Northern States Power Co. v. Board of Railroad Commissioners

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] On March 9, 1935, the Board of Railroad Commissioners (hereinafter referred to as the Commission) ordered an investigation of the properties of the Northern States Power Company (hereinafter referred to as the Company) which were used and useful in providing electric, gas and steam heat service at Fargo, West Fargo and Southwest Fargo, to determine the fair value of those properties for rate making purposes. The investigation continued for almost three years and the final order of the Commission, establishing a new rate base was made on February 21, 1938. Separate findings were made for the electric, gas and steam heat departments. As a result of the investigation the Commission ordered a reduction in the rates of the Company's electric department and an increase in the rates of the steam heat department. Immediately upon receipt of the Commission's findings and order, the Company petitioned for a reconsideration of the whole case. The petition was denied and the Company thereupon appealed to the district court of Cass county from all of the findings, decisions and orders of the Commission in this investigation. Pending a decision of the appeal the district court by its order stayed and suspended the order and decision of the Commission, except with respect to the new steam heat rates, and required the Company to deposit in court the difference in charges between the old rates and the rates fixed by the order under attack. The district court's judgment upon the appeal decreed:

1. That the Commission in determining the rate base as set forth in its findings acted arbitrarily and in violation of law.

2. That the Commission erred in refusing to allow as an addition to its valuation of plant equipment the cost of the new steam electric plant at Fargo in the sum of $557,540.

3. That the Commission acted arbitrarily and in disregard of law in refusing to give consideration and effect to "going-concern value" in its valuation of the property of the Company.

4. That the finding of the Commission with respect to operating expenses was not sustained by the evidence and that the Commission unlawfully and arbitrarily failed to make sufficient findings from which the court could determine the reasonableness of its allowances for that purpose.

It was further decreed that the Commission's orders in this investigation, dated February 21, 1938, and March 7, 1938, would result in depriving the Company of its property without due process of law, contrary to the Constitution of the United States and the Constitution of the state of North Dakota; that said orders be vacated and set aside and the moneys representing the difference in charges for electric services deposited in court, pursuant to court order, be returned to the Company, and that the excess charges collected in the steam heat department be returned to the Company's patrons.

A stay of proceedings was granted pending an appeal to this court — and by the terms of this stay the Company was required to continue to deposit in court the excess it collected over and above the rates as fixed by the Commission's order of March 7, 1938. The Commission has appealed to this court from the judgment of the district court.

The first point of controversy concerns the method by which the Commission arrived at its determination of "fair value." The statutory procedure is set forth in § 4609c37 of the Supplement to the Compiled Laws of 1913. This section is as follows:

"Valuation of property; matters considered. The commissioners, for the purpose of ascertaining the reasonableness and justice of the rates and charges of public utilities, or for any other purpose authorized by law, shall investigate and determine the value of the property of every public utility used and useful for the service and convenience of the public, excluding therefrom the value of any franchise or right to own, operate or enjoy the same in excess of the amount (exclusive of any tax or annual charge) actually paid to any political subdivision of the state or county as a consideration for the grant of such franchise or right by reason of a monopoly or merger. The commissioners shall prescribe the details of the inventory of the property of each public utility.

"In ascertaining the value of the various kinds and classes of property of each public utility, the commissioners shall have authority to ascertain and report, in such detail as it may deem necessary, as to each piece of property owned or used by such public utility to show separately the following facts:

"(a) The original cost, if any, of each parcel of land owned and used by such public utility and a statement of the conditions of acquisition, whether by direct purchase, by donation, by exercising the power of eminent domain or otherwise.

"(b) The value, as of a date certain, of each parcel of land owned and used by such public utility by comparison with the value of contiguous and neighboring parcels of land and land of similar character as to location and use.

"(c) If there should be any additional value to such utility by reason of the ownership by it of one or more parcels of land, and it is used as a continuous right of way for transportation purposes, or for other purposes, such additional value shall be separately and specifically set forth for each parcel.

"(d) The cost of new production, as of a date certain, of all physical property other than land, owned and used by such public utility showing the valuation of the separate item comprising such property, together with the unit basis of such valuation.

"(e) Depreciation, if any, from the new reproductive cost, as of a date certain, of existing mechanical deterioration, of age, of obsolescence, of lack of utility or for any other cause, the percentage and amount of each class of depreciation, if any, to be specifically set forth in detail.

