*1 1922. 3371, dеaling period, in a taxable ensuing tbe until tbe midst of It was not prac- adopted the period plaintiff that tbe foregoing discus- tice which necessitated (distin- requirements factual sion as guished implications) jurisdictional from the 424. of section plaintiff entitled results that 3371, in
judgment No. as follows: In Case from $172,470.36 with interest amount of 31, 1923; in No. January case Jan- $329,250 interest amount uary and in No. case $98,416.41 July with interest 31, 1924. plaintiff. Costs each ease to accordingly.
Ordered CORPO- & ELECTRIC
LOS ANGELES GAS COMMISSION OF RATION RAILROAD (CITY OF LOS CALIFORNIA al. ANGE- et Intervener). LES,
No. S-105. Court, California, D. Central
District Division. April *2 finally
entire ease be the record. submitted on approves The stipulation. now court that The California commission railroad general jurisdiction over public utilities giv- California. It fixes rates for the service public, authority en and its act as a regulatory body within is exclusive. the state latter; part year it deter- 192-9 mined hearing that -a should be held with the purpose putting a decreased into effect govern gas schedule rates to service plaintiff. questions usual are the occurring ones cases, company in such complaining of the of a base below use the fair value the com- and insisting mission given full and every consideration to of worth element entitled to be in the total. The included company that, makes the further claim as- suming the figure, correctness of the base return grossly inadequate. allowed is plaintiff While the company engaged in furnishing electricity both light power, gas for domestic and industrial Cal., Phleger, Eranciseo, Herman of San uses, departments, both as to investment Overton, Angeles, Cal., and Paul Los operative instrumentalities, separate plaintiff. separable. They so divided rate-making commission for purposes George, Arthur Rowell, T. Ira H. since date more than past. twelve Cassidy, Eranciseo, Roderick B. all of San Involved in proceeding before Cal., for defendants. mission proper charges was the matter of City Wemer, Erwin Atty., P. and Fred- company be made electricity, for' but Schrader, City Atty., erick Von Asst. both existing changed. the rates were They Angeles, Cal., Los for intervener. previously last had reduced the re- statutory composed Before court WIL- quest in order to meet com- BUR, Judge, and JA- Circuit JAMES and petitive established rates for service fur- COBS, Judges. District city nished Angeles. of Los There- fore, nothing presented there is here JAMES, Judge. any way adequacy charges District involves the electricity. brought plaintiff claiming this suit right injunction against commission established two valuation gas department defendant railroad commission totals State of plaintiff, California, members, one prevent- characterized the “historical cost,” and, second, “present of an enforcement that commission order fair value.” fixing á charged rates were: cost, schedule of These totals $60,704,- Historical value, $65,500,000. fair- plaintiff. On val- service furnished There uations, the earn an- temporary net injunction, was motion for a - cent, per of 7.7 nual on the first and; preliminary argument, after oral briefs cent, per amount, -and 7 on the second provided were to be filed. were Affidavits amount. The claimed fair received in motion, evidence total of transcript also a all submitted hearing year testimony presented prior had before it on At hearing, rates, had fixed a which was the commission received without ob- schedule of jection. restraining used, A order under which estimated the base then issued adequate a return pending produce bond 7.5 cent. un- would decision. It was might hearing derstood determined issues ar- commission -at the further orally gued complained filing court now after which the rates before actually briefs, earning parties agreed later existing argument excess waived, oral rates an over the under the then analyze earning great use to mass estimate, wit, 9.6 detail the evidence, base, particularly nor to refer on historical argument authorities cited in The commission the elaborate on fair base. presented. opinion experience stated in its *3 earnings preced- shown actual the appears that, from in the the record ing esti- schedules fixed it exceeded its proceeding or- the rate which culminated in commission, hearing mates. before the At the der complained of, commis- California of a difference was shown there was investigation. sion thorough a most only $300,000 between historical cost val- days twenty-four devoted period a total of n uation of the and of commission, hearing being taking testimony, of company. The overheads. This excluded completed July, in 1930. The order declares, opinion and the commission in its signed Expert was wit- 24, November appears disputed, that his- fact heard, nesses on were and both sides adopted by the commis- torical valuation had recourse to its records appraisal of (referred sion 1917 in proceedings plaintiff affecting accepted 1915) as correct both corporation. itself also of It availed company in the series and the commission knowledge dealing gained experience in subsequent hearings during held rate years. period many like utili- over with eventuating in the proceeding In the department, operated ties. In its service of, complained the commission order here city Angeles, Los the plaintiff within the up built took 1917 rate base and on competition. is confronted with no real figures its historical accumulate final posi- stable growth Beferiing and arrived figures How final cost. tion on its business entire particularly will stated hereinafter. more commission, its (gas in electric), and change de- the schedule of rates was in opinion, (and supported the evidence said cent, per 9 in signed to work a reduction of gas de- statement): “The rate base for gross company. income of partment grown approximately has considering the claim of the nearly $59,000’,000in in 1916 to against exceeding $95,000,000, for a rate base independent active meters from its $65,- the commission’s fair value base * * * 131,500 period. the same during point suggested that, 000,000, if the growth has financed This been remarkable repre- large total which claims largely by the bonds sale value, old reasonable fair then the rates sents preferred been mar- stock. These have company was satisfied to with which the lessening so that gradually cost, keted at a patently work would be confiscation. pre- present annual its cost of bond of no deci- reflection is force influence the money normally per ferred is 6.17 cent. stock indicating made, except sion to be Also, has been reserve its invest- propos- in modest has not over been property. included with ed in If this be ing its totals. bond, money at the rate preferred stock its Admittedly rate-making per the task which it is being 6 the rate at essayed reserve, only by specialists, required men its an- to account for one bond, and re- problems its stock preferred- research into of business nual cost of whose money but 6.14 cent. On De- economy, money all of variants of serve with Company outlook, 31, 1929, the had outstand- cost, depreciation, and commercial cember $47,070,0OO1. hands of the given peculiar qualifications in them has cases, they bonds, $19,469,995 brought par par value of Bate when work. stock, $20,000,000 par value preferred court, impressed presump with come into Its reserve been agency -that the state to which has of common stock. reported date was regulate public (gas electric) util duty committed stock $16,804,105.15. All of its fairly affect at common ities has business dealt Corporation. Lighting wherein, under Pacific ed, every in matter owned stock has 1916 but any view, can said to Since a discretion cash, $5,500,000 how- reasonably exercised, purchased for the been fairly having distributed to Pacific ever, orders not 'interfere wifi courts Corporation form stock study Lighting careful the record A made. earnings dividends, left in the representing labor, but entailing considerable task been a paid on its have been property. Dividends need in resulting not, conclusions per cent share of 7.20 proportionate stock them, (cid:127)common statement 1918; 1916, 1917 and par value) in thought ($100 helpful not been length. It has 7.4 value of percent 19191; percent 8.4 mission 33.75 1922; ; saying in 1923 percent 8.7 correct in percent not to per- testimony in is 25 be controlled in which included $2,500,000; cent face of said facts before it. It cannot be stock dividend that, percent 1926; assuming base 1926; 9.815 reasonableness percent used, percent 35.17 prescribed the rates 192,7, which includes stock produce a fair percent, $3,000,000; 15 dividend of 21.42 return. percent in 1929. percent company claimed the historical Company’s $381,- surplus grown from $5,000,- of its approximately 212,97 $4,176,663.09 while com more than the amount fixed $3,- reserve increased from right charge mission. It claimed the 804,383.36 $16,804,105.15.” to, as said above *4 representing as «aeeount cent, per of the stock overheads the com Approximately 60 from 1913 to which gas and mission chargeable part. bond disallowed claimed money large It department. $20;000;000 “going $9;228,667, Of the concern” outstanding value of which rejected stock, $9,993,000 reported as was commission, in common items as were was $10;- designated having property, and financing, $5,924,470; been issued as cost of 700,000. cash, or, thereof, promoters’ remuneration, $2,500,000. as for in lieu The par. give a company operative property, The unable to on its physical commission was property, cash overheads, value to stock issued for excluding land, intangibles, and and that the $51,661,374; held rate dividends on estimated historical cost as common of com- same, applying prices stock cost and cost did establish unit as money. mon company stock The had claimed of December as cent, per rate 8.5 its common cost large were the expressing above items that disagreement stock. The commission’s evidence was as valuation between the applied stock as company were this to common and the commission. insisted, the annual cost of The commission included the historical capital proceeds cent. per be 6.62 value base as an amount franchise value Commenting findings annual that the its $14,391.23; and, original organ- as cost its company pre- cost and bond (derived ization compa- records of the money per cent., ferred stock was 6.17 ny) $415,734.71. Lands were as of included “However, just the as- commission said: fair as of December sumption Company’s property that the was 1929, which was approximately $1,775,588in prices now current increases constructed original excess of cost. figure, assumption cost a similar actual so The commission liberal in its veiy Company the bas- that the was financed on treatment of certain items of money of current would reduce es early operations furnished per to 5.64 figure cent.” artificial Since gas. 1924 it has served nat- experience under If ural gas, which is plentiful in the numerous finds, been, regulation commission oil fields Southern California. no There estimates, that returns exceeded then which evidence discredits the commission’s greater net will be may well be that its conclusion the supply of natural allowed last under the wül be abundant and constant. The com- and history of successful schedule. With mission in effect that found at least two of business, profitable competition and no real the artificial gas plants manufacturing service, in its field of the hazard plaintiff to meet longer were no might and needed probabilities continued de- and small well Nevertheless, be retired. included Electricity assured. them its mand valuation as necessary part live supplanted gas operative property. All of of the great appears that, extent fuel. noted, affecting plants had eliminated, conditions business comрany, sustain commission base would have ap- its value been reduced proximately $3,000,009. plaintiff’s securities are statement being marketed at moderate inter- capable of explaining method which grow. that it rates, will continue to est totals, valuation reached the the produced testimony engineers. two referred of its witnesses These familiarity apparently experience financial investment men wide having assigned that, conditions, testified and un- the work to them. Witness who risks Dufor considered, (we business the testified refer both commission’s rec- certainties of engineer, here) earn than 8 ord affidavit as an more cent. as- costs and well. franchise upon prop- values duty having place valuations plant, and affirmed sumed a live active employed railroads, was arty of interstate he of attaeli- total included all ultimate costs Com- by the Interstate from 1915 ving business as the had same served merce Commission. He had as- figure, March, Its fair 1921. been accounted for. commission since California and allocation suming correct division testified that the valuation He to, referred one items charge maintained hereinafter his commission under cost, at continuously essentially represented investment bureau used which was prop- present time, operative ma- regarding all the collection information making an- connected incidentals. costs, erty and in terial and labor company, alyses representative mission books purchases actual state, details and items it with the corporations within furnished utility engineers from vendors. who tes- quotations complete securing form. Other also material declared figures He that the tified to valuation testified trend they prop- unem- downward; oath were familiar with labor costs an unusual a thor- ployment situation available erties of the plaintiff ma'de per- capable to ough and exhaustive of all the matters study number of men suitable plain- information, required they gave as which form work was ob- employed to company. An The method which the commission based order. tiff *5 to 15,1936, was record, present costs as June tain examination the voluminous the showing as used appraisement