Turpen v. Oklahoma Corp. Commission

statutorily im- government appeal. in the damages incurred exer-

mune from TURPEN, Attorney Michael C. General capacity.36 The adjudicative of its cise Oklahoma, Appellant, depends on the act function’s classification v. Because of the State’s immuni- involved.37 ap- OKLAHOMA ty the claimant is not entitled to have CORPORATION COMMIS- attorney’s fees in his peal-related assessed SION and Southwestern Bell favor. Telephone Company, Appellees. 66038, Nos. 66686.

Attorney’s fees not be awarded recovery by stat unless the is authorized Supreme Court of Oklahoma. bargained or for in a contract.38 The ute 15.1 claimant cites 20 O.S. 1981 for 8, § 1988. Nov. statutory authority; this section required Rehearing Granted in Part and abrogate exemption does not the Board’s 17, in Part 1989. Denied Jan. that, liability. hold absent from civil We 17, 1989, Dissenting Opinion Jan. exception, immunity explicit statutory an Corrected Jan. damages governmental activities attorney’s fees in recovery is a bar to against agency for relief from

any suit adjudicative an exercise of its function. judgment The trial court’s is affirmed.39 HARGRAVE, V.C.J., and LAVENDER, SUMMERS, SIMMS JJ., concur.

HODGES, J., dissents.

DOOLIN, C.J., disqualified.

KAUGER, J., recused. 37. See McCracken 38. Moses v. Supp.1984 P.2d note 37 at 20. After ^[1982] legislature judicial, “The state ... shall claim results from: judgment and McCracken v. Governmental 20 [1982]. § enacted 155(2), Hoebel, Okl., prosecutorial was rendered v. provides City Tort Claims not be liable if a loss or * * * O.S.Supp.1987 City 646 P.2d functions; Lawton, Okl., 2) in this case the Judicial, pertinent Lawton, Act, § ...." 51 O.S. 941(A) quasi- supra part: 39.A state’s tion cannot be frivolous had not been firmed. Utica Nat. Bank Okl., wrong legally liability state adopted reasons. The P.2d correct reasons "without for counsel fees in suits originally brought by the state. applied to this action because it a different judgment must nonetheless be af- 1066 [1981]. reasonable basis” or for provisions & Trust v. Assoc. that was approach of this sec- given brought Prod.,

13H OPALA, Justice. presented

Two issues are for review: [1] Did the Commission [Commis- by dismissing Attorney’s err Gen- sion] to modify eral motion its rate order? and ^[2] Is the Commission’s order authorizing Telephone Bell Company Southwestern implement new rates [SWBT] charges deficiency to recover a revenue sustained law and substantial evidence? To resolve second issue we must whether acted consider the Commission (a) by: investigating its discretion within addressing impact Oklahoma qua ratepayers SWBT’s status subsidi- (b) ary holding company; deciding of a request address in SWBT’s rate relief next imputed what benefit or value the other Bell Corporation Southwestern [SWBC] receive from the use of the subsidiaries name; (c) investigating Bell Southwestern addressing whether ex- revenues penses properly imputed from were South- Publications, SWBT; Bell Inc. to western deciding to next address SWBT’s [d] request relief whether SWBT’s transfer of operations directory to Southwestern Publications, properly effect- Bell Inc. was value; basing the assets’ net ed at book [e] capital authorized rates on a struc- SWBT’s debt; equity ture 55.82% 44.68% [f] addressing disposition to be not made by of reimbursements received T; [g] adopting AT & a Universal Service plan; including prepaid Option ex- [h] penses in SWBT’s rate base. give negative response to the We first question question. We answer the second affirming the Commission’s rate deci- (e) parts (a), (b), (c), (g), as to sion supra; but because the Commission failed adequately to address or either treat issues Gen., Turpén, Marc Ed- Atty. C. Michael (f) parts (h), material to that decision Gen., Butkin, wards, Attys. A. Robert Asst. regard the rate with we reverse order City, appellant. Oklahoma parts proceeding and remand this these Fowler, Jr., P. Hoo- Lindil C. Gretchen with directions conduct in- further Olson, Com'n, ver, Corp. P. Oklahoma Jane quiry findings; and make additional City, Corp. for appellee Com’n. Oklahoma (d) although part legally efficacious we Bauer, direct that Commission on remand ad- City, for G. Michael Oklahoma Telephone Co. of its appellee Southwestern Bell dress whether SWBT’s transfer direc- changes regulation in rate necessitated was Publications tory operations to SWB net book divestiture. assets’ effected at the properly

value. pro- general principles The in A.T. & T. matter, insight present into the but it

vide T. dealt must be remembered A.T. & OF DIVESTITURE THE IMPACT antitrust, regulation, not rate and ad- 11, District August 1982 the U.S. On from the quite different dressed issues entered District of Columbia for the Court today. ones before us in the judgment” final a “modified [MFJ] by a federal T. was decided A.T. & against & case A.T. government antitrust that court’s decision district court. Unless later examined and T. The MFJ was Court, Supreme it is is affirmed the U.S. v. American in United States amended preced binding upon state courts as not & Tel. & Tel Co. [A.T. T.].1 summarily A.T. T. was ent.3 When & T. to divest required A.T. & MFJ Court, Supreme by the U.S. affirmed twenty-two op- portions of its itself authority for state a source became supplied local tele- erating companies that courts,4 weight of that precedential but operating These divested phone service. to the nar summary disposition is confined reorganized into seven companies were grounds.5 As was stated possible rowest sup- companies that would operating new Supreme Court in Mandel v. by the U.S. “exchange in an ply local service summary is an Bradley,6 “a affirmance of these seven new area.” SWBT is one only.” judgment affirmance of the companies primary roll operating whose sum, court, by the while bound economical local tele- provide quality, the federal antitrust divestiture result of phone service.2 cases, to adhere to their required is not the first Oklahoma present case is reasoning specific pronouncements. impact of the na- to address the decision re- network’s tional telecommunications FACTS structuring. attempting to conform While Shortly divestiture the new applica- after past precedent is still to whatever filed an interim ly independent SWBT ble, recognizes fundamental court Dority acknowledged v. Green [D.C.C.1982], This court F.Supp. aff'd 460 U.S. 1. 552 Okl., Country Castings Corp., 727 P.2d S.Ct. 75 L.Ed.2d 472 [1983]. [1986], inferior federal court’s n. 24 that an Co., Tel. and Tel. In United.States v. American question is pronouncement on federal-law supra court stated: note 1 at binding though "highly persuasive” even Operating Companies would “The telephone case, present resort. In the a state court of last point ex- from one in an regulation not with state rate we deal federal points change in the same ex- area to other Hence, principles of & T. A.T. antitrust law. ‘exchange change telecommunications’ area— insight provide but are not determinative into originate they would and terminate —and today. issues before us exchange ex- area to another calls from one ‘exchange change access.' The interex- area— 344-345, 332, Miranda, 95 422 U.S. 4. Hicks v. exchange change portion calls from one 223, 2281, 2289-2290, 236 45 L.Ed.2d S.Ct. would, exchange area how- to another area ever, [1975]. other A.T. & T. and the be carried carriers, interexchange MCI and such as Metromedia, Diego, City 453 U.S. Inc. v. San 5. Co.” references [Footnote Southern Pacific 800, 2882, 2888, 490, 499, L.Ed.2d 101 S.Ct. 69 deleted] 173, [1981]; Bradley, 432 U.S. Mandel v. 809 State, Tex.Cr.App., S.W.2d 642 Blackmon v. 3. 199, 2240, 176, 2238, 204 53 L.Ed.2d 97 S.Ct. 499, [1982]; McKay, S.W.2d State v. 680 500 [1977]. 447, [Ten.1984]; Independent Holland v. 450 761, 297, Co., Ga.App. 310 S.E.2d Ins. 168 Fire Supra 97 S.Ct. at 2240. 6. note 5 73, Harmon, [1983]; 107 Idaho 685 State v. 298 814, [1984]; Nandorf, v. CNAIns. Inc. P.2d 817 968, 134, Ill.App.3d Companies, 88 Ill.Dec. 988, 993 [1985]. 479 N.E.2d $32,- 29, 197,000.00 1983 and Corpo- on December request with the Oklahoma increase 24, 13, May 520,695.00 February 1983 the On ration Commission.7 rate granted an interim 29, January 1986 the Commis On fol- million which was of $43.7 increase 292337, the rate or- $135,- Order No. sion issued by interim rate increases lowed plication It wages the risk assumed. Lone product. Since rates are determined Okl, regulation, utility “(r)” rate successfully, rate base. A tract quirements. "R" capital “O” Cartwright is to consumers. The and to assure fair application tion Rate encompasses represents represents of return sufficient to enable Com’n., is the control the capital regulation assets used to P.2d utility’s and the method used v. raw [1982]. of the formula Oklahoma Natural maintain its financial Okl., making public Okl. Natural both materials, most common method of utility’s aggregate prices compensate 648 P.2d allowed utility’s utility’s operating designed out-of-pocket utility excess Star Gas Co. v. ^[1965] rate of return on its allowed revenue re- is entitled to Gas, Okl., R O adequate monopoly profits = and State ex rel. its investors prevent public depreciation 39 [1982]. Gas costs, it to + integrity, revenue Oklahoma, B(r). Ap Company, service to regulated expenses. 640 P.2d Corpora- prospec- operate such as earn a at- The Commission value of the business at the time the plying The test make “B” firm’s future ferred at 97. amount is based “used and Southwestern ral Gas cost and ation, together stances which could Service Co. v. amount future is difficult has been based tively, employed represents to as the "test “O” Consideration is utility during profit. Application upon Co., supra at 277. present reproduction year useful in in Oklahoma. Southwestern basic formula: should Com’n, operating expenses, State, Okl., property. Lone Star Gas Co. v. Public Service Co. v. which the with all other in the upon upon the value of the used the utility’s theoretically represent [the supra year.” forecast, have a actual present recent utility’s] public given to both utility rate base. This is the following at 38. inquiry was made.” This is the method In Oklahoma this P.2d expenses bearing upon facts and circum- cost, "O” Oklahoma case past period but permitted traditionally less State, supra data was 1984. [1981]. 98 since the property incurred depreci- original Public Natu- ap- re-

1317 “ * * * Supreme Court’s review here, The of which autho- under examination der permanent rates implement appealable Corporation rized SWBT to orders charges revenue deficien- to recover a judicial only, and Commission shall be $47,544,561.00 previ- in cy addition of ... shall not extend than to further in granted interim relief. As noted ously determine whether the Commission has dissents, incorporated the Commission pursued authority, and regularly interim rate increases into the or- previous findings and conclusions whether Although this indi- only. reference der are sustained Commission ap- rect approval of interim rate increases and substantial law evidence....” past pears to have been Commission’s [Emphasis supplied.] the Commission practice, in the future provide better disclosure the total must Substantial evidence is more than a by listing in its orders the rate increase evidence; possesses scintilla of it some previous amount interim thing number and of substance and of relevant conse making permanent. increases it is quence that is fit to induce conviction and may lead fairly reasonable men to differ on 11, February Attorney 1986 the Gen- On whether it establishes a case.8 In deter separate motions to filed eral and SWBT mining if the findings Commission’s 28, order; February modify the rate supported by conclusions are substantial brought ap- Attorney General 1986 evidence, the court will review all the evi The peal from the order. Commission dence including found the record granted request for dismissal of its Staff’s fairly weight.9 detracts from its Attorney’s General and SWBT’s modifi- 12, 1986; in May motions on a sec- cation presumption A of correctness ac Attorney seeks re- appeal ond General companies findings the Commission’s ruling. appeals The two were view of this disposition by single frequently adjudicates matters it consolidated for opinion. possesses expertise.10 which it The Com perform mission has wide discretion

INTRODUCTION ance of its duties.11 When Commission rates, legislative capacity fixes it acts 18, Const., 9, Art. Okl. Com- Under § any particular theory and is not regu- limited to duty “supervising, mission has controlling” public in all or method.12 lating, and question service matters. bottom-line appeal the Commission

on this is whether I duty in adequately performed the rate THE COMMISSION ACTED PROPERLY proceeding below. IT THE WHEN DISMISSED ATTOR- Const., 20, Art. 9 Okl. The terms of § MOTION FOR NEY’S GENERAL MODI- responsibility court’s when address this OF ITS RATE ORDER FICATION proceeding a rate to determine reviews Attorney asserts that General fulfilled its consti- the Commission whether improperly dismissed his modi- duty: tutional 8. 9. State supra 273, P.2d The terms Okl. nent Tel Application “* * * order, Teleco, Co., supra Natural 275 209, 212 [1982]. part: note ex rel. rule ^[1982] On Inc. v. of O.S.1981 7 at Gas, supra note 7 at 1347. appeal every Cartwright 1347 note 8 and State ex Valliant TeL regulation at 275. Application § v. Okl shall be such Co., rel. Com’n., Okl., [Commission] Cartwright Natural regarded Okl., 656 P.2d Valliant perti- Gas, v. 11. Arkansas Okl., ern Okl., at at 275 Teleco, prima facie, [Emphasis supplied.] Application Bell Tel. 554 P.2d Inc. v. and 277. P.2d Bishop La. Gas Co. v. Sun Oil Co., Okl., Corporation valid, Valliant Tel 16 v. 236 [1964]. reasonable [1976]; Corporation Com’n., P.2d State v. Southwest- Co., supra note 8 supra Commission, just. Co. note 10 * * * [1983]; Pa., " 1318 argument jurisdiction

fication motion. His on 12 timely rests after a 1031.1 motion § 1031.1,13 provides 1981 filed, O.S. that recognize has been he fails to § a district days judgment within 30 of a modify difference between motions to dis- court correct, may modify, open or vacate judgments trict court and motions to modi- judgment sponte upon its sua or motion of fy Commission orders. party. a If the motion is filed within 30-day span, empow- the district court jurisprudence Oklahoma a treats lapse ered to consider it after of that modify motion to a Commission order dif period.14 ferently from that of a district court.16 automatically become Commission orders party Under Commission Rule 2415 a liti- days.17 30 Once an order has final after gant may modify, reopen file a motion or final, beyond become its vacation is that days rehear a Commission order within ten agency’s power. The Commission is with Attorney of the order’s rendition. procedural analy- authority modify General asserts out even to review determining used in of sis the effect statutory the order unless notice of a hear apply 1031.1 should to Commission Rule § ing concerning proposed modification is empow- 24—i.e. the should Commission be given parties.18 to all interested Even dur modify ered to consider motions to after ing day-period the 30 an order be before (30 lapse days) of the maximum time passing comes “final” —in the sense of be appeal. for the commencement of an yond appellate the reach of review —the upon act a motion to re Attorney correctly re- While General hear, respect modify states the law with to district court or reconsider its order but 16. Western Okl. 14. Matter 15. The terms 13. The terms of 616 P.2d sion Rules of provide Okl., filed judgment, cause_" application as a rules record in the of relief from shall be set for after sion, unless referred. or to (a) Commission is “RULE 24. RELIEF FROM ORDERS OF THE motion (b) or vacate the "Within COMMISSION motion of a scribe what [Emphasis supplied.] ^[1978] 481 P.2d At any other Within ten separate by any person, entry modify applicable for thirty pertinent part: Chad rehearing, to vacate or time Practice, [Emphasis supplied.] party, may notice, cause, Chapter, court, judgment. (30) original the order. form of relief from Rule Orthopedic entered, any person may (10) hearing order to the commencement of a order, subsequent S., Okl., 141 [1971]. O.S.1981 days days whether or not a and shall be 24, Corporation of its own initiative or on ^[1980] if effective or a Etc. v. cause, ** after or any, correct, after modify before the Commis- The court * * * 580 P.2d motion Clinic v. * § and Garrison v. the rendition to ten shall be Commission, State, Etc., Okl., shall be treated August any an order 1031.1 Such motion open, modify governed by to set other 983, (10) Jennings, may pre- order, Commis- party provide: 1, 1985, given.” order, file form aside 984- days an 18. Crews v. Shell Oil 17. After 30 filing peals from Commission orders to this court 482, 487 [1965]. must be that an court does not extend the must be O.S.1981, appeals within the same time as sion order can no § cedents of Matter Chad State, Okl., 1981 1.86(b), Orthopedic 141 for a discussion of the historical ante- thirty days from the date of the peal dered in the exercise of its constitutional decision of the "Any ers to 20, Okl.Const., § judgments. a motion to of ... party 991(a), from Commission orders must Rules on appeal brought regulate brought corporations may Ch. by filing Clinic v. days following 420 P.2d desiring S., from a district court infra within 30 App. infra Perfecting within 30 ... supra O.S. 1981 modify 12 O.S. 1981 § 990 longer Jennings, 474, note 24. See public utility Company, 30-day period. petition note note 14 at 984-985 and procure which states: appeals a Commission order days. commence an a Civil § days. appealed. 20, Commission ren- supra entry [1966]; 1031.1. in error within Okl., provides a review of a Furthermore, decision_” Hence, Appeal, a Commis- also, note 14 at judgment 406 P.2d see provides 12 O.S. district Art. public taken pow- Rule also, ap- ap- 9,

1319 required Supreme to It is well Court in the manner and in not do so.19 estab- ... power no to in appeals may lished that the Commission has the same time which be rehearing or re- Supreme entertain a reconsideration to taken the Court from the Dis- appeal of after an from it quest Courts,”23 a decision ap- this means trict that made this court.20 Extant has been to peals from the Commission are the same as that, compels hold caselaw us to insofar appeals from the district court unless the empower may 24 the Rule be construed to provides differently. Otherwise, law request to entertain a to modi- Commission language parts other of conflicts with § lapse fy appealable an order the of 30 after appeal state that an from the Com- issuance, days provi- from that order’s Supreme mission to the Court “shall be of plainly conflict with O.S. 1981 sions right” “directly Supreme the to Court” 991(a)21 and are hence unauthorized § Supreme only.” “shall to be the Court law.22 provisions appellant These assure that an opportunity have the to heard will be primary There reasons for ac- are two gain this court and access for immediate cording procedural consequence a different The of order. review the Commission’s modify to a Commission order to a motion second reason is the terms of 12 O.S. modify a to district court motion a 991(a) provide Supp.1986 if a The reason is the judgment. § differ- —which first new in the motion a trial filed district appeal an a ence from district between appeal may no taken to this court be court judgment court and one from a Commis- Although 20, until the trial court rules the motion —do order. Art. 9 Okl. sion § Const., appeals apply the not from or- provides appeal that an from Commission “directly Commission shall be taken to the ders.24 ness, 19. Crews any Company, supra appeal may party be v. Shell note 18 at an taken Oil State, affected, supra deeming by any person 487 and Garrison v. note at 476. or himself action, State, aggrieved by any by the such or State, directly Supreme Telephone Court State Co. Southwestern Bell v. of of Oklahoma, 246, 747, in the in the same (Syllabus manner and 181 Okl. 1), 71 P.2d 748 [1937] appeals taken time in which be court stated: Courts,. Supreme ex- Court the District from Corporation “Where the Commission of Okla- right, cept appeal that such an shall be of jurisdiction proceedings a homa has of [sic] may provide by Supreme rule for Court inquire into the reasonableness the rates appeals any proceedings in the matter of Oklahoma, charged by public utility particular existing in which the rules of law hearing or- after a full thereon has made an inapplicable. appeal such be taken If der, implied power has the commission utility corporation public public service or authority application to entertain an for re- action, by any the State of Okla- affected such hearing power on the matter and the to set appellee, be but in other homa shall made upon aside its order and reconsideration hereunder, utility appeals public public or order; provided the matter to enter another corporation service affected shall be made the time and such is done within reasonable appellee. appeal an such order has been before Corporation appeal An from an order lodged prejudice Supreme Court and no rates, charges, affecting the ser- Commission vices, [Emphasis thereby is shown." added.] regulations public practices, or rules 21. See utilities, public corporations, note 24 for text of O.S.1981 shall or service infra 991(a). ap- Supreme only, § Court and in all party peals it shall be to which the State Okl., 22. Transok Darks, Attorney represented by Corpora- Pipe Company Line v. General, Commission, Attorney 515 P.2d tion and the [1973]. ”* * * duly representative. or his authorized Const, [Emphasis supplied.] provide The § terms Art Okl. pertinent part: 991(a) provide: 24.The terms of 12 O.S.1981 § any action of the Com- "From "(a) appeal right party perfect rates, services, of a charges, prescribing mission judgment, or trial from a order decree any practices, regulations public rules or Supreme con- court Court shall utility corporation, public or firm, having individual, upon filed the trial person, corporation, ditioned his receiver trial, but engaged public utility for a new in the in the busi- court a motion or trustee clearly SWBC, was without company, information on all

jurisdiction January over its 1986 rate holding company’s affiliates. He order when it now before us dismissed asserts that the Commission failed to scru- pending motion for modification more than impact tinize adequately the of the SWBC days 30 entry. that order’s More- holding company relationship on SWBT’s after over, Attorney because the General has revenues, expenses and investments or- ample opportunity had appeal to der regulated to ensure oper- that SWBT’s argument make his for the Commission subsidizing ations are unregulated reversal, prejudiced order’s has not been he operations of other SWBC’s affiliates. by 12, May the adverse action. The 1986 plainly dismissal was mandated lack of One of dissents asserts that jurisdiction and must affirmed. the Commission failed to execute its consti

tutional duty require SWBT to “[ejvidence specific costs of Oklahoma — revenues are ‘used and useful’ II in providing utility service to citizens with THE INVESTIGATION COMMISSION’S in the [Emphasis State of Oklahoma.” ON OKLAHOMA INTO THE IMPACT While the Commission must close theirs.] SWBT’S STATUS AS RATE PAYERS OF ly monitor revenues, SWBT’s costs A HOLDING COM- A OF SUBSIDIARY term “used misplaced and useful” is LEGALLY SATISFAC- PANY WAS examination; such an concept only is TORY; OF FU- IN ITS TREATMENT applied determining when the firm’s rate REQUESTS, THE TURE RATE RELIEF base.25 INVESTIGATION OF COMMISSION’S BE IN ACCOR- SUCH IMPACT MUST Throughout the United States it is PRO- DANCE THE STANDARDS WITH recognized public utility’s that a dealings HEREIN MULGATED require thorough investiga affiliates Attorney scrutiny by public tion and close a utility General contends that generally that, erred because it did not re- commission.26 It is held quire parent SWBT to its holding have while regulatory agency bears the bur- 25. The rate base 26. "As the same the value tivities, tures and inquiry was made." Southwestern Public Ser- utility’s] public service business at the time the extent ability markets where there nopoly vice Co. v. Okmulgee 95 Okl. engaged judgment, plied.] Supreme however, to the event a Corporation trial court a new trial. This that a to ‘milk’ the rate-of-return long affiliate to subsidize its it will have the incentive as well as the 213, ruling by in both facilities, motion thereby Gas Co. v. State, Court to an as a order or property 220 P. 28 [1923]. Regional Commission." monopoly Regional party in Oklahoma is founded supra appeal the trial court on the motion to undersell its rivals in the equipment, a be taken until decree, "used provision adversely Holding note 7 at 97. Also new competition Holding and useful in trial is no competitive [Emphasis sup- an order competitive shall not Company affected regulated appeal Commission, personnel Company filed subsequent ... To the to the apply, upon used ven [the mo see, ac , Pacific Smith v. Illinois Bell P.2d N.E.2d Power v. Idaho pay). 853 maximize the amount that would be of costs burden the rate States v. WesternElec. enable the rivals who the costs serve tivities, its 2d N.Y.2d Town 464 A.2d Company Dept. General Tel. Co. 157, competitive products 274, [D.D.C.1984]. Or. 51 S.Ct. 1242, 1247-1248, both its Not ratepayers 373, 860, it would Telephone 278-279 R.I. Pub. Util v. New Shoreham v. assigned company profitably 271 N.Y.S.2d 868-869 enjoy 220 P.2d 65, 72, regulated 733 [R.I.1983]. would this Public have [1966]; This (who no Pub. Upstate [1976]; Washington 75 L.Ed. Teleph. Co.,Inc., Util, 16 A.L.R.4th view such Telegraph and services than do its and its have no choice but to Util, New payers; ability 216, 222-23, improper assignment former in order to 529-530 is also N.Y. v. Co., subsidy." 371 Mass. England 255, 592 unregulated Idaho to overallocate charge it would also 282 U.S. Co. v. expressed F.Supp. 267 ^[1950] Lundy, passed 218 N.E. T. & T. Com'n., less for 67, [1930]; [1980]; United Flagg Water 846, 133, ac 17 expenses incurred in strate that proving that investigation den of the Commission’s are unrea- satisfactory. with nonaffiliates payments transactions affiliates was sonable, utility bears the burden hearings the the Commission expenses incurred in transac- proving that Attorney presented no evidence General with affiliates reasonable.27 tions specific payment affiliate public utility cannot make While pending was not reasonable. Matters be reducing earnings confiscatory by net are, case, fore as in this the Commission unduly favoring through affil- contracts complex and generally of a technical nature iates, ownership is not of itself a common initially de and should be considered and disregarding agreements ground with for by cided the Commission. The Commission affiliates.28 experience expertise “to has the and amal gamate specific those into find intricacies Investigation aspects op all and of ings presentable in a form and conclusions is public utility’s affiliates not erations of a reason, this appeal.” for For review the required. It is transactions between have but matters which could been were and the allocation utility and its affiliates by presented the before Commission parent holding company expenses by the of evidence, objection proceed or “affirmative regulated utility an ings by for review the Commission” are not and investi opportunity for abuse must be by this court.30 reviewable gated thoroughly.29 Buck, public account- Fred C. a certified utility and su- ant Commission Staff [CPA] here is whether there is At issue concerning sufficien- pervisor, testified the that the evidence substantial cy performed by of the Staff. He the audit 1) prices investigated the sufficiently his had sufficient time to stated that team goods charged for to or SWBT affiliates audit; they spent eight ten make their 2) of services and the allocation ex working on audit and man-months penses by to SWBT and SWBT SWBC provided all the information that SWBT For ratepayers. purposes of to Oklahoma requested.31 was expense brevity items will hereafter these Borgmier, Betty a CPA and outside “payments to as to affiliates.” be referred utility analyst specializing in telecommuni- to demon- There substantial evidence 27. 28. Southwestern pra Public Util. mission 26, p. State P.2d ton Water Power v. Southwestern road 163, 158, 150, 156, penditures corresponds pressures ‘The be that collusion. iate Boise Water In 169 the court states: 617 P.2d at 1251 and Southwestern note 7 at 578 P.2d 167-169 arm’s 131, Boise Corp. Commission, reason S.Ct. [Boise 133 non-affiliate length Com’n of Water Com’n. L.Ed. [1976]; In 1089, 1090, 102; for [1979], Water probability of unwarranted ex- Corp. competitive Bell v. Public Service Co. dealing I, bargaining for 390, Idaho United supra [Boise Kan., Kan.App.2d Boise Water I], v. Idaho Public Teleph. distinction between affil- 66 L.Ed. expenditures appears to U.S. 97 Public 1091 note 27 at 555 Fuel Gas Co. v. Rail- 4 Idaho Water ^[1929] market and 300, Co., [1978]; non-affiliates Util.,supra goods Corp. v. probability 832, 259 U.S. II], 320, and Houston v. Util. State, 99 Idaho Washing- 555 P.2d 49 S.Ct. P.2d 44, [1922], Bell v. Idaho Com- note 318, fact ser- 602 su- at of 30. supra U.S. Evidence Staff’s audit. See 1273 [1934]. vices allows us to showing to the theirs.] Staff was expenditures penses, "By holding company/subsidiary sively, related reviewed incurred "Staff disallowed State Excerpts also, 290, 295, note confining Bell ^[******] ****** ex rel. and use the Dayton areas, at an annual attest 7 at able to audit this from the all Communications 54 S.Ct. Cartwright Okl. Natural such advertising copy 1346. P. contrary, test and L. Co. v. 96.4% of audit to the last Rate assume, time year. legitimate.” rate 647, 650, Headquarters thoroughness Order’s v. saved that such period In several instanc- $3,082,296. Research in absence of advertising ex- 78 L.Ed. Comm’n., relationships, Summary more investigate [Emphasis operating expenses, expenses quarter, (BCR). inten- 1267, Staff Gas, 292 of cations, was the team up audit member unable to come with a more accurate charge of method.33 investigating analyzing organizational makeup and functions Since the Commission members could not regional holding company and its subsidiar- personally examine the payments to affil- ies. testimony The detail her shows that Attorney produced iates and the General no specific thoroughly investigated procedures she that any particular evidence cost and the factors used expense improper, to allocate the SWBC was the Commission rea- sonably holding company upon relied charges Borgmi- head- Staffs and er’s audit of those costs. quarters charges ex- Oklahoma. She plained process the allocation and the audit investigation The Commission’s trail of expenses.32 allocated While she impact qua subsidiary SWBT’s status expressed concern that the allocation meth- holding company upheld as satisfac- od might used SWBC allocate more ex- tory. handling requests of future penses equitable, relief, to SWBT than is she was investigation Commission’s nancial ining original records are available to This back testified he for cost

