Petersburg Gas Co v. City Of Petersburg

• Decision Date: 02 February 1922
• Citation: 110 S.E. 533
• Parties: PETERSBURG GAS CO. v. CITY OF PETERSBURG et al.
• Court: Virginia Supreme Court

110 S.E. 533

PETERSBURG GAS CO.

v.CITY OF PETERSBURG et al.

Supreme Court of Appeals of Virginia.

Feb. 2, 1922.

[Ed. Note.—For other definitions, see Words and Phrases, First and Second Series, Value.]

Appeal from State Corporation Commission.

Proceedings by the Petersburg Gas Company before the State Corporation Commission for an increase in gas rates, opposed by the City of Petersburg and others. From a decision granting an increase smaller than asked for, the Company appeals. Reversed and remanded to Commission, with directions.

Mann & Townsend, of Petersburg, for plaintiff in error.

R. B. Willcox, of 'Petersburg, for defendant in error.

BURKS. J. This is an appeal from a decision of the State Corporation Commission fixing rates which the Petersburg Gas Company was allowed to charge to its patrons for gas. The record is not made up in the chronological order of events as they occurred before the Commission (as it should have been), and it is only after searching through the record that we are able to state the case in that order.

On February 13, 1920, the gas company filed a new schedule of rates before the Corporation Commission, effective March 15, 1920, by which there was an increase in the maximum rate allowed for regular meters from $1.15 per thousand cubic feet to $1.00 per thousand cubic feet. This increase was asked in view of the increased cost of labor and materials and because the operating expenses for the year 1919 more than consumed the total income of the gas company. On June 29, 1920, the engineer of the Commission filed a report, in which, among other things, he stated:

"That the services rendered by the Petersburg Gas Company may be considered as a fair average compared with other cities in Virginia and in the Eastern United States."

On July 21, 1920, the said engineer filed a second report, in which he gave his estimate of the net value of the plant for rate-making purposes at $209,000. The gas company was contending for a valuation of $481,000, and had no information as to the filing of this second report. On August 2, 1920, the State Corporation Commission delivered an opinion based upon the second report of its engineer, fixing the maximum rate for regular meters at $1.50 per thousand cubic feet, and criticising the gas company for attempting to collect rates based on an excessive valuation of its property. The opinion also suggested a careful examination of the company's property by an expert engineer. Upon the filing of this opinion the gas company promptly asked for a valuation of its property for the purpose of rate making by an expert engineer, and furnished the names of a number of such experts, stating that it was perfectly willing to have the valuation made by any one of those named, or any other competent expert that might be selected by the Commission. The Commission selected from the list thus furnished the firm of Forstall & Robison, of New York City, engineers of wide experience and very decided ability. On August 23, 1920, the Commission addressed a communication to Forstall & Robison, in the following language:

"In view of your employment by the Petersburg Gas Company, with the approval of the Commission, for the purpose of making an inventory and appraisal of its property so as to ascertain its fair value, this is written for the purpose of outlining the Commission's views.

"It is desired to ascertain the value of the company's property on the 1st day of January, 1917, based on the average unit price of the preceding five-years. This does not, of course, prevent the company from advancing any other basis of arriving at the value that it desires to present in connection with this case. In arriving at depreciation the Commission wishes, in addition to any basis used by you in determining this element, to be advised as nearly as you can do so of the age and wear of the various elements composing the property and ascertainable as far as possible from the records and the probable age of any property that may have been bought secondhand.

"To the value as of January 1, 1917, there is. of course, to be added the purchases at cost since that date to the most recent available date, July the 1st, if practicable.

"The Commission also desires the financial history of the company, in the main, as outlined on pages 4 and 5 of the paper filed to-day by the Young Men's Business Club and the Gas Consumers' League of Petersburg.

"We assume that report will include, as usual, a statement as to the general condition of the plant in its relation to its public service and such suggestions as may occur to you for improvement and efficiency."

