South Central Bell Tel. Co. v. Louisiana Public Service Commission, 59851

• Decision Date: 14 November 1977
• Docket Number: No. 59851,59851
• Citation: 352 So.2d 999
• Parties: SOUTH CENTRAL BELL TELEPHONE CO. v. LOUISIANA PUBLIC SERVICE COMMISSION.
• Court: Louisiana Supreme Court

Page 999

352 So.2d 999

SOUTH CENTRAL BELL TELEPHONE CO. v. LOUISIANA PUBLIC SERVICE COMMISSION.

No. 59851.

Supreme Court of Louisiana.

Nov. 14, 1977.

Norman C. Frost, M. Robert Sutherland, Birmingham, Ala., Ronald W. Tweedel, New Orleans, Victor A. Sachse, Jr., Victor A. Sachse, III, Breazeale, Sachse & Wilson, Baton Rouge, for plaintiff-appellant.

Jeff McHugh David, Gen. Counsel, Baton Rouge, Saul Stone, Michael R. Fontham, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, for defendant-appellee.

MARCUS, Justice.

This is an appeal by South Central Bell Telephone Company, a wholly-owned subsidiary of American Telephone & Telegraph Company, from a judgment of the 19th Judicial District Court affirming an order of the Louisiana Public Service Commission which ordered South Central Bell to continue with expenditures sufficient for a full construction program to reduce the number of held applications of more than thirty days to zero by October 6, 1977 and to be in a position as of that date to provide service when and where requested in the grade desired.

In March 1973, the Commission ordered South Central Bell to complete by July 1, 1976 and $870 million statewide construction program to eliminate all eight-party lines, to afford single line service to all who desired it, and to raise the quality of service in Louisiana. ¹ By June 30, 1976, South Central Bell had fully complied with the 1973 order and thereby achieved the standard of zero held applications.

On June 15, 1976, South Central Bell's application for an $89 million increase in intrastate rates was denied in full by the Commission based on findings that during the 1975 historical test year South Central Bell had realized an overall rate of return of 8.7% and a return on equity in the range of 10.5-11.5%. ² Subsequent to this denial, the Commission received numerous complaints from consumers who were refused telephone service by the company based on representations of inadequate revenues. As a result, the Commission cited South Central Bell to show cause on September 24, 1976 "why an order should not be issued by the Louisiana Public Service Commission requiring that South Central Bell Telephone Company continue to maintain and provide reasonable and adequate telephone service to Louisiana telephone subscribers," or, in the absence of providing said service, why it should not be held in contempt under La.R.S. 45:1186 and responsible for monetary damages as provided in La.R.S. 45:1196, et seq. A hearing was conducted on September 24 during which twenty-eight individuals testified as to the company's refusal to provide telephone service to them. Appearing at the hearing on behalf of South Central Bell were Murray C. Fincher, vice-president, and David E. Buck, chief engineer, of the Louisiana operations of the company. Their testimony was to the effect that telephone service had been provided by the company when and where requested during the first six months of 1976 (about 54,000 telephone connections each month); however, the ability of the company to continue such service would be greatly curtailed as a result of the Commission's denial of its application for a rate increase. As of September 1, 1976, South Central Bell had accumulated only 2,735 held applications; however, it was estimated that by the end of 1976, unfilled applications for telephone service would reach 4,600 and would increase to 14,000 to 15,000 by mid-1977, absent rate relief, as inadequate revenues would result in the company being unable to raise equity capital to provide full service.

On October 6, 1976, the Commission issued an order directing South Central Bell to provide full and adequate telephone service by providing telephones to all persons who testified before the Commission within thirty days and by reducing the number of held applications in Louisiana to zero by December 31, 1976. The order further provided that, in the event of telephone applications requiring an unusually large capital investment or other extraordinary circumstances, South Central Bell could apply to the Commission for relief from the order or an extension of time for filing such application. The order was enforceable pursuant to any remedy provided by Louisiana law, including the award of damages to individuals if appropriate. ³

