Court Opinion

ID: 9624000
Source: CourtListenerOpinion
Date Created: 2023-08-22 06:48:31.068733+00
Date Added: 2024-06-11T09:53:26.966505
License: Public Domain

LATOURETTE, J.,
DISSENTING.
The majority opinion in this case would perhaps be correct if the matter turned solely on the interpretation of Ch. 132, Or. Laws, 1945, which amends § 1 of Ch. 441, Or. Laws, 1933, relating to the power of the Commissioner to regulate, restrict and control budgets of expenditures of public utilities, but it seems to me that § 2 of Ch. 441, Or. Laws, 1933, which is § 112-482, *397O. C. L. A., and a part of the law as amended, must be considered to arrive at a correct solution of the matter. For some reason, this section was not briefed, argued or urged by any of the parties to the litigation and was not considered in the majority opinion. Section 2, supra, is as follows:
“No public utility doing business in this state shall make any payment or contract to make any payment, directly, or indirectly, to any person or corporation having an affiliated interest, for service, advice, auditing, accounting, sponsoring, engineering, managing, operating, financing, legal or other services, or enter any charges therefor on its books, which shall be recognized as an operating expense or capital expenditure in any rate valuation or any other hearing or proceeding, until the propriety and reasonableness of any such payment, or contract for payment, shall have been submitted to and approved by the commissioner.
“No public utility doing business in this state shall enter into any contract, oral or written, with any person or corporation having an affiliated interest with relation to the construction, operation, maintenance, leasing or use of the property of said public utility in Oregon, or any part thereof, or for the purchase of property, materials or supplies, which shall be recognized as the basis of an operating expense or capital expenditure in any rate valuation or any other hearing or proceeding, unless and until such proposed contract has been submitted to and approved by the commissioner. When any such proposed contract has been filed with and submitted to the commissioner he promptly shall examine into and investigate the same to determine whether it is fair and reasonable and not contrary to public interest. If, after such investigation, he shall determine that it is fair and reasonable and not contrary to the public interest, he shall enter his findings and order to this effect and serve a *398copy thereof upon the public utility,, whereupon the contract may lawfully be recognized for the purposes aforesaid entered into. If, after such investigation, he shall determine that the contract is not fair and reasonable in all its terms and is contrary to the public interest, he shall enter his findings and order accordingly and serve a copy thereof upon the public utility, and it shall be unlawful to recognize said contract for the purposes aforesaid.
“No public utility shall issue notes or loan its funds or give credit on its books or otherwise to any person or corporation having an affiliated interest, either directly or indirectly, without the approval of the commissioner.
“The action of the commissioner with respect to each and all of the foregoing matters when submitted to him, shall be by findings and order to be entered within 90 days after the matter has been submitted to him for consideration, and the findings and order of the commissioner with respect to any of such matters shall be and remain in full force and effect, unless and until set aside by suit brought and prosecuted, as provided in sections 112-454 to 112-458, inclusive, and the public utility, or any other person or corporation affected by any such findings and order, may bring and prosecute a suit to set aside such findings and order, or any part thereof, as provided in said sections.”
We see from the above that the propriety and reasonableness of the “contract for payment” must be submitted and approved by the Commissioner. We further observe that after an investigation, he has the authority, if he determines that the contract is n.ot fair and reasonable and is contrary to public interest, to enter findings and an order accordingly, and it shall therefore “be unlawful to recognize said contract for the purposes aforesaid.” The Commissioner made the following findings:
*399“IV.
“That there is no relationship between the actual cost to the American Telephone and Telegraph Company of rendering license services to the Oregon area of The Pacific Telephone and Telegraph Company and the payments required to be made under the license contract based upon a percentage of gross revenues.”;
and,
“V.
“That it is contrary to the public interest, the interest of The Pacific Telephone and Telegraph Company, its minority stockholders, and its rate payers in the Oregon area to permit it to continue to make percentage of gross revenue payments to the American Telephone and Telegraph Company, pursuant to the provisions of the license contract.”;
and thereafter entered the following order:
“Now, therefore, based upon the foregoing findings, the Commissioner conculdes that the provisions of P. U. C. Oregon Order No. 21057 are fair and reasonable and are in the public interest, and that said Order will permit The Pacific Telephone and Telegraph Company to pay the American Telephone and Telegraph Company the actual cost to it of any service of value to The Pacific Telephone and Telegraph Company.”
It is clear to me that the findings and the Commissioner’s order, supra, included an attack on the license contract itself, as well as on the expenditures under the contract.
In the ease of The Pacific Telephone and Telegraph Co. v. Public Utilities Commission of State et al., (Cal.), 215 P. (2d) 441, cited in the. majority opinion, the Supreme Court of California held the license contract *400involved to be legal. One of the reasons for upholding the legality of the contract was that the law of California was not broad enough to give the Commissioner authority or power to regulate payments under the contract. However, the court said:
“Many state legislatures, not satisfied that the indirect control of payments between affiliated utility corporations through rate regulation was adequate to protect the consumer and investor from the possible abuses that could arise out of contracts between the affiliated corporations, enacted statutes specifically granting to their commissions power to regulate payments under such contracts. See, 49 Harv. L. Rev. 957, 982-989.
“In the absence of express statutory authority it has generally been held that a commission’s control over contracts between affiliated corporations is limited to disallowance of excessive payments for the purpose of fixing rates.
