New England Tel. & Tel. Co. v. Public Utilities Commission
| Decision Date | 20 May 1976 |
| Docket Number | No. 75-195-M,75-195-M |
| Citation | 116 R.I. 356,358 A.2d 1 |
| Parties | , 15 P.U.R.4th 249 NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY v. PUBLIC UTILITIES COMMISSION et al. P. |
| Court | Rhode Island Supreme Court |
On August 30, 1974, the New England Telephone and Telegraph Company (the company) filed a revised telephone tariff with the Public Utilities Commission (the commission) under authority of G.L.1956 (1969 Reenactment) § 39-3-11, P.L.1969, ch. 240, § 5. By the proposed revised tariff the company sought to change the Rhode Island intrastate telephone rates in a manner which would increase its annual revenue by approximately $19.5 million. The revised tariff was proposed to become effective September 29, 1974; however, the effective date of the proposed tariff was suspended for the full 9 months permitted by § 39-3-11, as amended, by the commission's orders dated September 26, 1974, and March 28, 1975.
Hearings before the commission commenced on November 18, 1974. The company supported the proposed tariff through testimony and exhibits presented in evidence by 11 witnesses. The Rhode Island Consumers' Council (the council) appeared in opposition to the proposed change. It presented one witness in support of its position. The Public Utilities Administrator retained an expert on the cost of capital.
In its decision, which was announced on June 27, 1975, the commission made the following findings of fact:
'1. The annual revenues presently being received by the Company from the application of its existing rate schedules are insufficient to adequately maintain its credit and enable it to attract additional capital necessary to assure continued and adequate service and provide for needed expansion;
'2. The additional annual revenue in the amount of $19,500,000 proposed by the Company through the application of rate schedules filed August 30, 1974, is excessive; and, therefore, unjust and unreasonable;
'3. A rate base in the amount of $184,559,000 represents a fair and sound basis for rate-making purposes;
'4. A fair rate of return on that rate base, taking into consideration levels of service and efficiency of operation, is 9.02 per cent, which includes an allowance for earnings erosion of .03 per cent. Such rate of return will achieve the minimum profit margin to maintain the Company's credit and financial integrity and will enable it to raise new capital at reasonable rates to meet its service requirements;
On the basis of these findings the commission entered an order denying the company's filing and authorizing it to file a revised tariff to produce additional annual revenues of $7,245,000. The revised filing was approved on July 18, 1975, and became effective July 21, 1975.
On July 3, 1975, the company, acting under authority of § 39-5-1, as amended, commenced certiorari proceedings in this court to test the legality and reasonableness of the commission's decision and order. 1 It moved for a special assignment and a stay of the commission's order. The company also asked that it be permitted to proceed under its proposed rate schedule and stated that if we would grant this request, it would maintain its accounting records in such form as to comply with any final order that might be entered, in the event that it might be determined the company is not entitled to the increase it has collected.
We issued the writ and by order dated July 14, 1975, denied the motion for a stay, assigned the case for hearing to the October 1975 calendar, and directed counsel to brief and argue the following question: '* * * assuming the Commission erred, can this court direct the filing of a new rate schedule which will permit the company to recover the funds it would have received if the Commission's original order had enabled the company to earn a fair and reasonable rate of return on the investment the company employs in providing intrastate telephone service.' New England Tel. & Tel. Co. v. Public Util. Comm'n, R.I., 341 A.2d 59 (1975).
The company has briefed and argued as its claims of error three main points. For convenience we shall, as far as practical, treat the issues raised by the company in like manner. Before doing so, however, we shall refer briefly to the company's preliminary statement and to the controlling law in public utility cases.
The company argues that this case is before us now because two prior opinions of this court, namely, Rhode Island Consumers' Council v. Smith, 111 R.I. 271, 302 A.2d 757 (1973), and Rhode Island Consumers' Council v. Smith, 113 R.I. 232, 319 A.2d 643 (1974), have failed to convince the commission that the company is entitled to a realistic opportunity to earn a fair rate of return. Specifically, the company argues that the commission ignored this court's earlier determinations by (1) disallowing portions of its rate base which represent purchases from its affiliate, Western Electric Company, (2) rejecting the company's 'going basis' adjustment for wage and salary increases based on an arbitrary productivity absorption theory, and (3) reducing the company's working capital requirements based on a basic misunderstanding of the company's lag study. Further, the company argues that the commission persisted in interpreting the evidence and indulging every inference against the company, regardless of the state of the record. The company claims that this indulging philosophy is best illustrated by (1) the commission's unwarranted rejection of the company's erosion adjustment and adoption of one without any evidentiary support; (2) its slavish acceptance of the totally inadequate return on equity proposed by its own witness; (3) its unfounded criticism of the company's construction program; and (4) its arbitrary selection of a 'rule of thumb' as to the company's working capital requirements.
Finally, the company contends that the effect of the commission's approach is to make it impossible for the company to attain even the inadequate rate of return found necessary by the commission and the result is continuing confiscation of the company's and its investors' property.
The controlling guidelines in passing upon the legality and reasonableness of the commission's report and order are summarized in our recent opinion in Rhode Island Consumers' Council v. Smith, 111 R.I. 271, 277-78, 302 A.2d 757, 762-63 (1973), as follows. We do not engage in factfinding. That is the commission's role; ours is to determine whether the commission's decision and order are lawful and reasonable and whether its findings are fairly and substantially supported by legal evidence and sufficiently specific to enable us to ascertain if the facts upon which they are premised afford a reasonable basis for the result reached. We pointed out that this did not mean that the necessary factual determinations must be set out in precise or specific language or that they may not be fairly and reasonably implied from the commission's language and actions. We did say, however, that if it becomes impossible for us properly to fulfill our assigned function because of the commission's failure to set forth sufficiently the findings and the evidentiary facts upon which it rests its decisions, or the reasons or true bases for its conclusions, we will not speculate thereon nor search the record for supporting evidence or reasons. Neither will we decide for ourselves what is proper in the circumstances. Instead we will remand the case in order to afford the commission an opportunity to fulfill its obligations in a supplementary or additional decision.
The following legal principles also apply to public utility rate cases. A utility '* * * is entitled to reasonable earnings which with prudent management will be adequate to maintain its credit and to attract necessary capital in addition to earnings sufficient merely to operate and maintain its existing plant.' New England Tel. & Tel. Co. v. Kennelly, 81 R.I. 1, 7, 98 A.2d 835, 838 (1953); Bluefield Water Works & Improvement Co. v. Public Serv. Comm'n, 262 U.S. 679, 43 S.Ct. 675, 67 L.Ed. 1176 (1923). This does not mean that the utility is guaranteed a fair return, but it does mean that a utility is entitled to the opportunity to achieve a fair return from the utility services it provided to the public. Federal Power Comm'n v. Natural Gas Pipeline Co., 315 U.S. 575, 590, 62 S.Ct. 736, 745, 86 L.Ed. 1037, 1052 (1942). Reference is made also to Rhode Island Consumers' Council v. Smith, 111 R.I. 271, 293, 302 A.2d 757, 770 (1973), where, in discussing the criteria for determining whether a utility's rate of return is just and reasonable, this court said:
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