The City Of Wheeling v. The Natural Gas Co. Of West Va.

• Decision Date: 05 June 1934
• Docket Number: (No. 7849)
• Court: West Virginia Supreme Court
• Parties: The City of Wheeling v. The Natural Gas Companyof West Virginia

115 W.Va. 149

The City of Wheeling

v. The Natural Gas Companyof West Virginia

(No. 7849)

Supreme Court of Appeals of West Virginia.

Submitted April 11, 1934.

Decided June 5, 1934.

1. Gas

Consideration should be given to original cost in a gas plant rate valuation.

2. Gas

Where consumers, due to bookkeeping methods, have paid for items of capital under the guise of operating expenses, deduction should be made for such items in determining the fair value of the utility's property for rate making purposes.

3. Gas

In determining accrued depreciation of the physical properties of a utility, consideration must be given to such elements as obsolescence, inadequacy, physical change, supersession, development of the art and change in the requirements of the public.

4. Gas

In measuring the accrued depreciation of the wells and equipment, consideration should be given to the rock pressure method.

5. Gas

The utility carries the burden in establishing an appreciated value of the leaseholds over their initial cost.

6. Gas

"Whether going concern value should be allowed ih determining a rate base depends upon the circumstances of the case." Point 2, syllabus, Charleston v. Public Service Commission, 110 W. Va. 245, 159 S. E. 38.

7. Gas

In arriving at a proper allocation of the utility's properties used and useful in the service in this state, due consideration should be given to the physical make-up of such properties, the movement of the gas within the states served, and the gas sales.

8. Gas

A utility is entitled to include in operating expenses a sufficient sum, based on the experience of the company, to take care of annual retirements.

9. Gas

A company in attempting to justify a charge by an affiliate for services must show not only what the service is worth, but the cost of rendering the same.

10. Gas

What is a reasonable expense to be allowed a utility in a rate proceeding depends largely upon the final outcome of the case.

11. Gas

i

Where it clearly appears that the consumers will be materially benefited by the commission's finding, a reasonable sum, charged over a period of years, may be included in the operating expenses, after determining the net revenue of the company, to reimburse the municipality, or party contesting the rates, for expenditures made in such case.

12. Public Service Commissions

"A utility is not entitled to an arbitrary percentage of net return. What is a fair net return depends upon the present day conditions. A. return is ordinarily considered ample which provides a sufficient amount to pay reason able dividends and pass something to a surplus account." Charleston v. Public Service Commission, point 5, syllabus, 110 w. Va. 245, 159 s. e. 38.

Appeal from Public Service Commission.

Proceeding by the City of Wheeling against the Natural Gas Company of West Virginia. From an order of the Public Service Commission dismissing its complaint, the City of Wheeling appeals.

Reversed and remanded.

P. J. McGinley, Carl O. Schmidt and Frank A. O'Brien, for appellant.

David E. Mitchell, Harold A. Ritz and Rummel, Blagg & Stone, for appellee.

Woods, President:

The City of Wheeling appeals from an order of the Public Service Commission, entered May 25, 1933, dismissing its complaint, filed August 14, 1931, wherein the rates imposed by the Natural Gas Company of West Virginia, under Tariff No. 6, were attacked as unjust, unreasonable, extortionate and unlawful.

The commission's action in upholding the rates established by the foregoing tariff was based upon certain findings, made as of December 31, 1931.

Summary of Findings

In relation to the fair value of the utility's property, the commission found as to valuation for the entire company and for public service in West Virginia:

Physical _____.......................

(reproduction new, less

Entire Company $7,467, 701

West Virginia $3,685, 390

depreciation)

Undistributed construction

costs ______________..............

(reproduction new, less

952, 681

471, 335

depreciation)

Organization

22, 000 514, 235 640, 260

10, 998 253, 775 324, 676

Going Value

Leaseholds

Total

$9,596, 877

$4,746, 174

To the West Virginia allotment was added $143,114, as working capital, making $4,889, 288 as the fair value of the property and capital so used by the public. And after deducting $185,769 for meters and service lines purchased by consumers prior to 1915, the commission arrived at the figure $4,703, 519 as a net rate base on which to calculate the net earnings of the utility.