"(f) The net value, as of a date certain, of all physical property other than land owned by such public utility, to be derived by deducting the sum of the amounts of depreciation from the sum of the new reproductive costs.

"(g) The value of the property of a public utility company, as determined by the commissioners, shall be such sum as represents, as nearly as can be ascertained, the money honestly and prudently invested in the property. In valuing the property on the basis of the cost to reproduce the same, unit prices of material and labor entering into construction shall be based on the average prices of a sufficient period of years to secure normal results. Equipment shall be valued on the average prices of a sufficient period of years to secure normal results, and there shall be deducted from the total amounts, as thus determined, such sum as is properly chargeable to depreciation under the provisions of subdivision (e), § 37 (this section). The commissioner shall exclude from such valuation all unearned values or unearned increment.

"Such investigation and report shall also show, whenever the commissioners may deem necessary, the amounts and dates and rates of interest of all bonds outstanding against each utility, the property on which they are a lien, the amounts paid therefor and, in such detail as may be necessary the original capital stock and the moneys received by any such utility by reason of any issue of stock, bonds or other securities; the net and gross receipts of such utility; the method by which moneys were expended and the purpose of such payments. The commissioners shall have the power to establish rules and regulations to be followed in making such investigation and valuation."

In the course of its investigation the Commission ascertained historical cost, reproduction cost, and reproduction cost depreciated, of the physical property of each of the several departments operated by the Company and upon these figures the Commission and the Company are in complete agreement. They are as follows:

Historical Cost as of October 1, 1937 —

Electric Department ..................... $1,663,747 Gas Department ........................... 1,097,087 Steam Heat Department ...................... 344,958

Reproduction Cost as of October 1, 1937 —

Electric Department ...................... 1,921,751 Gas Department ........................... 1,348,353 Steam Heat Department ..................... 422,552

In its findings the Commission did not carry its determination of cost of reproduction less depreciation beyond July 1, 1935. All items of valuation and depreciation necessary to the computation are in the record and are agreed upon by the parties. Making the computation we find reproduction cost less depreciation as of October 1, 1937, to be as follows:

Electric Department ..................... $1,597,957 Gas Department ........................... 1,073,770 Steam Heat Department ..................... 335,152

In its determination of the rate base the Commission first found what it denominated as fair value, saying:

"On this question of valuation this Commission has consistently followed the Smyth v. Ames, 169 U.S. 466, 42 L ed 819, 18 S. Ct. 418, decision, requiring the historical cost and cost of reproduction be considered and given due weight, but adhering to the precedent of this Commission, we feel that the historical cost of the property of this utility should be given greater weight than the cost of reproduction, and in this decision we have weighed them together, giving to each such weight as in our judgment was necessary to arrive at a proper and fair conclusion, considering all of the facts and circumstances disclosed by the evidence, all of which was given due consideration. We find, therefore, based on the evidence adduced, that the fair value of the property is as follows:

Electric Department ..................... $1,750,000 Gas Department ........................... 1,180,000 Steam Heat Department .................... 350,000"

The "fair values," thus found, were not considered by the Commission as the values upon which the computation of the rates was to be made. These basic values were determined by applying depreciation to fair value in the following manner. Using the agreed per cent condition of the physical property of the Company, the Commission computed the accrued per cent depreciation of such property in each of the Company's three departments; it then found accrued depreciation in dollars by applying those percentages to the historical cost of the property and the figures thus ascertained were then deducted from the previous findings of fair value for each department. As a result basic values were found as follows:

Electric Department ..................... $1,461,357 Gas Department ............................ 955,510 Steam Heat Department ...................... 277,729

The basic value determined for the electric department is thus $202,390 less than historical cost and $136,600 less than reproduction cost depreciated; that for the gas department is $141,577 less than historical cost and $118,260 less than reproduction cost depreciated; and that for the gas department is $77,249 less than historical cost and $57,423 less than reproduction cost depreciated.

The Commission asserted, that in making its findings of value it had followed the decision of the Supreme Court of the United States in Smyth v. Ames, 169 U.S. 466, 42 L ed 819, 18 S. Ct. 418. In its conclusion that this decision should have been followed, the Commission was correct.

