Southwestern Bell Telephone Co. v. Public Utility Commission

BELL TELEPHONE SOUTHWESTERN

COMPANY, Petitioner,

PUBLIC UTILITY COMMISSION al., Respondents. et

Texas B-7308.

No.

Supreme Court of Texas.

July 1978.

Rehearing Denied Oct. 1978.

505 Hearon,

Graves, Dougherty, Moody & Austin, Garwood, Hearon, Jr., Robert J. Botts, M. Hous- Phillips, Baker & Thomas Mo., ton, Babler, Louis, Wayne E. St. petitioner. Hill, Gen., Atty. Joyce Carpen- L. B.

John Pratt, Gen., Attys. Asst. ter and Joe N. Butler, Austin, Austin, R. Otis H. Don Hubacker, Atty., Harriet E. King, City Houston, Holt, City Lee E. City Atty., Asst. Atty., Sparks, City M. Asst. Atty., Galan Dallas, respondents.

DENTON, bond. It Justice. is also well settled that the sole question to be determined on appeal in the telephone brought rate case This is granting or refusing of a temporary injunc Act, Utility Regulatory the Public under tion, is whether or not the trial court art. 1446c.1 South- Tex.Rev.Civ.Stat.Ann. abused its rendering discretion in the order appeal from the Pub- Bell filed western appealed from. State of Texas v. South order and asked for Utility lic Commission’s Co., western Bell Telephone 526 S.W.2d 526 order, injunction stay pursu- temporary (Tex.1975); City of Houston v. Southwest Utility Reg- Public 85 of the ant Section Co., ern Bell Tel. (Tex.Civ. S.W.2d 169 upon giving a bond ulatory Act conditioned ref’d). App.1953, writ The record reflects its customers. The protect sufficient that every finding of the trial court and the held application denied the trial court court of civil appeals necessary to support the manner of review authorized judgment denying temporary relief was other than trial de novo and PURA supported by probative evidence of char was limited to the rec- We, therefore, acter. also deny applica the before the Commission. The ord made stay suspend tion to or the order of the part that of appeals court of civil affirmed Utility Public Commission. the court which held judgment the trial applied proper the the Commission Judicial Review PURA, part but reversed that base under judicial The resolution of review involves judgment concerning court the trial proper interpretation of section 69 of judicial review accorded the character of PURA and section 19 of the Administrative administrative order. The Commission’s Procedure and Texas Register Act.2 Sec- declined to appeals grant court of civil also provides judicial tion 69 of PURA review of 157. We temporary relief. 560 S.W.2d the Commission’s orders as follows: by filed both writs of error South- granted Any party proceeding to a before the Utility western Bell and Commission. judicial Commission is entitled to review the court of judgment We reverse under the substantial evidence rule. The judgment appeals and affirm civil issue of confiscation shall be determined court. the trial by preponderance a the evidence. requested Bell has Southwestern [Emphasis added] grant temporary stay this Court The trial court determined that its review in the below. injunction as it did courts was limited to the record before the agency requested grounded on tele stay “with the issue of confiscation to be deter- of “confiscation.” company’s claim phone mined thereon a preponderance of the alleged elements of confis In this Court evidence.” The court of civil appeals disa- (1) miscalculation of revenues cation are: greed and held the utility that is entitled to (2) “original use of expenses; erroneous and a de novo review “in the manner accorded base; (3) exclusion land cost” rate by pre-existing appeals.” law in rate future use. A review of decisions held for appeals show that The court of civil involving public heavily rates of utilities relies provides will issue when on section 4 of temporary injunction PURA that (1) appear: applies that the Administrative Procedure Act things are made to three probability proceedings that before the Commission “ex- is a reasonable there hearing; (2) cept on final to the extent inconsistent with this utility will succeed court, utility concluding resulted from a Act.” The that to the section that the loss injunction temporary of PURA cannot be harmonized with the grant refusal Act, (3) the Administrative Procedure reasons that irreparable; will be must have intended sec- adequately protected by Legislature can be customers as PURA. 2. Tex.Rev.Civ.Stat.Ann. art. 6252-13a referred 1446c referred to herein 1. Article to herein as the Administrative Procedure Act or APA. (b) Proceedings for review are instituted review of rate provide 69 to tion prior days to the after by filing petition the manner accorded within cases in Procedure Act. final and complained Administrative the decision of is provided Unless otherwise appealable. APA, at least there were Prior to the by statute: judicial review of methods of different four in a District (1) petition in- is filed These four decisions. administrative Texas; novo, (2) County, substantial (1) trial de of Travis pure cluded Court novo, (3) substantial evi- trial de (2) must be copy petition record, (4) the to the confined dence parties and all agency served on the category The latter classification. rate case proceedings before the record pure trial de novo review was akin to the agency; and agency’s except that it was said (3) filing petition vacates an in evidence at trial. was admissible decision for which trial de novo agency decision because the issue had to be so This review is the manner of authorized of the rates set the “reasonableness” law, but does not affect the enforce- has agency. type This the administrative agency ment of an decision for which as a “de novo fact trial.” referred to been manner of review is another authoriz- State, Tex. Co. v. Lone Star Gas ed. (1941). 153 S.W.2d (c) If the manner of authorized through 19 of the APA set Sections complained law for the decision of is procedural require- forth the minimum novo, reviewing de trial court shall hearings before “contested cases” ments of try all issues of fact and law in the man- the agencies. Included are administrative in applicable ner to other civil suits this notice, right present the to evi- right to may state but not admit in evidence the argument and and to cross-examine dence prior agency fact of action or the nature witnesses, making of a full record of the (except of that action to the limited ex- taking proceedings, depositions, the the of compliance to show with necessary tent subpoenas compel of to attend- the issuance statutory provisions jurisdic- which vest witnesses, of the application ance of court). a trial Any party tion to de evidence, the preparation propos- rules have, may demand, jury novo review on filing exceptions als for decision and the determination of all issues of fact on briefs, separately and and the inclusion which such a determination could be had findings of fact and conclusions of stated in other civil suits in this state. 