United Gas Corp. v. Mississippi Public Service Commission

• Decision Date: 20 February 1961
• Docket Number: No. 41777,41777
• Citation: 240 Miss. 405,127 So.2d 404
• Parties: , 38 P.U.R.3d 252 UNITED GAS CORPORATION v. MISSISSIPPI PUBLIC SERVICE COMMISSION.
• Court: Mississippi Supreme Court

Page 404

127 So.2d 404

240 Miss. 405, 38 P.U.R.3d 252

UNITED GAS CORPORATION v. MISSISSIPPI PUBLIC SERVICE COMMISSION.

No. 41777.

Supreme Court of Mississippi.

Feb. 20, 1961.

Brunini, Everett, Grantham & Quin. Jackson, Wilkinson, Lewis, Madison & Woods, Shreveport, La., for appellant.

Joe T. Patterson, Atty. Gen., by Wade Creekmore, Asst. Atty. Gen., Jackson, Fred Bush, Jr., Holly Springs, Thomas H. Watkins, Jackson, for appellee.

ETHRIDGE, Justice.

This is a public utility rate case. Appellant United Gas Corporation (United) operates a natural gas distribution system in Mississippi. The issues include determination of the rate base and rate of return, allowed United by the Mississippi Public Service Commission (Commission). We affirm that part of the order using net investment or original cost less depreciation for the rate base, but reverse the Commission's actions in disallowing as operating expenses the cost of an employees' stock purchase plan, modest contributions to charities, wage and postage increases, and also the disallowance as an operating expense of increased gas purchase costs to United, resulting from its supplier's bonded and filed rate increases with the Federal Power Commission (FPC). Accordingly, this cause is remanded to the Commission for proper allowance of these items as operating expenses, and a redetermination of a fair and reasonable rate of return.

On June 16, 1958, United filed with the Commission notice of proposed changes in its rate schedules for natural gas service. Public Utilities Act of 1956, Miss.Laws 1956, Ch. 372, Sec. 10; Miss.Code 1942, Rec., Sec. 7716-10. They became effective August 1, 1958, under a refunding bond as authorizied by statute. Miss.Laws 1956, Ch. 372, Sec. 10. Public hearings were begun on August 19 and, with several recesses, were concluded on November 26, 1958. On December 15, 1958, the Commission entered its opinion and order, which is here under review, setting aside and annulling the proposed increase in rates. United then appealed to the Chancery Court, First Judicial District of Hinds County, which on July 19, 1960, affirmed the Commission's order. This appeal followed. The increased rates have been continued under bond for refund if finally disallowed.

United is a Delaware corporation authorized to do business in Mississippi and other states. For many years it has been engaged in the business of distributing and selling natural gas to the public by means of distribution facilities and equipment located in this state. Retail natural gas service is supplied by United in Mississippi to more than 70,000 customers in 67 cities and towns and also various unincorporated and rural communities.

Before the bonded rates went into effect, it furnished natural gas service under 30 different rate schedules. The bonded rates replaced the 30 rate schedules with 4 new ones. The Commission said the over-all effect of the proposed rates would be an increase of $1,764,000.00 a year, based on operations during 1957, or about 32 percent for all classes of customers in Mississippi, but more in some areas and less in others.

United has not increased the price of gas to its domestic and small commercial consumers in Mississippi during the 25 year period in which it has furnished this service. The Commission found that the company's capital structure is 'prudent and sound.' It compares 'favorably with that of other well-managed natural gas companies.' Apparently United is an efficiently managed public utility.

Appellant is a multi-state corporation with total assets, as of December 31, 1957, of $572,074,858.59. It operates natural gas distribution facilities, and also owns other corporate stock. It has two wholly owned corporate subsidiaries: Union Producing Company (called Union) and United Gas Pipe Line Company (called Pipe Line). Union explores and produces oil and gas. Pipe Line purchases gas from producing fields and transports it in interstate commerce to various markets through its pipe lines. United purchases from Pipe Line all of the gas distributed by United in Mississippi. In this case we are not concerned, except indirectly, with the out-of-state operations of United, or with the interstate operations of Union and Pipe Line. However, as will be considered subsequently with reference to operating expenses, the rates charged by Pipe Line for the gas which it sells United, under schedules filed with the FPC, raise the principal question with reference to operating expenses.

