State v. MOUNTAIN States TEL. & TEL. CO., 5240

• Decision Date: 11 November 1950
• Docket Number: No. 5240,5240
• Parties: STATE v. MOUNTAIN STATES TEL. & TEL. CO.
• Court: New Mexico Supreme Court

54 N.M. 315
224 P.2d 155

STATE
v.
MOUNTAIN STATES TEL. & TEL. CO.

No. 5240.

Supreme Court of New Mexico.

Nov. 11, 1950.

224 P.2d 156, 54 N.M. 317

Joe L. Martinez, Atty. Gen., Philip H. Dunleavy, Asst. Atty. Gen., James B. Cooney, Sp. Asst. Atty. Gen., M. W. Hamilton,

224 P.2d 157

City Atty., Santa Fe, Earl E. Hartley, City Atty., Clovis, J. V. Gallegos, City Atty., Tucumcari, James Cullender, City Atty., Roswell, for appellant.

Harry L. Bigbee, Santa Fe, Thomas M. Tierney and Akolt, Campbell, Turnquist & Shepherd, all of Denver, Colo., for appellee.

BRICE, Chief Justice.

This case is before us on removal from the New Mexico State Corporation Commission, which approved new and increased rates for telephone service throughout the State of New Mexico, made and published by appellee to become effective June 10, 1949.

The appellants have made a 'Statement of the Facts,' the parts of which we have included here are treated by the parties in their argument as correct. It will be unnecessary for a determination of the case to insert herein all of the tabulations appearing in this statement of facts. In some cases totals only will be used, and some will be eliminated. With this explanation, that part of the statement material to a decision is as follows:

'To sustain its position the Telephone Company first introduced evidence showing the growth and development of the company in the State of New Mexico since the war. Since V-J Day the company has added 30,942 phones, and as of June 30, 1949, there were 84,686 phones in service. During the first six months of the year 1949, there was a net gain of 6,720 telephones in service. The extent of the growth measured by the number of telephones is best understood when it is realized that in 1940 there were 33,511 phones in service in the state.

'Another substantial item has been the increase in the number of employees of the company. On December 31, 1940 there were 453 employees; on December 31, 1945 there were 744 and the total number was increased to 1261 as of December 31, 1948. The effect of this has been to increase the total payroll from $643,000 in 1940 to $2,839,000 in 1948. In the first six months of 1949, salary and wages amounted to $1,696,543. Stated another way, in 1940, forty-one cents from each dollar of revenue went for wages and in 1948 fifty-eight cents out of each dollar went for wages.

'The demand for telephone service has been so great in the past few years that the company has been unable to satisfy everyone. On December 31, 1948 there were 10,638 unfilled applications, and on June 30, 1949, the unfilled applications had been reduced to 8,137. The company has taken care of the increased demand by loading its

54 N.M. 318

present facilities to capacity and by the expenditure of a considerable amount of money.

'The Company estimates that during the years from 1946 through 1948 it has spent $9,548,404 in gross construction, resulting in an increase in their investment in the state of $8,432,433. This investment has resulted in 250 miles of power line, 1,960 miles of exchange wire on poles, 55,481 miles of exchange wire cable, 21,688 miles of rural service circuits, 68 switchboard positions, 11,390 terminal dial central office equipment, 7,835 lines of manual central office equipment, 9 new buildings or building additions, and 30,942 telephones. During the year 1949 the company contemplates spending $2,381,700 for additions costing $3,000 or more, and will spend approximately $1,550,000 in connection with the installations costing less than $3000. The principal expenditures will be $2,000 for right-of-way, $318,200 for land and buildings; $1,190,500 for central office equipment; $924,900 for exchange plant, such as conduit cable, poles and wires, and $300,000 for toll lines.

* * *

'This situation can be remedied, according to the company, only by their ability to obtain the necessary capital to make the necessary additions. The service tendered by the company is in direct relation to its ability to raise funds. The present increase is not assurance that the company will be able to furnish all the telephone service required by the people of the state. As a result of the construction program in the

224 P.2d 158

state of New Mexico, the company has been forced to raise large sums of money. It claims that it has been handicapped in its attempts to raise funds through its inability to pay adequate dividends on its common stock as a result of poor earnings. * * *

'In 1946 a bond issue was made by the telephone company at which time it paid 2.58% for its debt money. In 1948 another bond issue was made by the company at which time it had to pay 3.12% interest. The common stock of the Telephone Company, par value of 100, is selling at 94 bid, 99 asked. The $100 par stock of the parent corporation, American Telephone & Telegraph, was, on the day of the hearing, selling for $141 per share and paying a $9 dividend.

