Court Opinion

ID: 3498925
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:06:16.174892+00
Date Added: 2024-06-11T12:54:13.046622
License: Public Domain

I cannot concur in the opinion of the Chief Justice nor in that of Mr. Justice BIRD.
This court has jurisdiction. Whether rates fixed by or under legislative authority are unreasonable is a judicial question. Rate-making, for public utility service, is primarily a legislative function; it may be delegated to a commission created and empowered by legislative enactment, but rates established must admit of judicial review as to lawfulness. Identical jurisdiction was entertained by the supreme court of Kansas in State, ex rel. Hopkins, v. Telephone Co. (Kan.), (223 P. 771, P. U. R. 1924D, 388). The order of the public utilities commission, and the findings and conclusions of the special commissioner confirmatory thereof, are presumed to be correct in fact and in law, but the exceptions to the report of the special commissioner and the assertion that the order of the utilities commission is unreasonable and confiscatory requires this court to examine the evidence and come to an independent conclusion thereon. We do not, of course, fix rates, but only determine whether the rates fixed are unreasonable and, therefore, confiscatory.
The commission invoked the judicial power of this court and this enabled the telephone company to invoke protection of its property rights. One test of jurisdiction is the effect of judgment herein between the parties before the court. Under the issues presented, a determination by independent conclusion, upon the evidence, will bind the parties. Van Wert Gas LightCo. v. Public Utilities Commission, 299 Fed. 670, P. U. R. 1924C, 722.
I dissent from the opinion of the Chief Justice upon the question of depreciation reserve. The depreciation *Page 689 
reserve was something more, in this instance, than a mere book entry. A utility, not acting under public regulation, may set up a depreciation reserve and up-set the same at will, but a utility under public regulation, asking for, and receiving a return for the purpose of establishing a replacement fund on a life-table basis, has received from ratepayers a fund, the regulatory commission was bound to grant, and a correlative duty rests upon the company to employ the fund for the purpose it was asked for and received and for none other. The creation of this depreciation reserve, or, more correctly speaking, replacement fund, was empowered by law and the rate was approved and the purpose thereof declared by commission order. It was authorized for a purpose, accumulated for a purpose and diverted therefrom. It was impressed with the purpose of maintaining the rate base and amortizing the investment and could not be employed to increase the rate base. A depreciation reserve is permitted and set up to protect property rights and not to be otherwise capitalized. It maintains interests of the investors but it does not create any added interest. The ratepayers may not be required to establish a depreciation reserve and then, held as underwriters, to pay a return thereon if the reserve is employed to extend and enlarge the plant. Depreciation reserve is not a part of the capital paid back to the company for the purpose of increasing the value used and useful in supplying service and, therefore, swell the rate base. It is paid to replace capital investment used up, in fact or theoretically, in the service rendered. It is to keep good the investment and to save the investors from loss, but not to increase in any way the rate base upon which the users are made to pay a return. There seems to be no deferred maintenance involved here. There is evidence *Page 690 
of lessening of worth arising from wear and the action of the elements and obsolescence and there is also evidence of appreciation. This reserve was intended to amortize the investment. Instead it has been employed to extend and enlarge the investment. This, instead of replacing equipment, adds thereto and, by increasing the rate base, swells the return to be made by the ratepayers. It constitutes no increase of investment by the owners but is a contribution exacted from the ratepayers for a lawful purpose, diametrically opposed to increase of value and this prevents the same from being diverted to capital investment.
I do not understand that the depreciation reserve in question has been employed to meet current depreciation. If it had been it would not increase the rate base. The reserve was given to maintain the integrity of capital investment. The law exacts it for such purpose and will not permit it to be employed in extensions and thereby first compel the ratepayers to create a fund and thereafter pay a rate thereon to the company. The service now rendered is practically 100 per cent. use of the present equipment. This negatives past and prospective depreciation beyond current maintenance. But it is said there is a limit to the usefulness of equipment and a life-table is set up. This is mere theoretical depreciation. This plant, as a whole, will never run, until some day, like the "one-hoss-shay," go all to pieces. The theory of a depreciation reserve, as distinguished from a replacement reserve, in the case of a utility like defendant's, which has reached its gait, is indefensible, duplicates current expense of maintenance, creates a fund based on theory and never supported by eventual conditions and offers a temptation to employ the same to swell the capital investment and increase the rate base. The replacement reserve, having been invested in additions and taken into consideration in determining the fair *Page 691 
value of the property used and useful, should be taken out. It was taken out by the commission, and I approve of the deduction. Existing observable depreciation was considered by the commission and deducted in fixing the present value. This was proper.
Going Concern Value. The history of this company precludes right to a percentage addition for going concern value. It is impossible to find the value of the tangible assets without consideration of the established business. The commission was right in so giving consideration to the subject and the valuation fixed adequately reflects going concern value.
American Telephone  Telegraph Company Contract. The American Telephone  Telegraph Company owns all of the common stock and nearly all of the preferred stock of the Michigan State Telephone Company. No court has yet held that a rate must be established to care for the four and one-half per cent. contract regardless of the value of services rendered by the American Telephone  Telegraph Company. Suppose the contract called for fifty per cent. of the gross revenues of the Michigan State Telephone Company? Except as intensified, the question would be the same. In considering this contract the distinction must be kept in mind between mere contract cost and the value of services actually rendered. Corporate management and not courts make contracts, but courts, and not corporate management, determine, in a rate case, what return will cover the services rendered under a contract, and will not say a return fully compensatory for actual services rendered is unreasonable and, therefore, confiscatory because less than such a contract as we have here stipulates.
We find a hand reaching for rate returns, the fingers of which are those of the local company but the manipulating arm is that of the American Telephone  *Page 692 
Telegraph Company, which owns the local company. As blind old Isaac said: "The voice is Jacob's voice, but the hands are the hands of Esau."
The possible vice in this contract is not met by saying that the relation between the companies demands strict scrutiny of the dealings but the contract is valid and management of the utility must be left to the owners. What purpose does strict scrutiny serve if the result thereof may not, in any event, affect contract stipulations?
The ratepayers must compensate for the services rendered. Tangible property and intangible property rights enter into the measure of service rendered. What service is rendered ratepayers under the American Telephone  Telegraph contract? The commission measured what they considered the actual services rendered. Defendant company stands upon its contract with its owner. The commission planted decision upon actual services rendered.
Case law, text writers and experts are at variance upon the questions involved. I have given my views without larding the opinion with supporting authorities.
I approve of the findings of the commission. The writ should be granted.
McDONALD, J., concurred in the result reached by WIEST, J.
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