State ex rel. Olsen v. Public Service Commission

• Decision Date: 19 March 1957
• Docket Number: No. 9676,9676
• Citation: 308 P.2d 633,131 Mont. 104
• Parties: , 18 P.U.R.3d 277 STATE of Montana ex rel. Arnold H. OLSEN, Plaintiff and Appellant, v. PUBLIC SERVICE COMMISSION of The State of Montana, et al., and The Montana Power Company, Defendants and Respondents.
• Court: Montana Supreme Court

Page 633

308 P.2d 633

131 Mont. 104, 18 P.U.R.3d 277

STATE of Montana ex rel. Arnold H. OLSEN, Plaintiff and Appellant, v. PUBLIC SERVICE COMMISSION of The State of Montana, et al. and The Montana Power Company, Defendants and Respondents.

No. 9676.

Supreme Court of Montana.

Submitted Jan. 22, 1957.

Decided March 19, 1957.

Arnold H. Olsen, Atty. Gen., argued amicus curiae.

Forrest H. Anderson, former Atty. Gen., William F. Crowley, Asst Atty. Gen., for appellant, Charles W. Leaphart, Jr., Asst. Atty. Gen., argued orally.

T. B. Weir, Helena, J. T. Finlen, Samuel B. Chase, Jr., John C. Hauck, Butte, James B. Patten and John V. Potter, Jr., Helena, for respondents. Robert D. Corette and William H. Coldiron, Butte, argued orally.

PER CURIAM.

This action was brought by plaintiff under R.C.M.1947, Sec. 70-128, to challenge the validity of an order made by defendant Board of Railroad Commissioners allowing an increase in gas rates to be charged by the defendant, the Montana Power Company.

The district court sustained the order of the Board and this appeal followed.

The Montana Power Company, on May 5, 1953, made application before the Public Service Commission to increase its rates and charges. A public hearing was held and a number of corporations, associations, individuals and labor organizations appeared as protestants. Very little evidence was offered by protestants except to show generally that they were antagonistic to any increase in the rates and charges and in some instances that the particular protestant was not in a position financially to absorb any increased rate and that any increase in the rate would be detrimental to those who would be obliged to pay it. The Commission granted the increase sought.

A motion for reconsideration of the question was made and denied.

This action was then instituted by plaintiff but none of the other protestants took any further action.

At the hearing in the court below additional evidence was introduced.

Consistent with R.C.M.1947, Sec. 70-128, the court transmitted a copy of the evidence to the Commission for consideration. The Commission made a supplemental order on August 2, 1955, adhering to its former ruling.

The court thereupon entered judgment upholding the action of the Board.

At the outset, we point out that in determining the questions before the court neither the trial judge nor the members of this court can discharge their duty by merely voting on whether they as individuals prefer the old or the new rate. They do not make a choice to either stand with the people or with the power company.

The action of the courts must be governed by recognized principles of law as applied to the facts, and this court must render its decision in writing stating the grounds of the decision. R.C.M.1947, Sec. 93-212.

We mention these matters simply to indicate that we agree with the Board when it said, 'a popular decision would be to deny any increase, but popular political decisions cannot be considered.'

Plaintiff makes several assignments of error. The first one urged is that it was error on the part of the court to affirm the order of the Board, because he asserts it was not supported by sufficient evidence.

Plaintiff contends that too much reliance was placed by the Board upon evidence offered by the Company, showing the reproduction cost new less depreciation, in arriving at the value of the Company's plant dedicated to the service of its customers, on which it is entitled to a reasonable rate of return.

The evidence shows that the Montana Power Company commenced distributing natural gas in 1931. In 1933 and again in 1935 it took a voluntary reduction in rates and has never sought or obtained any increase until this proceeding was commenced. Since the Company commenced distributing gas, its labor costs have increased 132 per cent; the cost of gas pipes has increased 100 per cent; the cost of automobile equipment 169 per cent; gas meters 131 per cent; gas valves 151 per cent and taxes 211 per cent. As to valuation of the Company's plant used to serve its general customers, as distinguished from service to the Anaconda Company, three different sets of figures were submitted. It was shown that the reproduction cost new less depreciation amounted to $39,179,067 as of 1952.

The value figures as of 1952 were computed from indices contained in the Handy Whitman Index of Public Utility Construction Costs, which the evidence shows is a compilation in general use in the United States.

