Court Opinion

ID: 9552813
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:17:24.898351+00
Date Added: 2024-06-11T15:29:04.439086
License: Public Domain

Application for Rehearing
Comes now Southwestern Bell Telephone Company, the applicant herein, and moves the Commission for a rehearing in the above entitled matter for the reason that the order or decision of the Commission dismissing applicant’s application for permission to put into effect in Kansas new schedules for its intrastate toll and exchange rate classification is unlawful, unreasonable, improper and unfair. In support of this application applicant states that:
1. Said order or decision of the Commission dismissing applicant’s application constitutes a refusal of the Commission’s consent as required by G. S. 1935, section 66-117, to applicant’s putting into effect new schedules of rates for its intrastate toll and exchange rate classifications and is a direction that applicant continue to furnish said service in the state of Kansas under its presently filed intrastate toll and exchange rate classifications. The uncontroverted evidence before this Commission shows that the presently existing rates for applicant’s intrastate toll and exchange rate classifications are unreasonably low and confiscatory; and accordingly said order is in violation of the statutes and laws of the state of Kansas.
2. Finding No. 4, which is in general a summary of all the other findings, provides as follows:
“There has been no showing in the evidence adduced by the Applicant, Southwestern Bell Telephone Company, as to the actual cost to the Western Electric Company and to the American Telephone and Telegraph Company respectively of such services, materials and commodities, nor is there an itemized statement furnished by the Applicant setting out in detail the various items, cost for. services rendered and material or commodity furnished by the holding or affiliated companies, or either of them.”
From said finding the Commission concludes as a matter of law:
“(2) Under the provisions of Section 3 of Chapter 239 of the 1931 Session Laws of Kansas no charge for services rendered or for materials or commodities furnished by the above named affiliated companies to the Southwestern Bell Telephone Company may be given consideration by the Commission in its determination of a reasonable rate or charge to be made by Southwestern Bell Telephone Company to its rate payers unless there be a showing made by the Southwestern Bell Telephone Company as to the actual cost to the Western Electric Company and to the American Telephone and Telegraph Company, respectively, for such services, materials and commodities.
*476“(3) When all that part of the evidence offered by Applicant which cannot be considered by the Commission by reason of the provisions of the statute is eliminated from the entire evidence offered, there remains nothing in the evidence taken in its most favorable light to the Applicant upon which the Commission can grant to the Applicant the relief prayed for.”
The aforesaid interpretation of said statute by the Commission, as applied in the circumstances of this case, is extreme, harsh, and erroneous and inflicts upon this applicant an impossibility of proof.
3. Section 3 of chapter 239 of the 1931 Session Laws of Kansas does not attempt to specify the amount of itemization and detail which the statement thereby required shall contain and the only reasonable construction of the statute is that the statement shall contain such itemization and detail as is practicable and reasonable in the circumstances of the particular case, having regard both to the nature of the services, material or commodity furnished in the particular case and the purpose which the statute is intended to serve.
4. To determine the actual cost to Western Electric Company, Inc. (hereinafter called Western), of the separate items which it has furnished to applicant and which are a part of the plant of applicant in Kansas would be impossible. In 1946 alone Western manufactured several hundred million items of apparatus and equipment, of which there were approximately 44,000 varieties (each differing from the other) and it manufactured over 150,000 different varieties of piece parts going into those various items.
The actual cost of manufacture of an identical item will vary substantially with variations in volume of production, material prices, wage rates, labor efficiency, amount of overtime and other variables, and it necessarily follows that the actual cost of manufacturing an identical item, even in the same shop, will vary depending on the conditions prevailing at the time of its manufacture.
To attempt to ascertain the actual cost to Western of the items which will be incorporated in the telephone plant in a particular state by keeping job costs on each item or batch of items as produced and then tagging those items through to their ultimate destination so that actual cost so determined could be associated with each item in the telephone plant, would be a task of such tremendous magnitude as to be impossible as a practical matter. Its cost, in the case of many small items, might well exceed the cost of manufacture. Furthermore, statement of costs arrived at by such methods would be unreliable because the opportunity for multiplicity of error would be so great with the vast amount of detailed record keeping and tremendous number of calculations required.
