City of Lynchburg v. Chesapeake & Potomac Tel. Co. of Va.
| Decision Date | 16 March 1959 |
| Docket Number | No. 4872,4872 |
| Citation | 200 Va. 706,107 S.E.2d 462 |
| Court | Virginia Supreme Court |
| Parties | , 28 P.U.R.3d 368 CITY OF LYNCHBURG, ET AL. v. CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA. Record |
Henry E. Ketner (F. Byron Parker; Leonard H. Davis, on brief), for the appellants.
John W. Riely (George D. Gibson; Joseph E. Blackburn; Hunton, Williams, Gay, Moore & Powell, on brief), for the appellee.
This is an appeal of right, Const. of Va., § 156(d), from an order of the State Corporation Commission granting to the Chesapeake and Potomac Telephone Company of Virginia (herein called the Company or the Virginia Company) an increase in rates, effective January 1, 1958, estimated to produce additional annual gross revenues of approximately $7,228,000, or additional annual net revenues of approximately $3,346,000. The question for decision is whether the action of the Commission was reasonable and just. Const. of Va., § 156(f).
The Company is a Virginia corporation engaged in furnishing telephone communication services within and without this State. It is a wholly owned subsidiary of American Telephone and Telegraph Company. Its intrastate service is subject to the regulatory authority of the Commission, which is empowered to fix its rates and charges for intrastate service. Const. of Va., § 156; Code 1950, Title 56, Chapters 10, 15.
On July 17, 1957, the Company filed with the Commission its application for an increase in its rates and charges. It alleged that its last application for a rate relief was filed in April 1954 and its present schedule of rates and charges for Virginia was prescribed by the Commission on June 30, 1954, based on a test period ended December 31, 1953; that since that time wage increases had amounted to $4.6 million; its plant investment had increased by 43%; that the increased cost of replacing obsolete and deteriorated plant units was causing a continuing attrition in its rate of earnings; that there was a strong demand for a wider range of local calling without a toll charge which would cost about $6 million; that interest rates and other money costs had increased sharply, and that additional revenues were required to enable the Company to continue to furnish adequate services. The rates and charges were set forth in an exhibit with the application, and with the application was filed the complete direct testimony of all witnesses that the Company expected to present in support of its application, copies of which were offered to any interested person.
The matter was set for hearing on October 15, 1957, and notice to the public duly published. At that time the City of Lynchburg and four other cities and the counties of Arlington and Fairfax, herein referred to as appellants, appeared in opposition to granting the increases sought by the Company. Other interested persons also appeared and were heard. The Company then presented its previously submitted testimony by its witnesses together with a number of exhibits giving methods and details of their calculations and conclusions. The staff of the Commission next presented through the chief accountant of the Commission, James H. Brown, the result of its study of the matter with accompanying exhibits showing the details of its work. The proceedings were then adjourned to December 5, 1957, to give time for cross-examining the Company's witnesses and the introduction of evidence in opposition to the increase.
Accordingly the hearing was resumed on December 5, at which time the Company presented evidence to the effect that after collective bargaining it had on November 27, 1957, made a new wage agreement with its employees effective November 24, to offset which it requested additional annual increased earnings of $1,270,000. The Company's witnesses were cross-examined by counsel for the appellants, who then presented their own evidence. This consisted of the testimony of Dr. Paul L. Howell, a consulting economist, and Charles E. Hammond, executive assistant to the Public Utilities Commission of Arlington county, both of whom filed exhibits showing their calculations and conclusions.
The witnesses for the Company were J. Rhodes Mitchell, its vice-president; W. Bernard Thulin, its comptroller; William F. Johnson, its assistant vice-president; and William C. Bowles, its general commercial manager. In general they testified as to the growth of the Company, the wage situation, the need and cost of plant expansion, the financial position of the Company, the increase in the cost of debt capital, the necessary earnings on equity capital, and the proper proportion of each in the capital structure, what the company proposed to do, and the necessity for the increased rates applied for.
The Commission's chief accountant, Mr. Brown, presented an accounting study made by himself and seven members of his staff, and introduced exhibits showing various computations and the basic figures as to investment and earnings from which the Commission made its findings. He calculated a rate of return requirement of 5.99% and additional gross revenues of $3,296,423 without allowance for attrition, and a rate of 6.22% and additional gross revenue of $4,337,751 including attrition.
