Petitions of New England Tel. & Tel. Co.

• Decision Date: 01 May 1951
• Docket Number: 1787,Nos. 1773,s. 1773
• Citation: 80 A.2d 671,116 Vt. 480
• Court: Vermont Supreme Court
• Parties: Petitions of NEW ENGLAND TEL. & TEL. CO.

Page 671

80 A.2d 671

116 Vt. 480

Petitions of NEW ENGLAND TEL. & TEL. CO.

Nos. 1773, 1787.

Supreme Court of Vermont.

May 1, 1951.

John D. Carbine, Rutland, Guy M. Page, Burlington, Charles Ryan, Boston, Mass., for the Telephone Company.

Clifton G. Parker, Atty. Gen., for the State.

Arthur L. Graves, St. Johnsubry, special counsel for the Public.

Before SHERBURNE, C. J., JEFFORDS, CLEARY and ADAMS, JJ., and HUGHES, Superior Judge.

SHERBURNE, Chief Justice.

These are appeals from separate orders of the public service commission upon three revised rate schedules filed by the New England Telephone and Telegraph Company, and come here upon exceptions. The first rate schedule was filed October 30, 1947 to take effect on December 1, 1947, and the order thereon is dated April 24, 1950. The second rate schedule was filed on November 15, 1948, to take effect on January 1, 1949. The third rate schedule was filed on September 8, 1949, during the proceedings before the commission on the second rate schedule, to take effect on November 1, 1949, and was designed to increase the rates upon about 1,700 stations in Vermont served by central offices in adjoining states, which had not been affected by the two prior rate schedules. The orders upon the two last rate schedules are each dated April 18, 1950. After the filing of each rate schedule more than five persons adversely affected applied to the commission praying that the commission investigate the matter and make such order in the premises as justice and law required. The rates in the first two schedules went into effect under bonds in accordance with V.S. 47, § 9376. The prior proceedings before the commission upon the first rate schedule were before us in Petition of New England Tel. & Tel. Co., 115 Vt. 494, 66 A.2d 135, hereafter sometimes referred to as the former case. The State has excepted to all there orders, and the company has excepted to the orders upon the last two rate schedules. Because of the numerous questions presented we have adopted the unusual procedure of dividing the writing of the opinion between two Justices in order to expedite the disposition thereof. My part of the opinion deals with the company's exceptions, and Mr. Justice JEFFORDS has written the part concerning the State's exceptions.

Rate Base

The findings show a large amount of property under construction upon which the company has charged interest, which is capitalized and ultimately enters the plant account when the plant is actually put into service. It thus becomes a part of the rate base and the Company is entitled to earn a fair rate of return on such interest as long as the particular item of plant remains in service. The present plant in service includes interest charged during construction. It is the accounting practice of the company to credit the interest charged to construction in its revenue accounts. The commission concluded that to include such plant in the rate base and permit the company to charge interest during construction, which it capitalizes, would result in a double return, and consequently excluded such plant from the rate base. To this the company excepted. We held in the former case, 115 Vt. 494, 505, 66 A.2d 135, that such property should not be so included if the inclusion would result in a double return because interest upon the unfinished construction had been capitalized by the Company. A similar finding was sustained in Petition of Central Vermont Public Service Corp., 116 Vt. 206, 215, 71 A.2d 576. The company admits that if it did not credit interest during the test year there would be a double return, and insists that by its inclusion there is no duplication. The company charges interest at 5% on plant under construction, which presumably is ample as that is the rate it charges. It expects to get considerably more than 5% on its rate base. If we assume that this latter return is 5.5%, the figure arrived at by the commission, and that the company's theory were approved, it would get a return of 5.5% upon plant under construction plus 5.5% upon the 5% interest charged to construction. This exception is not sustained.

The company excepted to the exclusion from the rate base of the cost of certain lands purchased as proposed sites for future central offices. We quote from the findings:

'We recognize the desirability of encouraging public service corporations to be farsighted as to the needs of future service where such property may be acquired at a saving in cost. However, we regard it as being inequitable and unfair to look to the public exclusively to underwrite such advance purchases thus 'guaranteeing the utility against all mistakes.' Barnes, Economics of Public Utility Regulation, 425.

