{ "id": 1584653, "name": "In the Matter of the RATES AND CHARGES OF the MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY. MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, Appellant and Cross-Appellee, v. CORPORATION COMMISSION, Appellee and Cross-Appellee, Jeff Bingaman, Attorney General, Intervenor-Appellee and Cross-Appellant", "name_abbreviation": "Mountain States Telephone & Telegraph Co. v. Corporation Commission", "decision_date": "1982-10-22", "docket_number": "No. 13881", "first_page": "1", "last_page": "11", "citations": [ { "type": "official", "cite": "99 N.M. 1" }, { "type": "parallel", "cite": "653 P.2d 501" } ], "court": { "name_abbreviation": "N.M.", "id": 8835, "name": "Supreme Court of New Mexico" }, "jurisdiction": { "id": 52, "name_long": "New Mexico", "name": "N.M." }, "cites_to": [ { "cite": "74 N.M. 760", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2800988 ], "weight": 2, "year": 1964, "opinion_index": 0, "case_paths": [ "/nm/74/0760-01" ] }, { "cite": "620 P.2d 329", "category": "reporters:state_regional", "reporter": "P.2d", "year": 1980, "opinion_index": 0 }, { "cite": "5 Kan.App.2d 514", "category": "reporters:state", "reporter": "Kan. App. 2d", "case_ids": [ 394381 ], "year": 1980, "opinion_index": 0, "case_paths": [ "/kan-app-2d/5/0514-01" ] }, { "cite": "62 L.Ed.2d 182", "category": "reporters:federal", "reporter": "L. Ed. 2d", "year": 1979, "opinion_index": 0 }, { "cite": "100 S.Ct. 265", "category": "reporters:federal", "reporter": "S. Ct.", "year": 1979, "opinion_index": 0 }, { "cite": "444 U.S. 926", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 11391616, 11391272, 11391754, 11391659, 11391562, 11391371, 11391312, 11391510, 11391711 ], "year": 1979, "opinion_index": 0, "case_paths": [ "/us/444/0926-06", "/us/444/0926-01", "/us/444/0926-09", "/us/444/0926-07", "/us/444/0926-05", "/us/444/0926-03", "/us/444/0926-02", "/us/444/0926-04", "/us/444/0926-08" ] }, { "cite": "393 A.2d 71", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 7995364 ], "pin_cites": [ { "page": "81" } ], "opinion_index": 0, "case_paths": [ "/a2d/393/0071-01" ] }, { "cite": "68 F.C.C.2d 902", "category": "reporters:federal", "reporter": "F.C.C.2d", "year": 1978, "opinion_index": 0 }, { "cite": "95 L.Ed. 674", "category": "reporters:federal", "reporter": "L. Ed.", "year": 1951, "opinion_index": 0 }, { "cite": "71 S.Ct. 489", "category": "reporters:federal", "reporter": "S. Ct.", "year": 1951, "opinion_index": 0 }, { "cite": "340 U.S. 934", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6952128, 6952106, 6952077, 6952091, 6952061 ], "year": 1951, "opinion_index": 0, "case_paths": [ "/us/340/0934-05", "/us/340/0934-04", "/us/340/0934-02", "/us/340/0934-03", "/us/340/0934-01" ] }, { "cite": "73 S.D. 370", "category": "reporters:state", "reporter": "S.D.", "case_ids": [ 4676079 ], "weight": 2, "year": 1950, "opinion_index": 0, "case_paths": [ "/sd/73/0370-01" ] }, { "cite": "401 P.2d 353", "category": "reporters:state_regional", "reporter": "P.2d", "year": 1965, "opinion_index": 0 }, { "cite": "44 Cal.Rptr. 1", "category": "reporters:state", "reporter": "Cal. Rptr.", "year": 1965, "opinion_index": 0 }, { "cite": "62 Cal.2d 634", "category": "reporters:state", "reporter": "Cal. 2d", "case_ids": [ 2334000 ], "year": 1965, "opinion_index": 0, "case_paths": [ "/cal-2d/62/0634-01" ] }, { "cite": "47 C.F.R. \u00a7 31.176:1", "category": "laws:admin_compilation", "reporter": "C.F.R.", "year": 1980, "opinion_index": 0 }, { "cite": "85 FCC 2d 818", "category": "reporters:federal", "reporter": "F.C.C.2d", "year": 1981, "opinion_index": 0 }, { "cite": "303 N.E.2d 364", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 2, "year": 1973, "pin_cites": [ { "page": "375" } ], "opinion_index": 0 }, { "cite": "262 U.S. 679", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6143622 ], "weight": 3, "year": 1923, "pin_cites": [ { "page": "690, 692" }, { "page": "678" } ], "opinion_index": 0, "case_paths": [ "/us/262/0679-01" ] }, { "cite": "230 U.S. 352", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 3664215 ], "weight": 3, "year": 1913, "pin_cites": [ { "page": "434" }, { "page": "754" } ], "opinion_index": 0, "case_paths": [ "/us/230/0352-01" ] }, { "cite": "320 U.S. 591", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6143691 ], "weight": 7, "year": 1944, "pin_cites": [ { "page": "602" }, { "page": "287" }, { "page": "601" }, { "page": "287" } ], "opinion_index": 0, "case_paths": [ "/us/320/0591-01" ] }, { "cite": "98 N.M. 749", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1582593 ], "weight": 2, "year": 1982, "pin_cites": [ { "page": "752" }, { "page": "1204" } ], "opinion_index": 0, "case_paths": [ "/nm/98/0749-01" ] }, { "cite": "35 N.M. 512", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1557922 ], "weight": 2, "year": 1931, "pin_cites": [ { "page": "308" } ], "opinion_index": 0, "case_paths": [ "/nm/35/0512-01" ] }, { "cite": "58 N.M. 260", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 1587595 ], "weight": 2, "year": 1954, "pin_cites": [ { "page": "267", "parenthetical": "quoting