Mich. Bell Tel. Co. v. Mich. Pub. Serv. Comm'n

• Decision Date: 11 September 1946
• Docket Number: No. 30,June Term, 1946.,30
• Citation: 24 N.W.2d 200,315 Mich. 533
• Parties: MICHIGAN BELL TELEPHONE CO. v. MICHIGAN PUBLIC SERVICE COMMISSION (CITY OF DETROIT, Intervener).
• Court: Michigan Supreme Court

315 Mich. 533

24 N.W.2d 200

MICHIGAN BELL TELEPHONE CO.

v.MICHIGAN PUBLIC SERVICE COMMISSION (CITY OF DETROIT, Intervener).

No. 30, June Term, 1946.

Supreme Court of Michigan.

Sept. 11, 1946.

OPINION TEXT STARTS HERE Appeal from Circuit Court, Ingham County, in Chancery; Leland W. carr, judge.

Bill in chancery by the Michigan Bell Telephone Company against the Michigan Public Service Commission to review the commission's order requiring the plaintiff to reduce in the amount of $3,500,000 its gross revenues from its operations in the state for the year 1944 and to make pro rata refunds to subscribers in the state, wherein the City of Detroit, a municipal corporation, intervened. From a decree vacating the commission's order, the commission and the City of Detroit appeal.

Decree affirmed.

Before the Entire Bench, except CARR and BUSHNELL, JJ.

John R. Dethmers, Atty. Gen., Edmund E. Shepherd, Sol. Gen., of Lansing, and James W. Williams, Asst. Atty. Gen., for Michigan Public Service Commission, defendant and appellant.

Thomas G. Long, Karl F. Oehler, James Morgan Smith, and Butzel, Eaman, Long, Gust & Kennedy, all of Detroit, for plaintiff and appellee.

NORTH, Justice.

Following the conclusion of a hearing before the Michigan public service commission, on December 28, 1944, the Michigan Bell Telephone Company was ordered to reduce in the amount of $3,500,000 its gross revenues from its Michigan operations for the year 1944, and to make pro rata refund thereof to its Michigan subscribers. For brevity we herein refer to the Michigan Bell Telephone Company as the telephone company and to the Michigan public service commission as the commission. The telephone company reviewed the commission's order by bill in chancery in the circuit court of Ingham county, as is provided by statute. Act No. 300, sec. 26, Pub.Acts 1909. Hearing in the chancery court resulted in a decree vacating the order of the commission. This appeal from such decree is by the commission and the city of Detroit, the latter having been permitted to intervene in the chancery case. However, the city has not filed a brief, and for that reason we herein designate the commission as appellant. The factual background of and the issues raised on this appeal are disclosed by the following quoted from the opinion of the trial judge:

‘The plaintiff in this case now is and for a number of years past has been engaged in conducting a telephone business in Michigan, rendering both interstate and intrastate service. Since 1936 it has charged and collected rates in accordance with the schedule prescribed in that year by the Michigan Public Utilities Commission. Such minor changes as have been made from time to time have been brought about by extensions of service.

‘Under date of October 3, 1944, the defendant Michigan Public Service Commission (successor to the Michigan Public Utilities Commission) gave notice to the plaintiff that an investigation would be held to determine whether the plaintiff's profits were too high, and also whether it was charging unnecessary and avoidable expenses against the public. Formal hearing was set for October 17th, at which time an adjournment for several weeks was taken, for the purpose of permitting the preparation of a proper exhibit, of exhibits, showing the separation of plaintiff's business between the interstate and the intrastate. When this work was done, hearings before the Commission were had and testimony was taken, relating principally to the rate of return, the depreciation charges, and the value to plaintiff of the services rendered to it by the American Telephone and Telegraph Company under a so-called ‘license contract’ in force between the corporations. The proceeding before the Commission covers approximately eight hundred pages of typewritten transcript. Following the hearing the Commission made its order, bearing date the 28th of December, 1944, which order was served on plaintiff the following day.

