Joplin Gas Co. v. Public Service Commission of Missouri

• Decision Date: 28 February 1924
• Citation: 296 F. 271
• Parties: JOPLIN GAS CO. v. PUBLIC SERVICE COMMISSION OF MISSOURI, et al.
• Court: U.S. District Court — Western District of Missouri

296 F. 271

JOPLIN GAS CO. v. PUBLIC SERVICE COMMISSION OF MISSOURI, et al.

United States District Court, W.D. Missouri, Southwestern Division.

February 28, 1924

George J. Grayston, of Joplin, Mo., and Leslie J. Lyons, of Kansas City, Mo., for complainant.

L. H Breuer, of Rolla, Mo., and Lee Bond, Leavenworth, Kan., for defendants.

VAN VALKENBURGH, District Judge.

Beginning with November 1, 1920, the Public Service Commission of the state of Missouri established for the Joplin Gas Company a rate of 70 cents per 1,000 cubic feet of gas consumed payable monthly, with a 10 per cent. penalty clause; that rate continued in effect until the temporary order of this court, entered November 7, 1923, to which reference will be made hereafter. The Joplin Gas Company obtains its gas for distribution from the Kansas Natural Gas Company, and the rate charged for gas delivered at the city gate was 33 cents per 1,000 cubic feet until April 1, 1922. February 16, 1922 the Kansas Natural Gas Company notified the Joplin Gas Company that on and after April 1, 1922, the rate for all gas delivered at the town border would be 40 cents per 1,000 cubic feet. On May 24, 1922, the Joplin Gas Company filed its petition with the commission for authority to increase its rate for gas from 70 cents to 77 cents per 1,000 cubic feet to meet the increased rate to it imposed by the Kansas Natural Gas Company. The case was submitted November 2, 1922 and decided May 17, 1923. Motion for rehearing was overruled July 19, 1923. The commission refused to increase the rate to be charged to consumers, and by its order established the rate of 70 cents per 1,000 cubic feet, with a 10 per cent penalty clause as theretofore.

September 12, 1923, the Joplin Gas Company filed its bill in this court, praying that said order of the commission be set aside on the ground that the rates thereby established were unreasonable and confiscatory. November 1, 1923, a hearing upon said application was held before a court composed of three judges, and a temporary injunction was granted. Pending final hearing, a rate of 77 cents was made effective, with provisions for refund in case the prayer of the petitioner should ultimately be denied. At that hearing it was the unanimous opinion of the judges sitting that the rate imposed by the Public Service Commission and attacked by the bill was unreasonably low under the facts submitted at the preliminary hearing. The trial, before the writer of this memorandum, has served in no wise to alter the opinion then formed, but, on the contrary, has fortified and confirmed it. It is proper, if not necessary, to point out the reasons which have led to this conclusion.

The manner in which the commission arrived at the sum of $600,000 as the value of the property of the Gas Company, used and useful, as a basis for the computation of return, is epitomized in the following table:

Estimated investment cost as found by the commission's engineers ..................................... $683,900.00 Deduct: Land ........................................... $ 4,645.00 Materials and supplies .......................... 14,822.00 Cash working capital ............................ 21,000.00 40,476.00 ---------- ----------- $643,433.00 Add 50 per cent. to cover increase in prices .................. 321,716.00 ----------- $965,149.00 Deduct depreciation, 46 per cent .............................. 443,969.00 ----------- $521,180.00 Restore deductions shown above ................................. 40,467.00 ----------- $561,647.00 Add going value, 5.7 per cent .................................. 32,014.00 ----------- Total value .............................................. $593,661.00

After a full and careful consideration of all of the evidence in this case, it appears that the fair present value of petitioner's property used and useful in the public service, including all elements of value, tangible and intangible, is the sum of $600,000, as of date June 30, 1922.

