Court Opinion

ID: 9794682
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:09:29.785501+00
Date Added: 2024-06-11T08:18:40.702733
License: Public Domain

O’CONNELL, J.,
dissenting.
The majority opinion has subjected the Commissioner’s findings and order to a de novo re-examination, apparently upon the assumption that since a claim of confiscation has been raised by plaintiff company this court has the authority under the so-called Ben Avon doctrine (Ohio Valley Water Co. v. Ben Avon Borough, 253 US 287, 40 S Ct 527, 74 L Ed 908 (1920)) to exercise its independent judgment in re*473viewing administrative action where confiscation is alleged.
Although it must he conceded that Ohio Valley Water Co. v. Ben Avon Borough, supra, has not been expressly overruled, it is patent in the more recent cases decided by the United States Supreme Court that the Ben Avon doctrine is no longer applied by the United States Supreme Court. Alabama Comm’n. v. Southern Ry. Co., 341 US 341, 71 S Ct 762, 95 L Ed 1002 (1951); Railroad Commission of Texas v. Rowan & Nichols Oil Co., 311 US 570, 61 S Ct 343, 85 L Ed 358 (1941); Railroad Commission of Texas v. Rowan & Nichols Oil Co., 311 US 614, 61 S Ct 66, 85 L Ed 390 (1940); Railroad Commission of Texas v. Rowan & Nichols Oil Co., 310 US 573, 60 S Ct 1021, 84 L Ed 1368 (1940). It is also demonstrable, I believe, that the doctrine is not defensible. Brown, The Functions of Courts and Commissions in Public Utility Rate Regulation, 38 Harv L Rev 141 (1924); Davis, Judicial Review of Administrative Action in West Virginia— A Study in Separation of Powers, 44 W Va L Q 270 (1938); Freund, The Right To a Judicial Review in Rate Controversies, 27 W Va L Q 207 (1921); Jaffe, Judicial Review: Constitutional and Jurisdictional Fact, 70 Harv L Rev 953 (1957); Landis, Administrative Policies and the Courts, 47 Yale L J 519 (1938). But cf., Joslin and Miller, Public Utility Rate Regulation: A Re-examination, 43 Va L Rev 1027 (1957).
Whether the issue presented upon review is stated in terms of a “constitutional fact” or otherwise, the judicial power of review should be limited to a determination of whether there was substantial evidence to support the agency’s finding. St. Joseph Stock Yards Co. v. United States, 298 US 38, 73, 56 S Ct 720, 80 L Ed 1033, 1052 (1935) (concurring opinion). *474The scope of judicial review will certainly vary with the type of question presented and with the character of the administrative agency which has made the initial determination subjected to review. Davis, Judicial Eeview of Administrative Action in West Virginia— A Study in Separation of Powers, 44 W Va L Q 270, 369 (1938). But the variation cannot be expressed in the distinction between the reviewability of constitutional and non-constitutional facts. And in neither case should the court propose to substitute its “independent judgment” for that of an administrative agency invested by the legislature with the power to make the determination sought to be set aside.
The court’s function in reviewing administrative action is not to inject its notions of what constitutes good policy or to make its independent judgment as to the reasonableness of the administrative determination. The administrative order cannot be disturbed unless it can be said that the agency’s determination is not supported by substantial evidence. The court’s principal function is essentially the same as that which it performs in reviewing the findings of a jury or of a lower court, namely, to assure those adversely affected by official discretion that such discretion is exercised upon arguably rational grounds. It requires a large measure of conceit for this court to propose to do more. The problems involved in rate making are intricate. The Public Utility Commissioner and his staff are far better prepared than we to solve such problems. Our power to set aside orders not based upon rational grounds is sufficient protection to those affected by the administrative action. Neither Valley & Siletz R. R. Co. v. Flagg, 195 Or 683, 247 P2d 639 (1952), nor Pac. Tel. & Tel. Co. v. Wallace, 158 Or 210, 75 P2d 942 (1938), carefully considered the ques*475tion of the desirable limits of judicial review and should not be regarded as binding upon us.
