The State ex rel. Capital City Water Company v. Public Service Commission of Missouri

• Decision Date: 22 May 1923
• Citation: The State ex rel. Capital City Water Company v. Public Service Commission of Missouri, 252 S.W. 446, 298 Mo. 524 (Mo. 1923)
• Parties: THE STATE ex rel. CAPITAL CITY WATER COMPANY, Appellant, v. PUBLIC SERVICE COMMISSION OF MISSOURI
• Court: Missouri Supreme Court

252 S.W. 446

298 Mo. 524

THE STATE ex rel. CAPITAL CITY WATER COMPANY, Appellant,
v.
PUBLIC SERVICE COMMISSION OF MISSOURI

Supreme Court of Missouri

May 22, 1923

Appeal from Cole Circuit Court. -- Hon. John G. Slate, Judge.

Affirmed.

Irwin & Haley, I. R. Kelso, Sparrow & Patterson and John M. Atkinson for appellant.

(1) The valuation finding was at least $ 100,000 less than the fair present value of the company's property on January 1, 1917. It was grossly inadequate and unreasonable, and is not supported by the oral evidence and exhibits. The action of the Commission, in fixing a value so low, and in basing rates thereon, was arbitrary and unjust, and results in the taking of the company's property without due process of law and without just compensation, in violation of the State and Federal Constitutions. (a) The evidence offered by the company established these three measures of value: Reproduction new, less depreciation, as to which the preponderance of testimony supported the value found by Chester & Fleming, $ 475,958; Actual book or historical cost, corroborated, remains undisputed by any testimony whatsoever, $ 476,561; Investment cost, which is merely a matter of computation, $ 409,996. The value fixed by the commission was $ 360,000. (b) The values placed on the various tracts of land and buildings by the commission's engineer was shown to be ridiculously low by the testimony of Jefferson City real estate men and bankers, who placed values five times greater on certain of the tracts. (c) The prices used for construction estimates by the company on clear well and settling basins were supported by the testimony of contractors who had done similar work amounting to millions of dollars. (d) The company's proof of the value of boilers, pumping machinery and smoke stack consisted of catalog and contract prices, cost of erection as shown by the books, and testimony of builders and erectors of similar machinery. The commission finding was supported by the testimony of one of its engineers who admitted that he had never constructed or superintended the construction of a water plant. (e) Ten competent witnesses having experience in excavation and pipe-laying work in Jefferson City supported the company's estimate of the cost of mains installed. The testimony of one witness, only, supported the commission's finding. (f) The company's claim for overhead costs is in accordance with percentage allowances by the commission in other water plant valuations. The commission's allowance was an arbitrary and wholly unreasonable reduction from percentage allowances established by it in other cases. (g) The company frequently carries large amounts of unpaid bills for water furnished State institutions at Jefferson City. The city is now, and has been for many years, indebted to the company. Despite these unusual conditions which require a large working capital, the commission allowed a working capital of only $ 7,000, less than that allowed other plants, fairly comparable. (h) No specific allowance for going value was included by the commission. The Supreme Court of the United States has repeatedly held that it is an element of value and must be given consideration. In subsequent cases, the commission has expressly allowed substantial sums for going value. City of Joplin v. Home Telephone Company, 4 Mo. P. S. C. R. 64; Des Moines Gas Company v. City of Des Moines, 238 U.S. 165, 199 F. 204; Denver v. Union Water Company, 246 U.S. 178; Cedar Rapids Gas Company v. Cedar Rapids, 223 U.S. 655; Kings County Lighting Co. v. Willcox, 210 N. N. 479; Pioneer Telephone & Telegraph Co. v. Westenhaver, 29 Okla. 447; Fort Scott Gas & Electric Co. v. Fort Scott, P. U. R. 1915 B. 481; Omaha v. Omaha Water Co., 218 U.S. 180; Detroit Telephone Company Rate Case, P. U. R. 1918 C. 81; Knoxville v. Knoxville Water Company, 212 U.S. 1; Galena Water Company v. Galena, 87 P. 735; Fruit Belt Telephone Co., 18 C. L. 906; Passaic Gas Company Case, 15 C. L. 354; Valparaiso City Water Co. v. Valparaiso, 69 N.E. 1018; In re Kansas, Clay County & St. J. R. Co., 8 Mo. P. S. C. 682. (2) The rate of return of seven per cent allowed does not permit the company to earn a profit equal to profits in other branches of industry. The ability of the company to secure capital for needed extensions is destroyed. That rates of interest have kept pace with the increased costs and increased value of property of all kinds is a matter of common and universal knowledge. (a) Rates fixed by the State, a commission, or a municipality to govern the charges of a public service company must be reasonable, and the question of reasonableness or unreasonableness is one for the determination of the courts. If the rates fixed are unreasonable they deprive the company of its property without just compensation and therefore without due process of law. Chicago, M. & St. P. Railway Co. v. Minnesota, 134 U.S. 418; Wadley Southern Railway Co. v. Georgia, 235 U.S. 651; Stone v. Farmers Loan & Trust Co., 154 U.S. 326; San Diego Land & Town Co. v. National City, 174 U.S. 739. (b) A rate which does not yield sufficient net return to the public utility to attract and invite the necessary capital to provide funds for the natural expansion of such utility, cannot be held to be reasonable and lawful. Home Telephone Company v. Carthage, 235 Mo. 644, 666; Lincoln Gas & Electric Co. v. Lincoln, 250 U.S. 258; Omaha & C. B. Street Ry. Co. v. Railroad Commission, 173 N.W. 690, P. U. R. 1919 F. 307; Butler v. Lewiston Street Ry. Co., P. U. R. 1916 D. 25, 46; Commission v. Providence Gas Company, P. U. R. 1919 B. 531; Re Sumpter Valley R. Co., P. U. R. 1918 C. 659; Re Philadelphia Electric Co., P. U. R. 1918 C. 659; Briggs v. Peaks Island Corp., P. U. R. 1917 E. 750, 761; Re Springfield Consol. Water Company, P. U. R. 1918 E. 358; Re San Joaquin L. & P. Corp., P. U. R. 1918 F. 662; Re Rates of Telephone Companies, P. U. R. 1920 B. 411. (c) The risks of loss in the utility business are today very great. Some measure of considerate, if not liberal, treatment should be extended to investors venturesome enough to assume such risks. Re Tri City R. Co., P. U. R. 1919 E. 836; Re Georgia R. & P. Co., P. U. R. 1918 F. 624. (d) It is necessary, under the present high costs of obtaining money, to permit utility corporations to sell their securities at rates of interest and discount netting more than eight per cent to the investor. Good faith, if not legal obligation, requires that the State protect these investors by prescribing rates which will enable the corporations to pay the rates of interest applicable to their securities and provide a fund for the making up of the discount when the securities mature. Re United R. & Electric Co., P. U. R. 1920 A. 1. (3) Even though it be determined that the valuation as fixed and determined by the Commission was adequate and the rate of return of seven per cent was just and reasonable, yet the uncontroverted evidence in this case shows that the company incurred large deficits each year, under the rates which the commission compelled it to charge. (a) The commission fixed the value of the property at $ 360,000. Subsequent extensions brought this value up to $ 379,380. It prescribed a rate of return of seven per cent after payment of operating expenses and depreciation reserve. (b) It has compelled the company to charge rates which produced a return much lower than seven per cent. (c) The fact of the inadequacy of the return has been conceded by the commission in its written reports, but it refused to allow an increase of rates.

