Pittsburgh v. Pennsylvania Public Utility Commission

44 A.2d 614, 158 Pa. Super. 229, 1945 Pa. Super. LEXIS 484

• Court: Superior Court of Pennsylvania
• Decided: April 25, 1945
• Docket: Appeals, 93 and 94
• Status: Published

Opinions

Opinion by

Hirt, J.,

The history of this proceeding, beginning with the original inquiry of the commission in 1937 appears in our opinions, disposing of two former appeals of The Peoples Natural Gas Company from orders of the commission, reported in 141 Pa. Superior Ct. 5, 14 A. 2d 133 and 153 Pa. Superior Ct. 475, 34 A. 2d 375.

The subject of the second appeal was an order of the commission made on December 2, 1942, based on a finding of $20,000,000 as the fair value of the company’s property, with an addition of $1,566,085 for working capital. The commission found that the increased rates of the company under its Tariff No. 19 (which had become effective July 1, 1940) were excessive and ordered substantial refunds to consumers for the years 1939 through 1941. By stipulation, the order of the commis sion was related to values of the company’s property in existence on December 31, 1938. On appeal by the company, questioning the order as confiscatory, we remanded the record for further proceedings. No additional testimony was taken. Instead, the commission accepted the company’s records of new property added to the system, after 1938. It adhered to its findings of all of the in-dicia of value made in the prior proceeding, and, in arriving at revised reproduction and original costs, it added the net cost of the new property incorporated into the system, to its former cost-findings. The result was a finding of $44,064,303, as reproduction cost, depreciated, and $30,589,959 as depreciated original cost of company property in existence on December 31, 1943.. Original costs were not trended. The commission, in the order now before us, adopted $37,333,915 as the fair value of the property, which with an addition for working capital resulted in an approved rate base of $38,900,000. It allowed a return of 6%% on this base. In its order the commission referred to necessary specific reductions in the domestic, commercial and industrial rate schedules of the company’s Tariff No. 19 and ordered the filing of a new tariff reflecting these reductions. In addition, it directed the company to make reparations to consumers (served during 1942 and 1943 under Tariff No. 19) by repayment to them of a total of $500,000. The reparations have been made and a neAv tariff, No. 20, filed by the company to comply with the order has reduced the cost of gas to all consumers, as ordered by the commission. The rates of the new tariff, however, are higher than those in effect prior to July 1, 1940, under Tariff No. 18.

All of the proceedings were instituted by the commission itself. Consolidated into one inquiry they questioned the propriety of all of the rates of the company under its successive tariffs. When, during the initial proceeding, the company filed its Tariff No. 19, the city immediately entered its protest against the increased rates and on its petition was allowed to intervene. Since October 24, 1939, the city has taken an active part in all of the proceedings before the commission. The consolidated proceeding resolved itself into a single contested rate case in which the city was an intervening-party.

Two appeals are before us, both attacking the final order on identical grounds; in effect that the finding of fair value is not supported by the evidence; that the allowed earnings are excessive; and that the present rates of Tariff No. 20 are unreasonable. The city, both as a municipality, and consumer-intervenor had the status of a complainant in the consolidated proceeding. Public Utility Code of May 28, 1937, P. L. 1053, §1001, 66 PS 1391. The final order of the commission, based upon more than 4,000 pages of testimony developed by the city, the company and the commission, was not administrative merely (Cf. Pittsburgh v. Penna. P. U. C., 145 Pa. Superior Ct. 580, 20 A. 2d 869) but resulted from the exercise of its quasi-judicial functions. Cage v. P. S. C., 125 Pa. Superior Ct. 330, 189 A. 896. The city had an interest in the subject matter and was affected by the final order. As a consumer-complainant, at least, it has the present right of appeal. §1101 of the Code, 66 PS 1431. Mrs. Katherine Cassidy, a small consumer, never heretofore a party to the proceeding, clearly, has no standing as an appellant. Her appeal will be quashed.

