NEW YORK. Public Service Commission. CITY OF JAMESTOWN et al. v. JAMESTOWN TELEPHONE Value Determined CORPORATION. Case No. 125. Decided March 12, 1924. Present Rates Found Disproportionate and The Jamestown Telephone Corporation filed a schedule of increased rates for Jamestown against which the city of Jamestown and the Jamestown Chamber of Commerce filed complaints. The Commission after an examination of the affairs of the company since it began business on May 1, 1919, found that, notwithstanding two increases in rates, the company had failed to earn dividends or even to earn a return sufficient to wipe out its deficit incurred in the years 1919 and 1920; that the company began the year 1924 with a deficit of $16,947.04. The Commission further found that a discriminatory situation existed whereby different rates were effective in different localities within the area served from Jamestown for the same service; that this was not in accord with the generally accepted telephone practice which seemed to require the restoration of toll charges to outlying points and thus equalize the rates now charged in the various exchanges; that the rates at present charged in Jamestown were disproportionate, and that the variance between classifications of service was too great and retarded growth; that an adjustment was, therefore, necessary. Held: That the value of the company's property as of December 31, 1923, for rate-making purposes was the amount found by the former Commission, plus net additions to capital account since that date, amounting in the aggregate to the sum of $1,204,784.89, less the amount of the fixed capital reserves as of that date, amounting to $135,701.28, plus an allowance for working capital of $75,000, or $1,144,083.61; That the net monthly rates and charges of the Jamestown Telephone Corporation, effective in the territory under consideration, should be as follows, from and after April 1, 1924, and until further order of the Commission: within the base rate territory A: business. individual line. $8.00, two-party line, $6.75; residence, individual line, $4.00, two-party line, $3.50, four-party line, $3.00; within the territory outside the base rate territory A: rural business, $3.75, rural residence, $3.00. L. 149] OPINION. A plan for the unification of the telephone service in the western portion of the State by purchases and sales of competing telephone properties was laid before the Department of Justice, Washington, D. C., by the parties in interest in December, 1917. This plan contemplated the sale of the property of the Federal Telephone and Telegraph Company (independent) at Buffalo, and vicinity, to the New York Telephone Company (Bell), and the sale of both Bell and independent properties at Jamestown and Rochester to new corporations to be formed. Following the receipt of an opinion by the Attorney General that the plan would not be contrary to the policy of the Department as formulated by previous conference between the Attorney General and the Bell and independent interests, the sale of the Buffalo federal independent property to the New York Telephone Company was consummated, and on February 25, 1918, an agreement was made for the sale of the properties of the Home Telephone Company of Jamestown, the East Randolph Telephone Company, the Chautauqua Telephone and Telegraph Company and that part of the New York Telephone Company's property situated in the city of Jamestown, and vicinity, to a new corporation to be called the Jamestown Telephone Corporation. On September 23, 1918, the Jamestown Telephone Corporation was organized and on November 26, 1918, this new corporation petitioned the former Public Service Commission, Second District, for a certificate of convenience and necessity to construct its lines, for approval of the transfer to it of certain local franchises and for authority to issue securities. The sales contract provided that the new corporation. should pay for the properties in its securities as follows: For the properties of the Home Telephone Company, East Randolph Telephone Company and the Chautauqua Telephone and Telegraph Company, $200,000 in common stock and $36,000 in bonds, with the assump [N. I tion of $232,000 mortgage bonds and notes outstanding against these companies; For the property of the New York Telephone Company, $25,000 in common stock, $250,000 in bonds, $250,000 in Class A, 5 per cent. preferred stock, and $206,000 in Class B, 5 per cent. perferred stock. It was further provided in the contract that the Class A preferred stock would come into voting power, provided the new corporation failed, after five years of operation, to pay 5 per cent. dividends on this stock. Inventories and appraisals of all the properties were submitted and were carefully checked in the field by the Commission's engineers. The petitioners claimed a structural value of the independent properties of $528,355 and a structural value of the New York Telephone Company's property of $750,500, both as of September 30, 1918. A hearing on the petition was held at Buffalo on March 8, 1919, and upon this record and a preliminary survey by the Commission's engineers, an order was