‘From the testimony taken before it, the Commission came to the conclusion that for the year 1944 the Company had made excessive depreciation charges to the amount of $250,000 and that its payments to the American Telephone and Telegraph Company were too high by an equal amount. It was further determined that of the sum of $4,404,000 set aside by plaintiff to be used in payment of the federal excess profits tax, the sum of $3,000,000 should be regarded as avoidable expense. It was therefore ordered that the plaintiff reduce its gross revenues attributable to its intrastate operations for the year 1944 in the total sum of $3,500,000. Plaintiff was further required by the terms of said order to submit to the Commission a plan, or plans, for the distribution of said fund to plaintiff's subscribers during the year in question.

‘The plaintiff has taken an appeal (to the Ingham county circuit court) from said order, insisting, in substance, that the defendant Commission was wholly without authority to require the making of a refund to subscribers of rates collected in accordance with the authority granted by the State in the orders of the Public Utilities Commission; and that the operation of said order will deprive plaintiff of its property without due process of law, in violation of the state and federal constitutional provisions. Defendants argue that plaintiff's objections to the order are not well taken, and insist, in substance, that the legislature has delegated to the Commission authority to take such action as the Commission may deem proper in cases of this character.’

In the circuit court the case was submitted on the record made at the hearing before the commission. On this appeal the primary question presented in appellant's brief reads:

‘After first giving adequate notice to a utility that its rates and charges will be subject to adjustment to avoid incurring liability for and the subsequent payment of Federal ‘excess profit taxes,’ may the Michigan Public Service Commission, for the period subsequent to the notice, issue an order effecting a reduction in the revenues of the utility, through a refund to its customers, to compel the utility to avoid an unnecessary expense, such expense being part of the company's ‘excess profit taxes,’ when at the date of the order the liability for such taxes had not affixed and the remainder in revenues to the utility is sufficient for a reasonable return?'

In view of the scope of the commission's order, we think the fundamental question may be stated thus: Has the commission statutory power to order retroactively a refund to be made by the telephone company to its subscribers out of charges for services rendered (and in large part paid prior to the date of the order), such charges having been made in conformity with the existing rates fixed by the commission (or its predecessor) and in effect during the time the services were rendered?

The theory of the commission as stated in its brief is as follows:

‘The theory of the Michigan Public Service Commission is that, acting upon a complaint or upon its own motion, after having given adequate notice to the utility that there is probable cause for belief that the rates and charges of the utility are excessive and unreasonable, or that the utility is requiring the consuming public to bear and pay unnecessary expenses, the Commission may conduct an investigation (during which the utility shall be accorded a full opportunity to be heard) to establish the facts; and, if the facts be that the rates and charges of the utility are excessive and unreasonable, or that the consuming public is required to pay unnecessary elements of expense, and that such were the facts as of the date of the notice, the Commission, by virtue of the powers and authority in it vested by Act 3 of the Public Acts of 1939, may order the utility to repay all the excess charges collected by it subsequent to the date of the notice.’

The pertinent portion of Act No. 3, Pub.Acts 1939, reads:

‘The Michigan public service commission is hereby vested with complete power and jurisdiction to regulate all public utilities in the state except any municipally owned utility and except as otherwise restricted by law. It is hereby vested with power and jurisdiction to regulate all rates, fares, fees, charges, services, rules, conditions of service and all other matters pertaining to the formation, operation, or direction of such public utilities. It is further granted the power and jurisdiction to hear and pass upon all matters pertaining to or necessary or incident to such regulation of all public utilities, including electric light and power companies, whether private, corporate or cooperative, gas companies, telephone, telegraph, oil, gas and pipeline companies, motor carriers, and all public transportation and communication agencies other than railroads and railroad companies.’ Act No. 3, sec. 6, Pub.Acts 1939, Stat.Ann.1945 Supp. sec. 22.13(6).

Decision hinges on the proper construction of the above quoted section and of any other pertinent statutory provision pertaining to the power of the commission to require a refund out of rates or charges which accrued prior to the date of the commission's order, under such circumstances as are presented by the instant record. The trial court was not in accord with the theory and contention of appellant, but on the contrary held that under the pertinent statutory provisions the commission did not have the right or power to make an order as to rates and charges which in effect was retroactive, and that in consequence thereof the notices or orders,herein referred to, which the commission had made and caused to be served in this proceedings prior to its order of December 28, 1944, were immaterial.

We do not accept appellant's contention that the issue of the commission's order being retroactive is controlled by the date of the commission's notice of October 3, 1944 (or earlier notices), served on the telephon company. As above noted, appellant...