357 N.W.2d 443 | Neb. | 1984
Northwestern Bell Telephone Company of Omaha, Nebraska (Northwestern Bell), appeals from an order entered by the Nebraska Public Service Commission which, after appropriate hearing, determined that Northwestern Bell is
1. The order of the commission requiring the continued capitalization of station connections is an attempt to exercise regulatory powers delegated exclusively to the Federal Communications Commission and is unconstitutional and contrary to federal law.
2. The commission has been arbitrary and capricious in applying its rule against the expensing of station connections.
3. The order of the commission disallowing Northwestern Bell’s April and August 1982 wage increases in adjusting the test year was arbitrary and unreasonable and in violation of the commission’s own rules.
4. The commission had no legal basis for arbitrarily limiting Northwestern Bell’s license contract expenses for the test year to 1 percent of revenues.
5. The commission acted arbitrarily and unreasonably in finding that there was no cash working capital requirement for Northwestern Bell in this case.
6. The commission erred in failing to give Northwestern Bell credit for all of its 1981 federal income taxes by imputing to Northwestern Bell a theoretical interest deduction.
7. The commission erred in disallowing the amortization of one-tenth of the interest on short-term construction projects for the period of January 1, 1979, through April 30, 1980, and in removing from the rate base the unamortized portion of such interest.
8. The commission failed to grant Northwestern Bell a fair rate of return on its Nebraska intrastate investment.
In addressing each of these issues we must keep in mind that it is not the function of this court to second-guess the Public Service Commission or to make independent findings. Determinations by the Public Service Commission are a matter
Errors Nos. 1 and 2 — Station Connections.
With regard to the first two assignments of error involving the station connections, the Public Service Commission now concedes that federal law preempts this area, and, therefore, the commission may not deny to Northwestern Bell the right to expense the costs associated with installing station connections. The commission’s order requiring Northwestern Bell to capitalize the cost of station connections is therefore in error and Northwestern Bell must be permitted to expense these costs. By reason of the concession of the commission, we need not further consider the first two assignments of error.
Error No. 3 — Wage Increases and the Test Year.
We turn, then, to assignment No. 3. In an effort to determine what costs should be considered for the year in which the rate increase was sought, Northwestern Bell submitted the costs for
Adjustments will be made to test year data to reflect changes in costs occurring during the test year but not reflected in test year data, and known changes in costs occurring subsequent to the test year. All known decreases in costs, as well as increases will be included in the adjustments made.
(Emphasis supplied.) The evidence reflects that by the time the hearing was held in September of 1982, two wage increases were in fact being paid by Northwestern Bell, one having become effective in April of 1982 and the other in August of 1982. Nevertheless, the Public Service Commission refused to permit Northwestern Bell to adjust the test year to reflect these two increases. While the order entered by the commission on January 11, 1983, does not give any reason why the wage increases were disallowed, contrary to commission rule 24(1 )(b), the commission now argues that such disallowance was reasonable because Northwestern Bell did not include in its adjustments to the test year all known adjustments, but only selected those which it desired. The difficulty with that argument is that the record does not reflect that there are any other significant adjustments which were not otherwise taken into account. To argue that known adjustments may not be made as otherwise required by rule because the evidence does not disclose that all adjustments were included is to beg the question. One must assume that, absent evidence presented either by Northwestern Bell or by staff appointed by the Public Service Commission to cross-examine, all of the significant,
The commission’s staff had full opportunity to cross-examine Northwestern Bell’s witness and could have easily determined what, if any, adjustments should have been included. Absent evidence to establish what those omissions were, it cannot be said that a known, significant adjustment such as a wage increase in effect at the time of the hearing should be disregarded, contrary to the commission’s own rule. We must find that the commission’s ruling disregarding the wage adjustments, contrary to the Public Service Commission’s rule 24(1 )(b), was arbitrary and capricious and that the wage increases should be included in Northwestern Bell’s operating results.
Error No. 4 — License Fees.
The next item involves the payments made by Northwestern Bell to its then parent corporation, AT&T. Many years ago, Northwestern Bell and AT&T entered into a license contract whereby AT&T granted to Northwestern Bell the right to use AT&T’s patents, research and development, general business advice, and general financial advice. On October 1,1974, it was determined that AT&T would accept as payment for license contract rights and services an amount equal to Northwestern Bell’s share of total costs incurred by AT&T in furnishing these services to Northwestern Bell, not to exceed a maximum of 2lh percent of revenues, less uncollectibles. In 1981 Northwestern Bell paid AT&T as a license contract fee an amount somewhere between 2.3 and 2.4 percent of its revenues, less uncollectibles. The commission disallowed the payment and instead limited Northwestern Bell to a payment equal to 1 percent of revenues, less uncollectibles. According to the commission’s order, “this
If the commission had found that the record failed to support payment of 2.3 percent and therefore disallowed all payment, one might make some argument in support of the commission’s actions. But where, as here, the commission disallows an actual payment of 2.3 percent because it contends the payment is arbitrary and then itself imposes a payment of 1 percent with no other evidence, we must conclude that the imposition of the 1 percent is likewise arbitrary or capricious and cannot be permitted. The question is not whether the action of the commission in allowing a payment of 1 percent may stand. That action clearly cannot be supported by anything in the record and must be considered arbitrary. Rather, the question is whether the record supports the payment of 2.3 percent plus, and therefore whether Northwestern Bell should be permitted to take credit for the payment actually paid. We believe the record does support such action.
