*1 370
Argued 30, March reversed June 1950 AND PACIFIC TELEPHONE TELEGRAPH CO. v. FLAGG (2d) 220 P.
In Banc. argued appellant. Fletcher Rockwood the cause for Boley Spencer, the brief L. On were' Paul and Hart, Rockwood & Davies, of McCulloch, Portland. Attorney
E. L. Assistant Graham, General, of argued respondent. Salem, the cause for With him on George Attorney the brief were Neuner, General, and *3 Attorney Max L. McMillin, Assistant General, Salem. City Attorney, Brown,
Alexander G. Portland, Rushing, Deputy City Attorney, and Marian C. of Port- filed a brief as amici land, curiae. C.
LUSK, J. Telephone Telegraph The Pacific a Company, corporation, (Pacific) pursuant commenced three suits provisions of the Uniform Practice Act of the § Public L. 112-4,119, A., Utilities O. C. Commissioner, purpose obtaining declaring for invalid, decrees enjoining of, enforcement certain orders of rejected utilities commissioner which items expenditures by proposed under its so-called Telephone license contract with American and Tele- graph corporation, (American) Company, for the years prescribed 1948 and the conditions 1949, payments under which to Pacific services rendered may American be made. The suits were consolidated hearing, for trial in the Circuit after a Court, which, affirming except entered a decree orders in one particular. appealed. appeals Pacific has The were hearing in consolidated for this court. challenged in substance and are, orders mean-
ing, present identical; and the three suits the same question, making namely, whether, orders, the authority commissioner exceeded the has conferred on him statute. upon
The commissioner first indicated his views propriety contract in an license order made January involving .1948,in a rate case Pacific’s 8, Oregon intrastate rates. Thereafter, Order No. November 21057, 8, dated which is here under 1948, rejected proposed payment review, he under the supple- contract $363,000.00 contained in Pacific’s budget mental for 1948. Pacific then asked for re- granted. consideration of the item, this was There hearing, was an extended and on March 31, 1949, commissioner entered his No. Order after which, following certain concludes with the “Find- recitals, ings and Conclusions”:
“I. Telephone Telegraph “That The Pacific Company corporation duly ais California author- Oregon, engaged ized to transact business in and *4 public utility furnishing telephone as a and tele- graph Washing- service in the States of California, Oregon, through subsidiary, Idaho and and a ton, in the State Nevada.
“II. Telegraph Telephone and “That the American Company corporation, is a New York and as of voting December 1948, owned 87.93% Telephone Telegraph stock of The Pacific and Com- pany. Telegraph Telephone That and the American Company is therefore an affiliated interest of Telephone Telegraph Company Pacific term and as the in and L. 112-483, is defined Section O. C. A.
“III. exception “That and with the the research development Telephone performed the Bell work Department of for the General Laboratories, Inc., Company, Telephone Telegraph and the American being Services, the Inc. to the Pacific Power & cost, rendered Ebasco services now Light Company actual at respects generally in all the same as the Oregon Telephone area of The Pacific services the Company receiving Telegraph are now from and Telegraph Company Telephone and the American for which required pay percentage it of its gross revenues.
“IV. ‘‘ relationship the actual no between That there is Telegraph Telephone cost to the American Com- rendering Oregon pany license to the Telephone Telegraph Pacific Com- area of The required payments pany the to made and the under upon percentage contract based license gross revenues.
“V. contrary it to the interest, “That Telephone Telegraph of The interest minority Company, stockholders, its its rate Oregon permit it payers area to to continue in the payments gross percentage revenue make Telephone Telegraph Company, the American pursuant provisions of the license contract. *5 “VI. ‘‘ by showing The Pacific made That no has been justifies Company Telephone Telegraph that and payment proposed to of its different treatment Telegraph Company 1948 than Telephone of and American year during that ordered $363,000 Oregon by No. 21057. P. Order U. C. foregoing upon find- therefore, based “Now, pro-
ings, concludes the Commissioner Oregon are No. 21057 P. Order U. visions C. public interest, and are in the fair and reasonable permit The Pacific Tele- will and that said Order Telegraph Company pay phone the American and to Company Telephone Telegraph cost actual and any Tele- to The Pacific to it of service of value Telegraph phone Company. and that the further concludes “The Commissioner ordering requisitioning
procedure services as or proven required and unduly has been workable said Order practicable, or not burdensome and will be Telephone consuming The Pacific time Company, Telegraph or American Tele- and phone Telegraph Company. and foregoing upon find- based
“Now, therefore, ings, herein, and the records and files conclusions Oregon his U. C. reaffirms P. the Commissioner day the 8th of Novem- 21057 entered on No. Order hereby and it is ber, 1948, Oregon applied to its that as “ORDERED Telegraph Telephone operations, and The Pacific January pay Company 1, 1948, not, shall after Company Telegraph Telephone and the American Oregon Area it rendered for services Company Telegraph Telephone and to the American Tele- actual costs than the more phone rendering Telegraph Company said do not exceed the that said costs services, amount or obtained elsewhere could be such services personnel. That all such performed its own agreement provided between for under Telephone Telegraph it and the American Com- pany necessary that are it shall value to requisitioned ordered or from the American Tele- phone Telegraph Company.” No. referred Order inis, substance, above, concluding paragraph the same as the of the fore- findings going conclusions as the other orders under review.
