General Telephone Co. v. Public Utilities Commission, No. 75-1094

No. 75-1094 | Ohio | May 26, 1976

Per Curiam.

The central issue presented is whether the commission erred in determining that a 7.14 percent rate of return was fair and reasonable. Specifically, appellant contends that the methods used to arrive at this-rate were improper.

In finding that a 7.14 percent rate of return was allowable, the commission noted the recommendations of the witnesses, but found further analysis of their positions to be unnecessary. Instead, it relied primarily on the. fact that appellant had previously been granted a rate increase for its service areas which had resulted in a 7.14 percent rate of return. General Telephone Company of Ohio, case No. 72-1038-Y (January 31, 1975). Although that case did not involve the territory which is the subject of this appeal,¹ the commission submits that R. C. 4909.15 prohibits it from allowing discriminatory or preferential rates and that approval of a rate of return herein in excess of the 7.14 percent granted in case No. 72-1038-Y would violate that proscription.

R. C. 4909.15 states, in pertinent part:

“When the Public Utilities'Commission is of the opinion, after hearing, ‘that any- rate, fare,-charge,'toll, rental,' schedule,' classification* or service, or- any joint, rate,"fare,4 charge, toll, rental; schedule; classification, or -service rendered, charged,-demanded, exacted,"'Or proposed Ho 'berendeféd, charged* demanded'* or'exacted, is,-or will b‘e, uri'-just, unreasonable*' -unjustly discriminatory, 'unjustly- jbréf-erential,' or in violation of law: * -* * the commission shall * * * fix and determine, the' just and reasonable- rate,''fare; •charge,, toll, rental; -of- service " to ■■ be rendered, charged, demanded, exacted, or', collected" for the ‘ performance or rendition of the 'sérvice, ánd'order sUch just and reasonable rate, fare, charge; toll,'rental, or service to hé substituted for the existing one. *'* - ;

Clearly, R. C. 4909.15' requires that the commissiem'not allow rates-which are unjustly discriminatory or preferential. R. 'C. 4905.3² and 4905.35á supplement * that duty; by, in effect, prohibiting-differences in rates'which-'áre' chargéd to subscribers ' receiving-the same séiwice. -under similar circumstances and conditions; 'As can be • serin,4 however, R. C. '4909.15 ' proscribes discriminatory ratesj hut does not prohibit a variance in the rate of return'fori different service áreas, of one'company.³

Decisions of this court arid'of the commission illustrate, that the rate of return, of ten. differs ..botweei various areas' of a single^.utility company. In Columbus v. Pub. Util. Comm. (1960), 171 Ohio St. 38, 167 N. E. 2d 769, the commission approved, and this court affirmed, a differential in rates of return between the city of Columbus and the unincorporated areas of the county, even though both were served by Columbus & Southern Ohio Electric Company. Similarly, in Columbus & Southern Ohio Electric Company, case Nos. 72-903-Y and 73-841-Y (September 4, 1974), the commission approved an 8.55 percent rate of return for the city of Columbus, while authorizing a 7.77 percent rate of return for electric service to 25 counties.

A series of cases involving Columbia Gas of Ohio, Inc., also reflect the fact that the commission often permits differing rates of return for various service areas of the same company. See Columbia Gas of Ohio, case No. 36,973 et al. (May 7, 1973); Columbia Gas of Ohio, case No. 71-461-Y et al. (December 28, 1973); and Columbia Gas of Ohio, case No. 73-454-Y et al. (July 8,1975).

Additionally, the commission considered evidence presented by its staff witness, Mr. Rothey, as corroborative of the reasonableness of a 7.14 percent rate of return. Appellant asserts that insofar as Mr. Rothey’s analysis included a reduction of the cost of the equity portion of the rate base, it contravenes decisions of this court requiring the rate of return to be related to the statutory rate base.

In his testimony before the commission, Mr. Rothey indicated that an investor in the common stock of a company comparable to appellant would want a 12 percent rate of return on his investment. However, because he believed the Ohio rate base law provides ¿ “hedge against inflation,” he reduced that figure by 5 percent and then made an upward adjustment of 1-2 percent to “compensate for losses resulting from revaluing a rate base as infrequently as every five years.” Mr. Rothey concluded from these adjustments that an appropriate cost of equity for establishing a rate of return would be between 8 and 9 percent

Use of this analysis in determining the required return for the equity portion of the rate base was recentlv rejected in Cleveland Elec. Illuminating Co. v. Pub. Util Comm. (1975), 42 Ohio St. 2d 403" court="Ohio" date_filed="1975-06-11" href="https://app.midpage.ai/document/cleveland-electric-illuminating-co-v-public-utilities-commission-6755514?utm_source=webapp" opinion_id="6755514">42 Ohio St. 2d 403, 330 N, E. 2d 1.

In view of the above, it is our opinion that the commission’s application of the 7.14 percent rate of return previously determined in General Telephone Company of Ohio (January 31,1975), supra, to the service area involved in this case, was improper.

Having examined the evidence before the commission, we find that an 8.57 percent rate of return sought under appellant’s proposed rate schedules is not unjustly discriminatory and is supported by the record.

Therefore, the order of the commission is reversed and the cause remanded for a determination of rates based upon a rate of return of 8.57 percent.

Order reversed.

O’Neill, C. J., Herbert, Corrigan, Stern, Celebrezze, W. Brown and P. Brown, JJ., concur.

1 As noted in the above statement of facts, appellant’s application, for a rate increase in Case No. 72-1038-Y occurred before it merged with Northern-Ohio Telephone - Company and acquired the service area involved in this case.

2 R. C. 4905.33 states, in part:

“No .public utility shall dire.ctly or indirectly, or by any special rate- * * * charge, demand, ‘collect,., or receive. from any person, ■■ firip, or; corporation, a greater or lesser, compensation for any services rendered, or to be rendered * * * than it charges, demands', collects, or receives from any other person, firm of corporation for doing-a like and cob-' temporaneous service under substantially the same circumstances and! conditions. * * *” . • ■ ■ .

R. C. 4905.35 provides:

“No public utility shall make or.give any undue or unreasonable preference or advantage to any person, firm, corporation, or locality, or subject any person, firm, corporation, or locality to any undue or unreasonable prejudice or disadvantage.” ’ "

3 As a practical matter, parity in the rates of return in different areas of a single company is extremely unlikely.