99.
ORAFTU II
MILO t TS
TPTCTING RITRODUCTION YALU Trois
Reproduction valuations are made for many reasons
which are the folicoing
1. To determine the amount of Insurance a
should carry on plants constructed or purchase* pr
fly
rise in construction costs.
2
5
To obtain loans
To inspire oonfidence in stock and bond issue,
4. As a basis for purchase, sale or mergers,
5 As a basis for federal and state taxation,
s a basis for rate making.
Th
type of value ion must necessarily proceed vi
kno edge of the rece
e of eommiesions
toward particular pbas
a
lb. Supreme Court
The utab Ceeateston, in rev
On
ustton leading up to the adoption of the repro),
methods said that out of the experience of valuation
sedinge grew three principal
of valuation tO
considered in fixing the value of u
ti property ter
6...making purposes; that there 'sr
storteat cost
of the property, inventory of the islet
origiral cost, and (lost of reproduction
as the asount and
its cap/
propertyat its
et value of a utility's s
isetion were found
106
reasons, to be o
The hi
teal cost of
utility property was
lot ascerta nable, for the
a
re on that accounts were not kept in such a way as pro.
perly to reflect the finanotal transactions of the util
ity. Likewise it usually happened that a composite
property bed been construCted by various osrPorstiO44 4
at intervals, extending oft times over a period, of years,
The Comgiission said it was
not impossible
ficult
to ascertain from the varioui corporation records the
actual cost of the propertY; end, even of theøe costs
were available, it seemed to be impossible to say'at a
later date Whether or not the monefhad been prudently
spent and that no extravagance or waste had entered into
he eonstruction of the 7,roperty and also, In a property
considerable age
of its elements must have
placed, superseded,
would be impossible to
abandoned, so that
money cost, a*
fleoted by the books, r
d only property use
useful, and necessary in rendering public) service.
obviate these difflom ties it was Amid that Commise
had resorted to the reproduotion gpst theory as a method
of valuatton and that it was cuato ry, after the count
f the physical property had been completed and compiled
unit costs to the various units of property *ono;
tained In the inventory. The Commission said that the
World War broui t about an extraordinary change in price
101.
;bevel
need
levels unthough
re sad
with fluctuations from tiae to time had reach
deo grated by aces as the new plateau of prime
Thus there came about a wide spread between Inv
based upon average prewar prices and reproduction new
sad uPen present prices. Many claimed present value
teo.making purposes, on the theory, briefly, that as
purchasing power of a dollar diminiehed
should be increased reletIvel
re the same purchasing power, in
could have had with a prewar
it bad along with Others, largely disregarded re*
otion Ael, at present price and held broadly that
the invsetaaut made and remaining
roperty vs
&sou t upon which the
was entitled to earn a rev.
turn, until it had to
its valuation methods in 404,
cordance with the decisions of the United States Supreme
Court and other courts of competent jurisdiction to the
effect that present value rather then investment was the
basis of return. Re Perry (Utah')
The Treatment of Contingencies
The usual practice in ascertaining ost of reloreduo.
public utility property is to make a separate allow.
ance under
This allow!
beading of contingencies
provides for iocomp
inst difficulties unforeseen in the worm of c
a
102
n. ContLnfez4otes cover those
eseen in estiaatiog work and whi
inspection of finished wo
1 items in any construction
which cannot boo
are aat apparent is
'Lich are always
b
They appear
asters, corrections ot mistake*
trouble, gsmetimes due
time:, and the like
t has been held
is and omissio
entire change
due to labor
over.
per to make AU aUceanos
ventory in the appraisal
of public utility property
ere is no e idol**
in respect thereto, sluice it is
kly recognised that
contingencios ars *mod to occur in co$truØtion, and
omissions will be &ads even after th most oareAU iospeo*
tioo and investigation.
The amount to be allowed for
tiuencies and aids
necessarily depends upon
urs of the property
reproduced. The posibi1ity of meeting with uglier**
to
gee bstsoles and coite is greater in some undertakings
a
others. I street-pavtng work
would be
Is the op site would be true th esttmattLg from
cost of a tULAuel under a
Y Catnidsaious hav4low
pereen
of the physical property for this ites. Azi1lo
r Qent hug been made in eons eases, while in
water utility a I per cent allowanceas hel
sive. In several other i
is 0S*0
eta
10a
some
has been de. Other allowanoes bay ru
6 per cent
stoat; as
ty require a larger percentage
types of P
all wane. than others. ?or examplevaluation of
allowance
a telephone property in Colorado there was
for contingencies In valuing land buildings, and certain
Lads of eqtttpment. Allowances
made for other types of equipment and apratue,ad an
allowance of 5 per eat was made for omissions and cone
tingencies in the appraisal of interior wires. Thus it
appears that the allotioance may vary considerably accord.,
to the type of property valued.
The Allowance for Coatmoto
Pa
An allowance of 6 per cent was made
by the Social waster passing upon
ixed by a State Consatesion,
Iforoheoter
(Teti
A Substantially Squiv* ent Plan
Substitute Plant as the Oasis fo
The usual practice throughout the
ryhae
to aFoertain the cost of reproducing a Butte antially *qui"alent plant, In most of the valuation oases this pr.-0
re has apparsntly been uachllecged but the question
instances a
as to its propriety be been raised
)Uy. In one
the opinions on the subject are not
a of
case it was tated that to outer u
comps.?
104
merits
4ZX.rszit systeea--4o co
valued with re modern systems--
lent
open
11,
or to speculative inquiry una lead
discussions not
germane to the subject.
4n the deoietons where a contrary
to haVO
taken we find the opinion that the
p1 icat
the service and not of reproduotug
test of vs eøince this would bets
of
would operate upon the purchaser's mind
tring to acquire the property.
f the rule were adopted
Is always sub.
s plant rather than an gzie$jn property whioh is
to be reproduvedchowever it might work to the diss4.
vantage of the rate payers in ows oases
It might
volve considers ion of what..
would oos
Wild a asU
plant adequate to serveg safl com6unity a proses* sup*
plied by a large coapany rendering service
number of
aunicipalities. The ohief objeotion to
repro-due.
tiara cost eatisate based on a substi t
nt Instead of
one actually used seems to be tha
d add an el.of speoulatIon to a ,roulee diffiou and unee La
t the very beet.
Commission said that it is Its
us the Properly of any utility which is used and usofdl
in the public eervioe ote it exists t the ties 0 nquiry,
u and p.;.an
reference to Whether or not the
105
f the present utilityproperty is in accordance with to
idea of What atht be reprouaed providing no utility ci.
ieted, In other word* said the Com4seton, what it Is
valuing is property of a particular ki
1
is in existence and is used and useful in th
vice, and it is not concerned in the veluaticu of some
theoretical repro tion deetgl of an ideal property
The water system
year's experience
whether or not it
ng valued was the outgrowth o
fficers of the company, and
best design,
sing the present
day tandrds, was said to be g matte ,that was not the
peculiar dity of the Commission to decide, Were it to
assume that there was no water system in the oi
were it going to produce a water system, he question as
to whether all
water would be suplte4 from shallow
wails dug adaoent to the river, or whether an attempt
ould be made to develop an artesian flow, suffioient to
take care of the needs of the city, would have been a wit*
al question for the promoters of the.company to decide,
under the decisions handed down, the Commissio
wee
e opinion that it was obliged to consider and value
the operating property of the utility, without
tloo a to whether the best dresent day design would
for the reproduction of the Identical existing plant. RO
Boise '7;ater 00
(Idaho,)
la
ion of a e
s Med,
The use of a g re.l contractor
of
(,oit o pproduct on new is justif edw
res.
?reduction atemplated is in its ntirety, in the shosto,
ssam
e and requires the emplaymert of an oalis-
zation ass
ne
ed., trained, and soordinat d with Its
sbary equipment aocordiui to a deciston by the pee.*
ter involving the adquacy of rate* fixed by
Commission. The paella Macter said la part;
"Unless a general contractor is to be employed it
would seem to be necessary for the reproducing 'Company
to provide
lf with an organization and equipment aro,
alogous to that of a general coatractor, in order to of.
fect the reproduction, e are aot here dealtz w tb a
reproduction which would be made in the radual and piece.
meal way, it ha developed in fact over a long Period of
years. Ifihc.t is ocnteiiplated is a reproduction of the
erty as an entirety, in the shortest reasonable time
estimated bY both sides at two years; the plan.
d execution In detail of such a reproduction must
involve un organization of very different character and
tent from that required merely by in operating ocl,pawy
ssembling trains, and cc or4iaatiu of such au or*
Vitalization With itS necessary equipnent, both technical
and physical must take considerable time, ant Inyolve
considerable expense, all of which would have 0 be
10=7
eluded as e, partof the rep
figures used by the deft
-
Wats allowance therefore.
00 end
A Ina *
orcester
a Light Oe
re. Atteill (Ted.)
Iater.st During Oast= ti
rn general it may be said. that
usually the prevaillne rte el interest and
bae d upon the money invested
tion and before completion.
e is
is
been said
interest during construction is a
of
e completed property, there 18 no
on to the
h the
rate of return thit Should at allowed on
utility hr,s invested for the service of th Publi" Thus,
a public uttitty company may be entitled to a return Of
8 per cent, but if it c.p.,n borrow money at 6 per cent that
is the proper figure to use in ocmputing interest during
construction.
The rate
rest during the oonatruction periods
t Iris been held, must be an average if it is to be ap.
ed to all the physical property. Zn respect to some
see of property, such as land, buildings, and righta
way, there must be an investment early in the 00
tion period, while other classes, such as station apparom
u* and installations would probably be earning Terenne"
he time the term of credit on the purchas of them
ha
peed.
108
adop ed by engineers and fo
era
we
i
been to allow interest ut t14 rate of 6
a determining interest our ugetruG
it /s necessary rot only to determine the
of
rest but also the4ength f the construotion
verage period of ti4le ,&toh would elapse befo
property could be brought to the oiut
producing
venue must be ascertained
It has been quite -customary t coaputs iitereat as
equivalent to the normal rate upon the who3.e cost of ones.
half of the period of construction or uofl o e-half of
the coot for the whole period. Van'
es have been
used by different Ocnatissions.
h repreaenta
Interest during construction
ices of money duriuk the coTL8tructQnperiod s
the investors is customarily allow d in etermini
roduction coct in valuation proeeeding
ezpltied
e case, "it i
tter within the observation aud
e of
tha
plant, the Goat of wheee PhYs1061
o a coalpIeted plant eproxiautee
units At toge
4100,0.4 cannot
cted.instLntly. It requires
time to aesembie the ph cal properties, and still a
tires or lenGth of tineto put those units into
'here they may be ueed to render service
nod, the capital invested must of nec
i macwe can e derived. therefro
0
8
ty
fli
10?
U of the plant is ooiupleted, no viii:
who is not forced to sell would tre for his
f the physical unite pad the coat of the labor
a truction, because the la has cost him in ad.
ereto the use of the capital or a Certain ye
ther
invested in the physical properties dUring the
construction. A willing buyer oould afford to
pen and would pay, more than the actual cost of labor
ad material, assumin6 that the plxzt has been economic..
ally constructed, because such cost would not represent
0 total expeadi ures the purchaser would have to make
in order to construct the plant himself. In addition
to suoh expenditures, he would have to expend the earn*,
inge of his capital during the period of construction.
It hs been urged in some caves that no allowance
for this item Oho ld be de because it is entirely tee
speculative but the ens r has been that there is no
escape from the fact that it requires time 110 aseemtae
the physical properties, and a still greater en 0
time to put the units in place Where they will be used to
render service, and that during this period the caOit4l
invested must of neoeseity be idle and no income derime4
herefrom.
Coatis on e
luding preliminarY expenses, in
during coostft0ion and working capital. Can the cO*mission reduce th 0
110.
abnce of con
c ory v dance?
The action of the Ohio commission 'in re oi
,ted allowances was held b the United States
e Court to be arbitrary and caprieloue. It waepotzit
ed out that reproduction'Oalue is not a matter of outlay
of estimate 'Ind should include a reneonable allowfor orgt,liration pnd other oveibead charges that
partly would be incurred in reproducing the utility,
nnd that in estimatilb whet reasonably would be required
for such pt pores proof of actual expenditures originallY
made while helpful are not indielJen ble. The court
called attetion to the fact that since no opposition to
e estimates had appeared the company evidently deemed
nnecesserl to produce evidence on the point.
It vas
not suEested that the estimate of the engineers
oxoesive or unfa rly made. Likewise in the case of the
item for intereet during construction, it was held that
there WE6 no juetification in the record for a reduction
item to an amount which was less than one-third of
ineerst estimpte. Ohio Utilities Co. vs. Public
es COMMietiOn. (U.P.)
blections Advanced aga net Peproduction Cost
Ire of Value fbr Pate-Yakinge
The practical imooseibility in many oases of asceretntng with a real/tenable degree of accuracy the cost to
reproduce new; variations in the cost of materia
the
of the
an upon the pablia of Part
ry whiCh Say
no fitsisat
s of
Ira
Pim%
cut failure
on eleasuts abi
Control
farce zn 4eteriningthe value,
petition
elusion of certain peroentaeE for overtead expenses, whet
such costs have not actutLily been inourre, and the spie*
ulative or conjectural m.ture of a reproduction cost wow,
timate have been urged in opposition to the use of
sure of value.
In a number of cases hostility to reproduction cost
e measure of value for rte making has been based
'round that it would be inequitable, especially
durtn a period of abnormally high prices, where the
queetlofl of the c!rma ency or duration of suci- prices is
problematical; and that its use In a period when Prices
have been subject to violent fluo uations leaves little
fairness in the term
lue, which 'leans essential*
ly the ,just amuuqt vz,
publics utility company is
eatitled to a return.
Objactions have also been ade to reproduction cost
because of its boomerang effect u?on the companies as
well a the Public. if, for examples a public utility
onmPanY f-)eg ne business and c nstructs a plant during a
period ofhish )rices and later, during a period of low
prices, the plent is valued for rate making, the company
112*
le, on the other hand,
ter the installation
y a return on the
0
f
nal Conditions of
U ve. Present
practice 1.a bpen to eati.te reproductica,
it would cost to reproduce the plant under
e original c ndit ois of construction.
atever prices
are attached to the inventoried property,
actual con..
ditions or c rcumstances under which the prcerty was
built are assumed. ilypothetical conditions of extracr.
ina costs due to forced cvnstruction i.ve been reject
CO st
wh
ed where the evidence sLowed normal construction.
The treatment of pavemeiA over mains in rate valua
this rule. No allowanc, Loco
evaili% rule la uaUe for the present cost
an ezat6p1
the
cttir16 throuLh the
veaset unless the pa
be remevod when the mails were put down.
The present cost of reconstructing a plaut under the
original conditions of construction is therefore, not
the cost of reproducine the plant strictly speaking
estimate of what it would cost
built as it was at
et but at w.x.teer prices for
or or materials the
ission deems it best to
Iiaime of the value..
Und
rround Iuctreq,tired by a
113
fit to be Constructed by an Slectric Qonpanyin the
et ruction of its Own Ducts is Included in the R.
Cost stisate of the Company Plant.
The Special Master in a Federal Die
has answered this question in the affirmative
pointed out that the duct formed an integral Par
nderground conduits of the utility in the city streets
t without such a duct the conduits could not ha ve been
truoted in the first place, and that any reproduction
would have to include a. similar duct Worcester Electric
i,ght 00. vs. Attwill (1r4
Re
on Cost for
Unit Oasts used in Deters,.
practice bee not been unite
the proper unit costs to be used. The use
coots except the costs at the time
uation
however, be a departure from the idea
nveyed by the use
of the t
present reproduction cos
Many
'sates of reproduction cost have
d by the Di of average unit costs over vs Ott
5 iear period or the use of average unit costs
over a 10 year period In a few oases, unit costs at
te time of installation have been used but this is obviously an application of original cost or historical
cost rather than reproduction cost
It has been said in regard to the iverage cost idea
114
is an attempt o spproxiaate uett0ø, rather
ascertain the cost of reproduot on as a faøt. The
use of verage prices has besajustified by some OA
ground that with fluctuating prices this is the fair,
method.
asouri Comminalen,
the UnitedStates lik;preete Court in UsCa
1
rule o
Indiana
tat r Go., has held that it in obliged to make a
ntelligent forecast as to the probabLe price
and wage levels during 4 reasonable periOd in the
ate futur In the Laclede Gas Light
(No.) ease
he Commission said;
evidence pointed to a at
acreage in the cost of oast iron pipe and the Oeseelesion
used a cost in its computations that appeared reasonable
n view of the sarkip$ conditions and which, as a matter
act, is practioally identical with the quoted cost
pi stnø. January of this year .5
Similar or Cheaper Ilements select
Unit Cost.
The suggestion was aids in a case before the Utah
Commission that the reproduction cost of property
based upon a hypothetical property whose component pa
were Of a higher grade of material than those of the U.
sting property and that elements cheaper in price
been selected. The Commission said that the
cost of the property should be ascertain.
115
using substantiaUy
esents to that
toting property, and that
suggestion that
cheap articles be used oouid
be entertained b
Omission, *ince the analogy mad be in *eau
tug in the 5 and 10 cent store that would look like a
Ward piece of hardware. Re Perry (Utah.)
Contract Los* Plus Pair Profit cannot be t*Oludal is
the Reproduction Cost
* Pennsylvania Cossiseton has
cannot be included, It was said that the
*es
ed
the cost to the contractor as the yard stick of measure*
sent rather than the eantraet price. The fact that the
actual direct and indirect cost, plus a fair profit to
contraetos, may have been grOatiY in ****** of
*tract priee was not oonsidered conclusive evi
$ the contract pries) not a tikes, index at value
Won said that if it were to adapt es t to the tics up*
r as the basis of ortgt*l or reprocttos costs
this would involve an examination of
oontractorts
for the purpose of determining whether the account*
correet sad Whether the to aunts entering int°
were fair and reasonable, and also 'bother the
r used good busiasse acumen and sound eaffin***w
n prosecuting the construotton. The 0011.
deal red that reproduction cost in the present
ould not be divorced from actual contrast
116
price; and that as long as contractors continued to make
bids and aoept contracts on luepsua or unit bases, such
contract prices were better evidence of reined:lotion frost
than the Waal cost of the oa ractor over 'blob aiithe*
company nor the Coiuiat.øton had any control. flerrt/AG
Clark,* Ferry
4ge Co (Pa.)
