Court Opinion

ID: 9642148
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:50:00.384123+00
Date Added: 2024-06-11T18:10:43.681095
License: Public Domain

CUSHMAN, District Judge
(concurring).1 The suit is one to enjoin rates fixed by the Public Utilities Commission of Idaho for electric energy which the plaintiff contends are confiscatory and unreasonable. Three orders of the commission are involved, No. 873, No. 929, and No. 939. While, in the main, I concur with the findings of the majority of the court, I am unable to do so in certain of them, nor in certain of the conclusions reached. The dispute involves the rate base, the probable income, probable expense, and rate of return. The court will not consider the reasonableness of the rates, as it is a legislative, rather than a judicial question. The fact that the commission found 8 per cent, reasonable, and then prescribed a 7% per cent, rate on part of ihe rate base and 5 per cent, on the remainder, is not conclusive as against the *583pi escribed rate — the question being: Are the prescribed rates so unreasonably low as to be noncompensatory and therefore confiscatory, rather than the determination within the range of rates which may be reasonable, of what would be the most reasonable ? The reasons given and decisions cited by the majority are conclusive upon this question.
Rate Base — Lands.
The taking of testimony commenced in this case in September, 1925. The ease was finally submitted in March, 1926.
In Order No. 873, made by the commission in December, 1922, fixing the rate base, the commission said:
“There is the fact of the service investment having what might be referred to as a ‘steady job’ for a long term to be given consideration. It is true, and the record discloses, that the cost of like elements had largely increased above that in effect when some of the property was purchased; but that fact did not increase the number of dollars the utility owners had put into the service property, nor was it a matter of which they could actually take advantage, because they could not remove their property from public service and sell it, so as to obtain the advantage of the higher prices. This was one of the conditions which the utility accepted when it devoted its property to public service; and to offset this it has the permanency of business and protection against destructive competition we have above mentioned.
“The Idaho Power Company has urged that its rate base should measure ‘present value.’ By this term it has seemed to mean what its property would cost if the prices prevailing as of the' valuation date were applied to it.- This does not seem to us to be either fair or sound. If the principle were accepted by us, the result would be that, as current price levels lowered, the rate base of the utility would be subject to reduction. This would produce a factor of uncertainty, which would most certainly adversely influence future financing operations; for, even where the utility had in good faith made heavy investment with which to meet the service needs of the public during a time of high prices, as this company has done, a lowered price level thereafter would wipe out part of the investment so made. Naturally investors would be slow to put their money in a field where a low price level, temporary in its nature, might wipe out part of the investment. The investment in public utility service ought not to be judged as a temporary matter. It is made for the purpose of rendering service over a long term. One of the difficulties that public utility companies have confronted has been the element of uncertainty; uncertainty of how much it would be allowed to earn on; uncertainty of what rate of earning it could depend upon. So far as may be practicable, we think uncertainty should be avoided, and that investment, when reasonably and prudently made, should be accorded a full measure of recognition, which would be neither inflated nor depressed by conditions which are in their nature temporary.
“In other cases we have followed this idea, using average prices over the period from 1913 to 1916 for the study of property placed in service prior to 1917, and the actual costs of property installed after that time. This results in somewhat appreciating the property which was bought prior to 1917, at times when the price level was below the average of the years 1913 to 1917, which appreciation, however, is a reflection of a prolonged condition of higher price level, and for that reason fair to both the utility and the public. The Idaho Power Company came into possession of the previously constructed property in 1916.”
It will be seen from the foregoing that the commission refused to consider reconstruction costs in fixing the rate base. In this the commission was wrong, and, while its effect may not have been to entirely destroy the rate structure, it did destroy the strength of the presumption that the rates fixed were compensatory, and left that question to be determined upon a clear preponderance of the evidence; the burden being upon the plaintiff to establish their noñcompensatory character.
Lands.
The plaintiff’s appraisal of the lands, exclusive of overhead and interest during construction, aggregates $234,069; with interest and overhead, $273,647. Defendants’ appraisal is $66,808, to which it added interest, making a total of $70,609. While the defendants concede plaintiff’s right to a year’s interest on the land accounts, they properly exclude any other overhead charge on account of the lands.
Power Plant Lands.