take innumerable tabulations cluding the made, and add hearing, comparisons at commission demonstrates the various property and every of all articles thereto the cost was no lack of to there attention betterments, included in additions and item would assist the com- element and which on the shown particularly those were items in at it deemed to arriving mission what such convert company, and then books figure. fair price levels of June prices ruling to moment out Leaving of view for analysis comparative made a He 1930. charges, feel sat the matter of overhead prevailing December prices by applying justified in was isfied that commission comparison, under which 1930; and another amount appraisal making use year period he assumed four construction year fixed its order January 1,1926, 31,1929, from to December at an exhaus after This amount was arrived during average prevailing applying prices ' investigation. the com The books of tive estimates, that time. Under each of these pany determined accurate were to figure total valuation at than arrived was less ly kept, property wore different items and proportionate value base which completely segregated and so that additions adopted. In estimate which commission were easily betterments costs aseei*tained. four-year period with assumed a construction utility company proceedings Where average prices, engineer over- included correct, adopts, as an an amount fixed in charges per pre- of 22.32 head cent. On his initial order made at time under it came estimates, ceding charges his overhead were ought permitted regulation, not to be to computed at 6 cent. per that amount at on ground assail time affidavit, declared, engineer, in his The inaccurate. that it is corresponds the declara- his statement to and charges matter has a The overhead opin- commission found tion of the aspect. different The commis somewhat represents ion, price that “current level cost over sion’s allowance 6.35 properties they existed the cost of position heads was due in to part 1929, assuming prop- December voluntarily had company placed which it together historically, but that put erties were hearing self. In the resulted in development of the entire life and during made affecting first order unit costs had been prices properties, larger rates, company advised that a was continuously prevailing level June at might charged cap overhead amount of 15, 1930.” customarily charged than it had on its ital reaching commission did then What that account theretofore. These books figure of fair value was to in- expenditures its base rate reason of overheads occurred superintendence, engineering, all items of used useful interest clude construction, injuries during operative plant plaintiff, and taxes legal services, damages, etc. The thereof current market appraise the value operative department, organization might, in its make original use prices. included 2G1 capital greater mission organized assign that it agencies same charged expenditures, also in overhead extensions construction of expenditures approxi- all of exceeding additions facilities. operative to its such op- Operative mately per6 total thereof expense incurred ren- generally dering expense, erative expense, result that chargeable service was had years benefit during a deductible itеm successive hence use gross figure, much income, reduced net income while overheads incurred which, charges extensions, turn, betterments, additions augment capital increased. account. adopted segrega- rules by the base, From as used the fair value company proceed- to made. The was commission, de depreciation ed, however, through years all ducted. The of accrued matter charge capital costs account overhead annuity al affecting important heea'me amounting average to less than prospec lowance arriving considered in cent. the last re- proceeding, here tive income. The amount allowed viewed, sought ac- reform its depreciation, annuity commission as charge counts an overhead $1,072,000’. sum claimed commission, cent. referring to that $2,- that the annuity not less than he matter “In initial opinion, in its said: 344,744. in The commission marked the involving Company case the gas of this rates consistency of claim the including a rate base was overhead large such a annuity depreeia amount for charges higher substantially those claiming tion, when it was ac the total charged preceding the Company in crued affecting and approximating those claimed. now $3,470,326. This, sum notwith Company fully apprised was thus of a basis standing the accumulated general charg- of assigning to certain *6 gas department reserve for on December es part capital part alloeatable in and in to 31, 1920, $9',350,680. amounted to com operation. to Notwithstanding fact that engineers computed depreciation mission’s it definitely propriety was thus advised of the amounts straight'line and fund sinking more allocating capital of these to and less be respectively $7,- to $15,345,154, methods operation, Company, subsequently in 774,867. The figure fund sinking method splits making these or allocations, saw fit to was one referred to in allocate on its books bulk of these to opinion, appears commission’s and operation as it prior much bad done to 1917. employed method corresponds to the account system Under the uniform of accounts a con- practice company. It is to be range siderable making in al- discretion noted under accepted rules, as between locations as here rests involved with the straight line and methods, sinking fund Company. responsible accounting Either the sinking fund is undepreciated, base while the officers of the Company alloca- straight line depreciated base ais base. in tions the exercise judgment of their best at all time when of the facts were fresh From the evidence presented, appears their or, minds presumably reasons to the quite clearly annuity depreciation allow- advantage Company, deliberately un- prior to ances made date of hear- the rate dercharged capital and overchargеd opera- ing here concerned were excess of what tion. In the proceedings various before the the company could properly claim. Prior reported Commission it and additions bet- allowances, excessive, controlling. not were terments, well as operating expenses, based Depreciation was capable a matter not upon its books the allocations there re- definite ascertainment,, and the commission findings corded. The of the Commission in- right had the judgment use its under all dicate that determinations as to rates went of displayed it, facts before aided assumption on the that such allocations were weighing the evidence experience its properly made.” dealing with this property It true that utilities, one adopt valuation like en- and to- gineers for the commission testified that the than the rather amount deduct- company might properly charged company. ed by is not It demonstrated capital by any 11.25 per on account of over- evidence allowance made Nevertheless, heads. the action annuity commission as com- regard, mission in this think, not, for the would amount, was rea- future its sonable. The fact was equivalent the company, replacement de- outlay at clining suggestion to follow the costs. 2C2 age supplies by the value amount of materials and large claimed amounts years kept on hand $5,921,47o1; financing, for cost $6121,735; 1927-1928 and 1929'was promoters’ remuneration, $2,500,000'; value) in 1929 al- $571,000. the amount was attaching concern (going business $580,- $450,000 lowance of year 1930'cannot “difficulty” costs, $0,228,667; added arbitrary. rejected as for be said to The commission was think, properly 195, we were authorized to company’s claim determine within reason their total amounts. fairness needs. what sum would cover future be added was that these sums should on the present investment cost of an capital, cash working For was enti theory fixing that in $645,000 claimed; amount of was pro original an venture tled assume delayed was allowed. This item to cover was contemplated pe moted and built up over be receipts, income occasioned wait saying, “If eight years, in effect: riod of tween time the consumer delivery our today develop business starting were brief, In charges. and collection of the customers, all anew, without representing total company claimed a' sum ex probably enumerated amounts prices. The com earned amounts retail ap object an Basically,, pended.” mission found that cost of service rate-making is to purposes praisement for considered, charges, rather retail investment value of the find full considered, latter profit. include represented investment business. The amount, fact that computing necessary the value gas, company, purchase natural in its would cost what it the business—-not thirty days’ extended credit. An offset starting promote like business establish accordingly against charged expense total today. think arriving result. We proper method used was a one. income fixing estimated adjusted smaller items involved which figures to Some future, the commission require their different company com amounts would average temperatures. The regardless might they how plained preceding decision, least two that at treated. high temper by unusually had been attended consequent demand diminished plaintiff atures concluded aver gas, improper to assume that it demanded, to the relief entitled yet practice age temperatures. And injunction prayer should be denied. adopted may note that fair. We *7 accordingly. Decree will be entered Angeles, city Los the winter of 1931-32 progressed far the end of as it has thus JACOBS, concurs. District-Judge, many January, of the coldest in has been one average years. so, And the rule of assumed WILBUR, Judge (concurring). Circuit temperatures reasonable seems be the Angeles Corpora- The Los Gas & Electric unusually adopt. During mild winters one to tion, company” called “the filed hereinafter utility the service will earn than was esti less equity to restrain the enforce- bill it, mated win allowed to and colder by ment of rates fixed the railroad com- earn more. ters will commission recom The upon of the of California the mission state temperature that a estab mended reserve be ground so fixed were confisca- that the rates prescribed lished by the an al and tory, by to which answer was filed the rates, produce ternate set of re larger commission. Affidavits were railroad filed turn awith condition that the excess should by plaintiff support the of a motion for temperature fund, feed the reserve so that in injunction. temporary The com- railroad equalized could be come lean and between reply, city affidavits mission filed and the years. by productive accepted This was not Angeles city and the of Los Pasadena company. the and support filed affidavits in tervened by rates fixed state rail- affecting There were the the California other amounts commission, road rates, which will as to their and allocation hereinafter kind Upon as “the properly referred to commission.” agreed assigned, were to statutory hearing sufficiency before the court tem- but as the allowances injunction upon giv- objection. porary issued For thereof injunction satisfactory of a bond. supplies construction, ing and held for materials stipulation $612',735. partly of coun- resulted company claimed commis- facilitating disposition It $450,000. of the case. sel allowed The commission was sion entire stipulated that the evidence
presented
showing that
the aver-
evidence
ciples
better
established
courts were
had been
adduced before tbe
rate-making
understood
engaged
those
should be
considered
introduced and
by the
developed
and more
is-
upon
thoroughly
of the
court
final determination
courts,
power on
veto
involved,
evidence,
exercise of a mere
sues
and this
increasingly
part
upon
motion for tem-
of the courts became
affidavits filed
al-
unsatisfactory.
Supreme
en-
has
porary
Court
injunction,
should constitute
ways
disposition
power
disclaimed
the court.
either
or
tire
record
consideration
utilities,
any abil-
public
deci- to
rates of
or
thereupon
fix
The ease was
submitted
at its
upon
already
ity to do
facilities
presented
with the time
argument
so,
sion
and
it has
injunc-
Nevertheless,
command.
later
interlocutory
cases
motion for an
of the court
filed
desirable that
action
thereafter
become
and
briefs
parties.
estab-
enjoining
behalf
Elaborate briefs
of a
enforcement
rate
prepared
great
rate-making
lished
carefully
present
body should be
a local
respective
sufficiently
views
precision
emphasis
to serve
definite and
certain
adopted
guide
parties.
body
a recon-
rate-making
method
much to
in re-
presentation
problem.
com- sideration
this ease has
To
end
required
in the
difficulties
great
mend it. One of the
cent
has
cases
Court
of,
findings
involving
the claim
act-
determination
cases
fact
Court
by the District
findings
commissions
public utility
fixed
statutory court,
that rates
confiscatory
inevitably
Fed-
violation
fixing
involve
a minimum
fact
from the
Constitution has arisen
eral
fair return
property
novo utility.
of confiscation tried de
issue
unnecessary
It is of
in such
course
theory being that the
court,
in the federal
findings to
elements
determine either of.
court with the
federal
sole concern
is,
rate-making,
essential in
the fair val-
func-
question
confiscation,
of return
ue
and a
fair
it relates to-rate-
court
tion of the
making
far as
so
only necessary
determine
thereon.
is to determine whether
whether
rail-
given
in the
instance the
yield
rates
which is below
return
placed
road commission
the income be-
required to
absolute minimum
avoid confisca- low the irreducible minimum.
commis-
recognized by
long
tion.
the fed-
fixed the
sion
value of
fair
that,
court
rate-making
eral
if the
bodies
$65,500,000, and determined that
specific findings
would make
with re-
fact
7 per
net was
return
fair
return,
particularly
lation to value and
The company
value.
claims
val-
they
findings
showing
clearly
would make
ue
have been fixed at not less than
they
had considered all
the elements
$95,000,000,and a
at not less than
fair return
required
Smyth
decision
brief,
cent.
claims
Ames,
466,18
169 U. S.
Ct.