3(2) agency decisions. Section law in final (d) If the manner of review authorized to the APA defines a “contested case” by complained law for the decision of is rate-making There- proceedings. include by other than trial de novo: fore, panoply procedural safe- the full applicable (1) petition now of the on the in the APA is after service guards hearings. The rate-making agency, permitted administrative and within the time proceedings before Com- record of filing (or for an answer such additional is voluminous. in this matter mission by court), may time as be allowed agency shall transmit to the re- judi- provides 19 of the APA Section viewing original court the or a certified cases, including of contested cial review copy pro- of the entire record of the The full text of rate-making proceedings. ceeding By stipulation under review. as follows: 19 reads section parties proceedings, of all to the review all ad- (a)A person who has exhausted may party be shortened. A record within remedies available ministrative unreasonably refusing stipulate aggrieved by a agency and who is may by limit the record be taxed in a contested case is enti- final decision court the additional costs. The under this Act. judicial review tled to may require permit subsequent court or means is cumulative of other This section record; corrections or additions to the provided by statute. of redress (2) may any party apply (5) to the court not reasonably supported by sub- present stantial for leave additional evidence evidence in view of the reliable probative court, evidence in the record and the if is satisfied that the as whole; or evidence is material additional and that (6) arbitrary capricious or good were there reasons for the failure character- ized by abuse of discretion clearly it in the present proceeding before unwarranted exercise of discretion. agency, may order that the addi- Act, tional evidence be taken before the Administrative Procedure art. 6252- 13a, 19. A complete reading § agency on conditions the section determined reveals that in contested cases there are agency may modify court. The its find- provided now only types two of review— ings and decision reason of the addi- pure trial de novo or review confined to the tional evidence shall file evi- agency record. We think the court of civil modifications, any dence and new find- appeals fails recognize far-reaching ings, reviewing or decisions with the changes intended adoption court; Administrative Procedure Act. (3) the review is conducted Bell contends Southwestern sitting court without a and is con- 19(e), section APA apply should to rate record, except fined to the law, cases since under pre-existing may proce- receive evidence of were cases accorded a form of trial de novo irregularities alleged dural to have oc- and, therefore, “the manner of review au agency before the but which are curred thorized law” in such cases trial de not reflected in the record. Commission, novo. however, only (e) scope review of agency recently created by enactment of the PURA provided by decisions is as the law under in 1975. The manner of review of decisions sought. which review is Where the law of the Commission provided is as in that novo, appeal by trial de authorizes enabling Act. Legislature Had the truly try courts shall the case in the manner pure intended a trial de novo of applicable to other civil suits in this state decisions, Commission’s it could easily have though there been no inter- had provided so in the act which created the vening agency action or decision. Where Commission and set forth its powers and the law authorizes under the sub- responsibilities. Additionally, peculiar rule, stantial evidence or where the law treatment of appeals the rate case evolved scope does not define the re- prior APA and like the types other view, may the court not substitute its Texas, review in during continued a period judgment agency for that of the as to the of time when there were no uniform stan of the evidence on com- weight questions procedure dards of for administrative hear agency may mitted to discretion but af- ings. The standards procedures set agency firm the decision of the in whole in forth the APA and the procedural rules part or in and shall reverse or remand the agencies the various promulgated there under proceedings changed further if substan- have significantly case for the ad ministrative hearing process. rights appellant tial of the have been We will not lightly simple assume that inclusion prejudiced because the administrative of one sentence calling for the inferences, determina conclusions, findings, or deci- tion of the issue of confiscation sions are: preponderance evidence, of the Legisla (1) in of constitutional violation ture intended to prolong and extend the life statutory provisions; special category case of review (2) statutory authority in excess of the and render practically meaningless the vol agency; testimony umes of and exhibits developed (3) upon procedure; made unlawful before the Finally, however, Commission. law; (4) affected other error of we think language of section 19 makes agencies is that and the Legislative intent was hence- result it clear courts now consider the same evidence. of review of provide only types two forth under the essential stan- Judicial review in this We decisions State. administrative evidence rule has dards of the substantial 19(b)(3) language of sections think preserved, been but the courts now test (c) pure review of the trial de novo describe substantiality upon of the evidence (d) (e) apply type and that sections agency which an made its administrative otherwise. decision. This furnishes more assurance and a surer process of administrative due in What has been offered evidence determining agency means whether an utility primarily in this case is testi arbitrarily, capriciously, acted and with- concerning operating expenses actual mony regard out due to the evidence. which were not available at and revenues court’s hearing. utility heavily upon time of the administrative relies this State, opinions counsel for in Lone Star Gas Co. argument oral Southwestern (1941), Tex. seriously con Bell stated that was not announced the trial de novo rule in rate ignore the court should tended cases, and and New Texas Orleans Railroad voluminous record made at the administra Commission, Co. v. Railroad 155 Tex. level, but, that, fairness, in all tive (1955), 286 S.W.2d 112 which reaffirmed be able to offer utilities should additional Co., supra. Lone study Star Gas A careful in court. If a trial be de evidence opinions they of those will reveal that both manded, who is to hear the new evidence involve interpretations of Railroad Commis- and who is to examine the record?3 How appeal sion statutes under which processes are the two to be coordinated? sought. in The statutes involved each case very can the two types How different differ from substantially those before us performed trial be the same suit? We Co., here. example, For in Lone Star Gas Moreover, they think cannot. much of the supra, Article 6059 was the stat- applicable expressed by utility concern is ad ute and read as follows: 19(d)(2) dressed section of the APA any gas utility party If or other inter- at provided showing where it is on est be dissatisfied with the decision of may the court good cause order additional rate, classification, rule, charge, or- agency. evidence taken before the Thus a der, regulation adopted by act or opportunity parties is afforded all fair Commission, utility such dissatisfied all material and relevant include party may petition setting file a forth the in the record. particular objections cause of thereto in a Bell has further argued Southwestern competent jurisdiction court of in Travis permit that this Court should some form of County against the Commission as de- trial de novo in these cases as a check on preced- fendant. Said action shall have possible abuses