Smith v. Public Service Commission

• Decision Date: 11 December 1961
• Docket Number: No. 1,No. 48516,48516,1
• Citation: 351 S.W.2d 768
• Court: Missouri Supreme Court
• Parties: R. P. SMITH, Chaffee Building & Loan Association, Southeast Missouri Food Dealers Association, Cape Girardeau Central Trades Union, and Cape Girardeau Carpenters Union, Appellants, v. PUBLIC SERVICE COMMISSION of Missouri, Respondent

Page 768

351 S.W.2d 768

43 P.U.R.3d 43

R. P. SMITH, Chaffee Building & Loan Association, Southeast Missouri Food Dealers Association, Cape Girardeau Central Trades Union, and Cape Girardeau Carpenters Union, Appellants, v. PUBLIC SERVICE COMMISSION of Missouri, Respondent.

No. 48516.

Supreme Court of Missouri, Division No. 1.

Dec. 11, 1961.

R. P. Smith, Cape Girardeau, for appellants and pro se.

Glenn D. Evans, Gen. Counsel, Thomas J. Downey, Asst. Gen. Counsel, Jefferson City, for respondent Public Service Commission.

Oliver & Oliver, by Jack L. Oliver, Cape Girardeau, for Missouri Utilities Co.

HOLMAN, Commissioner.

This is an appeal from a judgment of the Circuit Court of Cole County which affirmed an order of the Public Service Commission of Missouri approving a rate schedule for electric energy furnished by Missouri Utilities Company to its customers in a seven-county southeast Missouri area. The approved schedule was designed to produce an increase of approximately $540,000 in the annual gross revenues of the Company. The appellants (named in the caption) are apparently customers of the utility. We have appellate jurisdiction because of the amount in dispute. Smith v. Publice Service Commission of Missouri, Mo.Sup., 336 S.W.2d 491.

Missouri Utilities Company furnishes electrical energy at retail to forty-two communities and adjacent areas, and at wholesale to two communities in the territory here involved. Its generating facilities furnish 68% of its energy requirements and the remaining 32% is purchased, primarily from Union Electric Company. The Company also has an electric distribution system serving a portion of six counties in central Missouri. There is no physical integration between the central and southeast Missouri systems. It also operates a water system at Cape Girardeau and furnishes gas service in various communities in Missouri. As indicated, this proceeding involves only the electrical rates applicable to the southeast Missouri operations of the Company. A number of the cities and towns located in the area protested the increase and their attorneys appeared before the Commission at the various hearings but none of the cities appealed from the order involved.

The amount of the increase sought in the application (filed July 27, 1959) was $608,157. The Commission, by its order, allowed the amount sought after deducting one item of expense which it did not consider proper. That item of $65,000 represented an increase in franchise taxes which the Company had reason to believe would be levied by the cities of the area in the event the rate increase was approved.

There had been no appreciable increase in the rates here involved since 1925. One of the officials of the Company, T. F. Walz, Jr., testified that the increased revenues had not kept pace with the increased expenses and hence there had been a continuing decline in earnings. He further stated that anticipated construction requirements during the five-year period following the date of the application would entail expenditures totaling $5,700,000; that most of said sum would have to be obtained by the sale of long-term securities, and that 'the company will have to keep its earnings up in order to make its securities attractive to the investors.'

J. E. Flanders, a public utility consultant, was employed by the Company 'to make the necessary studies and to prepare exhibits to show the Company's earnings under its present rates, to determine what the Company's earnings should be, and to prepare suggested rates designed to yield the gross revenue necessary to enable the Company to earn a reasonable return on the value of its property used in supplying electric service in its southeast division.' His testimony and exhibits indicate that on December 31, 1958, the value of the Company's electric plant was (1) $10,863,217 on the basis of original cost less depreciation, (2) $17,729,045 on the basis of 'trended' (present day cost) value, and (3) $14,514,713 on the basis of estimated fair value. According to Mr. Flanders the rate of return which the Company received upon its investment for the year 1958 was 4.78% when computed on the 'net plant' basis and 3.65% on the fair value basis. The adjusted net plant rate base arrived at by the staff of the Commission was $11,215,870.

In its order of January 21, 1960, the Commission made findings and conclusions as follows: '[T]hat Applicant's presently effective rates for electric service in Southeast Missouri will not yield sufficient revenues to enable Applicant to perform the functions with which it is charged and remain financially healthy. * * * In order to make its securities attractive to prospective purchasers, Applicant's earnings must yield a higher rate of return than is now being realized. * * * [T]hat for the purposes of this case the fair value of Applicant's electric plant in service, plus material and supplies, etc., is $13,700,000. * * * [T]hat the pro forma income statement * * * should be adjusted' by 'elimination from the revenues, to be provided by the proposed increased rates, of approximately $65,000 included therein for the purpose of compensating for the increased franchise tax rates' which would result in a 'net operating income of $743,602.38' and 'would yield a rate of return of 5.43% per annum on the $13,700,000 fair value rate base hereinbefore determined by the Commission to be appropriate and would yield a rate of return of 6.63% per annum on the net original cost rate base of $11,215,870.00. The Missouri Utilities Company will be authorized to file for the approval of the Commission revised schedules of rates for electric service in Southeast Missouri, calculated to increase gross revenues by approximately $543,000 when applied to sales during the year 1958.'

The Company filed its revised schedules of rates and they were approved in an order entered on January 30, 1960. Thereafter, upon motion of appellants a rehearing was granted to consider the revised schedule, particularly as concerned the question of discrimination in the rate applicable to commercial power customers. That hearing was held and the schedule of rates was again approved in a supplemental order entered on April 7, 1960. That order contained findings as follows:

'The Company by its Exhibit No. 8 shows that its annual revenues under the new rates will be increased by $539,985.00. This will amount to an increase of something like 15.2% for its Southeast Missouri system. Exhibit No. 8 also shows that the residential service under the proposed rates will increase the revenues something like 15.4%. Commercial service will be increased slightly over 20% and commercial power about 27%. Industrial power would be increased something like 26.2%. The Commission is conscious of the fact that on the percentage basis the commercial...