132 Va. 82 | Va. | 1922
delivered the opinion of the court.
This is an appeal from a decision of the State Corporation Commission, fixing rates which the Petersburg Gas Company was allowed to charge to its patrons for gas. The record is not made up in the chronological order of events as they occurred before the commission (as it should have been), and it is only after searching through the record that we are able to state the case in that order.
On February 13, 1920, the gas company filed a new schedule of rates before the Corporation Commission, effective March 15, 1920, by which there was an increase in the maximum rate allowed for regular meters from $1.15 per thousand cubic feet to $1.60 per thousand cubic feet. This increase was asked in view of the increased cost of labor and materials and because the operating expenses for the year 1919 more than consumed the total income of the gas company. On June 29, 1920, the engineer of the commission filed a report in which, among other things, he stated “that the services rendered by the Petersburg Gas Company may be considered as a fair average compared with other cities in Virginia and in the eastern United
“In view of your employment by the Petersburg Gas Company, with the approval of the commission, for the purpose of making an inventory and appraisal of its property, so as to ascertain its fair value, this is written for the purpose of outlining the commission’s views.
“It is desired to ascertain the value of the company’s property on the 1st day of January, 1917, based on the average unit price of the preceding five years. This does not, of course, prevent the company from advancing any other basis of arriving at the value that it desires to present in connection with this case. In arriving at depreci*87 ation, the commission wishes, in addition to any basis used by you in determining this element, to be advised as nearly as you can do so of the age and wear of the various elements composing the property and ascertainable as far as possible from the records and the probable age of any property that may have been bought second hand.
“To the value as of January 1, 1917, there is, of course, to be added, the purchases at cost since that date to the most recent available date, July the 1st, if practicable.
“The commission also desires the financial history of the company, in the main, as outlined on pages 4 and 5 of the paper filed today by the Young Men’s Business Club and the Gas Consumers’ League of Petersburg.
“We assume that report will include, as usual, a statement as to the general condition of the plant in its- relation to its public service and such suggestions as may occur to you for improvement and efficiency.”
Pursuant to the foregoing instruction, Mr. Forstall, of the firm of Forstall & Robison, made the valuation, based on the average unit price for the five years, 1912-1916, and ascertained the net fair valuation of the property on the pre-war basis for rate-making purposes at $405,130. At the request of the gas company, Mr. Forstall filed a second report on December 11, 1920, using the average unit price for the five years, 1915-1919, inclusive, and arrived at the depreciated value of the property, with intangibles of $620,-880. He testified that the value of the property based on the average price for the year 1920 would be twenty-five to thirty per cent higher than the figures stated in the last-mentioned report. On December 29, 1920, he filed a third report, fixing the value based on the financial history of the company in accordance with the letter of instructions of August 23, 1920, of the commission, in which he .ascertained the value of the plant as of June 30, 1920, to be $453,700. Hearings were had by the commission on these
The chief objections to the decision are (1) that the commission, in valuing the property of the gas company, fixed the value entirely with reference to the average prewar unit price for the years 1912-1916, inclusive, and (2) that the commission erred in applying the depreciation of twenty-six and one-half per cent to the valuation of the gas property based upon the age of the various component parts of the plant. The commission fixed the value of the plant at $318,350, but the opinion does not show how this valuation was arrived at. There was conflict of testimony as to what portions of the real estate of the company were used, or useful, for the business of the company, and while the opinion shows that it had not accepted Mr. Forstall’s report and testimony on the subject, it failed to show what portion of said real estate was not so used, or useful, or the value thereof. It also fails to state what rate of return it allowed upon the valuations fixed by if, or the rate of annual depreciation, or the fair cost of operation, facts which if found and stated would be helpful to an intelligent review of its holding. The opinion does not show, and we are unable to ascertain from it, the reasons which justified the commission in fixing $1.75 as a fair rate to be charged per thousand cubic feet.
In Elizabethtown Gas Light Co. v. Public Utility Com’n (N. J. Sup.), 111 Atl. 729, in referring to an undervaluation
“This commission has, time and time again, pointed out the essential unfairness and impracticability of such a proposition. References may be made to the opinions of this commission, in Re Roanoke Water Works Co., P. U. R. 1920C, page 745; Re Culpeper Telephone Co., P. U. R. 1920D, 305; Re Chesapeake & Potomac Telephone Co. of Va., P. U. R. 1920F, page 49; Re Rosslyn Co. (not reported) ; Re Bristol Gas & Electric Co. (not reported) ; Re Virginia Railway & Power Co., P. U. R. 1921C, 193, decided March 18, 1921.
“Unquestionably some recent court decisions tend to uphold the view advanced by the Petersburg Gas Company.”
