Arcadia Tel. Co. v. Public Utilities Commission

• Decision Date: 16 May 1979
• Docket Number: No. 78-1121,78-1121
• Citation: 389 N.E.2d 498,58 Ohio St.2d 180
• Parties: , 12 O.O.3d 182, 30 P.U.R.4th 131 ARCADIA TELEPHONE COMPANY, Appellant, v. PUBLIC UTILITIES COMMISSION of Ohio, Appellee.
• Court: Ohio Supreme Court

Page 180

58 Ohio St.2d 180

389 N.E.2d 498, 12 O.O.3d 182, 30 P.U.R.4th 131

ARCADIA TELEPHONE COMPANY, Appellant, v. PUBLIC UTILITIES COMMISSION of Ohio, Appellee.

No. 78-1121.

Supreme Court of Ohio.

May 16, 1979.

The Arcadia Telephone Company (Arcadia) is a "telephone company," as defined in R.C. 4905.03(A)(2), and thus a "public utility" subject to the jurisdiction of the Public Utilities Commission (commission) pursuant to R.C. 4905.02 and 4905.04.

On November 5, 1974, a substantial number of Arcadia's customers filed a petition with the commission pursuant to R.C. 4905.26, requesting Extended Area Service (EAS) from Arcadia, Ohio, to the Findlay and Fostoria exchanges of the Ohio Bell Telephone Company. Public hearings were conducted and Rule 4901:1-7-01 Et seq. of the Ohio Administrative Code, the criteria for granting or denying the petition, were used to guide the commission's inquiry.

On December 13, 1977, a Supplemental Attorney Examiner's Report was issued recommending that EAS be established if a substantial majority of Arcadia's customers agreed to pay appropriate rates for the new service. On May 18, 1978, the commission issued its own opinion and order directing both Ohio Bell and Arcadia to institute EAS as requested if the recommended "substantial majority" so agree. Arcadia was also ordered to submit revised tariffs allowing for the $20,725 annual additional cost of providing the new service.

However, the commission rejected the examiner's recommendation, and Arcadia's contention, that the revised tariffs must also be increased to allow for an alleged loss of $41,699 in toll revenues that would arise as a result of the proposed EAS.

Pursuant to the commission's order, a survey letter and ballot were sent to Arcadia customers reflecting the increased cost of the proposed service. The letter also stated that lost toll revenues were not presently being considered in the increased charges and that exclusion may prompt a future request for general rate relief. ¹

On October 4, 1978, the commission issued a Supplemental Opinion and Order in which it concluded that "(a) substantial majority of the Arcadia exchange subscribers indicated a willingness to pay the appropriate rates for two-way nonoptional extended area telephone service with the Findlay and Fostoria exchanges." In conformity with that conclusion of law, the commission ordered both Arcadia and Ohio Bell to institute EAS within 24 months. In addition, Arcadia's adjusted tariffs, reflecting the added cost of EAS, were to take effect upon the institution of that service.

Arcadia filed an application for a rehearing of the May 18 order, which was subsequently denied on June 29, 1978.

This cause is now before this court upon appeal as a matter of right.

Vorys, Sater, Seymour & Pease, James O. Seymour and Sheldon A. Taft, Columbus, for appellant.

William J. Brown, Atty. Gen., Marvin I. Resnik and Thomas L. Mumaw, Columbus, for appellee.

PER CURIAM.

R.C. 4905.26, 4905.22 and 4905.381 authorize the commission to order telephone companies under its jurisdiction to establish Extended Area Service (EAS). See Ohio Central Telephone Corp. v. Pub. Util. Comm. (1957), 166 Ohio St. 180, 140 N.E.2d 782. As indicated earlier, the considerations that are weighed in coming to a final decision concerning the propriety of EAS are set forth in Chapter 4901:1-7, Ohio Adm.Code. ²

The appellant has raised a sole proposition of law directed at the rates to be charged under the commission order, which reads: "The public utilities commission may not provide a new and improved service at rates which are unjust, unreasonable or in violation of law."