San Juan C. & C. Co. v. S.F., S.J. & N.Ry. Co., 35 N.M. 512, 2 P.2d 305, 308 (1931)" }, { "page": "689", "parenthetical": "quoting San Juan C. & C. Co. v. S.F., S.J. & N.Ry. Co., 35 N.M. 512, 2 P.2d 305, 308 (1931)" } ], "opinion_index": 0, "case_paths": [ "/nm/58/0260-01" ] }, { "cite": "90 N.M. 325", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2874704 ], "weight": 2, "year": 1977, "opinion_index": 0, "case_paths": [ "/nm/90/0325-01" ] }, { "cite": "84 N.M. 298", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2768857 ], "weight": 8, "year": 1972, "pin_cites": [ { "parenthetical": "the 1972 case" }, { "parenthetical": "the 1972 case" }, { "page": "301" }, { "page": "404" }, { "page": "302" }, { "page": "405", "parenthetical": "emphasis added" } ], "opinion_index": 0, "case_paths": [ "/nm/84/0298-01" ] } ], "analysis": { "cardinality": 1374, "char_count": 33138, "ocr_confidence": 0.816, "pagerank": { "raw": 3.4171927470346614e-07, "percentile": 0.8784153052938608 }, "sha256": "488c3f97bbfdffd646de5c69e86740692ec13dd9610555dcdb6403f66d2a68cd", "simhash": "1:0497291631402791", "word_count": 5292 }, "last_updated": "2023-07-14T20:36:40.875408+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "In the Matter of the RATES AND CHARGES OF the MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY. MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, Appellant and Cross-Appellee, v. CORPORATION COMMISSION, Appellee and Cross-Appellee, Jeff Bingaman, Attorney General, Intervenor-Appellee and Cross-Appellant." ], "opinions": [ { "text": "OPINION\nPER CURIAM.\nIn January 1981, Mountain States Telephone and Telegraph Company (Mountain Bell) filed an application for a rate increase of $48.3 million, based on a 1981 test year. The Attorney General of New Mexico (Attorney General) moved to intervene in the proceedings on behalf of the State and all New Mexico customers of Mountain Bell not otherwise represented. The State Corporation Commission (Commission) granted the Attorney General\u2019s motion. In July the Commission entered its final order authorizing an increase in rates of $27,236 million. Mountain Bell\u2019s petition for reconsideration was denied by the Commission and it then petitioned for removal to this Court pursuant to Article XI, Section 7 of the New Mexico Constitution. The Attorney General also filed a separate petition for removal. We address the issues raised by the Attorney General\u2019s removal before reaching the objections raised by Mountain Bell\u2019s removal.\nI.\nMountain Bell raises procedural objections to the Attorney General\u2019s removal.\nMountain Bell claims that the Attorney General\u2019s representation both of the state and of unrepresented customers of Mountain Bell was improper. Mountain Bell notes that Article XI, Section 4 of the New Mexico Constitution requires the Attorney General to represent the Commission; it contends that his representation of other parties before the Commission is a conflict of interest and also a violation of his constitutional duty to represent the Commission.\nSection 4 states in part: \u201cThe attorney general of the state, or his legally authorized representative, shall be the attorney for the commission.\u201d Mountain Bell argues that there is a conflict between this constitutional provision and Section 8-5-2, N.M. S.A.1978, which states in part:\nDuties of attorney general.\nExcept as otherwise provided by law, the attorney general shall:\nA. prosecute and defend all causes in the supreme court and court of appeals in which the state is a party or interested;\n* * * * * *\nJ. appear before local, state and federal courts and regulatory officers, agencies and bodies, to represent and to be heard on behalf of the state when, in his judgment, the public interest of the state requires such action or when requested to do so by the governor; and\nK. perform all other duties required by law.\nMountain Bell asserts that the Attorney General\u2019s duty to represent the Commission is \u201cotherwise provided by law\u201d so that Section 8-5-2 is inapplicable here. The Attorney General claims that the Constitution does not specifically prevent him from representing the state in these proceedings, so Section 8-5-2 does apply.\nA short answer to this problem is that Mountain Bell waived any objection to the Attorney General\u2019s intervention by filing a Waiver of Objection at the time he filed his motion to intervene. However, this answer does not resolve the basic question. After reviewing the arguments and relevant evidence, we hold that, on the facts presented here, the Attorney General could properly represent the State and these customers. Our conclusion relies on the fact that although the Attorney General provides commissioned assistant attorneys general to the Commission as legal counsel, these individuals function independent of the Attorney General. There is no evidence of control exercised by the Attorney General over the Commission\u2019s legal staff. Mountain Bell\u2019s argument posits a conflict of interest which does not in fact exist. Thus this situation differs from those involved in the cases cited by Mountain Bell.