
    Village of Celina v. Public Utilities Commission of Ohio.
    
      Public utilities commission — Valuation in determining gas rate — Old transmission main properly included, when— Expert opinion as to probable life of new field, — Commission justified in accepting its engineer’s valuation as true valuation, when — Reproduction value — Reasonable allowance for organization and other expenses properly included — Net earning of 8 per cent plus upon valuation not unreasonable.
    
    (No. 20275
    Decided May 25, 1927.)
    Error to the Public Utilities Commission.
    This cause comes into this court upon a petition in error from a final order of the Public Utilities Commission, fixing rates and charges for natural gas service to the village of Celina, Ohio.
    The West Ohio Gas Company is a distributing company, and owns a transmission line extending from a point in Mifflin township, Wyandot county, Ohio, by way of the municipalities of Kenton, Lima, Cridersville, Wapakoneta, and St. Mary’s, to Celina. It purchases its natural gas from the Ohio Public Service Company of Ohio, for which it is under contract to pay 55 cents per 1000 cubic feet, and supplies such natural gas to all the municipalities above named. It also manufactures artificial gas at a plant in the city of Lima, with which it augments or is prepared to augment its supply of natural gas purchased from .the Public Service Company.
    The village of Celina consumes an average of 26,000,000 cubic feet of gas per year, which is distributed to it by the West Ohio Gas Company.
    On the 13th day of December, 1925, the West Ohio Gas Company filed with the Public Utilities Commission its proposed schedule for increased rates and charges for natural gas, as follows: For the first 400 cubic feet or less, per month $1.25; for the next 9,600 cubic feet at $1.15 per 1,000 cubic feet; for the next 15,000 cubic feet at $1.10 per 1.000 cubic feet; for all over 25,000 cubic feet at $0.90 per 1,000 cubic feet; to take effect February 1, 1926.
    At the same time the West Ohio Gas Company filed the same schedule for the village of Wapakoneta and the village of St. Marys, each of which accepted the schedule.
    On January 12, 1926, the council of the village of Celina passed an ordinance to regulate the prices to be charged for gas in that village for a period of five years, as follows: For the first 1,000 cubic feet or less, $0.90 per month; for the next 4,000 cubic feet, $0.85 per month; for the next 5,000 cubic feet, $0.75 per month; and all over and above 10.000 cubic feet, $0.70 per month.
    The West Ohio Gas Company appealed from the ordinance to the Public Utilities Commission.
    On March 23, 1926, a motion to strike from the files of the commission the West Ohio Gas Company’s schedule of December 13, 1925, was sustained.
    On July 13, 1926, the Public Utilities Commission fixed a tentative valuation of the West Ohio Gas Company’s property, used and useful, for the convenience of the public of the village of Celina, as follows:
    Reproduction Present
    Value. Depreciations'. Value.
    Joint used property ______ $126,341.47 $44,140.79 $82,200.68
    Land _________________________ 400.00 400.00
    Buildings _________________________ 4,023.00 1,345.00 2,678.00
    Apparatus and contents ____________________________ 2,262.94 189.29 2,073.65
    Distribution system ______ 75,421.50 20,509.05 54,912.45
    $208,448.91 $66,184.13 $142,264.78
    Organization, interest, engineering, law expenditures, taxes and general expenses during construction, and contingencies and omissions 14,591.42 4,632.89 9,958.53
    Materials and supplies .... 800.00 800.00
    Working capital _____________ 2,556.00 2,556.00
    $226,396.33 $70,817.02 $155,579.31
    The village of Celina filed a protest to such valuation, a hearing was had and evidence received, and on November 26, 1926, the tentative valuation of July 13, 1926, was made final. Applications for rehearing were made, both by the village of Celina and by the West Ohio Gas Company, and were heard and overruled.
    On December 26, 1926, the Public Utilities Commission found the cost of service in the village of Celina to be $31,970.80, per year, and the cost per 1,000 cubic feet of gas delivered to be $1.2296, and that the gross income from said schedule would be $39,189, and the net income would be $7,219, and by consent of the West Ohio Gas Company adopted the same schedule of rates and charges that were filed by the West Ohio Gas Company on December 13, 1925, as just and reasonable.
    The village of Celina filed an application for rehearing of the schedule of rates and charges, and January 5, 1927, the commission overruled its application.
    Error is prosecuted here from the final order fixing the rates and charges as hereinbefore indicated.
    
