Southern New England Tel. Co. v. Public Utilities Commission

• Decision Date: 24 June 1970
• Docket Number: No. 160559,160559
• Court: Connecticut Superior Court
• Parties: SOUTHERN NEW ENGLAND TELEPHONE COMPANY v. PUBLIC UTILITIES COMMISSION.

Page 915

282 A.2d 915

29 Conn.Supp. 253

SOUTHERN NEW ENGLAND TELEPHONE COMPANY v. PUBLIC UTILITIES COMMISSION.

No. 160559.

Superior Court of Connecticut, Hartford County.

June 24, 1970.

John Lashnits, John E. McNerney and Robert S. Medvecky, New Haven, for plaintiff.

Robert K. Killian, Atty. Gen., and John K. Jepson and Frank R. Odlum, Asst. Attys. Gen., for defendant.

DEVLIN, State Referee.

The plaintiff company on November 18, 1968, filed with the defendant commission proposed amendments to the existing rate schedule which would increase the rates and charges for telephone service to all subscribers and would provide for an overall estimated increase in the company's gross revenues, based on the 1969 level of business, of approximately $23,900,000, or about 9.5 percent. These rates were to become effective on December 1, 1968. Hearings were held in December of 1968 and January and February of 1969. At these hearings the company presented five witnesses and a considerable number of exhibits. No evidence was offered by the commission or its staff. Under the procedure followed by the commission, members of the general public were permitted to state their positions with regard to the rate increase. The court adopted the same procedure on appeal and allowed those present who had filed appearances to argue their claims.

A decision was rendered on April 23, 1969, and it is from this decision that the present appeal results. The appeal is brought under General Statutes § 16-37, which prescribes specific standards of judicial review. It provides, in pertinent part, as follows: 'The court, upon such appeal, shall review, upon the record so certified, the proceedings of the commission and examine the question of the legality of the order, authorization or decision appealed from and the propriety and expediency of such order, authorization or decision so far as said court has cognizance of such subject and shall proceed thereon in the same manner as upon complaints for equitable relief.'

In this type of appeal, the function of the court is to determine from the record whether the facts found by the commission are supported by the record, whether they furnish justifiable reasons for the action of the commission, and whether it has acted illegally or has exceeded or abused its powers. Wilson Point Property Owners Assn. v. Connecticut Light & Power Co., 145 Conn. 243, 252, 140 A.2d 874. The court does not try the case de novo and cannot substitute its discretion for that reposed in the commission. Kram v. Public Utilities Commission, 126 Conn. 543, 12 A.2d 775.

A regulatory body, such as the public utilities commission, must act strictly within its statutory authority, within constitutional limitations, and in a lawful manner. Southern New England Telephone Co. v. Public Utilities Commission, 144 Conn. 516, 523, 134 A.2d 351. At any hearing involving rates, the burden of proving that the rates requested are just and reasonable is on the public service company. General Statutes § 16-22.

Specific attack is made on certain findings of fact. Paragraph 1 of the finding states: 'The test year for this rate case is the 12 months ended October 31, 1968.' The claim is made that this is not a fact but a conclusion, reached without reason or even discussion as to the propriety, expediency or legality of such a conclusion.

Apparently in all five previous rate cases involving the company, the commission had employed a test year ending in the future, in recognition of the fact that rates are fixed for the future and should be related to facts and events which could reasonably be expected to exist in the immediate future. This would seem to be a commonsense approach, since a new schedule of rates applies prospectively. Rates are fixed for the future and not the past. McCardle v. Indianapolis Water Co., 272 U.S. 400, 47 S.Ct. 144, 71 L.Ed. 316.

The company presented evidence on the basis of all financial and operating facts, some estimated for the year ending December 31, 1969, or, as an alternative, for the year 1968 adjusted for known and reasonably anticipated changes in revenues, expenses and investment to December 31, 1969. It appeared that certain large expenditures forecast for 1969 were not estimates but were known and fixed by statute or binding collective bargaining agreements. In this category were included a general wage increase for all nonmanagement employees, in the amount of $3,269,000, to become effective May 4, 1969; changes in the company's obligations under its pension plan, in the amount of $2,420,000, to become effective on July 1, 1969; and increases in the amount of social security taxes owed by the company, in the amount of $253,000, to become effective on January 1, 1969.