L. Ed.
nearly $30,000,000 ($29,500,000)
of its
subsequent
cases, to be con-
appropriated
has been
without
sidered,
work of
court
be much
pensation
refusal
give
there-
simplified,
that,
on,
while the
courts
balance, capital
federal
that of
sufficient
necessity,
$655,000
to return
(1
must of
their consti-
an income
use
cent!
*8
cent,
per
of
authority,
independent
$65,500,000) at 8
tutional
exercise an
also
has
confiscated,
is,
that
$8,187,500, sо that
the
return,
rate of
the
judgment as to
and
value
plaintiff
total amount
will be confis-
rate-making body upon
of the
claims
determination
by
proposed
the
cated
rates is
conflicting evidence as to the various elements
plus
($29,500,000,
$8,187,500). Sixty per
value,
to-be considered
arriving
at the
cent, of
the
property is devoted
just
in the
of the
and
determination
rate to
cent,
gas
toj
to the
per
business and 40
the
at by
be arrived
consideration of
ele-
these
electric business.
rates
value,
Electric
are
in-
ments of
is
not
great, though
entitled to
here.
volved
The amount
claimed
controlling, weight.
thus
to be
not
the
stages
In
earlier
confiscated almost
the
rate-making,
par
problems
when the
double
value of
of
involved
thoroughly
the entire common stock ($20,000,000)
not
were
understood and
of the
some of
company and
expense
elements of
more than three
ig-
the
value and
the
were
times
nored,
apportioned
it sufficed
amount thereof properly
the court
the
to the
declared
gas
particular
($12,000,000).
rate to
business
be less than the
view of the
minimum
permitted
Constitution,
proposed
the
fact that
it is admitted
the
under
and
that
there-
enjoined
gas
by
fore
the enforcement of
fixed
partic-
pay
rates
commission will
leaving
portion
order
on that
involved,
rate-making
ular
body
interest
bonded
point
apportioned
to
its
gas
fix
rate
some
in excess debtedness
business
cent,
per
equals
the minimum.
(60
of
constitutional
of
prin-
$26,604,-
As
cent,
commission,
recognizes that
course,
888)
preferred
of
per
upon
at 5.96
and
utility
$17,-
public
the rule
the valuation of
of
apportioned
stock
(69
so
definitely
cent., property
thoroughly
has been
and
330,317 equals
$10,398,190) at 6.72
by
upon
Supreme
to settled
and
apportioned
Court,
concedes
common
stock
gas
its
measured
$20,000,0'00
must
(60 per.
conclusions
business
standard.
that full
equals
per cent., which
nevertheless contends
$12,000,000)
8.50
every
given
stock consideration
to
element
is said to
bond and
has been
cost
be the
of such
$59,-
required
considered, and that
money,
upon
or
a total investment
cent.,
fixed
at bar
003,078,
it
case
interest at
valuations
about
theory of the
company are sustainable on
obvious that
either
the contentions
dissenting
majority
opinions
should
the oth-
Su-
scrutinized
On
or
with care.
preme
conflicting
er
Court.
these
con-
hand,
commission
With
as it is conceded
siderations
a detailed
throughout
it has
its his-
in mind
before
consistently
analysis
stated
tory,
subject,
the the-
followed
rate-making body,
larger
disagreement
fall
ory
by minority
members
elements
advanced
sep-
Supreme
heads which can be
Court)
advanced under two
three
particularly
those
arately
considered,
stating them
Justice
and Justice Holmes
but before
Brandéis
dissenting opinions,
their
will consider
the conten-
numerous
lines
broader
opinions
respective
majority
parties.
do
declined
follow the
this be-
court,
authoritative
cause аs many
entering
into
of course are
the facts
rate-making
-problem
disagreement
binding upon all courts
between the
bodies,
parties
equally
trivial.
comparatively
it is
true also that the con-
tentions
must be scrutin-
cash
commissionstates
actual
commission,
re-
ized
care.
in that
gas proper-
invested
company in
gard,
position
opinion
states
ties
ease
at bar
follows:
amount of
attributable to
bonds
stocks
many
business,
stated,
slightly
the the
years,
gas
“This
as above
Commission
say,
($59,003,078).
rea
That
jurisdiction
exercise of
to establish
more
character,
stock, bonds,
preferred
money in-
rates
stock
sonable
for utilities
yield
rates
the historical
vested
business
fixed
land,
millions
property, taking
cost
how
six to seven
less than the
actual
depreciation cal base
ever,
values
at current
commission. It is certain-
basis, a
ly satisfying
investigation
on a
return
at the outset of
sinking
culated
fund
money
alleged confiscatory
in excess
somewhat
rates
realize
the books
sufficiently high
Where
the rate fixed is at least
properly.
invested
so
kept
have been deemed
accurately
these
stockholders,
bondholders,
were
well
the actual cost of
accurately
most
reflect
actually
receiving
their
money
invested,
distinguished
the structural and
Some
from wha.t
times,
reliable,
it has may
when
determined
be fair
necessary
what
found
devoted to
their
parts
produce the whole or
use.
historically.
(Re
Valleys
& Elec
Coast
Gas
In this connection it should
observed
(1917)
460;
tric
14 Cal. R. C.
Co.
Southern that,
practice
commission of
under
,(1920)
818;
Sierras
Co.
R.
Power
Cal. C.
pru-
basing its
the historic cost of
rates
Company
Southern California Edison
theory,
dent investment
stockholders are
(1923)
R.
(1921) 19 Cal.
C.
Cal. protected
they
their
even if
investment
do
Joaquin
981;
Corp.
R.
San.
Lt.
Pr.
C.
&
reap
theirs
profits
justly
which are
(1923)
Pac.
& Elec.
21 Cal.
C.
Gas
R.
established
rule
*9
744;
22
R.
Great
(1922)
Co.
Cal. C.
Western
system adopted by
Court.
this
Under
814;
R.
(1923)
Power Co.
Cal.
C.
Pac.
it
commission should be stated that the hold-
(1929) 33
R.
737.)
Tel. & Tel. Co.
Cal. C.
stock, although
of the common
theoreti-
ers
subject
greatest
to
tho
cally
hazard in
fixed on
utilities of
“Under rates
this basis
large
measure from
grown
pros- busincss,
protected in
strong
this character
to
experienced
difficulty
due
fluctuations
value of
perous. They have
no
the hazards
money
invested
securing capital
property in which their
extensions
is
and new
advantage
deriving,
of
as
development. Confidence in
and have
investments in
upon
a
capital
profit
stock and as
come
their
utilities has increased
has
investment,
difference
readily
between
of investment
and their
'the
to this field
flowed
to the bondholders and holders
gradually,
paid
interest
decreasing
rate or cost/-’1
' .
.
preferred
stock and
rate fixed
of
ours.)
(Italics
commission and the
claimed
inter-
it is
In
connection
commission.
this
of
to
of common
as
esting
the holders
observe that
capital invest-
stock
their
would have
entire
of
upon a discussion
entering
Before
way
ment
of dividends
them
returned
differences,
thеse
be stated
should
present
about three
with the
financial
carefully
commission,
most
opinion,
in its
set-up
of
and with the rates
be
cannot
It
considered these elements.
per cent.),
(8
contended
so that
the
ignored
unless the
them
claimed
largely
now
de-
their investment which is
ory
inevitable effect.
had that
of its decision
regula-
profits
rived
under state
from their
with reference
at the outset
conceded
completely
tion
be
reimbursed in that
con
must
going value that this
element
period.
short
v.
McCardle
fixing
sidered in
base.
400,
making
Indianapolis
Co.,
we are not
Water
U.
In
these observations
S.
rate-making
deemed
S.
71L. Ed. 316.
accepting
Ct.
Court,
system
repudiated by
Value,
Overhead, Going
Relation of
Concern
acknowledges
commission
itself
Expenditures.
and Promotion
erroneous,
the fact
has
company is
In
of
fact that the
view
system
largely
financed
shows
under
nearly
of
claiming
for the sum
should,
historie
element of value
value,
claim
these
items
three
perhaps,
greater
given
consideration than
by the rail
addition
the amounts allowed
body
be the case
rate-making
where
road commission, and
items consti
for the first time fixes
of going
the rate
con-
major part
tute
of the claim of
the com
cern
has been
financed without inter-
pany
valuation, it
as it
far
so
relates
supervision by
public
ference
or
officials.
at the
these three
be stated
outset that
Here it should be stated that under the Cali-
less
elements
are more or
interrelat
system
fornia
the commission, not only fixes
ed.
expenditure
Whether
or
given
rates,
authority
but has
to determine the
be treated as an
element
the cost of con
terms
which and amounts for which
struction,
maintenance,
operation,
ofor
or
stock
bonds of a
utility may be
judgment.
more
a matter
or less
Some
financed,
and the
in this instance
expenses
promoting
all of
an
enter
procured
most
prise
appropriately
may be
considered
supervision.
addition,
In
it has
aup
set
charges
overhead
and carried
the-books
system
bookkeeping
in accordance with the
corporation
as such. It is also true
general
rules
the commission,
and as
expenditures
giving
involved in
life
result various items entering into the valua-
dry
enterprise may
bones
treat
plant
readily
can be
ed
charges,
expen
as overhead
asor
annual
expert
determined. The
testimony
compe-
say,
ditures.
That
actual or assumed
engineers,
tent
in this case, is largely based
expenditures, for
purpose
producing
upon these
already
books. We have
indicat-
the various
entitled to consideration
results
ed the
manner
which the historic
value,
going concern
or to be considered
determined
the commis-
overhead, may
promotion
be carried as
ex
sion.
penditures
capital expenditures
treated
juncture
At this
and before further dis-
attaching business involved in going
con
cussion of the method of valuation adopted
they
cern
overhead,
value or
items of
by the commission
and that contended for
included
of annual
allowance
company,
we will indicate the
im-
most
expenditures charged against
the income
portant points of difference as to such val-
corporation.
See Des
Gas
Moines
Co.
ues. The first difference
$9,-
item
Moines,
City
of Des
S.U.
35 Ct.
288,667
going
concern value.
Ed.
The next
59 L.
McCardle v. Indian
large
item
overhead of
apolis
Co.,
Water
S.U.
47 S. Ct.
It is next
claimed
an excessive
importance
deduction
going
value,
concern
determin-
two items
referred
ing
appraised
concerned,
in
cost it had
effect
the commission
historic
we think
regulation
from correct in
quote
concern value. We
its
going
conclusion if the
opinion
prac
kept
effect rates is
to that
to be
within the domain
fancy.
as
ticality
follows:
Galveston
rather than
See
388, 42
Galveston,
v.
258 U.
Electric Co.
S.
go-
as
Company claims
“The
undoubtedly
S.
66 L. Ed.
It is
351,
Ct.
678.
ing
value,
upon the
largely
concern
based
repro
estimating
engineers,
true that
* *
*
testimony of
Alten S. Miller.
