Mobile Gas Co. v. Patterson

• Decision Date: 31 October 1923
• Citation: 293 F. 208
• Parties: MOBILE GAS CO. v. PATTERSON et al., Alabama Public Service Commission.
• Court: U.S. District Court — Middle District of Alabama

293 F. 208

MOBILE GAS CO. v. PATTERSON et al., Alabama Public Service Commission.

United States District Court, M.D. Alabama, Northern Division.

October 31, 1923

[Copyrighted Material Omitted]

Harry T. Smith & Caffey, of Mobile, Ala., for plaintiff.

Harwell G. Davis, Atty. Gen. of Alabama, Hugh White, Asst. Atty. Gen of Alabama, both of Montgomery, Ala., and F. J. Yerger, of Mobile, Ala., for defendants.

CLAYTON District Judge.

The length and strenuosity of this litigation demonstrates its importance and requires a careful consideration of the following questions:

(1) What is the reasonable value of the properties of the Mobile Gas Company which are used and useful in the public service?

(2) To what extent, if any, is the foregoing inquiry controlled by contract between the parties?

(3) Is the tariff of rates which was fixed by the Alabama Public Service Commission in its order of July 24, 1922 confiscatory?

(4) Did the Commission comply with the condition imposed by the statute as essential to the power of fixing rates?

(5) To what extent, if any, is the right of the Commission to examine the plaintiff's properties and records affected by the terms of the supposed contract? First. I proceed, without reference to the alleged contract, to inquire as to the value of the plaintiff's property, which is used and useful in the public service, at the time of the original bill of complaint and ever since; and I assume, more easily, that this value will continue in the future, because if it changes so materially that the rate enjoined, which is now confiscatory, should become compensatory, the injunction may be modified accordingly. It is my understanding that the special master gave due consideration not only to the reproduction cost new, depreciated, but also to the historical cost of plaintiff's property, and, indeed, to all of the evidence which was offered before him; but as the defendants have insisted, upon their exceptions to the special master's report, that the master did not give due consideration to the historical cost of this property, I have given especial attention to this subject.

The Alabama Public Service Commission, before making the order complained of, sent its consulting accountant, Mr. Mayer W. Aldridge, to Chicago, where the general books of the Mobile Gas Company were kept, for the purpose of examining into the historical cost of this company, and in his report Mr. Aldridge recited:

'Pursuant to your instructions, I have personally examined the records and books of general account in Chicago of the Mobile Gas Company for the purpose of ascertaining the book value and historical cost of the fixed properties of the said company.

'The information desired was to be gleaned from a period of time beginning June 1, 1906, and closing December 31, 1921, and the limited time at hand necessitated a more or less general survey and not a detailed inspection and verification of every item.

'All items of both charges and credits found on the 'Plant and Franchise' account, which were in excess of $500.00, were traced to the original where possible. Under this plan the journal entries were scrutinized and the cash items were verified with the exceptions noted. As to items under the amount of $500.00, the net difference between charges and credits in the aggregate was comparatively small.'

Also, he states:

'Your auditor feels that it is proper to give expression of his appreciation of the helpful and actual assistance given by the principals and employees of the company at Chicago. Especially did Mr. Page, the general bookkeeper, render timely and efficient support in procuring this data in the limited time.'

In Exhibit A to this report he sets forth a statement of the investment of the Mobile Gas Company in property necessary for operations, at $1,800,041.84, which does not include any working capital or going concern values. Mr. Aldridge was examined by the defendants, apparently with a view of showing that his examination of the company's books on this occasion was not thorough, because he did not trace each item to its original voucher; but it is unnecessary that each item of a public utility's account extending over a period of many years should be scrutinized in the testimony or by the court in order to satisfactorily determine the historical value of the plant. Such a proceeding would impose upon the court the duty of considering each item of investment over a period of many years and be as useless as it would be burdensome. In the absence of evidence to the contrary, the books of the utility will be assumed to be correct. Newton v. Consolidated Gas Co., 258 U.S. 165, 176, 42 Sup.Ct. 264, 66 L.Ed. 538; Rowland et al. v. Boyle et al., 244 U.S. 106, 37 Sup.Ct. 577, 61 L.Ed. 1022.

