Borough of Lewistown v. Public Service Commission

Opinion by Keller, J., On May 29, 1920, the Lewistown-Reedsville Water Company filed a new schedule of rates effective July 1, 1920. Complaints against the reasonableness of the new rates were filed prior to the effective date. These were consolidated and heard together. The commission found the fair value of the company’s used and useful property to be one million dollars, and allowed seven per cent per annum as a fair return thereon; it also allowed an annual depreciation of $7,500 and operating expenses 'of — 531 — $19,500, which entitled the company to a total gross annual revenue of $97,000. As the gross revenue in 1921 under the new schedule was $107,662, and for the last six months of 1920, $58,207, the commission sustained the complaints and ordered the respondent to file a new schedule of rates designed to produce a gross revenue of $97,000. This was in addition to the revenues to be derived from the Viscose Company, a newly located establishment, which contemplated using a large amount of water, but which would necessitate the building of new lines and, perhaps, the installing of new pumps, with a considerable capital outlay, the net result of which was somewhat' problematical. It was, however, ordered that the company furnish the commission an itemized statement of its operating revenues and expenses for the first year after the revised schedule went into effect, keeping separate account of the revenue received from, and the cost of rendering service to, the Viscose Company, as well as any improvements made or contemplated to the property, so that the schedule might be corrected by the commission if deemed just and proper to do so. The complainants appealed. The assignments of error raise a number of questions which we will discuss in the following order: 1. The elements proper to be considered by the Public Service Commission in ascertaining and determining the fair value for rate-making purposes of the property of a public service company are enumerated at some length in section 20 (a), article V, of the Public Service Company Law and have been considered in decisions so fully and recently, (Ben Avon Boro. v. Ohio Valley Water Co., 68 Pa. Superior Ct. 561, 577; Beaver Valley Water Co. v. P. S. C., 76 Pa. Superior Ct. 255, 259; Scranton v. P. S. C., decided by this court April 16, 1923, (October Term, 1921, No. 152, 80 Pa. Superior Ct. 549), that it is not necessary to mention them here in detail. It suffices to say that the commission is not restricted to an allowance of a fair return upon the amount of capital actually — 532 — invested by tbe owners, exclusive of borrowed money used in the construction of tbe plant, as contended by appellants. Brymer v. Butler Water Co., 179 Pa. 231, is not authority for any sucb doctrine, as appellants suggest, but if it were, it would have to give way to tbe Public Service Company Law. In tbe Brymer case it was said: “The cost of tbe water to tbe company includes a fair return to the persons who furnished tbe capital for tbe construction of tbe plant, in addition to an allowance annually of a sum sufficient to keep tbe plant in good repair and to pay any fixed charges and operating expenses” (p. 251). This was a declaration of tbe principle that a public service company is entitled to a fair return upon its property, but was not a fixing of tbe standard of value on which sucb fair return was to be based. This was recognized in tbe decisions following it. In Penna. R. R. Co. v. Phila. County, 220 Pa. 100, 115, it was said, (citing the Brymer case), that tbe elements to be considered in fixing sucb fair return or profit should include “tbe original investment, tbe risks assumed at tbe time, tbe returns as compared with other enterprises as nearly similar as may be, tbe cost of maintenance and improvement, tbe prospects of increase and tbe present value in view of tbe preceding elements.” And in Turtle Creek Boro. v. Penna. Water Co., 243 Pa. 401, 414, tbe court said: “Tbe rates must not be confiscatory and they must be sucb as to yield a fair return upon a just valuation of tbe plant.” Original cost is but one of tbe factors to be considered in tbe determination of tbe fair value of a public utility for rate-making purposes and is not controlling in arriving at sucb value: Mercersburg Elec. Co. v. P. S. C., 76 Pa. Superior Ct. 58. It may be more or less than tbe fair value. If tbe construction was reckless or improvident it would be too high; on tbe other band it might be less than tbe company was entitled to. Tbe true rule is that tbe company is entitled to a rate which will allow a just and reasonable return on tbe present fair value of its property used and useful in tbe public service: Tbe Min — 533 — nesota Rate Cases, 230 U. S. 352; Willcox v. Consolidated Gas Co., 212 U. S. 19. 