Hancock Rural Telephone Corp. v. Public Service Commission

JJ., Cooper, concur. Carson, Clements* 2d 595. Reported 202 N. E. Note. — Telephone Corporation al. et Rural Hancock et al. Indiana Public Service 14, 1964. 20,077. Rehearing Filed dismissed October [No. 23,1964. 9,1965:] Transfer denied March December hearing Judge participated in of oral Clements *While judges, argument and concurred in the a. conference untimely conference, death occurred his at the time result before adoption opinion. of this Gemmer, Ging. Fauvre, Dongus, Arthur & H. and Davisson, Cooper Gemmer, Busby, Indianapolis, and of George Harvey, of Fair, & & New Cas- of and Anderson tle, counsel, appellants. for of E. Attorney General, Marcus Steers,

Edwin K. Hirsch, Paul Attorney Woods, Deputy General, As- appellee, Counselor, Service for Public sistant Public of Indiana. Jeffrey, Indianapolis, appellee, In- Robert for W. of Telephone Corporation. Bell diana Branigin, Roger Branigin Stuart, Ricks & Schil- Telephone ling, Lafayette, appellee, for General Com- of pany of Indiana.

17 Warren, appellee, Indianapolis, Goodrich & of Knightstown Telephone Company. ^ seeking statutory C. J. This is

Hunter, action judicial of of Com- review orders the Public Service (hereinafter Indiana, mission Com- referred to as mission) brought provisions pursuant of Acts to the Ann., 1963 seq. (Burns’ §1, Stat. ch. Ind. et assignment seq.) Appellants’ Supp., §54-443, Poc. et alleges specifications of error: errors two Com- “1. final Public Service The order 2, 1963, mission Indiana entered October contrary -in PSCI to law. Cause is order, subsequent 2. The final issued said order, denominated ‘Errata Order’ entered Public Service Commission of Indiana sponte sua 1963 in PSCI on December contrary law.” Cause No. is proceedings before Com- administrative said purchase mission in one involved the cause exchange telephone company im- another, existing purchaser’s provement in both the service exchanges exchange, and the establish- purchased exchanges adjacent ment of extended area service with financing in the form of a loan the Rural from (hereinafter Electrification Administration referred to REA) things. accomplish Appellant as these Hancock Telephone Corporation (hereinafter Rural referred Hancock) purchaser, appellant is the Markleville Telephone (hereinafter Company, Inc. to as referred Markleville) seller, appellant Rural Cadiz (hereinafter Cadiz) Telephone Company referred to as adjacent exchanges is the owner one of the proposed. which extended service is area Named appellees Commission, are The Public Service Telephone Company, Incorporated. Indiana Bell Knightstown Telephone Company, the latter two were

joint petitioners below for extended area service' respective exchanges. appellee their Also named as Telephone Indiana, Inc., is Company General named respondent as a proceedings, in -the administrative however, respondent during course .the proceedings acquiesced proposed in the extended area exchange. service to its only proceedings answer brief filed in these appellee

that of through Commission filed Attorney General.

The'proceedings before the Commission were initiated joint consisting petition para- separate of four graphs summarized as follows: Paragraph of requested I approval acquisition appellant telephone system by Markleville’s

appellant Hancock, purchaser the issuance to the aof authority certificate territorial to cover exchange area, rates; new and new Paragraph II approval for asked extended area purchased Exchange service from the Markleville Exchange appellee the Anderson Indiana Bell, Mechanicsburg Exchange to the Telephone, Exchange General to the Wilkinson appellee Knightstown Telephone, and to Cadiz Exchange appellant Telephone; Cadiz Paragraph approval appellant III asked Han- improvements cock to make in four of its exist- ing exchanges; and Paragraph approval $295,000 IV asked of a loan of from Rural Electrification Administration to appellant accomplish acquisition, Hancock to improvement extended area service. hearings peti- In the before the Commission on said any telephone tion, company any person neither nor appeared opposition any proposals, and the other n than that only offered, witnesses and evidence joint by- petitioners, presented the Public accounting Counselor, and- consisted of exhibit and testimony by and an Staff Commission Accountant engineering testimony by a Commission exhibit and Engineer. Staff by joint petitioners demon- presented

The evidence strably acquisition, the indicated, both that as to the unani- had seller’s board of directors and shareholders pur- sale, mously approved of and that the contract contract, unanimously approved said chaser’s board had loan, applied REA for the its had officers ap- subject approved to Commission had been indicated, proval. indisputably Further, the evidence service, between proposed that as to the area extended respective exchanges desired approved and the it ipany companies, and respective the of boards community of in- responsible persons testified as to the exchanges for such and the terest between said need arpa and as to service to both the extended service. As improvement existing exchanges, evidence. unchallenged. was detailed-and

-However, improve- acquisition, as'to matters these subject of' service, the matter ment and extended area ap- joint petition, paragraphs of the the first three any finding pellee in either to make Commission failed said two orders. approval, only of loan It was relative to the matter petition, that subject paragraph of the fourth disapproving finding, made its peti- joint loan, basis, said denied soÁá entirety. tion by appellant on this presented Hancock

The evidence accounting testimony and exhibit issue consisted testimony witness, His Clarence D’Aoust. CPA .in deter- he utilized the method and exhibits showed mining appellant plant, includ- Hancock’s value of funds.' ing acquired or constructed with-loan taking original This method consisted book de- costs preciated, applying against a dollar indices these his- update toric costs dollars, them in terms current adjust impact so as to for the of inflation and to arrive at a property. current valuation He testified study opinion long that from his he ofwas that the appellant term debt Hancock did not exceed fair plant. During value of testimony, its the course of his the Commission was also asked to take administrative notice of the fact inflation, which refused do. it to presented by record indicates the evidence Commission’s staff accountant was restricted original depredated him to alone, cost and in his testi- mony (1) he made certain subtractions from valuation plant part for plant being of the value of the acquired for and also all of the value of to future; (2) be constructed in the he also made including certain long additions to the term debt an amount “memberships cover appellant issued” long Hancock. He concluded term that the exceed- debt ed appellant the fair plant. value of Hancock’s In addi- tion, applied appellant equity he Hancock a “debt ratio”, by purported appellant which he to find Han- cock’s financial structure unfavorable. all As to these approach, differences between the staff accountant’s ex- conclusions, hibits and D’Aoust, and that of witness appellant timely counsel for repeat- Hancock made objection, ed raised, and it is these issues thus appellants predicate error or- Commission ders.

