General Tel. Co. of Southeast v. Alabama Public Service Commission

• Decision Date: 21 May 1976
• Citation: 335 So.2d 151
• Parties: GENERAL TELEPHONE COMPANY OF the SOUTHEAST v. ALABAMA PUBLIC SERVICE COMMISSION et al. SC 1288.
• Court: Alabama Supreme Court

Page 151

335 So.2d 151

GENERAL TELEPHONE COMPANY OF the SOUTHEAST v. ALABAMA PUBLIC SERVICE COMMISSION et al.

SC 1288.

Supreme Court of Alabama.

May 21, 1976.

Rehearing Denied July 2, 1976.

Hill, Hill, Carter, Franco, Cole & Black, Montgomery, Ward W. Wueste, Jr., Durham, N.C., for appellant.

Carl L. Evans, Montgomery, for Alabam Public Service Commission.

Maurice F. Bishop, Birmingham, for the State of Alabama and Hon. George C. Wallace, as Governor.

Oliver W. Brantley, Troy, for 13 Ala. Municipalities.

MADDOX, Justice.

This is an appeal by General Telephone Company of the Southeast under the provisions of Title 48, Section 90, Code of Alabama 1940, Recomp.1958, from a decree of the Circuit Court of Montgomery County which affirmed an order of the Alabam Public Service Commission dated April 15, 1974.

General Telephone filed its petition with the Commission on September 13, 1973. It sought an increase in annual revenues from intrastate telephone service in Alabama of $2,147.649, which it claimed would enable it to earn 9.5% On the reasonable value of its property devoted to the public service in Alabama, and which would permit it 'to fully perform its duties to the public and to enlarge its plants, facilities and equipment to continue to provide adequate service.'

General Telephone alleged that it had provided various service improvements, including the establishment of Extended Area Service (EAS) between Andalusia and Red Level and between its Dothan exchange and Columbia, Headland, Midland City, Newton and Pinckard. Additional EAS was established between New Brockton and Enterprise and between the exchanges of Daleville, Ozark, Echo, Enterprise and Newton. The company also alleged that the changes in the type of service from toll or long distances to EAS was of benefit to its customers, but resulted in a reduction to the company in income available for return and in the rate of return for the company which was not offset by increased rates from movement of various small exchanges into larger exchange rate groups.

The company contended that as a result of service improvement programs, including elimination of multi-party service in all but eight exchanges, increases in intrastate telephone plant in-service amounted to $20,832,441 between May 31, 1971, and the period ending April 30, 1973, adjusted to the level of April 30, 1974, pursuant to the provisions of Title 48, Section 52, Code of Alabama 1940, Recomp.1958. The company also claimed that the increase in telephone plant in-service was financed in substantial part through the sale of securities, which resulted in a substantial increase in the cost of capital to it, because of the increased cost of borrowing money.

On October 11, 1973, the Commission issued its order of suspension of the proposed schedules of rates and charges to April 15, 1974, and gave notice of hearing to begin on November 12, 1973, which was subsequently changed to November 14, 1973. On November 14, petitions to intervene were filed on behalf of George C. Wallace as Governor of the State of Alabama, and on behalf of the cities and towns of Brundidge, Andalusia, River Falls, Dozier, Pinckard, Kinston, Ariton, Dothan, McKenzie, Brantley and Abbeville. On November 30, 1973, petition for intervention was filed on behalf of the City of Geneva, with a subsequent petition of intervention filed on behalf of the City of Elba on January 16, 1974. Hearings were held on November 14, 1973, and on February 19, 21, 22, March 8, 9, and 11, 1974.

On February 22, 1974, the APSC issued an Order on Remand in Docket No. 16474 ¹ reducing General Telephone's approved rates by 30 cents per month for residential telephones or $206,158 annually. The effect of the reduction, says General Telephone, was to increase the revenue sought in the present case to $2,389,578 on an annual basis.

On April 15, 1974, the APSC issued its order making findings and conclusions as to the rate base for General Telephone, its operating income, its debt equity ratio, its cost of capital, and found a rate of return on rate base of 7.20%. The Commission then denied the proposed schedule of rates and charges, giving, in part, as its reason for the denial, the statement:

'While we are fully aware that this rate of return of 7.20 per cent is less than has been permitted in the past and is considerably less than the Company requested, nevertheless, it is a net profit and permits a return to equity as of the end of the test period of 11.05 per cent. Furthermore, under this rate of return, General Telephone will earn 2.29 times its interest coverage which will protect an 'A' rating for its bonds. Utilities, being monopolies, generally speaking, are better situated in times of inflation than are many nonregulated industries, and it seems reasonable to expect the utilities to tighten their belts and use every effort to make their operations more efficient.