administrative bu- ence over all other causes on the docket However, reaucracy. trial de novo is in of a different nature and shall be tried at all. The act reality no review courts and determined as other civil causes in though proceeding no administrative had party said court. Either to said action only by examining It is what is transpired. may right have the of appeal; and said by agency that the courts can done appeal shall be at once returnable to the remedy Speaking abuses. detect court, appellate appeal- and said action so APA, this court remedial effects of precedence appellate ed shall have in said Imperial in American Resources wrote court of all causes of a different charac- Texas, Fund, pending. Inc. v. Railroad Commission of ter therein If the court in be 280, (Tex.1977) right as follows: session at the time such of action 557 S.W.2d provides right 19(c) expressly 3. Note that" Sec. of the APA demand a deter- of fact issues in the trial de mination novo. accrues, may during being the suit be filed view “other by than trial de novo” ready term and stand for trial after ten 19(d) section applicable. is The review is to days notice. In all trials under this article be by sitting conducted the court without a proof upon the burden of shall rest jury and is confined to the record before plaintiff, who must show clear and the agency except as to proce- evidence of rates, satisfactory regu- evidence that the irregularities dural alleged to have occurred lations, orders, classifications, acts or agency before the but which are not re- charges complained of are unreasonable flected record. unjust to it or them. remaining question is the effect of the fact the statutes in Besides the second sentence of section 69 which prior present volved in the cases are not that, provides “the issue of confiscation here, Legislature through think the has we preponderance shall be determined a adoption rate-making of the APA affected blush, the evidence.” At first the intention significant way. in a As stat proceedings would seem to be to require part some ed, they are definition “contested cases” this case to. be tried under the substantial are now characterized the full and thus evidence rule while some other part is to be in range procedural safeguards sections tried by preponderance of the evidence. A through 19 of the “contested Act. words, judge In other is to examine the “adjudicative” an case” is definition record on a substantial evidence test on is hearing.4 We think clear that issues other than “confiscation” and then in Legislature intends for the Commission examine the agency “prepon- record on a adjudicative setting rates to conduct an 19(e), derance” test on that issue. Section initially determine the type hearing and to APA, “scope addresses the re- duty is the reasonableness of its rates. It section, however, view.” That describes then, courts, that to review determi only a trial de novo substantial evi- accomplished by and this can best be nation possi- dence review. It does not address the examining proceedings before the record of bility of a agency review limited to an There is no constitutional the Commission. preponderance record but on a of the evi- infirmity limiting judicial review to the dence test. the Commission. Ala record taken before Rail bama Public Service Co. Southern cases, parties have cited no and we 348, Co., way U.S. S.Ct. any, have been unable find which hold Co., (1951). Lone L.Ed. 1002 Star Gas Legislature may properly prescribe recognized authority supra, this court agency a review of an “prepon- record on a adequate Legislature substitute derance” appeals test. The court of civil legal remedy equitable power for the came to the conclusion that such is not court to review a rate order on the constitu possible “because a review under the pre- of confiscation. We hold that ground tional ponderance of the evidence is a feature of power Legislature has exercised de novo review.” The court of civil appeals adoption of the APA and PURA. opinion further states: It reviewing occurs to us that a Having concluded that section prepon- cannot ascertain the truth novo, PURA, not afford a trial de we does derance of without address- type come to consider what of review now ing credibility itself to the of the witness- stated, applies the APA provided. As es, and that the district court cannot unless inconsistent with the PURA. We inconsistency. see The manner of re- proper analysis credibility by no make a 6252-13a, 3(2) provides: privileges party by 4. Article APA of a are § to be determined an “ proceeding, agency opportunity adjudicative means a includ- ‘Contested case’ after an rate-making ing hearing.” li- but not restricted to and duties, censing, legal rights, in which the or State, supra, Gas Co. v. viewing that which the Commission General Tele thought phone Company was credible. of the v. City Southwest 238, Wellington, 156 Tex. 294 S.W.2d 385 at 160. 560 S.W.2d (1956). One can refer to cases involving the necessary to We do not find de term “confiscation” in the context of the Legislature might, under whether the cide Railroad Commission’s Rule 37 exemption, circumstances, judicial a re specify proper as, Gulf Land Co. v. Atlantic Refining preponder on a agency view of an record Co., supra. The term “confiscation” in the the legislative test. is within ance “[I]t zoning context of ordinances is defined in the kind nature specify prerogative University Ellis, of West Place City employed by to be the courts so of review 222, 1038, (1940). Tex. 134 S.W.2d long safeguards as constitutional and re may What constitute “confiscation” in quirements transgressed.” not are Gerst v. particular appealed case from the Commis Nixon, 350, (Tex.1966). We S.W.2d is, sion to the courts is uncertain and we safeguards requirements think those question is, course, think a of law. It however, transgressed, by the inclusion are incongruous speak deciding as a fact PURA, of the second sentence section 69 from preponderance of the evidence a part judicial calling for some question of law. of an administrative decision to be deter evi preponderance mined Moreover, even if it be conceded that the dence. “issue of confiscation” can somehow be transformed into a factual inquiry, what preponderance of the evidence are the relevant elements of that inquiry? fact-finding ordinarily test and test is a a There are in this case some forty-two find- feature of a trial de novo. The substantial ings of fact They Commission. in- test is one for the determination clude determinations of the amount of “in- question. of a law The latter test is a capital,” vested “the elements of a fair rate feature of a trial to determine the reasona return,” operation,” “annual costs of “an- agency bleness of order or decision nual requirements,” revenue the sources of only questions where of law are to be deter increases, the revenue etc. Is the district a retrial of the mined and fact issues a judge to substitute his judgment for that of judge jury is avoided. The courts cannot the Commission on all trial, forty-two types findings? conduct both hybrid even a trial type of same suit. Southern It is noted second sentence of Canal Co. v. Board of Engi State Water section 69 does not specify who is to deter- neers, 159 Tex. 318 S.W.2d 623 mine the “issue of confiscation” nor what (1958). evidence is supposed to be examined to de- termine the “issue of confiscation.” The

