Title: State Ex Rel. Pac. Nw Bell Telephone Co. v. Wa. U. & T. Com.

State: washington

Issuer: Washington Supreme Court

Document:

66 Wn.2d 411 (1965) 403 P.2d 73 THE STATE OF WASHINGTON, on the Relation of Pacific North-west Bell Telephone Company, Respondent and Cross-appellant, v. WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION et al., Appellants. THE STATE OF WASHINGTON, on the Relation of West Coast Telephone Company, Appellant, v. WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION et al., Appellants, PACIFIC NORTHWEST BELL TELEPHONE COMPANY, Respondent and Cross-appellant.[*] No. 37111. The Supreme Court of Washington, Department Two. June 10, 1965. DONWORTH, J. This case involves four separate appeals taken by three public utilities and by the Washington Utilities and Transportation Commission (herein called the Commission) from the decree of the Superior Court for Thurston County, entered in two proceedings (consolidated by stipulation), which were instituted to review an order of the Commission. The order of the Commission related to the method of determining the division of revenue derived from intrastate interchanged toll traffic between two independent telephone companies and the Pacific Northwest Bell Telephone Company (herein called Pacific or Bell). There were other issues raised as to the correctness of the *413 Commission's order which will be discussed later in this opinion. The public utilities referred to are Pacific and General Telephone Company of the Northwest (herein called General) and West Coast Telephone Company (herein called West Coast). In the review proceeding in the superior court instituted by Pacific, the respondents were the Commission, General, and West Coast, each of whom is also appealing from certain portions of the superior court's decree. In the review proceeding instituted by West Coast, the respondents were Pacific and the Commission, who are likewise appellants in this court. The particular issues involved as between the respective parties before us in this court, as well as the disposition thereof by the superior court, will be stated later in this opinion. The order entered by the Commission (which was reviewed by the superior court) is reported in 42 P.U.R.3d 65, and a copy is attached as an appendix to the Commission's opening brief. It is 30 pages in length and contains a very comprehensive statement of the issues and of the testimony and exhibits presented to the Commission and its findings of fact, conclusions of law, and order. For convenience, this document will be referred to as the Commission's findings or order. The record before the Commission contained 1,723 pages of testimony and oral argument, and 44 exhibits, some of which consist of many pages. The hearings consumed 12 days. Before discussing the respective assignments of error made by the several appellants, we must first consider what precisely the function of the courts is in reviewing such orders of the Commission. [1] In State ex rel. Pacific Tel. & Tel. Co. v. Department of Pub. Serv., 19 Wn.2d 200, 217, 142 P.2d 498 (1943), this court had occasion to discuss this question at considerable length. After citing and discussing a number of decisions *414 of this and other courts of last resort, we stated the rule which is applicable here as follows: Recently we had occasion to discuss the legal status of an order of this same Commission. In City Sanitary Serv. v. Washington Util. & Transp. Comm'n, 64 Wn.2d 739, 393 P.2d 952 (1964), we said: See, also, State ex rel. Allied Daily Newspapers of Washington v. Washington Pub. Serv. Comm'n, 44 Wn.2d 1, 265 P.2d 270 (1953). [2] On appeals in cases such as the present, we are required to determine whether the superior court erred in the entry of its judgment. In other words, we review its judgment entered pursuant to RCW 80.04.170, and not the findings and order of the Commission. In re Foy, 10 Wn.2d 317, 116 P.2d 545 (1941). Nevertheless, in order to perform our function, it is necessary for us to examine the evidence which was before the Commission and its findings and order, because RCW 80.04.190 provides that: No additional evidence may be introduced in the superior court. State ex rel. Country Club v. Department of Public Serv., 198 Wash. 37, 86 P.2d 1104 (1939). Therefore, in order to state the issues which were presented to the superior court and which are likewise before us on this appeal, we shall endeavor, as briefly as possible, to quote from the Commission's findings of fact, conclusions of law, and order. In 1960, two independent telephone companies (General and West Coast) each instituted a proceeding before the Commission against Pacific involving the appropriateness *416 of certain separation methods governing the division of toll revenues between each independent and Pacific derived from the interchange of intrastate long-distance telephone messages. The two proceedings were consolidated, and hearings were held in 1960 and 1961. The Commission's order disposing of these proceedings (entered November 22, 1961) stated the principal problem as follows: The Commission considered evidence