Even if the so-called Ben Avon doctrine is regarded as a part of our law of judicial review, the record in this case does not contain sufficient data for us to conclude (through the exercise of our independent judgment) that the plaintiff company is entitled to the increase in rates which they seek. The validity of its claim for the requested increase in rates rests upon the validity of the method used in allocating the value of property jointly employed in both interstate and intrastate service. The plaintiff company has the burden of proof to establish that it is entitled to the requested increase. ORS 757.210; Birmingham Electric Co. v. Alabama Pub. Serv. Com’n., 254 Ala 140, 47 So2d 455 (1950); City of Ft. Smith v. Southwestern Bell Telephone Company, 220 Ark 70, 247 SW2d 474 (1952); Antioch Milling Co. v. Pub. Service Co. of Northern Ill., 4 Ill2d 200, 123 NE2d 302 (1954); City of Pittsburgh v. Pa. P. U. C., 182 Pa Super 551, 128 A2d 372 (1957); Application of Chicago & N.W.R.R. Co., 79 Wyo 343, 334 P2d 519 (1959). It follows that plaintiff has the burden of establishing the validity of its separation formula; this it has not done.
Plaintiff has used the Separations Manual in arriving at its allocation of values and expenses. Because the manual is recognized and used by most of the rate regulatory bodies in the United States, including the Federal Communication Commission, there is the temptation to concede its validity, if only for the purpose of arriving at some uniform plan of allocation. But the long and widespread use of the Separations Manual does not endow it with validity and if it is defective the Public Utility Commissioner in this state *476need not accept it as a basis for a requested increase in rates.
Moreover, assuming that the Separations Manual is a rational method of arriving at joint costs, the company has no right to demand its use if the commissioner’s formula for separation is also rational. In such case, even if the Ben Avon doctrine, as modified by the St. Joseph’s ease (298 US 38), is followed, we would be required to sustain the commissioner’s order since in the choice of two rational methods of separation there is, under the principle of the St. Joseph’s case, “a strong presumption” in favor of the conclusions reached by the administrative agency.
Because the plaintiff company has the burden of establishing a reasonable basis for an increase in intrastate rates, it is pertinent to determine whether the method of allocation which it uses is sound. If it is not, the plaintiff is not entitled to an increase in rates irrespective of the alleged invalidity of the commissioner’s proposed basis for increasing the valuation of the intrastate plant.
The Separations Manual allocates the value of the plant employed in interstate and intrastate service upon the basis of actual use. Time studies show average use of 27.22 minutes per day and 0.85 minutes per day respectively for intrastate and interstate use. The company’s allocation was based upon this ratio of uses. Bearing in mind that the ultimate purpose in making the allocation of intrastate and interstate use is to arrive at a reasonable rate, it immediately becomes obvious that the method adopted by the plaintiff is circular. Use determines value; value determines the rate; the rate (for interstate calls) determines use.
*477The vice of the method endorsed by the Separations Manual and used by plaintiff company is not simply that it offends the technical rules of logic; more importantly, the method is subject to criticism because, although it purports to equate use with value, it does so by comparing two different kinds of use, i.e., local use, the frequency of which is unaffected by the flat monthly charge, and interstate use, which is restrained because a toll is imposed upon it. And, as already observed, the rate which affects the use and thus the value is the very thing which the process seeks to determine.
The inadequacy of the method employed by the plaintiff company in the present case has been noted by others. In Public Util. Comm’n. v. New England Tel. & Tel. Co., 80 PUR (NS) 397, 410 (1949), the Maine Public Utilities Commission commented as follows :
“It is clear to us that one patent fallacy in the use of the subscriber line usage factor lies in the fact that the character and extent of the use is to a large degree determined by the nature of the charge. The Company admits that a greater number of long-distance calls, and of greater duration, would be made if such calls were paid for at a flat monthly rate, as is exchange service, instead of on the basis of each individual call and the time and distance involved. Mr. Tozier testified that, based upon experience in the New England Company, the elimination of a 5-eent toll, when adjoining stations are combined, results in a doubling of the number of calls, while the elimination of a 10-cent toll would triple the number of calls, and that resulting conversations increase in length as well as frequency. The elimination of the toll charge on interstate calls which average $1.029 per call would result in an increased use which would be much, though not proportionately, greater.
