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under Section (9) above, on or before November 1, 1923.

The Commission reserves the right to make such further orders in these proceedings relating to service and rates as to it may appear just and reasonable.

The effective date of this order shall be November 1, 1923. Dated at San Francisco, California, this twenty-third day of October, 1923.

DISSENTING OPINION.

SHORE, Commissioner:

An opinion and order has been approved by a majority of my colleagues on the State Railroad Commission in the matter of Application No. 8145 by the city of Los Angeles relative to rates and service of the Southern California Telephone Company.

While I concur with some of the findings and conclusions of my colleagues in this matter and recognize that they have earnestly sought a solution of one of the most perplexing and difficult problems confronting the Railroad Commission, I find myself unable to concur in the opinion and order as a whole, and in view of the grave nature of the situation involved, I deem it in the interest of public welfare to file a contemporaneous statement of my opinion relative to the main issues in the case.

A public utility is a business established with private capital to meet the common needs of a community in services or in commodities, or both, which cannot be adequately provided without certain restrictions in competition and certain safeguards in law. These restrictions and safeguards afford utility investors an unusual opportunity to ultimately secure well protected conservative profits through the increasing demands for service with community expansion and business necessity. But they also impose upon the utilities without discount the obligation to fully meet the requirements of service in the community. The issue between private monopoly and public ownership of public services will ultimately be determined on this point.

[Cal.

C. L. 144] Communities are bound to consider substitute forms of competitive service or public ownership in the face of any persistent degree of failure to meet the service demand. Such public service failure may rightly be held to constitute a forfeiture of franchise and of all the material benefits inhering therein.

In the case of a telephone service in a great and growing community, public welfare becomes dependent upon a unified telephone system, and thereby a natural and practical monopoly comes to exist. Such a situation reflects upon a regulatory body, such as the Railroad Commission of this State, a particular responsibility to insure adequate telephone service, especially in large cities, by whatever means may be at its command. No measure within its authority for the penalization of a utility that has persisted for years in a conspicuous failure to adequately serve the public can be justly deemed too severe.

It is at this point of incomparably bad service on the part of the Southern California Telephone Company that all comparisons of Los Angeles telephone rates with those in other cities, and all comparison of service rates with the rate of return upon invested capital, completely fall to the ground.

While there may be decisions of the Supreme Court of the United States that might sustain the opinion that even the present rate of return on its investment that is allowed. this company by existing service rates might be proved to be equivalent to a confiscation of the company's property on a normal and adequate basis of service, I am of the opinion that the records covering many years, in previous decisions of the Railroad Commission, in the hearing of the application now being determined upon, in the company's own records, and in reports of tests and investigations made during the present year by the engineering department of the Commission, show such a degree and accumulation of inadequacy and inefficiency of service as to seriously involve this company in the possible forfeiture of its franchise.

I am advised by the legal department of the Railroad Commission that a public utility's claim against an alleged confiscatory rate can be successfully disputed on the ground of inadequacy of service. Upon this principle of legal determination, it would appear doubtful whether this company can rightfully claim any profitable return above necessary and reasonable operating expenses, together with interest on its funded debt. I am in favor of adequate rates and an adequate rate of return when adequate service is rendered, but not until then.

A paramount factor in the Los Angeles telephone situation is the relation that exists between the Southern California Telephone Company and its parent and affiliated companies. It appears from evidence submitted that the stock of the Southern California Telephone Company is owned and controlled by The Pacific Telephone and Telegraph Company, which in turn is owned and controlled by the American Telephone and Telegraph Company of New York; also that the Western Electric Company from which the materials and equipment of the local company are purchased is owned and controlled by the American Telephone and Telegraph Company. While these relations may be entirely legitimate, we must assume, if we are to avoid a legal subterfuge, that the local company is for all practical intents and purposes the American Telephone and Telegraph Company, and that the local company has, therefore, at its command the financial resources of the American Telephone and Telegraph Company, and the material products of the Western Electric Company. Any attempt on the part of the American Telephone and Telegraph Company to evade the responsibilities of its ownership of the local company, and, therefore, of its obligation to adequately meet the full service demand of Los Angeles, should be vigorously resisted by the Railroad Commission.

When, therefore, anyone speaks of the limited means at the command of the Southern California Telephone Company, or the lack of available materials and equipment for new construction, new telephone installations, improved

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C. L. 144] instruments and exchange facilities, it is the American Telephone and Telegraph Company that is really under question, and it is that company that we are in reality dealing with in this situation. Unfortunately, the American Telephone and Telegraph Company is not a utility of this State and the Railroad Commission is under limitations of authority as to the direction, regulation and control of its operations except through the medium of the Southern California Telephone Company. But it is within reason to state that the American Telephone and Telegraph Company could have adequately financed and could have provided all the materials and equipment necessary to have brought the Los Angeles service up to a normal standard long before now, and that it is within that company's power now to finance and provide for all the development, replacements, extensions, additions, betterments, facilities and equipment necessary to bring this supremely important service up to a normal standard within one year. Anything less than such a program and such a demand will leave the telephone service of Los Angeles year after year in a crippled, fluctuating and unsatisfactory condition. Nothing less than maximum standards of service should be applied to this company. Any temporizing with the situation will leave Los Angeles as badly off for telephone service five years from now as it is today, if the population continues to grow as it assuredly will.

Accordingly, it is my opinion that the State Railroad Commission of California should find and order as follows:

1. That the facilities, equipment and service of the Southern California Telephone Company are utterly inadequate and inefficient.

2. That the Southern California Telephone Company and its parent organizations, The Pacific Telephone and Telegraph Company and the American Telephone and Telegraph Company, are not justified in receiving any profitable return upon their investment in the property of the

Southern California Telephone Company in Los Angeles under present conditions of inadequate service.

3. That the Southern California Telephone Company be ordered not to distribute any of its gross income except upon order by the Railroad Commission to its stockholders, or to The Pacific Telephone and Telegraph Company, or to the American Telephone and Telegraph Company, and that any rates ordered or sustained by the Commission at this or any future time until the service has been adequately improved be allowed only upon this condition.

4. That any net earnings of the Southern California Telephone Company over and above such operating expenses as may be approved by the Railroad Commission, together with interest on the company's funded debt, be set aside as a special reserve fund to be distributed under supplemental order of the Commission when, in its judgment, the telephone service has been brought up to a normal and adequate standard.

5. That standards of telephone service, particularly as to held-orders for installation, completed telephone calls. and reported trouble, be established by the Railroad Commission and applied to this company not later than January 1, 1924.

6. That a reproduction cost valuation of the property of Southern California Telephone Company be made by the Railroad Commission prior to the next rate proceeding of this company; and also an investigation as to the retirements from capital account that have been or should be effected on account of inadequacy or obsolescence of plant or equipment resulting from the consolidation of the two previous telephone systems merged into the Southern California Telephone Company; and, further, an investigation into the reasonableness of the prices paid to the Western Electric Company for materials and equipment purchased by the Southern California Telephone Company; and that said valuation and investigations be proceeded with forthwith.

7. That in accordance with the direction, given in the

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