New England Tel. & Tel. Co. v. State

• Decision Date: 16 February 1949
• Docket Number: No. 3798.,3798.
• Citation: 64 A.2d 9
• Court: New Hampshire Supreme Court
• Parties: NEW ENGLAND TELEPHONE & TELEGRAPH CO. v. STATE et al.

64 A.2d 9

NEW ENGLAND TELEPHONE & TELEGRAPH CO.

v.STATE et al.

No. 3798.

Supreme Court of New Hampshire.

Feb. 1, 1949.

Rehearing Denied Feb. 16, 1949.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Appeal from Order of Public Service Commission.

Proceeding on petition of the New England Telephone & Telegraph Company for emergency rates, consolidated with an investigation of rates instituted by the Public Service Commission of the State of New Hampshire. From an order of the Public Service Commission fixing rates to be charged by the company for a period of two years from August 1, 1948, to August 1, 1950, the company appeals, and briefs amicus curiae have been filed.

Order remanded in accordance with opinion.

Appeal by petition under the provisions of R.L. c. 414, sections 6 and 7, from an order of the Public Service Commission known as order 5365, fixing the rates to be charged by the appellant company for a period of two years, from August 1, 1948, to August 1, 1950. The order results from an investigation of rates instituted by the commission on December 26, 1946, on suspension of a schedule of rates filed by the company on December 3, 1946, calculated to produce a revenue increase of $1,068,000 for the calendar year 1947. On July 28, 1947, the commission granted a temporary increase of approximately ten percent effective August 1, 1947, which was calculated to yield an additional $782,630. 29 N.H.P.S.C. 163, 190.

On October 31, 1947, the company filed a new rate schedule estimated to produce $1,680,000 of additional revenue. Following suspension of this tariff, it filed on December 8, 1947 a petition for the determination of just and reasonable rates, and sought to obtain allowance of emergency rates sufficient to produce $1,680,000. The petition for determination of rates was consolidated for hearing with the investigation previously ordered. On December 31, 1947, the application to make emergency rates immediately effective was denied by the commission. 29 N.H.P.S.C. 356. The company thereupon appealed to this Court. On February 12, 1948, the commission was instructed to grant forthwith an emergency increase in rates sufficient to produce additional annual revenue of not less than $770,000, such rates to remain in effect pending completion of the investigation then in progress and the promulgation of permanent rates. New England Telephone & Telegraph Company v. State, 95 N.H. 58, 57 A.2d 267.

The interim rates thereupon prescribed became effective March 1, 1948, and were the rates in effect upon entry of the order of July 30, 1948, from which this appeal is taken. 30 N.H.P.S.C. 55. The rates fixed by the latter order, now under consideration, were estimated to produce $727,900 more than the March 1, 1948, interim rates, or $1,525,000 more than the August 1, 1947, rates.

In support of its petition for determination of just and reasonable rates, the company sought allowance of rates calculated to yield the sum of $1,754,000 annually, in addition to gross revenues produced by the rates of March 1, 1948. The rates thus proposed were designed to produce a return of 7% on net investment.

While the commission established a figure representing the company's net investment, and found that a return of 5.75% thereon ‘would be * * * reasonable * * * if we were concerned solely with the viewpoint of the Company and that of the investors in its securities,’ it considered that rate schedules produced by multiplying these factors ‘would result in gross inequalities to telephone subscribers, and * * * impede the future wholesome growth of telephone service in this State.’ Its further action respecting rates appears by the following excerpts from its report: ‘We decide this case, therefore, by allowing specific rates in accordance with the schedules hereto attached and made a part of this Report. With proper economies in management, which we believe to be a fruitful field for Company consideration and action, we find that these rates will provide a fair return without placing an unreasonable burden on New Hampshire subscribers, and without running contra to the public welfare and the future development of telephone service in New Hampshire. We recognize that our approach to this problem is not the usual one * * *. We know, however, that as a practical matter it is the number or amount of dollars that a utility is permitted to earn that is important. Rate bases and rates of return are without significance except as related to each other.

‘This is not to say that we have been unmindful of historical tools in our approach to the problems of this case. We have carefully considered and have given such weight as we deemed proper to such, among other factors, as the original cost of construction, the Company's net investment, the trended costs of the materials and labor that have gone in to its plant, its capital structure, the reasonable needs of past investors in its securities, and its reasonable needs for expansion and the acquisition of new capital. We believe that the rates which we have fixed represent a reasonable balancing of the various interests involved and will result in fair dealing not only to the Company and its investors but to the public as well.’ 30 N.H.P.S.C. 266, 272, 273. The grounds upon which the order is claimed to be unlawful and unreasonable appear from the opinion.

