Application of Northwestern Bell Telephone Co.
| Citation | 6 N.W.2d 165,69 S.D. 36 |
| Decision Date | 14 November 1942 |
| Docket Number | 8509. |
| Parties | Application of NORTHWESTERN BELL TEL. CO. |
| Court | Supreme Court of South Dakota |
Rehearing Denied Jan. 4, 1943. [Copyrighted Material Omitted]
H. A. Poley, of Omaha, Neb., F. G. Warren, of Sioux Falls, and H. G. Burke, of Omaha, Neb., for appellant Roy D. Burns, of Sioux Falls, and Wm Williamson, of Pierre, for respondent Public Utilities Commission.
On June 12 1939, the Northwestern Bell Telephone Company, appellant herein, made application to the Public Utilities Commission of the State of South Dakota for authority to increase its Sioux Falls exchange rates. The proposed increase was from $4.50 to $5.50 per month for one-party business rates; from $3.50 to $4.50 per month for two-party business rates; from $2.50 to $2.75 per month for one-party residence rates, and from $2.25 to $2.50 per month for two-party residence rates. The Company also proposed to introduce a new type of service called "Incoming Line Service" at $4.50 per month, to accommodate the needs of a part of its business subscribers. These new rates were to go into effect on July 28, 1939.
In its application for authority to so increase its exchange rates, the Telephone Company alleges that the existing exchange rates were unjust and unreasonable and had not for several years last past produced a fair return on the fair value of its exchange property. The application also alleges that the proposed increased exchange rates would yield no more than a fair return on the fair value of its Sioux Falls exchange property.
A hearing before the Public Utilities Commission was duly had on the Telephone Company's application at Sioux Falls, South Dakota, on September 12, 1939, at which hearing evidence was introduced by the Company, the Commission, and the City of Sioux Falls. On October 23, 1940, the Commission filed its report and made and entered its order to the effect that the existing exchange rates in Sioux Falls were adequate and reasonable, and dismissed the Company's application for increased rates. A rehearing, applied for by the Company, was, by order, denied by the Commission on January 11, 1941. The Company thereupon appealed from the orders of the Commission to the Circuit Court of Minnehaha County, South Dakota, and on October 7, 1941, that court, after hearing, filed its decision and judgment, affirming the Commission's orders of October 23, 1940, and January 11, 1941. It is from that decision and judgment of the Circuit Court that this appeal is taken by appellant Company.
The assignments of error challenge the decision and judgment of the Circuit Court, and the orders of the Commission, on the ground, among others, that such orders of the Commission are unreasonable and deny the Company the opportunity to earn a fair rate of return on the fair value of its Sioux Falls exchange property, in violation of statute and the due process clause of the State Constitution. In other words, the issue of confiscatory rates, as distinguished from compensatory rates, is expressly presented by the record of this case.
It appears from the transcript of the testimony and the report of the findings of the Commission that the Company's net operating income under existing rates; an estimate of the net operating income under the proposed rates, had they been in effect; and the fair value of the Company's Sioux Falls exchange plant, devoted to the exchange service, were the three essential facts sought to be established. Obviously these are the basic facts necessary to determine the rate of return.
The Commission found that the net operating income of the Company for 1938, under existing rates, was $30,653.20, and that the fair value of the Company's property, used in exchange service at Sioux Falls, was $876,110. It also found that under the proposed exchange rates the net operating income would have been $64,005.75. The Commission did not compute the rate of return, and there is no specific finding in its report showing what the rate of return is. But the rate of return is determined by dividing net income by the fair value of the property. If we do that, the rate of return is 3 1/2%, computed on what the Commission found to be net operating income and the fair value of property.
The Commission's report shows that its net income figure of $30,653.20 was reached by taking from the toll income of the Company for alleged use of exchange facilities making toll calls, the sum of $5,393.47 and weaving this sum into the actual net income of the exchange service, to-wit, $26,417.49, reflected in the books and records of the Company. These books and records were examined by two expert accountants, one called as a witness by the Company and one by the Commission. They agreed that the books of the Company showed a net income of $26,417.49 for 1938 for exchange service under existing rates. There is no other testimony in the record on this subject.
