State v. Hampton Water Works Co.

• Decision Date: 04 March 1941
• Docket Number: No. 3189.,3189.
• Citation: 18 A.2d 765
• Court: New Hampshire Supreme Court
• Parties: STATE v. HAMPTON WATER WORKS CO.

18 A.2d 765

STATE

v. HAMPTON WATER WORKS CO.

No. 3189.

Supreme Court of New Hampshire.

March 4, 1941.

Rehearing Denied April 1, 1941.

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Appeal from Public Service Commission.

Proceeding by the State against the Hampton Water Works Company involving rates charged by the company. From an order of the Public Service Commission fixing the company's rates, the company appeals.

Remanded.

Frank R. Kenison, Atty. Gen, for the State.

Wyman, Starr, Booth, Wadleigh & Langdell, of Manchester (L. E. Wyman, of Manchester, orally), for appellant.

ALLEN, Chief Justice.

By an order dated June 13, 1940, the commission prescribed rates based on a valuation of the company's property of $435,000, on a 5,1/2% rate of return, and on estimates of receipts and charges which would yield the return. The company claims a higher valuation, a higher rate of return and a higher estimate of charges. In its appeal it sets forth many specific claims of error in the commission's findings of facts and rulings of law, as well as of failure to act upon requests for findings and rulings.

At the outset, the discretionary scope of action upon the appeal as authorized by the statute (P.L. c. 239, § 18) has been considered. Differing from the laws in many jurisdictions which limit rights of appeal from the orders of administrative tribunals in rate cases to issues of law, the local statute provides that an order or decision of the commission may be vacated not only for errors of law, but as well if "the court is satisfied, by a clear preponderance of the evidence before it, that such order is unjust or unreasonable". P.L. c. 239, § 11. Under certain circumstances new evidence in addition to that received by the commission may be introduced. Ib, § 12. The statute, in the measure of revisory power conferred by it, was construed in Grafton, etc, Co. v. State, 77 N.H. 490, 503-506, 93 A. 1028, and the construction was impliedly adopted by the subsequent revision of the public laws in 1926, in which no change of language in the statute was made. The State's argument for a review giving more weight to the findings of the commission than was considered the measure in that case is therefore more properly one to be addressed to the legislature than to the court. "* * * it is the conscience of the appellate tribunal which is invoked." Id, 77 N.H. page 505, 93 A. page 1034.

As a corollary proposition, the discretion vested in the court in prescribing the scope and terms of a remanding order is its own. The statutory mandate is to furnish directions under which the commission may do what justice may require. Unfortunately the commission and the company are here charged by each with a provocative attitude against the other in the proceeding. The commission asserts that the company has been unco-operative. Its report is alleged to bear internal evidence that impartiality has not been duly observed. It has ignored the company's requests for findings and requests so far as specific answer to them has not been made. The claim is advanced that the commission has evolved a value and rate to produce a certain income, contrary to the rule that "the whole theory of rate regulation" bars the rate of profit as a consideration of value. Grafton, etc, Co. v. State, 77 N.H. 539, 543, 94 A. 193, 196.

Without analysis of the evidence respecting the charges, it is enough to say that the company, with no attack on the integrity or competency of the commission, lacks confidence in its sense of fairness in the proceeding, while the commission, aware of the challenge of its judicial impartiality, may more or less naturally, if unconsciously, be affected by it. It was said many years ago in Beattie v. Milliard, 55 N.H. 428, 435, 436, that "next to securing a fair and impartial trial for parties, it is important that they should feel that they have had such a trial." In pursuance of this policy of the law, it is thought that the ends of justice may be better accomplished by a full exercise of the revisory powers of the court. The special training, experience and skill of the commission to deal with rate problems is given full recognition, but the proper conclusions from the evidence and the declaration of legal rules are here the matters chiefly in contention, so that on the whole, with all features of the situation considered, a recommitment to the commission for further proceedings in the nature of a general new trial does not commend itself.