*478“It is thus apparent that the rates affect the use, while the Company undertakes, by the subscriber line usage factor, to make the use a vital factor in determining the rates. This being so, the method as currently applied appears to us to be unsound. It should at least be so modified as properly to compensate for the different conditions of use in intrastate and interstate service caused by the different method of charging for exchange and toll service.” (Emphasis added).
Others interested in the subject of rate making have criticized the method of allocation contained in the Separations Manual on the same ground. In re Wisconsin Tel. Co., 86 PUR (NS) 79, 83 (1950) the Separations Manual was criticized because “the very usage upon which the allocation was based was, in the case of toll service, deterred by the form of rate applicable to such service and in the case of exchange service unrestrained because of the form of rate.” In New England Tel. & Tel. Co. v. State, 98 N H 211, 97 A2d 213 (1953), the conclusion of the commission’s expert witness was summarized by the court as follows:
“* * * it was Grerrish’s opinion that to make exchange and toll calls comparable units from which to determine the relative use of the subscribers’ line plant, the free and unlimited exchange use must be equated to measured or toll use.” Id. at 216, 97 A2d 213, 217.
The Maine Public Utilities Commission stated that it could “not see how so-called ‘free’ calls can be treated equally with ‘pay’ calls.” Re New England Tel. & Tel. Co., 94 PUR (NS) 65, 78 (1952). Re New England Tel. & Tel. Co., 97 PUR (NS) 410, 417 (1952); Re Wisconsin Tel. Co., 86 PUR (NS) 79, 83 (1950); Public Util. Comm’n. v. New England Tel. & Tel. Co., 80 PUR (NS) 397, 410 (1949). See also, criticism noted in Rose, The Bell Telephone System Rate Cases, 37 *479Va L Rev 699, 730 (1951). But cf., Note, 54 Colum L Rev 431 (1954); Note, 102 U Pa L Rev 689 (1954).①
The criticism leveled at the so-called actual use method of allocation on the ground of circularity is well taken. The separation method being unsound, the commissioner was not required to accept it as the basis for fixing a new schedule of rates for plaintiff company’s intrastate operations. He had the choice of completely rejecting the tariffs submitted by the company until a rational method of allocation was submitted or of modifying the company’s method in some way that would render it sound. The commissioner attempted to eliminate the circularity involved in the *480actual use method by removing the influence of the toll upon the use for interstate purposes. The separation formula could be adjusted to provide a valid comparison of the two types of use, intrastate and interstate, either by determining the effect upon use for local calls by the imposition of tolls or by determining the effect upon use for interstate calls if the tolls were removed. The adjustment either way would be necessary to obtain comparable uses, i.e., uses affected by similar conditions. The commissioner elected to adjust the formula by eliminating the tolls from interstate use. There was no data showing what effect the flat rate applicable to local use would have upon interstate use. But, there were available studies showing the change in use when tolls were lifted from -intrastate service. Bushnell, the defendant’s witness, testified that the company’s experience in Oregon showed that the conversion of toll calls to flat rate exchange service increases the volume of calls three times on the shortest routes and up to six times on longer routes. Similar testimony is found in the reported decisions of other public utilities commissions. New England Tel. & Tel. Co. v. State, 98 N H 211, 216, 97 A2d 213, 217, 99 PUR (NS) 111, 116 (1953); Re New England Tel. & Tel. Co., 94 PUR (NS) 65, 78 (1952); Re Wisconsin Tel. & Tel. Co., 86 PUR (NS) 79, 83 (1950); Public Util. Comm’n. v. New England Tel. & Tel. Co., 80 PUR (NS) 397, 410 (1949).
