Opinion ID: 1263226
Heading Depth: 1
Heading Rank: 2

Heading: appeals to the supreme court

Text: 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: (1) Reversal of the trial court of the Commission's Order pertaining to the method of apportionment of exchange circuit plant (the Charleston Plan). (2) Affirmation of the trial court of the Order of the Commission pertaining to the apportionment of the interexchange circuit plant (the Modified Phoenix Plan). [5] (3) Failure of the Commission and the trial court to establish a reasonable rate of return. (4) The trial court's assignment of costs against West Coast Telephone Company. Pacific has appealed from two portions of the decree affirming the Commission's order, and in its notice of appeal states: Specifically, and for clarification, this appellant, Pacific Northwest Bell Telephone Company, states that it appeals to said Supreme Court from said portions of said Decree insofar as said portions affirm, and fail to reverse, those certain portions of the Order of said Washington Utilities and Transportation Commission entered on November 22, 1961, in said Commission's Cause Nos. U-9208 and U-9224, set forth in paragraphs numbered XII and XIV of this appellant's Petition for Writ of Review and for Supersedeas filed in the above-entitled court in Case No. 33607, which two paragraphs of said petition are hereby incorporated herein by this reference. 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: Whenever the commission has issued or promulgated any order or rule, in any writ of review brought by a public service company to determine the reasonableness of such order or rule, the findings of fact made by the commission shall be prima facie correct, and the burden shall be upon said public service company to establish the order or rule to be unreasonable or unlawful. 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: In order to provide toll telephone service where no such service is available, or to promote the most expeditious handling or most direct routing of toll messages and conversations, or to prevent arbitrary or unreasonable practices which may result in the failure to utilize the toll facilities of all telephone companies equitably and effectively, the commission may, on its own motion, or upon complaint, notwithstanding any contract or arrangement between telephone companies, investigate, ascertain and, after hearing, by order (1) require the construction and maintenance of suitable connections between telephone lines for the transfer of messages and conversations at a common point or points and, if the companies affected fail to agree on the proportion of the cost thereof to be borne by each such company, prescribe said proportion of cost to be borne by each; and/or (2) prescribe the routing of toll messages and conversations over such connections and the practices and regulations to be followed with respect to such routing; and/or (3) establish reasonable joint rates or charges by or over said lines and connections and just, reasonable and equitable divisions thereof as between the telephone companies participating therein. This section shall not be construed as conferring on the commission jurisdiction, supervision or control of the rates, service or facilities of any mutual, cooperative or farmer line company or association, except for the purpose of carrying out the provisions of this section. 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: This, of course, brings us to the Charleston Plan, which as I said before is simply an amendment of prior NARUC Separations Manuals, and obviously the quoted Order part was drawn with those provisions of the NARUC Manual in mind, specifically the Charleston Plan, and so that explains why Counsel have devoted a considerable portion of time to the Charleston Plan. The factor of use is the concept fundamental to the NARUC Manual. Where properly applied the Manual assumes that the use of exchange circuit plant and the expenses related thereto are equal with respect to toll business interchanged, and as between the telephone companies so interchanging toll business, that is, a ratio of one to one. Pacific challenged this ratio and asserted that the ratio was at least two to one, that is, that at least twice as much exchange circuit plant mileage was used in making an exchange call as was used in making a toll call. The proof tended to show for a recent year that the actual ratios were, for General, 2.28 miles for an exchange call to one mile for a toll call, and for West Coast, 2.69 miles for an exchange call to one mile for a toll call. The proof demonstrated the enormity of the error if a ratio of one to one is used. The determination of the Commission with respect to this matter is without substantial support in the record. It is established that the ratio of one to one is grossly in error. Therefore, under the rules previously stated, it is entered in disregard of the rights of the parties upon a fundamentally wrong basis and is arbitrary and capricious. The portion of the Commission Order quoted above will be set aside. 