Southwestern Bell Tel. Co. v. State

Decision Date08 March 1951
Docket NumberNo. 34440,34440
Citation204 Okla. 225,230 P.2d 260
PartiesSOUTHWESTERN BELL TEL. CO. v. STATE et al.
CourtOklahoma Supreme Court

Syllabus by the Court.

1. In determining whether a rate of return fixed by the Corporation Commission upon the property of a public utility is fair and reasonable, where the public utility upon appeal from such order asserts that the same is confiscatory and takes its property without just compensation therefor in violation of the state and federal constitutions, this court must exercise its own independent judgment as to both the law and the facts. Constitution Art. 9, section 20.

2. A public utility is entitled to such rates as will enable it to earn a return upon its invested capital employed in the public service sufficient to maintain and support its credit so that it may raise the money necessary to improve and expand its service, and to assure the confidence of prospective investors in its financial soundness.

3. An order of the State Corporation Commission fixing the net earnings of a public utility at a rate which provides, after the payment of all operating expenses, including, debt service, taxes and depreciation, a sum sufficient to return to the equity owners a fair return upon the net worth of the stockholders' equity cannot be said to be confiscatory.

Cantrell, Carey & McCloud, Oklahoma City, Ronald J. Foulis, St. Louis, Earl H. Painter, St. Louis, Mo., of counsel, for appellant and plaintiff in error.

James G. Welch, Choice D. Holden and D. C. McCurtain, all of Oklahoma City, for appellee and defendant in error.

McNAUGHTON, Special Judge.

On September 30, 1947, Southwestern Bell Telephone Company filed with the Corporation Commission of the State its petition for increased rates to be charged in the state for intrastate service. After the taking of considerable testimony the Company filed with the Commission its application for a temporary rate pending the determination of the permanent rate, and upon denial of the application by the Commission, appealed to this court, which granted supersedeas pursuant to which it placed in effect rates designed to produce annually the sum of $3,077,661.00. Southwestern Bell Telephone Co. v. State of Oklahoma, ex rel. Corporation Commission, 214 P.2d 715. Thereafter additional testimony was taken before the Commission, and on October 17, 1949, the Commission made its report and order, granting a permanent rate of 5 1/4 per cent, this being the earning allowed by the Commission upon a rate base arrived at by subtracting from the book value of the Company's property in Oklahoma used in its intrastate business, that portion of its reserve for depreciation allocated to the intrastate portion of its business. The Company has perfected its appeal from this order, urging that the rate of return fixed by the Commission is insufficient and confiscatory; that in making it the Commission disregarded the evidence produced before it, and that the rate fixed is wholly unsupported by any evidence which the Commission had before it.

In its assignments of error and argument the Company asserts that the order of the Commission takes its property without just compensation contrary to the 5th and 14th Amendments of the Constitution of the United States, and contrary to sections 23 and 24 of Art. 2 of the state Constitution; that it deprives the Company of its property and rights without due process of law contrary to the 14th Amendment of the Constitution of the United States and to section 7 of Art. 2 of the state Constitution, and that it denies to the Company the equal protection of the laws in violation of the 14th Amendment of the Constitution of the United States, and section 2 of Art. 2 of the state Constitution.

Art. 9, section 20 of our Constitution as amended by the Laws of 1941, provides in part as follows: 'The Supreme Court's review of appealable orders of the Corporation Commission shall be judicial only, and in all appeals involving an asserted violation of any right of the parties under the Constitution of the United States or the Constitution of the State of Oklahoma, the Court shall exercise its own independent judgment as to both the law and the facts.' In view of the asserted violation of the Company's constitutional rights we have, pursuant to the constitutional requirements set forth above, carefully examined the record in this case and the applicable law, and this opinion reflects the exercise of our independent judgment pursuant to our study of the record and the governing decisions.

