Application of Northwestern Bell Telephone Co.

Decision Date19 February 1986
Docket NumberF-3443,No. 14723,F-3442,14723
PartiesIn the Matter of the Application of NORTHWESTERN BELL TELEPHONE COMPANY for an Increase in its Intrastate Rates (AND).
CourtSouth Dakota Supreme Court

Mary L. Vanderpan and David C. Jarratt, Asst. Attys. Gen., Pierre, for South Dakota Public Utilities Com'n; Mark V. Meierhenry, Atty. Gen., Pierre, and Alan J. Roth of Spiegel & McDiarmid, Washington, D.C., on brief.

Jeremiah D. Murphy of Boyce, Murphy, McDowell & Greenfield, Sioux Falls, and Melvin R. Quinlan, Richard A. Karre, Ronald G. Lenhart and Perry W. Hooks, Jr., Omaha, Neb., for Northwestern Bell Telephone Co.

MORGAN, Justice.

This appeal arises from an application filed by Northwestern Bell Telephone Company (Company), with the South Dakota Public Utilities Commission (Commission), by which Company sought an increase of some $21.5 million dollars per year in intrastate rates. The results of a long and somewhat complicated procedure * were two Commission decisions allowing a net rate increase of $4,993,000.00. Company appealed that decision to the Circuit Court, Sixth Judicial Circuit, Hughes County, South Dakota. The decision of the circuit court is before us on appeal by the Commission in two aspects only: (1) The circuit court reversed Commission's disallowance of Company's claim that average cash balances should be included in rate base ($99,000.00); and (2) circuit court reversed Commission's disallowance of Company's claim for an inflation adjustment ($270,000.00). By stipulation between Company and Commission's staff, approved by Commission and accepted by the circuit court, appeal on all substantive issues except for the two noted above was foreclosed. We affirm and remand.

The evidence as adduced at the various proceedings will be discussed in conjunction with any issue to which it may be relevant. The issues as detailed by Commission are as follows: (1) The circuit court's decision should be reversed if Commission's decision was not clearly erroneous in light of the entire evidence in the record. (2) Commission's disallowance of the average cash balances from Company's working capital allowance in Company's rate base is supported by the evidence. (3) The Commission's disallowance of Company's requested inflation adjustment is supported by the evidence.

Company raises the procedural question as to whether Commission preserved the question of sufficiency of the evidence for review by failure to request appropriate findings of fact and by failure to make relevant written objections to Company's proposed findings of fact.

Obviously, we must examine Company's procedural question first. SDCL 15-26A-8 provides, in pertinent part: "Such ... matters ... as may have been timely presented to the trial court by motion for directed verdict, request for findings, or other [appropriate] motion, offer, or objection may be reviewed on appeal[.]" As pointed out by this court in Burke v. Lead-Deadwood Sch. Dist. No. 40-1, 347 N.W.2d 343 (S.D.1984): "The thrust of this statute is twofold. On the one hand, it will not allow a party, upon review, to profit from its own failure to act. On the other, it protects the trial court's right to rule correctly." 347 N.W.2d at 344. A review of the record discloses that subsequent to the trial court's memorandum opinion, Commission filed proposed findings of fact and conclusions of law as well as objections to anticipated findings and conclusions from Company. A stipulation was then entered into which provided: "The Commission may appeal to the Supreme Court on the issue of the average cash balance in working capital and the inflation adjustment." Both parties waived their rights to appeal all other issues. The stipulation further provided that the trial court could enter its judgment on the basis of its memorandum decision. At the time the trial court approved this stipulation, and when it entered Company's proposed findings of fact and conclusions of law to the decision, it had before it in the file Commission's proposed findings filed subsequent to the memorandum decision and prior to the stipulation. The statutory requirement and the Burke decision thereon were clearly met.

We then examine the first issue, our scope of review. Commission has framed its issues in terms of whether or not Commission's decision was clearly erroneous in light of all of the evidence in the record. Company argues that the proper scope of review on this appeal is whether the circuit court's findings were clearly erroneous.

