68 Pa. Super. 561 | Pa. Super. Ct. | 1917
Opinion by
The Ohio Valley Water Company was incorporated in 1903 and in 1904 it purchased the property and franchises of a number of water companies which had charter powers to operate in various parts of the district now supplied by the appellant. The companies then doing business were the Valley Consolidated, Perrysville, and Fleming Park. In May, 1913, the appellant purchased the controlling capital stock of the Monongahela Water Company and later, through sale, the property of the Monongahela Company was transferred to it. On December 30,1913, it adopted a schedule of rates which has given rise to the present controversy. Since the adoption of these rates, many of the boroughs instituted proceedings to restrain the collection of the new rates. These proceedings were not successful, and in December, 1914, complaints were filed before the Public Service Commission. The commission filed a report February
“The value of the property is to be determined as of the time when the inquiry is made regarding the rates. If the property, which legally enters into the question of the consideration of rates, has increased in value since it was acquired,- the company is entitled to the benefit of such increase”: Willcox v. Consolidated Gas Co., 212 U. S. 19-52. Of course, there are exceptions to this general rule as where the property has increased enormously in value so that normal rates based thereon would be prohibitive. The basis of calculation is the fair \ value of the property used for the convenience of the! public. “What the company is entitled to demand, in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public”: The Minnesota Hate Cases, 230 U. S. 352-434, and cases therein cited. The weight of authority is in favor of the standard of ' present value as distinguished from the cost of reproduction, or the actual cost of construction: San Diego Land ; & Town Co. v. Jasper, supra.
Original cost, assuming that the books of old concerns correctly recorded all of the items that went into cost, which would be quite rare, would not take into consideration many of the incidental features of expense which* companies must meet, nor would it make any allowance
Bonds and stocks issued largely in excess of value by and to parties interested in and controlling the company, or issued on inflated or fictitious values, afford no measure or guide for fixing present value: Knoxville v. Knoxville Water Co., 212 U. S. 1. The investor in a public enterprise must know that at some time the State may step in and exercise its regulatory control and fix returns on the fair value of the utility. If, in corporate management, large amounts of securities are issued on values that do not exist, the investors in common must bear the loss. The commission did not err in declining to consider issues of stocks and bonds on over inflated values as affecting the rate making base of the property under consideration. It presented little, if any, light on the subject. The commission, in the present case, received evidence tending to show the original cost and the reproduction cost. It then endeavored to fix a fair present value for rate making purposes. Voluminous testimony, oral and' written, was taken. More than two thousand printed pages make up the record. The commission filed its report fixing the rates as of January 1, 1916. During the course of the hearing, the engineers for the appellant and the various boroughs agreed upon the reproduction cost of a number of the items making up appellant’s property, which were accepted by the commission as their reproduction cost. Depreciation, though largely theoretical in its nature, which is allowed on the reproduction cost seems to have a fixed place in valuation. If, however, replacements and renewals are amply provided for and made, depreciation only to a very small extent takes place. If, through depreciation, the value of the property is largely reduced, the securities which
Considering these items in their order, in the light of the foregoing discussion, we do not feel that the commission committed any error in the value fixed for the Bellevue and Stowe Township reservoirs. The Neville Island property presents a much more difficult proposition. The appellant purchased several acres of land upon which it drilled a number of wells and secured a supply of pure water which it. pumped into its mains and with it furnished between nine and ten thousand families. The daily production from these wells amounted to 4,-500,000 gallons, and could readily be increased. The appellant contends that the particular valúe comes from the location of a sand bar within the property line through which the water percolates into the wells, thereby enabling the appellant to furnish filtered water to its consumers. The appellees urge that inasmuch as some of this property is within the harbor lines, it is necessary for the appellant to secure a permit from the United States government to sink its wells, which permit may be revoked at any time and the wells rendered
In considering the value of the parallel lines of the Monongahela Water Company, the commission allowed one-third of the reproduction cost, $21,331. The Monongahela Water Company supplied water to McKees Bocks and parts of Chartiers and Stowe Townships. A part of its supply was in competition with the appellant. Prior to 1913, this company offered a part of its property to the appellant, but we do not find any evidence where the entire property was offered to it. In 1913, the Ohio Valley Company purchased ninety-seven per cent, of the outstanding stock of the Monongahela Water Company from persons, one of whom was not connected with the appellant and the other in a very small way. It paid for this stock notes amounting to $100,000 and stock amounting to $192,450. Subsequently a number of shares were purchased for $662.46. The appellant was practically the owner of the Monongahela plant. It appears from the evidence that the persons who sold the stock to the appellant paid for it close to
