Southern Bell Telephone & Telegraph Co., Inc. v. Louisiana Public Service Commission

• Decision Date: 01 March 1937
• Docket Number: 33978
• Citation: 174 So. 180,187 La. 137
• Parties: SOUTHERN BELL TELEPHONE & TELEGRAPH CO., Inc., v. LOUISIANA PUBLIC SERVICE COMMISSION
• Court: Louisiana Supreme Court

174 So. 180

187 La. 137

SOUTHERN BELL TELEPHONE & TELEGRAPH CO., Inc., v. LOUISIANA PUBLIC SERVICE COMMISSION

No. 33978

Supreme Court of Louisiana

March 1, 1937

Rehearing Denied April 26, 1937

Appeal from Nineteenth Judicial District Court, Parish of East Baton Rouge; W. Carruth Jones, Judge.

Suit by the Southern Bell Telephone & Telegraph Company, Inc. against the Louisiana Public Service Commission. From an adverse judgment, defendant appeals.

Judgment reversed and set aside with directions.

Gaston L. Porterie, Atty. Gen., and James P. O'Connor, Henry O'Connor, and Joseph A. Loret, Sp. Asst. Attys. Gen., for appellant.

C. C Bird, Jr., of Baton Rouge, J. C. Henriques and Charles J. Rivet, both of New Orleans, and E. D. Smith and John T. Goree, both of Atlanta, Ga., for appellee.

OPINION

ODOM, Justice.

In the latter part of 1934, the Louisiana Public Service Commission, hereinafter referred to as the Commission, on its own motion, instituted a proceeding styled Louisiana Public Service Commission v. Southern Bell Telephone Co., Inc. (hereinafter referred to as the Company), its purpose being to investigate the reasonableness of the rates and charges established by the Company in Louisiana. The Company serves about 100 exchanges in the state and furnishes toll service between these exchanges as well as other exchanges owned either by it or companies affiliated with it, in a group of nine southern states.

After making its preliminary investigation, the Commission notified the Company to appear at an initial hearing set for December 13, 1934. The Company appeared and introduced the testimony of several witnesses and filed in evidence numerous exhibits. The hearing was continued to and resumed on January 24, 1935, when additional witnesses were called and other exhibits filed by the Company. At these hearings the Company called 7 witnesses, all its own employees, and filed in evidence some 57 exhibits.

The Commission's testimony was introduced at a final hearing on February 5, 1935. Its witnesses were Mr. Mark Wolff, a public utility consultant of Chicago and New York, and his staff of engineers and accountants, among them being Mr. Harold M. Olmsted, Mr. Hugh W. Abbett, an appraisal engineer for the Indiana Public Service Commission, and Mr. George S. Call, a certified public accountant, who was formerly chief of the Bureau of Accounts of the Pennsylvania Public Service Commission. These had all been previously employed by the Commission to assist in making the investigation touching the question whether or not the rates and charges established by the Company in Louisiana were reasonable. In connection with the testimony of its witnesses, the Commission filed in evidence numerous exhibits in the way of charts, estimates, calculations, etc.

After all the testimony was put into the record and the case was argued by counsel for both sides, the Commission issued its order No. 1530, dated March 2, 1935, by which new rates and charges were established. As a result, the Company's annual net earnings in Louisiana will be reduced, if the new rates are allowed to go into effect, by slightly more than $ 600,000.

The Company, on March 8, 1935, went to court with a suit in which it attacked the order of the Commission and sought to have it set aside on the grounds, mainly, that it was arbitrary, unreasonable, unconstitutional, and that the rates fixed were confiscatory. It alleged specifically that the methods adopted by the Commission in arriving at a valuation of its property used and useful in furnishing exchange service in Louisiana were so arbitrary and contrary to well-recognized methods that they were violative of the due process provision of the United States Constitution, as set forth in the Fourteenth Amendment, and as set out in section 2, article 1, of the State Constitution.

It was alleged that an examination of the findings of fact made by the Commission showed that the conclusions reached by the Commission were (a) without evidence to support them; (b) contrary to the evidence introduced; (c) based on evidence not legally cognizable; (d) founded on evidence not introduced; (e) based on methods which were wrong for determining the value of property; and (f) violative of the rudiments of fair play, and that the errors of law or procedure were so arbitrary and flagrant as to be violative of the due process of law guaranteed by both the Federal and State Constitutions.

