State ex rel. Utilities Commission v. State

• Decision Date: 29 January 1954
• Docket Number: No. 534,534
• Citation: 239 N.C. 333,80 S.E.2d 133
• Court: North Carolina Supreme Court
• Parties: , 3 P.U.R.3d 307 STATE ex rel. UTILITIES COMMISSION v. STATE et al. STATE ex rel. UTILITIES COMMISSION v. SOUTHERN BELL TEL. & TEL. CO.

Page 133

80 S.E.2d 133

239 N.C. 333, 3 P.U.R.3d 307

STATE ex rel. UTILITIES COMMISSION v. STATE et al.

STATE ex rel. UTILITIES COMMISSION v. SOUTHERN BELL TEL. & TEL. CO.

No. 534

Supreme Court of North Carolina.

Jan. 29, 1954

Harry McMullan, Atty. Gen., and John Hill Paylor and I. Beverly Lake, Asst. Attys. Gen., for appellants.

Joyner & Howison, Raleigh, Taylor, Kitchin & Taylor, Wadesboro, and Pierce & Blakeney, Charlotte, for appellee, and Dan M. Byrd, Jr., Norman C. Frost, Jefferson Davis, and E. W. Smith, Atlanta, Ga., appearing by brief.

BARNHILL, Justice.

The judgment of the court below, together with the explanatory statement and conclusions of law incorporated therein, evidences a very careful study and analysis of the record. In many respects its discussion might well be adopted as the opinion of this Court.

The primary questions posed by appellant's assignments of error may be boiled down to one simple issue: Did the Commission, in the consideration of the application of Southern Bell, follow the clear mandate of this statute, G.S. § 62-124? The court below answered in the negative. A full consideration of the record compels an affirmance.

A quasi-public utility receives well-defined and valuable privileges not accorded a private, unregulated corporation. The government purposely grants it monopolistic rights and vests in it some of the powers of government such as the right of eminent domain. By no means the least of these governmental benefits is the assurance that its stockholders shall have a fair return on their investment.

In return the State reserves the right to supervise and regulate its operations and fix or approve the schedule of rates to be charged by it for its intrastate service.

This right to grant franchises to public service corporations and to fix or approve the rates to be charged by them for the services rendered the public rests in the Legislature. The General Assembly may act directly or it may delegate its authority to an administrative agency or commission of its own creation. However, no Act undertaking to delegate the rate-making function of the Legislature is valid unless the General Assembly prescribes rules and standards to guide the legislative agency in exercising the delegated authority. Motsinger v. Perryman, 218 N.C. 15, 9 S.E.2d 511; State v. Harris, 216 N.C. 746, 6 S.E.2d 854, 128 A.L.R. 658; Hamlet Hospital & Training School for Nurses v. Joint Committee, 234 N.C. 673, concurring opinion at page 684, 68 S.E.2d 862; Carolina-Virginia Coastal Highway v. Coastal Turnpike Authority, 237 N.C. 52, 74 S.E.2d 310.

There is no defect in this respect in the Act delegating to the Utilities Commission the authority to grant franchises to, and fix the charges to be made for services rendered by, telephone and other public service corporations.

Having provided that 'Every rate made, demanded or received by any public utility * * * shall be just and reasonable', G.S. § 62-66, the Legislature then prescribed the considerations which should be weighed by the Commission in determining what is a just and reasonable rate in any particular case in the following language, to wit:

'In fixing any maximum rate or charge, or tariff of rates or charges for any common carrier, person or corporation subject to the provisions of this chapter, the Commission shall take into consideration if proved, or may require proof of, the value of the property of such carrier * * * used for the public in the consideration of such rate or charge or the fair value of the service rendered in determining the value of the property so being used for the convenience of the public. It shall furthermore consider the original cost of construction thereof and the amount expended in permanent improvements thereon and the present compared with the original cost of construction of all its property within the State; the probable earning capacity of such property under the particular rates proposed and the sum required to meet the operating expenses of such carrier * * * and all other facts that will enable it to determine what are reasonable and just rates, charges and tariffs. ' G.S. § 62-124.

