Murray v. Public Utilities Commission

MCCARTHY, District Judge. — The petitioner, James A. Murray, as the Pocatello Water Company, made application in June, 1913, to the Public Utilities Commission of the state of Idaho, for an increase of rates to be charged for water supplied to the city of Pocatello and its inhabitants. 'Upon the hearing the city of Pocatello was permitted to intervene and appeared to contest the application. Hearings were had before the commission at Pocatello and Boise, and a considerable amount of testimony was taken, which was transcribed for the use of the commission, and the same is now on file in this court. In addition to the testimony introduced at the hearing, the commission employed an engineer, Mr. A. J. Wiley, to investigate conditions and report. On the order of the commission, Mr. W. H. Miller likewise visited Pocatello and spent some time in going over the books of the company. Upon the testimony thus obtained, the commission rendered a decision on April 14, 1914, which, with orders accompanying it, was duly entered in order book No. 1 of the commission, at page 78. This decision and order are a part of the record in this court, marked exhibit “E.” The case is heard in this court on writ of review issued upon the petition of James A. Murray. The order of the Public Utilities Commission, in question, directs the petitioner to begin without unreasonable delay and continue without unreasonable interruption the construction of certain extensions and additions to its system or plant. The portion of the order in question is to be found on pages 80 and 81 of exhibit “E,” and reads as follows: “It is hereby ordered, that the petitioner begin without unreasonable delay, and continue without unreasonable interruption, the construction of a pipe-line from Mink creek, of sufficient size and capacity by which all of the present — 616 — supply of said creek not now diverted by petitioner may be conveyed froiñ said Mink creek to the reservoir or reservoirs of plaintiff’s system situated upon the ‘bench’ above the city of Pocatello so that the same may be completed during the present year of 1914; the said pipe-line to be, 16 in. riveted steel from Mink creek to Gibson Jack creek, and from Gibson Jack creek to petitioner’s upper reservoir at a sufficient distance from the present pipe-lines to be independent of them, and to be equipped with effective blowoff valves and automatic air relief valves, and when completed to have an actual measured capacity of not less than 3.25 second-feet from Mink creek to Gibson Jack creek, and an actual measured capacity of not less than 4.50 second-feet from Gibson Jack creek to the upper reservoir.” The order also fixes the rate which is to be charged by petitioner for supplying water to the inhabitants of Pocatello. The portion of the order which fixes the rates is to be found at page 84 of exhibit “E,” and reads as follows: “It is further ordered, that petitioner, within 30 days after the date hereof, file with the commission its Supplement No. 1 to its Schedule of Rates now on file with the commission, designating as P. U. C. I. No. 1, the said supplement to amend Item No. 35 on page 1 of said schedule, so as to read: “ ‘House or private residence, 5 rooms or less, $1.00 per month. “ ‘Each additional room, ten cents per month.’ “Immediately upon the filing of said supplement, the said schedule, P. U. C. I. No. 1, and the said supplement, shall become and remain the schedule of rates which the petitioner shall charge and collect for the service therein set forth until further ordered in the premises.” The main specifications of error relied upon by the petitioner are the following: First, that in determining the value of the plant as a basis for fixing rates the commission erred in failing to include the following elements: “going concern,” franchise, water right, paving over mains and hydrant connections, office fur — 617 — niture, horses, wagons, tools and materials on hand, and cost of improving ground around reservoir: Second, that the commission erred and exceeded its authority in ordering the extensions and additions to the plant and system of the petitioner. The section of the so-called public utilities statute (Sess. "Laws 1911, p. 268), which confers power upon the commission to fix rates, is as follows: “Sec. 30. (a) "Whenever the commission, after a hearing had upon its own motion or upon complaint, shall find that the rates, fares, tolls, rentals, charges, or classifications, or any of them, demanded, observed, charged or collected by any public utility for any service or product or commodity, or in connection therewith, including the rates or fares for excursions or commutation tickets, or that the rules, regulations, practices or contracts of any of them, afiecting such rates, fares, tolls, rentals, charges, or classifications, or any of them, are unjust, unreasonable, discriminatory or preferential, or in anywise in violation of any provision of law, or that such rates, fares, tolls, rentals, charges, or classifications are insufficient, the commission shall determine the just, reasonable or sufficient rates, fares, tolls, rentals, charges, classifications, rules, regulations, practices, or contracts to be thereafter observed and in force and shall fix the same by order as hereinafter provided, and shall, under such rules and regulations as the commission may prescribe, fix the reasonable maximum rates to be charged for water by any public utility coming within the provisions of this act relating to the sale of water.” Under this section, before lowering a rate the commission must find that it is unjust or unreasonable. Before raising a rate, the commission must find that it is insufficient. Upon finding that a rate is discriminatory, preferential, or in anywise in violation of law, the commission may change it so as to correct or eliminate the objectionable feature. In fixing any rate, the commission must make it just, reasonable and sufficient. In doing this the commission must consider impartially the rights of both the patrons or consumers and the — 618 — proprietor of the utility. The rate fixed must be a fair one to the consumers, but it must also be sufficient to1 assure the proprietor a fair and safe return on his investment, and to encourage rather than discourage investment in public utility enterprises