Ohio Edison Co. v. Public Utilities Commission, 37311

Citation184 N.E.2d 70,173 Ohio St. 478,20 O.O.2d 108
Decision Date05 July 1962
Docket NumberNo. 37311,37311
Parties, 45 P.U.R.3d 1, 20 O.O.2d 108 OHIO EDISON CO., Appellant, v. PUBLIC UTILITIES COMMISSION of Ohio, Appellee.
CourtUnited States State Supreme Court of Ohio

Syllabus by the Court

1. The depreciation to be deducted for valuation purposes, pursuant to Section 4909.05(E), Revised Code, is existing depreciation.

2. The physical condition of used property, to the extent that it can be observed and compared with the physical condition of new property, is not the sole factor to be considered in determining the existing depreciation of such used property.

3. Since there is no statutory method specified for allocating system-wide assets and expenses related thereto to the rate base of a geographical area served by an integrated public utility system, this court will not disturb any reasonable method adopted by the Public Utilities Commission for such allocation, especially where it does not appear that the commission has imposed upon the owner of that system some other method of allocation with respect to other geographical areas served by that system.

4. A public utility is entitled to reasonable compensation for its rate base, i. e., the reproduction cost new less depreciation value of the property used and useful in providing the public utility services that it renders.

5. What will represent a reasonable annual compensation for the use of the property included in the rate base of a public utility will be the amount per year of income therefrom that would be required to induce investors to provide an amount equal to the rate base for the securities (such as bonds and shares of stock) of a corporation owning the property included in the rate base and engaged in the business of providing the public utility services being rendered by that property.

6. If a result reached by the Public Utilties Commission does not affirmatively appear to be unreasonable and if it does not affirmatively appear that the commission reached that result unlawfully or unreasonably and if the commission has not refused to set forth in its order its reasons in sufficient detail to enable a determination as to how it reached that result, this court will not set that result aside.

7. The cost of an asset of a public utility is a prepaid operating expense to be apportioned as depreciation among the years of its life by some more or less systematic procedure. It is cost, not value, that is to be so apportioned. Part of that cost and not part of any higher or lower value is to be apportioned as an operating expense during each year.

8. The depreciation considered in determining income of a public utility is an item of expense and should be figured on cost and not on value (whether value is determined on a reproduction cost new less depreciation basis or otherwise).

9. The inability of an expert witness to give reasons for his opinion, when called upon to do so, may so affect the weight to be given his testimony that, even in the absence of evidence conflicting therewith, the trier of the facts may not be required to give any weight thereto.

10. Although unlawful or unreasonable, an order of the Public Utilities Commission will not be reversed where its effect, to the extent that it is unlawful or unreasonable, will not be such as to prejudice someone who appeals from that order.

D. Bruce Mansfield and John R. White, Akron, for appellant.

Mark McElroy, Atty. Gen., Andrew R. Sarisky and Herbert T. Maher, Columbus, for appellee.

Robert K. Rath, City Sol., and Robert J. White, Cincinnati, for intervenor, City of Mansfield.

TAFT, Judge.

On April 2, 1957, the city of Mansfield adopted an ordinance providing for rates for electricity furnished by the Ohio Edison Company in that city. On May 28, 1957, Ohio Edison, pursuant to Section 4909.34, Revised Code, filed with the Public Utilities Commission of Ohio its complaint or appeal with respect to that ordinance and the rates provided for therein.

By its order of May 26, 1961, the commission determined that the rates provided for in the ordinance were 'insufficient to yield reasonable compensation for the services rendered,' determined what the allowable gross annual revenue of Ohio Edison should be, and ordered it to file 'adjusted tariff schedules establishing rates and charges' that would provide that revenue.

Being dissatisfied with that order, Ohio Edison appealed therefrom to this court. To facilitate consideration of the questions raised by the assignments of error, they will be discussed under headings suggested by the contentions in the brief of Ohio Edison.

RATE BASE DEPRECIATION.

Ohio Edison contends that the commission's determination of the amount of depreciation to be deducted from the reproduction cost new of Ohio Edison's property is unlawful and unreasonable.

What that amount was was a question of fact for determination by the commission. In making that determination, the commission must have relied upon the expert testimony of its chief engineer. From his testimony it is apparent that he reached his conclusions by averaging results obtained by what was termed the 'office method' with results obtained by what was termed the 'field method.'

