Зображення сторінки
PDF
ePub

(220 P.)

supra. It is obvious that the Commission | Atl. 319, the Court of Appeals of Maryland did not use a proper method in determining had under consideration an order of the Pubthe value of property of appellant dedicated lic Service Commission of that state wherein to public use. While there is no definite or a property had been purchased by the owners invariable rule adhered to in determining for $89,000 and a valuation for rate-making value of public service property, and such purposes of $350,000 was claimed. The court value must be determined from proper and said: relevant testimony with the exercise of reasonable discretion by public utility commissions, yet a careful consideration of the authorities discloses that the rule is uniformly adhered to that the present value of the property used and useful in serving the public must be ascertained to a reasonable and definite extent in order to fix a reasonable and adequate rate to be charged by a public utility.

"The original petitioners to the Commission seem to have proceeded on the theory that, as the bridge cost the incorporators but a very small sum, and as its receipts had been more than sufficient to defray the operating expenses, • and repay the original outlay, that because it was a public highway they were entitled to have the use of it for merely a nominal sum. The statement of so extreme a proposition is a sufficient refutation, and was so regarded by the Commission."

In the case of Willcox v. Consolidated Gas Co., 212 U. S. 19, 52, 29 Sup. Ct. 192, 200 (53 L. Ed. 382, 48 L. R. A. [N. S.] 1134, 15 Ann. Cas. 1034), the Supreme Court said:

One of the first cases wherein the various elements are taken into consideration in prescribing a rate is the case of Smyth v. Ames, 169 U. S. 466, 18 Sup. Ct. 418, 42 L. Ed. 819. In this case the representative for the railroad was contending for original cost as the "And we concur with the court below in holdproper basis for determining present value. ing that the value of the property is to be deThose representing the shippers, and the pub-termined as of the time when the inquiry is lic, contended that the cost for reproducing made regarding the rates. If the property, the property was the proper basis for rate- which legally enters into the consideration of making purposes.. The court in that case since it was acquired, the company is entitled to the question of rates, has increased in value laid down the rule that the value of the the benefit of such increase." stocks and bonds, the original cost, the cost of reproducing the property, its earning In the case of Des Moines Gas Co. v. Des power, etc., were elements that should be tak-Moines, 238 U. S. 153, on page 169, 35 Sup. Ct. en into consideration by the court, without 811, on page 816, 59 L. Ed. 1244, on page 1252, stating what weight or consideration should the court, said: be given to any one particular element entering into the valuation. We believe it must be conceded in a small property, like the one under consideration, it seldom, if ever, has stocks or bonds upon the market, and its earning power depends entirely upon the rate authorized by the rate-regulating tribunal. Hence it is clear that the ratemaking tribunal is practically reduced to the consideration of the original cost and reproduction new, less depreciation, to determine the reasonable value of the property.

In the case of Simpson v. Shepard, 230 U. S. 352, 33 Sup. Ct. 729, 57 L. Ed. 1511, 48 L. R. A. (N. S.) 1151, Ann. Cas. 1916A, 18, the Minnesota Rate Case, Mr. Justice Hughes, in delivering the opinion of the court, said:

"It is not a question of what was actually expended therefor in the plant in question, but what would it cost to reproduce a similar plant at the present time. It is through this method we reach the present value of this plant new, and then when it is properly depreciated, according to the condition, life, and age of its various parts, we reach the present value of the plant in its present condition. It is not a perfect method, but it is the best method therefor, and results as nearly as possible in giving the present value of the plant. No other method known has proved so satisfactory."

In the case of People ex rel. Kings County Lighting Co. v. Willcox et al., 210 N. Y. 479, 104 N. E. 911, 51 L. R. A. (N. S.) 1, the court. said:

In the case of Murray v. Public Utilities Commission, 27 Idaho, 603, 150 Pac. 47, L. R. A. 1916F, 756, the court said:

"It is clear that in ascertaining the pres- "The cost of reproduction, less accrued deent value we are not limited to the consider-preciation, rule seems to be the one generally ation of the amount of the actual investment. employed in rate cases." If that has been reckless or improvident, losses may be sustained which the community does not underwrite. As the company may not be protected in its actual investment, if the value of its property be plainly less, so the making of "This court is of the opinion that the rule of a just return for the use of the property involves the recognition of its fair value if it be cost of reproduction less depreciation, adopted more than its cost. The property is held in by the Commission, is the correct general rule private ownership and it is that property, and or principle to be applied in this class of not the original cost of it, of which the owner may not be deprived without due process of law."

