Source: https://supreme.justia.com/cases/federal/us/287/488/
Timestamp: 2019-04-24 12:01:29+00:00

Document:
1. In fixing rates of a public utility for part of the territory served, conditions may be such as to require or permit that the property used and useful in serving the smaller area be treated as the rate base, rather than the entire plant serving the whole territory. P. 287 U. S. 497.
2. An electrical plant, built and operated as a generating and distributing plant for a single municipality, became part of a large system. The new owner ceased to generate current locally and brought in current over its lines from without. It served many other towns and cities, and also delivered varying proportions of the entire current borne by its lines to affiliated companies for delivery to their customers, including many towns and cities within their respective territories.
(1) That, under the Indiana Public Utility Act, the municipality was properly treated as the unit for determining the rates to be charged therein, and that this is consistent with due process. Pp. 287 U. S. 495-498.
(2) The property to be valued is that which is used and useful for supplying current to the municipality, adding thereto the proportionate part of the value of the general distributing system fairly attributable to the local service, but disregarding local plants in other municipalities which are separate and distinct and bear no relation to the one in question. P. 287 U. S. 499.
(3) The calculation is of necessity more or less approximate, but must be fair. P. 287 U. S. 499.
(4) No allowance for cost of financing need be made in the absence of evidence that such a cost was incurred, or that it necessarily would be incurred in the event of reconstruction. P. 287 U. S. 500.
(5) Rate case expenses of the utility on matters not connected with the valuation are properly disallowed, and the conclusion of the state commission, the master, and the court as to the proper allowance will not be disturbed when not definitely shown to be erroneous. P. 287 U. S. 500.
3. The fact that an electric power company is in a favorable financial position through being a subsidiary of a larger one may be taken into account in determining the rate of return to which it is entitled. P. 287 U. S. 501.
4. What may be an inadequate percentage of return on capital to one kind of public utility in its particular circumstances may be adequate for another kind in different circumstances. United Railways v. West, 280 U. S. 234. P. 501.
5. Seven percent rate of return is not shown to be confiscatory under the facts disclosed in this case. P. 287 U. S. 502.
Appeal from a decree of the District Court of three judges dismissing for want of equity a bill to restrain the enforcement of rates fixed by the defendant Indiana Commission for electric service in the City of Martinsville.
99 percent of the combined capital stock and securities of which is owned by the Central Indiana Power Company. The officers and directors of the several corporations are the same, and the operations of the entire group are under a common control, so that, in substance, the business of all is carried on as though they constituted a single entity. Their lines are interconnected, and the electrical energy distributed by them is drawn from common sources. Appellant owns and operates an interconnected system in a territory comprising thirteen counties of the state, and sells and distributes electric current to approximately fifty cities and towns therein, including the inhabitants of the City of Martinsville and also to a large number of industrial plants and customers outside the limits of such cities and towns. Appellant's system consists in the main of general transmission and transformation properties and local distributing plants. Among other local plants, it owns one in the City of Martinsville which was built by former owners to supply that city and its inhabitants. In the hands of the original owners, this was a separate and complete plant, generating electrical energy as well as distributing it.
cities and towns within the thirteen counties above referred to.
The Martinsville plant now is operated by appellant under an indeterminate permit from the state in virtue of the provisions of the state Public Utility Act. Burns' Ann. Ind.Stat. 1926, § 12672 et seq. The current is fed into this plant from outside sources, principally from the Dresser Plant. Section 57 of the Public Utility Act (supra, § 12728) authorizes, among others, any municipal organization or any ten persons directly interested to make complaint to the Public Service Commission challenging any rates, tolls, etc., as unreasonable or unjustly discriminatory. Under that provision, on March 16, 1927, seventeen citizens of Martinsville, patrons of appellant, filed with the Public Service Commission of Indiana a petition seeking a reduction in electric rates, in which petition the City of Martinsville subsequently joined. At that time and prior thereto, appellant had on file with the Commission a schedule of rates applicable only in that city. After hearings, the Commission made an order, effective as of February 1, 1929, reducing the rates for electric service to be charged and collected by appellant in Martinsville.
the master and also made findings of fact and conclusions of law in accordance with Equity Rule 70 1/2, and thereupon delivered an opinion and entered a decree dissolving the temporary injunction, directing appellant to refund to its customers all amounts collected from them in excess of those which it would have collected under the schedule of rates complained of, and dismissing the bill for want of equity. 1 F.Supp. 106.