As to the power plant lands, the plaintiff’s testimony is more persuasive. Defendants’ witnesses, in appraising these lands, refused to consider the value attaching to them because of their suitability to power plant uses. Tn this they were wrong. Every use to which lands may be put has a bearing upon their value, with the possible exception of sovereign uses, such as forts. The value of the power plant lands, deducting $4,000 on account of *584the farm at Horseshoe Bend, without interest, I find to he $95,062; with 8 per cent, interest for one year, $102,666.96.
Transmission System Lands.
Regarding these lands, while I am of the opinion that $25 an acre, at which plaintiff’s experts appraise desert lands, is shown to be excessive, yet on the whole there is a decided preponderance of the evidence that defendants’ appraisal of $6,601 for land necessary to cover 800 miles of transmission lines is a decidedly inadequate allowance. It has been pointed out that defendants’ engineer has appraised about 300 miles of transmission line lands for the lines built since 1919 at over $50,000. No explanation has been offered of the discrepancy. Nor this item I find there should be allowed $72,125, which includes interest.
Substation Lands.
The plaintiff’s total valuation of the substation lands is $32,040; the appraisal of the defendants’ engineer, $22,597. On this question there is no such a decided preponderance of evidence in plaintiff’s favor as to overcome the testimony in support of defendants’ appraisal, except in the case of the Twin Nalls site. At least $1,801.44 should be added on account of this latter item. This makes a total which I find should be allowed for these lands $24,398.44, which includes interest.
General Office Lands.
Plaintiff concedes defendants’ appraisal, except as to overhead, which, as stated, was properly rejected. The total for these lands, therefore, should be $12,980, which includes interest.
Store Department Lands.
The plaintiff’s total for these lands is $12,-487; defendants’ appraisal, $9,167. There is no such decided preponderance of evidence in plaintiff’s favor as to overcome the testimony in support of defendants’ appraisal, except that there should be added $100 and interest thereon at 8 per cent, on account of the Twin Nalls lands; the defendants’ engineer omitting that amount, without explanation, from the appraisal of defendants’ own expert witness. The total allowable for these lands, I find, therefore, is $9,275.
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Buildings, Nixtures, and Improvements to Grounds.
Nor these items the defendants’ appraisal exceeds the plaintiff’s. Plaintiff conceding the acceptance of its own appraisal, which the majority adopts, and in which I concur, the amount is $286,418.
I concur with the majority of the court as to the following accounts, and find that as to them, where there is any dispute, after making due allowance for the effect of bias and partisanship of expert witnesses giving opinion evidence as to values, there is no greater difference in the claims asserted and appraisals made than is to be reasonably expected, and that a preponderance of the evidence shows that no less value should be included in the rate base than the following:
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I concur with the majority in not including in the rate base the capital invested in the merchandising business.'
Oxbow Service.
I am unable to agree with the majority as to the value of this service, which plaintiff appraises at $400,000, and defendants at $50,-000, and which the majority of the court fix at $150,000. Defendants’ expert' witness was shown to be unfamiliar with this feature of plaintiff’s system. He testified that a Diesel engine and 100-kilowatt generator would supply the stand-by service of the Oxbow. There .was testimony for the plaintiff that such an engine would not even excite the transmission line and transformers. There was no testimony offered by defendants in reply to this. The boldness of this challenge, were it not true, called for further testimony on the part of the defendants. Nearly half the value of the Oxbow service is as a synchronous condenser at the northwest extremity of the power company’s system. By its Order No. 873, December 21,1922 (Exhibit No. 5), the Public Utilities Commission fixed service at Oxbow at $214,382 (page 68, vol. 1, abstract of evidence), and I conclude that no less an amount than that should be allowed for this item.
*585Organization Expense — Account No. 1.
I ana unable to agree with the majority in allowing organization expense, $400,000. The commission, in its Order No. 873 (Abstract of Record, p. 60, at page 79), made an allowance for incorporation of $206,430, and for direct reorganization expense $117,187.50, a total of $323,617.50. Defendants’ engineer, Kopel-man, evidently calculating there would be an added expense because of plaintiff’s growth, allows for organization expense at $366,524.-22. I am of the opinion that there is no clear preponderance of the evidence that warrants an allowance in excess of that amount.