      Mr. J. D. Johnson, city solicitor, for plaintiff in error.
    
      Mr. J. H. Goeke and Mr. H. 0. Bentley, for defendant in error.
   By the Court.

The correctness or otherwise of the finding of the commission that the rate as filed by the West Ohio Gas Company as of December 13, 1925, and upon hearing finally adopted by the Public Utilities Commission as a reasonable and a lawful rate, is in fact reasonable and lawful, depends upon the correctness or otherwise of including, as a rate-fixing basis, a proportion of the value of the transmission main between Mifflin township, Wyandot county, and the village of Celina, in the valuation of the property used and useful in supplying natural gas to the village of Celina.

It is conceded by counsel for the village of Celina that for many years its exclusive source of supply of gas was through this transmission line; but it is contended that, since a new field has been discovered in the vicinity of the village of Celina, and gas is now being supplied to it by the West Ohio Gas Company, by purchase from the Ohio Public Service Company, largely from the new field, it' should be relieved from all the burden of the transmission line, which had theretofore been its only source of supply.

That the Mifflin township transmission line is now and at all times has been in service to the village of Celina is conclusively shown by the record; but the necessity for its being continued in service for the village of Celina is seriously questioned by the evidence, which strongly tends to prove that, if all the variously owned wells in the new field were connected with a transmission line, and the gas therefrom conveyed to the village of Celina, more than a sufficient supply of gas could be supplied for the village from that field for the time being. The weight of the evidence, however, is to the effect that the new field has not the indications of being of such durability and dependability as to justify reliance upon it alone for a supply of gas for the village. True, the evidence upon the subject of the probable life of the new field necessarily was opinion evidence, by witnesses more or less qualified to testify as experts; but that character of evidence, being the best and only evidence practicably obtainable, is not without probative value. In our opinion, the weight of the evidence shows such an uncertainty as to the probable life and durability of the supply of gas in the new field as to warrant the conclusion that it is unwise at this time to abandon the service through the Mifflin township main, and, therefore, that the inclusion of the proper proportion of the value of that line as a rate-making basis was not error.

The evidence also discloses that the West Ohio Gas Company is now equipped with a plant for the manufacture of artificial gas of a capacity sufficient to supply any deficiency which may occur in the natural gas supply, in the transmission of which to the village of Celina it will be necessary to use the Mifflin township transmission line.

The evidence discloses such a wide divergence of opinion upon the subject of the reproduction value of both the transmission and distribution systems, that, were it not for the fact that the Public Utilities Commission through its own engineer made an independent valuation, it would have been very difficult for the commission, even with its superior knowledge of such subjects, to make a valuation in any way approximating accuracy, and impossible for this court to do so.

The West Ohio Gas Company filed a detailed reproduction valuation of its distribution system in the village of Celina and of its transmission’system’ from the Mifflin township field to the village of Celina, and allocated to the village of Celina such proportion of the transmission system as the use of that line by the village of Célina bore to the whole use of the line by the various consumers along the line, a summary of which valuation is as follows:

Final Summary.

Reproduction Cost New as: .of January. 1, 1026.

Jointly used property __________________________________________________ $293,588

Land _____1_______________________________________________________________________ 476

Buildings ________________________________________________________________________ 3,239

Apparatus and contents 1________________________________________ 2,298

Distribution system .......................... 134,133

Total — Physical property ---------- $433,734

Working capital _____________________________________________________________ 3,957

Materials and supplies' ___________________________________________ 1,886

Going value ___________________________________________ 19,120

Subtotal _____________________________________________________________ $458,697

Investment banker’s services ________________________________ 22,935

Total _____________________1____________________________________________ $481,632

The village of Celina did not make a detailed reproduction valuation, but contented itself with attempting to prove in a general way that the reproduction valuation of the West Ohio Gras Company was too high, and with attempting to prove that the present value of the two systems, by reason of the number of years each of them has been in service, is little or nothing, and especially that the distribution system, by reason of its having been originally of steel construction, is now substantially rusted away and is serviceable only by reason of the fact that the soil underlying the village is of such character as to reinforce the rusted out system, and but for that fact the mains would not retain gas at all.

