Montana-Dakota Utilities Co. of Minneapolis, Minn., Application of

• Decision Date: 23 March 1960
• Docket Number: No. 7777,MONTANA-DAKOTA,7777
• Citation: 102 N.W.2d 329
• Parties: Application ofUTILITIES CO. OF MINNEAPOLIS, MINNESOTA, for Authority to Increase Rates for Electric Service in the State of North Dakota. UTILITIES COMPANY, Appellant, v. PUBLIC SERVICE COMMISSION of the State of North Dakota, Respondent.
• Court: North Dakota Supreme Court

Page 329

102 N.W.2d 329

33 P.U.R.3d 531

Application of MONTANA-DAKOTA UTILITIES CO. OF MINNEAPOLIS,

MINNESOTA, for Authority to Increase Rates for

Electric Service in the State of North Dakota.

MONTANA-DAKOTA UTILITIES COMPANY, Appellant, v. PUBLIC SERVICE COMMISSION of the State of North Dakota, Respondent.

No. 7777.

Supreme Court of North Dakota.

March 23, 1960.

Rehearing Denied April 22, 1960.

Syllabus by the Court

1. The failure of the Public Service Commission to order a suspension of a proposed change in the rates, to be charged by a utility, pending a hearing upon the reasonableness of such rates, does not deprive the commission of its jurisdiction to continue the hearing or change the nature thereof.

2. Upon an inquiry to determine the actual rate of return of a utility for a prior year, only the value of the utility's property used and useful for the public service during that year should be included in the rate base.

3. Where the inquiry is to determine a utility's actual rate of return for a prior year, the utility's average rate base for that year should be used in the computation.

4. Customer's contributions in the form of tax accruals which are available and used for working capital and investment in materials and supplies may properly be used to offset the rate base allowance for working capital, including the investment in materials and supplies.

5. Where average plant valuation is used in computing the rate base of a utility for a specific year, only average plant depreciation should be allowed for that year.

6. A utility's income may be credited with a proper charge against its merchandise departments for rentals of the space occupied by such departments, and for servicing their accounts, but such charge must be supported by evidence and a charge based solely upon a percentage of gross sales is not supported by evidence.

7. Where a utility purchases supplies from a controlled subsidiary, the Public Service Commission may inquire if unreasonable profits have been made by the subsidiary upon such purchases and, if the profits are found to be unreasonable, may reduce the allowances for such purchases accordingly. The commission may not determine that the subsidiary has made an excessive profit upon all of its operations and credit the utility's income with a share of the subsidiary's net profits.

8. The intent of Congress, in enacting Section 167 of the Internal Revenue Code of 1954, 26 U.S.C.A. Sec. 167, was to permit a taxpayer to depreciate assets according to the one of several methods which would achieve the most accurate results for his particular business.

9. Where a utility has adopted the 'diminishing balance' method of computing depreciation, as allowed by Section 167 of the Internal Revenue Act of 1954, it was not error for the Public Service Commission to allow only the taxes actually paid, as a charge against income.

10. The intent of Congress in enacting Section 168 of the Internal Revenue Code of 1954, 26 U.S.C.A. Sec. 168, was not to benefit consumers but taxpayers. It was enacted to encourage taxpayers to construct emergency facilities necessary to the national defense, by allowing the amortization of facilities, properly certified as emergency facilities, over a sixty month period.

11. It is not within the province of a regulatory commission to nullify congressional action, by destroying the incentive to emergency construction which was intended by Congress.

12. The Public Service Commission erred in crediting to income, the temporary tax savings due to rapid amortization allowed by Section 168 of the Internal Revenue Code.

13. The determination by the Public Service Commission of the actual rate of return earned by the utility in 1956 was but a point of departure in determining whether the rates charged in 1956 would continue to earn a fair rate of return in the immediate future. In making such determination the Public Service Commission should take into consideration, all anticipated increases in the rate base and operating expenses, as well as estimated increases in income.

14. Where the comparative operating statistics submitted by a utility show that the annual increase in income over a period of years was sufficient to compensate for the annual increases in rate base and expenses it was not error for the Public Service Commission to find that the established trend would continue, and such a finding necessarily includes a consideration of anticipated increases both in rate base and cost of operation.