By part the Circuit Court’s decree that of the required requisition orders which Pacific beyond going as from American was eliminated authority. Commissioner’s corporation
Pacific ais California which and owns operates telephone telegraph system a and in Cali- Oregon, Washington through and, and fornia, Idaho, wholly subsidiary, part a owned in Nevada. It is a System”, comprises “Bell of the so-called which Amer- Telephone Telegraph Company, ican and Western Company (Western), Telephone Electric and Bell Laboratories), (Bell corpo- all Laboratories York New twenty-two operating companies, rations, one of per which is in Canada. American owns 87.93 cent voting substantially of stock of all or Pacific, all voting operating of stock sixteen of the other companies, voting and substantial fractions of the stock operates Bell Laboratories of the remainder. owns engaged in in research all the laboratories sciences relating telephone application and in to the art practical problem in the art to the of discoveries rendering telephone The stock Bell service. Labora- per by per cent American and 50 tories is owned 50 by per cent while 99.8 stock of cent Western, by Western American. manufactures Western owned part apparatus equipment of the a substantial pur- companies, required operating as tbe acts agent system purchase chasing in the from other for the operating companies for resale to the manufacturers produced not manufactured Western. material genesis its in a contract license contract had Telephone May National Bell between 7, dated 1880, Company, predecessor of and Pacific Bell American, Telephone predecessor Company, under Pacific, granted latter, as licensor, which the former, telephones right on a lease basis licensee, the to use supplied undertook the licensor. The licensor also litigation. expense patent its On to defend at own existing rights obligations the then 10,1936, March they parties contract, as had under the license intervening years, developed during reduced were writing agreement executed, and memorandum controversy save which the license contract changes gross percentages of which revenues agreed payment agrees pay. The basis of per time of the contract was at the of execution 1% September this American reduced 30, cent. On right per *7 reserved the American, cent. to however, per on which notice, cent to restore the rate to 2% prior right at time to March one had been effect in 1936. con- following, is a brief, Pacific’s taken from summary American under- which of
cise contract: render takes to under appellant in its “(1) use to licenses American ap- telephonic territory telephones devices, and by patents systems paratus, covered methods, and has the American or which American owned right against appellant appellant agrees harmless save use, to and to patents infringement charges which of of right use. has the to so “(2) prosecute American undertakes to re- search in telephony the art develop- of and in the improve ment telephone of methods to and service, grants appellant right prod- to use all of the ucts of such research.
“ (3) provide arrange- American undertakes to telephones ments for the manufacture and other apparatus by appellant purchase needed for and by appellant products prices of such at reasonable prices charged by and at the lowest the manufac- turer thereof to others.
“ (4) appel- American undertakes to furnish to lant: (a) engineering, plant, Advice in traffic, accounting, legal
commercial, pertaining and other matters appellant’s business. (b) appellant’s Advice in assistance improvement financing, and extension and itsof system, securing money on fair terms; marketing assistance in securities, other support financial which will tend to serve parties. best interests of both
(c) personnel Assistance matters. “(5) American undertakes to maintain an specialists organization such numbers and possessed per- of such skills so to be able to services which it form the undertakes furnish appellant necessity from the at- and to relieve tempting perform such work itself. “ (6) American undertakes to maintain connec- systems appellant and other between tions System.” companies of the Bell associated contract exists between American The identical companies twenty operating in the United the other States.
Following of this court in decision Tele- Telegraph Company Wallace, phone 158 Or. v.
379 the de case), affirming 75 P. rate 210, (a (2d) a court three-judge sitting cision of Circuit (N. P. R. S.) 337, 13 U. County, for Multnomah Court 17, order of February 1937, the then commissioner, contract an affiliate under the license with approved 61-280, 112-482, now Oregon Code, Supplement, § § L. order reference A. This incorporates O. C. involved in the case in the rate proceedings
evidence subsequent taken testimony with just cited, together did decision in that case to that decision. While the was American, made to this not approve payments for technical and nature. procedural reasons of purely of both this court and Circuit Court The opinions of the services. .the value and recognized necessity 271, (N. P. R. 389. See, 270, S.) 158 Or. 13 U. under acted, statute which the commissioner authority
and which he claims is the source of his L. 112-481, A., C. review, make the orders under O. § and, Laws, as amended so Oregon Ch. 132, far as here reads: pertinent, right commissioner shall have the
“The control over restriction power the regulation, * * * utilities public budgets expenditures any pay- contemplating as to all items or covering corporation or or any ment payments person service, advice, for interest, an affiliated having man- associating, engineering, auditing, sponsoring, or other services. financing, legal aging, operating, of each of November day the first On or before show- budget shall utility prepare each year public its which, judgment, of money the amount ing for cover- ensuing year during be needed shall and file and expenditures, such activities all of ing his utilities commissioner with as herein- objection, investigation approval such has been any budget When provided. after *9 with, filed public the commissioner of utilities he shall investigate into examine and to same expenditures determine whether each all and fair contrary are and public reasonable and not to days and interest, finding within 60 thereafter his file approving rejecting and order or same * * any part or thereof *. “Adjustment budget and additions to such ex- penditures may the during made from time to time year by filing supplementary budget with public investigation commissioner of utilities for his approval, and and the commissioner shall have 30 days and order of investigate finding to the same and file his approval rejection or to each item or part investigation, thereof. Such and examination, by determination the commissioner estop utilities shall not bar or him from deter- later mining under any expenditures whether or all of the made budget reasonable and fair, commen- supplies equip- surate with the service, material, or ment received. empowered pre-
