State ex rel. City of St. Louis v. Public Service Com'n of Missouri

• Citation: 47 S.W.2d 102,329 Mo. 918
• Decision Date: 17 February 1932
• Docket Number: 30539
• Parties: State ex rel. City of St. Louis, a Municipal Corporation, Appellant, v. Public Service Commission of Missouri, the Laclede Gas Light Company, a Corporation, et al
• Court: United States State Supreme Court of Missouri

47 S.W.2d 102

329 Mo. 918

State ex rel. City of St. Louis, a Municipal Corporation, Appellant, v. Public Service Commission of Missouri, the Laclede Gas Light Company, a Corporation, et al

No. 30539

Supreme Court of Missouri

February 17, 1932

Rehearing Granted, Reported at 329 Mo. 918 at 952.

Appeal from Cole Circuit Court; Hon. Henry J. Westhues Judge.

Reversed and remanded (with directions).

Julius T. Muench and Forrest G. Ferris, Jr., for appellant.

(1) At any hearing before the Commission involving a rate sought to be increased, the burden of proof to show that such proposed increased rate is just and reasonable is upon the company. Sec. 10479, R. S. 1919. (2) In determining the reasonableness of rates, no better test can ordinarily be found than the rates customarily charged in localities similarly situated. State ex rel. Watts Eng. Co. v. Pub. Serv. Comm., 269 Mo. 525; State ex rel. v. Springfield Gas & Elec Co., 125 N.E. 891, P. U. R. 1920C, 640; Public Service Comm. v. Public Utility Board, 84 N. J. L. 475; Aluminum Goods Mfg. Co. v. Laclede Gas Lt. Co., P. U R. 1927B, 1; Columbia v. Watts Eng. Co., 2 Mo. P. S. C. 189; Re Missouri Pub. Util. Co., 10 Mo. P. S. C. 459; Re Home Tel. Co. of Joplin, 11 Mo. P. S. C. 290; Re Home Tel. Co. of Joplin, 11 Mo. P. S. C. 296; Re Macheris Westalton Tel. Co., 11 Mo. P. S. C. 318; Re Macon Tel. Co., 11 Mo. P. S. C. 227; Re Kansas City Elec. Co., 5 Mo. P. S. C. 20, 102. (3) Failure to admit competent testimony, properly proffered, constitutes reversible error. Sec. 10522, R. S. 1919. (4) Reasonable rates cannot be predicated upon excessive or abnormal operating expenses. Knoxville v. Knoxville Water Co., 212 U.S. 1, 53 L.Ed. 371; Darnell v. Edwards, 244 U.S. 564, P. U. R. 1917F, 64, 37 S.Ct. 701, 61 L.Ed. 1321; Reno Power, Lt. & W. Co. v. Public Serv. Comm., P. U. R. 1923E, 485; Smith v. Bell Telephone Co., 75 L.Ed. 99. (5) An honest and intelligent forecast of probable future income or net earnings is essential in fixing fair and reasonable rates. Galveston Elec. Co. v. Galveston, 258 U.S. 388, 66 L.Ed. 678; Georgia Ry. & Power Co. v. Railroad Commission, P. U. R. 1925A, 546. (6) No separate or specific allowance for going value need be included in the valuation of a public utility's property when it has been valued as a successful, functioning, co-ordinated plant, and not as so much unused or unrelated property, and when there has been included in the value substantial allowances for organization, interest, engineering, taxes and general expenses during construction, because all these items enter into the development of the utility's property, and give it an added value not represented in the valuation of the mere physical property; and this is particularly so when there are no definite, concrete facts upon which to base such allowance. Des Moines Gas Co. v. Des Moines, 238 U.S. 153, 35 S.Ct. 811, 59 L.Ed. 1244, P. U. R. 1915D, 577; Galveston Elec. Co. v. Galveston, 272 F. 159, affirmed in 258 U.S. 388, 