Pub. Serv. Gas Co. v. Bd. of Pub. Util. Com'rs

• Court: New Jersey Supreme Court
• Writing for the Court: PARKER, J.
• Citation: Public Service Gas Company v. Board of Public Utility Commissioners, 92 A. 606, 87 N.J.L. 581 (N.J. 1914)
• Decision Date: 09 December 1914
• Docket Number: Nos. 72, 90, 91.,s. 72, 90, 91.
• Parties: PUBLIC SERVICE GAS CO. v. BOARD OF PUBLIC UTILITY COM'RS et al. CITY OF PASSAIC v. SAME. CITY OF PATERSON v. SAME.

92 A. 606

87 N.J.L. 581

PUBLIC SERVICE GAS CO.

v. BOARD OF PUBLIC UTILITY COM'RS et al.

CITY OF PASSAIC

v. SAME.

CITY OF PATERSON

v. SAME.

Nos. 72, 90, 91.

Court of Errors and Appeals of New Jersey.

Dec. 9, 1914.

(Syllabus by the Court.)

Walker, Ch., and Trenchard, Kalisch, and Terhune, JJ., dissenting.

Appeal from Supreme Court.

Certiorari by the Public Service Gas Company and the cities of Passaic and Paterson to review an order of the Board of Public Utility Commissioners fixing a gas rate, and others. From a decision of the Supreme Court affirming the order (84 N. J. Law, 476, 87 Atl. 651), petitioners appeal. Affirmed on appeals of Passaic and Paterson, and reversed on appeal of the gas company.

Edward P. Merrey, of Paterson, Albert O. Miller, of Passaic, and George L. Record, of Jersey City, for appellants Cities of Paterson and Passaic.

Frank Bergen, of Elizabeth, and Robert H. McCarter, of Newark, for appellant Public Service Gas Co.

Frank H. Sommer, of Newark, for appellees.

PARKER, J. These are cross-appeals from a decision of the Supreme Court affirming on cross-writs of certiorari an order of the Board of Public Utility Commissioners fixing the rate for gas in the territory called the Passaic division at 90 cents per thousand feet. The issues involved are so fully and clearly stated in the comprehensive opinion delivered for the Supreme Court by Mr. Justice Swayze that any repetition of them here should be quite unnecessary; and we therefore pass directly to a consideration of the points in dispute.

The Supreme Court dismissed the two writs of certiorari wherein the city of Paterson and the city of Passaic were respectively prosecutors, on the ground that certiorari was not the proper method for the cities to obtain the relief which they sought, viz., a rate less than that fixed by the commission, which latter rate they claimed was fixed at too high a figure. It was held in effect that on certiorari the Supreme Court had simply the alternative of affirming the order of the commissioners or setting it aside; whereas the relief then sought by the cities could appropriately be given by the Supreme Court, if at all, only on an application for mandamus. The Supreme Court therefore dismissed the two writs prosecuted by the cities. With this conclusion we agree and have nothing to add to the reasoning of the Supreme Court in that regard. On the appeals of Paterson and Passaic, the judgment below will be affirmed.

This leaves for consideration the appeal of the gas company. The steps taken by the Utility Board in fixing the rate were, broadly speaking, to ascertain what would be a fair net income rate upon the value of the property as between the stockholders and the public, and further to ascertain the fair value of the property upon which such income should be figured as a basis. The board adopted the income rate of 8 per cent. as being fair under all the circumstances, and after a lengthy hearing fixed the total valuation of the property upon which to compute the income. Its determination in both respects was challenged in the Supreme Court and there affirmed, and the affirmance is challenged in both respects here.

We need take up no time in considering the right of the state to regulate the rates charged by a public utility for its services or products, or the jurisdiction conferred by our statutes upon the Board of Public Utilities to act as a legislative agency in that regard; for no question is raised in either of these respects by any of the parties to this suit.

The complaint is that neither the rate nor the valuation can be supported upon the evidence before the board. The Supreme Court on certiorari considered not only this question, but under its broad powers in cases of certiorari dealt also to some extent with the weight of evidence and itself determined upon the evidence that the findings of the Utility Board were right. This determination of the Supreme Court, under the fundamental and well-understood rules governing the practice of this court as a reviewing tribunal, will not be overturned in this court if there was any legal evidence to support the Supreme Court findings.