Appellee Commission final entered its order in said proceedings, denying joint petition, said on October 10,1963, appellant 1963. On October Hancock with filed appellee Request its Appeal. Commission for Record for Thereafter, proved impossible when it to obtain a tran- filing for script appellee from appellant time, Han- statutory appeal court within the petitioned statutory period, cock, twice within its time tran- file said time to extension this court requests assignment errors, which scripts Subsequent October to said granted both were times. days (72) there- seventy-two order, wit: 2nd final en- after, Commission, December on proceedings, administrative tered a second order subsequent or- This “Errata Order.” which titled an it sponte, Commission, sua by appellee der was entered parties to the appellants, any other toithout notice heard. any opportunity proceeding without differences, among contained order”, other “errata Said issuance, included for its no statement of reason from omitted been had a which testimony of witness been had order, two exhibits included the first para- a new order, included first omitted from the evidence, record and graph matter outside order, in the namely had not been letter, which first first finding in the change contained in a and made a denied order, order” “errata the order. the first Like joint petition. the

First, Specification 2 Assignment No. of the of Errors alleges subsequent contrary said that “errate order” is law.

The power statute which creates and limits the Public modify Service Indiana Comission its or- provides ders as follows: , may, “The any time, at Commission notice to public utility opportunity the heard, seventy-one (Sections and to be after provided fifty-seven in sections 54-422),- rescind, 54-408 to

alter or any fixing or amend any rates, order rate or any other order made Commission, the copies certified of the same shall-be served and take provided effect original as herein orders.”

22 (emphasis added) 1913, 76, §76, Acts ch. Burns’ Ann.,

Ind. Stat. Repl., §54-427. seventy-two (72) record reveals days after the 1963, final order 2, October Commission subsequent issued its 13, 1963, order December the cause, same Appellee and labeled it “errata order”. challenge does the fact sub- sequent public order was issued without “notice to the utility” and “opportunity without heard”. There- fore, only question subsequent or- is whether der attempts prior to “alter or-amend”' the order within meaning of said statute.

Both already “amend” words “alter” have been construed Supreme Court. Indiana ‘change “An modify amendment or means any way for the better.’ Int. Dict. And Webster’s

see Diamond Williamsburgh v. (1873), Ins. Co. Daly (N. Y.) 494, 500. The word ‘amend’ is synonymous ‘correct, reform,, rectify’. It means, a (emphasis errors . correction added) McCleary v. (1907), Babcock 169 Ind. 233, 82 N. 453. E. “ ‘Alter is to otherwise’. Int. malee Webster’s Dict., p. (emphasis added) City E. 114, 486” Adams Shelbyville (1899), 154 Ind. 57 N. 121. legislature is difficult to see how the could have se-

It. any every lected broader words to cover form of changing using order, than “alter words changes putting Certainly, amend”. in omitted changing findings exhibits, witnesses comes .and meaning of within clear said words. Nor does placed subsequent on of “errate order” order title change by appellee Commission that the fact order prior a The “er- “alter or amend” order. seeks to word plural “erratum”, word which de- rata” is the the is p. 513, mean- Dictionary, Century New fined The ing: writing printing.”

“An or error in by appel- amending altering prior order its The instant subsequent in the order lee Commission typographi- correcting merely case more was far than it was that Furthermore, fact cal errors. the additional (72) days after attempted later and seventy-two under was final order that Commission was aware at- an clearly it as appeal court, to establishes ap- already salvage under tempt belatedly an order peal. pro order tune permissible nunc “This correcting clerical, not a was omissions. ministerial errors where, reasons, attempt It substitute was agencies, appeared

none If had administrative ... particular their highljr no motivated matter how pro may be, can, nunc action under form of presumably order, tunc ‘correct’ corrective subject objections specifically order meet judicial review, urged review cause petition effective for in a good of the ‘and would be denied. vice technique affords that it appearing’ is nothing parties of to hold or court can take action. scrutinize and That as the measure basis challenge, compounded if, on review is is something substituting then thwarted else. have, agencies . . . Courts and administrative have, power change must it is the rule of But if their minds. controls, there must be law which judg- some basis to indicate it reason and brought change. ment that has about the judicial . . An order entered after months ; review has been set in motion and citáis not borne out on based re the available record does change contrary, dramatizes, it. it On again venting' judicial then danger, system under our of circum by claiming find review -and belatedly record known imperfectly pa but reflected in the official fact. pers.” Carriers, Dixie Inc. United (1956), States (U.S.D.C., Tex.), Supp. 852, 854, 143 F. 855. Accordingly, apparent it is that the con “errata order” attempt by appellee stituted to ‘alter prior order, a amend’ and that this Commis any attempt comply sion did without to with the provisions §54-427, of Burns’ body “The state of of a board tax is commissioners special statutory powers and acts outside of powers granted absolutely its are void." State R., (1929), Board Comm. v. Belt etc. Tax Co. 282, Ind. 130 N. E. there cases cited. “The same rule holds as the Public Service to Commission. It Í3 created and duties defined by powers statute. Its and duties are conferred power. statute, and limited given the where thing to manner, do a certain in a certain prescribed power the manner is the measure the of given. . . n .There has been attempt part on the no of (the provisions comply Commission to statute)...,; . . We hold order the instant case is in void, comply to with the effective for failure provisions statute, contrary therefore law.", cases) (citing to (emphasis added) New York Central R. (1921), Co. v. Public Service Com. 627, 635-7, 134 191 Ind. N. E. 282. Therefore, we are constrained hold that the order 13,1963 of December is void.

