Newport Home Water Co. v. Pennsylvania Public Utility Com'n
| Decision Date | 19 January 1954 |
| Citation | 174 Pa.Super. 522,102 A.2d 221 |
| Parties | NEWPORT HOME WATER CO. v. PENNSYLVANIA PUBLIC UTILITY COMMISSION et al. |
| Court | Pennsylvania Superior Court |
Proceeding upon application for certificate of public convenience to enable a borough to purchase a water company. The water company filed a protest, contending that price which borough would be required to pay under statutory price formula was in excess of available assets and borrowing capacity of borough. The Pennsylvania Public Utility Commission, at application Docket No. 74790, found that borough's borrowing capacity was sufficient to meet purchase price under its construction of statutory price formula and granted certificate of public convenience, and water company appealed. The Superior Court, No. 28, March Term, 1953, Ross, J., held that commission correctly included interest on borrowed money, redemption premium on bonds undistributed profits, and cancellation of debt owed company by estate of deceased officer and stockholder as dividends theretofore declared within statute setting price of water company as net erection and maintenance cost with interest thereon less all dividends theretofore declared, and as inclusion of officer's salaries in excess of sum found reasonable by commission, although erroneous, did not increase purchase price to amount exceeding borough's minimum borrowing capacity, it was not determinative.
Order affirmed.
Paul H. Rhoads, Rhoads, Sinon & Reader Harrisburg, for appellant.
Jack F. Aschinger, Asst. Counsel, Mechanicsburg, Lloyd S. Benjamin, Counsel, Harrisburg, for appellee, Pennsylvania Public Utility Commission.
Alan M. Wolf, Newport, William S. Morrow, New Bloomfield, David Dunlap, Harrisburg, for Borough of Newport, intervening appellee.
Before RHODES, P. J., and HIRT, RENO, ROSS, GUNTHER and WRIGHT, JJ.
The Newport Home Water Company was incorporated on May 10, 1893, under the Act of April 29, 1874, P. L. 73, 15 P.S. § 1351 et seq. From 1893 to the present time the company has furnished water service to the residents of the Borough of Newport.
On November 6, 1945 the borough elected to acquire the works and property of the water company under authority of clause 7, section 34 of the Act of 1874, supra, 15 P.S. § 1353, which provides as follows: ‘ It shall be lawful, at any time after twenty years from the introduction of water or gas, as the case may be, into any place as aforesaid, for the town, borough, city or district in which the said company shall be located, to become the owners of said works, and the property of said company, by paying therefor the net cost of erecting and maintaining the same, with interest thereon at the rate of ten per centum per annum, deducting from said interest all dividends theretofore declared.’ [1]The borough, as required by section 202(g) of the Public Utility Law, 66 P.S. § 1122(g), filed an application with the Public Utility Commission for a certificate of public convenience. The water company filed a protest contending, inter alia, that the price which the borough would be required to pay under the statutory price formula was in excess of the available assets and the borrowing capacity of the borough.
The commission, after finding the borough's borrowing capacity to be a minimum of $121,857 and that the purchase price under its construction of the statutory price formula would be $109,456.64, granted a certificate of public convenience to the borough, and the company has taken this appeal.
To arrive at a purchase price of $109,456.64, the commission found the ‘ net cost of erecting and maintaining’ the works and property of the Newport Home Water Company to be $98,555.02. Interest at the rate of 10 per cent. per annum on that sum was computed to be $307,415.72; and there was deducted therefrom as ‘ all dividends theretofore declared’ the sum of $299,947.23, leaving a difference of $7,468.49 to be added to the net cost of erecting and maintaining. To the sum of $106,023.51 found as aforesaid, the commission added $3,433.13, representing items which it found would be useful to the borough or easily liquidated by it and which could be liquidated by the company only with difficulty and probable loss to it. The company and the borough are agreed that the method used by the commission in computing interest was correct and that the addition of $3,433.13 to the purchase price was proper.
The water company's most conservative application of the statutory formula results in a purchase price in excess of $414,056.77, that figure having been computed as of June 30, 1950. The considerable difference between the commission price and the company price is, according to the company, the result of the following errors by the commission: (1) refusing to make any allowance for the cost of maintaining the works; (2) not allowing the sum of $5,324.65 allegedly expended for plant erection in the year 1906; and (3) treating as ‘ dividends theretofore declared’ interest on borrowed money, redemption premiums on bonds, undistributed profits, cancellation of a debt owed the company by the estate of a deceased officer and stockholder, and officers' salaries in excess of a sum found reasonable by the commission. The company's contentions will be discussed below in the order of their statement.
(1) It is the contention of the company that the commission erred by incorrectly applying that portion of the statutory formula which provides that the purchase price shall include the net cost of erecting and maintaining the works and property with interest thereon at 10 per cent. per annum. The company takes the position that the commission figure of $98,555.02 represents the expense of erecting plant only and thus fails to include any sum for maintaining the plant. It contends that the cost of ‘ maintaining’ a property is the cost of keeping that property ‘ in repair and in operating condition’ and, therefore, the sum of $17,843.23 of accumulated repair expenses together with interest thereon should have been included in the purchase price found by the commission.
The argument against the position of he company and in support of the commission's result is as follows: In the phrase ‘ net cost of erecting and maintaining’ the adjective ‘ net’ modifies ‘ cost of maintaining’ as well as ‘ cost of erecting’ and thus renders it clear that the legislature contemplated a gross cost of maintaining from which a deduction is to be made to arrive at a net cost of maintaining. Since operating expenses are an outlay, the deduction must be a receipt. ‘ If,’ the commission concludes, " maintaining' is to be read as synonymous with ‘ repairing’, then the phrase ‘ net cost of * * * maintaining’ can only be read as meaning the cost of repairs for which a water or gas company has not been reimbursed by consumers through payments for water service, or otherwise.' The company does not contend that it has not been reimbursed for the cost of repairs.
We think the commission has properly interpreted the statutory language and accordingly hold that the ‘ net cost of erecting and maintaining’ the works and property of a water or gas company is the original cost of erecting plant facilities, additions thereto, or replacements therefor, plus the cost of repairs to the extent that such cost of repairs has not been recouped from consumers. The company states ‘ In the Act of 1874, the companies were put in the position where, by using the money needed for repairs in actually making repairs, the stockholders would be investing money and would be reimbursed for it.’ The construction we have placed upon the phrase under consideration assures the investors of reimbursement. It does not, however, as does the construction of the company, reward a water company for performing the duty it assumed when it was organized, the duty of keeping its property in such repair that it could adequately serve consumers. It would be manifestly unjust to permit a company to recover the cost of ordinary repairs from its customers by way of charges for water service, and then to permit those costs together with interest to be collected again when the municipality in which the customers reside seeks to acquire the assets of the company. The legislature intended not such result and the commission did not err in refusing to include any allowance in the purchase price for the cost of making repairs to plant...
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