“The commissioner shall be application necessary scribe the rules and regulations place operation. this section in
“Any finding and order made and entered provided, as herein shall have commissioner, prohibiting any unapproved the effect of such or rejected expenditure recognized being from an as expense capital any operating expenditure or in proceeding any proceeding in valuation or or rate hearing propriety and until the shall unless thereof established the satisfaction of have been any finding commissioner, and such and order shall remain full force and unless and effect, be and finding and order of the commissioner until the with in a suit respect been vacated and thereto has set aside
brought prosecuted provided as 112-458, 112-454to or unless and inclusive, sections or aside until modified set commissioner. nothing shall in this act contained “However, any prevent from at time mak- the commissioner filing rejecting imprudent ing wise and un- orders, payments, expenditures or and such orders be in full force and effect, made shall when so right expendi- to make such not have the and it shall imprudent payments or found to be unwise tures or has been vacated or set as the same aside, until brought prosecuted pro- provided in a suit 112-454 or 112-458, inclusive, in sections vided until modified set aside the com- unless missioner.” question for determination relates to first *10 transcript judicial
scope review this case. The in of testimony before the commissioner taken consists of forty- pages. received in There were evidence of by most of them introduced exhibits, five Pacific, printed consisting pages. of several hundred some many testimony of the exhibits Much of this were designed that the services under contract show to necessary Pacific, and valuable to and that the were proposes pay Pacific Ameri- amount dollars which amount in than the dollars which less can for them is to render them. American it cost attempt did not meet this commissioner
The by except cross-examination. commis- evidence says “that at no time has the commis- sioner’s brief by questioned services rendered Ameri- that the sioner argued in the brief, of value.” It is Pacific are can to representations of Pacific as to the however, that by spent American of amounts “are cost of Particular items of than cost American.” rather paid by namely, taxes American on federal cost, this by owned it in from stock it receives dividends maintaining companies, funds operating cost available to Pacific to meet its financial needs, are is as American’s failure credit Pacific criticized, royalties with the amount of received American patents on the it holds. the amiciis Further, curiae brief attacks the inclusion of Bell Laboratories costs paid by part American aas of its license contract expense, “holding company” and the so-called ex- penses example, expense for American, such, as Treasury, Accounting Departments. its Executive and findings upon
The commissioner has made no these issues. findings exception
There are that, with the development research and work done Bell Labora- being tories, the services now rendered Ebasco Light to the Inc., Pacific Power and Com- Services, pany generally same those which Pacific relationship from American; receives there no rendering between the actual.cost to American percentage payments license to Pacific service to be contract; made under the and that it is license contrary the interest interest, minority payers and its stockholders and its rate payments. Pacific to make There also these what possibly might general finding be considered a disapproves No. reference to Order which *11 expenditures under the contract. But the com- license any has the services, missioner not found that or of unnecessary are or has failed to that Pacific them, prove proposed expenditures do not exceed that the rendering Nor the cost to American of the service. findings could obtained are there the services or could American, elsewhere at than their cost to less personnel by own more econom- be rendered Pacific’s efficiently, Finding ically No. Ill with if at all. to services rendered to Power reference Company by Light “at actual Services, Ebasco Inc., says efficiency nothing to relative or as the cost”, economy the as Ebasco and Ameri- between this if cost, or to actual the services can, as whether elsewhere, less than Pacific obtained would be were pay proposes American. provided by § L. amended, as 112-481,
It O. C. A., budget filed, after has been commissioner that, investigate the “shall examine into and same to deter- expenditures all each and mine whether contrary fair and and not interest, reasonable days finding within 60 thereafter file his and order rejecting approving 112-4,1116, or Section same”. part provides Practice Act, which is of the Uniform respect hearings: with * *
“ * taking completion After time, commis- and within reasonable evidence, findings prepare and fact and shall file sioner upon the evidence received conclusions of law matter shall make and his order said file thereon.” by requirement “apply § 112-4,113made to
This any hearings upon govern matter or issue all to coming any him commissioner under act before the applica on whether instituted to be administered, complaint petition others or initiated tion, ” * * íf (Italics added.) the commissioner Freight Flagg, v. Limes 177 Or. in Pierce We said (2d) P. 162: 1, 38, “* * recognizes procedure thus outlined *\ his fact-finder, and deems commissioner the facts words, In other as administrative. action judge, not ldnd this are found, matters of
but the commissioner. The commissioner’s find- ings binding upon are court, the event of judicial supported by cogent, if competent, review, material and substantial evidence.” Flagg, See, (2d) also, Butcher v. 185 Or. 203 471, P. 651, and (2d) Warren v. 167 116, Or. 115 P. 125, Bean, 167.
