People ex rel. New York v. Public Service Commission

Kellogg, J.:

The questions involved are whether the Commission has power to fix commutation rates, and if so, whether it has properly exercised that power.

Subdivision 4 of section 33 of the Public Service Commissions Law (Consol. Laws, chap. 48 [Laws of 1910, chap. 480], as amd. by Laws of 1911, chap. 546) empowers the Commission to fix reasonable and j ust rates for such service. It is urged, however, that the statute is invalid under the rule of Lake Shore, etc., R. Co. v. Smith (173 U. S. 684). In that case the statutes of Michigan had fixed a maximum passenger rate at three cents per mile. A subsequent enactment required the issuing of mileage books for 1,000 miles, good for two years, at a less rate. The court held that having fixed a uniform maximum rate as to all passengers, such rate was the reasonable compensation for the service, and that the fixing of a less rate to particular individuals was an unreasonable and arbitrary exercise of legislative power; that it was not for the convenience of the public and thus within the police power, but was for the convenience of certain individuals who were permitted to travel upon the railroads for less than the reasonable rate prescribed by law; that the law was, therefore, in violation of the Fourteenth Amendment of the Federal Constitution in depriving the company of its property without due process of law and by depriving it of the equal protection of the laws.

In Beardsley v. N. Y., L. E. & W. R. R. Co. (162 N. Y. 230) the Court of Appeals felt constrained by the Smith case to declare the Mileage Book Law of this State invalid as to companies in existence at the time of its passage, but in Purdy v. Erie R. R. Co. (162 N. Y. 43) that law was held valid as to companies organized after the statute was passed.

In Louisville & Nashville R. R. Co. v. Kentucky (183 U. S. 503), after citing the Smith case and like cases, the court says (at p. 511): “Nor, yet, are we ready to carry the doctrine of the cited cases beyond the limits therein established.”

In the Minnesota rate case (Simpson v. Shepard, 230 U. S. 352) the legality of an order of the Commission of that State was recognized which fixed a maximum freight rate and passenger rate, the latter at two cents a mile as the maximum fare for passengers twelve years of age or over, and one cent a mile for those under twelve years of age.

In Interstate R. Co. v. Massachusetts (207 U. S. 79) the Massachusetts law prescribing special rates less than the maximum for school children was held valid. These cases indicate that the Smith case is not to be extended beyond the facts upon which it rests.

The Smith case distinguishes itself from this case where the court (at p. 693) says: “This act is not like one establishing certain hours in the day during which trains shall be run for a less charge than during the other hours. In such case it is the establishing of maximum rates of fare for the whole public during those hours, and it is not a discrimination in favor of certain persons by which they can obtain lower rates by purchasing a certain number of tickets by reason of which the company is compelled to carry them at the reduced rate, and thus, in substance, to part with its property at a less sum than it would be otherwise entitled to charge. The power to compel the company to carry persons under the circumstances as provided for in this act, for less than the usual rates does not seem to be based upon any reason which has hitherto been regarded as sufficient to authorize an interference with the corporation, although a common carrier and a railroad.”

Our flourishing cities owe their position and prosperity, in part, to the commutation rates for suburban service; the health and welfare of the public are concerned that people doing business in the large cities may live in the country where the surroundings are pleasanter, more healthy and to the advantage of themselves and their families. It is a known fact that such rates exist upon all railways entering large cities, and have usually been established by the companies voluntarily in the interest of themselves and the public. The service is different in its nature from the other passenger service. It is so universal, of such large proportion, has become so necessary to the public that it cannot be said that the fixing of reasonable and just rates for it is unusual or unreasonable, or the granting of a benefit to individuals and not for convenience to the public.

Nearly one-half of the passengers handled by the relator at the Grand Central Terminal were of this class. Perhaps the same ratio would exist upon the other railroads serving the city. We conclude that the statute in question is valid as conferring a power on the Commission to regulate rates for the public convenience and welfare.

We have now to consider whether the order under review was properly made. The Commission cannot annul the company’s rates until it determines upon satisfactory evidence that they are unjust and unreasonable. The company’s rates are challenged by citizens of Mount Vernon and other localities in Westchester county between Mount Vernon and the Connecticut line. It appears that the greater part of the traffic affected by the order is between Mount Vernon and the Grand Central Station, and upon monthly tickets. It is unnecessary to consider separately other localities or other tickets, for if the situation with reference to Mount Vernon on the one-way ticket and the monthly sixty-trip ticket is established, the other rates naturally stand or fall with them. The distance from Mount Vernon to the Grand Central Station is thirteen and sixty-five one-hundredths miles. It appears that on the average but about forty-nine of the sixty tickets are used, and the company realizes a little less than fourteen cents per trip from its rates and a little less than eleven and one-half cents per trip from the rates fixed by the Commission.

