City of Ft. Smith v. Southwestern Bell Telephone Co.

City Bell of Ft. Smith v. Telephone Company. 2d 474 247 S. W.

4-9647 delivered 1952. Opinion February 18, April denied 1952. Rehearing Clyman Harper, sard, IE.' Jr., Harrell Eilbott, B. A. Longstreth, Hodges, Jr., Little, D. M. O. M. Kaneaster appellant. Joseph Brooks, Wright Bonald J. L. Blake Downie, Edwafd appellee. Foulis, for appeal involves tele- This Justice. F. McFaddin, Ed. “Cities”) (hereinafter appellants

phone called rates. City nine other Arkansas of Fort are the Smith protest the order made cities,1 rate increase which appellee is the herein involved. The real (hereinafter Telephone Company called “South- Bell western”) by greater cross-appeal, seeks a which, one Public than allowed. The Arkansas increase the “Commission”) (hereinafter Service Commission called proceeding prosecuted appellee, also an since this was by petition in the order Circuit Court to review the Commission § the under Stats. 73-233 Ark. August

On filed with Southwestern 21, 1950, designed to increase Commission certain schedules by the sum annual Arkansas revenues $4,600,000. become effective The increased were to rates September August on the Com- 22, 1950. On 21, 1950, suspended August mission and on said schedules, 23rd, Southwestern filed a bond to with Commission any accordingly ordered; and the said refunds insure put Sep- proposed on into effect rates were increased Stats.) (See Interven- § 1950. 73-217 Ark. tember 21, by objections filed a number of cities2 and were tions by are served Southwestern. which Arkansas Sep- Hearings on commenced before the Commission continued 1950, recesses, tember various 5, and, 1 Earle, Rock, Magnolia, Benton, Springs, Heber Little These are Malvern, Paragould, Burén. Pine Bluff and Van 2 objecting intervening before Commission The cities so Barling, Batesville, Altheimer, Ashdown, Arkadelphia, Beech were: Conway, Dermott, Grove, Bentonville, Camden, Beebe, Benton, El Smith, Gurdon, Harrisburg, Dorado, Heber City, Fayetteville, Fort Forrest Springs, Jonesboro, Lonoke, Helena, Hope, Springs, Hot Little McGehee, Mena, Spring, Newport, Rock, Malvern, Marion, North Mammoth Bluff, Searcy, Rock, Paragould, Rogers, Springdale, Pine Little Wynne. Memphis Stamps, Burén, and West Van January 1951, 20, and 28, 1950; November until findings, and order here chal- issued January including certain cities, lenged.3 25, 1950, On rehearing, petition and for when appellants, filed a all by petition denied the Commission, was such Pulaski Court on appellant filed in Circuit cities ten petition review of for the Commission’s 3, 1951, March a by prescribed procedure § Ark. 73-233 Such the order. filed with the Commis- Likewise, Southwestern

Stats. rehearing petition later and filed in the Circuit for sion by judg- petition review. The Court, Circuit Court petitions July dismissed the ment of 5, parties; review cross-appeal direct and and this of all ensued after proper motions for new trial were filed, appellant cities both ten Southwestern.

The record reflects ais Missouri operates telephone corporation, public utility as a Oklahoma, States of Missouri, Kansas, Arkansas, portion of Texas, and a Illinois; Southwestern is a subsidiary wholly by,4 owned of, American Tele- phone Telegraph Company, having & latter, which assets largest corporation over billion dollars, Telephone Telegraph the United States. American & Company (sometimes “American”) herein called owns directly part, indirectly in whole or in either through other its oper- subsidiaries like Southwestern, nineteen telephone ating companies, supplies telephone and more telephone companies service than the all other in the United States combined. American owns of the stock of Western Elec- 98.8% Company, subsidiary

tric is which the that manufactures telephone equipment and sells to all the nineteen tele- phone companies controlled American. American Telephone also the “Bell controls Laboratories”, a re- development project, search and a-“Long and has Lines Telephone Co.,” See “Re: Southwestern Bell 87 Public Utilities Reports, Series, page 97, complete opinion New for the of the Com mission. 4 The record that shows by of the common stock of South 99.99% Telephone is Telegraph western owned American Company, & and any common stock no and of Southwestern traded in is exchange, stock purchase no is public. common stock available for the long

Department”, which the distance lines has supply one and wire facilities calls other charges city a fee American Southwestern to another. gross “Supervision”, revenue for and fixes of its 1°/o charges and also, to Southwestern; Western.Electric’s regulations, subject de- and American Federal .State pays “Long charges Lines Southwestern termines the Department”. apparent through American, It bargain not at does affiliates, length. arm’s utility proceedings regulatory fix

In bodies to before rate fixed fair to axiomatic that the must rates, be public overcharged, must not be e., all concerned—i. fixed must not so amount to and the low to rate utility. property of the of the a confiscation Somewhere overcharge two between these and confisca- extremes — But be the to be fixed. a tremendous tion—must depends determining a factor in the method or utility. to calculate the investment of methods used prime important if not factor, most so- A one, “proper rate which called means method used base”, proper property of the determine value actually' employed utility public to, dedicated in, at bar, In the case determined use. original proper rate is the that: “a base or book cost, depreciation figure, reserve”. To this less Com- necessary amounts for what it mission added considered capital”, working supplies”, and “material “cash this calculation: and reached

“Original December Cost, 31,1950.....................$44,453,000.00 Depreciation Reserve,

Less 31,1950................................................ December 10,254,000.00 and Useful, Plant Used Net 31,1950................................................ 34,199,000.00

December Supplies...................................................... 445,000.00 Material Capital...................................................... Working 410,000.00 Cash Plant Account as Total 1950............................................. 31, 35,054,000.00”

December steps problem in the Commission’s were, next return net (1) what determine (2) to determine its base”, “rate should have necessary yield such net in revenue increase of re- fixed the rate 6% of return. The Commission necessary to determine the increase turn; then, figures: used this set of the Commission 6%, allow “Operating ...................................................$14,102,000.00 Revenues Expenses.........................................................