Col.
fairly
items
may
duction
include
costs,
an inde-
Were
concern to
as
be treated
in,
judgment
involved
in their
pendent
measured
value,
item of
it should be
enterprise.
reconstruction of the whole
up-
regard
with due
to actualities rather
must
figures
not
does
follow
em-
assumptions
theories and
such as
the court
accepted
by
the commission
by
seem
ployed by Col. Miller. And it would
value.
actual
as items
in its
to be 'included
Company
attach
that what it did cost this
re
engineers to
disparagement
It is no
guide than
more
business
a far
reliable
re
ject
testimony
reason
might an
under
estimate
what it
production cost,
to be consid
necessary
while
By the
program.
theoretical reconstruction
base,
ered, is
of the rate
not the measure
prescribed accounting
incident
rules
costs
all
weight
inas
such
given
but
element to
an
find
attaching
required
business
body, and
rate-making
judgment of
lodgment
Expense. Col.
in New Business
by the
justified
court, is
subsequently, of the
position
attack
in essence is an
Miller’s
Brandeis, in
by
faets.
Mr.
As stated
Justice
Expense
Business
the classification New
Co.,
Indianapolis
McCardle v.
U.
Water
reasoning.in-
item,
line
operating
his
153,
316,
400,
144,
L. Ed.
S.
S. Ct.
expense
fеrring that this
should have
opinion:
is, so
as I
dissenting
his
“There
far
capital year
new
by
added to
Were
year.
recall,
by
no statement
this court
expense
capital
business
added to
reproduction
is tantamount
cost.”
op-
corollary
elimination
would be its
Stone, in
expense.
appreciable
his
very
And
Mr.
erating
No
as stated
Justice
allowing
change
opinion,
& O’Fallon
dissenting
in result
follow
St. Louis
represent Ry.
States,
461,
reasonable amount in
Co. v. United
U. S.
rate base
(following
Ed.
“This court
384, 410, 73 L.
798:
attaching
the cost
the business
Ct.
S.
theory
present reproduction
the-
costs must
reducing
has said
largely Col. Miller’s
dis-
rate-
ascertaining
value for
ory
actuality) and at
same time
be considered
operation. making
not said that
Expense
purposes.
But
Business
allowing New
fairly considered,
evidence,
when
in his
includes
“It
Miller
Col.
true
outweighed
af-
other considerations
organizing
figure $506,789 as ‘cost of
total
value,
fecting
pres-
or that
evidence of
not at-
but he does
personnel’
property and
reproduction eosts,
compared
ent
when
at.
figure is arrived
explain
tempt to
how this
affecting
factors
value,
all
must be
building up
personnel
actual cost
weight
given a
entitled
course,
oi'ganizing
judgment of
the tribunal ‘informed
procedure
accounting
and Commission
experience’
‘appointed by
deal
law’ to
operating
practice,
included
current
problem
presented.”
very
with the
now
expense,
light
viewed
just as in
expenditure,
case
Brandéis,
stated
Justice
rule
attaching
business,
care
has been taken
speaking
majority
for a
by year
year
and in effect amortized
as in-
Ry.
Court, Georgia
v.
& Power Co. Rail-
curred.
630,
625,
(1923) 262
road Commission
U. S.
67 L. Ed.
fol-
Ct.
S.
than form
“Substance rather
refusal
lows: “The
of the commission
viewed,
So
this Commission does
considered.
that,
of the lower court to hold
for rate-mak-
intangible going
con-
allow
the so-called
physical
purposes,
properties
its cost
treating
cern value
a current
utility
replacement
must be valued at the
expense.”
operating
clearly
cost, less
correct.”
rejected
cost it
Among the facts to be considered in de-
promotion
ag-
and financing
items for
two
practical
is the actual
his-
termining value
$7,500,000'as unwarranted
gregating
tory
enterprise
developed by
company,
but it included in
experience of
Eleetric
Galveston
Co. Galves-
evidence.
reasonably
items which
held
Ed.
ton, 258
S. Ct.
66 L.
U.
corresponded
items
reflected
to these
Pub.
Greencastle Water Works Co. v.
history
company.
far
actual
So
*11
600;
up
plant
(2d)
building
31 F.
(D. C.)
Service Comm.
historic
bookkeep
it
Comm.,
is obvious
Georgia Ry.
system
under the
v. Railroad
& Power Co.
1144;
ing devised
L.
commission
U.
67 Ed.
S.
S. Ct.
illogi
C.)
company
entirely
(D.
that would be
Colorado
v. Halderman
it
Co.
Power
expen
cal to
those
include
cost
295 F.
v. Wisconsin-
historic
City of Winona
ditures
allocated
deliberately
F.
which had
Light
C.) 276
been
(D.
& Power
Minnesota
Co.
general expenditures
routine and
hand,
the business.
clear
it is
Charges.
On
Overhead
cost,
that
reproduction
determining
the over-
portion of
that a
The contention
say,
plant
reproducing
the cost of
a
enterprise
chargeable to a new
properly
head
company,
as useful and
as that of
efficient
reproduction
absorbed
or
value has
general
ex
overhead,
assumed
due'
not be
expense charges,
and should
current
penditures
re
incident to
necessarily
such
capital expenditure,
again
as a
allowed
building,
apportioned upon
rea
should be
a
urged.
emphatically
definitely
even more
sonable
basis.
It is
scientific
kept
history
company has
During its
apportionment
expenses
the ex
of these
reflect
fashion
books in
as
its
perts disagree.
com
It is
estimated
general ex
portion
historic cost that
pany’s engineers that the
would add
overhead
determined
company it had
penses of the
reproduction.
24.27
to the cost of
capital investment
added to the
to be
engineers
It is conceded by the commission’s
should
portion
it claims
which
upon reproduc
percentage
overhead
com
paid
revenue
the current
cost
The com
should
22.32
cent.
cost, there
pany
expense. The
anas
historic
mission
finding
fixed
overhead
as
in
fore,
books, would
as determined from its
cent.,
be
a difference
overhead which
clude
that element of
tween
engi
finding
commission’s
and its
charged,
company
had
on its books
neers of
cent.,
$9;144,998,
15.97 per
or
and a
capital expenditure.
con
The commission
difference,
en
basis
permit
inequitable to
that it would be
tends
gineers,
more. It
therefore
after
has
ground
to shift
company
claimed that the
base should
added
have
portion
expendi
of its
treated
to it
accept
at least
If then we
necessary expense
incidental to
tures
reproduction
cost as the fair value it
gross
business to
rev
from the
be deducted
inevitably
seem follow
this ad
amount,
enues, and
claim
now to
that this
ditional overhead
part
allowed
should be
already
received
an incidental
has
capital
investment.
cor
expense
gross
deducted from its
rev
rectly
rate-fixing
claims that in
Supreme
enue,
itself
treated
an invest
Court has
preference
indicated
decided
must
in
ment
which it
receive future
reproduction
cost
determining
fac
Thus, it is claimed
come.
are
consumers
tor
establishing
Supreme
value.
If the
required, not only
capital
to furnish the
in Court
definitely
held that the fair rate
place,
"upon
the first
but also to pay income
base could not be less
reproduction
than the
so furnished. The
cost,
we would be constrained
this is
Court, however,
definitely
emphat
so
sue of
enjoin
overhead alone to
the rates fixed
ically
held
entitled to
by the
Ry.
(Georgia
Power Co.
&
rate of return
reasonable
fair val
Commission,
R. R.
supra), but it has not
regаrdless
ue
property,
of its
whether
done
fixing
so.
left the
of the fair val
was derived from
con
ue of
to be determined
imposition
sumers by the
of excessive rates
light
courts
constitutional principles
(Board
otherwise
of Pub. Utilities Com’rs
thoroughly established
require
v. Y.N.
Tel. Co., 271
U.
S. Ct.
consideration,
only of
repro
the cost of
808),
70 L. Ed.
that the mere fact that an
duction,
necessarily
which must
be somewhat
amount may
excessive
been allowed
presently illustrate,
theoretical as
shall
way
of income to cover ex
but also its historical cost. If either was de
penditures
not decisive of
the issue. We
the-value,
cisive of
it would
unnecessary
pause here, however, to advert to the
fact
other.
to consider the
If both
con
overhead is
involved
both the
historic
sidered, judgment must be exercised in de
and the
clear,
value.
termining
value. McCardle v. Indian
think, that in
considering
historic cost
apolis
Co., 272
409, 410,
Water
U. S.
47 S.
cannot include there
L.
Ct.
71 Ed. 316.
appor
elements of value which
general expense
tioned to
paid
Assuming
moment,
as the com-
expense
decided,
current revenues
operation.
mission
historic
*12
268
weight,
ele- such
by
along
facts rele
recognized all overhead
the other
correctly
sys-
may
vant to
inquiry,
in its
company
ments of
value which
ap- deem proper.
had
accounting
tem
But
no allowance
overhead
bookkeeping and
portioned
already
now costs
company
they
capital,
should made where
to
be
should
paid
permitted
capital
public
because been
augment
operating
be
ex
its
to
penses.
reproduction
greater
utility
over-
permitted
should not
be
reflect
eq-
capitalize
to
principle of
charges
head? It
such
re
fundamental
overhead
eq- quire
jurisprudence
who seeks
a return
keep
paying
uitable
he
expenses
If,
already
utility.
in the
equity.
company
repaid
uity must do
court of
aid of a
should
ex
seeking
however,
case at
found that actual
be
bar
larger penditures
equity to exact
the consumers
have heretofore
from
been
by overhead
to them
costs
charged
amount
accorded
been
than has been
which have not
paid
to and
operating expense,
aid the
allowance
equity
commission. Should
should
in-'
be made
pany
therefor.” Natural
again exact from the consumers
Gas Co.
to
upon
v. Pub.
they
already
Comm.,
557,
Serv.
95
Va.
121.S.
come
sum
W.
which
716,
See,
E.
also,
723.
paid
Des Moines
Co.
them,
Gas
capital,
not as
income?
but as
S,
Moines,
153,
v. Des
165,
35 Ct.
authority
We are
U.
S.
upon
not without
this ex-
811,
.capital
expenses.
operating
con-
depreciation
ed an excessive
reserve amount
clude, then,
justly
cannot
$16,902,530.
The board, therefore, al
complain
apportionment
of an
lowed a
annuity
$683,-
of only
present
the disallowance of its
claims
430, although it found
proper
that a
annual
thereto,
the overhead addition
where the com-
allowance for
and amortization
pany
already
paid
overhead in
would be
between
The difference
conformity with its
own claims that
these two
up
amounts was to be made
on the
represented capital
of it
expendi-
by appropriation
books
point
important
ture. The
is so
that we
previously
received
account.
quote
Supreme
from the decision of the
Supreme
that,
although
Court held
Virginia upon
point
Court West
that exact
received
previ
opinion
any
as follows: “We are of
that'in
depreciation might
ous
excessive,
present
estimate of the
fair value of the com-
money, nevertheless,
belonged to the com
pany’s property,
based
pany and
appropriated
could not be
to re
new,
depreciation,
less
may proper-
there
appropriate
duce
necessary annuity
ly be
included
such
reasonable
depreciation as
this would
in'
effect a
charges,’
allowance for ‘overhead
if such
already
confiscation of the
owned
charges
already
paid
have not
oper-
company.
connection,
expenses, ating
the evidence as to the
purpose
clarity,
greater
quote
uncertain
amount is too
in this case for
tous
decision
(page
Court
particular
Upon
determine
sum.
further
S.,
of 271
46 Ct.
366)
U.
as follows:
inquiry the commission
ascertain
can
just compensation
warranted
evidence,
safeguarded
amount as
“The
.to
sum,
utility
so found, may
and that
when
the Fourteenth
given
Amendment
*13
1144;
625,
680,
reasonablе
of the U. S.
