[U.-1920] IN RE APPLICATION OF THE PLANK ROAD TELEPHONE COMPANY FOR AUTHORITY TO INCREASE RATES Decided April 30, 1920 MEMORANDUM OF DECISION Applicant, Plank Road Telephone Company, was originally organized as a farmers' mutual company, but in order to accommodate certain people who desired service, telephones were installed for rural parties who were not stockholders, who are charged the rate of $13 per year, stockholders being assessed to meet expenses. Applicant seeks to increase this rate to $15 per year. Applicant has no exchange of its own, but is connected to the switchboard of the Plymouth Telephone Company, which performs switching service for $3 per telephone per year, but has recently been authorized to increase this rate to $6. The value of the plant is $2,762.81, or about $38 per telephone, which is not excessive for this class of construction. The cost of switching and other operating expenses will amount to, approximately, $713 annually, and a rate of $15 per year will meet this cost and provide adequately for depreciation and return. Under the Public Utilities Law (Section 1797m-90, Wisconsin Statutes) it is unlawful to exact a higher rate from subscribers who are stockholders than from subscribers who are not (2 W. R. C. 521, 544), and the rate authorized, of $15 per year, will be applied to both stockholders and non-stockholders. ORDER accordingly. [U.-1939] IN RE APPLICATION OF THE CITY OF KENOSHA AND ITS BOARD OF WATER COMMISSIONERS FOR AUTHORITY TO INCREASE RATES Decided April 30, 1920 MEMORANDUM OF DECISION Applicant, City of Kenosha, seeks to have authorized a schedule of water rates ranging from 45 cents to $1.20 per 1,000 cubic feet. This represents no change in the first step or in the minimum charge, and the increases, therefore, do not affect ordinary domestic or small commercial users of water. During the last half of 1919, the expenses amounted to $33,427.10, and the revenues, exclusive of fire-protection charges, to $46,686.80. These expenses are greater by $23,000 per year than those recognized in the decision in which the present rates were authorized. On February 1, 1920, the scale of wages on the entire pay ro'l was increased 50 per cent. The city estimates that total expenses, including 6 per cent for depreciation and interest, will amount to $157,326.91, which represents a 25 per cent increase in the direct operating expenses. Of this amount $39,933.74 is properly chargeable to the city for municipal service. These estimates are considered fair and reasonable under present operating conditions. The revenue requirement of $18,390.72 per year, chargeable to the general service, would be just met by revenues under the proposed rates. Application granted. [U.-1612] IN RE APPLICATION OF WISCONSIN-MINNESOTA LIGHT AND POWER COMPANY FOR A REVISION OF ITS GAS RATES EFFECTIVE IN THE CITY OF CHIPPEWA FALLS, AND FOR A CONTINUATION OF ITS RATES NOW IN EFFECT PENDING SUCH REVISION Decided May 1, 1920 Application for a general gas-rate revision and the authorization of a schedule of reasonable rates, granted; the Commission fixed a fair valuation, considered in detail the results of operation, determined the amount of a reasonable allowance for depreciation and return, and designed a rate schedule based on those costs; the ORDER specifying and authorizing the new rates for gas service. 1. Rates-Basis of Establishment-Cost of Service A rate schedule should be designed to cover operating expenses, including all necessary expenses for the successful conduct of the business, and comprising both current expenses and provision for depreciation and return. 2. Rates-Cost of Service What Included in The cost of furnishing service includes not only current expenses and return on the investment, but also such costs as that of protecting the utility against depletion of its assets due to wear and tear, inadequacy, obsolescence, etc., and the costs of securing capital. 3. Depreciation Reserve---Purpose and Function The purpose of providing a reserve for depreciation in a publicutility business is only to hold in the business a sufficient amount out of earnings to protect the utility from loss when it becomes necessary to abandon the property, and not necessarily to provide sufficient funds for replacing that property, either with property of the same grade at increased prices or with more expensive property. 4. Depreciation Reserve-Retirement and Replacement of Property The interest of the public in the continuance of a public-service business should not be interpreted as supporting the theory that dur ing the life of its property the means for its replacement should be provided by those to whose use the property was devoted, since such a theory would mean that consumers, using the service during times when construction costs were low, would be required to pay not only for the loss on property worn out in their service, but also for the replacement of the property at an advanced price for the service of future customers; in such a case no addition to property and plant accounts could fairly be made, and a rate schedule based on a return on property at prices at which replacements were made would be, of course, wholly inequitable. 