Operating 11,907,000.00 (Excl. Tax)............ Operating Taxes Income 815,000.00 Total....................................................................................... 12,722,000.00 Net Taxes........................... Before 1,380,000.00 per Income Exhibit....................................... Taxes 417,000.00 Adjustment for Increase

Federal Taxes............................................................... 17,000.00 Total....................................................................................... 434,000.00 Balance Available...................................................... 946,000.00 Return on $35,054,000.......................................... 2,103,240.00 Less Balance Available................................................ 946,000.00 Operating Deficit in Net Income........................1,157,240.00 equals Times 2.012194 Additional Necessary5

Revenue ............................................. 2,328,591.00 Add Sept. Revenue in Books 21, Account of Increase under Bond... 1,277,000.00 Necessary..........................................

Total Increase 3,605,591.00” The effect of this last stated calculation was to allow Southwestern an per increase in- $3,605,591 annum, per stead of $4,600,000 annum which Southwestern sought. say, . That is to Southwestern was allowed charge the Commission to rates which would increase gross its revenue sum of $3,605,591. step

The next and final in the Commission’s task put was to into effect a schedule rates which would yield plus to Southwestern revenue, the in- step proceedings crease $3,605,591. That in the $2,328,591 by multiplying operat The item of obtained the net ing $1,157,240 by deficit of 2.012194. portion opinion,

reserved for because tlie final of figures questions main before relate to now us designated used to arrive at increase of which were $3,605,591. allowing

To the decision of the Commission the in- crease of claim the the Cities Commission $3,605,591, points erred in four : Fixing

“1. the rate base of December. 31, 1950, as September instead of 30, 1950. Permitting Telephone Bell Southwestern

“2. Company period to back-bill for an month initial of one September when new rates became effective 21, 1950. Allowing working capital cash sum “3. Telephone Company $410,000 when the its bills collects in advance. Allowing of return is ex- which

“4. 6%, supported by cessive and not instead of 5%, evidence, ’’ which amount that have allowed. should been To the failure of the South- Commission to allow prayed western the of $4,600,000, increase cross-appeal complains, argues its this Court following points : under the Allowing Erred in a Re- I. The Commission

“Point Only Investment Rate on a Net Base. turn Refusing Erred Commission II. The “Point 'Weight Recognize Present Value and Give Property. Company’s Computing Erred in The Commission III.

“Point Way in such a Rate Increase Amount to Earn as Much Company Will Be Able Never Entitled to Earn.” It Is Found consisting is voluminous: before us record typewritten mimeographed thousand five than more pages printed eight hundred pages, more than adjudicated to list the Even cases and briefs. abstracts cited and commentaries would books text standard pages. to the decision now We come consume several have reached. before outset and dis- Extent Review. At the I. again specific cussing it well that we state the issues, the Court the first instance, extent Circuit the to which appeal, the reviews Commission’s and Court applicable findings in a like this one. of fact The case Paragraph (d) Ark. Stats.: statute is 73-233 extended “The review shall not further than to be Department (Commission) determine whether the has regularly pursued authority, including its a determina- tion of order whether the or decision under review vio- any right complainant lated of the under the Constitu- tion the or of United States the State Arkansas.” Department’s supported by If the order is substantial arbitrary, free from evidence, duty fraud, and not it is the permit though to Courts even stand, might disagree the Courts with the wisdom of the order. regards sought by

As extent of the review quote Department Cities, we Public Utilities v. Co., Arkansas-Louisiana Gas 200 Ark. 983, 142 S. W. 2d 213:

“It correctly, think contended, we that since by appellee there is no claim that the order of the De- partment complained any of violated of its constitutional rights, the review of such order ‘shall not extend further than Department to determine regularly whether has authority’. pursued But this its does not mean that the If inquire beyond formality. courts cannot courts mere may by any party resorted be before the De- partment purpose having ‘for the the lawfulness of any inquired or its final decisions orders into and provided (a), determined,’ as phrase Sec. 2097 then (d), in Sec. ‘to Department 2097 whether determine pursued regularly authority’, its has must mean some- inquiry thing an regularity than into more of the Department. proceedings proceedings before Department might regular respects, be before in all might illegal order and still being void 78 any

arbitrary, substantial evidence -unreasonable, without corruption. Jernigam, support or or Bank it, in fraud 2d Co., 251, Rainwater 196 Ark. S. Com. v. Loid 117 W. Refining Bailey, v. 200 Ark. 139 18; Lion Co. 436, Oil S. W. 2d 683.” sought regards the review Southwestern,

As examine, do have so to see that the examined, order of the Commission does not amount to a confiscation of property Utility, rights and that no under the United States State have been Constitutions invaded. Valley Borough, See: Ohio Water Co. v. Ben Avon 64 L. Ed. 287, 908, U. S. S. Ct. 587; Board Public Utility Telephone v. N. Co., Com’rs Y. 271 U. S. 23, 70 808, L. Ed. 46 S. Ct. Alabama 363; Public Service Comm. Telephone v. Co., Southern Bell 253 Ala. So. 655; 2d Dept. England v. Co., Utilities New T. T. & Mass. of England Depart 281, 90 N. E. 2d 328; New T. T. Co. v. & ment Utilities, Public 327 Mass. N. E. 81, 97 509. previ-