Furthermore, under section 69 the first simply provides sentence issue to be determined preponder review under the substantial evidence test. ance test is that of “confiscation.” “The stated, As such review is conducted a term ‘confiscation’ is a capable word question court to determine a of law —the being many used in impossible senses. It is agency reasonableness of an decision. We general a give definition which can be have said that a law question all cannot be applied Usually instances. the mean preponderance determined a of the evi- ing of the word must be ascertained from all, dence. would be no the context.” Gulf Land Co. v. Atlantic Such review at but 59, 131 Co., Refining though agency 134 Tex. redetermination as had determination, (1939). It is noted that not acted. If section 69 is not this is fact cases, so, appeal jury jury limited to the of rate but can a be If is the demanded? applicable appeals to all from the agency Commis examine the record issue, sion of whatever nature. One can refer to room? If this be not a fact is the dealing meaning with the appeals apply preponder- cases of “confis court of civil case, cation” in a rate such as Lone in its review? Star ance of the evidence test possible of the of above is illustrative execution. The two of types We think the opposed when ele- are oth- diametrically difficulties to be encountered trial to each We review under the substan- er. have no choice but to ments of both a declare 69, PURA, issues inop- tial evidence rule and a retrial of fact second sentence of section same lawsuit. As we said erative and void. are mixed in the Co., supra: in Southern Canal We that note PURA con down a Courts are reluctant to strike clause, a severability tains section 91. conflicting or legislative because of act 69, language When the offensive of section rule provisions. general The is vague stricken, is there remains a PURA workable resolved, will be if that inconsistencies of of system review Commission to the possible, give in order effect review, pursuant decisions. Judicial to sec legislative dominant intent manifested 19(d) (e) APA, tion and of the is under 205-208, Statutes, Tex.Jur. a statute. 39 substantial evidence test and is limited to 110, provisions But when the 111. §§ agency. the record made before the so and con- a statute are inharmonious of exe- flicting impossible as to render it Utility Rate Base Valuation cution, have but the courts no alternative September Telephone Compa- In 1976 the Hill inoperative and void. to declare it ny Utility filed with the Public Commission 358, Sheppard, County v. 142 Tex. application and in- notice intent 261; Simpler, Hamrick v. S.W.2d telephone its rates crease services. Af- 357; Walsh v. Tex. hearing ter an extended the Commission 833; McConnell, Tex.Com.App., S.W. fixing its charged entered order rates to be 18, 32 Kearley, Dewrell v. 250 Ala. So.2d telephone utility. The rate permit- 21; 812; Statutes, 43-44, 39 Tex.Jur. § by the provided ted Commission for an in- Statutes, Am.Jur. 82 C.J.S. Stat- § million, somewhat crease less than $57.8 68d, 119. utes p. § requested Telephone Company. that 318 S.W.2d at 624. Telephone The then Company appealed is said in this order District We are not unmindful of what from to the Court Co., opinion seeking judicial supra, County Travis the Southern Canal review unique Simultaneously, treatment of rate cases the Commission’s order. about opinion sought an historically by tempo- our courts. That Bell order Southwestern pro- rarily staying a trial de was acknowledges pur- novo Commission’s order PURA, previously as discussed. suant to section and requested vided those cases Co., evidentiary hearing how- before We have cited Southern Canal full the trial court, ever, regard its holding hearing, with court. The district after because of denying its order inconsistency Telephone fatal inherent rendered application trial de novo a review Company’s “stay, suspen- scheme mix a sion, or temporary injunction” evidence rule in the under substantial Com- The final The same lawsuit. conflict between mission’s order. court further following Gas and its was line of cases Lone Star ruled confined to opinion Co. with re- made the Southern Canal record before Commission and gard types Telephone the two of trial is to admit Company’s to which of refused permit proffered both additional evidence. appropriate. None cases the same suit. types of trial in legislative policy stated and purpose Co., supra, we declared protect public of PURA “to interest Southern Canal void a section of statute and service inoperative public inherent rates both a . . . Act purpose attributes of utilities. incorporated this a trial is to establish a pure comprehensive regulatory novo and under trial de here, system rule. As stated which is to the adequate task substantial regulating public so as provisions renders the utilities defined this such a situation Act, rates, to be im- conflicting operations, assure inharmonious and services

