Murray v. Public Utilities Commission

• Decision Date: 01 July 1915
• Citation: 150 P. 47,27 Idaho 603
• Parties: JAMES A. MURRAY, Plaintiff, v. PUBLIC UTILITIES COMMISSION, Defendant
• Court: Idaho Supreme Court

150 P. 47

27 Idaho 603

JAMES A. MURRAY, Plaintiff, v. PUBLIC UTILITIES COMMISSION, Defendant

Supreme Court of Idaho

July 1, 1915

PUBLIC UTILITIES COMMISSION-REVIEW OF PROCEEDINGS OF-FIXING RATES-SCOPE AND BASIS OF AUTHORITY TO-RULE FOR DETERMINING VALUE OF PUBLIC UTILITY PLANT-PROPER AND IMPROPER ITEMS OF VALUE-DEPRECIATION-VALUE OF WATER RIGHT FRANCHISE-"GOING CONCERN VALUE"-PERSONAL PROPERTY-ENLARGEMENTS AND EXTENSIONS-WHAT COMMISSION MUST FIND TO JUSTIFY ORDER FOR.

1. Under sec. 63 (a) of the public utilities statute (Sess. Laws 1913, p. 286), this court is vested with substantially the same authority in reviewing the proceedings of the Public Utilities Commission as on appeal, and is given ample power to review the orders of the commission and correct any mistakes that may have been made. (Idaho Power etc. Co. v. Blomquist, 26 Idaho 222, 141 P. 1083, cited and approved.)

2. When proceeding under sec. 30 (a) of the public utilities statute (Sess. Laws 1913, p. 268), empowering the Public Utilities Commission to fix rates to be charged by the proprietor of a public utility, before lowering an existing rate the commission must first find that it is unjust or unreasonable. On the other hand, before raising an existing rate the commission must first find that it is insufficient. Upon finding that a certain rate is discriminatory, preferential or in any way violative of law, the commission may change it so as to correct or eliminate the objectionable feature. The rate as fixed must be a fair one to the consumers or patrons of the utility, but it must also be sufficient to assure the proprietor of the utility a fair and safe return on his investment, and to encourage rather than discourage the investment of capital in public utility enterprises in this state.

3. In determining the value of a public utility plant for the purpose of fixing rates, the rule of "cost of reproduction less depreciation" is the correct general rule or principle to be applied. In applying this rule the worth of a new plant of equal capacity, efficiency and durability, with proper discount for defects in the old plant and actual depreciation for use, should be the measure of value, rather than the cost of exact duplication.

4. In making deduction for the item of depreciation in appraising the value of a public utility plant, such deduction should be allowed only for actual, tangible depreciation, and not for theoretical, or "accrued depreciation"; and if it be shown that the plant is in good operating condition, and giving on the whole as effective service as a new plant, the question of depreciation may be disregarded.

5. The actual value of a water right as an item in the worth of a public utility plant should be considered and arrived at by the same rule as applied in the case of any other class of property. The value of such water right should be measured by the fair market value of a similar water right in the same locality, if that can be shown. If no market value can be established, then the opinion of competent witnesses as to the actual value may be considered. The fair present value of the water right is the ultimate fact to be found and considered by the commission and the court.

6. Held, that the commission erred in refusing to consider the actual present value of the water right of plaintiff as an element in the value of his plant, except to the extent of $2,000 which was paid for it by plaintiff to certain Indians who asserted a claim to the water in question.

7. Evidence on behalf of the proprietor of a public utility to the effect that certain expenses have been incurred in building up the business may be considered by the commission as one of the elements of value, under the head of "going concern value." The fact that it is a going concern, in successful operation, should be considered in estimating the value of the physical property and assets, but the commission should not attempt to calculate or segregate any specific theoretical value which might attach to the plant or system merely by reason of the fact that it is a going concern.

8. Held, that plaintiff has not established his possession of a valid, existing franchise to operate his utility in the city of Pocatello, and that the commission did not err in refusing to consider the matter of the value of the franchise in its decision and order. As to whether the value of a franchise should be considered in fixing value for rate making purposes, quaere.

9. Held, that if, in constructing a new plant, of equal capacity, efficiency and durability to plaintiff's present plant, it would be reasonably necessary to place or replace mains and hydrant connections at places where paving has been laid, proper allowance should be made therefor, but if such mains and hydrant connections could be located as effectively in other places where paving has not been laid then no allowance should be made therefor.

