State ex rel. St. Louis v. Publ. Serv. Commission.

• Decision Date: 18 November 1930
• Docket Number: No. 29865.,29865.
• Citation: 34 S.W.2d 507
• Parties: THE STATE at Relation and to Use of CITY OF ST. LOUIS, Appellant, v. PUBLIC SERVICE COMMISSION and T.J. BROWN ET AL., Commissioners.
• Court: Missouri Supreme Court

34 S.W.2d 507

THE STATE at Relation and to Use of CITY OF ST. LOUIS, Appellant, v. PUBLIC SERVICE COMMISSION and T.J. BROWN ET AL., Commissioners.

No. 29865.

Supreme Court of Missouri, Division One.

November 18, 1930.

Appeal from Cole Circuit Court. — Hon. Henry J. Westhues, Judge.

AFFIRMED.

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

(1) The ascertainment of fair present value is not controlled by artificial rules. It is a 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. & Power Co. v. Railroad Comm., 262 U.S. 625, 67 L. Ed. 1144; Standard Oil Co. v. Sou. Pac. Co., 268 U.S. 146, 69 L. Ed. 895; New York & Richmond Gas Co. v. Prendergast, 10 Fed. (2d) 208; Southern Bell Tel. & Tel. Co. v. Railroad Commission, 5 Fed. (2d) 77, P.U.R. 1926-A. 36; Kings County Ltg. Co. v. Prendergast, 7 Fed. (2d) 216; Colorado Power Co. v. Halderman, 295 Fed. 185. (2) In ascertaining fair present value, both original cost and reproduction cost must be considered and given weight; neither is necessarily a controlling factor. Smyth v. Ames, 169 U.S. 546, 52 L. Ed. 819; St. Louis & O'Fallon Ry. Co. v. United States, 279 U.S. 461, P.U.R. 1929, vol. 3, p. 167; Georgia Ry. & Power Co. v. Railroad Commission, 262 U.S. 625, 67 L. Ed. 1144, P.U.R. 1923-D 1; Standard Oil Co. v. Sou. Pac. Co., 268 U.S. 146, 69 L. Ed. 890; San Diego Land & Town Co. v. Jasper, 189 U.S. 439, 47 L. Ed. 892; Public Utilities Comm. v. Water Co. (R.I.), 136 Atl. 447, P.U.R. 1927-C 423. (3) Rates which in themselves are either so high as to cause a decrease in patronage, or are in excess of the value of the service rendered, are unreasonable, and a valuation which necessitates the collection of such rates in order to pay a theoretical return is economically unsound and contrary to the accepted rules of valuation. Smyth v. Ames, 169 U.S. 546, 52 L. Ed. 819; Public Utilities Comm. v. Water Co. (R.I.), 136 Atl. 447, P.U.R. 1927-C 421; Elkins v. Public Service Commission, 102 W. Va. 450, 135 S.E. 397, P.U.R. 1927-B 275; Re United States Traction Co., P.U.R. 1927-D (N.Y.) 644; Clear Creek Oil & Gas Co. v. Ft. Smith Spelter Co. (Ark.). 255 S.W. 903, P.U.R. 1924-B, 856; Willcox v. Gas Co., 212 U.S. 19, 53 L. Ed. 382, 48 L.R.A. (N.S.) 1134, 15 Ann. Cas. 1034; Darnell v. Edwards, 244 U.S. 564, P.U.R. 1917-F 64, 61 L. Ed. 1317. (4) The net balance in the depreciation reserve account should be deducted from original cost. Home Tel. Co. v. Carthage, 235 Mo. 644, 139 S.W. 547, 48 L.R.A. (N.S.) 1061; Brooklyn Borough Gas Co. v. Public Service Comm. (N.Y. Sup. Ct.), P.U.R. 1918-F 351; Connell v. Power & Lt. Corp., 200 App. Div. 268, 193 N.Y. Supp. 186; Re Brookfield Electric Lt. Co., 9 Mo. P.S.C. 406. (a) In ascertaining the existing accrued depreciation to be deducted from reproduction cost, all elements must be considered. State ex rel. Hopkins v. Bell Tel. Co. (Kan.), 223 Pac. 771, P.U.R. 1924-D 338. (b) Age and use are elements. Knoxville v. Water Co., 212 U.S. 1, 53 L. Ed. 371; Minnesota Rate Cases, 230 U.S. 456, 57 