State ex rel. North Carolina Utilities Commission v. Westco Tel. Co.

• Citation: 146 S.E.2d 487,266 N.C. 450
• Decision Date: 04 February 1966
• Docket Number: No. 523,523
• Parties: , 62 P.U.R.3d 259 STATE of North Carolina ex rel. NORTH CAROLINA UTILITIES COMMISSION v. WESTCO TELEPHONE COMPANY.
• Court: North Carolina Supreme Court

Page 487

146 S.E.2d 487

266 N.C. 450, 62 P.U.R.3d 259

STATE of North Carolina ex rel. NORTH CAROLINA UTILITIES COMMISSION v. WESTCO TELEPHONE COMPANY.

No. 523.

Supreme Court of North Carolina.

Feb. 4, 1966.

Edward B. Hipp, Raleigh, for the Commission.

Atty. Gen. T. W. Bruton, Asst. Atty. Gen. Charles D. Barham, Jr., for the State.

Van Winkle, Walton, Buck & Wall, by Herbert L. Hyde, Asheville, for Westco.

DENNY, Chief Justice.

The questions posed for determination on this appeal are as follows: (1) Did the court below err in affirming the finding and conclusion of the Commission that the fair value of the property of Westco used and useful in rendering service to the public as of 31 December 1963, was $4,120,000? (2) Did the court commit error in affirming the finding and conclusion of the Commission that a fair and reasonable rate of return was 3.8%, and that such rate would produce $156,560 in net operating income?

Ordinarily the fair value of a utility's property is found to be less than the reconstruction cost of the property. In this case, however, Mr. Russell, of the American Appraisal Company, who was tendered by Westco as an expert witness, testified, '(b) ased on the studies which I have conducted and conditions described, it is my opinion that the fair value of the company's property as of December 31, 1963, is $4,140,000.' However, he testified that the replacement cost new, less depreciation, of the Westco property in service as of 31 December 1963, was $4,137,568. Although the witness stated that his fair value figure did not include construction cost in progress, and materials and supplies, it was permissible for the Commission to take into consideration this opinion of fair value in excess of replacement cost when it determined the fair value of Westco's property used and useful in rendering service to be $4,120,000 on 31 December 1963. On the other hand, the president of Westco testified that the net original cost of applicant's property in North Carolina, used and useful in furnishing telephone service to the public as of 31 December 1963, was $4,199,088; that this figure included plant under construction in the sum of $221,325, and materials and supplies in the sum of $48,662. Even so, he testified that in his opinion the fair value of Westco's plant, used and useful in rendering telephone service to the public as of 31 December 1963, was at least $4,407,555.

G.S. § 62-133 reads as follows:

'(a) In fixing the rates for any public utility subject to the provisions of this chapter, other than motor carriers, the Commission shall fix such rates as shall be fair both to the public utility and to the consumer.

'(b) In fixing such rates, the Commission shall:

'(1) Ascertain the fair value of the public utility's property used and useful in providing the service rendered to the public within this State, considering the reasonable original cost of the property less that portion of the cost which has been consumed by previous use recovered by depreciation expense, the replacement cost of the property, and any other factors relevant to the present fair value of the property. Replacement cost may be determined by trending such reasonable depreciated cost to current cost levels, or by any other reasonable method.

'(2) Estimate such public utility's revenue under the present and proposed rates.

'(3) Ascertain such public utility's reasonable operating expenses, including actual investment currently consumed through reasonable actual depreciation.

'(4) Fix such rate of return on the fair value of the property as will enable the public utility by sound management to produce a fair profit for its stockholders, considering changing economic conditions and other factors, as they then exist, to maintain its facilities and services in accordance with the reasonable requirements of its customers in the territory covered by its franchise, and to compete in the market for capital funds on terms which are reasonable and which are fair to its customers and to its existing investors.

'(5) Fix such rates to be charged by the public utility as will earn in addition to reasonable operating expenses ascertained pursuant to paragraph (3) of this subsection the rate of return fixed pursuant to paragraph (4) on the fair value of the public utility's property ascertained pursuant to paragraph (1).

'(c) The public utility's property and its fair value shall be determined as of the end of the test period used in the hearing and the probable future revenues and expenses shall be based on the plant and equipment in operation at that time.

'(d) The Commission shall consider all other material facts of record that will enable it to determine what are reasonable and just rates.

'(e) The fixing of a rate of return shall not bar the fixing of a different rate of return in a subsequent proceeding.'

In arriving at the fair value of a public utility's property used and useful in providing the service rendered to its customers, the Commission is charged with the duty to consider the requirements set forth in G.S. § 62-133, as well as other relevant factors. It will be noted that in fixing the value of Westco's property at $4,120,000 as of 31 December 1963, it was fixed at $190,899 above the original cost less depreciation. Moreover, the Commission is required under G.S. § 62-133(c) to determine the fair value of the utility's property as of the end of the trial period based on the plant and equipment in operation at that time. In our opinion, the value fixed by the Commission is supported by substantial, competent and material evidence and should be sustained, and it is so ordered.

On the second question, we think what was said in State ex rel. Utilities Commission v. State and State ex rel....