Public Service Commission, Second District [Vol. 19] officers were under the supervision and jurisdiction of this Commission." Certainly this investigation involves the reasonableness of the rates paid for gas by the Iroquois Company to the United Company, especially when we find that both of said companies are completely owned and controlled by one corpora tion which can place the burden where it pleases. In fact, the situation comes within the spirit if not within the letter of that part of the stipulation which provides that the burden of proof is upon the Iroquois Company to show that the contract was made in good faith "with a corporation by which it is not controlled." It will be noticed that the part of the stipulation which we have quoted gives to the Commission full inspection of the books of the United Company in precisely the same manner as though that corporation and its affairs were under the supervision and jurisdiction of the Commission. The Commission has the right to use the books to obtain such information as it may deem necessary. The statute, section 72 of the Public Service Commis sions Law, provides "In determining the price to be charged for gas or electricty the commission may consider all facts which in its judgment have any bearing upon a proper determination of the question although not set forth in the complaint and not within the allegations contained therein, with due regard among other things to a reasonable average return upon capital actually expended." It was pertinent to the inquiry and under the statute quoted was the duty of the Commission to determine the actual cost of the property transferred by the United Company to the Iroquois in 1912. The property had been capitalized by the Commission at that time at $5,589,505, but the stipulation to which we have called attention provides "in any proceeding involving the reasonableness of any increase of such present rates neither the Commission, the city, nor the company shall be bound or prejudiced by the amount of capitalization herein allowed and accepted by the company, or the valuations herein testified to or proved." The Commission, in attempting to determine the cost of the property conveyed by the United Company to the Iroquois, [Vol. 19] Public Service Commission, Second District was met by a flat refusal on the part of the United to allow its books to be examined for that purpose. The Commission was by the refusal of the United Company forced through its experts to build up in the best manner possible upon information obtained from various sources the value of the property in question, and the value thus obtained is severely criticized by the attorney for the Iroquois Company on the ground of its alleged inadequacy. An employee of the Commission was sent to the office of the United Company for the purpose of examining its books. The following is his testimony as to the reception which he met: "Q. In your examination of the United you were accorded access to their books in all except one particular, were you not? A. Yes, sir. Q. What particular was that? A. We were refused access to particulars relating to the actual original cost of property which the United Natural Gas Company sold or delivered in any way to the Iroquois Natural Gas Company at the time the Iroquois Natural Gas Company was formed in 1912." Later, when the same witness was under examination concerning a report which he had submitted in which there was an estimate of $2,700,000 as the value of the property conveyed by the United to the Iroquois in 1912, he testified as follows: "Q. The original was approximately $2,700,000. Do I understand from that that the original cost of all the property conveyed to the Iroquois by the United was $2,700,000? A. That is our estimate of what the original cost was. As stated earlier, we were refused access to the records of the company which would show what that original cost actually was. Q. Did you ask for access to those records? A. Yes, sir. Q. And you were refused access? A. Yes, sir. The officers of the company stated that in their opinion it was not covered by the stipulation entered into in 1912." The above testimony was not disputed by the company. The only person connected with the United Company who was interrogated concerning the refusal of the officers of the company to allow the representative of the Commission to examine the books was the treasurer. After stating that he did Public Service Commission, Second District [Vol. 19] not know whether there was any request made to examine the books or records of New York State property, the following is found in the record: "Q. You do not mean to state then, Mr. -, positively, that Mr. did not have access to all of your books at Oil City? A. I mean to say that they had access to all the books they asked me for. Q. Yes, that is all? A. Yes. Q. What they were refused by the other officers of your company and its lawyers you do not know? A. No, that I would not know." The United Company deliberately prevented the Commission from obtaining positive information of that which it is directed by the statute to take into consideration in determining the rate to be paid for gas, namely, "Capital actually expended." Pub. Serv. Com. Law, § 72. It is true that the representatives of the Commission were referred to the evidence given by witnesses called by the Iroquois Company for the purposes of the consolidation in 1912. In other