City of Norfolk v. Chesapeake & Potomac Tel. Co. of Va.

• Decision Date: 07 May 1951
• Docket Number: No. 3762,3762
• Parties: CITY OF NORFOLK, ET AL. v. THE CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA. Record
• Court: Virginia Supreme Court

Page 772

64 S.E.2d 772

192 Va. 292

CITY OF NORFOLK, ET AL. v. THE CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA.

Record No. 3762.

Supreme Court of Appeals of Virginia

May 7, 1951.

Morton L. Wallerstein, for the appellants.

T. Justin Moore, William H. King, William G. Gassaway, John T. Quisenberry, George D. Gibson and John W. Riely, for the appellee.

JUDGE: MILLER

MILLER, J., delivered the opinion of the court.

The Chesapeake and Potomac Telephone Company of Virginia is a transmission company chartered and organized under our State laws. It owns and operates telephone lines and exchanges over a large area of Virginia, and through its properties, equipment and connections, furnishes exchange and toll service within and without this State. It will be hereinafter called the Company or appellee.

Under the provisions of section 156 of the Constitution of Virginia and Title 56, chapters 10 and 15 of the Code of 1950, the State Corporation Commission, hereinafter called the Commission, is empowered, authorized and required to fix and regulate the Company's rates and charges for intrastate service.

On April 14, 1949, the Company filed with the Commission its application for approval of a revised schedule of rates and charges which it sought to make operative in this State on May 10, 1949. Calculated upon its business volume obtaining as of the date of application, an increase of $2,300,000 annual net earnings was sought. To obtain that result, exclusive of taxes, an increase of about $4,000,000 in annual gross revenue was claimed to be necessary.

Appellee asserted and the record discloses that since the last rate increase was allowed on April 1, 1948, public demand for additional, more modern and increased telephone facilities and service had been urgent and tremendous. It had necessitated capital expenditures by appellee for plant and facilities at the rate of about twenty million dollars a year. When this application was presented and the hearing had, public demand for more telephones was still urgent and unfilled orders for installation of thousands of telephones still existed which would necessitate continued yearly expenditures in capital investment of millions of dollars for some time to come. Appellee says that because of increased price of materials, higher wages and the higher overall costs incurred in the installation of thousands of new telephones and which will be incurred in the near future in meeting the public demand as compared with lower material prices, wage levels, etc., prevailing in the past when part of its phones were installed at present rates each new telephone earns a smaller part of its cost than older phones. Consequently, the earnings per present telephone with relation to the capital invested have been materially diminished and to such an extent that a fair return may not be now had on the invested capital.

The City of Norfolk, other municipalities and interested parties, hereinafter designated the intervenors or appellants, appeared, were made parties to the cause, and opposed any increase in the rates and charges for intrastate exchange and toll services. An exhaustive and thorough hearing was had. Evidence was heard by the Commission from time to time between June 13, 1949, and January 17, 1950. Witnesses on behalf of the Company and the intervenors testified in detail and evidence was given by members of the Commission's staff who had been assigned to investigate and study the Company's properties, records, accounts and manner of conducting its business.

About two months after conclusion of the hearing, separate written opinions were rendered by each of the three commissioners. The opinions of Commissioners Hooker and Catterall disclose that they were not in accord upon certain minor matters, nor did they employ the identical method or theory of evaluating the Company's properties. However, in their final conclusions they were in accord as to the overall value of appellee's property upon which it was entitled to earn a fair return. They found that value to be $92,331,063, which figure is commonly called the 'rate base.' They also agreed that a rate of return of approximately 6% (5.99%) should be allowed upon that rate base. Thus, in the final analysis and in the practical result reached, they were in agreement.

Commissioner King rendered a dissenting opinion. His finding of fact relative to the value of the Company's property upon which it was entitled to a fair return was $92,000,000. However, he concluded that a 5 1/2% rate of return upon the $92,000,000 base was sufficient to assure a reasonable increase in the Company's income and thus, in his opinion, afford an opportunity to obtain a fair return.