'In order to put the company in a sound financial condition, it was estimated that it would need an additional $890,000 of income to allow the company sufficient earnings to attract equity capital, and to build up its surplus. The alternative to the increase

54 N.M. 319

in rates requested would be to continue the 'poor grade of service.'

'Between 1923 and 1947 there had been no increase in rates. In December of 1947, the company put into effect new rates which increased their gross revenue $306,000. The present increase amounts to $61,000 per month or $742,000 a year. To accomplish this rates were put into effect on June 10, 1949, which raised rates (except toll rates) approximately 50%.

'To justify the increases in rates the company presented evidence of the present value new of its properties in the State of New Mexico used for intrastate purposes. The explanation for using the present value theory was that the procedure had been followed by the Commission in the past. To show the present value, the company introduced into evidence Exhibit 16 which is an appraisal of the property as of December 31, 1948, and is as follows:

Appellee's Exhibit No. 16
Appraisal of Property as of December 31, 1948
Percent
Repro-	Amount
Repro-	duction	Existing
duction	Cost to	Deprecia-
Class of Plant	Book Cost	Cost New	Book Cost	tion
(A)	(B)	(C)	(D)
Organization
(here follows costs of
specific items unnecessary
to include here)
Total Telephone Plant
In Service	16,044,000	23,178,000	144%	3,872,000
Telephone plant under
construction	1,592,000	1,592,000
Telephone plant
acquisition adjustment	20,000
Materials & supplies	451,000	337,000
Total Property	18,414,000	25,528,000	139%	3,872,000
Less existing
depreciation	3,872,000
21,656,000

224 P.2d 159, 54 N.M. 320

'The above valuations cover property used for both intrastate and interstate business. It is estimated that the intrastate properties of the company amount to approximately 74.22 percent of the total valuation. There seems to be no dispute as to values.

'Column A represents the actual book cost of the property, a total value of $18,414,000. Column B shows what it would cost to reconstruct the plant today, giving it a total property value of $25,528,000, less observed depreciation of $3,872,000, a pressent value of $21,656,000. * * *

'On the basis of Exhibit 16, the company carried forward for the year 1949 what it determined to be its present value in the state and what its estimated earnings would be as far as intrastate operations were concerned. By projecting the data contained in Exhibit 16 into the year 1949, on the basis of five months' experience and the data supplied by the offices of the company primarily concerned, it estimated that the reproduction cost new of the property in the year 1949 would amount to $16,835,000. With this as a rate base, it was shown in Exhibit 17 that if the rates which were in effect on January 1, 1949 had remained in effect during the entire year, it would have net operating earnings of $450,000 giving the company a return of $2.67% on the present estimated value of the property. Exhibit 17 is as follows:

Present Value Basis

Assuming January 1, 1949 rates had
remained in effect during entire year.
Total operating Revenues	$5,114,000
Total operating Expenses	4,277,000
837,000
Total operating taxes	411,000
New operating income	425,000
Miscellaneous Income charges	19,000
Interest charged construction	43,000
New operating earnings	450,000

Present value	16,835,000
Per cent net operating earnings
to present value, based on new
reproduction	2.67%

'As distinguished from the reproduction cost new value of $16,835,000 for intrastate purposes, the total book investment estimated for the year 1949 is $14,795,000 made up of the following principal items:

Telephone Plant	$12,999,000
Construction in Progress	1,182,000
Materials and supplies on hand	344,000
Cash working Capital	270,000
$14,795,000

54 N.M. 321

'On the basis of earnings of $450,000, the increase would give the company a return of 3.04% on its investment, or book costs.

'Exhibit 18 of the company is substantially the same as Exhibit 17 with slight modifications and is a projection of the appraisal contained in Exhibit 16 into the year 1949 and again gives the intrastate value of the company's property at $16,835,000. If the rates which were put into effect on June 10, 1949 had been in effect for the entire year, the company would have earned $890,000, or 5.29% of its investment. On the basis of actual book value of $14,795,000 net operating earnings of $890,000 would give the company a return of 6.02%. 'Exhibit 19 gives the company again a present value of $16,835,000 for the year 1949. Assuming that the rates put into effect on June 10, 1949 continue in effect during the remainder of the year, the company would have earned a total of $689,000 or 4.09% on the present value of $16,835,000. On the basis of book cost of $14,795,000, earnings of $689,000 would have amounted to 4.66% of its investment.

'In none of the figures heretofore mentioned regarding Exhibits 17, 18 and 19 was there deducted from the original investment $2,687,000 in book...