Okmulgee Gas Co. v. Corporation Com'n
| Decision Date | 17 April 1923 |
| Docket Number | 12873. |
| Parties | OKMULGEE GAS CO. v. CORPORATION COMMISSION. |
| Court | Oklahoma Supreme Court |
Petition for Rehearing Denied Oct. 9, 1923.
Syllabus by the Court.
(a) The ascertainment of the fair value for rate-making purpose of the property of the gas company used and useful in furnishing gas to its patrons; (b) the fixing of the rate or per cent the gas company should receive on the present fair valuation of its property after deducting cost of operation and any other legitimate expenses; (c) the amount per thousand cubic feet to be paid by consumers in order to raise the necessary funds to pay all cost and expenses and the compensation to be received by the gas company.
The fixing of rates is not a judicial function, and the right to review the conclusions of a board with legislative power such as that exercised by the Corporation Commission is limited in determining whether the board acted within the scope of its authority, or the order is without foundation in evidence, or a constitutional right of the public utility has been infringed upon by fixing rates which are confiscatory or insufficient to pay the cost of the service and return to the utility a reasonable profit on the investment. Muskogee Gas & Electric Co. v. State et al., 81 Okl. 176, 186 P 730.
As a general rule, to determine the value of a small public utility property, what it would cost to reproduce the property less accrued depreciation is the safest and most certain method of obtaining present fair value upon which such utility is entitled to a return.
The equitable rule to be followed in the ascertainment of the present fair value of public utility property by resorting to the method of "cost of reproduction less accrued depreciation" is to give due consideration to the history and circumstances under which the utility property was created, and the prevailing prices of material and labor at the time of the investigation, and determine the fair average price of materials and labor necessary for the reproduction of the property. Pursuant to this method and the application of sound judgment and common sense, impartial tribunals will discharge the duty in the ascertainment of such values, so as to insure the public utility a fair return upon the present value of its property and the patrons a reasonable rate for the services rendered.
Necessary additions or improvements should be valued at the cost price without deductions for probable reduced future prices.
The allowance by the commission of 20 per cent. to cover the items of going concern value, working capital, and contingencies held to be reasonable.
In determining the adequacy of a rate the public utility will be held to be entitled to a fair return on the present value of its property used and useful in serving the public, and it is immaterial that such property was in part acquired or paid for out of previous earnings of the business, or whether or not previous rates were reasonable or excessive.
In fixing the rate of depreciation or for amortization, the Commission should take into consideration the present life of the plant, if it be a small natural gas plant, and such depreciation allowed as would return to the investors their money over the probable period of the life of the plant considering the average number of years the plant had been in service and the probable life of the same.
The allowance of 5 per cent. for amortization and 8 per cent. for return on investment held to be reasonable.
Section 1, c. 93, Session Laws 1913, vests the Corporation Commission with jurisdiction to regulate the price at which every corporation, association, company, individual, etc., may furnish the public with heat or light with gas. Held, that private property devoted to public use is subject to public regulation.
Record examined, and held, that the Corporation Commission erred in denying the application of appellant for an increase in gas rates.
Additional Syllabus by Editorial Staff.
The term "working capital" as used in making allowance therefor in appraising the physical property of a public utility for rate-making purposes means a sufficient amount of money to pay employees and for the necessary equipment for repairs, and is based upon from four to six weeks' actual operating expenses, as this amount of time would usually expire before collections could be made from consumers.
Appeal from Corporation Commission.
Application of the Okmulgee Gas Company to the Corporation Commission of Oklahoma. From an order denying its application for an increase in gas rates, petitioner appeals. Order remanded, with directions.
The right to review the conclusions of the Corporation Commission in fixing rates of public utilities is limited in determining whether the board acted within the scope of its authority, or the order is without foundation in evidence, or a constitutional right of the public utility has been infringed upon by fixing rates which are confiscatory or insufficient to insure a reasonable profit on the investment.
Ames, Chambers, Lowe & Richardson, of Oklahoma City, for plaintiff in error.
E. S. Ratliff, of Oklahoma City, for defendant in error.
This is an appeal from an order of the Corporation Commission entered February 5, 1922, upon an application of the Okmulgee Gas Company to increase its gas rates in the cities of Okmulgee and Morris. The appellant's assignments in error, in substance, are as follows:
(1) The Commission erred in its findings in the value of appellant's property used and useful in rendering the public service.
(2) The Commission erred in its findings of the operating expenses of the appellant, including its estimate of the loss of gas which it charged to operating expenses.
(3) The Commission erred in making a rate inadequate to produce a sufficient return to pay interest upon a proper valuation of the property, depreciation, and operating expenses.
In our view of this case, the duties of the Corporation Commission in passing upon the application of the appellant for an increase in rates are: (1) The ascertainment of the fair value for rate-making purpose of the property of the gas company used and useful in furnishing gas to its patrons; (2) the fixing of the rate or per cent. the gas company should receive on the present fair valuation of its property after deducting cost of operation and any other legitimate expenses; and (3) the amount per thousand cubic feet to be paid by consumers in order to raise the necessary funds to pay all cost and expenses and the compensation to be received by the gas company. Petersburg Gas Co. v. City of Petersburg et al., 132 Va. 82, 110 S.E. 533, 20 A. L. R. 542.
In Muskogee Gas & Electric Co. v. State et al., 81 Okl. 176, 186 P. 730, it was held:
"The fixing of rates is not a judicial function, and the right to review the conclusions of a board with legislative power such as that exercised by the Corporation Commission, is limited in determining whether the board acted within the scope of its authority, or the order is without foundation in evidence, or a constitutional right of the public utility has been infringed upon by fixing rates which are confiscatory or insufficient to pay the cost of the service and return to the utility a reasonable profit on the investment."
The Corporation Commission in fixing a rate for a public utility should always, as near as possible, ascertain the facts from the evidence introduced, and the findings and order of the Commission should be supported by the evidence. The rate necessary to be fixed by the Commission to produce a sufficient amount of revenue to pay operating expenses, interest upon the investment, and a reasonable depreciation for amortization must be determined upon the proof of the facts that may be introduced under the above designated captions.
Our first consideration will be directed to the different contentions of the respective parties and the findings of the Commission in reference to valuation.
The plaintiff alleged that the value of its property, including the distribution system and its field lines, was $488,477.19. The evidence disclosed that the plaintiff ascertained its valuation by taking the valuation of $208,000, fixed by the Corporation Commission in 1914, of which $100,000 was for field lines, to which it added the actual cost of additions as shown by the books of the company, and from which amount it deducted depreciations, and to the depreciated amount it added 20 per cent. to cover overhead and other intangibles, working capital, interest during construction, and going concern value, by this method arriving at the net valuation of $488,477.19. The Commission's method of determining the valuation is found in its order in part as follows:
To continue reading
Request your trial