It is urged that the suburban service upon similar tickets in and out of New York on other lines is furnished at more favorable rates. Charges for service upon other lines would be material under like conditions, but if the conditions are unlike they are immaterial. The relator was chartered by the Legislature of Connecticut, with power to build a road from New Haven, Conn., by the way of Bridgeport, Conn., to the west line of Connecticut, towards the city of New York, and our statutes (Laws of 1846, chap. 195) permitted it to continue and extend its road from the State line through the county of Westchester to the line of the New York and Harlem railroad, and to unite with that road at or near Williams Bridge, which is about one and three-quarters miles west of Mount Vernon, with power to fix passenger rates not to exceed three cents per mile on the part of the road within the State. This line is devoted exclusively to passenger service. Its Harlem line to One Hundred and Thirty-fifth street carries both freight and suburban traffic and is not in question here.

In order to get its passenger line into New York city it became necessary for the company, in March, 1848, to make a contract with the Harlem Company to pay for the use of its tracks and facilities a per capita tollage based upon a sliding scale, and providing for an arbitration in case the rates proved unsatisfactory to either party. The last arbitration as to rates was in 1861, and we assume that the present rates are based thereon. Under it the company now pays twelve and twenty-one one-hundredths cents for each regular passenger, four and seven one-hundredths cents for each commuter. (A fifty-trip passenger is counted as two-thirds of a regular passenger.) The company also has a contract with the New York Central Company and the Harlem Company for the right to enter and use their Grand Central Terminal, paying for such use a proportion of the interest on its cost, and of the maintenance and upkeep, less any income received on account of its use by others. The proportion to be paid by the company is based upon the number of its cars entering the station compared with those of the owners, which resulted in the year 1910 that the relator paid forty-two per cent as its proportion of the charges. The rental being based upon the number of cars, after making due allowance for all cars outside of the strict passenger service, the cost to the relator for rentals, if all cars carried an equal number of passengers, would be eight and one-half cents per passenger, but the ordinary passenger car carried an average of about thirty passengers while the commuter car carried about forty-six, with the result that the actual terminal charge against each commuter is about six and seventy-seven one-hundredths cents. In addition to these charges the relator bears the expense of propelling its trains into the terminal, which is four and fifty-five one-hundredths cents per person, so that it actually pays for each commuter ten and eighty-four one-hundredths cents in tollage and terminal charges to the New York Central and Harlem companies, and in addition it costs it four and fifty-five one-hundredths cents per passenger to propel its trains, making fifteen and thirty-nine one-hundredths cents actual cost to get a commuter from Mount Vernon into the Grand Central Station, making no allowance for maintenance of equipment, maintenance of way, ordinary transportation expenses and general expenses, including interest and taxes.

The order was made January 31, 1913. The question for determination was whether at that time the company’s rates were reasonable and just. The issue had changed somewhat since the proceedings were instituted in July, 1910. The evidence in great part related to the situation in 1910, and was directed to the question whether the company was authorized to change its rates at that time. It was at least unfortunate that the case should be decided two years after the greater part of the evidence was taken. The reasons given by the Commission for its decision show that the real merits of the controversy were not passed upon and that, as a matter of fact, it has not determined that the company’s rates were unjust and unreasonable.