partment tracked to factor of 93.47% was used to allocate SBC and Since Staff amount was then last negative pense of and partment expense, these amounts high ter moved both from the SBC pool SWBT, made to normalize of the financial records to ascertain what adjustment with an "Ms. "Mr. Buck further ($111,916) ($77,348) made in the area of amount contributions posite factor of fourth homa, resulting “Mr. Buck of information ‘paid utes since es, lowed in accordance with 12.20% $411,176). was made advertisements billing, quarter, resulting pensions/benefits expenses dues, involved through for and Borgmier explained ^[******] vouchers on a quarter thus statements, reports the of adjustment allocation, ($733,576) by ratepayers.' costs, for the to allocate the aircraft for the specific they of minus SBC used explained and entailed the last adjustments oriented, avoiding the and the to source documents such expenses amount because in a downward of quarter. did not costs an Oklahoma 12.20% allocate to Okla- system SBC allocated testified review was made examination of quarter. club expense, charges SBC activities, quarter. were its compared overhead cost advertising, made for the difference. ($460,011) G.H.Q. sample a in an charged double billings but they dues to actually the executive support year carry to Staff disallowed all found An had a SWBT, expense Mr. Buck further quarter. they how and were tracking expenses adjustment (annual projects, adjustment This basis. Oklahoma Stat- end work point counting. to the actual prorate to its the statement to already adjustment contributions Treasury of a for the Bellcore’s fi- allocated treasury which were were disal- abnormally department costs and procedures Oklahoma, processing composite computed allocation were of exam- projects. negative owners, of amount for the a com- or ser- factor quar- costs were been of a was De- de- ex- An re- to of 32. See Commission rate Order of at 1986 at resulted in an factor be used to calculate the expense cies in the data prorate "Ms. data used for their reasonableness. She obtained computed the factors to ascertain that to calculate a intrastate basis.” of means Her stated factors. She found some inconsisten- She disallowance of quarters expenses Buck age state) several sallowances to Oklahoma investment and for use in and vices. In Ms. outlined in the on Communications. “The basis for cation original quarter factors to be correct based on the pages See See GHQ expense charged at percent the NARUC-FCC findings, together expenses Commission rate Commission rate Order of recommended this Borgmier incorporated pages pages ^{[******] [******]} for the test calculating to factors adjustments factors and made a data year portion 18 and the based on each state’s calculating composite prorate supplied. Borgmier’s analysis adjustment end the the computing for the last ‘Separations reported by she test apportioning and 20. employees, examined $2,934,304 follow the his prorated 20. was, the 12.20 year. year found the and Cooperative adjustment prorate Order in the and specific expense to Oklahoma. This the factors and re- of composite fact, Since Staff made the basis for the GHQ the Manual’ and the revenues on an Oklahoma quarter principles January $6,021,496 recommended prorate percent- prorate judgment the the of factors, year states reported based on the factor of 12.- expense, January January to the need for a GHQ of the allo- Committee year end level prepared of 1984. to original factors. prorate led her is [sic] (total as to head- GHQ GHQ end Mr. last the di- utility If this initial burden must the sustains payments affiliates conform of production, the then shifts to the today. of burden announce principles we protestant pro- or the rate Commission that, regu- held generally while It is showing why payments duce evidence proving the burden of latory agency bears were not to affiliates reasonable unrea- payments to nonaffiliates are If should not no such chal- be allowed. sonable, of utility the onus shall bear made, lenge payments to affiliates rea- payments to affiliates are proving that expense. an will be allowed as includable sonable.34 payment challenged, If a to an affiliate is persuad- of utility will bear the burden Although the acts ing payment Commission that to an engaging in rate- capacity when legislative affiliate should be allowed as includable making is not bound technical rules expense. evidence, meaning of eviden when the terms, proof, impor e.g. burden tial Beyond explaining impact of the utili- handling of an to the Commission’s tant proof provid- ty having burden of impact issue, their must be these terms and below, ing the minimum standards utility’s clearly The defined.35 burden court leaves the Commission task are rea payments to affiliates proving that establishing guidelines to determine wheth- produc includes both a burden sonable utility’s payments er a affiliates are utility has persuasion.36 and of tion leg- Commission acts reasonable. producing evidence to initial burden engaging in capacity islative when rate- of its prima the reasonableness show any particular making and is not limited to facie showing mere payments to affiliates —a theory fixing rates.40 The or method expenses’ incurrence will not suffice.37 determining whether criteria to be used evidence, utility produce for ex must The of payments to affiliates are reasonable are charged the same ample, that it affiliates and their complex and technical nature Un arms-length buyers.38 as amount it did adoption to to the Commis- be suited duty utility meets this affirmative less expertise.41 experience and sion’s showing payments the reasonableness of of minimum, At affiliates, the Commission expenses may no such be all provide the require must SWBT to follow- owed.39 I, to the Commis- supra 27 burden does not shift note 555 P.2d at 38. "The Boise Water 34. 167-169; showing II, utility makes a of the supra sion until Boise Water note 27 578 P.2d present 1090, 1091; expenses. of In the Washington Water Power v. Ida- reasonableness case, at most, simply Util, requires more than supra 617 at 1251 as in Public note 26 P.2d ho provid- showing of Corp. the actual cost affiliate State Com’n and Southwestern Bell v. of Kan., ing expensed. reasonableness supra at the service 27 602 P.2d 133. note ratemaking expense utility, of the factors, among purposes, depend, on will other Chesapeake Ry. Co. v. Public Utili- and Ohio 35. provided themselves are whether the services Com’n, 163 Ohio St. 126 N.E.2d ties ratepayers." necessary or to Kansas beneficial 319. [Emphasis Bell v. State Southwestern theirs.] Kan., supra Corp. 27 602 P.2d at Com’n note proof of evidentiary of the of effect burden 36. 136-137. pay- regard to imposed public with on utilities I, Water ments to discussed Boise affiliates Corp. v. State Com’n 39. Southwestern Bell 167-171; supra Boise Water note 27 555 P.2d at Kan., supra note 27 602 P.2d at 136-137. 1090-1092; II, supra at Wash- note 27 578 P.2d Util, supra ington Power v. Idaho Public Water Co., supra Application Tel. note 8 40. Valliant at and Southwestern note 26 617 P.2d 1247-1254 Kan., 277. Corp. supra note at 275 and 27 v. State Com’n Bell 602 P.2d at 133-141. diffi- decisions involve the 41. “The commission’s accounting, I, policy, problems of economics 27 P.2d cult supra 555 at Boise Water note 37. knowledge go 167-171; special into supra 27 P.2d and other Water II note 578 Boise making. equipped staff of assist- Washington It is with a Power v. Water at statisticians, ants, Util, experience as account- supra note 617 P.2d at Idaho Public compa- engineers. The have no courts ants and 1251. monitoring ing company using information to aid in its each 7. Whether will products or SWBT’s services payments affiliates:42 billing method of company SWBT’s A companies list of all affiliated with 1. products.43 for such services or or SWBC SWBT. list of 8. A assets or sold to transferred Financial statements include 2. company by (including any each sheets, statements, balance income purchases by made SWBT in 1983 and sources and uses of funds statements from an affiliate where the tele- company. for each phone company received for com- stock description A and when each 3. how pensation and then turned the stock company affiliate). was established well as an over SWBC or another outline of what SWBT resources were company 9. Whether each use in- will used, personnel) telephone either formation obtained directly (e.g. or operating companies in its business. indirectly (e.g. credit). backing lines appellate This court’s description A review types 4. of services criteria extend no will further than to de products company pro- that each 1) termine whether meet criteria vides. followed; 2) minimum standards to be A5. list and the cost of SWBT facilities whether the criteria established used, being that are used or were are are within its discre lawful expected to be used in the future tion; 3) adequately whether the criteria company. each payments ensure that reasonable operating Whether allowed; 4) affiliates the crite whether companies using compa- will each sufficiently apprise fairly ria are definite to ny’s products services or and the ex- utility of the evidence it have to will cost pected produce to SWBT. payment show that a to an suitability making conducting rabie the determination." concentrate should detailed au- Com’n., Corp. Southwestern Bell Tel. Co. v. State payments dits of SWBT’s to affiliates.] 39, 48-49, [1963]; Kan 386 P.2d Prepayments operating expenses Kan., Corp. Bell v. Com’n Southwestern State of State ex working capital. be included cash 135; also, supra note 27 602 P.2d at see appropriate 5. The court should de- select the Gas, Cartwright supra v. Okl. rel. Natural note 7 preciation method for SWBT. Washington Power at 1346 Water v. Idaho Util., supra P.2d at Public note 26 617 1248- 43. One the dissents con- voices well-founded 1250. billing cern about SWBT’s method of its affil- plus iates services on cost for an incremental guidelines suggested 42. These minimum contribution basis. of the dissents. also one The court refers the Commission to Section XII another dissent billing There are several reasons for affiliates guidance establishing for further minimum on an services incremental cost basis—the standards disclosure for SWBT. Unlike the managerial preferred according method ac- dissent, of the court author latter the does not counting theory. example, For as in the believe that the must be entire rate order vacat- case, present readily there not be a ascer- disagrees and also ed remanded. The court Also, price. tainable market fixed as- unless following parts the of the thesis advanced being corpora- capacity, sets are used at full dissent; in Section XII of that always profitabili- tion can increase its overall paid by proper- Income taxes SWBT are not selling ty by price additional units at a above ly operating expense. includable as an [See its incremental or variable cost for that unit. Oklahoma Commission, v. Natural Gas Co. pricing appropriate incremental While cost 90 Okl. 216 P. unregulated for transactions between two af- (1923) ]. filiates, regulat- when one of the affiliates is appro- 2. The court should SWBT’s determine entity problem ed a new is introduced. Since priate equity. rate of return on ratepayers paid have the cost of the fixed Commission Staff conduct a should de- affiliate, regulated they of a assets are entitled tailed audit of the each records of affiliate. price charged unreg- to recover from the “pay- those [While transactions defined audited, carefully ments to ulated affiliate not affiliates” must be the variable costs but they Staffs producing product. resources are and limited also the fixed costs of 5) expenses reasonable;44 and allocated and affiliates the SWBC held affiliate will be to SWBT. applied has its whether the Commission properly.45

criteria witnesses, Fish and Dr. Ms.

Two Staff that other Borgmier, recognized SWBC using from subsidiaries benefit South- Ill great Bell name. Because of western difficulty in quantifying this benefit WITHIN ITS THE ACTED COMMISSION subsidiaries, recommended an ad- neither LAWFUL DISCRETION WHEN IT DE- require- justment to the allowed revenue CIDED TO ADDRESS IN SWBT’S They SWBT ment. also noted that derives REQUEST NEXT RATE RELIEF THE being part advantages certain of a BENEFIT OR IMPUTED VALUE TO holding Borgmier stated that company. OTHER SWBC SUBSIDIARIES OF US- unregulated some into enti- diversification ING THE BELL SOUTHWESTERN pos- to see the ties will cause shareholders NAME 1) sibility of the of two worlds: best 2) high safety regulation return expressed concern Commission unregulated provided by subsidi- successful imputed order benefit or value about unreg- into Although aries. diversification which are al- the other SWBC subsidiaries ulated will increase risk to subsidiaries lowed the Southwestern Bell name. to use possibly up investors and SWBT could end concern, the decid- Despite its Commission bearing holding company ex- more ed to issue the future and address this should penses other financial burdens it in to consider SWBT’s directed the Staff unsuccessful, unreg- if the the ventures be Attorney request. The next rate relief are successful at- ulated subsidiaries by this General contends that deferment potential traction shareholders investigate failed to ade- the Commission can possibility higher return mean a relationship parent-subsidiary quately the capital cost of for SWBT lower lower and SWBC. between SWBT ratepayers. rates SWBT could Attorney General cite no Since mandating the precedent Commis- rule The Commission has wide discre investigation into the value sion’s performance tion in the of its duties using other SWBC subsidiaries the deferral of this issue to next SWBT’s name, there is Bell evi- Southwestern request for rate relief did not render the derives certain indicating dence that SWBT investigation of parent- Commission’s holding company advantages rela- from the subsidiary relationship between not err tionship, the did The Attorney SWBC insufficient. General deciding issue SWBT’s address cited precedent requiring no rule or request. next rate relief investigate specifically Commission to being value to other SWBC subsidiaries of

allowed to use the Southwestern Bell name. fact, In Attorney General states that IV only notable effect affiliation parent holding between and its SWBT com AND FINDINGS THE COMMISSION’S pany (SWBC) relationship is that the calls CONCLUSIONS PERTAINING TO THE scrutiny for a close Commission both IMPUTATION OF REVENUES AND performed by costs of services or for other FROM EXPENSES SOUTHWESTERN Washington 45. Water Power v. Idaho Washington v. Public 44. Water Power Idaho Public Util., Util., supra at at note 26 617 P.2d 1250-1251. supra 26 617 P.2d 1247. note PUBLICATIONS, figures imputed. BELL revenues over actual INC. TO SWBT Bright’s opinion, BY THE ARE SUSTAINED LAW AND revenues should EVIDENCE; directory prof- have been increased to raise FOR USE SUBSTANTIAL PROCEEDINGS, RATE its to the level which she believed would IN FUTURE have been obtained THE MUST absent transfer of COMMISSION ESTABLISH directory operations AND from SPECIFIC CRITERIA PROCE- SWBT to SWB only DURES FOR IMPUTING DIRECTORY Publications. evidence she of- support fered to this assertion REVENUES AND EXPENSES was a table showing directory in- revenues had Publications, Inc., Southwestern Bell creased between 1980 and 18.6% spun off was [SWB Publications] between 25.8% be- 13.1% separate unreg- SWBT and established as a tween but be- 2.7% subsidiary ulated January SWBC until 1983 and 1984. tween long- Because such factors as the contracts, term Pages nature of Yellow The Commission ruled that directory

two-thirds revenues and weight of support the evidence did not expenses imputed to SWBT the 1984 Bright’s adjustment imputed growth but year test were attributable to SWBT’s own supported rather the Staff’s recommenda directory operations prior conduct of adopt figures tion to the actual shown supported by SWBT’s exhibits White’s testimony. clearly sup This decision is Accountant, SWBT’s Chief T.D. White ported by law and substantial evidence. [White], extensively testified pro- about the impute cedure used to revenues and ex- penses from SWB Publications to SWBT First, the Staff relied on figures actual explained that these amounts were im- Bright merely while expressed concern that puted though they were those of SWBT. “the directory suddenly revenues are not words, figures In other actual were used in increasing anymore.” Although Bright

his maintains recommendations. SWBT seemed might to believe that this be attrib- directory record of expenses revenues and utable to the formation of SWB Publica- years prior for the to the transfer of direc- tions, produced she prove no evidence to tory operations to SWB If Publications. that was the reason. directory the amount of revenues and ex- penses imputed from SWB Publications to The Attorney General states in his brief: significantly SWBT differs from the direc- “SWB concludes Attorney that because the tory expenses revenues and years prior General could not obtain sufficient infor- transfer, investigates the dif- prove mation to that SWB’s numbers were ference. White also testified that SWBT incorrect, SWB has met its burden of employee maintains at SWB Publica- proof.” Bright testified to the contrary headquarters tions to ensure that the reve- that, although she was restricted to review- expenses nues imputed to SWBT are ing employee materials with a SWBT correct. The Commission Staff recom- present taking and to notes rather than mended that the adopt White’s photo-copying information, she even- figures. tually obtained all the information she had requested concerning from SWBT directory The Attorney’s expert witness, General Attorney revenues. The General cannot Nancy Bright [Bright], testified on the is- rely supposed on SWBT’s supply refusal to sue imputing expenses revenues and explain information to the lack of evidence from the directory subsidiary to SWBT. produced by Bright. Although suggested she imputing the same

directory expenses, Bright recommended Second, when White was asked if there that an additional 7.6 million in directory anything was about the transfer of directo- develop must ceedings, the Commission Publica- from SWBT to SWB operations ry procedures specific criteria and and fashion directory revenues’ affect that would tions ex- imputing directory revenues negative, rate, in the he answered growth penses. han- directory sales were stating that all manner as before exactly the same dled V salesmen, said, he The same the transfer. ACTED THE COMMISSION ALTHOUGH same and call on the just as hard work BY DECID- WITHIN ITS DISCRETION customers. TRANSFER- ING TO ADDRESS SWBT de- about the Lastly, also testified White DIRECTORY OPERATIONS RING ITS growth directory revenues. in the crease THE PUBLICATIONS AT AS- TO SWB for their decline—the gave He two reasons NET BOOK VALUE IN SWBT’S SETS’ economy and the of Oklahoma’s poor state REQUEST, RELIEF THE NEXT RATE Pages competition in Yellow increase of BE BY MATTERSHOULD ADDRESSED advertising. THE IN THE COMMISSION POST- the oil Bright admitted that she knew HEARING REMAND fared gas industry had not well directory opera- its transferred begun to falter economy had the Oklahoma assets’ net at the tions to SWB Publications 1982, that if these were she believed but recognizing going book value without for the revenues reasons decrease operations. directory concern value of up earlier have shown the effects would its in- directed that Staff The Commission by the Commission’s 1984. As noted than coincidentally next vestigate with SWBT’s order, testimony reflects Bright’s own not request why SWBT was rate relief did affect downturn economic Oklahoma’s value. going for the concern compensated prior to 1984. While directory revenues increased be- directory revenues 25.8% well concerns are The Commission’s 1982, only they increased 1981 and tween most relevant when They are founded. The Com- and 1983. between 13.1% an un- assets to utility transfers regulated by con- acting improperly not mission was net book at the assets’ affiliate regulated making economy when sidering the State’s uses unregulated affiliate and that value its decision.46 that benefit revenues to earn the assets competition testified White also holding parent of the only the shareholders advertising had Pages field of Yellow regulat- ratepayers company, not the Donnelly had e.g. the Co. greatly, increased in that situation ratepayers utility. ed in the suburban directories issued seven essence, the sharehold- have, in subsidized directory area. In the company.47 parent ers investigation of the The Commission’s correspond- the revenues present case from the expenses revenués imputed have Publications ing expenses of SWB upheld as subsidiary to SWBT directory addition, imputed back to SWBT. been pro- in future rate use satisfactory. For Com., competitive competition in the market: Teleph. Public Utilities Bell Co. v. 46. Ohio 724, 729, 292, 301, give company’s cross subsidization would 81 L.Ed. U.S. 57 S.Ct. unregulated enterprise an and im- obvious 1100 [1937]. proper advantage competitors.” over its Co., Inc., States v. Western Elec. In United contribution, on an ac- 48.This when allocated supra court stated: note 26 at basis, by approximately line cess lowers the rate Regional Holding Company also could “[a] per per customer month. Commission $2.60 competitive ventures transfer- subsidize its p. January at rate order of regulated ring affiliates to assets from its Co., and Tel. unregulated cost or In United States v. American Tel. affiliates at less than their practice supra stated: Such a note at the court below their market value. have adversely ratepayers on or "All those have commented affect the who would Pages agree Yellow ultimately and devel- that the fund the research studied the issue who assets, significant subsidy local tele- but it opment would, of the transferred costs subsidy large again, impede phone effective loss of this once fair and rates.... imputed in- the intrastate directory opera- entitled to benefit from vestment, tions. depreciation, less accumulated SWB Publications into SWBT’s rate base. Fish, witness, opined Dr. a Staff Commission, imputa- As noted these directory operations that were worth significant profit made

tions contribution he, more their But much than book value. keep the Commission to enabled rates as as other witnesses who addressed well for other services lower.48 matter, that there would be a this believed great difficulty quantifying deal of ratepayers have continued to ben- going concern directory opera value of the directory efit revenues have been because tions and offered no basis or method for essentially way the same as be- earned making computation. such a Given fore the transfer assets to SWB Publica- great difficulty presence and the of evi effect, of assets tions. the transfer was indicating ratepayers dence benefit change corporate form more akin to a present arrangement, the Com than to a sale.49 There evidence in is clearly mission did not abuse its wide dis present arrangement record that could by deciding postpone cretion this issue’s long possibly in the run more advanta- resolution until next rate relief SWBT’s geous ratepayers receipt than request. compensation going for the concern value Although the Commission’s treatment of directory operations. such Once the issue would itself warrant compensation received, ratepayers is can reversal, since proceeding longer expect must impu- no to benefit from the be re- manded for directory expenses. reasons, tation of other revenues the Commission Ratepayers will then have “cashed their is directed to readdress itself to this issue chips”, speak, longer so to and will no post-remand in the hearing.50 supra note 1 at 201 and volved in that case and the transfer of assets tween the payers. But there is a crucial difference be- flow to the benefit of proposed here. cratic Central Committee v. Opponents sary. required. Corporate law holds that such a transfer change ing ing Companies held in that case ent principles, the transfer of assets between a ropolitan ferred to AT & T tion. length parent [D.C.Cir.1973], "Those who nies should be cans.” [Footnote references deleted.] would have rates for local sult ing In United States v. proposed that AT & T must disposition result. To be affordable the nature ****** transaction for which Under clearly contrary for which and its constitutes an Transit disposition of the settlement firm’s investors but instead inure claim that the important consequences decree conclude from that hold- long-established telephone of assets do not compensated ratepayers, In Democratic Central Corn- subsidiary allegedly requiring compensation Commission, sure, misperceive thus, American Tel and Tel capital gains compensate of assets that was in- to the proposed the Court of indirectly, service for all Ameri- service_ intra-enterprise Operating Compa- is not an arm’s the court stated: Washington compensation for assets rely goal 485 F.2d 786 automatically general both the law opponents is not neces- realized on reorganiza- on Demo- local rate- a differ- Appeals This re- Operat- for the provid- trans- legal Met- Co., ex- 50. As noted in wrought by procedures. The sooner the issue is resolved because the more time that property rights will not become less difficult as and resolutions of critical time "... divestiture and the determination of vital facts the better.” cult and modifications of Third, payment fer into a taxable vert what would otherwise be a tax-free trans- point of dollars in federal and state tax liabilities.” This same service: Operating Companies [Footnote benefit of that used to came assets are ratepayers, to the same and out of the rate occurred a mittee, it will be to unravel further the fact remains that goes by. result also makes sense from a regulators. * ^[******] necessary the assets were taken out of the same assets will continue view, constant references and the assets will remain here gain section IV of one of the dissents: * Indeed it will be more difficult ratemaking jurisdictions . for several reasons. the same services to the same gain was realized and it then be- being to determine to whom the exchange, corporate shifting * base; obviously, compensation accounting principles deleted.] should inure. But no removed from issues, * elapses possibly evaluating thus the more diffi- * complexities exposing between the would con- billions of when this operation practical of assets SWBT’s * subject public he

1329 money to raise for the to enable SWBC VI unregulated, support non-public of relat- its WITHIN THE ACTED ITS COMMISSION ed activities. DISCRETION BY BASING SWBT’S AUTHORIZED RATES ON A CAPITAL appropriate capital structure is An EQUITY AND OF STRUCTURE 55.32% require properly the one that balances DEBT; TREATMENT OF IN ITS 44.68% investment, safety stability of of ments of REQUESTS RELIEF FUTURE RATE capital availability of dividends and A MUST IMPUTE THE COMMISSION ratepayer.52 cost low CAPITAL STRUC- HYPOTHETICAL hypothetical practice imputing The of a BY IF THE CHOSEN SWBT TURE ONE debt-equity purposes ratio for of rate set- EQUITY-LADEN THAN NE- IS MORE throughout ting accepted is the United BY BASIC TELEPHONE CESSITATED doing The reason for so is to States.53 IN OKLAHOMA OPERATIONS capital protect ratepayers from excessive ratepayers regional that the a charges.54 contends The of Attorney The General au- basing holding company jointly that raises funds by SWBT’s erred equity-lad- its excessively competitive for its ventures and an both rates on thorized by especially in need of regulated As recommended services are capital structure.51 en having pay autho- protection excessive Staff, based the Commission capital charges.55 struc- capital actual rates on SWBT’s rized equity 30, 1985—55.32% as of June ture Kaufman, SWBC’s Assistant Mr. Attorney General debt. and 44.68% Rela and Director of Investor Treasurer capital hypothetical a recommended Earnings Requirements, testified tions debt equity of 55% structure 45% imputed capi that the ultimate effect imputed. is to lower the amount of tal structure to col public utility a is allowed revenue Attorney contends that the General Court, by Supreme lect. As noted U.S. debt-equity ratio used the Commission is, essence, no difference between there and forces rate- excessively equity-laden operating expenses. Each capital unrea- costs an “unwarranted and payers to bear necessary supplying cost of the service is a capital cost and taxation burden” sonable F.C.C., Corp. v. su- “substantially Satellite debt-equity affects 53. Communications ratio 51. The obtaining capital. pra cost of new at the manner and note 51 important factor in the rate is therefore an It necessarily be considered and must return F.C.C., Corp. Satellite v. See Communications body authority and come within 904, where the court stated: supra note 51 at fixing just duty charged law with authority imputing "Perhaps the ultimate England Tel. & of return.” New reasonable rate ratepayers necessary protect debt when 213, 211, 220, State, A.2d N.H. 97 Tel. Co. v. 98 Supreme capital charges is the from excessive [1953]; Corp. v. Communications Satellite 220 vj Hope Natural [F.P.C. Court’s statement 883, [D.C.Cir.1977]; F.C.C., Eq 902-903 611 F.2d 603, 281, 288, 591, 64 S.Ct. Gas Co. U.S. [320 usually expensive uity capital than in more 333, 345, (1944) that ‘The rate-mak- ] L.Ed. 1) (debt) divi capital reasons: for two terest Act, i.e., fixing ing process under the not tax de payments stockholders are dend rates, 2) ‘just involves a bal- and reasonable’ payments ad while interest ductible by leverage. gained ancing the consumer inter- vantages the investor and are sometimes advantage corporation’s Leverage equity investor’s stake is made is the ests' ... The ability rises, may possess equity in its company’s interest debt but secure as the less receiving higher profit by rate of achieve a rate-payer’s is alleviat- burden the consumer capital than the rate borrowed return on [Emphasis added.] ed.” Com’n. v. paid. and Exch. interest Securities 49, 96, 150, Corp., n. Co., Inc., 338 U.S. Central-Ill. Sec. supra Western Elec. 55. United States v. 1836, 1874, n. L.Ed. n. S.Ct. note 26 at 863-864. [1949]. Co., Telegraph 25 F.C.C. Union 52. Re Western 535, 600-601, 465 [1958]. P.U.R.3d paid environment, in- regulatory

and must be for out of current ble and the need good presumed rating high enough faith is on to maintain a credit come.56 Since managers, capital part public utility their have access markets fa- terms. judgment prudent outlays, including vorable about outlays capital, should not be overruled All of the investment houses were con- improvidence inefficiency unless on their debt-eq- cerned that an increase in SWBT’s part is The Commission’s deci- shown.57 might downgrading uity ratio result judgment sion not to overrule the rating thereby prevent SWBT’s debt managers concerning appropri- SWBT’s being capital to SWBT from able attract at capital impute ate structure for SWBT and At the a reasonable cost. time the rate hypothetical debt-equity pur- ratio for proceeding rating had an AA SWBC minus poses ratemaking clearly sustained from Standard & Poor’s. Salomon Broth- the law and substantial evidence. experience ers stated that it has been their that in difficult markets issuers rated be- that, testified in connec-

