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

• Decision Date: 09 December 1937
• Parties: State of Missouri at the relation of the City of St. Louis, a Municipal Corporation, Appellant, v. Public Service Commission and the Laclede Gas Light Company, a Corporation. State of Missouri at the relation of the Laclede Gas Light Company, Appellant, v. Public Service Commission and City of St. Louis
• Court: Missouri Supreme Court

110 S.W.2d 749

341 Mo. 920

State of Missouri at the relation of the City of St. Louis, a Municipal Corporation, Appellant,
v.
Public Service Commission and the Laclede Gas Light Company, a Corporation. State of Missouri at the relation of the Laclede Gas Light Company, Appellant,
v.
Public Service Commission and City of St. Louis

Supreme Court of Missouri

December 9, 1937

[110 S.W.2d 750] [Copyrighted Material Omitted] [110 S.W.2d 751] [Copyrighted Material Omitted] [110 S.W.2d 752]

Appeal from Cole Circuit Court; Hon. Nike G. Sevier, Judge.

Affirmed and remanded (with directions to the Circuit Court to remand to the Commission that it may determine the facts on four points in accordance with the opinion).

Robert W. Otto and Taylor, Chasnoff & Willson for Laclede Gas Light Company.

(1) The utility is entitled to a reasonable return on the fair value of the property used to serve the public. This reasonable return means a real and actual return and not one which is, in whole or in part, imaginary. Smyth v. Ames, 169 U.S. 466; Wilcox v. Consolidated Gas Co., 212 U.S. 19; Bluefield Water Works v. Pub. Serv. Comm., 262 U.S. 679; Simpson v. Shepherd, 230 U.S. 352; McCardle v. Indianapolis Water Co., 272 U.S. 400. (2) In valuation proceedings the rate base should be the fair value, at the time of the proceedings, of the property used and useful in rendering the service. (a) Land. Land should be valued at the fair market value at the date of valuation. Consolidated Gas Co. v. New York, 157 F. 849; Wilcox v. Consolidated Gas Co., 212 U.S. 19; Clark's Ferry Bridge Co. v. Pub. Serv. Comm., 291 U.S. 227. In determining the fair market value of land, no weight should be given to inexpert opinions based largely upon hearsay. Gash v. Mansfield, 28 S.W.2d 127; Stitzer Hotel Co. v. Beyer, 55 F.2d 620. (b) An allowance of 5 per cent for engineering and superintendence is reasonable. West St. Louis W. & L. Co., 17 Mo. P. S. C. 519; City v. Mo. Elec. Power Co., 6 P. U. R. (N. S.) 225; In re Springfield Water Co., 18 Mo. P. S. C. 199; Commercial Club v. Mo. Pub. Utilities Co., P. U. R. 1915C, 1017; Public Serv. Comm. v. Mo. Utilities Co., P. U. R. 1932E, 449; Meek v. Consumers Elec. L. & P. Co., P. U. R. 1915A, 956; Donnelley v. Consolidated Water Co., 3 P. U. R. (N. S.) 173; Re Sea Cliff & G. C. Gas Co., P. U. R. 1921A, 211; Wood v. Elmira Water, L. & Ry. Co., P. U. R. 1927B, 400; Re Cities Service Co., P. U. R. 1933A, 113; Re Boston & Idaho Gold Dredging Co., P. U. R. 1921E, 843; Re United Ry. & Elec. Co., P. U. R. 1926C, 441; Re Atlantic City Sewerage Co., P. U. R. 1925A, 135; Harbster v. Angelica Water & Ice Co., P. U. R. 1918E, 540; School Directors v. Highspire Water Supply Co., P. U. R. 1926D, 80; Minersville v. Minersville Water Co., P. U. R. 1926E, 147; Re Cumberland & A. Gas Co., P. U. R. 1928B, 20; Re Clarksburg L. & H. Co., P. U. R. 1928B, 290; Re Union Electric Co., P. U. R. 1928E, 396. (c) General overheads should not be