Section 4609c37, supra, is § 37 of chapter 192, Laws of 1919. As originally introduced (H.B. 97) in the Legislature, this section was taken practically verbatim from the Ohio statute which was enacted in 1913 (Code of Ohio), § 499-9. Had the statute been enacted as originally introduced, no difficult question of interpretation would have arisen and the measure of value of a utility's property for rate making purposes would have been established as the reproduction cost of the property of the utility, used and useful for the public service, less actual depreciation. Lima Teleph. Teleg. Co. v. Public Utilities Commission, 98 Ohio St. 110, 120 N.E. 330, PUR1919A 888 (decided April 30, 1918). However, the proposed statute was amended before final enactment. Subdivisions (a), (b), (c), (d), (e) and (f) were not changed but subdivision (g) was rewritten. As originally written subdivision (g) provided: "If there shall be any additional value given to the value of the property of a public utility due to the possession of a franchise to perform a public service, or for good will or financing, such additional value shall be separately and specifically set forth, together with the basis for the computation or estimate of such additional value."

This language was stricken from the bill and subsection (g) was rewritten as follows: "The value of the property of a public utility company, as determined by the commissioners, shall be such sum as represents, as nearly as can be ascertained, the money honestly and prudently invested in the property. In valuing the property on the basis of the cost to reproduce the same, unit prices of material and labor entering into construction shall be based on the average prices of a sufficient period of years to secure normal results. Equipment shall be valued on the average prices of a sufficient period of years to secure normal results, and there shall be deducted from the total amounts, as thus determined, such sum as is properly chargeable to depreciation under the provisions of subdivision (e), § 37 (this section). The commissioner shall exclude from such valuation all unearned values or unearned increment."

The situation with which we are confronted then is this: subsections (a) to (f) inclusive provide for valuation upon the basis of reproduction cost new, as of a date certain, less depreciation; the first sentence of subsection (g) provides for valuation upon the basis of prudent investment and the balance of subsection (g) which is a part of the same amendment, provides for valuation upon reproduction cost new, not as of a date certain but over a sufficient number of years to secure normal results, less depreciation.

Originally the Board of Railroad Commissioners interpreted the statute to direct a finding of fair value for rate-making purposes upon the basis of prudent investment alone. However, in their decision in the case of the Western Electric Company, decided March 12, 1923, the Commissioners reversed their former holding, saying: "We agree with counsel for the utility that the tendency of the courts is to hold that the value of the property of a utility must be determined as of the time of the inquiry. Further consideration of the statute impels us tothe belief that the statute does, in fact, contemplate this verything." (italics ours) Re Western Electric Co. (ND) PUR1912C 820, 830.

Since the decision in the Western Electric Company case the Commissioners have consistently followed the rule therein laid down. Re Red River Power Co. (ND) PUR1923E, 534, decided July 6, 1923; Re Mandan Electric Co. (ND) PUR1925D, 508, decided March 11, 1925; Railroad Comrs. v. Hughes Electric Co. (ND) PUR1925A, 18, decided July 30, 1924; Grand Forks v. Red River Power Co. (ND) 8 PUR(NS) 225, decided April 10, 1935. The Commissioners' interpretation of the statute received judicial approval in the case of Grand Forks v. Red River Power Co. which was appealed to the District Court. In the opinion filed in that case, Judge Grimson said: "Two systems of valuations of property are pointed out. One is based on the original cost of the property and is variously designated as historical cost, construction cost or prudent investment cost. The other system is the one which attempts to determine the value of the property if it had to be reproduced at the time of the hearing and is generally called reconstruction value. § 4609c37 of chap. 192, Sessions Laws 1919, directs the Commission to take into consideration both of these systems. That law apparently attempted to direct the Commission to take into consideration all the matters prescribed by the rule laid down in Smyth v. Ames, 169 U.S. 466, 42 L ed 819, 18 S. Ct. 418, supra." (ND) 12 PUR(NS) 353, 359.

Thus for almost twenty years § 4609c37 has been construed by the Board of Railroad Commissioners as a statutory adoption of the rule of valuation laid down by the Federal Courts commencing with the decision in Smyth v. Ames (ND), supra. Ten Legislative Assemblies have met since the Commission's decision in Re Western Electric Co. (ND) PUR1923C 820, supra, and no amendment has been made of the statute. As was said by Judge Nuessle in State v. Equitable Life Assur. Soc. 68 N.D. 641, 653, 282 N.W. 411: "This is pertinent in determining the legislative intent. ``The Legislature is presumed to know the construction of its statutes by the executive departments of the state.' John Hancock Mut. L. Ins. Co. v. Lookingbill, 218 Iowa 373, 253 N.W. 604."

