Chesapeake and Potomac Telephone Co. of West Virginia v. Public Service Commission of West Virginia

• Decision Date: 04 March 1982
• Docket Number: No. 15424,15424
• Citation: 300 S.E.2d 607,171 W.Va. 494
• Parties: , 47 P.U.R.4th 106 The CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF WEST VIRGINIA v. PUBLIC SERVICE COMMISSION OF WEST VIRGINIA.
• Court: West Virginia Supreme Court

Page 607

300 S.E.2d 607

171 W.Va. 494, 47 P.U.R.4th 106

The CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF WEST VIRGINIA v. PUBLIC SERVICE COMMISSION OF WEST VIRGINIA.

No. 15424.

Supreme Court of Appeals of West Virginia.

March 4, 1982.

Rehearing Denied May 27, 1982.

Syllabus by the Court

1. "In reviewing a Public Service Commission order, we will first determine whether the Commission's order, viewed in light of the relevant facts and of the Commission's broad regulatory duties, abused or exceeded its authority. We will examine the manner in which the Commission has employed the methods of regulation which it has itself selected, and must decide whether each of the order's essential elements is supported by substantial evidence. Finally, we will determine whether the order may reasonably be expected to maintain financial integrity, attract necessary capital, and fairly compensate investors for the risks they have assumed, and yet provide appropriate protection to the relevant public interests, both existing and foreseeable. The court's responsibility is not to supplant the Commission's balance of these interests with one more nearly to its liking, but instead to assure itself that the Commission has given reasoned consideration to each of the pertinent factors." Syllabus Point 2, Monongahela Power Co. v. Public Service Commission, 166 W.Va. 423, 276 S.E.2d 179 (1981).

2. This Court will not substitute our judgment for that of the Public Service Commission on controverted evidence.

3. Findings of fact made by the Public Service Commission will be overturned as clearly wrong when there is no substantial evidence to support them.

4. Under the provisions of W.Va.Code § 24-2-4a (1980 Replacement Vol.) a public utility seeking an increase in rates and charges has the burden of showing that the proposed increase is just and reasonable.

5. The doctrine of stare decisis does not normally apply to administrative decisions.

6. Where an agency has been granted broad regulatory authority, it is not obligated to employ any single formula or combination of formulas to determine what in each case are just and reasonable rates.

7. Where the evidence discloses that a utility has purchased the bulk of its equipment from an affiliated manufacturer, and that as a result of the affiliation the manufacturer enjoys a unique position of market power which renders a comparison of its prices and profits with those of general trade manufacturers inadequate as a measure of the reasonableness of its charges, the failure of the utility to provide additional evidence of reasonableness may be relied upon by the Public Service Commission as a basis for disallowing from the utility's rate base those portions of the charges which represent a return to the affiliated manufacturer greater than that allowed the utility itself.

8. The provision of free or discount telephone service by a utility to its employees, which practice has been ongoing for a substantial period of time, and which the evidence shows is considered by both management and employee representatives as a concession in lieu of compensation, should be considered by the Public Service Commission in a rate making proceeding as part of the employment agreement.

9. Concession telephone service provided by a utility to its employees as a term and condition of employment is not discriminatory within the provisions of W.Va.Code § 24-3-2 (1980 Replacement Vol.).

David B. Frost, Charleston, Michael J. Morrissey, Robert A. Levetown and William L. Leonard, Washington, D. C., for petitioner.

Joel B. Shifman, Daniel L. Frutchey and Marc E. Lewis, PSC, Charleston, for respondent.

Smith & Rowe and Robert J. Smith, Charleston, Adair & Goldthwaite and Thomas S. Adair, Atlanta, Ga., Norman M. Gleichman, Washington, D. C., for amicus curiae Communication Workers of America.

Hanna & Elliott and Homer W. Hanna, Jr., Charleston, for Members of W.Va. Tel. Answering Committee, et al.

McGRAW, Justice:

The Chesapeake and Potomac Telephone Company of West Virginia (C&P) appeals from an order issued by the Public Service Commission of West Virginia (Commission) on July 2, 1981 that denied C&P's petition for reconsideration and affirmed a final order issued by the Commission on March 4, 1981. C&P contends the order issued by the Commission on July 2, 1981 is arbitrary, capricious, contrary to the evidence and the product of the misapplication of legal principles. It therefore requests that the Commission's order be set aside, and that the case be remanded for further proceedings as may be just and proper. We find merit in some of the arguments of the appellant and grant the requested relief in part.