To arrive at the equivalent of a flat rate for interstate calls the defendant commissioner adopted a factor of three as the basis of adjustment; thus, the actual use for interstate purposes on a flat rate basis was calculated to be three times 0.85, the actual use restrained by the toll. This was a reasonable method of adjusting the obviously illogical and unsound *481method adopted in the Separations Manual and used by the plaintiff company.
It will be noted that the employment of the factor of three to equate interstate and intrastate use does not involve a weighing of the relative value of the respective uses and ascribing to the interstate use a value three times that of intrastate use.② An increase in the time allocated to interstate use will, of course, increase the valuation attributable to interstate service. The factor of three is used not because interstate use is more valuable, but merely to obtain an estimate of the actual time the plaintiff’s plant would be in use for interstate service if no tolls were charged. It is not improper to speak of the use of the factor of three as equalising the value of interstate and intrastate service. This is brought out in Re New England Tel. & Tel. Co., 97 PUR (NS) 410, 417 (1952): “The premise on which the modification of three is based is that free unlimited use must be equated to measured or toll use to produce similar and comparable quantities reflecting the value of service and the measure of this value is clearly shown 'by company experience.” See also, Re Northwestern Bell Tel. Co., 81 PUR (NS) 375, 389 (1949). Witness Bushnell and the commissioner compare the interstate and intrastate service in terms of their relative value to the subscriber. The majority of the court is justified in criticizing this method of comparison. However, the majority opinion makes it appear that Bushnell and the commissioner rested their conclusion solely upon the basis of value to subscriber when in fact Bushnell’s testimony makes *482it clear that the factor of three was used for the same reason as that urged by expert witnesses and commissioners in other cases to which I have previously referred, namely to equate the two uses, interstate and local, upon the same common ground unaffected by the toll charge. This is made evident from the commissioner’s finding referred to in the majority opinion. That finding states in part: “In support of his selection of three as his recommended weighting value, Bushnell refers to the Company’s experience in Oregon showing that conversion of toll calls to flat rate exchange service increases the value of calls three times on the shortest route and up to five or six times on slightly longer routes * * This reference to the increase in the volume of calls when the toll is lifted has nothing to do with the subjective value of a telephone call to the subscriber; it is relevant only to an argument that if frequency of use is the basis for separation the uses compared should be of the same land, and the factor of three is used to equate these two types of use.
The commissioner also made an adjustment of the allocation method adopted by plaintiff company in its separation-of the value of the interchange toll lines. The company’s toll lines consist of two classes; (1) transiting toll circuits which have no terminal in the state and which are used normally only for interstate toll service, -and (2) terminating toll circuits which have both ends in the state and which are used jointly for interstate and intrastate toll calls.
Under the Separations Manu-al adopted by plaintiff an initial allocation is made between transiting and terminating circuits, the unit of which is expressed in terms of average book cost.per circuit mile for each circuit. Practically all the investment computed for *483transiting circuits is assigned directly to interstate service. The total investment computed for terminating circuits is allocated between intrastate and interstate service.
The commissioner criticizes the company’s system of separation of costs for the interexohange service on various grounds.③ The commissioner’s criticism of the separation made by plaintiff rests principally upon the premise that the plaintiff’s operations in Oregon are a part of a unified operation extending throughout the entire Bell System. For that reason the commissioner was of the opinion that the transiting circuits and terminating circuits should be considered together in arriving at the valuation of the plant within the state of Oregon. Treated together the lower unit cost per message minute mile from the operation of the transiting lines with a high density of *484traffic is averaged with the higher unit cost per message minute mile of the terminating circuits with a low density of traffic.