If it can be reasonably contended that another construction may be placed upon this statute then the statute is of doubtful meaning for no better proof of uncertainty of language can be had than that informed men reasonably and honestly differ as to its meaning. And "in construing a statute of doubtful meaning, the court will give weight to the long-continued practical construction placed thereon by officers charged with the duty of executing and applying the statute" (State v. Equitable Life Assur. Soc., supra) to the judicial construction of such statute by an inferior court (59 CJ 1036) and to the legislative acquiescence in both the departmental and judicial construction. 59 CJ 1037. Whatever doubts we might have had are removed by these considerations and we therefore hold that § 4609c37, supra, adopts the rule of the Federal courts with respect to valuation of utilities for rate making purposes. Many subsequent decisions of both the Federal and state courts which have followed Smyth v. Ames, 169 U.S. 466, 42 L ed 819, 18 S. Ct. 418, have explained and defined the rule therein laid down and while perhaps no rule has been subjected to more severe judicial and academic criticism, it is apparent that for the time being at least the principles applicable to a determination of value for rate making purposes are well settled.

The value which must be ascertained is the reasonable value of the utility's property used and useful for the public service at the time it is being so used. San Diego Land Town Co. v. National City, 174 U.S. 739, 43 L ed 1154, 19 S. Ct. 804; San Diego Land Town Co. v. Jasper, 189 U.S. 892, 47 L ed 892, 23 S. Ct. 571; Stanislaus County v. San Joaquin K. River Canal Irrig. Co.192 U.S. 201, 48 L ed 406, 24 S. Ct. 241; Missouri ex rel. Southwestern Bell Teleph. Co. v. Public Serv. Commission,262 U.S. 276, 67 L ed 981, 43 S. Ct. 544, 31 A.L.R. 807; Bluefield Water Improv. Co. v. Public Serv. Commission, 262 U.S. 679, 67 L ed 1176, 43 S. Ct. 675. Fair value includes the appreciation in value of the utility's property where the allowance of the appreciation will not produce a rate unjust to the public. Willcox v. Consolidated Gas Co. 212 U.S. 19, 53 L ed 382, 29 S. Ct. 192, 48 LRA(NS) 1134, 15 Ann Cas 1034; Minnesota Rate Cases (Simpson v. Shepard)230 U.S. 352, 57 L ed 1511, 33 S. Ct. 729, 48 LRA(NS) 1151, Ann Cas 1916A 18; McCardle v. Indianapolis Water Co. 272 U.S. 400, 71 L ed 316, 47 S. Ct. 144. In the Minnesota Rate Cases the court said: "As the company may not be protected in its actual investment if the value of the property be plainly less, so the making of a just return for the use of the property involves the recognition of its fair value if it be more than it cost. The property is held in private ownership, and it is that property, and not the original cost of it, of which the owner may not be deprived without due process of law."

Among the factors set forth in Smyth v. Ames, as evidence to be considered in the determination of fair value, two have assumed a position of predominating importance. They are historical cost and reproduction cost depreciated. Missouri ex rel. Southwestern Bell Teleph. Co. v. Public Serv. Commission, 262 U.S. 276, 67 L ed 981, 43 S. Ct. 544, 31 A.L.R. 807, supra; Bluefield Co. v. Public Serv. Commission, 262 U.S. 679, 67 L ed 1176, 43 S. Ct. 675, supra; Driscoll v. Edison Light P. Co. 307 U.S. 104, 83 L ed 1134, 59 S. Ct. 715. But as Mr. Justice Butler said in McArdle v. Indianapolis Water Co. 272 U.S. 400, 71 L ed 316, 47 S. Ct. 144, supra, "This does not mean that the original cost or the present cost or some figure arbitrarily chosen between the two is to be taken as the measure. The weight to be given to such cost figures and other items and classes of evidence is to be determined in the light of the facts of the case in hand."

