Logan City v. Public Utilities Commission of Utah

• Decision Date: 17 March 1931
• Docket Number: 4889
• Citation: 296 P. 1006,77 Utah 442
• Court: Utah Supreme Court
• Parties: LOGAN CITY v. PUBLIC UTILITIES COMMISSION OF UTAH

296 P. 1006

77 Utah 442

LOGAN CITY v. PUBLIC UTILITIES COMMISSION OF UTAH

No. 4889

Supreme Court of Utah

March 17, 1931

Original proceeding by Logan City against the Public Utilities Commission of Utah.

Report and order of defendant Commission AFFIRMED.

Leon Fonnesbeck, of Logan, for plaintiff.

Geo. P Parker, Atty. Gen., and Van Cott, Riter & Farnsworth, of Salt Lake City, for defendant.

FOLLAND J. CHERRY, C. J., and ELIAS HANSEN, and EPHRAIM HANSON, JJ STRAUP, J. concurring.

OPINION

FOLLAND, J.

This is an original proceeding by Logan City, a municipal corporation of Utah, hereinafter called the city, against the Public Utilities Commission of Utah, hereinafter called the commission, and the Mountain States Telephone & Telegraph Company, hereinafter call the company, to review an order of the commission authorizing a new and higher schedule of rates for telephone service in the Logan exchange.

The company on November 14, 1927, filed with the commission its petition for an increase in rates, alleging that the rates then in effect failed to yield a fair and reasonable return on the value of its property used and usable in telephone service in the Logan exchange. The city filed a petition in intervention protesting and objecting to any increase in rates. After a hearing the commission made and field its report and order authorizing the company to put into effect the proposed higher rates effective April 1, 1929. In its report the commission found that the total value, for rate-making purposes as of December 31, 1926, of the Logan exchange was $ 295,548.42, that for the year 1926, net results of operation show a return of 2.37 per cent on the average value of the property, and that the annual rate of return, after granting the rates prayed for, would be 4.86 per cent. The valuation found was based on the valuation as of August 31, 1919, as fixed by the commission in a former case wherein the valuation of all the properties of the applicant within the state of Utah was determined, together with additions and betterments shown to have been made since that date. The average annual rate of return for the five-year period ending with and including the year 1927 was shown to be 1.11 per cent, the year 1926 having the highest rate of return during such five-year period.

Plaintiff has alleged several specific objections to the report and order of the commission. These will be discussed in the order presented.

The first objection is that the commission failed to make any finding with respect to the allegation that the company is bound by the schedule of rates set out in the franchise ordinance of the city, which rates are lower than the schedule of rates approved by the commission. Plaintiff concedes that the commission has authority under the statutes of the state and decisions of this court to set aside franchise or contract rates, but contends that this may be done only upon and after a specific finding that such rates are unreasonable, and that the commission has no power to vacate franchise or contract rates if such rates are in fact fair and reasonable. The franchise from Logan City under which the company is operating provided for the charging of certain specified rates for the different classes of service, with provision for other and higher rates after the city had attained a population of 10,000 and until its population had reached 50,000. The franchise also contained the provision that "in the event a public utility commission or similar body is created by law within the State of Utah, then the force and effect of this section shall yield to the rulings of said utility commission, or other body, to the extent of the powers vested by law in such utility commission or other body to regulate the rates of the grantee."

The United States government, as a war measure, took over all the telephone properties of the company July 31, 1918, and operated them until July 31, 1919, when they were returned to the company. While in government control all telephone rates throughout the United States were increased by order of the Postmaster General. The rates in effect in Logan City fixed by the franchise were substantially increased by this order. After the telephone system was returned to the company by the government, the commission, on application made by the company, in case No. 206, made an order continuing in force the same rates as had been fixed by the Postmaster General. The commission thus exercised jurisdiction over the rates charged by the company at Logan and authorized an increase over what had been specified in the franchise. This was a ruling regulating rates within the proviso in the franchise above quoted. The commission in the present case did not change rates fixed by franchise, for these had already been superseded by the rates established in case No. 206. The franchise rates having been terminated by the exercise of jurisdiction and order of the commission in the former case, no finding or order with respect to the franchise rates was necessary in this case. Denney v. Pacific T. & T., 276 U.S. 97, 48 S.Ct. 223, 72 L.Ed. 483; Railroad Comm. v. Los Angeles Ry. Corp., 280 U.S. 145, 50 S.Ct. 71, 74 L.Ed. 234.

