Town of Oxford v. Oxford Water Co.

• Decision Date: 29 March 1984
• Citation: 463 N.E.2d 330,391 Mass. 581
• Parties: TOWN OF OXFORD v. OXFORD WATER COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 330

463 N.E.2d 330

391 Mass. 581

TOWN OF OXFORD v. OXFORD WATER COMPANY.

Supreme Judicial Court of Massachusetts,

Worcester.

Argued Jan. 13, 1984.

Decided March 29, 1984.

William T. Talcott, Jr., Worcester, for plaintiff.

Lane McGovern, Boston, for defendant.

Before HENNESSEY, C.J., and ABRAMS, NOLAN, LYNCH and O'CONNOR, JJ.

LYNCH, Justice.

The town of Oxford seeks declaratory relief pursuant to G.L. c. 231A, concerning its right under St.1904, c. 193, § 9, "to take by purchase ... the franchise, property, rights and privileges" of the Oxford Water Company (company) "on payment of the actual cost thereof." The statute further provides that "unless the dividends earned and declared by said company on its stock shall be equal to or in excess of five per cent per annum there shall be added to the first cost such a sum as will make the net return to the stockholders five per cent per annum on the investment." The town alleges that there is an actual controversy between the parties as to the meaning of the terms "actual cost" and "investment," and as to whether the town has the right to assume certain bonds issued by the company and secured by a mortgage as part payment of the purchase price. ¹

The case was commenced in the Superior Court in Worcester County and, at the request of both parties, the judge reported it to the Appeals Court without decision. G.L. c. 231, § 111. This court allowed the company's application for direct appellate review. G.L. c. 211A, § 10(A). We hold that an actual controversy exists on which we are permitted to make a binding declaration of right under G.L. c. 231A. We further hold that "actual cost" means the original cost of the investment less the cost of property contributed to the company; that "investment" refers to the amount the stockholders paid for the stock plus any earnings retained by the company; and that the town is authorized to assume the Series C mortgage bonds as part of their payment to the company.

The facts were stipulated to by the parties. The company is a corporation chartered in the Commonwealth by special act, St.1904, c. 193, and is presently engaged in furnishing the inhabitants of the town with water for domestic, industrial, commercial, and other purposes, including fire protection. Its assets include real estate, both land and buildings, and substantial personal property making up its distribution system through which it supplies water to its customers. These assets have been acquired by the company at various times throughout its existence. Some of the property making up the distribution system was acquired not through investment of the company's own capital, but as a result of "contributions" from developers and others for extension of water lines to their property. Since July, 1923, the company has been required to keep, and has kept, its books and accounts, and has filed returns for each year in accordance with the Uniform Classification of Accounts for Water Companies (1923), the forms prescribed by the Department of Public Utilities under St.1920, c. 583, § 2, and made applicable to the company by St.1920, c. 295.

On October 16, 1976, by a unanimous vote at a special town meeting, the town's board of selectmen was authorized to appoint a five member committee to be known as the water study committee. This committee was authorized to investigate the advisability and feasibility of acquiring the company by purchase or by exercise of the right of eminent domain and to report its findings and recommendations at the 1977 town meeting.

At the annual town meeting on May 11, 1977, the town unanimously voted to appropriate $600,000 for the purpose of purchasing the company's corporate franchise, property, rights and privileges. The vote further authorized the water study committee, on behalf of the town, to negotiate with the company to make this purchase, to consummate a purchase for a price not to exceed $600,000, and to pay the purchase price in part by assuming as much of the indebtedness of the company incurred in the construction or improvement of its property by the lawful issue of bonds secured by mortgage as the committee should deem advisable. In the event that the committee and the company were unable to agree on a price, the committee was further authorized to initiate and prosecute any litigation appropriate to determine the amount of the purchase price that the town should pay. On July 25, 1977, the committee offered to purchase the franchise, property, rights and privileges of the company for $494,724. This purchase price included "actual cost," which the town calculated in accordance with this court's holding in Southbridge v. Southbridge Water Supply Co., 371 Mass. 209, 355 N.E.2d 920 (1976), and that sum necessary to make the net return to the stockholders of the company five percent on the investment, which the town deemed to be the purchase price of the stock plus earnings retained by the company. The town also indicated it would like to assume the Series C first mortgage bonds as part of the purchase price. On August 5, 1977, the company declined this offer calling it "entirely inadequate." The parties to the present date have failed to agree on a specific purchase price or on how the disputed terms in St.1904, c. 193, § 9, should be defined.

