Ohio Bell Telephone Co v. Public Utilities Commission of Ohio

Decision Date26 April 1937
Docket NumberNo. 539,539
Citation301 U.S. 292,57 S.Ct. 724,81 L.Ed. 1093
PartiesOHIO BELL TELEPHONE CO. v. PUBLIC UTILITIES COMMISSION OF OHIO
CourtU.S. Supreme Court

Appeal from the Supreme Court of the State of Ohio.

Messrs. W. H. Thompson, of Cleveland, Ohio, Karl E. Burr, of Columbus, Ohio, and A. M. Van Duzer and W. B. Stewart, both of Cleveland, Ohio, for appellant.

Messrs. Donald C. Power and W. W. Metcalf, both of Columbus, Ohio, for appellee.

Mr. Justice CARDOZO delivered the opinion of the Court.

The rates chargeable by the appellant, the Ohio Bell Telephone Company, for intrastate telephone service to subscribers and patrons in Ohio are the subject-matter of this controversy.

Appellant was reorganized in September, 1921, by consolidation with the Ohio State Telephone Company, till then a competitor. Soon afterwards it filed with the Public Utilities Commission of the state schedules of new rates to be charged in those communities where an increase was desired for the unified service. Except in the case of toll charges the rates were not state-wide, but were separately stated for each of the company's exchanges, of which there were many. By the statutes then in force (the Robinson law, passed December 19, 1919, 108 Ohio Laws, p. 1094, as amended by the Pence law, passed April 4, 1923, 110 Ohio Laws, p. 366), the operation of an increase might be suspended for 120 days, at the end of which time the rate was to go into effect upon the filing of a bond for the repayment to consumers of such portion of the increased rate as the Commission upon final hearing should determine to have been excessive, with interest thereon. Construing these statutes the Ohio courts have held that a refund must be limited to rates collected under a bond, jurisdiction being disclaimed when that condition was not satisfied. City of Lima v. Public Utilities Commission, 106 Ohio St. 379, 386, 140 N.E. 147; Great Miami Valley Taxpayers Ass'n v. Public Utilities Commission, 131 Ohio St. 285, 286, 2 N.E.(2d) 777. Some of the new exchange schedules were the subject of protests, and in proceedings to revise them (known as Pence Law proceedings) were made effective by bonds, a separate one for each exchange. Protest was also aimed at the new schedule for toll service which was to apply throughout the state. On the other hand, schedules for other exchanges became effective without protest and therefore without bond, and are not now at issue.

By October 1924, thirty-one Pence Law proceedings aimed at separate exchanges had been begun, but had not been fully tried. Already several thousand pages of testi- mony had been taken and many exhibits received in evidence. Soon afterwards, twelve additional proceedings were begun, making the total number forty-three, exclusive of the toll case. Two other proceedings were started later on. While the number stood at forty-three, the Commission of its own motion, by order dated October 14, 1924, directed a company-wide investigation of appellant's property and rates, and consolidated the bond cases therewith. The order recites that in all the pending proceedings the important issues are identical, and that a single consolidated case will enable rates to be determined for all services within the state at a minimum expenditure of time and money. Accordingly, the company was required to file with the Commission on or before December 1, 1924, a complete inventory of all its property, used and useful in its business, and upon the filing of such inventory, the consolidated case was to 'proceed to a hearing for the determination of the fair value of said property and of the just and reasonable rates for the service thereby to be furnished by said company to its patrons throughout the state of Ohio.' The state-wide investigation thus initiated, as distinguished from the Pence Law proceedings consolidated therewith, had its legal basis in provisions of the General Code of Ohio (section 499-8, 499-9), and its scope was confined to the rates chargeable in the future (section 614-23), the Pence Law being the basis for any refund of rates collected in the past. The statute (section 499-9) makes it mandatory that in fixing rates for the future, the Commission shall ascertain the value of the property as 'of a date certain' to be named. The date adopted for that purpose was June 30, 1925.