Plaintiff complains that the commission failed to make a finding on the issue presented by its petition on the matter of poles owned and maintained jointly by the company and the city.

Upon renewal of the franchise in 1915, by contract between the city and the company, it was agreed that the poles owned by the city and used by it as a part of its electric system, and the poles of the company used by it in its telephone system, all located in the streets of the city, should be jointly used, owned, and maintained by them. The company is under obligation by virtue of this contract to bear half the cost of maintenance of these poles, whether it uses them or not, until 1935. There are now 1,386 poles in the streets of the city jointly owned. The company within the last five or six years changed its policy and adopted what is called the interior block system. That is, the poles and wires are located inside the block, and houses are connected with wires from poles in the back yards or alleys instead of from poles in the street. Six hundred thirty-five of the jointly owned poles have been abandoned by the company, and it is the intention of the company to further extend the interior block system from time to time as convenient or necessary, which will result in the abandonment of its use of all the jointly owned street poles.

In its report the commission said:

"With reference to jointly owned poles, the commission is of the opinion, and so ruled at the hearing, that inasmuch as neither the applicant nor Logan City is asking relief from the contract governing the jointly owned poles the subject is not material in this case."

The city contended that the change to the interior block system imposed an additional and unnecessary burden upon the rate payer in increased cost of plant, expenses of maintenance, and amount necessary to be set up for depreciation. The amount involved in this change was not large enough to materially affect the rates. The location and manner of placing the poles for the distributing system is essentially a matter of business management of the utility which should not be interfered with by the commission unless it is made to appear that the policy and consequent expenditure is actuated by bad faith, or involves dishonesty, wastefulness, or gross inefficiency. There is nothing of this kind either alleged in the petition or disclosed in the record. The management apparently proceeded in good faith and believed the interior block system was best suited to serve its purposes. Whether this method of bettering its system was most economical or efficient was a matter within the sound discretion of the management. It is well settled that public commissions cannot, under guise of rate regulation, take into their hands the management of utility properties or unreasonably interfere with the right of the management. Monroe Gaslight & Fuel Co. v. Michigan Public Utilities Comm. (D. C.) 11 F.2d 319; State Public Utilities Comm. v. Springfield Gas & Elec. Co., 291 Ill. 209, 125 N.E. 891; Pacific Tel. & Tel. Co. v. Whitcomb (D. C.) 12 F.2d 279, affirmed in 276 U.S. 97, 48 S.Ct. 223, 72 L.Ed. 483.

It is next contended that the commission failed to make proper findings on issues presented as to the rural lines attached to the Logan Exchange. The commission's finding was as follows:

"The protestant's claim that the Logan Exchange has an unduly large number of rural lines, and that it would be better and more fair to all exchanges if said rural lines should, for rate-making purposes be considered as part of the entire telephone system of the applicant in this State; that the larger centers in the State served by the applicant are directly and materially benefited by the rural lines by broadening the field and thereby increasing the usefulness of the applicant's telephone service in general, and that the rural lines do not pay, and should, therefore, at least partially, be carried by the central exchanges, is not without some merit. The rural lines are, however, an indispensable part of the exchange in which they center, and must be taken into account in fixing valuations and rates applicable to the city exchanges and the thickly populated centers that are benefited by telephone connections."

The position of plaintiff is fairly reflected in this statement of the commission. While plaintiff argued that the Logan exchange was overburdened with rural lines, the manager of the company testified that several exchanges in the state had a greater mileage of rural lines than this one. The evidence...