depreciated. Galveston Electric Co. v. Galveston, 272 F. 147, Id., 258 U.S. 388. (d) Where the existence of going value in the property is shown, it constitutes an element of value, and an allowance therefor should be made in the rate base. Aluminum Goods Mfg. Co. v. Laclede Gas Light Co., 16 Mo. P. S. C. 114; McCardle v. Indianapolis Water Co., 272 U.S. 400; Dayton P. & L. Co. v. Pub. Util. Comm., 292 U.S. 290. (e) Where the detailed appraisal figures exclude any allowance for going value, a separate allowance for going value should be made. Denver v. Denver Union Water Co., 246 U.S. 178. (f) In determining fair value consideration must be given to prices and the trend of prices at the time of the hearing. McCardle v. Indianapolis Water Co., 272 U.S. 400; State ex rel. v. Pub. Serv. Comm., 262 U.S. 276. (g) Where prices have risen appreciably since property was bought or built and the trend of such prices is upward at the time of the hearing, original or historical cost is no evidence of fair present value. Standard Oil Co. v. Southern Pac. Co., 268 U.S. 146; McCardle v. Indianapolis Water Co., 272 U.S. 400; Simpson v. Shepherd, 230 U.S. 352; Bluefield Water Works & Imp. Co. v. Pub. Serv. Comm. 262 U.S. 679; State ex rel. v. Pub. Serv. Comm., 262 U.S. 276. (3) The rate base must include all property necessary to meet the demands of the service at present and over a reasonable future period. (a) The law imposes on the utility a heavy burden of care and skill in the conduct of its business. Sipple v. Laclede Gas Light Co., 125 Mo.App. 81; Nomath Hotel Co. v. Gas Co., 204 Mo.App. 214; Brauer v. Gas Co., 238 S.W. 519. (b) The law requires the utility to consider and prepare for future demands and to build new property where necessary to render the service. Oklahoma G. & E. Co. v. State, 87 Okla. 174; Russell v. Sebastian, 233 U.S. 195; People ex rel. v. Deehan, 153 N.Y. 528; Lukrawka v. Spring Valley Water Co., 169 Cal. 318, 146 P. 640; N. C. Pub. Serv. Co. v. Southern Pr. Co., 282 F. 837, certiorari dismissed 263 U.S. 508. (c) Property necessary to render the service must be included in the rate base even though used only in period of peak demand. Customers v. Cohoes P. & L. Co., P. U. R. 1921D, 421; Eshelman v. Trust Co., P. U. R. 1916D, 488; Portage v. Portage Water Co., P. U. R. 1917D, 17; Re Pekin Water Works Co., P. U. R. 1928C, 266. (d) In view of the strict requirements of the law as to the duty of the utility to meet the demands of the service, both present and future, the rate base should include reasonable reserve and stand-by equipment, even though the same may not actually be in use at the moment of valuation. Department of Public Works v. Gray's Harbor Co., P. U. R. 1932A, 140; Customers v. Cohoes P. & L. Co., P. U. R. 1921D, 421; In re Midwest Power Co., P. U. R. 1922E, 22; Alpha Portland Cement Co. v. Lehigh Elec. Co., P. U. R. 1924E, 737. (e) Where the utility has built and put into service property necessary to serve the demands of the customers in the past, such property should not be excluded from the rate base merely on a showing that the demands of the consumers have lessened during a period of depression, where a reasonable foresight indicates that upon the improvement of conditions the demand will again increase and the property again be necessary. City of Detroit v. Detroit Edison Co., P. U. R. 1933E, 193; Department of Public Works v. Seattle