State v. Public Service Commission

• Decision Date: 24 May 1921
• Docket Number: No. 21930.,21930.
• Parties: STATE ex rel. SOUTHWESTERN BELL TELEPHONE CO. v. PUBLIC SERVICE COMMISSION et al.
• Court: Missouri Supreme Court

233 S.W. 425

STATE ex rel. SOUTHWESTERN BELL TELEPHONE CO. v. PUBLIC SERVICE COMMISSION et al.

No. 21930.

Supreme Court of Missouri, in Banc.

May 24, 1921.

Motion for Rehearing Denied August 1, 1921.

Appeal from Circuit Court, Cole County; G. Slate, Judge.

Writ of review by the State, on the relation of the Southwestern Dell Telephone Company, against the Public Service Commission and others. From a judgment affirming an order of the Commission, the relator appeals. Affirmed.

D. A. Frank, of Dallas, Tex., and. Z. W. Gleed, and T. 0. Stokes, both of St. Louis (Jeffries & Comm, of St. Louis, of counsel), for appellant.

R. P. Spencer, of Jefferson City, for the Commission.

James D. Lindsay, Asst. Counsel, of Jefferson City, and H. A. Hamilton, of St. Louis, for cities of Missouri having local exchanges.

WALKER, C. J.

The appellant owns and operates telephone exchanges and toll lines connecting with its own and other systems in this state. It is the corporate successor of various antecedent companies, systems of exchanges, and toll lines which represent generally and collectively what was known as the Bell Telephone Company. In July, 1518, the federal government, under a congressional resolution, assumed control of all telegraph and telephone companies and continued such control until July, 1010. During the period of control the telephone and telegraph systems were operated under the orders of the Postmaster General. In November, 1918, the Postmaster General ordered that on and after December 1, 1918, certain charges for the installation and moving of phones be authorized. December 13, 1018, he authorized an increase of toll charges to be made by appellant for intra- and inter-state service. Thereafter he made an order, effective May 1, 1019, authorizing increased charges for local exchange service in 85 local exchanges of appellant in this state. The Public Service Commission resisted in the state courts the imposition of increased toll charges for service, and in the United States District Court a suit was instituted by the Postmaster General to enjoin interference with the increase of rates in appellant's local exchanges in this state. The decision of the Supreme Court of the United States in Dakota Central Telephone Co. v. South Dakota, 250 U. S. 163, 39 Sup. Ct. 507, 63 L. Ed. 910, 4 A. L. R. 1623, settled adversely to the state all the issues involved in that action, and established the contention that, while the telephone systems were controlled by the Postmaster General under the war powers of the United States, his right to make rates was complete, and excluded state supervision and control.

At midnight, July 31, 1919, government control of the telephone systems ceased, and the companies resumed the operation of their lines under the provisions of the act of Congress of July 11, 1919. This act, in restoring the telephone properties to their owners, contains the following proviso, significant in Rs application to the case at bar:

"That the existing toll and exchange telephone rates as established or approved by the Postmaster General on or prior to June 6, 1919, shall continue in force for a period not to exceed four months after this act takes effect, unless sooner modified or changed by the public authorities—state, municipal, or otherwise—having control or jurisdiction of tolls, charges, and rates or by contract or by voluntary reduction."

The new rates, and increase of rates mentioned, affecting the appellant, were increases established or approved by the Postmaster General prior to June 6, 1919, and therefore were within the terms of the proviso above quoted. The rates thus authorized by the Postmaster General in the emergency of war had suspended the theretofore existing rates, established by the Commission, for service in the various local exchanges of appellant, and for its toll service.

Prior to the taking of possession of the telephone systems by the federal government, each one of the local exchanges owned and operated by appellant was treated by the Public Service Commission as a separate and independent unit for rate-making purposes, and the rates specified for each local exchange were based upon the facts applicable to that exchange.

In view of the situation and of the terms of the federal act returning the properties to the companies and prescribing the limitations upon the federal rates, the Commission on August 4, 1910, issued its order directing the appellant to appear and show cause why it should be permitted to continue to charge the rates put into effect by the Postmaster General for telephone service rendered within this state. Pursuant to this order hearings were had and testimony was taken and considered by the Commission to provide for the conditions arising immediately upon, and by virtue of, the expiration of the four months' period, when, by express enactment and limitation, the rates prescribed by the Postmaster General would cease to be authorized, even where not, within the four months' period, changed or modified by state authority.