Value at Right of Way WIC
The Maryland Commission determined the repro
at of a street railway right of way from the value of
adjoining property as subdivided
age value where not subdivided"
aver these figures multiplied by 3.
lot*, or the acre.
PAY desired to
slag that the
coat of procuring a marrow strip in front of the Import,
would be three tines as great as the oontiogoouo ProPortY
itself. The Commission said it did not believe that the
rights of way are three times 4.0 valuable as the adjoi
ing property. It recognised that the company would pro.
b Y be be3.4 up in some canes in trying to get the right
but it also recognized the feet that the property
mid dens,* the flAt of Way for the ad
tag a err no to itioni of their property
and floc Is o (Id )
Value for favorable Zoostlon is not AUos
the statute it Is incuibent upon the Commis.
ertain the value of the property in order. that
SuGh a rate cay be fixed as will result in reasonable
e property of the utUtty corporation used
onion.e of the pubUc. The Court observed
J.uø es results f roe earnios be allowed A
rate bee, it is impossible to escape the following
the property, as ascertain.
reasonings The 41
the Commission, would determine the rate 'his* the Como.
mission authorised
rporation to charge for its ger*
vie., The rate authrizidoontrole the amount ef ear**
The earnings in turn determine and fix the maw.
of the property, Therefore, the rate determines the val
value determines
us, and we have a conclusion that
logs
the rate, and the rate determines the talus; and if the
value of the property depends upon the rate,whieh in
yo the rate
urn depends upon the
ue of the pro
uld
end upon iteel resulting in
apparent abeurb*
ity, It is therefre, oleer.that such value as s at
property of a public uritse corpora*
tributable
d not be included in
Ion by reason of its sassing
suing a base upon which a l'aseeible and fair return
should be secured, The court said th Qomaisslon did no
value these easements upon an interest tt land baste* but
adopted the valuation of the assessment for tax purposes
is valuation for telt purpos so in compliance with the
in mandate of the omit in tax cases, was% UAL,Into
consideration in valuing o easement the use to which
the franchise permits the. saeesent to be putp a
118'
ore, %
must wee
018
ily depend upon the earnings of the eompanr
inion that it is lip"
'hole. The court was of th
uccOund to include in the rats base a factor the
S which varies or changes with the rate
observed that lA is uadoUbtedly tru
t the sale or ex
change value of the easement and the franchise Is alwOot
invariable determined by the union of both, or by both
a oombination. Value9 for suoha purpose, is usually
based upon the
used earnings realised frois the ex
oralse or use
easement and franchise in combins.
tion. The eas eat is an interest
only when this interest in land is use
1.
I'
t it is
bination
tb 411 of the other elements Which go to make up an
eratod street railway system that the easse
anything more than a real estate values
the unused
Gement may have a large pots
141 value,
ntll put into use in combination with other rights
perty, it can have
other different or additional
value than it possesses ae real estate or an interest
n.
Et is the use to whloh.the easement in comb/040.
tion with the franchise, is pat that gives it value for
exchange or sale purposes, in oondemnation proceedings,
purpose of taxa i n. But it is clear that
potential value, which must in large measure depend
upon the earnings as determined by the rate
119
luded in the rate
West (Md.
1930 federal rade Commission Hearings.
federal trade commission,
tea, D.C.
now boa
video** for the rewords f
ion
engineers verse to *reproduction value.
04$ and I1ctrte Company*, Rey.
of writing
et of capital en the coopany books,
roperty or investment, and tb
product% ose earnings appear rum
Judson 0
di
the rate
tekerman0 oommiasica engineer,
ass upward adjustment of property accounts P
notion of securities and increases the bass
s and stocks say
mod. The largo rates of ',tura
In addition to the normal profits resulting from
led management and growth of business.
The r
indica as that the utility companies are oho
the bolding oompanyis expenses and a fee of %Impulses%
amount they spend in building new *ants Other
show that the fee istmarily four times the cost et
performed. Big profits are tabcc on the sale øf
roperties by onicorporation to another oelmeSott
One single reorganisation deal
the "emits
said
refit was over #40 0000000
ether or not tha
large common stook bolder* are justified in their prestos
dupe remains to be seen.
It is certain this Paper Prom
fits* and surplus are beginning to be written oif thzou*
126
violation ctazgea, ia large
several
ng companies, while the presen depression period de*
'asps. It may not be se long- haere the &odes number
curves will ma the holding oompanies quite
return to the actual espital expenditure basis.
ORAPTICR
RATIC SatRUI1XNOS AND A RECENT RURAL COMMUNITY
RATt COI
pt In tines of calamity
tural and normal level somamh r
of ro c ion as a
pro.peottwe tattooer as
generally
een the
to the
empt to
reser/be an arbitrary price is more lUely to pro,.
rdensome than beneficialespecially
as boas some.
times happened,. the md4mum limit of cost or tha maxi
mum limit of value, be ignored. As a result of this ex.
perience the more progressive countries gradually last%
tuted, as a substitute for the precise fixing of Pricee
regulations designed to prevent extortion during unusual
caroity and discrimination at all times and a rapid sx.
pansion of trade and an increase of prosperit7 followed
hit% confirmed the wisdom of the Change.
The development of utility service during
ry as introduced into the commercial world an *nor.
mous volume of business in which the relationship of the
interested parties is quite different from that to be
found in transa
commodities thro
S partly due to
service,
limits
attending the free moveaen
marts of trade. This difference
rtly
Listic character of most util
the fact that the soon.
s..the cost minima and value max
3.22.
are Dot so clearlyaarked or s
Rtguo,
ation of rates by state agency vas th
tive. At first this took the rm of prescribing,
by ge ral state Law or by stipulations of corpora
charter or municipal franchise the *axioms 1
aro
reduce or
that could be made, leaving the utilit free
adjust that charge as conditions warra ed The subs.quent development of the principle of state regulation to
Its present status is a matter of oomparatively meat
historY
We have
of the s
1=01'0 100 0
the
of rates prima ly
eat discrimination
r ly, to prose be
r value of the aenLce In the earliest of
regulatory enactments it was recognised that no uti tr
could or shoulbs required to Oharge less for Its
vice than the, cost of_producing it
An important element
of cost is thie,c ePensation the utility is entitled to
receive for the use
property required for or devoted
to the service it su iss, and this compensation is °be
viously proportionate to the a1ue of the property. Tale
uations were, when used
te tiring proceedings, usually
Lntorducsd by the utilitlis as part of the evidence dee-.
pled to establish the cost of supplying service in order
to define the minimum rates that: Could be endure
without loss
123
in a
ber of instances court p
ed
yoked to test the validity of rates pr
tory authorities on the grounds that the resultan
use would be less than the coot of producing sexy
deoisions in these cases were aocepted as defining
animus limits of authority of rat, fixing 1)041414
the polioy of approach/0g these liatts as closely
possible in the subsequent fixing of rate
qu
general. Appraisals of property values
4 $0
demonstrate the minimum of possible rateslater in
edules
proceedings instituted to test the 1 d
prftscribed by regulatory agencies, thus case intogeneral
use as an essential factor in rate fixing
A more difficult phase of the situation devolopell in
tion with the adjustment of induetry to the condi..
entailed by the disruption of economics and finance
by the world war. With searit3 prices in every kind of
material and every form of labor, it was inevitable that
utility rates should require adjustment upward. tinder
the cost theory this adjustment was almost unvartable
lled to weir until evidence obtainable only by sot-.
exper
vas available to impress the r
rf
ocaniseions
the fact that rate increses we
tive. In considering measures of relief
utility commissions found themselves confronted by an
array of legal and tsehntcal talent employed by those
124'
rested in the continuation
timed and strenuously ndeavored to
dure that the utlittes have generall
contrary to the sands e of the law and the
have nein.*
se
Pile of
promed
equity.
ternining 4 rat
equal to the amount of
the
I, *ortas
rudent Inveeta
contemplates a rate base
expended by the utility in
-
tion of its proper*, 144 the
the judgment of
a 'high
y and prudently expended
The regulatory ooan&ssiens throughout thO eountry adopted
theory to sueb auextent that thi courts were de.
d with petitions for relief by utilities Iontestial
application of rate sch*dulee healed, upon it and
°lent decisions have now emerged free this welter of
Wtion te elarif
tames and mettle the Oenteetd
points.
After repeatedly rejecting
MthedP
numerous other eases* the Supreme Court of the United
0 handed down& decision in the Indianapolis Water
plain now
that leaves no bets for doubt as
of the law g verning the value of property in utility
proceedings. The Laaue in this case wee the iftelitY
125
of a schedule of zwtes fixed
Commission for water ponies in the City of lfldi*i*po
or Company olained that the revenues to be tsriv.4
Ise rates wofilld be inadequate to provide a fair
a the value of the Company's utIlity property,
lesion had appraised the property on the taste of
f prices during the ten.year Petted *Lading
9210 with
additions and better.*
sent*
actual *est. The Court ruled that this was not
a proper basis of values, that preseit prices and
Iligent foracas* of future trends, wire also necessary
onsiderations, and that the earnings of the
fly
S proposed rates would not be sufficient to
de a
ir return on the value of the property appra
in the
light of present day and prospective future prio
action of the Commission was therefore, declared to be
confiscatory and void. It
be undereteed that those
rooeedings were not instituted for the purpose of fixing
est but tOdetermine the validity of rates that bad
eady been fixed by the Commission.
rime Court had to decide was whether
The OHMS the
contested echo*.
roviti just ooms.
ales would produce suffisiest revenue
pensation for the use of property dove%
and in deciding that issue the Court rej
ioa3. *tithed* as a fair basis for compensat
the finding. of the lower sour% which were
tel sera's,
istor
pproved
sea upon re*
126'
production cost. It y be 9=00104 as final that fut.
tire oases involving the same issue .I Ube decided in
accordance with the same principles.
The Wfletorlca1method of Appraisal' has been pool.
deaned by the preponderance of Evert Judgment, and being
bannednow by court desision deserves none of our re Peet
Is of our attention,
ilk% be well, hemever, to give sone consideration
est
defects. riwarily, it is in effeo
n "At
ofix
values by rkitrarl mandate instead
sudesire
to $tocertain th
ugh an application of the principles of
soonosice.
resumes to establish ib.e original price
paid for an artieie an its permanent value in utility
servius, irrespective of subsequent changes iii pries
svsl. On thii aesoani its proponents claim or it th
merit of insuring & degree of stability in property val
use underlying utility eeouritiesi and thus safegualding
investments stile at the same time P
ting rate echov
dams from frequent adjustments to sonform to temporary
price fluctuations The plausibility of these claims
caused ny
o to orrerlo4 the imposetbflity
Lai
Th
m.
perhaps0
ay be more readily explained by an
on. Let us suPPose that s building was root..
at a cost of tea thousand dollars, and another
it in 1920
et fifteen thous&
127
is the coc.on unde tanding,
nor of these
* would regard them as having jraa
the same value, the only difference
Sation of the older ones Hie banku would 1cM Prs*
the same allouAO of mcntr on the. seoudty of lather.
mance company would aesume PTeOttCaIIy the
.eithar and in 0400 of do*
so
*Wm by fire, would
same amount for the loss. The Oct* as reprommht.
ed
e tax assessor, would place
esse value on
both,
*at the sass taxos* U the OwAO? W070 to
sale of lemses the prosp.etivS pumas**,
d,rseognis* the ease eoonoeie law. All Of
se cons tdeiations.would be 'based upon the cost of re.,
p'4.totu thele biltItitASo s the prevail!ng Zovals of **ow
s ruction costs But the'Prudent Investment' advocate
rte that one of those buildings has a'value' of oray
thirds that of the other, and, if rental to* were
Isolated must be leased for a proPo
lower
Ice, He says, in justi /cation, that it, cr4 *en,
1000 go down to the 191
vele, be will oo lows-to
recognise the oost of the' bu lding erected in 1920 as its
value*, and thus -stabiliso both earnings and
ostment.
Now suppose prices 4p, go bag* to the 01
rosaltil In the first plaoe the bank**,
oept the
0
O.
the second building as a basis for
t will reduce it to the coot or reproduotion.
128*
The ineuranc
15000
risk but will
icy is carried will
destruction by fire. because it can be
$115,
po
eat of te
for that.
sus. A proapective purchaser will refue* to pay #15
for it because be can have one built
t1y like it for
$10,000 And the Prospective temOmS will refuei 10 lease
it at a rental proportionate to its cost, because other
lding will be available for a-lower rite, or be Oee
build one for hiaseif and save the difference. The tax
assessor will adjust his assessment to the cost of res.
production. It would be of no possible praetical benefit
to the owner for a regulatory commission to fix a venial
e based upon the original coat of the buildi because
no tenant would
y it
Rowever will
Coawissios
might be to 'protests such an investsent1 it would be
wholly without power to do so,
only result in the less of all inoowe through the vacancy
of the premiees.
The illistorioal Method5 is
eefore, iserely a
mrdstick of value that can only
when it produces a
ower figure than either the 000n understa ing, the
plain ndate of the law, the basis principles of equity,
the state, through its tax assessment, the baMiter and
the insurance **rpm unanimously confirm as the true
value ct a property. Xt will as wholly Ineffs*
12.9
ults in
lue as r.priiente4
0 in
11
use
me by
go,e rnaen1tai agency
to of its decree.
I neither the
radon% In
nor the
meat licthode of determiniOg
sem
will have any etsn13ng in future proceedings
reme Court of the United 8taies in rut* litigation, it
met follow that regulatory commission* usplag th
the future will be subject to reversal on appeal
advocates of these fslla*ies have note however,
the fight There 1considerable agitation in the publ
press for legislation designed to restore their legal
standing initiation that would give the property of
it outside
public utilities a different status a
the protection that the Law now extends t
private
the letter
property. Such legislation is re awn%
view of the
ad
and the spirit of our oouat2tutlQ
tly be given but scant
Indianapolis decision, wUl most
oonsideration by the courts.
However there is another side to thLmatter that
be considered Under regulation a utility is allow.
s which, after oovertpg operating expense itsd go,
predation, yield a fair return on property devoted to
the public serviol. If operating penses ore high retool
are 140. Theutility, whatever
expenses, th **yetis:ow.
ally may
from the
devoted to
tter does, eoUsst
the cost of the properly
public servo
its fair return, 'If
pensively oonstructed tilatpub:tic pays. One great bar,*
or which must be surmounted by the system of regulation,
that system is to fully justifriteelf
the 0(41114
expenditures, both operating and eePitel 1,2,40Ani3.Irk.
the operating expense of a single utility amounts le4
ons of dollars in a single year. To'sorutints sush
00100 and to lilittaa,te improper and Uaneemisary hue
requires both the work of the auditor and the engineer.
Ohaning labor and material prices make comparisons by
years or periods difficult and misleading Unit (Posts
applieable to one utility may not he fairly ePPlioahl
o another.
At an early date She policy was established øf fire*
rates to yield a return on the fair cost of the
p
With the war, price levels Changed. Wow there is
a movement, assuming odnsiderabie proportions and findies,
ouragement In soas (mutt decisions, to terse Commis*
pertY
atone to rates *blob will yield a return on values great*
ly in excess of actual cost, 'Not all utilities desire
nuoh a result.
utility which has been built, or hue
expanded greatly, during the period of high prier* looks
with alarm on such a result else, if adopted and adher*
ed to, it means, 101412 the'lnevitehle doilies of prim)**
131
y refl.ttng
or hand the atilt
an inadöquate return o Pr.
Price levels, On the
ilt during
the period of low prie has mush to gain a
bably
nothing to lose by the stablishasat of th
utilities a to receive rates based upon
tabu.
preeen day property values Ct means, tor years' to come,
to slaw utilities* substan tally higher re. es, and
will come all too likely, the dinintOgration
tern of regulation.
is with some re
*4 the higher rates inaid.st $0 increased
ug expenses during and followtig the war in a
when prices are dielini %ncreaso in rates are
to impair public confidence
Then arisen the situe.tion suggested
(At* Department of Public Util ties. quoted by Mr
Baloney zast4n of the Interstate Commerce Cti
in his conourfing Opinion in the OfFallon oases
*If* under our present statutes, it shall be deter.,
4 by the United States Supreme Court that the gas
so rio (wapiti:ties of this state are entitled, as s,
of law* to charge rates based upon the fair value
r property employed in the public service,
aseertaihing such value the value of the
the structures and equipment in pr upon We publis
y is to be taken at the reproduotion cost loss the
actual depreoiation and that the ftt4ings of feet
132'
relation to thee. values are subject to review inesek
nstance by the Fedezl court, we are confident that the
people of this State will e Aide that the regulatioe of
the rates
gas and *100 ViS companiee under sueh
conditions is too *unborn's. inefficient and expeneive
be tolerated Such a method of regulisling rates sin'
vitable lead to conflicts between the (*Vitals* a
Public, to the disadvantage of bolho$
liPublie owner/tip and operation of electric
is t an untried experiment in this CO
ith* There
are at the preeeat time over 4) manisipal plants in mew
oeseful operetta** In meat of the 'Inlet
los shove
these plants are In operatloo the rates for electricity
are lower than the rates of private companies oPeratial
djacent territory*
*hire Value.
established
for fZanehtse value Lot addition
Property when value is being deter/aimed for the
if fixing rates
This Goes not assn1 as will later be
shove, that a franchise does not have any
tot ups; the
to base; but nowAtter ebet may be allowed for the ems*
a fianchlise and no matte
this *ay keore
upon the final sXue for tate *atog, the value et the
franchise itself is not allowed0 It should also be elo*
served that we are not ma1in hers withi
133-
de
ion. tazatica
The 00amissieas, la
C allowance of tranch
ue, Mbilo the coute
e* first ieelleed to take u opPOsite vise A sour
ao of the earlier oases, hold that franchise value
ld be included *tether the franohise had been paid
for or uot, etating that fratses had berm granting
MI year
atelligent
bedomo enormous
at a time
repletion of
re seeme,to have
t they m
valuable Whoa roc
st. iprovI4.
was, the rule and all sorts of franchioee were given away
The court took the position, however, that whether a
franchise had been acquired by gift or without Øtequat
t evidence lack of foresight, or
consideration,
ng worse; but
could have
have no effect on the ultue of
franchise.
