General Telephone Co. of Southwest v. Arkansas Public Service Commission, 80-307
| Decision Date | 11 May 1981 |
| Docket Number | No. 80-307,80-307 |
| Citation | 616 S.W.2d 1,272 Ark. 440 |
| Parties | GENERAL TELEPHONE COMPANY OF the SOUTHWEST, Appellant, v. ARKANSAS PUBLIC SERVICE COMMISSION, Appellee. |
| Court | Arkansas Supreme Court |
General Telephone Company of the Southwest by Ward W. Wueste, Jr., San Angelo, Tex., and Kent Foster, Beverly Bassett, Mitchell, Williams, Gill & Selig, Little Rock, for appellant.
Arkansas Public Service Commission by Jeff Broadwater, Little Rock, for appellee.
The Public Service Commission approved a rate increase for General Telephone Company of the Southwest in an amount less than that for which General Telephone had applied. On appeal to the circuit court the order of the Commission was affirmed. General Telephone Company of the Southwest appeals from the order of the circuit court to this court on the ground that there was no substantial evidence before the Public Service Commission to support its application of "double leverage" to appellant.
GTSW sought an increase in the intrastate rates, excluding the city of Texarkana, in the amount of $1,893,525. The PSC approved an annual rate increase of $1,498,424. It is not disputed that the PSC used the "double leverage" concept in calculating its cost of common equity capital.
The "double leverage" methodology has been previously approved by this court in Arkansas Public Service Commission v. Lincoln-Desha Telephone Co., Inc., 271 Ark. 346, 609 S.W.2d 20 (1980); and Southwestern Bell Telephone Co. v. Arkansas Public Service Commission, 267 Ark. 550, 593 S.W.2d 434 (1980). The question presented to us by the appellant is whether "double leverage" should be applied in their case because of the structure of the parent company which is GTE. It is not disputed that GTE, which wholly owns GTSW, has a number of non-utility corporations in its network of operations. Apparently the public utility portion of the business is more lucrative as the testimony indicated about 86% of GTE income was from public utility companies.
The witness for the PSC selected comparable companies from a list which consisted only of gas and electric utilities. Certainly, it would seem to us that utility companies which are comparable in general to the appellant would be a proper basis for comparison.
In the cases earlier mentioned we set forth the requirements by the courts in reviewing orders of the PSC and defining the methodology of "double leverage." Therefore, this opinion will be limited to the question brought to this court for resolution, that question being whether there is substantial evidence to support the order of the PSC in this rate case.
We have many times discussed the meaning of substantial evidence. Our rule is always that we view only the evidence most favorable to the appellee in such cases. In this case we will consider only the evidence most favorable to the PSC. In doing this we think the case must turn on the testimony of witness Phillip C. Fry. Mr. Fry is a financial analyst employed by the Arkansas Public Service Commission. Mr. Fry testified as to the manner in which he made his recommendations to the PSC. This witness determined that GTSW was entitled to an over-all rate of return of 8.5089%. In arriving at this figure he utilized the weighted cost of capital approach whereby the costs of the individual capital components were weighted in relation to their proportion to the total capital structure. The sum of these weighted components cost was that which he applied to the cost of capital to GTSW. Mr. Fry took his comparables from the September 1978 listing of Standard and Poor's stock guide. The 15 firms he used to determine the rate of return from GTE are shown in Exhibit PF-1, Schedule 8. These companies used as comparables are broken down further in Exhibit PF-1, Schedule 9. It is difficult to fully...
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