II. The Cities’ First Contention. weAs have ously stated, the Commission found that Southwestern’s plant, intra-State “net used and useful, on December 1950” was 31, to $34,199,000. The have not Cities seen fit

urge any question this before Court toas the correct- ness the “rate base’’ selected the Commission; that question, in do not this the is, case, cost, the Cities “net depreciation’’, fixing as the method of the less rate base. in merely the their Cities, Rather, contention, arbitrary the claim that Commission selected an date property for the evaluation of Southwestern. We agree with the Cities this contention. hearings- began Sep-

The before the Commission on and figures 1950; tember Southwestern then 5, offered plant May its extent and valuation as 31, 1950— prior hearings. four months hearings As the was progressed, evidence shown as to valuations, ex- earnings of September penses, Southwestern, and completed, All of the evidence was 1950. and 30, adjourned, hearings on November 28, 1950. So it is testimony there no in the obvious record as to actually plant was extent and what valuation as of thirty days 1950—a date December than after more closing testimony. Figures of the toas the December guesses approximations, valuations 31st were mere proposed installa- to show that no record evidence After in fact consummated. the testi- ever tions were mony delay opinion could not closed, equipment might in order installed. to see what be testimony may record, be in the order that must there abe review.

One of the Commissioners dissented his asso- point ciates guage under and used lan- discussion, dissenting opinion: in his agree

“I do not with the other Commissioners that company’s property the estimated of the values as of determining 31,1950, should be used in its rate December figures base. The December 31 are based on estimates accept. unwilling which I am beginning At the present hearing, Company asked that its rates May expenses based on earnings. 31, 1950, values, During hearing figures September were shown for 30, 1950, figures October estimated were shown for upon September December 31, 1950. 30 is the latest date documentary

which there is in the evidence record company’s actual base, closest applied date to that on which the increased rates were (September 21), and there is sufficient in evidence the the operating expenses record of relation to actual revenues and in

September finding by 30 to substantiate the September figures. on Commission based 30 September “I believe that the rates based on 30 figures just present would be and reasonable for the and for a reasonable in time the and future would in line requirements prescribed by the courts. “Using September the figures, company would be entitled to a per year increase $3,177,000 in- stead of hoping which $4,600,000, it is to receive and instead of $3,605,591 allowed under the December 31 figures unwilling . . . But apply I am to

80 operating- estimated income and

of return to the values, expenses of December 1950.” 31, support figures,

In of the December South 31, 1950, proper something that it western insists future net to for add capital additions, and that the Commission right testimony had a to take the wit plant the condition of the what would be as to nesses To buttress contention, 1950. South December 31, Supreme quotes from two cases Court western Indianapolis first is McCardle v. Water U. S. 400, 71 L. Ed. 47 S. Ct. 144: Co., 316, 272 U. S. every the future as well as

“In confiscation case, regarded. It must be determined whether must be yield, complained yielding and will over of are the rates required pay proper and and above operating amounts taxes charges, just a sum sufficient to constitute compensation property employed for the use of rate of service; is, furnish the return reasonable property on the value at the investi- time gation and a reasonable in the time immediate for fu- ture.” urged

The second Southwestern is case Federal Hope Co., v. in Power Com. Nat. Gas decided 320 1944, 88 L. Ed. in 333, 281, U. S. S. Ct. which the Supreme Court U. S. said, reference Power Federal Commission: “ (the Commission) £. . . And added $1,392,021 capital net additions, $566,105for useful un fuhore

for operative acreage, capital. working and $2,125,000 year It used 1940 as a test to estimate revenues future expenses. It allowed over $16,000,000 annual operating expenses $1,300,000 for taxes, $1,460,- —about depletion depreciation, explora 000 for $600,000for development gas purchased. costs, $8,500,000 tion net allowed a increase over The Commission $421,160 expenses, operating which amount was to take wages, Virginia prop increase West care of future exploration development erty taxes, and and costs. recognize utility rate must be reasonable that a We present, just and also for a reasonable and as to the may in the and the Commission future, time that —in subsequent applications for in- order to forestall figure anticipated crease—allow reasonable ex- anticipate to be made in But to tensions the future. thing, quite future is one

reasonable extensions thing closing another select a future date after the finding on the evidence which to a factual to value base as property. to the view that in order adhere We plant, on a certain the actual used useful, determine proof, distinguished from mere there must be date, promises predictions: hold that Commission, so we the September figures should have used 1950, 30, supposed did rather than that it to be Decem- use, those ber The correction of error 1950. Com- 31, adoption figures mission, means us stated opinion dissenting in the here- Commissioner, as quoted. tofore -Second,Contention.

III. The Cities’ relates This charged only the service rates one month. South- charges telephone western customers one month in advance. That bills rendered is, the the customers on September 21st and showed the afterwards, increased September which went into rate, effect on 21, 1950, as heretofore stated. The Cities that contend, since the allowing go did increase not order into effect until September should bills have shown 21st, no increased thereafter. month We see no for one merit to ’ point. on this contention Cities August petition Southwestern filed 21, 1950,

On gave for increased notice rates, such rates would September become effective 1950. The Commis- proposed suspended sion and a bond rates, was then (§ Stats.), Statute filed. Under the 73-217 Ark. September

bonded rates became effective on 21, 1950, only and after that bonded date, rates were the Company charge. lawful rates could previously (§ The Statute referred to 73-217 Ark.