10. The personal property of the proprietor of a public utility, such as office furniture, horses, wagons, tools and materials on hand, and the cost of improving ground around a reservoir are proper items to be considered by the Public Utilities Commission in estimating the value of the plant, if they represent an investment reasonably necessary to the carrying on of the business of the utility and rendering efficient service to the public; otherwise not.

11. In order to justify the Public Utilities Commission in ordering enlargements or extensions of a public utility plant, the commission must be satisfied from the evidence, first, that the existing plant is not reasonably sufficient to render adequate service; second, that the extension or enlargement is within the scope of the original professed undertaking of the proprietor of the utility; third, that after the completion of the enlargement or extensions the proprietor will be assured of a fair return upon his whole legitimate investment; fourth, that the particular enlargements or extensions in question are reasonably necessary to insure reasonably adequate service.

12. Held, that in the absence of a showing that the plaintiff in this case has a valid existing franchise to operate his utility in the city of Pocatello, an order by the Public Utilities Commission requiring him to extend and enlarge his plant is not reasonable, and that said commission had no authority to make such order.

Original application in this court for a writ of review of an order of the Public Utilities Commission fixing certain rates and ordering the extension and enlargement of petitioner's plant. Order reversed.

Reversed, and remanded with instructions.

N.M. Ruick and Hawley & Hawley, for Plaintiff.

In the leading case of Smyth v. Ames, 169 U.S. 466, 18 S.Ct. 418, 42 L.Ed. 819, the rule was established by the supreme court of the United States that a public utility is entitled to earn a fair return upon the fair value of the property which it employs in the public service.

The trend of the later decisions, as well as the weightier reasoning, is in favor of allowing the item of value as a "going concern" in estimating the value of a plant for rate-making purposes. (Venner v. Urbana Water Works, 174 F. 348; Des Moines Water Co. v. City of Des Moines, 192 F. 193; Pioneer Tel. & Tel. Co. v. Westenhaver, 29 Okla. 429, 118 P. 354, 38 L. R. A., N. S., 1209; Spring Valley Water Works v. San Francisco, 192 F. 137.)

In the case of Cedar Rapids Gas Light Co. v. City of Cedar Rapids, 144 Iowa 426, 138 Am. St. 299, 120 N.W. 966, 48 L. R. A., N. S., 1025, the supreme court of Iowa held that, where a court, in fixing fair value for rate purposes, has taken "into account the fact that the plant was in successful operation," it has given adequate consideration to the "going concern" factor. Value as a "going concern" is not dependent upon the goodwill of customers. (Omaha v. Omaha Water Co., 218 U.S. 180, 202, 30 S.Ct. 615, 54 L.Ed. 991, 48 L. R. A., N. S., 1084; Des Moines Gas Co. v. City of Des Moines, 199 F. 204, 208.)

The Wisconsin Railroad Commission, recognized as one of the ablest administrative commissions in existence, in Buhl v. Chicago, Mil. & St. Paul Ry. Co., 1 W. R. C. R. 324, decided that cost-of-reproduction-less-depreciation used as a basis of valuation "leaves out of account the value of the plant as a going concern, the business it has built up and the business connections it has made," and consistent with this declaration of principles, that commission has consistently held to the inclusion in the valuation of public utilities for rate-making purposes of the element of value as a going concern. (Hill v. Antigo Water Co., 3 W. R. C. R. 623.)

Water rights must be included as an element of value in fixing rates. (San Joaquin & Kings River Canal & Irr. Co. v. Stanislaus Co., 233 U.S. 454, 34 S.Ct. 652, 58 L.Ed. 1041.) Bothwell v. Consumers' Co., 13 Idaho 568, 92 P. 533, 24 L. R. A., N. S., 485, in effect decides that if the petitioner herein had no franchise he would have no right to take up new streets or extend his mains. If the petitioner's franchise has been annulled and canceled, all of petitioner's duties and obligations are at an end. (Public Service Commission v. New York Ry. Co., 77 Misc. 487, 136 N.Y.S. 720.)

The right of this court to review the reasonableness of the action of the commission upon all matters was settled in Idaho Power & Light Co. v. Blomquist, 26 Idaho 222, 141 P. 1083.

If there is a tangible value to a water right which must be taken into consideration in condemnation proceedings, how can such value be eliminated when it comes to considering the entire value of a company for rate-making purposes? It is impossible to conceive that the framers of our state constitution in using the term "public use"...