\nMountain Bell\u2019s second objection is that the Attorney General\u2019s request for removal was not timely filed. N.M.R.Civ. App. 3(d), N.M.S.A.1978, specifies that a party aggrieved by a final judgment in a civil action has thirty days from the date of that judgment in which to appeal to the appropriate appellate court. This rule applies to removal proceedings under N.M.R. Civ.App. 1(a), N.M.S.A.1978. The Attorney General points out that N.M.R.Civ.App. 4(c), N.M.S.A.1978, grants a party fifteen days from the date of service of notice of appeal if the notice is served later than fifteen days before the expiration of the time, within which the appeal may be taken. If Rule 4(c) applies, the Attorney General\u2019s removal was timely.\nRules 3(d) and 4(c) speak in terms of appeals, not removals. However, no other rule governs the period within which removals from the Commission\u2019s ratemaking proceedings may be taken. Therefore we apply Rules 3(d) and 4(c) to this proceeding and hold that the Attorney General\u2019s petition for removal was timely filed.\nThe substance of the Attorney General\u2019s removal is that the Commission erred by not including in its rate determination Mountain Bell\u2019s revenues, expenses and investment related to directory advertising. The Commission acted properly in following the law as it had been set forth in our opinion in Corporation Com\u2019n v. Mountain States Tel. & T. Co., 84 N.M. 298, 502 P.2d 401 (1972) (the 1972 case). The 1972 case held that the Commission had no authority to include Mountain Bell\u2019s net income from directory advertising in determining rates for intrastate telephone service. The rationale was that directory advertising was not essential to furnishing telephone services and was handled as a distinct, separate and competitive business.\nWe now reexamine that opinion and conclude that it must be overruled to the extent that it prohibits inclusion of directory advertising in the Commission\u2019s ratemaking determinations.\nArticle XI, Section 7 of the New Mexico Constitution reads in part:\n[I]n the matter of fixing rates of telephone and telegraph companies, due consideration shall be given to the earnings, investment and expenditure as a whole within the state.. . .\nThe Court in the 1972 case (which was before us upon a stipulation so that we could interpret the constitutional provision) saw only two possible and very different interpretations of this provision. First, this provision could give the Commission jurisdiction to consider \u201call earnings, investment and expenditures of Mountain Bell in the State, regardless of their relationship to the business of furnishing telephone service. ...\u201d Corporation Com\u2019n v. Mountain States Tel. & T. Co., supra, at 301, 502 P.2d at 404. Second, the provision could mean that \u201conly earnings, investment and expenditures directly used or useful in telephone service may be considered by the Commission in fixing rates.\u201d Id. The Court in the 1972 case adopted the latter approach, adding that the provision \u201cdoes not refer to earnings from, investments in, and expenditures incurred by such a company in some business unnecessary to the furnishing of adequate telephone or telegraph services.\u201d Id. at 302, 502 P.2d at 405 (emphasis added).\nNeither position is a fair application of the Constitution. Under the first, the Commission could include revenues from telephone company investments in wholly unrelated businesses. Under the second, the Commission\u2019s inquiry would be limited to revenues, expenses and investments incurred in providing the bare essential telephone service of black rotary telephones and party lines.\nA more reasonable construction of the provision would allow the Commission to include earning, investment and expenditures used or useful in providing telephone service. The Commission currently considers revenues, expenses and investment related to designer telephones and custom calling services. These items are \u201cused and useful\u201d in providing telephone service. Directory advertising is no less \u201cused and useful.\u201d We take judicial notice of the following captions taken from the 1981 Santa Fe Yellow Pages themselves which contain clear explanations of the usefulness of the advertising to both personal and business telephone customers.\nThe Yellow Pages are a help to home and business managers alike. These Pages are packed with important buying facts about things you need to run your home or business. Consult the Yellow Pages to find out \u201cwhere to buy it.\u201d Action people let their fingers do the walking through the Yellow Pages.\nNewcomer to town? Use the Yellow Pages to locate new dealers to serve you. The advertising in the Yellow Pages tells you where to buy it.