Stats.) says: notwithstanding any

“. . . that such order of sus- pension, public may utility put suspended such or rates they, into effect on date when it, would by have suspended, filing become effective if not so with (Commission) Department a bond ... to insure prompt payment of . . . refunds.” discussing powers the same in

Furthermore, section, says: of the Commission, Department (Commission) good

“The for cause changes may requiring in rates without shown, allow thirty (30) day may under such notice, as it conditions prescribe. changes immediately such All allowed be shall by upon public utility.” its .such schedules indicated authority ample support section is the conclusion This as to the effective date of the Commission the.rates: of ’ merit to the find no Cities second so we contention. Third Contention. The Commission, IY. The Cities’ determining the in allowed Southwestern base, working capital in the of in to the sum addition $410,000, properties. of Cities contend that no such value its The working capital, for be- sum should have been allowed (a) from cus- cause Southwestern Collects advance (b) tomers; and the Commission because allowed South- supplies. western the for $445,000 sum materials and argue The that with worth of $445,000 Cities materials supplies, and collections advance for its ample oper- the result is that services, Southwestern has capital, ating without an additional To review $410,000. support all the cases cited the Cities of their con- opposition tention, cited those Southwestern in unduly prolonging to such would be contention, figure high, opinion. think the of $410,000 While we figure, another us substitute would nevertheless, judgment our that the Commission, be to substitute beyond a trier facts. would become This and to as heretofore extent of discussed. review, .Therefore, against uphold third Cities’ contention. Fourth

V. Cities’ Contention. After The deter- mining the Commission base, the rate allowed South- that of return claim western a rate Cities 6%. grossly return the rate of excessive, this 6% question point This into second should he blends 5%. cross-appeal; and we discuss it will Southwestern’s phase case. when we consider The First Point Gross- VI.

Appeal. presents cross-appeal ques- three Southwestern’s copied; challenge each is a to the tions, as heretofore and Briefly, findings these order of the Commission. and (b) (a) points rate the rate of base; return; the relate to Considering (c) computations. these in order and rate we first discuss the base. mentioned, that the Commission should

Southwestern insists prop- have determined real of value in rather than to have Arkansas, used the “cost erties argument depreciation” less basis. The of Southwestern property it is entitled to fair return is, that earn a day at its value. We revert to a statement in an portion opinion important earlier of this e.\ “A most —i. prime ‘proper if one, factor not the is so-called means the method used base’, which to determine proper property utility of the value of the dedicated to actually employed public and in the use.” seq.,

In Pond on Public 4th Ed. et Utilities, § 590 there is a discussion of various methods to determine the Among (a) original rate base. those mentioned are cost, (b) reproduction, (c) outstanding capitaliza- the cost of (d) present (e) prudent (f) tion, value, and investment, earnings. net In the Bar American Association Journal page seq., for December, 1948, at article entitled: “Public et there is an

Utility Property: of Views Coünsel to Valuation”. This article McKeage, Everett C. Chief Counsel of the California Utility Commission, Public contains an excellent developments historical of the statement of the various used in matter of rules tests base. It pointed “hard out times” utilities want original of cost as basis calculation, whereas times reproduction utilities want the inflation, value as' study A of calculation. the basis careful of the said has article the American Bar Association Journal helpful been to this From of the cases and Court. all we reach the con- studied, we have authorities which right any public utility a vested no has clusion that particular regulatory aim a method of valuation. The body the method a fair valuation; determine may utility vary type of calculation as between the existing. involved and economic conditions In the at Arkansas Public case Service bar, depreciation” Commission used the less method; “cost system, point but with that even out the Com- beginning go mission failed to real South- system in western’s and failed to see whether Arkansas, plant during period had built its through short, rates. In the Commission neces- excessive investigation sity (being understaffed for the class upon involving thrust transaction state-wide equipment lines and the and other thousands miles properties business) accepted peculiar to the South- many figures unquestionably western’s in but instances; plumbed not satisfied that it had the Commission was problem. depth full Until Southwestern either separate corporation has a for it each State serves, by pool until the various States served Southwestern regulatory system investigation, their staffs for a wide thought always be there will that the other States are a played against immediately the one concerned. From what have we clear that said, not has point. a made case its And in this first connection point record here reflects that out that the South- approximately a rate increase of obtained western September, in Arkansas and then million dollars in 1948; application May, for' in an a further rate 1949, filed May, appli- million dollars. This 1949, increase of 2% August, in was substituted for the cation application applica- $4,600,000. it is evident that So utility by per- for rate increase tions have been sistently pursued. prosecute Should Southwestern an rate then application a further the words increase, for especial pertinency. paragraph will have Then, of this undoubtedly entire rate structure be re- would doctrine tbe Commission; and, course, tbe examined apply. judicata not of res would point took occasion to out

The Commission receipts portion using in a Southwestern was a its pub- campaign designed newspaper and to win the radio bad lic to tbe idea of a rate increase. Tbe say tbis about tbe matter: unusual tbe record disclose some

“However, does advertising expenditures charged to tbe excessive advertising expense admittedly some tbe account, application was incurred in tbe for a connection with proposed tbe increase. Tbe Commission condemns ’ money Company using ratepayers practice in of tbe tbe campaign advertising an to increase tbe rates to conduct proposed charged ratepayer by Company.” tbe to be tbe Company’s Tbe criticism of tbe action Commission’s using earnings influencing net as means proposition is no doubt directed to increases tbe that a gwasi-judicial board has been created tbe to act State public and for tbe utilities; tbe its determina- by appeals are not to be influenced tions directed to other put approval stamp sources. on tbe We tbe Commis- bearings quoted language, sion’s which indicates by any utility,

for rate increases the Commission will carefully paid being examine to see bow much duty part overhead and staff whose or in work, whole public. try get utility from the rate increases Tbe is to receipts though they public must all were use dissipated Receipts must not in an trust. effort to public. get from tbe father increases We are far from by present record that satisfied tbe Southwestern’s rate thoroughly explored. disclosed and But on base was we record before are convinced that us, Southwestern complain entitled to on is not tbe rate base. Point Second VII. The Southwestern’s Gross- of