The utility in this instance has been doing business since 1906, keeping its books and records in the regular course of business. It was not subjected to governmental regulations until 1915, and there is no reason to suppose that its accounts were not properly and truthfully kept both prior to and subsequent to that time. The defendants themselves were members of the Alabama Public Service Commission; it was they who limited the time of Mr. Aldridge within which to make his examination, and they themselves accepted his report and acted upon it, and it seems hardly reasonable that they should now ask the court to discredit it, and especially is this true in view of the fact that Mr. Philip Page, the general auditor of the plaintiff, testified to the correctness of this report with the single exception of the fact that Mr. Aldridge omitted one item. In Book 2, pp. 15 and 16, of the testimony, Mr. Page gave the details showing the expenditures for each year, arriving at the conclusion that there was expended up to December 31, 1922, the sum of $1,800,041.44, which does not include the $100,000 which the owners of the property paid to those from whom the property was purchased, for intangibles. It further appears from Mr. Page's testimony (Book 2, p. 75) that since December 31, 1921, the company has expended upon additions to the plant $37,955.68. Of these entire expenditures $761,142.28 was expended prior to the 1st day of January, 1915. It appears from the statement filed by Mr. I. F. McDonnell, chief engineer of the Alabama Public Service Commission, dated March 18, 1922, that the values of January 1, 1922, compare with pre-war prices as 165.8 compares with 100. The witness Dorszeski in his testimony (Book 2, p. 94) and the tabulated statement introduced in evidence as an exhibit to the testimony of Mr. Schley, all substantiate the marked increase in values between the time of the purchase of this property and the present. When the property of a citizen is subjected to the public use at a particular time, the owner is entitled to be compensated upon the basis of the value of the property at the time it is subjected to the public use, and that, if this value is arrived at by an inquiry as to its value at a former date, it is essential that there should be added thereto the increase in value since that time by reason of rising markets. Willcox v. Consolidated Gas Co., 212 U.S. 19, 41, 52, 29 Sup.Ct. 192, 53 L.Ed. 382, 48 L.R.A. (N.S.) 1134, 15 Ann.Cas. 1034; Potomac Elec. P. Co. v. P.U. Comm., 51 App.D.C. 77, 276 F. 327.

Considering the report of Mr. Aldridge, the testimony of Mr. Page as to its substantial correctness, the additions to property made since Mr. Aldridge's report, the increase in values since the property was purchased before the war, and the allowance of a working capital and a going concern value, to which I shall again refer, any effort to base a valuation of this company's property upon its historical cost would result in a large increase in the estimate of values which has been adopted by the special master and that which I have concluded really represents the fair value of the company's property.

A great deal has been said as to the making of deductions from this historical value by reason of certain portions of the property represented by the investment having become obsolete or inadequate, but it appears from the testimony of Mr. Page that substantially all of this property has been duly accounted for by proper credits upon the books, and there is no evidence in this case which would justify the conclusion that a sufficient amount of the property invested in by the plaintiff has for any reason been discarded or ceased to be useful and employed in the public service, to reduce the historical cost of the property to less than $2,000,000. The witness Adams, upon whom so much reliance is placed by the defendants, seems to have known nothing of the property until a short time ago; his opportunities for observation were limited to two visits to the plant in January, and his information as to the records of the company was confined to such as are in evidence before the court, and the opinions which he expresses are chiefly as to what the evidence in this case shows, which is not a proper field for expert opinion, for what the evidence may or may not show is to be determined by the court. Expert opinion, when based upon definite hypothesis, so that the court can definitely determine upon what supposed facts the opinion is based, is often of great assistance to the court; but the opinion of experts employed by either party, as to what the findings of the court should be, without any definite information as to the theories of fact upon which the opinion is based, if admissible at all, is of little or no value. The opinions of the witness McDonnell upon this subject are subject largely to the same criticism; and for the additional reasons, to which I shall again refer, are of little assistance....