Dr. Howell, for the appellants, testified that a fair rate of return was 6% and that attrition should not be allowed. He gave his views as to cost of debt and cost of equity capital, the proper ratio of each in the capital structure, and as to an allowance of a tax credit by reason of the consolidated tax return made by the parent company. He filed exhibits showing his computations and his conclusions.
Mr. Hammond filed exhibits showing his computations for rate base, operating revenue and expenses, and the amount of increase that should be allowed.
On December 23, 1957, the Commission rendered its opinion and entered the order appealed from. The opinion, which was by Commissioner Hooker, concurred in by Commissioner Dillon, set forth the reasons for the Commission's action. Const. of Va., § 156(f). Commissioner Catterall dissented and filed a separate opinion. He expressed the view that the question was simply how much revenue was required to enable the Company to attract new capital, the answer to which could only be stated as a number of dollars, which number was the same whether calculated from a reproduction cost rate base, an original cost rate base or no rate base. His conclusion was that a rate increase should be allowed sufficient to produce additional gross revenues of $2,770,000.
The majority opinion expressed a purpose not to depart from what it termed the long established policy of the Commission in fixing rates that were reasonable and just, but to follow the rule thus stated in Norfolk v. C. & P. Telephone Co., (1951), 192 Va. 292, 301-2, 64 S.E.2d 772, 777-8:
The first inquiry of the Commission, speaking through the majority opinion, was to ascertain the level of earnings being produced by the existing rates. It accepted as reasonable, and in accord with previous practice of the Commission, a test period of six months ended September 30, 1957, as proposed by the Company. It then established a net intrastate original cost investment rate base as of that date under existing rates to be $201,032,000 (cost of plant $197,324,000 plus allowances for working capital $3,708,000). No question was raised as to the separation of the Company's plant into its intrastate and interstate components. In determining the intrastate base the figures used were from the report of the Commission's staff taken from the Company records.
The level of earnings on this net investment cost of plant under existing rates was then found to be $9,751,113. This was ascertained by deducting from net operating income of $10,795,113, as ascertained by the Commission's staff, the sum of $1,044,000, representing the effect of new wages ($578,000) and attrition in net earnings ($466,000).
This result showed the current level of earnings to be at the rate of 4.85% on the $201,032,000 investment. The Commission held this return to be too low and that an increase in rates was required. It turned then to an examination of the Company's proposal.
This proposal included a plan to eliminate certain toll charges for shorter distances and provide toll-free calling, or extended area service, between certain exchanges. The Commission found there was a widespread demand for this service throughout the State and approved the program. At the same time it found that this wider range calling system would require an estimated outlay of $5,151,000, and would result in certain increases and decreases in revenues and expenses, but the overall effect would be to increase the earnings by an estimated amount of $54,058. It then found the net investment cost of telephone plant and allowances under the Company's proposed rates as of September 30, 1957, end of the test period, to be $206,253,000, ascertained as follows:
To continue reading
Request your trial
-
Potomac Elec. Power Co. v. Public Serv. Com'n
...it. Telephone Users Association v. Public Service Commission, supra, 304 A.2d at 298, citing City of Lynchburg v. Chesapeake & Potomac Telephone Co., 200 Va. 706, 711, 107 S.E.2d 462, 469 (1959). See also Goodman v. Public Service Commission, supra. This is exactly what was done in the inst......
-
South Cent. Bell Telephone Co. v. Louisiana Public Service Com'n
...Alabama Pub. Serv. Comm'n v. Southern Bell Tel. Co., 253 Ala. 1, 42 So.2d 655 (1949); City of Lynchburg, et al v. Chesapeake and Potomac Tel. Co. of Virginia, 200 Va. 706, 107 S.E.2d 462 (Va.1959) ("It is only when it is made clear by the evidence that the officers and directors are followi......
-
Old Dominion Comm. for Fair Util. Rates v. State Corp.
...(1975), Commonwealth v. Portsmouth Gas Co., 213 Va. 239, 241, 191 S.E.2d 220, 222 (1972), and City of Lynchburg v. Chesapeake & Potomac Telephone Co., 200 Va. 706, 712, 107 S.E.2d 462, 467 (1959), but these cases, like Hopewell Cogeneration, state only that rate-making is a legislative func......
-
Mystic Valley Gas Co. v. Department of Public Utilities
...Economics of Regulation, 282-283; Garfield and Lovejoy, Public Utility Economics, 128-131. See also Lynchburg v. Chesapeake & Potomac Tel. Co. of Va., 200 Va. 706, 718-721, 107 S.E.2d 462.15 Cases, in which a system capital structure has been applied to wholly owned subsidiaries financed en......