The testimony, as presented at the hearing, established that AT&T provided Northwestern Bell with a host of services, the reasonable value of which was $52.4 million. The evidence further discloses that the amount actually paid by Northwestern Bell to AT&T was $5.9 million. The commission argues that the cost of certain services for which payment was made should more appropriately be shared by the stockholders and not borne exclusively by the ratepayers. While this may be true, in view of the fact that the undisputed evidence is that Northwestern Bell paid only about 10 percent of the cost of all the services received, and some, if not all, of the services were of benefit to Northwestern Bell ratepayers, absent evidence to the contrary, we cannot say that the payment by Northwestern Bell
“The commission is not the financial manager of the corporation and it is not empowered to substitute its judgment for that of the directors of the corporation; nor can it ignore items charged by the utility as operating expenses unless there is an abuse of discretion in that regard by the corporate officers.”
Where, as here, there is no evidence to support the commission’s finding other than a general feeling by the commission, we must hold that its disregard of the amount actually paid and a substitution therefor of 1 percent was arbitrary and capricious and cannot stand. Northwestern Bell should have been permitted to take full credit for the amount actually paid by it to AT&T under its license contract. See, also, West Ohio Gas Co. v. Comm’n. (No. 1)., 294 U.S. 63, 55 S. Ct. 316, 79 L. Ed. 761 (1935); Northwestern Bell Telephone Co. v. Spillman, 6 F.2d 663 (D. Neb. 1925).
The commission’s assertion that Northwestern Bell may not, because of a lack of probative evidence, include in its rate base the payment actually made to AT&T fails to recognize what in fact is reflected by the record concerning benefits to ratepayers. The only probative evidence is that the amount was paid and that numerous services were obtained, many of which were clearly for the benefit of the ratepayers. That it was not reasonable, in whole or in part, is a conclusion reached by the staff but unsupported by any evidence elicited either on cross-examination or by direct evidence produced by the staff. We agree with the Supreme Judicial Court of Massachusetts, which said in New England Telephone & Telegraph Co. v. Dept. of Public Utilities, 371 Mass. 67, 80, 354 N.E.2d 860, 869 (1976), that “disallowance of payments in excess of 1% of the Company’s gross revenue, based on criticism applicable only to an unspecified portion of the payments, is arbitrary and is unsupported by substantial evidence.” We therefore must reverse that portion of the commission’s order.
Errors Nos. 5, 6, and 7 — Interest on Working Capital; 1981
Northwestern Bell’s next three assignments of error may be considered together. Northwestern Bell contends that the commission erred in refusing to permit it to include an item of interest on cash working capital requirements, in failing to give it credit for all of its 1981 federal income taxes by imputing to it a theoretical interest deduction, and by disallowing the amortization of one-tenth of the interest on short-term construction projects for the period of January 1, 1979, through April 30,1980, and in removing from the rate base the unamortized portion of such interest.
While we might examine each of these three matters in the same great detail advanced by the parties, thereby unduly lengthening this opinion and probably providing more information than anyone other than the parties themselves can either digest or understand, the fact of the matter is that with regard to these three areas there was conflicting evidence offered by each side’s experts. That is to say, with regard to these three matters, each side presented conflicting evidence and now argues that conclusions arrived at by the commission were erroneous because the contrary evidence should have been accepted. It is in this particular area where the Supreme Court, on review, is severely limited in what it may do.
As we noted in Nebraska Railroads of Omaha v. Nebco, Inc., 194 Neb. 322, 330, 231 N.W.2d 505, 510 (1975):
It is only where the findings of the Commission are against all the evidence that this court may hold the Commission’s findings are arbitrary and [sic] capricious. The test, we believe, is best summarized in In re Lincoln Traction Co., 103 Neb. 229, 171 N.W. 192 (1919), wherein this court stated the rule to be: “This court upon appeal cannot disturb findings of the commission, unless it appears that some requirements of the law have been violated or disregarded, or that the result reached cannot reasonably be derived from the facts proved'' (Emphasis supplied.)
See, also, In re Application of Best, 209 Neb. 524, 308 N.W.2d 726 (1981).
While the arguments made by Northwestern Bell may be persuasive and, if adopted by the commission, supportable by
Error No. 8 — Rate of Return.
That brings us, then, to the last assignment of error. Northwestern Bell maintains that the commission erred in failing to grant it a fair rate of return on its Nebraska intrastate investment. Northwestern Bell had sought, by its application, a rate of return in the range of 13.2 to 13.8 percent. The commission, in its order, granted a rate of return in the amount of 11 percent.
As is so often the case in attempting to determine an appropriate rate of return, evidence presented by both sides varied widely.
The record reflects that both sides presented extensive evidence in this regard. Nevertheless, the rate determined by the commission was within the range of the evidence presented by the experts, though, admittedly, it was at the low end of the range. As we noted in Omaha & C. B. Street R. Co. v. Nebraska State Railway Commission, 103 Neb. 695, 697, 173 N.W. 690, 691 (1919), the commission, in determining a reasonable rate of return, has “a wide discretion.” The ascertainment of a fair return in a given case is a matter incapable of exact mathematical determination and is one which must be, to some extent, left to the discretion of the commission. At best, it is one of reasonable approximation given its basis in a proper consideration of all relevant facts. See Southern Bell Tel. & T. Co. v. Louisiana Pub. Serv. Com’n, 239 La. 175, 118 So. 2d 372 (1960).
One may agree with Northwestern Bell’s argument that the commission should not have refused to consider the high end of
Having examined all of the matters presented to the court, the order of the commission is in part affirmed and in part reversed and remanded with instructions to enter an order in conformance with this opinion.
Affirmed in part, and in part REVERSED AND REMANDED.