R. P. Spencer and James D. Lindsay for respondent.

(1) The order of the commission reaches this court with the presumption of right action upon the part of the commission and as prima-facie valid. It has the weight of chancellor's judgment. State ex rel. Wabash v. Public Service Com., 271 Mo. 166; Lusk v. Atkinson, 268 Mo. 109. (a) On appeal in a chancery case, the findings of a chancellor on the facts will not be disturbed, unless clearly erroneous. New England Loan & Trust Co. v. Browne, 177 Mo. 423; Troll v. Real Estate Co., 186 Mo.App. 206. (b) Conclusions of fact of the trial court, in an equity case, where there is a sharp conflict in the testimony of witnesses, will usually be respected. Price v. Rausche, 186 S.W. 968; Holman v. Holman, 183 S.W. 623. (c) The findings of a chancellor on conflicting evidence will not be disturbed. Walker v. Wallis, 186 S.W. 1041. (d) Even where the findings of the chancellor are slightly against the weight of the evidence, they will not be disturbed on appeal except for plain error. Hunnell v. Zinn, 184 S.W. 1154. (e) Administrative orders made by a utility commission fixing rates are legislative in their nature. Louisville & Nashville Railroad Co. v. Garret, 231 U.S. 313; Grand Trunk Railway v. Indiana Railroad Commission, 221 U.S. 403; Wadley Southern Railroad Co. v. Georgia, 235 U.S. 660; State ex rel. Sedalia v. Public Service Com., 275 Mo. 208. (f) The judiciary may not exercise any power properly belonging to the legislative department of Government. Mo. Constitution, art. 3. (g) In so far as the last clause of Section III of the Public Service Act, attempts to give power to this court to make a finding on the facts set forth in the record and to substitute its judgment on such facts for the judgment of the commission, it is to that extent in conflict with Article III of the Constitution and is void. Bacon v. Rutland Railroad Co., 232 U.S. 134; State v. Great Northern Railroad Co., 130 Minn. 57; Detroit & Mackinac Ry. v. Mich. Railroad Co., 235 U.S. 402; Interstate Commerce Com. v. Ill. C. Railroad Co., 215 U.S. 470. (h) Sections 123 and 124 of the Public Service Act are not in conflict with Article III of the Constitution and are in accord with the other provisions of the act and with the trend of judicial opinion and should be given full force and effect by this court. State ex rel. v....