In Telephone Smith v. Bell Illinois Co., 282 U. S. 133, 157,75 L. 51 255, ed. S. Ct. a65, rate case in which questions one of propriety pay was as to the ments Supreme made under the license contract, Court sent findings, saying: the case back for further
“ * * * findings, In view of of the both state commissions and of the we see no reason court, to the findings by doubt that valuable services were rendered Company, specific
American but there should be statutory regard court with to the Company cost of these services to the American and the reasonable amount which should be allocated respect operating expenses in this of the Company business of intrastate the Illinois in the years covered the decree.” Upon authority of that case a like course was England Telephone taken in Petition of New and Tele- graph (2d) 66 494, 115 Atl. 135. Vt. Co.,
Referring to a similar Chief situation, Justice Hughes, in v. States, Florida United 282 U. S. 194, L. 291, ed. 51 S. said: Ct. *“ * * findings, In the absence of such we upon are not called to examine the evidence order opposing to resolve contentions as what it shows spell or out and such state conclusions of fact may permit. as it The Commission fact- body finding and the Court examines the evidence findings
not to make for the Commission but to findings properly sup- ascertain whether its ported.”
Among Supreme the more recent decisions of the subject Court United States which deal with this *13 Colorado-Wyoming Gas Federal Co. v. Power Com- mission, 324 U. S. 89 L. 626, 1235, ed. 65 a 850, S. Ct. arising
rate case under the Natural Gas Act 1938. remanding findings In the case for further the court, speaking through Douglas, Mr. Justice said: Congress provided
“The review which has for says 19(b) these rate orders is limited. Sec. ‘finding
the of the Commission as to the if facts, supported by substantial be shall con- evidence, ’ ‘finding’ clusive. But we must first know what the give weight. is before can it we that conclusive We repeatedly emphasized clarity have for need completeness findings in the basic essential on which administrative orders rest. Florida v. States,
United 282 194, 215; U. S. States v. United 464; Baltimore & Ohio R. 454, 293 U. S. United Co., Chicago, States v. & R. M., St. P. 294 P. U. S. Co., 499, 510-511; v. United States Carolina 504-505, Corp., Carriers sence 315 475, U. S. 488-489. Their ab- clog only can function administrative delays rate-making. add to We cannot dis- pense Congress provided for with them has judicial standards for review under this Act. perform § 19(b). courts cannot the function Congress assigned to them which in absence of adequate findings. they Nor authorized under are (b) findings § 19 make and substitute them the Commission.” those of A. L. same 146 R.
See, effect, 235, cases cited. there lays
Although commissioner’s brief much emphasis upon duty court to affirm of this they findings sup- commissioner where hardly ported it need be said substantial evidence, findings affirm or disaffirm that we cannot either 386 perform never made. “The
which were courts cannot (.the legislature) assigned the function which to them adequate findings”. Colorado-Wyoming absence supra. v.Co. Federal Power Commission, Gas general finding say disap Nor can we that the budgets finding proving special includes all the necessary A. L. ; to sustain it. See 146 R. 235 facts Am. 501, §151; Public Administrative Jur., Law, N. H. 199 Atl. State, 886, H. P. v. Welch Co. implication may L. An of that not 120 A. 282. sort R. indulged contrary where the record indicates findings and the orders of the intention. When the light in the of the entire commissioner are examined introduced on behalf the com record, the evidence preceded findings, the the recitals which missioner, findings *14 argument in com and the the themselves that the commissioner missioner’s it is manifest brief, deliberately ignore the evidence as to to chose may necessity All this of the services their cost. up in in the statement the commissioner’s be summed “only payment here denied that the orders brief contrary public to interest.” found be method Kennedy, testimony L. chief accountant of Mr. J. The department charge of finance the commissioner’s in of principal proponent on the accounts, who is order, embodied of the ideas staff commissioner’s supports he cross- this testified on statement, fully expense operating of dollars examination that the primary him Oregon to not concern but of were determining be the number of dollars to of method important thing. paid is the relating all referred, have which we issues to
The necessity are the services and cost value, ;>87 findings upon but in the basic; absence we them, are not authorized to review them. question,
The decisive is therefore, whether the challenged orders transcend the commissioner’s stat- utory authortiy. purpose budget of the statute is to enable safeguard payers
the commissioner to the rate utility against improper payments to an affiliate for services of the kind covered the license contract. charged duty determining
To that end he with the expenditures whether “the are fair and reasonable and contrary public not interest.” A determination estop determining him shall not “bar or him from later any expenditures whether or all of the made under budget are reasonable and commensurate with fair, supplies equipment the service, or material, received”. Construing whole, the statute as a as we are bound to (City Duntley, do v. Portland 185 P. 365, Or. 203 640), having (2d) and, in mind constitutional limita against granting authority tions unfettered to admin (Van Meyer, istrative officers Inc., Winkle v. Fred (2d) 1140), legis P. Or. we hold that lature did not intend to authorize the commissioner personal his base determination on own notion his propriety proposed expenditures wisdom guided or of that he welfare, but by the standards of fairness and reasonableness and expenditures “commensurate whether the with *15 legislature in no had mind the services”. The doubt prevention “exploitation operating of of com by panies” 981. If affiliates. See L. Rev. Harv. operating company from an affiliate serv receives greater necessary at valuable, ices that are no affiliate, price price or at a not than the cost to the of that for which the ill excess services could be obtained performed company or could be elsewhere itself, apparent that the it is not commissioner authorized payments for such disallow services. justifies the Pacific contract under it and which companies operating agree pay percent- a the other gross age to American their revenues for identical companies that, the claim since the services having enterprise prob- engaged in a common common way most economical and efficient it is the lems, receiving and, of them at such as some services, way. emphasizes only practicable Pacific also least, the continuing example, For it a service. the