Secondly, Specification assignment No. 1 of the errors, alleges final that the order of October 1963 is contrary law.

Appellants’ assertions of error as to this final order may grouped for convenience treatment in three categories. allege

First, appellants applied the Commission (“debt standard, i.e., equity non-existent ratio”), legis- had been deleted from the statute apply not-for-prof- lature in and which did not Hancock, appellant it was companies, as while it such in the statute. appellants

Secondly, assert the Commission wrongly existing applied only statutory standard, (that plant long i.e. the fair value of exceed indebtedness), part by failing term include as plant (1) value, valuation ap-. current arrived tire at plication of opposed dollar indices book historic costs; (2) part being acquired plant the value and all constructed, value deferred to be required specifically by statute; as (3) by the wrongly adding long term debt for an amount “mem- berships not-for-profit in corporation, issued” the which “liability” amount was neither a nor “security”, as “long term the term specifically debt” is defined in the statute.

Thirdly, appellants urge that the wrongly failed any finding to maké whatsoever oh the matters acquisition, improvement of service, of and extended service, area toas which the undisputed evidence unchallenged. and remains appraise

In order to validity the appellants’ of first categories, necessary two it is govern- to examine the ing statutory standards.

Appellee Commission specifically applied and used as grounds refusing one of its approve requested loan, “long the standard as known equity term debt ratio”: long . . “. term Petitioner’s debt of of 103.68% capital total its extremely structure high

is unreasonable . Therefore, be . . incurring of' further interest . contrary debt would public to the extremely high . . . equity debt ratio . . illustrates the unreasonableness of same.” (emphasis added) (Commission Finding 5) Order, No.

26 appear any existing This does not in .of the standard governing appellee was a for- Commission. It statutes legislative originally mer standard in Acts of included prior 76, §89, 1941 ch. as amended to the amend- (Burns’ Ann., Rep!., 1951 footnote to Ind Stat. ment. appeared p. 751). originally As standard §54-502, provided Acts, follows: it in said bonds, other evidences of notes and amount "The utility may any public which issue indebtedness of proportion amount to the a reasonable bear shall issued such stock . stock certificates given being to the na- utility, consideration due corporation is which the business credit. of the ture issue which-such . engaged, effect operation efficient . the . . wül have the relative amount utility by reason public will stockholders have interest financial however, corporation Provided further . . . in- preferred amount of stock total that n any exceed at any utility shall debtedness n time commission authorization _ (75%) percent seventy-five excess ah amount utility.” capitalization public such the total n '(emphasis added)- legislature Act,, ap- it in the outlined As clearly a to means en- was pears-that standard said issue, to an alternative courage as corporations to stock long debt, the relative "to increase incurring term more interest which of financial stockholders amount corporation.” Thus, by hy- its own in will have application have no pothesis, could to said Act not-for- (such appellant profit companies, Hancock), which very cannot issue stock as an alternative by nature their Furthermore, borrowing. purpose the avowed of such to case, keep after a case ratio, as enunciated a encourage priváis which would in- capital structure by hypothesis, Again, ratio such have vestment. could company, appellant ato such as Han- ápplication no

27 cock, borrowing REA. of its from This does all ab- by conclusion is confirmed total somewhat any apply attempts sence of the ratio any not-for-profit borrowing companies REA from through 1913 1941. any event, point

In becomes moot with the action legislature by of the 1941 amended which it act, deleting totally statutory 1913 said ratio as a stand- ard, following replacing by and entire section (cid:127) single sentence. bonds, “The amount of notes and other evidences any public utility may indebtedness which issue aggregate shall amount, reasonable in due con- being given sideration to the nature corporation engaged,

business in which the credit, effect agement prospects future earnings, and the which, may such issue have the man- operation public efficient utility.” (emphasis added), 1913, 76, §89, ch. Acts as last 37, amended (Burns’ §1 Acts ch. ¡also Ann., Repl., Ind. 1951 Stat. See §54-502. paragraph last" page of footnote on bottom of top page thereof). 752 Therefore, statutory' requirement the sole for a debt equity statutory ratio only existed as standard from year year 1913 to in which latter it was com- pletely legislative removed action and has not since replaced existed. As so said section now mere- general provides ly for a ag- standard “reasonable in gregate we amount” and look Burns’ Ind. must Stat. Ann., Repl., specific to find the §54-506 standard legislature specified ap- “reasonableness” proval long borrowing. present statutory term This govern standard is the one which must the Commis- as follows: sion reads public “It shall be for the service com- unlawful approve any

mission of notes the issue . . Indiana maturing (12) more than twelve months .28

after the date thereof . when total . . the amount issue, together such outstanding with the . .. of maturing ¡Commission applying standard, err a non-existent but that it further erred in im- the manner in which it properly applied existing statutory standard, Bums’ §54-506, supra.

. First, alleged appellee it is that failed to Commission properly appellant “fair determine the value” of Han existing plant. Supreme cock’s Indiana Court has The already determined the term “fair that value” means present prop value of the used and useful “The. fair erty”. City Indianapolis Pub. Ser. Comm. et al. v. (1956), 235 Ind. 131 N. E. 2d 315. And the term S., has further been defined in 73 C. J. Public Utilities, §17, p. 1015 as follows: “. . . the value property utility of the of the fair being useful and used it in the service of the

public, present value; criterion is the as of the date to in terms inquiry relates, which the expressed present money (emphasis added) . . Therefore, case, appellee in the instant Commission have appellant should determined the current value existing plant, expressed

Hancock’s de year termination in terms dollars of the hearing, i.e., 1963 dollars.