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: Now, of course, we wanted to test the validity of that assumption as applied to the facts of the case here, and we did so by making the study that is discussed at such great length in the record and briefs concerning the study of the use of these subscriber loops. The studies show that this ratio in the West Coast Exchange was 2.69 miles for exchange in making local calls to 1 mile of exchange circuit plant used in making toll calls, and in the General Company's testimony the ratio was 2.28 for exchange to 1 for toll. Now, there have been lots of rocks thrown at that study, and I will not discuss it in any detail here. The Commission has rejected the study, and I supposed that that would be within the right of the Commission. I think there is enough conflict in the evidence on the study so Your Honor can say that this was a disputed question of fact and that the Commission has chosen not to follow the position of Pacific Company on it and rejected the study, and I have some considerable doubt as to whether Your Honor would be in a position to say that the Commission erred in rejecting that study, just in so many words, but let's leave the study out then for the moment. The fact remains, however, that nobody else made any study at all, and the real point then is that the Commission in prescribing Charleston has perforce adopted this mileage equality assumption when there is absolutely no evidence in the record to warrant it, nothing in the record at all to warrant the equality of mileage assumption that underlies the Charleston Plan, and that the Commission, I take it, cannot do when we object to it, and that, of course, is one distinction. .... The whole point then of our review proceeding in this matter so far as Charleston is concerned is that in seeking to force the Pacific Company to use the Charleston method for separating exchange circuit plant for the purpose of ascertaining the costs of General and West Coast for settlement purposes, that the Commission has prescribed a method which is, first, unlawful because it ignores the actual use principle that the Courts have laid down for use in separation, and, secondly, it has no support in any evidence that is in this record at all, and, in fact, no support in the facts of the case. Now, that is in substance my position on the Charleston issue. 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 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: When rates are in controversy, it would seem to be necessary to find a basis for a division of the total value of the property independently of revenue, and this must be found in the use that is made of the property. That is, there should be assigned to each business, that proportion of the total value of the property which will correspond to the extent of its employment in that business. It is said that this is extremely difficult; in particular, because of the necessity for making a division between the passenger and freight business and the obvious lack of correspondence between ton-miles and passenger-miles. It does not appear, however, that these are the only units available for such a division; and it would seem that, after assigning to the passenger and freight departments respectively, the property exclusively used in each, comparable use-units might be found which would afford the basis for a reasonable division with respect to property used in common. It is suggested that other methods of calculation would be equally unfavorable to the state rates, but this we cannot assume. (p. 461.) 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: Rate-making is essentially a legislative function. Munn v. Illinois, 94 U.S. 113. Congress, to be sure, has pro vided for judicial review of the Commission's orders. § 19. But that review is limited to keeping the Commission within the bounds which Congress has created. When Congress, as here, fails to provide a formula for the Commission to follow, courts are not warranted in rejecting the one which the Commission employs unless it plainly contravenes the statutory scheme of regulation. If Congress had prescribed a formula it would be the duty of the Commission to follow it. But we cannot say that under the Natural Gas Act the Commission can employ only one allocation formula and that that formula must entail a segregation of property. A separation of properties is merely a step in the determination of costs properly allocable to the various classes of services rendered by a utility. But where, as here, several classes of services have a common use of the same property, difficulties of separation are obvious. Allocation of costs is not a matter for the slide-rule. It involves judgment on a myriad of facts. It has no claim to an exact science. Hamilton, Cost as a Standard for Price, 4 Law & Cont. Prob. 321. But neither does the separation of properties which are not in fact separable because they function as an integrated whole. Mr. Justice Brandeis, speaking for the Court in Groesbeck v. Duluth, S.S. & A.R. Co., 250 U.S. 607 614-615, noted that it is much easier to reject formulas presented as being misleading than to find one apparently adequate. Under this Act the appropriateness of the formula employed by the Commission in a given case raises questions of fact, not of law. (p. 589.) 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: Appellant contends that the order of the commission is unlawful, unreasonable, not supported by any evidence, manifestly against the weight of the evidence, and prejudicial to appellant. Ordinarily this court will not substitute its judgment on questions of fact for that of the commission.... [Citations omitted.] It does not appear from an examination of the record that the order of the commission is against the manifest weight of the evidence or is otherwise unlawful or unreasonable. The order is, therefore, affirmed. (p. 514.)