## Facts

- Market Street Railway Company, a privately owned street railway and bus operator in San Francisco, experienced long-term financial decline from reduced patronage, competition, and deteriorating equipment.
- The California Railroad Commission investigated the company’s fares and ordered a reduction in the basic cash fare from seven cents to six cents.
- In setting rates, the Commission used a $7,950,000 rate base equal to the price at which the company had recently offered to sell its operative properties to the City of San Francisco, rather than reproduction or historical cost measures.
- The company challenged the order in state court, alleging procedural and substantive due process violations under the Fourteenth Amendment.
- The Supreme Court of California affirmed the order and denied rehearing; the company filed two appeals to the U.S. Supreme Court to avoid uncertainty about when state proceedings were “final” for federal review.

## Issues

1. Whether the state judgment was “final” for U.S. Supreme Court review upon denial of rehearing, notwithstanding state rules delaying formal finality and remittitur.
2. Whether the Commission denied procedural due process by failing to provide adequate notice and opportunity to be heard on the reasonableness of the company’s rates.
3. Whether the fare reduction and the Commission’s choice of rate base produced a confiscatory rate, depriving the company of property without due process of law.

## Decision

- The Court held it had jurisdiction because finality for federal review attached when the state court denied rehearing; the appeal was not premature.
- The Court rejected the procedural due process claim, concluding the record showed adequate notice and opportunity to be heard.
- The Court upheld the fare-reduction order, finding no showing that the six-cent fare was confiscatory.
- The Court held the Commission could evaluate the company’s financial experience without relying on expert testimony.
- The Court found no due process violation from incidental reference to materials outside the formal evidentiary record absent a showing of error or prejudice.
- The Court affirmed the state judgment sustaining the Commission’s order.

## Legal Principles

- Finality for U.S. Supreme Court review is a federal question; it turns on whether the issues have been adjudged and state review is effectively exhausted, not on state labels or the timing of remittitur.
- Procedural due process in ratemaking requires reasonable notice and an opportunity to be heard; claims of inadequate notice fail when the proceedings as a whole provided a fair chance to contest rates.
- A regulated rate violates substantive due process only if shown to be confiscatory; absent confiscation, subsidiary rate-setting considerations do not establish a constitutional violation.
- The Due Process Clause does not guarantee preservation or restoration of utility asset values lost through economic forces; ratemaking may reflect actual economic conditions.
- In valuing a failing utility for rate-setting, regulators may use market/sale value (including an offered sale price) and may disregard theoretical reproduction-cost valuations, so long as the resulting rate is not confiscatory.
- A party cannot rely on the absence of a contemplated “test of experience” when its own litigation or conduct prevented implementation of that test.

## Conclusion

The Supreme Court affirmed California’s fare-reduction order, holding that federal appellate jurisdiction existed upon denial of rehearing and that the Commission’s procedures and valuation method did not deny due process because the company failed to show the prescribed fare was confiscatory.


Market Street Ry. Co. v. R.R. Comm’n of Cal., 324 U.S. 548 (1945)