43
L. Ed.
a
on the value
67
Return
S. Ct.
used, Chicago
property
being
Rys.
v.
Comm.
used at
it is
Ill. Commerce
that
Co.
the time
(D.
City v. Tel
public
980;
for the
C.)
970,
sufficient
277
service, and rates not
F.
Garden
25.
yield
confiscatory.
ephone Co.,
696, 150
to
A.
693,
C. C.
that return are
Will
236 F.
Co.,
19, 41,
cox v.
29
Cons. Gas
212 U. S.
service,
for
pay
not
“Customers
192;
(N. S.)
S.
382,
Ct.
53 L.
R.
Ed.
48 L. A.
payments
property used to render
Their
it.
1134, 15
v.
1034;
Ann.
Bluefield Co.
Cas.
other
depreciation or
to
are not contributions
692,
679,
Pub.
43
Comm.,
Serv.
262 U. S.
the com-
capital of
operating expenses, or to
675,
S. Ct.
67
1176. Constitutional
L. Ed.
they do
pany. By paying
service
bills for
protection against
de
confiscation does not
equitable,
legal or
acquire
interest,
not
any
pend on
to
money
pur
of the
used
the source
or
convenience
for their
enough
it is
property.
chase
that
It
paid
Property
company.
in the
funds of
Joaquin
used to
Co.
render
service. San
be-
service
moneys
for out of
received
v.
Co.,
454, 459, 34
Stanislaus
233
S.
U. S.
pur-
that
longs
docs
just
to the
company
652,
Ct.
v.
1041;
Light
58 L. Ed.
Co.
Gas
and stock.
proceeds
bonds
chased out of
itsof
Rapids,
434,120
Iowa, 426,
Cedar
144
N. W.
exchange rates com-
that
conceded
966, 48
(N. S.) 1025,
R.
Am.
L.
138
St.
A.
just
plained
yield
not sufficient to
Rep. 299,
655; 32
Ct.
affirmed 223
S.
U. S.
operating ex-
paying
after
taxes
389,
594;
56
v. N.
L. Ed.
Cons. Gas Co.
for cur-
penses, including proper
allowance
(C. C.)
849,
Y.
157 F.
212 U.
858, affirmed
money of
depreciation.
or
The property
rent
19,
382,
S.
29
48 R.
192,
S. Ct.
53 L. Ed.
L.
the credit
company represented by
bal-
(N. S.) 1134,
1034;
A.
Ames
15 Ann. Cas.
cannot
ance
the reserve for
Ry.
v.
(C.
165,
Union Pac.
Co.
F.
C.) 64
deficiency.”
up the
used to make
The customers
to demand service
are entitled
pre-
the situation
The difference between
company
comply.
com
and the
must
Supreme
case
sented to
Court
and,
pany
compensation
entitled
to
just
to
arises
at bar
situation
the ease
service,
pay
have the
the customers must
in determin-
involved
judgment
matter
company
it. The relation
its
between the
capital ex-
is a
extent overhead
ing to what
partners, agent
customers is
not that of
penditure.
us,
of illus-
purpose
Let
for the
principal,
beneficiary.
or trustee and
Cf.
tration,
the situation
assume
reverse
Fall River Works v. & E. Lt.
Gas
G.
Com’rs.
only
company,
charging
part
instead
529, 538,
214 Mass.
F. E.
rev
102
475. The
capital
of the
and the
overhead
balance
enue paid
the customers for service bet-
operating expenses,
charged the full
longs
any,
company.
amount,
capital.
24.27
At
operating
remaining
paying taxes
after
reg-
end of ten
us assume that
let
expenses, including
deprecia
expense of
ulating body
cent,
concluded that
tion,
company’s compensation
-charged capital
have been
return,
use
its
If
there is no
correspondingly
capital
reduced
if the amount is
re
less than a reasonable
company.
company
It could claim, as the
turn, the
must
loss. Past
bear the
does,
apportionment previous-
that the
now
losses cannot be
enhance
used to
ly made
scientifically
not
correct.
support
claim
that, although
change
could
also
claim
confiscatory.
rates for the future are
Gal
system
of bookkeeping to conform to the
Galveston,
388,
veston Elec. Co. v.
258 U. S.
ruling
new
would result in a loss to the com-
351,
Georgia
678;
42
Ct.
Ed.
S.
66 L.
during
previous
pany
years during
ten
Ry.
Comm.,
625;
R. R.
43
v.
U. S.
which the company
apparently aug-
had been
S. Ct.
67 L.
And
law does
Ed. 1144.
menting
expense
require
give
not
of its in-
up
its
any
come,
past
loss was
part
benefit of
its
nevertheless
loss
future subscriber's
which the company was not entitled
past operations.
accumulations
to have
Profits
returned in future
The claim of
revenues.
past
cannot
used to sustain con
commission
hypothetical
case would
fiscatory
for the future. Newton v.
rates
it exactly
logic
have behind
the same
Co.,
165, 175,
258 U.,
Cons. Gas
S. Ct.
company is advancing
support
of its
538;
66 L. Ed.
Galveston Elec. Co. v.
present
except
position,
that in one case the
Galveston, supra 396,
S.,
U.
S. Ct.
contending
commission
Gaslight &
v. Mich
Monroe
Fuel Co.
igan
recoup
losses,
(D.
Pub.
entitled to
and in
C.)
Ut. Comm.
292 F.
147; City Minneapolis
claiming
(C. A.)
pub-
Rand
C.
recoup
losses,
818, 823;
Ry.
is,
not entitled
F.
Ga.
&
R. R.
lic is
Pr. Co. v.
payment
suffered
excessive
242, 247,
Comm.
278 F.
loss it
(D. C.)
affirmed 262
expense.
ments of
in the as-
allow-
We have little doubt
be a reasonable
intangible
sumed
ance
ease the court would hold
elements involved
ground
concern
could
shift its
value.
expense of
reference
at the
overhead
expressly
railroad commission
re
rea-
greater
utility,
see no
and we
fused to
go
make
specific
allowance
why
son
permitted
utility should be
ing concern
directly in
value. This is
public.
shift
expense of
ground
at the
teeth
Court
decisions of the
*14
ease,
In
the historic
either
clear
is
of the United
McCardle v. Indian
States.
fixing
overhead
basis
cost
a fairer
apolis
Co.,
400,
Ct.
Water
272
47
U. S.
S.
of
prop-
overhead involved in the value
144,
316, supra.
page
71 L. Ed.
414 of
At
cost, sci-
erty
reproduction
than the
overhead
S.,
272 U.
47
it is
“The
144, 150,
S. Ct.
said:
that, in
entifically apportioned.
conclude
We
of this
there
decisions
court declare:
‘That
reproduction
of
choosing
the cost
between
element
an assembled and
an
of value in
overhead, the
overhead
the historic
cost
plant,
earning
established
doing business
justified
the action
money, over
advanced,
one not thus
is self-
in ac-
reference to overhead
company with
This
prop
evident.
of value is a
element
conten-
company’s own historic
cepting the
erty right, and
de
should be considered in
overhead,
is, in
tion with
reference to
termining the
property, up
of
value
acting upon
reference
admission with
on which the
right to
owner
make
cent,
re-
fixing
per
thereto
and in
at 6.35
fair return
privately
when the same is
owned
reasonably
jecting the overhead
although
dedicated to
use.’ Des
(22.32 to
percentage
higher
be included at a
Moines,
153,
v. Des
Moines Gas Co.
238 U. S.
To
reproduction cost..
cent.)
of
165, 35
811,
S. Ct.
1244;
59 L. Ed.
Denver
that,
restate
proposition,
we conclude
v. Denver
Co.,
178,
Union Water
246 U. S.
question
overhead,
of
the commission
191, 192, 38
278,
S.
62
Ct.
L.
649. And
Ed.
justified
accepting
historic cost of over-
see
City,
National Waterworks
v. Kansas
Co.
of,
reproduction
head
rather
cost
853, 865,
62 F.
653,
10 C.
27
R.
C. A.
L.
is,
overhead,
fixing
that in
the val-
A.
[City
Omaha v. Omaha Water
of]
plaintiff’s
ue
property
the amount of Co.,
180,
202, 203,
615,
U.
S.
30 Ct.
applied
indirect
to the valua-
overhead
L. Ed.
48 L. R.
(N. S.) 1084,
A.
properties
6.35-per
tion
the physical
eases
did, however,
cited.” It
contend that
cent.
all the
making
going
elements
up
eoneem
Going Concern Value.
value
paid
had been
for out
the current
expenses of the company, notably
the cost
the com
thoroughly
established
attaching business, and had
al
thus been
pany
part
entitled to have
considered
lowed. It is relatively easy
go
to estimate a
intangible
fair
of its
ing concern value to
added
to the bare
value,”
“going
which is
concern
classed
plant.
fixing
bones
reproduction
say,
it is
something
addition
cost,'but comparatively, difficult to determine
of the plant
bare
which would re
bones
what amount should be added to
historic
physical
sult from
reconstruction there
cost,
plant
or to
value of
long
es
plant
of.
If we assume that the
is construct
tablished, where,
here,
cost
attach
merely
ed
calling
contract
ing
putting
business and
into the enter
life
reproduction
physical properties
of its
prise
already
as items of
allowed
properties complete
over
turning
of those
capital, investment,
expense,
or current
un
yet operating,
larger
but not
some
same
der much the
conditions as in the
cost
price
than the contract
of reconstruction
expenditures.