Water Rights.
For water rights plaintiff’s appraisal is $201,046, and defendants’ $39,751. The majority of the court allowed the full amount of plaintiff’s claim, $201,046. This amount includes the cost of the. overflowed lands at American Falls. These lands the plaintiff has sold to the United States, and has received part payment, and as part consideration has a contract with the United States for the storage of water. Under such circumstances, the cost of the lands overflowed is not the measure of value, and, there being no evidence as to the value of the rights plaintiff has acquired under its contract with the United States, the only amount properly allowable for this item is that, conceded by defendants, $39,751.
American Falls — New Unit.
The Value of certain construction at American Falls, exclusively used in supplying power to the Utah Power & Light Company for use in Utah, the defendants included in the rate base. They also included in the revenue to be later considered the profit from plaintiff’s contract with the Utah Company. The majority of the court conclude that the cost of such new construction, $629,444, should be excluded from the rate base. In this ruling I concur. It may be that, because other of plaintiff’s property at American Falls also is in part used in connection with this contract, there should be a further deduction from the rate base on that account; but, if there is any testimony that would enable the court to make a finding of the proper amount to be deducted, it has not been pointed out.
Going Concern Value.
I am unable to find any clear preponderance of the evidence of a going concern value greater than that fixed by the commission in Order No. 873 (volume 1 of Abstract of Record, page 60, at page 79), the amount being $823,682, and for that reason cannot concur in the finding of the majority of a value on that account of $1,500,000.
Working Capital.
Plaintiff asks an allowance for working capital of $950,000. Defendants’ engineer estimates the amount necessary at $564,445. The majority find as a reasonable amount $650,000. The commission, in Order No. 873 (Abstract of Reeorá, vol. 1, page 60, at page 79), allowed for this item $700,000. It would therefore appear that the allowance should be no less than the latter amount.
Summary.
A summary of the foregoing is as follows:
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Depreciation.
Plaintiff contends that no greater allowance for depreciation should be made than $438,734. One of the experts for defendants testified to a depreciation of $3,086,091, and another to a depreciation of $3,965,785. The majority of the court estimates the depreciation at $2,000,000. I am unable to agree with them in the conclusion reached. The defendants’ witnesses used the straight line method in fixing depreciation; refusing to consider the element of reproduction cost, in determining the base upon which the percentage of depreciation would be figured in the straight line method, would result in minimizing to some extent the depreciation, and the one mistake would tend to offset the other. It may be conceded that the straight line method, other things being equal, is not as sure a method of calculating depreciation as separate estimates of depreciation made upon inspection of the *586various structural units of the property. Plaintiff’s witnesses, in calculating depreciation, put out of consideration the probable life of the various units of the property, and based their calculations upon what they term “present service value.” This is even a more faulty manner of determining the question of depreciation than the straight line method, for the straight line method, if fairly and normally applied, often, if not generally, will approximate the correct amount; while to give controlling effect to service value will never result in such approximation, except for the newest of properties.. Defendants’ witness Fletcher, after determining the average life of the dollar invested in plaintiff’s property, found it to be 7.92 years. He then testifies:
“Now, then, I have the average of this property. I have accepted the company’s annual allowance for maintenance and retirement expense as the correct amount to set aside each year for depreciation. Having that as a guide, I am estimating the life of the property — I am estimating the per cent, of annual depreciation of this property to be 2.4. That is an anticipated life of between 41 and 42 years. On that basis, then, the annual depreciation will be $389,658. The difference between that and what is actually set aside for maintenance and depreciation I consider purely maintenance. The accrued depreciation, then, on this property on this basis, will be approximately $3,086,091, and the per cent, condition will be 80.99 per cent. It is common practice to determine depreciation in this way. I consider the most important evidence as to the depreciation of a property to be the average age of the dollar invested. It is a common practice among valuation engineers to set up life table's. I do not agree with the method of figuring accrued depreciation adopted by the engineers who have testified on behalf of the Idaho Power Company. I think it is ridiculous to say that this plant is 97 per cent, new.”