This statute has been characterized as an 'old, rambling, and misty statutory declaration of the matters to be taken into account by the commission. * * * ' 12 N.C.L. 298. Be that as it may, it is the law in this State and will continue to be the law until amended, revised, or repealed by the Legislature. We have no intention to shut our eyes to its provisions or to circumvent the clear import of its language.

Necessarily, what is a 'just and reasonable' rate which will produce a fair return on the investment depends on (1) the value of the investment--usually referred to in rate-making cases as the Rate Base--which earns the return; (2) the gross income received by the applicant from its authorized operations; (3) the amount to be deducted for operating expenses, which must include the amount of capital investment currently consumed in rendering the service; and (4) what rate constitutes a just and reasonable rate of return on the predetermined Rate Base. When these essential ultimate facts are established by findings of the Commission, the amount of additional gross revenue required to produce the desired net return becomes a mere matter of calculation. Due to changing economic conditions and other factors, the rate of return so fixed is not exact. Necessarily it is nothing more than an estimate.

In finding these essential, ultimate facts, the Commission must consider all the factors particularized in the statute and 'all other facts that will enable it to determine what are reasonable and just rates, charges and tariffs. ' G.S. § 62-124. It must then arrive at its own independent conclusion, without reference to any specific formula, as to (1) what constitutes a fair value, for rate-making purposes, of applicant's investment used in rendering intrastate service--the Rate Base, and (2) what rate of return on the predetermined Rate Base will constitute a rate that is just and reasonable both to the applicant and to the public. While both original cost and replacement value are to be considered, neither constitutes a proper Rate Base.

In its order of 21 April the Commission discussed many, if not all, the factors which must be considered in determining the proper Rate Base, and concluded that there are four Rate Bases (set out in the foregoing statement of facts), any one of which it might accept. It then adopted the 'book value' or 'cost less depreciation' as the proper Rate Base.

Clearly this was in conflict with the express terms of the standard prescribed by the Legislature in G.S. § 62-124. The conclusion is inescapable that by accepting the book value as the Rate Base, it, ex necessitate, excluded consideration of present cost of replacement and all other factors from effective consideration.

'Few words are so plain that the context or the occasion is without capacity to enlarge or narrow their extension.' Crawford, Stat.Constr., 276, § 174; Watson Industries v. Shaw, Comr. of Revenue, 235 N.C. 203, 69 S.E.2d 505;' Perry v. Stancil, 237 N.C. 442, 75 S.E.2d 512, 514. The Legislature, in using the term 'value' in G.S. § 62-124, was not referring to the original or the replacement cost or to the exchange or sales price it would command, as used or secondhand property, on the market. It had reference to the value of the property actually in use, serving its purpose as a part of a composite public utility, earning an income for its owner. It is, of course, in the main, 'used' or 'secondhand' but it is not for exchange or sale, as such. It is actually in use and will continue in use until it becomes obsolete or outworn. Its value, under these circumstances, is the value the Commission must seek to determine as the Rate Base for ascertaining what is a just and reasonable schedule of rates to be approved by it.

Smyth v. Ames, 169 U.S. 466, 18 S.Ct. 418, 42 L.Ed. 819, is the parent of G.S. § 62-124. The language of our statute is lifted almost verbatim out of the opinion in that case. The subject here under consideration is there fully discussed. It is also discussed in Corporation Comm. v. Cannon Mfg. Co., 185 N.C. 17, 116 S.E. 178, and in numerous other cases cited by the appellant and appellee. As the case must be remanded for further hearing, we refrain from citing all the cases bearing directly upon the question. They are available to counsel and open to anyone interested in a further study of the subject.

Strictly speaking what is the fair value of applicant's investment...