State ex rel. Pacific Tel. & Tel. Co. v. Department of Public Service

• Decision Date: 22 October 1943
• Docket Number: 28594.
• Citation: 19 Wn.2d 200,142 P.2d 498
• Court: Washington Supreme Court
• Parties: STATE ex rel. PACIFIC TELEPHONE & TELEGRAPH CO. v. DEPARTMENT OF PUBLIC SERVICE et al.

142 P.2d 498

19 Wn.2d 200

STATE ex rel. PACIFIC TELEPHONE & TELEGRAPH CO. v. DEPARTMENT OF PUBLIC SERVICE et al.

No. 28594.

Supreme Court of Washington, En Banc.

October 22, 1943

Proceeding by the State, on relation of Pacific Telephone & Telegraph Company, Before the Department of Public Service for the purpose of fixing rate schedules, wherein the Telephone Users League of Washington, Inc., and a number of cities appeared. Orders of the Department of Public Service suspending tariff and effecting a general rate reduction were reversed by the superior court, and the Department of Public Service and the Telephone Users League of Washington, Inc., appeal, and the cities appearing cross-appeal.

Modified and as modified affirmed.

Appeal from Superior Court, Thurston County; Hon D. F. Wright, judge.

Harry W. Oehler, of St. Paul Minn., William A. Ewart, of Pontiac Mich., Edward M. Murphy, of Erie, Pa., William Drennan, of Kansas City, Kan., Samuel Backer, of Atlantic City, N. J George E. Lindelof, Jr., of Hawthorne, Cal., E. L. Semple, of Coral Gables, Fla., Lloyd J. Cohen, of East Chicago, Ind., John D. Smith, of Quincy, Mass., Walter G. Krapohl, of Flint, Mich., Joseph J. Betley, of Manchester, N. H., Allan L. Edgarton, of Fond du Lac, Wis., Gov. Hutchinson, of Jacksonville, Fla., John B. Seabrook, of Portland, Or., and Charles S. Phyne, of Washington, D. C., amici curiae for 345 Member Cities of National Institute of Municipal Law Officers.

Smith Troy, Joseph C. Cheney, Harry A. Bowen, and Fred E. Lewis, all of Olympia, for Departments.

Skeel, McKelvy, Henke, Evenson & Uhlmann, of Seattle, for Telephone Users League of Washington, Inc.

Harry L. Olson, of Yakima, Tim Healy, of Bellingham, Chas. R. Lewis, of Shelton, Owen L. Knowlton, of Dayton, A. D. Gillies, of Aberdeen, Geo. C. Ellsbury, of Centralia, John Dobson, of Renton, A. C. Van Soelen, Glen E. Wilson, and J. Ambler Newton, all of Seattle, G. M. Ferris, of Spokane, Howard Carothers, of Tacoma, E. W. Anderson, of Olympia, Jas. W. Bryan, Jr., of Bremerton, H. E. Donohoe, of Chehalis, Judd Kimball, of Walla Walla, McMicken, Rupp & Schweppe and John N. Rupp, all of Seattle, Arthur T. George and Alfred Sutro, both of San Francisco, Cal., and Fletcher Rockwood, of Portland Or., for respondent.

BEALS Justice.

The Pacific Telephone & Telegraph Company is a California corporation, owning and operating a telephone system throughout the states of Washington, Oregon, northern California and a small portion of the state of Idaho. The company furnishes in the state of Washington both intrastate and interstate telephone service, and is a public service company within the scope of the 'public service commission law,' Rem. Rev. Stat. § 10339 et sq. During the month of June, 1938, the company filed with the department of public service of Washington rate schedules designed to increase its net revenue. These schedules included a tariff providing for increases over the preexisting rates for intrastate message toll telephone service over routes longer than fifty-six miles air line, and a tariff directing the passing on, by the company, to its customers in six cities, of municipal occupation taxes levied by those cities against the company. June 25, 1938, the department, by order, suspended these tariffs, and two days later the company filed a tariff providing for changes in the preexisting rates for exchange telephone service in the city of Seattle, which latter tariff the department suspended by order dated June 29, 1938.