'The accepted test as to the allowance of this item is 'whether the time for using the property in question is so near that it may properly be held to have the quality of working capital.' Re Petition of New England Tel. & Tel. Co., 115 Vt. 494 at 505, 506, 66 A.2d 135.

'The principal items in this account consist of property owned by the company situated in Brattleboro, Montpelier and Rutland. The record indicates that the company originally anticipated that the property located in Montpelier would be put into service in 1948; Rutland, 1947 and Brattleboro in 1947. These dates have come and long past and the property has not yet been devoted to public service. These dates have been progressively advanced to the point where current estimates for Rutland indicate that the property there may be put in use in 1952; Montpelier, 1955; Brattleboro, 1953. If the plans relative to these particular pieces of property were definite in the first instance, their constant revision has established the character of the plans at the present time to be highly indefinite. Between the present time and the anticipated future use of the property, many factors might intervene which would require the abandonment of the particular site for constructing central office exchanges in the various communities indicated which might render highly imprudent the utilizaton of the property so acquired. Further the Commission could not with reason justify the conclusion that such property held for future use in 1955 has the character of working capital in 1949. Obviously the company would not with prudence acquire materials and supplies in 1947 for use in 1955. Further, we take judicial notice of the fact that the property included in this account was acquired at or near the peak of real estate prices in the post-war era. We regard this risk as one that management undertook which should be assumed by the investor rather than the consuming public.

'We also note that in this account, the petitioner has included property which is located in the Town of Putney, Vermont acquired October 18, 1939--more than a decade ago. It is inconceivable in our judgment that the interests of the consumer will be fairly served by including property which has not come into actual public service for a period of ten years or more.

'None of the items included in this account are scheduled for public service in 1949 or 1950. The expected arrival of the time for such utility is too remote to give the subject property the character of working capital. We therefore exclude it from the rate base. Columbus Gas & Fuel Co. v. Public Utilities Comm. of Ohio, 292 U.S. 398, 406, 54 S.Ct. 763, 78 L.Ed. 1327, 1332.'

We stated the law upon this subject in the fomer case, 115 Vt. 494, 505, 506, 66 A.2d 135, 142, as follows: 'Several rules are followed in dealing with the question of property held for future use. Barnes, The Economics of Public Utility Regulations, p. 425. The one most generally adopted, and the one which appeals to us, recognize that business judgment must be employed to anticipate future needs and that this judgment may not be arbitrarily interfered with. The test generally applied by these cases is whether the time for using the property in question is so near that it may properly be held to have the quality of working capital. Columbus Gas & Fuel Co. v. Public Utilities Comm., 292 U.S. 398, 54 S.Ct. 763, 78 L.Ed. 1327, 91 A.L.R. 1403; State ex rel. Pac. T. & T. Co. v. Dept of Public Service, supra; [19 Wash.2d 200, 142 P.2d 498]; State v. Tri-State Tel. & Tel. Co., 204 Minn. 516, 284 N.W. 294; Pacific Tel. & Tel. Co. v. Whitcomb, D.C., 12 F.2d 279; Denver Union Stock Yard Co. v. U. S., D.C., 57 F.2d 735.

'There is no merit to the claim of the company that property held for future use should be included in the rate base as matter of law. This question, like the preceding one, is one of fact to be determined by the commission. In making this determination it should consider whether the purchase of the property in question was made in pursuance of honest and reasonable business judgment in carrying out some definite plan, for example, or whether the expenditure was dishonest, wasteful or imprudent. The time within which it may reasonably be expected that the property will be used is, as we have indicated, very important in determining the question. * * *'

The correctness of the commission's action must depend upon whether the facts recited support its conclusion of remoteness, and whether that in itself is sufficient to justify exclusion. The company's brief states:

'Obviously the question relates to '1949 and the future' and the fact that the property was purchased in 1947 ^* by itself is irrelevant. It is true that because of financial difficulties the original dates of use had to be postponed, but the record is clear that unless such difficulties continue there are definite plans for use of the properties. However, the fact that unforeseen conditions may intervene is irrelevant. The important question is whether it is prudent in 1949 'and the future' to have acquired land for use in 1953 and 1955. The Commission made no finding as to how long before the service dates the buildings must be...