I am unable to find any clear preponderance of evidence in plaintiff’s favor of a depreciation less than the sum fixed by defendants’ witness Fletcher — $3,086,091, diminished by $500,000 to cover any faults in his method of calculation and on account of bias 'or zeal upon his part in his opinions concerning this subject. Upon the whole evidence, I cannot find a preponderance showing depreciation less in amount than $2,586,091. Deducting the amount of the depreciation from the total value of the property found, $20,789,-176, there remains $18,203,185. This is the total value of the property, both that in Idaho and that in Oregon. Of this amount, 86 per cent, by use is apportioned to Idaho and 14 per cent, to Oregon. The amount, therefore, apportioned to Idaho, is $15,654,739.10.
Rate of Return.
I agree with the majority of the court that a rate of return of 7 per cent, upon the value of the property is not confiscatory. In Boise Artesian Water Co. v. Publie Utility Commission this court, in granting a preliminary injunction, adopted a 7 per cent. rate.
Gross Revenues.
Exclusive of interest on consumers’ delinquent accounts and income from merchandising and from Utah Power & Light Company, reference to which has been made above, there is no controversy as to the gross operating revenue. Exclusive of these items, the gross revenue for 1924 was $2,682,850. As pointed out, the majority of the court excluded from the rate base the cost of the unit constructed at American Falls for serving the Utah Power & Light Company, but have allowed as an item of revenue of the amount received upon the contract with this company $22,000 per annum. I am unable to agree to the inclusion in the revenue of plaintiffs any part of its receipts from this contract, because supplying the Utah company over the lines of the two companies with electric power at Salt Lake City is interstate commerce. No question is made’ but that power directly delivered from one state to another constitutes interstate commerce. It is difficult to conceive of anything passing more directly to its destination than electric power. There is no evidence that any of the power sold to the Utah Company is used in Idaho. There is evidence that it is used in Utah. There is no evidence that none of it is used or sold in Idaho. If occasional use of it is made in Idaho, the value of that use has not been shown. Such being the case, it is not necessary to determine whether the arrangement made between the two companies would bring that feature of their business under the jurisdiction of the commission or not, as the extent and value of such service is in no manner shown. The items of interest upon consumers’ delinquent accounts and income from the merchandising of plaintiff should also be excluded. Therefore only the agreed amount of gross income for 1924 (not abnormally-increased in 1925) should be allowed— $2,682,850.
Operating Expenses.
The plaintiff shows for operating expenses, inclusive of maintenance and retirement in' 1924, $1,574,508. The defendants’ accountant exhibits a statement showing such expense, without depreciation, for 1924, $1,381,306. *587The items of expense in dispute are: (1) Supervision and special service of the electric Bond & Share Company; (2) regulatory commission expense; (3) taxes; (4) retirement expense; (5) uncollectible bills; (6) miscellaneous general expenses. I concur with the majority in allowing for the first of these an amount equal to that expended in 1924, the increase for 1925 being slightly in excess of 1 per cent.; the amount allowed being $52,-326.61. I also concur with the majority in allowing for regulatory commission expense $22,000, as there appears an abnormal increase in this expense since 1924, when it was $17,000; there being no evidence warranting a finding that such increase will be diminished in the future. There should therefore be added to its operating expenses, as stated above in plaintiff’s showing for that year, the difference between $17,000 and $22,000, to wit, $5,-000, on this account.
Taxes.
Plaintiff’s taxes for 1924 were $249,592. In defendants’ set-up there is allowed an even greater amount. This is because of including the American Palls unit, which we have excluded. The evidence shows for later years a substantial increase in the taxes. While taxes for the future will probably exceed $300,000, yet to include in the expenses the full amount, as the court has adopted the year 1924 for the purpose of the necessary calculations, because of the normal character of the transactions for that year, would throw the calculation out of balance. I therefore conclude that no greater amount should be allowed on account of taxes than $300,000. This results in increasing the expense stated for plaintiff for the year 1924, by the addition of the difference between $249,592 and $300,000, to wit, $50,408.
Retirement Expense.
The retirement expense shown for 1924 was $205,000. The majority of the court, with whom I concur, allow for this expense $230,000. This results in a further increase of the total for 1924 by an additional $25,000.
Uncollectible Bills.