Doubt, however,
b
be expressed se to the
soundness of the rule allowing fr
Ise value, It avow
peered that a franchise got its value bodeuse of the *are,
tags which Gould be produce
trench is, ot a value
beeauee rates were not controlled, the reasonable **porta
tion of their continuance was said
e without basis;
therefor In some cases it va tbout that if the stet*
retained the right to Potful te rates nottdthssnding the
terms of a franchise grant no allowance oouU be made
for franchise value, while U e tr4lee rate Could ea
U0T4va visuoo oitu
o
atom 0AVY
TA UT tivIlimpta
usirs4 *q
114rialin
0
VtIctig
slq In4tarT00
Wins r00$0
Ill ;0 u0Iseraw00 mil Irma
icITIZ
eta
Pu
4eTz* 4ou op
.01/0 0Tra,
Toed* lie Toneoz elm 00 PoVVIt00000
vet 4...moan; eql .zo; ouvitotTu *ill,
Ts u04140AtIm Ottruyew e0a
um
treo
0
&vv.° *IA 00 Vert 4vo
;It* pstg.
gone
vs sin PuTri; trg psyntoar* toq. ot ore
int
o dues:moo
re
.44Ttie1oTurat eta
4uasuoo inn
imetrvrat iguirt4y 50 soowcd artkre
ts eva tit guTinu
ul'eturew 02 90 Fist
Act pa4uull 41*Jad tirnsodzad v traaeta
*
T
Itodouou
4o1 IT tb7400r4b u
sTqouvia; eta
tpi,11 0t0pusZia
AuktUett. 13T34081) OR*
T
At0d0uost
**A
eq/ 008,0 riTpu
(ga6T
UOTUa txdri(00AO) 401 rTvd 4ou
*Otto Oq 40o inn01. 'MIKA evyttoovz;
arta *Ttiou
*/ At imous13
100p
4,413t,
j 00001*Ortli
*Alm suoTs
0
sq volle voT490nb sql. ont
0Itt
VsaaPotu
"'et
136
Isis ion pointed out that a putlio utility is eatI
a reasonable return upox the fair value of its property
used and useful in the publio service but that the deter.
sination of fair value at be eads at the time of the
inquiry. The Oommission *aid that he value preSented by
the street railway companies 1acke4 a current inventory
or *homing of the physical condition of the property, by
addl.% the net cost of idditions and betterments to a fair
value; in one case nearly four years old and in the other'
ten years old. Re Oap tal Tractioa
(Lc.)
Notes This aPPeare to be aother aspect of the 'opus
tziventoxr valuattonP In other cases public utilities
been held to be entitled to fair press
1110 ZS
a former ttndtn t value plus net addit
this would be a part
ognition of original 0001 sea"'
r than present fair 1lue. In this case, however
the public utility commute* which: a ed for a rate adow
justment on such a-valuation; and Whether fair value 'mid
be more or lees than this split...inventory valuation, the
Oommieston rejected it because it did not show the proem*
value.
Contemplated Investment for Memos
pprovemente
Oe
a case b
the liew Jew
Board of Public Util
issionere wile/e It appeared that eervioe wae law
adequate and that eighteen extensions or replacements of
13g
ak AS
ad would be made during
current
assumed That those extensions
woald be so made,
nd included in the oePltel boss 4*
amount which qild support the addi
nil investment
rd emphasised. however, that
rates based upon 00
&Ai°
improvement would be a
lowing the
Board aseu
at
lied during
current year and required
statement
at the end of the yeMr and showing
'tern
had aotually been installed The
d that
the
statement should reveal that the improvements or th
equivalent bad not actually
nstalled, the re
allowed would be cancelled or adjusted to meet the fasts
as they might be shown to *kit
Aire to .List Certain Intangible Yalu
tion
not Void a Rate Valuation Itereaft.
held by the Indiana Ooatveion that it
aogible values notwithetanding that they sr.
ted for takat on; but that the fact that the of
he oorporation make statements In listing the
r taxation either by overetgbt or freudulent
intent, whether as to tangible or ml ng e property
does not destroy or confiscate the
perty or authorise
the state to do so; that they may be
I.
that their property cannot be tten.
fever. Development
The California Cos4sstonh01
over-development is one o reasonablen*** the
ing system can or should be coastruoted so tb.t it is 30*
sufficient to serve the eziating coneumers wth no margin
of capacity; that transmission and distribution systems
re subject to increased loading and have In rightly
operated bletem some mess capacity for gro,
Similmro
y said the Oommiseion ea
s for ultimate capacity
ehoul4 be constructed if isoommical though not necesemay
at the present time Unless the actual construction is
excessive due to lack of foresight or unneeeev*ry expend,.
iture, or the development is relatively large, oonsidsro
ing the property as a whole, deduction does not appear 10
e justified. The 00mmisslon held, however, that soma&
tiva should be given pl connection lath the aetermineo,
n of the reasonable rate of return
vary over,
slopmeat in excess of normal devele
aliforaia Vdison Co. (Cal.)
Patent Rights
The question as to the proper t
right* in valuations of public utility
or rate
making is not let settled In the few oast,* in which
this question has oome before the Commissions, there seems
to be * tendency to disallow each values.
rederal
Court oa e no allowaaoe was made for Ps
as company eAtfLtltn
it to use certain processes
138
fic Qas and E Co v., San nuncio*. 27
but the United States $upr.*e Court in this ease has re..
cently held that *ere the introduction of suoaessful
patented inventions by public ntilitY companies iambi
publie authorities to lower the rate WOO a
the resulting benefits there ie error either in
cry or the apphication of princ P e goethottee So"
ynolds said; sinstallation of the inventions peons**
tated new outlay of money and abandonment of peeper
theretofore valuable..,-both were necessary tin order t
the cost of mamafaature might be reduced, If appellants'
relegible profits depend %pop the lowered costs and ie
denied adequate return upon the
?erty whieh made
reduction poseible
rocoipsass for the obsoIve..
0411100 successful efforts to improve the service will
ether under the
prove extremely disadvantageous tp it.
peauliar circumstances here presented het vett* base
should be fixed by adding to the agreed inventory some
fair valuation of the patent rights, or whether oroapt
recoupment ehould be allowed for the obsolescence caused
by their introduction or whether appellant should be
saved from actual ultimate loss by some other feasible
method, we will not undertake to determine upon the pre*
sent record.* it was also pointed out that the money
actually paid to inventors for the patent is not the pros,.
per measure of their worth. Psoifta Gas and Tlestrie Ce.
*I;
Te
nta 004
vtr4.ptrp fa
uiT
TPITn
04 so anz
piort 04 oro* zatl1Te
£1m!zo
PTr,
nre
44WelleImPe *mom sante* possess*
P
va
XV nV
04 porolo ay 1088011
AO n4 %Ale Ott 40n
04(trte0 UV
Ttcypao
UTTenb
ou voila tipaoozT
eel 1111110 40Tz4eTa
siortia Imo%
mA passossy
)
OU
'0W8tI8A8 8
0Tz4
00
ullet
net* Ow/4 V
On
Auldsoo 014 Aq q4Tm; pon uT
atm asnloom 03v0
Teelekte
4vsmelrbe
gone uT 4r9me1nbo zo
;o
PePTITmil trim uoTasinsoo Aosixer Atm
2,110t4 94sX
zomod
*Amid
eql
qi uT PePTITml act Veto
o zinva
z000d zavm
try
a foam
*AVE?
Ao tilTr; poop
zesod 01440aTo vstil
IO; zoom! zo49a
yiAv
zo;
;;0 &TOMMY
noqv
aaoct
*ogle
itserozd Iota
4
eMo
pz1013 aq4 zoasaoti evoy4ozop1
evf
Optin
Avedozd etr4 uodirk pe *Id ottre4
gedeed INT 01% 419111
eliedd* pri, *sou* ;co %/not) £04010 "mg *Iliy
*4 Pszo;
lams° q1,744
scitzi
n
(
***Totrud wee *A.
62T
140*
enter into an sseesment for real estate
t on
have no place in the determination of the
estate, either in the case of private sale
or confiscations Brooklyn Union Oas Oa y, ?random's,*
d.)
Burden to Prove the Proerty is Used or Ueefti in
the Public 3erv
The Test
Commission has held that
den Qf .proof is w'
utility to show with accuracy
ad clearness that the property was used or useful and
that addition* had become useful.
tn Eft/ale:al Substitute PropertY
not be Co3.
OU
Lid not the vt lue
eubstitute
triot Court in t
r value of
idered an efficte
y be
n op nion by the Iederni, Di*.
of the Brooklyn Union Gas
V.
Prenderg? st
Jusiad&ct2cn over
is question has not beta definitelY nswe red but
presented in an opinion of the Ma
uaetta Om*
mission in whiohr in isausstrigthe fix
a return on
the basis of otudeat investment
d that $ m
ale() oe argued that *ena dublic utility enters
aess inLa.eaahusótta it consents, 10
ter of Ia
vs its rates there fixed by the rule
u obtained
141*
had obtained for a long tte in the Commonwealth
Return Allowed a Stroet Bailee, 041Pelli to Avoid
Coat scation of Income*
Rate* Calculated to produce a return of p
ly 626 per cent cm the fair valu. oZ
etre
have been held by the United States Su *me Court to be
nadequats.
It was said that in the light of recent
cigions of
Supreme Court and other ?ederal decisiome
was not certain that rates securing a return of 7 Wit
cent or even per cent or the value of the properly
would not be neoernar7 to avoid confiscation, but the
o rt was not called udon to deeide this point since the
Pompany itself had sought from the Commission
in a rite
case under review, a ri,te which would produce a return o
about 7.44 .per cent, at the same time insisting that such
return fell short of being adequate,pon the record the
Court was of the opinion that to
less than this would be connect"
the due process clause of the Vourt
United !
o
rutes produolAg
in violation of
A
n
and tlectric Co. v. Test (u.s
Revluatton.
In order for a Commis on to be ju ti
d in
a revzUuation as titstingutwhed froma original valuation
When a rate increase is
uested, the Virginia Commiew,
sion holds that it would be neceeaary for the party ask*.
ng for it to show, at least prima facie
tuatton
142
etifying the delay, expense,
014141
Commission would have to be Battened from
tzroe that under all the circumstances a to
be na4e in order to do pastioe to all parties
cerno41 and especially to the general public
*004.
Ti
R. and Power Co. (Va.)
!actor* Governing Adequate e
r. Justice Gutherland of the Un
Eltat
reme Court, in a jamority opinion has stated that what
a fair return In order to avoid confiscation cannot be
settled by Invoking decisions of the cow, made y re
based upon Conditions radically different from those lititok
prevail today, but that the ?roblem
toot.*
primarily by present-day oo dittoes.
roe Wm*
capital and enterprise like ages *
oot of
letenance, and related expenses ha/ material
eed the aountry over. ?hit le common knowledge
of return nPon Capital invested in street railway
lines, and other public u itiee
might have been
PrePetLia few yease ago no ionger furnishes a eats oritexm.
los-either feLr the Present or the future, not can. a rul..
be laid` dove *hi* will apply uniformly' to all eerie of
utilities.
.1hat may be a f=1.ir return for one may be
adequate for another, depetiging upop .oireumstanoes, lssl
y, and risk.
at will constitute a
gt
143
It is said, is
of
stration but is a watt
1d
of p roXlmat104
about whieb conclusions ay di
court, in Um
discharge of s duty on the issu of confiscation, mast
determine the amount to the best o its ability in
xeroise of a fair, enlightened, e independent ju
to both law and riots.
The 00nrt, in determining lb
Pa proper return
i4 the partieular care under dteau
0) considered en
demos of the average rate of Intere
eh the company
-
was compelled to pay for borrowed money and at return
was necesEAry in 'order to induce the investment of capiib
al, or to enable the company to compete suocessfull
market for money to finame its operations. It was
Id that it is manifest that just compensation for a
ng for efficient public service skill and
utility
prudent ee.nagemen as well as use of the Omit, and *hese
rates are euject to pint/ic regulation,
more than OQ
rent interest on mere investment, and,th sound business
judgment re Ies that after paying all eipeneee of opera.
tion, setting aside the necessary sums for depreciation,
payment of interest and reasonable dtvi8endi, there should
still remain eometh Av to be passed to the 'argue aceOunt
ks Reeulting from tnlarging a. Utility Plant.
Tennessee Commission refused to inclade any alu
risk of n electric celpeny in eni
%scrimp. Obvilusly
Classifioationes rr
$chedule Rate Proposed
A
V. Co.
'if Goods num Alum
(BO.) Co. 1.24ht ede
rate the in included be should land the
.s
and laud the 'of possession i was any 00 e
the by determination for matter a was rthip
vas*, the althouol that held Coraui.sston iaouri
City. a and Utility Public a Both by
Utility a of Posseseion in Land of
Wetness. the koident4o risk the upon Part in based
Imo return this morevand no and return fair a to titled
us was it that tioses all at understood company the and
utilities public lthe other afl. to app1yin6 and business
the to incident ordinarily risks those were Involved were
risks Whatever constructed. first was plant the when as
there than plant the nig enlarg in involved risk other ay
there Tas nor enterprises sueh in involved ordinarily
is than other plant naay's the of enlargement the
iavolved risk aCI Walit There base. ate the ia clalt""
an such to company the magtle thtwould inciple p no
Of A,new it said Commission The convenience-. Jo
the
for used property s of value the retiarn'.0 air
ouly
ears to entitled s
tIon
retell to subject
serVed
it
vas
community
that knee ai4 state the
the period whole the
com
wi
step keep to
made a
double ly
l44
145
sylvente es.
* value of water u
re.
t that the P
did not determine
involved
proposed rate increase and
Comniseton could not say Whether or not
'V&
Paul'
feet
cos.
ae entitled to any increased rates a proposed saei
dul* of the ccmPanY was disapproved in view of obviously
discriminatory features. The Commission etatods
tion of the tariffs of the co
fly
eoaors leads the Commission to the ooncj
rates as .iled are di!ulriminatory and preferential as
be *en classes of consumers.
oo large a blvden of the
increase rates Is placed upon domes ic consumers an
aiust sere of water in larger quantities
rola.
ns12i,, between the classification/a as proposed in the
riff is not, in the Commies/anis judi; *At, just and
sorlable.
al* or tzohange Value.
t is nos
established ru
while the se
excbap,e value
utility property seY
consam14
h other clements in determining the rat
it is
king,
riot alone the proper measure of value
Th
becauEe the sPle or exchange Ta
plant de.
peads l.rely vpon what
ill earn end phortit will
etrn depends upon its rate the reasonableness of *bleb
is ii question. The Use of this criterion, therefore, in
detorminine the rate bars would result in
lowing armed
146
a oiro
would be dependent
4a ni a sad
earnins u
Tho assertion has bee
the pric
raperty may be sold were to be used
a measure of its'value for rate making %heat al. Vie
earnino of the property ordinarily (let mins the price
at thidh it will sell, it would follow that no reduction
in rates could be made Which would reduce earnings sad th
value fixed by earnings. Values would tend to the high-.
st amount upon Which rates at the 'higteat point that
could be profitable charged 'smile pay a return and puhlie
egulation of rates wo-ild be oonstitutionally impossible
The publio is riot interested in the selling price of theysioll stricture beyond its bearing on the ability of
the .?urthaser to render service. So lone aS th t duty is
erformed the seller and the pirchaeer both have he rigbi
make the beet trade they can. Utility plants, unhiks
other roperty
bela6 constantly bought and sold,
and,
refore,
n be nO
eral market value.
Then t
the sale p e of a utility plant may represent
he o)inion of the artie0 to the transaction as to that
value, or it may not
e ay have been some special
considerat LaO not re1Mtjn to vilue which induced the asas
fixed the price, such
questions ef monopoly and
etiti n, or financial difficulties of he utility
The restriction of the present owners of pro-,
perty to a return on a purchase price would be practia0.10.
company.
14:1
ly a lt1%tatioLl to a re
04
tual loma
uoh owners* rather than,
the value of
P
arty. It would be au ap
*of the investse
tither thau a value theory*
iolatilos of the
otter and spirtt of the decisions
Supreme Court
the United States as well
those of the state court,
oae cac,e the ratepayers toc the posittos that booths*,
owaer of publio utility bouht all of the property
necestary for he service cQmpensation should be measur04
by the amount of ULQrley ezeiideh That havin6 boa4ht the
property at a lo frure1 the ratepayers Should bens it by
e bar6ain but the Comm ion held that the customer
had no finanatJ. iateeat in it; that if
zood bargain
le wcuId have
entitled to the
ada loss
other hand a 1iiitX sale pr oe
1444 ure of value in the rate case w
cordaace with this idsa it has been h
Commission
the owner made
tv of it just
Tpia were bad)
ken ALS the sae
4b unlust.
or example
ould not depend upon the contract
rthae price val
uide it in fiadiu6 a legal re.
on in ao instance assumes the
cter of an underwriter of lavestmeut wlues
A certificate by a State Comiaission authorial% cap*
zation of apublic utility company
talh
is not biridiht, on the Commissio 4s a
di% of
value 1
ent rate case.
lace the COAtmis
148.
Many Co
siona bave taken paine to deela
he Commissio
iuthority is not binding on it as
46 of ,a1ue
_a rate C4904,
The &sou
of
talisatio
tha
fin&
"on
either a proper basis for cal
nor
t regarded a controlling or important fa or in determini% the value of the prOperty.
e face value of sem
curities if they bay° a face value does not indicate
Their real value, to say nothing 0 the value of the prow
erty back of them. necurities may t.1io in a greater or_
leaver decree represent moneys: t W55 devoted to unp.
S or extravrgant expenditutet and investments or to
s aud projects foreign to th4b.asiness and they mar
represent money expended for madhinery, equipment, stook#
tnd construc4ion Whicb are Torn out and antiquated,
erefore no longer in u2e.
Separate Value for 17nter
1.611 s Oran.