In the instant case the Commission, in finding the rate base considered historical cost depreciated as the controlling factor. In doing so, it did not point to any evidence which it claimed justified denying the Company the benefit of the appreciation in value of its property which was shown in the finding of reproduction cost, depreciated and we find no such evidence in the record. The Commission does not claim that rates based upon a higher valuation than that which was found would be unfair to the consuming public. In fact the only reason given by the Commission to substantiate its finding of value was that in giving greater weight to historical cost, depreciated, it was "adhering to the precedent of this Commission." It is perfectly clear from what has been said that the establishment of such a precedent is in itself arbitrary. It creates an inflexible formula which denies to the evidence in a particular case its normal probative value. The Commission's adherence to this precedent has had that result in this case. There is no evidence in the record which impeaches reconstruction cost depreciated as a criterion of fair value to the extent that it should be considered as a factor of minor importance. It is true that fair value and reproduction cost depreciated are not synonymous terms but in the light of the principle that fair value must include the increase in value over original cost, the Commission may not, in fixing fair value, disregard evidence of reproduction cost depreciated or refuse to give such evidence weight as one of the major factors in reaching its conclusions. In the absence of the proof of other circumstances which would tend to destroy its force, such evidence obviously has more bearing on the question of present value, than has evidence of original cost, depreciated, and it was the Commission's duty to give due consideration and effect to that evidence.

It is also contended by the Company that the Commission's refusal to consider the cost of certain new construction as an element of value was arbitrary and illegal. With respect to this item the order of the Commission is as follows: "The next item of proposed addition, . . . consists of the proposed installation of a new 5,000 kilowatt turbine and other necessary additions at a cost of $610,000.00. There was no evidence adduced to indicate the time of this expenditure." In view of our disposition of the previous question this case must be returned to the Commission for reconsideration. It is therefore unnecessary for us to consider whether or not the Commission's action in this regard was justified by the evidence. If, as the Company claims, the addition has been completed and is in use, its value will be allowed by the Commission as a matter of course.

In its computation of a rate base, the Commission refused to add to its finding of the fair value of the physical property of the Company any additional amount for "going concern value." The Company contends that "going concern value" is a very real ascertainable value upon which it is entitled to earn a return and that the Commission's refusal to make such an allowance was contrary to statute and violative of the due process clauses of both the state and Federal Constitutions. Testimony offered on behalf of the Company is that the additional value claimed is "the difference in value between two utilities, one of which has a list of customers, an established business and is in profitable operation and one which has a plant assembled but without an established business." As concrete evidence of the difference between its own condition and that of a plant fully constructed but not in operation, the Company offered evidence to show, the steady growth of its business and the communities served, its good credit standing, its excellent record in paying its bond interest and preferred stock dividends, its good public relations; that it had a well-trained, competent and loyal staff of employees; and that it had a splendid set of records. Upon this appeal the Commission contends:

(1) That § 4609c37, supra, in its provision that the Commission "shall exclude from such valuation all unearned values or unearned increment," prohibits an allowance of going concern value,

(2) That the evidence offered by the Company is insufficient to establish a going concern value, and

(3) That it gave due consideration and allowance to going concern value.

Before considering the contentions of the Commission it is necessary to set forth certain fundamental principles with respect to going concern value as a factor in valuation for rate making purposes under the Smyth v. Ames rule. The term going concern value in the sense in which it is generally used includes both good will and franchise values, but both of these elements must be excluded from the concept, in computing value for rate making purposes. Cedar Rapids Gas Light Co. v. Cedar Rapids,223 U.S. 655, 56 L ed 594, 32 S. Ct. 389; 144 Iowa 426, 120 N.W. 966, 48 LRA(NS) 1025, 138 Am St Rep 299; Des Moines Gas Co. v. Des Moines, 238 U.S. 153, 59 L ed 1244, 35 S. Ct. 811, PUR1915D 577. The value which remains after these elements have been extracted, difficult though it may be to define and ascertain, is nevertheless "a property right which should be considered in determining the value of property upon which the owner has a right to make a fair return." Los Angeles Gas E. Corp. v. Railroad Commission, 289 U.S. 287, 77 L ed 1180, 53 S. Ct. 637; Des Moines Gas Co. v. Des Moines, 238 U.S. 153, 165, 59 L ed 1244, 1250, 35 S. Ct. 811, PUR1915D 577; Denver v. Denver Union Water Co.246 U.S. 178, 62 L ed 649, 38 S. Ct. 278, PUR1918C 640; McArdle v. Indianapolis Water Co. 272 U.S. 400, 71 L ed 316, 47 S. Ct. 144, supra. In Los Angeles Gas E. Corp. v. Railroad Commission, 289 U.S. 287, 77 L ed 1180, 53 S. Ct. 637, supra, Chief Justice Hughes said: "The principle thus recognized and limited is obviously difficult of application. . . . It does not give license to mere speculation; it calls for consideration of the history and circumstances of the particular enterprise, and attempts at precise definition have been avoided."

