N. States Power Co. v. Comm'rs

• Decision Date: 31 May 1941
• Docket Number: No. 6665.,6665.
• Citation: 298 N.W. 423,71 N.D. 1
• Parties: NORTHERN STATES POWER CO. v. BOARD OF RAILROAD COMMISSIONERS et al.
• Court: North Dakota Supreme Court

71 N.D. 1

298 N.W. 423

NORTHERN STATES POWER CO.

v.BOARD OF RAILROAD COMMISSIONERS et al.

No. 6665.

Supreme Court of North Dakota.

April 23, 1941.

Dissenting Opinion May 31, 1941.

Syllabus by the Court.

1. The fair value upon which a utility is entitled to earn a return is the reasonable value of its property used and useful for the service of the public at the time it is being so used.

2. In determining fair value allowance must be made for the increase or decrease in value of the utility's property from its original cost, unless the allowance of the increase will result in a rate which would be unfair to the public.

3. In finding fair value, the weight to be given to evidence of historical cost and reconstruction cost depreciated and other evidence must be determined in the light of the facts of the case under investigation.

4. A rule or precedent which requires that evidence of historical cost be given predominating weight in every case is arbitrary.

5. Where the undisputed evidence of reproduction cost disclosed a substantial increase in the value of the utility's property over its original cost, it was the duty of the Board of Railroad Commissioners to give consideration and effect to that evidence as a major factor in reaching its finding of fair value.

6. Going concern value is a property right which should be considered in a valuation of a utility's property for rate making purposes.

7. Going concern value as defined in rate cases does not include either good will or franchise values.

8. Section 4609c37, Supplement to the Compiled Laws of North Dakota 1913, does not prohibit a consideration and allowance of going concern value in computing a utility's rate base.

9. A utility plant which has a history of continuous profitable operation over a long period of years has a going concern value.

10. The fact that the depreciation of a utility's property was computed upon the basis of its actual physical condition, rather than upon a salvage basis, may not be construed as an allowance of going concern value.

11. Where the evidence showed that a utility had a history of continuous profitable operation, it was the Commission's duty to consider and allow going concern value in determining the fair value of the utility's property.

12. Under the provisions of Section 4609c42 Supplement to Compiled Laws of 1913, the Board of Railroad Commissioners is required to make a finding of fact setting forth the amount at which going concern value has been allowed.

13. In making allowances for operating costs or expenses, it was the duty of the Board of Railroad Commissioners to allow such amounts as in its judgment were necessary, but the judgment which the Commission must exercise is a judgment based upon the evidence; it may not disregard the undisputed evidence of actual expenditures and substitute therefor its opinion of what the expenditures for any specific purpose ought to be.

14. Where the undisputed evidence disclosed that a utility had expended $8,476.01 for legal services during the year immediately preceding the inquiry and there was no evidence tending to show that such expenditures were wasteful or extraordinary or that such services would cost less in the future, an annual allowance of $3,000 for attorney fees was too great a departure from the unchallenged proof to be accounted for as a reasonable exercise of the Commission's judgment.

15. Where the evidence showed an itemized list of dues and donations totaling $4,638.94 which the utility had paid out during the year immediately preceding the inquiry, a finding that some but not all of such dues and donations were properly chargeable to operating expenses without specifying which were proper and which were not, and an allowance of $3,000 for all the purposes listed, was, in the absence any claim of bad faith or that the expenditure for any particular purpose was excessive, an attempt to control the management of the utility and beyond the powers of the Board of Railroad Commissioners.

16. In its investigation of a utility for the purpose of establishing a rate base the Board of Railroad Commissioners is required to make findings of fact upon all matters which have a bearing upon the rates which a utility will be permitted to charge.

17. The findings of fact of the Commission upon all material matters must be sufficiently definite to enable a reviewing court to determine if such findings were supported by any evidence and afforded a reasonable basis for the decision.

18. A “lump sum” allowance for operating costs at a figure substantially less than the amount which the utility claimed and offered evidence to prove was necessary, made upon findings which did not disclose the extent to which the utility's specific claims had been allowed, reduced or rejected, was made upon insufficient findings of fact.

