Utah Power & Light Co. v. Public Service Commission

• Decision Date: 10 October 1944
• Docket Number: 6658
• Citation: 152 P.2d 542,107 Utah 155
• Parties: UTAH POWER & LIGHT CO. v. PUBLIC SERVICE COMMISSION et al
• Court: Utah Supreme Court

152 P.2d 542

107 Utah 155

UTAH POWER & LIGHT CO. v. PUBLIC SERVICE COMMISSION et al

No. 6658

Supreme Court of Utah

October 10, 1944

Original certiorari proceeding by the Utah Power & Light Company against Public Service Commission of Utah and George S. Ballif, Donald Hacking and Oscar W. Carlson, Commissioners of the Public Service Commission of Utah, to review an order of the Public Service Commission, directing a reduction in rates charged for electrical energy.

Order of the Commission affirmed.

Order of Commission affirmed.

George R. Corey, Judd, Ray, Quinney & Nebeker, and W. G. Howell, all of Salt Lake City (S. I. Barber and Reid & Priest, all of New York City, of counsel), for plaintiff.

Grover A. Giles, Atty. Gen., and Clinton D. Vernon, of Salt Lake City, for defendants.

WOLFE Chief Justice. LARSON, McDONOUGH, and WADE, JJ., concur. HOYT, District Judge, sat in place of MOFFAT, J., deceased. HOYT, District Judge, dissenting.

OPINION

WOLFE, Chief Justice.

Certiorari to review an order of the Public Service Commission of Utah. The order directed a reduction in the rates charged by the Utah Power & Light Company to its customers in Utah for electrical energy.

The petitioner, hereinafter called Company, is a corporation duly organized and existing under and by virtue of the laws of the State of Maine and duly authorized to do business in the State of Utah. It is an "electrical corporation" and a "public utility" as those terms are defined in Title 76, U. C. A. 1943. It furnishes electrical energy to customers in southeastern Idaho northern and central Utah, and a small part of southwestern Wyoming. For the purposes of this case the Commission accepted the Company's separation or allocation of plant which it considered was used and useful in the rendering of electrical service in the state of Utah. On the basis of this separation 90.6% of the total plant cost was allocated to Utah operations.

On August 15, 1942, the Public Service Commission of Utah hereinafter referred to as the Commission, upon its own motion initiated this proceeding to inquire into the reasonableness of rates charged for electrical energy by the Utah Power & Light Company. An amended complaint was filed by the Commission on September 15, 1942. This complaint alleged in substance that the Company was at present and had been earning in excess of a reasonable return on a "just and proper rate base." It further alleged that the rates charged by the Company were unjust, unreasonable, and otherwise in violation of Title 76 of 1933 Revised Statutes of Utah, as amended. The complaint ordered that a public hearing and investigation be had to determine a just and proper rate base; to ascertain a fair and reasonable rate of return on said rate base, and to inquire into the reasonableness of the Company's existing rates.

The Company by answer denied that it had been making more than a reasonable rate of return or that its rates were unjust, unreasonable or unlawful. It further alleged that it was entitled to earn a reasonable return upon the value of its property used and useful in rendering electrical services to customers in Utah.

After a lengthy hearing the Commission found against the Company on all material issues and ordered that "the rates and charges made and demanded and received by the Utah Power & Light Company from its customers in the state of Utah for electric energy shall be decreased to reflect a reduction in rates which, when applied to the 1941 volume of sales, will amount to not less than $ 1,504,644 annually." It further ordered the Company to file with the Commission new schedules of rates that would "(a) reflect the rate reduction ordered * * * and (b) be non-discriminatory, just and reasonable * * *." The company thereupon filed an application for rehearing setting forth in detail the grounds therefor. This application was denied and the Commission brought the record before this court for review.

