Natural Gas Co. Op West Va. v. Pub. Serv. Comm'n.

• Decision Date: 26 February 1924
• Citation: 95 W.Va. 557
• Parties: Natural Gas Company op West Virginia v. Public ServiceCommission.
• Court: West Virginia Supreme Court

95 W.Va. 557

Natural Gas Company op West Virginia

v. Public ServiceCommission.

Supreme Court of Appeals of West Virginia.

Submitted September 18, 1923.

Decided February 26, 1924.

1. Public Service Commission Burden on Public Utility to >Show Reasonableness of Proposed Increase in Rates. Under section 9, chapter 15-0, Barnes' Code, 1923, upon hearing of an application of a public utility company to increase its rates or charges, the burden of showing that the proposed increase is just and reasonable is cast upon the utility, (p. 567).

2. Gas Burden of Showing Appreciation of Leaseholds Over Investment Cost on Utility.

Where in a rate making case, a natural gas utility company seeks to establish a rate based upon the reproduction cost-newless-depreciation value of its property, and as a component part thereof seeks to have included therein appreciation in the value of its leaseholds over investment cost, the burden of showing such appreciation is upon the utility. (p. 567).

3-. Same Evidence of Appreciated Value of Leaseholds of Gas Utility Must de Independent of Rate of Earnings.

Evidence of the appreciated value of its leaseholds, to be competent, must not be based upon, but must be independent of, the rate of return or earnings; and testimony of an expert witness to the effect that they have a certain value in the "open market" is not sufficient to establish such value; he should point out and define the character of that market, so that it can be determined that such market is not based upon the rate of return. (p. 567).

4. Same Appraisal of Leaseholds Should de Made Reasonably

Near Hearing.

Owing to the shifting and changing values in natural gas leaseholds, an appraisal thereof, to be of evidentiary value, should be made reasonably near to the time it is offered in evidence, (p. 569).

5. Same Appraisal of Leaseholds Made Three Years and Nine

Months Prior to Hearing Entitled to Little Weight.

So where, as in this case, it is shown that a natural gas utility company has about 61, 000 acres of unoperated and about 21, 000 acres of operated leaseholds and that the annual production from its operated acreage is about three billion cubic feet of natural gas, an appraisal of the leaseholds made three years and nine months prior to the hearing is entitled to little weight upon the question as to their value at the time of the hearing. (p. 569).

6. Same Appreciated Value of Leaseholds Cannot be Included As

Part of Rate Base of Rentals Paid by Public Exceed 'Such Value.

Where in a rate proceeding a natural gas utility company seeks to include in the rate base, as a part of the present fair value of its property, appreciation in the value of its leaseholds over investment cost, an account of the delay rentals on the leaseholds, which have been paid by the public as operating expenses of the utility, should be taken and given due weight; if the rentals so paid equal or exceed the appreciation in value of the leaseholds over investment cost, such appreciated value should not be included as part of the rate base. To so include it would permit the company to capitalize expenses paid by the public and thus inequitably require the public to pay a return thereon. (p. 569).

7. Same Expenses Paid by Public in Drilling Wells Should be

Considered in Rate Case.

And likewise where the public has paid approximately twothirds of the cost of drilling gas wells, upon an appraisal of the gas wells to establish their present fair value for rate making purposes, the expenses so paid by the public should be ascertained and due consideration given thereto. The company has no right to capitalize such expenses and to require the public to pay rates based thereon. (p. 570).

8. Public Service Commission Allowance Should be Made for

Overhead Charges, But Charges Paid by Public in Operating Expenses Not Included in Rate Base.

In determining the reproduction cost new of a utility property, generally, expenses for organization, engineering, legal services and superintendence, interest and taxes during construction, and contingencies are not reflected in estimates of the cost of labor, land and materials, and a reasonable allowance is made therefor under the designation of "overhead charges"; but such charges as have been paid by the public as operating expenses should not be included as a part of the rate base, (p. 572).

9. Same Lump Sum of Percentage of Allowance for Overhead

Expenses Should Not be Made on Estimate in Public Utility Rate-making Case.

Nor in the absence of proof of the actual expenditures therefor, should a lump sum or percentage allowance be made upon mere estimate, without a proper analysis of the different items included in the estimate, and without evidence tending to show that the expenditures so estimated were reasonably necessary to the construction of the plant. (p. 572).