' appellant The plant record reveals that Hancock’s originally constructed in 1953 that certain addi- during thereto have tions been made' from time to time subsequent years. Appellant presented Hancock through accounting evidence witness of the value of corporation as on shown the books of original depreciated; terms of historical however, costs gave expert opinion said CPA then his these his- arriving torical book could costs not be used in cur- at rent, necessary, value without making first ac- fair adjustment counting impact to offset the of inflation. The accountant testified: gone through a . . II have “. since World War we period decreased of inflation and the dollar has purchasing power,...” appellants record asked

Counsel on the then Commission... . . of the fact of “. to take administrative notice purchasing power American decreased II, dollar, especially since the of World War close knowledge.” being a matter common requested hearing ad- examiner refused to take the ruling notice, appeal of his

ministrative Commission, it likewise refused to take such the whole request, refusing appellant’s to consider notice. In so was in error. believe we recognized Supreme that of Indiana has Court knowledge of common of which inflation is a fact judicial will take notice. courts judically an in know that there has been “We corporation utility A in values since 1939. flation take(s) gain from an increase in . . values . v. Ser. Comm. et property . .” Pub. al. of its Indianapolis, supra. City of authority the same to take bodies have Administrative knowledge of common of facts notice administrative Law, Jur., Am. Administrative courts. 2 do as a fact §385, p. Inflation therefor is such 191-2. knowledge as the Commission that of common a factor agency consider it as must administrative an utility property. value arriving the current at in fair power American purchasing “The decreased War of World dollar, especially II, the close since knowledge owners of common a matter goods property and .consumers and users ' facts note these also Courts and services. justice, as, in to them give consideration such should, So, too, cases). rate- (citing must they making agencies.” Mis- State Missouri ex rel Company Public souri Water Service Missouri (1957), Commission 308 S. 2d PUR 3rd W. (Mo.). Therefore, opinion reaching are of we conclusion the in error re fusing give to take administrative notice of and proper weight commonly to the known le gally accepted factor of inflation. recognition inflation,

The effect of of its ex- particularly important istence is in matters before the Public Service Commission shown the evidence as and admission of the Commission staff on accountant re-cross examination:

“Q. System Isn’t it true that Uniform of Ac- general accounting principles counts and have, premise, assumption basic measuring the dollar is a stable unit? say “A. I would it would be.”

Thus, System governs the Uniform of Accounts account- ing Commission, and, before pre- when its basic adversely of a mise stable dollar is affected in- make, flation, accounting necessity it an becomes adjustment prevailing accordance with the circum- stances. - appellants’ accounting

The record reveals that wit- adjustment “update” made this the of ness cost appellant plant, Hancock’s reflected on the particular year in of books terms of the of con- dollars struction, i.e., seq. by applying 1953 et He did this dol- published by Department lar indices the U. S. of Labor purchasing power which reflected the relative between prior years year dollars of and those of of the hearing. applicable He that testified he selected as most measuring for telephone industry, in dollars Price,

Wholesale Durable There no testi- Goods Index. , mony any accounting any index, of nor is other there testimony ap- to show is' the index that most plicable fact, industry. telephone In an item categories making up item consideration of the engineer, dis- index staff established the" without pute applicability purpose. its for this testimony appellants’

The and exhibits of the account- ing witness, accountant, and of the Commission staff original depreciated appellant book show the cost plant $676,330. updating Hancock’s those through Price, application book costs the Wholesale Index, $44,149, Durable Goods in an amounts increase of resulting figure Sep- $720,479, a valuation of. 30,1962. tember

Appellants comprehensively amplified" their evidence establishing application to the extént price original updating their index and the cost book figures did, produce result, unrealistic when their not, expert engineering witness, Slater, Richard L. testified as follows: "Q (By Gernmer) Having Mr. made detailed sur- veys equipment, that being familiar with Hancock’s you testify have accountant heard the up-dated opinion in his current value of plant expressed

total in 1963 would be dollars accounting $726,493. Now, recognizing that is an at, your concept, figure arrived es- does that constitute reasonable or unreasonable timation figure reproduction cost?” figure my opinion, Yes, In stated “. . . be, qualifications, with certain would accountant reproduction cost.” a fair estimate of (cid:127) seemingly final order en- Appellee applying purpose in- tirely the dollar confused erroneously costs, original update stated dices to testimony engineer, confiriming refused recognize validity application;, of such the Com- mission, accordingly, $44,149 refused to figure add said valuing appellant plant. ’in Hancock’s arbitrary

The assumptions Commission’s and con- application of price fusion of indices are shown by following from statements their final order: determining “That in the fair value of Petitioner’s necessary, plant, it to is consider the cost re- of placement and reconstruction of each every and telephone plant of item proposed. presently service, in and many That of the comprising items telephone plants unique peculiar are to this

utility service, costs cannot be thereof determining derived by application price from of relating indices to certain raw materials which up portion myriad make a equipment of necessary involved. determining It is in the fair telephone plant of value designate Petitioner’s to the best estimate costs each said item equipment many . . and materials.. other factors which could affect construction costs. by testimony per- These can be determined acquainted sons service with the thoroughly proposed, and the variables above Application mentioned which affect the costs. Department the U. S. theories such as Wholesale Labor Durable Goods Index do not con- Price accurate calculation deter- stitute sufficient' mining accepted such costs be and thus cannot compris- though many of the materials raw even the items are included in index ing used Application theories is telephone plant. these they a direct re- that have show sufficient reproduction costs as current actual lation to added) (emphasis prices telephone plant.” of a price applied an indices be obvious It should attempt original an is not book accountant costs appear There two reproduction costs. determine arriving one an ways fair value: is at current basic accounting con- concept, the other ah 'is engineering engineer “updates” cept. process hypo- dollars is physical plant terms current re-building “reproducing” he thetically is assume known present price conditions. This plant under hand, the other “reproduction method. On cost” as the “updates”/his- an process which accountant to; apply on the books is original reflected cost as toric of different the book costs all so that dollar indices into terms current years are translated values dollars. by en- the manner which