2. Appellant admits that there was competent and substantial testimony produced before the commission on which to. base the findings of fact and order of the commission, but asks this court to disregard such findings and on its own independent judgment as to the law and the facts in evidence make its own findings as to the fair value of the water company’s property and the annual gross revenues which it is entitled to receive. We do not understand that such is our province in the status of this case. No question of confiscation is raised in this appeal, but only whether the order of the commission is reasonable and in conformity with law. In such circumstances the duty of this court was stated in Lansdowne Boro. v. P. S. C., 74 Pa. Superior Ct. 203, 209, as follows : “In reviewing the order of the commission it is not our province to substitute our judgment as to the rates to be charged for that of the commission or usurp administrative functions committed to it. Power to make the order and not the mere expediency or wisdom of having made it, is the question. The order of the commission in the premises is final unless (1) beyond the power which it could constitutionally exercise; or (2) beyond it's statutory power; or (3) based upon a mistake of law; or (4) the result of the commission’s having arbitrarily fixed the rates contrary to evidence, or without evidence to support it, or in a grossly unreasonable manner.” It is true that this statement of the law was based on the opinion of the Supreme Court in Ben Avon Boro. v. Ohio Valley Water Co., 260 Pa. 289, 297, and that decision was reversed by the Supreme Court of the United States in Ohio Valley Water Co. v. Ben Avon Boro., 253 U. S. 287, but' the basis for the reversal was stated in the following extract from the opinion: “The order here involved prescribed a complete schedule of maximum future rates and was legislative in character. (Citations) In all such cases, if the owner claims confiscation of his — 534 — property will result, the State must provide a fair opportunity for submitting that issue to a judicial tribunal for determination upon its own independent judgment as to both law and facts; otherwise the order is void because in conflict with the due process clause, 14th amendment” (p. 289). Following that decision the Supreme Court of Pennsylvania decided that this court was the judicial tribunal to determine upon its own independent judgment as to both law and facts whether such legis-. lative order resulted in confiscation: Ben Avon Boro. v. Ohio Valley Water Co., 271 Pa. 346, 350. We do not understand from this, however, that where the question of confiscation of property is not involved the rule laid down by the Supreme Court in 260 Pa. 289 has been /.abrogated or disturbed. We are not aware of any authority, prior to the Public Service Company Law which conferred upon a rate payer the right to challenge a rate fixed by the legislature on the ground that it was too high. A statutory enactment fixing the rates of a public service company could only be held invalid by the courts of this State if it was so unreasonable as to be confiscatory of the company’s property or to work injustice to the corporators: Penna. R. R. Co. v. Phila. County, supra, p. 114; and this, in effect, amounted to confiscation. The Public Service Company Law gives the rate payer the right of appeal from the orders of the commission, but the scope of the inquiry in such circumstances is limited as before stated. The contention of the appellants on this point has, since the argument, been considered exhaustively by Judge Porter in Scranton v. P. S. C., supra, and decided against them. 3. The same principle applies with respect to the commission’s findings and order as to operating expenses. They were not determined arbitrarily or in a grossly unreasonable manner, but are supported by substantial evidence; and our attention has not been called to any item allowed contrary to law. — 535 — 4. We are not satisfied that the commission erred in allowing for the Reedsville reservoir, though not now in use, as a reserve or potential asset of the water company to be considered in fixing the valuation for rate-making purposes. It would seem that a reservoir, which, though not now actually operated, may, at times, be utilized in the public service, is useful as a reserve, and may be considered of some value in estimating the rate base. The allowance made by the commission for such present rate base, of fifty per cent of its reproduction cost does not in the circumstances appear unreasonable. 5. The commission did not totally disregard the original cost of the plant in determining the fair value of the respondent’s property for rate-making purposes. On the contrary, it fully considered the estimates made by both complainants’ and respondent’s engineers as to the original cost, but as complete records were not available and the figures submitted were merely estimates, concluded that they did not furnish an accurate statement of original cost which could be used in determining fair value. We see no error in this. See Beaver Valley Water Co. v. P. S. C., 76 Pa. Superior Ct. 255, 260. The remaining questions raised by the assignments of error do not merit special consideration. The order, in our opinion, is reasonable and in conformity with law. As to the contention of the intervening appellee that the order of the commission is not final and the appeal is, therefore, premature, the Public Service Company Law; does not limit appeals to this court to “final orders” of the commission, but to such as dismiss the complaint or direct the company to satisfy the cause of complaint in whole or to such extent as the commission may specify: article YI, sections 10 and 17; Citizens Pass. Ry. Co. v. P. S. C., 271 Pa. 39, 48, 49, 50. The order appealed from was of such a character. The appeal is dismissed and the order of the commission is affirmed at the costs of the appellant.