A condition to the issua
oe
ioate that
the applicant therefore slioul
in any future rte
procedin6 c,)nsider A3 part of t rate bases the wale
of any water ri6hts 6-rante4 by tb ommiesiOn etate or
7edera1 overnxent in excess of the cost of ac
ion
the t1.14
reof was held unrea onble and
re-the cton tut onal vi1ic1tty of such a
high
susceptible to final determi
on
disputeln
the oderal Courts1 in view of the binding
149
ht the
ion can f
city 0
Aocordi
have on the appl oant
0
be stopped from Olatittag the protection
ederal decision in is favor. Tennessee
00. v. gannsh (Tenn.)
representing a city which Protests 11811
ctimates a certain rate bete.
rate base in
to a deo aion I
the Vest Vi inie Com»
miss ion
valuation is not binding upon the Ccamisw
n. Chairman Coffman said that a rate Prooeedi
only wholly a oontreversy between a public at
those of its oustomers'who appea
to'
Poe
posed rate and that -Commission proceedings dIffer
ocurt proceedings in that state can not be limited
its perogative to
eAdmissio of
witness.
Deduotto
of Accrue
The court of Appeals
hap held that it should
no
an edema
king fund to cover snob
fund does not ter into the rate be rt
Columbia
ny nic total=
station, whit*
nation,
There has been a great conflict
as to,the
r trentment of aocraed depreciation
ations of
Public utility property for rate-making purpoe
first supposed that such a deduction should be
fl
study or tas Pro em this th
(med. Much of the c:nfus on tn
156
bject is due to erroneous ideas as to the purpoe0
and ownership of the depreeiation fund.
U from Preferential nate* NeoefieerT
mess and Prevent the Installation of a Private P1
nnot be Capitalized as a Development cost,
The Idaho Commission refuee4 to permit the ca
zation of each a loss. The Commission said that it did
not anction the aetice of tvtnC preferential rates to
re in business or otherwise; that such praotices were
agaiflst the spirt** it not the letter,
the utility lae
of the state; and .thqt to caoltalite the ose would be
a
?O. It was pointed out that if such action as that
could Ale taken by the company, it was rather an
testiest
thlt the rates were too high than that the value of the
plifl wee too low.
ertatu operating
n es are claimed by a
com ny to have an intang
The Idaho Commission has said
at her tunde
prtd out as operating expenses and deducted from gross
ea nings in determining the new ea flings of the oomparti,
such expenses should not 1ter be degragated and capital
ited gainet future -enerations. If this were to be done,
said the Commission, such expenses might as
ae boss
chAlted to the original capital account in the first plae
151
that if thesø are considered an operatLo ezp,nsss
are paid as such; that is what they are
are
not
rating charges when paid, and capital
for the purpose of cap
ation at a, later
es
Non-expert Testimo
In a case before
?sdsral Distils
°load* Lew s, O. J11
that
naxpert witness testified as
wbo
rest raflwqr company or predec
Or
t of property when
tall
was not expert testimony,
pete
the cast of all property under eztstsne at the tine of
e appraisement had teen shown by the books, Its
along with other evidence, In ascertaIningfair
matslality
value would not be doubted; but in large part, the court
d they did not show that co t
miss in
in a sod-called normal or hi tort
ion resorted
to methods requiring the u** of his iudg**
and as to
that it was held that he had not been shown comPetnt to
therefore his nonespert testimony was SO modified,
*di or restricted by his personal opinion e* to
render the two inseparable and each was held to bie va
less.
A
Costs.
Is more inclu
the tare 'Organisatio*
than merely the ordinary proceas of forming a corporation.
152*
Whom a
they must
they must seek
posed field *&s
idea of
uoces
have to be made
pita
roe other
* looked over ear
y and own
erm n ng whether
entare will p
r uneaccessfUl
ny other
the beginning
idered. Custoasre ha
time* plans
$ prelimina
one
refully
canvassed,
17 PO**
e sours,
of revenue investigated., and there are ii4pb
flammable details which enter into the acto4 organisa.
ion of a company ready to do business and with sustomers
a position to accept and pay for service. The cost of
meet qg 011 of theei demands Is generally related ae the
organisation expense.
The following have been
do under &dial tetra
alegal costs; (a) salaries
salaries and imPensie 01 off
coounting,(4) legal advl
oral officers, (1)
cost of
tale and office ek
pens*.
It has been de la.
that 0 nisation ez
no de al fees paid to the government for the
of incorporation, and there st be included the cost
preparing and distributing pospecs woes; the cost f
soliciting subscriptions for stock; cash fees paid to
ronoters and the actual cash value at the time of the
153
rganiset
?vices 1
c
motors for
enterprie counsel fe
41 Paid
issuing certificates of stook;
(lost of precut
certificates of actellosity from
authorities and other like costs.
preparAng
Bond and Stock Dieeount
ad
Bond and stook discount
value of the securities at the time they
As represented hi the difference between
reeeired by the company ad the per value of the 'mud
ties sold. The price whit* itOurities will bring on the
market depende upon several factors, suet/ as their sliftY#
the rate of intone
vital at
and the avallab
the time
Two elements may be present In to
brokerage; (2) defeired interest
95 to a broker whp takes thee wi
esiltrag them to the -public at 100
ount is pursi7 * brokerage Charge,
ads are sold tea breker at 850 who
this to the public at 90, ther
*count:
are sold nt
expectation of
5 per cent diem
howen4 the
tarn disposes
addition to the
kerage 'Marie of 5 per Cent a
10 per eon mating total disoount
The disoount Coverlag deferred
(1)
inter."
of additional interest in a lump sum
interest rate higher and
able during the
interest Charge
15 per (mat
y takes Oar.
making the
of the
154t
The prevsflirg opinion, although not u
tb*t bond discount is not a proper it
In a aluatiou for rate making. As stated in Chartist+)
c Service Commission (1923) 95W. Va. 91, discoust
utility la budgeting its securitios is meta
bergs to oapital but is an adjustsiont of interest
should be amortised duringIf, of the **sari
The Wisconsin Qesatsaton has pointed out that it the
dissount on securities issued Is added
the property
Amount, each refinancing villa tnvoI,.s a dismount adds
to that 411poon t even %hough the property may bot
velars As tine goes on the anmvOldnal* remit of this
Is to place in the property aeccu
.leent oi dissounA
for each refinsmo aL uatil,the l.a.nt of 011P1t011141414
discount bus bolas' altigether out of proportion to the
tmal plant and sOn1Pneut
It has beton eaid that value dos no
&mount of discount Or other Inducements
Pon the
ICh aeomPsaY
must give In order to raise sufficient cash to Pel for
Its plant. A building, for ezacple, would not be worth
nore because the owner had to discount the note he gives
-to build it
If a fair
lowed this sf1 be
or g&Ve
oltre of actual tow
155
terest Plus tir*ncj.sl Qosts such as prepsid interest
or
bond 0440%0
/a a report of the Commit*
r Ultima Ionøf the fair
tonal Association of Ra road Oomeissioaors it
said at payment for the use of money of whatever
the nature of an interest payment and s most
olfortod Into and treated as an amaI interest
In a rate camp it is not noWnleeti to soosider
the manner in which th 0011961n7 'boom, to Psi the an*l
e. that it makes ao diffszenco for this
pu
shot'
e company might have Assued 8 per cent bonds at par
per ovsntbbouds at 84,30 that the real payment is
Slat 0 eLtherease; that in a rate case the rate of
n sllosed tbo company on ita investment must be at
equal to the zeal, and distinct trios the
paid by
for the use of borrowed money;
that having providad for necessary brokerage and gig.
t In the rate of return allowed, it Is clear that diso
count on
ads Should not be added to the valuation
rate-makiag purposes ae that would result in a &Dahl
lowanoe,
Broke
While some Comoiseto
cost of fl
natio%
alto made tha statement that
not a proper item to consider is
coots representing
glee of
156
or di
marketing securities for the
property, as d.tsttrsuishød from
at on aeapos have in several ems
These
aeing Costs must, however, net be
tho pr
n all wed
sod eith
usry ousts *Joh asox mission upensee1
re
441 a part of theoverhea
Elestrie Co.ve. Galveston (11.
ref,
ewer court to include an allowance to
bypath tea
kor's toots was uphold There 044 40 ort
done* that any sum was is feat paid as brokerage a3th
there was testimony that bankers customarily
in some
erns eomponsation equal to 4 per cent on the money Pre.
sired by them ter such enterprises. Mr. Justlo. lsaM.is
ted that it baps value wars to
expended, brokerage fees might rita
as are Wiel paid pleading construetionf but as the %mile
U. considered is the present valu, that value mast be
urea by money and the customary cast of obtaining the
is immaterial, Several decisions have supported the
that ne allowaneo should be made for b
rage toes
U asee0aining the rate base.
Oast of Vinsonint
eh. three elements rdi
I Corisildereii under
heading are (1) mutate prolim nary expenses sueb as the
cost of eliciting
/ptioas for stock, &masa foal
act of prowl% and issuiz certificate. of stook
157
printing, ete
diSSOunt
brokerage fees,
The Maryland outs
n
4e AO 4
% of f namingbut
rats of return allowsd
red th t item laths
Good Will
The consensus of pinion is
included as p&rt of the value of pub io ut
valuation foropste naaktzg. Good mill represents the
value of present and future petro s It represents an
taportalo alaskaat of value in 4 rpespersue private bust
nes., A public utility compawys however, operating usual
ly as a monopoly, oaunot °let* %his value. An ha, been
te4 in sone cases good will appears to be based on
rim competition and voluntarY Patronage.
The theory that good will is disallowed
metope
to nature of the bueines
Wised,
Usti° Private busines
dsd good viii value and
etly monopolistic, Co
ways s *hie compete vi
lated motor carrier*,
UY PU
utiliti
mole,
°mobil
regu
Ines* men measure the value
good will
it may, therefore be contended that the
earni power,
rue reason for its dieallowanCe is the iePrePristY of
vitalising earnings, for the reasonableness of the
156
and not valu
to Bass as CO
red with
I'm
debtedness
tile Maryland Cleargieslon has said
it canoct,
* an infereace that the rat* bass should not helm
than the indebtedness regardless
e actual value of
property,
out
*Ceausission bat
consistently
men% the transfer of Oil
ity propertieq at e estive prisu and to prevent the
actual*, of securities in 010*** of reel value, tot SS It
is iapractioable for the Colosission thoroughly to 304,00,0
to and accurately to value 011 properties be ore op*
proving suob transfer and security issues, it h4 h d
constantly in mita the possibility of no indebtedness
being incurred in excess of property value
hits &nee
porated in all orders authorising the sal*
transfer
of utility properties 'the stipulation that hing *oat.
tamed in the order shall be deeaed, take% or eoesSropi
as in any say deteratzzing the fair IA U. Of the property
or rate..saking purposes.
Aitainistrative and Legal Costs
There is wore included in the tere 00
than sorely the ordinary process of oraing
When a group of
duals decide to fors
rpoatLon
y must etther stand
tnvestthir own
am other fidividuals The
they oust eeeh capita
nod field must be looked over carefully and Ofturkso
sod with the idea of determintng %bother the venture 'ill
probby be iuccsssful or ussecoessful Sometimes plane
e to be de and all or many other details preliminalf
to the beginning of actual operations suet be Ossefulll
oO*$tdereL
Customer/ helm to be conmeseed every polio.
sible euree of_revenue investigated* and there arcin.
numerable details ehteh enter into the Wok' °rip imatto*
of a company ready to do business and atth customers in
position to accept and pay for service. The cost of
meeting 411 of these doman4111 is
rested 40 the
rganisation expense.
The following have been Included under admintetrefr
general officers,
and legal costs $ (4) salaries
ries and expel se of office assistants, (e) o*mt
nting
legal advice,rentals and offiee
it has been declared that o
Delude all fees paid to e government
incorporation, and there must 41so be included the coat
Preparing and distributing pro peetuseej the cost of
Lott ng subscriptions for stook; cash taaa paid to
waters and the actual cash value at the time of the
organisation of securities Pa d to prosoters for their
160*
nsel foist
of the ante
if icates of stoeki and
issuing
certifies of neoeuslty Iron
ate euthorities sod other like poste.
services in orge.4*
oost of preparing
the cost of proouri
llowanoes for these items have varied from 1 p
per cent or ooze asoording to circumstances
*Ion has stated that the usuai percenisge of
f legal woes in conneotioa with oonetruction
to 5 per cent
that 1
Illinois Camel *Oahe* h
dur ng construction should not be e lasted as a fixed
pereentage of other expenses but should be arrived at by
tt*itiog the coot of an organization sufficient to tithe
re of sueh work. As a rule however, allowance* have
been made en a peruentage basis.
The actual expenditures way affect the
has been held that a large allowance should not be ma
for organisation expenses *re the actual expense
been trifliilg rici has been charged off to Profit** nail
fitly where such expenses have been net from current regrea.
us and treated as ordinary oi,ensting expenses and little,*
if any, expense has been Incurred for under writing syn.
dicates, finanoing, or promotion a ssaUøi allowance has
been sad.
°other factor affecting the IJiowanas is the sOlio*
in one case
struotion of se,z1 doPcrtmlata
161
ining the repro
ton
eotrie
a utility °Watt
°wawa for
meats, ezob as large an
tali% the cost of
organisation expense
franchisee should not be made for each department as
each department were owned by aseparate utilityp its
oh plaat sae constructed at appropleately the ua
where the :mantises were proourred at the mane ties.
A valuation by engineers e4ployed by a publis uttl
is not an adequate reason for setting aside the site
base established and revaluing the PrePirtir
The Virginia Ocenteston held that the taut that the
engineero gere employed by the utility should not be 00n.
sideria in itself1 as material* and even if their valma
Ova bad been &dap ad as presented the COsa1ssIOX was of
iiployed by an
opinion that the fact that they
for :oval
t rested party would not fratwb
specially in 'view at the liege op trinity to have
other valuation* or to challenge their agates.
mission had valued the property after a full bearing and
/wrestle& ions using the engineers' i'eport as 'midst**,
but aleo advi and assistance of engineers In the Mae,
agorment of the Oosateston 4 cionstitnting a part of
the machinery existing
or WI law for such iimposes.
Consideration of the Valu.of btility Property Anew
Rate Investi
1.6g
held by the Dtstrtc
Southern Distriot of Ohio, Eastern Divisi
aquiry as to value is naceesary in each rate twee*
:ligation. The Oemokievion had received in evidence a prow,
violas tentative valuation, holding that there was no
dance efore the Comoiesioa showing snob material change
in the Ordeal property of the compacrs as to necossitate
/4 reva ua lea. The Court held that while previous valued.
tions might be ccsidsred for what they were worth in
mkt% 4 aew valuation the chay is imposed upon the Cow.
mission of etertn1p4 anew the value of the 0 mPenyie
erty in each rate controversy. The Court said that
id not approves u in compliance with law, any prep
tn custos
previous valuations as a deter"
tt4e anti in
sin for subsequent ones without
ft lacialry int
correctness of the previous
tie and without givin onettier*tton to al pertiao
vid ace introduced
Consissiont in tic isein a petitioa
theoity of Pittsburgh for rehearing on its order fix
tee of a gas utility was of the opinion that a
The Pennsylvania
finding
r value is not 'waggon! in every math Owls.
0011111a$140* 0000
proladindthe record and the repo
tam a suffi
ta to support the conclusion and
oomble ecientift.Ole'. th 4 of arriving, at the deateion
Coas4tuion stated
1101110
163'
findi
in this cae are such that a
facts
fair value of e company** property used and
useful in the public service would not have been neemew
sary or helpful Lu arriving
the conclusion. Such
being the case it seemed d s ruble to refrain from making
findings or determinations which were not essential to,
ad whtchb if made, would not alter the decision. The
tion for rehearing
nee this attitude.
e to ask to
isv of a valuation promptly.
A
sw York Court holds that lachee and the statute
mitations do not apply to a suniciPal corporation
La a proceeding under a contract authorising a review of
an appraisal of steet railway property, whore no parties
lax proceeding was treated, and no time limit was let
In the contract, and the action for review was brou*
within a reasonable time. Judge Rodenbeek said the
no time limit prescribed by statute which *as applicable
o te time vithin tcb an action must be brought to re..
view the appraisal but at e same time the court would
require such a course to be Ulan within a ressgnable
**8 ft r01$04.
er the submission of the uppra
coon
ble time however, was a tter of u
or the otroumstances of
164
namely Jauua
ed July
a
OX
Years and sir month* thermal
u tag the interim various
acts took g
LAB *Pea the question
laches on th Pa of
Laintiff. Duriag this inter..
ad eleven months after the report was filed, there
an approval of the contract by the blic Serviee
Ooenlealon Pursuant to a legislative act, the Passage at
Jab, and the approve). thereunder both sides eontemo,
plated. Within six moaths after the appraisal by the
blicrvice °cool aion4 there was a referenee of the
uPprateere$ report by the =talon 00001 to the bursas
municipal research, whtch held the port a little over
six maths ad then made its report to th. OOMMOX QOM*
cil August 17, 1923 sad pimply thereafter on ku*t 28,
1923,a committee of the common council made its recomm
meadatton thereon, and the common ocumil authorised the
institution of the present motion, which was brought fits
months after such authorisation. The period of time taken
the plaintiff to get under way wouli be regarded in
e OsOO of tad/v/41;4s as unreasonable, but greeter lett
de was acoorded in this respect to *si4otaL corpora.no, in view of the tat sesta of the pubLiø, and under
cirousstances it could not be said that
re had bees
ail lames, Liable delay as to ctAare the p1aititt with
s and bar it from its remedy under the contrasts
165
ReireOLIOS from Ixweetaents in Another
It has been held by the New York awe
te division, that when the investments
p.
of
tate are not included in the rate base as Property
the public) service the income from these is's*
cannot properly be deducted from the revenue other,
eld properly allocable to the company, since co
tion of return upon this portion of the company,
propertr is involved and the company is entitled to a re*
its reinvested earnings
All Rance for Overheads.
It is generally conceded tha
tory either on the ort6inal cost or
U
o
itUretly.
tion
an kalocance must be mad* to cover overheed ez.