in the state. The function of this court in reviewing an order of the commission is defined by the act as follows: “Sec. 63. (a) [Sess. L. 1913, 286.] .... The review shall not be extended further than to determine whether the commission has regularly pursued its authority, including a determination of whether the order or decision under review violates any right of the petitioner under the constitution of the United States or of the state of Idaho and whether the evidence is sufficient to sustain the findings and conclusions of the commission. The findings and conclusions of the commission on questions of fact shall be regarded as prima facie just, reasonable and correct. Such questions of fact shall include ultimate facts and the findings and conclusions of the commission on reasonableness and discrimination.” In speaking of the same matter, in the case of Idaho Power etc. Co. v. Blomquist, 26 Ida. 222, at 256, 141 Pac. 1083, this court said: ‘ ‘ This court is there given substantially the same authority in reviewing such orders as on appeal. It has the same record before it that the commission had and may determine whether the evidence is sufficient to sustain the findings and conclusions of the commission, and in so doing must weigh the evidence. ' It may decide whether the orders of the board are unlawful or whether they violate a right of the petitioner under the constitution of the United States or the state of Idaho, and whether the evidence is sufficient to sustain the findings and conclusions of the commission. It will thus be seen that this court is given ample power to review the orders of the commission and to correct any mistakes that may have been made.” This court is of the opinion that the rule of cost of reproduction less depreciation, adopted by the commission, is the correct general rule or principle to be applied in this class of cases. However, we believe that in ascertaining values in — 619 — this way the worth of a new plant of equal capacity, efficiency and durability, with proper discount for defects in the old, and the actual depreciation for use, should be the measure of value, rather than the cost of exact duplication. So far as the question of depreciation is concerned, we think deduction should be made only for actual, tangible depreciation, and not for theoretical depreciation, sometimes called “accrued depreciation.” In other words, if it be demonstrated that the plant is in good operating condition, and giving as good service as a new plant, then the question of depreciation may be entirely disregarded. So far as the question of value of the plant as a basis for fixing rates is concerned, this court thinks that the most serious question presented is the question as to whether the value of the water right should be considered, and for this reason that question will be considered first. It is admitted in the decision of the commission that.the commission refused to place any value upon the water right of the petitioner, or to consider the value of his water right as an element in fixing rates, further than to consider the sum of $2,000, which the evidence shows was paid by petitioner to certain Indians who asserted a claim to the water in question. This court holds that the action of the commission in refusing to consider the value of the water right as an element, further than the payment of this $2,000, was error; following the decision of the supreme court of the United States in San Joaquin & Kings River Canal & Irr. Co. v. Stanislaus County, 233 U. S. 454, 34 Sup. Ct. 652, 58 L. ed. 1041, rendered on April 27, 1914. It is only fair to the Public Utilities Commission to note that this decision was rendered after the commission decided the present case. When the provisions of the constitution and statutes of this state relating to water rights are carefully read together, it is apparent that if one appropriates water for a beneficial use, and then sells, rents or distributes it to others who apply it to such beneficial use, he has a valuable right which is entitled to protection as a property right. (Secs. 1, 2 and 3, art. 15, of the Constitution; sec, 3240, Rev. Codes; Hard v. — 620 — Boise City Irr. Co., 9 Ida. 589 [76 Pac. 331, 65 L. R. A. 407], especially at pages 599, 600.) This right has been recognized in almost every adjudication of water rights by the courts of this state; the various ditch companies or carriers have often been parties, and their water rights have been recognized. To be sure, the person who takes water from the water company or carrier, also acquires a right to the use of it, dependent upon user and payment, but this does not alter the fact that the water company has a right. The supreme court of the United States, in San Joaquin etc. Co. v. Stanislaus County, supra, does not state any rules for ascertaining the value of such a water right. The value to be considered by the commission is the present, fair value of the water right at the time the rate is fixed. The original cost is not at all conclusive, if it can be shown that it now has a different value, although the original cost is, as in all cases, an element which may be considered. The present fair value should be determined by the best evidence of which the nature of the ease is susceptible. It should be measured by the fair market value of a similar water right in the locality, or a similar locality, if such can be established by satisfactory evidence. If no market value can be established, then the opinion of competent witnesses as to the actual value may be considered. In this respect the case does not present any exceptional features. The same rule is applied in the case of any property, real or personal. The fair market value is the usual standard; but, if it be shown that the property has no market value, then witnesses may testify to actual value, which is, of course, largely a matter of opinion. Because it is difficult to determine the exact value of a certain kind of property, it does not follow that the owner shall be refused the protection of the law. The fair present value of the water right is the ultimate fact to be found and considered by the commission and the court. Exactly what probative or evidentiary facts shall be considered, or what standard of measurement shall be adopted in finding that ultimate fact, will depend largely upon the facts of