Company's argument is based on the 1983 legislative amendment to SDCL 1-26-37 which, as amended, reads:

The aggrieved party or an agency may obtain a review of any final judgment of the circuit court under this chapter by appeal to the Supreme Court. The appeal shall be taken as in other civil cases. The Supreme Court shall give the same deference to the findings of fact, conclusions of law and final judgment of the circuit court as it does to other appeals from the circuit court. Such appeal may not be considered de novo. (Amendment underlined.)

As was pointed out in a footnote to State Div. of Human Rights v. Miller, 349 N.W.2d 42, 46 n. 2 (S.D.1984):

Even if we apply SDCL 1-26-37 as amended, the required deference to the circuit court nevertheless appears not to have changed. As amended, we decide whether the circuit court was clearly erroneous in determining that the agency was clearly erroneous. This reverts us to the agency record. If after review of the evidence we deem the agency findings clearly erroneous, we affirm the circuit court. If the agency findings are not clearly erroneous, then the circuit court was clearly erroneous in so concluding. It follows that, in the final analysis, we still review essentially as did the circuit court.

Subsequent to that, in Matter of S.D. Water Mgmt. Bd., 351 N.W.2d 119, 122 (S.D.1984), we affirmed our holding as follows:

In ... State v. Miller, 349 N.W.2d 42 (S.D.1984), we decided that despite the new language in the statute, this court still reviews the administrative decision essentially in the same manner as did the circuit court; the required deference to the circuit court has not changed. (Emphasis in original.)

We read the 1983 amendment in the light of SDCL 15-6-52(a) and the subsequent decisions of this court. The statute, in pertinent part, provides: "Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses." In Geo. A. Clark & Son, Inc. v. Nold, 85 S.D. 468, 474, 185 N.W.2d 677, 680 (1971), when discussing evidence submitted by deposition, this court said: "Since [the deponent] did not appear before the court when testifying we have reviewed his testimony as though presented here in the first instance. Consequently, the clearly erroneous rule of SDCL 15-6-52(a) does not apply. In other words, it is not burdened with a presumption in favor of the trial court's determination." Earlier, in State Automobile Casualty Under. v. Ruotsalainen, 81 S.D. 472, 479, 136 N.W.2d 884, 888 (1965), we have said: "With the testimony presented to the trial court [by deposition] there is no presumption in favor of the trial court's determinations. Accordingly, it is our duty to review the evidence and determine the issues involved as though presented here in the first instance." (Citations omitted.) In an administrative appeal, the trial court's decision below is based entirely on the written record from the agency. We are fully as capable of reading the agency record as was the trial court. We therefore review the agency record in the same light as does the trial court to determine whether or not the agency's decision was clearly erroneous in light of all the evidence in the record. SDCL 1-26-36.

Turning to the merits of this appeal, we first examine Commission's contention that the evidence in its entirety is sufficient to justify its decision to deny inclusion of Company's average cash balance in its rate base.

Commission stated in its decision and order (F-3442):

The Commission finds that to the extent average cash balances are used to pay for plant already included in rate base, the Company will earn in effect, a double return on those plant items if the Company is allowed to include average cash balances in its working capital requirement..... The Commission finds therefore, that under the Company's proposal, both the plant item and that portion of cash balances used to pay for it will earn a return. For this reason, the Commission finds that average cash balances and working funds should not be included in the calculation of the Company's working capital requirement.

The Commission staff had proposed the elimination of average cash balances from Company's working capital allowance for several reasons; but the only reason for Commission's action is that set out above. Company, on its part, had argued against this reasoning on the basis that it involved the timing of plant in rate base in which the staff had made no attempt to quantify.

The circuit court, in reversing Commission's action on this issue, found that Commission's claim that Company will earn a double return to the extent some unquantified portion of average cash balances might have been used for plant also included in the rate base is immaterial and is insufficient reason for excluding all cash from Company's rate base. The court further found that Commission's argument on this issue rests more on "speculation and assumption than upon fact or reasonably demonstrable projections." Citing N.W. Pub. Serv. v. Cities of Chamberlain, Etc., 265 N.W.2d 867, 879 (S.D.1978).

Regulated utilities are allowed a return or profit on their rate base with the cost of physical plant and amounts for working capital and related allowances. A "cash working capital" allowance is included in the rate base to...

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