need of beneficiary contract of re- under the discoveries being applied cently presently ap- in new made and many years paratus equipment as the result of by Bell Laboratories. It contends that it research pay specific practicable a to order not would part at cost in the sense of the com- of such service impressive showing- makes an orders. It missioner’s progress telephone in the of remarkable in the evidence system. industry Extended reference to under this unnecessary, following but the deemed evidence is McHugh, testimony Mr. Keith S. vice from support of his statement president in American, telephone has one characteristic business “the graphically unique”, illustrates believe is I which agency must be centralized that there thesis of furnishing such as those of continuous for the contract: license covered # * “ * telephone plan operating instrumentality, single companies fact, one is, simultaneously con operates a unit which every part Thus, tinuously States. of the United *16 Oregon, if a man in Portland, wishes to converse with a man in plant Maine, Portland, the entire Company of the American and the com- associate panies immediately is him available and can be simply by lifting actuated his receiver in Portland, Oregon. plant, That for which, the illustrative call, plant would include pany, owned The Pacific Com- Long Department Lines of the American Company, plant England Telephone of the New Telegraph Company, must on that call work every part plant aas unit, of that must be designed to function aas unit. There is no similar problem, any so far I know, other utility industry.” any service, for or, that other matter, There seems part to be no serious contention on the any agency anywhere the commissioner that there is equipped better to render these services than Ameri- any agency anywhere can, or that is there other equipped to furnish some of the services at all, as, example, for pertaining scientific research work telephony, to the art of or to maintain connections systems operating between the of Pacific and the other companies System. of the Bell requirement requi- of the orders that Pacific
sition the now out of the case, as the Circuit provision held that Court invalid and the commissioner appealed. disapproval has not is What left is the budgets pay and the direction that Pacific shall not to American more than the “actual cost” to American rendering such services, and that “said costs do not (for which) amount exceed the such service could performed by per- be obtained elsewhere or its own argument sonnel.” The evidence and the of counsel ‘ ‘ ” reveal that actual cost is not meant cost to Ameri- can, as established evidence, all the services package operating companies, in one to all the apportioned among companies then Oregon specific area of of services but costs Pacific, individually, a sharer Pacific, rendered to instead of as operating companies with the of common service other parts rendered all of them as constituent Bell *17 by System. method ordered the commissioner pursued by appears have for its model that Ebasco to requisition services on Services, Inc., which renders companies making up the Electric Bond Share corporations light group in the electric and other many organizations. power industry and to other Prac- tically of the introduced on behalf the all evidence they services, dealt with Ebasco’s how commissioner requisitioned, and cost determined. we are their While hardly point the the decisive, do not consider evidence finding exception justifies the of that, with the the development performed by work Bell research respects “in all are Ebasco Laboratories, services generally same” American services to Pacific. materially respect they- different is in which One group only per Ebasco services is that 2.05 cent of specific per is service. On 97.95 cent services, while convincing there evidence that over the other is hand, per contract of service under license is 90 cent telephone problem group Moreover, the service. quite contracting companies for such services industry. in the that of those electric from different by Mr. on cross-examination Will T. conceded It was Light president of the Power vice Neill, length Company, methods, as to Ebasco at who testified industry nothing electric in the which there is that giving of efficient service makes essential it any way plant company be in coordinated that its his plant company part with a similar in another country. degree Obviously, high of coordination among operating companies System Bell absolutely essential.
To sustain the commissioner’s orders we would say legislature empowered have that has him proposed expenditures, notwithstanding to disallow they necessary are shown to be for services reason disapproves, “expen able in amount, because he not the ditures” but the method which the are con say, tracted for. We would have to further, empowered prescribe commissioner is the terms on utility may which the contract such services. This powers manage would be an interference with the ownership, regardless ment incident which, question constitutional raised counsel for Pacific (see Telephone ex Missouri rel Southwestern Bell and Company v. Commission, Public Service S.U. *18 807), L. ed. 43 S. A. L. 544,
67 Ct. 31 R. 981, we are not liberty legislature at to hold authorized was the in expression the absence of a of clear that intent. It simple a would have been matter to confer the asserted power plain language; in have we no warrant con ferring by interpretation. it argued, (in language however,
It is that of the relationship findings) “there is no between the actual Telephone Telegraph the American and cost to Com- rendering pany Oregon of license area Telephone Telegraph Company of The Pacific and required payments to be made under the license upon percentage gross a contract based revenues.” “only that it is said the commissioner asks, And only permitted been, has that he his order be to see
.‘392 rendering
the cost of snch and has ordered service plan a should it is that at least be tried before con coarse, there is, demned.” It trae that is no neces sary payment percentage between the and the relation cost of the service. Bat there is boand to a relation be percentage pay in dollars of the between amoant greater and the or ment cost—it will be either less argament The be based on same. seems to assamption impossible to that it is ascertain cost the license contract. We think services rendered ander assamption. it is commissioner’s an erroneoas The accoantant coneeded on cross-examination that chief groap to a service is rendered namber asso where companies, rendering the the total cost of service ciated spread among recipients of the service woald be acceptable and that the cost on basis” allocated “some company “the woald be total aetaal cost allo to each companies acceptable on an to the individaal cated showings as The coarts have sastained sach basis.” to sach costs. The Pacific this case as were made aathority ample has ander the statate commissioner investigate hearings pro items to hold estop badget. posed him does not A determination qaestion making reopening him later from apon fnller information. based determination different Telegraph Telephone said the coart And, (Cal.) Commission, v. Public Utilities o. C 1950), Febrnary fixing (decided (2d) “in P. may expendi disallow the commission rates Pacific’s any- insaring anreasonable, thas that it finds tares profits.” met from Pacific’s costs will excessive Telephone Company v. Bell In Southwestern *19 Corporation Kansas, the State Commission State by Sapreme Coart of Kansas 10,1950, Jane decided yet reported, following and not the court construed the statute: ascertaining “Sec. 3. In the reasonableness of charge by public utility,