In the case of Havre De Grace & Perryville Bridge Co. v. Towers, 132 Md. 16, 103

cases."

To the same effect, Denver v. Denver Union Water Co., 246 U. S. 178, 38 Sup. Ct. 278, 62 L. Ed. 649; San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 442, 23 Sup. Ct. 571,

mal high prices of labor and materials, but that such prices should not be the sole criterion or controlling element in fixing valuations for rate-making purposes. Petersburg Gas Co. v. City of Petersburg et al., supra, and authorities cited in note at page 556 of 20 A. L. R.

47 L. Ed. 892; San Diego Land & Town Co., termining valuation for rate-making purposes v. National City, 174 U. S. 739, 19 Sup. Ct. the rate-making tribunals with respect to 804, 43 L. Ed. 1154; Consolidated Gas Co. plants constructed at pre-war prices will v. New York (C. C.) 157 Fed. 849; Shepard v. | give due consideration to the post-war abnorNorthern Pacific Ry. Co. (C. C.) 184 Fed. 765; National Water Works Co. v. Kansas City, 62 Fed. 853, 10 C. C. A. 653, 27 L. R. A. 827; Buell v. Chicago, M. & St. P. Ry. Co., 1 Wis. R. Com'n R. 324; Ames v. Union Pacific R. Co. (C. C.) 64 Fed. 165, 177, 186, 187; Metropolitan Trust Co. of City of New York v. Houston & T. C. R. Co. et al. (D. C.) 90 Fed. 683, 686, 687; Gloucester Water Supply Co. v. City of Gloucester, 179 Mass. 365, 60 N. E. 977, 981; Kennebec Water District v., City of Waterville et al., 97 Me. 185, 54 Atl. 6, 18, 60 L. R. A. 856; Consolidated Gas Co. v. City of New York et al. (C. C.) 157 Fed. 849, 854, 855; City of Knoxville v. Knoxville Water Co., 212 U. S. 1, 9-11, 15, 29 Sup. Ct. 148, 53 L. Ed. 371; Atchison, T. & S. F. Ry. Co. v. Sullivan County Treasurer et al., 173 Fed. 456, 464, 465, 97 C. C. A. 1; Missouri, Kansas & Texas Ry. Co. v. Love et al. (C. C.) 177 Fed. 493, 496; Louisville & N. R. Co. v. Railroad Commission of Alabama et al. (D. C.) 197 Fed. 954.

It is obvious that in determining the cost of reproduction of property, in order to ascertain its present fair value or the amount for rate-making purposes, the exclusive consideration of abnormal prices caused by war conditions would be manifestly unjust to the public, as would the exclusive use of prices during a period of financial depression to the public utility company. The term "ascertainment of value by the cost of reproducing" must not be used in a strict sense, but in order to the proper administration of justice it will be held to mean the cost of reproducing the property under normal or average conditions. Proper considerations being given to the conditions under which the property had been actually constructed and the prices paid for labor and material, it is plain that peak prices would be palpably unjust for the prices of ascertaining the reproduction fair value, as any intended purchaser of such property would always, for the purpose of making a a return. permanent investment, consider the probaIn the cases of the City of Minneapolis v.bilities of the reduction in the price of labor Rand et al., Rand et al. v. City of Minneapo- and materials, and the gradual but certain lis, and Minneapolis Gaslight Co. v. Same, adjustment of the country to normal condi285 Fed. 818, the Circuit Court of Appeals, tions. Therefore it is apparent that the Eighth Circuit, held: equitable rule to be followed in the ascertainment of the present fair value of public utility property by resorting to the method of "cost of reproduction less accrued depre ciation" is to give due consideration to the history and circumstances under which the utility property was created, and the pre

[7] As a general rule, to determine the value of a small public utility property, what it would cost to reproduce the property less accrued depreciation is the safest and most certain method of obtaining present fair value upon which such utility is entitled to

"In determining what rate will enable a gas company or other public utility to earn a fair return, its property used is to be taken at its fair value at the time the rate is in force, and whether it earned more or less than a fair return in the past does not affect the question. "Under the rule of the Supreme Court that the present fair value of the property of availing prices of material and labor at the gas company used in the public service is to be taken as the basis for fixing reasonable rates, the company is entitled to such value, even though it has been increased as the result of enhanced war prices.

