Bd. Of Sup'rs Of Arlington County v. Commonwealth Ex Ret. Chesapeake
| Decision Date | 24 November 1947 |
| Citation | 45 S.E.2d 145 |
| Court | Virginia Supreme Court |
| Parties | BOARD OF SUP'RS OF ARLINGTON COUNTY et al. v. COMMONWEALTH ex ret. CHESAPEAKE & POTOMAC TEL. CO. |
Appeal from State Corporation Commission.
Proceeding on the petition of the Commonwealth of Virginia on relation of the Chesapeake & Potomac Telephone Company of Virginia to the Corporation Commission for a rate increase wherein the Board of Supervisors of Arlington county and others intervened in opposition. From an order of the commission granting an increase, the Board of Supervisors of Arling ton county and the Arlington Public Utility Commission appeal.
Affirmed.
Before HUDGINS, C. J, and GREGORY, EGGLESTON, SPRATLEY, BUCHANAN and STAPLES, JJ.
Morton L. Wallerstein and W. Shepherd Drewry, both of Richmond, for appellants.
E. Randolph Williams, T. Justin Moore, George D. Gibson and William H. King, all of Richmond, and R. A. Van Orsdel and William G. Gassaway, both of Washington, D. C., for appellee.
The Chesapeake and Potomac Telephone Company of Virginia, hereinafter called the Company, is a Virginia corporation furnishing telephone service in about one-third of the geographic area of the State. It is "a transmission company, " within the meaning of section 156 of the Virginia Constitution and chapters 159, 160 of the Code of Virginia, and accordingly its rates for intrastate service are subject to regulation by the State Corporation Commission.
On July 31, 1926, the Commission, after a lengthy hearing, entered an order 1 granting an increase in rates to the Company. Since then the Company has been allowed no general rate increase.
On December 20, 1946, the Company filed with the Commission its application or petition for approval of revised schedules of rates, charges, rules and regulations, designed to become initially effective in this State on January 21, 1947. While some of the proposed revised rates provided for no change, or for slight decreases, the majority involved increases in the rates, charges, rules and regulations theretofore filed and effective for use by the Company.
On the date of the filing of the application the Commission entered an order, instituting and docketing a proceeding and ordering an investigation and hearing on January 13, 1947, concerning "the reasonableness and justice" of the proposed revised rates. The order required notice ofa specified form to be published once in each of two successive weeks, beginning at least ten days before the hearing, in newspapers of general circulation published in the cities of Richmond, Norfolk, Roanoke, Lynchburg and Alexandria, respectively.
The prescribed notice recited the filing of the new schedules, pointed out that the "changes generally involve increases in the rates presently existing, " and gave notice that a hearing would be held at the appointed time, at the courtroom of the Commission, at which "members of the public generally" might "appear and present such relevant data as may be desired and be heard." The notice further provided that the new schedules showing the proposed changes in existing rates, charges, etc., were on file with and might be seen at the office of the Commission, and that information as to such changes might also be obtained from any business office of the Company.
After the required publication of this notice in the specified newspapers 2 the matter came on for hearing. The Board of Supervisors of Arlington county and others from that area appeared as intervenors in the proceeding and as objectors to the proposed revised rates. While they freely cross-examined the Company's witnesses, the intervenors introduced no evidence of their own.
At the conclusion of the evidence offered by the Company, a single spokesman on behalf of the Communist Party of Virginia read a prepared statement objecting to the proposed increase in rates.
The Company presented three witnesses who supplemented their verbal testimony by a number of illuminating exhibits and charts. Arthur L. Lambdin, vice-president and general manager, testified as to the current situation with which the Company was faced from the management point of view. Robert W. Michie, vice-president, testified as to the financial statement and earning situation of the Company. Arthur W. Harrison, general commercial manager, testified with respect to the current and proposed schedules of rates and charges. The testimony of these witnesses may be summarized thus:
The Company operates in the State 108 central offices in 93 exchanges or zones, which serve about 401, 000 telephones. It has 6, 900 employees and an investment of approximately $80,000, 000 in its plant and equipment.
