Michigan Bell Tel. Co. v. Public Service Commission

• Decision Date: 08 August 1978
• Docket Number: Docket No. 77-3729
• Citation: 85 Mich.App. 163,270 N.W.2d 546
• Parties: MICHIGAN BELL TELEPHONE COMPANY, a Michigan Corporation, Plaintiff-Appellant, v. PUBLIC SERVICE COMMISSION, Defendant-Appellee, and Attorney General, Intervening Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 546

270 N.W.2d 546

85 Mich.App. 163

MICHIGAN BELL TELEPHONE COMPANY, a Michigan Corporation Plaintiff-Appellant, v. PUBLIC SERVICE COMMISSION, Defendant-Appellee and Attorney General, Intervening Defendant-Appellee.

Docket No. 77-3729.

Court of Appeals of Michigan.

Aug. 8, 1978.

Released for Publication Oct. 20, 1978.

Honigman, Miller, Schwartz & Cohn by John M. Kamins, Jack H. Shuler and H. Wayne Wells, Detroit, for plaintiff-appellant.

Don L. Keskey, Hugh B. Anderson, Asst. Attys. Gen., for defendant-appellee.

Before R. B. BURNS, P. J., and WALSH and CLEMENTS, ^* JJ.

R. B. BURNS, Presiding Judge.

In April, 1975, Michigan Bell Telephone Company filed case no. U-4820 with the Public Service Commission, requesting authority to raise its rates so as to increase its annual revenue by approximately $88 million. On May 4, 1976, the Commission granted Michigan Bell an estimated rate increase of $52.172 million per year. Michigan Bell appealed U-4820 to Ingham County Circuit Court, claiming the Commission erred in, among other things, its treatment of business information system (hereinafter BIS) payments to an affiliated company, and amortization of a state income tax reserve. While that appeal was pending, the Commission granted Michigan Bell a further rate increase in a subsequent case, no. U-5125, which exceeded the amount being sought in circuit court in U-4820. When Michigan Bell failed to appeal within the statutory period in U-5125, the Commission sought summary judgment in U-4820, arguing mootness. The circuit court found the issues were not moot, and, reaching the substantive issues, affirmed the Commission's order. Michigan Bell appealed to this Court, raising the substantive issues, and the Commission cross appealed on the mootness issue. We affirm the judgment of the circuit court.

I. MOOTNESS

The Commission argues that the rates set in U-5125 supercede those set in U-4820. Since Michigan Bell did not appeal in U-5125, no change can be made in current rates. Because the rates set in U-4820 have been superceded, those rates are now final and defunct. Any attempt to change the rates in either U-4820 or U-5125 would be prohibited retroactive ratemaking. See Michigan Bell Telephone Co. v. Public Service Comm., 315 Mich. 533, 24 N.W.2d 200 (1946). Consequently, no relief can be granted, and the issues presented by Michigan Bell on appeal are moot.

The circuit court rejected the Commission's theory for two reasons. First, the statutory scheme for rate setting contemplates review of Commission determinations on appeal. M.C.L. §§ 460.4, 462.26; M.S.A. §§ 22.13(4), 22.45. Since it is Michigan Bell's practice to seek new rate determinations after each Commission decision, and since the appeal process generally takes longer than the Commission's resolution of each rate case, almost inevitably new rates will be set before the appeal on the old rates is decided. If the new rate determination rendered the contested issues in the old rate case moot, the review scheme would be rendered a nullity. Second, even assuming no relief could be granted in this case, the mootness doctrine has an exception permitting review where the issues involved are of continuing public interest, capable of repetition, yet also capable of evading review. See Southern Pacific Terminal Co. v. Interstate Commerce Comm., 219 U.S. 498, 31 S.Ct. 279, 55 L.Ed. 310 (1911), Alton & S. R. Co. v. International Ass'n of Machinists & Aerospace Workers, 150 U.S.App.D.C. 36, 43, 463 F.2d 872, 879 (1972).

The Commission made a similar mootness argument before this Court in the recent case of General Telephone Co. of Michigan v. Public Service Comm., 78 Mich.App. 528, 260 N.W.2d 874 (1977). In General Telephone, the utility conceded that a subsequent rate increase precluded relief in that particular case. As a consequence, this Court also assumed that the retroactivity doctrine would preclude relief. However, this Court reached the substantive issues presented under the second rationale advanced by the trial court in the instant case, the public interest exception to the mootness doctrine, because the errors were likely to recur in the future.

The mootness issue presents two sub-issues. First, whether the substantive issues are moot because no relief can be granted in this case, and second, if moot, whether we may reach the substantive issues under the public interest exception to the mootness doctrine. Michigan Bell primarily argues the second sub-issue, but raises by implication the first sub-issue, since it requests that relief be granted in the instant case.

Assuming mootness, the public interest exception clearly applies in this case. The BIS payments are ongoing expenditures which will be taken into account in future rate cases, and the amortization of the state income tax reserve will extend over five years. Unless we reach these issues in the instant case, they may never be resolved by the courts.

Because we resolve the substantive issues against Michigan Bell, we need not determine whether relief could have been granted in the instant case. Michigan Bell Telephone Co. v. Public Service Comm., Supra, is of questionable application to the instant situation, and the circuit court has raised a substantial question as to the applicability of the mootness doctrine in light of Michigan Bell's right of review. While we are putting the cart before the horse by reviewing under the exception without first determining whether the substantive issues are moot, the exception to the mootness doctrine provides sufficient justification for reaching the substantive issues.

II. BIS PAYMENTS

Michigan Bell is a wholly owned subsidiary of American Telephone and Telegraph Company (hereinafter AT&T). AT&T also wholly owns Western Electric, its manufacturing unit. AT&T and Western Electric each own 50 per cent of Bell Telephone Laboratories, Inc. (hereinafter Bell Labs), their research and development unit. Bell Labs has a BIS agreement with Michigan Bell and other operating companies of the Bell System, generally owned by AT&T, to develop for the operating companies electronic data processing and business information systems. For the test year 1974, Bell Labs developed or was developing 29 projects, of which Michigan Bell implemented five and a part of another, planned to implement five more, and had no plans to implement the remainder.

The expense of developing BIS projects is shared among the operating companies on a proportional basis. Michigan Bell's average obligation is 3.5 per cent of the total cost, based on (1) the proportion of its gross plant to the aggregate gross plant of all operating companies and (2) the proportion of its operating expenses to all operating expenses of all operating companies.

The Commission found that Michigan Bell was not obtaining its money's worth from BIS, and that present ratepayers were not receiving direct benefits from BIS expenditures for projects not implemented. In calculating rates, the Commission adjusted net operating income upward $741,000 to reflect as a reasonable expense for BIS a lesser amount than was actually paid, with the proviso that, as Michigan Bell implements future projects, it may amortize the costs thereof over a five-year period.

Michigan Bell must show by clear and convincing evidence that the order of the Commission is unlawful or...