City of Detroit v. Michigan Public Service Commission

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] I am unable to concur in the result reached by Mr. Justice SHARPE because, in my opinion, affirmation of the order of the commission will constitute judicial negation of the legislative intent for the creation of the commission.

The controlling and decisive question is:

May defendant Michigan public service commission, under its statutory power to fix reasonable rates at which a public utility will furnish electricity to the public, exclude from the commission's consideration all or a reasonable part of $8,000,000 excess profits which it earns under an existing rate charged its consumers and on which a 90 per cent. profit tax is payable to the Federal government.

It is the duty of the commission, under its statutory power, to fix a just and reasonable rate.^* This can be accomplished only by balancing the interest of public utility investors and the consuming public. Federal Power Commission v. Hope NaturalGas Co., 320 U.S. 591 (64 Sup. Ct. 281, 88 L.Ed. ___).

In the instant case the question narrows down to whether the commission in passing upon a petition to reduce the rate charged the consumer by the public utility should consider and exercise its discretion in respect to the exclusion in whole or in part of "excess profits" of the character hereinbefore noted. That such "profits" exist may or may not demonstrate that the earnings of the utility are excessive.

In the instant case the commission disclaims that it possesses any power to consider this matter. It thus completely ignores its discretionary authority to exclude those items from public utility operating expenses which place unnecessary burdens upon the consumer. Obviously in so doing the commission failed to balance investor and public interests.

The commission arrived at its conclusion in the instant case upon the erroneous assumption that it was wholly without power to exclude from its consideration in fixing the rate to be charged to the consumer the undisputed fact that the presently approved rate produces "excess profits of approximately $8,000,000 on which there is a 90 per cent. excess profit tax." Under such circumstances it cannot be said that a fair and adequate hearing was had before the commission.

The exclusion of an unnecessary element, such as avoidable taxes, is not inconsistent with the holding of this court inMichigan Public Utilities Commission v. Michigan StateTelephone Co., 228 Mich. 658 (P.U.R. 1925 C, 158), cited and quoted by Mr. Justice SHARPE, and is in harmony with the HopeCase, supra. See, also, Vinson v. Washington Gas Light Co.,321 U.S. 489 (64 Sup. Ct. 731, 88 L.Ed. ___ [decided March 27, 1944]).

As I read Galveston Electric Co. v. City of Galveston,258 U.S. 388, 399 (42 Sup. Ct. 351, 66 L.Ed. 678), which is intimated by my Brother as controlling, its authority is limited to normal taxes and not to abnormal and avoidable taxes on "excess profits" even though it must be conceded that the term by which such tax is designated is a misnomer. Excess profits are a question of fact for determination by the commission.

Without discretionary power to exclude any and all unnecessary elements of expense in determining a just and reasonable rate, the Michigan public service commission would be an impotent body. It could not have been the intent of the legislature that the commission should lack any necessary power to fix reasonable rates, and the commission should not be permitted to declare itself impotent. It clearly possesses such discretionary power, and that power should be exercised.

The commission should not require the utility corporation to reduce its rates for the period during which it has paid excess profits taxes, nor for a period during which it may be liable for such payment on accrued taxes. It should take into consideration the usual elements of rate determination as well as obsolescence and depreciation of capital assets due to any extraordinary situations arising out of war conditions such as the effect of unusual and heavy war time loads. It may also consider the time lag in a return to normal conditions and the period elapsing before a redetermination can again be made of a reasonable rate. The public should not be required to pay rates that will yield an extraordinary profit to the utility and the stockholders of the utility on the other hand are at all times entitled to a fair return on their investment.

The order dismissing the petition of the city of Detroit is vacated and the cause is remanded for reconsideration and determination, so that the present rate may be maintained or reduced as the commission shall determine in the light of our decision herein. No costs.

NORTH, C.J., and STARR, and REID, JJ., concurred with BUSHNELL, J. BUTZEL, J., did not sit.

^* See ante, 712 et seq. — REPORTER.