NJ Bell Tel. Co. v. DEPT., BD. PUB. UTILITY COMM'RS

Heher, J.

(dissenting). On August 15, 1951 the Board of Public Utility Commissioners determined that the “indicated rate of return under present rates for the year 1951 on the rate base found * * * is clearly not insufficient”; but the Board recognized that “there are uncertainties as to the future” which defied prediction with “any degree of accuracy,” and gave assurance of “necessary corrective action” under its continuing jurisdiction should “the resolution of present uncertainties result in an imposition of burdens on the Company not reflected” in the Board’s judgment’.

The net investment rate base was found to be $255,836,000. The operating revenue for 1951, less operating expenses, taxes and miscellaneous income deductions, was estimated at $15,-536,300, or an indicated rate of return of 6.07% on the rate base adopted by the Board. After disallowing certain claimed items of operating expense, as not deductible “in testing the reasonableness of rates,” i. e., rate case expenses, charitable contributions and donations, service expense accruals, payments to the parent company for general services and licenses, the indicated rate of return on the rate base found would be 6.23%, increased to 6.37% by the Board’s refusal to recognize as reasonable a change in separation procedure involving toll private line service.

On August 29, 1951 the Company interposed a petition for a rehearing, setting forth, inter alia, error in the Board’s conclusions and a substantial change of circumstances, and praying for leave to present additional evidence to show, in particular, “the continuing and growing impact of inflation upon its operations,” the imminence of higher tax rates imposed by the Congress, and “the continuing increase in other elements of cost,” and “the effect of such increases in costs as may have occurred subsequent to the closing of the now existing record in this case,” to the end that the Company “be granted such rate relief as may be just and reasonable.”

*604 On April 18, 1952, before action taken on the petition for a rehearing, the Company advised the Board, by letter, that since the Board’s determination there had been a general increase in wage rates, and the federal income tax rate had been increased from 47% to 52%, effective retroactively to April 1, 1951, the “cumulative effect” of which had been “a serious impairment of the Company’s financial position,” and urged that the petition for a rehearing be “granted promptly and that among other things the new tax rate, the changes in separations and the increased wage rates which have resulted in impositions of burdens on the Company be reflected in the Board’s decision on a rehearing.” This was followed, at the instance of the Board, by a supplemental petition for a rehearing, embodying these subsequent economic changes affecting the rate of return: (a) a retroactive rise in federal income taxes, stated supra, increasing the Company’s intrastate expenses “in an amount that could be offset by no less than $2,660,000 in additional gross revenue”; (b) changes in separation procedures, pending at the time of the Board’s determination, which benefited the Company’s intrastate operations “by the equivalent of $3,016,000 additional gross revenue on a going basis on the 1951 levels of business”; and (c) increases in general wage rates, at the demand of three labor unions upon wage contract expirations, which in effect “reduces this Company’s earnings in an amount that could be offset by no less than $4,762,000 in additional gross revenues.” It was alleged in the petition that the “cumulative result of these changes which have been resolved and which were not reflected” in the Board’s decision “is to adversely affect the intrastate operations of the Company by an amount which can be offset by no' less than $4,406,000 in additional gross revenue based on 1951 level of business on a going basis.” Again, it was urged that the Board “promptly grant a rehearing.”

The Board heard oral argument on the petition. The intervenors offered no objection to a rehearing related to economic changes occurring after the Board’s determination, and to the granting of such relief “as may be just and *605 reasonable” in consequence of the subsequent increase in taxes and operating costs. Later on, the Board ordered the submission of “data compiled and submitted for the year 1952 similar to that reflected in Appendix £A’ ” attached to the supplemental petition for a rehearing; and there was compliance with that direction.

On September 18, 1952 the petition for a rehearing was denied. The Board found that “the indicated rate of return for .1951 on the Board’s Decision Basis,” as shown by Appendix “A” attached to the supplemental petition for a rehearing, would have amounted to 5.54% “after allowing for the annualized effect of higher Eederal Income Taxes, the changes in the separation procedures as well as the increased wages aforementioned”; but that the data submitted “also reflected the effect of lower depreciation rates which were authorized to become effective for the year 1952,” and in fact indicated “a rate of return of 5.66% on the Board’s Decision basis,” and “neither the 1952 data submitted by the Company nor the comparable data for 1951 shown in Appendix £A’ ” reflect “any savings which the Company might realize as a result of reductions in Western Electric prices effective April 1, 1952 and August 1, 1952,” nor “savings which may result from allocation” to the Company “of some portion of the total savings realized by the Bell System through the filing of a consolidated income tax return.”

The conclusion was that rates fixed by the Board “are operative prospectively,” and the yield is a “matter of estimate,” and “may be more or less than the estimated yield because of changes in operating and economic conditions,” and the fact that “the yield in a given period is more or less than estimated does not of itself indicate that the rates fixed are excessive or insufficient or that the return is unfair”; that whether “an actual increase over or decrease under the estimated return and rate of return is such as to warrant action by the Board must rest in the Board’s sound judgment and discretion on all of the facts before it,” and it was not shown that “the indicated rate of return which may or may not prove to be the actual rate of return for the year 1952 *606 is not within reasonable indicia of the fair rate of return” for the Company, and therefore a further hearing was not warranted at that time.

I consider this action arbitrary. Concededly, in the Company’s altered economic circumstances, the reaffirmed rate of return will be substantially less than that found to be just and reasonable on the original determination. If the rate of return was just and reasonable under the circumstances existing at the time of the original determination, then it is insufficient under the Company’s present economic burdens. I conceive it to have been the Board’s duty to hear evidence bearing upon the adverse changes in the Company’s economic position, and then to fix a rate just and reasonable under the new circumstances; and I would vacate the determination and remand the cause to that end.

It will not do to say that the Company may seek relief in a new and original proceeding. That would entail expense that would ultimately fall upon the public, and result in delay prejudicial to the Company. It is not in accordance with accepted standards of economy and efficiency in the administrative process. The Board was unsure of the immediate future; it promised “corrective action” if economic changes then not improbable eventually materialized; and the petition for a rehearing merely invoked this reserved jurisdiction.

Oliphant, J., concurs in this dissent.

For affirmance — Chief .Justice Vanderbilt, and Justices Wachenfeld, Burling and Jacobs — 4.

For reversal — Justices Heher and Oliphant — 2.