OPINION HANDED
DOWN BY JUDGE
RITCHIE OCT. 3
Clerk of Court Cuddy yesterday de
livered to the Gateway a copy of the
opinion recently handed down by his
honor. Judge E. E. Ritchie, in the case
wherein Samuel M. Graff was plain
tiff and the City of Seward et al was
the defendant. This opinion while
quite lengthy, is of more or less in
terest to every citizen, and several
prominent residents have asked that
it be published in toto, which is done.
The Gateway has no comment to make
on the opinion believing that the case
was threshed out in the courts and an
unbiased and impartial decision ren
dered by the Court.
The opinion says:
“It is conceded by counsel in this
case that the main issue is the reas
onableness or otherwise of the rates
for electric lighting and power fixed by
Ordinance No. 7S of the Town of Sew
ard for the product of plaintiff's elec
trical plant, which is the sole electri
cal plant in the Town of Seward,
furnishing light and power to the in
habitants and to the town for street
lighting. Incidental questions were
argued to some extent in the trial but
they have no particular bearing upon
the chief issue.
Prior to the adoption of Ordinance
No. 78, plaintiff and his" predecessor
in business had furnished light and
power almost exclusively on flat rates
and it is claimed by defendants and
testimony was given to show that
plaintiff had persistently refused, ex
cept in a few instances, to allow elec
tric cuurrent to be measured by me
ters and paid for accordingly. Ordi
nance No. 78 specifically procided that
plaintiff must furnish meters to cus
tomers whenever asked and that the
rate for lighting purposes should be
12 1-2 cents per kilowatt, and a less
rate for power. An important differ
ence between plaintiff and the town is
over street lighting. All street lights
haad always been upon flat rates and
a part of the street lighting system
was composed of what the electri
cians describe as a system of multiple
lights, a system which is probably not
well understood by anybody except
electricians. Plaintiff claimed that he
could not install meters for the mul
tiple street lights except by changing
the entire system at great expense.
Shortly before the date fixed for
Ordinance No. 78 to become effective
to-wit, September 2, 1924, plaintiff in
stituted a suit asking for a permanent
injunction, to prevent the enforcement
of ordinance No. 78, alleging in his
complaint that the rates fixed by said
ordinance would be confiscatory of his
property and therefore an invasion of
his constitutional rights. A temporary
injunction was granted. About the
same time the city asked for a pe
remptory writ of mandamus from the
court to compel acceptance by plain
tiff of the ordinance rates and the sup
plying of electric current under the
terms of the ordinance. This case
was afterwards consolidated with
plaintiff’s case.
At a preliminary hearing in Octo
ber, 1924, a stipulation was made be
tween the parties providing that until
the final determination of the suit
plaintiff should furnish electric cur
rent for lighting purposes at 15 cents
a kilowatt, and 10 cents for power. It
was also stipulated that it was desira
ble for those rates to be tested for a
few months for such light as the re
sult might throw upon the reasonable
ness of thei ordinance rates.
The cause came on for trial in the
latter part of May, and continued aft
er an adjournment late in June. It
was agreed throughout the trial by
court and counsel that the court had
/no power to fix rates, that it could
only pass upon the reasonableness of
the rates fixed by Ordinance No. 78.
At the conclusion of the testimony
and argument of counsel the court
announced its decision that plaintiff
had failed to prove his case; that on
the whole evidence it was not appa
rent that the rates would be confis
catory, but stated that as that time
was the season of the year when there
is no darkness in Seward and con
sumption of current for lighting is
very small it would probably be un
fair to plaintiff and cause him unnec
cessary loss if he were compelled at
that particular time to change his sys
tem of business and his rates to meet
the requirements of the ordinance, and
for that reason findings and judgment
would not be signed until the last day
of September, which would enable the
new rates to ‘go into effect on October
first.
The evidence upon which the deci
sion of the court is based is the fol
lowing: Plaintiff claims an invest
! ment in his business of from $180,000
to $200,000 and asserted that he was
entitled to a ten per cent return on
that investment. Defendants answer
ed, and it is plain, that a town with
a population of seven hundred to eight
hundred, could not pay a profit of
; $20,000 a year for electric service.
I Three expert electricians testified in
| behalf of the defendants, one of them
the manager of an electrical business
in a neighboring town. All of them
agreed that much of the expenditure
made by the plaintiff upon his plant
was wholly unnecessary to a proper
conduct of the business; that some of
his improvements were not a neces
sary part of the business of supplying
I electric current to the Town of Sew
I ard. With these conclusions I am*
; obliged to agree. It is undisputed
| that plaintiff has an excellent plant
I and buildings as he claims. His pow
| er house is a two story cement buihl
j ing. The power plant is on the ground
floor. The Second floor is equipped
I for living rooms for plaintiff and his
family and is occupied by them. These
, living rooms are clearly unnecessary
i for the conduct of plaintiff’s business
and are no part of the investment de
voted to the public service. Plaintiff
also has a cement garage which he ex
plains was built to house a truck with
| which he intended to do hauling ne
I cessary in his business. But the &ar
j age is large enough to house several
automobiles. A small frame building
would have been sufficient to shelter
the truck. A great deal of space in
the garage is occupied by plaintiff’s
Studebaker car, which is used by him
self and family. Among the items of
expense for ttye last year is the sum
of more than one thousand dollars for
fuel which it was stated was coal used
; to heat the power plant building. It
was testified by most of the electri
; cians that it is unusual to have heat
{in power rooms in electrical plants. I
am obliged to accept the view that it
is unnecessary; that most of the con
sumption of fuel was for heating plain
tiff’s living room upstairs. So the
item of fuel, or most of it, should be
deducted from plaintiff’s statement of
the cost of operating his business.
