Goldfield Consol. Water Co. v. Public Service Commission of Nevada

• Citation: 236 F. 979
• Decision Date: 09 October 1916
• Docket Number: A-53.
• Parties: GOLDFIELD CONSOL. WATER CO. v. PUBLIC SERVICE COMMISSION OF NEVADA et al.
• Court: U.S. District Court — District of Nevada

236 F. 979

GOLDFIELD CONSOL. WATER CO. v. PUBLIC SERVICE COMMISSION OF NEVADA et al.

No. A-53.

United States District Court, D. Nevada.

October 9, 1916

James F. Peck and Peck, Bunker & Cole, all of San Francisco, Cal and Henry M. Hoyt, L. A. Gibbons, and L. N. French, all of Reno, Nev., for complainant.

George B. Thatcher, Atty. Gen., and H. F. Bartine, of Carson, Nev for defendants.

FARRINGTON District Judge.

Since January 1, 1907, complainant has been engaged in developing selling, and distributing water, and receiving and disposing of sewerage in the town of Goldfield and vicinity. The Public Service Commission of Nevada having made an order fixing the maximum rates which might be charged for such service, the company asks that the enforcement of the order be restrained permanently, as well as during the progress of the suit, and that the order itself be adjudged to be unjust, unreasonable and confiscatory, and therefore void and of no effect.

The application for an injunction pendente lite is now before the court. It is alleged that the water and sewerage systems have actually cost $452,147.81, and that this amount should be increased 10 per cent. to cover interest and engineering expenses during the period of construction; that the cost of reproducing the plant with a daily capacity of 250,000 gallons would be $325,037.97, and the cost of reproducing the plant with its present capacity of 430,000 gallons per day would reach $400,000, which is its fair value; that the plant was constructed and installed when Goldfield had four or five times its present population; that mining is the only productive business of Goldfield, and, as the ore bodies will be entirely exhausted within a period of eight or nine years, complainant's property will have no value at the end of that time; that during the past eight years, at the present rates, complainant 'has earned * * * an average of 8.4 per cent. net on the cost of construction, and deducting bond interest 11 1/2 per cent. on the capital actually invested with no allowance for depreciation, which should be 12 1/2 per cent. per annum'; that the order complained of, if enforced, would cause a reduction of $7,500 in the company's net income, leaving a net profit of no more than 5.2 per cent. upon the fair value of its property, or 4.8 per cent. on the balance over bonded indebtedness, and that, too, without any allowance for depreciation. Assuming that the future profitable and productive life of Goldfield will not exceed eight years, the company asserts that it is entitled to water and sewerage rates sufficient to pay all its expenses, and yield for depreciation 12 1/2 per cent. on its present reproduction cost, interest at the rate of 6 per cent. on its bonded indebtedness, amounting to $249,000, and also a profit of 10 per cent. per annum on a sum which shall be equal to the difference between the bonded indebtedness and the reproduction cost.

In this controversy the court cannot act as a commission. It is not vested with the power to make rates, or to substitute its judgment as to what the rates should be, for the judgment of the rate-making body. Its jurisdiction is invoked on the ground that the new rates are confiscatory. If it be not made to appear that the rates will result in taking complainant's property for public use without just compensation, the court will refrain from interference.

What the public in Goldfield is receiving from the water company is the use of the company's plant. This in itself is 'property,' and is protected by the Constitution. It is no more subject to public appropriation without just compensation than the plant itself. If the enforcement of the order complained of results in subtracting anything from that which under the circumstances is just, but no more than just, compensation for the use of the company's property, there is an invasion of its constitutional rights. To hold otherwise is to hold that the Constitution protects a portion but not all of one's private property. Spring Valley Water Co. v. San Francisco (C.C.) 165 F. 667.

'What the company is entitled to demand (in order) that it may have a just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public' service, provided no more is exacted than its services are reasonably worth.

This rule is supported by a multitude of decisions, and by practically all the federal courts. Its significant feature, in view of the unusual circumstances of the present case, is that the value to be ascertained is present value, value at the time the property is being used, or, as Mr. Justice Peckham says in Wilcox v. Consolidated Gas Co., 212 U.S. 19, 29 Sup.Ct. 192, 53 L.Ed. 382, 48 L.R.A. (N.S.) 1134, 15 Ann.Cas. 1034:

'The value of the property is to be determined as of the time when the inquiry is made regarding the rates.'

It was this principle which led the Supreme Court to say in Knoxville v. Water Co., 212 U.S. 1, 29 Sup.Ct. 148, 53 L.Ed. 371: 'The cost of reproduction is one way of ascertaining the * * * value of a plant like that of a water company, but that test would lead to obviously incorrect results, if the cost of reproduction is not diminished by the depreciation which has come from age and use.'

In nearly every case of this kind, original cost, the value fixed for taxation, the aggregate value of the company's issued bonds and capital stock, and the amount honestly and prudently invested, have been urged as measures of value; but it is impossible to regard any one of them as invariably or necessarily equivalent to present value. A prudent, well-informed man, who is figuring on what he can afford to pay for a plant such as the one under consideration, would naturally inquire as to every such matter; he would also investigate, among other things, all circumstances and conditions which tend to increase or diminish the demand for, and the value of its services, and the probable duration and constancy of such demand. Unquestionably, the fact that complainant's plant is actually doing business, and is a going concern, is an important element of value. National Waterworks Co. v. Kansas City, 62 F. 853, 864, 10 C.C.A. 653, 27 L.R.A. 827; Spring Valley Water Co. v. San Francisco (C.C.) 192 F. 137, 166; Whitten on Valuation of Pub. Service Corp. Sec. 520 et seq.; Pond on Pub. Utilities, Secs. 473, 474.

In many cases the courts have declined to give this element an independent and distinct expression, but have preferred rather to consider it as a characteristic of the plant, the value of which is affected by the circumstance that it is or is not a going concern. Brunswick Water Dist. v. Maine Water Co., 99 Me. 371, 59 A. 537, 538.

It has been said that the cost of reproduction new, less depreciation, when properly considered, is the same as fair present value. This may be true in normal cases of property located in settled communities where values are stable, but here the problem is complicated by the fact that at the present time the town of Goldfield has not more than one-third the population it had when complainant's plant was acquired and constructed. Since then the value of substantially all other fixed property in that locality has fallen at least 50 per cent. No reason has been advanced why complainant's fixed property values have not shrunk in the same ratio.

It is difficult to conceive how there can be a reliable estimate of fair present value which is not controlled to some extent by the fact that the plant is in operation, and by circumstances and conditions which indicate the future increase, diminution, or entire loss of its business.

Complainant's plant is capable of supplying 13,000,000 gallons of water per month; but, at the time these proceedings were initiated before the defendant commission, the average monthly sales were no more than 5,000,000 gallons.

The life of Goldfield, as of every mining camp, is uncertain; sooner or later the ore deposits will be exhausted, and the mines abandoned. Complainant avers that when this occurs, at the expiration of eight or nine years, its property will have no value. The bulk of this depreciation will have been caused, not by age, use, or action of the elements, but by the failure of the mines; there will be no market in Goldfield for complainant's water, or any considerable demand for its services. If depreciation of this character must be provided for in the rates, as complainant demands, it is no more than just that it should be considered in determining the present reasonable value of the property.

Complainant alleges a present value of $400,000, and a...