from each of the three parties in the proceeding, after which it selected the Charleston Plan as the appropriate separation formula to be applied. We shall attempt to describe the operation and effect of the Charleston Plan, and the dispute between the parties and the Commission about the appropriateness of this formula. The Charleston Plan allocates revenues on the basis of minutes-of-use of the respective equipment (technically called "plant") involved. The two independent companies approve this formula, whereas Pacific contends that the proper basis for allocation is message-minutes-miles. In its findings, the Commission stated the issue as to the Charleston Plan to be as follows: After discussing at length the history of separation procedures and the contentions of the several parties regarding the Charleston Plan, the Commission announced its findings and conclusions: In addition to the issue described above, the Commission, in its findings, referred to four other issues which were involved in the proceeding before it designated as (C), (D), (E), and (F). These were described as follows: Regarding the issue referred to as (C), the Commission's findings stated: The issues designated as (D), (E), and (F) will be referred to later in this opinion. The disposition made by the Commission in these proceedings is summarized in its ultimate findings, conclusions of law, and order, which are as follows: Having as briefly as possible described the proceedings before the Commission and its disposition of the various issues presented to it, we now consider the two proceedings brought in the superior court to review the Commission's order pursuant to RCW 80.04.170, which provides, in part: Pacific instituted review proceedings by filing its petition alleging that the Commission, in adopting the minutes-of-use (Charleston Plan) as a basis for apportionment of B-I toll charges as provided in its order, had acted arbitrarily and capriciously and without support of substantial evidence. There was an allegation that the mileage factor should have been used by the Commission in this connection. *425 Pacific also alleged that West Coast point-of-connection traffic was erroneously classified as independent company traffic and that the Commission's finding to that effect was not supported by substantial evidence and was made arbitrarily and capriciously. Pacific made similar allegations with respect to the Commission's ruling concerning the digit-absorption equipment (see issue (C) in the Commission's order). In concluding its petition for review, Pacific prayed for a stay of proceedings pendente lite and the fixing of a supersedeas bond. A writ of review was issued by the superior court. Thereafter, West Coast filed its petition for a review of the Commission's order in relation to its rejection of the Modified Phoenix Plan. It was alleged that in this respect the Commission had acted in violation of constitutional provisions, without statutory authority or substantial evidence, and had acted arbitrarily and capriciously in the premises. Upon stipulation of all parties who were affected by the Commission's order, the two review proceedings were consolidated for purposes of argument, briefs and hearing. The superior court, after reading the record made before the Commission and the briefs of the several counsel appearing before the court, and listening to extended oral argument, rendered an oral opinion. The court in that opinion announced its decision to uphold the order of the Commission in all respects except the portion relating to the Charleston Plan. That portion, the court held, was adopted by the Commission without substantial evidentiary support and was entered arbitrarily and capriciously and upon a fundamentally wrong basis. Thereafter, the trial court entered three findings of fact, six conclusions of law, and a decree, which provided that the order of the Commission was affirmed in all respects, except: The operation and effect of the Commission's order was, upon stipulation of the parties, suspended until final determination of the proceeding in the superior court. General has appealed to this court from the above quoted portion of the decree which reversed the portion of the Commission's order which approved the Charleston Plan. The Commission has joined in General's appeal. West coast has appealed from the same portion of the decree and from two other portions thereof, the specific issues appealed from being described in its notice of appeal as follows: Pacific has appealed from two portions of the decree affirming the Commission's order, and in its notice of appeal states: Thus we have before us four appeals from the superior court's decree, each of the four parties being aggrieved by certain portions thereof. RCW 80.04.190, relating to such appeals, has been quoted above. Furthermore, earlier in this opinion, we referred to several of our prior decisions in which we discussed the functions of the courts in reviewing orders of the Commission. We should also have in mind the provisions of RCW 80.04.430, relating to the burden of proof in review proceedings, which provides: The