Sulloway, Piper, Jones, Hollis & Godfrey, of Concord, and T. Baxter Milne, of Boston, Mass. (Franklin Hollis, of Concord), for appellant.

Wyman, Starr, Booth, Wadleigh & Langdell, of Manchester (L. E. Wyman and Ralph E. Langdell, both of Manchester, orally), for appellees.

Claude H. Swain, of Concord, amicus curiae.

DUNCAN, Justice.

The fundamental basis for the company's appeal relates to the method of fixing rates adopted by the commission. It assigns, among other grounds for the appeal, the ‘failure of Commission to make findings as to the fair value of the Company's property devoted to intrastate telephone service * * * or as to the intrastate base * * *,’ and the ‘failure of Commission to make findings as to the rate of return the Company is entitled to earn on a reasonable rate base.’

The commission's investigation of the rates of the appellant company was instituted ‘to enable the commission to pass upon the reasonableness of the rates or charges' of the company. R.L. c. 287, § 37. Its statutory duty, both on petition by the utility for the determination of rates, and after hearing upon its own motion, is to determine and establish the ‘just and reasonable rates' to be thereafter observed by the utility. R.L. c. 287, § 5; c. 292, § 7. Under established practice, rates have customarily been fixed by determining a proper rate base upon which the utility should be entitled to a return, a rate of return which it should reasonably be entitled to earn thereon, and the amount of revenue required to produce the resulting return, and hence to be translated into rates.

In State v. Hampton Water Works Co., 91 N.H. 278, 18 A.2d 765, 19 A.2d 435, this Court last had occasion to review commission findings as to the fair value of a utility, and there undertook to lay down principles complying with requirements of the Federal Constitution, as established by a long line of decisions of the United States Supreme Court beginning with Smyth v. Ames, 169 U.S. 466, 18 S.Ct. 418, 42 L.Ed. 819. No occasion is presented to trace from that decision the rise and fall of the doctrine of ‘fair value.’ It has been sufficiently reviewed by recent decisions and articles. See Utah Power & Light Co. v. Public Service Commission, 107 Utah 155, 152 P.2d 542; Scope of Judicial Review of Rate Regulation, 39 Ill.L.Rev. 160.

With the decision of Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed 333, and cases since decided by the same Court, concepts of the constitutional requirements which produced the ‘fair value’ formula have been abandoned, and the principles which furnished a foundation for much which was said in the Hampton case have been discarded. No longer are the provisions of the Constitution considered to require determination of fair value, or consideration of reproduction cost, or disregard of ‘prudent investment.’ The Court said in the Hope case: ‘We held in Federal Power Commission v. Natural Gas Pipeline Co., supra [315 U.S. 575, 62 S.Ct. 736, 86 L.Ed. 1037], that the Commission was not bound to the use of any single formula or combination of formulae in determining rates * * *. And when the Commission's order is challenged in the courts, the question is whether that order ‘viewed in its entirety’ meets the requirements of the Act. Id., 315 U.S. [575] at page 586, 62 S.Ct. [736] at page 743, 86 L.Ed. 1037. Under the statutory standard of ‘just and reasonable’ it is the result reached, not the method employed which is controlling.' Federal Power Commission v. Hope Natural Gas Co., supra, 320 U.S. at page 602, 64 S.Ct. at page 287, 88 L.Ed. 333.

[1] In support of the order of the commission in this case, the State points to the Hope case as authority for the proposition that the commission is ‘freed * * * from all formulae,’ and asserts that the commission's findings are adequate to permit determination by this Court that ‘the total effect of the rate order cannot be said to be unjust and unreasonable.’ Federal Power Commission v. Hope Natural Gas Co., supra, 320 U.S. at page 602, 64 S.Ct. at page 288, 88 L.Ed. 333. With this contention we cannot agree. So far as the issues before us are controlled by Federal law, it is plain that restrictions formerly imposed by the ‘fair value’ doctrine have been swept away. But if the commission may be said to be no longer ‘bound to the use of any single formula,’ we do not understand that it is thereby relieved from the duty to disclose the ‘method employed’ to reach the prescribed rates, so that the validity of its...