The appellant offered testimony as to the value of its property in the state. It furnished the estimates of its engineers of the cost of reproduction of its local exchanges and of its toll properties, and submitted evidence of actual cost of the properties according to the books of the company.

The Commission, previous to this proceeding, had undertaken through its own experts to make a complete and formal valuation of three of the appellant's local exchanges, those at Caruthersville, at Springfield, and at St. Louis, and the respective findings are shown in its official reports. Re Southwestern Tel. & Tel. Company, 2 Mo. P. S. C. 492; Re Missouri & Kansas Telephone Company, 6 Mo. P. S. C. 279; and Re Southwestern Telegraph & Telephone Company, 8 Mo. P. S. C. 433. The time available rendered it impossible for the Commission, it is claimed, to make formal inventories and valuations of all of the numerous exchanges and units constituting the appellant's property in the state, if such course be deemed a prerequisite to the action of the Commission. Having before it the results attained in the cases mentioned, and confronted with the necessity of acting upon the situation presented, the Commission employed the results reached in those formal valuation cases as a mean of testing the conclusiveness of the estimates of reproduction cost offered by the appellant in respect of other exchanges. The appellant's estimate of the total reproduction cost `new of its properties within the state was $35,100,071 and the reproduction cost, less depreciation, $31,355,278. The book cost of the properties was given as being $22,388,942.

This was an adjusted or so-called "prorated book cost," and had reference to a book adjustment by the appellant of estimated aver and under values, and to the fact that in the process of the acquisition of property in the various towns and cities of the state the appellant, in order to eliminate competition, sometimes paid a price much in excess of value, and sometimes, because of discouraging conditions affecting operation by a competitor, purchased a plant at far below actual value.

The appellant's estimate of the cost of its properties at St. Louis, Springfield, and Caruthersville is as follows:

                Reproduction cost new .......................$18,971,011
                teproductiou cost new, less depreciation..... 16,913,673
                

The combined value for rate-making purposes, as fixed by the Commission at St. Louis, Springfield, and Caruthersville, plus additions to date, amounted to $11,033,808.

The Commission, for the purpose of reaching a reasonable valuation adapted to the conditions before it, reduced the estimates of the appellant for its whole property in the same ratio as its estimates at St. Louis, Springfield, and Caruthersville were reduced in determining the value of those plants for rate-making purposes. Following this method the Commission obtained the following results:

                Based on cost of reproduction new ....................$20,400,000
                Based on cost of reproduction less depreciation ...... 20,350,000
                

The Commission also arrived at a value by making certain deductions from the book value as given by the appellant. Said book value, as adjusted by the Commission, being $20,456,631.33. With these three sums before it, the Commission fixed a value of $20,400,000 upon appellant's property in Missouri.

The Commission expressly disclaimed the purpose of doing more than adopting a tentative or temporary valuation, and did not undertake finally, or authoritatively, to fix the value of the property, and so declared in its report. The Commission permitted the toll rates established by the Postmaster General to stand, discontinued the installation charges, and lowered the rates for local service furnished to both residences and business houses in some of the appellant's exchanges. The changes downward, as disclosed by the record, were small. The reductions of local rates in the entire state aggregated the sum of $01,194.30, and the disallowance of installation and moving charges reduced the revenue of the appellant company in Missouri in the sum of $118,000 approximately. Appellant claims that this reduction aggregated $200,000.

The appellant is owned and controlled by the American Telegraph & Telephone Company, which owns and controls the Bell Telephone system extending throughout the United States. The American Telegraph & Telephone Company earns and pays to its stockholders a dividend of 8 per cent. per annum, and has done so for several years past.

The local exchanges involved in this litigation handle a great number of outgoing and incoming long-distance messages for the American Telegraph & Telephone Company. Appellant's general manager stated that for these services the local exchanges were allowed 15 per cent. of the toll charged for sending such messages, not to exceed 20 cents on any one message. This charge, it...