It has even been 41 4 that the allowance should
be made although the utility he made no elate therefore
The question thether76vezia d'ex Oases should be al..
lowed la a valuation for rate makingis Mither moral
nor legal but merely one of faot Educeexpenses are
actual and real. The allowance for overheads represents
costs which cannot be charged up or .allocated under Wks.
ate Physical units. They are as much a psrt of the cost
of the construction of the property, however, as the *est
of labor necessary to set4up a telegraph pole would be
part of the coot of thsit poi
Taxes during Construction.
166
xes durirruction lite
struotLon, ar g,aerally allowed as a
in the buildiog 4a utility plant.
allowance abould be
s it must be kept in
se-sessfAent rolls are usually made up onlY Once
at
that
Year,
any property that utp not scheduled or ready for 11.00
upon the assessment date would go,a year without
n4 Only a small portion of property usually pay*
es until nuch time s the property comes Into *Wei"
tion.
ld
for taxes during
raoti
widens() that a
ere paid
The special condition urroanding es utility must
be considered in determining What Should be allowed for
axes during construction, A uniform percentage would
not properly cover all ca8es. It say be of interest to
knows however, that In the rei4rtod deoisions allowmnom
have varied fros one-half of 1 per vent to 1.5 per cent.
A Commission Should Make Separate Pindi
lours Items of Value.
The Pennsylvania supreme court has
r partial lump sum values are unfair both to the
o and the utility whore they represent the eempeew
f number of items entering into the rate basis
d that the Commission's findings need ntl sot forth
ft
167
valut
ta
so of
entering in
decisions of the Supremo
the Utted States and with an Orgtortring force ar4 am.
& tame at bar*, there is no reason, when facts are profs'
ted and determinedl why they should not appear under
the different classifications, at least with euffteient
clarity that the courts y know the parties vitally inw
tenoned have not been unfairly dealt with. The court
held that the Commission should find the rate to be al?"
plied for accrued depreciation and that, where there to
evidence of oing ckdnoern value, the report Ja-itta in.
stance ghouls show in plata words howAnaoh or the total
which the Commission has allowed for much value and,
t is dleallowed the reons for sta
a
disallossuoit
0001141111 ton (Ps
16e
et
tions,
ga
en of
toes a
e
Rate**,Cbare
vice of th
fres
at Power
Company.
scion's own mot*
This is a proosedtig on
deters ne the value of the properties of the poop
t Coast H dromMlectric Corpora n, used and useful tor
electrioal energy and Whether any *roil
urnishi
e exist
tee charges, rules, ru1attons, praead serv
are just, reasonable and nondiscrimimo*
in any respeot in violation of the
The Commission required the asiA utility
certain information regarcUzg its capitalisation
JAW reveque and revenue deductions together with an in.
ven ory of its properties.
Since the institution of thisinvest
ship and control of the utility properties involved
in we transferred to the Peoples West Coast Hydro.. leo..
rio Corporation nnd the ownership and control of the utll
roperty located in and ad3acent to the town
ake countyli;. Oregon,
the operates also
utility
The
Waldport, Toledo,
wp
Day, John diner,
',Port
Florence Clatskanie, Looks, Cascade City Canyon
Oregon; of towns and cities following the in and
Washing in propert$.es eLotrto operates and
Rydrosilleotrie Coast West Peeples
Co
ny
C-ompally, Light £leotrtc Consolidated Company, ower
Company,Burns leotrtc Clatskanie Coopazty, Powe,r and
Power and Light Mule,' Company,
Light Skamanit
Light Waldport Company, tleotric noe Tier Company, Power
and Light novel
follows as are
oost
predecessor
end present the by
August
Pow- Coast West the as 1928reorganised
Delaware of state the of we 1, the under orporated
Corporation Rydro.Thotrto Coast West Peoples
Burns Austin
Williana A. Trod al* et oiddo Biggs; A.
mayor Tobin, J.
14, dport
onorabl Newport, for
appea Other torneYn.
followsi as entered, were es
at'
*tarsal',
A
C.
imd,
04100k
ID
of
on Oregon, rid,
on came
edmatter
a to notice legal
by appearing
at
utility
1928, January, of
Courthouse 252,
Room
above-e the parties,
a due to uant
16g
170
Lakeview which is owned
Peoples Cal ifornia Hydro..
ly owned by V P. Jensen.
Electric DorPcvstiono
The corporate balance sheet of the Peoples West
Coast Hydro...Electric Corporation,
of June 30, 19
set forth:
ASSETS
Fixed capital
$2 732,92 .39
14,552.47
aah
2,458,37
Notes receivable
Accounts receivable
51,081 20
Materials and supplies
290027 97
Prepayments
11,968
Clearing or apporttonaent accou
Miscellaneous suspense
Total assete.0.....
LIASILITIIs
Capital Stoo
Long Term deb
Notes payable
Aocoun s payable
Consumer
dePostts
Two accrued
Interest a ()rued
Advances from affiliated oompan
Depreciation reserve
.74
171
C
t D.)
7241
out
Missollasiouo realm*
Miscellaneous unadjusted credits
rofit and loss surplus
7)906.40.
24)307.57
Total liabiliti
The capital stock of the Poop es West
a COrporation coomists of 5 410 Shares ot coan
of the par value of #100 oadh) awned b
ight ant Power O**Pan7.
this utilit
t mortgage 5
n$
bonds)
matar ng July 1)
Value of etc*
of this
either the stocks nor
are ourrently Quoted upon the market) nor 4oee the mord
contain any testimony relative to their value) and it JO
eretO
impossible to mitts a finding
Original Oast
Coast Rydro.eloOtri0
The property of
u4 consoo.
rporation is the room of various pu
ion. Complete poor 8s of the predeeasor compeni**
r szamination and it is impossible
ta a
ttemPt to ascertmin the original Oat
bit due to thabset*ø
172
panting Pro e
commieetec 'mere
tereioe and practices of
sdtoti.on only ow
t11
powered with °antral over
euance of stocks
nd bonds or the fixing of values
kg ion sal, or
sage purposes. I
obvious tha be vPlue contem.
ed by the statute should be determined for use pri
manly in inquiriero regarding rates and ouch other metter* of regulation as are directly conuected therewith.
In inquiries el suob nature the velue of the non.operating
tiny has a collateral rather than a direct bearing.
aularly i.e this true in th. present instance where
r allocation of stock and bond issues and the ac*
ascertainment of original cost of the property i.e
not possible
A portion oli!the waterrights and other tangibi
property owned by this corporation is not at
actually used and useful for the conveniences
Ito use nor i.e there any indication of its immediate requirement for such use.
The following properties are not actually used and
useful for the convenience of the public, and are ere.fore excluded from the findings of value hereinofter set
forth
block 1, Graham'
173
ting power plant tructurs located theroons
Florence
Swedish At1ss semi-diesel eng
*deport
ant of lo
$
block 40
ti
One parcel o
ture looated th rcoi.
0
plant et
ree, boiler* and
there
Wood*
deviling
Won Lake Wator Power
Re
roduction Omit
The toesies onto engineer* invent°
Plant and fitiPerty by actual sount in th field, The
plant and property inventprie4, was subdiw ded in &Soar&
11000
comminionos loafers *lass
ion #4 so*
aunts. To this inventory was applied the
rial pylon*
furnished by
IA* dealers and priofe actually paid by
the company for
and labor in building up the rev,
production cost new as of the date of the inventory. The
condition of the property was daterwinnd by actual
t on and the condition percentage so found was a
174
duotton cost
obtain the reproduction est
S depreciation.
The reproduction cost new figures submitted
utility were based upon the tnventor taken by the co
mission's swginsers. The utility engineer prepared an
ndependent appraisal in which the values given f
rights differed froo those found by the coma ssion
gineer. The value of the Stems of property wherein the
largest variances occurred will be taken up separately.
Water Rights:
The Peoples West Coast Hydro.11ctrio 9Sirporation
four hydro.seleotric generating plants in Oregon vie
Capacity
*watts
Waldport
atskatnie
horse power
Cascade Looks
Prairie City
lifornia Eyd
trio Corporation
two hydro-elsotrio generating plants in Californiaa
"blob are operated by the Peop
West Coast Ryer0i0C141*trio Corporation.
installed Capaol
The Peoples
Lakeview- -upper plant
Lakeview--lower plant
util
a40 here. Power
SO
0
the question of the value of wa
rights the
presented estimates based upon the capitalized
175
estimated saving in cost of service which sigh
0000
plished by the present bydroelectric operation as cow.
Pored with the operation of theoretical steam Plante dos
signed to produce an equivalent amount of power. This
theory h s often been advanced, but as an exact measure
of the value of such property it is not entitled to serho
ioue consideration and, at best, the theory as
eloped
can indicate only the maxisus value that sigh
claimed.
The record does not disoloei that theoretical steam
plants have been located at points most advantageous for
sir economical construction and efficient operation and
the construction and operation, of transmission and distris
tion lines throughout the. territorys..srvoid.
The values derived from such computations differ so
widely in the variable elements such as the assumed cost
of capital, cost of fuel and freight rates, that their
oonniderntion is justified only for the general information
eh They may contain
During low-water periods at Waldport, Clatskanie and
Lakeview power must be generated by other means or Aar's'
chased, The water shortage at Prairie City
been the
subject of proceedings instituted by the Oregon Commis.
ion in case desienated U.4-484 which resulted in the ins
411ation of a water turbine ot smaller capacity,
capitalization theory fails When steam or gas
gene
on is being used a Po on of the year as the oor.
17e
rying °barge of the plant duringthe idle monthe
year is already being taken care of through operation.
Again, its acceptance would operate to deprive the 000,nity Of one of Its natural resources and permit its
capitalisation for the sole benefit of the Operator.
commission cannot concede that any theory which
rate to tLis effect is sound in principle.
It is apparent that the asoerta lament of these water
right values, at least for the purpose of this proceeding, at rest upon the exercise of reesonable judgmen
and discretion in the considezatIon of
elements Tele..
vent thereto.
Leased Property;
The utility claims that the land which is leased,
including the right to use water at Waldport and Olats...
kunis and land upon Which is located the sub.-station and
general office at Newport should be valued upon the 00.
basis as property owned,
nes are for a limited
term and titles are held by there the
operating
company. The lessee peys a rental whit)
included in
perating expenses in accordance with The uniform class..
flOation of nOcounts* prescribed by the Oregon oommiso.
sion.
Going Value*
es for going valu
10 per cent of the cost of reprodtjng the propertiee
utility compu
177
covers the e stvf brtngtn the piopertt* in
ptoductio
is apparent fru+ this basis o
tiers thilt 0gotri values baits the same ratio to invest.
whin
ment inf-eaoh of the plants under consideration hero, irp
respective of whether the results from its operations
have shown a profit or a loss
e commission's engineer p
tAdy of this
element of value which gives conside
o the estimp
ated cost ofsecuring the business and a* to whether the
service rendered by the individual plant is adapted to
local needs.
n Its fiMtns of value in P.9
Portland Ra
Id, 0
order No
y Light and Power Company, the coma salon
amount which this commission will allow ilk
a rate eaee for this ele4entof value is
represents the reasonable cost of attesting the normal
busimfee to a plant ret.sonable required to serve the terw
ritory covered."'"
The cost of se uring the business to a necessary
stmens in every utility plant and does not depend on
or the results from operation have boon good or bad
Deficits, While they may be indicative of the period*:
development and do have a more or less direct basil
upon the ascertainment of a proper allowanee for 80104
value, are generally the result of not having
sortie.'
adapted to local needs. The question of the reasonabli.
17e
mess of the allowance is of prime importance1
e dive
termination of a proper allowance for Lot% value eult
rest upon the judgment and diecretion of the detrmi.ntng
body after a full consideration of all matters which may
have a hearing upon the subjeot.
king Capital:
addition to the ihysical itene tnfluded in the roe
production cost estimete the utility will reesonably row
quire a certain amount of working eeeital, such as oath
or its equivalent, and stores and supplies which must be
kept available for the purposes of operation.
Coneidera ion has been given to the difference beteeen the average current working assets and liabilities
of the respective operating plants over a period of months
and the character of the Physical property 'which requires
operation and euintenanoe. The amount which the comet
sion considers to be just and reasonable and which has
been allowed in the finding of velue is hereinafter set
forth
Accounti
The records is the ease disclose that the so:mounts
ity for its Oregon operations are not
accordance with the uniform elassifie
of accounts for electrical utilities presoribe
com.tasion in its order Ra 1162,
that all electric utilities opera
Is order requ re*
6 state shill
179
A and after January 1
cords in accordance theree
teep their accounts a
Where the operations are
such that it comes uz4er Jurisdiction of other regulatory
bodies and accounting systems, this commission has moult.»
that the paes of the general le 4ør, sub-ledg re and
r books and
ords shall plainly. ibow on each page
ccount *zberLs tet out in this co
seionoe
form classification of accounts for those accounts rhich
Jointly or separately pertain to any operation or invest»
ment in Oregon.
T ledot
The electrical
which serves the
edo is riurchased from the Pacific spruce m111 located at
Toledo, from which source also the city of mewport is
supplied over au eight-mile
nsmission line Toledo,
a fairly densely settled city, is suvorted ufll7
Amer manuiacturi%; Newport, noted for its beaches
less densely settled, The oumber of customers in the
respective cttie1.s,upproximately the same but Oore
vs tzent per cjAstomir As required to serve Nelvort than
To edo asd that portion a the investment which serves'
the sualmer business in Nesport remains jaracticallY idle
daring the winter months With the operations and invest»
wants In the two cities co blood, and the same rates,
Toledo would os oarryin6 part of the burden for the
noe and upkeep of that portion of the plant requi
3.80
to serve the resort bucthe
iri tewport, which bus
does uot benefit Toledo.
The inco,ie etateaent or the Toledo division and the
combined Toledo and lewport di
6 for the Year ending
June 30* 182li is as follows;
Toledo
revenues
$32,432.2
deductions
moose
Average fair niue for Year
38,289.42
Return
chedule° represent the accu
nies. *
of the pr eeeseor c
adopted and as a result a ditto,.
of rate structure was in use in the various
calities and comminities served For the make of brevity
these separatO schedules are not shown but will be dle-.
cussed generally as to pal titular features.
The customer should pay only a reasonable **nu
the service be receilies and the utility should furnish
utility is onoadeqm*te service at reasonable rates.
titleA to a fair return on money honestly invested if it
may be obtained without the assessment of unreasonable
rates. The rate under *blob the customer receives maxi
181
um adva.a
if it p
investor ultimat
?rove
lee concerned;
tee Mould be provi
max mum 480 of the u
Permit and °mourn
vice. The lieiting conditions under this
the r tee to produce a fair return must
Valae
the service rendered nor below the actual eos
thereof and that no unjust discrimination between indiv*
iduals, *lasses of customers or communities be introduced.
An unfortunate fact often disclosed by aloe. analysie
of ocncations surroundinc a particular case is that fttito
designed to provide a fair return on an investment, hommitw
ly Lnd fairly *mile, will be too high to promote a free use
of the utility product, and consemently will have a ten.
dency to defeat tt,e
/TY ArPose of.the ohargee Ouch
oonditio s n.tturally arise dui.rg the early development
period o so.e enterpn.s
out the entire life
lit upon unsound foutid4
of other undertakings mh
tions or which have suffered from oommero
From an analysts of the income the i
and ueful for the respective opeiatin divisto
oladini Toledo/ th return received hat not been unreason.
ably high In some of its operating divisions owever,
Ile returr received to beel. less than investors might
sascri6.bly be entitled to expect from lrveet,ent involv.
ter*
rig liie risks and lees than the prevailing rate
182'
set
ughout the
view of the 'Cove ao g
I rates
Med but It is believed that the r
0044 be
torily increa d by all adjust/seat downward iu the
residential and commercial service.
""sparh.tte sOiledules should be filed for eterad
rates and the fl4t wter hee4
rt
i -Ieu of the
tag schedule 1-CT7 for the cities of 3urna, Reeds..
Arport ad Toledo.
S:
ned on
c ng Lac
tire reoord h
miset
e testimony and go..
owtion being fully advieed in
kes
ni*,s as follows:
That the P oples
oast 3 dro-Elec o Corm.
poratiou and the Peoples
Ilia tydro-iutrto Corm
poration are corporations oranized and existing under
e laws ot Delaware and are u111ø utilities as defined
opter 279 of the general Laws of Oregon for 1911,
owning and (*anti% electric plat ø,
lines
and .Larniating eleotric servi e in Tho ottiee and towns
of Toledo, Newport aldporto eedport, Oad.irrnr
Florence. Clatskanie, Quincy, Taylorvi
Westport Cailm.
oade Locke, Prairie City John Day, canyon City, BU AO,
eview, New pin* Creek in the state of Oregon.
2. That the value a of Jule 30 1927, for rm
purposes of the respective operating divisions*
183
conieret.outó the o3ldttiOn of the pro pert
the de elopment and all other proper elements jocluct
allowances for workint, catt*.l ar4 Eying value is
'lows;
Toledo
Nerport
1dPort
Reedsport
10,98741
Clatskanie
florence
88,000.00
C-
52,029.28
n800.00
ado Locks
Prairie City
38 ,00.00
Burns
87,800.00
85,885.00
Lakevie
ke
30,400.00
That the accounts, records and ledge should be
trict c mpliiance tth the uniform classifica*
tion of &ccounts for electrical utilities as preecribird
in coalwission's order NO. 1163
4. Thet the rates in effect for electric aervtce, Su
a) ar as they differ from those hereinafter et forth,
are unre--)sonable and unjustly discriminatory and that I
lieu of such reasonable and unjustly discriminatory
rqtes the fol1owitL schedules ?rovidi remsoneble and
not unjuPtly di8criithatory chare for such service.
e olit the rate scheda e )
184
ORDER
it
s hereby ordered that the Peeples We
Rydro1ectrto Corporation be and hereby is requl
put in full force and ef:eot the rules, rat
quirements hereinbefore in the findings set oul
and reasonable and not un3uetly discriminatory in 1
those now in effect nd found to be inademate and U 1114"
discriminatory, which findinge are by thie referenee
made a part thereof:
Provided however,
the rates herein fire shall
be considered the max
tee for
sees
servies
specified and nothiN herein shall be construed to prou
vent the utility from making reductions therein or fres
Mini additional rates for services no epee fled pro"'
vidiet tl't they do not result in unjust divorimination
between patrons, c1sses of service or 1 ealitles in (Maw
flict pith t1s intent of thie order other rules and roe,
eul&t.oris cf this comt:.ission,
t is further ordered, the he Peoples rest
ydiectric Corpora ion shell keep its books,
End records in rtriot comd lance with the uniform
class.
fication of accounts for electric utilities as prescribed
by this commieeion in its order No. 1162.
is order shall be and become effective on the first
reading after the 8th day of Vey, 19
and
Wert Coast E dro-Electeic Corporation shall pa
WV.
