Blue Mountain Telephone & Telegraph Co. v. Pennsylvania Public Utility Commission

• Decision Date: 02 August 1949
• Docket Number: 1170
• Parties: Blue Mountain Telephone & Telegraph Company, Appellant, v. Pennsylvania Public Utility Commission
• Court: Pennsylvania Superior Court

67 A.2d 441

165 Pa.Super. 320

Blue Mountain Telephone & Telegraph Company, Appellant, v. Pennsylvania Public Utility Commission

No. 1170

Superior Court of Pennsylvania

August 2, 1949

Argued April 20, 1949.

Appeal, No. 104, Oct. T., 1949, from order of Pennsylvania Public Utility Commission, Complaint Docket No. 14373, in case of Blue Mountain Telephone & Telegraph Company v Pennsylvania Public Utility Commission.

Proceeding before Pennsylvania Public Utility Commission upon application of utility for increased rates.

Order entered fixing rates allowable and petition of utility for rehearing denied. Utility appealed.

Arthur E. Nelson and James E. Gallagher, Jr., with them James L. Nelson, Stradley, Ronon, Stevens &amp Young and Frank H. Madden, for appellant.

Charles E. Thomas, Counsel, with him Lloyd S. Benjamin, Assistant Counsel, for appellee.

Rhodes P. J., Hirt, Reno, Dithrich, Arnold and Fine, JJ. (Ross, J., absent).

OPINION

ARNOLD, J.

The Blue Mountain Telephone & Telegraph Company filed with the Public Utility Commission a proposed tariff for increased rates, which was suspended by the Commission for six months. Three hearings were then held and every opportunity was given the Telephone Company to meet its burden of proof that the proposed rates were just and reasonable. It appeals from the final order of the Commission requiring it to withdraw the proposed tariff and in lieu thereof to file a tariff designed to produce $ 202,900 annually, an increase in revenue of $ 24,177. The proposed tariff was designed to produce additional revenue of $ 51,215, -- an increase of approximately 30% of its annual revenue for local and general exchange service to its customers.

The figures given hereafter are approximate. The Commission fixed the fair value and worth for ratemaking purposes at $ 325,000. It refused to allow as a separate item $ 50,000 alleged by the appellant to be going-concern value, -- which will be later discussed. Likewise it refused to apply spot prices in determining the value of the property, and followed the ten-year-average price rule. On depreciated original cost the total value was $ 309,100, and upon depreciated reproduction cost at ten-year-average prices, $ 330,300. Both of the foregoing amounts included an allowance for material and supplies and cash working capital, but at a figure less than claimed by the Telephone Company.

I. ACCRUED DEPRECIATION. Appellant complains that the Commission did not properly ascertain the amount of accrued depreciation. The Telephone Company's evidence proceeded on the theory of observed depreciation indicating a depreciation of 27.9%. The Commission was dissatisfied with this opinion evidence and requested that the Telephone Company furnish it with the information necessary to determine accrued depreciation by the age-life method. This the Telephone Company refused to do. Appellant claims that the Commission "rejected" the evidence of observed depreciation, not because of any inherent weakness, but because it conflicted with the depreciation reserve set up by the corporation. This statement is incorrect.

As pointed out in the excellent brief of counsel for the Commission: The appellant's evidence consisted of the presentation of an inventory of its property, coupled with a statement that a detailed inspection was made of the various parts of its property. Thus, with respect to poles, the amount of butt rot, the treatment and the age at which treatment was applied, the over-all condition of the poles and other factors, were the subject of opinion testimony. From this physical aspect of the poles and all of this data, appellant compiled percentages which were said to reflect the average condition of the pole line plant. Appellant's witness then testified that, "similarly," percentages were determined for all other classes of property, and in this manner was derived the percentage figure of depreciation. In regard to the elements of the plant which are retired from service solely for physical reasons, a proper observation would be an approximate measure of the actual depreciation. But observation of the physical conditions of the various types of property cannot be the only measure of accrued depreciation. For instance, its buildings would have to be kept in excellent physical condition to permit their being used by their operators and to house the equipment. They had to be kept physically safe until a very short time before the retirement from service. The same thing is true as to the central office equipment, which on the very day of retirement must be capable of complete operation and of rendering complete telephone service. At the moment of retirement the theoretical accrued depreciation of such buildings and equipment is 100%, and the value thereof thus depreciated is zero, although the condition percentage may be very high. Therefore, physical condition alone is not a sound measure of accrued depreciation in the central office equipment and in the buildings housing it. A proper "depreciation study" to measure the actual depreciation must take into consideration the loss in value to the extent that physical deterioration actually occurs, together with obsolescence, inadequacy and any requirements of public authority. Such a study must contemplate the complete loss of the remaining value or condition value at the time of the retirement. Appellant did not attempt such a study.

It is also a misnomer to classify appellant's testimony as "observed depreciation." For instance, it estimated a service life of 50 years for its right of way and thus reached an annual 2% depreciation for this account, yet the condition of the right of way at the end of the 50 years is actually 100%. Appellant's witnesses sought to explain this by stating that there was no physical depreciation (which is the very thing which was to be determined), but there was a likelihood of abandonment of the rights of way. In this particular item appellant's claim of 2% annual depreciation is without foundation. Allowances for annual depreciation must be reasonably consistent with allowances for accrued depreciation: Solar Electric Company v. Pennsylvania Public Utility Commission et al., 137 Pa.Super. 325, 9 A.2d 447. The Commission gave to the testimony only the weight it deserved. The opinion of the Commission distinctly shows that it carefully considered all of the evidence. It pointed out that "station installments" and "drop and block wires" are non-depreciable accounts as defined by the Uniform System of Accounts. ^[1] In spite of this, appellant assigned a percentage condition to each of these accounts, when they should be retained as non-depreciated throughout their service life, because upon retirement of any element in either account, the cost of the plant part retired is credited to the plant account and charged directly into the operating expense for the year in which retirement is made. Likewise the retirement of the Pen Argyl exchange equipment was determined and anticipated to occur within four months, and the appellant's opinion evidence showed percentage condition of this equipment to be 70%, thus claiming an accrued depreciation of but 30%. It is obvious that appellant's witness gave no serious consideration to either obsolescence or inadequacy, for actually the accrued depreciation in that particular equipment, under the circumstances of imminent retirement, was close to 100%. Appellant planned to retire the switchboard at Bangor within six months. Likewise in the face of this imminent retirement the appellant assigns 50% condition to the equipment. Quite properly the Commission concluded that the opinion of appellant's witness was unsound.

Without multiplying instances, it is apparent that the Commission did consider all the evidence but found a multitude of inherent weaknesses and errors in the claimed "observed depreciation." The Commission is the trier of the facts. Of all forms of evidence, opinion evidence is the weakest and least reliable. Even though uncontradicted it need not be accepted. In this case there was no capricious disregard of evidence. "Capricious disbelief is not merely disbelieving a witness. To constitute capricious disbelief there must be a wilful, deliberate disbelief of an apparently trustworthy witness, whose testimony one of ordinary intelligence could not possibly challenge or entertain the slightest doubt as to its truth. To charge . . . capricious disbelief, it must be so flagrant as to be repugnant to a man of reasonable...