Since the entry of the order of the Commission in 1926, fixing the rates and charges of the Company, very decided and definite changes have taken place in its operations. The normal growth of such operations was greatly stimulated by conditions which prevailed during the period of World War II. For instance, during the period between 1939, the last normal pre-war year, to 1946, both inclusive, the business of the Company has undergone the following changes:
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|(1) Number of telephones in service increased from 213, 100 to |88% |
|401,-400, or an increase of | |
|-----------------------------------------------------------------------|-----|
|(2) Number of toll messages increased from 8, 680, 000 to 24, 938,-000,|187% |
|or an increase of | |
|-----------------------------------------------------------------------|-----|
|(3) Gross operating revenues increased from?10, 700, 000 to $27,- |157% |
|-----------------------------------------------------------------------|-----|
|(4) Operating expenses (excluding taxes) increased from $7,000,-000 to |221% |
|$22,600, 000, or an increase of | |
|-----------------------------------------------------------------------|-----|
|(5) Labor expenses (including both wage increases and increase in | |
|number of employees) increased from $3,774, 000 to $14,894, 000, or an |295% |
|increase of | |
|-----------------------------------------------------------------------|-----|
|(6) Total investment in Company's plant has increased from $42,-000, |90.4%|
|000 to $80,000, 000, or an in-crease of | |
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As might have been expected, these rapid changes had a marked effect on the Company's net earnings. An increase of 157% in total operating revenues was overcome by the 221% increase in total operating expenses, with the result that the net earnings in actual dollars was 7% less in 1946 than in 1939.
Taking into account the increase from
$42,000, 000 to $80,000, 000, in its total plant valuation during the period, the ratio of net earnings to the total investment, or the rate of return, decreased 51%, or to one-half the 1939 level.
In other words, although the Company had, in 1946, almost twice the amount invested in its plant as it had in 1939, and was doing two and one-half times as much business, yet due to increased cost of labor and other expenses its net earnings were actually less and its rate of return was reduced by more than one-half. The testimony is that on its intrastate operations-- the subject of this proceeding--the rate of return for the year 1946 was 2.68% of the average original cost of the Company's plant, plus working capital, 3 less depreciation reserves.4
Although the Company made large additions to its plant during the war, scarcities of materials and labor made it impossible to keep up with the growth and demand for service. The average annual net increase in telephones during the pre-war period of 1936-1940 was 16, 000. This increased to 23, 000 during the war period of 1941-1945. In 1946 the increase was over 52, 000, far greater than in any previous year.
In order to meet this demand, the witnesses on behalf of the Company estimated that its construction needs would require the expenditure of $15,000, 000 in 1947, and a total of $60,000, 000 for the next five years.
As summarized by Mr. Michie: "With a critically low level of its earnings, the Company must now seek rate relief in order to maintain its financial integrity and to go forward with" this "program of expansion."
The Company's witnesses testified, and the Commission found, that the effect of the proposed revised schedules of rates and charges would increase the gross annual operating revenues of the Company, from its intrastate business, by 10%, or $2,709, 000. This latter figure, it was pointed out, is about $700,000 short of the actual wage increase of $3,400, 000 made since April 1 1945, and is slightly more than one-half of the general wage increases made since 1939.
It was further shown that the proposed schedules would effect an estimated increase in the annual net earnings of the Company, from its intrastate business, of $1,570, 409.
By reason of such increases it was estimated that the net intrastate earnings would be equivalent to 5.66% per annum on the average original cost of the intrastate plant, plus working capital, less depreciation reserves, amounting to $52,641,-759.
Upon consideration of the evidence adduced the Commission entered an order holding that the proposed schedules of rates, charges, rules and regulations were "not unjust or unreasonable, " and that in accordance with the prayer of the Company they should be put into effect.
The Commission's reasons for this conclusion were embodied in an elaborate written opinion which fully discusses the evidence and all other questions involved. Lack of space forbids an abstract of the opinion....
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