This case arises from an application filed by C&P with the Public Service Commission on May 5, 1980, which set forth proposed increased rates and charges for telephone service in the amount of 46.8 million dollars, to become effective June 4, 1980. By order entered June 2, 1980 the Commission suspended the proposed rates and charges until October 2, 1980 so that hearings could be held on the issues raised by the application.

Public hearings were subsequently held and on October 2, 1980 the Commission issued an interim order which rejected part of the proposed increase, but permitted the balance to become effective under bond and subject to refund, pending determination of the remaining issues. The interim order authorized C&P to increase its rates by 38.8 million dollars, a figure representing a 10.25 percent rate of return, the rate of return the Commission found to be just and reasonable from the evidence produced at the hearings.

On December 17 and 18, 1980, hearings were held in the final phase of the case. On March 4, 1981 the Commission issued its final order establishing C&P's final rates for the future and directing C&P to make refunds, including interest, on charges collected in excess of the authorized rates. Part of the refund order was attributable to the Commission's decision to disallow, for rate making purposes, expenditures representing a profit of more than 10.25 percent on equipment which C&P had purchased over a twenty year period from its affiliate Western Electric Company (Western Electric). Another portion of the refund was attributable to the Commission's decision to disallow, for rate making purposes, the cost to C&P of providing its employees telephone service free of charge or at reduced rates.

On March 16, 1981 C&P filed a petition for reconsideration of the March 4, 1981 final order, alleging that the Commission's decision to disallow, retroactively, profits above a 10.25 percent rate of return earned by Western Electric on equipment sales to C&P was arbitrary and capricious in that the final order set forth no explanation for the departure by the Commission of its long-standing approval of the full profit earned by Western Electric on such sales, and that the Commission's decision to disallow the cost to C&P of providing its employees telephone service at a reduced rate was also an unexplained departure of its long-standing approval of the inclusion of the cost of this service for rate making purposes.

By order issued July 2, 1981 the Commission found that C&P had presented no new arguments warranting a reversal of the decision on Western Electric profits and employee telephone service, and therefore affirmed the final order of March 4, 1981. C&P appeals from that decision.

I. STANDARD OF REVIEW

In the recent case of Monongahela Power Co. v. Public Service Commission, 166 W.Va. 423, 276 S.E.2d 179 (1981), we discussed at some length the standard of review this Court will apply on appeal of an order of the Public Service Commission. In syllabus point two of that opinion we adopted the comprehensive standard of review established by the United States Supreme Court in Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968). Syllabus point two of Monongahela Power Co. v. Public Service Commission, supra, provides:

In reviewing a Public Service Commission order, we will first determine whether the Commission's order, viewed in light of the relevant facts and of the Commission's broad regulatory duties, abused or exceeded its authority. We will examine the manner in which the Commission has employed the methods of regulation which it has itself selected, and must decide whether each of the order's essential elements is supported by substantial evidence. Finally, we will determine whether the order may reasonably be expected to maintain financial integrity, attract necessary capital, and fairly compensate investors for the risks they have assumed, and yet provide appropriate protection to the relevant public interests, both existing and foreseeable. The court's responsibility is not to supplant the Commission's balance of these interests with one more nearly to its liking, but instead to assure itself that the Commission has given reasoned consideration to each of the pertinent factors.

As explained in Monongahela Power Co. v. Public Service Commission, supra, this standard of review establishes a three-pronged analysis which focuses on (1) whether the Commission exceeded its statutory jurisdiction and powers; (2) whether there is adequate evidence to support the Commission's findings; and, (3) whether the substantive result of the Commission's order is proper. 166 W.Va. at 429, 276 S.E.2d at 183.

Initially we note that C&P does not here contend that the Commission has abused or exceeded its authority in the sense that its order exceeds the broad regulatory duties entrusted to the Commission. Neither does C&P argue that as a result of the Commission's actions it cannot maintain its financial integrity, attract necessary capital, nor fairly compensate investors for the risks they have assumed. Indeed, as was the case in Virginia Electric and Power Co. v. Public Service Commission, 161 W.Va. 423, 242 S.E.2d 698 (1978), there is no...