a rate or to be made a charge by holding no for services a rendered or company, charge affiliated or for material or com- modity purchased holding furnished or a from or company, given affiliated determining shall be consideration in charge a reasonable rate or unless there showing by utility by be a made affected charge holding rate or as to actual cost to the company furnishing such service and affiliated commodity. showing material or Such shall consist by utility an itemized statement furnished setting out in items, detail the various cost for commodity services rendered and material or fur- by holding company.” nished or affiliated (Italics added.) showing The commission had held that a of cost present similar to that made Pacific in the case was compliance with the not statute. The commissioner’s Supreme order was set aside Court, which finding affirmed District Court, which included sentence: “All such this costs were actual costs to they American and did not cease to be actual when were ’’ apportioned. Washington Department In of Public Service paid disallowed the license fee American under Supreme Washington Court of license contract. Department v. aside in State set the order Public (2d) (2d) (1943). 142 P. Wash. Service, 19 department that the found said “that from The court impossible it introduced was ascertain the evidence employees wages performed those whose the duties charged expenses in connection with the were matters connected with the other research and *20 394
performed Company”, under direction of the American department opinion and that the ivas of the that “no was between definite connection shown the service Washington respondent’s opera- rendered and state of tions.” As to this the court said: “* * * The in at bar record the case shows by
beyond question supreme that, as stated court Telephone in the case of Smith v. Bell Co., Illinois supra, there is no reason to doubt that services respondent subsidiary valuable to and other com- panies It would be pursuant are rendered license contract. impossible subsidiary corpo- for each laboratory ration to itself maintain a of and a staff experts to render such service. The facts that agency, the work is done a central and that the precise allocation of benefit on the one hand and apportioned among on the cannot other, cost respective precision, subsidiaries with mathematical good regula- are no reason for refusal of a state tory authority jurisdiction utility to refuse to allow a under its part operating to contribute, as of its expense, proportion maintaining a fair of the cost of the service.” Supreme
Since the decision 1930 Court in Telephone supra, Bell Co., v. Illinois Smith it has been utility recognized charge oper entitled ating expense no more than the cost of the services properly the license rendered under contract allocable telephone business involved. In addition to the already payments cited under the cases license contract approved T. have been Southern Bell T. & Co. v. Georgia Commission, Public Service 203 Ga. 49 (1948); 2d) Alabama E. 38 Public Service Commis S. (Ala.) (2d) Co., Bell T. & T. 42 v. Southern So. sion 655 (1949); T. T. Bell & Co. v. Railroad Southern and Pub (N. S.) (1948). R. Commission, 76 P. U. lic Utilities Telephone England Tele- New Petition See, also, appel- supra. graph to no have been referred Co., We refuses to none, and know of which decision, late court utility by proof expenditures uphold has when the such in accordance with their reasonableness established Company Telephone case. Illinois Bell rule of the Company Telegraph Telephone v. Pub- upon supra, is a sub- Commission, decision lic Utilities stantially presents. this case the same issue which the license *21 found that order, commission, contract arbitrary a but an exaction in fact contract “was not controlling parent company”, by its from Pacific file with the commission that Pacific and ordered preceding bi-monthly reports two-calendar- for the showing payments period made to American all month “together services and the an itemization of said with type by (Pacific) paid of service for each amount reports that It further ordered rendered”. was type the total of service rendered show for each should in the ren- or its affiliates American cost incurred segregated on an allocated basis of said service dition company-wide, and California total California as to operations. claimed to find The commission intrastate authority which em- order statutes make the regulate powered the contracts of the commission affecting utility vested the commission its rates and specifi- things, herein power all whether “to do with designated are neces- cally thereto, which or in addition power sary of in the exercise such and convenient had jurisdiction.” that commission court held jurisdiction given the terms on to determine not been saying: might American, with contract which ** what is reason- of The determination .“* utility conducting is the the business able primary responsibility management. If the com- empowered prescribe mission is the terms of con- practices tracts and the of utilities and thus substi- judgment tute its as to what is reasonable for that management, empowered it is to undertake the management subject jurisdic- all utilities to its repeatedly tion. It has been held, that the however, power.” does not have such commission It was further said: express statutory
“In authority the absence of generally it has trol is limited been held commission’s con- corporations over contracts between affiliated payments to disallowance of excessive purpose fixing (citing rates numerous authorities).” Our consideration of this case has led us to the same conclusion as that reached the California court. While we hold that the orders under review are not statutory within authority, the commissioner’s our entirely decision leaves the commissioner free to deter proposed expenditures mine whether the meet the test budget provisions. statute we construe its $s The decree of the Circuit Court is reversed and orders under review annulled.