“Reproduction is cost” indices” “Dollar fair value. gineer at current arrives is fair value. current arrives-at way an accountant processes dif- parallel in two comparable They are arrive, i.e., to end same fields to at .result: ferent plant. value of the the-current determine fair erroneously stated that Therefore, the Commission repro- price “to arrive at indices used the accountant original applied They to book costs were duction costs”. accounting necessity to render by as an an accountant costs, updated, usable as so show those current book accounting standpoint. from an fair value engineer’s con- also misstated the The Commission “ figure by firming testimony, . . the i.e. . stated reproduc- ... fair would be estimate accountant cost”, engineer tion order when it states that -said believed some “stated he this have correla- would reproduction tion the actual of the entire costs plant,” (Emphasis added)

Appellee Commission is authorized another sec- tion of the 1913 Acts consider “all bases valuation may- presented” (Acts 1913, 76,. §9, ch. as amended, Ann., Burns’ Ind. Stat. Repl., §54-203). adoption by the Commission a construction that preclude any basis, statutes updating such as use indices; then, upon of dollar pro- construction, such ceeding basis, original on a different such as de cost preciated adjustment, xoithout to arrive at less than the “full fair value” would render the statutes ineffective. City Pub. supra. Ser. Comm. et Indianapolis, al. past

The record reflects that in the the Commission recognized validity engineering “repro- has of the engineering duction cost” method as a reliable means “current, arriving early fair at value”. As the Public Service Indiana took admin- istrative notice of inflation and utilized dollar indices update Supreme book costs. The United States Court propriety confirmed the action the Indiana this holding: Commission, determining given present value, “. . in consideration prices wages must be prevailing at investigation....

the time of the “. . . average reasonableness use prices pointed apparent (Indiana) . . . The commission ‘may out that enhancement of value occur value by a purchasing power ... decrease in the or of the dollar5 ”... utility “It well established of that values properties fluctuate, that and owners . . . are prices entitled so the increase. . . . and values have changed that . . . the of cost elements great prior prices constructed to the rise in due any to the war do not constitute real indication time, present (citing cases) of their value at the judicial And we take notice of the . . fact that “. upward . . . . . The trend has been clear . And it is prices that a . . level . should be taken .” McCardle v. measure of value . Indian as Company (1926), apolis 408-412, 400, Water 272 U. S. 316, Ct, 144. 47 S. 71 L. Ed. utilizing price necessity trends dollar indices emphatically fair value” a “current to arrive at again by Supreme of the United Court enunciated in 1935: States

36 just any take into valuation must is true “It (citing prices.” changes in level

account including case) McCardle cases Commission’s) (The . . . did not consist error . . “. considering receiving the evidence sub- and in changes commodity showing in mitted of indices been error prices It would have ... other (Citing it." considered have added) cases) (emphasis rising twenty years or more period of “For a including courts, prices, commissions persuasive regarded price one, variations have present more than fair value was evidence that cost.” Chesapeake Telephone Potomac & West 672, Company Baltimore, 662, L. 295 U. S. 79 Stone, 1640, and from Justice dissent Ed. joined by Cordoza, Justices Brandeis p. 686; 692. U. S. Supreme of the United Later, in Court States appeal order of Indiana Public from another for failure to use dollar reversed Service Commission original update cost: indices goes to the District Court with back “The cause ‘general persistent rise admonition that a fixing given prices been effect have should Affirmance the Court a fair valuation.” approves Appeals necessarily decree this state- requires an increased ment and this statement Company’s property . .” of the . McCart valuation v. Indianapolis (1938), Water Co. 302 U. S. dissenting opinion Black from Justice at 423-24, Ed. 324. 82 L. S. Ct. appears also, It Commission has at two least recognized validity accounting cases, recent accounting “dollar indices” method as a reliable means arriving fair at “current value”. In In- Telephone Corporation case, diana this Commission quoted following accounting testimony ap- proval : “Underlying ordinary accounting procedure is assumption measuring of a stable unit and when assumption is invalidated the raw data (cid:127) accounting requires adjustment if actual cost is correctly words, be determined. In other when represented by- records include cost factors' varying measuring . possible units it is not by adding determine ... cost the dissimilar units they ifas were the same impact change

“. . . The of the in the value of the especially important dollar utility is in the field.” “. consumed . . In plant the determination of the cost of . utility operation, varying dollars generations of investment reflected in successive installed converted'by should be an. appropriate index to dollars, current.. so that , important may accurately this in cost measured kind of the same dollars ...” purpose, any “... For this gen- the well known fairly satisfactory, eral are indices and the use primarily of an index based on the costs incurred particular give in sults, a considerable number of field- satisfactory. will re- fairly if index is, broad —that includes underlying cost factors.” Indiana and the Commission then found: “Inflation price has caused a decline in the level throughout States, causing the United the value of the dollar to decline...” plant consumed, “. . . thé cost of measured in cur- dollars, and rent related to other factors as was presented done in the evidence reflect a realistic phone herein tends to picture . . .” Re Indiana Tele- Corp. (1957), 16 PUR 3rd 490. Upon appeal Appellate to this Court, the Commission order was reversed because the Commission had at- tempted apply retroactively, rates and the Court disapprove did recognition the Commission’s application inflation and the of dollar indices, and said testimony recognition part remained a of the. case Corp. Indiana Tel. remand. v. Pub. Serv. Comm. (1957). App. 314, 131 Ind. 171 N. E. 2d 111. See also