Kaufman also AA difficulty low sometimes have in ob- identify appropriate tion efforts to taining long-term funds substantial SWBT, capital structure for SWBC asked amounts. Salomon Brothers also noted banking its advisors investment whether margin that A-rated issuers have no debt-equity appropriate SWBT’s ratio was safety in downgrade terms of a further confronting given the business risks category typi- into the BBB where issuers criteria, utility, rating agency the known significant cally have limitations on the expected and the current and economic en- capital they sources and amounts of can vironment.58 Each consultant recom- raise and in ex- which funds become more mended that maintain a ratio of debt pensive. downgrades Further in SWBT’s 40-45%.59 rating credit could increase the cost of both Attorney General stated that one of equity enough to com- debt more than the factors in the recommendations made pensate savings for the from a obtained by the three investment houses was high debt-equity thereby result in ratio plan diversify unregulated SWBC’s into higher capital overall cost of for SWBT. areas; only this was one of the variables. debt-equity SWBT’s ratio is not unusual- The investment houses also considered the fact, ly Operating low. In of the 21 Bell increasingly competitive nature of the tele- Companies, only higher debt-eq- three had business, danger communications 31, uity ratios as of December large interexchange customers and/or Wilson, bypassing exchange the local com- Attorney carriers Dr. for the witness panies, regarding General, comparison the uncertainties relied on a of SWBT’s environment, post-divestiture capital capital the unfavora- structure with the structures 29, pertinent portions January 56. Missouri ex rel. S.W. Bell T. Co. v. Public 276, 306-307, 544, Com., order, Serv. 262 U.S. 43 S.Ct. p. state: 552-553, L, (Brandeis, 67 L.Ed. 993 [1923] considering “Even that such sources and the concurring). rating organizations may bond be biased to- safety, ward investor their influence on the Com., Ohio Gas Co. v. Public Utilities 57. West money choices of investors with to invest can- 63, 72, 316, 321, U.S. S.Ct. L.Ed. ignored. rating not be The effect of bond 769 [1935]. downgrading, particularly to below institu- 58. Kaufman that each of SWBC's subsi- testified grade, only tional investment increases unique diaries secures its own debt and has a money postpone- the cost of but cause capital structure. repairs expansion, ment of needed toall January See rate order of appears the detriment of the customers. It page at great longer company take a deal for a to be higher rating reinstated at a it does [sic] 40-43%; Morgan 59. First Boston recommended downgraded.” to be 40-45%; Stanley recommended Salomon Broth- ers recommended 40-45%. independent telephone companies states, impact did assess the of the other support electric factor. utilities his assertion debt-equity

that SWBT’s ratio should be explained The Commission in its rate or- higher. comparison. This is not a valid that, plans der even if SWBC's to diversify independent telephone companies While unregulated into areas was one of the subject competitive and other business factors considered SWBT when it chose SWBT, risks somewhat similar to those of structure, capital it was one of generally more rural nature of their several variables.61 On this basis the Com- service areas makes them less vulnerable capital mission found the structure chosen bypass Also, risks than SWBT. these by SWBT to be reasonable. It is not un- companies gradually reducing persuasive have been argument that, to advance the if past plan their debt years. diversify unregulated ratios over the SWBC’s into few areas were one Electric utilities face even of the variables used somewhat similar by capital structure, SWBT to choose a SWBT, business risks as sig- but there are ratepayers being should be shielded from nificant differences. by affected by imputing this variable The Commission’sdecision in present hypothetical capital structure calculated cause judgment to overrule the measuring without the effect of SWBC’s managers concerning appropri- SWBT’s plans diversify unregulated into areas. capital ate structure for SWBT is consist- While the Commission’sdecision to ent supported by with the law and substan- allow SWBT to capital use its actual struc handling tial evidence. In requests future upheld, ture is the Commission is instruct relief, for rate the Commissionmust contin- handling ed that its requests future ue to capital monitor SWBT’s structure for investigate rate relief it is to and ad closely. impact dress the of the above two factors Attorney General asserts that capital on SWBT’s impute structure and to increased by business risks faced SWBT hypothetical capital if structure the inves primarily are due to two factors: the in- tigation capital should indicate that creased business risk unregulated structure chosen equity- SWBT more SWBC subsidiaries and the increased com- laden than necessitated telephone basic petition facing telephone opera- the basic operations in Oklahoma. tions of states other than Oklahoma.60 He that, contends since these increased busi- VII ness risks are not attributable to SWBT’s THE IT COMMISSION ERRED WHEN telephone operations state, basic in this DID NOT THE ADDRESS PROPER ratepayers Oklahoma should not bear their TREATMENT OF REIMBURSEMENTS by paying burden rates based on an exces- RECEIVED BY SWBT FROM AT & T sively equity-laden capital structure. Al- though the Commission did not address the

impact of the competition facing increased The Federal Communications Commis telephone In the Matter operations basic in other ruling sion [FCC] companies types regulated 60. As stated in Southwestern Public Service and other utili- State, Company supra ties, v. note 7 at 96: unregulated per- and with businesses ‘The reasonableness or unreasonableness of ceived to have similar business risk. Consid- prescribed by pub- rates the Commission for a testimony together eration of this with the utility engaged lic in both interstate and intra- Commission's awareness of the increased state business must be determined with refer- pressures telephone business a number of ence to the intrastate business done with- utility companies currently in this State are profits in the State of Oklahoma and the de- experiencing, primarily competition due rived from the intrastate business.” services, and reduced demand for their con- pertinent portions January 61. vinces this Commission it would be detrimen- order, p. 1986 rate state: companies tal to the customers those under testimony jurisdiction ‘The presented comparisons our of several of the to increase their business risk witnesses with other at this time.” reasonable, just proposed er rates are Telephone Telegraph Company62 American Oper accounting past required AT T to remit to the Bell not on mistakes & operational ating Companies Accounting past refunds of for mistakes in rates.66 pre-op- rates, expenses and setting shared administration in the of future rates customer-premised equipment ex ratemaking,67 rejected by erational was retroactive opinion penses. It is clear from the FCC’s this court in Public Service Southwestern intended these reimbursements to be that it case, In that held that v. we Co. State.68 ratepayers of the Bell passed on to the erred it ordered a the Commission when ratepayers Operating Companies if the had charges by a sub- of excessive made rebate expenses.63 It is also clear borne these sidiary parent utility company for to its commis that the FCC intended state period prior purchases covering the fuel reim to determine the amount of sions determining the effective date of the order given ratepayers bursements charges excessive. The court to be or jurisdiction.64 each The Commission’s pointed Public Service Co. Southwestern finding concerning contain der did not utility’s purchases from out that the fuel reimbursements received subsidiary previous to a conformed AT & T. Clearly, order. the Commis- Commission offer four SWBT and attempting sion to account for mis- was why reasons the Commission did not make ratemaking setting past takes in in the finding concerning the reimbursements. thereby engaging pro- in future rates and ratemaking. hibited retroactive First, and the Commission both SWBT year used as the test and deter- Staff 1984 AT T The treatment of the & reim expense mined and revenue levels the 1984 nothing has bursements SWBT received by using fourth-quarter data. Since past ratemaking. in In do with mistakes August reimbursements were received essence, represent the reimbursements an 1984, they impact year had no on test reve- unexpected ques and the relevant windfall they nues because were not received posed tion here is who should receive the quarter. Second, fourth authorized rates of this sharehold benefit windfall—SWBC designed are to recover future revenues ratepayers. ers or SWBT The Commission nonrecurring and the were reimbursements engaging prohibited not retro would impact revenue and could have no on fu- if ratemaking prop active it considered the ture revenues. er treatment of the reimbursements. general, regulation pro In Third, the reimbursements were spective. Future rates are set on the basis income, expenses years prior expenses incurred profi of forecasts of ratemaking year. ts.65 The focus of is on wheth- test SWBT asserts that since it did 65. Williams v. 63. 64. In the Matter In the Matter A.2d 922, 603-604. 89 S.Ct. Telegraph Telegraph Transit Vermont 91 940-941 F.C.C.2d Com’n., Public Co., Co., 21 L.Ed.2d 773 ^[1968] supra note 62 at 593. 578, 598, note 62 at supra 134 Washington Metropolitan Service ^[1984] U.S.App.D.C. cert. denied 393 U.S. American American Corp., and cases there cited. 603-604 [1969]; 144 Vt. 342, [1982], Telephone Telephone 598-599 In re Cent. 415 1081, Area F.2d 473 & & In Cent. Vermont Public Service 67. Southwestern Public Service Co. v. 68. pra pra note 7 at 102. and cases there cited. there cited. ratemaking. The United States Service state courts note Corp., supra note 65 at 1159. re Corp., have supra re. Cent. Vermont Public Service 65 473 A.2d at 1159 also Supreme note prohibited 65, Court and 473 A.2d at 1159 retroactive Corp., State, many cases su- su- FCC, 1, 21, 66. Nader v. U.S.App.D.C. [1975]; In re Cent. Vermont Public F.2d earn its authorized rate of return dur- Since the reimbursements were a refund

not ing years, prior these its retention of the reim- money years, collected the treat- overearning by would cause no bursements question ment of the reimbursements If the Commission allowed SWBT SWBT. separate determining from SWBT’s allow- it did to retain reimbursements because requirements by using revenue able future rate of return in not earn its authorized = B(r).71 the formula R 0 The Commis- 4- years prior year, to the test the Commis- sion should determine SWBT’s allowable prohib- engaging sion in de facto would be requirements future revenue under ratemaking by setting ited retroactive considering formula without the effect of rates that would allow SWBT recover the reimbursements. past losses. Although the treatment of the re Finally, SWBT contends that it is question separate imbursements is a authority beyond the PCC’s to determine determining SWBT’s allowable future reve should do with the what requirements by using nue the formula R portion of the refund. Even if intrastate = B(r), proceeding this rate was the + authority not the FCC does have appropriate place for the Commission to determine what the Commission should do proper address the treatment of the reim refund, portion with the intrastate bursements. Commission and its Staff this does not relieve the Commission of its any authority prohib do not cite that would duty supervise regulate in all it the Commission’s consideration of such pertaining performance matters to SWBT’s ancillary question proceeding. in a rate public of its duties.69 The Commission must hence address proper treatment of the reimbursements assuming Even the Commission’s post-remand inquiry. its The Commission’s true, they and SWBT’s assertions way decision on the matter in no will dispositive question us— before dependent upon determination i.e., by whether the Commission erred require SWBT’s allowable future revenue addressing proper disposition itself to the = B(r) by using ments the formula R 0 + of the reimbursements. The Commission’s may be effectuated such before allow findings must be sufficient content requirements future revenue are de able apprise this court of the actual basis for its termined. ruling so that the court determine supported by

whether the decision is law post-remand inquiry, If substantial evidence. the Commis portions, Commission must determine what finding necessary point, sion makes no on a any, if the reimbursements received its order cannot be sustained on that provided by ratepayers were and whether point.70 The matter at issue here is such a these amounts should be refunded rate necessary point. This cause hence must payers. The Commission must then deter remanded to the Commission for considera particular any mine the method proper tion of the treatment of the reim refund will be made. Whether the refund bursements received from AT & period will be amortized over the that operational T for shared administration ex expected rates are penses pre-operational prem customer to be effect or other methods, equipment expenses. payment ised such as a direct to each Const, (as compa- § 69.The terms of Art. 9 Okl. discrimination and extortion nies_” such 1985) provide pertinent part amended in that [Emphasis supplied.] the Commission has the «* * * State, 70. Southwestern Public Service Co. v. su- ¿uty Qj supervising, regulating and pra controlling transportation all and transmission note 7 at 100. State, companies doing business this in all relating performance matters to the. their Supra, 71. note 7. therefor, public charges duties and their correcting preventing unjust abuses and rendered, requirement There is no credit on each bill ratepayer or a setting specific plan in follow a any refund is Commission effectuate used to will be public for Setting rate schedules rates. discretion. the Commission's within legislative process and the is a utilities legislative capacity in a acts Commission VIII Rate- rate schedules.72 it establishes when involving exact science making is not an ITS ACTED WITHIN THE COMMISSION The calculation. mathematical precise DISCRETION IN ITS A ADOPTION OF particular is not limited UNIVERSAL SERVICE OPTION PLAN fixing On the theory method in rates.73 discre has wide contrary, the Commission AUniversal Service Option is a of its duties.74 performance in the tion plan designed provide basic adoption of a ruling on the Commission’s service to low-income individuals who oth Plan within Option was Universal Service erwise would not be able to afford it. discretion. its wide parties None of the opposed the concept of a Universal Option, Service but all of them ÍX differed concerning the form plan should take. The Commission did not ex PER- FINDINGS THE COMMISSION’S plicitly adopt any of plans proposed by TAINING TO THE INCLUSION OF parties, adopted but rather plan con PREPAYMENTS THE IN RATE BASE taining elements from each of proposed LEAVE TOO MUCH TO SPECULATION plans. AND CONJECTURE determining the value of a Attorney General asserts When ratemaking purposes, utility’s order should be rate base for part of the Commission’s capital usually working in the there is no evidence an allowance vacated because designed allowance is specific plan adopted included.75 Such an support record on funds that utility a return by the Commission. date, Co., longer. The nor- supra sheet whichever is Application Tel. note 8 anee Valliant average cycle operating is defined as the and Arkansas La. Gas Co. v. Sun Oil mal at 275 Pa., expenditure supra period at 16. of cash note 11 of time between the goods goods and services and the date those Co.,supra and services are converted back into cash. Application note 8 at Valliant Tel. ** * major comprising as- Corp. The items current Serv. Co. Okl. v. Okl. 277 and Public cash, Okl., sets, Com’n., liquidity, are short-term 688 P.2d in order of [1984]. investments, receivables, inventories, pre- Welsch, Teleco, Commission, paid expenses.” supra at 111. Corporation supra 74. Inc. v. “ * * * are short-term liabil- Bishop v. Com- liabilities [C]urrent note 10 at 212 and mission, liquidation reasonably expected supra note 11 at 236. ities ‘whose is existing properly require the use of resources assets, as current or the creation of “Working capital classified defined as current assets [AICPA, Accounting liabilities.’ of the current other current minus current liabilities. If all Bulletins, Terminology Research and Final Edi- converted to cash at their book assets were * * * (N.Y., 1961), paid p. at tion This definition 21] value and all of the current liabilities value, working capital be the in ad- would includes items such as revenue collected their book Welsch, vance, remaining." obligation ‘perform Glenn A. amount of cash which entails an Harrison, activity1 and Walter T. the next Charles T. Zlatkovich Jr., or render the revenue within Accounting, cycle, longer. 6th ed. year operating [Home- Intermediate whichever is Irwin, wood, Inc., 1982], p. D. Illinois: Richard Also included in current liabilities are liabilities liquidation expected whose to occur within a time, usually relatively period assets, short one and other com- "Current assets are cash Welsch, year.” supra major at 111. The items reasonably monly identified as those which cash, comprising pay- current are accounts expected sold or to be realized in or to be liabilities able, payable, cycle short-term notes current maturi- during operating the normal consumed liabilities, long-term year collections in ad- one from the bal- ties of the business or within expenses pay are used to before the income record and in was contravention produced by expenses finding those is received. Commission’s own that no cash working capital allowance would be includ- determining are three methods of There ined the rate base. working capital a cash allowance: The finding Commission made one lead/lag study approach, ap- the formula pertaining to inclusion of prepayments in proach approach. and the balance sheet the rate “For [prepay- base: these items Both SWBT and the Commission Staff rec- ments], previous the Commission relies on approach ommended that the formula Commission treatment and adopts thus present in Attorney used case. The proposal.”77 Staff’s working cap- General recommended that no ital allowance be included in the rate base Both and the Commission Staff performed had not because SWBT’ a assert that prepayments the inclusion of lead/lag study although it had been or- proper the rate base prepay- was because dered to do so in the last case. SWBT rate part ments working capi- are not a of cash that, The Commission concluded since tal, but rather prepayments both and cash performed lead/lag study SWBT had not a working capital are subdivisions of work- per- as ordered and the recommendations ing capital. In an earlier order the Com- taining working capital to the amount of to mission directed that the basis for a cash widely, only prop- be included varied so working capital allowance must deny request er solution was to SWBT’s lead/lag study. presented Evidence was working capital for a cash allowance. De- prepayments show that could be included conclusion, spite this the Commission al- lead/lag study.78 The Commission failed $18,399,709.00 lowed inclusion of to make reference to this evidence or prepaid base, expenses76 in SWBT’s rate weight findings. afforded it including an allowance Pages for Yellow nothing court is left conjecture but prepayments so as to match revenues and speculation explain why, prepay- if expenses. Attorney General contends ments could lead/lag be included in a prepayments that this inclusion of study, they could not also be included was not working capital. rate base based on evidence in the cash revenue, nity selectively vanee for unearned penses pre- accrued ex- increase rate base for interest, payrolls, paid and taxes. See expenses, with no offset for cost free Welsch, supra at 112. capital sources such as accrued taxes. Given working capital The amount of is viewed as a case, appropri- available evidence in this is, liquidity, ability measure of enterprise allowance, working capital including ate cash obligations. to meet its short-term prepayments, [Emphasis is zero.” supplied.] Welsch, supra See at 113. A30, XII, p. p. No. Tr. [Ex. Vol. 15Ó4] White, Accountant, Mr. T.D. SWBT’sChief stat- prepaid expense 76. A occurs when services or response ed in supplies purchased to cross examination: acquired were or otherwise say "Q. but not consumed Would it be true or used the end of the that a valid accounting period. example, three-year lead/lag study For prepayment would include ex- premium insurance would not be used or penses con- in its calculation? accounting period sumed the end lead/lag study any- AA. would include purchased which it was and would thus be a thing which involves the movement of cash Welsch, prepaid expense. supra note 75 at 47. way one or the other. Q. prepayment? And that would include January 29, 77. Commission rate order of Now, prepayments. A. It could include p. at way making lead/lag there is no standard Nancy study. Bright, Attorney B. witness for the General, Q. prefiled testimony: general in I stated her understand that. But as a premise, prepayment is— working capital requirement "The associated you prepayments sepa- A. If include prepaid expenses, as a with as well as cost free sources, cap your capital rate item of structure —I mean fully would have been re- base, prepayments lead/lag study, rate I would not include in a valid if one were flected lag Company’s study.” [Emphasis supplied.] available. The lead/lag study failure to file a [Tr. II, give opportu- p. should not it the Vol. 165] speculation for our of the may have from as a basis review confusion resulted This proceeding imprecise of Commission’s decision. order’s definition rate must to allow reconsid- hence be remanded working capital. Inflows outflows inclusion in prepayments’ eration of measured in terms of typically funds are rate base. (or (1) plus cash short-term either cash investments; often called the near-cash ba- de- inquiry its the Commission must (i.e., sis) (2) working capital as- current precisely working capi- fine it intends what liabilities).79 current The Com- sets minus need tal to mean. Its definition not con- 41 of page at its order: mission states precisely typical form to either of “* * * divergent meanings recom- given Because above. The is Commission working capi- working shape capi- made on cash free to a definition

mendations particularly regulatory its tal, opinion is of the tal suited to the Commission scheme or After the needs. Commission necessary it to cash work- is define first clearly working it has defined what intends ing regulatory in the environ- capital mean, capital to must use its it definition ratemaking purposes, ment. For work- disposition present and subse- average ing capital is the amount of quent requests relief. for rate capital provided by in addition investors specifically identified rate base other working capi- The inclusion items. CONCLUSION bridge gap tal between the time is dismissal of the Attor- Commission’s required pro- expenditures are order to ney’s General motion modification time vide and the collections are * * * ” lapse of 30 days order from for that service. received after [Em- entry its is affirmed. phasis added.] legally The Commission’s rate order is Although the Commission states that it is efficacious as to issues resolved Parts II necessary working capital,” to define “cash through and VIII IV and Parts VI and is capital.” “working its order instead defines affirmed it determines insofar as the issues This of terms the actual confusion leaves parts. discussed in these findings in a basis of the Commission’s uncertainty. state of Because the failed to ad- proper dress treatment reimburse- findings The Commission’s must T, AT ments received & and sufficiently against detailed ensure prepaid its expenses since consideration of apprise arbitrariness and this court of is confusing, the rate order reversed its actual basis for decision so that the insofar as it resolves issues outlined in findings court determine whether the Parts VII IX. The proceeding is re- supported by the law and substantial manded to the Commission further in- general Findings made in evidence. terms conducted, quiry findings to be to be are insufficient.80 The Commission’s find made, in conformity given with directions ings respect prepay to inclusion of with pronouncement. Although in this Part V in the rate are not ments base sufficient efficacious, legally post-remand in the in- apprise court of the actual of its basis quiry to be conducted Commission is general are framed in decision and terms. proper directed to address whether it was did admit While the Commission evidence directory for SWBT its opera- to transfer pertaining prepayments, failed to tions to at the SWB Publications assets’ net make reference to such order book value. weight such evidence or to afforded findings. If post-remand evidence in its We are hence left the Commission’s find- nothing conjecture ings prove more than to be inconsistent with the rate Welsch, State, supra note 75 at 80. Public Service Co. v. See 822-823. Southwestern su- pra note 7 at 101. original lating gen- to the of the attorney order now dismissal structure declared its case, the Commission on review in this then Rule 24 motion and the AT eral’s & T modify to conform its rate structure shall refund —I dissent from most the conclu- post-remand findings.81 post-re- The to the II, III, IV, and in Parts sions dicta set out shall inquiry ordered here be deemed mand V, VI, my opinion and VII VIII because pre-appeal proceed- a continuation they precedent, establish unwise contain present rate structure ings below. The inappropriate dicta, litigants leave the some remain in force until shall uncertainty flounder in a sea of crit- completed inquiry post-remand its and has areas, permit and cards to ical remain its final decision. rendered seemingly against ratepaying stacked part affirmed in and reversed in Order public. proceeding with

part; remanded directions inquiry a further and make addi- to conduct I findings. tional attorney general,

The on behalf of the HARGRAVE, V.C.J., ratepaying public, prosecutes appeal this and LAVENDER, SIMMS, and complaining granted OPALA increase the rate JJ., SUMMERS, concur. offers SWBT unreasonable and several grounds vacating granting order GARRETT, S.JJ., BRIGHTMIRE and following catego- fall into the broad which sitting by designation, part concur (1) facially ries: The order not does disclose part. dissent in and findings supported of fact substantial required regard lawby evidence DOOLIN, C.J., WILSON, ALMA and matters; (2) significant number of The J., dissent. fails to various order consider relevant HODGES, J., disqualified. (3) entirely; The order reach- matters certain erroneous conclusions of law of es KAUGER, J., recused. procedural a substantive and a nature. both BRIGHTMIRE, S.J., concurring in attorney general’s The thrust of con- part dissenting part. way: can this That in tentions be framed order, rendering Telephone subject the Commission Compa-

Did Southwestern Bell (SWBT) ny reach touch the important out and rate- three constitutional shirked of this payers it, state too hard? attor- (1) imposed upon namely: It duties general it did. ney contends that The Com- (2) authority; regularly pursue failed say and SWBT today mission it did findings failed to adequate It make approves setting proce- court this a rate conclusions; (3) reach Its sustainable employed by the I dure Commission which fails to and certify order disclose evidence way falls short that which is believe underlying its action which are essen- facts constitutionally acceptable. prompt ap- for the disposition tial is, peal sufficient for us to agree I with the result reached in While —that majority opinion I and IX of whether Commission’s find- Parts determine —re- " * * * judgment power In the exercise of its under Art. If the Commission is Court, Const., Supreme reversed or Okl. to review Commission’s § modified the same shall be remanded the Commis- orders, Supreme modify can Court change modify sion with or instruction to change order and remand it with instructions judgment of the Commission to con- former form to the modify appellate the order to conform Supreme opinion Court. pronouncement. supra note court’s See 23 and Supreme may Court remand case for pertinent text in the for the introduction rehearing, additional evidence or make of Art. Const. § terms Okl. judgment in such order or the case as the final also the terms § See of 17 O.S.1981 7 which [Emphasis sup- proper" Court deem pertinent part: provide in plied.] 1338 of under the circumstances Rule 24 motion evidence

ings rest on substantial 29, January appeal from the earlier proceedings ac- his its conclusions whether affirming Commis- In the 1986 order.2 cord with law.1 general’s attorney dismissal of the sion’s motion, emphasizes that orders court the II by the automatical- “rendered Commission imply- days” thus ly 30 gener- become attorney First, respect to the with final after any event be ing appeal that an must of his the dismissal complaint about al’s 30-day period. This has such filed within I motion, that while I to state Rule 24 want me, invalidating effect, of it seems to the of the court’s affirmance with the concur implication, or at least leaves by Rule 24 the circumstances of under the dismissal jur- appellate of the lingering question implication that case, disagree I with consequences appealing of from isdictional cannot ex- litigants the Commission before motion timely-filed Rule 24 within by filing a 30-day appeal time tend dispos- of an order express- days after the rendition court should Rule motion. should be ing motion. The matter holding that the of such question by ly settle the way by court one or expressly from the resolved appeal aggrieved party can either 24 relief the other. or seek Rule order Commission’s appeal time pendency of which during the 24, being a con- my It view that Rule period. reasonable for a is extended of the stitutionally ordained creation Com- mission, by party invoked without accept the fact that the can be urging this I right of having to forfeit his constitutional authority in- had to establish Commission Therefore, to accom- appeal to this court. pursuant to the procedural Rule ternal rights, 9, 18, protect and at of modate and both powers granted by art. broad § delay, I prevent unwarranted same time Here both the the Oklahoma Constitution. timely filing of a Rule hold that the sought to avail would attorney general and SWBT appeal party’s extend a 24. 24 motion shall of the of Rule themselves benefits period but not to for a reasonable procedural rule it time Thus if Rule is a valid filing. from the date of the days exceed 60 parties to me that the had a appear would And, during if that time the Commission pro- right to invoke it. constitutional motion, party either dispose of the brought into focus fails uncertainty cedural was origi- may days appeal from the attorney general’s within by the dismissal of the Const, 9, 20, upon which pertinent part: of the reasons written statement 1. Okl. art. reads in § based, appealed was and such the action from appealable of Supreme review Court’s "The by be read and considered Corporation shall statement shall orders involving Court, judicial only, appeals disposing ap- Supreme upon and in all violation of of the any right asserted peal.... [sic ] be heard on the cause shall [T]he parties United under the Constitution Corporation Commis- record made before sion, the State Okla- States or the Constitution homa, Commission, of the and the Chairman its own inde- the Court shall exercise Commission, shall certi- under the seal pendent judgment the law and the as to both Supreme upon fy all the Court facts appeals orders of the In all other from facts. based, appealed was which the action Corporation Commission the review prompt may be essential Supreme further than Court shall not extend together appeal, all evi- decision whether the Commission has to determine introduced before said dence Commission, authority, regularly pursued and whether selected, specified may as findings conclusions the Commis- certified, party required in inter- to be are sustained the law and substantial sion evidence, est, other so intro- as well such review, Upon Supreme Court evidence. Commission as the Chair- duced before the affirming judgment, or re- shall enter either (Em- certify_” proper to man deem appealed versing the order of the Commission added.) phasis added.) (Emphasis from." part: relevant Okl.Const. art. reads in § Okl.Corp. No. Cause Comm’n Order shall, Corporation Commission when- "The (Jan. 1986). No. 23921 therefrom, appeal file with ever an is taken case, thereof, part and as a the record against T, nal order and this court shall exercise dis- filed another antitrust suit AT & determining prosecution in Western, cretion whether Telephone and Bell Laboratories appeal stayed pending dispo- shall in the District Court for the District of motion, 24 sition of the Rule whether the action, Columbia. In that divestiture from proceedings stayed pend- 24 shall Rule Regional AT & T of the Operating Bell ing disposition appeal, or whether (RBOCs) Companies sought, was as well as some other directional order will best ac- the dissolution of the “exclusive relation- justice. commodate ships” between AT T and & Western.8 began 1981, Trial of January the case in Ill 1982, in January was near an end when To set the other issues raised parties stipulation announced a con- attorney general proper perspective in senting entry of what has come to be understandable, make them more reference Judg- known as “Modification of Final some orientational historical facts is (MFJ) altering previously ment” the decree order.3 Jersey rendered in the New action and litigation began forerunner of this dismissing the proposed D.C. action.9 The 14, 1949, long ago, January. on when the provisions statement contained detailed government United States filed an action in for, calling among things, other the divesti- Jersey against a New federal court ture of the RBOCs and various structural Telephone Telegraph Company American & preventing restrictions aimed at the “recur- Company, alleging Western Electric type rence of the of discrimination and conspired that the defendants to restrain cross-subsidization that were the basis manufacture, trade in the distribution and the AT T Jersey & lawsuit.”10 The New telephonic installation equipment of various action was transferred to the D.C. court Act, in violation of the Sherman Antitrust 21, January which entered a consent decree 1, (1973).4 2 15 U.S.C. and 3 The relief §§ 1982, that became the foundation for sought included divestiture AT T& of leading appeal.11 on, events to this Later Western, ownership its stock termination 1984, sought the RBOCs three more relationships,” of certain “exclusive divesti- major Judge modifications of the MFJ. ture of Western’s interest in Bell Tele- Greene, D.C., sitting in reviewed them and Laboratories, phone and cessation of other opinion cogent wrote an comments trade-restraining A prolonged conduct.5 and observations were made about some of period negotiation political activity very problems dealing same we ultimating in agreement followed be- today.12 with government tween and AT & T in 1955,6and the issuance of a consent decree especially It should be borne mind that 24, 1956, January by the U.S. District objective the stated of the divestiture was Jersey.7 Court of New prevent AT T using & from its control of major telephone monopoly the local development next occurred to dis- 20,1974, (1) November advantage competitors by denying when the United States them page 3. Title 12 9. Id. at 140. See Exhibit No. O.S.1981 It should also also A59 at §§ 2201-2203. legislature may repeal be noted that 1541 of the Official Record. 18-34, amend §§ art. 9 of our constitution. Const, Okl. art. § 35. F.Supp. 10. at 142. Co., 4. United States v. Am. Tel. and Tel. 11. Id. at 145. (D.C.Cir.1982). F.Supp. 5. Id. at 136. Co., 12. See also United States v. W. Elec. (D.C.Cir.1984). F.Supp. 846