LATOURETTE, J., DISSENTING. majority opinion perhaps in this case would be solely interpretation if correct the matter turned on the § 132, Laws, of Ch. 1945, Or. which amends 1 of Ch. relating power
441, Laws, 1933, Or. of the Com- regulate, budgets missioner to restrict and control public expenditures of but utilities, it seems to me that § § 2 of 441, Laws, Ch. Or. 1933, which is 112-482, must amended, part the law L. and a A., O. C. mat- of the correct solution arrive at a to be considered briefed, not was this section reason, For some ter. argued litigation parties urged any to or opinion. majority Sec- in the considered and was not supra, follows: is as tion state utility doing in this public business “No any any to make payment contract or make shall any person indirectly, directly,
payment, or interest, for having corporation an affiliated or service, engineering, or other accounting, sponsoring, auditing, advice, financing, legal managing, operating, charges on any therefor or enter services, operating recognized anas shall be its which books, any capital expenditure valua- expense tion or in rate or hearing any proceeding, until the or other any payment, propriety such and reasonableness payment, submitted shall have been or to and for contract approved by commissioner. utility doing in this state public business “No any written, an affiliated oral or with contract, into shall enter having any person corporation or operation, construction, with relation to the interest maintenance, leasing property of said or use of the utility Oregon, any part public the which shall ing thereof, or or property, supplies, purchase or materials recognized operat- basis of an as the capital expenditure any expense or rate hearing proceeding, any unless valuation or other proposed been such contract has submitted and until any approved the commissioner. When to and proposed has been filed with and sub- contract such promptly he shall ex- to the commissioner mitted investigate the same to into and determine amine contrary it is fair and reasonable not whether investigation, public after such If, interest. he fair that it is shall determine and reasonable and contrary interest, he shall enter not his findings and order this effect and serve a *23 copy upon utility,, whereupon public thereof may lawfully pur- recognized contract for the poses aforesaid If, into. after such inves- entered tigation, he shall determine that the contract is not contrary fair and reasonable in all its terms and public findings interest, he shall enter his accordingly copy upon and order and serve a thereof public utility, recog- and it shall be unlawful to purposes nize said contract for the aforesaid. public utility “No shall issue or loan its *24 the actual relationship between “That there is no Telegraph Telephone and American to the cost the Ore- rendering to Company license Telegraph Telephone and gon Pacific area of The required made to payments Company the and percentage upon a contract based license under the gross revenues.”; and,
“V. contrary the interest, to the “That it Telephone Telegraph and of The Pacific interest minority Company, rate and its stockholders, its Oregon permit payers to it to continue in the area payments percentage gross revenue to to make the pursuant Company, Telephone Telegraph American and provisions contract.”; of the license following order: and entered the thereafter upon foregoing therefore, based the find- “Now, ings, visions of P. U. pro- that the Commissioner conculdes Oregon No. Order 21057are fair C. and are in the public interest, and reasonable permit Telephone said will The Pacific Order pay Telegraph Company to the American Tele- Company phone Telegraph actual cost to any Telephone of value to it of service The Pacific Telegraph Company.” findings It is clear to me that and the Commis- supra, an order, included attack sioner’s on the license expenditures as on the itself, contract well under the contract. Telephone Telegraph
In the ease of The (Cal.), Commission al., v. Public Utilities State et Co. majority (2d) opinion, P. cited 441, the. Supreme Court of California held the license contract legal. upholding
involved to be One the reasons legality of the contract was that the law of Cali- enough give fornia not was broad the Commissioner authority power regulate payments under contract. However, the court said: “Many legislatures, state not satisfied that payments
indirect utility affiliated control of between regulation corporations through was rate adequate protect from the consumer and investor possible abuses that could arise out of contracts corporations, stat- between utes power affiliated enacted specifically granting to their commissions regulate payments under such contracts. 49 Harv. L. See, Rev. 982-989. statutory *25 express authority
“In the absence of generally a it trol held that con- has been commission’s corporations contracts between over affiliated payments is limited to of disallowance excessive fixing purpose for the rates. (6 s/? ^ developing telephone “In nationwide service, adopted legally prac- American has sanctioned conducting operations through tice sidiary local its sub- companies.
operating employs It a method apportioning it in considers reasonable the costs by it to of the services rendered its subsidiaries among embodying The them. contract that method by be differentiated from other cannot contracts labor, which utilities secure materials, services, theory judgment except manage- on suspect expendi- is on the ment reasonableness of corporations in contracts with affiliated tures public policy contracts. it is not other There is no corporations, against affiliated however, and differently only can treat them commission Legislature provides so extent that or the extent they are used as device to defeat the exercise granted. powers the commission has been question of on the Public Utilities Act silent only Legislature corporations, can affiliated dangers properly present they decide whether such of abuse that the should have broader commission ” regulatory powers over them than has. it now strong dissenting opinions There were two in that quote case. I from that Mr. Justice Carter: question complex. presented “The here is not Telephone Telegraph op- Co., an The Pacific erating utility California, communications completely by the Am- dominated and controlled Company, Telephone Telegraph erican a New corporation, York whose main is to hold function stock in and furnish various services to local tele- phone operating corporations throughout coun- try, by through it most of which are controlled ownership. purported stock American enters into affiliates, license fee contracts with its numerous including percentage pay a Pacific, under which the affiliates gross of their for the services revenue be rendered American. It is conceded that in to fixing our Pacific, rates Public Utilities Com- may ignore percentage mission basis of com- only pensation under and allow so those contracts is the value of such services much as reasonable question cost thereof to American. The sole or the authority approve the commission has is whether disapprove I such contracts. believe there can power. (1) It no doubt of such arises neces- sary wording implication, (2) Act. Public Utilities * “* * *26 (Quotations from Harv. Law Rev. omitted). are Louis Law Rev.