'Inflation is an insidious malady in the body of our society. To accept the premise that the only answer to increased cost of production is to increase prices is to accept the proposition that there is no ultimate end to the upward spiral of prices, wages, and cost of living ad infinitum.

'If inflation and the erosion of the dollar is ever to be contained, it must begin somewhere. We feel that the rate of return allowed this Company, General Telephone Company of the Southeast, will permit the Company to continue to serve the people of its area, to make a reasonable profit, and to be able to finance future expansion of its system.'

On April 18, 1974, appellant filed its Notice of Appeal and appeal bond for security of costs.

Subsequently, the company filed application for supersedeas on April 29, 1974, and obtained supersedeas of the order of the Commission on May 24, 1974. Supersedeas has been continued in effect.

Each of the intervenors in the proceedings before the Commission filed motions to intervene and were allowed to intervene by order of the circuit court and each of the intervenors and the Commission filed an answer and cross-bill to bill in the nature of a bill of complaint.

In an order dated May 24, 1974, the Circuit Court of Montgomery County entered an order remanding the case to the APSC for further proceedings, and directed the Commission to make findings as to the rate base, revenues, expenses and rate of return in a manner consistent with the computations which the circuit court had expressly approved in Case No. 38653, by order dated February 1, 1974, which order was subsequently appealed by various of the intervenors in the present case, to this Court and affirmed in State of Alabama v. Alabama Public Service Commission, 293 Ala. 553, 307 So.2d 521 (1975). On July 3, 1974, the APSC filed a petition for Writ of Mandamus in this Court seeking to have the order of remand dated May 24, 1974, reviewed and vacated, but the matter was dismissed by this Court by order dated July 15, 1974.

On July 22, 1974, the APSC issued a supplemental order and made findings in compliance with the order of the circuit court, dated May 24, 1974, with regard to appellant's rate base, expenses, revenues and rate of return. The Commission concluded:

'Applying the income available for return at April 30, 1974, of $3,874,436 to the rate base as of April 30, 1974, as hereinbefore found of $52,609,198.00 results in a rate of return on rate base at April 30, 1974, of 7.36%.'

The circuit court reviewed the order and on May 6, 1975, found that it was supported by the substantial weight of the evidence, and was due to be affirmed. General Telephone appeared and 'asks that the Court review the case upon the certified record, make its independent findings of fact and conclusions of law, and set aside the Order of the Commission as being confiscatory and remand to the Commission to establish just and reasonable rates and charges . . .'

General Telephone argues two basic issues: (1) the evidence was insufficient to sustain the finding by the APSC that a 7.36% Rate of return was reasonable and (2) the rate of return is not equal to that generally being earned by others in the same general locality in business undertakings attended by corresponding risks and uncertainties and is so low as to result in the confiscation of its property. In short, the primary issue argued by General Telephone is that the rate of return allowed by the APSC is confiscatory.

In determining what is a fair return in order to avoid confiscation, a number of controlling legal principles are used. These principles are set out in detail in Alabama Public Service Commission v. Southern Bell Tel. & Tel. Co., 253 Ala. 1, 42 So.2d 655 (1949). We consider it unnecessary to set out all of the legal principles noted by the Court in the Southern Bell case, but the plain holding of that case is that the law of this state not only requires that the utility be permitted to charge just and reasonable rates which will enable it to earn a fair net return on the reasonable value of its properties, but it take cognizance of the fact that the utility is at all times required to furnish adequate service to the public and to construct plant and facilities for enlargement and improvement of its service. It also recognizes that a utility should earn a return sufficient to inspire confidence in the financial soundness of the enterprise so that it can raise the necessary capital on reasonable terms to discharge its duty to the public.

The determination of a fair return to provide the public with adequate service is a question of fact within the legislative realm of rate-making. The rate of return in any given case calls for expert judgment not bound by any hard and fast rule or set formula. That judgment has been entrusted by the legislature to the Commission. This Court's inquiry ordinarily goes no further than to ascertain whether there is evidence to support the findings of the Commission. Alabama Gas Corp. v. George C. Wallace,...