It was further specifically alleged that the rates fixed by the Commission by its order No. 1530 were so low, unreasonable, and inadequate that they would not and could not yield a reasonable return on the fair value of the Company's property useful and used in furnishing exchange telephone service or intra-telephone service in Louisiana.

In sum and substance the Company's complaint before the court was that in arriving at the rates fixed in its order No. 1530, the Commission used what the Supreme Court of the United States in West v. Chesapeake & P. Telephone Co., 295 U.S. 662, 679, 55 S.Ct. 894, 901, 79 L.Ed. 1640, called a "rough and ready" method of arriving at values and fixing rates, and that the rates fixed were so low that, if allowed to stand, they would result in confiscation of its property or the taking of its property without due process of law.

It asked the court to set aside the Commission's order, and further prayed that the Commission be restrained from putting its order into execution pending the final outcome of the case on its merits. The injunctive relief sought was denied. A trial of the case on its merits resulted in a judgment canceling and setting aside the Commission's order No. 1530. From that judgment, the Commission appealed to this court.

If it be true as a matter of fact that the rates fixed by the Commission by its order No. 1530 are so low that the operation of the Company's business under them will amount practically to a confiscation of its property, then as a matter of law the order is illegal and cannot stand.

Public service corporations operating in Louisiana are subject to strict legislative supervision and control, especially with reference to matters relating to rates and charges made for services rendered to the public. The machinery set up by the Legislature for the exercise of its right of supervision and control of such corporations is a state agency designated as the Louisiana Public Service Commission. This Commission is authorized and empowered by special legislative acts to institute, on its own motion, and prosecute investigations to ascertain whether or not the rates and charges made by public service corporations for services rendered are reasonable and fair. If, after investigation, the Commission reaches the conclusion that the rates or charges are excessive, it may reduce them.

But the Commission's power and authority to fix rates and charges is limited always by the fundamental law laid down by the Fourteenth Amendment to the Constitution of the United States, which is that no state may "deprive any person of * * * property, without due process of law," and by section 2, article 1, of the State Constitution which says that "no person shall be deprived of * * * property, except by due process of law. Except as otherwise provided in this Constitution, private property shall not be taken or damaged except for public purposes and after just and adequate compensation is paid."

It must be conceded that if the state, through its agency, the Commission, has by its order in this case so limited the rates and charges which the Company may make for the services which it must render its subscribers and patrons as to reduce its net returns to the point where it cannot realize "just and adequate compensation" on the present fair value of its property, the order is illegal and must be set aside, because its effect will be to take the Company's property without due process of law. The state can no more do that than it could, by the exercise of its power of eminent domain, take private property for a public purpose without paying its true value at the time of taking.

The basic theories underlying the Company's attack upon the Commission's order in this case are: (1) That it resorted to unauthorized and illegal methods in determining the value of the Company's property used and useful in the operation of its business, and (2) that the rates fixed are confiscatory.

Before establishing rates and charges which a public service corporation may make in a case of this kind, the Commission must first of all determine the just and true value of the Company's property useful and used in the business at the time the rates are fixed. This done, it is enabled, after ascertaining the net amount derived from the operation of the company's plant, to determine what are fair, reasonable rates and charges, and to fix them so as to yield a reasonable, fair return on the investment and at the same time protect the rights of the rate payers.

In fixing rates, the use of an erroneous valuation of the property involved would necessarily result in harm and injustice either to the stockholders of the Company or to the rate payers. If the valuation is too low, it is the stockholders who suffer, and if too high, it is the rate payers. So that extreme caution must always be used in determining the value of the property.

By this we do not mean to say that it is necessary for the Commission to fix what might be termed an exact or precise value of all the property, for in the very nature of things this cannot be done. As was said by the court in the case of West et al. v. Chesapeake & Potomac Telephone Company of Baltimore, 295 U.S. 662, 55 S.Ct. 894, 898, 79 L.Ed. 1640, 1641:

"But it is to be remembered...