6. Id. at 137. 7. Id. at 138. Id. at 139. (2) using rate increase of million $138.5 the local network and November

access to local “profits monopoly earned This resulted million $43.7 long- operations to subsidize granted May 24,1983, pre- interim increase equipment in which business distance sumably regard to local telephone with light competing others.” it was rates, permanent made which was Decem- urged Department of Justice this the 24, 1983, 1983. On June ber against such ensure misuse court to applied for increase another sufficient to by by monopoly power the RBOCs same generate million effec- $301 an additional entering competi- barring any them 1, request January 1984. This tive was agreed generally The court tive market. reduced million at the behest of to $233.6 exceptions it felt but introduced two which 16, September the Commission on 1983.19 subsidy “generate a substantial would telephone anti- local rates” minimal 29, criticizing 1983—after On December monopo- impact or abuse of the competitive by “the the federal action taken court di- (1) ly power. exceptions The two were: vesting operating companies” AT & T of its premises equipment Marketing of customer making —the issued an order Commission (CPE) telephone and other devices —the May permanent 1983 interim increase homes and offices— used subscribers’ granting another “interim” increase of (2) Pages production Yellow $135,197,000 “adjustment rates for —for advertising directories.14 telephone intrastate service”—effective Later, ruling on motions of the Re- January 1, huge rate 1984. This hike was gional Holding Companies to waive the existing entirely expe- not based on data or MFJ, restrictions in the “line business” rience, budgetary report “a but on estimat- the federal court reiterated that under needs, ing” post-divestiture prepared by (MFJ), Operating Companies’ decree “the reason SWBT. The Commission’s for this responsibility is to tele- basic local “setting that a company was rates for that public.”15 phone to the service 1, change on dramatically January [is] Finally, it should be noted the MFJ 1984, require reliance would on some considered the entities projected data.” information and Such spun AT T—in off from & this case SWBT Commission, changes, rates and said the “operating companies.”16 —to operating company Transfer of assets to a were to ... after be “reviewed sufficient regional holding company does not seem [post-divestiture] data actual becomes contemplated or even have been discussed available.” by early federal decrees. SWBCwas incor- approved Also in the December or- 1983 5, 1983, porated October and transfer operating expense request der as an was a January SWBT to it carried assets was out appears by SWBT to make what to be 1, Following Regional 1984.17 this the about a million contribution to a so- $6 Holding Companies were discussed as such Organization.20 called Central Services court.18 the federal however, promised, The Commission

IV required would be demonstrate during of this cause “review the ser- history [that] under The recent cause purchased applied follows. SWBT for a vices the monies attack allocated to 13. 19. See 250987, F.Supp. OkI.Corp.Comm’n at 223. Order No. 552 (December 29, 1983). Cause No. 28002 at 1-3 14. Id. at 224. granted permission 20. The federal court 15. F.Supp. at 861. organize seven RBOCs to a research and devel- opment entity joint for their use to which each 16. F.Supp. at 139. begin would contribute. To with it was called Organization. organized Central Services Once SWBT, Report, 1983 Annual Inside Front given it was Research, the name Bell Communications (1984). Cover (Bellcore). OkI.Corp. See Inc. 250987, F.Supp. at 854. Comm’n Cause No. Order No. 28002 at 13, 1985, again ratepay- February indeed benefit based on CSO do Oklahoma no dis- ers, prop- hearing the costs are reasonable and evidence. A cernable was held September eventuating The amount is not disclosed but I er.” the Com- 29, disguised January it is as the “Other” ex- mission’s assume issuance on pense page approving 10 of December 1983 Order No. a rate increase $80,075,256and, No. 250987in No. 28002in the supporting Order Cause without evidence, By “ap- million. the time merely $6.002 amount in September proved” $135,197,000 No. 29321 was Cause heard “interim in- granted the CSO had established and been crease” December Research, nearly quarter Bell Communications named total increase of Inc., acronym is referred to dollars. billion throughout “Bellcore” the record. It operated by operating

owned and the seven V strikingly companies a manner similar to predecessor Telephone its celebrated understanding To further aid of the is- —Bell Laboratories, January Inc. In 1986 resolved, or- I sues be also draw attention der, Commission that not all point irregularities found of at this in- several contribution to Bellcore should in complained-of proceedings SWBT’s be volved adopting leading appealed and said it allowed was the staffs and in order also “expenses approves. recommendation that Bellcore “interim” it orders relating research, applied quality assur- First, of the amount the rate increase ance, service,21 enhancement, image approved cannot be determined from imputed and revenue” should be disal- reading January 1986 order itself. sentence, however, lowed. the next ordering portion The format of the contradictorily found that not misleadingly impression order leaves the expenses to, among others, relating all that an increase of $47.5 million (cid:127) “applied research” be should disal- being larg in authorized fact a much when given the benefit This court is not lowed.22 “permanent” $215,262,- of er increase some much know how figures so we do not any of granted simple expedient by I Again have or disallowed. was allowed “approving” previous two “interim” orders in record—substan- no evidence found only.23 reference The first was autho ambiguous support the otherwise—to tial or 1983, 29, rized December in Order No. other. way one or the finding 250987, 28002, in Cause No. the amount of 9,1984, $135,197,000. second, $32,520,695,

On November filed anoth- SWBT application granted February in- er for an additional rate was in an order issued 13, Another figure crease million. “inter- 1985.24 This was deducted from $121.4 $80,065,256 $32,520,695 granted im” increase of was total amount the defi —the 29, (December 1983), Okl.Corp.Comm’n only unsupported by and evidence disclosed in the 292337, (Janu- points up No. 29321 at Order Cause No. order under review but the fact that 29, 1986). ary “cost-plus” or is on a more less basis ratepayer-oriented discourages efficiency, 292337, Okl.Corp.Comm’n No. 21. Order Cause managerially either or cost-wise. 29, 1986) (January at 51 and No. 29321 added). (emphasis 273137, 24.Okl.Corp.Comm’n Order No. Cause 13, 1985). (February No. 28309 at 53 It should at Id. pointed be out that the Commission said that “may none of the $135.5 million increase orders, 250987, 23. One these "interim” No. imposed on It $478.8 local service.” authorized 28002, 29, 1983), (Dec. incidentally, No. Cause gives permanent approval through charges million to be collected access an earlier increase and $56.3 interstate carriers million from 24, 1983, granted May $43.7 million competitive "increases for or vertical services.” 29; permanent made December 1983. This Id. at 23. brings to $258 million the total amount of rate granted regard May large In this $32.6 increases since 1983. Such a noted that the period in increase such a short of time is not million "interim relief’ authorized in Order No. Tompkins28 v. federal common law ciency found the Commission R.R. which was by the United precedent promulgated have order25 to January in the diversity Supreme case ex States Court year from test revenue resulted Texas, namely, arising Elec- Galveston figures “appropriate,” pense found to be Galveston, v. 258 U.S. City tric Co. nothing in means. There is whatever (1922). 351, 66 L.Ed. 678 42 S.Ct. deficiency is that such the order indicate court saw no difference between Galveston predicatory findings of “reason founded expense post-operational operating tax “necessary” test foundational able” course, income Of in 1922 income taxes. data, expenses. More year revenues in any did amount to much. But taxes over, findings in the there is no evidence precedential effect of event Galveston in supportive of the interim other order landmark perished with the dramatic $135,197,000. approved one for crease —the change holding wrought by Erie “ap- significant irregularity Another apply were bound to state federal courts opinion is my 1986 order in proved” triable substantive law to state law issues inclusion of “income tax” in the amount that, my opinion in federal It is court. $59,546,000 operating ex- as an item of circumstances, these court under has $135,197,000revenue pense achieve independent never rendered decision on deficiency figure by the Decem- authorized opportunity it should take the issue 29, 1983, order, No. interim ber by disallowing to do so this case Similarly, the Commis- No. 28002.26 Cause “operating of income deduction taxes as order,27 29,1986, January deduct- sion its expenses.” $22,040,- ed income taxes the amount of irregularity Another is fact that the Operating Income Before 996 “Net cause, in application No. SWBT’s Operating arriving in at the “Net Taxes” 29321, request increase included a for an in $80,485,352. deficiency of This Income” (intrastate long- “intrastate tariffs” access defining fair that is means the Commission calls) distance which.the Commission being the as an after return on rate base reason decided not to con- some undisclosed my In this is opinion income tax return. in in this but Cause No. 28309. sider cause should be on the basis error. rate set presents question the rate- This of how plant fair on the net income of a return appeal proper- related issues in this can be federal, any income taxes of before kind— inclusion ly reviewed without in this or local. The decision state long- its revenue from intrastate SWBT’s subject state on Oklahoma Natural revenue. distance Commission, 90 Co. v. Gas 84, (1923), expense Irregular operating 216 and it construed also is an Okl. P. 917 followed, pre-Erie to order evidently binding, as referred in the December 1983 as 1, (16 Pet.) per Tyson, was increase on trine of v. 41 U.S. 10 "$2.27 273137 for a month Swift exchange (1842), all of SWB’s residence business L.Ed. 865 the Erie said: court per all SWB's $.28 access lines and month on "Except governed by in matters the Federal lines.” 7. centrex Id. at by Congress, acts of the law Constitution or to Order also In No. 273137 applied any be case is the law of state. rejected proposed in- $81.9 million rate base And the law of the state shall whether be alleged an decrease crease said to be caused Legislature declared its in a statute or 1,000 of over access lines. highest court in a decision is not a matter Okl.Corp.Comm’n 292337, Order No. Cause gener- of federal concern. There is no federal 29, (Jan. 1986). No. 29321 at 54 Congress power al common law. has no ap- declare substantive rules of common law 26. Official Record, A61B, p. 16. Exhibit plicable they in a state whether be local in Okl.Corp.Comm’n ‘general,’ they Order Cause No. their nature or commercial (Jan. 29, 1986). 29321 No. part or a the law And law of torts. no purports Constitution clause confer 28. 304 U.S. 1188 58 S.Ct. 82 L.Ed. power upon such a the federal courts.” (1938). overruling standing long doc- 1343 $1,665,000.” Receipts equal $106,833,- Tax This entitled to a “Gross was return (r B). Commission, page I 000 appear does not elsewhere and can- at 9 item x No. that upon Order found SWBT’s not find where such a tax levied total during year30 revenue test entity except cooperatives, was electric $482,098,000, expenses $406,- total were 1801-1807; intoxicating li- O.S.1981 §§ 792,000, $32,783,000, and total taxes were 579; O.S.Supp.1987 quors, various § operating expenses $436,575,- total utilities, except telephone, provided by mu- (O), which it from total subtracted rev- nicipalities, 68 2601-2605. An- O.S.1981 §§ adjusted operating enue achieve a “total puzzling operating expense in other $42,523,000.” income of This was then “In- December order —referred as $106,- required return, subtracted from the 8,774,000” dependent Company Settlements 833,000. difference, $64,310,000— To the unaccompanied by supporting —is evidence designated Deficiency” “Return add- —was explanation an or even what it is. ed: Among the on the ex- items included $59,546,000 Income Tax 29, 1986, pense January list in the order is 1,665,000 Gross Receipts Tax 43,238,643.” Again one called “Other 902,000 Uncollectibles explanation no there is or evidence of what Independent Company 8,774,000 this “other” consists of. See footnote 76 Settlements speculatory possibility for the $70,887,000 TOTAL inappropriate pension expense. fund to arrive at a Deficiency” “Revenue confusing To make matters even more $135,197,000. from the Aside fact that the approved base the order the rate under foregoing suspect, add-ons larger review cannot be reconciled with either the problem is encountered when we start to- approved one 1983 or the December taling figures, these revenue add in the analysis figures An giv- of return. $32,520,695 additional interim increase en, the rate of return allowed granted February try 1985 and to recon- amount of rate increase allowed cannot be figures January cile with set out reconciled. 1986 order in plus revenue example, For Order No. issued $135,197,000 granted increase Decem- 29, 1983, December the Commission found 29, 1983, should have achieved ber revenue $135,- a for an interim need rate increase of $617,295,000 of some but 197,000 specula- based on little than more SWBT-reported found Commission revenue hope confirmatory tion and of later $582,799,267 only year. of for that as it evidence —evidence which turned out all, First of we know that 1984 is the test forthcoming was never so far as I have dealing. year with which we are no Since been able to find. hearing further held respect was to large justify To this interim rate increase $135,197,000 it can increase be assumed the Commission found that SWBT’s Okla- during it was that collected 1984 and boost- (r) rate base at of homa the close 1983 was $482,098,000 ed the 1983 revenue $886,579,000.29 accepted capital It struc- neighborhood $617,- somewhere percent percent and 45 equity 295,000. ture of There is no evidence to the con- an per- debt with overall cost of 9.37 trary. reason, debt inexplicable For some how- It ever, cent. found a fair return be 14.25 up came with total percent equity percent (B) on and 12.05 only $582,799,267, revenues for 1984 of meant, then, plant. This though net SWBT even listed in each item the 1983 = develop- requirement) expense) (rate (operating 29. For convenience I refer the rate O B+ base) (fair x by base). ment formula referred to this court in State r on rate rate of return Co., Cartwright ex rel. v. Natural Oklahoma Gas year. 30. Staff used the calendar (Okl.1982). (revenue 640 P.2d R ending July year used the 1982 fiscal establishes, it, list, “Miscellaneous”, I see except record as revenue “Miscellane- in Part II— gained significantly and the conclusion reached court’s by was more than offset reve- “investigation ous” decline the Commission’s whether not in 1983. The sources considered nue ratepayers of impact on Oklahoma into the why as found question is total revenue holding subsidiary as a of a status SWBT’s $582,799,267—is so far legally a re- company satisfactory” Commission— was —is $617,295,000? target Of the 1984 below incorrectly identified issue. sponse to an the 1983 know first of all that course we I issue as see it is not there whether way too it included figure was low because satisfactory investigation of SWBT’s was a operating expenses the reve- improper subsidiary status but Commis- whether there is abso- Beyond calculation. this nue garnered made sion available evidence lutely way no that I see to reconcile can evidentiary-supported determination as figures any of the in the two orders. whether, cross-subsidization, through way no this court can determine There is ratepayers unlawfully per- have been most, if at the Commission arrived how uncompensated financiers mitted to become In the used. rate figures has all, If competitive pursuits. of SWBC’s we are to determine formula unable matter was addressed all the Com- at (R), contents of the order what either given cursory mission it was attention (r), (0) (B) or should be. 1986)by 292337(January in Order No. sim- then, validity of the its face final On disallowing ex- ply corporate “certain irregu- order features serious fundamental re- penses” based on limited unaudited larities; approve large It undertakes to view described one witness “bal- increase, granted most of which was ancing the books.” cause, support- another without substantial to resolve this Commission’s failure evidence, ing findings, legally sufficient regu- issue critical amounts to a failure conclusions, or disclosure of the amount larly pursue authority. its It should have increase in under review. the order addressed, explored specifically thoroughly evi- specifically, More there is no definitive issues detailed of the orders which and resolved cross-subsidization dence expense support any arising implications will the revenue from the of SWBC’s see, figures given. As in order for SWBT, we will parental relationship impact properly this court to assess the issues state, on the in this necessary it is for the Commissionto raised would, This SWBT’s revenue needs. profit- prepare detailed balance sheets course, analysis in-depth include a careful SWBC,31SWBT, and-loss statements holding company ex- related costs and subsidiaries, unregulated and each SWBT, paid by headquarters ex- penses complete explanations with understandable SWBC, penses of both SWBT and transac- concerning every along each and item listed affiliates, allo- tions of both with other accounting changes or choices all with expenses costs and in each cate- cation of evidentiary support the for all of it.32 gory attributable to the basic of this have I None found. admittedly in service rendered Oklahoma— matters, important task. a difficult Other

VI equity-debt as SWBT’s ratio and the such SWBT, equity in rate of return the in I turn now to issues dealt with consideration, majority opinion. analysis require An I deal both of which Corporation, parent economically Southwestern hold- order to more Bell obtain essential data, ing company of SWBT. to in a rate-related coordinate resources any advantages that reduces manner unfair studying post-divestiture 32. After restructur- occur, might provide for otherwise a vehicle system ing Telephone Bell Southwestern among preventing discriminatory practices states, - evident it becomes that the five states required and to standardize the data for region creating inter- SWBC should consider design and structure. compact state communication commission in

I345 course, And, risky competitive on. the fore- nies are less than with later ones.”34 imply going is not meant to that the find-

ings and conclusions ignore is, said, To these matters Ias regard expenses to the costs it regularly pur- failure of the Commission to approved “are sustained law A authority.35 sue its fair rate is one that They evidence.”33 are not in substantial proper strikes a balance between the com- my opinion. peting interests of the SWBC shareholders ratepayers and the of this state —the for- resolving important In cross-subsidi- receiving profits, mer maximal the latter appears issue the Commission zation “low-cost, obtaining high-quality tele- sight only have lost of the fact that it is service,” is, phone incidentally, a ma- SWBT’sfinancial structure and health with jor objective of the federal divestiture de- regard operation in to its Oklahoma that may help cree and factor which achieve A are to be considered. distinction should goal pursued.36 should be drawn, instance, have been between While exercise the Commission’s might appropriate equity-debt what be an authority regard in this has been con- equity ratio and rate of return on legislative nature, sidered it does not distinguished SWBT of Oklahoma as follow that it be exercised in a manner might it be for and its what SWBC world- rationally which is unreasonable or not con- operation. wide It is the former that must objectives sistent with the delineated in the regulated, the latter. In other MFJ, general principles guide- or the words, proper I do not think it was to set prescribed lines in Lone Star Gas Co. v. equity-debt ratios or of return rates based Commission, Corporation 648 P.2d 36 appears on the needs or wants of SWBC as (Okl.1982). duty It is the of this court done in the have been 1986 order. Ironi- jurisdiction when its review has been in- cally the Commission seems to have ac- to determine voked whether the Commis- knowledged regula- the reason for such a properly sion has fulfilled its constitutional tory 29, 1983, restriction in its December obligations. this, essential, And to do it is order “Finally, when said: Southwestern emphasized as court Lone Gas Star [Telephone] operating Bell will be a Co., that the Commission shall made have largely monopolistic, regulated environ- explicit, comprehensive and detailed find- company. ment as a divested this re- ings, concerning all relevant and material gard, regulated facts, it is compa- supported by axiomatic that them to show Const, Co., F.Supp. 33. See Okl. art. 20 and 22. §§ 36.See United States v. W. Elec. at 875. Said court: Okl.Corp.Comm’n Order Cause No. assumes, Court, "The decree as does the (December 29, 1983). 28002 at 13 The distinc- Regional Holding Companies may diversi- recognized by tion was also the court in United fy significant they on a scale demon- Co., F.Supp. States v. W. Elec. at 864. centrality corporate strate the to their life of O.S.Supp. 35. Title 17 reads in § rele- responsibilities imposed upon the decree, them the part: vant low-cost, their firm commitment any proceeding regulate "A. In ... service, high-quality telephone and the im- telephone utility subject juris- rates of a probability of their involvement in anti-com- Commission, diction of the said petitive upon monopoly conduct based their prescribe Commission shall and enforce rates status. The rules established herein are de- a fair return on the fair value signed objectives to achieve these while also property public devoted to service in this permitting Regional Holding Companies the state.” to enter into new business ventures to the extent that this not a threat will to the Legislature “I. It is the intention the that purposes fundamental of the decree.” to, this entire section is an amendment and through alteration of Section clusive, 18 in- [sic] by as authorized Section Article IX of said Constitution.” decree, oper- the “Under the and substantial evidence.37 rational reasons [divestiture] is to by ating companies’ responsibility basic has been defined evidence Substantial some- local possess “found court as that to this seen, and the vast public conse- ... As will thing and of relevant of substance Holding Regional programs fit- the carries with it diverse quence something that — pri- Teleco, Companies formulating, and the v. conviction.” Inc. ness to induce assign- companies the seem to be Commission, P.2d orities ing a seri- programs, to their constitute (Okl.1982). obligations under ous threat to their issue, subject this means applied As to implementing doc- decree and oper- regulated in order to ensure uments.” unregulated op- ations do not subsidize come to prophecy court’s has in fact The holding company or erations of either the And reason an extensive and pass. for this affiliates, there substan- its other must be investigatory of SWBC’s detailed audit the use of funds tial evidence that SWBT’s each and as well those of books records affil- by or other and other assets SWBC required earli- subsidiary urgently is at the regula- only by not iates is authorized possible help control the situa- est date reason- tory agency, necessary but protect the rate- tion and both SWBT and I not found such evidence. able. have public overreaching by paying SWBC. Take for transfer instance Comprehensive financial data benchmarks operation Pages Yellow from SWBT opera- of both SWBT’s and entire SWBC’s does not indicate that SWBP. The order year with beginning tion at least by Com- such authorized transfer was compara- need to be for future established considera- mission but it does show that the Commission, the reference tive far less than tion received SWBT was is little mean- public. courts There The re- fair market value. Commission’s unrelated, random, unintegrated and ing in later, matter, I as discuss was view this information, figures fragments isolated wholly insufficient. satisfy requirements To or statistics. Similarly, fails the order to disclose that must, in of our constitution the Commission given signifi- consideration was another judgment, and certi- my receive evidence of bearing on cant circumstance both investiga- infy detail the essential facts an the is- cross-subsidization issue as well as requires, and application tion of SWBT’s pertaining equity-debt ratio and sues findings must state definite certain return, namely, public an- rate of SWBC’s along on the of such with made basis facts gen- apparently nouncement that SWBT regard with to how the conclusions reached erating “internally” fi- enough revenue they requirements affect the revenue only capital its own needs nance but SWBT.

those SWBC as well. See SWCB’s 1986 proving The burden lies with SWBT of Report. Annual convincing clear and evidence not expenses allocated danger ratepayers the reasonableness being unwittingly headquarters for both state forced to subsidize SWBC competitive enterprises operations company affiliated transac- SWBC’s worldwide tions, great longer expense such or trans- is so that the the Commission but that each perform necessary. necessity of properly efficiently waits to action was expenses the ma- its constitutional duties more difficult it allowed is overlooked recognized by opinion instead that it is jority will be to do so. This was states manage- “good “utility’s Elec- the court in States v. faith” of United Western Co., managerial ment” or its of discretion saying: tric abuse Const, F.Supp. at 861. § 37. Okl. art.

1347 govern necessity should the issue.39 It is diffi- and reasonableness of faith, managerial good contributory expense or allocation to cult to see how SWBC’s faith, SWBT; anything (d) has for that matter its bad a detailed disclosure of the resolving expense space, premises, equipment outlay to do with cost issues. expenditures SWBC; (e) The are either nec- costs and or a detailed disclosure reasonable, essary, in order entertainment, travel, and authorized advertising, political, in for SWBT expenses and “miscellaneous” off handed state, they again or And it is are not. by directly either or indi- SWBC SWBT regard to this issue that the Commis- with rectly. Such evidence is essential and of reversibly sion’s order also falls short. importance setting critical fair rates. facts circumstances the court instance, way, There is no for to tell record as it now stands—confirmed inciden- exactly expenses from the order what were (SWBC’s tally by public record annual by encountered or considered the Commis- report) my opinion give pre- rise to a were, —in sion, their amounts whether what sumption subsidizing that SWBT is authorized, lawful, they necessary, were or speculative unregulated ventures af- they or how were allocated. Nor is there filiates. finding respect to the evidence or with telephone rates in this effect on the basic proof persuasion The burden of both being unregulat- state of SWBT held upon presump- to overcome the holding company. Again emphasize I ed tion. addition to circumstances al- necessity. the element of rate-related mentioned, ready public- SWBC has further ly reports, disclosed in its 1983-86 annual there was some that cer- While evidence example, during past few accounting tain entries were checked banks, farmers, years when most of our Buck, Steel, others, perhaps Mr. Mrs. businesses, showing and industries were (a) there was no evidence the order of a losses, steady with even the state itself audit, spot-check verified the strict sense suffering badly depression-like from a term, accounting of that work review economy, enjoying has SWBC been comparison papers, a relational steady steep earnings largely due climb generally kept by sets of utili- three books skyrocketing post-divestiture rate in- IRS, ty companies for the one for the —one creases,40despite the that at the same shareholders; fact ratepayers, and one affiliates, unregulated capi- (b) time SWBC’s study general a detailed head- by profits from their local expenses talized lucrative quarters emphasis on the telephone exchanges, huge necessity have suffered and reasonableness of such items managerial perks nearly through Sep- losses of million $36 and staff salaries and SWBT; (c) asked allocated to a detailed disclosure tember 1985.41 When about such opinion Telephone Company 39. The case cited in the court’s for the 41.The Truth About Diversi- fication, Spievack, president Edwin B. and exec- "good pre-Erie faith” comment is federal com- utive director of the North American Telecom- Supreme law creation in a U.S. Court mon 1935 Association, munications Public Utilities Fort- concerning controversy decision an Ohio-based 15, 1986). (May nightly 13 He wrote: which, earlier, pointed perished as I out “The data —derived from documents at the Tompkins, Erie R.R. U.S. when v. Exchange FCC and Securities and Commis- S.Ct. bur- 82 L.Ed. was decided. (see accompanying figure) sion —show proof persuasion propo- and of lie with dens $79.3 that NYNEX lost million in first nents under Oklahoma law.. nine months of 1985. The American Informa- Technologies Corporation dropped tion $65 Reports SWBC Annual 40. See competitive undertakings. At- million on Bell million; showing $883 net income for 1984 to be lantic lost million. Southwestern Bell $58.9 million; topped $996.2 1985 to be and in 1986 it $35.8 lost million. PacTel’s losses totaled dollars, $1,022.7 reaching one billion million. million, lost $47.4 $4 million. BellSouth' published notice of SWBT SWBC Judicial dropped US West million on a $180 while reports may annual be taken this court sua program. So for the more ambitious much sponte. §§ 12 O.S.1981 and 2203. entry fantasy that diversification and into by the federal case, created argument of tions environment” during oral this losses and “the state of the decision he divestiture said did not know SWBT’s counsel economy Implicit Oklahoma.” unregulated affiliates were whether the testimony was the conclusion presidential keeps losing money or not because SWBC guarded closely secret. such information 1, 1984, prior January basic information is vital This is incredible. Such kept rates were at a below-cost level proper in the circumstantial evidence to aid through superprofits from subsidization issues, as of cross-subsidization resolution generated by sales of services non-basic capitalization matters. That as well equipment. specifically, More unregulated reported an affiliates SWBC’s postulated president super- that the loss of during aggregate million loss $85.8 profits formerly generated by high pricing 1985,42 my is in first nine months of view monopolistic telephone of such non-basic segment picture. important of the total toll,” “long leasing services haul from either the Commission To conceal this (CPE)” premises equipment “customer in se. stockholders malum SWBC longer no available SWBT and all SWBT generate

has left to income are “access charges long-distance service” to various president of testified before carriers, long-distance (intra intra-state September 1985 that the the Commission LATA) toll, and basic local ser- collect more mon- needed to reason SWBT Pages, vice. He omitted mention of Yellow ratepayers was because ey from Oklahoma evidently because of a transfer to SWBP. resulting “earnings crisis” of a so-called two, says, produce The first he do not competitive telecommunica- from a “new prof- RBOC competitive adds to markets new added.) itability." (Emphasis following graph: includes the The article

