City of Detroit v. Mich. R.R. Comm'n, 25.

CourtSupreme Court of Michigan
Writing for the CourtMOORE
Citation177 N.W. 306,209 Mich. 395
Docket NumberNo. 25.,25.
Decision Date10 April 1920

209 Mich. 395
177 N.W. 306


No. 25.

Supreme Court of Michigan.

April 10, 1920.

Appeal from Circuit Court, Ingham County, in Chancery; Howard Weist, Judge.

Suit by the City of Detroit against the Michigan Railroad Commission and the Michigan State Telephone Company. From a decree setting aside parts of an order made by the Commission, defendants appeal. Reversed, and bill of complaint dismissed.


[177 N.W. 307]

Thomas G. Long and Leo M. Butzel, both of Detroit, Edmund C. Shields, of Lansing, Eugene S. Wilson, of Chicago, Ill., and Stevenson, Carpenter, Butzel & Backus, of Detroit, for appellant Michigan State Telephone Co.

Beaumont, Smith & Harris and Clarence E. Wilcox, Corp. Counsel, all of Detroit (Allan H. Frazer, Corp. Counsel, Hal H. Smith, and David H. Crowley, all of Detroit, of counsel), for appellee.


Application was made to the Michigan Railroad Commission by the Michigan State Telephone Company for leave to put into effect a new schedule of rates and methods for the telephone service in its Detroit Exchange area, which includes the city of Detroit, the villages of Highland Park, Hamtramck, St. Clair Heights, Grosse Pointe, Grosse Pointe Park, Grosse Pointe Farms, Grosse Pointe Shores, River Rouge, Oakwood, Ecorse, and some township territory. The schedule proposed a change in the method of furnishing service from a rental basis per line, instrument, and equipment to a service basis or charge for each message. There were two exceptions from the message rate; that is, one-party and two-party residence telephones, of which there are in round numbers 18,386. All other telephones, numbering about 82,694, were to be on the message basis.

It is the claim of the telephone company that the schedule was necessary to produce a reasonable return on the fair value of the property used. It was claimed that when measured service should be put into effect there would be fewer telephone calls than under the flat rate schedule, and that the improvement of the service was the sole reason for asking permission to furnish service on the message basis, and that better service can be given on the message basis because the subscriber is not then renting telephone equipment, but is paying for telephone service.

It is claimed that in the Detroit Exchange the congestion is so great that good service on the flat rate basis is a physical impossibility, but with message or metered rates the situation would be different, so that central would be obtained more quickly and connection made with greater dispatch, and the operators be relieved of the work of making a large number of noneffective attempts to complete a connection.

It is also claimed the present rate schedule does not produce an adequate revenue; that the company has been unable to pay any dividends on the $6,000,000 of common stock outstanding since September, 1914. The company claimed that the total present value shown by the appraisal filed by the company is $12,974,937. The city claimed it was less than $8,000,000. The commission found it is $10,913,191.

The taking of testimony was begun before the commission on April 20, 1916, and continued from time to time until April 17, 1917. Twenty-two hundred pages of testimony were taken. Exhibits embodying calculations, computations, comparisons, and other figures, comprising hundreds of pages, were also introduced.

[177 N.W. 308]

The greater portion of the testimony related to the valuation of the property. Much of it related to the service as given and the necessity of changing to measure or message rates.

Considerable testimony was directed to the service rendered to the Michigan State Telephone by the American Telephone & Telegraph Company and the payment made by the Michigan State Telephone Company to the American Telephone & Telegraph Company therefor. This is the so-called 4 1/2 per cent. contract.

This contract is claimed by the city to be iniquitous because the American Telephone & Telegraph Company is the controlling stockholder of the Michigan State Telephone Company, and that the charge in proportion to the service rendered is disproportionate. Further reference will be made to this contract later.

On the completion of the testimony the commission had the matter under consideration for several months. Under date of January 30, 1918, it made an order establishing a schedule of rates. At the same time that the order establishing the rate schedule was made, an opinion concurred in by two members of the commission was filed. The conclusions reached by the commission did not agree, except in two particulars, with the claims of either party. As respects the valuations the findings were between the figures claimed by the respective parties. The commission agreed with the claim of the company as to the contract with the American Telephone & Telegraph Company, and that the rate of return to the defendant company should be 8 per cent. Before the schedule of rates and the order became effective, the city brought this suit to enjoin the putting of the schedule into effect.

The taking of testimony before the trial judge having been concluded, and his conclusions reached, the record was referred back to the commission in pursuance of the statute. The commission declined to change its order in any particular, and wrote a further opinion to show the propriety of its order. This report being filed, all of the testimony taken before the commission was read in open court and the matter argued and submitted. From a decree setting aside many parts of the order made by the commission the case is brought here by appeal.

It is the claim of the city that because of its so-called home rule charter it has the sole power to fix telephone rates in the city of Detroit. We shall not spend much time with this contention, but content ourselves with saying that the recent case of Traverse City v. Commission, 202 Mich. 575, 168 N. W. 481, is against the contention of the city and is controlling here.