With this preface we turn to the specific matters brought to our attention by counsel. First, with respect to the 8 per cent. rate, it is proper to say that the attack thereon made in the Supreme Court appears to have been rather formal than substantial—at least, it was so regarded by that court—and no very special stress was laid upon it here. At the same time, we have given it due consideration, and it is sufficient to say that upon an examination of the case we conclude that there was sufficient to support the finding below that 8 per cent. upon the true value of the properties is a fair and lawful rate of income to be taken into consideration with the expenses and other out-go in determining what price should be charged to the consumers for gas.

The strenuous contest is made with respect to the true value of the defendant's property which is to be used as a basis for the application of the 8 per cent. rate. This value the Utilities Board considered in great detail, and held, generally speaking, that it was composed of the two elements of physical valuation and going value, and that all the various elements of value could be classified under one or the other of these two heads. It fixed a separate valuation for each of these two elements, and its results are attacked in both respects. So far as relates to the first element, that of the value of the physical properties, there was a great mass of expert testimony adduced before the commission, which, in the course of a lengthy and thorough memorandum or report, fixed the value of the land at $111,160, of the manufacturing plant at $1,161,550, and of the distribution system at $2,465,270—a total of about four and three-quarter millions, less some depreciation due to lapse of time. This valuation was specifically affirmed by the Supreme Court, 84 N. J. Law, 476, 87 Atl. 651. It was amply supported by evidence, and therefore the finding of the Supreme Court will not be disturbed here.

Counsel argue that the result reached by the Board of Utility Commissioners on this point was what they call a "quotient" verdict, in that the board adopted neither the higher nor the lower valuation placed upon the property by the expert witnesses, but fixed a figure between the two. But there is absolutely nothing to indicate any improper procedure by members of the board in reaching this result; they were manifestly entitled, upon the evidence before them, to conclude that the valuation stated by one set of experts was too high and that stated by the other set was too low, and to ascertain upon all the testimony what, in their best judgment, was the true valuation. As was said by the Supreme Court:

"Their method was not an exact one, but perhaps the result was as good as could be expected from the variance in the testimony."

Findings of this character by juries are so common that it is difficult to believe the quotient verdict theory is seriously pressed. We conclude, then, that there was no error in the action of the Supreme Court in affirming the finding of the commissioners upon the valuation of the physical property. There seems to have been an allowance of $250,000 made by the board for what it calls "working capital" which should be added to the above, and with respect to which we do not understand that any particular disagreement exists.

This brings us to the other main element of value, called by the commission the total value of all the intangible property of the company, and which the board estimated at 30 per cent of the valuation assigned by them to the structural plant. This, as the board expressly stated, included everything outside of the tangible property and associated plant assets, such as working capital. They expressly included preliminary outlay, such as engineering and legal expenses, canvassing, costs of incorporation, cost of securing franchises, financing, banker's commission, deficit in operation during the earlier years, and inadequate early returns upon the investment; also, "the entire value of all franchises, primary or secondary, possessed or exercised by the company in the Passaic division." Two or three other specific intangible elements were included that need no notice here. Nothing was allowed for good will.

In discussing the matter of franchises, the commission remarked that its finding as to the total amount of intangible property was "tantamount to including the franchises of the company at a moderate rating, at a value comparable to the cost of obtaining these or similar franchises. It amounts, therefore," say the commissioners, "to a practical denial of the company's contentions as to the value of its franchises." The board stated that it is the public policy of the state not to allow the capitalization of franchises for an amount in excess of the actual cost involved in obtaining said franchises; evidently referring to paragraph F of section 18 of the Utilities Act (P. L. 1911, p. 381). We find difficulty in ascertaining from the report the method adopted by the commissioners for valuation of the franchises. In one place they announce that such value is included in the 30 per cent estimate of all the intangible property; in other places they say that there is no evidence before them to show that these franchises should be valued at any more than the cost of obtaining them; in their general summary of valuations the franchises are listed as an item and no value assigned thereto, and the next item consists of patent rights, which the commission expressly declare to have no value whatever. And yet the commission conceded that special franchises are property; that when tangible property is operated under franchise rights the instrument of public service is worth more than the material and labor involved in its construction; that...