1. Declaratory judgment. The town contends that this case presents an actual controversy appropriate for declaratory judgment within the meaning of G.L. c. 231A. The company's position is that the town has not yet voted to purchase the franchise, property, rights and privileges of the company and that, by this proceeding, the town is seeking an advisory opinion on the basis of which it will decide whether in fact it will purchase. ² The company's argument is that the town must absolutely commit itself to the purchase, before it even knows what the price will be. We found declaratory relief appropriate in Southbridge v. Southbridge Water Supply Co., 371 Mass. 209, 214-215, 355 N.E.2d 920 (1976), and we see no reason to reach a different decision here. It is not necessary that the parties be irrevocably bound to a course of action before a court can afford declaratory relief. See, e.g., LaCouture v. Retirement Bd. of Quincy, 11 Mass.App. 738, --- - ---, 419 N.E.2d 1052 (1981) (plaintiff was not obliged to retire before ascertaining by declaratory judgment what his pension would be).

The purpose of the declaratory judgment procedure is to remove uncertainty. In this case, it will "enable the parties to deal intelligently with the situation before them, to agree between themselves as far as possible, and to reduce as much as possible the area of future litigation." Cohasset Water Co. v. Cohasset, 321 Mass. 137, 149, 72 N.E.2d 3 (1947).

2. Actual cost. This court had its first occasion to consider the meaning of the term "actual cost" as used in special acts such as the one considered here in Southbridge v. Southbridge Water Supply Co., supra, 371 Mass. at 215, 355 N.E.2d 920. ³ There we held that "actual cost" should be calculated in substantially the same way as the Department of Public Utilities (department) determines the rate base for the purpose of setting rates. Id. at 216, 355 N.E.2d 920. The rate base is "the amount of the investment on which the company is entitled to an opportunity to earn a fair and reasonable return." New England Tel. & Tel. Co. v. Department of Pub. Utils., 360 Mass. 443, 450, 275 N.E.2d 493 (1971). It is computed on the basis of original cost, less accrued depreciation and less certain other deductions, and is derived from the company's books. Southbridge, supra 371 Mass. at 216, 355 N.E.2d 920. One advantage to this definition of "actual cost," as the issue was presented to the Southbridge court, was the relative ease of calculation, since the necessary figures would be found largely in the records kept by the company in accordance with the Uniform Classification of Accounts for Water Companies (1923), and submitted to the department in rate setting proceedings. A second advantage was that using the rate base calculation would take into consideration "the depreciation accrued on capital items over the years and recovered by the company through the rates which it has been permitted to charge." Id. at 216, 355 N.E.2d 920.

The company urges us to reconsider our holding in Southbridge for three reasons. It contends that equating "actual cost" with the formula used by the department to derive the rate base (1) strains the literal meaning of the words "actual cost" in that it includes implied deductions (such as depreciation); (2) is at odds with what the Legislature intended when it enacted c. 193 in 1904, because neither the concept of a rate base nor the concept of depreciation was in use at that time; and (3) it hampers the objective of the statute by complicating the determination of compensation to be made by the town.

Although much of the holding in Southbridge is applicable to the record before us, we do not feel bound to accept here that case's definition of "actual cost." In Southbridge, the company contended that the "actual cost" was "the full cost of the creation of the present system in its present condition." Id. at 215, 355 N.E.2d 920. This included, the company claimed, every single expenditure made by the company relative to "the planning, acquisition, construction, erection, installation, preparation, creation and preservation of the present functioning system." Id. Faced with the choice between such a complex and unworkable definition of "actual cost" and the relatively straightforward calculation based on the company's rate base, the court understandably opted for the latter. In contrast, the record now before us presents two equally workable definitions of "actual cost." We, therefore, reconsider the definition of "actual cost" in light of the facts and arguments applicable to this case.

We commend the company for its...