The commission declined to allow any sum for going concern cost or value. While it said due consideration would be given this item, its report expressly shows, in the separate items found, nothing was allowed for going value; in fact, the rate making value allowed was less than the reproduction cost of the physical property. The right of the company to have going value, or going concern cost, assessed as a part of the present value for rate purposes has been recognized by our own Supreme Court. “As to the items of ‘going value/ interest during the period of construction, and the cost of repairing the streets, which appellant contends were not allowed,” the findings as to these items were correct, that they were elements in that case: Monongahela Water Co.’s Case, 223 Pa. 323; Turtle Creek Boro. v. Penna. W. Co., 243 Pa. 401. “ ‘Going value/ or ‘going concern value/ i. e., the value which inheres in a plant where its business is established, as distinguished from one which has yet to establish its business has been the subject of much discussion in rate-making cases before the courts and commissions. That there is an element of value in an assembled and established plant, doing business and earning money, over one not thus advanced, is self-evident. This element of value is a property right, and should be considered in determining the value of the property upon which the owner has a right to make a fair return when the same is privately owned although dedicated to public use”: Des Moines Gas Co. v. Des Moines, supra; Public Service Co. v. Board of Public Utilities, supra; People v. Willcox, supra. It takes time, labor and money to bring a new operation into an efficient working organization and to acquire a paying business. The time and money expended in the promotion of the enterprise, the cost of securing and retaining customers, the loss of earnings on a reasonably well developed plant during its initial years, when its busi
The amount ascertained for engineering and contingencies is substantially correct. While it might be increased a trifle, the difference is not so large as to warrant any revision.
Interest during construction was allowed, but exception is taken to the reduced amount for the reason that the estimated time within which the plant should have been completed was reduced by the commission. The experts for both sides, whose agreement on many items had been accepted by the commission, found that the time necessary to construct the plant would be two and one-half years. The money used to construct the plant, as the labor employed thereon, demands its fair return from the moment it leaves the investors’,hands. During the period of construction, the company secures no return for its use. The interest charges must be met and this can only be done from capital account. Those who have practical knowledge as to the time necessary to construct a plant of the magnitude of the one under consideration, are properly qualified, and perhaps in a better position to determine the time, than lawyers or judges without practical experience. The engineers agreed that two and one-half years was a reasonable
Concerning the item of brokerage, the courts and commissions of other states have held that discounts on securities should be allowed; as utilities, like other companies, are not able to make their financial arrangements without allowing such discount. The difference between the amounts derived from the sales of its bonds and the amount which the company must eventually pay oji the b03ids has been regarded as a part of capital charge for construction. While corporations should not be permitted to capitalize their lack of credit, still, where bonds are sold at a reasonable discount and bear a fair rate of interest, such discount should be allowed. What is a fair discount depends upon the condition of the money market and the ability of the organizers to attract capital to the project. It is a well known fact that the great majority of companies are started without all the available cash necessary to complete the undertaking. This country would not have reached its great stage of industrial'development if it had been the rule that all capital must be procured in advance by fully-paid stock subscriptions. If a legal rate of return whs all that was offered, the investor could very well answer that without risk and, with a safe margin of value, money could be loaned on lands and buildings at this rate of return. When solicited to invest in a new project, with the uncertainty of success before him, the investor demands a return commensurate with the risk involved, and that must be something more than a legal rate investment. If the venture is a failure, the investor is compelled to take his loss without any hope of recoupment; but it is equally unfair to require him to suffer all the loss if the enterprise fails, and to deprive him of the chance of additional gain if the venture is a success
The order of the commission is reversed and it is directed to reform its valuation in accordance with this opinion and upon such valuation it shall fix a schedule of rates which shall cover the expenses, depreciation, etc., and the return per cent, as found by the commission to be fair.