44 A.2d 614 | Pa. Super. Ct. | 1945
Lead Opinion
Argued April 25, 1945.
The history of this proceeding, beginning with the original inquiry of the commission in 1937 appears in our opinions, disposing of two former appeals of The Peoples Natural Gas Company from orders of the commission, reported in
The subject of the second appeal was an order of the commission made on December 2, 1942, based on a finding of $20,000,000 as the fair value of the company's property, with an addition of $1,566,085 for working capital. The commission found that the increased rates of the company under its Tariff No. 19 (which had become effective July 1, 1940) were excessive and ordered substantial refunds to consumers for the years 1939 through 1941. By stipulation, the order of the commission *233 was related to values of the company's property in existence on December 31, 1938. On appeal by the company, questioning the order as confiscatory, we remanded the record for further proceedings. No additional testimony was taken. Instead, the commission accepted the company's records of new property added to the system, after 1938. It adhered to its findings of all of the indicia of value made in the prior proceeding, and, in arriving at revised reproduction and original costs, it added the net cost of the new property incorporated into the system, to its former cost-findings. The result was a finding of $44,064,303, as reproduction cost, depreciated, and $30,589,959 as depreciated original cost of company property in existence on December 31, 1943. Original costs were not trended. The commission, in the order now before us, adopted $37,333,915 as the fair value of the property, which with an addition for working capital resulted in an approved rate base of $38,900,000. It allowed a return of 6 1/2% on this base. In its order the commission referred to necessary specific reductions in the domestic, commercial and industrial rate schedules of the company's Tariff No. 19 and ordered the filing of a new tariff reflecting these reductions. In addition, it directed the company to make reparations to consumers (served during 1942 and 1943 under Tariff No. 19) by repayment to them of a total of $500,000. The reparations have been made and a new tariff, No. 20, filed by the company to comply with the order has reduced the cost of gas to all consumers, as ordered by the commission. The rates of the new tariff, however, are higher than those in effect prior to July 1, 1940, under Tariff No. 18.
All of the proceedings were instituted by the commission itself. Consolidated into one inquiry they questioned the propriety of all of the rates of the company under its successive tariffs. When, during the initial proceeding, the company filed its Tariff No. 19, the city immediately entered its protest against the increased *234 rates and on its petition was allowed to intervene. Since October 24, 1939, the city has taken an active part in all of the proceedings before the commission. The consolidated proceeding resolved itself into a single contested rate case in which the city was an intervening party.
Two appeals are before us, both attacking the final order on identical grounds; in effect that the finding of fair value is not supported by the evidence; that the allowed earnings are excessive; and that the present rates of Tariff No. 20 are unreasonable. The city, both as a municipality, and consumer-intervenor had the status of a complainant in the consolidated proceeding. Public Utility Code of May 28, 1937, P.L. 1053, § 1001,
The city does not have a vested interest in the utility as consumer or otherwise; it and its citizens are entitled to the benefit of the public service supplied by the company but only at such rates as are fixed by the legislature through the commission, its administrative agent. City of Scranton v. ThePub. Ser. Com.,
Much of the city's criticism of the conclusions and order of the commission may be attributed to its reluctance to accept the applicable law as laid down by this court. It is unimportant that another gas company in the Pittsburgh area may be serving consumers at rates lower than those approved by the commission in the present case. What a utility may be entitled to earn is a question to be decided in each particular case and is not governed by an over-all-end judgment of what companies of the same class ought to charge the consuming public for their product. As we have said many times, in determining what the company may charge its customers we must accept fair value of its property used and useful as the basis of rate making under the present Public Utility Code which in § 311 of Art. III, 66 PS 1151, continued the same provision of the prior Public Service Company Law of July 26, 1913, P.L. 1374. The city concedes this, but would have us apply methods of measuring value variously adopted by other courts, some of which reflect social viewpoint rather than an unbiased balancing of the interests of investors and consumers. Specifically, the city stresses the decision inFederal Power Commission et al. v. Hope Natural Gas Co.,
Solar Electric Co. v. P.U.C., supra, (
Prior to 1920 the company had drilled wells and had made other additions to its property at a cost of $7,558,226 but, on its books, had charged these additions to expense of operation. The commission refused to consider these "expensed items" as additions to property affecting the rate base. In the last appeal we approved these items, depreciated to $4,157,024, as additions to capital investment entering into a finding of fair value. We have *237