(6 s/? ^
“In developing a nationwide telephone service, American has adopted the legally sanctioned practice of conducting its local operations through subsidiary operating companies. It employs a method it considers reasonable in apportioning the costs of the services rendered by it to its subsidiaries among them. The contract embodying that method cannot be differentiated from other contracts by which utilities secure labor, materials, and services, except on the theory that the judgment of management is suspect on the reasonableness of expenditures in contracts with affiliated corporations as it is not in other contracts. There is no public policy against affiliated corporations, however, and the commission can treat them differently only to the extent the Legislature so provides or to the extent that they are used as a device to defeat the exercise of powers the commission has been granted. The *401Public Utilities Act is silent on the question of affiliated corporations, and only the Legislature can properly decide whether they present such dangers of abuse that the commission should have broader regulatory powers over them than it now has. ”
There were two strong dissenting opinions in that case. I quote from that of Mr. Justice Carter:
“The question here presented is not complex. The Pacific Telephone and Telegraph Co., an operating communications utility in California, is completely dominated and controlled by the American Telephone and Telegraph Company, a New York corporation, whose main function is to hold stock in and furnish various services to local telephone operating corporations throughout the country, most of which are controlled by it through stock ownership. American enters into purported license fee contracts with its numerous affiliates, including Pacific, under which the affiliates pay a percentage of their gross revenue for the services to be rendered by American. It is conceded that in fixing rates for Pacific, our Public Utilities Commission may ignore the percentage basis of compensation under those contracts and allow only so much as is the reasonable value of such services or the cost thereof to American. The sole question is whether the commission has authority to approve or disapprove such contracts. I believe there can be no doubt of such power. It arises (1) by necessary implication, and (2) by the wording of the Public Utilities Act.
“* * * (Quotations from Harv. Law Rev. and St. Louis Law Rev. are omitted).
“Those considerations point up the vital importance of the power of the commission to disapprove such contracts as a part of rate regulation and of the necessity that the ability of the utility to serve the consumers be not impaired. I cannot believe that the Legislature intended to leave *402the commission. impotent to cope with those conditions. It may be that some measure of protection is afforded by the power to refuse to recognize the license fee contract when fixing rates, but having that power, it of necessity follows that they may lock the door before the horse is stolen. If they may affect the utility management indirectly by subsequent action, surely they may take precautionary measures in advance.
The Alabama Utilities Commission has pertinently observed in this connection: ‘We cannot conceive that it will be contended that a Commission is without authority to halt a raid on the treasury of the operating utility on the plea that we have no right in law to manage the property. From our point of view, it is not an assertion of management, but rather an assertion of reasonable control over practices which the Commission has a right to prevent and should prevent before the injury has been done, if it is possible for us to arrive there in time.’ (See, Ee Southern Bell Tel. & Tel. Co., P. U. E. 1932E, 207.) Certainly it was intended that the commission would have the power incident, and indeed vital, to protect the consumer from improvident waste of funds to the detriment of the service. They surely have the power to accomplish directly that which they may do by indirection. While it may be that there is no showing in the case at bar that the payments to American here involved will seriously jeopardize Pacific’s consumer service capacity, that is not necessary, for the situation is so fraught with potential and inherent dangers that this court should not overrule the commission’s judgment that preventive advance action is necessary. It must be remembered that these license fee contracts are not true contracts made at arm’s length or on an open market. They are between corporations, one of which is controlled by the other. As such they are subject to suspicion and therefore present dangerous potentialities. It seems plainly obvious to me that if payments for such services *403are regularly supervised by tbe commission, it will not only inure to the consumer’s benefit, but will also put the utility in the advantageous position of knowing where it stands, thus escaping the risk of making excessive payments which will not be allowed in its rate base. That the commission has such implied power is squarely declared by the Public Utilities Act. ‘The railroad commission is hereby vested with power and jurisdiction to supervise and regulate every public utility in the state and to do all things, whether herein specifically designated or in addition thereto, which are necessary and convenient in the exercise of such power and jurisdiction.’ (Public Utilities Act, Stats. 1915, p. 115, sec. 31; Deering’s Cal. Gen. Laws No. 6386.)
‘ ‘ Secondly, it is clear that section 32 of the Public Utilities Act, quoted in the majority opinion, must be interpreted as empowering the commission to regulate the purported contracts here considered. The literal wording thereof requires it.
“Pear is expressed that if the instant contract is subject to approval by the commission, all other contracts or expenditures of a utility may be scrutinized in advance. Whether or not that fear is well founded is not necessary to consider. I say only that the license fee purported contract between the operating utility and its dominating father, Pacific and American, may be so treated. There is a clear difference between such arrangements and others. They are not true contracts made at arm’s length. They are definitely subject to suspicion and potent with possibilities adverse to the interests of the consumers.
“It must be conceded that the contract here in question was executed by officials of Pacific who were elected by American as the principal stockholder of Pacific and owe their allegiance to American. To say that such a contract is beyond the regulatory power of the Public Utilities Commission, when it may endanger the ability of Pacific to serve its customers, is a step backward in the *404public utility regulation and may open the door to abuses seriously detrimental to those dependent upon service from public utilities. While I think it is clear that the Public Utilities Act expressly empowers the commission to regulate such contracts in the public interest, there can be no question that it was the intention of the Legislature to confer upon the commission all the power necessary to protect the public interest. This, the majority overlooks in placing a strict and strained construction upon the provisions of the act in order to arrive at the conclusion reached.
“I would deny the writs and affirm the orders under review.”
Since the legislature has expressly given the Commissioner the power and authority to pass on the propriety and reasonableness of the license contract herein involved and the commissioner has made a finding and has entered an order that such contract is contrary to public interest, I believe his order was legal and pursuant to law. I therefore dissent.