present proceeding is preliminary to the Commission's principal function, which is to establish rates for telephone service which are found to be fair, just, and reasonable to the user, and sufficient to provide reasonable compensation to the utility for the service rendered. See RCW 80.36.080 and 140. The Commission, in its order, pointed out that the division of revenues is inextricably related to the rate-making process. Thus the real parties in interest in this case are all the users of telephone service in the state of Washington who will have to pay the rates ultimately established for such service. The proceeding now before us was instituted pursuant to RCW 80.36.160, reading as follows: With these statutory provisions and court decisions in mind, we proceed to a consideration of the principal issue raised on General's appeal (in which the Commission and West Coast joined), which is whether the superior court erred in reversing that portion of the Commission's order approving the Charleston Plan because it held that that portion of the order was adopted without substantial evidentiary support and was entered arbitrarily and capriciously and upon a fundamentally wrong basis. In its oral decision, the superior court said, with regard to the Charleston Plan: The portion of the Commission's findings relating to this issue has been previously quoted in this opinion. Pacific strenuously opposed the Charleston Plan before the Commission, and contended that minutes-of-toll conversations were not a proper basis for the division of toll charges and that a mileage factor should be included. Pacific further introduced evidence of a study made by its engineers which purported to show that, instead of there being a 1 to 1 mileage ratio on B-I toll calls (as assumed by the Charleston Plan), the actual ratio exceeded 2 to 1 as to General's and West Coast's business. At the hearing before the superior court, Pacific's counsel stated, regarding the study made by it relating to mileage, as follows: General and the Commission argue, in support of their appeal from the portion of the superior court's decree reversing that part of the Commission's order which approved *431 the Charleston Plan, that there was substantial evidence in the record to support the Commission's order. Parenthetically, we should state at this point that the burden of proof of showing that there was no evidence to support the Commission's order is, by statute, upon Pacific notwithstanding the trial court's decree. At the outset, we should make it clear that neither this court nor the superior court may substitute its judgment for that of the Commission as to the merit (or lack thereof) of the Charleston Plan. The appropriateness of the Plan is a question of fact and not of law. One of the earliest cases involving rate separations was the Minnesota rate cases (Simpson v. Shepard, 230 U.S. 352, 57 L. Ed. 1511, 33 Sup. Ct. 729 (1913)), in which the Supreme Court said: As stated more recently by the Supreme Court in Colorado Interstate Gas Co. v. Federal Power Comm'n, 324 U.S. 581, 89 L. Ed. 1206, 65 Sup. Ct. 829 (1945), regarding a separation formula adopted by the Commission and the scope of court review: Appellants General and the Commission cite as the only decision of a court of last resort relating to the Charleston Plan, the case of Ohio Bell Tel. Co. v. Public Util. Comm'n, 173 Ohio 512, 184 N.E.2d 88 (1962), in which the Commission, after extensive hearings, had prescribed a joint rate schedule for intrastate B-I toll service based on minutes-of-use and had rejected the mileage factor. After stating succinctly the substance of the Commission's findings, the Ohio Supreme Court disposed of the controversy in the following Per Curiam opinion: This decision was unanimous, except that one judge concurred therein for certain reasons stated in the Commission's opinion. The history of the various studies made by the FCC and NARUC between 1941 and 1957 regarding separation methods are described in the "Foreward" contained in the 1957 Separations Manual (which is exhibit No. 11). Reference is made therein to the decision of the United States Supreme Court in Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 149, 75 L. Ed. 255, 51 Sup. Ct. 65 (1930), which involved the separation (for rate-making purposes) of telephone properties used in both intrastate and interstate operations. In that case, the court stated: The principal features of the Charleston Plan are described in detail in Exhibit 11 and also in the Commission's findings hereinbefore quoted. We are here concerned only with Pacific's contention that there was no evidence before the Commission to support its finding approving the Charleston Plan. Parenthetically, it should be pointed out that in the first of two proceedings before the California Public Utilities Commission, Pacific's predecessor in interest, Pacific Telephone & Telegraph Company, a California corporation, agreed to the separation procedures set forth in the 1947 Manual (as amended in 1952) regarding separation of intrastate and interstate use of jointly used plant. In the second proceeding, that