184 Pa. Super. 56 | Pa. Super. Ct. | 1957
Opinion by
In this rate proceeding the Pennsylvania Public Utility Commission has approved a proposed rate in
The Johnstown Water Company was incorporated in 1866 and is a wholly owned subsidiary of the Bethlehem Steel Company. It provides water service, including fire protection, to domestic, commercial, industrial, and municipal customers in the City of Johns-town and in the boroughs and townships in the vicinity thereof. On February 25, 1954, the utility filed a supplement to its tariff providing for an increase of 20 per cent in all rates except fire protection service. The proposed rates became effective on May 1, 1954, by operation of law. The City of Johnstown had filed a protest on April 5, 1954. The rates had previously been increased by 33 1/3 per cent on February 1, 1953. Prior to the increase of 1953, the last general rate increase for this utility was in 1926. This was followed by a decrease in charges for public and private fire protection service in 1928.
The proposed rates were estimated to increase annual revenues by $197,240, or by 19.05 per cent more than that produced by the existing rates at the level of operations of December 31, 1953. The purpose of the increase, according to the utility, was “To offset the increased cost of operations . . . [and] To provide an operating income in an amount more nearly approaching a fair return on the minimum fair value of the company’s property.”
The utility, in presenting its case before the examiner, proceeded on the theory that the proposed rates would not produce the maximum allowable return. At the opening of the hearing, counsel stated that the util
In view of the utility’s approach and the commission’s methods, it is not surprising that the City of Johnstown questions the rate increase in the absence of additional evidence and specific findings of fair value and fair rate of return.
However, we have carefully examined the record and the commission’s order with its findings, and as a consequence we have been obliged to conclude that this case is within the class of those cases which we have previously held to be of such a nature as to require no specific finding of fair value or of fair rate of return. It appears that the commission had sufficient evidence before it, although defective in certain respects which the commission noted and evaluated, to reach a conclusion that the proposed rates were just and reasonable and that the fair value of the utility’s property would be in excess of any amount necessary to support the rates.
The purpose of a rate proceeding is to determine whether the rates, proposed or existing, conform to the statutory mandate that they be just and reasonable.
In view of these basic principles, the question arises as to when it is necessary that a .specific determination-of fair value and of a.fair rate of return be made. When
But it is not every case in which the rates are found to be just and reasonable that the'commission' may refrain from definitely establishing fair value and fair rate of return. It is only where the evidence is sufficient to enable the commission to reach that conclusion without making such findings that they may be left unspecified. A logical test is whether the evidence shows the return to be “obviously reasonable”; if so, the
The City refers to our recent decisions involving Manufacturers Light and Heat Company (Pittsburgh v. Pennsylvania Public Utility Commission, supra, 178 Pa. Superior Ct. 46, 71, 112 A. 2d 826; Pittsburgh v. Pennsylvania Public Utility Commission, supra, 182 Pa. Superior Ct. 376, 126 A. 2d 777; Pittsburgh v. Pennsylvania Public Utility Commission, 182 Pa. Superior Ct. 551, 584, 128 A. 2d 372) where we held that the commission could not make a judgment allowance in establishing the rate of return without support in the record. In those cases the reasonableness of the rates was in doubt, and the commission made specific findings of fair value and fair rate of return as it was required to do. Its finding on rate of return, however, exceeded any evidentiary support in the record. Here the commission did not undertake to make such specific findings. It did determine the possible range of value from the evidence and concluded that the re
The use of a procedure such as this, in contrast to that in which specific findings of fair value and fair rate of return are made, does not condone or encourage a lesser degree of preparation on the part of the utility. It is essential that substantial evidence be produced to sustain the rates as just and reasonable. See Philadelphia v. Pennsylvania Public Utility Commission, 173 Pa. Superior Ct. 38, 50, 51, 95 A. 2d 244. In some cases, as here, the substantial evidence before the commission permitted it to act finally without specific findings of fair value and fair rate of return. On the other hand, evidence, although substantial, may indicate some doubt as to the reasonableness of the rates; under such circumstances specific findings of fair value and fair rate of return are required in order to establish that the proposed rates are just and reasonable or to establish what rates would be just and reasonable if the proposed rates are not. We wish to emphasize that some findings in a commission’s order are necessary— as in the present proceeding where original cost and minimum reproduction cost were found — from which the commission can determine the reasonableness of the rates without more specific findings; and such findings, as we have said, must be sufficient to enable this Court to make a proper review on appeal. In other cases additional specific findings may be required. In all cases, however, there must be substantial evidence to support the findings and determina
The City contends that since the commission found certain infirmities and limitations in the utility’s reproduction cost estimates it erred in making any finding of reproduction cost. The City would accept the finding of original cost as the only evidence of fair value; on that basis the rate of return of 6.87 per cent would not be obviously reasonable. Part of the reproduction cost evidence submitted by the utility was admittedly unorthodox with respect to the manner in which it was prepared. Ordinarily reproduction cost is based upon spot prices at the cut-off date and at the average price levels for periods of several years, usually three, five, and ten years, prior thereto. See Pittsburgh v. Pennsylvania Public Utility Commission, supra, 174 Pa. Superior Ct. 4, 9, 98 A. 2d 249. The utility in the present proceeding used in part a trended reproduction cost method.