Appeal from District Court, Cass County; Daniel B. Holt, Judge.

Proceeding by the Northern States Power Company against the Board of Railroad Commissioners of the State of North Dakota and Ben C. Larkin, Elmer W. Cart and S. S. McDonald, the members of the Board of Railroad Commissioners and the City of Fargo and the Villages of West Fargo and Southwest Fargo, North Dakota, by way of an appeal from findings, decisions and orders of the Board of Railroad Commissioners ordering a reduction in the rates of the electric department of the Northern States Power Company. From a judgment in favor of the plaintiff, defendants appeal.

Judgment affirmed, and case remanded with instructions.

CHRISTIANSON, J., dissenting.Nilles, Oehlert & Nilles, of Fargo, and Hance H. Cleland, of Medford, Or., for respondent.

Alvin C. Strutz, Atty. Gen., and James M. Hanley, Jr., Asst. Atty. Gen., for appellants.

BURKE, Judge.

On March 9, 1935, the Board of Railroad Commissioners (hereinafter referred to as the Commission) ordered an investigation of the properties of the Northern States Power Company (hereinafter referred to as the Company) which were used and useful in providing electric, gas and steam heat service at Fargo, West Fargo and Southwest Fargo, to determine the fair value of those properties for rate making purposes. The investigation continued for almost three years and the final order of the Commission, establishing a new rate base, was made on February 21, 1938. Separate findings were made for the electric, gas and steam heat departments. As a result of the investigation the Commission ordered a reduction in the rates of the Company's electric department and an increase in the rates of the steam heat department. Immediately upon receipt of the Commission's findings and order, the Company petitioned for a reconsideration of the whole case. The petition was denied and the Company thereupon appealed to the District Court of Cass County from all of the findings, decisions and orders of the Commission in this investigation. Pending a decision of the appeal the District Court by its order stayed and suspended the order and decision of the Commission, except with respect to the new steam heat rates, and required the Company to deposit in court the difference in charges between the old rates and the rates fixed by the order under attack. The District Court's judgment upon the appeal decreed:

1. That the Commission in determining the rate base as set forth in its findings acted arbitrarily and in violation of law.

2. That the Commission erred in refusing to allow as an addition to its valuation of plant equipment the cost of the new steam electric plant at Fargo in the sum of $557,540.

3. That the Commission acted arbitrarily and in disregard of law in refusing to give consideration and effect to “going-concern value” in its valuation of the property of the Company.

4. That the finding of the Commission with respect to operating expenses was not sustained by the evidence and that the Commission unlawfully and arbitrarily failed to make sufficient findings from which the court could determine the reasonableness of its allowances for that purpose.

It was further decreed that the Commission's orders in this investigation, dated February 21, 1938, and March 7, 1938, would result in depriving the Company of its property without due process of law, contrary to the Constitution of the United States and the Constitution of the State of North Dakota; that said orders be vacated and set aside and the moneys representing the difference in charges for electric services deposited in court, pursuant to court order, be returned to the company, and that the excess charges collected in the steam heat department be returned to the Company's patrons.

A stay of proceedings was granted pending an appeal to this court, and by the terms of this stay the Company was required to continue to deposit in court the excess it collected over and above the rates as fixed by the Commission's order of March 7, 1938. The Commission has appealed to this court from the judgment of the District Court.

The first point of controversy concerns the method by which the Commission arrived at its determination of “fair value”. The statutory procedure is set forth in Section 4609c37 of the Supplement to the Compiled Laws of 1913. This section is as follows:

“Valuation of property; matters considered. The commissioners, for the purpose of ascertaining the reasonableness and justice of the rates and charges of public utilities, or for any other purpose authorized by law, shall investigate and determine the value of the property of every public utility used and useful for the service and convenience of the public, excluding therefrom the value of any franchise or right to own, operate or enjoy the same in excess of the amount (exclusive of any tax or annual charge) actually paid to any political subdivision of the state or county as a consideration for the grant of such franchise or right by reason of a monopoly or merger. The commissioners shall prescribe the details of the inventory of the property of each...