It is the contention of the city that the commission used a wrong method in arriving at the value of the property as a basis for fixing rates. It claimed, and the city offered testimony to show, that the original cost to the present corporation should control. We quote from the brief:

‘Deducting this now from the total investment of the Detroit Exchange, from which the toll property has already been excluded, we have as the actual investment of this utility in the Detroit Exchange $7,299,148. This we submit is a fair value upon which the fair return of this utility should be computed.’

As to this phase of the case the trial judge expressed himself in part as follows:

‘No matter how much I am impressed with the idea that fair present value cannot be determined under the reproduction cost new, less depreciation method, without considering original cost or actual investment, I cannot, in view of the holding in the case of City and County of Denver v. Denver Union Water Company [246 U. S. 178, 38 Sup. Ct. 278, 62 L. Ed. 649], United States Supreme Court March 4, 1918, condemn that method and set the order of the commission aside for such reason. In that case the court reaffirmed its approval of the reproduction cost new, less depreciation method of appraisal for rate purposes, saying: ‘There can be no question of the company's right to adequate compensation for the use of its property employed, and necessarily employed, in the public service, nor can it be doubted that the property must be valued as property in use. * * * What we have said establishes the propriety of estimating complainant's property on the basis of present market values as to land, and reproduction cost, less depreciation as to structures.’ Such approval there of that method bars disapproval here, even though, were this an original matter before me, I would not adopt such method.'

We think the case cited by the learned judge was directly in point and is controlling.

Another question discussed at great length by counsel called ‘going value,’ or cost of establishing the business, is regarded as important. The company claimed before the commission that it should be allowed $1,115,950 as the cost of establishing the business, and the commission allowed $835,215 for this in the rate base. We quote from the opinion of the trial judge:

‘The commission allowed 8 per cent. of the value of the tangible property for the cost of establishing the business; the theory being ‘that purely as a matter of value the live going exchange is worth at least as much more than the dormant one as it would cost to put the dormant exchange into the active condition.’ This, of course, estimates the cost of establishing the business, not on actual cost to the investors or consideration of whether such cost has been met in the past out of rates collected, but upon a consideration of a theoretical establishing of the business at the time of the appraisal. * * *

‘In the case at bar the cost of establishing the business was not based upon unrequited sacrifices of the investors, nor a consideration of the invested capital, return thereon, expenditures,

[177 N.W. 309]

operating cost, maintenance, financial history of the company, etc., but upon an assumption that because the business is now in operation it would cost $835,215 under existing expense conditions to bring it to its present efficiency point of service. * * *

‘The method adopted leaves out all consideration of the actual history of the company, its rates as formerly fixed by itself, its management, whether efficient or otherwise, its operating expenses, whether proper or not, its expenditures for equipment or extensions, whether now in the tangible appraisal or not, its revenue and what has been done with it, and its return to the investors, and instead of finding what sacrifice, if any, the investors have...

To continue reading

Request your trial
25 cases
  • Mich. Pub. Utilities Comm'n v. Mich. State Tel. Co., 266.
    • United States
    • Supreme Court of Michigan
    • October 30, 1924
    ...for rental of telephones, and other services sufficiently set forth, by this court in City of Detroit v. Michigan Railroad Commission, 209 Mich. 395, 177 N. W. 306, and in which this contract was sustained. Doubtless a contract made between these companies, the major company owning nearly a......
  • Michigan Consolidated Gas Co. v. Michigan Public Service Commission, 9
    • United States
    • Supreme Court of Michigan
    • July 24, 1973
    ...Michigan Central R. Co. v. Michigan Railroad Commission, 160 Mich. 355, 125 N.W. 549 (1910); Detroit v. Michigan Railroad Commission, 209 Mich. 395, 177 N.W. 306 (1920); Michigan Bell Telephone Co. v. Public Service Commission, 332 Mich. 7, 50 N.W.2d 826 (1952); J. E. Bejin Cartage Co. v. P......
  • Southern Bell Tel. & Tel. Co. v. Railroad Com'n of SC, 253.
    • United States
    • United States District Courts. 4th Circuit. United States District Court of South Carolina
    • April 30, 1925
    ...Service Commission, supra; State v. Southwestern Telephone Co., 115 Kan. 236, 223 P. 771, 780, 781; City of Detroit v. Michigan, etc., 209 Mich. 395, 177 N. W. One of the defendants' grounds as contained in the exceptions is that it was the duty and within the power of the plaintiff to offe......
  • Camden v. Arkansas Light & Power Company, 139
    • United States
    • Supreme Court of Arkansas
    • September 27, 1920
    ...right to change franchise rates. 130 N.W. 530; 45 N.W. 145; 99 A. 395; 155 N.W. 948; 255 F. 295; 104 A. 839; 219 S.W. 380; 187 P. 1082; 177 N.W. 306. OPINION [145 Ark. 206] HUMPHREYS, J. Appellant instituted suit in the Ouachita Chancery Court to enjoin appellee from putting into effect a s......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT