Opinion ID: 2290707
Heading Depth: 1
Heading Rank: 5

Heading: Motion to Reopen and Exceptions to Final Order

Text: The hearings in this case before the commission took place during the summer and fall of 1949. The findings were filed February 20, 1950, and were based upon estimates, since figures upon actual operating experience were only available for the latest twelve months ending August 31, 1949. On March 13, 1950, the company filed a motion to reopen the hearing for the limited purpose of the presentation of evidence as to the Company's actual operating results during the year 1949. There were numerous grounds, among which were that the proceeding involves the determination of just and reasonable rates for the period commencing January 1, 1949, that the Company has been collecting rates under bond and subject to refund, that the findings indicate that a refund will be ordered, and that the commission's findings based upon estimates differ materially from the actual results of the company's operations in 1949. This motion was denied subject to exception. The final order established a schedule of rates to be effective as of January 1, 1949, and directed a refund of all rates collected since that date, in excess of the rates so established. To this the company excepted on numerous grounds, among which were, that the order is without justification by the facts found, and that the effect of such order in the circumstances is the taking of the company's property without due process of law and without adequate compensation and without its consent contrary to the provisions of the second and ninth Articles of the Constitution of the State of Vermont. We will first discuss the exceptions to the final order. The company says that the order not only prospectively set rates for the future, but also retroactively set rates for the past and especially for the calendar year 1949, and ordered the company to make refunds of a portion of the revenues collected under bond during 1949 and the first four months of 1950. It says that the commission had the duty to determine just and reasonable rates for two different and distinct periods. It had a duty to set rates for the future on the basis of anticipated and foreseeable future conditions, and had a duty to retrospectively set rates for the past. These latter were to be set according to a different standard, viz., the actual experience of the period for which the rates are set. The two duties are separate and distinct and the standards to be applied are different. The commission failed in its duty to determine the reasonableness of past rates on the basis of experienced costs, but instead arbitrarily applied its estimates of future costs to a past period where it knew and expressly stated that its estimates varied materially from the experienced costs. The commission made estimates of what the company's future expenses would be. In many instances its estimates were based upon the future leveling off of extraordinary expenses which admittedly were incurred during the first eight months of 1949. Estimating future expenses by normalizing past expenses may sometimes be justified by unusual circumstances. But the commission did not confine its normalizing to future rate making. It retroactively applied its normalized future estimates to the past period of 1949. In so doing it expressly disregarded actual expenditures prudently incurred in that year. Its refunding order is based upon this expressed disregard of the experience of the very period to which it applied. The company says for the reasons above stated by it that such an order is void and cannot stand. Our attention is called to the following statements in the report: In determining operating expenses which should be allowed to the petitioner in this cause, we are well aware that actual operating experience of the petitioner as lived during the year 1949 may well produce results which stand at a level higher than the allowance made by this Commission in these proceedings. We can afford no guaranty of accuracy of conclusions for any single twelve-months period. Our investigation has been directed to a study of the latest available facts as well as to the expectancies of the relatively near future, mindful that estimates proper and just today may become outmoded tomorrow. The same inherent weakness applies with equal force to actual operating results available today. The ever-varying curves in all of the voluminous charts and graphs presented for our consideration in all matters relative to the telephone enterprise bear witness to the truth of this assertion. However, the rate-making process is entirely too cumbersome and prohibitively expensive to permit a re-examination from day to day or even year to year. `In an industry subject to these rapid changes, the prophecies for one year are likely to be overturned by the experience of the next.' Cardozo, J. in Dayton P. & L. Co. v. Public Utilities Comm., of Ohio, 292 U.S. 290, 305, 54 S.Ct. 647, 78 L.Ed. 1267, 1278; Petition of Central Vt. Pub. Serv. Corp., 116 Vt. 206, 71 A.2d 576. Rates should and must be fixed for a reasonable time in the future. We have endeavored to properly interpret trends and probable effects that present causes will produce. For these reasons, we believe it improper as well as impossible to gear our estimates and judgment resting thereon to any single year without adjustments for expectancies in the relatively near future. We trust that rates here established will be operative beyond the single year 1949, that they may extend into the future with a quality of stability vital to the welfare of both the Company and the public. Account 604  Repairs of Central Office Equipment. During the period which is to immediately follow, the Vermont telephone plant will be without a part of the old manual central office equipment which has been replaced by entirely new, step-by-step dial equipment. It seems entirely reasonable to us that the over-all maintenance cost of central office equipment should be materially reduced by such new installations. Eliminating the period for minor adjustments after the new units go into service, maintenance expense on new equipment should be considerably less than that required for the upkeep of the old central office equipment. With the adjustments which we deem proper for repairs of central office equipment indicated by the actual experience of the first seven months of 1949, and proper adjustment allowed for extraordinary conditions during that period, we find that expense under this account should be allowed in the amount of $135,000. Account 607  Station Removal and Changes. The Company's estimates as to this account were based on actual experience of the immediately preceding months. This estimate is unduly high in our judgment by reason of the fact that it reflects extraordinary expense incident to the active construction program in 1948-1949. The Company informed the Commission that in the instance of St. Johnsbury and Bennington as well as all manual office exchanges which were converted to dial, it is necessary for the company to perform maintenance chargeable to this account on each individual telephone station in the exchange in order to prepare the plant for the conversion. Also, this account has been unduly inflated by reason of the efforts of the Company to comply with the excessive demand for new stations and upgrading of service immediately following the termination of the war. The record affirmatively indicates that this phase of plant expansion has reached its peak and is now levelling off with an actual decline in the number of stations. Charts submitted by Witness Hill in support of State's Exhibit 105 fairly reflect these trends and the projections on which his estimates are founded appear to us to be well considered. We find that the revision of its construction program by the Company will have the effect of producing a more rational balance in maintenance costs. We find that maintenance expense related to Station Removal and Changes, Account 607, should be allowed in the amount of $125,000. The commission in its report allowed under Account 605  Repairs of Station Equipment, $300,000. It later amended this, and its report under Account 607, by taking $20,000 from Account 605 and adding that amount to Account 607, stating: We have determined that the effect of dial conversion at St. Johnsbury and Bennington as related to station equipment introduced an exaggeration of such maintenance charges in the amount of substantially $20,000. By reason of the fact that it was necessary for the company to perform maintenance as to each individual telephone station included in the communities served by dial equipment at its central offices, the overall result of our maintenance account allowance is unaffected by the error above referred to. We, therefore, find that our allowance of Account 607 should be increased to the amount of $145,000 by removing this factor and Account 605 should accordingly be reduced to $280,000 in order to correctly assign the effect of dial conversion upon maintenance of station equipment under the proper account. This does not affect our allowance of Maintenance Expense in the amount of $1,060,000 which amount is reaffirmed.