Moreover, "If rate regulation is to be effective, there must come at sometime an end of hearings and a decision of the questions involved." St. Joseph, etc, Co. v. United States, 298 U.S. 93, 56 S.Ct. 720, 744, 80 L.Ed. 1033. This is particularly true in view of the local statute (P.L. c. 238, § 23) which limits the life of a rate order to a term not exceeding two years.

Upon the issue of value, it is elementary that it is one of fact, and that actual or historical cost and reproduction cost, with due regard for depreciation, are factors bearing importantly on value, neither cost being determinative as matter of law. The test that "The value of property is what it is worth in money, what it will bring in money to the seller or what it will cost the buyer in money to obtain it" (Grafton, etc, Co. v. State, 78 N.H. 330, 334, 100 A. 668, 670) has not changed as the legal rule.

It is not clear how the commission arrived at the rate base of $435,000. But it is clear that they misinterpreted the statute relating to depreciation and took a view of the effect of depreciation contrary to law. In their report they advance the propositions, first, that the statute (P.L. c. 240, § 11) impliedly forbids the use of a depreciation reserve for purposes of dividend declarations, and, second, that the customers may not justly be charged to pay a return on such part of value as has been created or maintained by money furnished by them.

In respect to the statute, its construction by the commission is utterly indefensible. Its provisions (P.L. c. 240, §§ 9, 10, 11) require a utility to carry a "proper and adequate" depreciation account as the commission may require and under its regulations, that the fund may be used for restorations or additions, or invested until such use with the income from it in invested form to be added to the fund, and that no dividends shall be paid "except out of net corporate income, and except after setting aside" any required depreciation reserve.

While the statute requires income from the fund in an invested form to be added to the fund, it is silent as to any other limitation barring the utility from treating the fund like any other capital after its use for restorations or additions. The purpose of the statute is to secure the eventual use of the fund in rehabilitation and development of the plant; it is in the interest of the consuming public that service shall not be impaired, and the establishment of the fund and its use in such manner serves to maintain the plant in its integrity and to permit its enlargement to meet increased demand for its service. The statutory objective is thus accomplished, and the objective is further effected by control confining the source of dividends to net earnings after setting aside a proper reserve. Beyond this the statute in question does not undertake to make regulations affecting rates. It is not intended to operate as a restrictive test in the finding of just and reasonable rates in addition to its express terms. The statute for such rates (P.L. c. 238, § 5) is under no implied control. The express bar to the payment of dividends from the income of the fund while it is in an invested form implies no bar beyond that. If a result of a bar of any return to the owners from the depreciation account after its use for restorations and additions had been the legislative purpose, it would have been expressed in general and sweeping terms. Clearly a limited bar covers only its limits.

The language in the statute prohibiting dividends except from net earnings and after setting aside the depreciation reserve means that the reserve shall be deducted from the gross earnings as an item chargeable against them before the net earnings are ascertained. This is understood to accord with the accounting system everywhere adopted in the bookkeeping of utilities.

To sustain the commission's construction would be to hold that a utility's system could earn money for its owners only on its depreciated value, which would become less as depreciation increased, with an eventual depreciation equal to the actual value. The confiscatory result of a system without earning value to the owners would thus ensue.

In respect to the effect of depreciation in arriving at a proper rate base, aside from statutory regulation, the commission's report states that "unless the accrued reserve is deducted the real investment or equity of the owners will be overstated", and that "* * * it is difficult if not impossible, to justify any treatment which would force the customers to pay a return on the money which these customers have contributed for the sole purpose of restoring intact the actual investment sacrifice of the utility."

This position is considered to be in conflict with the statutory enactment that rates shall be just and reasonable. While the issue of what is just and reasonable is one of fact, the requirement of balanced adjustment of the respective interests of owners and consumers as the test of what is just and reasonable is matter of law. A proper rate is one of yield from property without loss of investment. Carrying the commission's position to its logical conclusion, an eventual entire loss of value for rate making purposes would occur, as already pointed out. The quoted statement suggests no qualification in avoidance of such a result. The commission has found the depreciation charge proper and adequate. No inquiry has been made to...