This method of computation is calculated to reflect the cost of reproducing the plant under inflationary prices existing in 1952.

Other evidence of value of the plant used for serving the general customers shows that the original cost of the plant was $23,022,028, and that the original cost less depreciation as of 1952 was $17,102,260. The estimated assessed value of it property, subject to ad valorem tax, was about $10,000,000.

At this point it should be noted that the assessed value of its taxable property does not and cannot include all the property because the gas reserves, under our Constitution, art. XII, Sec. 3, cannot be taxed on an ad valorem basis, but must be taxed on the annual net proceeds.

The Commission, in its first order, fixed the period from July 1, 1953, to July 1, 1954, as the testing period for testing the reasonableness of the new rates. For this test period the Company estimated expenditures of $2,500,000 for additions to its property serving the general customers.

Likewise it added $3,660,000 to the reproduction cost new which gives effect to the contemplated additions plus an allowance for estimated increased value due to anticipated price changes.

The gross revenue from the sale of gas to the general customers, excluding sales to the Anaconda Copper Company in 1952, was shown to be the sum of $4,780,346. The gross expenses were shown to be $4,114,112 for the same year, leaving a balance of $666,234.

Mathematical calculation shows that the net income of $666,234 represented a return of 1.70 per cent on $39,179,067, the claimed reproduction cost new in 1952 less depreciation; 4.56 per cent on $23,022,028, the original cost, and 6.13 per cent on $17,102,260 the original cost less depreciation to 1952. Before the district court, figures were submitted for the test period showing a return of 2.76 per cent on the actual net income of $1,137,425 under the new rate on the reproduction cost new less depreciation as of July 1, 1954, of $41,156,882, and a return of 9.16 on the original cost less depreciation of $17,543,346.

The Commission found that the fair value of the Company's property used in selling gas to the general customers, as of December 1, 1952, was $30,000,000.

On this valuation, to which was added the sum of $1,410,060 for additions made during the test period, the rate of return would be 5.12 per cent for the year ending June 30, 1954.

As to the Anaconda Company, the Commission found that it was the exclusive user of gas imported from Canada; that the Federal Power Commission had ordered the Anaconda Company to pay all the costs thereof and for the facilities used for serving it to the Anaconda Company, and that the revenues and expenses connected therewith should be excluded from consideration in figuring the rates for the general customers.

However, at the hearing before the court the Company showed the revenues received, expenses paid, and the return earned from the Anaconda Company on the allocation between it and the general customers. The evidence submitted shows the return earned from it was greater than that received from the general customers under the new rate. The record also shows that before this proceeding was instituted the gas rate to the Anaconda Company was increased by 61.3 per cent and the increase was approved by the Commission.

To be more specific, the evidence shows, and the Commission found, that the value of the Company's property devoted to serving the Anaconda Company as of June 30, 1954, was $13,100,000 and that the earnings yielded a return of 6.30 per cent on that valuation.

By adding the value of the Company's property devoted to serving gas to its general customers to the value of the Company's property devoted to serving gas to the Anaconda Company, the value of the entire plant, as found by the Commission in serving all the customers as of June 30, 1954, was $44,844,334 and on that value the Company earned a return of 5.46 per cent.

The record consists of three separate volumes of testimony and many exhibits, the substance of which need not be recited here.

It is sufficient to sustain the order of the Board when not controverted.

There is no evidence controverting the showing made by the Company.

The rule is that if there be substantial evidence sustaining the order of the Board, the courts will not interfere with its conclusion. Billings Utility Co. v. Public Service Comm., 62 Mont. 21, 203 P. 366; Chicago, M., St. P. & P. R. Co. v. Board of Railroad Com'r, 126 Mont. 568, 255 P.2d 346; Montana Citizens Freight Rate Ass'n v. Board of Railroad Com'r, 128 Mont. 127, 271 P.2d 1024.

Plaintiff contends that the Commission and the trial court gave too much weight to the evidence of the reproduction cost new less depreciation in ascertaining the value of the Company's property used and useful in serving the public. He relies upon the case of Federal Power Comm. v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333, which he contends discredits that theory of obtaining present value.

The fallacy of his argument is that the Commission did not fix the value on a reproduction cost new less depreciation basis. That value was claimed by the Company to be in excess of $39,000,000 whereas the Commission fixed the value at $30,000,000 when the Anaconda Company was excluded. When the property used to serve the Anaconda Company was included, the claimed reproduction cost new less...