Plaintiff claims upon this account, $50,-000. In defendants’ set-up there is made an allowance on account of this item of $23,100. The majority of the court has allowed for un-. collectible bills, $30,000. I am unable to see why anything should be allowed for uncollectible bills. Plaintiff’s business is such that it can compel payment in advance or the giving of security for its bills. If they are uncollected, there is no reason why the rate payer who does pay in full for service given by plaintiff should also pay for the service given those who do not pay, and from whom the plaintiff could have demanded payment before rendering service. City of Knoxville v. Knoxville Water Co., 212 U. S. 1, at page 12, 29 S. Ct. 148, 53 L. Ed. 371. As long, however, as defendants concede $23,100 on this account, I conclude to that extent it should be taken into account in determining the total amount of general expenses. The amount included in the 1924 expenses for uncollectible bills was $163,328.32; deducting from this $23,100, there remains $140,228.32, which should be subtracted from the amount of the expense for 1924.
Miscellaneous General Expenses.
Por 1924, plaintiff asserts miscellaneous general expenses amounting to $61,120.62. Por 1925, defendants’ accountant finds from plaintiff’s accounts $48,426, and for 1926, $50,847. ■ The majority allowed $50,000. A statement of the nature and amount of the items of miscellaneous general expenses was prepared. This statement is as follows, omitting therefrom the years prior to 1924:
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*588Prima facie the following items are allowable:
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Defendants confine their objection to the allowance of club dues of officers and employees, and donations to charities and public enterprises, and losses of money once collected. For 1924 these items were:
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The evidence does not warrant the charge of these items to the rate payer. A further deduction should be made of $1,583.40 for window lighting of salesroom, and $360 rental, as both pertain to the merchandising of plaintiff. After a total deduction of $12,270.-13 from the miscellaneous general expense of 1924 of $61,120.62, there remains $48,850.49 allowable for miscellaneous general expense. The difference, $12,270.13, is a further deduction to be made from the total of the general expenses of 1924.
Summary.
Of the amounts shown above, there should be added to the expense of 1924:
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The amounts that should be deducted from the expense of 1924 are:
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Subtracting the total additions from the total deductions, there remains $72,090.45, by which amount the expense set-up for 1924 of $1,574,508 should be diminished. The amount remaining allowable for operating expense is not more than $1,502,417.55. Deducting the amount of the operating expense from the gross income, as found above, of $2,682,850, there remains net income for Idaho and Oregon, $1,180,432.45.
It appears without question that, of the foregoing net income for 1924, 89.91 per cent, should be apportioned to Idaho, and 10.09 per cent, apportioned to Oregon. The net income for Idaho for the year 1924, therefore, is not more than $1,061,326.81. Upon the total of the rate base apportioned to Idaho — that is $15,564,739 — the above amount of net income apportioned to Idaho amounts to 6.7 per cent.
I agree with the majority that the rates established by the commission for charitable institutions, water heating, air heating, and for irrigation are invalid. If these special rates are abolished, and the correction then asked by plaintiff made, the plaintiff estimates an increased revenue of $249,000. 89.91 per cent, of this estimated increase is $223,875.90; this added to $1,061,326.81, the amount of the 1924 net income apportioned to Idaho, produces a total of $1,285,202.71. This amount is over 8 per cent, upon the rate base apportioned to Idaho. Such a rate of return would not be invalid, because not noncompensatory. The special rates being invalid, an injunction should issue restraining their enforcement, except any which may have expired by limitation. Neither side to recover costs.
Addendum.
Judge DIETRICH has called my attention to the fact that, while of these accounts appearing at page 61 of the majority opinion (see 19 F.[2d] 572), totaling $21,199,746, I have concurred in $20,789,176.46, page 9 of the foregoing (see 19 F.[2d] 585), and while I have rejected the American Falls unit in the service of the Utah company, I have not deducted from the above total the amount of the rejected item, which is included in such total. This would further reduce the rate base $629,-444, but does not otherwise affect the result.

 This case was decided after a final hearing without application for an interlocutory injunction. After the decision of the Supreme Court on February 21, 1927, in T. L. Smith et al. v. Louis J. Wilson et al., a decree was entered by Cushmafn, District Judge, and not for the three-judge court, in conformity with his concurring opinion.