company contended that the separation should be made on the basis of relative message-mile-minutes of use instead of the basis previously agreed to (message-minutes of use). These cases are: Re Pacific Tel. & Tel. Co., 5 P.U.R.3d 396 (1954); Re Pacific Tel. & Tel. Co., 23 P.U.R.3d 209 (1958). In the second case, the Commission stated in its decision, at page 228: Another case before the Washington Commission in which Pacific's predecessor was applying for a general increase in intrastate rates (which involved the separation of intrastate and interstate telephone revenues) is Washington Pub. Serv. Comm'n v. Pacific Tel. & Tel. Co., 25 P.U.R.3d 18 (1958), where this same problem and the use of the 1957 Manual are discussed at length. At pages 24-25, the Commission stated: While recognizing that there was dire need for improvements in the Manual, the Commission concluded its discussion by saying: *437 We now turn to a consideration of Pacific's arguments in support of that portion of the superior court's decree (above quoted) which reversed the Commission's order requiring the division of toll revenue derived from intrastate toll messages on the basis of relative minutes of use. Pacific, in its brief, discusses the Charleston Plan at length, and contends that it was intended to apply only to interstate (jurisdictional) separations. It is further argued that, in intrastate separations, consideration of a mileage factor is essential in addition to the minutes of use. A study of such mileage factor prepared by Pacific was presented to the Commission, but the Commission ignored it in its deliberations. This study tended to show that the actual mileage ratio exceeded by more than 2 to 1 the assumed ratio of 1 to 1 inherent in the Charleston Plan. Pacific's basic contention is that there was no evidence to support a 1 to 1 ratio, and that Pacific's study should have been favorably considered by the Commission. The questions raised by these contentions were, under the cases hereinbefore cited, questions of fact. The Commission made extensive findings (quoted above) as to these matters. Neither the superior court nor this court has authority to overturn or modify such findings except where the Commission has acted arbitrarily or proceeded upon a fundamentally wrong basis. The contention of Pacific is that the findings just discussed are not supported by any evidence presented to the Commission. We have examined the testimony and exhibits relating to the Charleston Plan and the other matters discussed in Pacific's brief, and find that there is substantial evidence (as compared to a scintilla) which supports the Commission's findings as to these matters. Furthermore, the matters which were before the Commission for decision in this proceeding involved the exercise of expert judgment by those who have informed knowledge regarding existing conditions within the telephone industry. Only the Commission has available to it such expert knowledge of problems of telephonic communications *438 as to enable it to approve or reject various separations procedures on the basis of an informed judgment. Thus, our functions on this appeal are strictly limited to the specific questions mentioned in State ex rel. Pacific Tel. & Tel. Co. v. Department of Pub. Serv., 19 Wn.2d 200, 142 P.2d 498, and other decisions above cited. Since we have found, from our examination of the record before the Commission, that there was evidence to support its findings and order relating to its approval of the Charleston Plan, we must reverse that portion of the superior court's decree which had reversed the aforesaid parts of the Commission's findings and order, and direct that court to change its decree so as to affirm them. This disposes of the appeals of General, West Coast, and the Commission relating to the Charleston Plan issue. Next, we consider Pacific's appeal from that portion of the superior court's decree which affirmed the Commission's findings and order relating to local digit-absorbing equipment. This issue is described as (C) in the Commission's findings and has been quoted in full above. Pacific contends that seven digit numbers are assigned to each telephone to make possible the completion of inward toll calls (nationwide), but admits that in small exchanges local calls can be made by dialing the last five digits only. However, to avoid confusion, telephone users are told to dial all seven numbers on local calls. The issue presented to the Commission was whether the costs connected with the local digit-absorbing equipment were properly chargeable to toll or to local operations. Pacific argued for the latter allocation, and two independent companies argued for the former. The Commission ruled in favor of the independents and the superior court affirmed its findings and order regarding this issue.