The defendant has the statutory right to a hearing. That right is not accorded it if the hearing is a mere matter of form, the decision is arbitrary and the real question for consideration is lost sight of. It is not necessary to determine that the Commission made a reversible error in ruling that the rates established by the company were presumably unjust and unfair because it had formerly a lower rate. This clearly was an error. These proceedings are quite informal, and if the Commission has in fact tried the issue, has received and considered all the evidence bearing upon it, and its decision is fairly warranted, the exceptions taken during the trial are of little avail. The question, however, is always present — did the Commission in fact decide the question as to which the law gives the relator the right to a hearing ? And does its decision rest upon a proper basis % The Commission gives reasons, which it numbers from 1 to 4, for its conclusion that the company has not overcome the presumption that the increase of rates was unreasonable and unjust, in substance: (1) That the public interests and the interests of the company require the lowest possible rate; that the question is not “ just how many tenths of a cent the rate can be raised or lowered for each mile of travel, but at what point it should be placed in order to enlarge the commuting business, increase the suburban population, and thereby increase the general prosperity. Of course this point must be fixed with proper reference to the fair and reasonable returns to which the corporation is entitled over and above the actual out-of-pocket expense involved in performing the service.” (2) That the increased rates have affected the localities unfavorably. (3) That the revenue derived by the company from the increased rates was not proportionate to the increase; that the rates had in fact lessened traffic. (4) That the tollage and terminal charges should be wholly charged upon the entire road and not upon the passenger service into and out of the station.

It recognized that by reason of the increase in wages and material, the cost of operation was greater, but says that in a great part the increased expenses came from the substitution of electric for steam power. That such substitution made possible the use of the Grand Central Station for rentals which might in the future pay an adequate return upon the cost of the station. It continues: “ It is a serious question, to be determined only by future developments, whether the use of electric energy is not the only possible method of economical operation in a city like New York; and whether it will not, all things considered, justify the continuance of the former rates rather than an increase of the same.”

It is conceded that the public interests demand a low rate, and that the lower the rate the better it is for the patrons of the road so long as the road can he saved from bankruptcy and is able to continue a reasonable service. It is not clear what the Commission intended to allow the relator under the expression “ actual out-of-pocket expense involved in performing the service.” If it means to exclude, as we infer it does, á consideration of the maintenance and general expenses, interest, up-keep of the track and equipment, and include merely the expense of running the train itself, the Commission proceeded upon a wrong basis. In any event the determination cannot rest upon the uncertainty as to what was intended by the expression. It is evident that all the elements going to make up a fair rate were not included and considered. The situation in hand is not met by denying the company what it wants because it is not good for it. If the rate is just and reasonable the company may demand it even though the Commission is of the opinion that the company is making a financial mistake in asking its just dues. (People ex rel. Delaware & Hudson Co. v. Stevens, 134 App. Div. 99; affd., 197 N. Y. 1.)

If a reasonable and just rate will be prejudicial to the community, it is unfortunate, but furnishes no reason why the company should be required to render the service at a loss. The rate must he reasonable and fair to the company and to the public; the public must not pay too much nor the company receive too little. While the Commission concludes that all of the tollage and terminal expenses should be considered as a part of the general expenses of the company, it does not result therefrom that the rates charged were unreasonable or unjust. It might well he that if these charges were treated as a general expense of the road and not charged upon the passenger traffic, nevertheless the company’s rates were just and reasonable. The Commission has given too much attention to the benefits which the community in and about New York will receive from lower rates without regard to the loss which the company will suffer thereby. While the company owes something to the upbuilding of the community, nevertheless the business offered must at least pay a fair return over actual cost. It rested its determination entirely upon an erroneous assumption that the rates were illegal and unfair because the company had increased its rates, and based its conclusion that the company had not rebutted that presumption upon unsatisfactory reasons. The record indicates that at the time the principal part of the evidence was taken the use of electric power at the G-rand Central Station was something of an experiment and the actual cost thereof could not accurately be determined, and that the expense of maintaining the terminal was problematical, as it was far from completion ‘and it was entirely uncertain what rents might be received from others. Those matters can now be determined with reasonable certainty, and it is not just to the public or the company that the decision should rest on mere speculation as to future developments.