Ohio Edison argues that it is impossible by the use of the 'office method' to state separately the 'percentage and amount of each class of depreciation' as is required by Section 4909.05(E), Revised Code. The fallacy of this argument is apparent from the holding of this court in Lindsey v. Public Utilities Commission (1924), 111 Ohio St. 6, 144 N.E. 729, that the commission is not required by that statute to state separately the 'percentage and amount of each class of depreciation' as long as it properly determines an amount for 'depreciation from the new reproductive cost, as of' the 'date certain.'

Ohio Edison argues further that use of the 'office method' does not result in a determination of 'actual,' 'observed,' or 'existing' depreciation.

This court has consistently held that the depreciation to be deducted for valuation purposes pursuant to Section 4909.05(E), Revised Code, is 'existing' depreciation, i. e., to use the statutory words, 'depreciation * * * as of a date certain.' City of Cleveland v. Public Utilities Commission (1956), 164 Ohio St. 442, 448, 132 N.E.2d 216; City of Cincinnati v. Public Utilities Commission (1949), 151 Ohio St. 353, 372 et seq., 86 N.E.2d 10; City of Marietta v. Public Utilities Commission (1947), 148 Ohio St. 173, 74 N.E.2d 74; City of Cincinnati v. Public Utilities Commission (1925), 113 Ohio St. 259, 148 N.E. 817; Lima Telephone & Telegraph Co. v. Public Utilities Commission (1918), 98 Ohio St. 110, 119, 120 N.E. 330.

There are statements in some of our syllabi and opinions which suggest that 'existing' depreciation is or may be the same as 'actual' or 'observed' depreciation. See for example City of Cincinnati v. Public Utilities Commission, supra, 151 Ohio St. 353, 374, 86 N.E.2d 10; City of Cleveland v. Public Utilities Commission, supra, 164 Ohio St. 442, 132 N.E.2d 216; City of Cincinnati v. Public Utilities Commission, supra, 113 Ohio St. 259, 148 N.E. 817; City of Marietta v. Public Utilities Commission, supra, 148 Ohio St. 173, 74 N.E.2d 74. On the basis of those statements, Ohio Edison argues in effect that 'existing' depreciation cannot be based on anything other than observation. servation. However, the words 'actual' or 'observed' in those opinions and syllabi were used to differentiate rate-base depreciation from a reserve for depreciation (i. e., book depreciation). The latter is the sum of past depreciation allowances as operating expenses and of course has no relevance in determining reconstruction cost new less depreciation.

The physical condition of used property, to the extent that it can be observed and compared with the physical condition of new property, is not the sole factor to be considered in determining the existing depreciation of such used property.

Section 4909.05, Revised Code, recognizes this when it mentions 'depreciation * * * for existing mechanical deterioration, for age, for obsolescence, for lack of utility, or for any other cause.'

Although this court might have reached a different conclusion from that of the commission on the question of fact as to the amount of existing depreciation, the majority of the court are of the opinion that the finding of the commission thereon in the instant case is not against the weight of the evidence.

ALLOCATION OF PROPERTY AND EXPENSES.

Ohio Edison contends that 'the commission erred in that it allocated both property and a portion of operating expenses on the basis of kilowatt hours consumed,' in determining the portion of the system-wide rate base and related expenses allocable to Mansfield.

The problem is that of allocating to Mansfield its proper portion of the 'system-wide' rate base and related operating expenses. Certain costs and assets are attributable to Mansfield in their entirety. Thus, the local Mansfield distribution plant is used to provide that city and no other area with electricity. However, Ohio Edison is an 'integrated' company whose production and transmission facilities are so interconnected that it is impossible to tell at any given time where the electricity being used is coming from or how it got to where it is being used. Hence, transmission lines and production plants, which are a part of what may be referred to as the system-wide rate base, and the expenses connected therewith must be allocated among the various areas using Ohio Edison electricity. There is a further problem of allocating that portion of the system-wide rate base and related expenses attributable to Mansfield among the various classes of Mansfield consumers. However, Ohio Edison makes no complaint here about the commission's treatment of that allocation problem, and our only concern is with the commission's allocation of system-wide rate base and related expenses to...

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