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

• Decision Date: 13 April 1926
• Docket Number: (No. 5358.)
• Citation: 101 W.Va. 378
• Parties: City of Huntington et al. v. Public Service Commission
• Court: West Virginia Supreme Court

101 W.Va. 378

City of Huntington et al.

v.Public Service Commission

(No. 5358.)

Supreme Court of Appeals of West Virginia.

Submitted May 6, 1925.

Decided April 13, 1926.

1. Telegraphs and Telephones Telephone Company is En-

titled to Fair Return on Present Fair Value of Property Used in Public Service.

A Telephone Company is entitled to a fair return upon the present fair value of its property used and useful in the public service. (p. 380.)

(Telegraphs and Telephones, 37 Cyc. p. 1632.)

2. Same Inclusion in Rate Value of Telephone Company's Prop-erty of Cost of Property and Franchises of Competing Company Held Proper, Although Price Paid Exceeded Value.

Adopting the actual cost of the property of the Telephone Company as the fair value for rate making, the Public Service Commission properly included therein, as a part thereof, under the facts and circumstances of this case, the entire cost to the Telephone Company of the physical property and franchise rights of an independent competing company purchased by it to afford the public better and cheaper service, although the price paid was in excess of the value of the physical property so acquired. (p. 382.)

(Woods, Judge, dissents.)

(Telegraphs and Telephones, 27 Cyc. p. 1632.)

3. Public Service Commissions Orders of Public Service Com-mission Fixing Rates Are Not Subject to Judicial Interferrence, Unless Beyond Its Constitutional or Statutory Power, Based on Mistake of Law. or Rate is So Low As to Be Confiscatory and Take Property Without Due Process of Law, or Unless Commission Fixes Rates Contrary to Evidence, or Without Evidence, or Violates Rule that Substance and Not Shadow Determines Validity of Exercise of Power.

Orders of the Public Service Commission fixing rates are not subject to judicial interference, unless (1) beyond the power which it could constitutionally exercise; or (2) beyond its statutory power; or (3) based upon a mistake of law; or (4) the rate is so low as to be confiscatory and in violation of the constitutional prohibition against taking property without due process of law; or (5) if the Commission acted so arbitrarily and unjustly as to fix rates contrary to evidence, or without evidence to support it; or (6) if the authority therein involved has been exercised in such an unreasonable manner as to cause it to be within the elementary rule that the substance, and not the shadow, determines the validity of the exercise of the power, (p. 392.)

(Telegraphs and Telephones, 37 Cyc. p. 1632.)

(Nottc: Parenthetical references by Editors, C. J. Cyc. Not part of syllabi.)

The Chesapeake & Potomac Telephone Company tiled tariffs increasing public rates and charges with the Public Service Commission, which entered an order allowing proposed rates, cancelling proposed local exchange rates, and granting the company authority to re-classify its exchanges. The city of Huntington and others petition for a suspension, and the Telephone Company presents cross-assignments of error.

Modified and affirmed.

C. W. Strickling, Harry Scherr, Carl 0. Schmidt, Albert J. Kern, Fred L. Shinn and H. D. Rummel, for petitioners.

Frank W. Nesbitt, George R. C. Wiles, Dozier A. Be Vane, Nesbitt, Goodwiin & Nesbitt, and MacCorkle, Clark & MacCorkle, for respondent Telephone Co.

Roscoe F. Walter and W. W. Smith, amici curias.

Litz, President:

On January 25, 1924, Chesapeake & Potomac Telephone Company, a public utility, filed with the Public Service Commission tariffs increasing its rates and charges, to become effective March 1, 1924. During an investigation to determine the reasonableness of the proposed rates, which followed, extensive hearings were had, culminating in an order by the Commission, allowing the proposed private branch exchange, and interstate toll, rates; cancelling the proposed local exchange rates and granting the utility authority to re-classify its exchanges, in accordance with an established basis of classification, whenever justified by change in the number of telephones of any local exchange area.

We are asked to review the order of the Commission, upon the application of the protesting patrons and cross-assignments of error by the Telephone Company. The controversy presents the following questions:

(a) The present fair value of the applicant's property for rate making purposes;

(b) Whether payment by the applicant of 4 1/2 % of its gross revenues to the American Telephone & Telegraph Company should be partly charged to capital investment;

(c) The amount of depreciation properly chargeable to operating expenses;

(d) The proper rate of return; and

(e) The automatic advancement in classification of exchanges, and consequent automatic increase in rates, without full hearing by the Commission.

