Salt Lake Citizens Congress v. Mountain States Tel. & Tel. Co.

• Decision Date: 31 December 1992
• Docket Number: 900076,Nos. 900020,s. 900020
• Citation: 846 P.2d 1245
• Parties: SALT LAKE CITIZENS CONGRESS, Petitioner, v. MOUNTAIN STATES TELEPHONE & TELEGRAPH COMPANY, dba Mountain Bell; the Public Service Commission of Utah, Respondents. COMMITTEE OF CONSUMER SERVICES, DEPARTMENT OF COMMERCE, DIVISION OF PUBLIC UTILITIES, State of Utah, Petitioner, v. MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, dba Mountain Bell; the Public Service Commission of Utah, Respondents.
• Court: Utah Supreme Court

Page 1245

846 P.2d 1245

141 P.U.R.4th 518

SALT LAKE CITIZENS CONGRESS, Petitioner, v. MOUNTAIN STATES TELEPHONE & TELEGRAPH COMPANY, dba Mountain

Bell; the Public Service Commission of Utah, Respondents.

COMMITTEE OF CONSUMER SERVICES, DEPARTMENT OF COMMERCE, DIVISION OF PUBLIC UTILITIES, State of Utah, Petitioner, v. MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, dba

Mountain Bell; the Public Service Commission of

Utah, Respondents.

Nos. 900020, 900076.

Supreme Court of Utah.

Dec. 31, 1992.

R. Paul Van Dam, Kent Walgren, Salt Lake City, for Committee of Consumer Services.

Floyd A. Jensen, Ted D. Smith, Salt Lake City, for Mountain Bell.

Bruce M. Plenk, Salt Lake City, for Salt Lake Citizens Congress.

David L. Stott, Salt Lake City, for Public Service Com'n.

STEWART, Justice:

The Salt Lake Citizens Congress and the Committee of Consumer Services seek a writ of review of the dismissal of their consolidated requests for agency action by the Public Service Commission. We reverse and remand.

I.

During the late 1960s and the 1970s, there was much debate over whether a public utility could properly charge charitable contributions to its ratepayers. A large majority of states held that ratepayers could not be charged for a utility's charitable contributions because the contributions were made for the benefit of shareholders in the form of increased goodwill. See, e.g., Alabama Power Co. v. Alabama Pub. Serv. Comm'n, 359 So.2d 776, 779-80 (Ala.1978); Pacific Tel. & Tel. Co. v. Public Utils. Comm'n, 62 Cal.2d 634, 44 Cal.Rptr. 1, 22-23, 401 P.2d 353, 374-75 (1965); Illinois Bell Tel. Co. v. Illinois Commerce Comm'n, 55 Ill.2d 461, 303 N.E.2d 364, 374-75 (1973); Davenport Water Co. v. Iowa State Commerce Comm'n, 190 N.W.2d 583, 607-08 (Iowa 1971); Chesapeake & Potomac Tel. Co. of Maryland v. Public Serv. Comm'n, 230 Md. 395, 187 A.2d 475, 485 (1963); Re Northwestern Bell Tel. Co., 29 Pub.Util.Rep.4th (PUR) 7, 22-23 (Minn.Pub.Serv.Comm'n 1978). A minority of states reached the opposite conclusion and determined that because charitable contributions benefit society as a whole, they may be properly charged to ratepayers when made in reasonable amounts. See, e.g., City of Miami v. Florida Pub. Serv. Comm'n, 208 So.2d 249, 258-59 (Fla.1968); New England Tel. & Tel. Co. v. Department of Pub. Utils., 360 Mass. 443, 275 N.E.2d 493, 518-21 (1971); United Gas Corp. v. Mississippi Pub. Serv. Comm'n, 240 Miss. 405, 127 So.2d 404, 416 (1961).

In 1969, the Utah Public Service Commission granted Mountain States Telephone & Telegraph Company (Mountain Bell) a rate increase and announced that it was changing its previous rule of allowing Mountain Bell to charge charitable contributions to ratepayers. Re Mountain States Tel. & Tel. Co., 78 Pub.Util.Rep.3d (PUR) 429 (Utah Pub.Serv.Comm'n 1969). The Commission stated:

There is one further adjustment which we have concluded to make in the above figures. The item designated miscellaneous income charges in the amount of $36,000 in the expenses shown above is not an operating expense account in the Uniform System of Accounts for Telephone Utilities. The system of accounts designates this account as a miscellaneous deduction from income on the income statement. An analysis of the actual charges included in this account for the year ended December 31, 1967, shows that approximately 70 per cent of the dollars in the account represent contributions to numerous organizations in Utah. The balance consists of dues and expenses for service clubs and other organizations paid by the petitioner on behalf of employees and a prorate of charges from the general office of Mountain States Telephone in Denver, Colorado. It can be assumed that the make-up of the charges in the account for the year 1968 are comparable in nature to those in 1967.