This voluminous record discloses the factual findings of the Commission's staff and through the testimony and exhibits taken and filed presents in detail the claims of the respective parties. The opinions of the three commissioners furnish abundant proof of the full, careful and painstaking consideration given by them to the evidence and to the conflicting contentions and theories advanced by the parties.

On the 27th day of March, 1950, the Commission's order was entered. It carried into effect the ultimate conclusions of Commissioners Hooker and Catterall as announced in their opinions and made operative as of April 1, 1950, an increase in rates and charges for intrastate telephone service so as to effect an increase of $2,100,000 in the Company's annual net earnings calculated on its property value and business volume as of September 30, 1949. The latter date represented and was the end of the last test period in which valuation and estimate of the Company's properties, gross income, cost of operation, etc., had been submitted to the Commission.

The intervenors appealed from the order of March 27, 1950, and presented twelve assignments of error. There are, however, two fundamental assignments relied upon which really include the other ten. They are:

(1) The rate base of $92,331,063, is claimed to be too high. They say that the final order was erroneous in fixing the value of the Company's intrastate property used or useful in the rendition of its public service as of September 30, 1949, at that figure, and contended that it should not have exceeded $82,345,566, and

(2) The rate of return allowed to the Company of approximately 6% (5.99%) upon this rate base was exorbitant, and thus so unreasonable and unjust as to be unlawful.

In performing the duties of promulgating and establishing reasonable and just rates and charges for transportation and transmission companies, the Commission exercises a legislative function. That it acts in that capacity, as distinguished from judicial, when it exercises its jurisdiction and power to prescribe rates and charges for such public service corporations is made certain by the following language of subsection (b) of section 156 of the Constitution of Virginia:

'* * * The authority of the commission (subject to review on appeal as hereinafter provided) to prescribe rates, charges and classifications of traffic for transportation and transmission companies shall be paramount; but its authority to prescribe any other rules, regulations or requirements for corporations or other persons shall be subject to the superior authority of the general assembly to legislate thereon by general laws; * * *.'

In construing this section of the Constitution in 1926, the Commission said:

'In matters pertaining to establishment of rates and charges of transmission and transportation companies the * * * Commission * * * exercises a purely legislative, not a judicial, function. It may be said to be the legislature of Virginia, so far as rate matters are concerned.' (S.C.C Report, 1926, p. 15. See also, Chesapeake, etc., Tel. Co. v. Commonwealth, 147 Va. 43, 136 S.E. 575.)

Speaking further on this subject in Norfolk, etc., R. Co. v. Commonwealth, 162 Va. 314, 174 S.E. 85, we said:

'It is exercising a purely legislative function; and, so far as such matters are concerned, is the legislative branch of the government.' (162 Va. at p. 322.)

In fixing rates within the limits of what is confiscatory to the utility on the one side, and exorbitant as against the public on the other side, and thus definitely unfair and unjust to the telephone users, there is a reasonably wide area within which the Commission is empowered to exercise its legislative discretion. As it enjoys the full legislative power of the State within these bounds, the rate of return that it allows may not be changed or set aside as confiscatory or unreasonable and unjust unless it clearly evinces an abuse of legislative discretion.

Upon appeal (of right) to this court from an order of the Commission fixing rates and charges of a transportation or transmission company, the capacity in which we review the proceeding is, we think made quite plain in subsection (g) of section 156 of the Constitution, which provides as follows:

'Whenever the court, upon appeal, shall reverse an order of the Commission affecting the rates, charges or the classification of traffic of any transportation or transmission company, it shall, at the same time, substitute therefor such order as in its opinion the Commission should have made at the time of entering the order appealed from, otherwise the reversal shall not be valid. Such substituted order shall have the same force and effect (and none other) as if it had been entered by the Commission at the time the original order appealed from was entered.'

It is apparent from this language that upon appeal from an order of the Commission fixing rates and charges for a transportation or transmission company, we, in the first instance, judicially review the proceeding. If, and only if, upon this purely judicial examination error of law be found in the record which requires reversal of the order are we empowered to substitute our order for 'such...