Pursuant to the foregoing instruction, Mr. Forstall, of the firm of Forstall & Robison, made the valuation based on the average unit price for the five years 1912-1916, and ascertained the net fair valuation of the property on the prewar basis for rate-making purposes at $405,130. At the request of the gas company Mr. Forstall filed a second report on December 11, 1920, using the average unit price for the five years 1915-1919, inclusive, and arrived at the depreciated value of the property with intangibles of $620,880. He testified that the value of the property based on the average price for the year 1920 would be 25 to 30 per cent, higher than the figures stated in the last-mentioned report. On December 29, 1920, he filed a third report, fixing the value based on the financial history of the company in accordance with the letter of instructions of August 23, 1920, of the Commission, in which he ascertained the value of the plant as of June 30, 1920, to be $453,700. Hearings were had by the Commission on these various reports on January 13, 14, 27, and February 21, 1921. Pending these hearings the gas company filed a new schedule of rates, in.which they asked that the rate for regular meters be raised to $2.35 per thousand cubic feet. After these hearings and argument by counsel, the Commission rendered its opinion on March 24, 1921, in which it fixed the value of the property for rate-making purposes at $318,350, and the rate allowed to be charged for regular meters at $1.75 per thousand cubic feet. It is from this decision that the present appeal is allowed.

The chief objections to the decision are (1) that the Commission, in valuing the property of the gas company, fixed the value entirely with reference to the average prewar unit price for the years 1912-1916, inclusive, and (2) that the Commission erred in applying the depreciation of 26 1/2 per cent, to the valuation of the gas property based upon the age of the various component parts of the plant. The Commission fixed the value of the plant at $318,350, but the opinion does not show how this valuation was arrived at. There was conflict of testimony as to what portions of the real estate of the company were used, or useful, for the business of the company, and, while the opinion shows that it had not accepted Mr. For-stall's report and testimony on the subject, it failed to show what portion of said real estate was not so used, or useful, or the value thereof. It also fails to state what rate of return it allowed upon the valuations fixed by it, or the rate of annual depreciation, or the fair cost of operation—facts which, if found and stated, would be helpful to an intelligent review of its holding. The opinion does not show, and we are unable to ascertain from it, the reasons which justified the Commission in fixing $1.75 as a fair rate to be charged per thousand cubic feet.

The Constitution, § 156 (f), requires the chairman of the Commission to—

"certify to the appellate court all facts upon which the action appealed from was based and which may be essential for a proper decision of the appeal, together with such of the evidence introduced before, or considered by, the Commission as may be selected, specified and required to be certified, by any party in interest, as well as such other evidence, so introduced or considered, as the Commission may deem proper to certify."

It will be observed from this quotation from the Constitution that the Commission is required to certify the facts above mentioned, and not merely all the evidence that was introduced before it. It was never intended that the appellate court should have to examine a large amount of conflicting testimony and ascertain therefrom the facts upon which the Commission based its conclusions. The gas company insists that it applied time and again for this certificate of facts, but without avail.

Both the state and federal Constitutions forbid the taking of private property for public use without making just compensation therefor, and the common law forbids the taking of private property of one person and giving it to another with or without just compensation. If, therefore, the gas company is compelled to furnish its customers gas. at less then "reasonable compensation, " the requirement is illegal.

The subject of rate making should be approached by commissions and courts with a view to doing what is fair and just between the parties under all the circumstances of the particular case. That for which the utility company is entitled to "just compensation" is the use of its property appropriated to the public benefit, and the value of that use is founded upon the fair value of the property so used, and not upon the amount of stock it has issued or the debts it may owe. The rate of return on such "fair value" which the utility company should be allowed to receive should be fair and just to the company and such as will make its securities attractive to investors when the company is prudently and carefully operated.

"The utility is entitled to ask a fair return upon the value of that which it employs for the public convenience, but, on the other hand, the public is entitled to demand that no more be exacted from it than the services rendered are reasonably worth." State Public Utilities Comn. v. Springfield Gas & Elec. Co., 291 111. 209,...