Further, because of the unified nature of the plaintiff’s operations throughout the United States the commissioner deemed it reasonable to adjust the method adopted by the company in separating the value of terminating toll circuits in Oregon. The company’s allocation between interstate and intrastate costs was based upon the relative message-mile-minutes of use within the state. The commissioner adopted the plan recommended by witness Bushnell under which the operation of the Bell System throughout the United States is used to determine the average cost of a message per minute miles based upon its total investment in the entire toll circuit plant of the Bell System. This nationwide average is then applied to the intrastate message-mile-minutes of the plaintiff company’s operation in Oregon to arrive at the valuation of the intrastate toll plant.
The commissioner found that there was sufficient data from which to compute the allocation upon the foregoing basis. Plaintiff contends that the separation method adopted by the commissioner is unlawful, principally because it is based upon the average investment of Bell System companies throughout the country rather than upon the actual investment of the plaintiff in Oregon and, therefore, results in a dilution of plaintiff’s actual intrastate investment. If the plaintiff’s operation in Oregon is a part of a unified system throughout the United States, it is reasonable to consider the value of that system as a whole and the proportionate part of that value which is represented in the Oregon operation.
*485Robert Y. Thornton, Attorney General for Oregon,
The commissioner’s order was based upon rational grounds and should be sustained.
Sloan, J., concurs in this dissent.

 The Separations Manual has been criticized on other grounds. Re Michigan Bell Telephone Company, 32 PUR3rd 395 at 403, in commenting upon the actual use basis Commissioner Lee, in a dissenting opinion, said: “The plan is based on the unrealistic theory that the time the telephone is used on a local call is just as valuable as the time the telephone is used on a toll call. This clearly is not true as the company itself derives substantially more revenue from the toll call.” A similar criticism is made in Re New England Tel. & Tel. Co., 82 PUR (NS) 590 (1949). Re Illinois Bell Tel. Co., 92 PUR (NS) 164, 204 (1951) criticizes the manual’s procedure because it ignores economic reality: “The ‘use’ theory on which the Manual is based ignores the economic facts. In the first place, company witnesses agreed that the interstate business, which consists entirely of toil business, is more unstable than the intrastate business, which consists largely of local exchange business. The ‘use formula’ has the effect of shifting this instability so that the intrastate and interstate businesses bear it in proportion to their magnitude. Since the intrastate business is much the larger part, the result is that it bears most of the effects of the instability of the interstate business.
“Furthermore, the separations give the entirely false impression that there are two distinct businesses existing side by side without relationship to each other. In fact, the interstate business could hardly operate profitably by itself, although the intrastate business could stand alone. The combination of the two appears to be more profitable because the two services are provided through use of the same equipment and through reliance on operation by the same personnel in large part.” See also Re Northwestern Bell Tel. Co., 81 PUR (NS) 375, 389 (1949); Public Util. Comm’n. v. New England Tel. & Tel. Co., 80 PUR (NS) 397, 411 (1949).

 See Public Util. Comm’n. v. New England Tel. & Tel. Co., 80 PUR (NS) 397, 411 (1949), where it is pointed out that the employment of such a factor “makes no change based upon the value of service.”

 These grounds are summarized in the commissioner’s order as follows: “First in the Company’s failure to recognize that the investment and expenses of toll circuits are all really joint costs of one unified toll operation and should be treated as such, since the interstate circuits are not separately identifiable in the Company’s primary accounting records but are intermingled in these records with the data on investment and expenses of the other toll circuits and even with other classes of plant. This defect is particularly well illustrated in the treatment of the investment in spare circuit facilities, which is spread over both transiting and terminating circuits without the benefit of any knowledge of the purpose for which it will be actually used. Second is the difference in treatment which the Company accords interstate transiting circuits and those terminating circuits which are used for interstate service. Third is the failure of the Company to give appropriate recognition to the fact that the toll network which is spread throughout the state serves as a branch line or feeder system for the long distance circuits. Related to this is the resulting failure of the Company to follow the practice not uncommon in other utility regulation, of charging the backbone line service with some of the costs of the feeder operations which give maximum usefulness to the main line and hence enhance its value to the point of warranting the heavy investment required in the main line.”