Section 4609c37, supra, was enacted subsequently to the decisions of the Supreme Court of the United States in the Cedar Rapids Case, 223 U.S. 655, 56 L ed 594, 32 S. Ct. 389, and Des Moines Cases, 238 U.S. 153, 59 L ed 1244, 35 S. Ct. 811, PUR1915D 577, supra, and it is reasonably subject to the construction that it was the legislative intention to prohibit consideration and allowance by the Commission of any elements of intangible value which those decisions had held were not property values which, in a rate case, were protected by the due process clause of the Fourteenth Amendment. The construction contended for by the Commission which would entirely exclude going concern value from consideration in a rate case would, upon the authorities above cited, render the statute of doubtful constitutionality. Following the well established principle of construction that where a statute is reasonably subject to two constructions one of which is clearly constitutional and the other of which is of doubtful constitutionality the former will be adopted (Wood v. Byrne, 60 N.D. 1, 232 N.W. 303; Royal v. Aubol, 69 N.D. 419, 287 N.W. 603) we hold that § 4609c37, supra, does not prohibit an allowance of going concern value in valuations for rate making purposes.

The Commission also contends that the investigation disclosed no evidence which would justify the allowance of going concern value as a component part of the rate base. We do not agree. By definition, a utility as an integrated unit with a history of profitable operation has a going concern value. And where the Commission had before it the entire history of the Company showing successful operation over a long period of years it was its duty to consider, determine and give effect to this element of value in establishing the rate base. Los Angeles Gas E. Corp. v. Railroad Commission, 289 U.S. 287, 77 L ed 1180, 53 S. Ct. 637; Des Moines Gas Co. v. Des Moines, 238 U.S. 153, 59 L ed 1244, 35 S. Ct. 811, PUR1915D 577; Denver v. Denver Union Water Co. 246 U.S. 178, 62 L ed 649, 38 S. Ct. 278, PUR1918C 640; McAardle v. Indianapolis Water Co. 272 U.S. 400, 71 L ed 316, 47 S. Ct. 144, supra.

But, the Commission says, it did give consideration and allowance to going concern value. In its findings the Commission asserted that when the property of the company "was appraised by our engineers and those of the Company, the fact that this property was in use and profitable was necessarily considered by them, otherwise certain items of the property would have been depreciated to a greater extent, so that indirectly going concern value was given the consideration to which it was entitled." Neither the findings nor the conclusion are supported by the evidence. The engineers' computations of historical cost and reproduction cost were based upon material and labor costs and certain well established overheads for engineering and other construction expense. Depreciation was computed solely upon the basis of the present physical condition of the property as compared to its original condition. It is true that the engineers did not value the property upon a junk or salvage basis as they would have, had they been asked to value an abandoned plant, but this fact cannot be construed as an allowance of going concern value. Going concern value is not the difference in the value of an abandoned plant and one that is in operation. It is that added value which the plant in profitable operation has over an identical plant which is fully completed and which presently and certainly is to begin operation. Des Moines Gas Co. v. Des Moines, 238 U.S. 153, 59 L ed 1244, 35 S. Ct. 811, PUR1915D 577, supra; Denver v. Denver Union Water Co. 246 U.S. 178, 62 L ed 649, 38 S. Ct. 278, PUR1918C 640, supra. Since by the provisions of § 4609c42 Supplement to the Compiled Laws of 1913, the Commission "shall make and file their findings of fact in writing upon all matters . . . which have a bearing on the value of the property of a public utility," a separate finding must be made showing the amount at which the going concern value of the utility has been allowed.

The Company's contentions with respect to the Commission's allowance for expenses remain to be considered. In making this allowance the Commission mentioned specifically only three of the Company's claims and the Company urges that its action upon all three was in disregard of the evidence and arbitrary. The first item was the Company's claim of $12,229.60 for regulatory commission expense. The Commission disposed of this claim by stating that it was "non-recurring item of expense and as such will not be considered in projecting expense." The item represents the cost to the Company of the present investigation. Upon this appeal the Commission does not contend that the cost of this investigation should not be projected as an expense item. As stated in the brief, the Commission's position is that the item is nonrecurring as an annual cost and that therefore it should not have been allowed in its full amount as an item of annual expense but should have been apportioned over a period of years. This the Commission claims it did, asserting that it allowed for this purpose $2,500 a year. We think it would have been proper for the Commission to have allowed the investigation cost in this manner but we do not think the Commission's findings sustain its contention that it did so. However new findings made upon a further consideration of this investigation will no doubt clarify the Commission's action.