After repudiating these “recent court decisions,” and making lengthy quotations from the Indiana Public Service Commission in the La Porte Case, hereinafter mentioned, the commission says:
*93 “We stand by the method of valuation outlined in our instructions to Forstall & Robison, believing it conforms to the standard laid down by the United States Supreme Court in the Consolidated Gas Case—The reasonable value of the property at the time it is being used for the public/
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“The commission knows, and knew when it authorized the Petersburg Gas Company to employ any one of the list of engineers submitted by it, that the firm of Forstall & Robison is entirely reputable and reliable. Any student of public utilities’ reports also knows that, in addition to the entirely trustworthy reports of physical values made by engineering firms, the engineers invariably advance theories as to additional values. Such student also knows that in most cases the engineering theories are materially reduced by commissions in accordance with their conception of reasonable values, taking into consideration, as laid
“Under the circumstances, the commission adheres to its opinion that the reproduction cost theory applied at the time the property is being used in the public service does not reasonably mean that unit prices as of that date must be accepted. A valuation made today would show lower figures than the valuation made June 30, last. However much it might suit the engineers, it would be destructive of every theory of regulation if the utilities, the public and commissions were forced to keep on having new reproduction cost valuations with each change in unit prices.
“So we say that if the present trend of court decisions is to be taken as requiring the ascertainment of reproduction costs as of the particular date on which the calculation is made, the entire reproduction theory must go into the discard and be succeeded by the historical method with all of its obvious defects.
“It is evident that in this case there should be some deduction from Forstall’s figures of land values covering property in use or useful to the public; further, that paving over street mains must be deducted, and also value of property turned over to the Interstate Appliance Corporation, together with most of the value of the trestle. Under all the circumstances surrounding the history of this company, ten per cent of the construction value is sufficient allowance for overheads, including engineering, supervision, legal expenses during construction, taxes, interest and insurance during construction. Materials and- supplies, with working capital, must, of course, be allowed in accordance with the experience of the company. A fair deduction for accrued depreciation on the physical property would, it
“We thus arrive at a fair valuation of the property of the Petersburg Gas Company for rate-making purposes, as of June 30, 1920, at three hundred and eighteen thousand three hundred and fifty ($318,350) dollars.”
We have no case from the Supreme Court of the United States involving rate making as affected by the inflated prices of the war period, but there are several cases involving a variation of prices from other causes.
In Sun Diego, etc., Co. v. City of National City, 174 U. S. 739, 19 Sup. Ct. 804, 43 L. Ed. 1154, it is said: "What the company is entitled to demand, in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public.” (Italics supplied.) The commission emphasized the word “reasonable” in the foregoing quotation, and claimed to follow that holding, but departed from it by holding that a value based on a prewar unit price gave the “reasonable value,” although it
In Willcox v. Consolidated, Gas Co., 212 U. S. 52, 29 Sup. Ct. 200, 53 L. Ed. 382, 48 L. R. A. (N. S.) 1134, 15 Ann. Cas. 1034, it is said: “And we concur with the court below in holding that the value of the property is to be determined as of the time when the enquiry is made regarding the rates.” (Italics supplied.)
In Consolidated Gas Co. v. Newton (Southern Dist. New York), 267 Fed. 231, 236, Judge Hand said that, so far as he had found in the books, a test of two years was enough, and cited Minnesota Rate Cases, 230 U. S. 352, 33 Sup. Ct. 729, 57 L. Ed. 1511, 48 L. R. A. (N. S.) 1151, Ann. Cas. 1916A 18, and Municipal Gas Co. v. Public Service Commission, 225 N. Y. 89, 121 N. E. 772. On the same subject, he further said: “The master has taken complete evidence over a period of twenty months—from January 1, 1918, to August 31, 1919. Since that time, eleven more months have passed, during which there has been no fall in price levels. The record has some evidence of this down to a later 'day, but, of course, not down to the date of this opinion. But evidence is not necessary in the face of so patent and obtrusive a fact of daily life, and it is quite fair to say that the condition which the master found as of August 31, 1919, has been aggravated during the succeeding year. The period, despite its unusual character, I find to be a sufficient basis for the calculation of the cost of production and the ‘rate base’ for a future time long enough to call for some judicial action.”
On the subject of the computation of the “rate base/’ the
In St. Joseph, etc., Co. v. Public Service Com’n of Missouri (Dist. Ct. W. D. Mo., C. D.), 268 Fed. 267, it is said: “The commission took the original cost, when obtainable, and, when not obtainable, average prices for a fixed period of five years before war prices prevailed, going back approximately to the year 1910. * * • * It is my judgment that the great weight of authority is against the adoption of a standard of original cost as a controlling basis for determining present value. The present fair value is the object to be attained. Nor do I think it permissible substantially to restrict the enquiry to a period antedating present cost prices.” (Italics supplied.)