513 just are adjusted reasonable to the con value of capital the invested and to the sumer utilities.” used and useful in rendering service to public. Bell contends that the Pub Southwestern lic rate base in to be allowed gues only original the PURA as a reasonable balance between properly which it product invested since Bell’s return on its investment under the “dual rate cost determination base, original condition. The Commission contends that it prime importance to Bell and its customers Utility less that the rather cost used capital,” gives Commission used an incorrect adjustment determining cost less less than the original Commission of a rate on its to the PURA. The correct rate depreciation defined in section 41 of base investment. Bell ar depreciation cost less base” “adjusted base is erroneously multiplied by present age interpretation proper depreciation and current obviously as a rate value of return is the used justed value of ment for both preciation and current cost tion work in progress at cost as recorded vice ble balance nancial ful to Utility rates shall be on the books of the utility. (a) Adjusted Value of Invested Capital. come shall be value of Sec. 41. The including ^[******] following value integrity such public utility between invested of property property where necessary to the fi- present rules: determined components original capital based shall be a reasona- age and in providing ser- used by and use- utility less an The upon according cost less de- and net condition. construc- adjusted adjusted the ad- adjust- in- The regulatory authority shall or fair rate of have the reasonable return. Rail See discretion to determine a road Commission v. Houston reasonable bal- Natural Gas 502, ance that reflects Corp., (1956) 155 Tex. not less than S.W.2d 559 60% nor case); cost, more (the Hopper, Legislative original is, Alvin A than 75% cost, History Utility Regulatory money of the Texas Act actual or the money actual Baylor (1976); L.Rev. any value of paid consideration other Webb, Utility Rate Base Valuation in an money, than property at the time Economy, 28 Inflationary Baylor L.Rev. it shall have been public use, dedicated to (1976). whether the utility which is the present owner or predecessor, less undisputed by It is parties and courts depreciation, and not less than 25% nor 39, 40, sections below that and 41 of the more than 40% current cost less an ad- govern proper PURA rate base and rate justment present age for both and condi- of return thereon. What is disputed is the tion. regulatory authority may con- interpretation correct placed upon be inflation, deflation, sider quality of ser- provisions. question these This is a of first being provided, vice growth rate of great and is of impression importance in area, the service and the need for the setting utility rates this case as well as in public utility to attract new capital applicable pro- future cases. The sections determining a reasonable balance. vide: fixing 39. the rates of a Sec. The Commission and lower interpret- courts utility regulatory authority public ed provisions these as establishing a dual its revenues at a level shall fix overall rate base. The courts below held that sec- utility to recov- permit which will tion 39 set a minimum rate base permitting together with operating expenses er its a reasonable capital” return on “invested cap- reasonable return on its invested original depreciation, cost less and sections ital. 40(a) 41(a) set a maximum rate base permitting (a) regulatory authority “adjusted a fair return on the