Next is the item for attorney fees. As to this the Commission said, "No evidence was introduced to justify the entire amount of legal expense amounting to $8,476.01. In our judgment we feel that the sum of $3,000 should be sufficient. . . ." The testimony of the Commission's witness, Hartl, showed in detail the amount spent by the Company for legal services for the year immediately preceding the date of the hearing in this investigation. There is no question but that the Company, during that year spent for legal services the amount it claimed should be allowed annually for legal expense. Of the total amount expended, approximately $5,000 was for regular annual retainer fees. There is no testimony in the record which challenges the prudence or the good faith of the Company's management in the incurring of these charges, nor is there any evidence which indicates that the cost of legal services will be a less sum in the future. It was the duty of the Commission to allow an amount which in its judgment was sufficient for the purpose. In the exercise of that judgment, however, it could not disregard the evidence and substitute for its judgment of the evidence its judgment of what the Company ought to be able to do. The Commission "is not the financial manager of the corporation and it is not empowered to substitute its judgment for that of the directors of the Company; nor can it ignore items charged by the utility as operating expense unless there is an abuse of discretion in that regard by the corporate officers." State Public Utilities Commission ex rel. Springfield v. Springfield Gas E. Co. 291 Ill. 209, 125 N.E. 891, PUR1920C 640, quoted with approval in Missouri ex rel. Southwestern Bell Teleph. Co. v. Public Serv. Commission, 262 U.S. 276, 67 L ed 981, 43 S. Ct. 544, 31 A.L.R. 807. The Commission could not have allowed this item at $3,000 unless it did ignore the evidence of the Company's actual expenditures. The variance between the unchallenged proof and the finding is too great to be accounted for as a reasonable exercise of the Commission's judgment.

The third specific allowance for expense, challenged, is the allowance for dues and donations. The evidence showed that during the year preceding the hearing, the company had spent $4,638.94 for these purposes. As to these expenditures the Commission stated, "some, but not all, of those items are properly chargeable to operating expenses." It did not point out which items it considered improper and concluded by saying "we have allowed as proper charges to operating expenses a total sum of $3,000 for dues and donations for the purposes listed on page 26 of the exhibit mentioned." The exhibit mentioned is the Commission's exhibit "7." The purposes listed on page 26 include all the purposes for which the Company expended $4,638.94. The inconsistency is patent. The finding is that donations for some unstated purposes are not properly allowable as expenses and the allowance is for a reduced sum for all purposes including the unstated improper ones. If the Commission had concluded that some of the donations were improper, it should have pointed them out specifically and if it thought that some of the contributions were so large as to constitute an abuse of discretion on the part of the Company's officers, it should have said so. The action which the Commission did take is simply an attempt to control the discretion of the Company's management. This was in excess of the powers of the Commission. State Pub. Utilities Commission ex rel. Springfield v. Springfield Gas E. Co. 291 Ill. 209, 125 N.E. 891, PUR1920C 640; Missouri ex rel. Southwestern Bell Teleph. Co. v. Public Serv. Commission, 262 U.S. 276, 67 L ed 981, 43 S. Ct. 544, 31 A.L.R. 807.

In its consideration of a general allowance for expenses the Commission stated, "A study of past operations substantiated by the testimony would indicate that an additional 1,400,000 kilowatt hours will have to be generated within the period. Allowance will be made for expense incident to this additional generation. The Company must further provide for a substantial increase in labor costs during the coming year. Allowance is made for such additional expense. Fuel costs have been computed after taking into consideration increased consumption, additional handling charges and comparative costs. As a result of this order income taxes and electric franchise tax will be reduced from the amount estimated in Exhibit ``D' but the entire amount of tax expense will be greater during the next year." This statement was followed by the discussion of regulatory expense, attorney's fees and dues and donations which we have already considered and then the Commission concluded by saying, "After making the above adjustments, we find that the proper operating expenses for each department will be as follows: electric $465,451, gas $193,724 and steam heat $115,093." Later, in its order denying the Company's petition for reconsideration, the Commission increased the allowance for the electric department to $470,005.86.