The city does not have a vested interest in the utility as consumer or otherwise; it and its citizens are entitled to the benefit of the public service supplied by the company but only at such rates as are fixed by the legislature through the commission, its administrative agent. City of Scranton v. The Pub. Ser. Com., 80 Pa. Superior Ct. 549. Rate making does not involve the consent, either of a municipality (Suburban Water Co. v. Oakmont Boro., 268 Pa. 243, 110 A. 778) nor of a consumer. The utility has not questioned the order as confiscatory, and since no constitutional right of the city has been invaded, this appeal does not present tlie exceptional case in which we may make independent findings of fair value and reasonable rate of return. Ohio Valley Co. v. Ben Avon Borough, 253 U. S. 287; Solar Electric Co. v. P. U. C., 137 Pa. Superior Ct. 325, 9 A. 2d 447. And we may set aside the order of the commission and remand the record but only “for error of law or lack of evidence to support the finding, determination, or order of the commission . . .”: §1107 of the Code, 66 PS 1437.

Much of the city’s criticism of the conclusions and order of the commission may be attributed to its reluctance to accept the applicable law as laid down by this court. It is unimportant that another gas company in the Pittsburgh area may be serving consumers at rates lower than those approved by the commission in the present case. What a utility may be entitled to earn is a question to be decided in each particular case and is not governed by an over-all-end judgment of what companies of the same class ought to charge the consuming public for their product. As we have said many times, in determining what the company may charge its customers we must accept fair value of its property used and useful as the basis of rate making under the present Public Utility Code which in §311 of Art. III, 66 PS 1151, continued the same provision of the prior Public Service Company Law of July 26, 1913, P. L. 1374. The city concedes this, but would have us apply methods of measuring value variously adopted by other courts, some of which reflect social viewpoint rather than an unbiased balancing of the interests of investors and consumers. Specifically, the city stresses the decision in Federal Power Commission et al. v. Hope Natural Gas Co., 320 U. S. 591, 64 S. Ct. 281, a case which has its point of contact with the present proceeding. It should be enough to say that the decision was concerned with a construction of the Federal Natural Gas Act of June 21, 1938, 52 Stat. 821, 15 U. S. C. A. §§717-717W, which directed the Federal Power Commission to fix “just and reasonable” rates without specifying standards for determining them. Any construction of that Act of Congress has no application to the language of our Public Utility Law or its binding effect upon us. We have adhered to the view that when the legislature wrote fair value into the Public Utility Law it adopted the then settled construction of the appellate courts of this State and intended the same meaning of fair value as under the prior Public Service Act. Statutory Construction Act of May 28, 1937, P. L. 1019, 46 PS 552. Decisions of the Supreme Court of the United States, in other cases, accepting standards other than fair value in the sense of our statute, do not change the present law of this Commonwealth; that remains a question for the legislature, so long as our views are unmodified by a urt of higher authority.

Solar Electric Co. v. P. U. C., supra, (137 Pa. Superior Ct. 325, 9 A. 2d 447) is the present rate-making law of this State. The traditional elements reflecting fair value (Smyth v. Ames, 169 U. S. 446, 18 S. Ct. 418), and others referred to in the Solar case, are not of the same weight in every proceeding. If they were, rate making might be reduced to the simple process of applying a formula — a highly desirable but unattainable end. It was our intention in the prior appeal (153 Pa. Superior Ct. 475.) not to modify the general principles of the Solar case, but to apply the law to the facts of this particular proceeding. The opinion in that appeal, except as modified here in one particular, is the law of the case and is binding upon all of us.

Prior to 1920 the company had drilled wells and had made other additions to its property at a cost of $7,558,-226 but, on its books, had charged these additions to expense of operation. The commission refused to consider these “expensed items” as additions to property affecting the rate base. In the last appeal we approved these items, depreciated to $4,157,024, as additions to capital investment entering into a finding of fair value. We have reconsidered the question and are now convinced that the commission was right and that we were wrong. The commission’s finding of depreciated original cost included this total of $4,157,024 charged to operating expense and at least $4,000,000 of that amount was included in depreciated reproduction cost. Elimination of these items from cost findings should reduce the rate base with corresponding benefit to consumers by a downward revision of its present tariff schedules. For this we accept full responsibility. The company had the choice of adding its earnings, over and above actual payment to security holders, to surplus available for future dividends, or to depreciation reserve. Plowing in of depreciation reserve by investment in new property may be considered as additions in computing reproduction and original costs, thus entering into the rate base. Concurring opinion of President Judge Keller in the last appeal, 153 Pa. Superior Ct. 514, et seq. But it is our reconsidered conclusion that where, as here, a part of the earnings, according to the books of the company, were disbursed as operating expense, the company, having recouped the entire cost from the rate payers, over and above adequate profits paid to security holders, and having enjoyed the benefits of treating the cost as operating expense, cannot later be permitted to say that these expenditures are capital investment on which consumers must pay an additional return. Our conclusion to the contrary in the last appeal was fortified to some extent by the reasoning of Judge Parker in the Hope case in which about $17,000,000 of “expensed property” were involved. The Supreme Court of the United States, reversing in that case, did not find it necessary to determine the status of that property in relation to the rate base and that question was not decided. But even if it had been, it would not have been binding on us for the reasons above stated. Our change of view rests upon equitable considerations induced by a reconsideration of the commission’s argument in the last appeal and not upon the reversal in the Hope case. It is probable that, under accounting systems since 1920, the company has not charged any additional capital outlay to expense. If it has, these items also should be deducted from original and reproduction costs. The proceeding will be referred back to the commission to determine the effect of elimination of “expensed property”, upon the rate base.