Sec. 40. capital.” rate which will value of invested prescribe shall not Southwestern upon argues yield only 41(a) more than a fair return Bell section sets a 1446c, Tex.Rev.Civ.Stat.Ann. art. 2.§ 5. agree We with Southwestern and 40 mere- base, sections 39 and that 41(a) only allowa- section defines a rate as to the Bell that general terms ly speak in view, upon and based our In our return. base. rate of

ble legislative of the available interpretation to monetary return determining the In 40(a) prescribe and in history, sections 39 entitled, the is Bell which Southwestern ceiling a floor and a for the general terms two findings using the made Commission utility allowed to a on its monetary return described sections differing methods speaks in terms of investment. Section 39, the Commission section 40. Under and utility such that fixing public rates of a equiv- as capital” “invested interpreted revenues sufficient to recover its may have depreciation. cost less original alent of $3,030,- and a reasonable return operating expenses to be figure found this Commission 40(a) capital. says rate of return on its invested Section 707,000. a 9.5% Applying any set rate capital,” shall not of “invested that Commission rate base this $287,- Bell of than fair return on yield a return to which will more fixed Commission monetary return 917,000. capital. value of its invested adjusted A similar adjust- using the however, by 41(a), provides the Commission that found Section found as capital, value of invested upon ed shall be based the ad “[ujtility rates rate an 8.37% $3,441,075,000, applying and by useful property value of used and justed argues that return. The Commission utility providing service public to the by the “dual permitted is either method rates, determining the Com . .” In PURA, since provisions base” rate 41(a) section to use required by mission into consid- method takes inflation the first capital, invested adjusted value of invested rate of return on eration section, as the rate base. in that defined compen- method while the second capital general guidelines 40 are 39 and Sections higher inflation in the rate base. for sates follow to check its the Commission to for that the actual points out The Commission utility total return to the determination of either method is the monetary return under within the lower and sure that it is to make same, that the courts are concerned and by those sections. upper prescribed limits the end result —the rate. See only with manner, utility is assured of an In this v. Houston Natural Commission Railroad adequate on its investment and return Bell ar- Corp., supra. Southwestern Gas from utility protected customers are exces hand, that under section on the other gues, monetary If the total sively high rates. value of invested 41(a) only adjusted pre not fall within the limits does return base, and be considered as a rate capital can 39 and the Commis by scribed sections used invested the Commission that since provided in section sion has the discretion base, give a rate it has failed capital as 41(a) adjust the balance in the rate base value return on the difference in Bell less and original depreciation between cost adjusted cap- value of invested between adjustment present an current cost less capital original cost. ital and invested determining adjusted age condition. and re- argues taking the dollar also Bell base, capital as a rate value of invested using original an cost rate turn obtained 41(a) permits the to use section Commission adjusted dividing it into an value base original deprecia cost less from 60% 75% obtain a capital rate base to of invested tion, nor more than and not less than 25% rate base is return on second rate of adjustment 40% current cost less of hand sleight merely arithmetic age condition. The exact present both figuring Bell contends that Commission. percentages of each element in the rate of return return and rate dollar base can be set the Commission within original into process plugged in” “backing 41(a) case case the limits of section on a way to set permissible is not cost basis. monetary return and rate of percentage base, interpreta with agree We also only proper return on phrase capital” to the “invested capital. given tion invested value of adjusted monetary return to which Bell was entitled and courts below. Sec- by the Commission other, recover utility that a shall or the provides merely tion 39 one method return on its “invested at least a reasonable figure used that same to determine a rate however, capi- the term “invested capital;” of return on the other rate base. As stated 40(a) then tal” is never defined. Section above, we accept do not a dual rate base utility shall not receive provides that a theory, purported but the Commission yield more than a fair rates which would determine the monetary upon return based “adjusted value of invested return on the what we have held to be the correct rate 41(a) phrase also uses the capital.” Section base, adjusted value capital. of invested “adjusted capital” value of invested and By using fixing this method of revenues for that it goes provide on to define it and then alternative, Bell in the the Commissionhas looking base. In at the correct rate is the correctly. acted Bell does not dispute Since history conflicting of section legislative finding adjusted the Commission’s as to the as to “invest- why can be drawn conclusions capital, only value of invested the element used rather than the “ad- capital” ed dispute still in is the rate of return. The lat- justed capital.” of invested value in an earlier version of phrase was used ter The rate of return is not speci bill, subsequently deleted. The the but was fied in the PURA as exact percentage. interpretation which can be only reasonable Rather, 40(a) provide sections 39 and that it placed upon phrase capital” the “invested is shall be at least a reasonable return on original depreciation, less that it means cost capital, invested but not more than a fair appeals court and court of civil as the trial adjusted return on the value of invested just as Legislature held. the could Since capital. provisions We take these to mean “adjusted easily have said value of invested that the Commission has discretion in set 39, we must take “invest- capital” in section ting a reasonable or fair return on the meaning. capital” ed to have a different value property of Bell’s used or useful in interpre- We can conceive of no reasonable rendering giving service. the Commis than capital” orig- tation of “invested other discretion, sion such we believe that the adjustment deprecia- with an inal cost Legislature acquiesced has in the standard cap- hold that “invested tion. We therefore case, for rate of return out in the set Alvin ital,” PURA, in section the as used 39 of Railroad Commission v. Houston Natural original depreciation. means cost less Corp., supra. Discussing fixing Gas the we have held that the Since rate of return this Court said: 41(a) rate is defined in section proper base legislation In the absence of the courts adjusted capital, value of invested we as the to reason guide have resorted for a whether the must determine Commission well fairly have established the rule that monetary re erroneously computed has to confiscation avoid the rate of return by using an incorrect rate base. turn Bell high enough ample must be to attract undisputed that the Commission com It is capital beyond but need not be that. puted the return to Bell under its dual rate percentage figure This the trial court can we have held an incor theory, base which is determine as a fact. interpretation rect of the PURA. Alvin, supra at We 572. are not to be a return monetary Commission fixed total holding Legislature understood as that the by applying Bell a 9.5%rate of return case, has codified the Alvin because the base, depreciation rate original cost less rather than the trial court Commission an 8.37%rate of return on by applying must set the rate of return. The PURA adjusted capital value of invested rate specific also establishes more standards in The Commission used balance base. fixing general a rate base than “fair current cost in original cost and 30.6% 69.4% do, however, Alvin. language in value” We adjusted value of Bell’s computing the regard, having power the Commission as It seems obvious that capital. vested percentage revenues or to determine a rate of return as figured total Commission $1,136,000. case, setting This court held in General Tele done in this It has so fact. Wellington, adjusted phone Company City rate of return on 8.37% (1956), The Tex. “con rate base. capital invested value of inadequacy” to Bell fiscation” “unreasonable monetary return revenues total purposes of rates are identical for of consti by sections prescribed the limits lies within writer protection. This cannot revenues as a tutional regard and we 39 and $1,136,000 only a small agree that because value Bell’s adjusted on fair return Telephone Company’s uphold We fraction therefore capital. invested $3,000,000,000 it is an “infinites rate base as to rate determinations Commission’s its exclusion will re monetary return imal” amount or that of return and revenues or in an reduction of the Although insignificant we sult Bell is entitled. base, Telephone to be collected Com we rates reject the notion a dual pany. alternative hold that Commission’s setting the rate of return and method agrees This writer with the of civil was correct under PURA.

rate base no can appeals that be made determination appeals court and court of civil The trial any part to whether of the land should deter- correctly affirmed the Commission’s be included the rate base until determi- on this issue. mination parcel each nation as usefulness of court from land is made. The trial should be The Commission excluded the Company instructed to the Commission to require base all land held the rate findings these agree We with the courts be make additional after con- future use. sidering in its in the Commission’s low that the Commission erred blan land. parcel of this from the rate record as to each property ket exclusion Such However, 19(d)(1) we is not consider such action authorized Section base. do action, record, Act this confiscation. Procedure which under Administrative future, may require that or provides should consider Commission “[t]he subsequent corrections or additions present permit usefulness the nature whether the record.” parcels land and to determine included in the property should be not such CHADICK, Justice, dissenting.