and St. point up vital im- “Those considerations power portance of the commission dis- to part regula- approve such contracts as of rate necessity ability that and of the of the tion utility impaired. serve consumers be not to I Legislature that the intended cannot believe to leave impotent cope the commission. to those con- with may protection ditions. It be some that measure power recognize to afforded to refuse fixing the license fee contract when necessity rates, but hav- power, ing they may that it of follows that they may lock the door before horse is If stolen. utility management indirectly by affect the subse- quent surely they may precautionary action, take measures advance. perti- The Alabama Commission has Utilities
nently observed this connection: ‘We cannot con- that it will ceive be contended that Commission authority is without ury to a on the on halt raid the treas- operating utility plea that we right manage property. have no in law to From point our it is not an view, assertion of man- agement, but rather an assertion of reasonable con- practices right trol over which the Commission has a prevent prevent injury to and should before the possible if done, has been it is for us to arrive there (See, in time.’ Ee Bell Southern Tel. & Tel. Co., Certainly 207.) P. U. 1932E, E. it was intended that power the commission have the incident, would protect improvi- vital, to from indeed the consumer dent waste of funds of the service. detriment They surely power accomplish directly have they may that which do indirection. While it may showing be that no there is in the case at bar payments that the to American here involved will seriously jeopardize Pacific’s consumer service capacity, necessary, that is not for the situation is fraught potential dangers so with and inherent that this court should not commission’s overrule the judgment preventive advance action is neces- sary. must remembered that It these license fee are contracts not true contracts made at arm’s length open They an or on market. are between corporations, one of which controlled the other. they subject suspicion As such present and therefore dangerous potentialities. plainly It seems payments that if obvious me for such services *27 regularly supervised by commission, are it will tbe only benefit, not the but will inure to consumer’s put utility advantageous position also the of risk of knowing escaping where it stands, thus making payments excessive which not be al- will lowed in its rate base. That commission has implied power squarely such is declared Public Utilities Act. ‘The railroad commission is hereby jurisdiction power super- vested with to regulate every public utility vise in the state things, specifically and to do all whether herein des- ignated necessary or in addition are thereto, which power and convenient in the exercise of such jurisdiction.’ (Public p. Act, 1915, Utilities Stats. Deering’s 6386.) 31; sec. Cal. Gen. Laws No. ‘‘Secondly, it is clear that section 32 of the Pub- quoted majority opinion, lic must be Act, Utilities interpreted empowering the commission regulate purported to contracts here considered. wording requires The literal thereof it. expressed “Pear that if the instant contract subject approval by to the of a all other be scruti- commission, expenditures utility may contracts or nized in advance. Whether or not that fear is well necessary say only founded is not to consider. I purported that the license fee contract between the operating utility dominating and its father, may and American, be so treated. There is a clear arrangements difference between such and others. They length. not are true contracts made at arm’s They definitely subject suspicion po- possibilities tent with adverse to the interests of the consumers. “It must be conceded that the contract here in question was executed officials of Pacific who principal
were elected American as the stock- allegiance holder of Pacific and owe their Am- say beyond erican. To that such a contract is regulatory power Public Utilities Commis- may endanger ability sion, when it of Pacific step to serve its is a customers, backward in the 04é may open utility regulation the door
public depend- seriously those detrimental to abuses I think upon public utilities. While from ent service expressly Act Public clear that the Utilities it is regulate empowers such con- the commission ques- there can be no *28 interest, tracts Legislature intention of tion that it was the confer power upon all the neces- commission major- sary protect public This, interest. placing ity a strict and strained con- overlooks provisions upon the of the act in order struction reached. conclusion to arrive at the deny the writs and affirm the orders “I would under review.” given expressly legislature has the Com-
Since authority pass power and on the missioner propriety of the license contract and reasonableness the commissioner has made a find- involved and herein ing an order such contract and has entered contrary I believe his order was interest, pursuant legal I to law. therefore dissent. notes give any funds or credit on its or books otherwise to person corporation having or interest, an affiliated directly indirectly, approval or either without the of the commissioner. respect “The action of the commissioner with foregoing and each all of the matters when sub- findings by to him, mitted shall be and order to be days entered within 90 after the matter has been submitted to him for consideration, and the find- ings to respect and order commissioner with any of such matters shall be and in full remain effect, and unless and until set aside suit force prosecuted, brought provided as and in sections public utility, inclusive, 112-454to 112-458, any person corporation any or other affected may findings bring prosecute such and order, findings any a suit to set aside such and order, or part provided thereof, in said sections.” propriety from the above that We see payment” the “contract for must reasonableness approved Commissioner. We be submitted investigation, after an he has observe further authority, determines that the if he contract is fair n.ot contrary interest, and reasonable findings accordingly, and an order and it shall enter recognize said “be unlawful contract therefore purposes aforesaid.” Commissioner made the findings: following “IV.