Hardin-Wyandot Lighting Co. v. P.U.C.

• Citation: 162 N.E. 262,118 Ohio St. 592
• Decision Date: 09 May 1928
• Docket Number: 18456
• Parties: The Hardin-Wyandot Lighting Co. v. Public Utilities Commission.
• Court: Ohio Supreme Court

162 N.E. 262

118 Ohio St. 592

The Hardin-Wyandot Lighting Co. v. Public Utilities Commission.

No. 18456

Supreme Court of Ohio

May 9, 1928

Public Utilities Commission - Valuations - Stipulation to use appraisal of prior proceeding and to consolidate cases - Counsel cannot claim valuation not of date certain - Five-year trend rule for ascertaining average reproduction cost favored utility omitting one item amounting to less than increase, not error - Only property used and useful in particular municipality to be valued, when - Omission of specific allowance for going concern not erroneous, when - Allowance made for organization, interest, engineering expenses during construction, etc.

1. Where, in a proceeding for valuation of the property of a public utility before the Public Utilities Commission counsel for the utility orally stipulates with the Public Utilities Commission that an appraisal already made in an earlier case should be used in a pending proceeding, that the two cases should be consolidated and the same valuation be found in both cases, and when the use of the appraisal in the earlier case involves the employment of a five-year trend rule for ascertaining the average cost of reproducing the property of the utility, counsel for the utility cannot later complain that the valuation employed is not the value of the property as of a date certain.

2. Where the use by the commission as a basis for its valuation of trend prices for a period of five years, instead of prices as of a date certain, has resulted in a substantial addition to the valuation of the property, over that claimed by the utility, from the use of prices as of such date certain, the fact that one item amounting to less than such addition has been omitted in the valuation, does not justify a reversal of the order of the commission.

3. When a rate controversy involves rates charged in a particular municipality, only property used and useful in furnishing service to such municipality should be valued.

4. Where the commission in its valuation of the property of a public utility makes a substantial allowance for organization, interest, engineering, law expenditures, taxes and general expenses during construction and contingencies and omissions, without making a specific allowance for going concern, a reversal of the order of the Public Utilities Commission is not required unless the total valuation appears to be less than its actual value as a going concern. All of these items enter into the development of the utility's property and give it an added value not represented in the valuation of the physical property.

This case comes into this court on error proceedings instituted to an order of the Public Utilities Commission arising out of the following facts:

On September 19, 1922, the council of the city of Kenton passed an ordinance fixing the rate at which electricity should be supplied to public and private consumers in such city.

On October 18, 1922, the Hardin-Wyandot Lighting Company filed with the Public Utilities Commission its appeal against such ordinance. A hearing was entered upon and the commission ordered a valuation of the property of the company used and useful in the city of Kenton. A tentative valuation was announced by the commission upon April 20, 1923, in which the value of said property was declared to be as follows: Description. Reproduction Depreciation. Present Value. Value. Real Estate$5,383.46 $5,383.46 Buildings..12,445.58 $2,890.08 9,555.50 Water cooling,steam &amp electric equipment & piping...79,303.88 8,090.96 71,212.92 Distribution system-Kenton...42,322.96 5,058.98 37,263.98 Meters14,663.22 2,932.64 11,730.58 Transformers....12,986.52 2,597.30 10,389.22 Machine shop equipment.... 1,019.80 254.94 764.86 Automobiles and wagons. 2,674.01 700.43 1,973.58 Office furniture and fixtures.... 1,479.98 147.99 1,331.99 Office heating system 127.37 35.16 92.21 _____________ _____________ ___________ $172,406.28 $22,708.48 $149,697.80 Organization, interest, engineering, law expenditures, taxes and general expenses during construction, and contingencies and omissions, 7 per cent...$ 10,478.85 Materials and supplies. 4,089.00 Working capital... 6,442.24 __________ Grand total$170,707.89

The company protested against this tentative valuation. Thereafter the commission entered an order changing the tentative valuation in certain in substantial particulars, and found the final value of the various classes and kinds of property of the Hardin-Wyandot Lighting Company, used and useful for the convenience of the public in the furnishing of electric service in the city of Kenton, Ohio, to be as set forth in the following summary: Reproduction Present Description. Value. Depreciation. Value. * * * * * * * * * * * *.... $171,806.19 $22,642.05 $149,164.14 Organization, interest, engineering, law expenditures, taxes and general expenses during construction, and contingencies and omissions, 7 per cent.. 10,441.49 Materials and supplies. 4,089.00 Working capital... 6,442.24 __________ $170,136.87

A protest was entered by the company to this final valuation, and overruled. Upon denial of a rehearing, the company prosecuted error proceedings to this court.