entered granting the new corporation a certificate, with approval of the transfer of franchises and authority to issue securities in the amount of $1,000,000. Titles were passed to the new corporation on May 1, 1919, and upon bringing up the inventory to that date and revising the appraisal the Commission's engineers found the fixed capital of the independent properties to be $324,657 and that of the New York company's property to be $678,765. Upon this finding, and making allowances for intangibles, live accounts due from subscribers, and working capital, the Commission on the seventeenth of February, 1921,* authorized the issue of $46,600 additional securities. In the meantime, the corporation filed tariffs to be effective March 1, 1920,† increasing its rates in Jamestown to the following figures: L. 149] The city of Jamestown thereupon made complaint against these rates but, after hearing, the complaint was dismissed, it being found that the new rates would still leave an operating deficit. On July 3, 1921, the company again increased its rates to the following (net): Individual line Four-party line Business Residence Complaint against these rates by the city and Chamber of Commerce of Jamestown comprises the case now under consideration. The statute requires us to determine such just and reasonable rates to be charged by this company as will, among other things, be sufficient to reimburse the company for its reasonable operating expenses and yield a reasonable average return upon the value of the property actually used in the public service. We are thus required to fix the value of the property of the Jamestown Telephone Corporation, and to examine into its operating expenses. As before stated, the Jamestown Telephone Corporation was organized in 1918 to acquire various telephone properties in the city of Jamestown, and vicinity. It began operations May 1, 1919, and its capitalization was fixed by the Public Service Commission, Second District, in Case No. 6673. In that case, public hearings were held by the Commission, and the city of Jamestown was represented by its corporation counsel, and procured from the Jamestown Telephone Corporation and caused to be inserted in the record and in the order finally determining the value of the properties to be acquired, a stipulation appearing in Ordering Clause No. 8 of the supplemetnal ordert entered March 17, 1921, viz: The city of Jamestown appeared in this proceeding by Ernest Cawcroft, Esq., its counsel, with a view of scrutinizing the fixed capital of the Jamestown Telephone Corporation and satisfying itself that the capitalization authorized by this Commission should not be excessive, and at the request of counsel for the telephone company and counsel for the city of Jamestown, the following stipulation which has been made between said parties, is embodied in this order, to wit: [N. E "That the Jamestown Telephone Corporation shall stipulate, and by the acceptance of this order, it shall be deemed to have stipulated, with the city of Jamestown, that the properties of the Home Telephone Company and of the New York Telephone Company, located in the city of Jamestown, acquired by it on May 1, 1919, and actually used and to be used by it in the public service in said city within the meaning of Section 97 and collateral sections of the Public Service Commissions Law, as judicially interpreted, or as may hereafter be interpreted by the courts, shall not exceed the sum of $1,000,000 for future rate-making purposes, provided, however, that the aforesaid limitation shall be increased by the amount of the expenditures prior to or on and subsequent to May 1, 1919, incurred or made or which may hereafter be incurred or made, for the purpose of extending and equipping the consolidated system, under the authority of the original order herein dated March 14, 1919, authorizing an expenditure not exceeding $113,000 for the purposes therein specified, and that such limitation shall be further increased by the amount or amounts of any and all expenditures on and since May 1, 1919, incurred or made or which may hereafter be incurred or made for extensions and additions to the plant in the city of Jamestown, provided the same shall have been or be established to the satisfaction of the Public Service Commission, Second District, or its successor in authority." It will be noted that while the foregoing stipulation provided that the property acquired by the company in the city of Jamestown should not exceed the sum of $1,000,000 for rate-making purposes, plus $113,000 for net additions and expenditures incurred in consolidating and extending the system up to May 1, 1919, and such other net additions to the plant thereafter made, the former Commission determined the value of all the property acquired by the new corporation, both inside and outside of Jamestown, at $1,046,600. This valuation was found after a public hearing had been held and upon a careful examination of the properties involved by the Commission's engineers, and was accepted by all parties, and we are of the opinion that nothing has been developed in this case to warrant a reduction at this time. The company does not |