It appears also that on May 11, 1926, the Commission had made an order, which is still in effect, requiring the Company to include in its exchange service and rates the use of local facilities by exchange subscribers in making and terminating toll calls. The order, in effect, denies the Company the right to charge for the use of local facilities in its intrastate toll rates. It, therefore, precludes reimbursement from toll income of any sum whatever for the use of exchange facilities.
The undisputed proof establishes the figure of $26,417.49 as the net income for exchange service for the year 1938 under existing rates, as shown by the Company's books and the testimony of the accountants who examined those books.
In estimating the net income under the proposed rates, the Commission likewise included the toll reimbursement sum aforesaid.
The Commission found that the fair valuation of the Company's exchange property was $876,110. The book cost of the Company's exchange plant was admittedly $1,155,889.26. But this basis, though recognized frequently by the courts as a proper basis of valuation, was not used by the Commission, nor urged by the Company, for the obvious reason that it gives a much greater value than the so-called "reproduction cost new" basis. It was this latter basis or method which the Commission adopted to measure the fair value of the exchange plant, and this method, in which it is determined what it would cost to reproduce the plant at the present time, less accrued depreciation, is also recognized by the courts as a proper way to ascertain fair value of a utility's property as the rate base. The figure of $876,110, found by the Commission, is in sharp conflict with the estimate made by the Commission's own witness, Hamilton, who found the fair value to be $947,731, and by the Company's witness, Cronland, who found that value to be $967,208. The difference between the Commission's figure of fair valuation and Hamilton's and Cronland's figures is accounted for by the Commission's exclusion of part of the computed interest sum during construction allowed by the witnesses, and the Commission's rejection of going concern value, also allowed by both witnesses. The difference between Hamilton's and Cronland's figures is accounted for by Hamilton's restrictions of what should be allowed for working capital requirements. The record shows that Hamilton is an engineer with many years' experience, and that Cronland is an accountant with many years' experience. They are the only witnesses who testified on fair valuation, which was ascertained by the reproduction cost new method adopted by the Commission. The result of the calculations, employing the figures of the Commission as to net income and fair valuation, is a rate of return of 3.5% under existing rates and 7.3% under the proposed rates; and employing the figures of Hamilton and Cronland the rate of return is 2.76% under existing rates and 5.92% under the proposed rates.
The statutes of this state provide for appeals from the Commission to the Circuit Court, and from the Circuit Court to the Supreme Court, and for a trial in the appellate courts upon the record made before the Commission.
"In all actions or proceedings in which the validity, lawfulness, or reasonableness of any final order or determination of the Public Utilities Commission shall in any wise come in question, the original or certified copy of the final record made before said Commission shall constitute the record in said cause, and no new evidence shall ever be received or introduced; but the case shall be heard and determined upon the final record provided for in this chapter." SDC 52.0502.
"The Circuit Court in its determination of said cause may affirm, reverse, or modify, such order or determination of said Commission, or remand the cause to the Public Utilities Commission with directions for further proceedings." SDC 52.0504.
The appeal from the Circuit to the Supreme Court is likewise heard on the settled record made before the Commission, and such appeal to the Supreme Court is the exclusive remedy to review, reverse, correct or annul any action of the Commission. SDC 52.0505 and SDC 52.0506.
That the statutes make no reference to the conclusiveness of the findings of fact by the Commission is no ground for saying that the legislature intended the Circuit or Supreme Court to try the case de novo, weigh the evidence, consider matters of a purely administrative nature and substitute its discretion for that of the Commission. Application of Dakota Transportation, Inc., of Sioux Falls, 67 S.D. 221, 291 N.W. 589, 594.
On the contrary, this Court holds that ...
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