Pacific Tel. & Tel. Co. v. Hill

• Decision Date: 25 October 1961
• Parties: , 41 P.U.R.3d 113 PACIFIC TELEPHONE AND TELEGRAPH COMPANY, a corporation, Respondent, v. Jonel C. HILL, as Public Utility Commissioner of Oregon, Appellant.
• Court: Oregon Supreme Court

Page 1021

365 P.2d 1021

229 Or. 437, 41 P.U.R.3d 113

PACIFIC TELEPHONE AND TELEGRAPH COMPANY, a corporation, Respondent, v. Jonel C. HILL, as Public Utility Commissioner of Oregon, Appellant.

Supreme Court of Oregon, In Banc.

Argued and Submitted Dec. 13, 1960.

Decided Oct. 25, 1961.

Norman A. Stoll, Sp. Asst. Atty. Gen., argued the cause for appellant. With him on the brief were Robert Y. Thornton, Atty. Gen., and Lloyd G. Hammel and Irving C. Allen, Asst. Attys. Gen.

Richard Devers, Portland, argued the cause for respondent. With him on the brief were Hart, Rockwood, Davies, Biggs & Strayer, Portland, and Dean G. Ostrum, Seattle, Wash.

Before McALLISTER, C. J., and ROSSMAN, WARNER, PERRY, SLOAN, O'CONNELL and GOODWIN, JJ.

ROSSMAN, Justice.

The plaintiff-respondent is the Pacific Telephone and Telegraph Company which renders telephone service in this and other states. The defendant-appellant is the Public Utility Commissioner of Oregon. When the company filed new tariffs and complained that existing rates were confiscatory the commissioner conducted hearings resulting in the order under review. The order prescribed new rates and charges, but in amounts less than the company sought. This is an appeal by the commissioner from a decree of the circuit court that sustained the company's contentions. The present commissioner is not the one who entered the order, although that fact is inconsequential.

Pursuant to ORS 757.220 the company on May 28, 1958, filed with the commissioner new tariffs which sought increases in intrastate telephone rates. At that time the company was earning upon its investment in plant, material and supplies devoted to Oregon intrastate operations a return of 5.42 per cent. The earning was computed upon results achieved in a test period of twelve months which ended June 30, 1958, and was based upon the average investment of the period ($130,630,920). Had it been computed upon investment at the end of the period ($134,664,567) the return would have been 5.26 per cent. The tariffs which the company filed May 28, 1958, sought increases in (a) the company's gross revenues to the extent of $4,858,000, (b) its net revenues to the extent of $2,118,000 and (c) its rate of return upon investment in plant, material and supplies so that it would yield 7.04 per cent. The tariffs would have increased rates for intrastate exchange telephone service, intrastate toll service and for some miscellaneous services. By 'exchange telephone service' we mean local calls, that is, calls that can be made without the payment of long distance charge. By toll service we mean long distance calls that require the payment of a sum in addition to the monthly charge which all subscribers pay. The 'miscellaneous services' are unimportant in this appeal.

The commissioner suspended the new tariffs and in the meantime conducted the hearings which we have mentioned. Upon their close he entered the order which was under attack in the circuit court when the company appealed from it. The latter granted an increase in the company's intrastate gross revenues of $759,097 in lieu of the sum of $4,858,000 sought by the company. In making the reduction the commissioner treated investments in plant of $6,194,114, which the company deemed devoted to intrastate operations, as non-intrastate and $423,328 of expenses in the same way. The order employed $126,794,131 tentatively (the average investment for the twelve month test period) as the rate base; but after striking from it the sum of $6,194,114, reduced it to $120,600,017. The commissioner determined that the company's net operating revenue for the test period was $6,903,655, and ruled that a fair rate of return upon the company's investments in intrastate plant was 6.35 per cent. The latter is more than the return of 5.42 per cent which the company was earning at that time. The company thereupon filed the appeal to the circuit court under ORS 756.580. The court's decree sustained every major contention of the company. From it the commissioner appealed to this court.