\nSave time, save money, save gas. The Bell System Yellow Pages offers an abundance of local and rational advertising conveniently packaged for quick and easy shopping by phone \u2014 it makes cents! Purchasing agents and others who have to do with the buying of materials and parts find the Bell System Yellow Pages an invaluable aid in locating local sources of supply. Read the ads, get the facts ... fast!!!\nThe Commission could justifiably determine that these advertising services are a necessary component of providing adequate telephone service.\nThe fact that Mountain Bell handles directory advertising as a separate business has no relevance to whether the Commission may consider these revenues, expenses and investment. The only considerations are whether the services are \u201cused and useful.\u201d Mountain Bell argues that directory advertising is subject to competition. However, the monopoly granted to Mountain Bell includes the privilege and duty of providing each customer, free of charge, with a directory. This unique privilege is not awarded on a competitive basis. The fact that the Commission does not regulate the rates charged by Mountain Bell for directory advertising does not prevent the Commission from exercising its constitutional duty to consider \u201cthe earnings, investment and expenditure as a whole within the State.\u201d\nThe 1972 opinion expressed concern that if yellow page revenues or losses were considered the telephone customers might suffer for losses incurred by the telephone company \u201cfrom some business which is not essential to the service for which they have subscribed and for which they are paying.\u201d Id. The proper protection against such an event is the Commission\u2019s power to disallow expenditures which are wasteful or imprudent. The Commission could not disallow prudent expenditures for essential telephone services since the telephone company is required to provide these services even if these resulted in a loss. Expenditures made for unnecessary services which result in a loss could be disallowed as wasteful and imprudent. The Commission has the authority to prevent Mountain Bell from using its customers\u2019 money in unnecessary and unprofitable ventures. But to the extent that Mountain Bell provides non-essential but profitable services which are \u201cused and useful,\u201d the Commission must consider the related earnings, investment and expenditure as required by Article XI, Section 7.\nAccordingly, we remand to the Commission with directions to include in its rate determinations Mountain Bell\u2019s revenues, expenses and investment related to directory advertising in New Mexico.\nWe are not unmindful of the fact that the voters will vote on a constitutional amendment in November 1982 that, if passed, would reach the same result, but we do not believe that we should hesitate to address what we consider to be an incorrect application of the law made by this Court in the past.\nII.\nIn the remainder of this opinion, we discuss the objections to the Commission\u2019s order raised by Mountain Bell\u2019s removal.\nScope of Review\nThe parties disagree as to the proper scope of review in these removal proceedings. We believe this question was clearly resolved in Mountain States Tel. v. New Mexico State Corp., 90 N.M. 325, 563 P.2d 588 (1977). We now reaffirm that rule as plainly as we can in order to minimize future disputes.\nIn a removal proceeding governed by Article XI, Section 7 of the New Mexico Constitution, this Court may decide the case on the merits, without indulging in any presumptions. This rule has been expressed by stating that the Commission\u2019s order will not be disturbed if supported by \u201csatisfactory and substantial evidence.\u201d State Corporation Com\u2019n. v. Mountain States Tel. & Tel. Co., 58 N.M. 260, 267, 270 P.2d 685, 689 (1954) (quoting San Juan C. & C. Co. v. S.F., S.J. & N.Ry. Co., 35 N.M. 512, 2 P.2d 305, 308 (1931)). The term \u201csatisfactory\u201d implies a weighing procedure. Even if substantial evidence supports the Commission, the weight of the evidence as viewed by this court may go counter to the Commission\u2019s order. The evidence must be substantial and satisfactory. This same standard of review was clearly articulated in different language in General Telephone Company of the Southwest v. Corporation Commission, 98 N.M. 749, 752, 652 P.2d 1200, 1204 (1982).\n[W]e confirm the rule applicable in removal cases to be that under N.M. Const., Art. XI, \u00a7 7, this Court is not a ratemaking body and has no authority to determine what is a fair rate, but this Court will weigh the evidence to arrive at an independent determination as to whether the order entered by the SCC is just and reasonable. . . .\nAccordingly, even if the Commission\u2019s order is supported by substantial evidence, we need not uphold it if the weight of the evidence is contrary. This Court may make an independent evaluation of the evidence as to each part of the Commission\u2019s order. We do not set rates, however. We merely make an independent judgment as to whether the various components of the Commission\u2019s order are just and reasonable.