rate base. civil judgment ap- court of The compelled The dissent. Public I am to Act, peals judgment reversed and the the Utility is Tex.Rev.Civ.Stat. Regulatory 1446c, 69, is provides: “Any party trial court affirmed. Ann. art. § the commission is proceeding to a before CHADICK, JJ., D. JOHNSON and SAM under the sub- entitled dissent. issue of stantial The confis- evidence rule. by a preponder- cation shall be determined Justice, JOHNSON, dissenting. D. SAM added) (emphasis ance of the evidence.” respectfully is submitted. This dissent precedent majority no warrant has part that writer dissents from This holding Legislature violated that that the blan- opinion which holds majority according the Tel- the State Constitution future use all held for exclusion of land ket trial, requested, if jury ephone Company under this amount confiscation does not underly- facts ultimate for determination of acknowledging that ex- While record. It may be confiscation. ing the issue of calculating base error in clusion is entity is be de- any person if agrees apparently utility, majority of a rights constitutional of their or its prived that the court’s conclusion district with the Telephone Compa- Legislature is so “infinitesimal” the land value of start, but I am good place be a ny would to confiscation. amount cannot so. I think the agreeable doing not jury trial on the Legislature prescribe can value of the shows that

The record Telephone and the Com- confiscation issue approximately is for future use held land

517 right jury Cox, can claim a to a trial. I pany (1886), “In Cockrill v. 65 Tex. 669 Appeals. the court correctly present would affirm the Court Civil wrote that the Judiciary protecting Article right to a ON MOTION FOR REHEARING jury was added the Constitution of Rights the Bill of Article 1845 because JOHNSON, Justice, D. dissenting. SAM contained in the Constitution of the Re This writer does not necessarily agree public did not extend equity. to causes in writing with the in dissent on motion for IV, (1845). Tex.Const. art. 16 In other § rehearing. This agree, writer does how- words, the Judiciary Article was intended ever, disposition with the for which the to broaden the right jury to a afforded argues. dissent I, Article Tolle, 15. Section Tolle v. 101 33, 1049, 1050(1907); Tex. 104 S.W. Hat CHADICK, Justice, dissenting. Houston, ten v. City 373 S.W.2d opportunity I take this to elaborate my 531-535 (Tex.Civ.App. writ ref’d previously dissent filed. n.r.e.); v. Spencer, Walsh Constitution, unlike the United The Texas 1955, writ). (Tex.Civ.App. no Subsequent many and that of States Constitution right constitutions extended the to jury states, V, in Article contains Section to ‘all cases of equity.’ law or Tex.Const. express guarantee of a every trial in V, (1868); IV, art. Tex.Const. art. § guarantee in the district court. The case (1866); IV, Tex.Const. art. § § as follows: worded (1861); Tex.Const., IV, (1845). art. 16§ present the trial of all causes in the It Constitution of District “[I]n Courts, changed the words of the earlier plaintiff or defendant shall constitutions from ‘all cases of law or right . have the of trial jury.” form, equity’ present to its ‘trial of all majority has held that an appeal causes.’ from an order the Utility Public Commis- Black, “The term ‘cause’ is defined in fixing compensation sion the utility a is to Dictionary (4th suit, Law 1951), ed. as ‘a receive for the property by use of its the litigation, or action. Any question, civil public 19(d)(3) of by is controlled Section criminal, litigated or or contested before Act, the Administrative Procedure Article justice.’ a court of The United States 6252-13a, which specifically provides: Supreme parte Milligan, Court in Ex 71 review is conducted the court “[T]he U.S. 2, 112, (1866), 18 L.Ed. 281 [4 Wall.] sitting without a jury and is confined to sense, any legal ‘action,’ stated that . the record ..” ‘suit’ and ‘cause’ are convertible terms. constitutional guarantee The that The court then defined the terms to mean Company right shall “have the of trial any legal process party which a institutes jury” has been cut to shreds. to obtain his demand or he which if, majority’s action can The be correct right. seeks his This broad meaning of if, (the only issue before the Court word, ‘cause,’ comports with the in compensation adequacy public for the terpretation given by other courts and utility’s property) use of the involved an legal period writers in the when our administrative determination. present (530 Constitution was drafted.” 292). S.W.2d scope require-

The of the Constitutional jury recently ment for a trial has been With regard possible exceptions to the by this entitlement to a exhaustedly jury examined Court explained: Laredo, v. Credit Bureau of case of State “Special circumstances justify our former Inc., 1975). (Texas 288 With 530 S.W.2d holdings that not all adversary proceed regard guarantee jury to the of a trial ings qualify as a ‘cause’ under the Judici They include such Article. . . . ary Court said: in ad appeals . Y, 10, proceedings “We also hold that Article Section proceedings, v. De Judiciary Article], ministrative State Sil of the Constitu- [the va, 95, (1912); right tion extends the to a . 105 Tex. 145 330 S.W. 518 Jones, 112 Liquor any Board v. board to cancel it for Control