[6] Under the authorities above cited regarding the functions of the courts in such situations, we cannot substitute *439 our judgment for that of the Commission even if we were inclined to disagree with its decision. Since there is no showing that the Commission acted arbitrarily or proceeded on a fundamentally wrong basis in arriving at its decision, and there being substantial evidence to support its decision, the decree of the superior court, in so far as it affirms the Commission's action with regard to the digit-absorbing equipment, must be affirmed. The remaining issue raised on Pacific's appeal relates to what is called "point-of-connection" traffic. This issue is described in the Commission's findings as (E) and is quoted above. It is a controversy between West Coast and Pacific (General is not involved). Point-of-connection traffic is a term used by West Coast and Pacific to identify certain toll traffic interchanged between them which uses facilities controlled by West Coast (either owned by West Coast or leased by Pacific). The tariffs applicable are filed by West Coast and have been approved by Pacific. The Commission's brief states its position on this phase of the case as follows: Pacific contends that this point-of-connection traffic should be included with all other interchanged traffic in a cost-study type of settlement. West Coast disagreed, and *440 the Commission ruled that this was not B-I traffic but rather the reverse of it, and left the matter of division for separate negotiation by the two parties. In brief, the Commission did not render a final decision on that issue, saying that it would not disturb "the historical relationship between the two companies." The superior court affirmed the Commission's findings and order as to this item, saying, in its oral decision, that there was evidence on this issue to support a decision either way, but that, "We are not permitted to substitute our solution of the matter for that made by the Commission." Under the decisions hereinbefore cited in our discussion of the Charleston Plan issue, the superior court was correct and the same rule is binding on this court. Consequently, the portion of the superior court's decree relating to this matter must be affirmed. What has been said disposes of all assignments of error asserted by each of the four appellants, except West Coast's assignments No. 6 and No. 7. Assignment No. 6 asserts that the court erred in charging it for the cost of the transcript on appeal. There is no merit to this assignment. RCW 80.04.170 authorizes this procedure. See Taylor-Edwards Warehouse & Transfer Co. v. Department of Pub. Serv., 22 Wn.2d 565, 157 P.2d 309 (1945). [3] In assignment No. 7, West Coast contends that the court erred in refusing to order the Commission to determine a fair rate of return to be used in the determination of West Coast's share of revenues from B-I interchanged toll revenues. The trial court found that there was no evidence before the Commission on which it could have based a finding of a fair rate of return. Whether the Commission shall proceed to determine the fair rate of return by gathering evidence on its own motion is a decision within the discretion of the Commission. See State ex rel. Seattle v. Public Serv. Comm'n, 76 Wash. 492, 136 Pac. 850 (1913). We think there is no merit in this assignment, in view of the above case. The Commission's order directed the parties to divide toll revenues obtained from the interchange of intrastate toll telephone messages in accordance with its findings, and also directed them to proceed with further negotiations regarding the rate of return to be allowed General and West Coast on B-I operations for toll settlement purposes and to report the results thereof to the Commission within 90 days from the effective date of its order. The Commission retained jurisdiction of the proceedings to effectuate the provisions of the order. Having reviewed the proceedings before the Commission relating to the several matters presented to us by the four appeals from the decree of the superior court entered in the two review proceedings, our disposition of these appeals is as follows: 1. The decree of the superior court in so far as it reversed the findings and order of the Commission is reversed with directions to change its decree so as to affirm the Commission's findings and order. 2. In all other respects, the decree of the superior court is affirmed. 3. The 90-day period prescribed in the Commission's order for reporting the results of further negotiations between the parties shall commence upon the entry of the revised decree by the superior court. It is so ordered. WEAVER, OTT, and HAMILTON, JJ., and JOHNSON, J. Pro Tem., concur. September 20, 1965. Petition for rehearing denied. [*] Reported in 403 P.2d 73. [1] The National Association of Railroad and Utility Commissioners. [2] Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 75 L. Ed. 255, 51 Sup. Ct. 65 (1930). [3] On its appeal to this court, West Coast abandoned its assignment of error No. 1, in which it contended that the trial court erred in affirming this paragraph which rejected the Modified Phoenix Plan. [4] United States Independent Telephone Association. [5] As noted above, in footnote 4, West Coast has specifically abandoned this assignment. [6] Pacific states in its brief (p. 85) that the Commissions of Florida, Kentucky, and Ohio have each ruled in favor of General on this issue.