The record must be remanded for another reason. It is no objection to the final order that it was prompted by negotiations between the company and the commission looking toward a termination of the proceedings. Since the inquiries were all initiated by the commission the procedure in terminating them was largely within its control. But the city was not a party to the settlement discussions and the final order must rest upon findings of the commission from the testimony. The commission did make and file its findings and it is for us “on appeal, to determine the controverted question presented by the proceeding, and whether proper weight was given to the evidence”: §1005 of the Code, 66 PS 1395. There is no complaint as to the finding of depreciated original cost of the company’s property as found by the commission except as to the inclusion of the ex-pensed items. But the rate base cannot be determined solely from that finding because it is conceded, as it must be, that there have been changes in price levels and no adjustments were made by the commission to reflect price trends disclosing fair value as of the applicable date. Peoples Nat. Gas Co. v. Pa. P. U. C., supra (153 Pa. Superior Ct. 475, 484). On the other hand, the rate base cannot rest upon the equivocal finding that the reproduction cost of the company’s property was $72,236,-739. The finding was made from the testimony of the witness Rhodes, the company’s expert, alone, and full acceptance of his testimony by the commission in its 1942 order can be explained only by the assumption that it did not consider the finding important and intended to ignore it. The decree nisi at that stage of the proceeding disclosed lack of confidence in the judgment of that witness as an estimator of reproduction costs. And the commission’s argument, in the last appeal to us, severely criticized his methods as partisan. The commission referred to “the egregious estimates of witness Rhodes” and asserted that he “was dedicated to theoretical estimates as against actual costs.” In our last opinion we reminded the commission of the importance of reproduction cost as an essential element in determining fair value for rate purposes, and suggested that the commission determine the weight of this evidence which it had both accepted and condemned. In the light of our direction, it was the duty of the commission to appraise the probative force of the testimony of reproduction cost and make a new finding. This it did not do but reaffirmed its prior finding, and it is impossible from the order of the commission now before us to determine the process by which it determined the rate base. In a subsequent order, dismissing the city’s petition to re-open the proceeding, it is stated “that the commission determinations reached in the light of the criticisms [of the company’s evidence of reproduction cost] were to a large extent carried into effect in the final commission order.” The place for determining the weight of testimony is in the findings of fact. We agree with the commission that the testimony is insufficient to support the finding of reproduction cost which it made. The difficulties inherent in appraising reproduction cost testimony does not relieve the commission from determining its probative weight, bearing in mind that “the burden of proof to show that the rate involved is just and reasonable” is on the public utility. §312 of the Code, 66 PS 1152. It will be for the commission to reconsider its finding of reproduction cost and, in its discretion, to trend original cost translating it into value as of the date of the determination of the rate base.

In our former opinion we said that a rate of return of 6y2% was not unreasonably low; we are not now in position to say that it is unreasonably high as applied to a utility whose sole product is natural gas. The rate should not be reduced merely to compensate for a relatively high finding of fair value.

The rate payers were not adversely affected in this proceeding, prior to July 1, 1940. That the proceeding must again be referred back to the commission is unfortunate, but that is not so important as attaining a reasonable final result. The proceeding should be terminated as soon as practicable and we see no compelling reason for determining values subsequent to the date of the last order of the commission. What further hearings must be held and their scope, will be for the commission to decide.

The appeal of Mrs. Katherine Cassidy, at No. 94, is quashed.

In the appeal of the City of Pittsburgh at No. 93, the order is reversed and the record is remitted for further proceedings.