The commission then took the following statement of operations of the company for the purpose of arriving at the amount available for return, surplus, and contingencies:

------------------------------------------------------------------------------- Statement Statement No. No. 2, 4, First Six Year 1921. Months 1922. ------------------------------------------------------------------------------- Operating revenues ................................. $301,335.34 $162,204.84 Operating expenses (not including depreciation)...... 250,911.29 123,447.71 ----------- ------------- Available for depreciation and return .............. $ 50,424.05 $ 38,757.13 ----------- ------------- ----------- ------------- Deduct, if meter installation fee be discontinued... $ 665.00 $ 307.50 Deduct, if taxes be finally paid at $2.46 rate ........ 1,901.34 950.77 ----------- ------------- $ 47,857.71 $ 37,498.85 Add excess of purchase price over revenue from boiler gas .......................................... 4,812.53 ........... ----------- ------------- $ 52,670.24 $ 37,498.85 Deduct repairs to mains ............................... 2,142.40 123.34 ----------- ------------- $ 50,527.84 $ 37,375.51 Deduct annual depreciation allowance, P. S. C. engineer's appr..................................... 23,322.00 11,661.00 ----------- ------------- Available for return, surplus and contingencies .... $ 27,205.84 $ 25,714.51 Percentage return on $600,000 ............................. 4.53

The conclusion of the commission as to percentage of return is then summarized in the following language:

'During the year 1921, the company purchased 614,558,000 cubic feet of gas, sold 397,191,500 cubic feet, and used 516,800 cubic feet. The gas lost and unaccounted for during the year was 216,849,700 cubic feet, which is equivalent to 35.28 per cent. That this is grossly excessive is shown later. On the basis of a reduction in leakage from 35.28 per cent. to 15 per cent. and an increase in the rate for gas at the city gates to 40 cents per thousand cubic feet, the operating expenses for the calendar year 1921 would have been reduced approximately $12,190, and the company would have had $39,395.84, instead of $27,205.84, available for return, surplus, and contingencies on $600,000.'

The commission thus estimates that, upon the value fixed by it, the amount available for return, surplus, and contingencies, would yield a net income for return of 6.56 per cent. The report of the Commission's accountants showed that the total cost of plant and equipment, as shown by the company's books, as of June 30, 1922, is $964,818.09. This amount was reduced to $854,822.11 through adjustments made by said accountants, excluding property deemed not to be used in the public service. The commission also, in effect, rejected the value of $854,822.11, considering the item to be of little value, for the reason that is consisted, in part, of an unverified charge, to plant account, in the amount of $449,461.48. Its accountants then proceeded to arrive at the cost of the property from such vouchers and records as were obtainable, and by estimates as to all remaining items. The figure arrived at was $683,900. To this estimated cost of production the commission sought to apply the reproduction theory, less depreciation, in accordance with percentages accepted by it as controlling, arriving at the result disclosed by the table first herein above set forth.

The complainant challenges the computations of the commission, and the resulting incidents of rate and return, upon the following grounds:

(1) The fixed value of the property is unreasonably low.

(2) The allowance of 50 per cent. to cover increase in prices is too low. The increase, as shown by authoritative reports of statistics, conceded to be accurate by the commission's accountants, being 69.7 per cent. over the year 1913, universally accepted as a basis. This standard is supplemented by an exhaustive analysis of the trend of prices of material and cost of labor by complainant's accountants, who fixed the percentage of increase at a still higher rate. Elaborate exhibits are presented in corroboration of this testimony.

(3) Complainant urges that the 46 per cent. of depreciation charged is too high; actual exposures and examinations showing, as they contend, a depreciation of only 23 per cent.

(4) The percentage of going value, to wit, 5.7 per cent., is too low; 10 per cent., at least, being reasonable.

(5) The cash working capital of $21,000 or one month's income, should be increased to the income of two months, or $42,000.

(6) The limitation of allowed leakage to 15 per cent. is unreasonable and impossible of realization. It is also contended, and at the hearing conceded by an accountant for the commission, that in the commission's estimate of $39,395.84 available for return, surplus, and contingencies the item of $4,812.53 was again included, indirectly, at least, in the amount charged against the company for the reduction of leakage. This would leave only $34,583.31 available for return, or a percentage of 5.76 per cent., upon a valuation of $600,000, according to the commission's own corrected estimate. This last contention of complainant must be sustained upon the undisputed testimony.

Before entering upon a brief analysis of the several points in controversy, some general principles of law should be recalled and restated. In determining what rate will enable a gas company, or other public utility, to earn a fair return its property used is to be taken at its fair value at the time the rate is in force. Under the rule of the Supreme Court that the present fair value of the property of a gas company used in the public service is to be taken as the basis for fixing reasonable rates, the...