In Elizabethtown Gas Co. v. Public Utility Com’rs (N. J. Sup.), 111 Atl. 729, the commission adopted as a standard of value the average prices prevailing for five years preced
In Smyth v. Ames, 169 U. S. 546, 18 Sup. Ct. 433, 42 L. Ed. 819, Mr. Justice Harlan, speaking for the court on the subject of railroad rates, said: “The corporation may not be required to use its property for the benefit of the public without receiving just compensation for the services rendered by it. How much compensation may be ascertained, and what are the necessary elements in such an enquiry will always be an embarrassing question. * * *
“What the company is entitled to ask is a fair return
The word “value” has a peculiar meaning when applied to rate making. In Re Potomac Electric Power Co. (Dist. of Columbia), P. U. R. 1917D, 563, 694, it is said:
“The use by the courts and commissions in rate cases of the expressions that public service corporations are entitled to ‘a reasonable return upon the fair value of their property’ or ‘a reasonable return upon the reasonable value of their property,’ and similar pronouncements, and the methods adopted by the different commissions and courts in arriving at this fair or reasonable value, clearly indicate that the object and purpose of every valuation upon which rates are to be based is an ascertainment of but one thing—not what the property is worth as an income-producing instrumentality; not for what it would sell or could be bought; not its worth because of its being a monopoly or the holder of rights, easements, franchises, privileges, and benefits accorded it over others to enable it to perform its public duty: but a determined amount, an ascertained and fixed sum, upon which the owners may earn a fair and reasonable return. The sum so arrived at should be one upon which a return may be allowed which will be fair to the investor, who has directed his energies and devoted his substance to the creation of this instrumentality, and fair and just likewise to the consumer, who, under modern conditions, is compelled to use the product of the utility in his daily business, social and domestic life.
“If the word ‘amount’ is substituted in place of the word ‘value’ in paragraph 7 of the public utilities law, and, in the judgment of the commission, such a substitution not only does no violence to the word ‘value,’ but gives to it
“If this view is taken, the determination of fair value becomes the determination of that just and equitable amount upon which, under all the facts, circumstances and conditions of the utilities’ construction up to the time of valuation, the return allowed to the utility should be computed.”
In Re Central Union Tel, Co. (Ind.), P. U. R. 1920B, at p. 825, it is said: “Moreover, assuming normal costs and usual and ordinary conditions, cost of reproduction is not necessarily controlling, for consideration and weight must be given to all other elements entering into the fair value of the property.”
The subject of rate making, especially as applied to a gas company, is discussed with marked ability and a very full citation of authority by the Supreme Court of Illinois in State Public Utilities Commission v. Springfield Gas & Electric Co., 291 Ill. 209, 125 N. E. 891. It is there said: “The difficulty is that which is always present—to ascertain a standard by which this justice and reasonableness shall be gauged. The necessity of public regulation of rates arises out of the monopoly of the public,service company. The unregulated price of the service ceases, except so far as some substitute for the particular service may be found, to be determined by competition, and the individual consumer is unable to contract on equal terms. Fixing rates by public authority may secure to each individual the advantage of collective bargaining by or in behalf of the whole body of consumers, and result in such a rate as might properly be supposed to result from free competition if free competition were possible. A just and reasonable rate, therefore,
“Appellee contends that the only equitable basis for determining value for rate-making purposes is the cost of reproduction now, less depreciation. This contention cannot be sustained. The basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a public utility under legislative sanction must be the fair value of the property being used by it for the con
The subject is beset with difficulties, and no hard and fast rule can be safely laid down for fixing values for rate-making purposes. Many of the items which enter into the determination of values are mentioned in the cases we have cited; and the commission seems to have given the subject careful consideration. It has, however, emphasized the prewar unit of valuation, but the reasoning of the opinion seems to indicate that it has not given due weight to the present costs of reproduction and the probable costs thereof during the near future, or for the time during which the rate fixed will pobably be in force, and hence we cannot presume that it has. These are important items to be considered, and it should not be left in doubt whether or not they have been taken into consideration.
It may be said of valuation, what has been said of the return to be allowed: “What is a reasonable return is a question of fact, the solution of which calls for the exercise of sound judgment and common sense.” We are constantly measuring ordinary care by the conduct of the “ordinarily careful man,” and so here, after hearing all that is said affecting value, we must measure value by the “sound judgment and common sense” of impartial tribunals charged with the ascertainment of such value.
Counsel for the appellee also' rely upon the finding of Mr. Justice Hughes, as referee, in Brooklyn Borough Gas Co. v. Public Service Commission, P. U. R. 1918F, 335, but the facts of that case are entirely different from those in the case in judgment. In the Brooklyn Case, there were three different valuations, one based on the original costs or investment ; another upon reproduction upon the average unit prices • prevailing from 1912 to 1916, inclusive; and the third upon an official valuation made in 1914 and acquiesced in by the company. The third valuation was selected. As the official valuation had been so recently made, it seems manifest that it was the proper valuation to be adopted.
Ten per cent on $300,000 .................... $ 30,000
Cost of producing 100,000,000 cubic feet at $1.66 166,000
$196,000
Cost to consumer per 1,000 cubic feet........ $1.96
These figures are given merely by way of illustration, and are not intended to intimate any opinion upon either valuation or percentage. It is manifest that the commission either did not take into consideration the costs of operation or did not accept the company’s estimate of such costs. No suggestion of the latter is found in the opinion of the commission.
Remanded.
