City Of Charleston. v. Pub. Serv. Comm'n

• Decision Date: 10 March 1931
• Docket Number: No. 6956, No. 6956-A
• Citation: 110 W.Va. 245
• Court: West Virginia Supreme Court
• Parties: City of Charleston et al. v. Public Service Commission

110 W.Va. 245

City of Charleston et al.

v.Public Service Commission

Nos. 6956 and 6956-A

Supreme Court of Appeals of West Virginia.

Submitted March 3, 1931.

Decided March 10, 1931.

1. Gas Rates

The cost of reproduction new should ordinarily not be given dominant weight in a gas plant rate valuation, although it should be considered.

2. Same:

Whether going concern value should be allowed in determining a rate base depends upon the circumstances of the case.

3. Same;

Neither allowances for going concern value nor expenditures for general overhead costs should be based on purely conventional percentages.

4. Public Utilities

If the leaseholds of a utility have a market value, that value is entitled to consideration for rate making purposes; but the market value alone is not controlling as the utility is subject to regulation. This fact is to be taken into consideration by the rate making body as well also as the safeguards, benefits and privileges which the public has conferred upon the utility.

5. Same:

A utility is not entitled to an arbitrary percentage of net return. What is a fair net return depends upon present day conditions. A return is ordinarily considered ample which provides a sufficient amount to pay reasonable dividends and pass something to a surplus account.

Lively, Judge, absent.

Appeal from orders of Public Service Commission.

City of Charleston and others petitioners against Public Service Commission and others respondents. Orders entered investigating rates charged protestants for gas by United Fuel Gas Company.

Orders set aside; remanded to commission.

Charles Ritchie and Philip H. Hill, for the city of Charleston.

Paid W. Scott and II. L. Pucker, for the city of Huntington. Geo. S.-Wallace, for Huntington Manufacturers' Club. W. T. Lovins, for city of Kenova, Town of Ceredo and Town of Kenova Chamber of Commerce. Wm. B. Hogg, for City of Williamson. B. Randolph Bias, for Williamson Chamber of Commerce. Claude A. Joyce, for City of Logan. Grover F. Hedges, for City of Spencer. J. Luther Wolfe and T. J. Sayre, for Towns of Ravenswood, Sandyville and Silverton. G. W. Staats and Burton Crow, for Town of Ripley, Petitioners.

Harold A. Ritz and Rummel, Blagg & Stone, for Respondent United Fuel Gas Company.

Hatcher, Judge:

This hearing involves orders entered by the Public Service Commission on August 16th and December 4, 1930. The orders were entered in an investigation by the commission of the rates charged the protestants for gas by United Fuel Gas Company. The result of the investigation is a very substantial increase in the rates. The majority of the commission (hereinafter referred to as the commission for the sake of brevity) fixed the fair value of the utility's property as on December 31, 1928. as follows:

Production system............................ $15,146, 352

Transmission system........................ 17, 793, 598

Distribution system.......................... 3, 935, 193

General property............................... 951, 254

$37,826, 397

Going concern value........................ 3, 171, 021

$40,997, 418

Leaseholds.......................................... 7, 914, 037

Total........................................ $48,911, 455

Included in the valuation of the physical property ($37,-826, 397) are allowances for general overheads of 20% on the cost of labor and materials in the transmission system and of 17% on such cost in the other three items. The going concern value is "10% of the estimated value of labor and materials in the plant depreciated, and exclusive of land and general overheads." (Statement of commission). The value accorded the leaseholds is their "adjusted" book value. The commission estimated that $12,200, 000 (of the $48,911, 455) was the value of the utility's property appropriated to the use of consumers within the state. On the property so appropriated $109,800 was allowed for depreciation, and $506,-300 for amortization. Tariff rates for consumers were then approved, which after furnishing enough revenue to pay operating expenses, including taxes, should also provide the allowances for depreciation and amortization and a net return of 8%; to the utility.

