Bluefield Waterworks Improvement Company v. Public Service Commission of West Virginia

Messrs. Alfred G. Fox and Jos. M. Sanders, both of Bluefield, W. Va., for plaintiff in error.

Mr. Russell S. Ritz, of Bluefield, W. Va., for defendants in error.

[Argument of Counsel from pages 680-683 intentionally omitted]

Mr. Justice BUTLER delivered the opinion of the Court.

This case established a standard of comparable earnings when determining the cost of equity capital as used in calculating a utility's rate base in a ratemaking proceeding. In this method, parties would identify a group of comparable companies and the group's earnings rate would be used to establish the utility's required return on equity. Controversy surrounded the fact that if multiple utility's came in for a rate case in a sequential fashion, the same companies deemed comparable could be included in the pool, or the pool in which they had previously been included could be used to determine their new rate of return. This could result in a feedback loop with each company's inclusion in the pool later setting its return on equity without regard for real circumstances. This method was commonly used until 1960-1970.