Court Opinion

ID: 6281800
Source: CourtListenerOpinion
Date Created: 2022-02-18 16:30:45.803981+00
Date Added: 2024-06-11T09:00:13.141190
License: Public Domain

Dissenting Opinion by
Rhodes, P. J.:
I dissent from that portion of the majority opinion which treats of respondent’s (intervening appellee’s) reproduction cost estimate based on 26-month average prices extending from April 1, 1946, to May 31, 1948. At the hearing on January 20, 1949, counsel for the Commission on the record requested respondent to present reproduction cost estimates based on 5-year average prices and 10-year average prices. This the respondent refused to do.
It is true that reproduction cost is merely one of the elements entering into the determination of fair value of the property of a utility; and the weight to be given a reproduction cost finding is for the Commission. In arriving at a fair value of respondent’s property, the Commission used respondent’s estimate of reproduction cost. It does not appear that the Commission made an explicit finding of reproduction cost. It merely said: “Our finding with respect to a measure of value based upon depreciated original cost, related to intrastate operations, totals $358,121,177. Were we to apply the same ratio for accrued depreciation as we did with respect to original cost, the corresponding amount based upon 26 months’ depreciated reproduction cost would approximate $478,126,897.”
The Commission in its order also made this statement: “In determining the reasonableness of the rates of a public utility, we are required, in arriving at the fair value of property used and useful in the public service, to give consideration to reproduction cost of *416property based upon the fair average price of materials, property and labor. Therefore to comply with the requirement of law that we give consideration to ‘reproduction cost at the fair average price of materials, property and labor,’ we shall review and analyze respondent’s reproduction cost estimate based on the average prices of the noted 26 months’ period and in determining the issues involved in these proceedings will give such weight to this reproduction cost estimate as it merits (Blue Mountain Telephone and Telegraph Company v. Pa. P.U.C., 165 Pa. Superior Ct. 320, 327).”
The Commission did not approve or disapprove of the 26-month price average, and it did not find that such price average was fair or representative, or that the 26-month period was a fair period for such purpose. I am of the opinion that it must appear from a finding supported by evidence that the average prices used in a reproduction cost estimate covered a fair period and were representative and the “fair average price of materials, property, and labor as required by law.” Pittsburgh v. Pennsylvania Public Utility Commission, 165 Pa. Superior Ct. 519, 525, 69 A. 2d 844, 847. See Equitable Gas Co. v. Pennsylvania Public Utility Commission, 160 Pa. Superior Ct. 458, 463, 51 A. 2d 497. If such measure of value submitted by respondent does not comply with this requirement, it does not merit any consideration. Whether such measure of value as submitted meets the legal requirement is a question of law, and subject to review by this Court. To be fair and representative, average prices must relate to a fair period or cover a sufficient extent of time so that they do not reflect merely unusual or temporary economic conditions. Whether or not it is a fair period is a question of fact with which the Court will not interfere if the finding is supported by competent evidence. It is not a matter of discretion on the part of the Commission; it is a matter of evidence and a finding.- The use of *417abnormally low price levels would be no more proper than the use of relatively bigb price levels at the discretion of the Commission. If respondent’s rates were reduced and it claimed confiscation because a short period of low prices was selected for the determination of reproduction cost, I question that we would sustain the Commission on the ground that the matter was “solely for the Commission.” Exercising our independent judicial judgment, we would probably be obliged to remand the case or, from the evidence, make our own finding of a fair average. In the absence of a Commission finding as to the use of 26-month average prices, the consideration by the Commission of the reproduction cost estimate submitted by respondent was an' error of law, and in remanding this case we should require a finding by the Commission which we could review in the light of the supporting evidence, if any.
Furthermore, we recognize that some matters as, for example, accrued depreciation is essentially for the exercise of the Commission’s judgment. Pittsburgh, v. Pennsylvania, Public Utility Commission, supra, 165 Pa. Superior Ct. 519, 526, 69 A. 2d 844; Pittsburgh, v. Pennsylvania Public Utility Commission, 168 Pa. Superior Ct. 95, 108, 78 A. 2d 35. And, in forecasting probable future revenues under a given tariff, the Commission must necessarily have the power to exercise its own judgment “upon a view of all the relevant circumstances.” Pittsburgh, v. Pennsylvania Public Utility Commission, supra, 168 Pa. Superior Ct. 95, 106, 78 A. 2d 35, 40. But I think the statement in the majority opinion to the effect that the judgment of the Commission is supreme whether the future holds an increase, or decrease in prices may be misconstrued and misapplied. In finding the present fair value, future values, greater or less, are not part of the picture.'