5. Depreciation Reserve Handling Retirement of Property from Service The depreciation reserve has relation to the removal or abandonment of worn out, obsolete, or inadequate property, but none to the installation of the new; and as property is retired from service its original cost should be credited to the appropriate plant account and charged to the depreciation reserve. 6. Depreciation Reserve—Bas:s—Original Cost of Property It has always been the practice of the Commission to establish depreciation reserves upon the original cost basis, or as nearly so as possible. 7. Financing-Cost-Discounts-How Handled In computing the cost of financing through bond issues, there is no warrant for differentiating between the discount received by the ultimate purchaser of bonds and that part representing the return to the banker for handling the issue; the entire discount and expense is a form of interest and should be amortized over the life of the securities as an interest charge, and no part of it charged to property. 8. Valuation-Overhead During Construction, etc. The usual allowance for overhead during construction, omissions and contingencies, has been fixed at 15 per cent, but is, to some extent, of course, controlled by the nature of the valuation. 9. Valuation-Basis-Current Prices and Historic Cost Current prices, or prices for a limited period last past, should not be given controlling weight in fixing valuation, since they give no weight to such elements of value as investment, historic cost, etc. 10. Valuation-Working Capital-Amount of Allowance An allowance of approximately one month's operating capital is sufficient for working capital, in addition to materials and supplies, in fixing fair value. 11. Depreciation Failure to Provide for in Past-Allowance Depreciation is an operating expense, and the failure of a utility in the past to provide for it does not require an allowance in a rate case on any other basis than that which would prevail if it had recognized its obligation to make a proper provision. 12. Valuation-Amount in Instant Case The fair value of applicant's property is determined to be $106,500. 13. Operating Expenses-Unreliable Used Reports-Average Figures Where a gas utility in a rate case submitted figures on the results of operation which were in part inconsistent and unreliable, and in part indicative of inefficient operation, average figures based on the results of operation of other plants were used for determining reasonable rates rather than the figures submitted. 14. Depreciation—Allowance for Reserve-Amount For gas utilities the ordinary requirement for depreciation, in so far as the depreciation reserve should be established by charges to operating expenses, is 2 per cent per annum of the investment in depreciable property. 15. Return-Rate of- -Elements Considered Where a utility is in the developmental stage, or where a considerable portion of its property has become worn out, obsolete, or otherwise inadequate, it cannot reasonably expect a full 8 per cent return on its investment; in the instant case, where such conditions were present, an allowance of approximately 6 per cent was considered fair to both utility and patrons. 16. Billing-Monthly or Bi-monthly A change from a monthly to a bi-monthly system of billing should not be authorized without a clear showing of predominant advantages to be enjoyed under the latter system. This case was brought before us by petition of the WisconsinMinnesota Light and Power Company, filed July 2, 1919. No specific schedule of rates is suggested in the application, but the Commission is asked to conduct an investigation to determine what rates are fair, to authorize the company to collect such fair and reasonable rates, and in the meantime to authorize the company to continue to collect the rates in effect at the time of filing the application. On July 31, 1919, the Commission entered an order temporarily continuing in effect the rates effective at the date of the application. The rates, as continued in effect by our order of July 31, 1919, were rates fixed by the Commission as the result of a number of emergency cases brought by the company during the war. The schedule in effect just prior to our order of June 29, 1918, was filed by the Wisconsin-Minnesota company on June 30, 1915, and constituted a reduction from rates previously in effect. This schedule was as follows: |