The company filed an inventory as required by the Commission with supplemental inventories every six months thereafter showing additions and retirements. A long investigation followed, the evidence being directed in the main to the value of the property on the basis of historical cost and cost of reproduction, and to the deductions chargeable to gross revenues for depreciation reserve and operating expenses generally. As early as February, 1927, the case was submitted to the Commission for the fixing of a tentative value as of the date certain, a tentative value being subject under the Ohio Code to protest and readjustment. At the request of the Attorney General, however, the proceeding was reopened and new evidence introduced. At last, on January 10, 1931, the Commission announced its tentative conclusion. The valuation then arrived at was $104,282,735, for all the property within the state, whether used in interstate or in intrastate business. Protests were filed both by the company and by the state and municipalities. They were followed by new hearings. On January 16, 1934, the Commission made its findings and order setting forth what purports to be a final valuation. The intrastate property as of June 30, 1925, was valued at $93,707,488; the total property, interstate and intrastate, at $96,422,276.

The Commission did not confine itself, however, to a valuation of the property as of the date certain. It undertook also to fix a valuation for each of the years 1926 to 1933 inclusive. For this purpose it took judicial notice of price trends during those years, modifying the value which it had found as of the date certain by the percentage of decline or rise applicable to the years thereafter. The first warning that it would do this came in 1934 with the filing of its report. 'The trend of land valuation was ascertained', according to the findings, 'from examination of the tax value in communities where the company had its largest real estate holdings.' 'For building trends resort was had to price indices of the Engineering News Record, a recognized magazine in the field of engineering construction.' 'Labor trends were developed from the same sources.' Reference was made also to the findings of a federal court in Illinois (Illinois Bell Telephone Co. v. Gilbert (D.C.) 3 F.Supp. 595, 603) as to the price levels upon sales of apparatus and equipment by Western Electric, an affiliated corporation. The findings were not in evidence, though much of the testimony and exhibits on which they rested had been received by stipulation for certain limited purposes, and mainly to discover whether the prices paid to the affiliate were swollen beyond reason.* Cf. Dayton Power & Light Co. v. Public Utilities Commission of Ohio, 292 U.S. 290, 295, 54 S.Ct. 647, 650, 78 L.Ed. 1267. The Commission consulted these findings as indicative of market trends and learned upon them heavily. By resort to these and cognate sources, the value at the beginning of 1926 was fixed at 98.73% of the value at the date certain; the 1927 value at 95.7%; the 1928 value at 95%; the 1929 value at 96.3%; the 1930 value at 92.2%; the 1931 value at 86.6%; the 1932 value at 76.8%; the 1933 value at 79.1%. Upon that basis the company was found to have been in receipt of excess earnings of $13,289,172, distributed as follows: for 1925, $1,822,647; for 1926, $2,041,483; for 1927, $1,986,610; for 1928, $1,925,301; for 1929 $1,463,347; for 1930, $1,481,689; for 1931, $1,659,760; for 1932, $908,335; for 1933, nothing. The excess was arrived at by figuring a return of 7% upon the value as a reasonable rate for the years 1925 to 1929, inclusive; 6.5% for the years 1930 and 1931; and 5.5% for the years 1932 and 1933. There being no excess revenue for the year 1933, the last year covered by the report, the Commission did not fix any percentage of reduction for the rates in future years. It did, however, prescribe a refund of the full amount of the excess for the years in which excess earnings were found to have been realized. The state-wide proceeding to fix rates for the future on the basis of a date certain was thus transformed finally into a refund proceeding, similar in function to proceedings under the Pence law for the refund of charges collected under bonds. The report of the Commission determining the excess was signed by a majority of the members, the Chairman dissenting. It was accompanied by an order similar in tenor.

The company protested and moved for a rehearing. In its protest it stated that the trend percentage accepted in the findings as marking a decline in values did not come from any official sources which the Commission had the right to notice judicially; that they had not been introduced in evidence; that the company had not been given an opportunity to explain or rebut them; and that by their use the Commission had denied a fair hearing in contravention of the requirements of the Fourteenth Amendment. Demand was made that an opportunity be conceded for explanation and rebuttal; demand was made also that the company be permitted to submit evidence showing separately for each year the fair value of its property, its revenues, expenses and net income in each of the several cases wherein rates had been collected under bond. This last was a renewal of a demand which had been made several times in the course of the inquiry, as the Commission in its report concedes. By order dated March 1, 1934, the protests were overruled, and the demands rejected. By order dated July 5 of the same year the Commission modified to some extent its findings as to the excess...

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