THE PEOPLE OF THE STATE OF NEW YORK ex rel. BINGHAMTON LIGHT, HEAT AND POWER COMPANY, Relator,
FRANK W. STEVENS and Others, as Commissioners Constituting the Public Service Commission of the State of New York for the Second Public Service District, and Said PUBLIC SERVICE COMMISSION, Respondents.
CERTIORARI issued out of the Supreme Court and attested on the 20th day of September, 1910, directed to Frank W. Stevens and others, as commissioners constituting the Public Service Commission of the State of New York for the Second District, and said Public Service Commission, commanding them to return to the office of
the clerk of the county of Albany all and singular their proceedings had in relation to their determination upon the application of the Binghamton Light, Heat and Power Company to issue a general extension and refunding mortgage and certain bonds therewith, and to issue $50,000 additional preferred stock.
Joline, Larkin & Rathbone [Henry V. Poor and Adrian H. Joline of counsel], for the relator.
Ledyard P. Hale and Henry C. Hazzard, for the respondent Public Service Commission.
SMITH, P. J.:
In 1902 this relator bought out the Binghamton General Electric Company. At that time there were outstanding $500,000 of the common stock of the company, and $325,000 of first mortgage bonds. Since that time the company has expended in improvements, construction and replacement about $546,000. This has been held by the Commission to have been expended substantially all for replacement. As against that, there has been issued $150,000 of cumulative seven per cent preferred stock and $175,000 of bonds. There is also outstanding $158,000 in the notes of the company, and between $14,000 and $15,000 of account, both notes and account, representing part of this $546,000 which has been put into construction. In February, 1909, application was made to the Public Service Commission for authority to execute a general extension and refunding mortgage to secure the issue of $1,000,000 of bonds. Five hundred thousand dollars of these bonds were to be laid aside to redeem the $500,000 of bonds then outstanding. Of the balance, authority was asked to issue $180,000, together with an additional $50,000 of preferred stock. It was estimated that the preferred stock would sell at about par, while the bonds would sell at about 80, and these two issues would produce about $195,000. This was to take up the notes of $158,000 and the construction or replacement account of between $14,000 and $15,000, and to pay about $25,000 in accounts payable, which were not claimed to have been made for the purposes of construction, improvement or replacement, but were sought to be included that the accounts receivable of like amount might be used for working capital.
The contention of the relator is that because, as against the $546,000 expended in construction, improvement and replacement, only $150,000 of preferred stock and $175,000 of bonds has been issued, it is entitled to issue further fixed capital security to the extent of $221,000, if need be, as representing the money actually put into capital of the plant. Upon August 4, 1909, the Commission determined that the relator should not issue new bonds or new stock for the purpose of paying the $25,000 of accounts payable, and denied the petition of the relator to issue the $50,000 additional preferred stock, but authorized the issue of the general extension and refunding mortgage to secure $1,000,000 of bonds, $500,000 of said bonds to redeem the $500,000 bonds outstanding, and the issuance of $197,500 of bonds thereunder in addition, which upon a sale at 80 would produce $158,000, the amount of the outstanding notes. This authority, however, was given only upon condition that the said company would credit to fixed capital the sum of $100,000. It was specifically pointed out to the relator that no requirement was made that the capital stock should be in fact reduced, but only that this sum should be credited as against the fixed capital charged, so that the books might more nearly show, as will hereafter appear, the proper relation between the fixed capital account and the actual assets of the corporation. The proceeding was not then dismissed, but was in terms continued, to enable the relator to make further application and offer further proof upon the lines indicated in the opinion then handed down.
Before discussing the legal questions involved it is well to point out the facts which led up to this decision of the Commission. The balance sheet of the relator upon December 31, 1908, showed a fixed capital to the amount of $1,302,725.72. Included within this amount was $543,494.53, which had been put into construction and replacement, tangible and intangible, since the purchase from the Binghamton General Electric Company. The balance, $759,231.19, was the amount appearing upon the books of the company as of March 1, 1902, as the value of the property, real estate and personal and franchise rights of the Binghamton General Electric Company. It is perhaps interesting to note that upon February 28, 1902, the condensed balance sheet of the Binghamton General Electric Company showed total assets amounting to $607,159.58. This increase within
a single day to $759,231.19, as it was placed upon the books of the relator, is nowhere explained. An expert in the employ of the Public Service Commission was put upon the books and examined the property of the relator and the property purchased by the relator from the Binghamton General Electric Company. Part of that property had been sold for about $15,000. All the remaining property that passed from the Binghamton General Electric Company was valued as $51,000. So that of this $759,231.19 which is included in this $1,302,725 of the claimed fixed capital of the relator over $600,000 in round numbers has absolutely disappeared. It is not contended that it has been fraudulently disposed of. The fact is that it has been laid aside and thrown away, and that in its place the new machinery and new construction has been substituted for which relator has charged fixed capital at $543,000. Of course, there are certain betterments to property that are properly chargeable to capital. The general upkeep of a plant or of a railroad, however, ought not to be charged to capital but the company ought to be compelled to make such repair and replacement as a part of current expenses. Of course, if this were not so they could capitalize all running expenses periodically and call the gross income net income and continually impoverish the company by paying improperly large dividends. Apparently that was what was done in this case. From the expenditures which make up the large amount of so-called assets there was not deducted the ordinary current expenses and repairs of the plant, and there is now an effort on the part of the company to capitalize these current expenses which the Commission has very properly disapproved of. In determining the price at which this public service corporation can charge the public for its product it is allowed only a fair return upon its actual value at the time. So that the statement of fixed capital in its balance sheet at $1,302,725 is an actual misrepresentation of at least $600,000. The relator was asking permission practically to float $1,000,000 worth of its bonds upon a valuation of about $600,000, with a misrepresentation of an additional $600,000 at least as part of its fixed capital. These bonds will go upon the market with the advertised approval of the Public Service Commission. Every care should be taken, therefore, that those methods adopted by the law for the protection of the innocent purchaser should not become a trap to
snare him. If the Commission had power, therefore, to place any condition upon the authorization of this increase in bonds or stock, it would seem that the only criticism to be made upon their ...