Petition by the Natural Gas Company of "West Virginia against the Public Service Commission and others for suspension of an order of the Commission.

Reversed and remanded,

M. G. Sperry and George R. C. Wiles, for petitioner. 31. J. Cullman, Carl 0. Schmidt and A. W. Laas, for respondents.

Meredith, President:

The Natural Gas Company of "West Virginia appeals from an order entered by the Public Service Commission March 10, 1923, refusing an increase in its natural gas rates.

The company has in effect a rate of 40c per thousand cubic feet, subject to a discount of 2c per thousand if paid on or before the 12th of the month following that in which the gas is supplied, with a minimum charge of 90c per month. On July 20, 1922, it filed its petition asking for authority to put into effect a "step-up" rate as follows:

First 5000 cubic feet per month at 45c; Second 5000 cubic feet per month at 50c; Third 5000 cubic feet per month at 55c; All over 15000 cubic feet per month at 60c;

all the foregoing rates to be subject to a penalty of 2c per thousand if not paid on or before the 12th of the month following that in which the gas is supplied.

Upon final hearing, the commission refused to allow any increase and dismissed the petition. Chairman Divine filed a written opinion giving an analysis of the case, wherein he finds that the actual investment of the company as of September 15, 1922, was $1,377, 121.03; makes an allowance for working capital of $187,000, and the sum of these two items, $1,564, 121.03, he finds to be the present fair value for rate making purposes. Taking this as the rate base, he finds that the present rates afford the company a fair return, an amount sufficient to give it a return of 8% upon its investment, and in addition thereto to provide a fund to cover depreciation and depletion of its property. Commissioners Rider and Lewis dissented from the principles applied by the Chairman in reaching his conclusions; disagreed with his finding that $1,564, 121.03 was the fair value of the company's property for rate making purposes or a proper rate base, but without attempting to fix a proper rate base, agreed that the present rates produced sufficient revenues to pay expenses and to provide a reasonable amount for depreciation and depletion and a fair return upon the fair value of its property devoted to public use. They in no wise analyzed the facts and as to how or why they reached their conclusions we are not informed. In the recent case of City of Charleston v. Public Service Commission, 95 W. Va. 91, 120 S. E. 398, we referred to the fact that the commission in its findings should analyze the elements making up the rate base in rate cases. It is unfair to the public and to the utility not to do so; and it is unfair to the commission as well as to the court that may be called upon to review its findings. When the record is made up, if there be anything lacking, if the commission needs further light upon any question of fact, it has the authority and means to find it, and a proper analysis will determine whether there is such need; this court must take the record as it is presented here. It can not make an independent investigation to discover new facts or to clear up points in controversy. Besides, the members of the commission, by reason of their experience, become experts, so that they have a great advantage over this court in determining all questions of fact; and a fact, once found by the commission, will not be disturbed by this court, if there is sufficient evidence to support it, Baltimore & Ohio B. B. Co. v. Public Service Commission, 90 W. Va. 1, 110 S. E. 475; Norfolk & Western B. B. Co. v. Public Service Commission, 82 W. Va. 408, 96 S. E. 62; City of Charleston v. Public Service Commission, 86 W. Va. 536, 103 S. E. 673.

But the company contends that the commission failed to ascertain the facts; it found no rate base; it did not determine the present fair value of the company's property for rate making purposes. The only ultimate fact the commission found was that the present rates afford a sufficient return upon the present fair value of the company's property. What that fair value is, the commission failed to state. The rate base upon which the present rates are calculated nowhere appears in this record; so it becomes necessary for us to review the evidence in order to determine whether the ultimate finding of the commission is correct, because the utility can not be compelled to furnish gas to the public at less than a fair return, based upon the present fair value of its property used and useful in the public service.

While the amount prudently invested by a public utility has been a number of times considered by this court as the proper rate base, notably in Coal & Coke By. Co. v. Conley, 67 W. Va. 129, 67 S. E. 613, and Bluefield Waterworks & Improvement, Co. v. Public Service Commission, 89 W. Va. 736, 110 S. E. 205, and in every case this is a proper element to be considered, it is not always controlling. The fair value of its property may exceed the investment cost. In such case, the Supreme Court of the United States...