Gas Co., 3 P. U. R. (N. S.) 433; In re Richmond L., H. & P. Co., P. U. R. 1917B, 300. (4) If the sudden occurrence of a new source of supply permanently renders unnecessary items of property, previously built because necessary to the service when built, and if the new source of supply results in a reduction in the rates, the property thus rendered unnecessary should be amortized out of the savings due to the reduction in rates. Re St. Joseph Ry., L., H. & P. Co., 5 P. U. R. (N. S.) 253; Kansas City S. Ry. Co. v. United States, 231 U.S. 423; Pacific Gas & Elec. Co. v. San Francisco, 265 U.S. 403; Re Duluth Ry. Co., P. U. R. 1927A, 52; Duluth St. Ry. Co. v. Minn. Railroad & W. Comm., 4 F.2d 543, P. U. R. 1925D, 239; Borth v. Traction Co., P. U. R. 1928D, 273; Re Owensville Light Co., P. U. R. 1921B, 721; Toner v. Gas & Elec. Co., P. U. R. 1923E, 71; Re Great Falls Gas Co., P. U. R. 1928E, 828; Public Serv. Comm. v. Utilities Co., P. U. R. 1929B, 184; Franke v. Tel. Co., P. U. R. 1929D, 164; Cal. F. B. Federation v. San Joaquin L. & P. Corp., P. U. R. 1932D, 326. (5) The company is entitled to an annual allowance for depreciation, sufficient to provide for the retirement at fair value of property reaching the end of its useful life, including property retired because of inadequacy and obsolescence. Knoxville v. Knoxville Water Co., 212 U.S. 1; Board of Pub. Utility Commrs. v. New York Tel. Co., 271 U.S. 23; Lindheimer v. Bell Tel. Co., 292 U.S. 151. (a) The retirement allowance should be calculated upon the basis of fair value and not upon original cost. Simpson v. Shepherd, 230 U.S. 352; United Rys. Co. v. West, 280 U.S. 234; City v. Water Co., 18 Mo. P. S. C. 451. (b) An annual allowance of 1 1/2 per cent in a gas company is too low. In re Webb City Gas Co., P. U. R. 1922C, 608; In re Jackson County L., H. & P. Co., P. U. R. 1926D, 737; In re Trenton G. & E. Co., P. U. R. 1923D, 314; In re Springfield G. & E. Co., P. U. R. 1924A, 613; In re Peoples G. & E. Co., 14 Mo. P. S. C. 26; In re Kansas City Gas Co., 14 Mo. P. S. C. 312; In re Carthage Gas Co., 12 Mo. P. S. C. 361; Ft. Worth Gas Co. v. Ft. Worth, 35 F.2d 743; Wichita Gas Co. v. Pub. Serv. Comm., 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. Wisconsin Power Co., 276 F. 996; Mobile Gas Co. v. Patterson, 293 F. 208; Manitowoc v. Light Co., P. U. R. 1927D, 737. (6) The owners of the property have the right to exercise their judgment as to the manner in which their constitutional rights shall be presented before regulatory bodies. Laclede Gas Light Co. v. Pub. Serv. Comm., 8 F.Supp. 806; State ex rel. S.W. Bell Tel. Co. v. Pub. Serv. Comm., 262 U.S. 276; Interstate Commerce Comm. v. C. G. W. Ry. Co., 209 U.S. 108; State ex rel. v. Pub. Serv. Comm., 229 S.W. 782.

Edgar H. Wayman and John G. Burkhardt for City of St. Louis.

(1) The ascertainment of fair value is not controlled by artificial rules. It is not a matter of formulas, but represents reasonable judgment, having its basis in the proper consideration of all material facts. Minnesota Rate Cases, 230 U.S. 434, 57 L.Ed. 1556; Georgia Ry. & P. Co. v. Railroad Comm., 262 U.S. 630, 43 S.Ct. 680, 67 L.Ed. 1147; Standard Oil Co. v. So. Pac. Co., 268 U.S. 156, 69 L.Ed. 895; Los Angeles Gas & E. Corp. v. Railroad Comm., 289 U.S. 287, 77 L.Ed. 1180, 53 S.Ct. 637, P. U. R. 1933C, 240. (2) Original, as well as reproduction, cost must be considered in...