L. Ed. 1511; Pioneer Tel. & Tel. Co. v. Westenhaver, 29 Okla. 429, 118 Pac. 534, 38 L.R.A. (N.S.) 1223; Joplin Gas Co. v. Mo. Pub. Serv. Comm., 296 Fed. 271, P.U.R. 1920-D 137; Spring Valley Water Works v. San Francisco, 192 Fed. 184; Ann Arbor Railroad Co. v. Felloms, 236 Fed. 392; Public Service Ry. Co. v. Board of Public Util. Comrs., 276 Fed. 987; Charleston v. Pub. Serv. Comm. (W. Va.), 120 S.E. 398, P.U.R. 1924-B 622. (c) Obsolescence is an element. Re Peoria & Receivers, P.U.R. 1918-E (Ill.) 87; Logan v. Water Supply Co., P.U.R. 1923-B (N.D.) 482; Spring Valley Water Works v. San Francisco, 192 Fed. 145; Goldfield Consolidated Water Co. v. Pub. Serv. Comm., 236 Fed. 979, P.U.R. 1917-A 689; Re Chesapeake & Potomac Tel. Co., P.U.R. 1916-C (Md.) 972; Re Lincoln Traction Co., P.U.R. 1924-B 752; Re Racine Water Co., P.U.R. 1917-D (Wis.), 301; Re New England Tel. & Tel. Co., P.U.R. 1926-E (N. II.) 203. (d) Latent depreciation must be considered and deducted. St. Joseph Water Co., 14 Mo. P.S.C. 212. (6) In ascertaining fair present value as of a certain date, the future price trend must be considered and reflected in the value found. Georgia Ry. & Power Co. v. Railroad Comm., 278 Fed. 242, P.U.R. 1922-C 744; affirmed 258 U.S. 388, 66 L. Ed. 678; State ex rel. Bell Tel. Co. v. Pub. Serv. Comm., 262 U.S. 276, 67 L. Ed. 985; Reno Power, L. & W. Co. v. Pub. Serv. Comm., P.U.R. 1923-E 485; Winona v. Lt. & Power Co., 276 Fed. 996, P.U.R. 1922-C 461. (7) No separate or specific allowance need be included in the valuation of a public utilities' property when the Commission has considered the property as a successful, functioning, coordinated plant, and included in its valuation substantial allowances for organization, interest, engineering, taxes and general expenses during construction, because all these items enter into the development of the utilities' 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. Hardin-Wyandot Ltg. Co. v. Pub. Util. Comm. (Ohio St.), 162 N.E. 262, P.U.R. 1928-D 568; Houston v. Bell Tel. Co., 259 U.S. 318, 66 L. Ed. 961, P.U.R. 1922-D 793; Des Moines Gas Co. v. Des Moines, 238 U.S. 153, 59 L. Ed. 1244, P.U.R. 1915-D 577; Cedar Rapids Gas Lt. Co. v. Cedar Rapids, 233 U.S. 655, 56 L. Ed. 594; Cincinnati v. Pub. Util. Comm., 113 Ohio St. 259, P.U.R. 1925-E 432, 148 N.E. 817; Galveston Elec. Co. v. Galveston, 258 U.S. 388, 66 L. Ed. 678. (8) The value of the utility's land is its fair market value, without the addition of hypothetical costs, as measured by the fair average of the normal market value of land in the vicinity having a similar character, and the Commission's findings as to land values are erroneous when, although it accepts this sustained rule of law, as advanced by the city and rejects the utility's theories, it gives weight to the utility's estimates and rejects, in part, those made by the city. Minnesota Rate Cases, 230 U.S. 352, 57 L. Ed. 1563. The burden of proof is upon the utility in this proceeding to submit clear and convincing evidence as to land values and to submit such evidence in a manner that it may be analyzed so that accurate and proper findings may be made thereon. Sec. 10457, R.S. 1919. (9) The Commission's orders must be both reasonable and lawful and supported by the evidence, and the inclusion by the Commission in its order of $2,700,000 for