As a matter of fact these changes, with the exception of the pension plan, became effective before the new rates filed by the company became effective. The effect of setting the test year deadline at October 31, 1968, was to foreclose any consideration of these known fixed obligations. No reason is given for the adoption of the test year period, and there is authority that the adoption of a single year as an exclusive test or standard imposes upon the company an arbitrary restriction in contravention of the fourteenth amendment. West Ohio Gas Co. v. Public Utilities Commission, 294 U.S. 79, 55 S.Ct. 324, 79 L.Ed. 773. In that case there was evidence of actual revenue and expenses, unchallenged, for two succeeding years. The commission, however, refused to consider this in fixing the new rates. The court stated (p. 81, 55 S.Ct. p. 325): 'We think the adoption of a single year as an exclusive test or standard imposed upon the company an arbitrary restriction in contravention of the Fourteenth Amendment and of 'the rudiments of fair play' made necessary thereby. * * * The earnings of the later years were exhibited in the record and told their own tale as to the possibilities of profit. To shut one's eyes to them altogether, to exclude them from the reckoning, is as much arbitrary action as to build a schedule upon guesswork with evidence available.'

Where estimates for future expenses are involved, the element of speculation always presents a problem, and the commission is confronted with passing upon the possibility or probability of their occurring. Another matter to be considered is whether the claimed changes will occur within a reasonable proximity of the test year. Since a test period is employed to show what the probable operating and financial condition of the company will be in the immediate future, in order that rates may be fixed which will compensate the company for all operating expenses and provide it with a fair return, the test year must be representative of the conditions which will prevail in the immediate future when the rates will be effective. This test period must be based on the most recent actual experience of the company, with adjustments made for all known changes affecting costs and revenues in the immediate future which are not conjectural; Re Hampton Water Works Co., 71 P.U.R.3d 447; and which are not so remote in time that they might destroy the representative character of the test year. Re United Gas Pipe Line Co., 55 P.U.R.3d 483. And this applies especially to wage increases and taxes which are not the result of speculation or surmise. Bell Telephone Co. of Nevada v. Public Service Commission, 70 New. 25, 38, 258 P.2d 602.

In this case, where definite ascertainable expenses involving wage increases, tax increases, and pension commitments, all to become effective before July 1, 1969, were submitted in evidence, a failure to consider them presents a false picture with reference to the future earnings the company may expect. Central Maine Power Co. v. Public Utilities Commission, 153 Me. 228, 236, 136 A.2d 726; Bell Telephone Co. of Nevada v. Public Service Commission, supra. In failing to take these matters into consideration the commission acted arbitrarily.

Paragraph 3 of the finding states: 'Property held for future use has been excluded from the rate base because it does not meet the requirement of dedication to public use.' This is discussed in the finding and order, wherein the commission states: 'The Company's intra-state rate base calculation includes $187,000 representing the cost of property held for future use. In response to a Commission request, the Company submitted a schedule of the units of property comprising this balance. A review of this schedule indicates that the units of property itemized therein do not represent property which has been dedicated to a public service as at the end of the test year. It has been our consistent position that 'Consistent with accepted legal principles, a utility is entitled to a return only on property actually dedicated to the public service.' There is no deduction when land or other property is purchased for possible future use. The fact is that plans can and do change, and on occasions contemplated dedication does not materialize.' The 'accepted legal principles' referred to are based upon a long-standing custom or practice 'which has been part of the regulatory process since the beginning of regulation of public utility companies.' The commission claims sanction for this is found in General Statutes § 16-23, wherein it is stated: 'All regulations, practices and service prescribed by the commission shall be in force and prima facie reasonable * * *.'

The properties excluded are listed in an exhibit. The year of expected use for some is listed as 1970, for others, 1975. The effect of this finding is to rule as a matter of law that unless the property was in fact in use on the last day of the test year it would not be considered.

Generally speaking, property not employed in the public service should not be incorporated into the base to be used to compute the fair rate of return. It must be kept in mind, however, that whether utility...