42. Id. at 15. income from “Long-distance SWBT’s ser- basic enough superrevenue subsidize desired SWBC. vice” fell to a level $3.7 service rates billion 1983 to $912.4 however, no is, which, there is evi- million in 1984 fact according “earning president, crisis” ever that such an SWBT dence was due to the divestiture existed, threatened. But loss of AT or that one ever T “subsidy”. & This is unlikely place, one took it only event understandable if AT in & T’s use adjust necessary ratepayer’s SWBT to should be intrastate network lines is con- operation sidered subsidy in order to thrive on a reduced as such a consideration —a than expect ratepayers scale rather to that overlooks the that fact since AT & T’s support earnings former A level. fair long-distance service consisted almost en- imply return that is does SWBT enti- tirely using local network lines across tled to sufficient rate increases for SWBC nation, T being it was AT & subsidized steady upward to maintain a of earn- climb by ratepayers. Regardless state that, ings regardless and declarations dividend however, SWBC’s Report 1986 Annual general conditions, change economic shows such largely that loss was offset structure, corporate anything else. with income from “network access” charges, long-distance intrastate A published by review of “selected data” and coupled “other” —whatever that is— 1986,44 SWBT for by 198343and SWBC for significant with a reduction in the work- incidentally, president’s makes the testimo- force operating expenses.46 and other ny puzzling. more The data indicates that receiving reported regional operat- points What up this is that there are ing telephone revenue “Local service” gaps numerous data the evidentiary amount of billion in but $3.6 underlying being foundation the orders re- despite hefty billion 1984 $2.8 compounded viewed. And this is hikes. It is difficult to understand how is, fact that what evidence there is discor- abrupt there such could be revenue de- dant, intermittent, fragmented and without magnitude particular cline of this cognizable thereby raising referents more category and even more difficult see questions than it answers. Such shortcom- adversely how divestiture could affect this ings become particularly critical it when is explanation basic source revenue. One generates recalled that SWBT might “Directory Advertising” more than was percent revenue, 90 SWBC’s carried SWBT as revenue from local allo- major portion cated a report expenses service in 1983 while category SWBC removed to an “other” in most of SWBC’s efforts are involved with Advertising” “Directory 1984 competitive worldwide activities of its 1986.45 The table also unregulated below indicates that affiliates. Thus the Commis- SWBT, (1984). Report Report Annual 19 45.The SWBC Annual shows 43. following operating 1985 and revenues SWBC, (1987). Report Annual figures page are from 34. The 1983 1986 at Report page at SWBT’s 1983 Annual SWBC, (1987). 46.See Report 1986 Annual billion, approximately of 1986 of reve- vigorously every pre- take $20.3 failure to

sion’s billion, nues of more than more than ratepayers against $7.9 protect the caution 67,490 employees 8.8 million customers present danger of cross-subsi- the clear spirit as well as 61,770 offends the for SWBT.50 dization worked It is of of our constitution.47 letter in mind that important bear It also importance that the Commission utmost speaks of president when the SWBT implicit- grips hard issues come furnishing a economy in the downturn post-divestiture struc- ly raised SWBT’s failed to mention more revenue he basis for suf- render an order contains ture and re- was work force that in 1983 SWBT’s findings evidentiary details ficient including 2,700 8,000 people, duced some judicially determine this court to enable 1, T, January AT & and on transferred to properly per- has the Commission whether 18,000 1984, transferred another If, for function. its constitutional formed T.51 to AT & Whether employees instance, of both SWBT’s allocation to unneeded reduction was due work force expenses made to headquarters is SWBC’s automation, in or a downturn employees, op- of apportionment a fair SWBT’s attain otherwise, sub- it had to economy the Oklahoma,48then it should be erations The expenses. operating stantially reduce statutory strictures of 17 done within the president must be testimony of SWBT’s which, 137, among other O.S.Supp.1987 § told of what SWBC viewed in the context property rate base to things, restrict the Report Annual in its 1985 its stockholders this state. telephone dedicated company “the which is that serving customers (SWBT) more now re- background SWBT’s various for As 1984, employees. the tele- In with fewer years, in recent for rate increases quests force 4.2 phone company reduced its work that 1985 SWBC in mind one should bear an- dropped the percent. number “Corpora- that the its stockholders advised telephone company The percent. other 3.4 assets, revenues with tion” ended 1984 in force while achieved these reductions among top one being earnings all 500,000 more than customer gaining companies in the held publicly of percent lines.”52 States,49 init fact “contin- and that United case, said, largest corpora- refers in this as we rank as one of order ues to opin supportive of to no hard evidence world," assets at the end in the with tions companies’ primary holding response 47.There is evidence that RBOCs’ to this is successful, objective ratepay- is not the fulfillment their obli- are if the ventures gation provide “to under the federal decree low- capital ers costs. This will benefit lower cost, service,” high-quality telephone but the "di- court, pie-in-the-sky argument, says is "erro- capital managerial version pursuit resources in every respect,” gives three co- neous in and it F.Supp. of outside ventures." 592 at gent why. F.Supp. reasons 592 at 862-864. unregulated 862. "Diversification into various court, "appears enterprises,” said the to have a O.S.Supp.1987 part 48. § Title 17 reads negative effect on local rates.” The source of follows: “The Commission ... high-cost likely "is funds for their ventures to be prescribe shall and enforce rates to months,” ratepayers. the local In recent ... property fair on the fair return value of the public the court "the said has witnessed public devoted to service in this state.” requests for local rate a number increases parts country. requests These all divestiture, sometimes on in fact blamed but SWBC, (1985). Report 49. Annual 1984 they may capital stem need to from the raise ventures, advertising campaigns, SWBC, (1987). outside lavish Report Annual 6 50. 1986 plants hiring and the construction of Regional. Holding SWBT, staff suitable for what (1984). 1983 Report Annual Companies consider themselves be—diversi- conglomerates outgrowing SWBC, fied are fast Report (1986). (Em- Annual relatively pedestrian telephone phasis added.) ing modest their regard In this it is also interest- origins." F.Supp. note what at 863. SWBT told its customers in property appropriated value of SWBT’s ions and conclusions reached either holding Opinions company unregulated or the Commission. and its witnesses witnesses, being the various aside from imputed affiliates —a value which must be unsupported speculative by factually- setting to SWBT as revenue for pur- reasons, are assumptions based based on poses. consistent holding needs of the

company rather than they SWBT. As such Nor is the Commission’s post- reason for probative have no force and do not consti poning consideration of this matter until quality tute evidence that will sus “the request,” next rate relief finding. tain a Longfellow Downs v. ground may that it “quanti- be difficult to (Okl.1960). Corp., 351 P.2d This fy,” all, tenable. though First of again why impossible demonstrates it is that, sunrise, morning like the plea another properly perform this court to its constitu for a rate increase inevitable—at least it tional review role.53 would seem that the Commission assumes

so—the evaluating fact remains property rights SWBT’s will not become VII goes less difficult by. as time Indeed it will be more difficult because the more A kindred issue is dealt III with Part elapses time that between the divestiture majority opinion, namely, propri- and the determination of vital facts and ety of the Commission’s failure to deter- issues, resolution of critical the more diffi- mine the economic value which should be cult complexi- it will be to further unravel imputed to SWBT for the use of the SWB wrought by shifting ties corpo- constant logo by holding company name and and rate assets accounting and modifications of its opinion affiliates. While the court’s principles procedures.54 The sooner early considers determination of this issue the issue is resolved the better. unimportant, urgent I consider it to be postponement the indefinite of its resolu-

tion to prejudicial be a fundamental and majority opinion points to some testi- irregularity. mony by couple of staff witnesses to the

effect that SWBT derive certain ad- logo, have been The name and vantages being part holding of a com- years, im- many owned pany. being speculative But aside from familiarity good will and are with bued “advantages” such to SWBT remain un- property within therefore valuable Certainly identified. none are claimed to O.S.Supp.1987 137. No meaning of 17 ratepayers favor the of this § state. Indeed to underline the precedent is needed only “advantage” rule pos- alluded to is the duty to determine the fair sibility of being Commission’s SWBC stockholders bene- April page example, just For "Tele-Help” 1988 on 1 of a year advertise- SWBC has com- pleted flyer acquisition ment eighty mailed with the bills it percent sent out: of an inter- est in Printing Gulf Company, largest "the fifth Oklahoma, "In towns continually across we directory printer in terms of sales and number upgrade equipment our more effi- published,” of directives according Moody’s employees cient service. It took 71 to main- Stocks, Handbook Common Summer 1988 1984; 10,000phone today tain lines in it takes Edition. The same source indicates Gulf will be Updating equipment dependa- our means printing the Pages Yellow and Southwest Bell holding ble service while down maintenance Publications, Inc., will "marketing handle of di- expenses. rectory advertising.” customer, you And, right As our have the to ex- according source, quarter first net pect good, phone affordable income percent fell service....” 8.9 "acquisition because of added.) (Emphasis costs associated with new paging cellular and properties,” "higher expenses due to in- State, 53. Southwestern Pub. Serv. depreciation Co. v. creased 637 P.2d accounting charges." (Okl.1981). (Emphasis added.) appar- It did so net value. 000—its book of SWBC interests Advancing the

fited. part of the objection on the ently course, beyond without such, lies as stockholders Commission. constitution- scope of the Commission’s obligations. al course, may, argue SWBC that Pages directory integral

Yellow is not an part telephone of local in order justify corpo- its excision from the SWBT VIII body, say but think can we we without every telephone fear of agree the court’s treatment I cannot contradiction user, subscribers, particularly business complaints con- attorney general’s Pages nearly frequent- uses the Yellow Pages direc- confusing Yellow cerning the so, ly, pages. if not more than the white in Parts IV and V tory situation revenue Ratepayers taught by have been SWBT to opinion. finger way through “walk” their the Yel- Pages low to discover the number and iden- Pages the Yellow The issue of whether tity engaged of those in various services or proper is raised from SWBT was severance they commonly businesses and do so. as the attorney general, as well by the Pages directory this sense the Yellow or its Yel- question of the fair cash value equivalent enjoyment is essential to the full profita- ongoing, Pages directory as an low telephone of basic service. I would hold challenged propri- is the Also business. ble through usage custom and the Yellow Pages investigating the Yellow ety of not Pages directory integral has become an very closely data and net revenue gross part adjunct of and an essential to the full drop determining why precipitous enjoyment of local service.56 period. year during 1984 test occurred implica- important have All these issues should have my opinion issues In both propriety ratepayers.55 for tions addressed, and decided. Refus- heard been judged on how to is not be the transfer ap- to whether hear and determine al to it af- but how the stockholders it affects Pages to of the Yellow transfer prove the ratepayers. fects affiliate, in- and failure to unregulated of the 1984 Yellow complete on audit sist a noted, created SWBC was previously As were, my experience Pages financial three other hold SWBT and irregularities. And fail- opinion, reversible subsidiaries, operations and to commence founda- fully investigate and obtain ure subsidiary was January 1984. One expense relative and data tional revenue Bell Publications. Southwestern SWB.C Pages also means allocation the Yellow Pages directo- Yellow the lucrative caused sup- appealed order is without that the grossing way over a ry business SWBT — findings and substan- appropriate port of transfer- year be half billion dollars —to tial evidence. 2,000 along more than red to SWBP with production of the Handling skilled in the as the Commission employees the matter $200,- price only directory at a leaves it limbo. subject famous order did that there SWBTs chief accountant testified million in '1984 to $974.8 million in 1985 and (1) The for the decline: were two reasons then backed off some in $824.1 1986 to million (2) economy; poor Oklahoma’s according state of Report. to SWBC’s 1986 Annual Is Pages competition in adver- increase of Yellow by the 1984 revenue distorted a shift of 1983 tising. expenses to 1984 or deferral of 1984 revenue to question 1985? by This was not answered This is difficult to follow in that Oklahoma’s Commission. economy poor price been since the of oil had subject is also fell in 1981. The second reason Accord, State ex rel. Util. Comm’n v. S. Tel. & question to serious in view of the fact that Co., N.C.App. Tel. (1982). 291 S.E.2d 789 advertising directory $744 from revenue rose is, instance, approval There some evidence dence underlies the Commission’s existing structure ratepayers get capital all the SWBT’s of 55.- going from the percent equity percent debt, 44.68 Pages is the Yellow transfer revenue from as is VI of the concluded Part court’s existing advertising contracts and when percent opinion. equity On its a 55.32 face expire get these ratepayers no more telephone monopoly service Pages Therefore, Yellow benefits. it is —one sufficient rate in- which able obtain urgent that the Pages status Yellow internally creases to finance not all of directory and its revenue should be deter capital its own needs those the hold- but mined. If disapproved, the transfer is ing impose company appears excessive revenue allocated to Oklahoma will — have to capital ratepayers, costs costs on the be determined on Disapproval that basis.57 by are increased even more excessive public of the transfer from service as a (14.25 equity percent) return authorized telephone basic subsidizing seg high by equity ratio Commission. ment in keeping the contemplations placing ratepayers also results in on the objectives promulgated by the federal higher taxation burden since the net in- court in United v. States Western Electric holding passed come of SWBT is Co.,58and United States v. American Tele dividends,60 company subjecting thus phone Telegraph Co.59 the ab to double taxation the time SWBC sence of substantial evidence that transfer shareholders receive their dividends.61 of SWBT is benefi Pages out of the Yellow state, of this ratepayers cial to the Again most, I say all, if obliged to disallow it.

Commission will problem stems from the fact that the Com- proof burden of Again I state that the mission focused on the needs of SWBC issues should be persuasion on these rather than those of SWBT—a er- critical contains no factual upon SWBT. The order assumption ror. The underlying such a finding the Com- justifying foundation or high equity percentage is said to “in- figures SWBT’s mission’s conclusion that creased business faced appel- risks supported by substan- were reasonable and [SWBT], lee principally the threat of generalizing about Merely tial evidence. bypass of network large economy in Oklahoma poor state of the interexchange users and carriers.” Such Pages advertis- an increase in Yellow risk, itself, not, however, and of should competition, factors to be con- ing while any significant cause increase in the cost of sidered, inadequate and are too indefinite capital to monopolistic utility a able to seek drop 1983-1984 explain precipitous the to adjustments, rate might it if like it were which went far Pages income net Yellow merely competitive enterprise a totally income trend line. de- below the established upon

pendent capital. outside venture It is generally accepted higher the that the risk IX given ratio, enterprise of a greater I business the equity-debt regard to With equity portion evi- substantial should be. agree that Thus a unable to lower- am accountant, Okl.Corp.Comm’n Dr. See one of White. 57. Because Oklahoma is five states 292337, (Janu- served arises as SWBT an issue to the effect Order No. Cause No. 29321 at 8 disapproval. of one Until ary 1986). state’s this matter is disapprove clarified or all five states likewise 61.This why at least one reason SWBC seeks transfer, the Commission should treat the high such a equity rate of return on enable profit —to resulting Pages or loss from the Yellow pay higher it to Again a say dividend. I that the operation though transfer as no had occurred. welfare of SWBC’s shareholders —as distin- guished F.Supp. ownership 58. 592 at from the of SWBT—is not a concern of the ratepayers Commission. The of 193; F.Supp. 59. 552 at and 194. this having put state position should not be into a prosperity to assure the of SWBC in protect order to handling subsidiary well-being 60. This means of economic income is SWBT. SWBC, policy according to SWBT's chief jurisdictional rate-making for impose monopoly able to obtain increases risk (Tr. 460-461). purposes.” higher debt share. should benefit Those who invest potential. ment than for erally do more increased ultimate fact accept a lower SWBC money from has so risk of But however this been rate of appears to be growth and are ratepayers higher income or able to obtain for utility safety return companies gen- of the invest- in lieu of the may be the here willing to so growth has much that in- ty tion to Report, ties.”63 created, according to allows Indeed organization financing “for two explore organization holding company operation's in the new business important SWBT’s 1983 maximum flexibili- best and [2] reasons: possible (SWBC) opportuni- Annual It ^[1] posi- puts was It ternally competitive financed both ventures however, is the important, regulated services.62 As a witness more Even need for is current lack of tendency to fact that there out is a use

pointed there because, as we said expanded investment utility generating capital as a cow” “cash earlier, being capitalized totally SWBC is corporation entry holding to use for internally produced by revenue non-regulated its into the subsidiaries —with quite has for some time SWBT—and been “competitive arena.” recom- riskier following according to the statement on mending percent equity a ratio of and 55 page Report 32 of SWBC’s 1986 Annual to SWBT, witness, a Dr. percent debt for one its stockholders: Wilson, explained way: it this com- high quality to

“In order customers, strategy get, “The has try try been to to its services munications utility use particular as a cash cow Corporation, support signifi- use cash cow to sustain must make Company, Telephone entry Now, competitive into markets. plant and property, investments cant capi- I recommending departure what am ais other equipment. Construction part $1,970.0 from that on the for this Commission. totaled expenditures tal I saying really $1,804.1 What am if for there $2,090.3 1985 and posture needs to be a cash infusion had funded company competitive ex- entry capital into and other these construction arenas, ought that that generated to be stockholder internally penditures with responsibility something and not de- that the as These are defined funds funds. jurisdictional ratepayers should cross- operations less dividends rived from why subsidize and that’s I recommend Consol- in the shown as shareowners moving type utility capital to a structure in Fi- Changes Statements idated opposed competitive type to the more ra- Corporation’s Position. nancial capital corporate structure on a to con- generated basis funds internally tio attempting that Southwestern Bell is capital expenditures and other struction aspect through by assuming, 62. The court discussed one of this finan- competitive venture phenomenon cial in rates, United States v. W. Elec. part higher of cost. It fol- interest Co., F.Supp. saying: at 864 that, Regional if diversification of lows “Thus, Regional Holding to the extent that a Holding Companies competitive into new ven- Company jointly raises funds for both its all, viability at enhances their financial tures competitive es, regulated ventures and its servic- likely not more than be beneficiaries will capital may the cost of be lower for the managers, holding companies, their and those (because it will be aver- competitive venture affiliates, Operating unregulated not the their capital regu- aged costs the lower with telephone provide ser- Companies local regulated higher monopoly) for the but lated vice.” then, ratepayers The will telephone service. (1984). SWBT, Report 4 effect, Annual subsidizing activities of the in be 29, 29, 1986. In 1.04 for its December order was 1.02 for 1985 and 1.05 Management the Commission expects for 1984. observed: the level internally generated of again funds to reviewing analyses “In performed projected meet and construction other cause, by expert in witnesses it expenditures capital approximately appears assumptions to us that made $1,800.0 in 1987. by concerning Mr. Kaufman ex- investor

Dividends declared pectations as to returns achieved for ($6.40 per share) totaled common $638.2 consequential near future and dividend ($6.00 share) per common $597.9 growth appear questionable to have a ($5.60 per in 1985 and common $549.0 higher foundation. return Recent autho- share) in represents payout 1984. This clearly rizations are not evidence that percent percent ratio continue, especially such trends will and 62 percent Manage- in 1984. Further, light money. of lower costs ment will payout continue to monitor this Mr. Kaufman’s reliance on substantial ratio order to that it ensure remains projections, analyst investment in our expectations consistent with the and re- view, appears misplaced. also to be quirements of and the shareowners inter- ig- projections While such are not to be requirements Corporation.” nal nored, their question validity we as added.) (Emphasis requirements.” indicator of investor (because maybe Since SWBT SWBP Under circumstances, these not does Pages) are the two Yellow subsidiaries appear high that such a rate of return as losing money, it has be that the Commission has allowed is for needed satisfy capital return sufficient to all rating credit purposes as suggested by requirements bearing heavy even after nor, SWBT’stestimony, see, as we will is a competitive operations from the losses equity-debt greater SWBT ratio than 45- paying liberal dividends. Certainly sup- the evidence does not port equity-debt either the ratio or rate testimony offered SWBT concern- of return on equity set the Commission ing conjectural opinions of various Wall regard this case with and econo- counselors investment Street Indeed, SWBT alone. one would be hard- yield capital both structure mists about pressed to find to justify evidence a rate appropriate been expectancies have equity return on percent in excess of 8 having higher competitive enterprises depressed SWBT under the conditions that but it had little growth potentials, (cid:127)risk and prevailed have in this state for past few monopolistic risk so far low relevance years.64 were con- utility companies investor The most conservative cerned. X delighted a lower rate should problem I have with the Universal SWBC-type com- yield growth and Option Service adopted by the Commission of all best it features pany because plan as a designed to reduced investment worlds—the possible appears low-incomeindividuals is that it monopoly able regulated service risk of arbitrary discriminatory in both increas- frequent substantial to obtain form and substance. competitive growth es, potential The Commis- risk of or no loss. with little No one else seems to have 29, up come with December of this on aware sion was anything like it appear and there to be no January forgot it 1983, apprently but This, course, way in no restricts SWBCin 64. structure, setting up capital whatever debt ratio target it desires. or return

1356 (a) responsible for What is the rate base given a foun- as findings or reasons made increasing $886,579,000, as the Com- To sustain adopting plan. for dation 29, found it to be in the December mission court once “plan” the Commission’s 1985, 13, 1983,65 February orders66 to tenuous the rather on again falls back 31,1984, $1,006,522,353in as the December process is a rate-fixing foundation in Commission found it to its order of it may, Be that function.” “legislative 29, $119,943,353 13.- January 198667—a regularly pur- rest function must such particularly percent 43 increase 1984— evidence authority and substantial sued finding de- of the Commission’s of a view There subject judicial review. 1,000 in 1984 crease over access lines identifying evidence must be substantial along operating ex- with a reduction of discriminatory es- class justifying through penses presumably a substantial then is doubtful Even tablished. usage? plant reduction work force and all at can discriminate appears A be- rate base breakdown ratemaking author- exercising its regard to low.69 the Commis- short, I not believe do ity. arbitrary orders authority to issue has sion among classes discriminate or orders which legally distinctions. having rational (b) What accounts for fact that the Commission found

XI that the total revenues “proper 29, for pro- no December there are questions [the 1983] Other ceeding” year for the 1983 calendar test in the record these: answers 250987, Okl.Corp.Comm’n 292337, Okl.Corp.Comm’n 67. 65. Order No. Cause Order No. Cause (December 29, 1983). at 16 1986). No. 28002 (January No. 29321 at 54 Okl.Corp.Comm’n 66. Order No. Cause Okl.Corp.Comm’n 68. Order No. Cause 13, 1985). (February No. 28309 at 7 Com- 13, 1985). (February No. at 6 See also request rejected mission SWBT's to increase the note 76 excerpt for an from SWBC’s 1985 infra million as unwarranted and $81.9 base Report showing percent Annual a 4.2 reduction used same rate base used Order No. (about 2,900 in the work employees) force 29, 1983). (December The Commission 1984 and an increase of one-half million access depreciation also "excluded related and ad valo- lines! taxes, corresponding rem and made the needed adjustments.” federal state tax income Base Rate 1986 Order Order 1,006,522,353 (12-31-84) 886,579,000 (12-29-83) Dec. Jan. Description Order Order ? $1,449,808,785 Plant Service Intrastate Tel. 12,255,013 ? Tel. Plant Under Constr. $1,462,063,789 ? Plant Total Tel. (276,697,472) ? Depreciation Less: Reserve Supplies 14,753,528 Materials and ? Prepayments 18,399,709 ? Deposits Less: Customer (6,683,675) ? ? Less: (204,690,869) Deferred Inc. Tax ? Less: (622,666) Unamortized Pre-71 ITC $886,579,000 $1,006,522,353 Base Rate Okl. Intrastate

1357 only amounted to million,70 yet $482.1 million in plant $12.2 under published in its Report 1983 Annual construction at the close of pre- its total 1983 operating revenue in sumably plant reduced needs as a result of Oklahoma was $923.2 million?71 the stated decrease in access lines and

transfer of a portion substantial of rate- payer financial assets to AT & T?72 A (c) Why is there such large increase in summarized breakdown in the revenue and expenses, especially maintenance, in view expense figures contained in the 1983 and of the substantial reduction in the work 1986 orders is set out below.73 force automation, and increased why nearly there a $10 million depre- increase in

ciation over the 1983 anticipated (d) regard working capital, why amount With particularly in view fact finding regard that there no were is there evidence depreciation expense” Cause reason a "reduction in No. Okl.Corp.Comm’n Order 70. 29, 1983). (December Okl.Corp.Comm’n in 1984. 28002 at 9 Order No. No. (December 29, 1983). Cause No. 28002 at 3 (1984). SWBT, Report Annual 1 71. recognized that SWBT requirement revenue a reduced have would Summary Revenue, Expenses and Net Income Dec. Jan. 1986 Order Order Revenues (Est. 1984) (1984 Reported) $293,582,526 $287,823,000 Services Local 142,724,866 118,923,000 Toll 59,774,697 Access Carrier 9,441,076 Billing/Collecting 3,539,079 Inter-Industry Other 75,069,328 Directory 6,057,379 78,434,100 [?] Miscellaneous (7,389,684) (3,091,000) *(Less) Uncollectibles $582,799,267 $482,098,000 Revenues Total Pages largely page *NOTE: Uncollectibles are of 1986 Order. from Yellow —See net, Query: why gross Pages imputed Was net or SWBT? If Yellow income the second deduction? Order) page 52 of the

Expenses Order and (page (Millions) 1983 Order 1986 Order $127,145,000 Maintenance $139,054,551 Depreciation 83,329,000 93,945,905 39,020,000 Traffic 34,510,861 56,779,000 Commercial 70,605,312 40,651,000 General Office 48,477,937 Compensation 13,222,000 Rents and 11,140,417 _ 40,638,000 **Pensions and Benefits _ _ General Service and License _ _ Contributions and Club Dues 6,008,000 Other 43,238,643 [?] _ Deposits Interest on Customer 401,021 _ Taxes Other Than 38,898,272 Income

$406,792,000

1358 heavy unnecessary and unreasonable consequence of the fact to an the financial is, extent, why if it is the effect such telephone ser- ratepayers pay for basic by the inefficiency paid on the rate- rates Is the un- one month in advance? vice payers of this state not shown? payments portion of used as earned such working capital deposited in or is it an cash (g) Why fail to contain does record interest-bearing way, Either account? “proper tariffs rate schedules” up as should be show fund substantial showing approval the Commission sheet, someplace in the balance or- compliance January credit a with statement,74 der? and be con- profit-and-loss determining working capital sidered (h) admitted How can Commission’s instance, If, are 2 million for there

needs. impor- delegation a staff of its member and one ratepayers in this state uses duty non-delegable approve tant tariffs month, only it would figure $15 dollars justi- constitutionally schedules be million, equates $30 amount Okl.Corp. fied? Order No. See Comm’n average (January 29, million available for $15 No. 29321 64 Cause at 1986). days. for This at 6 use sum SWBT’s million $9 for months would be

percent course, phones Of cost dollars. business XII than a month. much more $15 appealed my view be order should (e) nothing in the record Why is there instructions vacated and remanded with expenses in operating whether about application rehear the in accordance with reduced the rate base formulation were mentioned as well as essentials above high-interest- SWBT’s older the fact that following directions: bearing called and bonds have been determining purpose I. For the rates lower-interest-bearing refinanced with debt telephone charges for service this reported in the same Annu- debentures —as state, the Commission shall treat tele- Report? al phone though of SWBT as were a (f) record fail to disclose Why separate corporate does the entity operating Oklahoma; top- managerially or not whether Note 73—Continued Expenses (page page Order) 10 of Order and the 1983 of52 the 1986 1983 Order 1986 Order

Taxes (1,796,000) Inc. Fed. 107,000 State Inc. 16,094,000 Ad valorem 13,601,000 Security Social Municipal 4,378,000 Inspection 399,000 Other 32,783,000

Total Taxes $ Expenses $439,575,000 $480,272,919 Total Oper. $102,526,348 Net Inc. Before Taxes Less: Income 22,040,996 Taxes Operating $80,485,352