reconsidered the question and are now convinced that the commission was right and that we were wrong. The commission's finding of depreciated original cost included this total of $4,157,024 charged to operating expense and at least $4,000,000 of that amount was included in depreciated reproduction cost. Elimination of these items from cost findings should reduce the rate base with corresponding benefit to consumers by a downward revision of its present tariff schedules. For this we accept full responsibility. The company had the choice of adding its earnings, over and above actual payment to security holders, to surplus available for future dividends, or to depreciation reserve. Plowing in of depreciation reserve by investment in new property may be considered as additions in computing reproduction and original costs, thus entering into the rate base. Concurring opinion of President Judge KELLER in the last appeal,
The record must be remanded for another reason. It is no objection to the final order that it was prompted by negotiations between the company and the commission looking toward a termination of the proceedings. Since the inquiries were all initiated by the commission the procedure in terminating them was largely within its control. But the city was not a party to the settlement discussions and the final order must rest upon findings of the commission from the testimony. The commission did make and file its findings and it is for us "on appeal, to determine the controverted question presented by the proceeding, and whether proper weight was given to the evidence": § 1005 of the Code, 66 PS 1395. There is no complaint as to the finding of depreciated original cost of the company's property as found by the commission except as to the inclusion of the expensed items. But the rate base cannot be determined solely from that finding because it is conceded, as it must be, that there have been changes in price levels and no adjustments were made by the commission to reflect price trends disclosing fair value as of the applicable date. Peoples Nat. Gas Co. v. Pa. P.U.C., supra (
In our former opinion we said that a rate of return of 6 1/2% was not unreasonably low; we are not now in position to say that it is unreasonably high as applied to a utility whose sole product is natural gas. The rate should not be reduced merely to compensate for a relatively high finding of fair value.
The rate payers were not adversely affected in this proceeding, prior to July 1, 1940. That the proceeding must again be referred back to the commission is unfortunate, but that is not so important as attaining a reasonable final result. The proceeding should be terminated as soon as practicable and we see no compelling reason for determining values subsequent to the date of the last order of the commission. What further hearings must be held and their scope, will be for the commission to decide.
The appeal of Mrs. Katherine Cassidy, at No. 94, is quashed.
In the appeal of the City of Pittsburgh at No. 93, the order is reversed and the record is remitted for further proceedings.
Dissenting Opinion
To remand this case to the Public Utility Commission serves no purpose, and merely delays a proceeding which should have been terminated long ago. The order of the commission, filed December 7, 1942, which we reversed in Peoples Natural Gas Company v.Pennsylvania Public Utility Commission,
The commission, in making its order of December 7, 1942, was of the opinion that the reproduction cost figures in the record presented by the utility were entirely unreliable and worthless. See order nisi, March 4, 1942 (3531a); final order, December 7, 1942 (3721a). Upon the case being remitted under our decision of November 10, 1943 (
The majority opinion now reverses Peoples Natural Gas Companyv. Pennsylvania Public Utility Commission,
In the majority opinion the principle of "the law of the case" is invoked but not followed. It corrects at least one of the errors in the opinion in the Peoples case,
The majority opinion goes on to say: "Solar Electric Co. v. P.U.C., supra (
I do not agree that Solar Electric Co. v. Pennsylvania PublicUtility Commission et al.,
In the Peoples case,
In Solar Electric Co. v. Pennsylvania Public Utility Commissionet al., supra,
In view of these pronouncements by our court, determination of fair value, in the manner prescribed in the Peoples case,
The elements upon which a finding of fair value could be made were enumerated in section 20, art. 5, of the Public Service Company Law of 1913, P.L. 1374, which reads as follows: "In ascertaining and determining such fair value, the commission may determine every fact, matter, or thing which, in its judgment, does or may have any bearing on such value; and may take into consideration, among other things, the original cost of construction, particularly with reference to the amount expended in the existing and useful permanent improvements; with such consideration for the amount in market value of its bonds and stocks, the probable earning capacity of the property under particular rates prescribed by statute or ordinance, or other municipal contract, or fixed or proposed by the commission, and for the items of expenditures for obsolete equipment and construction, as the circumstances and the historical development of the enterprise may warrant; the reproduction costs of the property, based upon the fair average price of materials, property, and labor, and the developmental and going concern value of such public service company; and these, and any other elements of value, shall be given such weight by the commission as may be just and right in each case.
"(b) The Commission shall also have power to make revaluations of the property of any public service company, from time to time, and to ascertain and determine the value of new construction, extensions, and additions to the same."