The Company contends that the allowance for the electric department is $28,000 less than the amount which the evidence demonstrates is clearly required. It also asserts that the Commission has not made sufficient findings upon which to base its allowance and that the failure to make specific findings of fact renders the Commission's procedure arbitrary and illegal.

The Company had claimed for additional expenses over and above the cost of operation for the preceding year the following amounts, increased cost of fuel $22,000, increased labor costs $11,600, increased taxes $17,400. In its findings the Commission referred to these items and stated that some allowance had been made for these increased costs, but it is impossible to tell from the findings the extent to which any single item was allowed or disallowed.

In so far as the record shows, these items may have been allowed in the full amounts claimed and the reduction accomplished by rejecting items in the previous year's statement of operating costs, or some may have been allowed in full and others in a merely nominal sum. The state of the record is such that it is impossible for us to review the ultimate conclusion of the Commission. We cannot say whether the facts upon which it is founded are supported by any evidence or whether it is one which may reasonably be drawn from the facts.

Section 4609c42 is as follows: "Hearing, right to: evidence on: findings: review of. The public utilities affected shall be entitled to be heard and to introduce evidence at such hearing or hearings. The commissioners are empowered to resort to any other source of information available. The evidence introduced at such hearing shall be reduced to writing and certified under the seal of the commissioners. The commissioners shall make and file their findings of fact in writing upon all matters concerning which evidence shall have been introduced before it which, in its judgment, have a bearing on the value of the property of the public utility. Such findings shall be subject to review by the supreme court of this state in the same manner and within the same time as other orders and decisions of the commissioners."

Specifically this section requires findings only upon those matters which have a bearing upon value. The end of the investigation however is not to establish a value but a rate and it is essential that findings be made upon all matters which have a bearing upon the amount of the rates which the Company will be permitted to charge. Beaumont, S.L. W.R. Co. v. United States,282 U.S. 74, 75 L ed 221, 51 S. Ct. 1. The findings must be sufficiently definite to be reviewed upon appeal; otherwise the right of appeal would be valueless. Chicago R. Co. v. Commerce Commission, 336 Ill. 51, 167 N.E. 840, 67 A.L.R. 938; Chicago Dist. Pipeline Co. v. Illinois Commerce Commission, 361 Ill. 296, 197 N.E. 873; Beaumont, S.L. W.R. Co. v. United States, 282 U.S. 74, 75 L ed 221, 51 S. Ct. 1, supra; Wichita R. Light Co. v. Public Utilities Commission, 260 U.S. 48, 67 L ed 124, 43 S. Ct. 51.

In the brief submitted by the Commission there appears a tabulation of specific items of expense, showing the amounts at which it is claimed such items were allowed. This tabulation is not sustained by the record and we therefore cannot consider it.

In this investigation there has been practically no dispute as to any material fact. The differences between the Commission and the Company arose chiefly upon the manner in which the Commission weighed the facts and upon the conclusions based upon such facts. In disposing of the issues raised upon this appeal we have not held that the patrons of the Company were not entitled to a reduction in electric rates, nor that the Company was not entitled to an increase in the steam heat rates. It may well be that after a reconsideration of the facts, in the light of this opinion it will be found that the patrons of the Company are entitled to a substantial reduction in electric rates. If that result be reached, then in justice, the consumers were entitled to the reduction as of the date of the Commission's original order.

The case is therefore remanded to the district court with instructions to return the case to the Commission in order to give it an opportunity to reconsider the evidence and to amend its findings and order herein in the light of the rules laid down in this opinion. Such reconsideration shall be had on notice to the Company and additional evidence may be offered by either party. During the pendency of such reconsideration, the district court shall retain jurisdiction of the case and the order requiring the Company to deposit with the clerk of court the excess rates it collects shall remain in force. If the Commission shall amend its order to establish rates, in conformity with this decision, such rates shall be effective as of the date of the first billing subsequent to March 11, 1938, the effective date fixed in the Commission's order of March 7, 1938. Upon the filing of such amended order in the district court, subject to the Company's right to further review, the moneys impounded by the clerk thereof pursuant to the previous orders herein shall be disbursed by direction of the court to the persons who shall be entitled thereto.

The Commission shall have sixty days after the remittitur to the district court, and such additional time as may be allowed by said court for good cause, in which to file its amended order. The failure by the Commission to file such order within the time fixed shall be deemed an election not to reconsider the case and in that event the judgment of the district court shall be affirmed.

BURR, Ch. J., and NUESSLE and MORRIS, JJ., concur.