38 Co., Inc., Indiana Public Service Re Hoosier Water 28297, 348. Commission, 34 PUR 3rd PSCI Cause No. considration'original take into value should “Fair costs, reproduction or reconstruction cost, and also greatly value reflect facts of current in have become imbedded increased costs costs, reproduction less economy. . Present .' . our. depreciation generally accepted most has been' the changes, price major reflecting the: method levels (cid:127) giving, '-to costs.” effect current and (citing cases) however, use method, only not the “It arrive at value original figures cost fair of- can This price accomplished indices. the- use accept growing in use has been method present value and as evidence ance both reproduction comparison fig cost forming Bridge Ferry v. Penn. Pub. Ser. Co. ures. Clarks 227, (NS) 225, 2 (1934), PUR 291 U. S. Comm. 427; Indianap 767, v. McCart 54 Ct. Ed. S. L. 28 419, (1938), 302 U. 21 PUR Co. S. Water olis (NS) 465, 324; Angeles 336, Ct. Los 82 L. Ed. 58 S. Corp. R. R. Com. Elec. v. 289 U. S. Gas & Calif. 229, 1180, 287, 1933C, L. 53 Ct. PUR 77 Ed. S. 637; (1939), & v. Tri-State Tel. Tel. Co. State 294; 516, (NS) 158, 284 28 PUR N. W. 204 Minn. (Mont. 1953) Co. 1 Montana Power PUR 3rd Re added). (emphasis Iowa-Illinois Gas & Elec. 167” Co. City Dodge (1957), 1201, Ft. 248 Iowa 2d PUR 3rd 85 N. 20 W. 28. Light Jersey (1952), Power Re New Co. 9 also & See (NS) 467, 89 PUR A. 2d N. which holds: J. utility throughout “. . . courts commissions appear recognize country generally the doc- the trine be determining valuations there should higher taken into consideration fact that a prices brought and materials has been level due conditions devaluation of about dollar, War and the recent World the current inflationary emergency and economic situation Therefore, upon case, ap record the instant pellee relying original Commission was in error in depreciated

book cost to arrive at fair “current value”, particularly testimony so when the applied knowledge common established indis putably that had rendered inflation it unusable making purpose accounting without first some ad justment. opinion We are of that the Com failing recognize mission in error was further in validity update original applying dollar indices arriving value”; book and, in costs at “current fair there appearing no evidence of record other than that utiliz ing Index, Price the Wholesale Durable Goods with the validity engineering testimony thereof confirmed as producing result, possessed a realistic the Commission orig updated no discretion other than to find that the depreciated inal current costs constituted the value fair plant. closely analogous upon judicial case, In a review of Commission, order the Missouri Public Service de-, Supreme the Missouri Court reversed a circuit court cisión which had affirmed the Missouri Commission reversing, order. In'so the Missouri Court held: affirming “Thé circuit -court erred in the Com- ' mission’s determination ... (3) , disregarding . . Commission erred The. undisputed eyidence adopting origi- . . and . value; present nal cost its sole measure of as. (4). arbitrarily- ignoring Thé acted Commission* present using original valué and cost in view economic- conditions. currént purchasing power . . The . decreased of the Ameri- dollar, especially can since the close of World War II, also knowledge is a matter .of common . . . Courts know,these give facts such consideration asj justice they should."(citing to So, 'in them, cases). too, ihust-rate-making agencies. Teleph. Teleg. Re Mountain States See & Co. 234; 230, 233, (Wyo. 1956), 14 PUR 3rd Pennsyl- Light vania Pub. Util. Comm. Penn. Power & (Pa. 462; 1956), Co. 14 PUR 3rd Re Chesa- peake Teleph. Virginia (W. P.& Co. West Va. 1956). 299, 302, 16 PUR 3rd 306. “It is true that determination 'fair value’ . . . vexing problems proof however, involves . . original ascertained, it seems that once cost bookkeeping modern methods used in connection recognized trending percentage with price and tables can be . . indices used establish . costs depreciation accuracy. reasonable show, evidence in this case tends to so to the findings many involving of the recent cases Questions.” ex these State Missouri rel Mis- souri Water Co. v. Missouri Pub. Ser. Comm. (1957), (Mo.). 2d S. W. 22 PUR 3rd 257 alleged refusing In error of addition to deter appellant fair value” of mine the “current Hancock’s existing appellants plant, ap also contend that pellee Commission has to add to that refused value, part plant being of the value ac quired and all constructed in the unambiguous on future. The statute is clear and point, necessary, no room for construction is no admin provided, discretion and it is difficult to un istrative is timely why, objection, the face of the Com derstand in improper statute, persisted in The mission this exclusion. prop §54-506, fair “the value Burns’ defines erty” as: construction, “including any acquisitions, exten- property sions, additions, and betterments such part issue

to be in whole or in such financed proceeds or the thereof ...” plant such Markleville is The record is clear that “acquisition” in whole” “such to be “financed proceeds clear The record is also issue or the thereof”. (the price plant rea- purchase that contract 4l price undisputed) sonableness of which contract and is quite §22,000, price purchase is and that this entire has accounting properly applicant’s exhibit been included in part equally plant. It the Commis- is clear sion ex- exhibit, staff reasonable accountant’s without planation. being $10,097 plant acquired, deletes of this appellee permitted and that this Commission exhibit proper objection, and, omission in like- evidence over wise, finding plant deleted such amount from its value. con- This of the Commission unwarranted action stituted error. $28,050

