557; 284 I. C. C. 589.

3 Appellants challenge the validity of the interstate increases permitted in Ex Parte No. 175. That record, however, was not introduced in this proceeding; moreover, our disposition requires no decision on this phase of the case.

4 See note 1, supra.

5 “Where the conditions under which interstate and intrastate traffic move are found to be substantially the same with respect to all factors bearing on the reasonableness of the rate, and the two classes are shown to be intimately bound together, there is no occasion to deal with the reasonableness of the intrastate rates more specifically, or to separate intrastate and interstate costs and revenues.” Illinois Commerce Comm’n v. United States, 292 U. S. 474, 483-484 (1934); King v. United States, supra, at 273.