Net Income pension twenty percent **The amount of allocation is about pension expense of the entire SWBC reported in 1984. See note 76. infra SWBT, (1984). Report 74. See Oklahoma AFL-CIO v. St. State Bd. Annual Rates, (Okl.1970), Prop. & Cos. 463 P.2d 693 situation, holding, analogous in an that it was Property the State error for Board for and Casu- alty Rates to fail into to take consideration a pre- carrier’s income from investment unearned establishing mium and loss reserves rates. sufficient, III. If legally II. To the order the Commission decides to use a year year determining certain a test specify sup- must the recorded evidence property a fair return on the fair value of portive every finding of each and made. ratepayers used to furnish the of this state accompanied by shall Such evidence service, then it must use the full reaching record reference. When a final year data and por- annualize a small change permanent rate amount —which in- Moreover, adjustments tion of it. if of the cludes one or more interim increases —such year anticipated test data are made case, as we have this it is not sufficient variances, they as were in this case in favor simply approve an interim order ref- example, granting of SWBT —for SWBT’s erence, must but Commission set out requested adjustment salary of its 1984 the full amount of increase or decrease expense pay granted reflect raises being granted permanent or made and then spring of 1985—then to avoid distortion the figure down into whatever inter- break adjust Commission will have to for all an- grants being approved, perma- im are ticipated expense compo- and revenue 76 made; grants being nents; nent example, published For there should have been an ad- lished. Standard No. 87 in De- 76. was (See justment Accounting to reflect a reduction of work force in cember 1985 Financial Stan- 2,900 dards, nearly employees (CCH) 843) Explanation Analysis 1985—a reduction of given 1, $87 which could amount to over million begun by January its use was SWBC effective average salary only thirty thousand dol- adoption 1986. Whether FASB was benefits, taxes, plus fringe perks, pay- lars by SWBC’s or the Com- known chief accountant handling expense. roll September mission staff in 1985 is not disclosed. important Report reported page SWBC’s Annual on 5 If it was it should have been an 1985 adjustment operating expenses of the 1984 that: company serving anticipated telephone on an substantial decrease in "The now is more based 1984, employees. pension customers with fewer In the 1984 determined, however, cost. What should have been considered, telephone company reduced its work or at least 68,700 abnormally percent employees]. why pension was the 1984 cost was force 4.2 about [to per- high higher dropped "a assumed investment the number another 3.4 and whether earnings being telephone company used in cent. The achieved these rate” that was 1985 pen- gaining in force more should have been used to reduce the 1984 reductions while than 500,000 consequently cost—and effect a substantial customer lines.” sion adjustment operating page report says ex- And at 7 of the SWBC downward of the 1984 65,836 employees penses. SWBT had as of December 61,770 regard only to Okla- It had as of December But the record is silent with 1985. 1986, pension except according Report. cost for a to SWBC’s1986 Annual homa’s share $40,638,000 expense adjustment operating in the that should deduction Another substantial 29, 1983, regard supra order. See note 73. have been made is with to the excessive December pension expense pumped share should have been substantial. amount of into the Oklahoma’s pension employes treatment of SWBC’s for SWBT in 1984which resulted The modified fund (a expense operating expense) "assuming” after too low a rate of return on deductible mag- year example pension year. furnishes a dramatic assets in 1984—the test the 1984 test accounting changes principles expense of this overstatement came to of how nitude light assumptions report page can result in immense in SWBC’s 1986 annual at 39. altered course, changes company’s profit-and-loss Sep- state- when was heard in in a Of this matter accounting figure juggling major at its best and is standard ment. It is tember Report: change page yet pub- Annual No. 87—had not been shown at 1986 —SFAS (millions) Pension Cost (5.8) plant equipment capitalized property, $ 21.9 11.7 $ $ Amount Cost for was broken down follows: Pension (in during period earned mil- Service costs—benefits lions) $ 90.0 projected obligation 276.6 benefit Interest cost (878.1) plan Actual return on assets 452.6 Net Other (58.9) $ Cost Net Pension valid, unnecessary for the rendition constitutionally IV. To the or- activities such enter- comply telephone service unless setting der a rate must with the local guidelines prises regulated and their following and set or activities directions regard to findings with these is included the rate structure. specific forth revenue components of the rate to be set: essential working in- capital may Net cash Base. strictly This Rate A. must be if in the base clear and cluded capital assets limited to the fair value demonstrates it needed cogent evidence being necessary and are actually which are op- expenses necessary to to meet current furnishing telephone used local service during the local erate state. prepayment year. It shall not include test operating expenses. And shall be Original be used unless cost received from rate- reduced the amount factors, specifically other finds pay- telephone service payers for advance costs, its replacement require modi- such as No. set out in direction 5 below. ments as fication.77 Prepayments expensi- or expense of may plant include 2. The rate base not actually in, ex- incurred or being ble items not used under construction which is not pended usage during to the or allocated the of ready or for local service use at close may year test shall be disallowed.79 Nor may proper- include year.78 the test It not expensi- or on-hand stockpiled or accumulated competitive enterprises other ty used for an explained conditions to estimated 1985 reduc- with market the enormous SWBC (and obligation heavily greater drop pension projected benefit which is tion in costs even 1986) reported ability for dependent upon below was the test the to forecast future what (Em- way: year cautiously viewed." should be events —1984—this pension added.) cost to "The decline in 1984 phasis from primarily to a was due the earnings 1985 utilization of Comm'n, Corp. Gas. Co. 648 77. See Lone Star v. higher rate. The assumed investment (Okl.1982). change higher investment 36 rate reflects a in the P.2d plans' strategy pension assets as well the State, of as continued increases the actual rates P.2d Co. v. 78. Southwestern Pub. Serv. experienced by plans’ the assets. The return (Okl.1981). change was decrease to of effect pension by approximately $94.4. cost capital may supplied been 79. Sufficient have requires No. 87 certain disclo- "Statement during year ratepayers ad- the 1984 test reconciling fair of to be made the value sures bills, payment monthly telephone cus- vance reported plans’ in the assets with amounts like, particularly deposits, when and the tomer compari- Corporation’s son, This balance sheets. coupled post-payment of most accounts with provide general intended to a indi- while negative working capital payable to create a pension plans’ of the soundness cation for SWBT’sfailure This account situation. status, misleading. is can be This financial lag-time study carry out ordered pension gen- plans’ assets because No. Cause Commission’s Order No. but are instead assets eral (Dec. 1983). be Whether there should trust funds entrusted irrevocable negative working capital allowance cannot a and survivor benefits. retirement lag-time study. Certainly a without determined comparison point of the fair "A in time working capital amount should be allowed no plans’ of the net assets to estimated value complied order is with. until the Commission’s obligation projected has certain limita- benefit Beyond this would seem that Commission conditions will This because market tions. appropriate to see that the take action including must value of the in fluctuations the fair result potential complied order having plans' net while no direct effect assets working capital negative allowance after an of a addition, paid. on the actual benefits investigation. appropriate obligation projected is based on benefit follows, therefore, to in- that it was error It events, concerning assumptions condi- future "prepayments” rate in the clude million covering period ? payments time a tions and lag-time justifying there no base. Not was span equivalent to estimated life study identity "prepayment" item but expe- existing employee force. If actual work mystery, legitimacy evidence of its remained expectations, the differs from benefit rience specifically was de- and its allowance Consequently, is absent obligation will be affected. prior "sum- to its inclusion in the base comparison nied point the fair market in time plans’ mary." net assets which fluctuate value base, in the rate if ble assets be included must be subtracted from the rate base.80 they capital were assets. To hold other- The former are not assets and the latter permit expense wise would both capital consist of by ratepayers. furnished realize, capitalize an asset and thus 6. Reserve deprecia- accumulated effect, recovery double benefit de- tion must be deducted from the rate base. ducting operating expense the item as an It is not furnishing an asset used for tele- adding unexpend- and at the same time phone supplied by SWBT. The ed remainder of the same asset to the rate base. appropriate steps shall take prevent any capital ratepayers.81 loss to deposits, pay- 5. Advance customer Depreciation expense shall be limited for debts, ments on and deferred income taxes 29, 1983, order, In its December the Commis- under a recent decision of the United States notice, judicial Supreme sion said that it "takes Referee, as did the City Court in Galveston Elec. Co. v. Galveston, 388, 399, through 351, 356, that the use flow with accel- 258 U.S. 42 S.Ct. depreciation (1922), would erated result in Southwest- 66 L.Ed. 678 the tax should have been possibly losing right ern Bell to claim accel- allowed.” depreciation being erated liable for back precedential Galveston Elec. Co. is of no val- taxes since it first elected to use accelerated ue, binding or at least is not because it was a Likewise, depreciation. if Southwestern Bell pre-Erie diversity Railroad suit filed in a Texas (ITC) treated investment tax credit as a reduc- federal court. The trial court disallowed the base, possible tion to rate it would result in its operating expense. income tax items anas right Okl.Corp. loss of its to claim ITC." See high basis for the court’s conclusion was that Comm’n Order No. Cause No. 28002 at there “is no difference between income taxes 10, (December 29, 1983). 11 others,” and a conclusion that is at war with significant reality. Since then there have been some relating problem. decisions One is that other decision to follow the Kansas Supreme rejected the United States Court has case ais second Kansas case decided the same 1924, position year, the FCC’searlier that the exercise of its on the basis of stare decisis. It was Co., 329, authority Milling under the Communications Act of Swatter v. Williamson 116 Kan. amended, (1924). ratemaking pur- evidently 1934 as for interstate 226 P. 1001 It was in the poses, preempted regulatory appellate pipeline Hopkins state action with when State ex reh v. regard plant interchangeably used Southwestern Bell Teh Co. was decided. It is interesting both intrastate and interstate service. This in- to note that in Swatter an outside regulations respect depreciation. milling company’s cludes with auditor examined the books 220; 152(b), doing 47 U.S.C. Louisiana Serv. §§ Pub. to determine net income and in so did not F.C.C., 355, operating expense. Comm’n v. 476 U.S. 106 S.Ct. include income as an taxes (1986). agreed L.Ed.2d Both the referee and the district court supreme In 1986 the court of New Mexico with the auditor. states, regulatory including held that a commission order em- A few Oklahoma in Okla- Comm’n, ploying “flow-through” Corp. method of calculat- homa Natural Gas Co. v. 90 Okl. (1923), ing arbitrary accepted state income taxes was not an 216 P. the Galveston era, capricious departure past practice during pre-Erie from and that Elec. Co. conclusion noting upon particular use of the “normalization” method was a rea- that it was based protecting ratepayers concerning sonable means of federal income tax laws dividends in problems Maybe they feeling future associated with divestiture of effect at that time. did so parent company. Charges necessary practical In re Rates & was aas matter because of Co., Mountain States Teh & Teh 104 N.M. stare decisis. This court should now make a (1986). post-EWe reappraisal adopt 715 P.2d 1332 the matter and also, Majoros, Telephone Company See De- the better and more realistic view that there is Cap- operating Taxes and Investment Tax Credits—a an obvious difference between ex- ferred pense Ratepayers, post-operational ital Loss Public Utilities Fort- and a tax on net income. for 27, 1984). nightly (September simply ratepayers It is not fair for the of this paying state to be SWBC’sincome taxes or those It should be noted that one of the few states of its stockholders. are to be hold that income taxes considered my opinion Supreme In the U.S. Court’s 1922 operating expense purpose for the of deter- common law view of what state substantive law should be—that there is no difference between mining telephone charges fair service rates and Hopkins It paid is Kansas. so held State ex reh v. operations, taxes taxes, in the course of such as sale Co., 236, 257, taxes, Southwestern Bell Teh 115 Kan. production taxes, various excise (1924), noting during paid year, 223 P. after that consid- and the like the taxable ering operating post-operational “Federal income tax as an ex- taxes such as that levied on net pense controversy. is a That matter the tax income—is not the better view and does not commissioner, generally accepted accounting prin- was disallowed ... but accord with Moreover, straight generic purposes line basis avoided. various terms rate base “Commercial,” given “Traffic,” as- to the service life of a used such extended “Maintenance,” Office,” “Depre- “General set. ciation,” Compensation,” “Rents Expenses. Only those Operating B. “Other,” “Toll,” “Inter-Industry,” “Direc- reason- expenses may be allowed which are defined, like tory,” and the should be sup- necessary in amount and for the able order, purposes in the sense used telephone plying of local service Okla- the Commission. during year. The order homa test instance, If, identify operating ex- there is a deviation from must deal with item, those in sufficient to enable an annual revenue such as used penses detail determining income, expenses operating net precisely to determine what court should necessary finds to disclose what true the Commission along figure with of each. is and basis for the deviation. the amount reasonable may given with each paid taxes SWBT or SWBC Unless such information Income income, expense plant, there expense. as an item of operating not included way correctly perform court can no Return. The Commission C. Rate of goes obligations. It also without review a fair on the estab- shall authorize return saying premised that each item must be taking into consideration lished rate base upon foundation of substantial evidence. during actu- year cost the test of funds earlier, depreciation local tele- As mentioned ex- ally finance SWBT’s borrowed straight plus pense in this state must be limited to a line phone service rendered equity economically feasi- extended to life of an ratio basis the service reasonable regulated furnishing a utility for a ba- asset. ble case the evi- sic service. E.Additional Order. Contents of adduced, along thus far dence Among the details the Commission which the Commission and this court include the order are the number must notice, judicial take does warrant and and execu- of SWBT SWBC directors equity return high rate of allowed employed year, their during tives test titles year for the 1984 test —a duties, specific and details of what basic as in which interest rates as well year they necessary do that for local tele- earnings corporate generally were substan- Oklahoma, in phone service the amount down, tially particularly in this state.82 they paid, and the amount of SWBC and beneficially, Expenses.

D. Revenues directly Both in- each owns stock employees expenses wage-earning in the number of come and must be identified and wages using a and and SWBT the total itemized detail standard format of SWBC and paid. those And in the order must con- standard references consistent with addition following in change rate and orientational and com- used in earlier orders tain (1) formulating Any parison the rate deviation evidence:83 Detailed balance base. definitively profit-and-loss sheets explained. All en- and should be statements for course, must, upon headquarter operation its based evi- SWBC and and tries be subsidiary, complete out in the catch-alls for each individual dence set order. Such “Miscellaneous,” “Other,” explanatory year test be details for the as and shall with recognized ciples. hold court that reference to evidence of I would that income taxes expenses. operating jurisdictions be as deducted rates in other is of substantial val- bearing all ue if evidence of relevant elements corporate earnings Cor- data in Standard 82. See presented. problems is on the Description, Poor’s poration and Standard and Index, operational published by to the Reports Stan- Such data is available in- Stock both Corp. vesting public publications and Poor’s in such dard various Manual, Utility published Moody's Public annu- Ames, Smyth 18 S.Ct. v. U.S. Service, ally by Moody’s Inc. Investor’s instance, 418, 431, (1898), 42 L.Ed. 819 (2) preceeding years; the five The fol- affirmed appeal and be because of earlier lowing the order to this concerning subject, financial information court—but how- ever, to the operation concerning approval post-Rule further and SWBT SWBC’s disposition appeal period. 24 motion telephone operations its and in in Oklahoma and each other four Order No. 292337should reversed and region Arkansas, Kansas, in the states — vacated and the remanded cause with these year and the test Missouri Texas—for and (1) directions: should be ordered to years preceding five calendar it: post place escrow or a bond in an revenues; (a) operating Total equal sum amount of all revenue pursuant collected appealed order (b) operating expenses; Total including the two interim increase or- (c) income; Net ders —No. No. 250987 Cause and (d) year end; at progress Construction in No. per- 273137 in Cause No. 28309—made end; (e) year Total assets at manent in appealed order. The cause (f) employees year Total number of at should remanded with directions to the

end; Commission to Cause No. rehear 29321 and comply to SWBT to directions and managerial (g) employ- Total number of requirements opinion; data set out this year end; ees at (2) compliance after hearing such (h) end; year lines at Number access prepare publish an order which at (i) telephone plant year Net in use at criteria, standards, least meets the di- end; prescribed rections requirements end; Rate (j) year base at dissenting opinion. (k) Equity-debt ratio authorized tele- I am state authorized to that Justice subsidiaries; phone service GARRETT concurs with the ex- views (l) equity Return on authorized for tele- foregoing opinion. pressed subsidiaries;

phone service (m) plant capital Return on net or total INTRODUCTION authorized for service subsi-

diaries. Justice, WILSON, dissenting: ALMA (n) percentage Amount and of internal Oklahoma Commission’s financing and its source. public, (acting duty constitutional Commissioners), through its three elected foregoing All of the information should authority scope supervising, change appli- be submitted with each rate controlling regulating utility opera- SWBT, in by filed addition to all cation public in the interest tions includes the law, required data and by other be sworn utility rates establishment of which are chairman, by SWBC’s board SWBT’s performance In the just. reasonable and president and chief accountant. SWBT’s public duty, correcting itsof and abuses spec- The order V. Commission’s should preventing unjust and discrimination and terms, definitively, ify positive and in the companies, by Corpora- extortion the such upon by evidence relied the Commission to Commission, sitting quasi-judicial tion as a findings. support each of its tribunal, legally hearings, to hold bound record, purpose the of the which re- foregoing The should considered quires: minimal requirements supplementing other (1) Oklahoma-specific parties. Evidence costs legal obligations of the of and are “used and use- revenues which utility providing ful” in service to citi- XIII Oklahoma; of zens within the State my opinion (2) approval by the dismissal of the attor- Official authorization general’s of ney motion reconsider should the elected Commissioners the State “MFJ”) inafter, government anti- proposed and all

of Oklahoma of Telephone against trust upon case American of rates/tariffs based schedules (AT T) Telegraph Company disposing of & above. largest complex and most anti- what is the req- of present neither these In the case of the trust action since enactment constitutionally dis- duties were ever uisite engendered signifi- Tunney Act.1 The MFJ The record is of charged. appellate devoid changes in the national tel- cant structural supporting Oklahoma-specific evidence intro- network has communications costs, proposed and useful” “used regula- unprecedented into the duced issues evidentiary are therefore without tariffs tory surrounding telecommunica- scheme Moreover, proposed such tariffs basis. exchange functions tions service and access approved by never were reviewed rep- case every jurisdiction. present The Commissioners, alone are who elected response resents Oklahoma’s first responsibility charged ultimate with that system of the AT T un- dismemberment & people the State Oklahoma. der the dictates of the MFJ divestiture non-delega- responsibility is ultimate Such decree. Here, proposed rate sched- ble. Fundamentally, the removed from MFJ stamped were filed and rubber ules/tariffs integrated fully AT & telecommunica- T’s Utility by a Director “approved” nameless system supplying tions function local official) day, (not elected on the same telephone AT T requiring service & to hearing Official Authori- without a and/or twenty- portions of those of its divest itself Corpo- zation Commissioners companies operating two interconnected must remain re- ration Commission who From an performed function. of this sponsive to citizens State. op- amalgamation twenty-two former thus, Corporation Commission, Oklahoma erating operating companies, seven new pursue ratemaking regularly failed to companies have been created. MFJ authority. companies assigned seven to those divested impel functions, per- These errors of fundamental law local to be Furthermore, independently of AT & T.2 The my dissent this case. formed represents companies, Oklahoma’s first rationale was that divested present case alone, standing operate differ- each would response to the of the for- dismemberment com- ently than the former interconnected system AT T mer & nation-wide telecom- panies AT & T because under the umbrella munications under the dictates federal lack of of their smaller size and relative Accordingly, the effectuation of di- law. vast, complexity. In contrast to AT & T’s vestiture, level, requires judi- at the state system, vertically integrated operating conformity Suprema- cial review telecommunications, local which dominated cy of the United States Constitu- Clause telecommunications, intercity telecommuni- tion, VI, Article and the relevant federal at production cations research law. case mo- marketing equipment, the limited nopoly status of each the MFJ’s divested REQUISITES FEDERAL OF operating companies restricted to one DIVESTITURE portion of of these geographic one markets —local telecommunications. 24, 1982, August the United States On judg- of the court’s Subsequent Court the District Columbia to federal District Judgment” (here- ordering ment of local tele- Final divestiture entered a “Modified See, Act, 16(e) Tunney judicial AT required States v. & U.S.C. interference. United § 1. The T, F.Supp. whether the Modified Final Court to determine at 214-217. Imple- Judgment public was "in the interest.” thereof must be effected in mentation therefore Id, Judgment, at Modification of Final purposes. with its manner most consistent I-(A)(1.). proceed implementa- parties with The tion, cannot non-implementation, of without fear exchange ac- communications service and T, from AT & Southwestern cess functions BELL BACK TO BASICS-JURISDIC- applications Telephone Company Bell filed TIONAL RAMIFICATIONS Corporation the Oklahoma Commis-

with The landmark event divestiture of ba- requesting permanent in- sion interim and telephone sic service from the former AT & 24, 1983, May On trastate rate increases. extremely significant T network is because Corporation Commission au- the Oklahoma response stage set the on our will how thorized, subject interim basis and on an Telephone Company Southwestern Bell will refund, in a rate increase the amount of permitted operate jurisdiction in this $43,700,000 dollars]; contempo- company. as a “stand-alone” The MFJ but [million post-divestiture makes it clear that raneously ordered Southwestern Bell to ad- environment, regula- telecommunications public the Commission what the utili- vise tory supervision increasingly is made vital ty’s cost of service the State of Okla- public in the interest as entries are made company. as a divested homa would be regulated telephone companies into un- ensuing however, During period, regulated competitive telecommunications granted additional interim rate Commission équipment markets such as sales and mo- $135,197,000 in the amounts of increases phones. Consequently, judicial our re- bile $32,520,695 [million dollars] [million important regulatory view of the host of dollars], pending subject to refund South- issues created telecommunications year’s western Bell’s accumulation a full unavoidable, con- divestiture transition operating compa- actual data as a divested sidering applicable federal and state consti- ny, January full thereof. and a review On imperitives, tutional as well divestiture’s 29, 1986, Corporation gen- Commission import within the context of our local laws task, procedures practices. Our erally approved its interim rate increases therefore, sufficiently addressed cannot be granted an additional rate and also increase pre-divestiture with reference to treatment $47,- Bell in the amount to Southwestern alone, against carried out but must be 544,561 dollars], on an annual ba- [million evidentiary experience, backdrop of actual sis. respect to federal laws and the with Oklahoma, Attorney General of (upon of the of Oklahoma laws State ratepaying public, prosecutes behalf Telephone Company’s Southwestern Bell appeal challenging this the reasonableness grant public utility is condi- exclusive granted tioned), precedential in of the rate increases Southwestern which remain this of our his- jurisdiction. The discontinuance propriety findings and Bell and the relationship telephone the local torical conclusions of the ignored prin- company cannot within the ordering The Attor- rates. increased purpose federal ciple substantive ney General further contends that South- promote competi- decree—“to divestiture western Bell failed to meet its burden tion and hence to create conditions which competent sup- proof provide evidence improve quali- will reduce the cost and port allegations that increased rates are telephone ty reliability service.”3 necessary provide Bell an Southwestern component purpose integral As an of its the cost of local tele- adequate return on assigned the decree and circumscribed the Oklahoma; phone and that the telephone role of the essential divested regularly failed to Corporation Commission companies: pub- constitutional duties pursue its efficient, “they provide are to economi- investigate impact lic interest and, cal, technologically ad- possible, if utility company’s divest- relationship of the vanced local service. Their imposed upon ratepayers ed state to rates not to a source rate- role is and other assets to jurisdiction. payer funds, credits (1984). F.Supp. Company, pony, at Electric 3. United States v. Western Telephone Telegraph Com- Inc. v. American and ventures, Telephone Bell control Southwestern Com- competitive nor were finance they conglomerates to be vast in public meant pany’s operations Oklahoma in the telephone relegated to a which service by interest is established Article Section place.”4 subordinate of the of Okla- 18 of the Constitution State homa, part: framework, pertinent states in which this the divested com- Within diversifying on panies prohibited from are ... 18. Powers and duties— § significant they scale unless can demon- power The Commission shall have centrality corporate of life strate the their authority charged and and be with the imposed upon them responsibilities to the and duty supervising, regulating decree, is, a firm commitment transportation and controlling all trans- service, low-cost, high quality telephone companies doing business in mission improbability and the involvement State, relating in all matters to the upon anticompetitive conduct based their public and performance their duties Moreover, monopoly direct or indi- status.5 therefor, charges correcting and of their telephone dependency upon ser- rect basic preventing unjust and discrimina- competi- abuses as the underwriter for vice rates clearly companies; abhorent such tive ventures tion and extortion decree implementation of the divestiture shall, and that end Commission jeopardizes operation and successful time, prescribe from time to and enforce segments competitive free in the market against companies, in the manner such industry.6 telecommunications authorized, rates, hereinafter such Thus, long Bell retains so as Southwestern traffic, charges, classifications of and grant) grant- monopoly (public franchise regulations, require and shall rules and right ing it the exclusive to serve Okla- them to and maintain all such establish by providing homa citizens basic service, facilities, public and conve- (which no Oklahoma citizens have just, niences as be reasonable and upon pay) choice but to remains conditioned rates, classifications, charges, which said subject pervasive regulation in the rules, requirements, regulations, and public changes interest. have oc- While time, may from time to alter Commission curred in the characteristics of the Bell rates, charges, or amend. All Companies Operating and the environment classifica- tions, adopted, regulations rules they operate, changes these do not upon, company, or acted such abrogate Telephone Bell Southwestern part bargain being Company’s prescribed by with those inconsistent monopoly awarded status Oklahoma. Commission, scope within the its and void. authority, shall be unlawful

II The Commission shall also have times, right, inspect THE RATEPAYER IS at all the books OKLAHOMA OBLIGED TO RELY UPON THE papers transportation OKLA- all HOMA CORPORATION doing COMMISSION companies transmission business COMPLETE, TO A PROVIDE PERMA- State, require and to from such in this NENT AND EFFECTIVE BOND OF time, companies, special from time to re- PROTECTION FROM EXCESSIVE oath, statements, ports under con- RATES AND CHARGES WHICH business; cerning keep their it shall it- COULD RESULT FROM POTENTIAL physical fully condi- self informed THE ABUSES IN POST-DIVESTITURE State, all railroads of the as to tion of TELECOMMUNICATIONS ENVIRON- they operated, the manner which MENT. security with reference to the and accom- shall, public, modation of the duty of the Oklahoma time, make and enforce such re- supervise, regulate, and time to Id, 6.Id. at 874. Id, at 875. force, may long publish- it regulations as so as remains be quirements, rules and subsequent report or necessary -prevent unjust to un- ed each annual be authority and extor- reasonable discrimination the Commission. the Commission, any transportation or by (subject ap- trans- to tion review of, against or company provided) favor peal prescribe mission as hereinafter to person, locality, community, rates, connect- any charges, and classifications of traf- traffic, line, in the ing fic, or kind of matter transportation for and transmission schedule, service, train or boat of car companies, subject regulation by shall to transportation, trans- efficiency of law, authority paramount; but its be otherwise, mission, or in connection rules, any regulations, prescribe other or public company. duties such with the requirements corporations or for other prescribe the shall or Before Commission subject persons superior to the shall be rate, charge any fix or classification Legislature legislate authority of the traffic, any it shall make or- before Provided, by general thereon laws: How- der, rule, regulation, requirement or di- ever, nothing may in this That section any compa- or more against one rected rights impair which have heretofore the name, companies by company nies the or been, be, may by or hereafter conferred rate, charge, by to be affected such clas- any upon city, law the authorities of order, sification, rule, regulation, or re- rules, regula- prescribe county town or given, by quirement, shall first the be tions, charges rates of or be observed Commission, days’ notice of at least ten corporation in by any public service con- the place, the time and when and where performed any by nection services it premises contemplated action in will municipal franchise county under a or of, disposed considered and shall be town, county, granted by city, or so such opportunity to be a reasonable afforded wholly may be with- far such services be introduce evidence and to heard town, county city, in the limits of the or thereon, justice be may to the end that Upon granting the franchise. the re- done, process and shall have to enforce interested, quest parties the Com- witnesses; the attendance of and before effect, mission, possible, as far as prescribe said shall make or Commission claims, mediation, adjustment of order, rule, any regulation, or general controversies, between the settlement of any requirement against not directed transportation compa- or transmission name, specific company companies or employees. or patrons nies and their order, rule, contemplated general [.Emphasis added.] regulation, requirement or shall first be regular pursuit of its constitution- substance, less published in than regulate supervise, ally duty mandated week, weeks, four once a consecutive telephone transmission and control general newspapers of in one or more company doing State “in business published county in the circulation relating performance matters all may Capitol which the of this State duties”, clearly upon public devolves located, together with the notice post-di- Commission place, time and when and where environment, reg- as the relevant vestiture objections mil hear scrutiny in ulatory body, to activate its urged by any person in- responsibly public interest and exercise order, terested, against proposed the citizens of this authority to ensure that rule, regulation, requirement; and ev- or charged rates will not be excessive State order, rule, regulation, ery general such (through charges which subsidize Commission, requirement made methodology and cross-allocation structural length, published at time shall be procedures transfers of corporate specified, and in the manner above be- assets) effect, also, competí- the costs of go into and shall stocks and/or fore it shall unregulated compa- tive activities where a as express separation as well the powers of ny engaged operating regulated is 4, both clause at Article 1 Section of the State (monopoly) unregulated utility service and Accordingly, Constitution. the constitu (competitive) ventures. ratepayer is mandate tional directed to Supreme this obliged rely upon to the Commission to 9, as Court Article 20 Section of the Consti complete, permanent and Oklahoma, tution of the State of embodies effec- protection bond tive excessive this distinction the between Commission’s of from charges rates and which could result (within of treatment constitutional interests potential abuses.7 adjudicatory/quasi-judi the Commission’s capacity

cial subject and therefore to unfet judicial review); opposed tered as the to findings Commission’s factual and conclu III on pe sions technical or scientific matters THE OKLAHOMA SUPREME COURT IS culiarly delegated within expertise its OBLIGATED TO REVIEW THE OR- (promulgated pursuant to the Commission’s DERS AND PROCEEDINGS OF THE quasi-legislative capacity and ac therefore CORPORATION WITH- COMMISSION corded deference on review within the IN THE PROSCRIPTIONS THE OF evidence.) of bounds the law and In this CONSTITUTION. regard, frequently stated, it is and correct so, ly presumption that a of correctness Beyond initial these considerations con accompanies findings Corpora the of the cerning powers the and duties of the Okla tion Commission in matters which it has Commission, Corporation homa there is the expertise frequently adjudicates;8 and and overriding principle Supreme that to extent Commission acts obligated is to Court review the orders and within its wide discretion there is a limita proceedings Corporation Commission Yet, of tion reviewability.9 courts have proscriptions of within its own constitu “presump also stated that there exists a tionally responsibility. mandated Judicial tion of appealable reviewability” of unless there is clear Corpora review orders of the Commission, convincing contrary;10 to threshold, tion evidence at involves judicial cognizance reviewing may require and that a court an character issues, origin agency to Finally, whether of constitutional exercise its discretion.11 arising delegation general out of statutory authority law or unlimited and un factually jurisdiction govern embedded. Since the fettered discretion an to inferior agency constitutionally on mental Corporation impermis conferred the Oklahoma 9, Legislature Neither Commission Article Section 18 of the sible. nor Su Constitution, provides preme may State for the exer Court of this State abdicate “quasi-judicial” “quasi- legislative judicial cise both essential functions. functions, legislative” governmental sought agency per While a interest protected embracing engage making to be in either or chal mitted in the of subor lenging rulings is a dinate order Commission determinations of facts regular imper pursuit in the relevant consideration avoid the constitutional blending legislative, judicial statutorily poli missible conferred standards and cies, powers government Supreme it is ultimately and executive for the Court Constitution, context, say given contradiction of the Federal what in a the law is 747, See, Cases, 136, Gardner, e.g. 7. Permian Basin Rate U.S. 10. Area 390 Abbott Labs v. 387 U.S. 794-5, 1344, 1374, 312, 1507, (1967). 88 S.Ct. 352 L.Ed.2d 87 S.Ct. 18 L.Ed.2d 681 denied, 917, 2050, reh’g U.S. 88 S.Ct. (1968). L.Ed.2d 1379 Const. Art. Sec. Okla. Teleco, Commission, Corporation Inc. v. (Okla.1982); P.2d at 212. 9.Id. is, apply. if If Legislature prescribe see there law there it is for the not, whole, applicable policies. Consequently, an then the action is com- discretion, though from the Commission mitted to

appeal according pro characterized will must be due deference be accorded the Commis- 20 of our scriptions findings pecu- of Article Section sion’s to technical matters Constitution, which states: liarly expertise. within analysis of our fundamental con-

