New York Telephone Co. v. Maltbie

Hill, P. J. The Public Service Commission, by its order of May 1, 1930, fixed a schedule of local rates for petitioner. Later in the same year toll rates were fixed by a separate order. In the opinion which accompanied the May first order it was determined that an income of $37,734,154 from net telephone earnings was required in 1930 to permit petitioner to pay its operating expenses and receive an adequate return upon the fair value of its property used and useful in the public service. Among the many items that went to make up the total, the Commission permitted petitioner to charge twenty-five cents a month for a hand telephone above the rate charged for a desk phone. The subscriber chose the type of phone he desired, but was required [430] to pay the additional twenty-five cents a month for the hand set. From the evidence it appears that the income received by petitioner each year under the 1930 schedules has been several millions below the $37,734,154 which the Commission had found was necessary to pay expenses and a reasonable return. However, the 1930 schedules remained unchanged until 1933, when the proceeding under review was begun by the Commission acting first upon the complaint of a subscriber who used a hand set. At the time of the hearing, about 800,000 hand telephones were in use. By the order under review, the charge of twenty-five cents a month was reduced to fifteen cents á month, thereby lessening petitioner’s annual net earnings by about $1,000,000. The Commission justified the reduction by a finding that there was little, if any, difference in expense to petitioner between hand and desk phones. Upon the hearing, petitioner attempted to. offer proof along two lines: (1) That the differential between hand and desk phones was justified because of the great development expense of the former and because of the greater cost of maintenance; (2) that the total net earnings under the rates fixed in 1930 did not give an adequate retrun and thus that further reduction could not be made legally. Proof was allowed on that branch of the case which I have designated (1), but all evidence as to general inadequacy of return and confiscation was excluded over the objection of the petitioner. The Commission determined that the differential between hand and desk sets did not affect the general rate structure, for the reason that the telephone instrument is not an integral part of the telephone system. The Commission’s brief, in discussing the decision in United Railways & Electric Co. of Baltimore v. West (280 U. S. 234), says: “ Another distinction between the West case and the present one is that the ‘ Halethorpe Line ’ was there found to be an ‘ integral part of the railway system ’ whereas here the hand set telephone is not an integral part of the telephone company’s system.” This argument is not impressive. A hand or desk telephone set, disconnected from the lines and equipment of the entire system, would be of little use. Through its mouthpiece, we project the spoken word to any one of the millions of subscribers, using all the varied and wonderful mechanisms of the entire system, each functioning with it to give us the service for which we pay. Without the visible telephone set, all the wires, cables, coils, switchboards and other devices would be useless. It is much more an integral part of the system than the “ Halethorpe Line ” in the West case, which was a branch of the Baltimore trolley system that ran to, and accommodated the residents of, Halethorpe, “ an unincorporated community lying outside the limits of Balti [431] more City; ” likewise it is much more an integral part of the telephone system than the “ South Line ” in Groesbeck v. Duluth, S. S. & A. R. Co. (250 U. S. 607, 612). There the South line, built by a competitor, was held to be an integral part of the railway system even though it had been purchased to avoid ruinous competition and paralleled the main line of the company, which could accommodate all traffic between the common terminii. The total net income received by petitioner must be considered in its relation to the total operating expense and return on the entire property in determining whether a rate is confiscatory. (People ex rel. N. Y. C. & H. R. R. R. Co. v. Public Service Commission, 215 N. Y. 241, 248; United Railways & Electric Co. of Baltimore v. West, supra; Groesbeck v. Duluth, S. S. & A. R. Co., supra; People ex rel. New York & Queens Gas Co. v. McCall, 245 U. S. 345; Puget Sound Traction, Light & Power Co. v. Reynolds, 244 id. 574.) In the schedule of rates fixed by the Commission are many items and differentials between classes of service of the same general character, like individual, two-party, four-party, business, professional, residence and rural lines. Business rates include the items of charge permitted for private branch exchanges as compared with individual and party lines; there is a differential for night service, if there is a private exchange, also for inter-connecting systems through the plant or store. The listing of the several items of charge under the 1930 order occupies many pages of the record. If the Commission may reduce one of these items involving a million dollars of income without permitting petitioner to give proof to show that its entire net operating income is inadequate, then by the same token each of the many items may be reduced separately, still with no evidence in opposition from the petitioner. Doubtless small inequalities or obvious errors in rate schedules could be corrected without taking proof as to the adequacy of the general rate schedule, but it is difficult to regard $1,000,000 as a trifling matter. Even if we view it in its relation to the other great sums with which this record is studded, the de minimis doctrine is hardly applicable, and there is no claim or theory by the Commission that the rates in 1930 were not established after due consideration, and in fact, almost under the mandate of the United States court. By excluding the evidence offered by petitioner, the Commission violated a rule of law affecting petitioner’s rights and to its prejudice. (Civ. Prac. Act, § 1304, subd. 3.) The company by its answer asserts that it is not receiving a legal return on its property, used and useful in the public service and accordingly that its net income should not be reduced. An [432] examination of the books of the company and the findings of the Commission in 1930 without considering all of the evidence offered on the hearing possibly would make it evident whether the total net income would justify a reduction of $960,000. Should such cursory examination satisfy the Commission that the reduction would not amount to confiscation, it would be proper to change the rate as altered here without an examination of all the evidence. The evidence offered by the company consisted largely of schedules and tables containing lists of the items of the company’s property, together with the claimed value of each item. Substantially all of the time consumed in rate hearings is devoted to cross- and redirect-examination of the company’s employees and officials. This examination concerns all the minutiae contained in the schedules and tables. This lengthy examination would be unnecessary if from the cursory examination I have mentioned the reasonableness of the Commission’s order would be obvious. The courts have decided that upon the issue of confiscation the burden is upon the utility. With this burden so placed the Commission should receive all legal evidence offered. If an examination of the major items suffices, consideration of the minutiae is unnecessary. When a rate of large import has been legally fixed, in connection with all the items of income, it may not be altered as here so as to reduce the net income by approximately three per cent, without regard to the complete net earnings and the legal return upon all of the company’s property. The determination should be annulled, with fifty dollars costs, and the matter remitted. McNamee, J., concurs; Rhodes, J., concurs in the opinion of Hill, P. J., and also with a separate opinion; Bliss and Heffernan, JJ., dissent, and vote to confirm, with a memorandum.