In the past the commission has included miscellaneous income charges as a part of total expenses in determining the revenue requirements of Mountain States Telephone, but such items have been excluded by the commission in fixing the rates of the other major utilities operating in Utah.

The commission finds that miscellaneous income charges in the amount of $36,000 should be eliminated from the allowable expenses.

Id. at 439-40 (emphasis added). The italicized language in the opinion indicates that the Commission's ruling constituted a pronouncement of established Commission policy to be applicable as a general rule to Mountain Bell and all other major "utilities operating in Utah."

During the next seven years and through one general rate case, Mountain Bell abided by that ruling and charged contributions to its shareholders, not to ratepayers. In 1976, however, Mountain Bell submitted an application to the Commission for a rate increase that, for the first time since 1969, charged charitable contributions to ratepayers. An appendix to an exhibit submitted as part of the application presented a statement of projected income and expenses for the test year. The statement included a $65,000 "Miscellaneous" item that appeared to be added to the "Net Operating Income," but was in fact deducted to reach the "Net Operating Earnings." ¹ The only explanation of the "Miscellaneous" category of expenses on the income statement was found on page 70 of the 74-page exhibit:

D. Other Income and Charges

....

2. Miscellaneous Deductions --Includes the cost of abandoned projects, charitable contributions, membership dues, bond trustees fees, and the Federal income taxes related to these items.

(Emphasis added.)

Mountain Bell did not petition the Commission for authority to charge charitable contributions to ratepayers and, of course, the Commission did not rule on the lawfulness of Mountain Bell's changed treatment of that expense. In fact, the Commission's report and order made no comment on Mountain Bell's "Miscellaneous Deductions." Consequently, in 1976, the ratepayers began paying for Mountain Bell's charitable contributions, notwithstanding the Commission's 1969 ruling and the utility's seven-year practice of following that rule.

In December 1980, the Commission ordered all natural gas, electric, and telephone utilities to file written reports "setting forth in detail the accounting treatment by such utility of all political, charitable and other contributions made by said utility." Utah Power & Light, Mountain Fuel, and Continental Telephone Company responded to the order by describing their individual accounting practices and stating that the effect of their practices was to charge contributions to shareholders, not to ratepayers. Mountain Bell's response, however, did not indicate whether its contributions were charged to the shareholders; it merely stated, "Mountain Bell makes charitable and other contributions and accounts for them by following the rules and regulations set forth in Part 31 of the Uniform System of Accounts for Class A and B Telephone Companies. The account number used to account for such contributions is 323." Significantly, Continental Telephone, whose general accounting scheme should have paralleled Mountain Bell's, also recorded contributions in account number 323 under the Uniform Systems of Accounts, but unlike Mountain Bell, Continental Telephone specifically informed the Commission that its contributions were not charged to ratepayers.

The Commission sent copies of the utilities' responses to the Division of Public Utilities and asked the Division to analyze the responses. The Commission made clear the reason for its request: "Our principal area of concern is that no charges were made improperly 'above the line' or in other words to the ratepayers." Although Mountain Bell received a copy of the Commission's letter two weeks after filing its response, it did not apprise the Commission that it charged its contributions to ratepayers, and the Division did not comment on Mountain Bell's reply.

Each year from 1980 through 1985, Mountain Bell sought rate increases; its applications followed the same format and used similar exhibits as those presented in the 1976 general rate case. In each case, the words "charitable contributions" were mentioned only once, in the explanation of "Miscellaneous Deductions" located deep in an appendix to the income exhibits. In each case, the miscellaneous deductions constituted a single line item located below the net operating income line on the income statement, and charitable contributions were not specified on the income statement as part of the miscellaneous deductions. In each case, the Commission approved the rate increases without comment on miscellaneous deductions generally, or charitable or other contributions specifically.

In 1988, the Commission initiated a general rate case against Mountain Bell on the ground that the utility was earning an unusually high rate of return. Using the same format that it had used in 1976, Mountain Bell submitted an application that again charged charitable contributions to the ratepayers. During the proceedings, the Commission learned, apparently through the Division, that for the preceding eleven years Mountain Bell had charged all charitable contributions to ratepayers. Commissioner Stewart emphatically expressed the view that Mountain Bell had been in clear violation of the law for some time in its treatment of charitable contributions:

Before you or anyone else wastes any more time on it, I want to have the company make reference or read a case entitled "Re the Mountain States Telephone and Telegraph Company," it's Case No. 5972, dated April 11th, 1969 where this issue was decided by this Commission and we do not intend to spend any more time on it in this case unless you plan to seek a reversal of that decision.

....

Mr. Smith [attorney for Mountain Bell]: I was not aware of that case.

Com. Stewart: Okay. The case held that charitable contributions were not to be taken [above] the line by Mountain States Telephone and Telegraph in that decision. We...