Discussion of these matters will proceed in the order stated.

The Commission found that the fair value of the applicant's property devoted to public use as of December 31, 1923, was $15,000, 000.00. This valuation includes the following items:

The physical property........................$12,868, 860.93

"Intangibles" or "Intangible Capital", treated as going concern

value................................................. 1, 032, 277.35

"Additional" going concern value.. 600, 000.00

Working capital..................,................ 500, 000.00

The patrons submit to the finding of the Commission on the value of the physical property; but the Telephone Company insists that the amount was determined without proper consideration of the evidence relating to reproduction cost, and is, for that reason, too low. Three engineers were introduced to prove the cost of reproduction new, less depreciation: W. F. Sloan and C. A, Robinson, by the Telephone Company, and W. J. Hagenah by the protestants, whose estimates were $15,327, 368.00, $14,682, 412.00, and $13,001, 664.00 respectively. The actual cost shown by the books of the Company, without deduction for depreciation, is $12,868, 860.93. These figures, adopted by the Commission as fairly repre- senting the value of the property, not only accord with the evidence of the witness Hagenah on the cost of reproduction, but also find support in the fact that the greater portion of the equipment was installed during a period of high prices. Besides, the cost of reproduction, new, less depreciation, is to be accepted merely as an element and not as the standard of value.

In Georgia Railway & Power Co. v. Railroad Commission, 262 U. S. 625, it is said:

"This case is unlike Missouri ex rel. Southwestern Bell Telephone Company v. Public Service Commission, 262 U. S. 276, 43 Sup. Ct. Rep. 544, decided May 21, 1923. Here the Commission gave careful consideration to the cost of reproduction, but it refused to adopt reproduction cost as the measure of value. It declared that the exercise of a reasonable judgment as to the 'present fair value' required some consideration of reproduction costs as well as of the original costs, but that 'present fair value' is not synonymous with 'present replacement cost', particularly under abnormal conditions. That part of the rule which declares the utility entitled to the benefit of increases in the value of the property was, however, specifically applied in the allowance of $125,000.00 made by the commission to represent the appreciation in the value of the land owned. The lower court recognized that it must exercise an independent judgment in passing upon the evidence and it gave careful consideration to replacement cost. But it likewise held that there was no rule which required that in valuing the physical property there must be 'slavish adherence to cost of reproduction less depreciation'. It discussed the fact that since 1914 large sums had been expended annually on the plant; that part of this additional construction had been done at prices higher than those which had prevailed at the time of the rate hearing; and it concluded that 'averaging results and remembering that values are * * * matters of opinion * * * no constitutional wrong clearly appears'.

"The refusal of the Commission and of the lower court to hold that, for rate-making purposes, the physical properties of a utility must be valued at the replacement cost less depreciation was clearly correct."

Furthermore, the Commission allowed, as part of the rate base, the "intangibles" or "intangible capital", hereinafter considered. We can not say, under the circumstances, that the finding of the Commission was either against the weight of the evidence or without evidence to support it. Findings of fact by the Public Service Commission will not be reviewed, unless it has acted so arbitrarily and unjustly as to fix rates contrary to the evidence, or without evidence to support them. B. & 0. By. Co. v. Public Service Commission, 99 W. Va. 670, 129 S. E. 131; Pittsburgh & West Virginia Gas Co. v. Public Service Commission, decided recently by this Court.

The protestants vigorously except to the action of the Commission in treating the "intangibles" or "intangible capital", amounting to $1,032, 277.35, as part of the present fair value of the property devoted to public service.

The applicant is ore of the numerous associated companies composing the Bell Telephone System, which is virtually owned and controlled by the American Telephone & Telegraph Company. After organizing in 1916, it acquired the operating properties and franchises of two Bell Companies and an independent competing company, the Consolidated Telephone Company of West Virginia. The book value of the tangible property of the independent company was $1,232,-806.24. The difference between this amount and the purchase price of $2,318, 189.64 represented the intangible value of the business, which, under the name of "intangibles" or "intangible capital", the Commission has treated as part of going value. The patrons contend that notwithstanding the purchase was in good faith and is beneficial to public interest, the applicant is not entitled to earn on the investment beyond the...