211 A.D. 253 | N.Y. App. Div. | 1925
The numerous issues now presented are to a large extent .the issues presented upon the former review. The main reason assigned for such repetition is the renewed contention of petitioner, not expressly passed upon in our former opinion, that it is entitled to raise the question of confiscation of its property under the rate fixed by the Commission; that upon the determination of that question in a certiorari proceeding it is entitled to the independent judgment of the court upon the facts as well as the law; and that if this court does not possess the power in this proceeding to exercise its own independent judgment upon both the law and the facts, the statute under which the determination of the Commission was made is unconstitutional and void. To provide for the contingency that this court may find justification for assuming this broader power in determining the weight of evidence, under a broader interpretation of section 1304 of the Civil Practice Act than that heretofore assigned to it by our highest court, the petitioner has again presented the alleged errors not corrected by this court on the former review. It seems important that we should present our views on this issue at the outset because it underlies our determination of the errors assigned.
The petitioner claims that the order and determination of the Public Servicé Commission confiscate its property, contrary to the Fourteenth Amendment of the Constitution of the United States, and that, therefore, the petitioner is entitled to have that question
The Commission has left in total obscurity its method of arriving at $2,000,000 as the value of the company’s gas lands allocated to New York. There may be no statutory duty devolving upon it to make findings but the labor of the court upon the former review has been largely duplicated and there was an unnecessary delay of justice because of the failure of the Commission to explain the processes by which it had arrived at its valuation of the gas lands. We cannot understand even now from a rereading of the various opinions of the Commission how we were in error in our interpretation of the method pursued. The old Commission accepted $12,000,000 as the present value of the gas lands, from which it made improper deductions as indicated by this court. The rate base stated by the old Commission was $2,193,379. Upon the reheai’ing the new Commission said that it “ added to the rate base arrived at by the Commission ” the sum of $1,500,000 for physical properties other than gas lands. This sum of $1,500,000 added to the $2,193,379 produces the rate base of $3,693,379, which the Commission in its latest opinion admits was the rate base adopted by it on the rehearing. The Commission further states in its latest opinion: “ In reviewing the determination of this Commission the court found that the Commission made no error in its valuation of the company’s property, other than gas lands and rights. We, therefore, include in the rate base now found all properties of the company attributable to the State of New York, including related overheads and working capital, and exclusive of gas holdings, at $2,811,088.” It is significant that the Commission now readily assumes that it did adopt the figures of the old Commission as to all but the gas lands but insists that in some unaccounted for manner it reached a figure on the gas lands identical with that found by the old Commission down to thé last dollar and cent without adopting the old Commission’s theory as to deduction for depreciation reserve. Computation readily confirms this coincidence. Subtracting $2,811,088, the value of the other properties, from $3,693,379, the total rate base, we get $882,291, the exact figure allowed for gas lands in the original rate base found by the old Commission. It is inconceivable under any rational basis found in the evidence that the Commission could have found this odd figure of $882,291 by any method other than the adoption of the old Commission’s theory of the
We may start with the conclusion reached by us upon the former review that there was substantial, credible and undisputed evidence that the gas lands were presently worth $12,000,000, of which $3,216,000 was properly allocated to New York by the former Commission. In this connection we quoted with approval from the opinion of that Commission as follows: “ The very small amount invested by the company in the property originally, or even the amount at which it is carried upon its books, cannot, I think, be used in lieu of the actual value of the property as reasonably established by many disinterested witnesses.” We said of the finding of $12,000,000 as present day actual fair value: “ There was necessarily involved in the making of this finding all proper deductions for depletion or depreciation. No further deductions for actual depreciation, therefore, could consistently have been made.” That was the effect of the testimony upon any theory in the case, reflecting present day actual fair value of the gas lands, and we further said: “ It cannot be said that the sum of $12,000,000 fixed by the Commission as the present fair value of the gas fields, does not reflect value attained by appreciation in excess of a depreciation amounting to $4,155,439.25,” a sum which we deduced from the book accounts as properly
It is apparent that the Commission has set aside the testimony of present market value of these gas lands by considerations not altogether pertinent to the segregated value of this portion of the company’s property. It is immaterial “ that the production of natural gas in the Pennsylvania fields has been progressively diminishing since the year 1917,” since the witnesses testified to the value of these specific fields as of the spring of 1920, the time of the hearing. Moreover if there is a progressively diminishing supply of natural gas in the Pennsylvania fields generally, it is difficult to see why that should not tend to enhance the value of such supply of gas as remained in petitioner’s gas fields, under the economic law of supply and demand. Complaints of consumers as to “ inadequacy of service due to failure of supply ” do not reasonably overcome the specific testimony of the witnesses as to the value of these specific gas lands. The testimony shows that there was a very great increase (sixty per cent) in gas deliveries from 1908 to 1917 with no substantial decrease since 1917 notwithstanding the fact that the Commission’s conservation order must have reduced the demand. The complaints were simply with reference to a failure to meet full demands of consumers in