\nFair Hearing\nArticle XI, Section 8 of the New Mexico Constitution specifies that \u201c[t]he Commission shall determine no question nor issue any order in relation to the matters specified in the preceding section, until after a public hearing.... \u201d\nMountain Bell asserts that various statements made by some of the Commissioners before, during, and after the hearing indicate an absence of fairness and impartiality. In particular, they point to statements made by one Commissioner to the press and on a radio call-in program prior to the scheduled hearing. For example, the record clearly indicates that while discussing Mountain Bell\u2019s service, rate requests, and advertising policies on the radio show on April 29, 1981, the Commissioner stated:\nSay, they want $48,000,000 well, our staff consultant say [sic] for sure they don\u2019t rate any more than $29,000,000. So, we\u2019ve already cut that in half and I don\u2019t know what it\u2019s going to be but I just think it will probably be lower than that. Well, if we could have included the revenues from yellow pages in at this time, we would already have it down to $22,-000,000 and you start to see that\u2019s \u2014 we\u2019re getting it way down there.\nIn the context of the present case, we need not decide whether this statement or the others pointed out by Mountain Bell constitute a determination of the question prior to the hearing in violation of Section 8. Since we are free to judge the case on its merits, it is irrelevant to our decision whether the Commission exhibited improper bias or specific prejudgment. However, prehearing statements such as those referred to by Mountain Bell reflect poorly upon the rate setting process and encourage removal of the proceedings to this Court. This results in greater expenses to the State and to the parties in the proceeding even though the ultimate decision by the Commission may be completely fair, justified, and upheld.\nThe Constitution contains only a broad disqualification provision relating to conflicts of interests on the part of the Corporation Commission. N.M. Const., Art. XI, \u00a7 3. The Legislature has not set up a statutory disqualification procedure. The ultimate protection against unconstitutional prejudgment must remain the individual integrity of the Commissioners. We hold that, hereafter, comments by a Commissioner which constitute prejudgment may constitutionally taint any subsequent hearing so as to invalidate the ensuing order of the Commission. Should this occur, the company would be entitled to put its proposed rates into effect after the expiration of the six-month period as if the Commission had not acted. See N.M. Const., Art. XI, \u00a7 8.\nRate Of Return\nThe Commission and Mountain Bell each presented qualified witnesses who testified as to the appropriate rate of return which should be allowed to Mountain Bell. The main dispute involved the cost of equity. The parties exerted a good deal of effort in attacking and defending the various economic models, data, and assumptions used by the witnesses in reaching their recommendations. Mountain Bell\u2019s witnesses claimed that the cost of equity is in the 16.4%-17.7% range. The Commission\u2019s witness claimed that a return between 13.8%-14.7% would be proper. The Commission set the rate at 14.25%. Although the Commission\u2019s rate is supported by substantial evidence, we have independently evaluated its fairness and reasonableness based on the evidence presented. The rate-making process involves a balancing of investor and consumer interests. Neither is paramount. To argue that the consumer interest is best served by focusing solely on the investor interests ignores the Commission\u2019s duty to set rates which, as much as possible, will allow general access to the phone system by the general public.\nThe proper type of inquiry which we make has been expressed by the United States Supreme Court in Power Comm\u2019n. v. Hope Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944).\nIt is not theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry ... is at an end. The fact that the method employed to reach that result may contain infirmities is not then important.\nId. at 602, 64 S.Ct. at 287. Although the Court went on to apply a different standard of review with respect to presumptions of validity, the quoted phrase recognizes the difficulties which appellate courts face in reviewing the testimony of experts. This does not mean that we can ignore the procedures used by the expert witnesses in reaching their conclusions. It merely means that, after examining the testimony, we need not reject any particular conclusion because the methods used to reach it may contain infirmities. It also means that the proper rate cannot be determined by mathematical formulas alone. In The Minnesota Rate Cases, 230 U.S. 352, 434, 33 S.Ct. 729, 754, 57 L.Ed. 1511 (1913), the Court stated:\nThe ascertainment of that value is not controlled by artificial rules. It is not a matter of formulas, but there must be a reasonable judgment having its basis in a proper consideration of all relevant facts.