Rate Base. The court below held that, under the provisions of the state statute and in the light of the facts, not the entire property and system of appellant, but the City of Martinsville alone, should be treated as the unit for the purpose of determining the schedule of rates to be charged therein. The Commission, as well as the master, had reached the same conclusion. Upon that basis, in fixing the value of the property used and useful for supplying electric current to the city, the court determined the value of the local property, to which it added that proportionate part of the value of the system property which it found to be fairly attributable to the Martinsville service.
being operated -- that is to say, as a generating, as well as a distributing plant for the entire electric current supplied to the city -- the value of the plant, with appropriate allowances for expenses, etc., would have continued to be the lawful rate base. But that method of operation was abandoned, and the question is whether, because the local plant now is interconnected with appellant's general distributing system and the electric current is drawn from outside sources, the city still may be treated as a separate unit for ratemaking purposes.
"required to treat the municipality as a unit and to base its rate upon the cost to the utility of serving the individual municipality, rather than the average cost of serving many distinct and scattered municipalities."
"regarded the municipality as the entity, on the one hand and the utility as the entity, on the other, for the purpose of establishing just and reasonable rates and service."
Upon these considerations and others, the court reached the conclusion above stated.
Since the Indiana act was patterned after the Wisconsin act, with a like history and attended by similar circumstances, the court below felt warranted in following the decision of the Wisconsin court, and with that view we see no reason to disagree. Whether the method afforded by the state statute thus construed is in accordance with sound policy is a question with which we are not concerned. See Wabash, St.L. & P. Ry. Co. v. Illinois, 118 U. S. 557, 118 U. S. 577; The Minnesota Rate Case, 230 U. S. 352, 230 U. S. 416. The only question we are called upon to consider is whether, under the due process clause of the Fourteenth Amendment, the method is constitutional.
Normally, the unit for ratemaking purposes, we may assume, would be the entire interconnected operating property of a utility used and useful for the convenience of the public in the territory served, without regard to particular groups of consumers or local subdivisions. But conditions may be such as to require or permit the fixing of a smaller unit. Compare United Fuel Gas Co. v. Railroad Commission, 278 U. S. 300; United Fuel Gas Co. v. Pub. Serv. Comm'n, 278 U. S. 322; The Minnesota Rate case, supra at pp. 230 U. S. 434-436; Smith v. Illinois Bell Tel. Co., 282 U. S. 133, 282 U. S. 148, et seq.; Houston v. Southwestern Bell. Tel. Co., 259 U. S. 318, 259 U. S. 322.
the state rates for intrastate transportation or business must be determined by a separate consideration of the value of the property employed in the intrastate business. It is true that there, such a separation is made necessary because a different government exercises the ratemaking power in each of the two fields of regulation, and that situation is wanting here. Nevertheless, the cases furnish a helpful illustration in support of the application of a similar rule in the case now under review. Compare United Fuel Gas Co. v. Railroad Commission, 13 F.2d 510, 522; United Fuel Gas Co. v. Public Service Commission, 14 F.2d 209, 223; Idaho Power Co. v. Thompson, 19 F.2d 547, 571, and see International Ry. Co. v. Prendergast, 1 F.Supp. 623, 626.