4011C*00
wowetIro Asix
*.repao errl. ;0
Treqg qDTR4 ;;T114
JO SOtna 9q71 ptre wet X4 pO0 T4 0801e VIV00/12 $144
Osz tr4 *V%
tr4 mos: sATV ot 'Tyr
Pau tte
*98T
186*
PAR?
ORAPTSR V
RATt 13A8I DQt8IONS AFTSCTING PAklICUIdAR
Water;
Should the full
of a ter system overbuilt
he Purpose of eell ng'real estate be included In tk0
base?
held tha
PertY should be ceprectated on account of the ov rbuilds,
ng; thst patrons of e utilit
mill not be compelled tO
Pay aq extra price for water because of an extravagant
The Wa hingte
rtment
expenditure mde to sell real estate, especially in vie,
of the fact that the investment in the water utility suet
largely have been returned to the owners in the increased
prices obtained upon the le of the real estate because
of the existence of the water system.
was pointed out
that a p::!gt of the,price the rchaser
d for a lot
went to compen EU, the owners for the co of the water
ystem, ar4 to allow the utility a full return upon the
iziveetment w.e to compel the same purchaeer to pay the
utility a return upon an investment which he had, at letet
in part, repaid. Department of Pubilc Works v. Tacoma
Lrxd and Improvement Co. (Wash .)
An intake
in has been extended far beyond the open.
ing nearest the ehore, at the instance of a city.
the exceer main be included in the rate
Bboul4
187
The Wisconsin Co
did not show that the
on has held that
the city
on beyond the opening had been
permanently abandoned,
adequate reason existed for co
dering it as property which 1:;t.s not used or useful*
since the extelsion had been made at the instance of the
city itb a view of obtain/11G water of
tter 4nal
than could be obtained closer to s1-ore ur.tng certain
seasoas of the year
flshland later Co. (Mg)
How should the funds advb.nced by connumers of a
water company for the construction of
ne be treated
-on?
The Miesou.i Commiesion explains such a case as faZ
lo
The Commission's accountants found that on Decamp.
her l, 1927, there VP,P on deposit with the companY the
sun of .521070.51, 14.1.1ch has been advanced by customers
for distribution mains. This amount Should be deducted
from th fair value as !found by the Commietion to obtain
or rate-making pwrposee and the Company
states in its reply to the brief of the city of Univerel*.
ty City that this is the cor-eot procedure. But the mains
which this money represent s are the unquestioned property
of the company and must be included in the value of the
property., University City v. West St. Louis Water and
v=ht Co.
e
market tY2lue of a pumpi
station
computed by taking into consideration the saving
188.
by te u&e of water
er?
The Pennsylvania Coints8ton refteed to accept a
market value of a tract of lzid upon which the pumping
arrived.
station of u water utility was loca ed,
at by caløulatin the amount of saving to the cctupa.t by
the use of water power for pumping es aatnst the use Of
electricity. The c,Aupany cl,ime0 that one-hklf of this
repreented the mnrket vrlue of
the power nite hrpv. rewville Water Co. (Pa.)
A wvter utfltty supplies consumers outside of its
hartered territory. Because of this service i has been
compelled to expe.nd its pi It. Should the cost of such
expansion be allowed in the rtc base?
cap 1.117.ed c.nnuel
&n
The Pennsylvania Commission has held that
panston must be included In the rate ',se There the
time from, e well as the outlay for, the supplyinc of
water in the extracharter area have been included in the
fitiures submitted in a rate twee, it further apiearing
that the domestic consumers are not rejudio d DY the
supplying of Vats servioe. Potteville v. Pottsville
er Co. (Pa.)
Available eater power for pumping is more expe
than electric power. Water power has been tuetallad in
good faith by a 'eater comp9ny. Should the power equ
ment be included in the rate base?
The
3ersey Coiesion has i
yetes3.
184
watcr po er equipmeot in such a
equipment was installed in good faith by the cam
a
a time wher no electric enemy was available. Re7reeobe'
value
n 7,'ete Co.)
4 water company aekins
extend net
into unprofitable territory sttpultee that it will not
include the cost of its constructicn in th
to base of
the pl%et serving present consumers, Should permission
be eraated on euch terms?
An order of the Pennsylvania Commies on authorising
an exteasion Where a water company had made such a stipwe.s reversed by the Penney venia auperior court on
the Lround that such a stipulation was incompetent evi
e In v ew of the legal right of a utillt
earns
return on
veetment and that a Commission order
rnatertal1y affected by mush evtcenoe Should not stand.
The cort took the poeition that however commendable the
?olio of the Commission of keeping the rates in the pre*
sent territory cemmensurate with the cost of rendering
the service therein such polley must red Whenever it
Could not be maintained without depriving the utility 0
its r ht to charge n rate whioh would produce a revenue
rensonable return on all of its property use
in the public service. It was seid that if a reasonable
return on 11 of ite
ty so used could not be obe
ained by a schedule of rates which varied according to
yieldiniol
190'
district*, i
Y of the Oo4aeon to Uoweats
10400
DP.
crease
rates based upon a ALr return an all of the
property used in the public) 8ervto.. In swab a coatLn.
/away the result would be that the stipulation suet yield
to the riglt of the Coraonweith to regulate rates under
Ite police poTe
larks Sutnit v. Public
ea Cote.
on.(P
A build
ed
ly by severa
Should part of its vzlie be iacladed In the raLe aae of
One of the compu, e wi.tc1idOi not own the building?
The1.Tew Jersey Commission allowed a portion of this
value in the rate base of such a cony, tatini4 that
this lid not ume that a portion of tb,buj1dime would
be tra4sferred to the utility but dtdssu3n tht by the
inc.I.Jzioa of 4 value for a portion 0f it a returnon
h-t value would be sufficient to d;.i.37 a reacible rental
of the buildin .s was occupied by the nowfor
'ewood %ter Co. (Ii.J.)
P
a cordano
cowp-ny buys land for a pump
th Eoed bus,Ines? judgment before the trans..,
sion rvain is Laid. Should the land be Included in the
r_te base?
that
It waF the o?Inion of the linois Comm
and should be included as uaed and useful property.
St. Louis and Is.terurbt-cn Water Co. (I1
191
A new ftu ping etat n o era sd by electric/
tamed from a tranniion lino several ails, In 1
and connected by a single rain to the point of ter diew
button, is to be constructed. Is this reason for
ludinc, from the rate base an old pumping station near
the point of distribution?
Eticb a pumping station should, in the opi
Illinois Commission be valued as used or useful pro rty
in view of its use as an emergency or stand.by facility.
It appered that the local water storage faoilities were
adequate for only a few hours supply, and that an snore.
mous expense would be incurred in providing additional
storage. The Commission pointed out that interruptions to
electric trlisligsion lines by high winds and storms and
other c:?Aseq are expreienced in the state,
terruption beyond a few hours either to the puaptog station
or to t trnsnieston nin would Jeopardise the safety
and health
ral aittee supplied with water service
by the co'rpany, arid undoubtedly there would be an very
material incr
in the Inouranoe ra es in the territory
served b
any if sole dependence were placed upon
r supply. It appeared that the trans*
the new
mie io n
nnecting the station passed under a sl
for several undred feet and also passed under /EPP/oatss
ately fifty ilroad tracks. It was a large main con*
struoted of einforced convr
and the record
wed that
,192
wae
poasthtty of
U80
and that several 4010 .4ht elapse b
e any break
Could be repaired end the main placed back in service.
0 $t. Loixis and Interurban Water OG
(I11 )
1,:ay the right to take water under a contract
valued in the rafe
e?
The amount of water tp be ttken an
a the utility operations must be p
in a valuation by the OvAifdrnia Commiarion no z-,,1
ance was made for the value of
1 ed water rtêht
imed by L water utility under a 25-year contract with
an electric utility and already approved by the Comillission where a etatement as to the amount of water the 4.00...
trio uTility as unOer oblievtion to deliver thereunder
filed as reqoired by the approvinc; order with the
Commission, which hJd no further knowledce of the amount
be lelivered. 7e California water 1:=ervios
. (Cal.)
How dhol
e value o
contraot be
laveetic.3tion
treated in z%.
The value of a water right - ising under coatract for
rm of years is necessarily dependent upon the life of
the contract and, therefore, in the opinion of the Cattf.
ornia Comicion, it should be amortized over the tc?re
thereof eixice at the close of the ,leriod'in question the
value f the alleged water riht alld be zero. ne
193'
Water Servics Co.
1
The failure of a state department to pay wstr bine
promptly increass the amount of working eapItal required
by a water ut-lltty 8hculd this exam, ot_perkisg eaPi
be allowed in the rate base?
The Missouri COMO-1810U in de
kg an excessive
ount of working capital as a part of the rtte boss is
represent the average amount of delinquent bills due fro*
a state prison and other state departments, said the
the sehedule of rate in force provided for a peaalty in
rm of an giaterest.oharge on all deliaquent water bills
the evidence showed that this mos charged *galas* all
r customers. It was, thereforeconcluded that it
would be highly disoriminatory for the Commission to raw
quire a small consumer to pay his regular bill and then
contrioute an additional icLouat because the company did
feel like enforcing collections from others, thereby
set on the priee of the water sold to in
re.
Capital City Water Co. (Mo.)
A water utility secures its supply
wells on its
ova land No exclusive right to underground sources is
shown. In valuating the utility property, should an
lowance be made for water rights in addition to the laad
taus?
The Oalifo nia Commission was of be opinion that be
company had failed to establish tbe existence of any
194
sieeolal Or Oparat value for 1
ight to Pump 10
bore are
from undergrund s ass. It app
rown iel
several industries that had drill
h-d obtained wut r therefrom. Airezt1y sud rivute
use of other wells In the locality bed not In y mann*
diminished the yield or interfered with u erg und
sources of the utility. r,o evi nee wL1 ubmitted ten*.
tc i4ite that the conpnyhda pr riPtivs riot%
a ny
ts waters vs Lsay other srson or per'.
sons, or that it 11:.d at any tine scukjit to stop or epjela
anyone from cbtaining ter frog the otheT' aLderiround
test fly presentMl
sQurceo In t)e vicinity. or
to the Commission shorin that an st.leS
to tO *Ow
qutre and pu.zllp underLrouna water of similz?
id that
reeatedly held that tilers water ras obtained fres
Liade in or about the city. The Commi sion
Underground c urces as di t ig;liched from appropriation
from i4E-ttural surfaCe
ream .11
there ctt ches *snit'
no water right vLaue, ceps rate rid dsttnt from the /Lads
that fixed for such iard. ar water bearig, unto,
other
lees a prescri)tive right i6
1,Lb_,Ighed by the use of
interfere with the rigb
the water in such a manner
ther owners or unless there has beeu eatablished
adverse ure ri' t to more ,2,45,n the taker's fair eh
thereof. Re aryavil1e
195
Should mains and pipes not appearing in a waters
company's
but owned by it, be T*1U4 for ra
making?
The Pennsylvania Coamt,sto
pipes from book value, but included them in reproduction
cost estimates, where they were found in the inventor?.
t was claimed by eon =term that the first mains were
ilt by a real estate company Shia was the predeeeseer
of the utility, as part of its operations, and that the
cost of these mains was included along with other dew
velopmental costs, in the selling prices of the proper.
ties, There was no doubt as to the ownership of all
the mains being vested in the utility. The utility had
from the beginning maiatatned them!.
The Commission bold
that the books spoke for themselves, and that the book
value should not be and could not be amended; alth
the reproduction cost estimate mtt include these main*
Cas4nave v. Overbrook Steam seat Co. (Pa.)
A city operates a water system and makes sps
assessments to provide for the cost of extensions. Ibo
the amount of tile assessments be included (a) in the rate
bee, or (b) in the base for the computation of depreein
tion?
regard to the rate base
titan that the amount of return to vhch it was eatitIod
Should not be affected by the fact that part of the °apt
196.
tal cost had been charged to property owners by the eem.
sessments. The Wisconsin Commission eat* that this was
a view of the situation which would probably be cone sm.
tent with the attitude of an owner seeking to insure all
the return possible from his property, but was unusual,
at least in the vase of an owner presulably interested in
supplying service with no unneoessary burdeacen its ousw
tamers. The Commission did not believe that fair treat,-
sent of the customers would be afforded if the as ants
contributed throuh special assessment charges were Lam
eluded in the rate banes In regar4 to the deProeistion
the Commission stated that a tho
the amount of the
asseeements was excluded from the rate ba.ae, it should
be included in the base upon which the door elation rem
Otrement is computed. Re Milwaukee (Wise)
A company's franchise requires that Oo
sent be maintained for steod047 *Mt,*. Should this be
treated as operating property?
The Illinois Commission has held that nee the pre.
perty must be kept in readiness, under the franchise, to
be operated, it should be treated as operating prOnerti
Re East St, Louis and Interurban Water Co. (Ill.)
May the probable earniag Ampacity of a water *yeti*
moldered in fixing the value for rate ask
The West iirgix4a Commission said that While the
yardstiok of the prbebl.e csrato capacity was not *flea
197
applied
oaus
the vaiue of a public service corporat
410.
utility plants are planned, constructed, and
operated with such sk 11 and the economic conditions
surrounding their Construction and operation are so well
studied in advance of, the investment, that they are caps
hie of 04V ing a fair return upon the value of the Invest.
ment by exacting a reasonable rate from the Alblie yet
e Supreme Court bad recognized in limy* v. Amu, the
oirouaotanoee presented in this ease when the company
contended it 040 net able to earn a fair return. If the
earning capacity of the company is limited* there must be
some inherent reason for such limitation said the Commie.
Ion. The plant is situated in a country whose water
nuPAY is limited Its construction was begun incidental
to a real estate operation. it has been expended in a
terdY fashion in whet appears to have been svatn attempt
to keeP pace with the growth t the community, and after
numerous complaints from the public and orders of the Co..'
estop and the court, there has, therefore, necessarily
ea considerable du I oation of,plant as well as mob
patchwork owlet:motion.
large part of its product is
lost between the source of eUiply and
cossumerge $00.
or. It bas been testified that the loss in its diet:i
button system exceeds 40 per cent and entirely too higb
a figure Its patrons ba. suffered numerous sd se
shortages of eater, the le commodity upon whieb the
ene
198
utility must depend for its revee,
and
other like ciro
414 in the record constitute an 4140.
meat for consideration in determining the ,au
the
property. Certainly this element is no controlling of
the questtou1 but, like all other pertinent facts dismo.
closed by the record, it is entitled to be weighed and
considered. Re Blefield Watt: Works and Improvement
co.
(1
Va
A Company submits a valuation of water rights to ths
CommiseiOn for the purpose of mmediate relief. Does
this prevent the utility from showing..,
true value 14
subsequent proceedings?
IS was held by a Federal Court that where the first
figures submitted were only partial and for the pa tieu
lar purpose of securing some immediate relief, since the
ca4uatione were tentative, there was no es ppel *blob
prevented the company from showing the true value.
fieldmUnion Water 00
Fed.)
Ilsotri
Plain*.
v4 Public Utility Coissionsrs.
tilityl
Id the consolidation of an electric utUit
o
t utility
financial difficulties with
able to command necessary finances
develop.
meat, be authorized?
Nebraska Commission held that from the
view this consolidation was advisable if it mould
3.99
result in stronger financial
on enabling the
ere to bring about lessened costs bymodern squipsent.
The Commission pointed out that consolidation of these
eon's
utilities competing in the eleotric field should din.
ttely result in (a) consolidation of sneraticg Plant in
due course of time and reduced cut..of ;wait cost of
pre**
duction of electricity; (V gradual eltninstion of duPtoate distribution property at present existing and
reby improvement in appearan00 of streets and alleys
the 01141 (0) gradual aimination of duplicate mains
t nano* costs of presentequipent and elictnatton of oar.
in duplicate labor costs of production; (d) prevention
unnecessary future du 1 cation of extensions into eels.
territory; * potential reducti n of overhead costs;
potential redaction in ob.rges to s public. Re Con.
Umtata' Gas and Ziectriolty Corp.
libould the entire $alary of aqgeneral
trio utility be charged t4LoperatiotAY
This would depend upon the nature of the eerv
of the general manage
The North Dakota Commission was
opinion that 4 utility should adjust its account.
ng methods to sho. the percentage of the goassel moor
salary which should be charged to °immure expense and
the percentage which should be Charged to capital account
where it appeared that the serliees of that officer were,
to a considerable extent, of an slag two ring nature and
200
that the cost of engineering
ons ruction
d Caere. v, Rugh
part of the capital sharg
Electric Co. (ED.)
What relation should the vorki
ash capital of an
C utility bear to the operating expenses
Idaho Commissio
mash working capital
aS recently made an allowance
ant to approximately one
).
operating xpense,.?.ton Valley Fewer and
Co.
4
a tinunt for cash working
is one
/Ala baring a relation to operating ex
the ot popular methods of determining
although other methods are also used.
The periods durtiig which oprattng ezpeneei
idered vary. We find that in 00wewal *ammo omissions
es
The allowance o
have allowed an amount equal to about two month'* s opera.-
t ng expensos.
Commission in on. cases however, held
The Califor
an estimate of working clash stall tallased on o
of the annual operating expenses was excessive in the Case
ne large utility. The Same COlenteeien has held* in
to the Paoifio Gas and Eleetric Co., that a reason
able a lowance, for workiag capital of an electric utility
purchasing its power is the oust of the purchased power
for one monthplus operating expense exclusive
and de ectatton for two months.