In this situation, the Public Utilities Commission, having made a valuation of its own through one of its engineers, and neither party having availed itself of the privilege of cross-examining such engineer (Lindsey v. Public Utilities Commission, 111 Ohio St., 6, 144 N. E., 729), adopted that valuation. That valuation having been made by a disinterested person, a person of the commission’s selection, and that valuation having been neither as high as the valuation of the West Ohio Gas Company, nor as low as the valuation of the various citizens of the village of Celina, in so far as they attempted to make a valuation, we are of opinion that the commission was justified in its conclusion that the valuation of its own disinterested engineer carried more weight and probably more nearly expressed the true valuation than any of the other evidence upon the subject; that it was the character of evidence which carried to the minds of the members of the commission the greater conviction, and therefore overbalanced by its weight all other evidence.

Upon the subject of depreciation, the engineer of the commission depreciated the distribution system approximately 27 per cent, and the jointly used property approximately 35 per cent. The evidence is not in dispute as to the fact that both systems have been in use many years, probably 38 years; but the evidence does disclose that both systems have been constantly in use and have been constantly repaired, so that much of the original construction has been replaced by new pipe. Having in mind the date of the original construction, and the probable extent of reconstruction, we are of opinion that the transmission line might well have been depreciated a greater per cent, from the new production value. Without determining the per cent, it should be depreciated, but for the purpose of computation only and for the purpose of determining whether the rates and charges are too high in any event, we will depreciate it 50 per cent., making that portion of the transmission line allocated to the village of Celina of the present value, for this computation for rate-making purposes, of $63,170.73.

With reference to the distribution system, the village of Celina, through its counsel, makes no complaint of the valuation of the land at $400. It does complain of the valuation of the buildings at $2,678, and places the overvaluation at $1,000. For the purpose, therefore, of this computation only we will figure that valuation at $1,678. It complains that the item of apparatus and contents, valued at $2,073.65, is one-half too high. For the purpose of this computation we will figure that item at $1,036.82. It complains that the reproduction valuation of the distribution system at $75,-421.50 is $10,000 too high. F,or the purpose of this computation we will figure that valuation at $65,421.50. It complains that the depreciation to present value should be 75 per cent, instead of 27 per cent. We are of opinion that the depreciation of 27 per cent, was not sufficient, and, without determining the per cent, it should be depreciated, but for the purpose of this computation, we will figure the reconstruction value as found by the commission’s engineer, less $10,000, and then less 75 per cent., which leaves the present value at $16,355.37. It complains of an item of 18,742 feet of reserve mains, valued at $6,091.95. For the purpose of this computation we will subtract that sum from the present value of the distribution system, leaving the present value at $10,355.77.

It complains of the items, “organization, interest, engineering, law expenditures, taxes and general expenses during construction, and contingencies and commissions, present value, $9,958.53; material and supplies, present value, $800; working capital, present value $2,566,” and contends that these items should be wholly eliminated.

The Supreme Court of the United States, in the case of Ohio Utilities Co. v. Public Utilities Commission of Ohio, 267 U. S., 359, 45 S. Ct., 259, 69 L. Ed., 656, reversed a judgment of this court eliminating similar items; and, since the record affords no basis upon which we could arrive at any other figures than the ones found by the commission’s engineer, we decline to guess upon the subject and will include them at the figures found by the commission, in this valuation.

After the above reductions, there still remains a total valuation of the property used and useful in supplying gas to the village of Celina of $89,965.52. The Public Utilities Commission found that the rates and charges fixed by it would produce a net earning to the West Ohio Gas Company, per annum, of $7,219, which finding is fully supported by the record. That earning upon a valuation of $89,965.52 would be 8 per cent. plus.

We therefore reach the conclusion that, since we do not feel justified in wholly eliminating the transmission line from the valuation, the schedule of rates and charges fixed by the Public Utilities Commission in any event is neither unlawful nor unreasonable, for the reason that, if we were to reduce the valuation in the respects and to the extent claimed by the village of Celina, the rates still would not permit the earning of more than a just and reasonable return upon the value so reduced of the property used and useful.

We therefore affirm the order and finding of the commission fixing the rates as filed with it under date of December 13, 1925, as the just and reasonable rates.

Order affirmed.

Marshall, C. J., Day, Allen, Kinkade, Robinson, Jones and Matthias, JJ., concur.  