each case as it arises. We suggest that the expert engineers employed — 621 — by tbe commission, as well as those testifying for the parties, may render great assistance to the commission in deciding these questions in each case. Since we hold that the commission erred in this regard, the order of the commission must be reversed, so far as the fixing of rates is concerned. However, we think it best, for the guidance of the commission and parties, to express our views as to the other specifications of error relied upon by petitioner. If evidence is offered to show that certain expenses have been incurred in building up the business, then this may be considered by the commission as one of the elements under the head of “going concern value.” Further than this, we are of the opinion that the'commission should not attempt to calculate or segregate any specific theoretical value which attaches to the plant or system of the petitioner, by reason of the fact that it is a going concern, but that this fact should be considered in estimating the value of the physical property and assets of the petitioner. In other words, the question as to the value of petitioner’s property and investment should be treated, and viewed, by witnesses and by the commission, in the light of the fact that the petitioner’s plant and system are a going concern; that they are in actual, successful operation. On the record in this case we are of the opinion that it is not demonstrated that petitioner has a valid, existing franchise (See City of Pocatello v. Murray, 206 Fed. 72; Murray v. City of Pocatello, 214 Fed. 214), and that the commission was, therefore, correct in refusing to consider the matter of a franchise in its decision and order. It not being necessary to decide, for the purposes of this case, whether the value of a valid, existing franchise should be considered in fixing rates, we express no opinion on that question at this time. If, in constructing a new plant of equal capacity, efficiency and durability, it would be reasonably necessary to place or replace mains and hydrant connections at places where paving has been laid, then, we are of the opinion that, in accordance — 622 — with the general rule of valuation which we have adopted, allowance should be made on that account. If, on the other hand, in providing such a plant, it would not be reasonably necessary to place or replace mains and hydrant connections in places where such paving has been laid, but the mains and hydrant connections could be placed in other places to just as good effect, then, we do not think that such allowance should be made. So far as the office furniture, horses, wagons, tools, materials on hand and cost of improving ground around reservoir are concerned, we think that all of these items should be considered by the commission, if they represent an investment reasonably necessary to the successful carrying on of the petitioner’s business and the rendering of his service to the public; otherwise not. The section of the act (Sess. Laws 1913, chapter 61), which empowers the commission to order extensions or enlargements of a plant, reads as follows: “Sec. 34. Whenever the commission, after a hearing had upon its own motion or upon complaint, shall find that additions, extensions, repairs, or improvements to or changes in the existing plant, scales, equipment, apparatus, facilities or other physical property of any public utility or of any two or more public utilities ought reasonably to be made, or that a new structure or structures should be erected, to promote the security or convenience of its employees or the public, or in any other way to secure adequate service or facilities, the commission shall make and serve an order directing such additions, extensions, repairs, improvements or changes be made or such structure or structures be erected in the manner and within the time specified in said order.....” The use of the word “reasonably” is to be noted. Here again, in determining what is reasonable, the rights of both consumer and proprietor must be considered. In this connection the commission and court must bear in mind the provisions of our state constitution, that no person shall be deprived of his property without due process of law, and that — 623 — private property may not be taken for public use until a just compensation shall be paid therefor, as well as the similar provisions in the federal constitution. (Secs. 13 and 14, art. 1, Idaho constitution.) To compel the proprietor of a utility to make enlargements or extensions under such circumstances that he could not make a fair return upon his whole investment, would certainly be depriving him of his property without due process of law. In order to justify the commission in ordering enlargements, the commission should be satisfied from the evidence; first, that the existing plant is not reasonably sufficient to render adequate service (Washington ex rel. O. R. & N. Co. v. Fairchild, 224 U. S. 510, 32 Sup. Ct. 535, 56 L. ed. 863) ; second, that the extension or enlargement is within the scope of the original professed undertaking of the proprietor of the utility (Northern Pacific R. Co. v. North Dak., 236 U. S. 585, 35 Sup. Ct. 429, at 433) ; third, that after the making of the enlargements or extensions, the owner will be insured a fair return upon his whole investment (Smyth v. Ames, 169 U. S. 466-546, 18 Sup. Ct. 418, 42 L. ed. 819); fourth, that the particular enlargements or extensions are reasonably necessary to insure reasonably adequate service (Northern Pacific R. Co. v. North Dak., supra, and Washington ex rel. O. R. & N. Co. v. Fairchild, supra). As before pointed out, we are of the opinion that it is not demonstrated upon the record' in this case that petitioner has any valid, existing franchise from the city of Pocatello. An extension of the system cannot be ordered unless such an order would be reasonable under the circumstances. Under such circumstances we 'do not think that an order for the extension and enlargement of the plant is reasonable, and therefore hold that the commission had no authority to make such an order. The order of the Public Utilities Commission is reversed, and the cause remanded with instructions to the commission to entertain further proceedings in accordance with the views herein expressed. Sullivan, C. J., and Morgan, J., concur.