In addition to the foregoing, the commission found (1) that the gross revenue of the company for its public service business in West Virginia for the year 1931, was $1,030, 610; (2) that the cost to the company in rendering the service, including allowance of $98,386 for retirements and replacements (depreciation of physical plant) and $68,503 for amortization, was $807,469; and (3) that the net earnings ($223,141) available for return to the defendant company, being at the rate of 4 3/4 % of the rate base, are not unfair to the West Virginia consumers. It did not fix a fair rate of return, but indicated in its opinion that 6 1/2 % was not unreasonable.

The commission had before it, in addition to a great mass of testimony taken during the hearing, reports by Mr. Williamson, its statistician, and by Mr. Jirgal, of

The Record

Arthur Andersen & Company, an accounting firm employed by the company, based upon examination of the company's books and accounts, and also an inventory and appraisal on behalf of the company by Ford, Bacon & Davis, engineers, with Mr. F. H. Lerch, Jr., in charge of the work, while Mr. J. Paul Blundon and assistants made and filed a valuation report for the City of Wheeling.

History of the Company

The Natural Gas Company, which was organized in 1885, operated as an independent company until 1925, when it was taken over by the Ohio Fuel Corporation, a subsidiary of the Columbia Gas & Electric Corporation. Throughout its existence it has been financed from earnings, with the exception of $601,123.68 cash capital. No bonds have been issued, and, except for temporary financing to pay for large construction jobs or the purchase of other companies, the company has had no occasion to borrow or owe money.

The report of the commission's statistician, based on the books of the company, shows that as of December 31, 1931, there was $2,997, 200 capital stock outstanding. $801,123.68 of that amount, as heretofore noted, was issued for cash, all of which, with the exception of $6,200 contributed in 1912, was advanced during the years 1885-1887, inclusive. In 1886, stock in the sum of $399,851.70 was issued in return for certain leaseholds, which proved to be of little value, and all of which have long since been abandoned. In 1912, 1916 and 1920 large stock dividends, totalling $1,933, 700, were issued. Over the period 1912 to 1916 stock totalling $57,300 was issued to employees as a bonus. The remainder of the outstanding stock was issued for legal services and interest. In addition to the issuance of stock the company has, up to December 31, 1931, paid to its stockholders $11,889, 234.60 in cash dividends. Beginning with 1922, as indicated in the following table the cash dividends have at no time been less than 10 per cent of the outstanding stock:

1922 ________________________________$ 449, 580

1923 ________________________________ 449, 580

1924 _________________________________ 359, 664

1925________________________________ 299, 720

1928 ___________________________________ 299, 720

1927 ______________________________... 299, 720

1928 _________________________________ 449, 580

1929 _________________________________ 1, 438, 656

1930....__________________________ 479, 552

1931 __________________________________ 419, 608

At the end of the year 1931 the company had, according to the book accounts, a corporate surplus of $2,532, 556.-17, and a depreciation reserve of $1,350, 789.25.

The company has been engaged in the natural gas business since its organization. Up to 1913, its rates were fixed by the city council the company appearing before the council at different times with statements supporting their reasons for adjustments in rates. In 1920 the commission permitted it to file its tariff No. 4 of 40c for domestic service, with discount of 2c for prompt payment, and in 1922 the company asked for authority to increase rates on "a step-up"' basis, ranging from 45 to 60c. After a hearing, the commission, December 10,

1923, denied the increase, from which order the company appealed. On February 26, 1924, this Court reversed the commission and remanded the case for further investigation. Natural Gas Co. v. Public Service Commission, 95 W. Va. 557, 121 S. E. 716. Thereafter (June 26, 1924), the company and all the protestants, including the City of Wheeling, filed with the commission a stipulation providing for dismissal of the proceeding and agreeing that the company should be authorized to file a tariff putting into effect a rate of 52c per thousand cubic feet for domestic service, etc., "said rates to be effective from the meter readings beginning about the 15th day of June,

1924, until the meter readings beginning about the 15th day of December, 1927." This being approved, the company was permitted to file its tariff No. 5, putting the agreed rate into effect. In 1929 the commission requested the filing of a new tariff, and after some correspondence, the company on June 27, 1930, submitted its No. 6, which is identical with No. 5. The domestic consumers since 1924, have been paying, and are still paying, 52c less the 2c discount.

Case on Appeal

The city urges eighteen separate points of error, all of which, according to its contention, involve matters of law. The company, however, insists that such assignments relate to matters of fact, and that the commission's findings thereon will not be disturbed on appeal.

The duty attempted to be cast upon this Court by the statute (Code 1931, 24-5-1) is...