\nIn fact, we have examined the expert testimony in this case and conclude that all the experts involved used data and assumptions which contain infirmities. Accordingly, we examine the rate of return authorized by the Commission to determine whether it is unjust or unreasonable.\nThe basic standard was announced in Bluefield Waterworks & I. Co. v. Public Service Com\u2019n, 262 U.S. 679, 690, 692, 43 S.Ct. 675, 678, 67 L.Ed. 1176 (1923).\nRates which are not sufficient to yield a reasonable return on the value of the property used, at the time it is being used to render the service, are unjust, unreasonable, and confiscatory, and their enforcement deprives the public utility company of its property in violation of the Fourteenth Amendment.\n* * * * * *\nWhat annual rate will constitute just compensation depends upon many circumstances and must be determined by the exercise of a fair and enlightened judgment, having regard to all relevant facts. A public utility is entitled to such rates as will permit it to earn a return on the value of the property which it employs for the convenience of the public equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings which are attended by corresponding risks and uncertainties; but it has no constitutional right to profits such as are realized or anticipated in highly profitable enterprises or speculative ventures. The return should be reasonably sufficient to assure confidence in the financial soundness of the utility, and should be adequate, under efficient and economical management, to maintain and support its credit and enable it to raise the money necessary for the proper discharge of its public duties. A rate of return may be reasonable at one time, and become too high or too low by changes affecting opportunities for investment, the money market, and business conditions generally.\nThe rate of return set by the Commission does not appear unreasonable in light of historic returns. The following uncontradicted evidence was presented by the Commission\u2019s staff witness.\nWe recognize that business conditions existing in 1981 may justify a higher rate of return on equity. However, as we have indicated, rate regulation is a balancing of competing interests, and we cannot focus solely on investor interests. In other words, what is required is a reasonable return, not an optimal return, on equity.\nThe approved rate of return does not appear out of line as compared with other rates of return permitted in other states of which we are aware. For example, the Georgia Public Service Commission granted at 14.25% rate of return on common equity on December 15, 1981. The Southern Bell Telephone Company accepted this rate. Georgia Public Service Commission File No. 19315, Docket No. 3286-U, December 15, 1981.\nMountain Bell asserts that the rate of return granted by the Commission results in the market value of its stock being less than its book value. Of course, it is referring to AT & T stock, which is the only medium through which Mountain Bell can raise equity capital as it is a wholly-owned subsidiary of AT & T. We find it difficult to believe that a higher rate of return on the New Mexico intrastate investment of Mountain Bell will materially affect the price of AT & T stock. Even if it did, we note that rate-making, \u201clike other applications of the police power, may reduce the value of the property which is being regulated. But the fact that the value is reduced does not mean that the regulation is invalid.\u201d Power Comm\u2019n v. Hope Gas Co., supra, 320 U.S. at 601, 64 S.Ct. at 287. After considering this evidence independently and exercising our best judgment, we conclude that the rate of return granted by the Commission is just and reasonable and therefore uphold that portion of the Commission\u2019s order.\nLicense Contract Expenses\nAT & T (primarily Bell Labs) does research and development for all the Bell operating Companies, which, as licensees, pay AT & T up to 2.5% of local and toll revenues. Historically, AT & T only required payment of 1% of the specified revenues. In recent years, however, this percentage has increased and now approaches the 2.5% limit. Since the revenues to which the percentage applies have also increased significantly, the Bell operating companies, including Mountain Bell, pay a substantial and a rapidly growing fee to AT & T.\nFor 1981, Mountain Bell\u2019s license contract expenses were estimated at $4,051 million. The Commission, deeming itself incapable of carefully analyzing these expenses, applied a formula based on historical growth and disallowed $1,188 million of these expenses. Mountain Bell claims it proved that New Mexico ratepayers have received benefits from AT & T\u2019s services in excess of these expenses, and that they should be fully allowed unless imprudent or wasteful.\nThis difficult problem has arisen in other states. The Commission pointed out the difficulty it faces in making a line-by-line evaluation of the license fees paid to AT & T. However, we think the use of a formula based on historic trends has no relation to current needs and neither protects against improper expenditures nor allows adequate flexibility for managerial decisions relating to research and development.