Appeal. already relates to rate of return. have Tbis We fixed that tbe Commission as tbe shown rate. Tbe 6% high; is too claim Cities tbis Southwestern now allowing only erred in insists that tbe Commission 6%. portion argument: Here is a we will discuss “First, the Commission’s failure give weight principle Company to the that the is entitled to a return which is in- commensurate with returns on enterprises having corresponding in vestments risks. respects turn to other in we will which the Second, permit Company protect has failed to integrity may so that it its financial maintain its credit capital.” and attract greater

In an effort to show that entitled was to a prominent return than Southwestern 6%, called a Ar- testimony kansas the abstract of banker, whose follows: testifying opinion earnings currently as to

“Is required by telephone in Arkansas business to maintain upon credit with Based investors. determination general knowledge enterprises of business condition of throughout purpose securing Arkansas. For the funds you manufacturing industry you must show can earn Earnings to15 on funds. in banks Arkansas are 25% a matter earnings of record. Net returns of of total capital year invested banks Arkansas last was 12%. This has earnings been rate of for the last four to six years. earnings you Must show before can at- 15% tract funds to start state or national bank. Has no specialized knowledge telephone utility financing. you nothing Can tell as to securities of Frequently Bell. invests stock of T. & A. T. It is opinion witness’ that Southwestern Bell will have money.” show investor at least earned quite candidly The witness stated that he not was fixing charged public familiar with the of rates to opposed utilities. As to the views of witness, quote Page 1099 of the 1948, issue of December, being portion American Bar Association Journal, McKeage, the article Mr. heretofore mentioned: privileged position “The status of the and sheltered public utility, regulation, of a under carries with it cor- responding obligations public. to the It must follow public utility may lawfully application not demand the applicable operations that are to its same of the rules Having unregulated to serve undertaken business. to an acquired entitles having the status that public and privileges extraordinary enjoyment of the it to claim utility may public not also claim that ait, available profits speculative un- to which the entitled to is regulated It must be remembered entitled. business is many utility guaranteed against public of the that a unregulated subject.” to which business hazards point, prolonging this the discussion of we Without rate of return fair, that the reach the conclusion 6% just has no for events, but at all Southwestern cause complaint of return fixed on the rate the Commission complete disclosure until Southwestern makes full affecting operations. accept its of all matters We figure Commission’s and thus this refuse case, 6% point point. Southwestern’s second and the fourth Cities’ approving But it must not in deduced that putting stamp rate of return are case, we 6% approval regard- on that rate of return in future cases any ing utility. this or other a matter As fact, lower of return been has found to be fair for utilities considering any in other cases. Furthermore, regards of return as Southwestern, peculiar position consideration

should take into occupies parent company, to its Southwestern American Telegraph Telephone Company, & and to the number only of such factors: For instance, States served. mention a few (a) receiving American is now from Southwestern gross “super- income of Southwestern 1% vision”; (b) money American borrows at or less, charging money

has been Southwestern 4.75% loaned it;

(c) purchases equipment (owned by American) prices Western controlled at competitive, shown to be are not dividends 88 single in a exceeded from have American Western 12%

year; expense (d) apportionment and income to of and intra-state from inter-state business Southwestern clearly shown; not expecting

(e) return idea of Southwestern 6% rather than from entire from one State that it serves, illogical applying just of system, as rate as community; sug- and Southwestern’s own one return to negative gested such idea. rates of the owner re- Southwestern, as American,

In short, profits returns Southwestern in a num- ceives ways, taken all of these should be into con- ber of considering of the rate return -that in sideration should receive. of owner Southwestern Third Point VIII. 'The Cross- of point, Appeal. Southwestern claims In this enough to allow Southwestern has failed take care of investment costs that revenue to “will mount ” years. figures, uses in future these which happen Company’s what claims will to the rate show of return: (Investment Telephone Per

“In 1946 $198.66) .................................................................................... 6.05% Telephone (Investment In Per 1950 $263.46) .................................................................................... 4.55% (Investment Telephone In Per $329.99) ................................................................................... 3.64%” depends Of whether “will mount” costs on course, many a number of which are in factors, control being Southwestern-—some such excessive ad- overhead, vertising payments for increases, Western Elec- regard equipment, in etc. what And, South- tric equipment, paid Electric for Western has western following opinion perti- excerpt from Commission’s and unanswered. nent profits not show the on does Western’s record

“The Company operations. on its Arkansas with business any figures whether to determine these should have We base reason from the deducted should be amount prices paid 1948, 1949, to Western excessive and West Missouri, was done California, given Virginia. us that full information We ask question.” above information Until Southwestern furnishes hardly hope say, requested, of success, it can computing the amount erred “the Commission rate increase.” existing utility rates, an of

When seeks increase only utility offer not the burden to is, course, the comply justify all evidence to but also to increase, such requests with all for full reasonable the Commission not has in Commission, instances, such disclosures. The require- duty only prerogative to but also the make the acts the disclosure, ments for full since Commission authority Legislative that the interests valid to see under public fully protected. the are phase argument to seems be One of Southwestern’s greater telephones city, the more in a the the cost that contrary operate phone. the the to individual to This accepted production. theory a matter of mass It is manufacturing knowledge su- common that our national premacy opera- through has come about unification of ability tions, in financial to overhead costs, reductions produce during periods when slack markets are well as high Nothing testimony in demand. other than the greater distinguishes subscriber to connections, access the nature of Southwestern’s to such an extent business justified the that Commission would in find- have been ing multiplied city imposes business in a town higher spoken per peculiar ais, of—that cost the burden log- telephone. argument If be followed this should to a operating then distinct ical units would be conclusion, unity personnel. preferable equipment, assets, Certainly justified asking would be in placing approval more detailed information for upon before completely accounting argument an so out of har- mony general experience. with business