March 31, 1939, the department, on its own motion, filed a complaint instituting an investigation of the rates and practices of the company in the conduct of its telephone business within the state of Washington. May 10, 1939, the company filed a tariff providing for changes in telephone rates to become effective in all the company's telephone exchanges in the state of Washington, with the exception of the cities of Seattle and Clarkston. May 19th, the department, by order, suspended this tariff. Thereafter, the department, by order, consolidated for hearing all the tariffs which had been filed by the company, and which the department had suspended, together with the proceeding which had been instituted by the department above referred to. Hearings were held Before the department from July 28, 1939, until May 1, 1940. It was estimated that the company, from the rates set forth in its tariff filings, would have derived an increase in net revenue for the year 1940 in an amount exceeding $1,300,000.

July 6, 1940, the department entered an order permanently suspending all the tariffs above mentioned, which had been filed by the company, and directing the company to cancel these tariffs. 34 P.U.R. 193. The order further provided that the department retained jurisdiction of the proceeding, for the purpose of conducting a general investigation of the company's rates and practices. The company seasonably, by writs of review and supersedeas, brought this order Before the superior court for revision. It was stipulated that the company should not be penalized for disobeying the order of July 6th, pending order of the superior court upon the company's application for supersedeas.

October 31, 1940, the department entered an order in the proceeding instituted by the department, which order effected a general rate reduction. The company, by writ of review, brought this order Before the superior court, and the matter was consolidated for hearing Before that court, with the other order above referred to.

December 17, 1940, the company having failed to file new rate schedules as directed by the October order, the department entered an order establishing rate schedules in conformity with the October order. The company brought this order Before the superior court for review, as did various cities who desired a judicial review of both the October and December orders. All the petitions for review were consolidated for hearing Before the superior court, and have been consolidated for hearing Before this court.

After lengthy hearings, the superior court, July 18, 1941, filed its memorandum opinion, and September 29, 1941, entered its decree, the material portions of which read as follows:

'Now, therefore, in compliance with paragraph 10428 of Remington's Revised Statutes, the court hereby renders its decree:

'It is ordered, adjudged and decreed that the following findings made by the Department of Public Service of Washington of July 6th, October 31st, or December 17th, 1940, are erroneous in the following particulars:

'1. The Department in its determination of fair value of relator's property for rate making purposes failed to include property in Account No. 100.3, denominated 'Property Held for Future Use.' The relator is entitled to earn a return on the property included in Account No. 100.3 and all of such property should be included in the determination of the fair value of relator's property for rate making purposes.

'2. The Department in its determination of fair value of relator's property erred as matter of law in finding that the fair value of such property was its original cost less the depareciation reserve. The Department must, in determining the fair value of relator's property, give consideration to the cost of reproduction of such property, less existing depreciation. Existing depreciation must be determined by physical inspection, in so far as practicable, giving due consideration to other causes of retirement of property such as inadequacy, obsolescence, changes in the art, and requirements of public authorities.

'3. The findings of the Department, determining the amount and nature of operating expenses to be deducted from gross revenue, are in error in the following particulars:

'(a) Disallowance of license fees paid by relator to the American Telephone and Telegraph Company under the license contract with that company and charged to Washington state operations.

'(b) Disallowance of payments made by relator to the trustee under the pension plan to provide for the cost of pensions.

'The disallowance of both said payments was erroneous as a matter of law and all such charges should be included as necessary operating expenses.

'4. The Department erred in fixing the fair rate of return which relator is entitled to earn on the fair value of its property at 5%. As a matter of law and fact a fair return upon such fair value is not less than 6%.

'The other findings made by the Department of Public Service of Washington either on July 6th, October 31st, or December 17th, 1940, are neither approved nor disapproved.

'It is further ordered, adjudged and decreed that the orders of the Department of Public Service of Washington, dated July 6th, October 31st, and December 17th, 1940, except insofar as they refer to the station to station method of rate making as contradistinguished from the board to board method of rate making and the change to measured service in Seattle, (the above is not to be taken as an affirmance or disaffirmance of the Department) and each of them, be and they are hereby reversed and the proceedings remanded to the Department of Public Service of Washington for further proceedings in accordance with this decree.

'The respondents are hereby allowed an exception to all parts of the above and foregoing decree.'

From this decree, the department of public service of Washington (herein referred to as the department) has appealed; Telephone Users League of Washington, Inc., has also appealed; and the cities of Seattle, Spokane, Tacoma, Yakima, Bellingham, together with other cities, have cross-appealed. Argument Before this court was, by agreement of the parties, delayed until June 15, 1943.

We shall first...