words, there was a refusal to supply the evidence covered by the stipulation and an insistence upon furnishing such evidence as would be satisfactory to the respondent company. It can hardly be expected that the testimony of men called in 1912 for the purpose of showing the value of property transferred in return for stock of the Iroquois Company will satisfactorily take the place of book entries showing the actual cost, and the company seems to have overlooked that part of the stipulation which provides that "in any proceeding involving the reasonableness of any increase of such present rates neither the Commission, the city, nor the company shall be bound or prejudiced by the amount of capitalization herein allowed and accepted by the company or the valuation herein testified to or proved." The company did not attempt to give the actual cost of its property, but proved its value upon reproduction cost based upon the average price for the last five years, from 1913 to 1917, both inclusive. The figures were largely made by a consulting engineer who had had no previous experience in conducting a [Vol. 19] Public Service Commission, Second District natural gas plant. It is further stated that an expert from Pittsburgh went over the lines and made estimates. The following testimony of the expert will show the basis of his figures: "Q. Did you examine the books of the company to ascertain what these field lines actually cost the company? A. There is no actual cost. We have the book figure which is the appraisal figure. Q. Can't you tell the actual cost to the company, what they paid for it? A. The entire property was bought through a stock issue and inventoried subsequent to the formation of the company." The counsel for the company then made explanation and remarked: "These figures we are proving now are not book costs, they are reproduction costs." He then said that any addition to the plant since the organization of the company appeared in the books at actual cost. In this proceeding the Commission is not interested in the amount of stock which the company paid for its property. In the words of the statute, the amount of capital actually expended refers to the amount which the property actually cost. The witness further stated that he had made no allowance for depreciation although some of the pipe lines had been laid for over thirty years. Before making any further examination of the theory upon which the company bases its figures, it may be well to examine what the authorities have said about reproduction costs. Chairman Stevens, formerly of this Commission, in the caso of Fuhrmann v. Cataract Power & Conduit Co., 3 P. S. C. Rep. Second District, 656, at page 684, in discussing the question of reproduction cost, says: "As a means of ascertaining the amount of the actual investment it is confessedly imperfect. At best it can produce only an approximation. In most cases it varies so widely from the actual cost as to put the two in a position of actual hostility." "This method of ascertaining the fair amount of the investment, although it has been treated with great favor, is also subject to severe criticism. The first arises from the practical impossibility of ascertaining with any reasonable degree of Public Service Commission, Second District [Vol. 19] accuracy the cost of reproduction new. This impossibility has been demonstrated in most attempts which are made. Engineers differ widely in their results, and this when their professional standing and integrity are in every respect equal. Most classes of work involve great difficulties in ascertaining the just unit prices, the amount and efficiency of the labor involved, the skill and push of the superintendents, the power economies which may be practiced, the unforeseen delays and accidents. To provide against all possibilities of any character which may enchance expense, the experience of the engineer is usually dragged to its depths; his researches into the experiences of others are pushed to the uttermost. The result is that every work is charged with every expense, usually upon a percentage basis, which has ever been found to be attached under any conditions to work of the character under inquiry. The result is inevitable. It is sure that all of the alleged expenses are found in any given work and the resultant is swollen beyond all reason and beyond practical experience. An estimate to induce a plunge into an enterprise is not justly comparable with one designed to justify an existing rate of dividend." * * * In Matter of Mayhew v. Kings Co. Lighting Co., 2 P. S. C. Rep. First District, 659, the Commission says (p. 680): "The company has produced no vouchers, bills, or records to discredit the estimates of the Commission's engineers, or to support the estimates of its own witnesses, who were repeatedly asked whether they had examined the records of cost of the company to determine whether their estimates had any direct relation to the amount actually spent. They did not produce actual expenditures to support their estimates, and counsel to the company expressed to the Commission the opinion that actual cost of existing property had nothing whatever to do with the amount to be considered as the fair value of the property. In our opinion it has a vital relation and in view of the provision in the Public Service Commissions Law upon this point the Commission must give it full weight and consideration. * * * The Commis |