The record filed in this court is very voluminous, there being eight volumes of testimony consisting of some 3858 pages, and four volumes of exhibits. This testimony was extensive in range, covering not only the reasonableness of the expenses of the Company incurred in rendering the service it at present renders to the citizens of this state and its plans for expansion and improvement in service, but also outlining in detail the financial situation of the Southwestern Bell Telephone Company, and the financial structure and condition of the American Telephone and Telegraph Company, which according to the record owns and holds all of the capital stock of the Southwestern Bell Telephone Company except a few qualifying shares, and advances to the Southwestern Bell Telephone Company the greater portion of the funds used or to be used by it in expanding and improving its service in the various states served by it. There was also considerable testimony as to the fluctuating character of the telephone business when compared to the business of other public utilities, such as light, gas, and water companies, and the rates of return upon the investments of such companies in comparison to the rates earned by the telephone companies. There was also a large amount of evidence produced by the Company concerning the ratio of the indebtedness, both of Southwestern Bell Telephone Company and of American Telephone & Telegraph Company, to their total capitalization.

The Company contended before the Commission and here contends that in order to produce a fair and reasonable rate upon its intrastate investment in the state of Oklahoma, and to avoid confiscation, a rate of not less than 7 per cent upon its invested capital is required. In its report the Commission adopted as the rate base, or the amount of investment upon which the Company was entitled to earn an adequate return, the book value of the Company's investment in the intrastate business in Oklahoma less that portion of the Company's reserve for depreciation which could be allocated to its intrastate business. To this amount it added the value of materials and supplies on hand to be used in the improvement and expansion of the Company's business, and that portion of the Company's cash working capital allocated to intrastate business, making a total of $53,475,000.00. Upon this rate base it allowed a rate which, after the payment of operating expenses, taxes, and yearly depreciation, income taxes, uncollectables, and additional gross receipts taxes, would leave the Company the sum of $2,807,437.00, a net return to the Company of 5 1/4 per cent on the rate base above specified. While it conceded that the public utilities commissions, or the courts of other states, whose decisions had been examined by it, allowed rates in excess of that fixed, it stated that while not criticizing the allowance of such rates it felt that 5 1/4 per cent was a fair, just, and reasonable return from intrastate operations in Oklahoma.

In considering various expenditures incurred by the Company in connection with its business, such as license contract payments to American Telephone & Telegraph Company for services and research work performed by it for its various subsidiaries, the prices charged for material and equipment by Western Electric Company, another subsidiary of American Telephone & Telegraph Company, depreciation rates used by the Company, pension fund accruals, maintenance expenses, and working capital requirements, the Commission, while finding that there was not sufficient testimony to support a finding that the expenses so incurred by the Company, or that the depreciation rates, working capital requirements, or pension fund provisions were excessive or unreasonable, expressed dissatisfaction with the amounts allowed, and in each case stated that the allowance of this amount was an intangible element which had been considered by the Commission in arriving at its conclusion as to a fair rate of return. By this statement, as we construe it, it intimated that in its judgment the charges, expenses, rate of depreciation, amount of working capital on hand, and pension fund arrangement were excessive, or to some unascertained and undeclared extent unnecessary. It stated that while it could consider only the intrastate operations in Oklahoma and the amount which such operations should contribute to the overall requirements of Southwestern Bell Telephone Company, it was a known fact that certain areas in the United States contributed more proportionately to the overall return from interstate business than did others, and that the same was true of intrastate rates where the state is the rate making unit, and that certain states and areas such as large centers of population, like St. Louis, Kansas City, Dallas, and Houston, should contribute more proportionately to such intrastate business than should less favorably situated areas.

In fixing the rate of return the Commission noted that the Company, in support of its contention that it was entitled to a net return of 7 per cent on the net value of its property, introduced a great mass of evidence relating to the Bell System as a whole, or to the American Telephone & Telegraph Company, and stated that it was not concerned with the overall requirements of the Bell System, or American Telephone & Telegraph Company, but was concerned only with the requirements...

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14 cases
  • Southern Bell Tel. & Tel. Co. v. Mississippi Public Service Commission, 41026
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    ...v. Public Utilities Commission, 1934, 292 U.S. 290, 311, 54 S.Ct. 647, 78 L.Ed. 1267, 1281.' In the case of Southwestern Bell Tel. Co. v. State, 1951, 204 Okl. 225, 230 P.2d 260, 265, the Court held that a public utility is entitled to such rates as will enable it to earn a return upon its ......
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