The Act of 1937 did not enumerate the elements to be considered by the commission in fixing fair value of a utility's property. Section 311, art. 3, of the Act of May 28, 1937, P.L. 1053, 66 P. S. § 1151, reads as follows: "The commission may, after reasonable notice and hearing, ascertain and fix the fair value of the whole or any part of the property of any public utility, in so far as the same is material to the exercise of the jurisdiction of the commission, and may make revaluations from time to *247 time and ascertain the fair value of all new construction, extensions, and additions to the property of any public utility. When any public utility furnishes more than one of the different types of utility service enumerated in paragraph seventeen of section two of this act, the commission shall segregate the property used and useful in furnishing each type of such service, and shall not consider the property of such public utility as a unit in determining the value of the property of such public utility for the purpose of fixing rates."
The term "fair value" in section 311, 66 P. S. § 1151, and the term "just and reasonable rates" in section 309, 66 P. S. § 1149, were apparently left undefined by the legislature for a purpose. At most, reproduction cost is to be considered; it is not the dominant basis of fair value. As the legislature did not define or limit such terms, it could very properly be assumed that the concept of that which is "fair value" and the concept of that which is "just and reasonable" might change from time to time, although this court has taken the position that the Act of 1937, in section 311, art. 3, 66 P. S. § 1151, continued the provisions of section 20, art. 5, of the Act of 1913.
I think the commission originally gave as much consideration to the reproduction cost element as was reasonably warranted under the conditions presented in this case, and we had no substantial ground for reversal. The burden of proof in a rate case is on the utility. "What the commission may see fit to ask for is one thing, but what a utility must produce in order to sustain its burden of proof in a rate case is a different matter": PeoplesNatural Gas Co. v. Pennsylvania Public Utility Commission,
In 1942, in Federal Power Commission v. Natural Gas PipelineCo.,
Federal Power Commission v. Hope Natural Gas Co.,
In the field of rate-making, we have been largely guided by the decisions of the United States Supreme Court, and have necessarily relied upon the views of that court as to the constitutional requirements. In Bangor Water Co. v. PublicService Commission, supra,
"It is impossible," the majority opinion states, "from the order of the commission now before us to determine the process by which it determined the rate base." On *250 the contrary, the order has no other basis to support its validity than the worthless testimony of the utility's witness as to reproduction cost. The standard furnished by the majority opinion for the future guidance of the commission is of such a nature as to be impossible of practical application except in so far as the commission is obliged to accept the utility's evidence as to depreciated reproduction cost in the determination of fair value and in fixing a rate base.
A pertinent inquiry would be: Where do we stand on utility valuation as a result of the Peoples case,
In the Peoples case,
I have previously quoted section 20, art. 5, of the Public Service Company Law of 1913. In construing that section we have said it was mandatory to consider all of the elements enumerated in the section. We said in Beaver Valley Water Company v. PublicService Commission,
Nevertheless, in the Peoples case,
In the Solar Electric Company case, in making our own determination of fair value, we considered book cost of investments, and therefore the commission should not be prohibited from doing likewise. Rate-making should be a simple process rather than a tangled and mystic affair. The administrative agency should have freedom of action under equitable principles. Original cost less depreciation is a ready and equitable element for making a finding of fair value and for ultimate fixing of rates; likewise the straight-line or age-life method is proper for determining the amount of depreciation to be deducted from the cost of the plant.
Adding to the confusion is our statement in the PhiladelphiaTransportation Company case that the market value of securities as one of the elements to be considered in finding fair value should have been disregarded by the commission. This holding is in conflict *253
with the statutory mandates as interpreted by us in other cases, as well as with the rules of law previously laid down by this court with respect to the factors to be considered in arriving at a fair value determination. In Solar Electric Company case, supra,
We have thus, so far as the State of Pennsylvania is concerned, neither consistency nor continuity of the utility law.
I think a solution of this case might be for us to accept the commission's original finding of fair value, including working capital, of $21,566,085, and accept the alleged additions to the utility's property since 1938, in the net amount of $4,334,096, providing it is stipulated that this amount represents capital investment and not expensed items. We would thus have a rate base of $25,900,181, with an allowable return of 6 1/2 per cent. This would be adequate for all purposes, and would represent fair value determined in accordance with the law.
ROSS, J., joins in this dissent.
Utility's own estimate of annual earnings in justification of increased rates (2763a) ............................. 708,295.04
Annual earnings allowed by commission's original order of December 7, 1942 (3721a) ........................... 1,401,796.00
Annual earnings allowed by commission's order of February 16, 1944, after case remanded by this court (4364a) ..................... 2,528,500.00
The commission originally found that the Standard Oil Company was the sole owner of the utility, and that the total invested capital was $12,744,126. (3563a) The commission did not consider invested capital as being a direct factor in fair value determination, but it did point out that such capital performed a very important function by showing at what point a fair value finding would work a hardship on the utility's owners.