Re Coast Val
201
El o
.)
find eeafl allo
for example,
twelfth of the animal operating ex nees in Mangum v
**mom Electric Co. (Okla ) Comoro al Club v. Public
utilities Co. (Mo.), and approximately i.e times the month
ly operating expense, less taxes and depreciation in Re
Kootenai Power Co. (Ideb101 and-one...1 th of the annual
average operating expanses for a period of four years, ex.,
elusive of taxes with an additional allowazoe for extenm,
stone, in Re Potomac' Electric Power CO. (DX
An allowance oflaol to six oaks' operating expensee,
exeludi retirement expense and unoolleotable bills, bes
also been made, Wood v Ilmita !attar, Light and R. CO.
A utility, being paid for ee ice on or about th
t day of the month sucoeeding e month in Which sew..
a vendered, was held not to require an allowance
for
rking capital in excess of one month*. 0
ting peases: Re Union Electric Co.(Mont-)
Should the telephone system of an eleotnto company
be inoluded in the depreciation base in determining the
reasonableness of electric rates?
The Utah Commies on held that the tele
not property used or useful in the rendition of oleo,
trical service, and that while it was perhaps true that
such eystem wee used to some extent in the conduct of the
202
t teal business,
ad therefore it
on base.
Re Big
ld
not eleotrioa3. vt"Psv*
be included In the dsPrio*
*trio Co (Utah.)
The general rule is that where the same oomm.
pany renders different kinds of service, each service must
be considered separately in determiaing the
mote/
of rates.
reasonablenese
eficiencies of return in street
sallvay
service, for example, cannot be made up by excessive
arges fox elecrio service. This question is discussed
in other pa
an electric company buys curreøt a
line from an atftliated company,
another state. how
should the respective properties
the two utilities
allocated for ratowmaking purposes
In approving of a method of allocation adopted by
& e chief engineer, the 'Maryland Commission said:
'The Commission understands Mr. Wolf's allocation of
values to be an effort to determine the extent to eh sik
property In Maryland is used /or serving Delaware comsm
ities and vice versa. Rio allocation Or pos.? P
use is based upon the amount of current consumed In
state and the allocation of transmission system values is
based upon th lengths of the transmission aim ts shift
e used jointly and the amounts of current transmitted
r each circuit for use la eaOh state
determined
nsformer capacity.
203
Commission believes that n allocation of value
for such purpose cannot reasonablymisunderstood to be
a transfer of property fros one ownership to another,
eider* it to be as accurate and equitable.*
If an eleetric generating plant is looated outside
state, can its value be considered for set
see within the state7
The Supreme Court ot Washinton holds that it can.
The court said that the purpose of valuing the Property
of a 9ublic service oemPanY is to aid In fixing a bass
/oh to determine the reason& S rates and charge"
the company may exact for the service it rendered;
manifestly if this b4se J,;,. to be a just on*, the
of all of the property necessarily used by the util
itY in the performance at the service, wherever situated,
muet be taken into consideration in forming it. The court
id that it could be possible for a company supplying
e trio energy to consumers in the state to have all of
s generatiu plant. located outside of the state with
ing but transmission lines within tt, and that it
would be possible that all of the energy gsrated was
used in the state. Zn such a case it was
a
charge for 8ervicee, based alone upon the value
ton lines, would not be remunerative to
nder such c&cumstancsø no one could rightfully
say
the value of the estiplant should not be taken
204
into consideatton
ing the ra
and this being
$ muSt follow that when a propo
mate part of the
In the state is generated outside of the
proportion of the cost of such generatioa
must he added to the rate base. 8tate ox. Rol PaoLftc
wer and Llent Co. V. Department of Public Works (lash,)
A hydro-electric company may be unable to operate at
full capacity; should that fact be considered 14
lag
the rate-making value?
The Idaho Co lesion has held that such eloment
should be considered The Commission said that In case
the exteptvf the right to the use of the waters of the
river to which the company ,is entitled is not sufficient
to operate the netalled capacity of its plants daring
the entire years and the effects resulting from such
Shortage is not therwise supplied the value of the rat.
party would be
Re Salmon River Power and Light
Co. (Idaho)
Row should the lue of water igh u of two hydro.
electric companies, one o *WA I.e not used or useful
be apportioned?
The value of such water r
$ apportioned by
,ashington Commissio
deterrnthinK the value of the
for each plant on the basis of the methods used by
ifferent e Inters and then tak
the average of
mount
Department of Public orks v. Patlifto
205
a
Wash.)
e. Should the transmission line be
se?
e Colorado Commie
eion Zine in the rate base of a local electric
buting company.
The argument was made by rate payers
t since the company voluntatily gave away, am it was
claimed,
twenty years the said line for what was sail
ed a iiom1zl rentel the total value of the line should
not be included for rate-making purposes It a peeved
that citizens who built the line were actuated by motive*
f civic pride more than by any desire to earn money on
their investment, be power company would not build down
uruteb the citizens of the town with 01124*
the tow
t even
it was offered a bonus of .9300
citizens -4*en did what seemed to be the only thi
ny and built the
mission line to the lines of the pcwer 'company
mleeion felt therefore, that it should be ca
take any action which ironic in effect penalize the citi
zens for entering upon
t seemed to them a laudable up1
dertakirig. if the leasing
tract had not been made wit4
the power company, it was quite possible that the local
company would still be buying its current at the other ewS.
do
They organized their own' co
206
ot the i
tpying th
a
towns nearby
its of
rioity
er the old conditions,
SDI
d no
up*
ere eti
perating
be without
he rental and would have to boa
f maimtemo.
ance. It Would also be stan41
see, Whieh
were paid to be substantial
Electric
Go. (Cole.)
Street Railwayi
A street mail'sy company has an
oontract. Should thio be valued for
The United States D4striot Court, District of Minnesota, held that a power contact was a thing of %law, and
mad be included among the items valued
te making
contract had proven advantageous and a tiaa plant
erly operated by the railway had been superseded sad
had been dismantled. The court pointed out that the eon.
tract took the place of the physical plant, which would
otherwise have been necessary and would have been valued
as a part of the physical items. (Duluth Street R Ce.v.
Railroad and Warehouse Commieelo (red.)
A franchise authorising a street re
the rate base and the aiuiaun rate
mission bound by these franchise
(=terse
turn.
2*
en
crises the extensioul
* California Commission held that it was not bon
provision but that the
expressed merely
207'
of the present off iotais of the
leved was proper for
company to eav
urn upon its investment It was further said that
eotion attempted to define terms suoh as
and *return
that under the Constitution a
its utilities
the Commission had sole juri di
the matter of t ng rates and it followed this
contained in the ranchise could absolv the
from its duty to fix fair and reasonable rates
therefore, held that the Commission could not be bo.u4d is
fly way by such definitions. (Re Stockton 1C3eetr It Co.
contends that it has title
to a. strip Of right of way in the center of a street
ree ra
Should the reasonable value of this strip
the rate base?
Deluded in
The CaliforniaCommission disallowed this item where
it appeared that the street wee dedicated and that the
Ito had and
the use of the full width of the
etreet for nriinary street purposes and that the street
railway's present occupancy was of substantially
ease
nature as it would be if it held a permanent franchise
exempt from speoial restriction*, It also appeared that
the permanent right to occupy the street was obtained by
Re Preen* Traction Co. (Cal,)
A street railway compaby must at some indefinite
the company without 444%.
208
time in the future
capital
niaston order requiring a contribut on toward the
etrotjon of a viaduct. Should this b included in
0110
val
uetion for rate making?
The ifisconsta Commission was of the opta
llomance should be made in the rate bees for the props
capital investment, in view of the fact
t the invest*
ment wcukd be in he future and there was consederahle
question as to the ,time Tl,hen construction would actua
be made. Re Duluth Street R Co. (Wis.)
A street railway company, in order to
tion purchases bue lino rights, but little or no
quipment is purchased. Should the cost of the purChase
be included in the rate base?
The Wisconsin Commission in a case where a street
railway company had purchased bus line righte with little
or no equipment be/AS involved in the transaction, whift
practically amounted to a ooneiderati:Al being paid for a
Promise to discontinue operating in competition, °onside
ered the item an improper one to be included in the fixing
of value as a rate base
Re Duluth (Street R. Co (wig.)
A city and a railway company enter into a service *
at contract The contract Provides for a valuation of
the company's property which is made.
ty claims
at too high a value is put on the Pro?
vioue application by the city for Commies
waa p
ppm
209
contract a ratification by the city of the Talus
court holds that ratification of an soar
isal, under a contract of street railway Property, is not
involved in an application under a statute, ter the ap*
A new
o
proval, by a Public Service Ocimission, of the contract,
Which authorizes a review of the appraisal in the courts
Judge Rodenbeck observed that ratification implies assent
xpreeued or implied, and under this rule the defendant
lai that the city has assented to the appraisal
as ha.a been shown
t has not done
the principle
of estoppel the Ch ef element is an Ueed Change in
position of a party as a reeul of the a of the other
arty. Under this principle of estoppel the ctef eledo,
nt iø an aUeged Change in the position of a Party as a
malt of the act of the other party. Under this primet
defendant olas that in reltanoc upon the
y of the city, its application for an approval o
the oontract and its failure seasonably to begin proceed.
as to review the ap?raisal ItPaid aat large sums in
*al sold a large
a of the
dividends on th
sly ea in Rochester
amount of bonds vering its r
in connection with other property,
de extensive ez
pSA&ttures for renewals and replacements. AU of these
lags how ver, Were done by the defendant with full
ledge of the delay that was necessarily involved in
ing the passage of the act by the
islatnrs author*.
210
Publie S rviee Commission to aPProlto of theoenom
in applying for, and in (securing., the approval of
blie Service Commission, and in obiatiolag ftetion by
the common Council and the bureau of municipal rolsoortho
leading up to the commeneement Of this totiAn. The defend.
aut knew all the while that the appraisallas final and
conclusive beycnd review by the plaintiff. The defendant
did riot ohinge its iositton in any ty by the payment of
dividends, the sale of bonds, or the expendituroo for re*
mac and replao eats, but did all of these things with
he full knowledge that the appraisal would probabl be
eviewed and it cannot, therefore, be said that the
laintiff has led the defeadant unto dotng these thing.
.rid ohanging its position In reliance Wen the hots and
conduct of the plaintiff floohea
ew York State
naiiwys (N T.)
statute g
a Commission authority to
ore*
pal ordlnaixes, Is the Couniaaton th.r*
Po
lway to perform a
ed to require a etre
street paving?
The len Jersey Oommission decided that it had no
power to rev ire the street pattag It appeared that the
county authorities, at the request .9f the Q:Qmfly offered
to oonsent, to the laying of Iraeks In the street if the
compaay would keep a parfof the street in repal
VasYto uocePteoae of the off was held to *rest
211.
0
t, and hem* therews.s rio o 11
of any municipal ordina
dere v. Public Service R. Co
ehould the decrease in use of
of not fur sbtn eotor bus tranepo
d in fixing a rate
X
4,0610 by
rrOS00
way bay*
be con*
se?
York Public Service Comm se
the
it would give oonsideration to suob favt.
Pooley said that for several Yearilrlasst s4tantto
called in ennual reports to the fact that revenues of
eleetrie street railroad companies throughout the state
d been insufficient to meet operating expense* and fixharges Thin situation had been caused by a diminu
of the tr.fflo formerly carried by these companies
to the ever increasing use of privately owned automobilee and to the insistent demand on the part of the
public for motor bus transportation. The Co issioner
said this situation applied, with special force to the Zr'
ternational Railway Company t Duri the past five years,
it had suffered a lose of approximate" 20 per cent of its
revenue passenger*, Ite difficulties were not caused by
the present high level of labor and material costs, bet
were due to its inability to provide the public with the
class of tranepo
n which it now seemed to demand
There was thus crea ed a situation *blob bad a very tob
rtant bearing upOn the question of the value of the eomp
21a
panyia propert3es a
it must be eoAstdszed
ton therewith
sack v. International. R Co.
Care
tattoos meter trucks, poles
tsawbiles.
and ether property are eased to a street railway so
pany and used in its service. Should this property be
valued for rate maiLing?
The New York °omission hoe aotL that there
ferences of opinion its to the proper treatment o
oal property under theee conditions. but that the .trend
of decisions indicated that property leased to 4 publio
ttLtty, used exo.,usively in Ite business and proved to
be uaeu t.oad useful
should be valued upoa the same baste
the other property, the rental for such property under
is being excluded for the opexuting costs. The Coss.
ion cited 4
Utah Ligh
Chicabo u
Irjr
Traction Co
.11. Water Co
(Utah)
(Ind.) and
o there
y a value for st
.sements
rte base'?
The Murylend court of ap
which ure au interest
to base at whatever value
d in a
ey be
a *AA inerthisto
t that any Vii:We wiiich is attibtab3.e to the easements
which is aependent uponearutx-s should xt be aolucied
and that there:
II value
mproper which Xe based
upon au assessment made for tax purposes sti
213
ent u-
the carpi A. Judge Digee said it is t true
that because this charaoter of property is designated as
an easement or interest in lands and as eueh is ontitisd
to be accorded some value, it should be given the same
vclue for fixing a rate b4se as that given it for taxa
tion purposes. On the contrary, there is a controlling
reason why the two wauations should not be identical n
the valuation for rate-making purposes, property of the
public service corporation the value of which depends
upon the mrnings of the corporation should aot be incl 4.
ed, for the Commission said that the capitalization of
such an item would, in essence, be demanding a return from
the public for the use cffL right inherent in the nature
cf the public's orn property* The privilege to cross the
river, irreepective of the site or locations is obtained
from the body politic. Moreover, remarked the Commission,
it is the duty of such a utility to exercise due caution
and jurkment in selecting the most economical site available, consistent sith public ccriveuienoe; and, consequent.
1Y, the arEument that a premium should be paid by the
public cz4 the exeroiee of such judgment was said to be us.
eound. Rerring v. Clark's terry Bridge Co. (ra.)
Should an allowance be made for frueehleo value
based upon the number of square feet of street space re.
quired for passage of street oars and at a rate Qf Value
equivUent to that of the adjoininE property?
214
The Oregon Ooaiatar4ou re
0
values upon this
stattui that it was th
ssioals conception that a franchise is a mutual agree*
meat between the public and an agency undertaking publie
rv co whereby the
ium by which service is rendered,
lowed, la common
h other public uses the rigtt
o
use of the public streets
The Commissio
te.ation that the public should presumably pay
Li upon the right or gift ezteaded by
did no
the serlous oonsideration of a rule
body
Southern ei Co. (Ore.)
The operation of a
shown WA actual deficit
vinced that the railway
of diminishin ret:usu
rospeotiv purohaper
ould find no eater value than that ot the physical
toms of property. Should ths,allowanue be made for going
concern va4ue in determining the rate base?
Uader such circuastances thebissourt CummA
de U9 allowance for going value Re City Ligh
iTi.
motion Co. "0 )
()tad Qrt*1aettal poles ua
to ed by a rail
way
of its roerty *
puny be included la the
at. makiag
The 4ebras4a
Ia thhis case i
sal
old
sr
merdhants 110:41
215
de irous of securing more adequate e r
lities. The city which furnished the current refueed to
rest the additional pole facil ties on aeoopit of it*
finances. The merchants accord agly furnished the poles
which the mail y ccimpany maintained for the use it made
of them for its spun wires which supported the trolley
es. le Lincoln Traction Co, (Neb.)
Utility.
ould the oo8tof drilliae, dry boles be included in
production coet of natural gas pre..
The
eet Virginia Comm
necus to include such
4 that it is
a has
xpense in sproduotion cost
issioner Stathers said hat as the value Which the
Commission estimates is the value of the used and useful
roperty of the company in the service of the publics, It
folloAsthat he only property which should be included
any estimate of reproduction cost is the used and use..
m ssioner Stathere
fal property. In this conlection
atd, it must be remembered that in any operated plant
the cost of dry holes is taken care of through operating
expenses and that such a cost does not go to capital act..
°cant, It was pointed out that if a public utility furs
niehing water and drilling a dry bole in Its search ter
water, such a dry hole would not be given a value In dew
terminine the present fair value of the property of the
216.
uttlityand that
eservoir had been abandoned b7 the
water ogwri, the Cotsston would not include the cost
of the abandoned reservoir as well as the cost or the value of the used reservoir in its finding of the present gni
value of th water Waimni It was *Lids hove or
while not so advanced An thAa caues the Comuleslon real
zed that tile claim'migtt be made that some value should
e giveu to such dry holes because of the fact that they
had had a certala use aud been of eume advaatage to the
bus comoruny in defining its as territory, bat that an
such value as it 4ght Lave ia tie resiect should be
sass included and ooaeldered as one
elements Of
coacera value. Re Ualted Fuel Gas Co. (I. Va.)
re
ral wits lease holds or the gas reserve, or
at
ued for rate maki ?
knia Commission has held that it is the
hOlds rather thun
s oo t nts
Gommiet be valued for rate
i
iticleinti evidence on the value of
ryes gas content or
said that
Careful naiysXs. ailed to reveal a leaeiold Yaluatton
ad that i.t followed that t4.13 tifstiaony was de endeat
toits or the h ?ening of ooatiageacies:
t, the
gasuog of the gas la the ground as esti= .4
coeds the price wicb might be received for such gas per
0 Gomm
usend cubic feet
tome said that the quea
217
tion was suggested she
the gas reserve or ga 'oonteat
or gas acreage was owned by the gas company; for certain*.
y the Commission could not value a property *lob was
not owned by the utility seeking a valuation thereof.
Goin outside the record and dxavtng upo
iss *WO
information it was said that an oil and
was &
oil and clas
P9.Per hereby the owner of the land, and
thereunder, leased and let to the ga oonp
0? a0,110 /OP
dividual sub land for the purpose of operating for oil
and gas, such lese beint, for a term of Years and as long
thereafter as oil and das were jroduoed the same being
made upon 4 "fixed cash obnsideration, s etimee called
bonus
pd in the further consideration, of the payment
at certain stated periods of tental for the ieaed pr*.
m
es While the same rem. ined unoperated
for the Per..
t of a cert3tn stated royalty should either
or gss
be found.
lie ion urirtQod that there were us*.
as embraced in such leases as-well as
uallY manY 0
talc( obit a
asetre1 by the leeses such as the
t of tree gas
oertain royalty in the
to the
or and the dril ing of a certain number of wells by
the lessee. Commis loner
hers sail thl,t unlese tit1,0
to the gas tad pass d to the co.ny it had not a title to
such
as and the Commission oci1d not place a value upon
he gas or as acreage as s
"United Vuel Oae 09.