Supreme
overhead
Court,
must
allowed in determining
the value
City
in Des
Moines,
Moines Gas Co. v.
of Des
going
after it has become a
concern
238 U. S.
Reproduction Cost. reproduction cost, With reference to position of the stated in its commission brief as follows: Changes. “Effect of Price “The wide variation between estimates reproduction cost actual cost of this figure approximately $300,-' reached commission one thus obtained. than the The fact 000 lower estimates, independently of these reached that each by employing pro- different methods somewhat closely corresponded so cost cedure, figure historical accepted by the used and commission company as correct in the series hy rate running from 1917 to 1928 confirms determinations figure accuracy. used con- substantial accounting practice the company forms to the investment, which has increased in to the bulk $13,000,000 $58,- to over approximately representing 1929, difference ad- 000,000 in net cost structural Estimates of the historical during period and betterments ditions proceeding, by both made in property were company’s books and records. Mr. scribed in the depart- by the commission’s valuation appraiser land and the McAuliffe Excluding overheads, reached ment. surprisingly In in their results. close few higher figure approximately the one $300,000 than Mr. points testimony of difference McAuliffe’s taking by base as fixed by obtained convincing. the more building in Its first decision that, department while valuation up 31, 1920, imately at- fifty is not cent above estimate of as of December cost, and, actual changes price level. It is increased tributable to the assumed engi- costs, very assumption- represented more largely than one-fifth is due to many physical properties cost of neers be incurred increased will costs actually actually alone charges were never incurred before the nor inclusion of indirect organiza- charges. beading overheads, treated as be under tion, promotion, plainly examination of etc.” illustrated produce various existing physical cost new estimates importance of the decision view properties alone before Supreme In- Court MeCardle intangibles, overheads, and land, addition of dianapolis supra, with relation Co., Water cost them with the historical comparing weight reproduction cost given to on the same basis: estimates against determining cost historie base, proceed further considera- to a tion of An examination that decision. record in that ease the cost of shows that reproduction physical only, depreciation, less the various estimated engineers upon bases, varies the different $13,979,774, estimated the board’s engineer reproduction average prices for years 1920, $17,328,249, ending ten engineer spot prices same on October differences, it admitted “Of these 1,1923. engineers company gave due plaintiff represents $580,195 costs average prices $16,020,456,on estimates from of construction solely existing difficulties years ending ten when construction present the streets not years average ending for five prices Deducting diffi- actually done. spot prices '$19,447,19-3. 192-2, October represents true factor, culty the remainder engineer gave board’s the estimate of changes price actual con- between various as of Giv- and December struction dates January 1, 1924, prices upon average based prices reduction in to a further effect 1923-, Appar- ending the ten 31, 192-9',and June December between ently accepted Court this esti- engi- Commission’s as testified engineer reproduc- mate of the board’s neer, a further deduction would be there ($17,00:0,000) “substantially less reproduction esti- $354,065-. Comparing attributable to fairly Engineer’s mates as shown in Commission’s physical elements of the property,” add- average prices of the *18 using Exhibit No. 5-2 slightly ed thereto more than 10 cent.- valuation, date preceding the years four “to ($1,865,0.00) rights go- cover water and therefore, that ob- shown, the result there ing $135,000 also for working value cash prices De- day unit by iising tained one capital,” giving rate base $307,152 31, 1929, cember below a minimum. by day four-year average, unit using one Supreme will observed that 1930, 15, June the reduction prices reproduction there with dealing Court was four-year average. $661,217 below when a time of labor cost cost and ma- illustration of the manner “Further greatly been advanced over terial sought up Company build historic court stated that: value, cost. “The compar- new reproduction cost prices high wages prevailing level cost values its historical ison should be 1922 and 1923 taken into account by following table: shown estimate, therefore, appears, finding January “It the Com- in value as of years following. pany’s reproduce is.approx- immediately new More- estimate to
27?
approx
hand,
we
over,
undepreciated.
indicate
If
add
the record
nothing-
there
imately
con
going
for
prices
date
to this
prevailing
that the
at the effective
undepreciated
cern
base
value,
with-
an
likely
of the
decline
have
we
rate order were
years
$66,010,008.90.
If
deduct therefrom
two,
we
one,
in a
or three
reasonable time—
com
years
for
average
in the ten
contended
—to
level of the
'
depreciated base
judi- pany,
we
take
we
ending
$3,470,326,
with 1923. And
have
Decem
reproduction
on
has been
cial
that there
estimated
cost
fact
notice
less
15, 1980,
value
prices
plus
ber
concern
general
going
in the
no substantial
decline
whereas, if
$62,539,682.90,
time. The
of labor and materials since that
by the com
accept
upward
we
fixed
trend has
than down-
rather
depre
mission, $7,650,000,
have
adopted by the com-
price
ward.
we
level
after al
average
years ending
$58,360,008.90
rate base of
mission—the
ten
ciated
value.
going concern
clear that
lowing
too
And it is
With 1921—was
low.
depre
higher
average
company’s figures for
pre- Accepting
a level
than the
prices
$3,-
ciation,
approximately
ten
rate base is
vailing
ending
the commis
000,000
less
taken
be taken as the measure
accept
esti
following
sion,
commission’s
and,
structural elements on and
we
complained
depreciation,
order
mate of
a rate base
effective
the rate
have
date of
fixed
over
than that
of.”
less
commission as the
very
in this case
Supreme
Court
of De
words, upon
price'levels
In
had been
clearly
there
indicated that, where
allow
15,1930,
ample
cember
we would
long
so
in value over
marked an increase
so
$65,-
concern
ance
value in
so
likely
time,
to continue
period
500,000
base
undepreciated
fixed,
after
time
when
rates
long
misunderstood,
commission. Lest we
higher
recognize this
cost
necessary to
it was
say
using
figures
hasten
we are
histori-
base,
that the
fixing
Dufour’s affidavit
illus
purpose
Mr.
accepted
where
cost should
cal
binding
tration
than as
rather
conclusions
relatively
period of
long
low
based
adopted by
court,
they
are at
because
material.
of labor
“spot prices”
15,1930. They
of December
il
situation
have the
the case at bar we
lustrate the
prices,
effect
falling
la-
rates
exactly reversed.
current
judicial
this court will take
notice that the
decreased
gradually
bor and material
reproduction
during
costs
were lessened
depression.
owing
year
which the old rates have
col
depreciated
at the
lected
temporary injunction
so
reason of the
Prices have
(January
filed on
affidavit was
herein
hearing
1,1931,
January 1,1832).
time
judicial notice,
As
Dufour, one
Atchison,
Mr.
&
behalf of the
see
T. S. F.
commission,
estimat- R.
v. United
engineers
States,
Co.
U.
S.
January
L.
Ed.-,
Ct.
decided
However,
definitely
pany’s property at
has been
de
prices prevailing Decem-
cided
15, 1930,
spot prices,
including
ber
Court
land at market value
is,
particular
prices
day,
1929, and, еxcluding
of December
assumed
diffi-
capitalization,
proper
is not the
factor,
basis
culty
$60,009,099 undepreciated.
*19
reproduction
method of determining
costs.
quote
as follows from the affidavit:
Indianapolis
Co.,
McCardle
272
v.
Water
represent
figure
“That said
would
the cost
S, 400,
144,
71
316,
U.
S. Ct.
L. Ed.
su
properties
the
they
existed December
as
course,
pra. This,
only
by
is
not
au
settled
31,
the
1929,
prices
unit costs
pre-
thority,
reasonable,
but also is clearly
the
for
vailing
15, 1830,
used,
on December
plant
years
value of the
taking
applying
charges
construct
per cent,
overhead
of six
large outlays
involving
during
average
period
actually charged by
of fluctuating prices
company
not
judged
its
should
books from 1913 to
in-
1929,
by
arbitrary
selection
clusive,
of a
date as con
including land at market value
price
31, 1929;
trolling
levels during
period.
December
that the current
entire
as
$60,009,099
level
The method
price
sanctioned by
costs
of Decem-
as
Court
15, 1930,-is
$1,321,912
Indianapolis
in McCardle
Co.,
ber
or 2.25
v.
Water
higher
cent
than the actual
U.
Ct.
historical cost.”
S.
71 L. Ed.
su
amount,
pra,
observed,
it will
is
was a
$5,-
reproduction
over
determination of
This
000,000
ten-year average.
than the fair
prop-
engineers
less
value of the
cost
erty
by
bar,
as fixed
will
presently
commission. It does
the ease
indicat
ed,
concern
Reproduction
include
value.
determining
On the other
cost, se-
should
depreciation
lected
four-year
allowed,
have been
period of reconstruction
annuity
adopted
pe-
$1,300,000.
for
average price during
depreciation,
an
current
riod.
is
So
of overhead
claims an
for
question
short,
annuity
far
depreciation
equal
concerned
which
three
fixing
fair
plaintiff’s
depreciation
ex- the
property,
Already
total
contends
we have
which it
pressed
opinion
history.
of the
position
accumulated
These
during
that the
its entire
is,
correct,
company,
theoretically
incongruity
while
of the com
observations
pany’s
while a
of the
proper
elaims are made at the outset
there-
properly applicable
depreciation
clude
overhead
the in
to indicate
discussion
to,
22.32
herent
situation.
It has
testified
difficulties
determining
per cent.,
nevertheless, in
been established
accumulated
the amount
company’s property,
depreciation
of the
view
for
be utilized
reserve cannot
method
a basis
of subdivision
allowance
diminishing
for
the annual
historic
expenditures
ex-
depreciation
current
overhead
between
below
sum fixed
reasonable
s
pense
capital,
fair valuation
Utility
therefor.
Board of
Com’r
Pub.
the method
Co.,
should
N.
