State ex rel. Utilities Commission v. Morgan

• Decision Date: 18 November 1970
• Docket Number: No. 10,10
• Citation: 277 N.C. 255,177 S.E.2d 405
• Parties: , 86 P.U.R.3d 371 STATE of North Carolina ex rel. UTILITIES COMMISSION, Lee Telephone Company (Applicant) and Commission Staff (Intervenor), Appellees, v. Robert MORGAN, Attorney General of North Carolina (Intervenor in behalf of theUsing and Consuming Public of North Carolina), and Walkertown TelephoneExchange Committee (Protestant), Appellants.
• Court: North Carolina Supreme Court

Page 405

177 S.E.2d 405

277 N.C. 255, 86 P.U.R.3d 371

STATE of North Carolina ex rel. UTILITIES COMMISSION, Lee Telephone Company (Applicant) and Commission Staff (Intervenor), Appellees, v. Robert MORGAN, Attorney General of North Carolina (Intervenor in behalf of theUsing and Consuming Public of North Carolina), and Walkertown TelephoneExchange Committee (Protestant) Appellants.

No. 10.

Supreme Court of North Carolina.

Nov. 18, 1970.

Atty. Gen. Robert Morgan, Deputy Atty. Gen. Jean A. Benoy and Maurice W. Horne, Sp. Asst. Atty. Gen., for appellant.

Edward B. Hipp, Raleigh, for appellee North Carolina Utilities Commission.

Burns, Long & Wood, by Richard G. Long, Roxboro, Ross, Hardies, O'Keefe, Babcock, McDugald & Parsons, by Melvin A. Hardies and Donald W. Glaves, Chicago, Ill., and Duane T. Swanson, Lincoln, Neb., for appellee Lee Tel. Co.

LAKE, Justice.

In February 1965, this Court remanded to the Utilities Commission a proceeding instituted by Lee Telephone Company in 1963 for an increase in its rates for service in North Carolina. The Commission was directed to hold a further hearing in accordance with G.S. § 62--133 and the opinion of this Court. State ex rel. Utilities Commission v. Lee Telephone Co., 263 N.C. 702, 140 S.E.2d 319. It is presumed that, pursuant to such direction, the Utilities Commission then fixed rates which were fair and reasonable in view of conditions then prevailing. Such rates would, necessarily, include adequate allowances for maintenance and for depreciation of the company's properties and would provide a return upon the fair value of those properties sufficient to enable the company to attract capital for necessary expansion of its plant.

The petition filed with the Commission in the present proceeding states that on 6 June 1968 the Commission granted a further rate increase to Lee. No appeal having been taken therefrom, it is presumed that the rates then fixed were, in the light of conditions then prevailing, fair and reasonable, yielding to the company a return upon the fair value of its properties sufficient to attract capital, under then prevailing conditions, after making adequate provision for maintenance and depreciation of its properties. G.S. § 62--132. Four months thereafter the company filed with the Commission its petition in the present matter.

In this proceeding the Commission has found that the company's service is 'poor' and 'substandard,' and that this condition 'reflects the failure of the company to take those steps necessary for the improvement of toll service, local central office service, Proper maintenance and the reduction of unsatisfactory multiparty main station service as is economically feasible, as well as its failure to eliminate traffic overloads on toll trunks, extended area service trunks and central office equipment groups, and its failure to take sufficient action to improve transmission and reduce noise levels.' (Emphasis added.)

A public utility, which has been allowed to charge rates sufficient to enable it to maintain its properties, in addition to the earning of a fair return thereon, and which nevertheless permits its properties to fall into such a poor state of maintenance as to impair the quality of its service, must accept the responsibility for its resulting inability to render adequate service to its patrons. Having been granted a monopoly in its franchise area, the utility is under a duty to render reasonably adequate service. G.S. § 62--131(b); G.S. § 62--42.

The identity of Lee Telephone Company was not changed by the transfer of its stock in 1965 from the former stockholders to Central Telephone & Utilities Corporation (erroneously designated by the Commission as Central Telephone Company, the name of another subsidiary of Central Telephone & Utilities Corporation). Lee's responsibility for its failure to maintain its plant, and for the resulting impairment of its ability to render adequate service, is not avoided by the change in stock ownership. The condition of the telephone plant and the resulting quality of service rendered is not, as the Commission called it, an 'inherited problem' of the new stockholder. It is a condition acquired by purchase. Lee's brief states that when the new stockholder acquired control of Lee, 'following four years of litigation, Lee's plant margins were virtually exhausted.' It is not contended that the new stockholder was unaware of this circumstance when it purchased the controlling interest in Lee or when, as shown in its brief, it subsequently increased its ownership to 99.8% Of the outstanding common stock.