United's gas distribution system consists of distribution mains of various sizes, district regulators to control pressure, services (the pipe connection between the distribution main and the customers' premises), meters and service regulators. General property necessary to maintain and operate the business in Mississippi includes automotive and other miscellaneous equipment, as well as office buildings, warehouses, and service centers at various locations. As of December 31, 1957, United Gas owned in Mississippi 1,212 miles of distribution mains ranging in size from 3/4 inch to 12 inches, 75,688 meters of various makes and sizes, and 108 automobiles and trucks.

The Public Utilities Act of 1956, Ch. 372, Miss.Laws 1956, provides in Sec. 8(a): 'No rate made, deposit or service charge demanded or received by any public utility shall exceed that which is just and reasonable. Such public utility, the rates of which are subject to regulation under the provisions of this act, may demand, collect and receive fair, just and reasonable rates for the services rendered or to be rendered by it to any person. Rates prescribed by the commission shall be such as to yield a fair rate of return to the utility furnishing service, upon the reasonable value of the property of the utility used or useful in furnishing service.'

Section 11 states: 'Whenever the commission, after hearing had on reasonable notice finds that the existing rates in effect and collected by any public utility are materially excessive or insufficient or unreasonably discriminatory, or in anywise in violation of any provision of law, the commission shall determine the just and reasonable rates which will yield a fair rate of return to the utility for furnishing service, * * *.'

Section 12 pertains to the rate base: 'In regulating the rates of any public utility hereunder, the commission shall, on hering after reasonable notice, ascertain and fix the rate base of the property of the public utility when the same is relevant or material to the exercise of the jurisdiction of the commission, and may make readjustments from time to time and ascertain the cost of all new construction, extensions and additions to the property of every public utility. In arriving at such rate base the commission shall give due consideration to all elements that are generally considered in determining the rate base for rate making purposes.'

These statutory provisions define and fix the powers of the Commission in regulating the rates of public utilities.

I. The Rate Base

The leading case in this state on utility rate regulation is Southern Bell Telephone & Telegraph Co. v. Mississippi Public Service Commission, 1959, 237 Miss. 157, 113 So.2d 622 (sometimes called the Mississippi Southern Bell case). It was there held that the Mississippi statutes do not bind the Commission to the use of any particular formula in determining the reasonable value of the property of a public utility for rate making purposes. There are a number of useful formulae, including depreciated original cost, sometimes known as net investment, or original cost less depreciation; reproduction cost of the property less depreciation; depreciated prudent investment; trended original cost less depreciation; and others. The statute simply provides that the rate prescribed shall be such as to yield a fair rate of return upon the reasonable value of the property used and useful in furnishing service. The 1956 Act does not impose upon the Commission a requirement that the so-called fair value formula of Smyth v. Ames, 1898, 169 U.S. 466, 18 S.Ct. 418, 42 L.Ed. 819, with its emphasis upon reproduction cost new, should be adopted as the measure of the rate base. Evidence of reproduction cost new less depreciation is admissible in a hearing on a rate case, but its probative value is primarily to be determined by the Commission. It is not required to accept this opinion evidence without appraisal, but can weigh it and evaluate it.

In the Mississippi Southern Bell Case the Commission admitted opinion evidence on reproduction cost new, but after considering it, concluded the evidence was conjectural, speculative, unrealistic and unrereliable. Hence the agency rejected that evidence, and fixed that rate base on original cost less depreciation. That action was affirmed by this Court. 237 Miss. at pages 218, 227-228, 113 So.2d at pages 644, 649. Essentially, the same thing was done by the Commission in the instant order of December 15, 1958.

United proposed a test period designated as the year of 1957. At the beginning of hearings in August 1958, operating results were available for the first six months of 1958, and were submitted to the Commission's staff. The Commission took the position that it should consider, in its determination of the rate base and rate of return, the year 1957 and also the first six months of 1958. It stated that the company's most recent operating experience was entitled to 'substantial weight.' This is true, provided there is a valid projection of revenue and expenses for the balance of the year. However, since the case will be reversed and remanded, the seriously disputed issue as to whether the Commission properly normalized these factors for the last six months of 1958 will not reoccur. Hence it is not necessary to pass on that question.

Rate-making is essentially a legislative function, delegated to the Public Service Commission, unless the rates...