costs of promotion and consolidation, based upon its finding that "there is no way of determining how the sum of $2,700,000 was determined," is an arbitrary exercise of its fact-finding power and constitutes prejudicial and reversible error. (a) An allowance of $2,700,000 for the two items of promotion and consolidation, based upon a previous accepted finding of the same amount for the three items of promotion, consolidation and financing is prima-facie excessive, unreasonable and unlawful. (b) Only a relatively small amount, if any, should be included in theoretical reproduction cost for promotion. 2 Whitten-Wilcox, Valuation of Pub. Serv. Corps., 1091; Cedar Rapids Gaslight Co. v. Cedar Rapids, 144 Iowa, 426, 120 N.W. 438. (c) Cost of financing or of assembling capital including bond discount and brokerage, is not properly chargeable to capital as a part of the rate base upon which a return is to be allowed. Aluminum Goods Mfg. Co. v. Laclede Gas Lt. Co., P.U.R. 1927B (Mo.) 20; Galveston Elec. Co. v. Galveston, 258 U.S. 388, 66 L. Ed. 683, P.U.R. 1922-D 167; Minneapolis v. Rand, 285 Fed. (C.C.A.) 818; Colorado Power Co. v. Halderman, 295 Fed. 191, P.U.R. 1924-D 808; Arkansas Water Co. v. Little Rock, P.U.R. 1924-C (Fed.) 102; Reno Power, Lt. & Water Co. v. P.S.C., 300 Fed. 645; Cedar Rapids Gaslight Co. v. Cedar Rapids, 144 Iowa, 426, 120 N.W. 966, 48 L.R.A. (N.S.) 1025, 138 Am. St. 299; Reno Power, Lt. & Water Co. v. Pub. Serv. Comm., 298 Fed. 790, P.U.R. 1923-E 494. (10) A group allowance for construction overhead costs of fifteen per cent upon original cost and seventeen per cent upon reproduction cost, exclusive of the cost of financing, which is not a proper charge to capital, is reasonable and fair, and this is especially true where the property has been constructed piecemeal. Re United Railways Co., 13 Mo. P.S.C. 606; Aluminum Goods Mfg. Co. v. Laclede Gas Lt. Co., P.U.R. 1927-B (Mo.) 1; Whitten-Wilcox, Valuation of Pub. Serv. Corps. (1928 Ed.) sec. 591, pp. 1092-1111: 1 Spurr, Guiding Principles of Pub. Serv. Reg., sec. 9, pp. 426-443. (11) A return of seven per cent upon the fair value of the property used and useful, and necessary in rendering service to the public, is reasonable, and just to both the utility and its patrons. Dayton-Goose Creek R. Co. v. United States, 263 U.S. 456, 68 L. Ed. 401; Willcox v. Gas Co., 212 U.S. 48, 53 L. Ed. 399, 48 L.R.A. (N.S.) 1134, 15 Ann. Cas. 1034; Cedar Rapids Gaslight Co. v. Cedar Rapids, 223 U.S. 670, 56 L. Ed. 604; Des Moines Gas Co. v. Des Moines, 238 U.S. 172, 59 L. Ed. 1253, P.U.R. 1915-D 577; San Diego Land & Town Co. v. Jasper, 189 U.S. 439, 47 L. Ed. 892; Stanislaus County v. Canal & Irrig. Co., 192 U.S. 201, 48 L. Ed. 406; Chesapeake & Potomac Tel. Co. v. Commonwealth of Virginia, 136 S.E. 586, P.U.R. 1927-B 484.

D.D. McDonald and J.P. Painter for respondents.

(1) Reproduction cost less depreciation has been held to be the dominant factor in determining the value for rate base of public utility property. Des Moines Water Co. v. Des Moines, 192 Fed. 197; Knoxville v. Knoxville Water Co., 212 U.S. 1; State ex rel. Southwestern Bell Co. v. Public Service Commission, 262 U.S. 276; Bluefield Water Works & Improvement Co. v. Public Service Commission, 67 L. Ed. 1176; State ex rel. St. Joseph v. Busby, 274 S.W. 1067. (2) The amount in the...