15. Upon a hearing to determine the fairness of a proposed new schedule of utility rates the Public Service Commission is not limited to an approval or a denial of the proposal but it may order any schedule of rates which will yield the utility a just and reasonable return.

Cox, Pearce & Engebretson, Bismarck, and Earl H. A. Isensee, Minneapolis, Minn., for appellant.

Leslie R. Burgum, Atty. Gen., Gerald G. Glaser, Commerce Counsel, Bismarck, Theodore Kellogg, Sp. Asst. Atty. Gen., for respondent.

BURKE, Judge.

This is an appeal from an order of the Public Service Commission denying an increase in electric service rates proposed by the appellant, Montana-Dakota Utilities Company.

In April 1957, the utility filed with the commission a schedule of proposed changes in electric rates which would be a substantial increase over the rates approved by the commission in 1948. Accompanying the schedule was a notice that the proposed schedule would be effective 30 days after the date of filing. On May 7, 1957, the utility filed an amendment to the proposed schedule and on June 4, 1957, the commission gave notice of a public hearing upon the reasonableness of the proposed rate increase. The hearing was commenced on July 1, 1957, and after the utility had presented evidence to support its proposal, the hearing was adjourned until October 8, 1957. After the close of the adjourned hearing, the utility notified the commission that it had put the increased rates into affect as of October 4, 1957, because of the commission's failure to make an order suspending the proposed new rates beyond the 120 day period of suspension which automatically became effective upon the ordering of a hearing upon the proposed change. In subsequent litigation, in which the commission sought an injunction, prohibiting the utility from charging the new rates, we held that the new schedule had gone into effect, upon the failure of the commission to order an additional suspension beyond the 120 day automatic suspension. State ex rel. Public Service Commission v. Montana-Dakota Utilities Co., N.D., 89 N.W.2d 94.

Thereafter, on January 24, 1958 the commission made and entered its order disallowing the proposed increase. An appeal from this order, to the District Court of Burleigh County, was taken by the utility. Upon the appeal the district court entered a judgment affirming the order of the commission and the utility has appealed from the judgment.

Before proceeding to a consideration of the merits of the rate controversy it is necessary first to dispose of appellant's contention that the commission was without jurisdiction to make its order of January 24, 1958. Upon this contention appellant argues that the commission, by its failure to order a suspension of the rates, allowed the proposed schedule to become the legally established rates for the utility to charge; that the continuation of a hearing thereafter to determine whether such rates should become the legally established rates was without valid legal purpose, and that the subsequent order of the commission rejecting a proposal which had previously become legally effective was without jurisdiction and of no effect. Appellant concedes the continuing jurisdiction of the commission but urges that the commission, having let one proceeding lapse by a procedural deficiency, could not consider the reasonableness of the proposed rates or make any orders with respect thereto except in a new proceeding in which it should have burden of establishing that the legally established rates were unreasonable.

We might consider this a valid argument if we could accept the premise that the termination of the period of suspension of the proposed rates operated to terminate the proceeding to determine the reasonableness of those rates. This we cannot do. The applicable statute provides:

'* * * pending the hearing and decision thereon, such rate, classification, contract, practice, rule, or regulation shall not go into effect, but the period of suspension thereof shall not extend more than one hundred twenty days beyond the time when it otherwise would go into effect, unless the commission extends the period of suspension for a further period not exceeding six months * * *.' Sec. 49-0506, NDRC 1943.

This statute relates only to the suspension of a change, in the categories named, pending hearing and decision. If the procedure prescribed by the statute for the suspension of rates is not followed, the result is that the rates are not suspended pending hearing and decision and the rates become effective, not as finally and legally established rates, but as conditionally legal rates subject to the decision in the pending hearing. As was said in City of Edwardsville v. Illinois Bell Telephone Co., 310 Ill. 618, 142 N.E. 197, 199:

'The Commerce Commission might still proceed with its investigation and inquiry and pass upon the schedule and find what were just and reasonable rates, and the appellant would be bound to observe those rates; but until such finding and determination it was legally entitled to put in force the rates fixed by schedule.'

The fact that the commission failed to suspend the rates in no way affects its jurisdiction or the nature of the hearing.

Upon the merits of this case there is no issue as to fact. The controversy arises out of the interpretation to be put upon the facts and upon the law applicable thereto. For the purpose of...