be based
Y. Tel.
U. S.
S. .Ct.
adopted
main-
of overhead
by
distribution
recognized
for sonable required erty value. depreciated would be depreciated new determine its on a rate base by $9,350,689 prima deduct think it facie correct to depreciation annual al- may reserve. It lowance (The figure $589,531 this conceded reserve is arrived at deducting evidence demonstrate that the amount of depreciation $482,469 from great, $1,072,000, is too $482,- accumulated for and the item and, great, it is shown too the 469 derived testimony where pany’s engineer applied York case principle in the New as 'to depre- actual annual City and ciation, & as we fully and Pacific Gas Co. v. Elec. hereinafter more set County require forth). Francisco San be de- depreciation the actual Consequently, if accept we the commis- annuity exact amount of ducted. The figures depreciation for annuity, sion’s upon prophecy, based, be, part as it must disposed to do, ap- we are as will hereafter problematical, hence, somewhat it must be pear, depreciation the allowance for accrued recognized might annuity be either injustice no works to the com- small, but, too great having too been ar- pany in its net revenue on estimates of knowledge at rived best scientific engineers. its own We have the rate having available from to time and time income, of 7.7 deprecia- for and the charged paid by them, consumers annuity $1,072,000*, tion at foregoing weight deprecia- determining accrued computation, but will deal further both disregarded. ought lightly opinion. in this items later $9,350,689;. depreciation reserve Depreciation Annuity. conclude that this a reasonable allowance depreciation. Depreciation figured engineer for accrued by the This amount is commission, greater R. Wehe, A. based fixed report observation of ($7,650,000). Dufour, It P. E. is less val- straight than the line engineer commission, depreciation was ar- fixed uation engi- the commission straight ($15,345,154). by assign- neers on the line is much rived basis at more than estimate of of -the their engineer portions plant rea- ($3,- to certain expectancy, 470,326). life passing subject deducting Before sonable depreciation briefly percentage consider year’s will these differences. each If we depreciation year add the accrued bears cost which reproduction allowance of beginning.’ under vestment element remains as was expectancy the total life Co., [City illustration, life Water Knoxville Knoxville consideration. For of] 152, 53 L. plant 1, 13-14,- is 212 U. production S. Ct. the structures $1,450,353, expendi- years. naturally Ed. 371. calls equal cent., equip- giv tures the wom-out cost of the annual this, year replacement; ment time of depreciation for each annual ing the for all years practical purposes, present of the structure means the life would value. court rule of this $43,950. accrued the settled value, each and it present rate base is represent deducted similar illogical adopt For would a different year wholly past of the structure. life depreciation. rule for Court particular item As Michigan, [Michigan indicate Utilities $362,587. This would Public] years Telephone Co., old. Sim Commissionv. 228 Mich. the structures were about years assigned ‘If aptly life said: ilarly, of 25 N. W. we have years present value, then the equipment, 19.56 rate base the depreciation the boiler depreciable property *26 for the equipment, 40 base as to production thing. principle miscellane is years for is same no storage equipment, 20 There by years for equipment, holding utility may 20 earn on a a sustain that production ous for equipment, years present property 35 devoted fair value product structure of years system, 20 service, aceept distribution must it structures in that years 30 equipment, depreciation station on book public must pay of distribution years registers, regardless present meters and cost or investment consumers for premises, and purpose per- consumers repeat, fair value. installation for engineer, charge compen- Mr. We- mitting depreciation The commission’s a on. so depre estimating utility for sate in property consumed he, as a rate base per6 new, plus commission, servicе, duty guid- ciation spread making, ($64,509,690), by experience ed is to for overhead in finds figures. He charge fairly use life his this over the we convenience line ba straight property.’ base on the And see Bell depreciated rate Southwestern deprecia accrued Comm., 276, Tel. Co. Pub. Serv. S. as U. sis $64,509,- equal to (which 288, 544, 981, Ed. R. Ct. 67 L. 31 A. L. S. tion Comm., Upon same ba $48,797,227). Georgia Ry. .the & P. R. R. 690, minus Co. v. an depreciation he finds the line) (straight 262 U. 67 L. Ed. S. S. Ct. sis spe include (These figures . nuity $2,331,813. 1144.” depreci pipe wrought iron allowance cial accept If we the commis- the estimate of $56,706 annum). amounts ation, which depreciation of engineer sion’s annual depreciation is estimating method basis, $2,331,813, straight on the line it would the decision accord accept to follow that should also his seem we n Court United Co. v. Railways & Electric depreciation $15,712i,- estimate accrued 123, 126, 74 L. Ct. West, 280 U. S. against aspect and vice versa. As this depreci annual allowance for 390: “The ease, Ed. the contention of the com- up the Commissionwas based pany, engi- ation made based the estimates of its held that this Appeals neers, on cost. Court depreciation total accrued re- and that it was erroneous should have flected in physical the actual condition of the value. The court’s view present properties, based as ascertained care- n plainly right. inspection ful an One thereof as possible, of the matter was expense and de engi- be ascertained is claimed items however, neers, depre- balance of necessary to restore the amount ducted is ($9,350,689 $3,470',- ciation reserve minus impaired, so contin out property or worn 326), namely, $5,880,363, nearly should be practicable held uously it to maintain contingent a reserve. reserve His the- efficiency pub level of same ory perhaps can best be indicated from some periodical service. The amount set lic aside excerpts testimony: short from his deprecia ly purpose for this the so-called Manifestly, “Q. allowance. rather, this allowance Applying estimate, your or original cost, your inventory be limited cannot be and valuation of accrued cause, advanced, physical values allowance deterioration to not sufficient maintain the Company, level effi fund hand would now ciency. utility remaining, your opinion, ‘is entitled to the balance be see that earnings the adequate contingency as a re- in more less or or kept unimpaired, that, 1, 1930, vested is so January at the serve? As on the Com- end A. of any given years, original pany term of re- balance in the $9,- Department you serve which considered the Gas for that fund insufficient 350,689.16. purpose? I to re- A. have deducted for cost Yes. depreciation $3,470,326, accrued store “Q. How, basing depreciation reserve $5,880',303 which the reserve would leave fund depreciation of slow the Com- contingency my opinion, fund. pany’s proрerty, why should that insuffi- size, is not sufficient for cient? A. Because are numerous there con- operating under which under the conditions tingencies require may sum or operating. it is sums excess for, that amount will “Q. contingency say, re- handling In the immediate faced constant- use. areWe ly, necessity serve reserve for instance, replac- on that how is interest against course, mains,- That goes, ground credited? A. taking' them out of the ex- surplus charged operating change and is not them moving away of a because penses. grades in street widening of streets. is no possible way There determining fund, “Q. contingency The interest on the advance how much be. de- Yes, A. fund itself? added pends entirely which the is. city grows and may direction just ex- “Q. your opinion, as And grow. As to physical conditions of that left pressed, the amount main, just day good fund the deduction of that after it went yet into ground it would re- or deterioration quire contingency reserve to care of take reasonably in excess of the amount replacements. required contingency Company for a *27 * * * “Q. you I gen- will ask this: What is the reserve? A. That is correct. Angeles eral life the Los mains of Gas Luiek, referring Mr. “Mr. Von Shrader: Corporation? you Electric Have formed depreciation to the sum of your accrued in opinion any on all? I that at A. have no you depreciation add- $3,470,326, take that as opinion on that. up Company, the total ing over life “Q. Well, you depreciation do A. life of the assuming That that not? is the is years, you mains mean January yes. say don’t to that 1, 1930, which as existed the Company expedi- would faced be “Q. prior And what date? A. ency of buying all year? mains in one new Erom the date of earliest installation of ¡Hot system, A. any entire but consider- any Company which the property portion system might able required, be January used and which was still useful as the eity not ask Company does 1, 1930. whether not the or a given on street has main “Q. you any opinion as to the first Have in ground years before it prior you that connec- date that could take in decides to widen the re-grade street to it. very one, It rough tion? A. Ho. would be a It is not a matter of the life or age probably around That is the earliest ground the main in the at all. figure I that remember. “Q. You don’t mean Company that “Q. then, figuring depre- Well accrued would be faced contingency you figure ciation would not as that of one spending any over year, one year figure would you it as a consid- you? do A. I think I said $5,000,000, and I years? Ho, erable figured number I A. don’t mean say to it spent should all be depreciation physi- accrued I as see may year. It spent one any time in cal inspect time it, that I re- the Company, existence of but it does gardless many years howof it took accu- to need that much as money safeguard. a depreciation. mulate accrued that * * * “Q. But, as a practice, any matter of “Q. referring What I am to is I wanted operating company deрreciation is one you explain your a little more detail of slow growth? may may A. not be theory depreciation reserve fund of growth. one of slow apparent- this ease $9,000,000, over the deduction after ly I think was, physical because prop- accrued depreciation, is insufficient Company of this very good erties are in con- regard or in bases facts there dition. depreciation, slow relatively deprecia- slow “Q. you How, have testified, tion, as I under- as you have stated? A. In first you, that deducting depre- place, depreciation stood that accrued fund, reserve after the depreciation ciation from reserve fund of deduction of depreciation, $5,880,- you Company, depre- 000, had left I in the as figure. remember your So that premise ciation reserve $5,880>,363, fund the sum -of there was wrong, at the same city Angeles, ma- condition change like Los not the conditions time does developed is, which is terially. your depreciation that most of fact is that paved streets are paving. relation with hard Conse- necessarily reserve not have does quently, gets rain that into rarely falls even depreciation whatever to the accrued and, perfect ground, therefore, occasion may does not way replacement, oxidation in yet may require mains. all the condition So through you condi- again unusually in the have favorable happened and time time must tions Company. rust- history The accruals as mains to oxidation or away mains, consequently, age over uniform basis some sort of who the main period bearing itself has no whatever on so that the consumer physical share aetual pays main his condition.” benefits the use of the which proper depreciation reserve toward the Upon about theory two--thirds system replace distribution necessary necessary to not reserve required. replacements are or the past take depreciation, prop- care but was entirely depreciation may actual erly. up allowed to and set overnight. happen thing. different contingent depreciation, reserve future here gas holder down We could have a might occur ascertain- causes yet we should perfect condition up. able at the time the was set reserve explosion replacement could have an annuity If apply to his met to be have have been foreseen would of actual proportion same immediately and we would have contingent depreciation is, $3,470,326 (that contingency fund a sufficient $9,350,689), follow, opin his it would money replacement, make ($1,- ion that about one-third of that amount would to have in fund such entitled represent 300,00o1) depreci aetual an amount. accruing year ation 1931 and the bal “ “ * * you figured there, or Mr. represent reserve, contingent ance or, figured you, Hoff has the total cost exact, physical the annual actual pursuant-to restore steel table mains $482,430'. light would be In the $860,267.40? A. That correct. facts, of these com the contention of the *28 “Q. of as I understand the method pany’s engineers And that accrued de the aetual upon computation there, it has not based preciation $3,470,325, actual and that the up- entirely age based pipe physical depreciation is the the the for inspections computations reasonably on the and the year $482,4-69, is 1931 would Yes, tables? A. sir. difficulty made in the various determining consistent. The the controversy arises from the fact that the com “Q. greater de- Now, explain will you engineers, estimating mission’s whether the why age pipe not con- tail the the depreciation upon method, a sinking fund sidered,? age my opinion, the Because, A. upon straight method, line a a assume pipe upon the has no bearing accrued the depreciation physical annually, actual depreciation pipe. main, for the Cast iron depreciation. estimate the loss such due to instance, except practically everlasting is company’s hand, engineers, on the other under unusual conditions such as cases upon actually insist the observed principal previously re- electrolysis, which I have a for accrued depreciation, both’as deduction mains, proper ferred. Steel under condi- determining depreciation for basis tions, long lives, long would also have not as might agree depreciation. annual the perhaps iron, but cast at the time .as same company’s engineers that the the methods of there is no reason why de- steel mains should two logical, the more it not were were teriorate if the soil conditions that are such depreciation First, question facts. the up. deterioration is the not set We have here upon Angeles must be based in a measure the broad Los what is a rather un- perhaps experience engineering profession have, place, usual condition: We in the first knowledge represents your the accumulated which here close fair- shore, mountains to the ly judg That shore, profession. that close to the wisdom decided and di- a assigning ment is to each element exercised slope rect downward which drain tends to engi length of life as away any quickly moisture almost as experience neers, by the and knowl ground. guided falls also the fact You have assign profession, thereto. It is your edge that intermittently, their possibly rains come engineers