In Equitable Gas Co. v. Pennsylvania.Public Utility Commission, supra, 160 Pa. Superior Ct. 458, 466, 51 *418A. 2d 497, 501, we said: “It is sufficient to note that the reproduction cost estimates were based upon spot prices. ... In cases involving reproduction cost estimates a five or ten year average has been generally used. The commission therefore concluded that the spot pricing of December 31, 1938, produced a figure fairly comparable to a reproduction estimate based on average prices over any reasonable number of recent normal years.” The Commission’s finding in that case of fair value was as of December 31, 1944.
In Pittsburgh v. Pennsylvania Public Utility Commission, supra, 165 Pa. Superior Ct. 519, 525, 69 A. 2d 844, 847, we said: “Notwithstanding its disapproval of five year average prices and its conclusion that they were unrepresentative, the Commission gave weight in determining the rate base to reproduction cost based on such averages. Either five year average prices were representative and entitled to be used in a finding of reproduction cost in this case or they were not.”
In Blue Mountain Telephone & Telegraph Co. v. Pennsylvania Public Utility Commission, supra, 165 Pa. Superior Ct. 320, 67 A. 2d 441, reproduction cost based on 10-year average prices as a standard for reproduction costs was affirmed by this Court.
The Blue Mountain case furnishes a striking contrast with the present case. In that case the Commission resorted to 10-year average prices in finding reproduction cost in the amount of $330,300. In the present case the Commission allowed a 26-month price average covering a. relatively high period of price levels, and accepted respondent’s estimate of reproduction cost based thereon. Respondent’s- reproduction cost estimate depreciated apparently used by the Commission was- approximately $478,126,897. Respondent' is- a wholly owned subsidiary of the American Telephone -& Telegraph Company, a multibillion dollar corporation. The majority opinion has this' significant statement *419with, which I fully agree: “Only the Commission can stand between the public and the utility. It is almost the only protection which the public has.” In performing its duty in this respect, the Commission should not allow itself to be overwhelmed by respondent’s magnitude or the methods used “to get as large a return as possible.” As long as rate making in Pennsylvania requires consideration of such an artificial and unrealistic element as reproduction cost, the estimate used should not be weighted in favor of the utility.
I am also of the opinion that a 6 per cent rate of return allowed by the Commission on a fair value finding of respondent’s property is arbitrary. In Blue Mountain Telephone & Telegraph Co. v. Pennsylvania Public Utility Commission, supra, 165 Pa. Superior Ct. 320, 329, 67 A. 2d 441, 446, we said: “Appellant vigorously contends that it is entitled to a 7.25% return, on the opinion evidence of the appellant. Under the circumstances here existing no fault can be found with the Commission for fixing the rate of return at 6%.” If the Blue Mountain Company, with a fair value of $325,000 requires only a 6 per cent return to attract capital and to keep its enterprise stable and profitable, certainly an allowance of 6 per cent return for respondent is unconscionable. In its order the Commission said: “A fair return must enable respondent to maintain its credit and attract necessary capital. Respondent’s financial reputation and ability to maintain its general credit or attract new capital is greatly enhanced by its inclusion in the Bell System family which the United States Supreme Court has characterized as no ‘ordinary public utility,’ Smith v. Illinois Bell Telephone Co., 282 U.S. 133, 161 (1930). As an integral part of the nationwide Bell System, respondent not only has unique advantages' in obtaining credit or new capital, but through affiliated sources, of production and research respondent has immediate access *420to any improvements in equipment or operating methods that result in [economies].” In my judgment, the allowable return may not exceed 5.74% on this record.
In remanding the record to the Commission for further consideration, we should require the Commission’s reconsideration of reproduction cost and rate of return; the fair value of respondent’s property for rate making purposes and the allowable return from the tariffs should be revised to comply with the evidence- and the law.
Reno and Ross, JJ. join in this dissent.