Pacific Power & Light Co. v. Federal Power Commission

• Decision Date: 07 April 1944
• Docket Number: No. 10386.,10386.
• Citation: 141 F.2d 602
• Parties: PACIFIC POWER & LIGHT CO. et al. v. FEDERAL POWER COMMISSION.
• Court: U.S. Court of Appeals — Ninth Circuit

141 F.2d 602 (1944)

PACIFIC POWER & LIGHT CO. et al. v. FEDERAL POWER COMMISSION.

No. 10386.

Circuit Court of Appeals, Ninth Circuit.

March 10, 1944.

Rehearing Denied April 7, 1944.

John A. Laing and Henry S. Gray, both of Portland, Or. (Laing, Gray & Smith, of Portland, Or., of counsel), for petitioner Pacific Power & Light Co.

A. J. G. Priest and Adrian L. Foley, both of New York City (Reid & Priest and White & Case, all of New York City, of counsel), for petitioner American Power & Light Co.

Charles V. Shannon, Gen. Counsel, and Reuben Goldberg, Senior Atty., Federal Power Commission, both of Washington, D. C., for respondent.

Before GARRECHT, STEPHENS, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

This is a proceeding for review, under § 313(b) of the Federal Power Act, 49 Stat. 847, 860, 16 U.S.C.A. § 825l(b), of an order of the Federal Power Commission requiring Pacific Power & Light Company to correct its electric plant accounts in conformity with a finding of the Commission.

Originally the petition attacked a provision of the order requiring Pacific to eliminate an acquisition "writeup" (classified in Account 107) by a charge to surplus; but objection to this feature has been abandoned in the light of the holding in Northwestern Electric Co. v. Federal Power Commission, 64 S.Ct. 451. The only part of the order now challenged is paragraph (H) providing for the amortization of an amount of $2,741,591.66 by annual charges to income over a 10-year period beginning in 1942. This amount is the portion of the acquisition cost to Pacific of a number of utility systems which is in excess of the original cost thereof. The amount has been placed in Account 100.5, Electric Plant Acquisition Adjustments. Amounts so recorded are required under the Commission's system of accounts, to be "depreciated, amortized, or otherwise disposed of, as the Commission may approve or direct." The dispute is whether the amount should have been permitted to remain in this account, as petitioners contend, or whether the Commission properly ordered its gradual elimination.

A brief review of the manner in which Pacific acquired its properties will suffice, since the facts are not in dispute. American Power & Light Company is the parent company of Pacific and owns all the latter's common stock. As early as 1909 American began the acquisition of numerous small and scattered electric utility properties in the Pacific Northwest with the idea of combining them into an integrated system. In 1910 American caused Pacific to be organized and to this subsidiary it transferred the properties acquired. The amount classified in Account 100.5 had its genesis in these acquisitions, the great bulk of which were made twenty to thirty-three years ago. A few of the plants were acquired by American for less than their original cost, but the acquisition cost of most of them was in excess of the original cost to the persons first devoting them to public service. As already said, the amount in Account 100.5 represents the net excess of acquisition cost over original cost. It is not questioned that the transactions in which American acquired the properties were arm's length transactions or that the payments therefor were bona fide.

The Commission's uniform system of accounting requires that utility companies reclassify their electric plant accounts by prescribed accounts on the basis of "original cost," that is to say, the cost of operating units or systems to the persons first devoting them to public service. In the case of properties acquired as these were the excess of acquisition cost over original cost thus disclosed is required to be transferred to Account 100.5. The power of the Commission to prescribe a uniform system of accounting and to require the utility company to keep accounts accordingly is not now open to question. The law on the subject has been sufficiently covered in the opinions of this court in Northwestern Electric Co. v. Federal Power Commission, 9 Cir., 125 F.2d 882, and Id., 9 Cir., 134 F.2d 740, and in the affirming opinion of the Supreme Court, Northwestern Electric Co. v. Federal Power Commission, supra, 64 S. Ct. 451, and we need not go over the matter again.¹

The present case, like that involving the Northwestern Electric Company, appears to us to present no more than a problem of proper accounting. The decisive inquiry is whether the Commission's order has substantial support in the record.² The Commission found that the sum classified in Account 100.5 represents payment for intangibles, such as goodwill, going value, nuisance value, and franchise and monopoly values, all of which were thought to be rooted in and associated with prospective earning power.³ Said the Commission: "It is common knowledge that intangibles have questionable continuing value even in an unregulated industry. They should not be permitted to rest permanently in the accounts of a public utility, and the record of this case shows that the proper accounting treatment is to amortize them rapidly."⁴

The Commission's expert accountants testified that intangibles bought and paid for have no permanent place in the plant accounts of a public utility, that "intangibles are evasive and disappear without being seen," and that there is no more reason to retain permanently the cost of the intangible in the accounts than there is to retain the cost of tangible property after it has been physically retired. These witnesses pointed out that the intangibles in this instance have been on the books a great many years, and stated that in their judgment correct accounting practice indicated that the amount in Account 100.5 be disposed of in the manner later ordered by the Commission. We may add that the physical property with which these intangibles were associated was not shown to be in existence as of the present day.

Petitioners argue that it is contrary to the concept of due process to treat...