State ex rel. United Tel. Co. v. Pub. Serv. Comm.

• Decision Date: 17 April 1935
• Docket Number: No. 33718.,33718.
• Citation: 81 S.W.2d 628
• Parties: STATE OF MISSOURI at the Relation of THE UNITED TELEPHONE COMPANY, a Corporation, Appellant, v. PUBLIC SERVICE COMMISSION and J.C. COLLET, J. FRED HULL, GEORGE H. ENGLISH, WILLIAM STOECKER and W.M. ANDERSON, Members of the Public Service Commission.
• Court: Missouri Supreme Court

81 S.W.2d 628

STATE OF MISSOURI at the Relation of THE UNITED TELEPHONE COMPANY, a Corporation, Appellant, v. PUBLIC SERVICE COMMISSION and J.C. COLLET, J. FRED HULL, GEORGE H. ENGLISH, WILLIAM STOECKER and W.M. ANDERSON, Members of the Public Service Commission.

No. 33718.

Supreme Court of Missouri.

Division One, April 17, 1935.

Appeal from Cole Circuit Court. — Hon. N.G. Sevier, Judge.

AFFIRMED.

Sparrow, Patterson, Chastain & Graves, Karl B. Rugh and Lewis H. Cook for appellant.

(1) Commission valuation based on panic prices prevailing in the early part of 1933, rather than average prices, was unlawful and unreasonable. Los Angeles Gas Corp. v. Railroad Comm., 58 Fed. (2d) 256; McCardle v. Ind. Water Co., 272 U.S. 400; Georgia Railroad Co. v. Railroad Comm., 262 U.S. 625; Bluefield Waterworks & C. Co. v. Pub. Serv. Comm. of West Va., 262 U.S. 679; Monroe Gas Light & Fuel Co. v. Mich. P.U. Comm., 292 Fed. 139. (2) The commission failed and refused to give consideration to the evidence offered by the company as to the investment in its property. Smyth v. Ames, 169 U.S. 466. (3) The commission in its findings and order failed to make an adequate allowance for general or construction overheads. Commission rulings of Missouri and other states hereinafter cited. (4) The commission refused to allow the company an adequate amount for materials and supplies in that it excluded the telephone instruments which had been taken out of service during the depression and which were being held by the company in readiness for installation as soon as normal conditions required. Southern Bell Tel. Co. v. Railroad Comm., 5 Fed. (2d) 77, P.U.R. 1926A, 6. (5) The commission gave no consideration to the original cost of the company's property. Smyth v. Ames, 169 U.S. 466. (6) The commission's finding and allowance of an annual depreciation requirement of only $6,100 was an action wholly unwarranted and unjustified. The commission's refusal to allow an annual depreciation reserve ordinarily and customarily allowed other telephone utilities was grossly discriminatory and unfair. Smith v. Ill. Bell Tel. Co., 282 U.S. 133. (7) The commission refused to allow the inclusion of income taxes as a part of the company's operating expense.

Sam O. Hargus, General Counsel, and James P. Boyd, Assistant General Counsel, for Public Service Commission.

PER CURIAM:

This is an appeal from a judgment of the Circuit Court of Cole County affirming an order of the Public Service Commission directing a decrease in the rates of The United Telephone Company at Clinton. The telephone exchange at Clinton is one of fifty-six similar properties owned and operated by this company, a Missouri corporation, in as many small cities and towns in Missouri.

The proceeding was originally instituted before the commission by the filing of a letter signed by the city clerk of Clinton wherein complaint was made that the rates effective at Clinton for gas, water and telephone service were excessive and request was made that the commission investigate such rates and hold hearings thereon. A similar letter was received by the commission from the Mayor of Clinton, with an attached petition signed by approximately one hundred and fifty citizens of Clinton, requesting an investigation of the rates charged for telephone service in that city.

In compliance with these requests the commission ordered an investigation of the reasonableness of this company's rates for telephone service at Clinton, and pursuant thereto caused the commission's accounting department to make a complete audit of the operating revenues and expenses of the company for its Clinton exchange for the year ending April 30, 1933, and its engineering department to make appraisal of the company's properties, the latter based upon an inventory made by the company as of November 1, 1928, priced as of June 1, 1933, with adjustment and inclusion of net additions to April 30, 1933.

Hearings were had before the commission in the rate proceeding on June 30 and 21, 1933, and on September 28, 1933, the commission made and filed its report and order (1) that the value of the property of The United Telephone Company used in service at its Clinton telephone exchange was $192,500 as of June 1, 1933; (2) that a fair return on such valuation was seven per cent; (3) that the company should set up an annual depreciation reserve account in the amount of $6,100, plus three per cent of the cost of net additions to its properties (estimated at $3154) as of June 1, 1933; and (4) that the company should make effective reduced rates which would reduce its gross revenues (found during the year ending April 30, 1933, to be $45,178.15) by 10.44 per cent.

Thereafter, and within due time, the company filed with the commission its motion for a rehearing, which motion was overruled. Thereupon, the company applied for and obtained writ of review in the Circuit Court of Cole County. After hearing thereon judgment was rendered affirming the commission's order, from which judgment the company has appealed.

In this statement of facts counsel for appellant say that their contentions here are that "the valuation made by the Commission of $192,500 is at least $17,500 less than the fair present value of such property; that it is entitled, under the evidence and all precedent, to an annual depreciation reserve of at least 5 per cent, instead of less than 3 per cent; that it is entitled to include in its operating expense the amount of $1,941 for Federal income taxes; that it is entitled to have included in its rate base some 200 telephone instruments discontinued in service during the depression and now held by the Company in readiness for installation as soon as normal conditions require; that the Commission should have granted a rehearing in view of the conclusive proof that the Company's revenues had declined from $45,178.15 for the year ended April 30, 1933, to $43,770.91 for the year ended December 31, 1933, and that the Company's operating costs were largely increased by reason of compliance with the N.R.A. Code."

No contention is made that the rate of return of seven per cent approved by the commission is insufficient, but it is urged that the highest return that can be actually earned under the commission's order will be so much less than seven per cent that the order itself must be deemed arbitrary, unreasonable and unlawful. Counsel for appellant states its position in this respect as follows:

"The Commission determined that the Company had earned in the year ended April 30, 1933, $24,302.61 for depreciation and return. The Company is required by law to pay Federal income taxes of $1,941, reducing the above amount to $22,361. If it be allowed the fair return of 7 per cent and depreciation reserve of 5 per cent, it is entitled to earn $25,200, and no rate reduction could be justified. With allowance of 5 per cent for annual depreciation, or $10,500, the amount available for return is $11,861, or 5.6 per cent. If the Commission's rate reduction is made effective the amount available for return is reduced to $7,134, or 3.3 per cent."

This statement proceeds on the theory that the company's property should have been valued at $210,000 instead of $192,500, and the allowance for depreciation reserve fixed at five per cent of the...