200 A.D. 268 | N.Y. App. Div. | 1922
The relator complains of several errors made by the Public Service Commission.
The principal complaint is that the Commission disregarded some rules of law that have been applied by the courts to cases of this character.
The court is to review both the facts and the law. On such review, the findings of fact made by the Commission are presumed to be right and the rates fixed are prima facie fair and valid; the burden of showing them unfair or inadequate rests on the relator. (Louisiana R. R. Comm. v. Cumberland Tel. Co., 212 U. S. 421, 423; Pub. Serv. Comm. Law, § 72, as amd. by Laws of 1920, chap. 542, and Laws of 1921, chap. 134.)
The first complaint is that, in fixing the “ fair value of relator’s property ” the Commission acted arbitrarily and disregarded entirely the reproduction cost new, less depreciation. In determining this fair value, in order to fix the price for gas, there is no single, fixed basis or rule, which may be followed in all cases to the exclusion of all other considerations. In determining the price for gas the Commission may consider all the facts which in its judgment have a bearing, with due regard to a “ reasonable average return upon capital actually expended,” above all necessary operating expenses and “ to the necessity of making reservations out of income for surplus and contingencies ” (Pub. Serv. Comm. Law, § 72); and, where there has been actual appreciation in the value of property acquired by the capital actually expended, the corporation is entitled to have that appreciation, the so-called unearned increment, included in calculating the fair present value. (People ex rel. Iroquois Nat. Gas Co. v. Pub. Serv. Comm., 194 App. Div. 578.) But we must bear in mind the distinction between this “ appreciation ” in value and that added value of the property made by extensions and permanent improvements. Extensions and permanent improvements do add to the value of the property, but that added value is not “ appreciation.”
The statement in the opinion written for the Commission (Complaint against Adirondack P. & L. Corp., 26 State Dept. Rep. 4), “ The present day value of the plant will be held not to exceed its original cost without depreciation, except as to land values,” has perhaps given a wrong impression to the counsel for the relator. We do not understand this to be a rule of law which the Commission had concluded to follow in all cases regardless of the evidence, but only its conclusion upon the evidence in this case. The Commission did not mean that it would in no respect or case regard the cost of reproduction, but that it was not a necessary or controlling element and in this case could not control them in determining the value. In this position they are upheld by the weight of authority. (People ex rel. Kings County L. Co. v. Willcox, 210 N. Y. 479, 495; Pub. Serv. Comm. Law, § 72; Smyth v. Ames, 169 U. S. 466; Minnesota Rate Cases, 230 id. 352.) There are strong reasons why in some cases (if for instance the book accounts are unsatisfactory) the replace
The relator also complains that the Commission has deducted the depreciation reserve item, amounting to $323,455.89. The depreciation reserve is an account kept upon the books to offset the depreciation in the property due to time and use. It is a proper
Complaint is further made that the Commission has deducted from the book assets an item of $305,029.15. This item first appears on the books in the following form: “ The plant of the gas company is known to have cost a large sum but at the present time its value is thought to be $75,000. First mortgage bonds, $50,000. Consolidated mortgage bonds, $25,000. Which leaves an amount of $317,500 to be charged to account of franchise, etc.”
The property had been purchased at a receiver’s sale for $25,000, but the corporation evidently estimated the value of its tangible property at $75,000. The $317,500 was entered to offset the par value of the securities issued. It did not represent an investment of any moneys, and there is no charge at the time of the reorganization entered upon the books excepting, the sum of $37,500, the costs of the receivership. It is stated in the opinion that this item has at an earlier time been before the Commission and passed upon by it. At that time it seems the Commission recommended that this item should be gradually taken from the books. The item, $317,500, was later reduced to the figure $305,029.15. The Commission, properly we think, refused to allow this item as a basis for rates, except to the amount of the receiver's expenses, $37,500, but disposed of the question of intangible assets under another head.
The relator claims that it should be allowed in the rate base an item for going value, to the extent of $500,000. In People ex rel. Kings County L. Co. v. Willcox (210 N. Y. 479) the Court of Appeals has defined “ going value ” for rate purposes to be the amount equal to the deficiency of net earnings below a fair return on the actual investment due solely to the time and expenditures reasonably necessary and proper to the development of the business and property to its present stage, and not comprised in the valuation of the physical property. It is an allowance for losses during the lean years while business is being, developed and the corporation was not receiving a fair return; and, where such fair return was not received, an item for “ going value ” should be separately allowed. The court says, however (p. 488): “If there was a fair return from the start, the corporation has received all it was entitled to ” in this respect. The relator, taking the figures of its accountant, Mr. Cheney, and including the depreciation reserve
The Commission has allowed for working capital about $90,000 less than was claimed by the relator, its allowance being as follows: For working capital the company should be allowed the amount
There is further complaint that, in calculating the expenses, the Commission has failed to recognize the unusually high costs of materials, coal, oil, freight and labor existing in 1920, and to recognize that increased consumption of gas was due to unusual causes of temporary nature. The Commission has not made full allowance for a continuation of the high cost of materials and labor, evidently believing that prices were softening, and that, within a brief period, lower prices would be had. Of course a public service corporation ought not to be required to speculate and run chances upon the market. On the other hand, the ratepayers ought not to be charged for a period of time at rates fixed upon excessively high prices, if those high prices are transient. The conditions following the war were as experimental as are the conditions which follow the organization of a new corporation, or a new business.- The Commission recognized that there might be sudden changes in costs, or that the high prices might continue for a longer period than it anticipated and for that reason they limited the effect of the order to six months. At any time after six months from the establishment of the rate, May 1, 1921, either party may apply for a modification of the rates. That six months period has already expired. The experience has actually been had; the company can now show what its earnings have been under the rates fixed by the Commission. If those rates have actually furnished a return less than fair, the Commission may immediately correct the mistake in such manner as to make good any losses suffered.
We have felt some hesitation as to the ruling of the Commission disallowing the Federal income tax as an expense and holding that it should be paid from that part of the revenue allowed for surplus and contingencies; also as to its refusal to allow any sum for amortizing the $20,000 judgment recovered against the company, in connection with the eight per cent rate which the Commission has allowed. Eight per cent a few years ago might have been a fair allowance for dividends, surplus and contingencies.
Determination unanimously confirmed, with fifty dollars costs and disbursements.
By Laws of 1921, chap. 134, the short title of statute was changed to Public Service Commission Law.— [Rep.