\nInstead, we adopt the approach taken by the Illinois Supreme Court in Illinois Bell Tel. Co. v. Illinois Commerce Com\u2019n., 55 111 .2d 461, 303 N.E.2d 364 (1973). There, the court stated:\nWe have considered the contentions of the parties, the testimony, the exhibits, and the authorities, and conclude that it is improper to permit Bell to include in its operating expenses for rate-making purposes a license fee to AT & T based on a percentage of revenues, and that the amount of the payment of the license fee must be directly related to, and include only, such expenditures as would be permissible if made by Bell.\n303 N.E.2d at 375.\nAccordingly, the burden is on Mountain Bell to show that the license contract expenses it claims include only payments for services which Mountain Bell itself could claim if it paid for such services independent of AT & T. Once proven, such expenses should be allowed by the Commission.\nStation Connection Charges\nMountain Bell incurs expenditures associated with the installation of station apparatus, inside wiring, and related activities. These expenditures are referred to collectively as station connection charges. In the past, these expenditures were fully capitalized. However, in 1981 the Federal Communications Commission (FCC) released an order requiring phone companies to phase in, over a four-year period, full expense treatment of these expenditures. Amendment of Part 31, 85 FCC 2d 818 (1981). Thus, Bell is to expense 25% of its station connection charges in 1981, 50% in 1982, 75% in 1983, and 100% in 1984. With the FCC\u2019s permission, Mountain Bell will recognize each of these accounting changes as of January 1 in each of the years involved.\nThe Commission has recognized the 25% expensing method for 1981. However, Mountain Bell\u2019s request that the Commission recognize the 50% expensing method for 1982 was denied. The Commission did allow known changes in 1982 expenses for employee benefits, Social Security, and postage fees. Mountain Bell asserts that the 50% expensing method is similar to those items and should therefore be permitted. The counter argument is that permitting Mountain Bell\u2019s request will result in a mismatching of revenues, expenses and investment, since Mountain Bell\u2019s actual 1982 performance is not known at present.\nAfter considering this question on the merits, we conclude that the Commission properly refused Mountain Bell\u2019s request. The change in accounting procedures will not merely affect the level of expenses recognized by Bell; it will also reduce the growth in Mountain Bell\u2019s rate base and affect Mountain Bell\u2019s revenues, since customers will be charged directly for 50% of the station connection charges. Mountain Bell has asked for an increase in revenue in 1982 to cover the increased expense, but it has not shown what effect increased revenue and reduced capitalization will have.\nWe do not favor separate, formal rate hearings for each of the incremental changes necessitated by this phase-in program. We hold that Mountain Bell must make a more complete analysis of the effect of the automatic changes, which could then be incorporated in the rate structure. The Commission could then treat this phase-in program in the same manner it treated the Social Security and other changes. In this instance, however, Mountain Bell has not yet given the Commission adequate analysis of the impact of the accounting changes.\nInterim Rate Relief\nMountain Bell claims that the Commis-. sion should have granted interim relief pri- or to the July order upon a showing that Mountain Bell was earning an inadequate rate of return. ' The validity of at least $17,620 million of rate increases was not disputed by the filed testimony, nor by the testimony adduced at the hearing. Mountain Bell asserts that the Commission\u2019s failure to permit interim relief of this amount resulted in several months\u2019 lost revenue. Mountain Bell asks that we hold that the Commission should grant interim relief if it is earning less than its latest authorized rate of return, if all testimony supports an increase, or if the rate is so low that it is confiscatory. We decline to do so.\nThe only constitutional relief available to regulated carriers' is the six-month period in which the Commission must dispose of requests for rate increases. All parties admit, and we agree, that interim relief is permissible if present rates are confiscatory, but Mountain Bell failed to show this. Beyond protecting these constitutional values, we decline to formulate rules and regulations.