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U.S. Supreme Court

Dayton Power & Light Co. v. Public Util. Comm'n, 292 U.S. 290 (1934)

Dayton Power & Light Co. v.

Public Utilities Commission of Ohio

No. 609

Argued March 13, 14, 1934

Decided April 30, 1934

292 U.S. 290


1. In fixing the rates of a gas distributing company, the State is not bound to allow as operating expenses the full amounts paid for gas supplied the distributor under a contract between it and a closely affiliated seller, but may inquire into the reasonableness of the contract price. P. 292 U. S. 295.

2. To prove that a lower allowance, found reasonable by the state authorities, resulted in a confiscatory rate, the distributor in this case was under the burden of showing that, in its transactions with the affiliated seller, which was itself subject to rate regulation, the contract price was no higher than would fairly be payable in a regulated business by a buyer unrelated to the seller and dealing at arms length. Pp. 292 U. S. 295, 292 U. S. 308.

3. Where a gas distributing company claimed that a rate fixed by a State was confiscatory, upon the ground that the allowance made for purchase of its gas supply from an affiliated producing company and chargeable to its operating expenses was inadequate, and this question turned upon the value of leases of gas land held by the affiliate, which were appraised by the state authorities at more than book value, held that the burden of proving such appraisal so inadequate as to result in confiscation through its effect upon the rate was not sustained by evidence consisting (a) of testimony of friendly experts who gave widely variant estimates based on forecasts of production capacity and on the assumption that the product would be sold in an unregulated market, and (b) actual sales of other gas leaseholds in sporadic transactions, separate in chanroblesvirtualawlibrary

Page 292 U. S. 291

time and place, and at prices too disparate to supply a helpful test of value. United Fuel Gas Co. v. Railroad Comm'n, 278 U. S. 200. P. 292 U. S. 298.

4. Allowance for amortization and depletion of operated gas leaseholds and of the well structures and equipment used in connection therewith held not only adequate, but excessive, due to an overestimate of the value of such leaseholds and an underestimate of the life expectancy of the supply from the wells and from other sources not as yet tapped but available for the future. P. 292 U. S. 303.

5. Estimate made by the state commission of accrued depreciation of wells and equipment of the affiliated gas producing company, and allowances for maintenance of its other plant and for depreciation of property of the distributing company considered and upheld. P. 292 U. S. 305.

6. Any excess in estimated accrued depreciation of gas wells and equipment in this case is offset by excess in allowance for amortization and depletion. P. 292 U. S. 306.

7. "Delay rentals" paid by a producing gas company to keep alive leases of gas land held in reserve should not be charged to operating expenses when an annual amortization allowance makes provision whereby new leases can be acquired and paid for out of current earnings. P. 292 U. S. 306.

8. In deciding upon the reasonableness of a price for gas charged by a producing company to an affiliated distributing company, the state commission was not concluded by evidence of prices between producers and distributors in other cities when the prices were not uniform and the conditions affecting cost of transportation and delivery were not shown and, for all that appeared, the buyers and sellers were parts of the same system of affiliated companies. P. 292 U. S. 306.

9. The burden is upon the public utility to sustain the fairness of payments for the managerial service of an affiliated company, which it makes to the affiliate and charges to its own operating expenses, and which have been found excessive by the public ratemaking authority in fixing its rates. P. 292 U. S. 307.

10. Failure to make an allowance for going value in addition to the valuation of the assets upon the basis of a plant in successful operation, was not unreasonable or arbitrary in this case in view of the smallness of the company and the simplicity of its organization. P. 292 U. S. 308.

11. Refusal of a state commission to make allowances for conjectural organization or pre-construction costs, and costs of financing chanroblesvirtualawlibrary

Page 292 U. S. 292

the business, as part of the hypothetical expense of reproduction, held no ground for declaring rates confiscatory in this case. P. 292 U. S. 309.

12. Rate of return of 6 1/2% for a distributing gas company held adequate in view of business conditions judicially noticed. P. 292 U. S. 311.

13. When a gas company, resisting a rate reduction, adduces valuations purporting to show that the rates which it has been receiving and those which it seeks to put into effect, as well as the prices at which it buys gas from an affiliate, are all greatly below the level of a fair return, the argument proves too much, and the valuation are discredited by the test of experience, since, in the absence of extraordinary conditions, not proved to exist, business is not voluntarily transacted at confiscatory rates. P. 292 U. S. 312.

127 Oh.St. 137, 187 N.E. 18, affirmed.

Appeal from a judgment which affirmed an order of the Public Utilities Commission of Ohio by which a schedule of increased rates filed by the appellant Gas Company was stricken and the Company was enjoined from putting it into effect.

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