Mr. J. W. Heintzman, for plaintiff in error.

Mr. Edward C. Turner, attorney general, Mr. Albert M. Calland, and Mr. Arthur Tudor, for defendant in error.

ALLEN J.

The utility urges that the commission erred in denying its request for valuation and appraisal of all its property used and useful as of a date certain. The prices prepared and unit costs submitted by the utility were as of May 1, 1923. The utility contends vigorously that, because the valuation and appraisal which had been made in a former proceeding was considered in the instant case, namely, an appraisal and valuation made in a proceeding dating from June 20, 1921, based on an average of prices for the five preceding years, instead of upon actual prices at or about May 1, 1923, there was no valuation and appraisal as of one certain date. It may be questioned whether the rule announced in Smyth v. Ames, 169 U.S. 466, 18 S. Ct., 418, 42 L.Ed. 819, relied upon by counsel for plaintiff in error, and long established as laying down the valuation rule in public utility cases, has not been slightly modified by the recent decision of the Supreme Court of the United States in McCardle et al., Comm'rs., v. Indianapolis Water Co., 27 U.S. 400, 47 S. Ct., 144, 71 L.Ed. 316, in which Mr. Justice Butler lays down the following rule:

"In determining the present value of the property of a public utility for rate-making purposes, consideration must be given to prices and wages prevailing at the time of the investigation; and, in the light of all the circumstances, there must be an honest and intelligent forecast as to probable price and wage levels during a reasonable period in the immediate future."

However, the general rule, even if modified in the McCardle case by that decision's requirement that future prices be forecast as well as that present prices be considered in valuation of a utility's property, does not apply in the instant proceeding because of a certain request made by counsel for the utility with reference to the use of the appraisal and valuation made in the preceding action.

The record shows that, when the Hardin-Wyandot Lighting Company filed with the Public Utilities Commission an appeal from the ordinance enacted on September 19, 1922, by the council of Kenton, regulating the price which the lighting company might charge for electric current in the city of Kenton, counsel for the utility, upon the day set for hearing, appeared before the commission and called attention to the fact that a former proceeding, dating from June 20, 1921, was pending, and that the engineers of the commission in that former proceeding had appraised the same property, the value of which was at issue in the present proceeding. The record further shows that Chairman Poor then made the following statement:

"If the commission has arrived at a valuation of that property for that period of time and there has been no material change in the physical property, I would not see the necessity of the commission having a revaluation made unless it is called for by one side or the other, showing that there had been some material physical change."

Mr. Martin, counsel for the lighting company, in response to this statement by the chairman of the commission, said:

"Of course, if we could avail ourselves of this inventory and appraisal it would very much shorten the matter, because I think the commission's engineers were on that three or four months in making that appraisal, and it would take another engineering company fully as long."

Mr. Martin further said:

"If the commission please, I do not know of anything of the kind in this commission before, but in the civil courts we have consolidated cases frequently where there is a like interest between all of the parties, and it strikes me that we can consolidate the advance rate case with this case and avail ourselves of the work already done in that case."

Chairman Poor then said:

"Now if it is the desire of the parties to this proceeding to consolidate the two cases, the commission is willing to entertain a motion to have the two cases consolidated, and, since the commission has done the field work, or the engineers have done the field work, making the appraisal, that we go ahead and complete it and announce the tentative valuation of the property, of course giving both sides an opportunity to protest against that valuation at any time within thirty days. Then we can consolidate them and have the hearing of the two cases at the same time, and the same valuation then would prevail i.n the...