Plaintiff’s power for the generation
of electricity of his hydro-electric sys
tem is water coming from a gulch be
tween mountains on the upper side of
town. At the head of this gulch sev
eral miles above town is a glacier and
perpetual snow. In periods of very
heavy rains, or extremely warm wea
ther in summer, when ice and snow
melt very rapidly, the stream running
through the gulch overflows and has
several times carried out a part of
plaintiff’s pipe line. This has caused
him a great deal of expense as well
as temporarily cutting off the supply
of electric current to the town. In the
late winter months the supply of wra
ter gets so low that plaintiff is often
unable to generate sufficient power
for the needs of the town. If the town
grows very much this water shortage
in the late winter will make it impos
sioie tor plaintiff to supply the town
adequately with current at that sea
son. The supply of water in summer
is ample for much more power than
the town is likely to need for some
years to come. Owing to the frequent
difficulty with his water power plain
tiff two years ago went further up the
stream and installed a new intake
built of cement at a cost of $22,000.
All the other electricians who testi
fied in the case expressed the opinion
that this cement intake was a bad in
vestment. They were all of the opin
ion that his water supply is un
economic and will always remain so
and that necessarily with the growth
of the town his handicap in that re
spect wrill become constantly greater.
They were of the opinion, and so am
I, that he ought to seek another source
of water power, one of which at least
is available although it would un
doubtedly cost a great deal of money
to make usp of it. I agree with the
electricians who think that plaintiff
might do very well indefinitely with
his present water power if he would
install an auxiliary plant with twin
Diesel engines for use in times of wa
ater shortage or other interference
with water power generation. I am of
the opinion from all the evidence that
plaintiff has invested enough money
in buildings and fixtures unnecessary
for the public service to install such
an auxiliary plant, the establishment
of which is about $50,000. It might
be somewhat more than that and it
might be less. Owing to the difficul
ties plaintiff has had for twenty years
with his water power, he has been put
to great expense at various times for
repairs and replacements. A few years
ago a heavy flood practically destroy
ed his pipe lipe and the overflow of
water ran thru his pojver house leav
ing a heavy deposit of sand and grav
el there, and inflicted other damage.
This caused a heavy loss to plaintiff
or the company, his predecessor, of
which he was the head and manager,
and this loss and other losses are
charged by him in his capital invest*,
ment.
I see no advantage in attempting to
figure all items of operating loss and
unnecessary investments which I
think should be deducted from plain
tiff’s estimate of his capital invest
ment. After listening to the testi
mony of the other electrical experts
who testified in the case, and consid
ering it carefully, together'with plain
tiff’s own estimate, I am satisfied that
the part of plaintiff’s investment which
is useful for public setvice in the
Town of Seward is about half of the
amount that he claims. I do not ques
tion that he expended the money as
his figures show, but a great deal of
it was unnecessary and a great deal
more of it I think the result of im
prudent investment.
The law governing returns to pub
lic utilities is not fully settled altho
some recent cases of the Supreme
Court have brought considerable or
der out of chaos, particularly the Geor
gia Power Company case and the Blue
field case. The Supreme Court also
in the main adheres to the rule laid
down in Smyth vs. Ames, 169 U. S.
It is true that there was dissent in
the court in these late decisions. Per
sonally I have strong inclination to fa
vor the rule laid down by Mr. Justice
Brandeis, that the basis of return
should be the amount of prudent in
vestment. Justice Brandeis criticised
the rule in Smyth vs. Ames laid down
by Justice Harlan. I am unable to
see much difference between the de
tailed statement of Justice Harlan of
the factors which should enter into
the basis for rate fixing and the rule
of prudent investment advocated by
Justice Brandeis. It seems to me that
they amount to the same thing and
that is, that the owner and operator of
a public utility is entitled to a fair
return upon money that he has judi
ciously invested for the public service
and which he is still using. He should
not be charged with every loss caused
even by mistaken judgment if his in
vestment is one that prudent men
might be expected to make, but the
public should not be expected to pay
returns upon investments for mere ex
periment nor investments which are
partly made for private use.
In this case I am satisfied that a
more careful consideration of the nat
ural obstacles to be contended with,
and the probable future of the town
would have entailed an investment of
not more than half the amount that
plaintiff has put. into his business.
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Plaintiff testified that he had been
building largely for the future, but
while this is commendable within rea
sonable limits the present town of
Seward shouuld not be compelled to
pay interest on investments made in
the belief that within a short time the
town will be several times as large.
A certain amount of building for the
future is business prudence but be
yond that it is mere speculation. The
known history of Alaska towns, their
sudden growth and frequently almost
immediate decadence ought to suggest
to any business man not to risk too
much on the future.
Another fact must be taken into con
sideration by the court, and that is
the ability of the town, to pay. It has
already been stated, arul I think no
one will dispute ,it, that the Town of
Seward cannot pay a rate much high
er than Ordinance No. 78 fixes for
electric current. There are towns in
Alaska which have less than one-fifth
the population they had a few years
ago. If the expensive electric plant
had been installed in one of these
__ I
towns when its population was at its
maximum it is plain that no such
plant would be necessary now and it
would be unreasonable to expect the
handful of people remaining to pay in
terest on an investment made for the
service of five times the populuation.
It is admitted that the town of Sew
ard only a few years ago had a pop
ulation nearly if not quite double the
(‘Continued on Page Seven)
Gas Launch
KENAI
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TO MILE TWENTY
Louis Bell, owner
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Gal. Cor. Iron,
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Fibered Plaster,
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Doors,
Windows,
Lumber,
Fir Lath,
Fire Brick,
Spruce Finish,
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Z-Lath,
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Roof Paper,
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LIBBY-OWENS WINDOW GLASS, Single and Double Strength,
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A
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