IX. The Little And Fort Booh Smith Babes. Distinct questions by from all other are the issues raised Cities Little Rock and Fort to the rates Smith as charged in those under in cities the increase allowed at case bar. After the Commission allowed said brought increase, Southwestern in a rate schedule which eight groups, classified the Arkansas cities it into serves type phones based on the and number of in each such city; larger city, greater was charged phone. example, for the individual For Port- phones, land, not Arkansas, more than 299 dial party phone per for a one residence was month; $3.75 (with in Fort Smith whereas an excess of dial 17,000 party phone phones), the rate for a one residence was (with per and in Little Rock an excess of month, $5.50 30,000 per phones), the rate was month. South- $6.00 justify greater charge sought western Little Rock Fort Smith the statement the more phones city, greater per phone. against cost But fig- contention, Little Rock and Fort Smith offered from some other cities served ures instance, For Southwestern. phones Rock 57,670’ Little has and Southwestern seeking charge per party is to month for a $6.00 one resi- phone, dence whereas:

(a) City, phones, Oklahoma Oklahoma, has and 123,083 party phone per

the rate for a one residence is $3.75 month;

(b) phones, Houston, Texas, has 272,291 and the rate party phone per a one residence month; $4.75

and (c) phones, Dallas, Texas, 227,118 has rate for party phone

a one per residence month. $4.65 Faced with facts, these it Southwestern said higher charge had to rates Little Rock and Fort Smith up exchanges to make in the smaller in Arkan- losses sas. itself in Thus, seems that Southwestern a meets says argument. phones First it circular “The more says larger places pay more and then “the costs,” must places.” phase supports for the smaller This of the case either Southwest- made that heretofore our observation regu- up or the level, its books on a state ern should set by latory served Southwestern of all the bodies States system pool examina- their make a wide should staffs to by presented questions Little Rock But the tion. not final and can be that are matters are

Fort Smith brought by the developed about in the situation further of this case. remand remanding Pulaski Circuit to the are this case

We Public remanded to the Arkansas Service to Court, be an Southwestern directions allow Commission, per year, instead the $3,605,591 increase of $3,177,000 will allowed and the Commission Commission; order to be made in the amount refunds the bonded rates exceed the determined rates. South- present necessarily the Commission western will and Little scales; revised classification of cities and rate opportunity given then and Fort an Rock Smith will present their contention to Commission. affirming The order of the Circuit Court order the Public affirmed in re- Commission, Service all except spects, para- as to the mentioned in this matters against appeal are assessed Southwest- graph. Costs ap- in a have obtained reversal case since the Cities ern, pealed Law from a Court. George and Mr. Justice

Mr. Justice Millwee Rose sustain the Cities’ third contention, would Smith working capital To $410,000. disallow Southwestern they only, opinion. dissent from the such extent

ON REHEARING. Rehearing. The Justice, Ed. F. Cities McFaddin, petition requesting to have filed a us include additional judgment; has filed directions our petition rehearing, claiming several our errors opinion. petitions in the order named. consider these We Petition Additional Directions. I. Cities’ definitely that Southwestern ask state The Cities being pay refunds —said interest interest on the shall 6% payable because under Southwestern, bond, has col- greater lected a amount from the than we subscribers determined that Southwestern should have collected. We request. hold that the Cities are correct Interest ordinarily damages wrongful allowed as for the deten- money. requires tion of 47 C. S. 13. The J. Statute which utility post putting to a bond as a condition to a rate provides increase into immediate effect, that the bond prompt payment any is to damages secure the “of persons refunds to the entitled thereto.” Ark. Stats. (b). fully § 73-217 We hold that the interest covered by “damages” the word in the statute. (d)

Ark. § Stats. 73-217 is relied on Southwestern, only in its claim that interest is to run from the date of judgment. provides utility That section that if the fails thirty days, attorney refund make within member bring of the Commission shall suit and recover “the together amount of all refunds due, interest thereon per at the rate of and all court annum, costs.” The 6% say Statute not does what date interest tois certainly logical utility run; it is that the should not ’ have the money, of the free benefit use of the subscribers through utility’s such came when use about own judgment provide effort. So we amend our that the Public Service Commission shall allow the subscribers interest on the with the refunds, interest to run from payments repayment. date of excess the date of point presented by

The second the Cities is whether attorneys’ may paid, attorneys an fee be to for the out of the Cities, amount to refunded be to the sub- attorneys’ scribers. We hold that such fee cannot be so paid. belong The refunds to the subscribers, not to nothing Cities; and there is in this record to show agreed paid that the have subscribers for a fee to be attorneys statutory authority for the Cities. find no We request for this the Cities. In Miller Smith, v. Ft. (Peavy County, v. case Pulaski 103 Ark. S. W. 491):

“Statutes, regulating litigation costs in and fees of strictly are to ‘and no construed, officer officers

