Court Opinion

ID: 9716392
Source: CourtListenerOpinion
Date Created: 2023-08-26 06:37:35.9708+00
Date Added: 2024-06-11T18:23:45.156677
License: Public Domain

Dissenting Opinion by
Gunther, J.:
The Manufacturers Light and Heat Company (hereinafter called utility) filed tariff supplements with the Pennsylvania Public Utility Commission providing for proposed increase in total revenue of over $5,800,000. The tariffs would have effected increases in industrial and residential rates and a special increased rate for Lulcens Steel Company were suspended by the commission for a period of nine months. Complaints were filed, hearings were held, and, on August 23, 1954, the’ *396commission entered an order granting increases totalling some |2,900,000. Several appeals were taken to this court from that order, and, in an opinion dated March 28, 1955, the case was remanded to the comission to take additional evidence and to make further findings of fact in regard to rate structure and fair rate of return. Two judges dissented on the question of rate of return. See Pittsburgh v. Pa. P. U. C., 178 Pa. Superior Ct. 46, 112 A. 2d 826. The commission thereupon held a hearing in June, 1955, at which additional testimony was taken. On October 18, 1955, the commission entered a new order from which the City of Pittsburgh has taken this appeal.
In its order of August 1954, the commission authorized a rate of return of 6y2 per cent. This was based largely on a finding that the cost of capital to Columbia Gas System (the utility’s parent company from which the utility secures financing) was between 6.05 and 6.31 per cent. An allowance was added thereto for risks and possible fluctuations in the financial market. In the opinion reversing and remanding on this issue it was stated, at page 69: “In arriving at a fair rate of return the commission assumed, and it was not disputed, that the cost of capital to Columbia Gas System, Inc., was identical with the cost of capital to the utility (Manufacturers). On this point the commission stated: ‘To summarize, reasonable capital cost rates applicable to Columbia and respondent are for debt capital, 3.09 per cent historically and 3.35 per cent on a current basis, and 9.25 per cent for common, equity capital. Weighing these cost rates with the average capital structure of Columbia-System for the-1949-1953 period, consisting of 52 per cent debt and 48 pér cent common equity, results in a composite cost of 605 — 6.18 per cent. If a balanced capital structure *397were applied, the composite cost range would be 6.18— 6.31 per cent. We, therefore, have for consideration in determining fair rate of return a cost of capital within the range of 6.05 — 6.31 per cent.’ Such cost of capital is based on the demands of the investors and fully takes into account the hazards and risks incurred in the business, including the fact that ‘wasting assets’ are involved. There is no doubt that the utility obtains its necessary capital through Columbia. At the same time it is evident that the cost of capital to the parent company, consisting of many subsidiaries in various states and jurisdictions, is by no means an accurate determination of cost of capital in this proceeding to this utility operating an intrastate business in Pennsylvania”.
It was further stated that the commission erred in twice accounting for the risks and fluctuations in the financial market and that the commission’s allowance was not based on and supported by the evidence. The order read as follows: “The record is returned to the commission to determine the reasonableness and lawfulness of the rate structure in supplement No. 11 to Tariff Gas — Pa. P. U. C. No. 37, and to determine a proper rate of return. The commission may receive such additional evidence as the circumstances require and make further findings of fact. After such findings the commission shall revise and modify its previous order of August 23,1954, as may necessarily follow and require proper tariff or tariffs to be filed producing the annual allowable, operating revenues”.
- Pursuant to the order of this court the commission.took additional testimony and concluded in its order;, of' October. 1955, now under appeal, that its original allowance of 6%' per cent as a fair rate of return Was correct. The City of Pittsburgh, appellant, contends *398that the new finding of fair return is not supported by the evidence. Appellant objects to the admission of additional testimony, contending that the commission should merely have reexamined the record in light of the opinion and made new findings consistent therewith. However, the remand order specifically empowered the commission to receive additional evidence, which, therefore, was properly done.
The commission in its present order repeated its findings of cost of capital to Columbia Gas System and held that the cost to the utility should be considered the same as to its parent. Appellant objects to relating the utility’s cost of capital to that of Columbia, but the record amply justifies the finding that they are the same. In fact the testimony presented at the last hearing indicates that if the utility were required to procure its capital directly and not through Columbia the cost might be well higher, because Columbia is experienced in financial matters, is better able to procure prime rates because of its diversified interests, and because the costs incident to financing are reduced by the group financing accomplished by Columbia for all its subsidiaries.
In making an additional allowance above cost of capital, to reach the finding of fair rate of return of Gy2 per cent, the commission did so on the basis of specific testimony as to the necessity for such addi-. tional allowance. The reasons therefor are to provide some, margin for deviations and fluctuations in the-market in respect to cost of capital,, to permit the utility to instill confidence in its financial soundness, and to enable it to credit some amount to surplus. As pointed out in the prior dissent, see cases therein cited, such an allowance, above the bare cost of capital has been expressly approved by this court.
*399In the majority opinion it is stated that the additional allowance above cost of capital was error, because, among other reasons, the normal risks and uncertainties of financing had already been considered by the commission in arriving at the cost of capital. The record discloses that the elements of risk and fluctuation were not a factor in the commission’s findings of cost of capital. The findings were based on specific testimony as to the actual cost of money to Columbia for representative periods. The utility’s cost was equated to the actual findings for Columbia, although the evidence indicates that it actually might be higher. After making findings of cost of capital, the commission then made an additional allowance, for the reasons above outlined. This ivas proper, and, being supported by sufficient competent evidence, was a reasonable exercise of discretion. It is submitted, therefore, that the commission’s finding of 6% per cent as a fair rate of return was not error and should be affirmed.
Weight, J., joins in this dissent.