The Commission was in error when it determined that all the tollage and the terminal charges must be placed upon the entire road as the expenses of other stations are paid. It may be conceded that if the company paid a gross sum for rental it should not be borne entirely by the service in and out of the station. In such a case the rent is constant and is unaffected by the number of passengers. Here there is no fixed rental, the amount to be paid depends entirely upon the number of passengers carried. It must be conceded that for every commuter on the defendant’s line who uses the station the company is required to pay to others ten and eighty-four one-hundredths cents out of the amount received by it, leaving but about three and sixteen one-hundredths cents for its share, while the cost of propulsion is four and fifty-five one-hundredths cents, without considering the other items which materially affect the cost of service. It would be manifestly for the interest of the company to carry no commuters. In fact the evidence shows that it is completing another line into New York for the purpose of diverting the commuters and local passengers from the present route in order to avoid the large terminal and tollage charges. It is urged that the New York connection and the relator’s use of the Grand Central Station gives to it a certain prestige which it otherwise would not have, and that at least some of the charges on account of the terminal should be borne by the road as a general expense, but not necessarily all of them. The" regulation of rates means that each patron of the road shall pay an adequate compensation for the service he receives, and shall not be required to pay for the service furnished to another. It is difficult to see why a passenger traveling from New Haven tó Boston should pay more than the service is worth because the commuters from Mount Vernon to New York are carried by the company at an actual loss. It is not necessary, however, to determine that all of the tollage and terminal charges should be borne by the passenger service. In fact the company makes no such claim. It is manifest that if the entire amount paid by the company for tollage and terminal charges on account of each passenger was included in the rate, a much larger rate would be required. We have seen that the actual cost of tollage, terminal charges and propulsion actually exceeds the company’s rate, making no account of the other elements entering into a just rate. If the passenger service bears its reasonable part of the tollage and terminal charges under the circumstances, the relator’s rates are not unreasonable. Evidently the contract as to the tollage makes a sufficient discrimination between the regular and the commuting passenger. The relator is differently situated from any other railroad serving New York city. No other road is required to pay to others from the fare received any such sum as the relator pays. While the Pennsylvania and the New York Central have expensive terminals involving a large expenditure for interest and maintenance, the charge is fixed and is not affected by the number of passengers using the terminal. It is urged that the rates of the relator are in excess of those on many other roads serving the city. But when figured on a per trip basis the excess represents a part of a cent for each trip, while it must be conceded that the actual cost to the company for the service is much in excess of what it receives. The difference between the company’s rate and the Commission’s rate is about two and one-half cents for about fourteen miles travel, or about one-sixth of a cent per mile. The Commission was wrong in determining that the question submitted “is not just how many tenths of a cent the rate can be raised or lowered for each mile of travel.” That was the vital question in the case, and must be disposed of by accurate consideration and not upon broad generalities. For the millions of passengers carried the amount is very large, and that fraction of a cent may be just the difference between a fair rate and an illegal exaction. Comparing the relator with the other roads, and the amount which it actually pays to get its commuters into and out of the station, if their rates are reasonable it follows that those of the relator are not unreasonable. The passenger cannot require the relator to carry him as cheaply as another road can carry a passenger under different circumstances, but can only insist that the relator shall not get an undue profit for the service it renders him. The tollage and terminal charges are material as tending to show that the company is actually suffering a loss by reason of the transportation of each commuter, and for that reason it is entitled to different consideration from other lines which are concededly rendering service at a profit. With them the question is how much profit they shall receive; with the relator the question is how small its loss shall be.

On each one-way passenger the relator pays a tollage of twelve and twenty-one one-hundredths cents; a terminal charge of six and seventy-seven one-hundredths cents; so that it pays to others from each fare eighteen and ninety-eight one-hundredths cents. It is claimed that the relator receives a few cents more than other roads serving Yew York charge for an equal distance. But, as we have seen, the charges upon 'other roads are not under the circumstances controlling. The Mileage Book Law of this State (now Railroad Law [Oonsol. Laws, chap. 49; Laws of 1910, chap. 481], § 60) is the last legislative determination as to a reasonable charge under ordinary circumstances for transporting a passenger who travels at least 500 miles. The service here is rendered under unusual circumstances which justify a larger charge.

Upon a careful examination of the entire record it does not appear that the rates fixed by the company are unreasonable or unjust, and it does not appear from the reasons given by the Commission that it has so found. It is confidently claimed that in the immediate future, if not now, the rentals received at the Grand Central Station from others will reduce, if not substantially do away with, the terminal charges. The question is of great importance to a great' many people. Those questions can now be determined with quite a degree of certainty. The case is not only of great importance to the people but to the company, and should be disposed of upon the facts as they actually exist at the time the order is made. The company’s rates can only be annulled if the circumstances actually existing make them unreasonable and unfair. In annulling the order of the Commission it is better to leave the way open for a new application father than send the matter back to the Commission for a rehearing. Such course will eliminate from the record many unnecessary and conjectural things and confine the question to the real merits. The order of the Commission is, therefore, annulled, without prejudice to a new application at any time upon changed conditions with reference to tollage or terminal charges.

All concurred, except Howard, J., dissenting in opinion, in which Woodward, J., concurred.