66 L.Ed. 678, 42 S.Ct. 351; Hardin-Wyandot Ltg. Co. v. Pub. Util. Comm., 162 N.E. 262, P. U. R. 1928D, 560; Houston v. Bell Tel. Co., 259 U.S. 318, 66 L.Ed. 961, P. U. R. 1922D, 793, 42 S.Ct. 486; Cincinnati v. Pub. Util. Comm., 113 Ohio St. 259, P. U. R. 1925E, 432, 148 N.E. 817; Re Union Elec. Co., P. U. R. 1928E, 406; Capital Water Co. v. Pub. Util. Comm., 262 P. 863, P. U. R. 1928C, 488; Winnemucca v. Western States Util. Co., P. U. R. 1928C, 73; Columbia R. Tel. Co. v. Dept. Public Works, 269 P. 6, P. U. R. 1928E, 526. (7) Property not used and useful in rendering service should be excluded from the rate base. 2 Whitten, Valuation of Public Service Corps., sec. 461, pp. 809-811. (8) In ascertaining fair present value as of a certain date, proper consideration must be given to any changes in reproduction costs, as used in a prior valuation. McCardle v. Indianapolis Water Co., 272 U.S. 400, 71 L.Ed. 316, 47 S.Ct. 144; R. S. 1919, sec. 10487, sub-sec. 2. (9) All income obtained by the investment in plant or otherwise of money in the depreciation reserve account should be credited to and carried in said account. R. S. 1919, sec. 10488. (10) The failure of the company to provide in the past for depreciation as it accrued does not justify an increased allowance to offset this plain failure of the management to preserve the integrity of its investment; and this is true whether such failure is the result of paying unwarranted dividends in the past, or because sufficient rates were not charged for the service rendered. Past losses, if any, cannot be used to support a claim that rates for the future are inadequate or confiscatory. Knoxville v. Knoxville Water Co., 212 U.S. 1, 29 S.Ct. 148, 53 L.Ed. 371; Puget Sound Elec. Ry. v. Commission, 65 Wash. 75, 117 P. 739; Clarksburg Lt. & Heat Co. v. Pub. Serv. Comm., 84 W.Va. 638, 100 S.E. 551, P. U. R. 1920A, 639; Board of Pub. Util. Comrs. v. New York Tel. Co., 271 U.S. 23. (11) In order to determine the proper annual depreciation allowance, full consideration must be given to the entire history of past depreciation, the past expense for replacement, the past operating expenses, including maintenance; the character and probable life of the property, the method adopted in the past to preserve the property, and the amount accumulated in the depreciation reserve. Lincoln Gas & Elec. Lt. Co. v. City of Lincoln, 56 L.Ed. 466; Re Southern Bell Tel. & Tel. Co., P. U. R. 1921D, 450. (12) A return of six per cent has been sustained as reasonable and is a reasonable allowance in this case. Dayton-Goose Creek Railroad Co. v. United States, 263 U.S. 456, 68 L.Ed. 388; Willcox v. Consolidated Gas Co., 212 U.S. 19, 48, 50, 53 L.Ed. 399, 48 L. R. A. (N. S.) 1134, 29 S.Ct. 192, 15 Ann. Cas. 1034; Cedar Rapids Gaslight Co. v. Cedar Rapids, 223 U.S. 655, 670, 56 L.Ed. 594, 604, 32 S.Ct. 389; Des Moines Gas Co. v. Des Moines, 238 U.S. 172, 59 L.Ed. 1253, P. U. R. 1915D, 577, 35 S.Ct. 811; San Diego Land & Town Co. v. Jasper, 189 U.S. 439, 446, 47 L.Ed. 892, 23 S.Ct. 571; Stanislaus County v. San Joaquin & Kings River Canal & Irrigation Co., 192 U.S. 201, 48 L.Ed. 414; Chesapeake & Potomac Tel. Co. v. Commonwealth of Virginia, 136 S.E. 586, 587, P. U. R. 1927B, 484; West v. United Rys. & E. Co., 155 Md. 572, P. U. R. 1928D, 141.

Fordyce, Holliday & White, Bennett C. Clark and Taylor, Chasnoff & Willson for respondent.