Lee' brief states that the new stockholder

Lee's brief states that the new stockholder Rehabilitation, expansion and service improvement program.' (Emphasis added.) There is nothing to indicate that the new stockholder was not aware of the neglect of maintenance of the properties during the extended litigation related to its acquisition of the stock. The record is replete with testimony by subscribers to the service to the effect that, since 1965, the service has been grossly inadequate and characterized by marked indifference to complaints from subscribers. The Commission has found, in July 1969, that it is still 'poor' and 'substandard.' Nevertheless, the Commission approved, over the vigorous dissent of two of its members, another substantial increase in the rates which the subscribers must pay for this service. The dissenting Commissioners state that the rates so approved for the 'substandard' service are 'the highest general telephone exchange rates in the State of North Carolina.'

The Attorney General contends that if the 'substandard' quality of the service is the result of inefficient management, as distinct from inability to attract capital, no rate increase should have been allowed by the Commission. Lee contends that the Commission may not lawfully refuse to approve rates which would yield to it a fair return on the fair value of its properties, regardless of the quality of its service. The Utilities Commission contends that the allowance of a rate increase, otherwise justifiable, is within its discretion, though the service be of substandard quality. To resolve this question, which has not previously been before this Court, we turn to the statutes governing the regulation of public utility rates. G.S. c. 62.

G.S. § 62--133 sets forth in detail the steps to be taken by the Commission in fixing rates to be charged by a public utility in this State. Paragraph (b) provides that in fixing such rates the Commission Shall do the following things: (1) Ascertain the fair value of the property used and useful in providing the service; (2) estimate the revenue to be received under the present and the proposed rates; (3) ascertain the utility's reasonable operating expenses, including depreciation; (4) fix the rate of return on the fair value of the property such as will enable the utility, by sound management, to produce a fair profit for its stockholders, to maintain its facilities, and to compete in the market for capital on reasonable terms; and (5) fix rates to be charged for the utility's services such as will earn such return in addition to reasonable operating expenses. If this paragraph stood alone, there would seem to be merit in the contention of the company. It does not, however, stand alone.

Paragraph (a) of G.S. § 62--133 provides that in fixing rates 'the Commission shall fix such rates as shall be fair both to the public utility and to the consumer.' Paragraph (d) of this section provides, 'The Commission shall consider all other material facts of record that will enable it to determine what are reasonable and just rates.'

G.S. § 62--2 declares the policy of the State, which it is the purpose of the entire chapter to put into effect, as follows:

'Declaration of Policy.--Upon investigation, it has been determined that the rates, services and operations of public utilities * * * are affected with the public interest and it is hereby declared to be the policy of the State of North Carolina to provide fair regulation of public utilities in the interest of the public, to promote the inherent advantage of regulated public utilities, To promote adequate, economical and efficient utility services to all of the citizens and residents of the State, to provide just and reasonable rates and charges for public utility services without unjust discrimination * * * and to these ends, to vest authority in the Utilities Commission to regulate public utilities generally and their rates, services and operations, in the manner and in accordance with the policies set forth in this chapter.' (Emphasis added.)

G.S. § 62--32 confers upon the Commission general supervision over the rates charged and services rendered by all public utilities in this State and vests in the Commission 'all power necessary to require and compel any public utility to provide and furnish to the citizens of this State reasonable service of the kind it undertakes to furnish and fix and regulate the reasonable rates and charges to be made for such service.'

G.S. § 62--42 provides that whenever the Commission, after notice and hearing, finds that the service of any public utility is inadequate, the Commission shall enter an order directing that 'additions, extensions, repairs, improvements, or additional services or changes shall be made or affected (sic) within a reasonable time prescribed in the order.'

G.S. § 62--131 reads as follows:

'Rates must be just and reasonable; service efficient.--(a) Every rate made, demanded or received by any public utility, or by any two or more public utilities jointly, shall be just and reasonable.

'(b) Every public utility shall furnish adequate, efficient and reasonable service.'

The clear purpose of chapter 62 of the General Statutes is to confer upon the Utilities Commission the power and the duty to compel a public utility company to render adequate...