"Neither the original cost nor the present cost of reproduction is always a fair measure of the present value of the physical property of a gas company for rate-making purposes; but, where the plant has been in use for a number of years, an allowance must be made from either cost for depreciation."

time of the investigation, and determine the fair average price of materials and labor necessary for the reproduction of the property. Pursuant to this method and the application of sound judgment and common sense, impartial tribunals will discharge the duty in the ascertainment of such values so as to insure the public utility a fair return upon the present value of its property, and the patrons a reasonable rate for the services rendered. People ex rel. Adirondack Power & Light Cor[5] The authorities are not in harmony as poration v. Public Service Commission et al., to the effect of abnormal prices caused by 200 App. Div. 268, 193 N. Y. Supp. 186; Re reason of war or depression in ascertaining Southwestern Bell Teleph. Co. (Ark. 1920) P. the present value of public utility property | U. R. 1921B, 516; Petersburg Gas Co. v. City by following the rule of cost of production of Petersburg, supra, Of course, if no abnorless observed depreciation. A careful examination of the authorities convinces us that the better reasoned cases and the weight of the authorities are to the effect that in de

U

mal conditions exist, the rule of "cost of reproduction less accrued depreciation" may unqualifiedly be followed. The authorities all seem to agree that necessary additions or

improvements should be valued at the cost [pany ever charged excessive rates until about price without deduction for probable reduced future prices.

[12] From an examination of the authorities we are unable to find that any definite rule has been announced defining just what items are to be considered in fixing the amount to be allowed for going concern value, and, where the rule is adhered to in ascertaining present value of "cost of reproduction less depreciation," it is plain that the considerations are to a great extent narrowed in making any allowance for going concern value; this for the reason that the cost of reproduction less accrued depreciation necessarily means the present value of the property in the condition in which it stands as a reproduced plant, and such necessarily must include all of the incidental expenses in establishing the plant as a going, operating property. So the courts and commissions in allowing an arbitrary amount for a going concern value must have necessarily only included such contingencies and omissions as experienced engineers would leave out of their estimates and calculations in appraising the physical property, such as sufficient amount to cover working capital (working capital means a sufficient amount of money to pay employees and pay for the necessary equipment for repairs, and is based upon from four to six weeks' actual operating expenses; amount of time would usually expire before collections could be made from consumers), legal expenses in organizing, insurance, and other contingencies not included in the valuation of the physical property.

this

[6] It appears that the Corporation Commission usually makes an allowance of 20 per cent. to cover the items of going concern value, working capital, and contingencies, and from an examination of the authorities we are convinced that the allowance is a reasonable one. The error of the Commission in determining the appellant's application for increased rates in this case that is apparent was in considering what the Commission believed to be excessive past earnings made by the appellant in the years 1919 and 1920.

In the case of Newton v. Consolidated Gas Co., 258 U. S 165, 42 Sup. Ct. 264, 66 L. Ed. 538, the court said:

"Mere past success could not support a demand that it continue to operate indefinitely at a loss."

And in the case of Garden City v Garden City Co., 236 Fed. 693, 150 C. C. A. 25, the

court said:

"It is in effect claimed that the appellee must have charged excessive rates for the early years of its existence, when no charges were fixed by law, and invested these unjust exactions in the plant, and is now seeking to receive a return upon those illegal exactions. No judicial In the authorities are cited on this point. first place there is no evidence that the com220 P.-3

the commencement of the controversy out of
which this litigation arose; but, if it did so,
the various parties from whom they were ex-
torted had a cause of action against the com-
pany to recover the excessive rates until the
statute of limitations had run. Presumptively
they were not the identical persons who are
now the consumers from the appellee. It is
the practice of courts to try cases one at a
time, and if the appellee has put money into
the development of the plant, the court in this
Such a system
case could not stop to inquire just how it ac-
quired the title to the money.
would involve an investigation into the wholly
collateral matter of the entire past life of liti-
gants and the manner in which they acquired
the money invested in a private enterprise."

See City of Minneapolis v. Rand, supra.

It is plain under the authorities herein cited that the method adopted by the Commission to ascertain the value of the property in this case was not the proper method. The decision of the Commission in this case is based principally upon its consideration of a resolution adopted by the board of directors of the appellant in June of 1919, estimating the valuation of its property at $350,000, with a view of liquidating the same within a period of five years. It may be at that time the stockholders of the property, by reason of the limited time the company had a franchise to operate under, considered its property worth no more than that indicated in the resolution for the purpose of liquidation; but the test to be applied to property for the purpose of making a rate is its present cash value, to be ascertained by reproduction less accrued depreciation.

