Court Opinion

ID: 6281997
Source: CourtListenerOpinion
Date Created: 2022-02-18 16:31:43.048274+00
Date Added: 2024-06-11T09:00:13.587359
License: Public Domain

Opinion by
Hirt, J.,
dissenting in part:
The majority opinion in this case advances a radical departure from at least one fundamental and long es-*56tablislied legal measure of fair value in rate cases involving street railways. The far reaching implications of the holding, in its application to imminent and ever recurring decisions of the Public Utility Commission in cases of this class impels me to record this dissent.
Of course we agree that the Commission had jurisdiction over the city-owned lines, operated by Philadelphia Transportation Company under lease agreements, and that the prior consent of the city was not necessary to increases in passenger rates. And there can be no valid objection to that part of the order remanding the record to the Commission for a consideration of the actual earnings for the year ended July 31, 1953, in comparison with the estimated return, accepted by the Commission as a reliable forecast of net income for the period. Moreover, although it seems obvious that the amount of net income which the company can earn will be less than a fair return on any rate base which this record will support, nevertheless, to put this question at rest, we see no objection to that part of the order directing the Commission to make a finding of fair value.
In my view there is error of law in the invitation of the majority, amounting to a direction addressed to the Commission, to disregard reproduction costs as an element to be considered in determining fair value. Bate making is a procedure created by statute and in 1939 we in Solar Electric Co. v. P. U. C., 137 Pa. Superior Ct. 325, 9 A. 2d 447, interpreted the Public Utility Law of May 28, 1937, P. L. 1053, 66 PS §1151, as requiring a consideration of all elements which have a relevant bearing on fair value, including “the reproduction costs of the property, [of the utility] based upon the fair average price of materials, property and labor”, as specifically required by the prior Public Service Company Law of July 26, 1913, P. L. 1374. The *57legislature has not seen fit to change the law in that respect. And ever since the Solar decision, and as recently as July 1952, in City of Pittsburgh v. Pa. P. U. C., 171 Pa. Superior Ct. 187, 90 A. 2d 607, this court has consistently adhered to the view that “among the measures of value to be considered are original cost and reproduction cost based upon the fair average price of materials, property and labor”. Cf. Equitable Gas Co. v. P. U. C., 160 Pa. Superior Ct. 458, 51 A. 2d 497; Pittsburgh v. Pa. P. U. C., 158 Pa Superior Ct. 229, 44 A. 2d 614; Peoples Nat. Gas Co. v. Pa. P. U. C., 153 Pa. Superior Ct. 475, 34 A. 2d 375.
Eeproduction cost as an element of fair value cannot be disregarded in this case because of a “high degree of obsolescence” in the company’s property, as assumed by the majority in adopting the city’s contention to that effect. The type of obsolescence involved is functional, based upon testimony of a trend in other cities to rubber-tired mass transportation vehicles. In a prior rate case, we in Phila. Trans. Co. v. Pa. P. U. C., 155 Pa. Superior Ct. 9, 37 A. 2d 138 noted a finding of the Commission, as to the extent of the company’s operation, of 600 miles of surface track, 23 miles of subway-elevated track, nearly 400 miles of motorbus routes and about 5% miles of trackless trolley routes. Since then the company has continued its policy of substituting rubber-tired service for surface track routes in some parts of its system. And while the company admits some present functional obsolescence in its service, it has attempted to minimize its effect by a program under which it has set up reserves for the abandonment of additional rail lines and conversion to bus or trackless trolley service from time to time within the next ten years.
Bearing on the city’s contention of a “large factor of functional obsolescence applicable to respondent’s *58rail operations” the Commission in the present order said: “Respondent counters these averments by pointing out the economic waste of replacing rail service by other types of service unless such a shift is entirely justified by compelling reasons disclosed through surveys of individual lines. It is obvious that such factors as peak traffic volume, controlling load points, headway standards and diversity of passenger losses must be given careful consideration in determining if bus or trackless trolley operations should be substituted for rail line operations. Such a substitution in service is also necessarily handicapped because the present laws of the Commonwealth definitely limit the width and length of buses, hence limiting the number of passengers a bus can carry. Respondent also points out that the narrow streets in Philadelphia leave no room for maneuverability of buses and trackless trolleys, and that if trackless trolleys or buses were substituted, the vehicles in question would be required to use the center of the street just as the streetcars now do. Taking all these factors into consideration, it is our judgment that a degree of obsolescence is inherent in respondent’s rail operations, but not to the degree claimed by the City.” (Italics added.)
My quarrel with the conclusion of the majority, in eliminating reproduction cost as an element of fair value, is that it usurps a function which is exclusively reposed in the Commission by law. There can be little doubt as to that. As recently as in Pittsburgh v. Pa. P. U. C., 168 Pa. Superior Ct. 95, 108, 78 A. 2d 35, referring to the weight to be given similar testimony of obsolescence, we said in approving a finding of the Commission, almost identical with that which is here condemned: “It is true that the Commission did not give that weight to the element of [functional] obsolescence for which the City contends or accept the *59theory of its expert. But here again the matter was one for the exercise of judgment hy the Commission. Accrued depreciation, including the weight to be given to the element of obsolescence, is essentially a judgment figure.” And where as here there is sufficient competent evidence in support of the Commission’s finding we are bound by the finding.
In arriving at a finding of original cost the Commission specifically included obsolescence in its estimate of accrued depreciation. If the Commission’s finding of reproduction cost does not reflect functional obsolescence, in the degree found, in addition to other items of accrued depreciation, the Commission should be given the opportunity to revise its finding in this proceeding in that respect.
In my view the majority has also arrogated to itself an exclusive function of the Commission in directing it to consider the market value of the Company’s securities as an element of fair value. During the past 50 years street railway securities have dropped from near the top, to the very bottom of the list, in investment appeal. In Phila. Trans. Co. v. Pa. P. U. C., supra, we held that the Commission in that proceeding was justified in ignoring market value of this company’s securities as an element affecting the rate base. What we there said (pp. 19, 20) is equally applicable here. The Commission in the present case found that the company’s financial standing is so impaired that it cannot now raise equity or debt capital and there is justification for the conclusion of the Commission that market value of the Company’s securities has no relevant bearing on fair value. The Company’s ability to earn a fair return is, at best, uncertain in the present and unpredictable for the future. The depressed market value of its securities indicate their speculative *60character in total disregard of the fair value of the property of the utility.
If the majority opinion is to be given effect, the company will be limited to the Commission’s finding of original cost less depreciation (which the city contends should be further reduced to less than f>42,000,-000) as the present fair value of the company’s property for rate purposes. It is not even conceded that original costs should be trended and translated into the average price levels of present day inflated dollar values. We have said: “As present fair value would ordinarily exceed original cost depreciated, ... it cannot be the only element in the determination of fair value”: Equitable Gas Co. v. P. U. C., supra.
The majority not only would limit the company to a return in today’s inflationary dollars on yesterday’s untrended costs but would further reduce the company’s income by insisting that the depressed market values of its securities be given weight in determining the rate base.
I dissent from the views of the majority which will have that result.