We do not see how the Commission has fixed that value without disregarding the reasonable effect of petitioner’s records and testimony as to the present market value of its gas lands. We can only speculate as to the method actually pursued by the Commission whereby a valuation of $2,000,000 was arrived at. There seem to be two ways of reaching substantially that figure. In its latest opinion the Commission refers to the fact that the decision of the Pennsylvania Commission was introduced in evidence on the rehearing. It refers to the fact that the Pennsylvania Commission had reduced the petitioner’s rate to fifty cents per 1,000 cubic feet and had included in the rate base a value of $5,500,000 for the gas lands attributable to Pennsylvania. Since the Pennsylvania Commission allocated to Pennsylvania seventy-three per cent of the jointly used property, that Commission must have fixed $7,671,233 as the full value of the gas lands, twenty-six and eight-tenths of which would allocate to New York $2,055,890. This is substantially the figure adopted by the New York Commission and may explain its method. The slight deviation may have been necessary in order to produce the fifty-cent rate per 1,000 cubic feet which the New York Commission1 has ordered, conforming to the rate found by the Pennsylvania Commission. No value can be attached to the findings of the Pennsylvania Commission in view of the errors assigned to its findings by the Supreme Court of that State. Another method, but less plausible, which may have been adopted by the New York Commission, is that suggested by counsel for the complainant. Counsel refers to original cost at slightly less than $2,000,000 and the company’s own conceptions of value of these lands found in its own books, giving a book value of slightly over $8,000,000, coupled with uncertainty as to the quantity of gas remaining in the fields. Allocating twenty-six and eight-tenths per cent of $8,000,000
Our attention is called to what seems to be the fact, that the Commission made no allowance whatever for the materials and supplies and capital requirements needed for use in the State of Pennsylvania in order to conduct the New York business. The $111,088 allowed in the rate base seems to cover only the requirements for local distribution and local operation conducted entirely in New York State, omitting requirements for the production and transmission of gas. This seems to have been an error which crept into the original decision at the time when the Commission omitted $1,500,000 as the value of physical properties other than gas lands jointly used in Pennsylvania. We think the Commission should reconsider this item in the light of testimony which it is claimed is undisputed and establishes the necessity of increasing the. allowance for both working capital and supplies. We made no reference to this in our former opinion and the Commission in its opinion has assumed that we found no error.
It is claimed that the Commission deducted forty-one per cent
While not free from doubt, because of possible confusion of principle between historical cost as against reproductive cost as the measure of present value, we do not feel at liberty to disapprove the action of the Commission in not allowing an additional sum for going concern value in this case, upon the authority of People ex rel. Kings Co. Lighting Co. v. Willcox (210 N. Y. 479).
In view of our criticisms hereinbefore stated, in regard to the treatment of accrued depreciation in fixing the value of gas lands and other physical properties upon the basis of the book-keeping entries made more or less arbitrarily for the purpose of balancing other book accounts, we think the Commission should reconsider the subject of annual depletion of gas lands and annual depreciation of other physical properties. According to the opinion of the former Commission, the figure $80,990 allowed by the Commission for such annual depletion and depreciation as an operating expense seems to rest solely upon a calculation made from such bookkeeping entries and to be contrary to competent and uncontradicted testimony. This item seems to be fairly susceptible of proof as to the current depletion of the gas lands when based upon the actual current rate of depletion, shown by uncontradicted testimony as to scientific rock pressure tests of petitioner’s fields during immediately antecedent years. The petitioner also presented testimony tending to prove the rate of depreciation of the other physical properties. It seems quite obvious that the present Commission accepted the theory of the former Commission expressed in the latter’s opinion, without according any weight to scientific data and testimony produced by competent and uncontradicted witnesses.
The former Commission expressly excluded Federal income taxes as a part of operating expenses. Obviously the new Commission
The company had miscellaneous investments in Pennsylvania consisting largely of stocks and bonds. It is our understanding that the value of these investments was not included in the rate base as property used in the New York service. Not having included this value in the rate base we do not see how the Commission could properly conclude to deduct the income from those investments from the revenue otherwise held properly allowable to the company, as was apparently done by the former Commission and adopted by the present Commission. No duplication of return upon this portion of the Company’s property is involved and the company is entitled to a return upon its reinvested earnings.
We express no view with reference to the adequacy of an eight per cent rate of return other than to say that we agree with petitioner that the Commission should give consideration to the amount of leakage of gas reasonably necessary in rendering its service and also to any greater intrinsic value to the consumers of petitioner’s natural gas, in heat units and price, as compared to manufactured gas and other commodities used as fuel. The hazards of the natural gas business are also relevant facts in determining what will constitute a fair return. So, also, the present value of the plant as compared with its cost and the rate of return which the company has enjoyed through a long period up to the time of the inquiry by the Commission have been held to be relevant circumstances in testing whether the rate fixed is confiscatory. (See cases cited in Bluefield Waterworks & Improvement Co. v. Public Service Commission of West Virginia, 262 U. S. 679.) Moreover, in this case, involving a transmission of gas in interstate commerce, the local regulation as to return allowed must be of a reasonable character so as to avoid an unreasonable burden upon interstate commerce.
We are asked to hold as matter of law that the petitioner was entitled to recoup for deficiencies of returns resulting from the
The determination should be annulled, with fifty dollars costs and disbursements, and the proceeding remitted to the. Commission to revise its findings in accordance with the views expressed in this opinion, with leave to reopen the case to take further evidence if desired.
Determination annulled, with fifty dollars costs and disbursements, and proceeding remitted to the Commission, with leave to reopen the case to take further evidence if desired.