The duty imposed upon the commission in cases such as this is that it shall "enter such orders as may be just and lawful." Code 1923, chapter 15-0, section 2. A like charge is given to this Court upon appeal, as the statutory injunction to us differs only in words: '' The court shall decide, the matter in controversy as may seem to be just and right." Code, supra, section 17. Despite the obvious legislative invi- tation to us to become a fact finding body, we have persistently held that because the commission is "experienced in rates and familiar with the intricacies of rate making" we will ordinarily not substitute our judgment for that of the commission on controverted evidence. Town v. Gas Co., 103 W. Va. 526, 529. Our position was clearly stated in Gas Co. v. Commission, 101 W. Va 63: "An order of the Public Service Commission fixing rates to be charged by a public service utility, within the constitutional and legislative power of the commission, will not be disturbed unless it appears that the finding of fact on which the order is based is contrary to evidence, or without evidence, or there has been mis-application of legal principles: and where there is a substantial conflict of evidence on any question of fact, the probative value accorded by the commission to such evidence will not be disturbed."

The statistician of the commission, Mr. E. V. Williamson, made a thorough investigation of the utility and reported that the original cost of its physical properties was $36,183,-011 (not depreciated). Mr. John Jirgal, an expert accountant, engaged by the protestants, fixed that cost from the books of the utility at $37,916, 873 (not depreciated). The opinion of the majority of the commission reflects no consideration whatever of the Williamson and Jirgal reports so far as they deal with this subject. Mr. F. H. Lerch, Jr. (of Ford, Bacon & Davis, engineers) filed a valuation report on behalf of the utility, in which he estimated the cost of reproducing new the physical properties of the utility at $53,972, 197, as on December 31, 1928. Of this sum, the estimate for general overhead charges was $9,847, 102 and for labor and material, $44,125, 095 which was depreciated to $32,-846, 125. Mr. Lerch fixed the going value of the utility at $5,397, 220 or 10% of his estimated reproduction cost new. Mr. J. Paul Blundon, an experienced engineer, filed a similar report on behalf of the protestants in which he estimated the reproduction cost, new, of the same property at $42,286,-901. Of this estimate $5,188, 314 was for general overheads, and $37,098, 587 for labor and material which he depreciated to $22,069, 430. We find no estimate of going value by Mr. Blundon, but Mr. Earl L. Carter, an experienced engineer, appearing for protestants, estimated the going value at $4,500, 000. The commission (as shown by its opinion) adopted the estimates of Mr. Lerch of the costs of material and labor (without general overheads) requisite to reconstruct new, the physical properties of the utility. The commission also adopted his calculation of depreciation except as to an increase of $854,804 on a certain well equipment account, to meet the decision in the Clarksburg Light & Heat Company case, P. U. R. 1928 B 290, 313. Much of the briefs of the contestants is devoted to an attack upon the qualifications and conclusions of Mr. Lerch, and to the support, of Mr. Blundon. The utility responds warmly in kind, attacking Mr. Blundon and supporting Mr. Lerch. Both of these gentlemen are evidently competent and of very high standing. The wide divergencies between them may be accounted for on the supposition that, without volition, neither could be entirely "unmindful of his client's interest." Light Co. v. State (N. H.) 120 Atl. 689. Be that as it may, we would not be so inconsistent with the position stated above as to pass generally on the merits of the Lerch-Blundon controversy. Nor is it necessary to go into details, because it was improper for the commission to base the valuation of the physical properties exclusively upon reconstruction cost, new, less depreciation." * * * the cost of reproduction, new, less depreciation, is to be accepted merely as an element and not as the standard of value." City v. The Commission, 101 W. Va 378, 381. "The cost of reproduction new should not be made the basis of a gas plant rate valuation, although it will be given some weight." Springfield v. Gas & Elec. Co., P.U. R. (Illinois) 1916C 281.

The commission seems to have been led into this error partly by the belief that a similar appraisal of this utility's property by Ford, Bacon & Davis "formed the basis for the commission's findings in the 1924 rate case." This belief is not borne out by the opinion in that case. That opinion states expressly that "the use to which this physical property is put, the book cost, the historical cost estimate, the reproduction cost new, less depreciation estimates" were all con sidered. See p. 276, 2 P. S. C. of W. Va. And it further appears from that opinion that the estimated historical cost was much closer to the amount fixed by the commission than any other estimate. In Blue field Co. v. The Commissioner, 262 U. S. 279, the Supreme Court held: "In estimating the value of the property of a public utility corporation, as a basis for rate regulation, evidence of reproduction costs, less depreciation, must be given consideration." But it was not said in that case or in any other decision of the Supreme Court that evidence of reproduction costs, less depreciation, should be given even controlling much less exclusive weight. The utilty's brief cites several cases which do give dominating weight to the reproduction method. But those cases refer to decisions of the Supreme Court which do not support that doctrine....