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11/24/71 D. C. Transit System, Inc. v. Washington Metropolitan

November 24, 1971






Tamm and Robb, Circuit Judges, and Adams,* Circuit Judge, United States Court of Appeals for the Third Circuit.


This case involves a petition by D.C. Transit System, Inc. (Transit) to review Orders Nos. 1052 and 1078 of the Washington Metropolitan Area Transit Commission . Order No. 1052 set forth findings and conclusions regarding Transit's application for a fare increase, and Order No. 1078 denied reconsideration of Order No. 1052.

On March 13, 1970, Transit filed proposed revisions of its tariffs with WMATC. These proposed revisions were based upon predictions of Transit's financial performance during a selected future period from July 31, 1970 to July 31, 1971. Extensive hearings on these proposed revisions were held, and both Transit and WMATC's staff (staff) presented estimates as to Transit's future performance. Although WMATC authorized rate increases for nearly all of Transit's routes, Transit claims that the increases are insufficient to produce a fair rate of return. Transit argues that WMATC erred in its findings and conclusions with respect to five factors bearing on Transit's predicted performance during the future annual period: estimation of passenger revenue; projection of the cost of disposing of lawsuits; amortization of a deficiency in the reserve for injuries and damages; the effect of an increase in the Minibus fare; and an estimation of revenue from charter service.

Section 17(a) of the Compact for Mass Transportation between Virginia, Maryland, and the District of Columbia provides: "The finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive." If WMATC has exercised its discretion rationally, has made findings supported by the record, and has applied correct legal standards, then it is of no import that "conflicts in the evidence might conceivably have been resolved differently, or other inferences drawn from the same record." Payne v. WMATC, 134 U.S.App.D.C. 321, 334, 415 F.2d 901, 914 (1968). See Williams v. WMATC, 134 U.S.App.D.C. 342, 362, 415 F.2d 922, 942 (1968), cert. denied, 393 U.S. 1081, 89 S. Ct. 860, 21 L. Ed. 2d 773 (1969). It is with respect to this test that we review the decision of WMATC.

Transit first argues that WMATC erred in adopting Transit's own estimates of regular route ridership and resulting revenue, rather than adopting its own calculations which indicated that Transit's estimate might be too high. Transit's projection of ridership during the future annual period was based upon an annualization of the actual ridership during the 13 week period following the fare increase of October 26, 1969. The ridership forecast prepared by the staff, which exceeded Transit's by 419,703, was predicated upon the actual results of the five months immediately following the October, 1969, fare increase. WMATC performed its own calculation based upon more recent data, and noted that the calculation indicated that Transit's estimate could be high. Nevertheless, WMATC adopted Transit's figures for two reasons: (1) the burden of proving entitlement to fare increases rests with Transit, and (2) even if revenues were less than estimated, Transit would still earn enough to cover its expenses. Any loss to Transit would only reduce the rate of return.

Although "a regulatory agency is duty bound to make its forecasts as accurate as it possibly can", Williams v. WMATC, 134 U.S.App.D.C. at 393, 415 F.2d at 973, WMATC was not derelict in this duty merely because its calculation, based on more recent data, indicated that Transit's estimate might be high. WMATC's calculation was an independent check of the estimates on record, and not a finding of fact. The estimate was based upon a period for which an annualization calculation had not been verified. And most importantly, these calculations had not been subjected to the scrutiny of the various parties in the rate proceedings. Finally, the rate of return was adjusted upward to 5.21% to cover the contingency of a miscalculation of ridership revenue. Even assuming that the WMATC estimate were utilized, Transit would still be able to maintain a profit level of 4.86%. Despite any inaccuracy, then, the use of Transit's figures rather than WMATC's "would not make a difference between confiscation and a fair return." Dayton Power and Light Co. v. Public Utilities Comm'n, 292 U.S. 290, 54 S. Ct. 647, 78 L. Ed. 1267 (1934).

In its next argument, Transit contends that WMATC erred when it determined that the annual credit to the reserve for injuries and damages -- that amount set aside to settle outstanding suits -- should be increased by $600,000. Transit asserted that the credit should have been increased by $662,000, whereas the staff stated that the increase should amount only to $556,000. The difference between the estimates arose out of the calculation of the average cost of disposing of lawsuits during the future annual period. Both parties agreed that 335 suits would be disposed of during that period, and both utilized 1969 data in reckoning their estimates. Transit used the following formula to estimate the average cost:

Average cost = (total dollar amount paid to claimants in 1969)/ (total dollar claims asserted in 1969 suits) x (total amount claimed in suits outstanding on March 31, 1970)/ (total number of suits outstanding on March 31, 1970.)

By this formula, the average cost of each lawsuit would be $2,185.79. The staff, on the other hand, used a different formula for reaching its estimate:

Average cost = (cost of disposing of suits in 1969)/ (number of suits disposed of in 1969)

This calculation resulted in a quotient of $1,961, which was rounded off to the final estimate of $1,900. WMATC utilized the staff's formula, but adjusted the estimate upward to $2,000.

Both formulae appear to be valid methods of estimating the average cost of disposing of lawsuits during the future annual period, although it might have been better practice for each party to have tested its assumptions by showing that its method was accurate in the light of the history of other recent prior years. Transit asserts that WMATC's method did not contemplate the effect of inflation, but WMATC has pointed out that Transit offered no such proof during the hearings. In any event, WMATC asserts that by rounding its estimate upward rather than downward, it did, in effect, allow for inflation. Because there is ...

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