The City condemns the method used by the commission in arriving at accrued depreciation. The utility submitted an estimate of accrued depreciation based upon the 4 per cent compound interest method; it also presented its book reserve for depreciation. The 4 per cent compound interest method produced a factor of 8.15 per cent which the utility applied to the original cost and the three measures of reproduction cost of both depreciable and nondepreciable property. The commission in its order held that the utility erred in using the average age and average life of property in estimating the accrued depreciation by the 4 per cent compound interest method, and that it resulted in an understatement of the accrued depreciation. Accordingly, the commission increased the amount of accrued depreciation by applying judgment figures, based upon the evidence submitted, of 9 per cent to the original cost and 10 per cent to the reproduction cost estimates of depreciable plant. We approved such an adjustment with respect to accrued depreciation in Pittsburgh v. Pennsylvania Public Utility Commission, supra, 174 Pa. Superior Ct. 363, 367-370, 101 A. 2d 761. We there stated (pages 370, 371 of 174 Pa. Superior Ct., page 765 of 101 A. 2d) : “The determination of accrued depreciation by the Commission is essentially a matter of judgment. ... In the present case the Commission properly considered the results of the application of the compound interest method as guides merely, rather
The City’s remaining contention is that the commission actually fixed a rate of return of 6 per cent, and that this is umvarranted and unsupported by any evidence. The obvious answer to this is that the commission made no specific finding of rate of return. It determined the minimum range of value. It capitalized
The manner in which the difficulties arose in this case is quite obvious. The utility apparently felt that under its evidence of value the rate increase was clearly within the realm of reasonableness. At the very beginning of its case it indicated its intention to refrain from introducing evidence of fair rate of return because the reasonableness of the. rates seemed to it to be so obvious. But the commission, although it ultimately agreed that the rates were just and reasonable, nevertheless properly recognized the infirmities and defects existing in the evidence of value. While the rates were found to be just and reasonable regardless of these infirmities and defects, the latter had the effect of detracting from the utility’s original impression of the evidence and certainly strengthened to some degree the contentions of the City. Our review, however, has indicated that the commission did not err in concluding from the adjusted and modified measures of value that the rates under the proposed supplemental tariff were lawful under any reasonable minimum finding of fair value.
We think it is incumbent upon us to refer to the fact that this is the second rate increase for this utility within the period of a year. Although it is only the third increase since 1926, we cannot fail to observe that the 1926 rates, which the utility apparently felt produced a fair return until the increase was sought in 1953, have been increased approximately 60
The order of the commission is affirmed.
The measures of value after deduction for accrued depreciation as submitted by the utility were: Original cost, $6,478,429; reproduction cost at spot prices of December 31, 1953, $19,555,814, at price level of 1951-1953, $18,486,828, at price level of 1949-1953, $17,550,405.
The amount of the return is not alone determinative. For example, the return in Orlosky v. Pennsylvania Public Utility Commission, 171 Pa. Superior Ct. 409, 413, 89 A. 2d 903, was $2,072; in Philadelphia v. Pennsylvania Public Utility Commission, 162 Pa. Superior Ct. 425, 431, 57 A. 2d 613, it was $4,238,000.
See, also, section 311 of Public Utility Law, 66 PS §1151.
In Orlosky v. Pennsylvania, Public Utility Commission, 171 Pa. Superior Ct. 409, 413, 89 A. 2d 903, where this procedure was followed the return came to 6.5 per cent of original cost depreciated, 3.8 per cent of reproduction cost depreciated, and 4.8 per cent of the average.
The finding of fair value of the South Pittsburgh Water Company was $21,000,000; the finding of fair value of the Citizens Water Company was $6,750,000.
Trended original cost lias been used in estimating reproduction cost. Pittsburgh v. Pennsylvania Public Utility Commission, 178 Pa. Superior Ct. 46, 53, 112 A. 2d 826; Duquesne Light Company v. Pennsylvania Public Utility Commission, 176 Pa. Superior Ct. 568, 579, 107 A. 2d 745.
The commission also states :
“The basis upon which the 1937 inventory was prepared, as hereinbefore recited, leads to the conclusion that the inventory is reasonably all-inclusive of respondent’s plant. Likewise, the basis upon which unit prices were determined, as hereinbefore recited, leads to the conclusion that respondent’s estimates are reasonably inclusive of all elements of cost.”