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

• Decision Date: 03 June 1930
• Docket Number: 27825
• Citation: 30 S.W.2d 8,325 Mo. 209
• Parties: The State ex rel. City of St. Joseph, Appellant, v. Public Service Commission; St. Joseph Water Company, Intervener
• Court: Missouri Supreme Court

30 S.W.2d 8

325 Mo. 209

The State ex rel. City of St. Joseph, Appellant, v. Public Service Commission; St. Joseph Water Company, Intervener

No. 27825

Supreme Court of Missouri

June 3, 1930

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

Affirmed.

R M. Duncan, W. B. Norris, Jr., and Harry J Cooney for appellant;

John C. Landis, Jr., for School District of St. Joseph of counsel.

(1) A municipal corporation and a public service corporation cannot enter into a contract which will preclude the Public Service Commission from fixing reasonable rates, irrespective of the contract. State ex rel. City of Sedalia v. Pub. Serv. Commission, 275 Mo. 201. (2) The method employed by the Commission in arriving at the valuation of the company's property for rate-making purposes was unlawful and arbitrary, whereas the method suggested by the appellant is one which has been approved by public service commissions and courts. Minneapolis v. Rand, 285 F. 818; Joplin Gas Co. v. Mo. Pub. Serv. Commission, P. U. R. 1924D, 137, 296 F. 271; Re United Rys. Co. of St. Louis, P. U. R. 1923D, 759; Galveston Elec. Co. v. Galveston, 258 U.S. 388, 272 F. 147; State ex rel. Water Co. v. Public Service Comm., 291 S.W. 788; Missouri ex rel. Bell Tel. Co. v. Public Service Comm., 233 S.W. 425, 262 U.S. 276. (3) The construction overhead costs on land should be eliminated in arriving at a fair valuation of property for rate-making purposes. Minnesota Rates Cases, 230 U.S. 352. (4) In arriving at the fair value of a plant for rate-making purposes account should be taken of accrued depreciation regardless of the efficiency of operation. Minneapolis v. Rand, 285 F. 818. (5) The Public Service Commission has uniformly adopted the straight line method of estimating accrued depreciation. Re Warrensburg Elec. Light, Heat & Power Co., P. U. R. 1925B, 424. (6) No part of a depreciation reserve fund accumulated by a public service corporation from its receipts should be added to the capital upon which such corporation is entitled to earn dividends. Re Kansas City Gas Co., 14 Mo. P. S. C. 327; Railroad Commissioners v. Cumberland Tel. & Tel. Co., 212 U.S. 414. (7) The depreciation reserve fund should be deducted from the valuation of the property to obtain a fair and reasonable valuation for rate-making purposes. Home Tel. Co. v. Carthage, 235 Mo. 644; Southwestern Bell Tel. Co. v. Pub. Serv. Commission, 233 S.W. 425, 262 U.S. 276. (8) Interest on the depreciation reserve should be added to the reserve fund. Reed v. Tel. Co., P. U. R. 1920C, 390. (9) A fair and reasonable rate of return on the Company's property would, in view of present conditions, be seven per cent. Re Pekin Water Works Co. (Ill.), May 26, 1926; Re Greensburg Water Co. (Ind.), May 21, 1926; Re Mamaroneck v. N. Y. Inter. Water Co., 212 N.Y.S. 639; Re Tuckerton Water Co. (N. J.), P. U. R. 1927A, 330; Re Chesapeake & Potomac Tel. Co. v. Commonwealth of Virginia, 136 S.E. 575, P. U. R. 1927B, 484; Re Customers v. Worcester Elec. Light Co. (Mass.), P. U. R. 1927C, 713. (10) The burden of establishing the reasonableness of a proposed increase in rates is upon the public service corporation. Re Joplin Water Works Co., 2 Mo. P. S. C. 235; Re Palmyra Tel. Co., 5 Mo. P. S. C. 328; Re Clarence Tel. Co., 9 Mo. P. S. C. 498. (11) The Commission's order in the former case No. 2520 was a mere general finding of the value of the property without a statement of the elements entering into the computation thereof, and would on appeal have been referred back for a more detailed finding of the facts. Minneapolis v. Rand, 285 F. 818; Lincoln Gas & Electric Light Co. v. Lincoln, 223 U.S. 349. (12) A valuation of property of a public utility fixed by the Public Service Commission is not in the nature of an adjudication, and therefore is not conclusive for all time, and facts found by a Commission on a former valuation may be controverted without showing a change of conditions since such former valuation. State ex rel. Columbia Tel. Co. v. Atkinson, 271 Mo. 28; Marti v. Light & Power Co., 259 S.W. 793. The question of valuation in the former case was a moot question, which would not have been reviewed on appeal. State ex rel. Columbia Tel. Co. v. Atkinson, 271 Mo. 28, 195 S.W. 741.

