Works v. Pub. Serv. Comm'n.

• Decision Date: 14 December 1921
• Docket Number: 4447. [a1]
• Parties: Bluefield Water Works and Improvement Company v. Public Service Commission.
• Court: West Virginia Supreme Court

89 W.Va. 736

Bluefield Water Works and Improvement Company v.Public Service Commission.

4447. [a1]

Supreme Court of Appeals of West Virginia.

Submitted November 1, 1921.

Decided December 14, 1921.

Submitted November 1, 1921. Decided December 14, 1921.

1. Public Utilities True Basis for Rate Making Value of Investment.

The true basis for rate making purposes for a public utilityis the actual fair value of its investment at the time used and useful in the business of furnishing service to the public. (p. 739).

2. Same Original Cost Together with the History and Growth of the Utility and Value of Service Rendered Are Principal Elements Considered in Rate Making.

In the case of a public utility the original cost considered in connection with the history and growth of the utility, and the value of the service rendered, constitute the principal elements to be considered in connection with rate making for the services rendered the public. (p. 740).

3. Same Water Works Value of Property and Capital Employed, by a Water Company in the Public Service.

In estimating the value of the property and capital employed by a water company in the public service, the value of the springs on lands purchased as a source of water supply, in proximity to the municipality served, as a general rule, is properly limited to the actual amount invested by the utility therein, particularly so when there are other sources of supply that may be obtained, as a river or other natural water course, and the municipality must be deemed to have been located with reference to such natural sources of water supply employed by the company. (p. 740).

4. Same Prior Earnings and Estimated Savings of Expense, etc. Reasonable Rate of Income.

Fixing the rate of eight per cent on the fair value of the property employed by such utility, determined as aforesaid, and based on prior earnings and estimated savings of expense etc. over previous years, after deducting therefrom all necessary and proper operating expenses and taxes, to continue for a certain period, was within the power of the public service commission, as a means of subsequently determining what such rates should afterwards be on the subsequent report of the utility to enable it to earn such reasonable rate of income. (p. 742).

5. Same Determining Value of Property so Employed in Public Service and the Rate it Should be Allowed to Earn, Must Depend Upon and be Controlled by its own Peculiar Facts. In determining the value of the property of a public utility so employed in the public service and the rate it should be allowed to earn, however, each case must depend upon and be controlled by its own peculiar facts, and the court will not interfere with the order of the public service commission unless the rate allowed is unreasonably low or unreasonably high. (p. 743).

6. Same Additions to its Plant No Right to a Rate Sufficient to Cover Cost of Expenditures in Advance of Actual Installation of such Extensions.

A public utility has no right to a rate sufficient to cover the cost of expenditures for additions to its plant in advance of the actual installation of such extensions or additions and their employment in the public service, (p. 743).

7. Same Public Service Commission Extensions and Additions to Utility Plants.

The public service commission may lawfully require a public utility to make extensions and additions to its plant when they are necessary to enable it to serve the public as required by law or the provisions of its contract or franchise. (p. 744).

Original jurisdiction.

Petition to review and suspend the judgment of the Public Service Commission, in the Case of Bluefield Water Works and Improvement Company against Public Service Commission and others.

Petition dismissed.

Sanders, Crockett, Fox & Sanders, for petitioner.

Russell S. Ritz, for respondent, City of Bluefield.

Miller, Judge:

We are petitioned to review and suspend the judgment of the Public Service Commission in this case, pronounced on September 7, 1921, on several grounds.

First; that the commission erroneously fixed the sum of $460,000.00 as the value of petitioner's plant for rate making purposes, instead of the sum of $900,000.00, which it contends was justified by the facts and the law controlling the commission in such cases. From the written opinion of the commission we find that it ascertained the value of the petitioner's property for rate making, "after maturely and carefully considering the various methods presented for the ascertainment of fair value and giving such weight as seems proper to every element involved and all the facts and circumstances disclosed by the record." The reports of Gallaher, engineer employed by the Public Service Commission, and Howson, engineer employed by the applicant, were given special consideration by the commission. Gallaher's report was that the physical condition of the property was 81%, showing a depreciation of 19%, and that by applying this percentage to applicant's gross investment, which, including the value of the plant of the Bluefield Valley Water Works Company owned by it and representing an investment of $25,000.00, amounted to about $500,000.00, left the present sound value of the property $405,000.00, and if to this sum should be added allowance of 10% for going value, and $10,000.00 for working capital, the fair value of applicant's property would be approximately $460,000.00. On the other hand the report of Howson, of the reproduction cost less depreciation, at prewar prices, showed the value of the plant to be $624,548.00, approximately $625,000.00. And if properly adjusted by eliminating items in excess of those included in Gallaher's report, aggregating $204,000.00, and adding allowance for going value and working capital, the result would be $477,-500.00.

The contention of applicant's counsel, however, is that the commission should have determined the value of the plant with reference to the sum of $1,193, 663.00, the cost of re- production new less depreciation, at 1920 prices, as reported by Howson, or the sum of $900,000.00, recommended by him for rate making purposes, arrived at by dividing by two the aggregate of $625,000.00, found by Gallaher, based on reproduction new less depreciation at pre-war prices, and Howson's estimate based on 1920 prices. This estimate of Gallaher, it seems, was based on the average prices prevailing for the period of five years between 1910 and 1915.

In our opinion the commission was justified by the law and by the facts in finding as a basis for rate making the sum of $460,000.00. No fixed standard or formula applicable to all cases has yet been established by statute, judicial decisions, or by the judgment of public service commissions. Courts and commissions have, as in the instant case, been mainly controlled by the facts developed in each individual case. In our case of City of Huntington v. Public Service Commission, decided at the present term, we considered the true basis for rate making "the actual fair value of the investment at the time used and useful in the business of furnishing service to the public." This was held to be the true basis in the leading case of Smyth v. Ames, 169 U. S. 466. In that case the court said: "We do not say that there may not be other matters to be regarded in estimating the value of the property. What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. '' That the basis of production new less depreciation can not be adopted with fairness to the utility or to the public is well illustrated in the case of Steenerson v. Great Northern Railway Company, 69 Minn. 353, where it is supposed that at the time the railroad was built rails cost $85.00 per ton and the present price was only $16.00 per ton, so that when built the railroad cost $40,000.00 per mile, and if built at the time of the controversy, it could be built for $12,-000.00 per mile. In such a case it would be unfair, to the corporation to take as a basis for revaluation the reproduction cost new less depreciation. The Minnesota rule, socalled, has not received the approval of many of the state or federal courts. 2 Wyman on Public Service Corporations, sec. 1107 et seq. In our ease of Coal & Coke Ry. Co. v. Con- ley, 67 W. Va. 129, it...