85 Pa. Super. 139 | Pa. Super. Ct. | 1924
Argued November 17, 1924. This is an appeal from an order of the Public Service Commission dismissing a complaint of the City of York against a rate schedule of the York Water Company.
1. Is the order of the commission fixing seven per cent as a proper rate of return upon the fair value of the property of the York Water Company reasonable and in conformity with law? Federal courts have held that *141
federal income taxes may be included in operating expenses. This operates in relief of the stockholders. It enhances their return to the extent of the taxes paid: Galveston Electric Co. v. Galveston,
2. Another assignment is directed to the distribution over a period of three years of the expenses in part of this litigation. There is no hard and fast rule as to these expenses. There may be cases where the expenses should fall entirely on the stockholders of a corporation. On the other hand, there may be cases where such expenses *142 should be collected from the patrons of a company. In this case the rates asked were found to be reasonable and the event proves that the company was justified in trying to have the commission sanction them. The disposition of such an item must ordinarily be left to the discretion of the Public Service Commission.
3. The commission allowed $250,000 — as going concern value. This was to compensate for the lag in the development of the company in its obtaining patronage and acquiring earning power. This water company began its corporate existence in 1816. There is absolutely no evidence there was any lag at that time. This amount is allowed purely on an hypothesis. The respondents claim $400,000. The commission allowed $250,000. Some corporations have years of tedious waiting until they get on a paying basis; others have an immediate public demand and a profitable return as soon as started. Some fact must disclose to which class the particular corporation under consideration belongs. Before we figure going concern value, we should have such evidence that there was a lag before the business became established. We quote from Newport Home Water Co. v. P.S.C.,
4. It has been the custom of the company to set aside from time to time certain sums as a permanent fund to be kept exclusively for renewing the works. This fund consists of real estate and securities, which are held by the company and aggregate about $300,000. The keeping of such a fund is consistent with good business methods and has been so recognized in some of the opinions of the courts. The company admits that if the sum should be treated as entering into the rate base, as property of the company devoted to the public service, then the income of this fund at four per cent or $12,000 — should be credited to the annual depreciation account. The commission found that $25,000 — would be a just and reasonable allowance for depreciation. It did not include the $300,000 — in the rate base but deducted $12,000 — from the $25,000 — allowed for annual depreciation saying that that much of the $25,000 was provided for in the sinking fund. It is argued by the respondent's counsel and with reason, that the company would have been far better off if instead of creating a fund it would have paid the stockholders this $300,000 in the shape of dividends. In its report the commission states, "In our opinion the respondents have no constitutional right to demand, and it would be unfair to require, that the consumer, in addition to furnishing the money comprising the fund, shall pay the respondents a return thereon in advance of the time when the fund shall be converted into property actually and directly used in the public service." Even if this reasoning were correct, it should lead to the exclusion of this $300,000 in the calculation, not only from the rate base but also from the sum allowed for annual depreciation. We, therefore, think that the commission erred in deducting the four per cent earned by the sinking fund from the *144
amount of annual depreciation. The justification of the action of the Public Service Commission in their view is found in Erie City et al. v. P.S.C.,
The sum fixed by the commission as a rate base was $3,823,800. From this we deduct $250,000 which was allowed for the cost of establishing the business and which we have disallowed. This leaves the rate base $3,573,800. Deducting the federal taxes as amounting to eight-tenth of one per cent the return rate would be six and two-tenth per cent of the above sum which amounts to $221,575.60. Adding to this the operating expense $134,753 and $25,000 depreciation amount entitles *145 the company to a return of $381,328.60 which is about approximately the amount which the present rates are calculated to yield. Although we cannot agree with the commission as to the allowance or disallowance of certain items above referred to, we all agree that the rates fixed are just and reasonable. The finding of the commission must be affirmed.