year exceptions, theory once a this minor they estimates. Sec come at commission have their one time and after are over with engineer insisted ond, the except slight- there no further rain “contingent addition to upon a reserve” in on occasions. next sprinkling You have It is depreciation. optimistic. for actual annuity is too revenue true Two pоints urged upon proposition, reserve claimed namely, contingencies happen reduce, theory depression tends to consumption anticipated, cannot be reasonably gas consequent but we find rev- no basis in of such company, greatest for the allowance enue to the em- law but the phasis hold placed tempera- reserve from those cases which aside the effect that a is entitled to accumulate ture company. some revenue of the surplus set-up. appears part little largely displaced by financial gas so surplus electricity being purposes Such a allowed for lighting and is company. main Angeles use of is for heat- gas Los depends the amount so uppn variation between view of this wide temperature. experts The commission’s engineers on estimates the commission’s temperatures estimated reasonably company’s engineers o<n hand and of one expected year during 1931 and succeed- other, the commission the allowance ing years average an of the tem- taking amiss, for, $1,073,000 evidently not far peratures hand, years. for 22 On the other if we the estimate deduct from average claims that the years engineer depreciation mission’s for annual preceding 5 be taken. The proportionate which we the same amount temperatures years during the much $15,345,- have from his estimate of .deducted higher average than the years, for 22 and the depreciation, we resulting difference in estimated revenue depreciation the amount of $433,- year is about annuity. This deprecia- amount includes year 000. So far as the concerned, 1981 is annuity upon $10,917,737 gas manufac- we judicial notice of take fact that turing plant. On item man- one alone temperatures many have been the lowest for equipment (reproduction $9',- ufacturing years and average much lower for 5 than the 060,521, basis), on 6 overhead years. argument We think too clear for figured by commis- annuity that, in estimating a rate for a number engineer $464,331. sion’s de- Wehe is years future, average past years ducted ($1,420,908, from the amount above should be considered. This much conced- $464,331) give minus ed, but true, it is equally think, that the annuity of $1,000,000, somewhat less than greater fixing number of considered still more twice average greater probability claimed engineer as the ‘ average average thus fixed will reflect the physical actual may be, conditions in the future. when testimony construed his above. We present investigation way understood, do however, not wish to be Smithsonian Institute with to solar reference holding company is entitled to no de- *29 radiation completed, may has been science preciation annuity the manufactur- temperature changes demonstrate that ing plant, as unnecessary we find to decide periodical regular cycles say and occur in question. analysis Without further years. evеnt, course, the aver- evidence, feel we view age cycle for entire would be desirable by annuity fixed railroad one as a standard, but until such scientific commission, $1,072,000, sufficiently is accu- demonstration utilization of all available rate as an estimate for to be de- by data an.average extending long pe- over a ducted gross from the revenues in de- riod practice. time the better there- We question termination of the toas whether or hold nothing fore there unreasonable not there has been a confiscation of plain- by estimate of returns the commission property. The justify tiff’s evidence would temperature so far as concerned, and there higher lower annuity, but at best nothing to indicate that due consideration amount an estimate, and think the we possible given to the effect of the de- finding of the commission under all the cir- pression consumption gas. cumstances cannot be said unreason- able. Summary. Return, Gross Expenditures, Net Income. reproduction If take the we “historical appraisal commission estimated cost” the 1930 return in the table hereinbefore set the new page $15,003,000, (from schedule at 119) using forth cost historic charge total operating $10’,388,000, cent., 6.35 appraisal overhead of per and $4,615,000. principal company’s engineers give net $50,082,- would ob- cent, jection ($55,554,744, plus per oper- estimate of revenue and 6.35 there- expense ating by appraisal of), en- is that the commission’s and quired business, do carry 6.35 on hand to plus gineers, $58,367,949 ($54,882,886, cent, money. by necessarily We for that reason idle per thereof), the value and for ample $645,000 think the allowance of estimate $58,258,061. for figures $824,409 purpose, this and have based only engineers company’s reproduction the rate historic commission, and base on both and that of more figures foregoing com- cost on that new basis. The estimates difference between the by ascertained represent as nearly engineers value fixed mission’s and cost, in each less than historie only $109,888, or the modified based the commission is approved appraisal stance If take per cent. we one-fifth of one cost of 1917, plus net re- the commission finding to historical the commission as (1915- thereafter cost additions and betterments historical production giving cost land, plus oth- cent.), per 1929), plus increased value using (6.35 overhead historical during required er found $155,000 for interest factors add organization base, depreciation. less $429,126 for construction add then $54,842^187, giving franchises cost new reproduction The estimate of figures materials for commission’s $77,- company Engineer Luiek for the .working $645,000for supplies, $450,000, and value), 586,700 (not including going concern $59,937,187. To capital, gives cash us com- Engineer and that Dufour one-half added the commission amount peri- 4-year average pricing mission using for additions and betterments estimate year 1930, es- $73,637,542. These (1926-1929) od calls $767,103, per include at 24.27 timates overhead eosts were fixed rates the fact attention to respectively. cent., and 22.32 We 1931, and January, begin on 1st stated that think hereinbefore additions amount the entire that time overhead, cent, is, overhead historie have been added and betterments charged capital 6.35 on the books -they investment, therefore tbe company, proper allowance is, allowed, that sum tbe have-twice value of the fixing for this item the fair ($1,534,206). involved the whole company’s pur- rate-making $61,471,- $1,534,206, giving add poses. company’s $77,586,- estimate of reproduction historical reasonable 393 as the include 700 modified to overhead, plus the historic $66,518,476 is to be overhead is to which necessary considered above elements of value $450',009 supplies, added for materials and base, from which 'rate included to ha construction, $155,000 for during interest deter- in order to to he deducted $645,000 $1,- working capital, cash Deduct cost. depreciated historic mine 534,206 additions betterments $52,- base, from this new giving a total figures for the corresponding 120,704. The undepreciated $69,302,682. Prom engineers would $9,350,- ($69,302,682) total is to be deducted above the amount adding ascertained depreciation, stated, as we have be- tbe between basic difference as the stated the amount of the reserve set aside estimates tbe commission de- care of accrued take $52,945- engineers ($824,409) giving pany’s $59,951,993, preciation, representing leaving engineers commission’s tbe 113, and reproduction cost, depreciation, less exclud- thus giving ($109,888) ing going concern as estimated *30 have: company’s engineers. procedure This same with reference the estimate the com- engineer gives reproduction mission’s eost depreciated, value, excluding going concern reproduction of Thus we have depreciated aforesaid, cost new modified as of the contentions based One going without concern value: capital upon working cash the claim payments due should include deferred gas the users of owing lag from be- If, convenience, for take we the estimate and re- gas tween the of the furnishing engineer, of the we have cost moneys words, ceipt of therefrom. commission’s reproduction $57,894,983, of does new cap- working include in its cash wishes value, concern while the going include ital its bills receivable and exclude its bills $52,945,113 does include of historie cost see allow- no reason this payable. all, many, going but not of the working capital elements represents ance. cash company from paid concern company is amount of re- cash .288 con- the current revenues derived insists the evidence re- cent, quires going finding concern sumers. As to this element of reason- 8 ais historic able value, therefore toward the of return of its we lean fair value property, Also, stated, cost. an element have sustain this conten- as we we cannot question rates tion. The going percentage value is found of re- concern of the give profit upon public large fixed to turn utility depends in so far as those rates to a common of the extent stockholder the hazard as well as the current price preferred money. bond If we take and stock with the money which varies also cent, a rate accept testimony base of at 7.7 hazard. We do not commission, leeway financiers that represents have a 8 the rate
-$2,809,017 ($60,704,000, $57,894,983) enterprises, “similar” minus re- fact depreciated enterprises rate base over cost of there are no similar production except companies new to of the overhead other gas take care and electric com- charges, promotion expenses, go- panies and the operating in California jurisdiction ing concern value not otherwise allowed of the California railroad in the valuation or this is rate. We think mission whose rates in the same are fixed plaintiff. sufficient. manner as facts those of the are stated with relation investments such $65,500,- If we take as our fair value opinion the commission and note in its fixed the commission as a rate base thereto as follows: 7 per de- over preciated leeway cost of “Under utilities new as rates fixed on this basis value, great- grown strong take care concern this character have prosperous. er amount experienced of which must no diffi- They reflected in the rate base profit culty capital view of the for extensions and securing decreased preferred development. bond money, stock in investments and also new Confidence overhead, take promotion charges, capital utilities care has increased readily field included, and any. not otherwise flowed of investment decreasing gradually at a rate or cost.3 $543,285,594.04 bonds $269,872,536.28 ern $310,500,627.50 of stocks, $1,185,372,478.71 "The California Between "In the and stock year being following published consists indicative Edison bonds. An tabulation aggregate tbe close of Company annual and electric $219,943,547.94 $1,123,658,757.82 analysis shows report fixed increased and Pacific of their 1928 (annual utilities, capital tbe reports basis preferred rapidly, growth Railroad Gas filed with the report taken which the Railroad but of the the total gas stock and Commission increase Electric 1928-9). electric aggregate $49,928,988.34 lessening Commission Company annual $580,373,163.7$. utilities Tbe Commission 1918-9 reports aggregate of common. to issue bonds shows appears money; has authorized State par mounting increase the remainder Commission, $468,688,407.- preferred the close includes South- issued total
289 senting Angeles Corpo- earnings “The Los & left in property. Gas Electric Divi- dends respect ration in has been gas operations its paid its stock of common per 7.20 been frequently per par cent ($100 value) before since share in Commission given jurisdic- 1918; 1919; per time Commission was 7.4 cent in 1921,and per 8.4 rаtes, applica- 1920', tion over per its on its cent 1922; sometimes in 8.7 rates, in 1923; per some- cent authority 1924; to increase its 33.75 cent in includ- ed per times in which at the or is 25 stock instance of Commission cent as a dividend complainants per rates. of 1925; per to reduction of cent looking in 9.815 $2^500,000; in proceedings all rates cent per various 35.17 in these cent cent, stat- includes a per tested measured the standard stock of 21.42 dividend ed depart- Its $3,000,000; above. rate its per base for in cent grown approximately $12,- per ment cent Company’s from in surplus has 192®'. The 500,000' grown in nearly $59,000,000' $381,212.97 1916 to $4,- from in 1916 to independent 176,663.09' and its meters active while its re- 131,500 351,000 during period. $3,804,383.36 to, serve increased from the same .as said above, $16,804,105.15.” growth gas department “The in its unique exceeded California, even its electrical situation department, its all having rate base sueh companies juris- are under the creased approximately $6,000,000' body, diction one rate-making the railroad $41,000,000* 1916 to over in 192®'. Com- commission. corporations As these have been pany’s past successfully total capital during operated invested nearly and financed for years fifteen has increased supervision, more under its sum have ex- than operations five times the amount tended their beginning at the and increased their of that period. conformity rulings with commission, state railroad it would seem to growth “This remarkable fi- has been follow that the income allowed the rail- nanced largely Company’s the sale of the money road return preferred bonds and stock, having invested would be better test of what con- marketed cost, at gradually so lessening stitutes return than the reasonable off-hand present annual cost of its bond testimony concerning financiers gen- preferred money stock Also, is 6.17 per cent. money enterprises. eral similar its reserve has been invested In view of our conclusion as to the ulti- If this included with its result, deem it unnecessary go mate bond preferred money rate stock say further that a $60,- base of per cent, 6of being the rate at it is re- 704,000 7.7 is not quired to account for reserve, annual and that confiscatory, neither the base nor the cost of bond, preferred depreci- stock and rate is minimum below to fur- allowable money ation reserve but cent. On a return nonconfiscatory. nish 31, 1929, December the Company had out- same true of of $65,500,000 base standing in the hands of the $47,070,- awith return of 7 thereon. I find par bonds, $19,469,995 par val- myself in concurrence main preferred ue stock, $20,000,000 par reasoning Judge JAMES, conclusions of value of common Its stock. re- and particularly in conclusions his as to the reported serve that date $16,804,- have, however, rate and rate base. I 105.15. All common stock is owned thought express fit my on going views con- Corporation. Pacific Lighting Since 1916 value, depreciation, depre- cern pur- this stock has been annuity length, ciation more at as I find the cash, chased for $5,500,000, however, having subject particularly difficult. been distributed Pacific Lighting Corpora- form tion in injunction of stock dividends, repre- should be denied.