Furthermore, clear in record is plant value of and “financed to be “constructed” proceeds whole” The such “issue” thereof. accounting labeling of item as this “Deferred Construc- tion” distinguish it from imme- the construction diately taking place cutover, upon require it does determining be plants subtracted value supra. §54-506, constructed under Burns’ Com- The mission staff accountant’s exhibit deletes entire $28,050, permitted Commission ex- hibit and appropriate objec- omission evidence over tion, and likewise deleted such amount from find- ing value. This omission constitutes further er- part ror on the of the Commission. comparison

As to the other valuation called for in the §54-506, supra, again standard of Burns’ the statute is unambiguous dear open and not to construction or “long discretion. term term debt” is defined as:

“stock, bonds, maturing not-for-profit corporation a and that it does issue

42 stock; “membership for certificates” users that its and ownership corpora- any in the share not construe do receipt corporation of “mem- tion, nor does the any thereof, bership for constitute fees” the issuance Yet, corporation. “liability”, long term, of the short proper objection, account- the Commission staff over rep- $18,340 exhibit, item entire ant’s which added the “long applicant resenting membership Hancock’s fees to “security” “liabil- though or a it were term debt” as Commission, ity”, permitted in evidence it im- makes in a manner which mentioned in its order it entered which possible the extent to determine in- The order approval of into the loan. its denial “ following: giving Petitioner after . . cludes the issued full on certain such as benefit the doubt items certificates, equity memberships and unissued illustrates the unreasonableness further same.” just experiences difficulty determining

This Court exactly the Commission what amounts and valuations “long arriving term at used in its determination telephone plant serv debt” exceeds the value contrary provisions of Burns’ latter ice. The to the finding §54-506, supra, that “the stated as is also the service”, long plant in, excess term over net liabilities readily apparent (1) reasons: these Com statements misstate the standard mission of Burns’ §54-506, supra, say “plant which does not in service” rqther “plant, including acquisitions, construction, but etc.”; extensions, (2) complete failure Commission, comparing before value long debt, any to make the amount of term dollar find ing plant” whatsoever as to either the “fair value of “long Kos or to the amount term indebtedness”. See County, ciusko Service Commission etc. Public (1948), 225 N. E. Ind. 2d 572.

Finally, appellants allege error in the of failure the any finding to Commission make whatever on the is- acquisition, improvement service, sues extend- and ed subject area service were the the three first paragraphs appellants’ petition Commission, the to Nothing and on undisputed. which the evidence is fur- ther point quote need be said on other to this than the following applicable citation: “. . . The un evidence was uncontradicted and impeached, liberty and the Commission at was not disregard special such evidence and make no findings upon finding . it . . There no made was agreed price or not . whether . . for price..... . . the sale The and was fair reasonable findings were so defective order

based v. Indiana Public Service thereon void. See Comm. was Telephone Corp. (1957), 352, 237 Ind. supra.” 248, Tel. 146 N. E. 2d Gen. Co. etc. v. Pub. Serv. al. (1958), Comm. Ind. et 238 Ind. 238 Ind. 646, 891, rehearing 150 N. E. 2d 154 N. denied 646, E. 2d 372. “altering Therefore, conclude that we must 1963, earlier, amending” 13, order December contrary are final order of October aside. We further law and void and should set applicable are clear statutes conclude that in ease and the before the Commission this evidence undisputed, of the Commission the error simply applying statutory consisted clear stand- unimpeached ards to uncontradicted and evidence. With in this area there room for is no administrative discre tion, in such but case role the administrative agency applying is limited to clear standards undis puted inescapable evidence to reach the dic conclusion tated such standards and such facts. appellee

The order on entered 2nd day of October 1963 and the “errata order” De- reversed, hereby and set vacated

cember 1963 are aside and this cause is remanded the Commission proceed further Commission to with instructions to the set expressed and views herein accordance particularity forth with more as follows: appears from It the record that evidence therefore, di we, cause is on exhausted both sides forthwith, and within rect the Commission to ensuing thirty (30) days effective from the the next ap presented determine date hereof all the issues Spec pellants’ joint petition as to of which the evidence undisputed and I, II and III ifications is record the ;x unchallenged is directed and further the Commission ex of Hancock’s to determine fair value” the “current isting statutory case plant, in and accordance with the we approved. connection law standards In herein this arriving conclusions Commission, in admonish at the existing “present as to the of Hancock’s fair value” plant; to

(1) general persistent rise Give effect and prices; “long (2) application omit of the now defunct standard; equity term debt ratio” (3) recognize Labor, Department to Wholesale the U. S.. Index; Price, Durable Goods (4) existing plant to increase the contract value being purchase price of the acquired of funds, with loan without deduction any part purchase price; of said weigh may “. trial and 1. . . the court not refuse consider competent, evidence, trial such refusal uncontradicted Egbert weighing ignoring v. but it. court not the evidence is Egbert (1948), v. et al. 226 Ind. 80 E. 104.” Smith N. 2d (1955), App. 59, 67, 130 2d “The Thomas et al. 126 E. 85. Ind. N. testimony every required not trier facts believe (1941), witness. v. State Soucie 218 Ind. E. 2d 1018. N. may the other hand trial court and On refuse to consider Egbert weigh competent, Egbert et al. uncontradicted evidence. Hagnes (1949), (1948), 226 Ind. 2d 80 N. E. 104.” v. Brown 184, 189; App. 120 Ind. E. 2d 88 N. 795. (5) give deduction of credit without deferred improvements con- for construction all structed with loan either at cutover funds date; at deferred future “long (6) to debt” determine the amount term upon outstanding indebtedness basis proposed loan, and inclusion of amount and without memberships or unissued issued by Hancock; and (7) comparison to make a fair and basic provided §54-506, supra, Burns’ plant, “fair at value” of the arrived designated, long herein basis and the indebtedness, term without inclusion therein memberships of issued or Han- unissued cock. Upon determination, by appellee Commission, various essential issues matters it en- should embodying ter an order the same not inconsistent with opinion as above instructions stated. J., Carson, Cooper, Mote, Faulconer, Kelley, Pfaff, P. Ryan, JJ: Rehearing Petition On for J. This cause on is before us Hunter, rehearing petition Public Service Commission’s appellants’ petition motion to dismiss said for re- hearing. Supreme provides peti 2-22 of the Court