Texas violation 1937, writ), (Tex.Civ.App. .2d 227 S.W no rule regulation statutes or In each of the above instanc others. promulgated by the board under authori- es, special that a is some reason there ty (112 229). the act.” S.W.2d unsuitable, held . . .” jury has been that made it clear the adminis- Court two By examining cases cited will exception apply not proceeding trative regard pro- Court with to administrative right where a involved. Could property special it is found that the reason ceedings, property is not argued right it be possibly ad- exception is that supporting issue is the adequacy involved when the did involve a proceeding not ministrative compensation public property? use right. This is demonstrated property only Not is a question answers itself. cited, v. in the first case opinion State one property specifically involved but right 95, Silva, (1912), Tex. De S.W. Arti- protected by the Texas Constitution. was as opinion where the follows: I, cle of our Texas Constitution Section question to the de- “The answer second provides: pends the character upon of the act shall be . . . person’s property “[N]o judicial? Was it The fact that removal. without applied adequate use public who declared the license for- person compensation”. county judge was a does not make feited This prior decisions Court its has made in character. That de- judicial the act abundantly fixing clear of rates pends upon the matter in controversy, and would not come under administrative It remedy applied. would be a use- is a proceeding exception but matter involv- time au- consumption of to adduce less ing determination. full arguments thorities or the effect State, Company In Lone Gas Star prop- sell not a a license to intoxicants is Tex. (1941), privilege granted by is a erty right, but Court held: state, may be revoked. The “. . . When the Commission acts to prescribe man- power had the state prescribe charged by to be rates common enforcing revoking the law ner of utilities, public carriers and it fixes the ju- which action was not granted, license price or rate that such concerns must dicial, administrative ministerial.” but subject property to the their use of the 333). (145 S.W. public operates legisla- for. It therefore cited for the administra- case The second tively, administratively, not and the exception, Liquor Texas proceeding tive courts, matters, in under Jones, 227 v. Board S.W.2d Control statutes mentioned will determine for in writ), no is similar (Tex.Civ.App. themselves, in the manner way and with quoted the Court There character. prescribed by law, whether the properties of following pronouncement approval of such concerns have been confiscated law: fpr the benefit public, of the or whether a permit cancellation of li- “The sell the properties of such concerns have been Liquor under the Control Act and quor appropriated to, required or to serve, the governing of law such mat- principle public for an unreasonable and unjust action; or is not a civil suit cause of ters (153 return.” 696). S.W.2d power authority and to cancel but Telephone Company v. Also in General merely an permit such a is the exercise of 156 Tex. City Wellington, of duty imposed administrative function and held: (1956), .2d the Court S.W upon the by the act board or its adminis- or under the permittee trator. A licensee unqualified of refusal “By recent our right liquor, vested sell but act has no v. City Houston of error writ with the or licensee Co., permittee Tex.Civ.App., mere

is a Bell Tel. Southwestern that, undoubtedly held liquor in accordance we selling S.W.2d privilege statutes such act, his accepts with without the terms with gas and railroad as involved authority those subject to the license permit mentioned, Judiciary Article of the Returning the failure of to the rate decisions V, 10), (Article a fair return Constitution Section telephone produce rates to clearly properties foregoing value decisions demonstrate on fair enjoinable exchange question appeal that an a Commission Order from guarantees, al- fixing violation of constitutional rates or cause in the District is case though there was no ‘confiscation’ in the “right by jury” where of trial is Court out-of-pocket sense of an loss. appeal not an mandatory. The case is from an administrative decision. “Whether the City opinion of Houston be majority permitted If the opinion taken to refer only to the federal con- stand, end? Will where will it all the Texas stitution or to both it and our state constitutional guaranty jury trial be constitution, the practical result most completely read out Constitution? same, purposes is the and we good see no Perhaps the will Legislature pass next distinguish reason to between the two as allowing Highway law Commission to to this largely concept academic of ‘con- fix compensation paid to be when private fiscation’ being distinct from ‘mere un- property is taken highway purposes reasonableness’ in the matter of with the landowner limited to a substantial return from public utility rates. Once we appeal without a jury under the Ad- admit given that the of a return rate is so ministrative Act. Procedure When this just low that no reasonable or man would happens the farmer who lost his land for require it and that who he suffers from it Highway the amount of the Commission beyond suffers limits reason and appraisal dismayed will be as I that this justice, are overly we not metaphysical if right fundamental trial has van- we add that there is no constitutional ished, taken from him the sophistic question involved, right or no deceptively vague reasoning in a short statute, review without a unless the rate opinions. series actually produces figures red on a finan- agree I necessarily do not with what the cial statement? Economic values exist Appeals written, Court of Civil has I do largely in relation to other economic its disposition appeal think was cor- values. If the going rate for labor be $2 rect. per given hour and a pro- laborer be hibited law charging from over 20<t hour,

per is he any less slave because he 20<p?”

manages to subsist his (294 on 389). BUCKNER, Appellant, Earl Van In Railroad Commission v. Houston Natu Texas, Appellee. The STATE of Corp., ral Gas 155 Tex. 289 S.W.2d 559 No. 53676. (1956), the Court held: that there have concluded are two Appeals Court of Criminal of Texas. “[W]e fact in genuine issues of material the case 14, 1977. Dec. They at bar. are: Appellant’s Rehearing On Motion for (1) What is the of the compa- fair value 4, 1978. Oct. ny’s property used and useful in serv- ing City of Alvin?

(2) What is the lowest’ composite per-

centage rate of return which will in-

duce the of adequate investment capi-

tal?

“The trial court should make its own

findings of fact upon based admissible

evidence and test against the new rate its

findings.” (289 575).

Case Details

Case Name: Southwestern Bell Telephone Co. v. Public Utility Commission

Court Name: Texas Supreme Court

Date Published: Jul 26, 1978

Citation: 571 S.W.2d 503

Docket Number: B-7308

Court Abbreviation: Tex.