*477Applicant is informed and believes that no corporation manufacturing a large variety of complex products attempts to do its cost accounting in the manner above described or employs a cost accounting system designed to segregate the cost of its sales to a particular customer from the cost of its total sales. The only method by which such a corporation can determine the cost of its sales to a particular customer is by the use of apportionments on the basis of product classes. Applicant relies on the affidavit of Eric A. Camman hereto attached as Exhibit 1 in support of the foregoing allegations.
Apart from articles which it manufactures, Western purchases 'a great variety of supplies from thousands of other manufacturers and suppliers for resale to Bell System companies, including applicant. Those supplies comprise well over thirty thousand varieties of items (each differing from the other). The price paid by Western for those supplies varies, depending on the time and place of purchase, as do Western’s handling and related costs. To tag each such item through to its ultimate usage would be a task of such tremendous magnitude as to be impossible as a practical matter.
5. Even if it had been possible to ascertain the actual cost of each different item furnished to applicant by Western in each year, the task of ascertaining the total cost to Western of all such items by the process of itemization and cumulation would be of such magnitude as to be wholly unreasonable. For the period of 1916-1946, inclusive, applicant estimates that the number of entries on Western’s bills to applicant was in the neighborhood of eighteen million.
6. Applicant showed by the testimony of Burton R. Young the cost of sales of Western to the operating telephone companies of the Bell System separated from its cost of total sales to all customers for each year of the period of 1916-1946, inclusive. To ascertain such costs prior to 1916 would be a task of tremendous magnitude due to the condition of the records for earlier years. Applicant estimates that less than 2 percent of the book cost of its plant in Kansas as of October 31,1947, is represented by charges by Western to applicant prior to 1916.
Applicant also showed by the testimony of said Burton R. Young, Western’s percentage profit on its total sales to Bell customers in each of the years 1916-1946, inclusive, and its percentage profit on sales to applicants alone for said total period. Said testimony showed that said percentage profit on sales to applicant alone was based on a study. Said study shows the costs of Western’s sales to applicant in each of Western’s three main product classes in each *478of the 31 years, the costs of sales to applicant in each of said product classes being obtained by apportionment of the cost of sales within that product class to all Bell Companies. Applicant did not offer this study in evidence, since it believed that the profit to Western was the ultimate fact to be ascertained, and that Western’s cost of sales to applicant was only an intermediate step in ascertaining such profit. A tabulation of the results of said study showing cost of Western’s sales to applicant in each of the three main product-classes in each year is appended as Exhbit A to the affidavit of Eric A. Camman hereto attached.
Said three main product classes constitute the most logical division of Western’s sales into classes. The first class, apparatus and equipment, consists principally of articles manufactured by Western of a highly fabricated character, many of the component parts of which are interchangeable and where the cost of fabrication is the most important single element of cost. The second class, lead-covered cable and wire, consists of products manufactured by Western where the cost of raw materials (principally copper and lead) is the principal element of cost. The third class, supplies, consists of articles purchased by Western from other manufacturers and suppliers for resale, where Western’s costs are composed principally of the purchase price and the cost of purchasing, warehousing and distributing.
Applicant believes that the apportioned total cost of Western’s sales to applicant over the period 1916-1946, inclusive, arrived at by apportionments on the basis of product classes in each of the thirty-one years is more accurate than would be a statement of cost built up by cumulating job costs of individual items, assuming that were possible, and, as set forth in said Exhibit A, is as accurate and in as much detail of itemization as it is practicable to obtain by any method within the bounds of reasonable possibility.
All the operating telephone companies of the Bell System are employed in rendering telephone service of the same general character, with the same general type of plant, which is highly standardized and in which there is a high degree of -uniformity; and sales to applicant over the period 1916 to 1946, inclusive, are a fair cross-section of Western’s sales to all Bell Telephone Companies over that period. The price of any item which Western sells is and has been the same to all Bell Telephone Companies throughout said period. .
