The opinion
MOSK, J., Concurring and Dissenting.
I concur with the majority opinion except for its approval of the commission’s authorization for Pacific to include $11.5 million spent on advertising as an operating expense.
By way of introduction I point out that several years ago Pacific attempted to include in operating expenses all the dues it paid to chambers of commerce and the contributions it made to charities. In decision No. 67369 the commission disallowed over half of that amount, observing that “Dues, donations and contributions, if included as an expense for rate-making purposes, become an involutary levy on rate-payers, who, because of the monopolistic nature of utility service, are unable to obtain service from, another source and thereby avoid such a levy. The commission then ruled that all such expenses would be disallowed in the future, and we held this to be “the correct rule.” (Pacific Tel. & Tel. Co. v. Public Util Com. (1965) 62 Cal.2d 634, 668-669 [ 44 Cal.Rptr. 1 , 401 P.2d 353 ]; see also id. at pp. 676-677 (concurring opn. of Mosk, J.).)
By the same token I believe that in the present proceeding the com *360 mission should have eliminated all of Pacific’s claimed advertising costs in its calculation of operating expenses for rate-making purposes. Advertising is generally designed to create goodwill. I submit that the cost of promoting company goodwill should come out of the pockets of stockholders rather than ratepayers. My conclusion in 1965 regarding voluntary contributions applies equally well here: “A dissatisfied, stockholder may seek to change the policies of a corporation, defeat the directors, or sell his stock investment. No comparable alternatives are available to a monopoly ratepayer, whose only choice is to pay the full bill sent to' him —for services rendered and gifts made in the name of the company—or abandon the use of his telephone.” (Pacific Tel. & Tel. Co. v. Public Util. Com., supra, at p. 677 (concurring opn.).)
The advertising of the utility falls into two categories. The first, service informative advertising, according to testimony before the commission, is designed “to inform, advise, instruct and solicit the cooperation of telephone users in making the most efficient use of the telephone. Subjects covered include: direct distance dialing and area codes; directory assistance calls; use and posting of emergency numbers; correction of billing; promotion of goodwill through ‘we’re here to help’ campaign; advice on how to handle malicious, obscene or harassing calls; repair service; buried cable; open house, and public service.”
Public instruction which is deemed necessary to proper use of telephone facilities can adequately be provided in the informational pages of the annual telephone directory. By definition, the item for “promotion of goodwill through ‘we’re here to help’ campaign” is calculated merely to foster goodwill. And advice on how to handle obscene telephone calls is properly a function of law enforcement agencies. Thus I would eliminate all the costs attributable to- the first category.
The second category, service promotional advertising, according to testimony before the commission, is designed “to- stimulate the use of revenue-producing attachments, extensions, etc., or to stimulate long-distance calling.” This type of advertising is also suspect.
1 find it incongruous that the utility should be encouraged to expend sums for advertising to stimulate the public to make telephone calls at the very time it is seeking substantial funds for new equipment because of the overtaxing of present facilities. Nor can, I justify promotion of sales of attachments, extensions and similar devices, many of which are more decorative than functional, as an essential item of operating expense chargeable to ratepayers. Such cost should be added to- the charge for the device itself, but not constitute a levy upon ratepayers generally.
*361 In the abstract sense, of course, the judiciary is not well placed to reexamine each and every item of accounting that has heretofore been considered by the staff and members of the regulatory commission. On the other hand, the staff member who testified on the subject of advertising at the commission hearing conceded that “A review was made of the types of advertising used but no in-depth study was made as to the cost vs. benefits of such advertising.” (Italics added.) I would refuse consideration of all advertising expenses for rate-making purposes, at least until such time as an appropriate in-depth analysis has been made.
While $11.5 million may not be a substantial percentage of the total operating expenses of this vast public utility, nevertheless it is not a trivial sum when expended by a corporation which operates as a monopoly bearing the imprimatur of the state. It is obviously a highly visible use of the ratepayers’ money, and appears to stir up considerable public resentment. The commission’s decision itself recognizes that “The item, of Pacific’s expenses which was subject to the most criticism of public witnesses is advertising.” I can only conclude that the commission should have paid greater heed to the sensitivity of the public it is created to serve.
The petitions of respondent Public Utilities Commission and real party in interest for a rehearing were denied July 12, 1972, and the opinion was modified to read as printed above.