It appears from the record in this case that the only competent evidence before the Com-. mission as to the value of the property of the appellant was submitted by the appellant. The valuation, as established by the appellant was based upon a valuation made by the Commission during 1914, or before the war, and the remainder was the result of building additions made during the high prices, and bought at a time when the prices were higher than in 1921, the date of this inquiry. It may be fair to assume that the reproduction new less depreciation would have reduced the expenditures during the high prices, and raised the amount during low prices until a substantial valuation may be considered. While this may not have been entirely accurate, inasmuch as the $488,477.19 does not appear to be unreasonable, and until further inquiry may be had, such valuation will be adopted for the purpose of this

[blocks in formation]
[ocr errors]

The Commission further states in its findings of fact as to operating expenses:

the duties of the general manager. He draws Commission for the purpose of determining a salary of $5,000 per year, which it appears what the operating expenses may be from the is out of proportion to salaries paid by simi- time the order is made in the future, and, lar companies for like services. The general if an extraordinary operating expense has manager of a gas plant, the size of the Ok-developed in this case of $20,000, incurred bemulgee Gas Company, should have no other cause of paving streets, etc., this is a past business than to look after the plant. It is expenditure, and should be charged to the the duty of the Commission to determine | accrued depreciation fund, or paid out of the from the evidence whether such general man- $84,941.82 mentioned by the Commission, and. ager draws the salary because he may own the expense for the ensuing year should be controlling interest in the plant, or whether determined or estimated by the Commission in fact he is a capable, competent, gas plant less any abnormal expense or conditions that operator. The public that pay these salaries prevailed during the preceding year. are entitled to the service of a man capable and competent of keeping the plant in good condition at the lowest expense. The general manager of a gas plant is not an office position. If he performs his duty well, he should be out when all repairs are made, and inspecting the plant, reducing leakage, and looking after complaints of consumers and customers at all times. In cases where the evidence shows that any employee, or supposed employee, is drawing a salary, the Commission should determine whether or not this salary is a proper allowance from the standpoint of the competency of the man and the actual time devoted to the services. We mean by this that the Commission should disallow all salaries to employees who may draw the same and perform the duties of the position in name only.

The Commission further says: It appears from reports on file with this Commission that for the years 1919 and 1920 there was charged to operating expense some $20,000 for automobile expenses and charged to capital investment. Included in this expense is the sum of $3,000 for an automobile for the personal use of the general manager of the

company. The public should not be required to pay for expenditures of this magnitude in a plant the size of the Okmulgee Gas Company. Where any expense is above the average for similar expenditures in other plants, the Commission should make a careful in

vestigation, which, in this case, it would probably find that it was not the duty of the public to provide the manager with a $3,000 automobile for his personal use; that one light truck, such as a Ford truck, and two other light cars, such as a Ford or Dodge, would be all the automobiles necessary for the proper operation of a plant the size of the Okmulgee Gas Company.

The Commission further found that"During the year 1920 there was charged to maintenance approximately $33,000, but neither the general manager or auditor had more than an indefinite idea of what it was for. It is clear, however, that at least $20,000 of it was for changing the location of some pipe, and rearranging other pipe on account of street paving."

The operating expenses of a company for past years should only be considered by the

That the auditor, whose salary was $265 per month until recently, when it was reduced, is also secretary of the same oil company of which the general manager is president. The auditor of a gas company the size of the Okmulgee Gas Company should draw such salary as the evidence may show an ordinary bookkeeper should receive for such services. The keeping of the books of a gas company the size of the Okmulgee Gas Company is a very common and ordinary bookkeeping position, and, where employees of a gas company are also employees of an oil company, the expenditures in every instance should be carefully investigated by the Commission, and such allowance for the services made as the evidence may show is proper. In each and every instance the Commission should find specifically what it allows for each contested item. The expenditures of the various companies in the state from year to year for maintenance for the same size and kind of plants should not materially vary, and, when during rate investigation it appears from the evidence that certain expenditures are abnormally high, the Commission should make a thorough investigation and make findings of much is allowed and how much is disallowed. fact in the record saying specifically how In the final summing up the order should find that the value of the property was a certain termined by the Commission, were a certain amount; that the operating expenses, as deamount; that the rate of depreciation and return allowed by the Commission is a certain amount; then make an estimate of what rate should be charged, based on the previous year's consumption of the commodity.

Commission should take into consideration the [8, 9] In fixing the rate of depreciation, the present life of the plant, if it be a small natural gas plant, and such depreciation allowed as would return to the investors their money over the probable period of the life of the plant, considering the average number of years the plant had been in service and the approximate life of the same, which in this ciation allowed is for amortization, and is case would probably be 20 years. This deprenot used for the purpose of repairing the plant. The repairing of the plant and keeping the same in its present good condition is

(220 P.)