93 costs in cases taxed as unless there entitled to fees, ” n authorizing it.’ a statute attorneys though have ren- for Cities Even them to dered cannot order services, valuable we paid money out of the subscribers. We must due attorneys special they presume that if the counsel, are they city their fees; for or if are elected have contracts they provisions attorneys, cognizant of the are § § Therefore, 19-1015and 19-1025Ark. Stats. § 19-912, ’ deny request, portion of we the second the Cities Rehearing. II. Petition South- Southwestern’s for original alleged opinion. western lists seven our errors importance, prin- slight are and relate Six these verbiage. cipally to of the entire we Illustrative six, list and these two: discuss

(a) Topic discussing “The Point In Second VII, Cross-Appeal,” used sen- we this receiving “(a) from tence: American now South- gross income for western Southwestern 1% ‘supervision’ petition rehearing, In the for ”. South- says only supervision, is not also western this but 1% variety great rendered for “a of valuable services parent company”. that other The record does show Southwestern; rendered American services were so we add the words immediately “and other services”, “supervision”. after word Topic original

(b) opinion, of our In the same “(b) money American borrows used sentence: at charging been less, has Southwestern 3% 4.75% money challenging In loaned it.” correctness figure go 4.75%, Southwestern us to back asks becoming transcript, to the but with candor, printed filed in this Court, abstract

admits that in following appeared unchallenged: Bell $406,800,- & Advanced Southwestern “A. T. T. year period during In- to 1950. 1946 begins Rate is the advance made. from time terest

4.75%.” challenge printed

When did not the Southwestern presumed it on re- abstract, we to be but correct, now hearing, go that we should back insists figure transcript to the In to not see the 4.75%. all have find fairness, we done and that the testi- this, mony charged shows at that Southwestern interest was by American. in the Likewise all record fairness, 2.75% money 2.75%, shows that American borrowed at than less making profit so net result that American was money money as between borrowed loaned to and South- western. urged by points

So much for the six minor South- point urges western. The main which Southwestern rehearing, portion opinion to in relates our which of adopted opinion dissenting we Commissioner, per year and fixed to of $3,177,000 as the rate increase opinion, which In our Southwestern. entitled. was quoted adopted opinion language and of from the dissenting Commissioner: September

“Using figures, company would per year be entitled to of $3,177,000 increase in- hoping stead of $4,600,000,which it is to receive and instead of $3,605,591 allowed under December 31 figures.” figure

Southwestern now that this claims $3,177,- says dissenting erroneous, that the Commis- figure sioner reached the on erroneous conclusions drawn and evidence; exhibits and Southwestern now urges: respectfully requests

“Wherefore, Southwestern that the remand Court this cause Pulaski Circuit remanded to the Court Public Arkansas Service (1) Commission with directions that the Commission recompute the amount increase $3,177,000 applicable properly on the factors basis thereto, (2) operating examine Southwestern’s actual results September, light since and fix of such rates, just experience, which are and reasonable.” given We most consideration to South- have careful argument point, gone western’s on this and have back reject the calculations and from all exhibits, this, we Southwestern’s contention for either of two reasons:

(a) insistence Southwestern —claim- ing figures error in the basic on which the result of was $3,177,000 reached —was not made

original argument. brief or Southwestern in- Bather, figure sisted on a or at least $4,600,000, the $3,605,591 allowed If Commission. there were basic errors figure which resulted we think $3,177,000, South- orig- western should have called attention to these in its inal rather than case, to have chanced the result on the figures. other

(b) rejecting A second reason Southwestern’s regarding figure, insistence the $3,177,000 is support the fact that in there evidence record the figure figure a than lower $3,177,000, think we by dissenting used the Commissioner fair and reason- under the able facts and all in circumstances this case. deny petition

Therefore, for re- hearing. (concurring part Chief Justice in Smith,

G-rikkin part dissenting respecting opinion in the on rehear- ing). question

It seems to me that the first resolved is wholly legislative majority and that the court’s has read a into the statute condition the lawmakers left out. That part opinion dealing upon with interest rests “damages” relating word found in the sentence to re- damages funds. Justification for construction of im- plied (b), from the context of § 18, subdivision Act 324 by of 1935, Stats., 73-217, Ark. § reinforced the views by Corpus entertained editors of Juris v. Secendum, p. Corpus 13. But the “Interest, Juris summation is being only a creature of statute, the law allows it on the ground payment, damages of a contract for its or as money, the detention of or for the breach of some con- pro- duty, or the violation tract, of some or where it is by equity vided for statute; but courts of interest is dis- in the exercise of sound or disallowed allowed ’’ cretion. (d) requires Public Commis- Service Subsection any utility bring against to make that fails sion to suit any days from date of within 30 the effective restitution reducing collected under that had been order authority increases and in this order the Commission bond, returnable to the customer. the amount or amounts fixes by prosecuted in the name of the State The suit is to attorney member of the Commission. (d), Interest is first mentioned subsection express language the amount the demand shall be “for together with interest at the rate due, of all refunds per and all court costs.” annum, pertinent light mandate must be read This expressions preceding particularly dis- matter it— closing legislative design to have the Commission deter- noteworthy that mine the amount to be refunded. It is upon (c) confer subsection does not impli-

right to include interest on refunds. Unless interpolated something into Act cation there is general assembly only out of condition under it,

left chargeable is when suit becomes neces- which interest is predicated upon sary. be violation a suite would Such and the “effective date of order, the Commission’s noteworthy factor. It that such order” is the decisive is prohibits maintenance of such suit the subsection years within two such unless instituted “after final again, the Commission’s order Here, determination.” begins. from which violation made date automatically argued that interest If it should be money the answer is that the withheld, attaches when rendering apply legislature treatment, fit to its own saw inapplicable. general rule is law remedies common liquidated only where there is a accrues interest utility right to rates In the field the increased demand. subject investigation ordinarily to debatable and it is purpose, by machinery for that the state has established legislative scheme visual- cannot be that the hence it said purpose penalize utility compelled pro- ized a by particular ceed method, but allowed it on condition put given proposed that bond be rate into effect at once. practical thought might good

A with be reason assigned legislative give specific for the failure to di- rections is this: The amount returnable to each affected patron necessarily will interest be small. It must be computed entailing aon month-to-month basis, a tre- outlay. example, paid mendous clerical For if A a service charge of for the first $11.93 month collections were following inauguration made of the rates covered actually paid bond, difference between what was the amount this court has authorized for certification the Commission would be refunded, with interest at 6% period over-payment for the inwas

possession. The time element for the second month, succeeding pro- and all third, would months, be gressively less. This is true because interest would be payable opinion majority only under the for the actual deprived time the customer had been of the excess payment.

