Court Opinion

ID: 5335533
Source: CourtListenerOpinion
Date Created: 2022-01-08 05:32:56.325489+00
Date Added: 2024-06-11T08:29:29.572109
License: Public Domain

Rhodes, J.
I concur with Justice Crapser for annulment and remittal, but as the reasons which impel me thereto are not identical with those suggested in his opinion, I am stating them as briefly as possible.
The company petitioner has sought for an increase in rates and by the determination now under review such increase has been refused. It is insisted by the company that the rates established are insufficient to afford a proper return upon its property devoted to public use and are, therefore, confiscatory.
In United Railways v. West (280 U. S. 234) it is stated: “ It is manifest that just compensation for a utility, requiring for efficient public service skillful and prudent management as well as use of the plant, and whose rates are subject to public regulation, is more than current interest on mere investment. Sound business management requires that after paying all expenses of operation, setting aside the necessary sums for depreciation, payment of *326interest and reasonable dividends, there should still remain something to be passed to the surplus account; and a rate of return which does not admit of that being done is not sufficient to assure confidence in the financial soundness of the utility to maintain its credit and enable it to raise money necessary for the proper discharge of its public duties.”
Section 49 of the Public Service Law provides that the Commission in a case where the maximum rates are insufficient to yield reasonable compensation for the service rendered, shall “ with due regard among other things * *, * to a reasonable average return upon the value of the property actually used in the public service, and to the necessity of making reservation out of income for surplus and contingencies, determine the just and reasonable rates.”
The balance sheet of the company as of December 31, 1931, shows total assets of $4,213,080.15; its liabilities, not including $1,000,000 of capital stock, $5,562,495.82. Its corporate surplus account thus showed a deficit, not including outstanding capital stock, of $1,349,415.67. Thus, including its liability for capital stock outstanding, the company was, in common parlance, “ in the red ” to the extent of $2,349,415.67. That is the condition resulting from the operation of the company at present rates. If, as claimed by the Commission, the valuation of the company assets is too high, then, to that extent, its financial condition is more unfavorable than appears by the balance sheet. Even if the balance sheet be assumed to reflect distorted values and estimates, the inexorable facts are that the company has never paid any dividends and, with the apparent and probably real deficit in surplus above stated, it seems apparent that the company has demonstrated that the rates are confiscatory.
The company insists that there should be included in the rate base the value of passenger cars, service cars and electrical equipment not owned by it but which it rented and actually used.
It is stated in the opinion of Justice Crapser that the value of these cars and equipment should be included for the reason that the statute says that the rate shall be fixed upon the value of the property actually used in public service. It seems to me, however, that in determining the value of property actually used in the public service, the statute and decisions have reference to the property of the operating company. It seeks a return upon its capital invested, not upon the capital or property of some other concern. So far as these rented cars and equipment are concerned, the petitioner has invested or expended only the amount of the rentals paid by it and such rentals constitute all of the property of the petitioner devoted to public use, in relation to such cars and *327equipment. The reasonable rental value thereof should, therefore, be included and the actual value of the property itself should be excluded.
The petitioner says that the Commission was not justified in considering original cost figures in arriving at the value of its property. The statute says nothing about either original cost or reconstruction cost less depreciation. The statute directs the Commission to determine the value of the property actually used. In St. Louis & O’Fallon R. Co. v. United States (279 U. S. 461) the court reiterated the rule that the basis of all calculations as to the reasonableness of rates to be charged by a utility corporation “must be the fair value of the property being used by it for the convenience of the public.” The opinion then proceeds: “And in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses are all matters for consideration, and are to be given such weight as may be just and right in each case.” Attention is called to the fact that the Federal statute  there applicable directed that the Commission “ shall give due consideration to all the elements of value recognized by the law of the land for rate-making purposes, and shall give to the property investment account of the carriers only that consideration which under such law' it is entitled to in establishing the values for rate-making purposes.” No different rule is prescribed by our statute as to the method of determining the value, and in the absence of statutory mandate or controlling decision, all the elements recognized by the law of the land for rate making purposes are to be considered.
Petitioner says that the Commission erroneously ehminated any consideration of going value. It appears that in the opinion of two experts the company has a going value. The Commission did not disregard this testimony, but it considered it and did not accept the figures. It was not obliged to. The Commission, being a fact finding body, was entitled to pass upon the credibility of the witnesses. It was not required to “ swallow whole ” the testimony of these experts. In the absence of this testimony there was not sufficient evidence to establish any definite figure as to going value. Under section 49 of the Public Service Law the burden of proof is upon the company.
In Los Angeles Gas Corp. v. Railroad Commission (289 U. S. 313) the court said: “ The concept of going value is not to be used to *328escape the just exercise of the regulatory power in fixing rates, and, on the other hand, that authority is not entitled to treat a living organism as nothing more than bare bones.”
In view of the financial condition of the company as revealed by its balance sheet above referred to, it seems to me the Commission was justified in determining that the going value of the concern is negligible.
I do not agree with Justice Crapser that it was error for the Commission to make its estimate of annual depreciation on the basis of original cost rather than upon present value. (See Lindheimer v. Illinois Tel. Co., 292 U. S. 151.)
It is suggested by Justice Crapser that the Commission erroneously disregarded the evidence as to the amount of working capital necessary. Here again the record indicates that the Commission did not disregard the evidence; that they considered it but did not regard the estimates as accurate. The same may be said as to the action of the Commission in reducing the amount estimated as necessary for engineering and superintendence, and as to interest during construction. Similarly, as to the amount determined by the Commission as allowable for paving. The figures presented to the Commission as to this item were estimates based upon the hypothesis of the cost and value of the paving at the time of the hearing. The value thereof was a question of fact to be determined by the Commission from the evidence before it.
For the reasons stated, I vote to annul the determination and remit the matter to the Commission for further proceedings in accordance herewith.
Determination annulled and proceeding remitted to the Public Service Commission, with fifty dollars costs and disbursements.