Further 9, stitutional directive within Article Sec- appeal- of Supreme “The Court’s review 20, apply may tion the discloses that law Corporation of the Commis- orders able encompass the Constitution of the United only and judicial sion shall be States; the of the State of Constitution (I)n involving appeals all an asserted Oklahoma; general applicability or laws of any the un- right parties of of violation they findings relate to the and conclu- as the the United der Constitution of Commission; govern- sions of the and laws the the State or Constitution States of ing implementation of au- the Commission Oklahoma, the shall exercise its Court of noted, moreover, thority. It is that with independent judgment as both own of facts exception constitutional and the law and facts. facts, scope jurisdictional this Court’s of of appeals In all from orders other questions by of fact is limited review by the review Commission prime ascertaining, directive to on the Supreme shall not extend fur- Court whole, or not the record as a whether Com- ther than to determine whether the Com- findings supported by of fact are mission’s regularly pursued its au- mission has substantial evidence. “Substantial evi- findings thority, and whether the variously as dence” has been defined “evi- of the are sus- conclusions Commission ‘possessing something dence of substance the law and evi- tained substantial consequence something of relevant — dence. with it fitness to induce convic- that carries review, Supreme shall Upon Court ”;12 as, tion’ “such relevant evidence as a affirming either or re- judgment, enter accepts adequate mind reasonable ap- Commission versing the order of the conclusion”;13 and, support as “more pealed [Emphasis from. added.] than a mere scintilla.”14 20, requires finally, this Article Section judgment, affirming enter a either Court to case, question of re- present In the reversing the of or order viewability may primary be resolved with may appealed from. not enter sched- We constitutional-specific stan- reference to in force in lieu of those ule of rates to be Article Section dards delineated within Commission, as such prescribed First, seen that our above. can be regulatory prerogative, constitute a would say is that is judicial only, review usurption legisla- of the and therefore constitutionally restrained Court is this However, judi- this Court’s tive function. legislative exer- sitting body as a from cial does demand review function cising legislative reviewing function of law and Commission’s determinations proceedings. order the Commission's interpretations rules which have the of is, rather, province this Court to It judgment on of law. This Court’s force repose in the context of the find in the law paramount, questions these of law There- appellate record here on review. Corpo- fore, may substituted over that at the outset look to be this Court must Co., Commission, 14.Application Valliant Tel P.2d Kuykendall Corp. 634 P.2d v. (Okla.1981). (Okla.1982). Cartwright v. Natural Gas State ex rel. Okla. Co., 640 P.2d 1341 (Okla.1982). order, or other Similarly, ration Commission. as noted form of relief earlier, the order. However, jurisdiction- constitutional facts and a motion to from may independently reopen al facts reviewed. after an record order has coupled preemptive When this Court’s been entered shall not be considered a judicial questions law, function on proper seek relief motion to from the Supreme upon confers power Court the order. specifically The motion shall independent judgment to exercise its own state: as to and the ques- both the law facts on parts provisions 1. The the or- magnitude, tions of constitutional in addi- sought der set aside or modified or judicial general tion to its function to de- sought, which relief (cid:127) questions cide all other relevant law. specific 2. The modifications or other making determinations, pursuance these sought motion, relief function, judicial this Court re- grounds specific 3. The upon relied

. view the record. whole for relief. question The initial law this Court is hearing Such motion shall be set for upon scope called to concerns the resolve of Commission, the before unless referred. Corporation the authority Commission’s motion, A copy including of the notice of jurisdiction upon to act timely motions hearing, the date set for shall be served by cause, parties filed both in the request- by the party movant on each of by record ing modification of the Commission’s order. regular any pursu- mail. If motion filed placed

ant emergen- to this rule is on the cy regular hearing or for docket the mov- IV give (5) ant days shall at least five writ- respondents ten notice to all listed on the THE OKLAHOMA CORPORATION COM- mailing, parties affidavit of and all AN EN BANC HELD POST- MISSION record. HEARING TO ADJUDI- JUDGMENT any subsequent (10) B. At time to ten OF TIMELY THE MERITS CATE days entry after of an order of the Com- FOR MODIFICA- FILED MOTIONS mission, application an to vacate or modi- PARTIES, FILED BY BOTH TION fy order, any the or for other form of THEREFORE, TIME THE WITHIN order, by any relief from the filed per- REVIEW IS GOV- JUDICIAL WHICH son, THE DATE FROM OF party ERNED RUNS whether or not a of record in FINAL cause, THE EN BANC COMMISSION’S original the shall be treated as a THEREOF. DISPOSING ACTION separate cause, governed shall be applicable rules the to commencement of Generally, judicial crys- review becomes a application cause. The shall: talized when administrative remedies have identify sought 1. order the to be Corpora- been exhausted. Rule of the vacated, modified or tion grants par- Commission’s own Rules a specifically parts provi- state the or ty right finally challenge the to an order sought vacated, sions to be modified or promulgated by filing forum within days rendition, ten post- specifically the order’s 3. state the modifications judgment modify, reopen motion or sought, to or re- vacations hear a matter. specifically grounds state the upon

RULE 24 RELIEF FROM sought. ORDERS OF which such relief THE COMMISSION hearing application Notice of of the shall (10) days Within ten an order A. be published required served and as upon after entered, any per- commission commencement cause. The may rehearing, son a motion or application hearing shall set for be- file a motion to or to modify set aside Hearing Officer, fore the or Commission any From as the com- action provided these rules rates, charges, a cause. prescribing mencement of Commission services, practices, regulations rules or Commission,granted An order of the C. any public public utility or service pursuant public utility O.S. individual, person, corporation, any or through approving is- §§ firm, corporation, en- or the creation of receiver or trustee suance securities property in this state to secure gaged public utility public liens on in the or ser- of indebted- payment evidences individual, corporation, any or fect- vice ness, or modified shall be vacated ed, person deeming or himself pursuant application or to motion va- action, aggrieved by any byor such person modify by any other cate or filed State, Supreme directly Court of utility. public than Oklahoma, in the manner State of hearing, D. or without notice or With appeals and in the same time in which may or make cause may Supreme be taken to the Court pro tunc to correct made an order nunc Courts, except that the District errors, or omissions any clerical mistakes appeal right, and the such an shall be order, mailing of timely or as to Supreme provide by Court rule or by the Commission otherwise to order proceedings appeals in the matter of correctly cause order to reflect any particular existing rules in which the action of Commission. judgment or such inapplicable. appeal of law are If such [.Emphasis mine.'] public utility public be taken way, party who thinks the Com- corporation by any affected such it is against has erred enabled to mission action, the shall be State Oklahoma such call Commission’s attention to er- the appeals in appellee, made the but other ror, may have that the Commission the so hereunder, public utility public the Otherwise, opportunity it. this to correct corporation affected shall spend Supreme Court could valuable time [.Emphasis appellee. made the mine.] considering erroneous find- and resources ings and conclusions which could have been efficiently by more corrected the Commis- by contrary interpretation A of Rule agency’s sion in view of that access secondary statutory construction reason

pertinent expertise. resources and constitutionally repugnant. Consti- is interpretation An of Rule which al- the law and both tution is fundamental meaningful opportu- lows the Commission authority and case statutory construction nity its an to correct own mistakes Therefore, before statu- must conform thereto. is appeal this Court imminent- decided 991(a) of 12 tory construction O.S.1981 § (court- ly desirable in terms of institutional cannot, implication, this dictate Court’s agency) compatibility legally and is effica- interpretation of Rule 24 under the State acknowledged precept This cious. di- Constitution. Because Constitution Article Section 20 of our State Constitu- Corporation appeals rects that from the tion, provides appeal that an from directly this shall be taken Commission Corporation Commission shall be taken appeals may in the same time which Court Supreme directly to in the man- Court Courts, from District when be taken appeals ner in time which the same cogni- Corporation Commission took Supreme Court from be taken timely post- filed parties zance of both 9, 20 the District Article states: Courts. § thereon, motions, hearing judgment held thereof, as a result

and issued order finally disposing of all order date such properly governs the matters in this cause Supreme Appeals Court—Oth- § appeal. present case illus- time jurisdiction er no courts to have —Manda- advisability holding: trates the this prohibition mus and (10) days ten questions Within the rendition but that had been raised as to of the why portion Commission’s order set- directory revenues that ting charges rates and and conditions of Southwestern Bell had collected were ac- cause, service in this both cruing Southwestern 1.37, and uncollectible at about Telephone Company Attorney Bell and the why quarter the one year’s directory of the requesting General filed motions modifica- revenues that were attributable to South- tion Commission’s order. The Cor- western Bell Publication had a 9.6 uncol- poration evidently Commission was unable lectible, time, while at the same revenues hearing to hold a on these motions to modi- staying therefore, were basically flat — 3,1986.15 fy April date, until On that even Attorney urged General the Commission to though Attorney General had filed a area; study (4) review and and further precautionary appeal16 and the Commis- urged that the modify must dismiss,17 sion staff had filed a motion to order to prompt include a determination in Commissioners, banc, sitting en exer- this case as to the AT T& refund due primary jurisdiction cised concurrent in ratepayers Oklahoma in accordance with the matter and called cause for full opinion the November and memo- hearing all three motions. On the date randum of the Federal Communications hearing interpretation of this of Rule Commission, paragraphs at 69 and 70. open question. remained an Next, in the modify, Attorney motion to (5) sought General reconsideration of the lengthy argument, At the oral the Attor- expenses separations allocation of and the ney argued General for a modification of process determining charges critical (1) order the area of construction people jurisdictionally Oklahoma, object- progress (CWIP), emphasizing work ing systemwide methodology cost since the years Commission has in recent exchange relates all services to local ser- Bell cases step allowing taken the cer- vice, thereby causing local customers to base, tain CWIP the rate it should also costs, finding bear total absent consider increased expenses revenues and relative benefits to ratepayers, Oklahoma CWIP; (2) from that very that the laudito- asserting, e.g., expenses that concession ry determination of the Commission exclud- for free or discounted service for Bell em- ing working capital cash from considera- ployees Finally, should be disallowed. tion, in due to Bell’s failure to a support modification, (6) the of motion for lead/lag study it as had been ordered Attorney the upon General focused do, the is- the Commission to has been short cir- sues of rate of equity return on common cuited the prepayments allowance of in capital structure, pointing and $18,000,000 the of out that in amount million dollars order, base; previous its the rate the stating ordinary that in an Commission had con- cluded, consistent lead/lag study, prepayments jurisdic- effective with numerous tions, expense would one of that the the items discounted cash flow included method plus minus; (3) as either appropriate or a was the most methodology that no presented evidence Attorney had been to account be used. The for General here as- page the Commission’s conclusion on serted basis, 46 of that on a discounted cash flow “directory its order that revenues had in- without quarterly adjustment, flotation and proportion uncollectibles”, creased all three of experts’ the testimonies fall interpretation require- 15. General of the Rule 24 17.The basis of the motion to dismiss was the evidently compelled ments the Commission to very Attorney fact that the General had filed tin comply publica- with constitutional notice and appeal, thereby penalizing Attorney the Gener- requirements delaying tion therefore immediate prudence al's exercise of in uncharted waters consideration thereof. per interpretation the of Rule 24. Attorney necessarily pre- General filed a cautionary appeal, pending interpretation of 24; contrary ruling Rul2 otherwise a would preclude appeal altogether.

I373 legal expense the percent adjust- authorized the Commission’s below the 14.25 ment, stating legal Commission; expenses that the of that and while actions are an ongoing, part running necessary any Bell have of Southwestern business, therefore, corporation for the the Commission appropriate as should been including unregulated apply legal expenses; (6) the year entities— test as whole— grounds capital here is further the fundamental issue what modification the or- der, challenged for the Bell appropriate is Oklahoma reduction Bellcore structure (7) Attorney empha- expenses; additionally jurisdiction? The General and Bell asked Bell’s an intra-syn- Oklahoma the Commission to reconsider sized that Southwestern input permitted by no management adjustment had little or into the chronization the order, avowing capital imput- of Southwestern Bell Cor- Commission’s that structure Louis, poration, located St. Missouri. ed a tax benefit that Bell has never had requested get.. Attorney General the Com- and which Bell never will modify per- its order from mission to response presented by the issues spective capital structure is that Attorney General, Bell that submitted jurisdiction. Oklahoma appropriate to the (1) placing the Commission erred in not all (2) base; Telephone Bell of its CWIP in the rate Counsel for Southwestern reit- arguments Company presented position rebuttal on erated Bell’s that the Commis- finding working public utility present- capital and also sion’s of zero cash behalf (1) wrong; modify: utility company motion to then de- utility’s ed own (3) proffered prepayments Bell that clared that Southwestern its return contro- equity argued versy directory payments increased. should be Bell monies expended Bell it received credibility that of Bell’s witness is that before credibility type greater prepay- than the other services that when this witness; base, placed inap- ment is it is equity return on that Commis- finding percent woefully propriate lead/lag study; and further sion’s of 14.25 inadequate impute Pages finan- that order to the Yellow because increased jurisdiction, cial risk increased risk net revenues to the Oklahoma and the business revenues, directory direc- Bell faces since divesti- one must look at Southwestern ture; tory expenses prepayments as a Bell attributed the increased risk to whole; (4) directory post-divestiture bypass by that the revenues inter-LATA during not to grew year, off but illegally siphoning carriers intra-LATA the test services, grown in premises they prior the customer same extent had loss of divestiture, poor equipment years competition due to due to econ- business period omy, due as well the transitional loss inter-LATA business to divesti- ture; (2) separate urged changing operation to a sub- Bell the Commission to working capital finding sidiary different method of which has a reconsider its cash accounting collecting the un- working capital complaining of zero revenues and cash collectibles; (5) T providing the AT & refund for not a that penalty that years lead/lag by dealt with 1981 and and study as ordered the Commis- out-of-period mat- in should be excluded as an overly sion harsh this divestiture case ter, (3) nonrecurring, and procedures; the refund is was changes operating due to quar- T in the last not received from AT & urged Bell the Commission to reth- further year; of the and the refund adopt year ending ink ter 1984 test and then Bell’s (4) period likewise, pre-divestiture a methodology; Bell was associated with revenues every relationship entirely methodology adopted was differ- by assailed the when (6) is today; ent than it Southwestern Bell as to allocation of Commission’s order regards the expenses, disputed also order as cor- headquarters corporate (7) instead, porate process and contended adopt allocation implored the Commission expenses its and revenues methodology Bell asserted that investment Bell’s was separated appli- its rate accurate; (5) it filed Bell also took issue with were before more cation, stating treating that it did not file total an order the issues raised for re- state, intra-state, consideration, inter-state and but single as its reason for dis- subject those items that are missing the Commis- modify, the motions to the final jurisdiction sion’s operation; order should be reversed and this cause —intra-state (8) although Bell Corporation Southwestern initial- remanded to the Commission ly telephone included concession service for further consideration of the issues date, application changed its its mind and Modify; raised the Motion to view did not legal include concession for inter-LATA guideposts and standards set telephone calling permanent data, in its forth herein.

nevertheless, Bell asserted that concession telephone service has never been disal- by

lowed this in any Commission order and V absolutely that Bell had ques- no reason to THE OKLAHOMA CORPORATION COM- tion or to understand a concession tele- MISSION MUST PROMULGATE AN issue, phone service was at since it was not ORDER SUFFICIENT TO APPRISE witness, by raised originated but from a THE SUPREME COURTOF THE ACTU- question from the bench near the end of AL BASIS UNDERLYING ITS UTILITY Moreover, protested Bell, the cause. a util- RATE INCREASE. ity obligation has an testify expenses just, proper, reasonable and and it has no further burden unless it is It is fundamental reviewing that a court put on notice that one of its subject items is apprised must be of the actual basis under- dispute question it had no rea- —and lying utility rate increase authorized son to telephone believe concession Corporation the Oklahoma Commission in (9) proceeding; finally, was South- order that it be determined whether or western Bell capital asserted that a struc- not the amount of the award is sustainable. imputed ture cannot be to Southwestern An required findings absence of is fatal to Bell mismanagement unless there is or im- validity of an administrative decision

prudence part on corporation; findings general terms are not suffi- (10) post-divestiture that the Moreover, findings cient.18 must be free return authorized the Commission is from ambiguity.19 January On inadequate. Corporation the Oklahoma Commission au-

At the hearing, conclusion of the thorized Southwestern Bell to increase its banc, Commission en took all of jurisdictional the exhib- Oklahoma rates in its, arguments $47,544,561 and evidence under advise- the amount of dollars], [million 12, 1986, ment. Then May the Commis- on an $47,- annual basis. The amount of sion finally 544,561 entered Order No. dis- specified is the sole amount in the posing of the matter. The Commission Commission’s order. By only, reference found that Staff’s motion to dismiss the approved further rate in- motions of the Attorney General $43,700,000 and creases in the amounts of [mil- granted. Southwestern Bell should be annually; $135,197,000 lion dollars] [million Attorney appealed General dollars]; $32,520,695 this Order. We [million dollars] appeal consolidated this the Attorney annually. The order of the prior appeal disposition General’s Commission,however, illusory because it single opinion. However, specify because the Cor- fails to these referenced amounts poration erroneously (and, Commission ruled hence make clear the total rate in- jurisdiction that it was divested of to make aproved authorized) creases and and to State, 18. Southwestern Public Service Co. v. 637 19. Id. (Okla.1981); P.2d 92 Southwestern Cotton Oil Gin, Co-Op Co. v. Farmers Union 165 Okl. 24 (1933). P.2d 658

1375 findings pertaining findings and of law is required fact conclusions make and not a mere techni- in The terms and conse- matter substance its order. them general cality, and it rule that if of the unstated additional is the effect quential increases, agency supply incorporated which were administrative fails such only, findings, its not be approved by impacted reference determinations will sus- and ratemaking deter- tained.21 upon the Commission’s

minations, impact our review of and thus determinations. On remand

those upon the matter it should be incumbent VI this state, Corporation with Commission COM- CORPORATION THE OKLAHOMA ap- every order amount specificity, in its MISSION MUST SUBSTANTIATE authorized, granted together or proved, EVIDENCE EVERY RECORD WITH every other the date and number ALLOCATION POST-DIVESTITURE relating general A refer- thereto. order AUTHORI- BE IN ITS TO INCLUDED or is insuf- ence to other orders documents BE CHARGED ZATION OF RATES TO Additionally, the Commis- ficient. where RATE PAYERS FOR TO OKLAHOMA by reference other orders incorporates sion TELEPHONE SERVICE. BASIC documents, implements the terms thereof, it should attach and conditions referred to. orders and documents such public telephone utility company What a require- to these

Administrative adherance upon is a fair return is entitled ask pro- efficient and procedurally ments of that is used and useful value which Supreme assistance to vides valuable providing basic expeditious appellate re- an Court toward public to ascertain in Oklahoma.22 order magni- Particularly a case view. value, construction, original cost of issues unprecedented with numerous tude permanent im- expended the amount record, extremely voluminous provements, market the amount and value pow- Corporation has both the stock, present as of its com- bonds to, opportunity partially, at least er and construction, original pared with the cost of placed upon alleviate the enormous burden earning capacity prop- probable duty to fulfilling provide this Court prescribed, erty particular under the rates content, findings and free sufficient operating required the sum to meet ambiguity. matters for consideration expenses all question whether the rates set are on the apprised should stand The Commission allocated, costs are reasonable. Where appeal of an order from that on the must be competent, verifiable evidence find- body which fails to sufficient measure of presented to substantiate preclud- not be ings, while this Court ratepayers the to- benefit Oklahoma circumstances, ed, from mak- under certain jurisdic- charges to this tality of allocated record and enter- ing a of the whole review charges, like rolled-in rates tion.23 Pro-rata by the ing appropriate order indicated justified integrated system, may be statutory in an entirety,20 require- in its record ratepay- that Oklahoma make to the extent agency ment that an administrative State, (1923); Co. v. Public Service Southwestern supra. Note 20. (Okla.1981); Gas v. Lone Star Co. 637 P.2d 92 Id. Commission, (Okla. Corporation P.2d 1982). jurisdiction standing long in this rule It is the rate, determining adequacy of a that public Co. v. Commis- Lone Star Gas utility entitled to a fair 23.In will be held to be property adopted fairness test” present of its we the “benefits return on the value sion serving Oklahoma Power v. Northern States Co. used announced in useful Okmulgee Corpo- (N.D.1982). Gas Co. public ratepayers. v. Hagen, 314 N.W.2d Commission, P. 28 Okl. ration neously, twenty-two telephone ers derive benefit therefrom.24 The operat- benefit must, course, efficient, ing companies reorganized were into constitute an eco- seven regional telephone operating companies necessary component nomical and of basic (the companies) “spun-off” divested telephone only, since the federal from AT & T. AT & T thus achieved decree excluded other divestiture services competitive segments freedom the of its agenda operating from the of the local existing non-basic services and was re- Further, companies. post-divestiture in the large regulatory lieved amount of environment, the telecommunications basis potential liability; control and antitrust all calculations as the reasonableness however, it is AT now crucial to insure that charged by telephone rates be ratepay- & T’s win is not a loss for common utility, involving as it does the element of ers, for such was not the intent of the MFJ. regards “reasonableness” both as the util- Therefore, responsibility inures to the ity public, company regards and as Corporation Oklahoma Commission to be- review, eminently question judicial gin post-divestiture regulatory its duties requiring process due of law for its deter- requiring proof clearly documents the mination insofar as the rates be said purpose, category cost and service of all courts, confiscatory. to be in this re- telephone allocations to basic service to forms, spect, are not mere nor bound permit regulatory analysis charge every they pretenses. to misled be mere ratepayers. Oklahoma The record in liberty indeed, They are at are under sol- — replete this case is with evidence that a duty emn look at substance —to proper lead/lay study precise is the most things, they upon enter in- whenever determining expenses method of and reve- quiry body whether an administrative has flowing nues utility opera- and out of the regularly pursued authority in investi- tion; but Bell failed Southwestern has gating quantum proof and character of perform remand, them as ordered. On reasonable, necessary to establish a rate as suspend Commission should be directed to confiscatory, within the ambit of the accounting requirement and revenues duty Constitution. It is the of this Court to study issues until this is entered into evi- adjudge, give thereby principles process so effect to the dence. Under of due law, charges to customers Constitution and for costs that the laws of this State. not provid- will be incurred in the course of legal guideposts thorough These demand a ing utility confiscatory. service are Until exposition post-divesti- and review of the Corporation the Oklahoma Commission ef- impres- ture realities in this case first require fectuates its order to Southwestern sion. Bell to disclose the results of a properly lead/lag study, conducted VII regular- Commission cannot said to have Implementation of the federal divestiture ly pursued its authority constitutional required following: decree Each of the utility’s establish rates as reasonable. twenty-two telephone AT T operating & companies were to transfer from its owner- VIII ship necessary assets are not for the THE PROPRIETY OF SOUTHWESTERN performance provision of its new role: the BELL AB- TELEPHONE COMPANY’S telephone of basic service. These non-basic A SORPTION BY NONREGULATED telephone service assets were to trans- HOLDING COMPANY BE SHOULD ferred to other of AT T. subsidiaries & BY THE CONSIDERED CORPORA- ' twenty-two operating companies, how- TION COMMISSION. ever, permitted were to retain assets neces- performance sary for the of duties connect- implement In order to the dictates of divestiture, ed with provided plan basic service. Simulta- the MFJ for a technically unduly among Id. Whether viewed based unreasonable or to discriminate Also, See, cost of service or as an addition to cost of classes. LaRowe v. Kokomo Gas and service, Co., relationship Ind.App. rates must reflect a to ser- Fuel 386 N.E.2d cited provided Star, approval by supra. vice or benefit in order to be Court in Lone However, verify not exist a method to the al- AT & T. does reorganization of regional telephone leged relationship of cost of service to ben- the other six whereas anywhere ratepayers pay companies up are made from efit to local who for the AT T of the former & from two to five service. Bell operating companies, Southwestern Article Section 18 of the Oklahoma being unique position of

has the provides, pertinent part, in Constitution pre-divesti- region encompassing only one Corporation keep that the Commission shall company. telephone operating There- ture informed, “(t)he fully itself and that Com- fore, regional the other six tele- whereas right at all times to mission shall have the re- companies may have phone operating inspect papers of all trans- books and holding company of ar- quired some kind companies do- portation and transmission divestiture, rangement to effect Southwest- State, require ing business and to Bell, not. both ern Bell does Southwestern time, companies from time to from such divestiture, after includes a before and statements, oath, special reports and under Missouri, Texas, Arkan- of five-state area remand, concerning their On business.” sas, Oklahoma. Since the ab- Kansas and require Corporation Commission must of Bell a no- sorption Southwestern evidentiary support economic efficien- holding company not neces- nregulated was cy, ratepayers’ perspective, is en- divestiture, of sary implement the terms holding company relation- hanced preclud- is not Otherwise, relationship ship. cannot be considering ultra to the ed from such vires this, accomplish Corpo- sustained. To ratepayers and dis- jurisdictional interest of un- ration Commission must know the only consequence regarding such if the addition, ser- derlying costs services. ratepayers, is detrimental to result- thereof facilities, common like the vices that use ing confiscatory rates violation loop, assigned portion must also be rights by the Constitution of the secured portion to the decision of what costs and and the Constitution of the United States by the assign must be determined Commis- State of Oklahoma. (due forces sion since the market The record discloses Southwestern service) exchange monopoly nature basic Telephone Company virtually Bell costs. to allocate these are not sufficient controlled, managed, directed and adminis- post-divestiture ser- properly A constructed Holding every aspect by Com- tered (lead/lag) category study must vice Ex- Corporation. Bell pany, Southwestern costs are presented to what the determine among jur- “allocated” the five penses are including category, major for each service to, e.g., accounting, legal, reg- isdictions Centrex, exchange, intra-state intra- local data, payroll, pension and ulatory employee toll, private intra-LATA LATA intra-state “general plans, and a multitude health line, supplemental access and intra state items. and “miscellaneous” expenses” service. general expenses Testimony that the was justify an presently The record does not million dollars over increased some two had services, rather increase basic Holding year under the Com- preceding services. Costs than other non-basic that al- system; but pany’s allocation charges, how- should be the basis consti- though telephone operations basic ever, telephone company has failed Holding Company’s tutes 93.47% study to produce post-divestiture cost system data was portfolio, much present relationship of rates determine the “proprietary” under asserted to be purpose of a to costs. The fundamental holding company arrangement resulting — category study cost is to determine service expenses to basic tele- attribution major requirements for each the revenue lump sums in the form of phone service findings then Thus, category. These can categories charges. under catego- to determine which service arrangement, there be used holding company is, require espe- This is cess That ríes rate increases. services. the access line is cially given facility produce the common critical determination needed The telephone catego- exchange that some service and toll services. access fact category category, to AT & T’s line is not a service ries have been but transferred rather, collection of competitive operations while others have costs associated loop, component The is a of been retained Southwestern Bell. with the costs, industry under- local telecommunications has both toll and service and must undergo signifi- gone categories. to be allocated to service The ef- and will continue changes. competi- granted of cant structural While fects rate increases that were becoming during more important tion is now 1983 and into 1984 are based on telecommunication, areas of a sub- 1983 booked revenues—and do not include various annualizing portion of Southwestern Bell’s rate that were stantial increases Therefore, monopolistic is still in Oklahoma awarded 1983 or 1984. business relationship may to for the not and will continue foreseeable cost/revenue be post-divestiture circumstances there the 1984 future. Under these reflective of tendency regulated relationships for and of will a natural cost/revenue benefits overprice premises equipment to services in interstate customer telephone utilities relatively protected monopoly phase-out applied directly markets so should be to local exchange other com- as to subsidize ventures where rates. petition present. is This cost allocation Finally, it should be understood that total

strategy particularly damaging is responsibility costs are not the total cost monopoly utility Southwestern Bell’s exchange. jurisdiction The local interstate Compa- ratepayers in that it- enables the currently responsible is for of those 32% ny preserve competitive to obtain and costs and toll and intrastate access service prices business at below the costs full far share, responsible are for another un- 20% impose system, that these services on the given less these services are a “free ride.” loading cross-subsidy thus costs onto mo- line, average per The revenue is total $14 nopoly virtually perpetual services on a per exchange line access costs are $21 basis. usage per Comparing is line. the com- $4 usage cost of access and with ex- goals regulation One bined foremost change equitable revenues is incorrect since ensure that rates are tools, line, private up-to- exchange, reasonable. like an local intra-LATA Certain toll, Centrex, category study, are intra-LATA other services date cost-of-service accomplish goals. Be- necessary these and intrastate access are now offered companies telephone cause such as South- Southwestern Bell in Oklahoma. Termi- products equipment, different nal interstate and intrastate in- western Bell distinctly different market envi- ter-LATA toll and interstate and services intrastate ronments, category study private a service cost inter-LATA line are offered AT require- needed to determine the & T. revenue

ment for each of the individual service cate- Company’s 1983 EDA indicates that If gories. rates are established on exchange increase is needed for local 1% category of cost-based service reve- basis services; a increase in State toll rates 1% regula- requirements, important nue charges, access increase in 150% tory objective eliminating cross-subsidi- private line rates is needed to make these among categories zation will be achieved. However, compensatory. compe- services support relationship tent evidence to category The access line loss should not ratepayers for these justification rate benefits Oklahoma be viewed from the record. access is not a service but increases is absent increase because regard, Company’s disaggregation exchange, intrastate intra-LATA this part exchange unavailing and inter-LATA ac- of local service is toll intrastate access usage sepa- tential could result in exces- nor is a abuses which since neither dial tone charges: sive rates and itself, integral but organiza- companies 1. A list of all component service—no basic Bell tions affiliated with Southwestern presented that local rate- has been evidence Corporation or Bell Southwestern Tele- demanding single compo- payers phone Company. separate from tele- nents of service basic including 2. A financial statement bal- phone disaggregate service. move ance sheet and income statement and measured service these elements toward sources and uses of funds statements shown to be beneficial to local has been company. each contrary, in Oklahoma. To the subscribers description company A3. of how the the record discloses that Southwestern was established and when was estab- state, Bell, begun in its divested has description include a lished. This should engage competitive operations, in addi- telephone of what resources of the com- regulated operation tion to the of the local used, pany (e.g. per- directly, were either telephone provides business which basic sonnel), indirectly, (e.g. backing or lines telephone people to the of the State credit.) telephone oper- Besides the of Oklahoma. A description types of services ating company, Bell has es- Southwestern products being provided by or that are (known) organization. four These tablished subsidiaries. each Publications, include Bell telephone company Southwestern 5. A list and cost of used, being facilities that are were used Telecommunications, Bell Southwestern expected in the future or be used Systems Bell Mobile Southwestern organization. each Management. Bell Asset Southwestern operating telephone 6. Whether engaged publish- These subsidiaries companies using will be the service or sales, ing, equipment cellular tele- mobile products organization of each phone development marketing, expected telephone compa- of each cost Although Bell real estate. Southwestern ny. a list of refuses subsidiaries A or list of assets transferred sold to 1984, public created since information indi- operating organization each from the purchased cates that it has also Mast Ad- telephone companies, (including any pur- Publications, vertising Inc. from Conti- operating telephone chases made $120,000,000 Telephone nental [million companies in an affil- 1983 and 1984from only apparent source for the dollars]. telephone company re- iate where the capital these that was used to establish compensation ceived stock for and then telephone compa- the local businesses was turned the stock over to Southwestern AT T ny. affiliate.) The stockholders of & at the end Bell or another Corpora- of 1983 Bell owned Southwestern organization use in- 8. Whether the will tion, operating and the assets transferred com- were formation obtained panies in the business. regulated telephone the assets of the local Telephone company, Southwestern Bell Finally, Page since profits Yellow are a All Company. of the subsidiaries were cre- direct result of exchange basic telephone equity to some extent from the ated service, ratepayers local should benefit di- earnings Telephone Bell Southwestern rectly profits from directory opera- addition, corpo- Company. In at least two tions. (Southwestern rations Bell Publications Bell Telecommunica- and Southwestern IX tions) telephone were created from the CREATION COMPANY’S HOLDING THE company’s assets. YELLOW PAGES A SEPARATE OF JUDICIAL BREACHED minimum, SUBSIDIARY

