Ohio Suburban Water Co. v. Public Utilities Commission, 79-880
| Decision Date | 02 April 1980 |
| Docket Number | No. 79-880,79-880 |
| Citation | 62 Ohio St.2d 17,402 N.E.2d 539 |
| Parties | , 16 O.O.3d 11 OHIO SUBURBAN WATER COMPANY, Appellant, v. PUBLIC UTILITIES COMMISSION of Ohio, Appellee. |
| Court | Ohio Supreme Court |
Appellant, Ohio Suburban Water Company, is an Ohio corporation engaged in the business of providing water and sewer services to approximately 10,600 customers in Montgomery County. Appellant is a wholly owned subsidiary of the Consolidated Water Company, located in Florida, a company owned by GAC Utilities, Inc.
On May 3, 1965, appellant filed an application and proposed accounting entries with the Public Utilities Commission, seeking approval of the acquisition of Huber Utilities, Inc., a utility company owned by Huber Homes, Inc., a land development company. Appellant's proposed purchase price was $2,800,000 and included property owned by Huber Utilities which, as of December 31, 1964, was recorded on the books of Huber Utilities as amounting to $3,867,118.03. Of the property owned by Huber Utilities as of that date, $2,787,788.96 was reflected on its books as property donated to the company from other parties and as Contributions in Aid of Construction (CIAC). Of the total CIAC received by Huber Utilities as of December 31, 1964, all but $8,373 represented cash or property contributed to that company by its parent corporation, Huber Homes. In its accounting entries submitted for commission approval in relation to the acquisition of Huber Utilities, appellant carried over as CIAC only $8,373 of the total CIAC reflected on the books of Huber Utilities as of December 31, 1964. On August 18, 1965, appellant's accounting entries and proposed acquisition of Huber Utilities were approved by the commission.
On May 12, 1978, appellant filed an application with the commission seeking a permanent increase in its rates for water and sewer services delivered to its jurisdictional customers. Subsequent to an investigation of the application by the commission's staff, the commission conducted hearings on January 9, 10, and 11, 1979, and entered its opinion and order in the matter on March 8, 1979. In calculating the value of the property includable in appellant's rate base for purposes of determining a fair and reasonable rate of return, the commission assigned a zero value to the property which appellant had carried over from the purchase of Huber Utilities and which had been recorded by Huber Utilities as CIAC. The commission's finding in this regard was predicated upon its staff report, which indicated that Huber Utilities, under the provisions of R.C. 4909.05(E), was "the person that first dedicated the property to the public use," and therefore the property had to be valued at its original cost to Huber Utilities, which was zero. The staff's conclusion was bolstered by the testimony of two witnesses who appeared on appellant's behalf and who indicated that it was Huber Utilities and not its parent company, Huber Homes, that first dedicated the property in question to the public use.
With respect to the appropriate rate of return, the commission adopted its staff's recommendation of 9.26 percent to 9.57 percent, which was based upon a cost of capital analysis of the consolidated capital structure of appellant's parent company the Consolidated Water Company. In its application before the commission, appellant had sought a rate of return of 11.76 percent based upon an evaluation of its own capital structure. Notwithstanding the commission's preference for the methodology employed by its staff in computing the appropriate rate of return, it was the commission's finding that a decrease in appellant's existing rate of return of 11.57 percent was not warranted in this cause, because "(a)ny difference in net operating income between the adjusted test year and the pro forma income (under rates which provide a 9.57% return) would certainly be eroded by the continuing high rate of inflation experienced in the last eight months" since the end of the test year.
Appellant filed an application for rehearing on April 9, 1979, alleging various errors in the opinion and order of the commission. On May 2, 1979, appellant's application for rehearing was denied.
This cause is now before this court upon an appeal as a matter of right.
George, Greek, King, McMahon & McConnaughey, George C. McConnaughey and David C. Stradley, Columbus, for appellant.
William J. Brown, Atty. Gen., Marvin I. Resnik and Jonathan L. Heller, Columbus, for appellee.
Appellant's initial challenge is founded upon the commission's determination to exclude from appellant's rate base the property which Huber Utilities received from Huber Homes as CIAC. Under statutory law existing prior to the enactment of Am.Sub.S.B.No. 94 (136 Ohio Laws 202), effective September 1, 1976, this property was includable in the rate base. Appellant contends that the exclusion, under the instant circumstances, amounts to an unconstitutional confiscation of its property in violation of the Fourteenth Amendment to the United States Constitution and Sections 1, 16 and 19, Article I, of the Constitution of Ohio.
This court recently addressed a similar argument in Ohio Utilities Co. v. Pub. Util. Comm. (1979), 58 Ohio St.2d 153, 389 N.E.2d 483. In that case, the utility company received as CIAC substantial quantities of cash and property from development companies owned by the individuals who also held the utility company's stock. These contributions were apparently made prior to the enactment of Am.Sub.S.B.No. 94, and prior to the sale of the utility's stock to another company in 1973. Thereafter, when the General Assembly replaced the reproduction cost new less depreciation method of determining the valuation of rate base property with the original cost method of valuation set forth by Am.Sub.S.B.No. 94, the utility challenged the commission's subsequent exclusion of its CIAC from its rate base under the provisions of R.C. 4909.05(I) and (J).
In deciding that the implementation of the General Assembly's original cost valuation procedure did not contravene constitutional guarantees of due process, this court recognized that regulation in some...
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