We are clear the Commission has

a proper charge for operating expense from, limits. year to year, The Commission allowed in jurisdiction of the Kingwood Oil Company. The evidence shows it has dedicated its wells to the public use, and is selling gas for public use. Chapter 93, § 1, Session Laws 1913, provides:

this case 5 per cent. depreciation and 8 per cent. interest on the return, which the court finds to be reasonable.

"The term 'public utility,' as used in this act, shall be taken to mean and include every corporation, association, company, individuals, their trustees, lessees, or receivers, successors or assigns, except cities, towns, or other bodies politic, that now or hereafter may own, operate, or manage any plant or equipment, or any part thereof, directly or indirectly, for public use, or may supply any commodity to be fur

[11] The rates fixed by the Commission are inadequate to pay a return upon the investment and depreciation. This is partly due to the fact that there was no provision made whereby gas could be sold for industrial purposes, and, in all cases where the consumption of gas is reduced to domestic cooking and heating, the quantity used throughout the year is such that it requires a much higher rate than where rates may be adjust-nished to the public. ed so that industries may use the gas.

In the determining of the value of the property, the Commission confined its value to the distributing plant, whereas the plaintiffs in error insist that it furnishes practically all of the pipe lines to gather the gas at the well and deliver the same to the com

pressor of the Kingwood Oil Company, and that it furnishes practically all of the pipe line to pipe the gas from the wells to the city, and then pays the Kingwood Oil Company 222 cents per thousand cubic feet, which price it claims the Commission approved.

The Commission should determine the value of the gas at the well or at the city gates. If the plaintiff in error purchased the gas at the well, it should be allowed a reasonable return upon the investment in pipe line necessary to deliver the same to the city of Okmulgee. If the Kingwood Oil Company strips the gas before it is delivered to the distributing company, the Commission should determine what a reasonable and fair price of the gas thus stripped and delivered to the city gates should be allowed the Kingwood Oil Company, and the Kingwood Oil Company should pay the interest upon all investments necessary to put the gas to the city Пmits. It appears that the average price of natural gas at the well in Oklahoma is about 10 cents. However, a fair price of gas in each particular field or locality must be determined by the evidence in each particular locality.

This case must be remanded for a further and complete investigation by the Commission and the Kingwood Oil Company should be made a party to the proceeding, and the Commission should determine the price to be paid to the Kingwood Oil Company for gas at the city gate or at the well The price at the well would be for natural gas, which means gas as it comes from the well. If the price is fixed at the city gates for gas, the Commission should take into consideration the making of proper allowance to the Kingwood Oil Company for the value of the products taken from the natural gas as a part of the income from its operations and the sale of stripped gas to the Okmulgee Gas Company at the city

"(a) For the conveyance of gas by pipe line. "(b) For the production, transmission, delivery, or furnishing of heat or light with gas. "(c) For the production, transmission, delivery or furnishing electric current for light, heat or power.

"(d) For the transportation, delivery or furnishing of water for domestic purposes or for

power.

"The term 'commission' shall be taken to mean Corporation Commission of Oklahoma."

[10] The rule is well established that, when private property is devoted to public use, it is subject to public regulation. Munn et al. v. Illinois, 94 U. S. 113, 24 L. Ed. 77. It appears from the evidence in the record that during the year ending November 30, 1921, the total sales of gas for all purposes by the gas company were 956,025 M cubic feet, of which 268,302 M cubic feet were sold for industrial purposes; that the following rates, which the gas company made application to have increased, are inadequate for the gas company to realize a fair return on the value of its property as adopted herein: The first 100,000 cubic feet per month, 47 cents per M. The next 400,000 cubic feet per month, 37 cents per M. All over 500,000 cubic feet per month, 27 cents per M.

The question now to determine is the rate that the Commission should have made. The operating expenses will be allowed and considered as introduced by the plaintiff with the exception of the item of loss of gas. The Commission allowed 10 per cent. for loss of gas, which was charged to operating expenses. The Kansas Commission has adopted a rule of allowing 200,000 cubic feet per mile of three-inch equivalent. In a recent case, Kansas Public Utility Commission in the Matter of the Application of the American Gas Company to Increase Rates, Docket No. 4729, the Commission applied the above rule, and allowed about 9 per cent. for leakage. Excessive leakage in a gas-distributing plant is due to inadequate maintenance or defective meters. Where a plant is properly maintained leakage should never run as high as 23.3 per cent., as claimed by the gas company in the instant case, and may be reduced below 10 per cent. Very little is to be accomplished by the state in passing con

« НазадПродовжити »