(1) The burden of proof, in this court, is upon the appellant city of St. Louis. Secs. 10534, 10535, R. S. 1919; State ex rel v. P. S. C., 249 S.W. 955; State ex rel. v. P. S. C., 233 S.W. 425; State ex rel v. P. S. C., 296 S.W. 790; State ex rel. v. P. S. C., 296 S.W. 998; State ex rel. v. P. S. C., 308 Mo. 328. (2) The order of the Commission permits the Gas Company a return of 7 1/2 per cent. A higher rate of return might with propriety have been allowed. (a) The return must be computed upon the fair value of the property rather than upon the par value of the outstanding stock. Brooklyn Gas Co. v. Prendergast, 16 F.2d 615; Smyth v. Ames, 169 U.S. 466; Willcox v. Cons. Gas Co., 212 U.S. 41; Bluefield Co. v. P. S. C., 262 U.S. 679; Cons. Gas Co. v. Prendergast, 6 F.2d 243; Re New York State Railways, P. U. R. 1919A, 755. (b) A return of 7 1/2 per cent is neither unreasonable nor unlawful. McCardle v. Water Co., 272 U.S. 400; Brooklyn Gas Co. v. Prendergast, 16 F.2d 615; Bluefield Co. v. P. S. C., 262 U.S. 679; Cons. Gas Co. v. Prendergast, 6 F.2d 243; West v. United Rys. Co., 280 U.S. 234; State ex rel. v. P. S. C., 30 S.W. 8; Wichita Gas Co. v. P. S. C., 126 Kan. 220; Louisville v. R. R. Co., 39 F.2d 822; West Palm Beach Co. v. West Palm Beach, P. U. R. 1930A, 177; Pabst Corporation v. Commission, 227 N.W. 18; New York Gas Co. v. P. S. C., 1 F.2d 351; Cons. Gas Co. v. Prendergast, 6 F.2d 243, affirmed 272 U.S. 576; Brooklyn Gas Co. v. Prendergast, 7 F.2d 628; Kings County Lighting Co. v. Prendergast, 7 F.2d 192, affirmed 272 U.S. 579; New York & Richmond Gas Co. v. Prendergast, 10 F.2d 167; Louisiana Water Co. v. P. S. C., 294 F. 954. (3) The annual allowance for depreciation authorized by the Commission is ultra conservative. (a) The evidence justified an allowance of 3 per cent. Re Webb City Gas Co., P. U. R. 1922C, 608; Re Jackson County Power Co., P. U. R. 1926D, 737; Re Trenton Gas & Electric Co., P. U. R. 1923D, 314; Re Springfield Gas Co., P. U. R. 1924A, 613; Re Peoples Gas & Electric Co., 14 Mo. P. S. C. 26; Re Kansas City Gas Co., 14 Mo. P. S. C. 312; Fort Worth Gas Co. v. Fort Worth, 35 F.2d 743; Wichita Gas Co. v. P. S. C., P. U. R. 1928D, 124; Customers v. Cohoes Power Co., P. U. R. 1921D, 421; Re Jamestown Gas Co., P. U. R. 1921E, 406; Vancouver v. Company, P. U. R. 1921C, 527; Bellingham v. Company, P. U. R. 1921E, 5; Winona v. Power Co., 276 F. 996; Mobile Gas Co. v. Patterson, 293 F. 208; Manitowoc v. Light Co., P. U. R. 1927D, 737. (b) A deficiency in the annual allowance for depreciation cannot be made up out of the balance in the depreciation reserve. Board of Commissioners v. New York Tel. Co., 271 U.S. 23; State ex rel. v. P. S. C., 30 S.W.2d 8; Re Wisconsin Tel. Co., P. U. R. 1925D, 661. (c) The annual allowance for depreciation should be based upon the fair value of the property. United Railways & E. Co. v. West, 280 U.S. 234; Michigan Commission v. Michigan Tel. Co., 228 Mich. 658. (4) The order of the Commission authorizing the new rates for a test period is neither unreasonable nor unlawful. State ex rel. v. Busby, 274 S.W. 1067; State ex rel. v. Gas Co., 34 Mo.App. 501; Re Joplin Gas Co., P. U. R. 1923D, 332; Re Muscle Shoals Gas Co., P. U. R. 1927D, 804; Re Public Service Gas Co., P. U. R. 1927C, 321; Re New Jersey Northern Gas Co., P. U. R. 1927A, 835; Re Georgia Power Co., P. U. R. 1929B, 309; Ripon v. Water Co., 5 Wis. 1; Re Sea...