Rule that rehearing twenty (20) for within tions shall filed days of Petitions for re this court’s decision. hearing, Supreme also come within Rule Court provides 2-13 within the time allowed filing petitions copies petition rehearing, for for parties shall be served attor their affected neys Muniz, al. of record. etc. v. United States et 641; Norling (1958), App. 156 433, 129 Ind. N. 2d E. v. Bailey (1951), App. 457, 121 Ind. 99 N. E. 2d 439.

46 filed in this cause

The decision of the full court appellee 2, 14, 1964 the 1964. On November October rehearing proof petition for Commission .filed its only for the showing on counsel service service a 1964, appellants filed appellants. 10, On November alleging rehearing, petition motion for to dismiss said other appellee failed to serve Commission had day (20) period, twenty appellees within said record attaching support of al three affidavits legation. petition analogous In situation on transfer, Supreme for failure dismissed Court copies appel petition upon parties, serve transfer et al. lee. Sizemore et al. v. Public Service Com. Ind. (1962), 498, 180 242 Ind. N.E. 2d 232. appellees Bell Tele

This court that the Indiana holds Knightstown phone Company, Telephone Incorporated, Company Telephone Company of and General “parties Indiana, Inc. are. within affected” meaning supra, 2-13, rule Rule and that rehearing applies petitions copies for to service twenty (20) day period. within said Supreme being binding upon liti Court rules all gants Blakely court, (1955), Guthrie v. et al. App. 119, 62,

127 130 N. E. 2d 131 N. E. Ind. 357; Muniz, supra, al., United et 2d etc. v. States being ap and the record thus conclusive as'to pellee comply failure to with said court Commission’s rules, appellants’ now this court sustains motion to peti dismiss holds that Commission’s Corp. rehearing Matlaw should be dismissed. tion Corp. App. Damage (1953), 123 Ind. 112 v. War Underwriters, 233; Incorporated Automobile N. E. 2d App. N. E. (1960), 131 882 Ind. 2d v. Smith 823; Muniz, E. 2d etc. N. (1961), 241 Ind. supra. al., United States et

47 attention The court in calls conclusion to for appellee filing, petition' of a Commission that pro rehearing comply with the does not Supreme does' Court visions the Rules for our decision not' extend the time’ stated.-in Furthermore, compliance with order remand. our decision, twenty (20) days our the date ..after stay filing, petition modify,, time for extend' or a Pittsburgh, compliance expired. case of date also In the etc., Mahoney, Railway Company Administrator v. 464 917, E. (1897), 148 N. Ind. E. 47 N. -. Supreme modify mandate, on á Court motion to stated: modify “. .. this Motion mandate entered .a petition cause, a óf a court in the nature during rehearing, may, for allowed party time at least rehearing, behalf of for be filed on Flanagan, who has not waived it.” See also Hamilton, Trial

Wiltrout and Indiana ApellatePractice, §2838, P. 401. appéllee In failed1 to the instant case the Commission petition stay compliance our this court extend-or with order of remand.

Therefore, Commission's.,petition re- hearing and the is directed is dismissed steps comply forthwith take order court’s 14,1964. remand October

For court banc. Rehearing Reported 201 N. E. 2d den 574.

Note. — E. 2d ied N. 204. Republic Co., Etc.

Franta Furnace D/B/A Krieger et al. 19,651. Filed March 1965.] [No. notes (12) more than months twelve property is in excess . . value .. of fair acquisitions, public utility, including such such construction, additions, extensions, and better in whole property to be to such ments financed thereof, by proceeds part issue or the such of in In public by commission found service as public utility any however, Provided, diana; organ any corporation may as corporation issue of the State profit the laws under ized for Indiana, maturing twelve than more its notes ... in an ... date (12) months thereof from property the value in excess not amount acquisitions, including con utility, public such extensions, and betterments struction, additions or in be in whole property to evidenced to such proceeds thereof, or the as part issues such public Indiana service commission found §1, added) ch. '(emphasis Acts .” . Ann., Repl., §54-506. Stat. Ind. Burns* negatively in its standard states first statute terms, to the Commission then prohibition aof authority public power to a giving positively components of dually-stated, the the stand- utility. As so may paraphrased same, for ease are the ard understanding follows: long may term utility incur indebtedness public A if does plus the old indebtedness indebtedness the new plant, value includ- of its exceed fair acquired being being or extensions ing the indebtedness,. new made existing statutory standard is apparent It is deleted, former, equity debt ratio than strict less accordingly, it standard, and, seems that attempting error appellee Commission in former, in the limited standard apply stant case. Appellants only also contend that not did

Notes

notes than more twelve (12) thereof, from months the date or other evi- Of public utility...” dence of such indebtedness It is applicant evident the record that Hancock is

Case Details

Case Name: Hancock Rural Telephone Corp. v. Public Service Commission

Court Name: Indiana Court of Appeals

Date Published: Dec 23, 1964

Citation: 201 N.E.2d 573

Docket Number: 20,077

Court Abbreviation: Ind. Ct. App.