Applicant keeps its accounts in accordance with the Uniform System of Accounts prescribed by the Commission and the Federal *479Communications Commission. Such accounts do not show separately the portion of its purchases from Western Electric Company used in its telephone operations in the State of Kansas. However, for the further information of the Commission, applicant has made an estimate of the portion of such purchases used in operations in Kansas on the basis of the relative gross additions to its plant accounts by years for the period from 1916 to 1946, inclusive. It has also estimated the cost to Western of such purchases in the same manner as that used to determine the cost to Western of its sales to applicant shown on Exhibit A of the Camman affidavit hereto attached. The estimated sales and cost of sales apportioned in such manner to the State of Kansas are shown on Exhibit 2 attached.
7. Applicant showed by the testimony of'Harry C. Gretz that the services rendered to the operating telephone companies by the American Telephone and Telegraph Company consist largely of work done on problems common to all of the companies, which can be done more efficiently and more economically in a centralized group than if each company attempted to perform the work itself; that fundamental research, system engineering and standardization and the other centralized services furnished by the American Telephone and Telegraph Company are undertaken on behalf and for the benefit of all of the operating telephone companies simultaneously so that the costs thereof are not susceptible of specific segregation by companies, but must be apportioned.
Applicant showed by the testimony of said Harry C. Gretz the costs to the American Telephone and Telegraph Company of the services rendered to the operating telephone companies separated from all other costs for the year 1946, and an apportionment of such costs by items of expense to the applicant’s operations in the State of Kansas based upon factors shown to be appropriate for each item of expense. Applicant showed such apportioned cost by years for period 1937-1946, inclusive.
The apportioned cost of services furnished by the American Telephone and Telegraph Company to applicant for the years 1937-1946, inclusive, arrived at in the manner above described is accurate and in as much detail of itemization as it is practicable to obtain within the bounds of reasonable possibility.
8. It is impossible to identify the particular purchases from Western over a long period of years which were charged to applicant’s plant accounts and now remain therein, but applicant con*480siders that such purchases probably represent about forty-five percent to fifty-five percent of its total plant investment in Kansas.
The extent to which payments to the American Telephone and Telegraph Company enter into applicant’s operating expense accounts is fully shown by the record in this case.
Applicant estimates that payments to Western charged to applicant’s operating expense accounts, (principally maintenance) for the four months ending October 31, 1947, amounted to approximately $470,000, including payments for both materials and services, or $1,410,000 on an annual basis.
9. The decision and order of the Commission in this case is a departure from the course which the Commission has heretofore taken in determining the character of proof required under section 3, chapter 239, of the 1931 Session Laws of Kansas. In Docket No. 13777, this Commission, the present applicant and the city of Hutchinson stipulated a record pertaining to this subject which went no further, if indeed as far, as the record in this case pertaining to the' same subject. The Commission in reaching an order in that case necessarily accepted said evidence as sufficient proof of the reasonableness of the charges made' for service rendered and the charges for materials and commodities furnished by the Western Electric Company and the American Telephone and Telegraph Company. Such proof as made by the evidence adduced in Docket No. 13777 has been consistently accepted by this Commission in various rate proceedings involving this applicant subsequent to the date when such evidence was presented in said Docket. Formal orders have been issued increasing rates of this applicant in numerous proceedings, including those in Docket Nos. 17441, 18429, 19099, 19206, 19207,19232,19344, 19629-U, 19628-U, 19627-U, 20173-U, 20879-U, 21343-U, 21440-U, 21209-U, 21688-U, 22148-U, 22281-U, and 22402-U, without the requirement of any additional showing on the subject matter at issue herein, except the evidence previously presented in Docket No. 13777. The Commission throughout all of the intervening years has thus interpreted said statute as requiring no more than the character of proof presented in Docket No. 13777 'and in this case.
10. Section 3 of chapter 239 of the 1931 Session Laws of Kansas, historically construed as aforesaid by this Commission, meets the tests of constitutionality. The interpretation of said statute by this Commission in its present order, however, would render said statute void as in conflict with the Fourteenth Amendment to the *481Constitution of the United States in denying applicant due process of law because of the impossibility of compliance as herein alleged.
11. The applicant offers to prove the facts alleged in this application and those contained in the exhibits attached hereto, and if rehearing is granted and this case reopened, applicant will so prove said facts.