At a the Commission should DIVESTI- OF IMPLEMENTATION following require the information order TURE. protect ratepaying public po- from expenses imputed relative to the revenues v. Electric & United States Western operation as a conse- to the local states: the Court T,25 AT & Pages creation of the Yellow quence of the T to AT & required the Court “When Conclusory generalizations are subsidiary. Pages operations Yellow over its turn competent evidence. not substitutes it is assumed Companies, Operating directory adver- the revenues included to be continue tising would X Compa- Operating base the rate EQUITY- BELL’S SOUTHWESTERN rates. subsidy to local nies, providing IN- LADEN CAPITAL STRUCTURE IS Companies, Holding Yet, Regional FOR APPROPRIATE RATEMAKING [emphasis them, breached have some PURPOSES Instead of understanding. mine ] Pages revenues funnelling Yellow economically created Bell they have Companies, Southwestern

Operating sound di- Bell is in healthy. handle their Southwestern separate subsidiaries Bell’s do Southwestern condition. operations rectory publishing financial During 1984 South- rating reve- is AA-A2. feed the bond original [emphasis ] to raise Corporation was able into the rate Bell operations western from these nues million, $1,945 the $2,494 million after or base.” dividends, from internal of payment At footnote opinion, No. 79 of the it is income, (i.e., depreciation, and tax sources noted that Southwestern Bell deferrals) carry out its con- to credits and Regional is one of the Holding Companies expenditure program, capital struction that has a directory publishing established $1,804 During million. to which amounted operation in separate subsidiary, in Bell of the value Southwestern book breach of understanding referred to in outstanding stock common Corporation’s body opinion. At footnote No. million, earn- as retained increased $511 opinion goes on to observe that payment ings million after rose $334 revenues from Pages operations Yellow dividends. million stock $549 always have far exceeded the pub- costs of basis, out of revenues systemwide On a Moreover, lication. if there should ever million, $7,191 Company re- totalling operations come a time when these are not $4,742 million to cover its current quired profitable, Regional Holding Companies expenses, taxes operating and maintenance simply could discontinue them. In short words, payments. In other interest arrangement does not assist the rate- Corporation’s net cash Bell Southwestern payers; it only assists Holding Compa- stockholder dividends available ny. flow for amounted to one-third and investment present case, In the the Corporation revenues. its total Commission was ignor- not remiss in = Expected Total Return Current + ing the impropriety of Holding Corpo- Dividend to Investor Dividend separate ration’s creation of the subsidiary Yield Growth Rate for Pages operation, the Yellow but de- ferring remedial action as to the value of Since an individual investor cannot Pages operation Yellow declining control either the yield dividend or to even address issues surrounding this dividend growth rate, his decision concern until request the “next” for a rate about the adequacy returns is re- respect, increase. In this the Commission by his buy, sell, and flected hold deci- pursue indeed failed to regularly regula- sions. tory responsibility. Nor have I found evi- dentiary support in the record to substanti- unregulated Because competitive enter- ate Holding Company’s imputation prises are more risky regulated than utili- (D.D.C.1984). F.Supp. 25. 592 ties, poor regulatory policy financing but, would be to a chosen strategy, in- of stead should

permit profits responsible utilities earn excess of held pay- for equivalent earnings competitive ing only in the return on the Company’s fair public sector. assets devoted to service. Com- imputed mission therefore use an con- meeting Bell Southwestern all of its capital solidated structure. capital requirements from internal sources maintaining excessive cost a com- and there is that the little likelihood Com- equity high mon that ratio is too is the pany required any will issue new resulting higher requirement overall return public support common stock utili- (including allowances) tax income ty services the foreseeable future. This largely higher percent- attributable means public that there will be no issuance age equity Company’s common in the therefore, expenses incurred and it is un- capital overall structure. necessary include allowance cus- tomer’s rates. There is no reason to company capital The Bell structure is charge will customers costs that non-regulated more similar to for industries providing be incurred in the course reflects, than to other utilities. This utility service. AT part, financing & Ts traditional debt at parent level, company required Moreover, Southwestern Bell’s common subsidiary less debt at the level in order to equity already adequate ratio is more than keep the capital consolidated structure in utility purposes further system balance. It also reflects an old Bell capital equity common would not be the regulatory strategy that has well worked most economical source of tele- additional regulators a time in some states where phone utility funds. This means no equity focused on the return ratios. To- allowance issuing common stock is for day, widely recognized it is more that when needed is necessary since it neither nor equity excessive common ratios used reasonable revenues cover ratemaking purposes, custom- utility for hypothetical costs which are not attribut- ers are to bear an unwarranted forced serving Compa- able to the needs the of capital cost This is one and tax burden. ny’s jurisdictional Oklahoma customers. why target reason most electric utilities Utility operations, including those of in- range. in equity ratios the their 40% dependent exchange telephone local utili- have Commissions concluded that rates ties, substantially protected which are utility for basic not services should bear corresponding through regulatory risk the higher equity-rich capital the cost of struc- process generally equi- have lower common may tures that necessitated other be ratios, ty in typically range, the to 45% 40% operations competitive diversified mar- (vs. proposed Bell’s Southwestern 55.47% comparable degrees capital kets where of ratio). common equity leveraging structure would not otherwise proposed capital Southwestern Bell’s capital sustainable. When such struc- be structure unnecessarily contains an arise, they may ture issues be resolved large capital. equity share common upon adjusted capi- imputed reliance of Company’s cost the decision to upon average structure or an industry tal unnecessarily high maintain an common profile. support equity jurisdictional ratio in say necessary This is that not to it is a telephone utility substantially ex- to tell the Company Commission role how ceeds any Company which the benefits bring capital or whether to its structure and a its customers receive as result of ratemaking line appropriate into with stan- that decision. Indeed, elect, Company may dards. reasons, The Company’s ratepayers so, should not whatever not to do but that required pay unnecessary be of management costs should be a matter discre- larger being operating in utility ny, typically does inflate allowable

tion that not about Thus, and more diverse service area. the decision a wider while rates. changes And while have occurred capital Bell’s structure Southwestern and the characteristics of BOCs envi- Company, its directors one for they operate, these make, ronment which shareholders to the Commission its changes substantially do alter rela- capital about must concerned indepen- relationship risk between the tive ratemaking that is used structure compa- companies and Bell dent Bell purposes. Whether Southwestern nies. will financing strategy a adopts capital cost struc-

produce the minimum The divestiture has been effect now up Company. The Commis- ture is years. The effects for number in that ratemaking determinations sion’s changes breakup compa- related on the be constrained regard should not equity the discon- ny’s risk are manifest: Company chooses whether or not the relationships historical tinuance be- capital minimum cost structure. Companies, AT Operating the Bell & tween T, and Western Electric increase the their permitted can to make Utilities companies; of the divested business risk decisions, capital structure own however, agreement the divestiture includ- (not ratepay- that condition stockholders mitigated provisions ed certain which have ers) capital will bear excess structure risk. costs, ratepayers pay will rates based capital reasonable on a structure First, Operating Companies sup- the Bell jurisdictional utility service view costs port and share the of a centralized is, telling requirements. That instead organization provide engineering, admin- capital adjust Bell how to its Southwestern istrative, support other services. The structure, should instead Commission Regional Companies created Bell have Bell regardless of what Company tell the (Bellcore) Research Communications chooses, management capital structure its spe- this function. serve jurisdictional rates will be determined cifically subject addressed last equity ratio. based on reasonable common Bell: regarding decision Southwestern approach keeps regulatory This no ... there is doubt that South- [WJhile distinct, and it also management roles significant Bell loses some bene- western management ac- and stockholders leaves “umbrella”, T fits of the AT & management’s discretionary countable likewise clear that the new Central Ser- way ratepayers In would decisions. this Organization provide will some of vices utility if the an pay the same amount had support lost the the technical Bell capital utility reve- efficient structure and Operating Companies roy- are entitled to correspond the conse- nues would also alty patents free licenses to AT T& quences competitive that occur would a up secured to the date of divestiture and type of capital market. This market-orient- (Oklahoma years Corpo- five thereafter. yield approach ed should better economic Commission, No. ration Order efficiency and if the equity results than 13.) Cause P. No. aggres- a were to follow more Commission Second, restructuring grouped AT & T’s prescribe

sive interventionist role twenty companies two divested under that use to approach company a should Regional (RHCs), Holding Companies seven its capital optimally. structure large extremely each to most relative un- Moreover, telephone utilities all regulated companies while and most other utili- average unregulated Taking advantage plan, rank well below the ties. this South- firm, Companies Operating Corporation Bell various Bell created the fol- western equity lowing than does Bell face somewhat less risk subsidiaries: Southwestern Mo- compa- average telephone Systems, Bell independent bile Southwestern Publica- reducing tions, Telephone Compa- thereby por- Bell the riskiness of this Southwestern unregulated are tion of their Cor- ny. subsidiaries business. Oklahoma Other Corporation poration as the seeks to has not in- bound to follow Commission authorized competition. “(p)ursue policy a tra-LATA diversification” Should this become (Annual problem in its Mission a for the Company, stated Statement. serious Telephone, might Report Bell compensa- of Southwestern Commission authorize a 3). plan tion mechanism P. or other to reduce But even if adverse effects. intra-LATA Third, orderly in order to allow for an competition allowed, eventually Com- transition, Judgment the Modified Pinal pany competi- will still derive a substantial (MFJ) stipulated that: advantage recognition tive from its name T, 1,1987, September AT West- & [U]ntil goodwill. reject longstanding IWhile Electric, Telephone and the Bell ern Lab- competi- pessimistic the most view of the oratories, shall, BOC, upon order of forces, recognize tive I that some element priority sup- on a basis all other uncertainty picture. has entered the port to ful- services enable the BOCs many changes With the in the telecommu- requirements fill the of this Modification industry sharply nications increased (P. 3.) Judgment. of Final rates, ratepayers local some are aspect obvious af- Another of divestiture closely scrutinizing options. their In some fecting risk of Company and other instances, money by customer can a save Companies Operating Bell is the resolution constructing bypass his system. own Department of Justice’s antitrust readily others he discover available years AT against eight case & T. After services, services, private like tariffed line great uncertainty, investors have a now purpose which can serve the same at picture prospects clearer of the future opportunities even lower cost. Such Companies. AT Bell Operating & T and the phenomenon, not a new but customer risk, during this Reflecting reduction of growing. them has To awareness of been market, year their on the first the stocks telephone companies the extent local experi- Regional Holding Companies spiralling allow inflation their labor and strong growth In- popularity. enced costs, they may bypass be vulnerable to remote, longer no vestors need fear the but costsaving options customer due other major vast downside potentially risks of to customer awareness of lower cost alter- case antitrust the United Govern- States However, bypass natives. need not be ment. problem telephone company if local adopts properly designed and reasonable Moreover, divestiture, as a result of charges. set of access average Operating risk of the business Bell noted Bell Southwestern Operat- has Company diminished: the Bell Telephone Company’s proceeding last rate ing Company has a reduced involvement jurisdiction although bypass relatively business, and volatile toll possible problem, presently was a it did not generated of revenues will be from bulk its large. specifically The loom risky provision of the less local access stated: exchange local services—two where areas degree a of

it retains substantial both mo- ignorant are not “While we of the al- government nopoly power protection and of threat, leged ‘bypass’ very little evidence competition. presented has to this Commission been currently that such threat is a serious Furthermore, in- because divestiture has (Oklahoma Corporation Oklahoma.” regulatory the dis- creased awareness of Commission, Order No. Cause among of types tinctions different toll 13.) No. P. routes, competitive entry Op- Bell into the Companies’ erating remaining Accordingly, markets the extent Company’s toll (intra-LATA) restricted, risk”, may severely “bypass juncture, at this can remain month, per at or the level of

minimal, largely mitigated by the least 90 calls or be should be to a level equitable and subsidization lowered dependent upon an Company, regular The tele- proportionate service. the of balance interests efficient between should phone company not be allowed to of Company investors and those and its the charge regular balance, customer more than oc- customers. Such which its choosing the uni- service rate. Customers naturally competition, curs in the world option should not be billed at versal service goal regulation in clearly a for is desirable flat higher a level than authorized public interest. Low income users under the service level. option not pay should universal service XI they they if higher than had rates would OPTION SERVICE regular UNIVERSAL flat Without chosen rate service. modifications, these so-called universal option Company’s The universal service unconstitutionally option discrimina- plan is objectionable is to residential customers tory merely represents a move toward First, discriminatory reasons. it two local service. measured and, Secondly, if implementation; even its justi- discriminatory classification were fied, telephone does insure that basic not XII all at people will be available to service plan The less comparable rates. would be SOUTHWESTERN BELL’S BILLING discriminatory the call allowance were if METHOD SHOULD BE INVESTIGAT- average for all set at the number calls ED average customers. The number of local Bell Southwestern bills affiliates for per per line is 270 calls in Oklahoma calls basis, services on an “incremental cost Company proposed The a 30 call month. plus contribution”,26 according should to its allowance. Either this be raised costs, study relationship wages, capital expenses, so A the cost and revenue categories equal prior for a calen- costs total The advan- of broad of service total revenues. categories year. tage approach of these includes of this is that the total result dar total books", is, provided by the EDA all services Southwestern Bell. “closes to results accounting = are consistent with financial costs direct those costs can be identi- reports. revenues with associated each being directly by provision caused fied category quantified. first are identified and specific category. services within a If taxes, operating expenses and return Then the provided service had been then these costs not categories assigned to the are various service would not have been incurred. = basis for provid- on a cost-causative basis. The access associated Network costs ” assignments following ing fall cost categories: Related; into one access into "the network. This access into Assignments; Direct network be used either ex- Investment for local Related; Wage change or or Other Cost Work service or for state interstate mes- Related; economically sage Special It is Unit Studies. EDA service. inappropriate these sen- WITH AND to recover DEALS OVERALLACCOUNTS IS non-traffic usage through TO sitive costs sensitive rates. NOT INTENDED SHOW REVENUE AND = costs not costs BY INDIVIDUALPRODUCTSOR SER- common costs which are direct COSTS they directly assignable since are not VICE. group operating provision any specific products EDA divides revenues into three Revenues; categories: They corporate services. overhead costs broad Local Service Revenues; assigned and as such cannot he on a cost-caus- Toll Service and Miscellaneous Operating ative basis. Revenues. Total Revenues (EDA) assigns Analysis Embedded sum of these three less Total Uncollectible Direct (The Operating "booked” various Revenues. individual sources costs and revenues categories. identifiable.) directly are EDA, This enables the EDA however, analyz- compa- logic separate has a balance ny. books and records (such study purposes, ing Many costs Therefore for a calendar investments costs. taxes, return) year year-end depreciation reports are is chosen since are as- available, included, year-end signed basis of accruals are on the the related investment. clearing assigns the fixed accounts are closed. EDA assets of the firm the op- categories account-by-account analysis EDA is an of service related investments —the revenues, erating plant investments and all follow. Division of revenues is therefore dif- Accounting Opinion description billing No. 47. There is no method used to specified allocate method for how one determines these costs and the actual alloca- tion to each incremental costs. Since a “contribution” affiliate.

is added to move the cost to a so-called price,

market the costs must be short-run. method XIII This allows Southwestern Bell sub- flexibility charges stantial in what it its AN INCREASE PRIMARY IN LOCAL affiliates for services. ratepayers Since SERVICE RATES IS NOT JUSTIFIED. operations, must bear the cost full appear any great there does not to be to ratepayers as a result this benefit provided justi- Southwestern Bell has not practice. practice On remand increasing exchange fication for local rates fully investigated. should be access, rather than toll centrex rates or other rates. Costs should be the for basis The total cost Bell Southwestern for departs rates. Even if the Commission Corporation test-year activities for reasons, public from costs due to policy $6.3 was million dollars. The Commission Commission should know underlying should not include of these costs until addition, costs services. In services that provide complete Southwestern Bell can use facilities, loop, common like the must justification why documentation and assigned portion also be these costs parent’s charges passed should be on to portion assign and the decision on what ratepayers. Oklahoma Southwestern Bell must be determined the Commission presented why, example, has no reason for (due monopo- since the market forces Corporation advertising Southwestern Bell service) ly exchange nature basic are not paid exchange should local be rate- sufficient to allocate these costs. payers why Corpora- Southwestern Bell corporate planning necessary tion is for the generally urging Southwestern Bell provision exchange of local services. placed that the entire be increase on local response request, to a data Southwestern properly post- A service rates. constructed provided Bell description a “one” word category divestiture service should have allocating the basis for these costs to the presented been to determine what the costs subsidiaries; (Exhibit A.B.-5 contains that major category, (e.g., each response.) Centrex, Bell exchange, Southwestern local intrastate intra- required toll, should complete private LATA intrastate intraLATA = “pair-mile" ficult to ascertain. Where a cost item can be “hot wire" or the term “hot wire” services, attributed to several a cost relationship pair is based on the ‘factor" factor fill “split” used to impossibility the cost. This results in near- producing pair miles revenue to total miles in tracking investments and plant. plant per loop Fair miles in subscriber accounting costs in the absence of the ing work- relationship pair is based on the of subscriber papers. THIS CAN ELIMINATE plant working pairs. miles in to subscriber RELATIONSHIP EFFEC- COST/REVENUE year January *note: The test in this Cause is TIVELY. (even though 1984 to December an- = supplemental services additional services over nualized.) It is therefore historical at this required and exchange above for basic residence point, unnecessary and it is now make majority service. The of costs in “predictions" respect "forecasts" category providing are associated with it. Calling Touch-Tone and Custom Services. longer looking" It is no and can be 'forward = Common to Firm costs which are common to quantified. assumptions detailed and No need which, categories purportedly, all are not upon. now be relied directly assignable specific services on a = (or costs) spare capaci- investment Executive, Legal, cost-causative basis. cial, fill factor Finan- ty. There are no other factors utilized for expenses and Personnel are included. spare capacity other than “fill factors.” impermissibly non-specific This is in- = services, During May averaging among IDC Interest Construction. volves cost various having clarity company’s little as to the rela- included in a CWIP. cost/revenue tionship. begins Every line, supplemental carriers. time a customer intrastate access and service, service.) op- that customer creates another completed. In

portunity for toll to be calls every new addition, consider the fact that XIV also Southwestern Bell auto- customer of matically becomes a customer SERVICE CHARGES Communications), (AT T& ATTCOM charge cost Bell’s service Southwestern inter-LATA carrier. No dominant other study presented the total -company cost of carrier receives the same treat- inter-LATA though even providing service connection ment. To obtain from carriers such service currently as- of these are about costs 32% SPCC, must as MCI or a customer contact signed jurisdiction and re- to the interstate number until them and obtain account from rates. Another cover interstate 20% ATTCOM, however, To equal access. use assigned to intrastate toll. total simply telephone uses num- one one’s own presented Company need costs Every time is added to a customer ber. portion separated so that attrib- prof- system, a new the Southwestern Bell operations uted to local is recovered from AT T—an it center is created & ad- for Otherwise, charges. Company service pay. vantage which it should for these will recover costs twice. regard, just Company’s In this as XV separated service total cost of must be juris- portion allocated to the interstate CHARGE MAINTENANCE OF SERVICE diction, establishing must so the cost of charge The maintenance of service is established service. Service telephone applied the trouble is should be whenever only in order make local calls but equipment, found to be the customer’s also interstate and intrastate toll when the trouble is found well. calls as Although the FCC has re- wire, inside and the customer has not sub- quired companies expense station con- Optional scribed Wire Maintenance Plan. nections, expenses it has not those removed charge applied should not be if jurisdictional separations. from calcu- trouble is to be in the found rate, lating an cost-based alternative company line. Company recognizejurisdictional should separations procedures. simply This the rate

means that established XVI charges should costs allo- reflect the actual BELLCORE jurisdiction cated to the local that the Com- pany operations. must recover local (BCR), Bell Research Communications Inc., Telephone is a Bell affil- Southwestern separations procedures

Current would iate, replaces which the license contract- apply the plant subscriber factor these service, i.e., services, type costs; centralized assign this would about 52% special- result of An economist (interstate divestiture. costs to toll services intra- izing industry, toll) in the telecommunications Recogniz- state to local ... 48% expenses ing proposed testified that separations allocation the 25.2% obtaining to new are related services and research cost access should be reduced poten- exchange. for local The other BCR should be disallowed. Several 50% 50% through problems should be recovered interstate in- tial with Bellcore must be exam- opera- tra-LATA toll rates and carrier access ined to determine whether Bellcore charges. higher have caused or tions will cause local rates. why

There are additional reasons the . establishing performed by cost of service should be The services now the hold- passed ing company on to the toll or inter-LATA under services those which pre-divestiture system performed by were whether it should continue and at what also, Department; expenditure. AT & T’s General those level of This is called zero- Bellcore, performed by services now called budgeting. based Research, Inc., Bell Communications were pre-divestiture system performed

under XVII by Bell Laboratories. These activities were by through funded the BOCs mechanisms THE DOCUMENTATION OF BELLCORE such as the license contract. Now various ACTIVITIES FOR 1984 WAS NOT SUF- changes in AT T’s& structure have led to FICIENTLY DESCRIPTIVE TO AS entities; creation new services once SIGN MANY OF THE ACTIVITIES TO performed by AT & T BTL will now be THE SERVICE BENEFITTED. performed Regional Holding Compa- Testimony was

nies, that BCR activities will Corpora- which is Southwestern Bell benefit activities other than (SWBC) exchange. local (SWB) tion for Southwestern Bell Purportedly, focusing BCR will (BCR). on a and Bell Communications Research activities, including number of research Divestiture eliminated the centralized concepts and new service that do not bene- agreement services called the license con- fit exchange current local ratepayers. licensing requirements, Judge tract. As to About of BCR costs are 25% related to opinion Green in the 1982 of the Federal types these of activities. Court said: ratepayers Local required should not be now, AT “Until & T’s research and de- pay for the creation implementation velopment primari- have been financed Also, portions new services. substantial ly through licensing contracts with budget of the BCR spent will be on re- Operating Companies. long local As Research, although search. even- ratepayer-financed exchange local rev- tually ratepayers, benefit local will benefit supporting enues were this research and many operations different commercial out- development, it made require sense to side telephone company. the local This AT & T to share the monopo- fruits of its paid research should not be ly financing therefore with others. But under the through Southwestern Bell’s rates unless proposed decree, licensing contracts there are direct and immediate terminated, will be and this benefits rationale for provided by to the current services South- licensing Moreover, exclusive thus falls. western Bell. The Commission must in- AT & T would be forced after divestiture expenses sure that BCR are not development fund its research and future used in the same manner. just competitive like other enterprises —without an subsidy artificial from The settlement of the antitrust case al- captive (p. 80, ratepayers." emphasis lowed, require, but did not the divested added.) BOCs establish BCR. BCR is similar to (Bellcore) funded, owned, the license contract. The oper- BCR is BOCs have a track newly Regional including competi- ated record of created Hold- various ing Companies. enterprise tive and new previously Some activities costs the license through Therefore, licensing funded contract. contracts will be the Commission addition, SWBC, assumed BCR. In require should the BCR as well as parent company, providing certain cen- proof all clearly doc- affiliates entities, tralized operating services to its purpose, uments the cost and service cate- including Southwestern Bell in Oklahoma. gory permit regulatory benefitted Bellcore is budgeted yearly on a analysis basis. every charge to Southwestern An every project evaluation of undertaken All clearly Bell. affiliate activities are not corresponding and its budget supposed benefitted Southwestern Bell’s current to be year conducted each ratepayers determine should be disallowed. closely regu- are “To sure States relatively new dealing

We as the transfer of lating such activities should start affiliate. jurisdic- their by entities assets within right by requir- relationship off foot on the opera- types of business tions and BCR ing activity of the be shown that each Companies Operating tions which provided by services current to benefit may engage.” Activity that relates to Bell. Southwestern However, responsibility is activation of this of- current services enhancement overdue Oklahoma. iden- fering of new should also be services provide WILSON, Justice, Dissenting Bell should Southwestern tified. ALMA Report Annual Order: to the Court’s the Commission with activity, provides the di- describes the that I to the Court’s Order Rehear- dissent pur- support separately, costs rect ing for two reasons: specific activity service pose of the (1) grant Rehearing on the full I would benefit, activity will services that case rule in accordance merit of this activity the service. that benefits and how dissenting previously opinions with the than that to more one ser- Activities relate filed. why activity re- vice should describe majority’s partial (2) granting more one service and which lates to than set forth in Rehearing purpose for the sole services benefitted. tantamount, opinion, my the Order is related to The costs activities denying ratepayers immediate reimburse- future be recovered or research should services rather, “windfall”, as a but ment monies passed and not onto ratepayers already belonging monies future from ratepayers. current refunded. be I to state that have been authorized XVIII DOOLIN, J., and GARRETT S.JJ., BRIGHTMIRE, join in this THE COMMISSION DO? WHAT SHOULD dissent. The Commission should disallow expenses in Southwest- included SWBC test-year proceeding Bell’s in this

ern Oklahoma. Commission the State of impact examine the should consider and System the Bell into restructuring of SWBC, company and order the COMPANY, necessary data on all Un- KANEB suc PRODUCTION affiliates. cessor, by change, name to Moran complete provided til information Exploration, Appellant, Inc. has determined Commission ratepayers have these what extent funded v. enterprises, the Commission should new GHK EXPLORATION COMPANY and granted as require rate increase Corporation Commis The Oklahoma proceeding subject a result of Oklahoma, Appel sion of the State of addition, refund. lees. recognize proceeding that in this should No. 66866. capital equity attributable to these competitive subsidiaries should new Supreme Court of Oklahoma. telephone opera- separated the local Jan. tions. T, supra, AT

In United States v. & assumption upon Court Federal relied that:

Case Details

Case Name: Turpen v. Oklahoma Corp. Commission

Court Name: Supreme Court of Oklahoma

Date Published: Jan 19, 1989

Citation: 769 P.2d 1309

Docket Number: 66038, 66686

Court Abbreviation: Okla.