Both parties agree that the burden of proof to establish that existing rates were confiscatory and that the proposed rates would be reasonable rested upon the company. But it will be noticed from the facts just recited that the commissioner granted an increase in rates to the company. It will also be noticed that he held that the existing rate of return, 5.42 per cent, was confiscatory and that the company was entitled to a rate of return of 6.35 per cent upon its investment in assets devoted to intrastate telephone service. Those facts indicate that the commissioner found that the company had discharged the burden of proof that rested upon it. Of course, they do not show that the company proved to the satisfaction of the commissioner that the schedule of rates which it sought was reasonable in its entirety.

The company's Oregon telephone plant renders intrastate and interstate service. It does not have two plants--one for intrastate and the other for interstate calls--but most of its equipment, such as the telephone that stands upon a subscriber's desk, serves both intrastate and interstate purposes. The commissioner has jurisdiction over intrastate rates only and therefore it is necessary to separate the property that constitutes the plant into its intrastate and interstate aspects in order to ascertain the value of the property that serves intrastate calls. The value just mentioned must be determined because it comprises in large part the rate base upon which intrastate rates are computed.

A part of the company's plant consists of transiting circuits, that is, long distance lines that cross the state and have no terminal in it. They are used for interstate calls only and the company assigned them to the part of its plant over which the Federal Communications Commission has jurisdiction. The defendant does not challenge the company's action in so doing. But virtually all of the remainder of the company's property one moment serves an intrastate call and the next moment may be used for interstate business. The average telephone in Oregon is in use only 28.07 minutes out of the 24 hour day. Of the 28.07 minutes in which the average telephone is in use 27.22 of those minutes are employed in handling intrastate calls and only 0.85 of a minute (51 seconds) in serving interstate business. Thus, the interstate calls represent 3.03 per cent of the total minutes consumed by calls. It must not be inferred, however, that the interstate calls account for 3.03 per cent of the plant's use. Although the average telephone is in use only 28.07 minutes per day, other parts of the company's plant, such as telephone lines and central office equipment, may render much more service. For example, some telephone wires serve two telephones.

In Pacific Telephone and Telegraph Co. v. Thomas, 13 PUR (NS) 337, the circuit court of our state declared:

'* * * Property separately used must be separately allocated; property jointly used must be allocated on the basis of use.'

The Minnesota Rate Cases, 230 U.S. 352, 33 S.Ct. 729, 764, 57 L.Ed. 1511, in referring to separations, held:

'In support of this method, it is said that a division of the value of the property according to gross earnings is a division according to the 'value of the use,' and therefore proper. But it would seem to be clear that the value of the use is not shown by gross earnings. The gross earnings may be consumed by expenses, leaving little or no profit. * * *'

Consequently, it was the duty of the commissioner not only to make a separation, but, in so doing, to allocate each item of property or the appropriate fractional part thereof to the intrastate category or the interstate category according to the use to which the item was devoted day by day.

The company concedes that the commissioner made a separation, but urges that in so doing he did not accept as his criterion the use to which the property was devoted.

Upon this appeal the company accepts the amount of $126,794,131 as its intrastate rate base. We shall presently show that although the commissioner started with that figure he made adjustments to it whereby it became $120,600,017. The company also accepts for the purposes of this appeal $6,903,655 as its net operating revenue in the test period that we mentioned. However, the commissioner, as we shall see, made adjustments to that sum. We have mentioned that the commissioner found that a fair rate of return for the company upon its investments in intrastate plant was 6.35 per cent and that the company had sought a return of 7.04 per cent. The company does not challenge 6.35 per cent as a fair return.

A preceding paragraph states that the commissioner reduced the company's intrastate rate base from $126,794,131 to $120,600,017 thus striking from it $6,194,114. The rate base represents the invested capital upon which the utility is entitled to earn a return. We have seen that the commissioner determined 6.35 per cent as the rate of return to which the company was entitled. By striking from the company's rate base $6,194,114 the commissioner ruled that the company was not entitled to receive any return from its intrastate operations upon that amount of invested capital. He made no finding that the part of its plant which was represented by the figure $6,194,114 did not serve intrastate operations and none that that part of its plant served interstate calls. Lest the facts be misunderstood, we add that no one contends that the sum just mentioned ($6,194,114) is not invested in the plant, nor does any one say that the company is not entitled to earn a return upon it. In the same manner the commissioner struck from the expenses and taxes which the company claimed it incurred in its intrastate operation, $423,328. The company submitted records showing that the expenses and taxes to which it was subjected in rendering intrastate telephone service amounted...