On October 20, 1976, South Central Bell filed in the district court a petition seeking judicial review of the Commission's order ⁴ and a permanent injunction to prevent its enforcement. ⁵ Subsequently, the company amended its petition by requesting the issuance of a preliminary injunction pending disposition of its request for a permanent injunction. South Central Bell contended that the Commission's order was arbitrary, unreasonable and discriminatory in that the citation directed to the company did not give sufficient notice of the action contemplated by the Commission; the company was physically unable to achieve zero held applications by December 31, 1976; the Commission had not adopted rules prescribing standards for service adequacy for telephone companies in Louisiana; and the standard of zero held applications imposed in the order was not included in the model standards adopted by the National Association of Regulatory Utility Commissioners. ⁶

A hearing was held on December 6-7 at which Murray C. Fincher, D. M. Ballard, Daniel Matheson and Eugene W. Meyer testified on behalf of South Central Bell and Bruce M. Louiselle testified for the Commission. The witnesses on behalf of South Central Bell testified as to the company's physical and financial inability to comply with the order of the Commission. The Commission objected to the introduction of evidence relative to the company's financial status on the ground that it had no bearing on the reasonableness of the service order; rather, it was argued that such evidence should be confined to the rate case under review in a separate proceeding in the district court. However, the trial judge overruled the objection and the evidence was received.

On December 27, 1976, the district court issued a preliminary injunction enjoining the Commission from enforcing the order of October 6, 1976 (No. U-13141) and, pursuant to La.R.S. 45:1194, sent the transcript of Murray C. Fincher's testimony to the Commission. The court's decision to issue a preliminary injunction was based on the fact that the order of the Commission contained no definition of "held applications" and the testimony of Fincher indicated that a considerable amount of time and manpower would be needed to comply with the order. ⁷ The court deferred action on the merits of South Central Bell's application for a permanent injunction and judicial review of the order until the Commission had considered the evidence and reported its action to the court. La.R.S. 45:1194.

On December 30, 1976, after review of the case on remand from the district court, the Commission amended its previous order by extending the date for compliance to October 6, 1977, one year after the issuance of its original order. South Central Bell was ordered to continue with expenditures sufficient for a full construction program to reduce the number of held applications of more than thirty days in any base rate area in the state to zero by October 6, 1977, and the number of held applications for telephone service of more than thirty days outside the base rate areas to zero, with the exception of those applications for service in which the Commission consented to a longer delay pursuant to an application for relief filed by South Central Bell in exceptional cases. The order stated that the Commission would not accept as a conclusive basis for a delay longer than thirty days the mere claim of financial inability or the projection of South Central Bell that it would not earn a rate of return it deemed sufficient. However, with regard to particular service applications, an extraordinarily small projected return in relation to the necessary investment was to be considered by the Commission as to whether the expenditure was required under sound regulatory principles. Finally, South Central Bell was ordered to be in a position as of October 6, 1977 to provide service when and where requested in the grade desired, the status which it had achieved as of June 30, 1976. ⁸

After return of the record to the district court, the district court affirmed the Commission's order as amended concluding that it was not arbitrary, unreasonable or capricious and that the general notice directed to South Central Bell was sufficient to support the order. The court further found that the model standards of the National Association of Regulatory Utility Commissioners were not binding on the Commission, and, even if they were, it was uncertain whether the order was more or less onerous than the model standards. Finally, the court found that the service standard adopted by the Commission was not discriminatory. South Central Bell took a devolutive appeal from this judgment. ⁹ La.Const. art. 4, § 21(E).

La.Const. art. 4, § 21(B) provides that the Louisiana Public Service Commission "shall regulate all common carriers and public utilities and have such other regulatory authority as provided by law. It shall adopt and enforce reasonable rules, regulations, and procedures necessary for the discharge of its duties, and shall have other powers and perform other duties as provided by law." Under La.R.S. 45:1164, the power, authority and duties of the Commission shall affect and include all matters and things connected with, concerning, and growing out of the service to be given or rendered by public utilities except in the Parish of Orleans and other exceptions set forth in the statute. The Commission shall adopt all reasonable and just rules, regulations and orders affecting or connected with the service and operation of a telephone or telegraph business. La.R.S. 45:1166(A). Pursuant to these provisions, the...