In addition to what already has been said, it should be noted that appellant not only furnishes electric current to the fifty separate and unrelated towns and cities, in none of which the plant is used or useful for the rendition of service to any other town or city, but appellant also carries over its lines and delivers to others of the affiliated companies, as intercorporate transactions, varying portions of the entire current borne by its lines for subsequent distribution by the affiliated companies to their customers, including many towns and cities within their respective territories. This intermingling of the business and distributing activities of the several companies results in such elements of uncertainty in respect of the proper evaluation of appellant's participation therein that, standing alone, it would go far in the direction of justifying the rejection of the contention that the due process clause requires that appellant's entire distributing system should be included in the basic unit. In the light of all the facts and circumstances, we hold that an adjustment of rates for the municipality here served by appellant in accordance with the method adopted below is consonant with state law, and immune from constitutional attack.
"on the basis of the ratio of actual sales of Kw. H. to Martinsville and its consumers to the total sales of Kw. H. by plaintiff during the year 1929, that being the last calendar year before the date of the hearing."
This ratio was arrived at and supported by a variety of calculations, the results differing slightly, and, upon these various calculations, the court fixed 3.3 percent as the fair ratio of the value to be allocated to Martinsville.
of the master are full and convincing, and give evidence of careful and thorough consideration. The deductions from the evidence and the calculations are, of necessity, more or less approximate (Utah Power & L. Co. v. Pfost, 286 U. S. 165, 286 U. S. 190), but we find nothing in the record which casts a substantial doubt upon their essential fairness.
Complaint is made that, in determining the value of the Martinsville property, no allowance was made for cost of financing. As the court below, however, pointed out, there was no evidence that such cost was incurred, or that it necessarily would be incurred in the event of reconstruction. This is also in accordance with the findings of the master. We see no reason to interfere. See Vincennes Water Supply Co. v. Public Service Comm'n, 34 F.2d 5, 9.
reached the same conclusion as to the amount. While it may be true that, even upon the view taken, a larger sum than $4,000 might well have been allowed, we find nothing sufficiently definite in the record to require us so to determine, or to call for a disturbance of the amount fixed.
Rate of Return. The court below found that a rate of return of 7 percent was adequate. The evidence is conflicting. Witnesses for appellees estimated that 7 percent was sufficient. The testimony for appellant was to the effect that, to take care of bonds, debt discounts, borrowed money, and stock dividends, a return of 7 percent was sufficient; but that, in order to accumulate a surplus and make it easier to finance the company, the rate of return should be not less than 8 percent. Appellant's balance sheets show that, on January 1, 1929, it had an accumulated surplus of $1,074,739.71, and, at the end of that year, a surplus of $1,257,884.64, as compared with a total stock and funded debt liability of about $4,500,000. The record, as already stated, also shows that appellant is a subsidiary of the Central Indiana Power Company, by which it is owned and financed; its securities having been taken directly by that company without any intervening agency. The power company also owns and finances the other affiliated corporations in the same way. It is reasonable to conclude that appellant is in a more favorable financial condition than if it were a disconnected enterprise.
for the proper discharge of its public duties. Many cases were cited tending to show that a return of 7 1/2 percent or even 8 percent might be necessary, but it was said (pp. 280 U. S. 249-250) that no rule could be laid down which would apply uniformly to all sorts of utilities. "What may be a fair return for one may be inadequate for another, depending upon circumstances, locality, and risk." A street railway company, compelled to meet the growing competition of private automobiles, public omnibuses, and other motor carriers well might sustain such losses of revenue, because of the decreased number of passengers carried, as to require a larger rate of return than would be required by an electric utility company like appellant, which not only enjoys a practical monopoly in the field where its services are rendered, but whose financial structure, it fairly may be assumed, is greatly strengthened by its affiliations and by the interested support of the parent company to which it belongs. On the whole, we are unable to conclude that a 7 percent rate of return, under the facts here disclosed, is so low as to be confiscatory. See Smith v. Illinois Bell Tel. Co., supra at pp. 282 U. S. 160-161.
Moreover it appears, as the master and the lower court found, that, if the rates complained of had been in force during the period beginning January 1, 1929, and ending May 31, 1930, the return would have been much in excess of 7 percent on the value fixed.

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