D. D. McDonald for respondent;

W. R. Voorhis, C. H. Dickey and R A. Brown for Intervener.

(1) The legal proposition -- that the return fixed on a utility property should be sufficiently high to attract capital to the enterprise -- is one which is by no means novel. It was approved by the Supreme Court of the United States in the Bluefield Waterworks & Improvement Company case, and by numerous other courts of competent jurisdiction, as well as by writers of text on the subject. The public service commissions in nearly all of the states where commission regulation obtains have approved this rule as defining one of the methods by which a fair rate of return may be properly gauged. 3 Spurr in Guiding Principles of Public Service Regulation, 56; Bluefield Waterworks & Improvement Co. v. Pub. Serv. Commission, 262 U.S. 679, 67 L.Ed. 1176; Louisiana Water Co. v. Pub. Serv. Commission, 294 F. 954; Alton Water Co. v. Ill. Commerce Commission (D. C.), 279 F. 869; Toledo v. Toledo Rys. & Light Co., 259 F. 450, 170 C. C. A. 426; Indiana Bell Tel. Co. v. Pub. Serv. Commission, 300 F. 190; Kings County Lighting Co. v. Prendergast, 7 F.2d 194; New York & Richmond Gas Co. v. Prendergast (D. C.), 10 F.2d 186; Omaha & C. B. Street Railroad Co. v. State Railroad Com., 103 Neb. 695, 173 N.W. 691. (2) The respondents respectfully submit that this court should now affirm the judgment of the circuit court, affirming the report and order of the Commission, for the following reasons, to-wit: (a) Because the Public Service Commission in its report and order of August 11, 1925, authorized a schedule of rates which will produce for the respondent water company only a fair return on the fair value of its used and useful property. (b) Because in finding the fair value upon which the return was based, the Commission averaged the reproduction cost, less depreciation, and the investment cost of the property; and the value ascertained by this method was less than the reproduction cost less depreciation of the property. Having found a value which is less than that which would have been found had the rule laid down by the court in this case been followed, the City of St. Joseph and the water consuming public should not be heard to complain.

OPINION

Frank, J.

This is an appeal from a judgment of the Circuit Court of Cole County, approving an order of the Public Service Commission fixing the value of the property of the St. Joseph Water Company for rate-making purposes at $ 3,821,312.36 and approving a schedule of rates which would yield a net return of approximately eight per cent on the value so fixed. The Commission denied a rehearing of this order, and the cause was removed to the Circuit Court of Cole County, where the order of the Commission was affirmed, and the city of St. Joseph appealed.

A former rate hearing was had in 1923, in which the Commission at that time fixed the value of the water company's property for rate-making purposes as of March 31, 1923, at $ 3,125,000. On application of the city the cause was removed to the circuit court for the purpose of reviewing the order of the Commission. Subsequently, and while that cause was pending in the circuit court, the city petitioned the Commission asking that the water company be required to make extensive additions and improvements to its plant. After the city's petition for additions and improvements was filed with the Commission, the city and the water company entered into an agreement by the terms of which it was agreed that the city would dismiss its pending proceedings to review the order of the Commission, the water company would make the additions and improvements called for, and the value of the water company's property fixed by the Commission at $ 3,125,000 as of March 31, 1923, should remain in full force and effect as of that date. Following this agreement the city dismissed the proceedings wherein it sought a review of the Commission's order, and the water company made additions and improvements to its plant at a cost of $ 793,745.36.

After these improvements were made, the present proceedings were instituted before the Commission by the water company in which it asked that the cost of the improvements, less property abandoned since 1923, be added to the rate base of $ 3,125,000 as fixed by the Commission in 1923, and a schedule of rates be approved that would yield a net return of eight per cent on the value of the plant after the improvements were made.

The value of the property was fixed in the present proceedings as of August 11, 1925. In fixing this value, the Commission did not revalue the property as it stood before the improvements were made, but used as a basis the value of $ 3,125,000 which it had theretofore fixed as March 31, 1923, and added thereto the sum of $ 696,312.36, being the cost of improvements, less property abandoned since 1923, thus fixing the value of the plant as of August 11, 1925, at $ 3,821,312.36.

Before passing to a discussion of the merits of the case, it is necessary to dispose of two contentions made by appellant, (1) that the order of the Commission fixing the value of the property as of March 31, 1923, at $ 3,125,000, was not res adjudicata, and (2) that the agreement of the city to the effect that such order should remain in full force and effect was not binding on the Commission and would not prevent the Commission from revaluing the property.

It is true that the value of the property fixed as of March 31 1923, was not conclusive on the...