218
Qaa the title toproperty
erupt ed by a a o u
be quest amid ia a V atua p **ding
A coateutioa that e tt3.e of a gao ut
y
anat be raised
such a proceeding vas over"
ruled by
peoial aoter in a cue* before the United
fates Distr.
r
Court so
ol dated Sas Co. v.
trio% of ,New York
eiierast(u .e.)
t are the duties
Qou*ieston in paoing upon
oation for aa ixoreaa la gas rate*?
The Oklahoma supraale ouurt boo said that
Commission la suoh A pooeedia6 are;
dati00
The asoertalameat of the fair value for
mai
rpoaes of Cue property of the
00044er used
aad useful lo fornishia6 gue to ita patrols
The fixia6 o the rates o (4'oeatagea
should receive oa he reeet fair va.kuation of
perty after Oductia6 oost of operation aad any
0- iLO expeases;
o.) The umnuat par thOut1 QOAO feet to be paid
oy oguauwara in order to
as the ueuesry fuAde to PaY
°oats
exi?easea id the ()Whealtiun to be reoe1v'
ed by the 6an cop
e G41) Cu. v. Corporation
Coamia31on
I)
'That muQt be cnsjdered
tal Of i a3 company?
It hue b- en held that
iei
219
cost of materials and supplies like coal, oil and othei
s making material and appliances used and held for use
discount obtained on the purchase of material or *Waif
the amount of coal and nil received, and when the eoal
and oil received is paid for, the amount paid in wools
end salaries, and the pay days or intervals between the
payments of wages and salaries the Practise of the come
"KW as to its meter readings, deliver of bills,
r monthly the dates sent out and the amount of time takira
by consumers for the payment of bills, the practioe
company in allowing discounts for prompt payment, or
posing penalties for delay and the question whether or not
the company uses apparatus OT Contrivances, like prenar.
sent meters, Which may be found efficient in obtaining
payment for gRe from ueers of small amounts from whom
payment might be difficult, it is, therefore
to onsider
1
The averege xm.teriale and sumpli
(2) The verae accounts receivable.
Gas sale
(4) Operating expenses whtoh need to be pat
El The average actoounts osyable by the company.
(3
Certain parts of a gas plant have excess capacity
should this be treated in a valuation for rate mai
The matter of excess capacity, or, mu it sometimes is
°ailed, overbuilding is largely a question of reasonable.
226
LB, In a recent case decided by the Maryland Omission it appeared that a as manufacturing plant could
meet present demands by operating only three days a week;
that the present M&XIISAM daily demand was 3730000 Cubic
feet; and that the two holders had a combined capacity of
5e0000J cubic feet. The water gas seta end boilers also
had liberal capacities. It was estimated by one witness
that the overbuilding represented not more than 5 per tient.
of the value of the property and probably not more than 3
per oent. The Commis.;ion recoenlied the advantage of *
reesoaablo surplue capacity as cored with a deficiency
Of ceeaclty, but the extent of the excess In te.is plant
was considered la reachine a ooaolusion to eliminate the
allowances fer oxieele t aad contingencies. Mayor of
Hyattsville v. '/ashinetoe Suburban Gas 0o. (Md.)
A naturil ge,s coalpany leases a great quantity of us..
tested land under a rleht to test aad exeloit it at its
own ceeveelence.
Shoeld the value of these lealee be Oone
sidered i.e rite maline?
The 8hio Commission has held that merely because a
coxeany inv sts prudently eed that Which is acquired may
eecofie esel aed useful does not presently make it so and,
therefore, nothine cen be erected as value in auca
holds for rate-makine purposes. The Commission jgaidt
all feirnees tc both the cosvny aed the affeeted public
tels is a eropositiou which deme.nds close scrutiny 04 *II
221
of the regulatory body. Granting that a for
ng policy in commendrble and that a future
of gas should be aseured if poeib34 common men
would seemingly dny any public service company the right
to pyramid its reserve heldiege at will and compe
t uners of a commodity to assume the financial burden
entailed *hen tt is certain that little, if any, of the
additional acreage will ever benefit them.! Re Logan
ae Co. (Ohio.)
as eoripny offers to forego a return ao
rates on the bisia of ohargtn expenses to different
A
olasses of consumers. 1a a
perty valuation necessary
The Missouri Commission decided that the Property
shaull be yllued even in such a case. It wan said that
/ contrary onition was taken by the company on the
Chat it the as oompany was willing to rive up all o
return for an ovortunity to try the proposes rates, as
allocation of Orooerty expenses to the different Class**
of 0011SUTora wae not
ceseftry. The Commission, bowers;
nted out that if theis company were willing and could
uo all
of expense caused by the existence of
prooerty, the Commission cJuld accept Its claim that
the vslue of the rooerty was not needed in ftxt'g the
tee under the tery proposed, but thnt there were su
Uses, a
enses as depreciation, ntirement e
nter*nce that va both PI a to the else
0 value of
222'
ed were on
tory
various items of penss ehould be a3looateit te
spective
see of customer
mking into account
their demands
ppeared that the value of the Import,'
should not be overlooked. Re St Joseph Goo Go
tvrn1 gee ham an independent rket value at the
S
Does thie lustify a vete to public utility cionsump.
breed on that velue instead of a valuation of lease-.
de, wells, and equiument and the expense of operatics/
The Oklahoma Commiepton in determining the proper
c be charged for the eele and distribution of na
s did no unon the beide of a liarket value of the
ed by the oompany et the wel so with the addl.
tional coet beeed upon a fair return and the operating
enee inflponneotion with the trtnmiftliOU aid distri
ion. At was not considered necessary to go into any
eoeoulttve valuee as to the leqAss or the cost of open
t on Qf the leases or the number of dry holes, in view of
the existence of an indep ndent market whereby- the
oomPagil
ould sell its gas at the wells at the market price.
It
pointed out that for the Commission to undlortake to
a market some of the gee field by using the unit
e of gas and thetimated amount of gas in the fle14
would be speoulative, first, as to the actual amount of
pe in the field, end second as to the amount of moo*
ery under special or particular conditions that igbt be
223
different in gas fields and the proba
of the gas
field, all of which iR taken into consideration by the pupa
ohaeer in fixing a market value of the field. In the
onse under consideration, the company did not contend that
it had any reserve leases beir3 held for the use of the
oublic upon which it sanght a valuation to be connidered
In establishing a rate. Rowe, the Cammiesion did not
attempt to fix, nor coneider the lixing of a fair market
value of the leaseholds, wells and equipment thereon, or
the expense of op rating the same. Re American Indian
Oil and Gas Co. (Okla.)
An estimate of the value of natural a;asleaeebolds
is based 37)0/1 estimates of the market value of gas leases
and ulon the differenoe between the market value of the
estimated gee in the ground and the cost of aroducia it.
TO this a aroaer Method oevaluing leaseholds?
This method has been relected by the 'lest Virginia
Commisaion on the ,round that market valle is not a IVO*
oar meaeure of the value of utility aroperty other than
land and buildings. Ohatorman Divine, of that Commisnion,
said that this follorrei from the fact that market value
depends uaon net earnings exceat in the oase of land and
buildings, Which by their very nature may be devoted to
other used and thereby have au earning capacity not inflaxao
'need by state regulation. Re Clarksburg, Light and Heat
Co. (W. Va.)
224
Mould rates cf c.cipetio uatura
comp
based ou the values of their reueective properties?
The Loutana Comahissiou reEretted ttat under the
lov it must recoLaise tLw ric,ht of two natural cue
oompt-uiee to serve a c iuity Lid in so doink, it %met
141...ke rtez iafluerioed by c-AapetitIon.
The Coaa:46sion
2aid that were they to proilulte soheaules Lavint exact
lation to the vulue of tl,e iro_:,erty devoted by each
corporat_Q:i to tL
rvtce,
sohedui rouid uadoubtedly be ..i.orer the, the ot-7...,.?r, 7:ith t1e rcsuat Usat the util
ity uervikk;
cost would e:.-ijoy a 1eo:1 ;-4.0vantaLe
uver .2.ts co;Lpetitor, The CG :.:-.44.SSIOLI said thi,t evea tbe
widoope:1 yotei.1 of francLf..!-::es does act Seem to counten..
.aoe such a r
,°.t 1,1 e
least t1-.oe 1:-/ho undertake
such services L-e e.,Ltilled to the Load f;,ith of city eoura*
Oils
noacor isctory trec.tmeat :).7 this- body. rn keep.'
lel, with
7CCOT.'Cle-ei pnctice, ti e COMTAESi011 Ein..id it
9)roved tIT.e sarAe
.*..es for both -atilities a:.d left the
glAsstioa of ,,,,u.rvivLt1 to U.
ability of o.t.e 1Tvaat;eraer.t or
tl.:e other to rea1e a Erapertor
1 Aore attractive
vice tha4 slat ridord by its octitor.
vice Qouraisaion v, tilue
.!?ublic Cori-
iGas Co. (':.ont.)
The assessed v4luatioa of 1d of a gas coravoly 3.8
deprassed becauve of a
rrt-paridia$4 real ect ate.
rte
s
dtereutl ef:'ect
LliouiJ tlis affect tie v1e of
el*
226
Specia
Master ?off, of the United States D etrict
Court, Easternipistrict of New York, ?MS convinced that
the assessed valuation did not in sflY way rePreeent the
value of real estate an it WPP to be considered in 0
case and that it should be considered as land free of the
existinE structural j)ror,ferty of the company, no deduction
being =de for detriments. Witneeses tad based their see.
timate of value on comparison of value with other Land
trnlrlsitutted with relation to traneit facilities
,, existence of the gee
pl,nt. Kings County Litin Co. v. Prendergast (!ed.)
a.nd without consideration
Contrr,ctors pay hiLber wee-es than n rp,s company for
laying mains. 'Mich labor costs should be used those
of the contractors or those of the company in ascerta.nuii
re9rolnction cost of mine?
irk t
Special Master nurlingame accepted an estimate in
hich the labor cost of coiltractors was used. Tig remsous
were thPt the money .-rnE:es naid by the com2pny did not
mensure the full co,)engt5on received br the emoloyees.
The lttter were paid Ile they were ill, they were insured aid received other benefits. Then the estimator's
approach to the. task was not from the viewpoint of the
company ',Jut from that of a contractor, for which reason
he assumed the curreqt labor rices pair by contractors,
which he ma4e a conscientious ffort to ascertain from
contr:otors employing similar labor in the vicinity of the
226
territory.
The coi
eu.ployees were in
n
steady
amployment, which aided it to receive and hold labor at
mtes somewhat under Uose usually Paid by contractors
who conic only °Ler irregular work. Brooklyn Borough
Gas Co. v. Prendergast (Fed.)
.1vt allowance sl,oula be do .or pvin:41Ter 4,4141
ia
rte w.,,,,41Aatid4?
The U.csouri COWaEXit70-; holds tht the ;...11owanc
zhoulu be liraited to 1;1 e ariLinal cost.
i,l'arainam Goodtg
v. Lac3de Cc it Co.o.)
It coot a,as coiapany a
su:,-.1 to build
it2 lneidental b..tei.iless of :.,i,),d1yi416
hou
tl,is cost be csiiered i.
of it
a.01iiuceS,
fixia, the .4oin6 walla
b,IsiaerzCi
IL a 1.;Le'rz. YorX er1 CoIrt ce 2,pecit,1 str Bur.
that .3...tch ex,deLise sho..ild be ornsidered. BO
2aid that, f oo4r3e, ocaivany doe:i aot av cmom0
04 of 1;ile s;:de of 4'
ter-..itory as It has
of e sLie of
eIsewLere; in
They iaay be
0: o4t of the zorritory. ..'oz.,sibly not %11 of tile apdll
wvIld
purcLased of tt-e covany. There was 30
evtuoe ofore the :aster of t r:;dortoll, of ffadhapui
.;
)1i:Inces
fact Itohaf-)ed of t'..-Ae o,2,3X-AY d vht
roportf..oa ware r,urchaced oC others. 13ut %Lich fact as
,
;2.4ot to 'oe
not the det
atiorA of
for tie question was
Colipany's cost but the lora
227
of , go rILI tv.lue. Certainly, o ntinued the Master, ne
oonpl,ny could await the initiativ, of its )rospootive cue*
tomers nor the efforts o others to sell ppliances before
Aoinz business. It would hu.ve to roly upon its own f
forts :Ind not those of otherse flntil the district was
)11 with ;_a:Yitz-znces
ccrild bc iG:In business.
The c',..nroway would, hztv-
fter
e.)*()
lo:.liness very
rep-red to stald the cost
-.).,nd oe
m'a rzotrUykO
its profit out
Of-3
of the emis of a.1:1,
1,1uiptn of t::.1 list lot TYith
,coessarily am3,1t the
-)15..ances to use it. The
xtit towhich
thou,i; t that Irre :ective of th
the ex.,)p-,-)se of ths ap)lience b..isiness had beell inc:Luded
03rit1ric, costs,
anci 1:1esca-Aloble ber-ri'a
vr:1111 ,177.1tch
rt Ivas to be
,ortc.:.:t,
.L":1t
:01
ac
'17
Iccessful,
1-.1:.,.(1
.1 (lie
ft
or itself
Q1t 1orts,st
f?,0torr, i
ttiot flly e-,11.2:)ed With r.221iT-.. ,nce,s in the (7,uickest possible thne. roolc1yn 13orolaL-71 c Co. v. Prendergaet (Fed)
Is the ost of -raislik!,
!Iainfl to
loint
corn to steet ,7:rn.desi. pro
ch
eto t'-'e capite.1
c,coolint?
This qlestion arose
bofo-e the 1:ise<Alri
00/1T1/18- /071. One encineer excladed the cost on tl.e theory
th..y,t the exlenditures did,Inot
t,-, the value of
228
the pjoperty, *bile auother iecluded the cost om the
theory that the expeuditure was neoesmsry hicuh ne
fault or derelictioe ou the pnrt of the cOmpanY to meet
the requirements of city ordiaa4ces providing for change*
in street grades, and that such expenditure was not an
operatine, expense.
The Comr.hission poiateU out that in Re
*or1. R. Co., it La.d treated the ext.:a coat of 6r4ding
,in the tr4.1.e4aewude .ecesso.'ry to c,:aform to aewly estshed street rudes us a proe r che to QJ.i4tt.1
count
i...714
x,ha_t the dioa of the clozit a
and
te aewly e4tbliohed street
lbfu2ri-nei tia4
,,rades at:Quid be no (U.:fere:J. frOm tbe dispoeition of the
trucks to 00411*
QOBT
form to aewly otbisL.o1 stre t trades. It, thererore,
crcjth,-t the cost shoulu -e eh_red to o:.,e4ta.1
Gooas 1,4. co. v. LE,.oiede
Lii.oht CO,
(U0.)
Tf.1131.4404.I
:44.411
44unia preeerty used ay :1 teleAioae coeLay la its
iacluded lu the
10 41-reE2
rate O-Ise?
GoluEfein LOIissioa
The Diatriet
it A4U z.*,,r.ioi.--,,ttve of the serviceaared
eoail4i.Jyrie zialo tud
Lt Whil*
telePh
A.4Cauiksrt4,,Jt to the peo.n.
pie o;:, the jistric Of 0014i3eia, it ez...s of
«net Ise ,drolJerty therei;1
a,A, be i-1,014dedt nlickwr
22
the lt.,r as property used and u efUl for the telephone
business. It wv..0 stated that a LAmilar radio eerviOe
maintained. in Neel'ork City by the AmeriOan Tele. one
Company and not by the New Toxx Telephone Comp4ny,
Re.
Ctesapke and P. Teleph. Co. (D.C.)
A telephone coy,any )etitions the Co ton for perm
mission to purchure other telephone prce7ty. Vhfit fund
mentrl questions murt the Cowisrion CG:.tider befc.re
rrentirc the sppliationT
The Indians ComoArrion holtu
cvestf,ons murt he Fnrrered.
th
t ti. rce fundent0.
(a) 17z..:11.,le of the Telephone
eyrte:',E. ttld prc.erties scueht to te sold id i)urchered.
(b) The reescLebleese cf the fiaanciel etruett.Lre crc..
posed. (c) rbether the proposed coneclidation Till be
bereficiel to telechone -atroLc, rt Astoote.ted Telenh.
00. (TLC...)
h!:tr an unusually laree aalount of
interior (ecorat1en. Should any defl.:.ction be ire in vaa
A telerl.,cre
/..ition or the 2round of ext-vagarcel
This cuestion c .2.e up 'in a case before tile Vire nie.
Yo evidence, boTever, was iotroduced to allow
the difference lo'cost etree V:le interior fiLdshine
ComTiesiOn.
actually used, and cheaper ma,terials. The Co:ission
therefore, altboue-A nakine, no deduction for thi investment, expressed its disappobotion
the nonuti itarian
ornamentation of )ublio utility buildinee. Re Chesapeake
230"
T le0h. Cu. (Vs.)
The question raised in this case although
not decided, is a very ntereeflu One. The question which
Note.
comes up in Vr1oue forms is, how far does Commission pais
isdiotion extent:toyer matters which are ordinarily left
to the isoretion of the management of the companies/Ths
Qoulmissions have the power to regulate but they are UeVerw.
theless not the managers of utility property. The owner*
still have something to say aovut what Shall 0. done. Ola
t e other hand the rate payers have some rights. The ail
is that rates must be reaeonable. The owners oanuot go
far as they please lu mAiu iuveutmeutsp and perhape
evea ia the excessive oruameutatioh of their building It
s difficult to draw tne i as. The courts would pro0abl7
say that the orientatwa
Oaild140 is 4 matter within the disoretiou of the mauagemeutp not to be interfered
with uy a (;omaission U04086 tam bets 00041 an aouse of
roast:wan-le diaoretiou on the part of tue management. This
seeins to óe the first ti e twat the question of nanutill
tarian o hamentation of puolio utility ouilding has come