While numerous grounds are urged as a basis for reversal of the Commission's order, there is one fundamental contention, upon the determination of which many of the other specifications of error hinge. In its original brief the Company posed this issue by its contention that it had a right, granted by statute and insured by the Constitution, to have its rates established by the Commission at a level which would permit the Company to earn a reasonable return on the "fair value" of its property used and useful in serving its Utah customers.

The Company does not contend that the Commission was required to adopt any single formula or any particular group of formulae as a measuring rod for ascertaining value. Its contention is simply that the Commission is required to adopt some formula reasonably calculated to find the "present fair value" of the property; that the Commission cannot ignore evidence of value and determine a rate base founded upon the "cost" of the property devoted to public service. This argument recognizes the essential difference between what might have been paid for property many years ago and what the property is now worth. When various properties were acquired they may have been of the best known most modern design and of great value, and a short time thereafter may have been rendered practically worthless because outmoded by later technical advances in the art of producing electrical energy. Conversely, the property may have been acquired when land values were low and few markets were available at a relatively low cost and now because of the growth of the area--increase in available demand for the product and increased demand for land--be of greater value. In its original brief, the Company contended that it had both a constitutional and a statutory right to have its rate base established in relation to value as distinguished from cost; that it was entitled to a rate which would permit it to earn a reasonable return on the present fair value of its property.

Between the time the Company filed its original brief and the time it filed its reply brief, the United States Supreme Court decided the case of Federal Power Commission v. Hope Natural Gas Company, 1944, 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333. In view of this decision the Company abandoned its contention that the right to have rates established on a "value" rate base was insured by the Federal Constitution. However, it vigorously contends that the Commission is still required by the various sections of the Public Utilities Act, Title 76, U. C. A. 1943, to fix utility rates upon a value rate base.

The Commission adopted a directly contrary position. It held that the just and proper rate base for the Company is the amount actually and "prudently invested" in the property used and useful in rendering Utah service. The Company offered to prove the value of its property by evidence of the reproduction cost new and reproduction cost new less depreciation as of July 1, 1941. Considerable evidence along this line was admitted. In its report the Commission stated that:

"After listening to such testimony for about a day and a half the Commission asked the Company to state what additional witnesses it proposed to call in connection with the reproduction cost new less depreciation of its properties in Utah and, briefly, what their testimony would be. Counsel for the Company prepared a statement as to what additional testimony it proposed to offer in this connection and read the same into the record. After considering the testimony which had been received and the statement of what additional evidence on reproduction cost the Company proposed to offer, the Commission sustained an objection to the introduction of further evidence on this subject and granted a motion to strike the evidence in that regard which had been read into the record. The objections made by counsel for the Commission to such evidence were that it is unreliable, fallacious, immaterial, irrelevant, incompetent, and of no probative value in such a case as this."

Toward the close of the hearing the question of the admissibility of this evidence relating to reproduction costs, etc., was again raised. The Commission ruled that "however offered or submitted, the Commission would not receive in evidence proof of reproduction cost new and proof of reproduction cost new less depreciation." In so ruling, the Commission indicated that it was cognizant of the role of reproduction cost data in ascertaining the present fair value of utility property for it stated that "Under the 'fair value' rule reproduction cost new less depreciation is frequently the controlling element."

From the entire record it becomes unmistakably clear that the Commission rejected "fair value" as a measuring rod for the determination of a proper rate base. In lieu of "fair value" the Commission purported to ascertain the dollars "prudently invested" in the acquisition of Company's property and the expense of integrating that property into a co-ordinated system. This prudent investment cost was adopted as the rate base upon which the Company was to be permitted to earn a reasonable return. We, therefore, are squarely confronted with the question of whether a utility in the state of Utah has the right to have rates established by the regulatory body which will permit the utility to earn a reasonable return on the "fair value" of its property which it has devoted to rendering public service in Utah. If it has, this court must set aside the order of the Commission which established a rate base which excludes value and purports only to reflect the amount "prudently invested" in acquiring the property and integrating it into single system.

The problems implicit in resolving this contention dictate that we discuss the...