The crux of appellant's argument is that by ordering the institution of EAS, without allowing a tariff adjustment for the proposed loss in toll revenues, the commission has violated the provisions of R.C. 4905.22 and 4905.381. Furthermore, the rates to be charged are confiscatory in violation of the Ohio and United States Constitutions.

The appellant contends that the $41,699 loss in toll revenues that will appear as a result of the introduction of EAS will wipe out its current annual return of $22,039 and will, in turn, force it to suffer a deficit. Arcadia argues further that the commission is required both by law and its own regulations to consider not only the expenses or cost of instituting the new service, but also any corresponding loss in revenues.

The scope of review required on an appeal from the Public Utilities Commission, mandated by R.C. 4903.13, dictates that an order of the commission will be overturned where, upon a consideration of the record, that particular order is either unreasonable or unlawful.

In Ohio Central Telephone Corp., supra, this court recognized that when EAS is ordered, the record must reflect commission consideration of the "cost" of that new service in order for that administrative body to live up to its statutory responsibilities. The third paragraph of the syllabus of that decision reads as follows:

"In the situation described, the Public Utilities Commission possesses jurisdiction to fix or approve Fair and reasonable telephone charges to the benefited subscribers of the affected exchanges To meet any increased costs of providing such extended-area service and has jurisdiction to adjust any differences or disputes which may exist or arise between the telephone companies involved, in the inauguration and rendition of such extended-area service." (Emphasis added.)

Such a requirement is consistent with the provisions of R.C. 4905.22, which provides that all charges for service shall be just and reasonable.

In the more recent decision of General Tel. Co. v. Pub. Util. Comm. (1976), 45 Ohio St.2d 154, 341 N.E.2d 832, this court was faced with a fact pattern similar to that presented by the current appeal. In that case the General Telephone Company objected to an EAS order, contending, at page 156, 341 N.E.2d at page 833, that " ' * * * the revenues generated by the service are completely inadequate to cover its costs'." This court affirmed the commission order, although that order did not allow the utility any remuneration for lost toll revenues, and only considered the costs of the initial investment and those related to the installation and maintenance of such service. Although the issue of confiscation was not specifically addressed, the allegation that the rates permitted were "grossly inadequate" impliedly involved that question.

In the present appeal, the commission dealt at length with the issue of lost toll revenues in its order of May 18, 1978, and outlined several reasons for not including that figure in the calculation of the new EAS rates. In addition to various technical reasons justifying the exclusion, the commission concluded that any resulting impairment of Arcadia's rate of return could not be accurately ascertained in an EAS proceeding. The commission's analysis and rationale for excluding an adjustment for lost toll revenues was as follows:

"In its reply to complainants' exceptions to the Supplemental Attorney Examiner's Report, Arcadia argued that constitutional requirements of due process require the continuity of prior revenues and the reimbursement of new expenses associated with the implementation of extended area service. The Commission does not agree. Reimbursement of new expenses for unbanded telephone companies providing extended area service is provided for in the Commission Rules; however, continuity of prior revenues and maintenance of a constant rate of return are not guaranteed a utility in the context of an extended area service case, or in normal daily activities. Revenues can rise and fall based on the number of subscribers, the type of equipment they subscribe to, the number and duration of toll calls made by subscribers and toll rates charged by telephone companies (e. g., Arcadia began charging higher rates for toll service following the completion of the last Ohio Bell rate case). Expenses can also raise and fall.

"To the extent that the loss of toll revenue impairs the involved utility's rate of return, that utility clearly has the statutory right to file for a rate adjustment pursuant to Chapter 4909 of the Ohio Revised Code. In the context of that proceeding, the burden of proof lies upon the utility to establish the merits of its request. Further, the Commission would have the benefit of a Staff Report and Investigation into the overall condition of the involved utility. Were the Commission to attempt to adjust rates in the context of an extended area service proceeding, it would at present not have the assistance of a Commission Staff Report, and would be viewing the impact of extended area service upon only a portion of the revenues of the involved utility, and probably little or none of its expenses. The burden of countering the telephone company's allegation of insufficient revenue would...