But this is not all. The schedule filed applied long the Commission to intrastate distance proportion calls. Thus, refunds must be made for that held to be excessive, each bill customer’.s must examined to ascertain what the refundable difference is. paid

On this excess amount so collected Southwestern the Arkansas sales tax, and on all where the calls charge paid was 25 cents or more it a federal tax 25 Jo. regarded Unless these differentials are to be as de (a minimis determination Southwestern cannot arbi- trarily authority make, and an we do not assume the voluntarily confer), individual subscriber will interest computed must be with these factors in and each view, over-payment yield must a return for the number of Certainly government months involved. the Federal will pay over-charges, utility not interest on these so the glance appears sustains what at first to be a net loss.

But is it? bookkeeping and clerical effort involved these very probably

comparatively will cost trivial transactions aggregate all be more than the the interest found to part It the cost of administration and due. becomes fixing an know is allowable item rates. We that South- purpose apply in- western has indicated a to for further upon operational greater now than creases based costs they were when the case before us was decided. There- flowing from fore the under fair inferences Commission, opinion rehearing, on would allow the clerical this court’s incidental to the tedious and other administrative costs diminishing computing on the task interest basis time this means that the sub- factors; and, furthermore, patronize long scriber who did not the intrastate distance penalized will be for the benefit of the one who service did.

Perhaps provide failing payment to for legislature into con- interest took these matters sideration. part opinion agree

I with that of the which refuses payment attorney to authorize the fees. contends that mathematical errors

easily were made Commissioner demonstrable Wood opinion. findings by dissenting Essential who wrote incorporated opinion Judge in this court’s Wood were decision. It now insisted and were the bases our permitted if so, that to do would Wood, Commissioner recognize modify would these errors and no doubt opinion arrived at. The some extent the conclusions disposes suggestion Judge rehearing Wood permitted say alleged mistakes acti whether the justified the result he reached. vated his dissent and by calling disposal achieved attention South This question appeal. in the A to raise the western’s failure opinion <£A second reason in the statement regarding rejecting insistence figure evidence in the fact that there is is the $3,177,000 figure support $3,177,000.” than a lower record to (in it better not be a rule circumstances where Would majority made one determination and Commission’s conclusion) a the third Commissioner reached different to to remand the circuit court with cause directions immediately send it determi- findings nation ity? that came to us from divided author- impair acquiescence way would in no oiir This minority permit it view, but would the Commissioner say findings erroneously whose we followed to whether he mistakenly omitted certain or included essentials others. proceeding

The entire could and should our order be thirty days. terminated within less than appropriate

There is one other matter to call my point attention to. From own of view there was opinion nothing original attorneys in the to which standpoint impartial from an Southwestern could believe involving to be a criticism of tactics, their.trial omission rehearing or commission; their but briefs indicate a feeling disapproved impliedly that the court of the zeal they displayed purpose obviously repre- in an sincere very great ability sent their client to the full extent meticulously they always correct ethical conduct have advocacy shown in before this court. corporation

We all know as such Southwest- far-flung with ern, interests and millions of dollars avail- at able and stake, selects the ablest of counsel and then provides representatives these with technical, scientific, run-of-the-day information that is seldom available public groups problems to small concerned common average very group to the citizen. The able of counsel arrayed against specialists telephone company for the necessarily disadvantage procuring was at an initial presenting information and in it to the But Commission. impartial

the Commission is the arbiter for the utilities public, appellate rely largely and for the must courts upon findings what the are after Commission’s it has professional given by lawyers had the benefit of aid such disputants. who those served the It not the court’s was any high standing intent to detract from the these attorneys, by any Commissioners, or word, drawn; which such an inference could be

sentence from respect. unexpressed thought in was an nor there Judge. Corporation v. Reasor-Hill Golden, 4-9802 W. 2d 247 S. Opinion February 18, delivered 1952.

Rehearing 1952. denied March petitioner. Talley Pratt, L. for Owen and Richard S respondent. Jones, John for Harris H. Powell Chief Justice. E. Smith, Grieein Corporation and a at Dermott Beasor-Hill others sued against Sept. jury 11, 1951. found them court circuit petition corporation’s before us The matter entering prohibition an trial court to restrain the Judge granting plaintiffs trial. Golden order new courteously controlling very act until official withheld apply objecting for the writ. could interests days Sept. ended 30—two after court’s term The presented; plaintiffs’ nor motion a new trial was Sept. 15th and it in at Dermott between was session argument having pre- heard and motion 28th, the been agreement. before us issue elsewhere sented

Case Details

Case Name: City of Ft. Smith v. Southwestern Bell Telephone Co.

Court Name: Supreme Court of Arkansas

Date Published: Feb 18, 1952

Citation: 247 S.W.2d 474

Docket Number: 4-9647

Court Abbreviation: Ark.