\nDeferred Income Taxes\nSince Mountain Bell has used accelerated depreciation for tax purposes but straight-line depreciation for determining rates, it has created a deferred income tax account. In the early years of a depreciable asset\u2019s life, Mountain Bell pays into the account, since its actual tax is less than its book tax. In later years, it uses the funds from the deferred tax account to pay the actual taxes which by then will be greater than the book taxes. In 1978, Congress reduced the corporate tax from 48% to 46%, so Mountain Bell had a surplus in its deferred income tax account. The Commission required Mountain Bell to amortize the surplus over two years, but Mountain Bell claims it should do so over the life of the various depreciable properties.\nMountain Bell asserts that Congress has preempted state regulation of the deferred income account by giving the FCC authority to prescribe forms of accounts for companies under its jurisdiction. 47 U.S. C.A. \u00a7\u00a7 220, 221; 47 C.F.R. \u00a7 31.176:1 (1980).\nThere is substantial authority to the effect that state regulatory commissions are not precluded from specifying their own accounting methods for intrastate purposes. Pacific Telephone & Tel Co. v. Public Utilities Com\u2019n., 62 Cal.2d 634, 44 Cal.Rptr. 1, 401 P.2d 353 (1965), In Re Northwestern Bell Telephone Co., 73 S.D. 370, 43 N.W.2d 553 (1950), cert. denied, 340 U.S. 934, 71 S.Ct. 489, 95 L.Ed. 674 (1951); Amendment of Part 31, 68 F.C.C.2d 902 (1978). The District of Columbia Court of Appeals considered the Uniform System of Accounts used by the Federal Power Commission and concluded that \u201ccircumstances will dictate ratemaking judgments independent of the uniform accounting system.\u201d Wash. Pub. Interest Org. v. Public Serv. Com\u2019n, 393 A.2d 71, 81 (D.C.1978), cert. denied sub nom. Potomac Electric Power Co. v. Public Service Commission of the District of Columbia, 444 U.S. 926, 100 S.Ct. 265, 62 L.Ed.2d 182 (1979). Thus, we hold that the Commission is not bound by the accounting procedures established by the FCC.\nThe Internal Revenue Service does not prohibit 2-year amortization in this case, but neither does it specifically permit it. Tax treatment of this amortization is therefore uncertain. The Kansas Court of Appeals has addressed this problem, noting that various states have treated the matter differently. Kansas Power & Light v. State Corp. Com\u2019n., 5 Kan.App.2d 514, 620 P.2d 329 (1980). Mountain Bell has applied to the IRS for a ruling on the question, but has not yet received a response. The Commission\u2019s treatment in this case is appropriate, if it does not result in Mountain Bell losing tax benefits. Accordingly, Mountain Bell must abide by the Commission\u2019s order unless it receives a ruling from the IRS disallowing the two-year amortization, which would require Mountain Bell to ask the Commission for further relief.\nCONCLUSION\nWe remand this case to the Commission with directions to amend its rate order after taking into consideration Mountain Bell\u2019s revenues, expenses, and investment in the Yellow Pages and after giving Mountain Bell adequate opportunity to justify its license contract expenses. The Commission shall enter any further orders consistent with this opinion.\n. N.M.R.Civ.App. 14, N.M.S.A.1978, governs only the time within which briefs must be filed \u201cafter entry of an order of removal.\u201d Section 63-9-14, N.M.S.A.1978, by its terms seems broad enough to cover removals from ratemaking proceedings, but it is part of the Telephone and Telegraph Company Certification Act (Sections 63-9-1 to 63-9-19, N.M.S.A.1978), and therefore can only apply to certification proceedings. See N.M. Const., Art. IV, \u00a7 16; Gallegos v. Wallace, 74 N.M. 760, 398 P.2d 982 (1964).\n. We note that the FCC\u2019s Uniform System of Accounts includes an account for revenue from Yellow Pages advertising. 47 C.F.R. 31.523 (1980). Mountain Bell\u2019s argument would necessarily mean that the supremacy clause of the U.S. Constitution precluded New Mexico from excluding Yellow Pages revenue from intrastate ratemaking considerations.", "type": "majority", "author": "PER CURIAM." } ], "attorneys": [ "T.M. Ledingham, Albuquerque, Sutin, Thayer & Browne, Richard L.C. Virtue, Santa Fe, for appellant.", "Jeff Bingaman, Atty. Gen., David Romero, Jr., Wayne Shirley, Asst. Attys. Gen., Santa Fe, for appellee Corporation Commission.", "Jeff Bingaman, Atty. Gen., Richard H. Levin, James J. Wechsler, Asst. Attys. Gen., Santa Fe, for intervenor-appellee Attorney General." ], "corrections": "", "head_matter": "653 P.2d 501\nIn the Matter of the RATES AND CHARGES OF the MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY. MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, Appellant and Cross-Appellee, v. CORPORATION COMMISSION, Appellee and Cross-Appellee, Jeff Bingaman, Attorney General, Intervenor-Appellee and Cross-Appellant.\nNo. 13881.\nSupreme Court of New Mexico.\nOct. 22, 1982.\nT.M. Ledingham, Albuquerque, Sutin, Thayer & Browne, Richard L.C. Virtue, Santa Fe, for appellant.\nJeff Bingaman, Atty. Gen., David Romero, Jr., Wayne Shirley, Asst. Attys. Gen., Santa Fe, for appellee Corporation Commission.\nJeff Bingaman, Atty. Gen., Richard H. Levin, James J. Wechsler, Asst. Attys. Gen., Santa Fe, for intervenor-appellee Attorney General." }, "file_name": "0001-01", "first_page_order": 33, "last_page_order": 43 }